State hauls in over $550M from second cap-and-trade auction

Washington’s second quarterly auction for pollution allowances will likely bring in more than $557 million, a higher-than-expected jump in revenue that the state can put toward programs to reduce greenhouse gas emissions and fight climate change.

That cash infusion is on top of the nearly $300 million the state made from its first auction in February, and whatever the state will make in its final auctions later this year.

At last week’s Climate Commitment Act auction, held May 31, more than 11 million available allowances were sold, according to a summary report the Department of Ecology released on Wednesday. More than 8.5 million of those allowances were sold at $56.01 each, more than 2.5 times greater than the $22.20 starting price.

The rest of the allowances were sold for $31.12 each. Those allowances cannot be used to cover a company’s emissions before 2026, but the state will still get the money at the same time as the allowances sold for this year, Department of Ecology officials said.

The 2021 Climate Commitment Act created a cap-and-trade program where the state caps how much carbon pollution companies can emit. If polluters, businesses like refineries and mills, can’t clean up their operations to meet the cap, they can purchase allowances from the state to make up for their emissions.

The Department of Ecology will release a full auction report later this month, which will include the final amount of revenue that the state will get from the sale, but estimates are already higher than what many were expecting.

Sen. Joe Nguyen, D-White Center, said the Legislature was conservative in its estimates of how much revenue they’d have to spend from the auctions. This year, lawmakers allocated nearly $2 billion of funding from the new program over the next two years. 

“It’s a pretty significant amount more than we expected,” Nguyen said, though he acknowledged the market is still volatile and future auctions could be lower.

The price per allowance this time around is higher than the first auction in February where allowances were sold for $48.50 each. It’s also almost double recent auction prices in California, where allowances sold for $30.33 in May.

Critics of the program say that companies are passing the costs onto residents.

Todd Myers, environmental director at the conservative think tank the Washington Policy Center, estimates the high allowance price would add about 45 cents to the price of a gallon of gas compared to before the program began. 

Myers said it wasn’t totally surprising that the allowance price jumped in the second auction because the market is so new and prices will likely fluctuate in the first year or so. Even if the market stabilizes, Myers said cap-and-trade programs are known to be prone to up and down swings.

Gas prices have steadily risen since January, when the Climate Commitment Act went into effect, but a number of factors often contribute to the price of a gallon of gas, making it difficult to point solely at the new program as the culprit. 

Supporters of the cap-and-trade program criticize fuel suppliers for excessively jacking up prices and blaming the state’s new policy. 

“The oil industry chooses what they want to charge,” Kelly Hall, Washington state director at the nonprofit Climate Solutions, said. 

But the Association of Washington Business, which bills itself as the state’s oldest and largest business group, is pushing lawmakers to consider amending the cap-and-trade initiative. The group’s president, Kris Johnson, said the program is off to a “troubling start” as prices for allowances come in higher than expected. He added that businesses need a gradual ramp-up in costs, not a “sudden spike.”

“After two auctions, we believe it’s time for a serious discussion with policymakers about ways to make this program work better and have more predictable costs attached to it,” Johnson said.

Hall, on the other hand, praised the auction’s result, which she said shows that the market is strong and that the emissions cap is working. 

“This policy is a really transformational opportunity for our communities,” Hall said.

The money generated by the auctions will pay for programs meant to limit climate change and its negative effects. Almost $2 billion of the revenue set aside by the Legislature this year will go toward electrifying ferries and ports, helping lower costs for heat pumps, investing in transit, helping tribal communities dealing with disproportionate fallout from climate change, and more.

Funding for the new programs will begin to flow in the next few months, but Hall said the state is on the brink of “really transitioning to clean energy.”