80% More Supply: Washington's Q4 Auction Puts a Record Volume of Allowances on the Block

Washington state’s cap-and-invest programme will offer roughly 80% more allowances at its fourth-quarter auction than it did in Q3, the highest number of allowances ever put on sale at a single quarterly auction, Carbon Pulse reported, citing a Friday auction notice. For covered entities, traders and investors watching US compliance carbon, the notice lands at a sensitive moment: the previous auction cleared at a two-year low, and the state has just rewritten its supply and bidding rules ahead of a planned linkage with California and Quebec.

A Supply Jump After a Weak Third Quarter

The size of the Q4 offering stands in sharp contrast to where the market has just been. Allowance prices under Washington’s cap-and-invest scheme slid 19% in the week after the third-quarter auction cleared at a two-year low, Quantum Commodity Intelligence reported. Secondary market prices had also fallen 3% in the week after the state passed its linkage-enabling rulemaking earlier in September.

Source: CarbonMeld — independent carbon credit market intelligence. Document-based quality scores and assessments across all major registries: carbonmeld.com

An 80% quarter-on-quarter increase in auction supply, on top of a market that has been repricing downward, raises the obvious question of where the Q4 sale will clear. The auction notice itself does not signal demand, only volume, so the clearing price will be the first real test of how much of the new supply covered entities and financial participants are willing to absorb at current levels.

The Rule Changes Behind the Extra Allowances

The larger offering is not an accident of scheduling. The Washington Department of Ecology signed the final version of its updated cap-and-invest rules on September 17, and those rules take effect on October 24, just in time to shape the Q4 sale, ClearBlue Markets reported.

The 2026 rule locks in changes lawmakers ordered last year through House Bill 1975, after the programme’s first two years produced higher and more volatile prices than regulators wanted. Three changes matter most for auction dynamics. First, the rule retroactively enlarges the 2023 to 2026 emissions budgets by about 6 million metric tons, or 2.68%, easing near-term scarcity. Second, it holds the price ceiling flat at $80 per allowance for both 2026 and 2027. Third, it raises how much of each auction a single covered business can buy, from 10% to 25%, while introducing a separate 4% cap for financial and other general market participants.

That last change directly widens the pool of demand that can show up at any single auction. A covered entity can now take a quarter of the Q4 offering on its own, which concentrates buying power at exactly the moment supply jumps to a record level.

Linkage Looms Over Every Auction From Here

The Q4 sale will also be read as a bridge to a much bigger market. On September 23, at New York Climate Week, California Governor Gavin Newsom announced that California is moving ahead with what his office called the next-to-last step in linking its carbon market with Washington’s, ClearBlue Markets reported. Washington, California and Quebec signed a preliminary linkage agreement on June 25, 2026, and officials continue to target full joint operation sometime in 2027.

Washington’s updated rule formally defines a linkage effective date, the day the state will start accepting California and Quebec allowances for compliance, and Ecology must announce that date at least 90 days in advance. Once linkage takes effect, the jurisdictions will hold joint auctions with mixed bid lots, producing a common allowance price across the linked system.

The political framing is already set. “By joining forces with our partner in Washington State, we will build a stronger, more durable carbon market that will drive investment, cut pollution, and power the clean economy,” Newsom said. Washington Governor Bob Ferguson added that linkage “will unlock greater emissions reductions, lower the cost of clean technologies, and create good-paying jobs in high-growth industries.” In California, the changes are estimated to provide $10 billion in direct relief to electricity customers through bill credits and generate an estimated $8 billion for the state’s Greenhouse Gas Reduction Fund through 2030, the Los Angeles Times reported.

What Buyers and Investors Should Watch

Three markers stand out. First, the Q4 clearing price: a record offering into a market that cleared Q3 at a two-year low will show whether the enlarged budgets and flat $80 ceiling have durably reset Washington’s price level, or whether pent-up compliance demand still exists underneath.

Second, the October 24 effective date of the new rules. With purchase limits rising to 25% per covered business, bidding behaviour at the Q4 sale will reveal how aggressively large emitters intend to pre-position before linkage compresses the difference between Washington and California prices.

Third, the linkage calendar. Ecology’s obligation to give at least 90 days notice of the effective date means every auction between now and full joint operation in 2027 is a finite window of standalone Washington pricing. For companies with exposure to the roughly 100 covered polluters in the programme, the Q4 record supply is the first concrete signal of how the state intends to manage that transition: more allowances, a harder ceiling, and a market built to merge.