The latest news about Washington’s carbon-pricing program generates conflicting reactions. Together, those reactions demonstrate the need for lawmakers to tweak the program that took effect this year.
On one hand, it is encouraging that carbon pricing is generating more revenue than intended, exceeding expectations for money for mitigating climate change.
On the other hand, analysts say that a spike in gasoline prices in Washington is partly attributable to the new program. While we can debate the extent of that impact, it is clear that Washington consumers are contributing much of the revenue that has been raised.
Washington this year implemented a program colloquially known as “cap-and-trade” as part of the 2021 Climate Commitment Act passed by the Legislature. The short explanation: Limits are placed on a company’s carbon emissions; high-emitting businesses may purchase credits for additional emissions in quarterly auctions.
Over time, limits will be ratcheted down, providing incentives for a reduction of emissions. Carbon emissions are a leading driver of climate change, which has our state facing more dangerous wildfires, changes to agriculture production, threats to our oceans and fisheries and myriad quality-of-life challenges. The motivation for reducing those emissions is clear, but the impact of the carbon-pricing program has been somewhat unexpected.
Following a special auction of carbon allowances this month, Washington has sold 18.4 million carbon allowances and brought in more than $900 million. Each allowance represents one metric ton of emissions from the state’s biggest greenhouse-gas polluters.
Officials estimated that the state would generate $480 million in 2023 from carbon-allowance auctions. It is only August, and that number has been nearly doubled, providing funds earmarked for climate solutions and investment in communities that have faced “disproportionate negative impacts of climate change,” as explained in the legislation.
Yet, that legislation is imperfect. The price of permits in Washington have greatly exceeded the price in California and Quebec — jurisdictions with similar programs. As reported by The Seattle Times, an economics professor at the University of California at Davis has written: “Volatile emissions prices can increase costs, undermine public support for emissions reductions and dampen innovation. This is why cost-containment measures are so important.”
Increased costs are evident in Washington, where gasoline prices have been among the nation’s highest throughout the summer. There are various reasons for that, but critics point to carbon-emitting industries passing higher costs to consumers. Raising prices at the pump is one of the most effective ways to undermine public support for emissions reductions.
The Legislature should revisit the issue next year. Some lawmakers will consider greater-than-expected revenue to be a sign of success, but that should not be the measure of the program. If revenue is doubling expectations, then the program is not working as intended; it was intended nudge polluters to decrease emissions.
Lawmakers also must recognize that consumers are paying a big chunk of that revenue. Ensuring support for carbon pricing requires a gradual tightening of emission limits — or a return of excess revenue to the public.
Washington’s cap-and-trade program is a reasonable and necessary approach to dealing with climate change. But it still could use some adjustments.