Cap-and-Invest

In January 2023, Washington State became the second state-wide emissions trading scheme in the United States after California. Almost two years later, as voters in America went to the polls to decide between Trump and Biden, the people of Washington State were also asked for their views on the state's carbon pricing scheme. They ultimately voted 62/38 in favour of keeping it.

The vote marked a remarkable change in opinion compared with earlier polls (held in 2016 and then subsequently in 2017) in which carbon pricing was rejected by around 60% of the electorate. What changed, and is there anything that other governments can learn from this shift in sentiment? In What's in a [carbon market] name? I discuss why the name of the scheme, the Washington State ‘Cap-and-Invest’ program, signalled a fundamental pivot in how carbon pricing was perceived and the role it played in catalysing the decarbonisation of the local economy.

"Rather than adopt the term used to describe California’s program - ‘Cap-and-Trade’ - policymakers in Washington State chose to name it ‘Cap-and-Invest’. Instead of emphasising the ‘trade’ in allowances by regulated entities and investors (speculation always gets a bad rap), ‘invest’ pivots the narrative towards actual projects that enable households and businesses to cut emissions.

The term ‘Cap-and-Invest’ was apparently coined by former Washington State Senator. Reuven Carlyle. It’s got the attention of other programs, including the pioneers. “Cap and invest is a much better idea,” acknowledged Mary Nichols, chair of the California Air Resources Board in 2012 when the state launched its ‘Cap-and-Trade’ program, “It’s a better name, and it’s a more accurate name.”

There is still a cap on emissions of course, and so the onus is still on the market to determine the carbon price necessary to achieve the emission reduction target. Washington Carbon Allowances (WCA’s) and their derivatives (i.e., futures and options) are actively traded, as in any other carbon market, to manage carbon risk exposure and to speculate on the price. Just because the emphasis has changed to ‘invest’ doesn’t mean the principles of the market are any different. It’s just that the focus is more squarely on the ends, rather than the means."

It wasn't long before California followed Washington State. In early September 2025, the governor of California, Gavin Newsom announced that an agreement had been reached extending the state's carbon market by 15 years to 2045. More fundamentally though Cap-and-Trade is no more. It's the Californian Cap-and-Invest Program from now on (see California strikes back: Decision to reauthorise Cap-and-Invest Program an inflexion point for carbon markets in North America).

Europe is likely to be the next emissions trading scheme to adopt 'Cap-and-Invest' – if not in name, then most certainly in spirit.