The Quebec-California cap-and-trade program is a single linked carbon market in which an emission allowance issued by either government carries the same legal weight in the other jurisdiction. The two governments signed their linkage agreement in September 2013 and have held joint auctions since January 2014, making this the first cross-border emissions trading system between a U.S. state and a Canadian province.1California Air Resources Board. Agreement on the Harmonization and Integration of Cap-and-Trade Programs California extended its program through 2045 when Governor Newsom signed Assembly Bill 1207 in September 2025 and renamed it from “Cap-and-Trade” to “Cap-and-Invest” to reflect its broader investment mandate.2California Air Resources Board. California Public Workshop: Potential Amendments to the Cap-and-Invest Regulation Each jurisdiction still sets its own annual emissions cap and decides how many allowances to issue, but the market where those allowances trade is shared.
One Market, Two Governments
The core concept behind the link is fungibility. A California allowance satisfies a Quebec compliance obligation, and a Quebec allowance satisfies a California one. Covered businesses on both sides of the border buy, sell, and surrender from one unified pool.3Western Climate Initiative, Inc. Market Registry
A nonprofit called WCI, Inc. provides the technical backbone. It doesn’t set policy for either government; it runs the shared infrastructure that makes cross-border trading work.4WCI, Inc. Greenhouse Gas Emissions Trading: A Cost-Effective Solution to Climate Change That infrastructure centers on the Compliance Instrument Tracking System Service, or CITSS, the official registry for every allowance and offset credit in the market. CITSS follows each instrument from the moment a government issues it, through every ownership change, to the point an entity surrenders it to cover emissions.5Compliance Instrument Tracking System Service. Compliance Instrument Tracking System Service WCI, Inc. also operates the joint auction platform and coordinates financial settlement after each sale.
Who Has to Participate
Any facility or fuel distributor that emits at least 25,000 metric tons of carbon dioxide equivalent per year is a “covered entity” and must participate. The threshold is the same in California and Quebec.6California Air Resources Board. Chapter 2: Is My Company Subject to the Cap-and-Trade Regulation7Gouvernement du Québec. Q-2, r. 46.1 – Regulation Respecting a Cap-and-Trade System for Greenhouse Gas Emission Allowances The regulated sectors include large industrial operations, in-state power generators, electricity importers, and distributors of transportation fuels and natural gas. For electricity importers bringing power from unspecified sources, there’s no minimum tonnage; all imported emissions count.
Smaller emitters can join voluntarily. Quebec’s rule explicitly allows entities emitting at least 10,000 metric tons of CO2 equivalent to opt in for any covered establishment,7Gouvernement du Québec. Q-2, r. 46.1 – Regulation Respecting a Cap-and-Trade System for Greenhouse Gas Emission Allowances and California permits opt-in participation as well. A voluntary participant takes on the same compliance obligations as any other covered entity. There’s no lighter track.
Registering in CITSS
Every entity that needs to hold, trade, or surrender allowances must open an account in CITSS. The process starts with individual user registration. Each person who will manage the account submits identity documentation, completes electronic forms, and sends signed paperwork to the registrar in their jurisdiction.8California Air Resources Board. CITSS Registration and Guidance
Once approved as users, representatives can apply for the entity account itself. Every entity account requires at least two designated representatives: a Primary Account Representative and an Alternate Account Representative. These are the only two people authorized to execute transactions, transfer allowances, or surrender instruments on the company’s behalf. Both must be registered CITSS users before the entity application can proceed.
Two forms carry the entity application. The Account Application with Attestation Form must be signed by a director or officer disclosed in the company’s filings. A separate Corporate Associations and Structure Disclosure Form details parent companies, subsidiaries, and affiliated entities with any presence in the carbon market. That corporate disclosure matters because holding limits apply not just to individual entities but to groups with direct corporate associations. The registrar can deny any application where information is false, misleading, or materially incomplete.
Covered entities also submit annual greenhouse gas emissions reports verified by an accredited third-party verification body. In California, verified reports are due by August 10 each year.9California Air Resources Board. Mandatory GHG Reporting – Verification The verified emissions figure determines how many allowances the entity must ultimately surrender.
Joint Auctions and the Secondary Market
California and Quebec hold joint allowance auctions quarterly. Each auction offers two pools: a “current” auction for allowances usable immediately and an “advance” auction for allowances with a vintage year several years out. The February 2026 joint auction settled at $27.94 USD, which was $38.15 CAD on that day.10California Air Resources Board. California Cap-and-Invest Program and Quebec Cap-and-Trade System February 2026 Joint Auction #46 Summary Results Report
Before placing any bids, participants post a financial guarantee with the financial services administrator. Acceptable forms are a cash wire transfer or an irrevocable letter of credit, and the guarantee must cover the full value of the bids the entity intends to submit. After the bidding window closes, the auction administrator and an independent market monitor confirm the clearing price and quantities, and results appear in a Summary Results Report.11California Air Resources Board. Auction Information
Successful bidders see allowances move into their CITSS holding accounts once payment clears. Between auctions, entities can trade bilaterally through the secondary market, transferring instruments directly between CITSS accounts. The auction is the primary source of new allowances; the secondary market provides liquidity in between.
