WA’s first greenhouse gas allowance auction raises estimated $300 million

Washington’s first auction of greenhouse gas pollution allowances generated an estimated $300 million in a closely watched sale last week as companies, consumers and the Legislature get their first glimpse of the cost of emitting in the state.

The Department of Ecology announced Tuesday it had sold all of its almost 6.2 million allowances, each representing one metric ton of greenhouse gas emissions. The settlement price was $48.50 per ton, more than double the floor price of $22.20.

Ecology says the revenue raised from the auction will be confirmed in a report later this month after financial transactions are completed.

The state’s carbon-pricing program is the centerpiece of the state’s 2021 Climate Commitment Act. It sets a statewide cap on greenhouse gas emissions that gradually ratchets down over time with a goal of decarbonization by 2050. 

Polluting businesses can purchase allowances at quarterly auctions. Over time, the number of available allowances will incrementally decrease. Money raised from the auction goes to the Legislature, which intends to spend it on other programs to reduce emissions.

To polluting companies, it’s a cost, but to lawmakers it’s an opportunity.

“The invest is really as important as the cap,” said Mike Mann, executive director of Clean and Prosperous Washington. “It’s the investments that are going to get us to reach our carbon reduction goals — this auction generates the money that’s going to be the fuel for our state to transition to cleaner and cheaper ways to move around and to energize.”

Gov. Jay Inslee’s budget called for the auction revenue to fund anything from electric heat pumps for low-income populations, small businesses, and schools, to grants for tribes to lead solar and wind projects, and a new clean energy research center at Washington State University. 

But even as lawmakers quibble over where the proceeds will go, the budget is only based on the state’s best guess. 

The state department of Ecology last fall estimated the state would rake in some $480 million in 2023, $957 million in 2024 and $900 million in 2025.

The governor’s two-year budget would spend about $1.7 billion in revenue from the Climate Commitment Act. If the legislature appropriates more than the auctions generate, it will be revised in the 2024 supplemental budget, lawmakers say.

California’s first auction in 2012 raked in more than $230 million, with allowances selling for just a few cents above the floor price of $10.

Last week, businesses and other polluters logged on to the state’s auction website within a three-hour window and entered bids. Once the window closed, bids were sorted from highest to lowest. 

The highest bidder got the number of allowances it requested, as long as the bid adhered to purchase and holding limits, and other regulations. Then allowances were allocated to the next highest bidder, and down from there. The bidder who exhausted the remaining allowances sets the settlement price.

Or, the lowest successful bid sets the price everyone pays. Those who bid less than the last successful bidder will have to pick up allowances at the next auction or in secondary markets.

Ahead of the settlement price announcement, House Democratic Majority Leader Joe Fitzgibbon said regardless of the outcome, the legislature will not revise the two-year $1.7 billion estimate.

“They think the first auction could be out of the ordinary either on the high side or the low side,” Fitzgibbon said.

Fitzgibbon said House and Senate budget proposals will be released later this month, and that money raised from the Climate Commitment Act auctions are expected to be spread across the operating, transportation and capital budget.

It’s a “very complicated and in some ways challenging budget process,” Fitzgibbon said, because this is the first time auction proceeds have had to be appropriated and there’s not great certainty on the figure.

“For all those reasons and more, it’s going to be tricky,” Fitzgibbon said.

He expected that Gov. Inslee’s proposal for spending the Climate Commitment Act funds would be a “starting point” for legislators, and then they would figure out “how far we want to deviate.”

The state is required to spend at least 10% of the total auction revenue on supporting projects led by tribes, and 35% “in ways that benefit vulnerable populations in overburdened communities.”

Sen. Joe Nguyen, Chair of the Environment, Energy & Technology Committee, represents a district spanning the wealthy, lushly vegetated Vashon Island to frontline communities like Georgetown and South Park that bear the brunt of the climate crisis.

Over the years, south Seattle has experienced poor air quality from industrial pollution, disparate extreme heat as a result of a lack of trees, and catastrophic flooding amid rising tides.

Front and Centered, a coalition of communities of color, Indigenous peoples, and people with lower incomes on the frontlines of climate change, shared concerns over the lack of specificity in how “overburdened” and “vulnerable” communities are defined in the governor’s budget.

In a January letter the group asked for those overburdened communities to include census tracts ranked seven or higher on Washington’s Environmental Health Disparities Map and “Tribal lands”; and for vulnerable populations to be defined as minority populations, Native Americans, and people earning less than 80% of area median income.

Nguyen said he hopes the legislature can earmark climate dollars to protect people from rising utility costs, and to help low-income and overburdened communities buy electric vehicles and wean off fossil-fueled appliances and heat.

He’s sponsoring bills related to climate change risk response in overburdened communities, purchasing electric school buses and preventing utility shut offs during extreme heat.

“We’re going to ensure that we’re having a just transition that is affordable for people,” Nguyen said, “and also ensuring that transition is done in a way that is thoughtful and not necessarily overly burdensome.”

The legislation aims to reduce the state’s production of carbon dioxide, methane and related gasses to 45% below 1990 levels in the next seven years, 70% below 1990 levels by 2040 and reach net-zero by 2050. 

Companies also can invest in carbon offsets as an alternative to cutting emissions. The idea is a company’s emissions would be canceled out by investing in conservation or restoration projects that absorb what’s assumed to be an equal amount of carbon.

Washington state’s greenhouse gas emissions in 2019 reached their highest level since 2007: 102 million metric tons. It was a 7% increase from 2018, and 9% higher than 1990 levels.

Some polluters, like natural gas utilities and oil refineries initially get a generous portion of their allowances free, but are required to buy more if they plan to release greenhouse gasses above the allotted levels.

Seattle Times reporter Hal Bernton contributed to this report.