Washington state’s new cap-and-invest system is raising hundreds of millions of dollars for climate action while pricing emissions at a much steeper cost than California, the only other state with this kind of system.
Climate hawks are thrilled that — after years of failed proposals — the Evergreen State has a path to meet the Paris climate agreement’s goals. But anger is rising among other groups, including some that had supported passage of the climate law, which say Democratic officials did not prepare the public for the costs.
Since the law went into effect in January, Washington’s gasoline prices have climbed more steeply than neighboring Oregon.
Farmers and fishermen say they’re paying surcharges on fuel deliveries despite the law exempting them. And some Native American leaders are publicly clashing with Gov. Jay Inslee (D) over his refusal to exempt tribal gas stations from the law.
Meanwhile, Washington’s auctions of carbon allowances are selling out. Companies bought all 8.6 million allowances the state offered last week at its second-ever auction, after buying all 6.2 million allowances the state auctioned in February. And the latest settlement price of roughly $56 per allowance — compared with about $30 charged by California — was high enough to trigger an extra auction of allowances later this summer.
Progressives are trying to tout the policy’s early successes while blaming its initial costs on industry.
Environmentalists say high demand for allowances validates the strength of Washington’s model. The revenues from those auctions will pay for mostly climate programs. And subsidies from the Inflation Reduction Act will make it cheaper for businesses to cut emissions and require fewer allowances.
“The bottom line is it’s going overwhelmingly very, very well,” said Reuven Carlyle, a Democrat who sponsored the cap-and-invest program’s parent law, the Climate Commitment Act, before leaving the state Senate earlier this year.
The market is valuing Washington’s emissions allowances as an appreciating asset, or something that will be more valuable in the future, he said, meaning businesses are taking seriously Washington’s plans to ratchet down emissions.
The state’s cap-and-invest system applies to businesses that emit more than 25,000 metric tons of greenhouse gases, though lawmakers exempted agriculture, aviation and some other sectors exposed to international trade.
Despite the exemptions, operators in those sectors have complained that fuel companies are still making them pay a surcharge to cover the costs of the climate law. Some of those companies were referred to the attorney general, and two have reportedly stopped, but most continue to charge farmers extra, according to NBC’s KING 5.
The Washington Farm Bureau blamed the state for the fuel company surcharge. The law imposes a fine of $10,000 per day per violation for businesses that don’t cover their emissions with allowances. Exempting farmers is too risky for suppliers, according to the Farm Bureau.
“The threat of such steep penalties is what compels suppliers to continue charging the carbon price as they have not been provided by the Department of Ecology with the tools to do otherwise,” the group said in a statement.
Inslee last year predicted the climate law would have a negligible impact on gas prices. “We’re talking about pennies,” he said.
But the impact seems to be greater than that. Native American leaders last week met with Inslee to ask for an exemption for their gas stations, saying the higher prices were squeezing tribes with few resources. Inslee declined, saying it would undercut the law and that tribes stand to benefit from the revenue it would generate.
Tom Wooten, chair of the Samish Nation, told the Seattle Times that when tribes “expended our political capital” to help pass the climate law, “we didn’t realize, no one realized” what the costs might be.
‘An enormous difference’
Washington’s gas prices typically have moved in tandem with Oregon’s, but in January the two states started to diverge, said Patrick De Haan, head of petroleum analysis at GasBuddy. As of Wednesday, Washington’s average gas price had climbed to $4.73, about 41 cents higher than Oregon’s, according to AAA.
“I would blame Washington’s carbon tax, absolutely,” De Haan said, referring to the carbon cap.
The Department of Ecology recently drew criticism after quietly editing its webpage describing the climate law’s impacts: First, it said the program was expected to affect Washington’s gas prices by 1 to 3 percent; it was changed to say the department expects an impact of 1 to 3 percent on the entire state economy.
Claire Boyte-White, a spokesperson for the department, said officials had made some “small changes” that were “editorial in nature and do not represent any change in Ecology’s prior analysis, or our understanding of the economic impacts of these programs.”
Todd Myers of the conservative Washington Policy Center, who first flagged that change, said it amounted to “an enormous difference in terms of the impact.” And he said it fit a pattern of the Inslee administration trying to cover up the shortfalls in his policies.
“I think what’s going on in Washington is the politics of these rules … five months in are catching up with the governor,” he said, adding that the governor relied on “falsehoods” in order to pass the law.
Progressives argue that fossil fuel companies are using the new law as cover to price gouge. Firms don’t have to start turning in their allowances for this year’s emissions until November 2024, but they’re already levying surcharges without disclosing what that extra money is actually paying for.
“We don’t know whether that surcharge is paying dollar-for-dollar what the basic costs of allowances will be, or whether it’s a complete fabrication, or whether they’re eating some of those costs,” said Carlyle, the former state senator, who is now a co-founder of Earth Finance.
He also noted that the oil sector booked record profits in 2022. “So the fact that they’re arguing that they have to pass on every penny, when they don’t, shows that it’s a business decision, and they’re charging what the market will bear,” he said.
The Inslee administration says it’s too soon to assess the true impact of cap-and-invest on the marketplace, but Washington already has included $2.1 billion of revenues from the law into the state budget.
Mike Faulk, Inslee’s deputy communications director, said fuel prices move for a variety of factors but that they have nevertheless declined about 70 cents over the past year.
“No one is surprised that rapacious oil companies experiencing record profits are choosing to pass their compliance costs to customers — sometimes even for fuels that are exempt under the law,” he said. “These companies also expect us to take on the costs of continued reliance on fossil fuels, costs that come in the form of homes destroyed by fire, asthma in children, crops destroyed by drought and streets wiped out by floods.”