Washington state's cap-and-invest plan caused higher gas prices

See Gas Station Stunts and Tech Billionaires: The High-Stakes Battle Over Washington’s Climate Law: The move to repeal the state’s cap-and-invest plan is being watched by other states considering similar emissions reduction efforts by By H. Claire Brown of The WSJ. Excerpts:

"Washington gas prices hovering at around $3.91 a gallon"

"Under the law, the state auctions off greenhouse gas emissions allowances to polluting companies. The plan has generated more than $2 billion in revenue for the state, but the rollout also coincided with higher-than-expected increases in prices at the pump, leading to concerns about its impact on household wallets.

Estimates of the impact of the state law on gas prices vary, but some put it as high as 60 cents a gallon. Washington gas prices routinely exceed the U.S. average, which recently was $3.17 a gallon."

Washington’s cap-and-invest law applies to businesses that operate in the state and are responsible for the equivalent of at least 25,000 tons of carbon dioxide a year, such as fuel suppliers and utilities. It covers an estimated 75% of statewide emissions.

Each quarter, the state offers a set number of emissions allowances through an auction system. Companies bid for allowances, which give them the right to emit a certain amount of greenhouse gas. Over time, the state will auction off fewer allowances each quarter, and by 2050, the idea is that the program will reduce emissions by 95%.

Cap-and-invest programs are designed to ensure that businesses reduce carbon where it is most efficient, and the auction system helps set a market price for carbon. In 2023, the prices landed between $48.50 and $63.03. Companies that can slash emissions for less are motivated to do so, and others may opt to purchase allowances rather than adjust their operations. The allowances can be bought and sold on a secondary market.

The state has used the proceeds from the auctions on decarbonization initiatives like public transportation infrastructure.

Before the law rolled out, the state’s Department of Ecology estimated it might boost gas prices about 4 to 12 cents a gallon. Instead, they went up by 20 to 60 cents. Economic analyses attempting to quantify exactly how much of this increase was the result of the cap-and-invest law have varied widely, in part because the names of companies participating in the cap-and-invest program are confidential, so independent analyses are difficult to execute."