Washington state held its first cap-and-invest auction on Feb. 28, which raised nearly $300 million from oil and gas companies bidding against each other to buy a limited amount of carbon emission allowances.

The cap-and-invest program sets a limit on carbon emissions within the state, requiring businesses to obtain allowances equal to their covered greenhouse gas emissions. These allowances can be obtained through quarterly auctions hosted by the Washington State Department of Ecology. They can also be bought and sold on a secondary market, like a stock or bond.

This program was established in 2021 within the Climate Commitment Act (CCA), which established a comprehensive, market-based program to reduce carbon pollution and achieve the greenhouse gas limits set in state law.

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“This is truly historic for Washington and for the global movement toward a low-carbon future,” said Washington Governor Jay Inslee in a prepared statement. “The costs of climate change are coming to bear on families and communities, and industry plays an important role in the transition away from carbon. This cap-and-invest system is crucial to our approach to addressing climate change, and we are very encouraged to see this program starting off so well.”

The bidding lasted three hours, with the 6.18 million allowances —  each regulated business that emits over 25,000 metric tons of carbon annually is required to hold one allowance for every ton of greenhouse gas that it emits — were sold at a settlement price of $48.50, a number settled upon from its $22.20 floor price and its ceiling price of $81.47.

The state aims to generate revenue for clean energy projects and programs to support communities affected by climate change and air pollution. Over the next two years, these auctions are projected to generate $1.7 billion in revenue, with the CAA requiring more than one-third of the revenue to be invested in environmental and economic benefits for disproportionately-impacted communities.

The cap will continually be reduced over time, in four-year increments, to ensure Washington hits its 2030, 2040, and 2050 emissions-reduction commitments.

Roughly 75% of statewide emissions are covered in this cap-and-invest program, including fuel suppliers and natural gas and electric utilities. Waste-to-energy facilities will be included by 2027, while railroads will start to be implemented by 2031. Landfills were removed from the program after the passage of HB 1663, which created a separate landfill-specific methane-reduction program.

“Businesses that do not sufficiently reduce their emissions will be faced with increasing compliance costs, so investing in cleaner operations is good for the planet, and the bottom line,” the Department of Ecology stated on its website.

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While the Department of Ecology has previously stated this will have a minimal impact on gas prices, Todd Myers with The Washington Policy Center believes gas prices could climb nearly 40 cents for gasoline and nearly 50 cents for diesel.

This amounts to about 39 cents per gallon for gasoline and 47 cents per gallon for diesel.

Also, this is significantly higher than the $31/metric ton that fuel distributors had been estimating so far.

I would expect to see gas prices go up over the next couple of weeks. #waleg https://t.co/5dnrmx72Od

— Todd Myers 🐟🌲🐝 (@WAPolicyGreen) March 7, 2023

The revenue generated from the auction will be confirmed in a separate Washington Auction Public Proceeds Report on March 28.