Washington state GHG auction revenue outlook jumps

Washington state has increased revenue projections by $1.6bn for the first five years of the state's upcoming greenhouse gas (GHG) cap-and-trade program, because of rising credit values and plans to auction a portion of future allowances.

The Washington Department of Ecology forecasts revenue from its carbon allowance auctions will generate nearly $3.7bn from 2023-2027, an increase of 81pc from projections last year.

Ecology's original outlook released in 2021 was based on an average of California's most recent auction prices at the time, which ranged from $16.68-$18.80/metric tonne, while the new projections used an average of California's latest auction prices, which have been $27.00-$30.85/t, according to the agency.

The updated estimates also factor future vintage allowances sales at the auctions, which were not part of the 2021 modeling, according to Ecology.

"Because of the inclusion of future vintage allowances, we anticipate an initial boost in auction proceeds during the first three years of the program, followed by a more gradual corresponding reduction," said Claire Boyte-White, the agency's rule communications specialist.

State law requires that auction proceeds be invested in climate-related projects across Washington. Based on the updated projections, Ecology expects that over the first five years of the program, nearly $1.6bn will go to a fund for projects that reduce emissions from the transportation sector, $60mn will go to a fund for projects that reduce air pollution in overburdened communities and over $2bn will go to a fund for projects that support the transition to clean energy.

All revenue from the auctions will have to be appropriated by the legislature, according to Ecology. The agency plans to hold the first auction in mid-February. The cap-and-trade program begins on 1 January.

The agency said that the figures are best used as a general guideline, given the "high level of uncertainty" of doing projections before the program has launched.

"While the updated projections represent Ecology's best estimate of potential revenues, actual auction proceeds could be higher or lower, depending on the actual price emissions allowances sell for at each auction," Boyte-White said.

The cap-and-trade program is designed to help Washington meet its mandate to cut GHG emissions by 45pc by 2035, compared with 1990 levels, and to hit net-zero emissions by 2050. The program will cover industrial facilities, power plants, natural gas suppliers and other fuel suppliers with emissions of at least 25,000t/yr.

The program largely mirrors California's with a design that could facilitate an eventual linkage with the Western Climate Initiative (WCI) carbon market. Washington has joined WCI to make use of its systems to run the state's allowance auctions, but it has not yet taken action to link the markets.

By Tomas Russo