Auction results and budget decisions emphasize importance of investments from Washington state’s Climate Commitment Act

This blog was co-authored by Janet Zamudio, Western States Climate Policy Intern

The last week has been eventful in Washington, seeing the end of legislative session last Thursday and the first quarterly cap-and-invest auction of 2024, which posted results today. With the legislative session wrapped up and budgets passed, we now know what additional spending lawmakers plan to do with the revenue generated by these cap-and-invest auctions thanks to the supplemental budget passed last week. And with the results from the first auction of 2024 now in the books, it seems the Evergreen State will continue to see significant revenue from this program to reinvest in communities, clean energy projects and climate resilience. There’s a lot to unpack, so let’s start with the auction results:

March Auction Results

At the auction, administered last Wednesday by the Department of Ecology (Ecology), participating facilities submitted their bids for allowances. Washington’s major emitters are required to hold one allowance for every ton of greenhouse gas that they emit — with the total number of allowances available declining each year, requiring Washington’s businesses to reduce their climate pollution in line with the state’s climate targets. Here are the results, released today:

  • All 5,260,000 current vintage allowances offered for sale by Ecology were purchased, resulting in the 5th consecutive sold out quarterly auction.
  • The current auction settled at $25.76, $1.74 above the price floor of $24.02 and $26.13 below Washington’s last quarterly auction price of $51.89.
  • This auction is projected to generate roughly $135 million in revenue, which will be invested into Washington communities to enhance climate resilience, create jobs, and improve air quality — read on below for all we learned last week about where the CCA revenue is going. A report from Ecology confirming the amount of revenue raised in this auction will be published on April 3.

What factors may be at play with these results?

A number of factors could be at play with today’s results, which saw a significantly lower settlement price than Washington’s previous auctions. The first is general market variability; Washington’s market is still in its early stages, and price variability is to be expected in the first few years of a program like this. On top of that, Washington is facing some potential changes that are likely driving uncertainty among market participants.

One potential change is Washington’s continued progress toward linkage with the California-Quebec carbon market, known as the Western Climate Initiative (WCI). A bill that will further align these carbon markets and pave the way for a formal merger passed the Legislature last week and is now awaiting Governor Inslee’s signature.

This is the first auction held since that bill advanced out of the Legislature, and (just as December prices fell after Ecology officially decided to pursue linkage), this additional progress toward a broader market with more access to allowances could be giving covered entities more confidence in their ability to buy sufficient allowances in the future in a linked market. California and Quebec still need to go through their own decision processes on the linkage question, but if they both decide to follow suit and link with Washington, all three jurisdictions would be able to pool their emission allowances and hold shared auctions. This can provide a more stable, predictable market for all participants.

Another potential factor is Initiative 2117, a ballot initiative backed by a wealthy hedge fund executive that seeks to fully repeal the Climate Commitment Act (more on this below) and will be decided by Washington voters this November. Since this initiative seeks to end the cap-and-invest program, the uncertainty around the future of this landmark climate policy could translate into uncertainty in the market it enables. However, it’s worth noting that even with a drop in prices, this auction was still completely sold out — signaling that there’s still strong demand for these allowances.

Where’s all this revenue going?

Capping off a very busy short legislative session, lawmakers in Olympia passed the state’s supplemental budgets. These budgets add onto the 2023-2025 state budget that was passed last year when the Inslee administration made some initial decisions about how to spend revenue generated by the first year of the Climate Commitment Act (CCA) — the landmark law that created the statewide cap-and-invest program to aggressively cut climate pollution and raise revenue from polluters. That initial budget included funding for electric vehicle charging infrastructure, solar and storage projects, home electrification rebates and more. Since the revenue exceeded projections — bringing in $1.8 billion for the state in its first four auctions — lawmakers had some decisions to make about how to make use of the surplus by investing that money in communities for climate resilience, clean energy jobs, and further decarbonization. With the cap-and-invest program underway and revenue coming in from polluters, Washington communities will start to see more and more benefits. Here are a few climate highlights from the budget:

1.  Clean energy investment and utility bill credits

Under the state’s new budget, a $200 utility credit will be available for many low-income and moderate-income Washingtonians, who spend the biggest portion of their budgets on energy costs. In total, $150 million in funding from CCA revenues will provide one-time bill credits for roughly 750,000 Washington families. The state is also providing support to help farmers and the agriculture community recoup fuel costs, investing in decarbonizing state universities and K-12 school buildings, support for pursuing federal funds and tax credits that could further reduce energy costs, offshore wind engagement and strategies and purchasing electric lawnmowers for the State Parks and Recreation Commission. The revised operating budget brings the state’s 2023-2025 investment in these projects up to roughly $17.4 million.

2.  Transportation and electric infrastructure investments

Transportation sector emission reduction efforts are also getting a big funding boost in this budget thanks to the CCA, with the legislature agreeing to invest an additional $339 million for these and other transportation projects. Building out the state’s infrastructure to support electric vehicles is also a priority in this budget, with funding going to projects like purchasing hybrid-electric fire engines and installing the necessary charging infrastructure. Funding was also provided to support the decarbonization of ports, implement a new grant program to help the K-12 school system replace diesel-powered school buses with zero emission alternatives and to continue to invest in various green transit project and grant programs.

3.  Investing in community and Tribal participation

Improving equity in environmental outcomes is a huge focus of the CCA and the Healthy Environments for All (HEAL) Act, and with this latest budget, Washington is using CCA funding to support a variety of grants and participation programs for overburdened communities and Tribes. This includes an expanded grant program for Tribes, funding for a Tribal clean energy innovation and training center, a food waste reduction grant, and funding for a network of community assemblies in overburdened communities. Overall, nearly $27 million in the 2023-2025 budget was allocated for these kinds of community and Tribal support projects.

These are just a few among many, many projects receiving significant funding thanks to the CCA. A quick highlight reel of others includes the construction of new and expanded bike lanes, replacing bridges and tunnels along park trails, planning for solar projects, studies into addressing energy burden for low-income households, funding for shoreline restoration, funding for electric ferries and so much more.

Danger of repeal

All of the investments from cap-and-invest that are improving people’s health and livelihoods could disappear depending on the outcome of a ballot measure — Initiative 2117 — that seeks to repeal the CCA. This repeal measure qualified for the November ballot after hedge fund executive Brian Heywood personally bankrolled an effort to get qualifying signatures on a variety of initiatives that aim to roll back progress on a number of issues. If passed, Initiative 2117 would fully repeal the Climate Commitment Act, and prohibit the state from ever enacting this kind of program ever again — putting Washington back at square one for how to deal with the climate crisis head-on. The repeal would immediately deprive millions of Washingtonians of the benefits that this program has only just begun to deliver, from improved air quality, access to clean transportation, resilience to climate impacts, and more. It would be a huge step backward for a state that has long been a leader on climate.

Lawmakers have made it clear how much the repeal effort would hinder Washington’s climate progress and the state budget. If the repeal initiative succeeds, it could leave a $1.3 billion hole in the state budget. This uncertainty has forced lawmakers to include caveats in their budget proposals that would cancel a large portion of planned spending and community investment in the case of repeal.

Washington has just started to experience the benefits of the revenue generated by requiring polluters to pay for their pollution through the CCA, and the benefits of requiring them to limit and reduce their emissions every year.

There is so much to gain from this program, and this budget is a strong indication of how the CCA works to serve Washingtonians across the state.

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