By Brett Davis
(The Center Square) – Results from Washington state’s first carbon auction of the year show a massive decrease in the final settlement price for allowances, which was just above the minimum bid and half of the average price last year.
That could be an indication that Initiative 2117, to repeal the Climate Commitment Act and prohibit state agencies from implementing any type of carbon tax in place of the repealed CCA, is having an effect on the state’s carbon market.
The March 6 quarterly carbon auction by the Washington State Department of Ecology brought in nearly $192 million on the sale of 7.4 million price allowances at a final settlement price of $25.76 each. That was just above the auction floor price of $24.02.
The settlement price for the first quarter of 2023 for one metric ton of carbon was $48.50, $56.01 for the second quarter, $63.03 for the third quarter, and $51.89 for the fourth quarter.
Those prices were blamed by many for adding anywhere from 20 cents to 50 cents to the cost of a gallon of gas in Washington.
All four quarterly auctions and two special auctions last year brought in slightly more than $2 billion.
“The low prices in the recent auction are a result of companies and entities that have to buy CO2 allowances believing that I-2117 – which would repeal the CO2 tax – will pass in November,” said Todd Myers, director of the Center for the Environment at the market-oriented Washington Policy Center in Seattle. “Companies have two risks they have to weigh. On the one hand, they need to buy allowances in case the CO2 tax isn’t repealed. On the other hand, if it is repealed, all the money spent buying allowances is wasted because the requirements go away.”
The lower final settlement price is a reflection of how bidders responded, according to Myers.
“The way they appear to have managed those risks is by bidding very low – almost at the minimum price,” he explained. “If the Climate Commitment Act stays, they have the allowances they need to meet the law. If not, the amount they lose is minimized.”
The CCA was passed by the state Legislature and signed into law by Gov. Jay Inslee in 2021. It established a cap-and-trade program requiring emitters to obtain “emissions allowances” equal to their covered greenhouse gas emissions. Similar to stocks and bonds, these allowances can be obtained through quarterly auctions, which started last year, hosted by the Department of Ecology.
Money raised from the auctions goes to the Legislature to spend on climate change mitigation efforts and clean energy programs.
Myers indicated the latest carbon auction results won’t translate into lower gas prices for Washington drivers.
“Washington residents will still see a price increase at the pump,” he said. “The CO2 tax amounts to about 20 cents per gallon of gas and 25 cents per gallon of diesel. Based on the experience from 2023, most of that will be passed on to consumers. That amount is less than we saw last year but still significant.”
The Center Square reached out to the Department of Ecology for a response to Myers’ contention that the latest auction results mean bidders think voters will pass I-2117 this November.
“We do not have insight into participants’ bidding strategies, and we do not speculate,” Ecology Communications Manager Caroline Halter said in an email. “However, in any market, prices respond to uncertainty.”
There were some positive indicators, she said.
“Though the settlement price decreased significantly, demand for allowances remained strong,” Halter noted. “As in past auctions, all available allowances were sold, indicating that participants are planning for future compliance obligations. There were more bids than available allowances, and more than 90% of allowances were sold to covered businesses in Washington, as opposed to investors. Major sources of emissions in our state remain engaged with the program and aware of their compliance obligations.”
Brett Davis is the Pacific Northwest Regional Editor for The Center Square. Prior to assuming his current position, he was The Center Square’s Washington state government reporter. His journalism background also includes working for various community newspapers, as well as public policy organizations the Freedom Foundation and Washington Farm Bureau. He has also done work for World Vision and Russell Investments.
Originally published by The Center Square. Republished with permission.
To read more about Washington cap and trade policies, click here.
To read more about the costs of carbon cap and trade, click here.