Economic impacts of Washington’s climate policies

Yes. Ecology conducted economic analyses of the Climate Commitment Act and the Clean Fuel Standard when rules for these new programs were proposed in summer 2022. As part of these analyses, we commissioned reports from respected, independent analysts to add to our understanding of cost impacts to businesses, industries, and consumers in Washington when these new climate initiatives began in January 2023. 

• May 12, 2022 Berkeley Research Group - Clean Fueld Standard Cost Benefit Analysis
• January 2023 Washington State Climate Commitment Act: Summary of market modeling and analysis of hte proposed Cap-and-Invest program

The May 12, 2022 third party report we commissioned from Berkeley Research Group evaluated the Clean Fuel Standard’s impact on the retail cost of gas and diesel fuels, as well as electricity for electric vehicles. It found the Clean Fuel Standard would mean less than a 1-cent-per-gallon difference in the price consumers pay at the gas pump in 2023.

Prices could rise 2 cents in 2024 and up to 4 cents in 2025, the report shows. These price impacts are not expected to continue forever. Once the Clean Fuel Standard is fully phased in about a decade from now, any remaining price impact is predicted to drop to nearly zero. In addition, the electricity used to power electric vehicles would be cheaper than it is today, because of new incentives to add charging equipment for electric vehicles, the report found.

We also analyzed potential effects of Washington’s other major greenhouse gas policy, the Climate Commitment Act, accounting for the impacts of the Clean Fuel Standard. As businesses adapt to the new policy, we expect the overall economic impact of the cap-and-invest program to be 1 to 3%.

Washington gas prices — and gas prices across the country — are primarily driven by supply and demand. State and federal regulations play a relatively small role in fuel prices. Gas prices today are lower than they were a year ago, but higher than they were at the beginning of 2023. Diesel prices are lower than a year ago and have been roughly flat over the course of 2023.

The Climate Commitment Act and the Clean Fuel Standard are market-based policies. The laws require major greenhouse gas emitters to stay under a statewide limit, then lets those businesses determine the best method to accomplish that. Some of the third-party analyses assume that businesses won’t take steps to reduce their compliance costs and that consumers won’t reduce their personal transportation costs.

These assumptions do not match standard economic modeling. They do not match what we see in other regions that have implemented similar carbon-reduction initiatives. Our projections are consistent with real-world outcomes seen in California, Oregon, and British Columbia, where markets for low-carbon fuels and alternative transportation options continue to grow and cost impacts remain low.
    
Here in Washington, when fuel prices topped $5 in mid-2022, consumer data shows that people responded by driving less, buying more fuel-efficient vehicles, or switching to electric vehicles. Even though not everyone is able to take steps to cut their personal costs, the response was strong enough to reduce overall demand and bring down fuel prices for everyone. Due to these changes in supply and demand, the record-high prices in summer 2022 have declined by almost $1 per gallon.

In 2022, a combination of international and national factors drove fuel prices to record highs — including the invasion of Ukraine, refinery problems, and a slow recovery from the pandemic, which limited oil and gas development. Starting in summer 2022, gas prices began falling. They are now almost $1 per gallon below the 2022 peak.

Historically, gas is a volatile commodity — retail prices are affected by changes to production capacity, and supply and demand for crude oil. State regulations play a minor role. 

Climate change threatens Washington’s environment, economy, and the health of people who live here. Those threats carry very real costs. The Clean Fuel Standard and Climate Commitment Act will help:

• Reduce carbon emissions.
• Accelerate the switch to clean energy sources with more stable prices.
• Make zero-emission vehicles and other low-carbon technologies more affordable and accessible.

When this switch to cleaner energy is complete, costs from these policies will fall quickly. Transportation costs will be significantly lower than they are today.

Along with these broader benefits, both the Clean Fuel Standard and the Climate Commitment Act include provisions to make sure communities with lower incomes have better access to clean transportation options and improved air quality.

We also asked Berkeley Research Group to investigate other costs and savings due to cleaner fuels and reduced greenhouse gas emissions. The report shows that once fully phased in, the Clean Fuel Standard — combined with other transportation initiatives — will mean an estimated $1.8 to $3.8 billion in economic benefit due to better health and reduced health care costs.

At the same time, the Clean Fuel Standard alone is estimated to save up to $40 million per year by reducing contributions to climate change — and the wildfires, floods, storms, and other natural disasters that come with it.

Transportation is the largest source of greenhouse gas emissions in Washington, accounting for about 39% of total emissions. To meet Washington’s requirement to reduce total greenhouse gas emissions 95% by 2050, steps must be taken to reduce emissions from this sector now. That’s why the Legislature passed the Clean Fuel Standard, to add incentives to the transition to low-carbon and zero-emission fuels, along with companion policies, such as the zero-emission vehicles standard.

The Climate Commitment Act, which covers a wider range of emissions sources, will act as a backstop — helping to cut overall emissions to meet limits set in state law, while also driving down the demand and cost of petroleum.

Because fuel suppliers will be reducing the carbon intensity of their products under the Clean Fuel Standard, they will need fewer emissions allowances under the Climate Commitment Act. The two policies work together, pushing to reduce priority transportation emissions at a low cost.