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Draft:Washington State cap and invest program

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The Washington State cap and invest program was established in 2021 by the Climate Commitment Act (CCA). It combines a cap and trade system with a program to directly invest the generated revenue into addressing climate change. This program is intended to enforce the GHG limits set by the legislature, by requiring all businesses emitting at least 25,000 metric tons of CO2 equivalent to obtain allowances[a] equal in size to their total emissions. Businesses found not to be in compliance can be fined up to $50,000 per violation, per day. A set number of allowances are auctioned off and can be bought and sold on secondary markets, similar to securities.[1][2]

In December 2021, Washington joined the Western Climate Initiative, the auction program used by California and Québec's linked program, plus Nova Scotia's standalone program. The first auction was held February 28, 2023.[3]

Program design

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Auctions

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The program uses sealed-bid auctions, whereby the price that each participant bids is unknown to other participants. After bidding is closed, participants are allocated the number of allowances that they bid for, in order of highest price first, until all allowances have been accounted for. However, the price that all the successful participants actually pay (the settlement price) is the lowest successful bid price. Any participant who bid a price lower than the final price, will not receive any allowances at auction, and will instead have to purchase them on the secondary market.[2] The Department of Ecology also establishes price floors and ceilings for allowances, increasing over time and adjusted for inflation.[4][5][6] As of 2024, participants must bid in lots of 1,000 allowances.[7]

Allowance Price Containment Reserve (APCR) auctions are intended to keep prices from escalating too quickly. These auctions are automatically called after an auction where prices rose above a certain threshold and they are only open to polluting entities. In an APCR auction, prices are fixes at Tier 1 (lower) and Tier 2 (higher) prices, and there are a set number of allowances up for auction in each tier.[8][9]

Most allowances have a "vintage year," which is the earliest year that it can be used to cover a business' emissions. A limited number of allowances are sold in advance of their vintage year. Allowances with earlier vintage years can always be used in later years, but allowances cannot be used before their vintage year. For example, a 2027 vintage allowance cannot be used in 2026. Allowances sold in APCR auctions have no vintage and can be used in any year.

Compliance

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Businesses and other required reporting entities must cover all of their emissions with allowances and/or offset credits. Compliance is measured in four year periods, the first of which covers 2023-2026. On the compliance deadline (November 1) following each year in a compliance period, entities must submit compliance instruments covering at least 30% of their emissions from the previous year. On the final compliance deadline in a compliance period, entities must submit compliance instruments covering all of their remaining emissions from the compliance period.[10]

2023-2026 Compliance Period Schedule[10]
Date Required compliance amount Vintage allowed
Nov 1, 2024 30% of 2023 emissions 2023
Nov 1, 2025 30% of 2024 emissions 2023-2024
Nov 1, 2026 30% of 2025 emissions 2023-2025
Nov 1, 2027 30% of 2026 emissions 2023-2026
Remaining 70% of all 2023-2026 emissions

Auction history

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Allowance Auctions
Year Auction name Allowances sold (current, past, or Tier 1) Allowance settlement price (current or Tier 1) Allowances sold (advance or Tier 2) Allowance settlement price (advance or Tier 2) Proceeds to consigning entities Revenue raised
2023 Auction #1 6,185,222 $48.50 $299,983,267
Auction #2 8,585,000 $56.01 2,450,000 $31.12 $557,089,850
APCR #1 527,000 $51.90 527,000 $66.68 $62,491,660
Auction #3 5,657,651 $63.03 $184,510,807 $356,601,743
APCR #2 5,000,000 $51.90 0 $66.68 $259,500,000
Auction #4 3,442,255 $51.89 2,449,760 $45.00 $191,987,344 $288,857,812
Total 2023 vintage: 23,870,128

(APCR: 5,527,000)

2026 vintage: 4,899,760

(APCR: 527,000)

$376,498,151 $1,824,524,331
2024 #5 7,442,241 $25.76 $56,214,528 $135,497,600
#6 7,802,337 (maximum)[11] 2,200,000 (maximum)[11]
#7
#8
Total
2025 Total
2026 Total

As a measure of competitiveness amongst bidders, the Herfindahl-Hirschman index (HHI) is reported for each auction.

Individuals are also allowed to participate in auctions and allowance trading. As of 2024, only one individual (Clifton Swiggett) was registered in the system.[12]

Explanatory footnotes

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  1. ^ "Allowance" means an authorization to emit up to one metric ton of carbon dioxide equivalent. from RCW 70A.65.010

References

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  1. ^ "SB 5126 - 2021". Washington State Legislature Bill Information. 2021.
  2. ^ a b "Cap-and-invest - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2024-05-31.
  3. ^ "Auctions and market - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2024-05-31.
  4. ^ WAC 173-446-335
  5. ^ WAC 173-446-210
  6. ^ WAC 173-446-380
  7. ^ "WCI, Inc. Auction Platform". www.wci-auction.org. Retrieved 2024-06-01.
  8. ^ WAC 173-446-370
  9. ^ "WAC 173-446-APCR - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2024-05-31.
  10. ^ a b "Auctions and market - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2024-06-01.
  11. ^ a b "Cap-and-Invest Program Auction Notice, June 2024 Auction #6". apps.ecology.wa.gov. Retrieved 2024-06-01.
  12. ^ "Washington Cap-and-invest Program 2024 Quarter 1 CITSS Registrant Report". apps.ecology.wa.gov. Retrieved 2024-06-01.
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