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For the first time in Washington’s fledgling carbon market, polluters did not buy all of the carbon-emission allowances put up for sale. Prices also remained relatively low after dropping by half in the first auction of the year.
The shift in the market in 2024 poses even more questions about the future of the market before the November election, in which voters will decide the fate of the state’s landmark climate change law, the Climate Commitment Act.
It remains unclear whether the lower bids and slowing demand are indicative of a wariness of the market’s future or represent a natural stabilization after a hot start in 2023.
Now only one more auction remains before the election.
The state’s auction on June 5 raised an estimated $189 million from some of the state’s largest emitters of greenhouse gases by selling about 5.3 million 2023 and 2024 allowances and 1.3 million 2027 allowances. Each allowance represents one metric ton of emissions for the year it is labeled.
Another $76 million went to utilities who sold more than 2.5 million allowances they receive for free as part of the program. The revenue from those allowances must be used for the benefit of ratepayers.
Yet polluting businesses only bought 60% of the 2.2 million 2027 allowances put up for sale, which marks the first time all allowances have not been sold during an auction.
“Parties are being risk-adverse right now, and being conservative in their in their projections,” said Michael Mann, the executive director of Clean and Prosperous Washington, an advocacy group that helped pass the Climate Commitment Act.
For each of the state’s last five quarterly auctions, polluters and speculators bought all of the allowances put up for sale. Demand was so high early in the program that bidders triggered two supplemental auctions meant as emergency relief valves to calm the market.
All of the 2023 and 2024 allowances sold at $29.92 each. That’s a slight increase from the first auction of the year, when the cost of carbon landed just above the starting price.
The 2027 allowances settled at the floor price of $24.02. But advance allowances have only been offered for sale in half of the six quarterly auctions that have been held, and may not be a good indicator of overall demand.
“We had a quarterly auction for real time, right now, and it was fully subscribed,” Mann said. “I think that’s the data point that’s really critical.”
Carbon auctions within a joint market between California and Quebec — where similar carbon-pricing programs launched a decade before Washington’s — have also seen dips in demand over the years.
Brian Heywood, the man behind the program’s repeal effort, reads the results differently. Businesses that should want the allowances are bidding low, or not at all, because they’re unsure whether the product will retain its value after the November election, he said.
The carbon market is the centerpiece of the state’s Climate Commitment Act, requiring the state’s biggest polluting businesses to reduce their emissions or purchase allowances to cover them. Over the course of seven three-year periods, state officials will reduce the number of allowances sold, ramping up pressure on the industries to lower their emissions.
The state is working to cut emissions nearly in half by 2030, and become a mostly carbon-free state by 2050, while using the carbon market’s revenue for efforts to reduce greenhouse gas emissions across the state.
In the last legislative session, lawmakers set aside more than $1 billion in carbon-auction revenue for initiatives intended to reduce greenhouse gas emissions and bolster responses to natural disasters. That’s on top of $2.1 billion earmarked last year.
The market revenue, now tallied at more than $2 billion as of the latest auction, is covering bus, light rail and ferry fares for anyone 18 and younger, electric vehicle and heat pump incentives and preparation for the state’s forests amid worsening drought and wildfire, among many other things.
But the effort to repeal the markets, Initiative 2117, would put an end to that fundraising and spending. Those in favor of the repeal, like Heywood, have painted the markets as a cash grab by Gov. Jay Inslee, which comes at the cost of everyday people who, in turn, suffer higher gas prices at the pump.
However, BP, which operates the state’s largest oil refinery, near Lummi Nation at Cherry Point, says the carbon market is just one of the many costs influencing gas prices at the pump.
“It’s what the market allows,” said Tom Wolf, senior government affairs manager for BP’s West Coast subsidiary. “The Climate Commitment Act, Model Toxics Control Act, tax and labor, transportation costs, pipelines, everything, and then global price of oil, it all falls into [gas prices].”
To date, the repeal campaign spearheaded by the political action committee Let’s Go Washington has raised $3.1 million, data collected by Washington’s Public Disclosure Commission shows. The group has spent a little less than half that sum, the biggest chunk of which went toward gathering voter signatures to earn a spot on the ballot.
The “No on 2117” campaign, however, has raised nearly twice as much, pocketing more than $5.8 million.
With more money flowing into each campaign, the race is bound to be tight. One Cascade PBS/Elway poll, published last month, indicated that up to 41% of voters would likely vote to repeal the Climate Commitment Act, while 31% would vote to keep it. However, 28% of voters polled said they remained undecided.
One high-profile member of the No coalition is BP. Although the fossil fuel giant spent millions to help defeat previous efforts in Washington to impose a carbon fee, they backed the carbon-pricing program.
This referendum, if passed, not only takes away the Climate Commitment Act, it also takes away any opportunity for a market-based carbon credit trading system, Wolf said. Yet the state would still have its emission-reduction laws.
“That uncertainty is not good for us, it’s not good for any company that’s looking at business in Washington state,” Wolf said.
There were 41 qualified bidders in the latest auction, including oil companies like BP, Chevron, Marathon and Phillips 66, methane gas utilities like Puget Sound Energy, and state universities.
Businesses covered by the program — those emitting more than 25,000 metric tons of greenhouse gases per year — do not need to turn in any allowances to the state to comply with the law until November 2024. Then, one-third of 2023 emissions are due. The rest of allowances for the first compliance period are not due until November 2027.