Washington Department of Ecology director Laura Watson said Thursday that merging with California’s cap-and-trade auctions should ease inflation driven by Washington’s stand-alone program.

Watson announced Ecology will pursue participating in cap-and-trade auctions jointly held by California and Quebec, Canada. A larger pool of allowances should “ease pressure on consumer prices,” she said.

“Linkage is likely to decrease allowance prices, which is likely to ripple through to impacts on goods that we purchase,” Watson said.

Merger questioned

Rep. Mary Dye, the top-ranking Republican on the House Environment and Energy Committee, questioned the wisdom of linking up with California hoping to hold down energy costs and inflation.

California has the highest gas prices and among the highest electricity rates and cost-of-living in the country, she said.

“Everything California policymakers touch related to energy markets ends in disaster for consumers,” Dye said in a statement.

California and Quebec have been holding joint cap-and-trade auctions since 2014. Ontario, Canada, joined in 2018, but withdrew six months later after a new anti-cap-and-trade premier was elected.

Washington lawmakers modeled cap-and-trade after California’s program, anticipating the state would try to merge with California and Quebec to form a single market for carbon allowances.

The programs won’t be united until 2025 at the earliest. California is focused on updating its cap-and-trade program to meet carbon-reduction targets, California Air Resources Board spokeswoman Lys Mendez said.

California reviews its program

“California is also required to undergo its own evaluation and public process for any changes that would be required to pursue linkage,” she said in an email.

In making the case for linkage, Ecology acknowledges cap-and-trade introduces inflationary pressures by adding a fee to fossil fuels. The fee is set by auctioning carbon allowances.

High allowance prices and associated economic impacts could leave cap-and-trade “vulnerable to curtailment or repeal,” according to an Ecology report on linking with California and Quebec.

Washington sold allowances in the most recent auction for $63.03 each, compared to $35.20 at the most recent California-Quebec auction.

Higher cost of gasoline

Cap-and-trade may be adding 50 cents per gallon to gasoline in Washington, compared to 28 cents in California, according to a formula cited by the California Air Resources Board.

The law of supply and demand appears to be at work. Washington’s cap-and-trade program mandates steeper cuts in carbon emissions to reach 2030 goals than does California’s program.

“Washington state’s program is currently more stringent than California’s. We have fewer allowances in our system,” Watson said.

Ecology anticipates that joining the California-Quebec market — six times the size of Washington’s market — will lower allowance prices by increasing their supply.

California, however, may move to raise allowance prices.

Allowance prices going up?

The Legislative Analyst’s Office this year reported that California’s cap-and-trade program was not on target to meet 2030 carbon-reduction goals.

The state auctions off too many allowances and prices are relatively low, according to analysts, who recommended the air resources board reduce the supply of allowances to motivate carbon reductions.

“In short, the program is not stringent enough,” according to the analyst’s office report.

Washington’s cap-and-trade program — which it calls cap-and-invest — would have to be at least as stringent as California’s to participate in the California-Quebec auctions, according to California law.

“As we make decisions about whether to link, we need to look very closely at what California is planning to do to change their program to make sure our programs are sufficiently aligned,” Watson said. 

The Legislative Analyst’s Office this year reported that California’s cap-and-trade program was not on pace to meet carbon-reduction goals. The office recommended driving up the price of carbon allowances by reducing their supply.