Washington completed its first auction of carbon credits Feb. 28 under the state's new cap-and-invest program, which was established by the state legislature last year as the US' third state-level compliance carbon market.
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The state's Climate Commitment Act, which is overseen by the Washington Department of Ecology, set a statewide emissions cap with a ratcheting mechanism that aims to decarbonize the state by 2050. In conjunction with other laws advancing clean energy and electric vehicles, the cap-and-invest program targets 45% emissions reductions below 1990 levels by 2030, 70% reductions by 2040, and 95% reduction by 2050.
Auctions for a limited amount of credits will be held quarterly, and proceeds from the auctions will be earmarked for climate projects across the state.
Results of the Feb. 28 auction -- including settlement price, number of allowances sold and a list of entities eligible to participate -- will be released March 7. Then, on March 28, the Department of Ecology will release the amount of tax revenue raised by the auction after all financial transactions have settled.
The program covers emissions from industrial facilities, in-state power plants, electric importers, and fuel suppliers emitting over 25,000 mt/year CO2. The starting cap for the program is 63.3 million mt CO2, which is around a fifth of the size of the California-Quebec program. The US's third compliance market, the Regional Greenhouse Gas Initiative, which is comprised of several Northeastern states, is capped at 88 million mt/year CO2 and only applies to the power sector.
The Washington program will lower the cap of emissions by around 8% annually to 58.5 million mt in 2024, 53.8 million mt in 2025 and 49 million mt in 2026, according to the S&P Global Commodity Insights Future Energy Outlooks Special Report.
S&P Global believes that overall reductions will struggle to meet the emissions reduction targets set by the law, which will put upward pressure on the price of allowances sold. According to the special report, futures contract pricing was around $43 per allowance, which is roughly 45% higher than those traded on the California-Quebec compliance market.
However, the price premiums in Washington would be mitigated if the new program linked itself to the California-Quebec market. The Climate Commitment Act requires state officials to consider opportunities for linkage with other jurisdictions, and S&P Global expects the Washington program to eventually bridge to that more established program.
"S&P Global Commodity Insights believes that overall emissions reductions will struggle to keep up with required cap declines," the special report said. "As such, we expect Washington carbon allowances to sell at a high premium to California/Quebec carbon process until linkage between the jurisdictions occurs, which we expect in 2027."
The California-Quebec programs were once separate too, until they linked together in 2013, one year after each of their respective programs were launched.