Washington lawmakers are considering changes to the state's nascent carbon market with an eye toward controlling compliance costs and linking it with other jurisdictions, although they disagree over how far any program updates should go.
After last week's auction sold all of the Washington Carbon Allowances (WCAs) on offer at a record high price of $63.03/metric tonne, state senator Mark Mullet (D) introduced a proposal to make compliance easier in the coming years, and he is seeking a special session to pass it this year.
The state climate law "could use some work" to reduce its effect on gasoline prices, said Mullet, who is also a candidate in next year's gubernatorial election.
Washington's program requires large industrial facilities, power plants, and fuel suppliers to purchase allowances to account for their greenhouse gas (GHG) emissions. The cap-and-trade system is designed to help the state meet its mandate to cut GHG emissions by 45pc from 1990 levels by 2030 and achieve net-zero emissions by 2050.
Mullet's proposal would keep the state's 2050 target intact but require less-stringent emissions cuts through 2030. It also would move 5pc of allowances planned for annual budgets from 2031-2042 into the program's cost-containment reserve for purchase by compliance entities next year. Higher-than-expected auction settlements this year have already prompted the Washington Department of Ecology to sell more than 1mn allowances from its cost-containment reserve and to set plans to offer 5mn more at a fixed price of $51.90/t on 8 November.
But other Democrats have shown little appetite for substantially reworking the carbon market — including governor Jay Inslee (D), whose office said Mullet's proposal would "kneecap" the state's climate law and allow for more GHG emissions. Inslee this week said he would introduce legislation to address oil and gas companies "profiteering" by charging consumers more than their true compliance costs.
Other top Democrats expressed similar reservations about some of the more far-reaching changes Mullet has endorsed. A special session this year, which would require the support of the governor or two-thirds of the legislature, is also unlikely.
"I'm not saying no to additional policy levers to try to increase some allowance supply in the coming session," but there's no need to "break glass," House majority leader Joe Fitzgibbon (D) told Argus.
Republicans have floated their own changes to the program this year, such as lowering the program's price ceiling and allocating a greater share of no-cost allowances, although Democrats control the governor's office and both chambers of the legislature and have been more resistant to sweeping updates.
Fitzgibbon and House Environment and Energy Committee chair Beth Doglio (D) both have expressed support for linking Washington's programs with the California-Quebec carbon market, where allowances cost significantly less. Ecology has said it will issue a preliminary decision on linkage this October, although the earliest the programs could officially link is likely 2025.
Doglio said that her three carbon market priorities for next year's session are "changes to accommodate linkage, some transparency issues around gas prices, and addressing impacts to low-income households."
Fitzgibbon said lawmakers next year are likely to consider adjusting buying limits so that compliance entities can purchase more allowances at auction, and they could also weigh Mullet's proposal to broaden the types of biofuels that are exempt from program requirements.
As more allowances from the program's cost-containment reserve enter the market this year, compliance costs could fall off, absent major policy changes. Allowance prices have already tumbled, with December 2023 allowances beginning the week at $67.30/t and ending Thursday at $54/t according to Argus assessments.
