SEATTLE — Washington’s second auction of greenhouse-gas pollution allowances last week raised more than half a billion dollars.
The Department of Ecology announced Wednesday it had sold about 8.6 million 2023 allowances and 2.5 million 2026 allowances, each representing one metric ton of greenhouse-gas emissions.
Washington’s first quarterly auction of pollution allowances raised nearly $300 million earlier this year.
The price for this month’s auction allowances came in more than $7 per ton higher than the state’s first auction, and more than $25 per ton higher than the most recent auction held for polluting businesses in California and Quebec.
The price for 2023 allowances was $56.01 per ton, more than double the starting price of $22.20, while the price for the 2026 allowances was $31.12, totaling $557 million.
This 2023 allowance price exceeded a “trigger price” of $51.90, so another auction of reserve allowances will be held on Aug. 9. The point of this auction is to ensure that businesses have access to enough allowances at prices that are reasonable, according to Ecology.
The revenue raised from last week’s auction will be finalized in an Ecology report later this month.
The state’s carbon-pricing program is the centerpiece of the state’s 2021 Climate Commitment Act. It sets a statewide cap on the amount of carbon pollution that can be emitted by certain industries and requires those businesses to buy allowances to cover their emissions. The goal is to be carbon-free by 2050.
Over time, the number of available allowances will decrease. Lawmakers this session budgeted about $2 billion in anticipated revenue from the auctions for projects intended to reduce emissions over the next two years.
Nearly 90 percent of those who participated in the auction were businesses required to pay for their emissions, according to Clean and Prosperous Washington, a climate policy group. Businesses eligible to participate included Puget Sound Energy and other energy providers, oil companies like Shell, and Washington State University. The remainder were investors.
Before the state’s first auction, some fuel suppliers were raising the price of fuel in anticipation of their compliance costs with the new program.
Businesses covered by the program — those emitting more than 25,000 metric tons of carbon dioxide per year — do not need to turn in any allowances until November 2024. Then, one third of 2023 emissions are due. The rest of allowances for the first compliance period are not due until November 2027.
California’s program was criticized for lacking teeth after its first auction in 2012 sold allowances for just a few cents above the floor price of $10. Washington’s prices near or exceeding the trigger price drew ire from the oil industry, which after the first auction argued the price was “unnecessarily expensive” and would harm consumers and the economy.
To former state Sen. Reuven Carlyle, the architect of the climate legislation, the premium cost to pollute is a sign that the pressure is on.
“A guiding principle that’s a real important lesson learned that our friends in Quebec and California shared with us, is incentivize that early action,” Carlyle said. “And that’s exactly what I think the market is embracing here.”
Meanwhile, some oil companies are passing their new compliance expenses down the line to distributors and customers.
Washington’s average price at the pump for gasoline is lower than a year ago, but the difference between Washington’s average price and the national average has grown about 64 cents a gallon, according to AAA data.
“We recognize that in effect, the wholesale price is impacted and the oil companies are going to make choices at the retail level of what they do,” Carlyle said.
Some of that cost is likely also influenced by global commodity oil prices and international policies.
Oil companies reported record profits in 2022, totaling an estimated $200 billion. In March, California Gov. Gavin Newsom signed a law that would penalize companies engaged in price gouging. It goes into effect later this month.
On the day of Washington’s latest auction, leaders from about a dozen federally recognized tribes in the state of Washington met with Gov. Jay Inslee about the impact of compliance costs on fuel prices.
Some leaders shared concerns about the financial burden on tribal nations, many of which have invested millions across the state in projects to combat climate change.
State Sen. Joe Nguyen D-White Center, chair of the Environment, Energy and Technology Committee, said he and other lawmakers are exploring ways to reduce the impact on overburdened communities, like proposing policy similar to California’s that would compel oil companies to increase transparency around their costs, and using revenues from the auctions to mitigate the costs to people with lower incomes.
The Climate Commitment Act aims to reduce the state’s production of carbon dioxide, methane and related gases to 45 percent below 1990 levels in the next seven years, 70 percent below 1990 levels by 2040 and decarbonize by 2050.
Washington state’s greenhouse-gas emissions in 2019 reached their highest level since 2007: 102 million metric tons. It was a 7 percent increase from 2018, and 9 percent higher than 1990 levels.
Some polluters, like natural gas utilities and oil refineries, initially get a generous portion of their allowances free, but are required to buy more if they plan to release greenhouse gases above the allotted levels.
The next quarterly auction is set for Aug. 30.
