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 starting price of $22.20. The department says the revenue raised from last week's auction will be confirmed in a report later this month after financial transactions are completed.
The Washington auction price settled higher than prices in a similar program in California and Quebec, which closed at $27.85 per ton in a recent auction.
Proponents of Washington's carbon pricing program and its cap on emissions heralded the auction results.
"It demonstrates the strength of the cap in Washington state," said Michael Mann, executive director of Clean and Prosperous Washington, a climate policy group. "We also shouldn't read too much into the first auction. ... But I think it's a good measure of a point of time."
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.
Catherine Reheis-Boyd, the president and CEO of the Western States Petroleum Association, said in a written statement the auction price was "unnecessarily expensive" and would harm consumers and the economy.
"While the state is focused on the funds raised, today is not a day to celebrate and should be a warning for the viability of the program moving forward," Reheis-Boyd said.
Before the auction, some fuel suppliers were raising the price of fuel in anticipation of their compliance costs with the state's program. It's unclear how these costs might translate to prices at the pump.
To polluting companies, it's a cost, but to lawmakers it's an opportunity.
"It's the investments that are going to get us to reach our carbon reduction goals," Mann said. "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 debate where the proceeds will go, the budget is only based on the state's best guess.
If this price is consistent over the next nine auctions, the sales could generate about $1.08 billion more than the state's estimate for the 2023 to 2025 biennium, according to a Clean and Prosperous analysis.
The governor's two-year budget would spend about $1.7 billion in revenue from the allowance auctions. 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. Then allowances were allocated to the next highest bidder, and down from there. The bidder who exhausted the final 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 had said.
Fitzgibbon said House and Senate budget proposals will be released later this month, and that money raised from the allowance auctions are expected to be spread across the operating, transportation and capital budgets.
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 percent of the total auction revenue on supporting projects led by tribes, and 35 percent "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 front-line 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 front lines 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 percent of area median income.
"We want to see the vast majority of the funds getting to the folks who aren't going to be able to buy an electric car, convert their home to a heat pump," said Deric Gruen, Front and Centered co-executive director of programs and policy.
"We don't want to see parts of this money just going to subsidize investor owned utilities or industries that could and should be actually required to make that transition."
Nguyen said he hopes the Legislature can use auction money 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 gases to 45 percent below 1990 levels in the next seven years, 70 percent below 1990 levels by 2040 and decarbonize by 2050.
Washington state's greenhouse-gas emissions in 2019 reached their highest level since 2007: 102 million metric tons. It was a 7 percent increase from 2018, and 9 percent 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 gases above the allotted levels.
More than 50 businesses, including investors, natural gas and oil companies were eligible to participate in the auction. The state department of Ecology said it could not disclose who participated.
The next auction will be held May 31.
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