State officials spar over impact of climate act on gas prices as drivers pay up

Corrections and clarifications: A previous version of this story did not clarify the difference between the Clean Fuel Standard and the Climate Commitment Act and their respective impacts on fuel prices. That portion of the story has been changed.

Calls are growing for changes to the state of Washington’s Climate Commitment Act (CCA), as gas prices remain above $5 a gallon on average statewide. And more questions are being raised about whether state officials, particularly Democratic Gov. Jay Inslee, have been transparent on the true impacts of the climate laws that took effect earlier this year.

Critics argue Washington’s “carbon tax” has been a significant contributing factor behind the high gas prices. But Inslee’s administration and the state Department of Ecology argue the cap-and-trade system has only had a minimal effect on pump prices. As Inslee signed the bill into law in May of 2021, he said, “Don’t let anyone give you that swill that somehow (this law) is going to increase prices.”

On Wednesday, conservative activist groups Future 42 and Americans for Prosperity-Washington State set gas prices to the national average of $3.82 for two hours at a Kent gas station, to protest the state’s “cap-and-invest” carbon emissions program. The program is the centerpiece of the Climate Commitment Act, which was passed by the state legislature in 2021. Modeled after California’s cap-and-trade system, it requires the state’s biggest polluters to purchase emissions “allowances” based on how much carbon they emit. These allowances can be obtained through quarterly auctions hosted by the Washington State Department of Ecology.

More on the Kent event: Gas station rolled back the price of gas to $3.82 for 2 hours

Where Washington’s high gas prices come from

The real impact of our state’s climate legislation is difficult to define. Historically, Washington has had higher gas prices than most of the nation. A nearly decade-long compilation by GasBuddy.com outlines exactly what drivers are paying in Washington compared to the U.S. average:

According to the federal U.S. Energy Information Administration, supply and demand and crude oil prices play the biggest role in determining the prices we pay at the pump, along with the wholesale pricing of gas produced by refineries and the profit margins taken by retailers like Exxon or Chevron.

Washington also does not have any crude oil reserves or production. The state’s refineries receive crude oil supplies by pipeline, ship and rail. From there, Washington’s five refineries process domestic and foreign crude oils, primarily from Canada, North Dakota and Alaska.

These refineries, and those in California, support the West Coast fuel markets that are largely cut off from pipeline networks supplying other parts of the nation. The fuels refined in Washington travel along the Olympic Pipeline to terminals located nearby and to Portland, Oregon. When the Olympic pipeline shuts down for any reason, as it did for maintenance for several days in June, it can cause a price jump, according to a report from the American Automobile Association (AAA).

Washington’s gas tax, the third highest in the country, also plays a role. Combined with the federal gasoline tax, it adds another 68 cents per gallon to gas prices. An analysis of retail pump prices compiled by AAA shows the average cost of a gallon of regular gas in Washington was 45 cents higher than the national average from 2017-2021.

In June 2022, the statewide average for gas prices hit a record high, largely attributed to global inflation and shortages of fuel influenced by the war in Ukraine. A gallon of regular unleaded hit $5.555 on June 16, 2022, and a gallon of diesel hit $6.465 on June 30.

The impact of the Climate Commitment Act

But there is little denial, even from the governor’s office, that gas prices have increased — and remained high — in 2023. The reason for that has become the topic of intense political debate.

While the CCA was passed by state lawmakers in 2021, it did not take effect until Jan. 1 of this year. Almost immediately, gas prices jumped around eight cents, triggering an outcry from groups like the Washington Policy Center, whose environmental director Todd Myers blamed the new carbon emissions standards.

Under the CCA, greenhouse gas limits must hit 45% below 1990 levels by 2030, 70% below 1990 levels by 2040, and 95% below 1990 levels and net-zero carbon emissions by 2050. Companies use the allowances they buy at auction to cover their pollution as they work to de-carbonize their operations. But while the companies are buying those allowances now, they do not have to start using them until 2024.

However, according to Myers, fuel suppliers are already passing the costs of their carbon compliance on to consumers.

“Fuel distributors don’t know what the cost is, so they’re flying blind. Some are raising prices quite a bit, some not at all,” Myers said in January.

But Joel Creswell, climate policy section manager for the state Department of Ecology, said gas prices fluctuate all the time — and it was too soon to tell if the regulations had any impact. But he acknowledged companies were adjusting prices as they worked to comply with state law.

“We see some companies charging surcharges that we think are really out of line, and I can’t tell you why they’re doing that,” he said.

Carbon auctions began in 2023

In February, the state Department of Ecology hosted its first carbon auction. Each allowance represents one metric ton of greenhouse gas emissions. It brought in $300 million for the state. The second auction in May sold nearly 8.6 million 2023 allowances and another 2.5 million 2026 allowances. Each unit represents one metric ton of greenhouse gas emissions. It also generated half a billion dollars for the state.

