Washington’s Latest Carbon Auction Price Drops by Over 50 Percent

The fifth auction of greenhouse gas allowances under Washington’s cap-and-invest program sold all allowances offered, with current vintage allowances settling at $25.76 per allowance, which is more than 50 percent lower compared to the previous quarterly auction, according to the results released on March 13 by the state’s Department of Ecology. The clearing price is slightly higher than the floor price of $24.02.

The auction included the sale of 2023 and 2024 vintage allowances and no future vintage allowances were offered. Compliance entities purchased 91.31 percent of the allowances offered.

The cap-and-invest program, established by the 2021 Climate Commitment Act, covers about 75 percent of statewide emissions. The program is a key component of the state’s efforts to achieve emission limits set in law and progress toward net-zero carbon emissions by 2050.

The price drop is likely due to uncertainty around the future of the program. An initiative allowing voters to consider repealing the legislation behind the program is expected on ballots this November. In January, the Washington Secretary of State certified the initiative – Initiative 2117 – and forwarded it to the legislature for consideration.

Meanwhile, state lawmakers have passed legislation aimed to facilitate linkage of Washington’s carbon market with the California-Quebec carbon market. Linkage with other jurisdictions would facilitate a single market with a larger pool of participants, potentially increasing the stability of the emissions market and lowering carbon prices.

In first auction held last February, allowances fetched $48.50 per unit, rising to approximately $56.00 and then $63.00 in subsequent auctions due to high demand. To manage this demand, the Department of Ecology activated the Allowance Price Containment Reserve (a separate allowance pool that can be released into the market when prices exceed a predetermined threshold), conducting auctions in August and November 2023. The settlement price in the fourth auction declined to around $52.00 per allowance from the previous $63.00.