Cap-and-Invest (Washington State)

Cap-and-Invest, is a program run by the Washington state government to fund climate change policy through a carbon emissions trading system, commonly known as cap and trade.

Program design

The Cap-and-Invest program was created by the Climate Commitment Act in 2021.

Auctions

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. The Department of Ecology also establishes price floors and ceilings for allowances, increasing over time and adjusted for inflation. As of 2024, participants must bid in lots of 1,000 allowances.

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.

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.

Auction revenue accounts

The revenue generated from the sale of carbon allowances is deposited into three main accounts, plus four accounts that derive funding from the main accounts. Each account has different restrictions on how funds can be spent. All funding must first be appropriated by the Washington State Legislature from an account before it can be spent.

Compliance

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.

Auction history

Impact of Initiative 2117

At the 2024 meeting of the North American Carbon World, Director of the Washington State Department of Ecology, Laura Watson, suggested that the result of the reason for the sudden drop in settlement price for carbon allowances in the first auction of the year was a result of the initiative getting on the ballot.

Analysts expected the first auction after I-2117 was voted down to see a significant increase in settlement price. These predictions were based on both the sizeable margin of defeat for the initiative and on the current price for allowances on secondary markets. However, the December 2024 auction settled at only $40.26 with a bid-to-cover ratio of 1.15. Data showed that compliance entities were generally participating in lower numbers than expected, despite projections that there is an overall shortfall of allowances.

Compliance

November 1, 2024 marked the beginning of the program's compliance requirements. Required reporting entities had to submit documentation to the Department of Ecology that showed they had compliance instruments (allowances or offsets) covering at least 30% of their 2023 emissions. The 2023 compliance report showed a 99.996% compliance rate.

Investments

For fiscal year 2023 (FY23), which started on July 1, 2022 and ended on June 30, 2023, the Washington state legislature appropriated $76 million from CCA accounts. For the 2023-25 biennium budget, total appropriations jumped to $3.2 billion. However, in the fiscal year ending in June 2024, only 15% of appropriations had been spent, potentially due to the threat of I-2117.

Climate justice provisions

The Climate Commitment Act requires that a minimum of 35%, with a stated goal of 40%, of auction proceeds be used for climate justice, meaning projects that benefit overburdened communities, defined as:

''“a geographic area where vulnerable populations face combined, multiple environmental harms and health impacts or risks due to exposure to environmental pollutants or contaminants through multiple pathways, which may result in significant disparate adverse health outcomes or effects.”''

Of those climate justice projects, at least 10% of investments must go towards projects formally supported by an Indian tribe.

For air pollution mitigation projects, Department of Ecology identified 16 areas which were both overburdened and highly impacted by air pollution. The results of this study were used as eligibility criteria for $10 million offered in Air quality in overburdened communities grants.

Consumer financial assistance

*Free public transit (bus, Link light rail, commuter rail, ferry, Amtrak Cascades) for all youth age 18 and under.

* One time $200 rebate on electricity bill for low-to-medium income households.

* E-bike instant rebate program ($5 M).
* Financial assistance for purchasing heat pumps and installing insulated windows.

Capital projects

* Move Ahead WA public transportation grant programs ($3,000M/16yr)
* Building 5,000 new EV charging stations ($85 M)
* Electrifying Guemes Island Ferry ($34 M)
* Replacing the boilers at the Kaiser Aluminum plant in Spokane ($5 M).
* Air quality in overburdened communities grants ($10 M)

Government funding

* Climate and Health Adaptation Initiative (CHAI)
* Improving Air Quality in Overburdened Communities

References

Notes

Citations

{{Reflist

Washington (state) law
Climate change law
Climate action plans