Carbon emission allowances reached an all-time high price in the state’s third auction in August, with revenue from the program nearing $1.5 billion in its first year. That money is earmarked to help overburdened communities and people with lower incomes electrify their homes, provide rebates and incentives to people buying electric bikes and cars, and help the trucking and freight industries decarbonize, among other things.

But analysts noted two of the three auctions exceeded the state’s “threshold price” of $51.90 per allowance, forcing the Department of Ecology to host additional “Allowance Price Containment Reserve” (APCR) auctions, borrowing allowances from a portion of each future year’s allocations. California, which served as the model for Washington’s carbon emissions program, has never exceeded its threshold price.

Meanwhile, gas prices climbed steadily, despite assurances from state officials that it was unrelated to the CCA.

But Patrick DeHaan, head of petroleum analysis at Gas Buddy, said “Oregon and Washington had very seemingly similar prices to start the year. But with the implementation of Washington’s cap and trade program, essentially carbon tax, we’ve seen a massive disconnect.”

By June, prices at the pump were the highest in the country for the first time ever.

Officials spar over responsibility

At a press conference in July, Inslee said price gouging by oil and gas companies was to blame and promised new legislation to increase the transparency on the profits fuel suppliers are making.  He pointed to the fact that the major oil companies all posted record-smashing profits in 2022, with ExxonMobil raking in $55.7 billion, Chevron netting $36.5 billion, and Shell reporting a $41.6 billion profit.

“In January (2024), we will be taking action to introduce bills forcing them to show us our books in total,” Inslee said.

The governor strongly denied the CCA was causing companies to pass compliance costs on to consumers. “No, they’re not passing on,” Inslee insisted. “This is profit on top of everything, folks.”

But a Chevron spokesperson disagreed. “The cost of compliance with Washington’s recently enacted cap-and-invest program raises gasoline prices by about 10% in the state,” a statement read. “The compliance costs that Washington drivers pay are currently $50/metric ton or more – meaning $0.50/gallon or more.”

The Washington Attorney General’s Office monitors gas markets, publishing a quarterly gasoline report that noted producers and retailers are free to charge whatever price for their product they choose, so long as they do not collude or engage in unfair or deceptive practices. As far back as 1977, the office alleged that oil companies fixed prices and artificially created product shortages.

A state agency rolls back previous statements

But in late May, gas prices approached a $5 average across the state, the Department of Ecology began quietly rolling back previous statements on its official website regarding the price impacts associated with the CCA and a separate law that also took effect in January, the Clean Fuel Standard. That law requires fuel suppliers to reduce the carbon intensity of transportation fuels.

At the same time, the Department of Ecology began quietly rolling back previous statements on its official website regarding the price impacts associated with the CCA. In 2022, before the program began,

Before both programs began, the department wrote in a blog post “Washington’s new Clean Fuel Standard will mean less than a one-cent per gallon difference in the price consumers pay at the gas pump in 2023, according to estimates in a third-party economic analysis. Prices could rise to two cents in 2024, and four cents in 2025, the report shows.”

And regarding the CCA, their website at the time clearly stated: “We found the potential impact on gas prices is expected to remain low — about 1% to 3% in 2023.” That would roughly equate to 5 to 15 cents per gallon when a gallon costs $5, according to a finalized report completed in September 2022. A spokesperson for the Department of Ecology confirms the department has not done a revised estimate since the CCA took effect.

But by May, that language had been changed significantly to read, “we expect the overall economic impact of the cap-and-invest program to be 1% to 3%.”  Archived versions of the department’s page show other previous claims about the price impact have also been removed.

And gas wasn’t the only thing going up in price for Washington consumers. In August, the state Utilities and Transportation Commission approved a Puget Sound Energy request to raise prices on customers’ natural gas bills in order to cover the costs of compliance under the Climate Commitment Act. The increase, which begins Oct. 1, is estimated to be an average increase of around $3.71 per month or 3.89%, with lower rate increases for lower-income customers, according to recently released documents from the UTC.

But the commission, whose members are appointed by the governor, also prohibited Puget Sound Energy from putting the rate increase on the bills, following a recommendation from Attorney General Bob Ferguson’s office.

“We wanted to put the charge on the bill,” said PSE spokesperson Christine Donegan. “The idea is to always be transparent about any rate increase that’s occurring for our customers.”

An attorney general’s office spokesperson noted to KIRO Newsradio Monday that Public Counsel Nina Suetake, while speaking for the attorney general’s office, told the commission in August, “including all program charges on customer bills would quickly result in lengthy and confusing bills,” according to the UTC documents. The attorney general’s office also said the issue needs further discussion.