Price Floor, Ceiling, and Holding Limits
The joint market has a built-in price band. For 2026, the auction reserve price (the minimum at which allowances can sell) is $27.94 USD, or $26.47 CAD.12Ministère de l’Environnement, de la Lutte contre les changements climatiques, de la Faune et des Parcs. Auctions Bids below that floor go unfilled.
At the upper end, California maintains an Allowance Price Containment Reserve with two tiers and a hard ceiling. For 2026, the Tier 1 reserve price is $65.31, Tier 2 is $83.92, and the absolute price ceiling is $102.52.13California Air Resources Board. Cost Containment Information If market prices approach these levels, additional reserve allowances become available at the corresponding tier price. The ceiling is the maximum any entity should ever need to pay for an allowance.
To prevent market manipulation, each entity or affiliated corporate group faces a holding limit, the maximum number of allowances it can possess at one time. For 2026, that limit is 9,452,000 allowances for current-vintage instruments, and the limit applies separately to each future vintage year.14California Air Resources Board. Facts About Holding Limit for Linked Cap-and-Trade Programs This is why the corporate structure disclosure at registration matters: affiliated companies share one holding limit, so a parent and its subsidiaries cannot each stockpile up to the cap.
Compliance Periods and Surrender Deadlines
The program runs in three-year compliance periods. The current fifth compliance period covers 2024 through 2026. Each covered entity must surrender one compliance instrument for every metric ton of CO2 equivalent it emitted.15Cornell Law Institute. California Code of Regulations Title 17, 95856 – Timely Surrender of Compliance Instruments by a Covered Entity
Surrender happens on two timelines. After each of the first two years in a compliance period, entities must surrender instruments covering at least 30% of that year’s verified emissions by the start of November. After the third year, the full compliance period obligation comes due, and entities must surrender instruments covering whatever balance remains across all three years.16California Air Resources Board. Preparing for the Full Compliance Period Compliance Obligation for the Fourth Compliance Period
Account representatives transfer instruments from the entity’s holding account into its compliance account in CITSS to meet each deadline. That transfer is the formal act of surrender. Once instruments land in the compliance account, they are retired and cannot be traded or reused.
Offset Credits as a Partial Substitute
Covered entities can meet a limited share of their compliance obligations with offset credits generated by approved greenhouse gas reduction projects rather than standard allowances. For 2026 through 2030, offsets may cover up to 6% of an entity’s total compliance obligation, and no more than half of that 6% can come from projects that don’t provide direct environmental benefits to California’s air or water quality.17California Environmental Protection Agency. Chapter 7 – Carbon Offsets
CARB has adopted a narrow set of compliance offset protocols covering U.S. forest projects, urban forest projects, livestock methane capture, mine methane capture, destruction of ozone-depleting substances, and modified rice cultivation practices. Each project must use the most recent version of its applicable protocol.18California Air Resources Board. Compliance Offset Program Because the list of eligible project types is small, the 6% cap is a theoretical maximum; many entities can’t reach it because qualifying offset supply is limited.
What a Missed Deadline Costs
Missing a surrender deadline triggers an automatic penalty built into the regulation itself: the untimely surrender obligation. If a covered entity fails to turn in enough instruments by the deadline, the obligation is recalculated at four times the shortfall.19Cornell Law Institute. California Code of Regulations Title 17, 95857 – Untimely Surrender of Compliance Instruments by a Covered Entity For every allowance you were short, you now owe four. At recent auction prices near $28 per allowance, that effectively quadruples the cost of each metric ton you failed to cover on time.
Beyond the automatic multiplier, California’s Health and Safety Code section 38580 authorizes additional financial penalties for any violation of the program’s regulations.20Cornell Law Institute. California Code of Regulations Title 17, 96013 – Penalties Quebec enforces its own penalties under the Environment Quality Act. Fraudulent reporting, market manipulation, or false information during registration can escalate beyond civil fines into criminal liability for responsible individuals.
Washington State May Join Next
Washington State is working to link its own Cap-and-Invest program to the California-Quebec market. In March 2026, the three jurisdictions released a draft linkage agreement for public review, with a comment period open through May 1, 2026.21Washington State Department of Ecology. Washington, California and Quebec Take the Next Step Towards Linking Carbon Markets by Releasing Draft Agreement If regulatory adjustments and approvals in all three jurisdictions move forward, a three-way linked market could begin operating in 2027.22Washington State Department of Ecology. Linkage
Linkage would make Washington-issued allowances fungible with California and Quebec instruments, and Washington businesses could use allowances from either partner jurisdiction for compliance. Washington’s offset rules add a wrinkle: during its first compliance period (2023–2026), at least 50% of offset credits used by Washington entities must come from projects providing direct environmental benefits within the state, and that share rises to 75% in later compliance periods. California’s extension through 2045 under AB 1207 locks in the market’s existence for the long term, and adding Washington would increase total covered emissions and trading volume. For any business inside the current or prospective footprint, the market is getting larger.