Editorial: You’re now paying for the carbon from car’s tailpipe

By The Herald Editorial Board

Washington state is early into its major environmental initiative — the Climate Commitment Act’s cap-and-invest program — that puts a cap on carbon emissions, sets a price on carbon dioxide by selling allowances to state’s major polluters and using those proceeds in coming years to pay for billions in spending to invest in clean energy, reducing pollution and making significant headway toward combating climate change.

Washington has held the first two of four main auctions set for this year and has raised an estimated $857 million, on its way to bringing in revenues sufficient to cover the $2.1 billion in projects over the next two years that the state Legislature earmarked earlier this year in anticipation of those auctions.

In terms of the price per unit — 1 metric ton of carbon emissions — the auction has resulted in prices well above the $30 per ton that the state had earlier projected. The first auction in February brought in $48.50 per unit, selling 6.2 million allowances. May’s auction returned even more at a price of $56.10 per ton, selling 8.5 million allowances to refineries, other industries, utilities and even investors.

Those prices are buoying expectations for the investments that can be made, but at the same time are raising concerns for the potential costs that will be passed down to consumers, those purchasing the gasoline and other products from the companies buying the allowances.

“We continue to see prices coming in far higher than projected by Ecology, which not only means higher costs for Washingtonians but is also a sign of significant problems with the program,” Kris Johnson, president of the Association of Washington Business said in a news release earlier this month. The prices that resulted from the two auctions have the AWB and others calling for changes to the program that would moderate the carbon price and the costs passed on to consumers.

And while many factors go into the price of a gallon of gas, it’s hard to ignore the price of gas that drivers in the state are now paying. AAA reports the average price of a gallon of gas in Washington state at $4.87, second only to California’s $4.88 as highest in the nation, and more than a dollar a gallon above the national average of $3.58.

So, six months into the CCA’s auctions, let’s consider the program, its costs, its benefits and its outcomes.

What am I bid? The auctions have performed as expected, said Claire Boyte-White, policy director for the Department of Ecology, with all allowances sold and even some future units offered for bid, but the agency has been careful not to place expectations on carbon prices and the revenue to be raised. And, just two auctions in, it’s early to be drawing conclusions, she said.

“Two data points in a line are not a trend, so we just have to let the market do what the market is gonna do,” she said in an interview earlier this week.

It’s important to note that the agency is not setting the prices for the auctions; that’s determined by the market itself, by supply and demand and those who are buying the allowances.

The auctions, Boyte-White said, are not what many of us might imagine. No one is holding up a paddle to bid on a masterpiece, she said. Those purchasing allowances — those industries emitting more than 25,000 metric tons of greenhouse gases annually — submit sealed bids at the price they are willing to pay and for the number of allowances they want to purchase. But rather than using those bids to determine an average or median price, the lowest qualifying bid determines what everyone will pay for each allowance.

Yet, California, which is participating in a similar market with Quebec, Canada, is seeing prices of about $30 per ton of greenhouse gases. Why the difference?

Boyte-White explained that California’s market, which has been in operation for about 10 years, has had more time to moderate and to meet its carbon-reduction goals. As well, the California-Quebec market is about five times the size of Washington’s market, which also has a moderating effect on prices, she said.

Prices for future auctions, she said, would be difficult to predict, but expectations are that prices will moderate over time, especially if other states create their own such carbon cap-and-invest programs.

Paying at the pump: That money, of course, has to come from somewhere, and oil companies and others aren’t likely to dip into their profits, and instead will pass the cost on to consumers. But how much of the costs of the carbon auctions will add to a gallon of gas won’t be as transparent as the state’s gas tax, a fixed amount for each gallon.

Proponents of the CCA and its carbon auctions, including Gov. Jay Inslee, did the program no favors by predicting consumers would pay a negligible amount; “We’re talking about pennies,” Inslee said last year.

Numerous factors determine the price of gas and diesel, Boyte-White said, beyond the price of a barrel of crude are the supply-and-demand variables determined by oil companies, cartels such as OPEC, shortages caused by the war in Ukraine and other impacts on supply, and more locally, periodic maintenance shutdowns of pipelines and refineries, not to mention seasonal demand from increased driving in the summer.

So, yes, the carbon auctions will add to the price of gas. And that was kind of the point, said Kelly Hall, Washington director for Climate Solutions, an early advocate for the CCA and its cap-and-invest program. A prime motivation for the program, she said in an interview this week, was to encourage the transition away from fossil fuels.

“I don’t want to pretend that fossil fuels aren’t going to get more expensive; that is part of the point of this policy. But the primary part of this is to make sure clean options are affordable and accessible, so that we’re not stuck relying on an industry that can charge over a dollar a gallon in profit margins just because they can.”

What the carbon auctions do is require the fossil fuel industry to pay some of the real costs — from their pollution, its adverse health effects and its contributions to climate change — that have been subsidized by the public for more than a century.

“There are so many hidden costs that the oil industry hasn’t had to pay over the decades of their existence,” Hall said. “And it’s time that they pay.”

Where the money will go: Making pollution pay its real costs will help fund the transition to cleaner energy, healthier communities and limits to climate change. Among those encouraged by the results of the first two auctions are environmental groups, including Climate Solutions.

Just placing a cap on carbon emissions — one that will get smaller in coming years to further encourage industries to reduce emissions — was integral, Hall said.

“The cap is a really important piece of the policy,” Hall said. “But the auctions and the revenue that the auctions will generate and the billions of dollars that will be spent on climate and clean energy is how we hoped this policy would pan out. And we’re seeing that.”

Among spending in the next two years that state lawmakers budgeted are projects for energy, climate and pollution reduction. Hall pointed to:

$120 million for a zero-emission medium- and heavy-duty vehicle incentive programs to clean up our roadways and curb toxic diesel pollution, especially for communities along highways and urban corridors;

More than $200 million for weatherization and a heat pump and electric appliance program to curb indoor air pollution and make clean homes and buildings more affordable;

$100 million that has been allocated for transportation electrification, including state ferries;

$50 million to Tribes in the state to develop climate adaptation and resilience projects; and

$60 million to strengthen the state’s air monitoring network, identify major sources of air pollution in overburdened communities, and grant programs to mitigate and eliminate those sources of pollution.

And that’s just in the program’s first two years.

“We’re on the brink of actually starting to realize those benefits as those programs are developed,” Hall said. “It’s a really exciting time to live in Washington, where we are bringing on and seeing what these climate policies will bring.”