ISSAQUAH, Wash. — Some lawmakers across the country think the future of climate policy looks like this: A growing network of states forming a carbon market, forcing polluters to pay by the ton for the greenhouse gases they emit and reinvesting the revenues into clean energy and electrification projects.
Such programs, known as cap-and-trade, limit carbon emissions to a set amount that shrinks each year, and require businesses to bid at auctions for permits known as "allowances" for each ton they emit. Organizations may trade or sell those allowances with one another.
With an established program in California, a newly created system in Washington state and a plan in New York that’s still in development, cap-and-trade is poised to cover a quarter of the American economy.
But less than a year into cap-and-trade, Washington state is facing backlash over the program’s perceived contribution to high gas prices. A voter initiative that’s likely to be on the ballot next year, stoked by anger over prices at the pump, threatens to repeal it altogether.
The fight over the ballot initiative, regardless of whether it passes, could delay Washington’s plan to link its market with California’s. And leaders in New York, where state officials are still drawing up their own rules for cap-and-trade, say they’re watching Washington with concern. In other Northeastern states, which may follow New York, lawmakers are waiting for the dominoes to fall.
The future of cap-and-trade, some advocates say, may hinge on next year’s battle in Washington state.
"Why do you think I spent 80 hours a week on this?" said Washington state Sen. Joe Nguyễn, a Democrat who chairs the Senate Environment, Energy & Technology Committee. "This is the future of decarbonization. This has implications not just in Washington state, it has implications globally."
Climate Commitment Act
Climate advocates credit Washington’s enactment of cap-and-trade in 2021 with reviving momentum for such programs. The state’s measure came 15 years after California passed its law, and just over a decade after President Barack Obama’s effort to create a federal program failed in Congress.
Washington lawmakers designed the Climate Commitment Act, championed by then-state Sen. Reuven Carlyle, a Democrat, to address criticisms that had plagued California’s program. It requires air quality monitoring in low-income and minority neighborhoods that have disproportionately suffered from pollution. It creates stricter limits on the use of carbon "offsets" such as tree planting to skirt direct emissions reductions. And it requires a significant portion of the money raised by carbon auctions to be invested in marginalized communities.
Less than a year into cap-and-trade, Washington state is facing backlash over the program’s perceived contribution to high gas prices.
Supporters hailed the law as Democratic Gov. Jay Inslee’s crowning climate achievement and a template for tackling climate change without leaving behind the communities it threatens most. Earlier this year, New York lawmakers approved their own cap-and-trade law.
"We’re hopeful that we can help this scale to a national and worldwide level," said Carlyle, who now leads a startup that provides consulting and financing for climate-conscious organizations. "It’s fair to say that the New York regulations are built upon the Climate Commitment Act, both politically and in terms of policy."
While New York officials draw up their own program, the Washington leaders they followed are playing defense. In the first quarterly carbon auctions held under the Washington program this year, prices per ton nearly doubled those in California, triggering a pair of special auctions designed to bring reserve allowances onto the market when prices are high.
State officials blame the high prices on unexpectedly strong demand early on, and say prices are likely to settle over time as companies stockpile allowances to prepare for the first compliance deadline next November.
But some industry groups, such as the Western States Petroleum Association, say the high price for carbon has increased costs for consumers. They argue that the law needs major adjustments. Kevin Slagle, the group’s vice president of strategic communications, said lawmakers need to consider putting more allowances on the market and temporarily exempting fuel suppliers from the program. He acknowledged that may set back the state’s deadlines for reducing emissions.
"[Cap-and-trade] doesn’t need to be eliminated, it just needs to get fixed," he said. "Some of the targets the state set were going to be challenging under the best circumstances. You may have to adjust some of these goals or stretch them out."
Gas price debate
Gas prices have fluctuated the past year, both in Washington and nationwide. But prices in Washington, while declining in recent months, are 41 cents higher than they were when cap-and-trade took effect at the start of the year, according to the U.S. Energy Information Administration. Slagle blames the carbon program. State officials say the program is not the largest variable driving fuel costs, citing global supply and demand issues, as well as regional pipeline and refinery capacity.
"There’s been no indication that the allowance price is driving what’s happening at retail gas stations after [carbon auctions]," said Andy Wineke, assistant communications director with the Washington State Department of Ecology.
This should be a big red flag to politicians that we need programs that work not only for the climate but also for everyday people.
Last month, opponents of the program turned in more than 400,000 signatures they’d gathered — enough to qualify for the ballot — supporting an initiative to repeal cap-and-trade. If certified by the secretary of state, the repeal measure would go before voters next y
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