Washington Holds First Carbon Auction, Determining Price of $48.50 per Ton

by Tobias Coughlin-Bogue

(This article was originally published on Real Change and has been reprinted under an agreement.)

What could a metric ton of carbon cost? Ten dollars?

As it turns out, $48.50. This was determined by Washington's first auction of carbon allowances, which took place Feb. 28. Having a carbon allowance means being allowed to emit one metric ton of carbon in 2023. The auction was prompted by 2021's Climate Commitment Act (CCA), a bill that set progressive limits on carbon emissions for prolific polluters with the aim of reducing their greenhouse gas emissions by 2050 to 95% below 1990 levels.

"For the first time in Washington State, there will be a price for carbon," said Michael Mann, the executive director of Clean & Prosperous Washington, while hosting an electric minibus ride for media organized in celebration of the occasion. His group, which bills itself as "a team of business leaders working along with labor, tribes, environmental organizations and social justice advocates," and lists BP and Shell among its supporters, successfully lobbied to pass the CCA.

The price is set based on the lowest successful bid, meaning the State awards allowances to the highest bidder until all allowances are spoken for, setting the final price at whatever was offered by the final bidder to win allowances.

Relatively speaking, the State is getting a pretty decent haul. Similar allowances go for about $27 per ton in California, which has looser caps, and $100 in Europe, which has stricter limits, Mann said. At $48.50, Washington ended up at more than double the rate of $22.78 per ton that State agencies predicted in 2021 and raised a far sight more, overall, than California did in its first year. With 61,185,222 allowances sold, it ended up being around $300 million in tax revenue.

As we bounced and rattled our way through a few of Lower Queen Anne's more decrepit streets, stopping briefly to view an electric charging station before returning to the Space Needle, Mann explained his organization's ideas for what the State could do with its impending windfall.

The money will supplement existing funds won from Volkswagen in 2016 by the Attorney General's Office over that company's emissions fraud. Those funds pay for a variety of programs, including the electrification or conversion to "clean diesel" of school buses, public transit coaches, and freight trucks. They have also been used to support the State's Moving Forward levy, Mann noted, which was recently used to give youth riders fare-free transit in a large swath of the state. He was quite jazzed on the idea of getting more electric charging stations built, as well as offering drivers tax breaks for making the switch. But most of all, Mann was keen on the idea that capitalism could solve climate change.

"What does that mean when they say $30 a ton? That's telling you that a bunch of companies who have capitalist instincts were like, 'Let's find the numbers. What's the cheapest I can use this requirement?' And they're competing," Mann said.

The auction, yet to occur at that point, would reveal to us the true cost of pollution, down to the dollar.

"That's why this auction is exciting," he said, "because we're going to get [the] first signal from people that have proprietary information that you and I don't know [about] what their company is willing to pay. And that will tell us some really interesting insight about how our economy is really structured and how expensive it really is [to pollute]."

However, not everyone is quite as enthused about carbon pricing.

In a blog post opposing the CCA, Debolina Banerjee and Katrina Peterson, of the progressive environmental justice group Puget Sound SAGE, argued that cap-and-trade policies are a poor way to measure the human cost of climate change. Worse, that they're ultimately a boon for corporations, creating a new financial product to resell and allowing polluters to continue polluting.

"[C]ap-and-trade policies create international financial systems that benefit the corporations causing climate change," they wrote. "These are the same corporations who are driving the income inequality, displacement and gentrification harming our communities and actively opposing progressive policy for a more just future."

Fittingly, Mann's minibus was on loan from a California-based private transportation company called Eco Connections. Mann outlined a scenario where such companies could be incentivized to opt for all-electric buses via a tax credit to make up the price difference compared with a regular diesel bus. We don't have such a system here, he said, which is why Clean & Prosperous Washington had to borrow the bus from early-adopting Californian friends.

Clean & Prosperous Washington chose the bus to embody one of the group's main hopes for the Washington auction revenue's final use: electrifying medium-to-large vehicles.

Such vehicles make up only 4% of vehicles on the road, Mann said, but 24% of vehicular emissions. To that end, he suggested a similar tax credit scheme. If the state pays the difference for operators looking to upgrade, the notoriously dirty drayage trucks that ferry freight to and from the Port of Seattle could be convinced to go electric.

Not likely, said Matthew Huber, a Syracuse University professor and the author of Climate Change as Class War: Building Socialism on a Warming Planet. This journalist reviewed his book in the June 29 issue of Real Change.

"If this is overall going to raise energy prices, then that's really going to harm these truck drivers, who … are really, I imagine, on a thin margin trying to survive in this really highly exploitative trucking industry," Huber said.

The fact that the costs of compliance are typically borne by workers and consumers, he said, is a fundamental flaw of carbon pricing programs. It's one that, he suggested, has led to the Biden administration's relatively skeptical stance on cap-and-trade programs.

"One of the main reasons why the Biden administration has been so turned off by this approach is they've seen what happened in France with the yellow vests," he said, referencing the countrywide protests that began in 2018 and were led by motorists fed up with higher fuel prices. In France, all drivers are required to carry yellow safety vests, thus the name "gilets jaunes" for the loose collective behind the protests.

"It took [the Biden administration] long enough, but they figured out finally that any kind of climate mitigation policy that can be perceived as raising the cost of energy for working-class people, for ordinary people, is going to be easily mobilized against not only by workers and poor people, but actually by the right," Huber added.

Back on the bus, Mann conceded that the bill does not restrict the ability of companies that are required to cover their emissions to pass the cost of doing so to consumers down the line, other than protections for low-income utility customers.

However, he wasn't worried, saying, "Those companies, I will point out, did make $100 billion of profit last year, and whether they pass that on to consumers is their choice."

The fossil fuel industry, for its part, has been sending some pretty clear signals that, yes, that is absolutely their choice.

On March 7, the day the State published the auction's results, Catherine Reheis-Boyd, president and CEO of the Western States Petroleum Association, told The Seattle Times, "While the state is focused on the funds raised, today is not a day to celebrate and should be a warning for the viability of the program moving forward."

She added that the program would surely cost consumers and the economy as a whole. While her statements were more of a thinly veiled threat than an explicit one, conservative think tanks have been much more clear about what they expect the program to cost consumers.

The Washington Policy Center, one of Washington's most prominent conservative groups, published a blog post in April 2021 warning that the law would increase gas prices by 30 cents per gallon in 2023. In July 2022, the center upped that estimate to 46 cents per gallon.

Given that cap-and-trade legislation has not included, as of yet, any provisions to keep the companies affected by it from simply charging their customers more, how would he suggest we combat climate change without making the poorest people pay for it? Public sector investment in projects that employ primarily union labor.

"My vision of a Green New Deal would be much more about public sector ownership and public sector investment in these types of things," he said, praising recent "union-led" legislation in Illinois and Maine. Without making decarbonization efforts a win for rank-and-file workers, he said, a transition simply won't happen.

"All this incentivizing is still just accepting that we're going to cede this transition to the market and we're going to cede it to it [having] to be profitable to private investors for it to work for the climate. If we're in a real emergency, we have to sort of take public control and invest with wider criteria than just profit for shareholders and profit for private investors," Huber said.

Tobias Coughlin-Bogue is the associate editor at Real Change.

Featured Image: Carbon emissions now come with a price tag in Washington for refineries such as the Tesoro Refinery near Anacortes. (Photo: by Walter Siegmund/Wikimedia Commons)