Washington State’s Emissions Allowance Program Held its First Auctions in 2023
In 2021, the Washington state legislature set up a cap-and-invest program that creates tradable emission allowances as a measure to reduce and limit greenhouse gas emissions over time.
Washington State wrapped up its first full year of auctions for tradable emission allowances in December, as the state considers joining an integrated regional greenhouse gas reduction program with California and Québec.
In 2021, the Washington state legislature set up a cap-and-invest program that creates tradable emission allowances as a measure to reduce and limit greenhouse gas emissions over time. This program is intended to help the state move toward a low-carbon economy. One allowance equals one metric ton of carbon dioxide-equivalent emissions. The program held its first allowance auction on February 28, 2023, and held subsequent auctions in May, August, and December.
Washington’s cap-and-invest program, the latest addition to U.S. carbon market programs, aims to reduce the state’s greenhouse gas emissions to 45% below 1990 levels by 2030, 70% below 1990 levels by 2040, and net-zero emissions by 2050.
Under this market-based initiative, the Washington State Department of Ecology issues allowances for greenhouse gas emissions. The Department of Ecology allocates some allowances to certain businesses for free, as directed by the law, and it sells the rest at quarterly auctions. Businesses can apply these allowances to meet annual compliance requirements, save them to offset future emissions, or trade them in a secondary market.
At the first cap-and-invest program auction, allowances sold at $48.50 per allowance, and the price increased to about $56.00 at the second auction and about $63.00 at the third auction due to strong demand. To address the demand, the Department of Ecology activated its Allowance Price Containment Reserve (APCR). The APCR is as a separate allowance pool the Department of Ecology can release into the market when prices surpass a predetermined threshold. The Department of Ecology held two APCR auctions—one in August and one in November 2023—where only entities with a compliance obligation to obtain allowances equal to their emissions and submit them to the Department of Ecology were eligible to participate.
The settlement price in the program’s fourth auction was about $52.00 per allowance, down from about $63.00 per allowance in the third auction.
In November 2023, the Washington State Department of Ecology announced that it intends to link its program with greenhouse gas reduction programs in California and Québec. By linking these three programs, it intends to harmonize efforts across jurisdictions and combine carbon markets through various components, such as compliance periods, allowance prices, and offsets.
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The issue with a lot of government programs like this is 1) the use of subjective arbitration-look no further than the EV credit awarded to Telsa via EPA guidelines. An investigation indicating that the value of EV credits awarded to Tesla could not by quantify, meaning no one could determine how the EPA came up with the value. Or the Social Cost of Carbon used as the bases for many regulations is subject to change of administration. 2) The truth about the success of such schemes and never really told.
Let's take a look at the Acid Rain program, wildly regraded as the most successful cap-&-trade scheme. The truth of why SO2 & Nxo decline in the U.S. had nothing to do with the trading of emission. Let's start at the begin. In the 1950s, scientists realized that coal-fired power plants in the Midwest and Appalachia were spewing sulfur dioxide and other harmful gases into the air, turning clouds and rainfall acidic. In 1970, under President Richard Nixon, Congress enacted the Clean Air Act to curb acid rain. The law mandated that new coal-fired power plants keep their sulfur dioxide emissions below a certain threshold. Two decades later, amendments to the Clean Air Act expanded the law’s reach. In 1990, under President George H.W. Bush, Congress forced all existing coal-fired power plants to reduce their emissions, as well. This meant power plants could either install very expensive “scrubbers” to reduce sulfur dioxide output or, alternatively, they could burn coal that contained lower concentrations of sulfur to begin with. Energy companies knew Wyoming contained entire underground mountains of low-sulfur coal. And providers that had previously thought it would be too expensive to mine and ship from the Powder River Basin began to reconsider. Meanwhile, revisions to federal railroad statutes in the 1980s drove down the cost of train transport, making it profitable to ship coal from Wyoming back East. With the cost of burning sulfurous Appalachian and Midwestern coal going up, and the cost of transporting low-sulfur Wyoming coal going down, the Powder River Basin became positioned to make a killing. While shipping Powder River Basin coal is burdensome, getting it out of the ground is not. The area has an abundance of low-sulfur coal located near the earth’s surface. It’s far easier to extract than coal reserves in Appalachian mines, for instance, which have to be brought up from underground shafts.
“The cost differential between surface mining and underground mining was strongly in favor of surface mining,” retired University of Wyoming historian Phil Roberts told Better Wyoming. “It gave Powder River country a leg up over a lot of other regions. Then the Clean Air Act capped it all off.”
Wyoming surpassed West Virginia to become the nation’s top coal producer in 1984. The gap kept growing between the Cowboy State and all the rest in the decades after that. According to the Wyoming Mining Association, Powder River Basin mines in 1969, before the Clean Air Act was passed, produced a paltry 4.6 million tons of coal and employed 448 people. By 1990, when the second wave of Clean Air Act regulations took effect, the Powder River Basin was churning out 184 million tons of low-sulfur coal per year.
So Federal regulations created the Wyoming coal industry and increased demand for coal. Kept in mind that the Acid Rain program did not stop SO2 & Nxo from being produced, in fact until a few years ago ships had to stop burring fuels with SO2 to comply with regulations..