The commission ultimately ruled to not include the CCA-related charge on customer bills for the time being.

Natural gas consumption: Bill rates to increase for Puget Sound customers

It’s now September, and average statewide gas prices remain above $5 per gallon for regular unleaded and those prices have been that way for more than a month. The Oil Price Information Service, among others, estimates the carbon regulations tally a current fee of about 50 cents per gallon in Washington, assuming 100% of costs are passed along to consumers.

State officials speak out about fuel prices

Lawmakers on both sides of the aisle are now calling for relief for Washington drivers.

Last week, state Sen. Mark Mullet (D-Issaquah) released a legislative proposal to make changes to the CCA, which he believes will help lower gas prices, improve fuel price transparency, and help ensure Washington’s climate action is balanced with affordability.

“The Climate Commitment Act was a good idea, and I voted for it. The climate crisis is real, and the investments made possible by the CCA in clean energy, green jobs, and protecting folks from pollution are important,” Mullet said. “But any major program is going to need fixes and updates as time goes on, and I think it’s clear the CCA could use some work to lower the impact it’s having on gas prices and help the families and small businesses who are feeling the hit.”

He also had strong words for Inslee’s implementation of the program—and the public communication from the Department of Ecology about the price impacts associated with the CCA. “I don’t think they’re being intellectually honest with themselves,” Mullet told KIRO Newsradio. “I don’t think the governor’s being intellectually honest.”

Mullet, who is running for governor and has previously received political donations from oil and gas companies, proposes adjusting the carbon emission compliance schedule and using revenues from the CCA auctions to lower car tab fees, among other things. His bill follows a letter from 43 state lawmakers sent in July to the Department of Ecology, which also proposed several changes including an increase to the carbon allowance budget to provide greater flexibility for companies working to comply.

Recent report: Nearly 40% of drivers canceled summer travel plans due to high gas prices

In an interview with KIRO Newsradio this week, Inslee said he believes he has been honest with the public about the CCA.

“There is nobody on this green earth who can predict with 100% accuracy a stock market price two years from now, or a permit price. (The Department of Ecology) did the best they could, and the price has been higher than we expected.”

The current language on the state Department of Ecology site reads, “Historically, gas is a volatile commodity. Retail prices are affected by changes to production capacity, and supply and demand for crude oil. State regulations play a minor role.”

Mullet disagrees. “The Department of Ecology wasn’t attempting to implement the carbon auctions with any lens of affordability for Washington consumers,” he said.

Climate Act set to be a hot-button issue in 2024

The CCA is quickly becoming a political issue likely to take center stage ahead of 2024’s gubernatorial election. Running against Mullet are two members of Inslee’s administration: Ferguson and Secretary of Public Lands Hilary Franz.

Ferguson told KIRO Newsradio in a statement he supports using some CCA revenue to expand Washington’s Working Family Tax credit.

“I have a record of standing up to corporate price-fixing and price gouging that harms Washingtonians,” Ferguson said. “The big oil companies collectively made more than $200 billion in profits last year, and I am taking allegations of price gouging by fossil fuel companies seriously. We will develop both legal and legislative remedies to address price gouging and increase transparency of gas prices.”

More from Kate Stone: Gas thieves strike in Everett

Franz said oil and gas companies need to be held accountable, and steps need to be taken to address price gouging.

“Washingtonians should have clarity about what is driving up costs,” Franz added. “I’m open to amending existing legislation to ensure consumers are protected, while also advancing the fight against climate change and ensuring we don’t walk back our commitments or delay. But it’s unacceptable that Washington has among the highest gas prices in the nation.”

Meanwhile, former U.S. Rep. Dave Reichert, running as a Republican, recently said in part, “Olympia chose to create policies that are punishing people at the pump, and crushing consumers already burdened with huge price increases. Their attitude has been cavalier, tone-deaf, and unapologetic, as if life doesn’t exist beyond the walls of government. Many of those running for Governor either voted for this policy, or have fallen into near silence explaining it, resulting in higher prices for everything we buy. As governor, we will work together to attract business, jobs, and opportunities.  We will pull together to make people healthier and safer.”

Inslee said he stands by the CCA, and that it’s here to stay under his watch. “We’re not going to retreat in the face of climate change. We’re on this path and we intend to defeat it.”

What’s not clear is if $5 gallon gas is here to stay as well.

Editors’ note: On Monday, Sept. 18, the attorney general’s office provided clarification on previous statements Public Counsel Nina Suetake made about what Puget Sound Energy bills should look like.

Follow Kate Stone on X, formerly known as Twitter, or email her here.