The 28th of February, 2023 saw the first cap-and-invest auction in the state of Washington. Every single one of the 6,185,222 allowances was bought by large industrial emitters enrolled in the program.
The criteria for participants was to have annual emission above 25,000 metric tons of CO2 a year, requiring them to purchase allowances equivalent to each ton they emit. Prices during bidding ranged from $22.2 to $81.47 with a settlement price at $48.5.
“This is truly historic for Washington and for the global movement toward a low-carbon future. This cap-and-invest system is crucial to our approach to addressing climate change, and we are very encouraged to see this program starting off so well,” said Washington Governor Jay Inslee.
Approximately three quarters of Washington’s emissions are included in the program with heavy industry and energy companies the ones that have to purchase the largest numbers of allowances.
The remaining 25% of emissions outside this scope are largely produced by smaller companies but there are some big emitters contributing to that number as well. The program has given exemptions to refineries and paper mills, as they are in the “hard-to-abate” category of industrial emitters.
The auctions will be held quarterly and in the next couple of years the expected revenue is estimated to be around $1.7 billion. According to the Climate Commitment Act, over a third of these funds will go towards communities that have been impacted by climate change and heavy pollution.
The cap-and-invest market is closely tied to the state’s net zero targets for 2030 and 2050. The “cap” part of its formula will go down every four years in alignment with the states emissions targets.
There are now over twelve active programs like this in the U.S. Neighboring Oregon has one, as well as California which has linked its program across the Canadian borded with Quebec (called the Western Climate Initiative). The northeast contains the majority with a regional program, called the RGGI, that includes Connecticut, Massachusetts, Rhode Island, New Hampshire, Maine, Delaware, Vermont, Maryland, New York, New Jersey and Virginia.
Washington is already exploring a link to the Western Climate Initiative, which could improve price discovery and increased liquidity. Establishing further connections between these nascent clusters has also been mentioned as the network effect will also increase their effectiveness and ultimately have a more positive impact on reducing carbon emissions.