Get ready to pay price of I-2117 failure

The cost of a gallon of fuel may increase by 45 cents per gallon in the wake of the I-2117 failure.

The CO2 tax already jumped; it is set at auctions and on private markets when organizations covered by the law purchase allowances covering their emissions.

Immediately after voters decided to keep Washington’s tax on CO2 emissions, allowance prices on the private market jumped by more than 10% to about $57 per metric ton of CO2, according to the cCarbon dashboard of Washington Carbon Allowances. This capped off an increase of more than $20/MT during the last 45 days leading up to the election.

If prices in December’s state-run CO2 auction reach the price in the private market, it would imply an increase of about 21 cents per gallon of gas and 26 cents per gallon of diesel.

The CO2 price would nearly double, going from $29.88/MT (about 24 cents per gallon) to $57/MT (about 45 cents per gallon).

“Last week, the people of Washington voted to uphold the Cap-and-Invest program…,” cCarbon noted. “In response, WCA prices surpassed the Tier 1 threshold of $56.16, closing at $57 on Friday.”

The price on the private market has consistently been slightly higher than prices at the state auction, so the increase at December’s auction may be less than the cCarbon data imply.

The price, however, is consistent with the results of the state’s auction of credits from the Allowance Price Containment Reserve in October, which sold more than 1 million CO2 allowances at a flat price of $56.16.

Over the past three months, as the private market price for Washington’s CO2 allowances jumped more than 60 percent — from $35.63 to $57.13 — California’s price only increased about 8 percent – from $35.45 to $38.38. Those prices indicate something happened in Washington that did not occur in California.

We may already be seeing the impact of these increases in gas prices. On July 1, according to GasBuddy.com, the difference between the prices in Oregon and Washington was about 22 cents per gallon. On Nov. 11, that gap had grown to 40 cents per gallon.

There are several factors that make attributing the increase to the change in carbon markets difficult. First, there is a lag between the time credits are purchased and the cost shows up at the pump. Second, since allowances are now a combination of the private market and the state auctions, it is hard to determine how significant the impact of CO2 allowance price changes are.

Auction prices in Washington have been artificially depressed this year because bidders didn’t know if the Climate Commitment Act would be repealed by I-2117, which would have made CO2 allowances worthless. As the private market prices indicate, that is likely to change at the next auction.

Leading up to the vote, Reuven Carlyle, the former state senator who now runs a climate finance company, dismissed predictions prices would increase if voters rejected I-2117. He claimed the reduction in CO2 prices this year was a natural part of the market.

The jump in prices on the private market are a good indication that he was wrong.

Going into 2025, the prices are likely to increase again as the number of CO2 allowances decline again by about 8%.

Whether voters understood the price of keeping the CCA in place, they may soon find out the cost of their vote.

— Todd Myers is the vice president for research at the Washington Policy Center. Email him at tmyers@washingtonpolicy.org.