Washington has solidified its position as the state with the highest average gasoline prices in the U.S., widening its lead over second-place California by 16 cents a gallon, AAA reported June 29.

Regular gas averaged $4.98 in Washington, compared to $4.82 in California. Washington trailed California by 51.8 cents a gallon at the state of the year, but overtook California in mid-June.

Average diesel prices remain higher in California at $5.04 a gallon to Washington’s $4.94. California and Washington have the second- and third-highest diesel prices, respectively, behind Hawaii.

Washington’s rise to the top in gas prices coincides with the Jan. 1 implementation of cap-and-trade, which imposes a fee on carbon emissions from fossil fuels. Oil companies will pay the fee, but can pass it along.

Carbon fees

California also has cap-and-trade, but Washington’s current fee is 85% higher. Sen. Mark Mullet, D-Issaquah, said June 29 he will reintroduce a bill next year to bring Washington’s fee more in line with California’s.

Mullet proposed capping Washington’s fee at no more than 20% higher than California’s. The bill did not receive a hearing.

“Yes, we need to combat change, but in a way that keeps the state of Washington affordable,” said Mullet, a candidate for governor. “People should be upset. That money is coming out of their pockets at the pump.”

Other factors may be contributing to Washington’s highest-in-the-nation prices, such as maintenance to a major north-south petroleum pipeline and normal changes in supply and demand.

Oregon gas prices, the fourth-highest in the U.S., have risen nearly 37 cents in the past month, compared to nearly 30 cents in Washington, according to AAA.

Washington’s highest-in-the-country gas prices are being caused by several factors, said University of Washington geoscientist Scott Montgomery, who analyzes the oil industry. “I don’t think it’s going to last very long,” he said.

It will become clearer as time goes on the influence cap-and-trade is having on prices, Montgomery said. “It’s almost certain that cap-and-trade can be given some responsibility, but how much is not clear,” he said.

Inslee responds

The Inslee administration blames oil companies for Washington’s highest-in-the-country gas prices and says it’s too early to tell the impact of cap-and-trade on fuel costs.

“For those focused on more than just soundbites, it seems clear that there are real factors at play — including gas companies’ prolific profit margins — that have little to do with cap-and-invest or any emissions-reduction program,” Ecology spokeswoman Claire Boyte-White said in an email.

Cap-and-trade fees are set at quarterly auctions. Washington has held two auctions so far, raising $857 million for state spending. The carbon fee at the most recent auction was $56.01 per ton, compared to $30.33 in California.

At $56.01, the carbon fee could translate into 44.8 cents a gallon, according to a formula cited by the California Air Resources Board. The formula does not take into account private business strategies.

Western States Petroleum Association spokesman Kevin Slagle said in an email that Washington’s cap-and-trade program is broken.

“Many factors play a role in cost at the pump, which now includes the business cost of the cap-and-trade program. Discussions about anything other than fixing the program are just noise,” he said.

Cap-and-trade auctions are open to investors hoping that carbon-emission allowances will increase in value. Investors bought more than 10% of the allowances sold at the last auction.

Because the allowance price was so high, Ecology will hold a special auction in August open only to companies that must acquire allowances. Prices are fixed before the auction.

Some allowances will be available for $51.90 and some for $66.68. Both prices are far higher than ever seen in California.

Washington Research Council economist Kriss Sjoblom said June 29 high carbon prices could be a “speculative bubble.”

“What I’m uncertain about right now is where allowance prices are going to settle down,” he said.

“I have some sympathy for people who have compliance obligations. They have to figure out what the cost will be to satisfy their obligations.”