Prices for air pollution allowances under Washington’s cap-and-trade law climbed again at the state’s first auction of the year.
The Department of Ecology said allowances the state offered on March 5 sold for $50 each. That’s about 24% higher than the $40.26 sale price at the previous auction in December. The latest sales will net another $230 million for the state.
It’s the second auction in a row where prices were up, following a slump before voters rejected a ballot measure last year that would have repealed the law. Prices last September fell below $30 after rising above $50 and even $60 in some cases the prior year.
“The main takeaway is that the program continues to really be effective and work,” said Altinay Karasapan, Washington regulatory policy manager with the group Climate Solutions.
Climate Solutions said in a statement following Ecology’s release of the auction results on Wednesday that prices are settling back into their expected range, adding that “this means more stability, both for pollution permit purchasers, and, most importantly, for revenue outcomes.”
Todd Myers, vice president for research at the Washington Policy Center, a group that’s been critical of the law, said it’s not surprising that auction prices are rising given how the Climate Commitment Act is designed. “That’s the purpose of it,” he said.
“It’s a punishment for using CO2-emitting fuel,” Myers added. “The only question is, how rapidly it goes up? And, you know, a 24% jump is kind of a lot.”
A Department of Ecology forecast from December predicted allowance prices at this month’s auction would be $42.11.
Since the auctions under the climate law began in 2023, they’ve generated about $2.8 billion in state revenue. Businesses and others in Washington that produce large amounts of carbon emissions must meet a cap set by the state on that pollution or purchase the allowances.
Some of the organizations that applied to bid at the last auction included oil and gas companies like Chevron and BP, utilities like Puget Sound Energy and Avista and financial services firms like Macquarie and Morgan Stanley.
In total, 50 bidders registered for the March auction, though it’s not clear how many bought allowances.
Critics of the Climate Commitment Act argue it is hurting affordability by driving up prices for fuel and utilities. Washington Policy Center and the Western States Petroleum Association say that the program is adding about 40 cents to the cost of a gallon of gasoline and 50 cents for diesel.
To supporters, the law is a cornerstone in the state’s effort to cut emissions and ward off the worst effects of climate change and harmful air pollution.
Backers also say that, in the long run, it could help with affordability by investing in programs that provide greater access to technology like heat pumps and electric vehicles, that could reduce people’s energy and transportation costs.
Rebounding auction prices will be welcome news for Democrats in the Legislature who are grappling with a shortfall in the state’s operating budget estimated to be between $12 billion and $15 billion over four years, along with a $1 billion gap in the next two-year transportation budget.
There’s likely to be more debate in the weeks ahead on how to use Climate Commitment Act revenue. Money from the law is supposed to go to programs to combat climate change and improve the environment.
Republicans this week proposed dedicating a share to fund the Working Families Tax Credit — a tax refund for lower-income state residents. That use would be allowed under the law, but the lead budget writer for Senate Democrats has rejected the idea.
Climate Solutions is pushing for auction revenue to go to a number of programs in the next budget, including rebate programs for the installation of heat pumps in homes and small businesses and to help lower- and middle-income residents afford electric vehicles.
The group is also teaming with the Washington Trucking Associations in calling for $200 million for vouchers to help with the transition to zero-emission medium- and heavy-duty trucks.
Meanwhile, House Majority Leader Joe Fitzgibbon D-West Seattle, and Rep. Mary Dye, R-Pomeroy, the lead Republican on the House Environment and Energy Committee, are backing legislation intended to help prevent spikes in allowance costs.
House Bill 1975 would set a ceiling price of $80 for allowances during 2026 and 2027, pulling it down from its current level near $95. This price acts as a cap on how high allowance costs can go.
The bill, which passed the House with bipartisan support earlier this week, would also make more allowances available sooner, rather than in future years. Increasing supply in this way could also potentially help keep costs lower in the near term.
Washington is seeking to combine its carbon market with one that covers California and the Canadian province of Quebec. Proponents say this could help keep prices more stable and less prone to swings, but this “linkage” process is expected to take at least until 2026 or 2027.
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