How Washington’s latest carbon auction impacts gas prices, environment

It’s not an easy concept to explain, but the state’s carbon emission auctions are clearly impacting gas prices and the environment.

In 2021, the Washington State Legislature passed the Climate Commitment Act (CCA) which establishes a comprehensive program to reduce carbon pollution and achieve the greenhouse gas limits set in state law. The program started on Jan. 1, 2023, and the first emissions allowance auction was held on Feb. 28.

In the state’s latest auction held this month, the cost of carbon-emission allowances plummeted by half. For advocates of the CCA, this decline serves as an “I told you so” moment. These architects of climate legislation had predicted the program would drive positive change and the recent auction results validate their foresight.

With policies advancing clean energy and zero-emission vehicles, these new laws are intended to put Washington on a path toward achieving the greenhouse gas limits set in state law: from 45% below 1990 levels by 2030 to net-zero carbon emissions by 2050.

“Many people don’t realize the places where we live, learn and work are among our biggest sources of carbon emissions,” Washington Gov. Jay Inslee said in a statement on the state’s website. “As we see the ravages of climate change around us, we can no longer ask ‘if’ we should look for ways to decarbonize our buildings, we have to ask ‘how’ and ‘how fast.'”

How does the cap-and-invest program work?

The cap-and-invest program limits overall carbon emissions within the state. Businesses under its purview must obtain allowances equal to their covered greenhouse gas emissions. These allowances can be acquired through quarterly auctions hosted by the Washington State Department of Ecology or traded on a secondary market, like stocks and bonds.

The cap will gradually decrease over time, ensuring Washington meets its ambitious emissions-reduction targets.

Cap-and-Invest is a market-based program — as allowances become more scarce, they become more valuable due to the powers of supply and demand. Businesses that do not sufficiently reduce their emissions will face increasing compliance costs and penalties.

The CCA has raised nearly $2 billion. That’s a double-edged sword. On one hand, it is good news because the policy is working as intended and raising more money than state officials expected. On the other hand, it is bad news because it means companies must be better at reducing carbon emissions.

Businesses covered by the program must obtain allowances equal to their emissions and submit them to the Department of Ecology.

“We want the planet to be clean. We don’t want polluters to get off scot-free. Frankly, what the carbon tax does is it allows polluters to get off scot-free,” Rep. Jim Walsh (R-Aberdeen) said, as reported by The Washington State Standard. “They just pass the cost on.”

Impact on gas prices

While the program encourages cleaner practices, it also affects consumers. Driving gas-powered vehicles becomes more expensive due to the Cap-and-Invest mechanism. Estimates suggest that the law has contributed to gas prices rising by 20 to 50 cents per gallon. However, proponents argue that this cost is a necessary investment in our future.

The American Automobile Association (AAA) has blamed the climate law for high gasoline prices 67 cents higher than the U.S. average.

However, these price impacts are not expected to continue forever. According to the Department of Ecology, once the Clean Fuel Standard is fully phased in about a decade from now, any remaining price impact is predicted to drop to nearly zero. Many experts are skeptical.

Results on the climate

In the coming decades, experts believe coastal waters will become more acidic, streams will be warmer, populations of several fish species will decline, and wildfires may be more common. Our climate is changing because the earth is warming. But, the state’s carbon emissions programs are having a positive impact.

Greenhouse gases have been dropping since 2000.

Carbon dioxide accounts for about 76% of total greenhouse gas emissions. Methane, primarily from agriculture, contributes 16% of greenhouse gas emissions and nitrous oxide, mostly from industry and agriculture, contributes 6% to global emissions.

Bill Kaczaraba is a content editor at MyNorthwest. You can read his stories here. Follow Bill on X, formerly known as Twitter, here and email him here.