The auction results are in: Washington state’s cap-and-invest program is off to a strong start

This blog was co-authored by Delia Novak, Western States Climate Policy Intern, U.S. Region

Today, the Washington State Department of Ecology (ECY) released the results from Washington’s first cap-and-invest auction held last Tuesday, February 28. The results of this auction indicate long-term confidence in the program from covered entities and are an encouraging sign of what’s to come from the Evergreen State. Additionally, the ECY summary report shows that the auction operated smoothly, with oversight and regulatory mechanisms in place to ensure the integrity of the auction and ease of interface for bidders.

This inaugural quarterly auction marks a critical milestone for Washington’s cap-and-invest program, which sets the most ambitious limit — or cap — on climate pollution of any state in the nation through mid-century. Put simply, it’s where the rubber meets the road on progress toward the state’s climate goals. During the auction, Washington’s major polluters purchase emissions allowances to cover their climate pollution. The requirement to hold one allowance for every ton of greenhouse gas pollution emitted creates a strong incentive for polluters to find ways to reduce their emissions as the number of available allowances shrinks over time in line with the declining pollution limit. This is also the first time that Washington’s cap-and-invest program has raised revenue from the sale of allowances — revenue that will be invested in Washington’s communities to slash pollution and build climate resilience. (For more background on Washington’s cap-and-invest program and auction process, check out our recent blog.)

February auction results

At the auction, administered by the Department of Ecology, participating facilities submitted their bids for allowances. Each regulated business that emits over 25,000 metric tons of carbon annually is required to hold one allowance for every ton of greenhouse gas that it emits. Here are the results, released today:

  • All 6,185,222 current vintage allowances offered for sale were purchased. This was a sold out auction!
  • The auction settled at a price of $48.50, $26.30 above the $22.20 floor price. This was well below the price ceiling of $81.47.
  • The February auction generated almost $300 million USD ($299,983,267 to be precise), which will be invested in efforts to further decrease Washington’s climate pollution and increase resilience to climate change.

(Wondering more about how auctions work in Washington? Check out our 2023 FAQ on auctions.)

What these results mean

The results of this auction are a strong vote of confidence from participating polluters and businesses, demonstrating trust in the longevity of this program and its potential to make a meaningful impact on reducing Washington’s emissions. The final settlement price, $48.50, is a positive indicator for the future of Washington’s cap-and-invest program. It demonstrates strong demand for allowances, but stays well below the program’s predetermined price ceiling. Moreover, by selling out of allowances, Washington is increasing the proceeds that can be invested back into communities — nearly $300 million from this first auction alone.

Essentially, this auction shows that regulated businesses are taking this market seriously: there was strong demand for allowances, demonstrating confidence that this program — and the ambition of Washington’s climate policy — are here to stay.

What’s next

Over the next two years, these auctions are projected to generate $1.7 billion in revenue, which will then be invested in efforts to further reduce Washington’s climate pollution. The Climate Commitment Act requires more than one-third of the revenue to be invested in environmental and economic benefits for disproportionately-impacted communities. As for the remaining revenue, the Washington Legislature will determine how to allocate it for climate and clean energy projects that can unleash more good-paying clean energy jobs, strengthen climate resilience and build healthier communities. The proposed spending for auction revenue will likely be coming out in late March.

As Washington looks to continue securing cost-effective pollution reductions through its cap-and-invest program, it could pursue linking programs with the Western Climate Initiative (WCI), which currently includes cap-and-trade programs in California and Quebec. Linkage between Washington’s market and the joint California-Quebec emissions market could bring about key benefits for all participating markets, including bringing down (and generally stabilizing) allowance prices for covered polluters and businesses in Washington and enabling deeper cuts in climate pollution.

When carbon markets link, the common carbon price across linked systems expands allowance trading partnerships and reduces price fluctuations. This results in a more efficient system with a greater pool of available opportunities to reduce emissions, which means more savings across the board. As we saw when California and Quebec linked, program linkage was able to deliver more regional emission reductions at lower costs than either jurisdiction would have achieved alone. Economic modeling published by Washington’s Department of Ecology indicated that linkage with the Western Climate Initiative could cause a significant drop in the initial prices of allowances in a new system like Washington’s.

This inaugural auction shows that Washington’s program is off to a strong start, though it’s important to remember that this is only the beginning. We’ll learn more as trends in the auction results develop over time — especially as regulated businesses face compliance deadlines and continue to implement their pollution reduction strategies. For more in-depth analysis on Washington’s auctions, stay tuned to this blog series for quarterly auction updates from EDF.

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