This session, states introduced legislation to participate in Market Credit Systems, unlocking new revenue streams for state-run environmental projects and signaling a move away from grant- and subsidy-based funding.
Traditional Environmental Funding vs. Market Credit System
Traditionally, ecosystem services have relied on public funding, grants, and subsidies to fund projects and developments. This session, both Washington and Virgina have moved away from traditional approaches by implementing market credit systems to fund ecosystem services projects.
A market credit system creates a tradable instrument related to a measurable environmental impact. Entities can trade credits on compliance or voluntary markets:
- Compliance Markets are methods to purchase required credits. Emitting entities must hold a certain number of credits, which can be purchased on a Compliance Market.
- Voluntary Markets sell optional credits. Entities may elect to purchase voluntary credits for several reasons, including meeting corporate sustainability goals.
Market credit systems generate revenue by assigning financial value to ecosystem services.
- Verified projects receive credits. Verification bodies award credits to projects that demonstrate measurable environmental benefits.
- Credits are awarded based on measurable environmental impacts. Programs award one credit per verified unit of environmental impact.
- Credits have monetary value. Each credit carries a financial value and can be sold.
Emerging Legislation
Virginia has introduced market credit funding in HB 397. This bill would require the state to re-enter the Regional Greenhouse Gas Initiative (RGGI), which is a cap-and-trade carbon market. This bill would authorize the state to manage and auction carbon allowances under the RGGI framework. The bill would designate certain funds that the revenue from the auction would go to including energy efficiency and assistance funds. This scheme would enable revenue from market credit sales to fund climate and energy resiliency. According to a member of Democratic Gov. Abigail Spanberger’s policy transition committee, Trip Polland, this bill would aid in a larger goal of Virgina returning as a leader in environmental policy.
Washington SB 5999 is a unique, newly introduced bill that would allow the Washington Department of Natural Resources to develop and sell ecosystem credits as a new state asset. This would create a path for the state to generate revenue from environmental projects on state lands. The program would provide credit for each metric ton of CO2 removed through carbon offset projects. According to the Yakima Herald-Republic, this bill would aid the Land Commissioners’ goal of conserving Washington’s structurally complex forests.
Both bills attach financial value to environmental improvement and restoration. Virgina would require high level carbon emitters to contribute more capital to certain environmental funds in the state through the purchase of credits, and Washington would turn environmental projects into new revenue for the state. FOCUS will continue to monitor developments on market credit systems in state legislatures across the country.
by Juliana Walsh 1/26/26
