Spring has officially sprung over at the Ecology Building in Lacey, and we’re just as busy as the baby squirrels scurrying through the trees outside. February and March were jam-packed with key milestones, public engagement, and important program developments — so let’s dive right in!
As we mentioned last time, Washington state’s first cap-and-invest auction was held Feb. 28. We were pleased to announce that it went off without a hitch, with robust participation and strong results. We offered 6,185,222 allowances for sale at the first auction, and every single allowance sold. The final settlement price was $48.50
As you can imagine, there was plenty of curiosity about the settlement price and participation, but it was "mum’s the word" until March.
So why the wait?
After the bidding window closed on Feb. 28, our team worked with a third-party market monitor to analyze and verify the results — which takes time. This work was necessary to ensure that the auction was conducted in accordance with regulation and that were no signs of market manipulation or other illegal activities, so the auction wasn’t officially complete until that work was done.
We posted the Auction Summary Report to our webpage at noon on March 7, and we’ll continue to post the results of each quarterly auction at noon one week after the auction date.
Lowest bidder wins
We’ve had a lot of questions about how the settlement price works. Understandably, a lot of folks assume it’s the highest bid that sets the price — but it’s actually sort of the opposite. Unlike the auctions you see in movies, it’s the lowest successful bid that sets the price everyone pays.
Here’s how it works: Once the bidding window has closed, all the bids are organized from highest bid price to lowest, like an upside-down pyramid. Available allowances are allocated to each bidder in that order. If the highest bidder wants X allowances, they get X allowances; the next-highest bidder wants Y allowances, so they get Y allowances, and so on. Once we get to the very last available allowance — meaning the lowest bid on the upside-down pyramid — that’s the price that every successful bidder pays for each allowance.
Bids lower than that price, the bids that make up the tip of the pyramid, are "unsuccessful" and don’t win any allowances in that auction. However, those bidders can still participate in future auctions, or they can buy allowances from other market participants who are willing to sell.
Revenue at the ready
We’re guessing you pulled out your phone after reading those auction results to do some quick math — we all certainly did once they were announced! While you’d be right to guess that multiplying the number of allowances by the settlement price would tell you how much revenue was raised, we weren’t able to confirm that until this week.
Now that all the financial transactions have settled, and the auction proceeds have been officially deposited with the State Treasury, we were able to issue a Public Proceeds Report confirming that Washington’s first auction raised just under $300 million.
All auction revenue gets appropriated by the Legislature, which means we don't have any authority over how the funds are spent. Every dollar is earmarked by law for important climate projects, though. This means that, even though the Legislature decides which projects and programs get funded, they are required to choose investments that focus on clean transportation, clean energy, climate resilience, and environmental justice initiatives. You can learn more about how auction revenue will benefit Washington’s environment and communities on our Auction Proceeds webpage.
A look at linking
At the same time we were analyzing and releasing exciting auction results, we were also continuing our outreach and engagement efforts on linkage. Although we’re very proud of our cap-and-invest program in Washington, we’re not the only kid on the block when it comes to this approach to reducing emissions, and the law directs us to examine the possibility of linking our carbon market with these similar programs.
We held a tribal forum on linking in February and have held two public listening sessions this month. We’ll hold the third and final session on April 18. Register in advance to attend.
These events are aimed at hearing feedback from participants on whether we should combine our carbon market with the existing market that is already shared between California and Québec. The law lays out some important requirements that must be met before Washington can finalize a linkage agreement, and it’s our job to consider all aspects of these criteria as we come to a decision.
To that end, we have created an online survey. Whether you attend a listening session, complete the survey, or send us your thoughts via mail, email, or voicemail, we ask that you submit your comments on linkage by May 15, 2023.
Of course, even if we do decide that linking would be in the best interest of Washington, California and Québec would still need to undergo their own processes before we could begin negotiating a linkage agreement — and we will have more opportunities for public feedback before an agreement is finalized. Because there are so many moving parts, we don’t expect an agreement to be in place before 2025 — even if all three jurisdictions want to link. You can learn more about this process and the requirements laid out in the law on our Linkage webpage.
Onward on offsets
We’ve also been making steady progress on the development of our carbon offset program. Under the law, covered businesses can use offset credits from approved projects to cover a small percentage of their emissions — up to 8% per year in the first four-year compliance period, and up to 6% per year thereafter.
To ensure that offset credits used under the program come from projects that produce real and verifiable benefits to Washington, the law directs us to work with "recognized offset registries." Registries are responsible for reviewing offset project proposals — such as urban tree planting or capturing methane on dairy farms — and verifying that they actually reduce, remove, or avoid greenhouse gas emissions, so working with registries that have a good track record is critical.
If a proposed offset project meets the registry’s requirements, it becomes "listed." Then, if the project completes third-party verification by another, independent verification body — an additional quality control required by the regulation — and meets other standards, we can issue offset credits that can be used to cover emissions under the cap-and-invest program. The project developer can then sell those credits to market participants to generate revenue.
On March 27, we announced the approval of two offset registries, the American Carbon Registry and Climate Action Reserve. Both have more than 20 years of experience in the industry and have worked for more than a decade in California’s cap-and-trade program.
Next on the agenda
Clearly our biggest news this month was the success of the first auction. In fact, it went so well that we’re doing it again – and again, and again — every quarter until 2050! We announced earlier today that the second auction will take place on May 31, and we’ll release the Auction Summary Report at noon one week later, on June 7.
We won’t be posting a Meaningful Momentum Climate Commitment Act blog installment in April, but you can look forward to another recap in May. In the meantime, keep checking our cap-and-invest webpages for new content, information, and resources.