In a three-hour online auction, Washington on Tuesday quietly began a new regulatory era, putting a price on some of the greenhouse gases released from the burning of fossil fuels in this state.
This was the first of what will be quarterly auctions, and it put up for bid allowances to cover 6.2 million metric tons of carbon emissions. of carbon emissions.In the years ahead, these allowances will be required to account for the greenhouse-gas pollution of the state’s major emitters, including fuel combusted in most cars and trucks.
On March 7, the state will announce a “settlement price” that represents how much bidders will pay for each allowance, and how many allowances were sold.
These auctions are a key mechanism of the state’s 2021 Climate Commitment Act, which sets up a system for gradually lowering a cap on emissions and investing the proceeds from carbon auctions.
The auctions mark an important milestone, said Laura Watson, director of the state Department of Ecology, in a statement. “I am proud of our staff’s work to bring the historic greenhouse-gas reduction program to life.”
The auction results will be scrutinized by legislators in Olympia as they consider how to spend an estimated $1.7 billion forecast to be collected from the auctions over the next two years.
In a state that already has some of the highest gas and diesel taxes in the nation, the impacts on fuel is emerging as a high-profile issue.
Ecology Department officials have repeatedly declared the money spent for allowances at auctions do not represent a new tax, and say that oil companies make pricing decisions based on a range of factors.
“It just goes to their bottom line. Whether or how they eventually use it for compliance costs is not something that we can know or track. So, there’s been a lot of confusion with businesses and individuals and we have been working to rectify that,” said Claire Boyte-White, an Ecology Department spokesperson, in an interview in early February.
Yet even before the first auction, oil companies — since early January — have been estimating compliance costs and pricing their products accordingly, say companies that distribute fuel to gas stations. It is unclear how those costs have affected Washington retail gas prices.
Average regular unleaded prices did not bump up on Jan 1. From Jan. 20 through Monday, they climbed by nearly 20 cents a gallon for regular unleaded even as average national gas prices during that same time period edged down by 4 cents, according to surveys published by AAA.
Companies that distribute fuel to fishing fleets say that since Jan. 1 they have been hit by 40 cents per gallon or more increases in the price of diesel. They say they have passed these on to customers pulling up to their docks even though most of those vessels are leaving state waters to harvest off Alaska and — under state law — are supposed to be exempt from the carbon-pricing program.
Mason Williams, president of Ballard-based Covich-Williams, says he added a 43-cent-per-gallon increase to the price of some 400,000 gallons of diesel he sold in January, and to lesser amounts of fuel sold in February. Eventually, he hopes to get refunds to funnel back to the fishing fleet but does not know how that will happen. He also wants to develop a kind of dual-accounting system with suppliers, so he could obtain diesel without add-ons for exempt customers.
Williams is frustrated the new system is not set up.
“The real problem is the attitude of the Department of Ecology on this whole thing,” Williams said.
Warren Aakervik Jr., of Ballard Oil, said the company also had to pass on a roughly 40-cent-per-gallon increase on diesel sold in early January before his business shut down on Jan. 30.
In a Feb. 13 statement to The Seattle Times, the Ecology Department said it was aware of a “concerning trend with fuel suppliers applying surcharges to fuels that are exempt under the Climate Commitment Act,” including marine fishing vessels. The department, the statement said, has met repeatedly with fuel suppliers and other stakeholders to help clarify how covered businesses can meet their legal obligations to properly document and report exempt fuels.
The results of the February auction should help determine whether estimates by fuel distributors were high, low or close to the settling price carbon allowances.
BP, the state’s largest fuel refiner, in a statement Tuesday declined to comment on the auction, citing state law that prohibits releasing or disclosing bidding information by a registered program participant to minimize the potential for market manipulation.
The statement said BP continues to support the Climate Commitment Act, and noted a $269 million investment announced in 2021 to more than double the Cherry Point refinery’s production capability of renewable diesel.
Other participants in the auctions will include Puget Sound Energy, which supported passage of the Climate Commitment Act and receives some free allowances to cover emissions from power plants. But PSE energy officials say they are not enough to cover all emissions, and the utility will have to purchase additional allowances to comply with the program.
“PSE is concerned about the impacts of the program on our customers and will work to mitigate those impacts to the extent that we are able,” the utility said in a written statement.
Puget Sound Energy is required under separate legislation passed in 2019 to purge carbon emissions from its electricity production. That effort will include shutting down natural gas plants and shifting to more electricity from solar and wind farms.
On Tuesday, that effort took a step forward as the state’s largest commercial solar farm, Avangrid’s 150-megawatt Lund Hill Project in Klickitat County, reached commercial operations to deliver electricity to PSE.
The power will supply PSE’s Green Direct program, which allows commercial and governmental participants to purchase 100% of their energy from dedicated, local renewable energy resources, according to a PSE statement.
“We’re excited to see … Lund Hill project go into full operation as we start to receive clean energy,” said Mary Kipp, PSE president and CEO.