We’re officially hurtling towards the holidays, so it’s time for another update – and it might feel long overdue! The team working on the cap-and-invest program is as busy as ever, and as the program enters a new phase of its implementation, we’re moving to a slower pace for updates.
From now on, you can look forward to less frequent blogs with more in-depth recaps on things like auction results, our process for exploring linkage, rulemakings, and other ongoing projects, as well as more informational deep-dives on different aspects of the program as they are implemented.
Director Makes a Preliminary Decision to Pursue Linkage
We’ve shared some big announcements about linkage over the past month, with the release of our report and the Director’s decision to pursue linking with California and Québec.
On Oct. 12, we shared the Cap-and-Invest Linkage Criteria: Preliminary Analysis Report. The CCA directs us to evaluate whether to link Washington’s carbon market with the markets of other jurisdictions and provides specific criteria that must be met to do so. In this preliminary analysis, we identified several critical ways linkage would likely benefit Washington, including:
- By producing more stable market conditions which helps businesses plan their decarbonization strategies more proactively and with greater certainty.
- By putting downward pressure on compliance costs, which is expected to reduce impacts to households, and low-income families in particular, resulting from businesses passing on compliance costs in the form of higher prices for gasoline and home heating.
Washington will maintain control over its program and policies even in a linked market; therefore, the intent and overall stringency of the cap-and-invest program, including policies that address impacts to Tribes and overburdened communities, would not be lessened by linking.
On Nov. 2, the Director of Ecology made a preliminary decision to pursue linking Washington’s cap-and-invest program with California and Québec. Her input was based on input from partners and the public, the preliminary analysis report, and the independent economic analysis we commissioned last year. California and Québec will also need to decide whether to link with Washington. If the three jurisdictions decide to pursue linkage, we anticipate that the multi-step process will take more than a year. So linkage wouldn’t happen until late 2025 or later. Read the Director’s announcement: Stronger together: The promise of connecting North America’s clean energy leaders.
There will be opportunities for public input in 2024 or later, before we make a final decision on linkage. Find additional information about the process on our Cap-and-invest linkage webpage.
Auction Updates
Since our last update, in May, we’ve held two additional quarterly auctions and an auction of allowances from the Allowance Price Containment Reserve (APCR) – but more on that shortly.
As with our first auction, all three recent auctions went off without a hitch, and all allowances sold with broad participation across sectors. The vast majority of allowances going to entities that need them to cover emissions, rather than investors.
For all auctions, we certify and announce the results in an Auction Summary Report one week after the auction date. The summary report includes a list of bidders who were qualified to participate in that specific auction. Three weeks after the Summary Report, we confirm the total revenue raised in a separate Public Proceeds Report. As always, we email our lists when new reports post to the website. If you don’t already receive these update emails, you can sign up for our email list.
Auction #2 – May 31, 2023
The second quarterly auction was the first auction that offered allowances from the current year’s allowance budget and a future year’s budget. The CCA directs us to offer ‘future vintage’ allowances in two quarterly auctions each year, and the rule requires that we offer allowances from three years ahead – so two of the four 2023 auctions must include allowances from the 2026 allowance budget.
All current and future vintage allowances sold, but because they are from different allowance budgets, participants bid for them separately, resulting in two different settlement prices.
| Vintage Year | Number of Allowances | Settlement Price |
|---|---|---|
| 2023 (current) | 8,585,000 | $56.01 |
| 2026 (future) | 2,450,000 | $31.12 |
APCR Auction #1 – August 9, 2023
The APCR is a separate pool of allowances that can be released into the market when increased demand at a quarterly auction pushes prices above a certain level, called the "trigger price." Allowances from the APCR are sold at pre-determined prices, called "tiers: – meaning businesses know in advance exactly how much each allowance will cost.
We announce the APCR auction trigger price and tier prices for each year in December of the preceding year. For 2023, the trigger price is $51.90. Because the price for 2023 allowances in Auction #2 ($56.01) was higher than this, an APCR auction was scheduled.
In total, we offered 1,054,000 APCR allowances, divided evenly between the two price tiers, and all available allowances sold.
| Tier Price | Number of Allowances |
|---|---|
| $51.90 | 527,000 |
| $66.68 | 527,000 |
Unlike regular quarterly auctions, only businesses that need to comply with the program are allowed to purchase APCR allowances – investors are not allowed to participate in these auctions. Even more important, APCR allowances must be used for compliance, meaning they have to be turned in to cover emissions, they can’t be sold to other participants to generate revenue.
Auction #3 – August 30, 2023
Yet another auction under our belt. Since we did not offer 2026 allowances in Auction #3, some will be included in our final auction of 2024, in December.
| Vintage Year | Number of Allowances | Settlement Price |
|---|---|---|
| 2023 (current) | 8,585,000 | $63.03 |
APCR Auctions
The purpose of the Allowance Price Containment Reserve (APCR) is to provide cost-containment for businesses that need to comply with the cap-and-invest program by purchasing allowances to cover their emissions. The APCR is a separate pool of allowances that can be released into the market when increased demand at a quarterly auction pushes prices above a certain level. This mechanism is designed to ensure businesses can obtain allowances at sustainable, pre-determined prices.
APCR Auctions are only open to businesses and entities that are required to obtain allowances to cover their emissions under the program (‘covered’ or ‘opt-in entities’). APCR auctions are not open to investors or other entities without a compliance obligation (‘general market participants’).
APCR allowances can only be used to cover emissions, they can’t be sold or traded among market participants to generate revenue.
The results of the third quarterly auction in August triggered another APCR auction, scheduled for Nov. 8. On Sept. 8, we announced that we would offer 5 million APCR allowances at the November auction, all at the lowest tier price of $51.90, to provide additional market stabilization for covered businesses.
If the final 2023 APCR auction is triggered, we will assess the relative supply and demand and determine whether we will offer the 1,946,000 allowances remaining of the 2023 maximum supply outlined in our original methodology, or some other amount.
However, it is our intention to offer at least the 8 million in 2023 if the final APCR auction is triggered. We may also offer a higher amount by further frontloading APCR allowances if market conditions indicate that additional supply is needed to temper compliance costs for businesses.
Compliance Support
The cap-and-invest program was designed to give businesses flexibility in determining the most cost-effective way to comply. Part of that flexibility is a staggered compliance schedule – meaning businesses don’t need to turn in allowances immediately after the end of each year, and most allowances aren’t due for more than four years.
Still, as 2023 starts drawing to a close, we want to make sure that participating businesses understand what’s expected and have the opportunity to learn and ask questions about compliance well in advance of the first compliance deadline on Nov. 1, 2024 (for just 30% of 2023 emissions). To that end, we’ve updated the information on the Auctions and Market page to break down exactly what will be required, and when, for the first compliance period.
Working Towards Exempt Fuels Solutions
We also wrapped up a summer-long workgroup convened to address lingering issues around fuel suppliers assessing unfair surcharges on farmers and fishing fleet operators. The workgroup ran from June through September and resulted in some productive solutions, suggested by and developed alongside representatives from the agricultural, marine, transportation, and fuel industries. Our Fuel Exemptions Workgroup webpage has a detailed summary of solutions or substantial progress made in the following areas: maritime, agricultural operations, refunds/reimbursements for surcharges imposed on exempt fuels, and sales at retail locations.
Stay up to date
If you want to be notified about auction notices and results and other CCA news, sign up for our CCA Updates email list to get notifications. Otherwise, keep checking our cap-and-invest webpages for new content, information, and resources.