OLYMPIA, Wash. — Washington’s one-year-old cap-and-invest program will be one of the dominant issues during the state’s 2024 legislative session, which begins Jan. 8.

From supporters of the program, which was created by the state’s 2021 Climate Commitment Act, there will be attempts to fine-tune it. Maybe make it more palatable to farmers. Maybe provide some money to the public. Maybe make Washington’s system compatible with that shared by California and Quebec in the hope of reducing gasoline prices.

In addition, Gov. Jay Inslee and Democratic legislative leaders want to copy a page from California and create a new state agency to monitor and regulate the oil industry within Washington to keep a check on prices at the pump.

“We’ve been whipsawed too long by the oil and gas industry, and we need a bill to find out what’s really going on,” Inslee said at a press conference. The Inslee administration has noted that the five biggest oil company made $200 billion in profits in 2022.

And all these efforts will occur against a backdrop of Republican moves to eliminate the entire cap-and-invest program — moves that could dominate the November 2024 election cycle.

Conservative organization Let’s Go Washington in November submitted a petition to the Washington Secretary of State’s Office to eliminate cap-and-invest, blaming it for high gas prices. If the Legislature declines to address it in the upcoming session, the petition will go to a public referendum next November. (See Wash. Cap-and-trade Opponents Advance Repeal Petition to Sec. of State.)

“It will be dead on arrival,” Sen. Joe Nguyen (D), chair of the Senate’s Environment, Energy and Technology Committee, told NetZero Insider. Democrats who support the cap-and-invest program constitute the majority in both the House and Senate.

“Maybe people would rather have a choice [with a November referendum]. The community at large, the people are upset about it,” Rep. Mary Dye (R), ranking minority member of the House Environment and Energy Committee, said in an interview. “[Cap-and-invest] is fundamentally transforming our energy industry with a hockey stick.”

Revoking the cap-and-invest program is one of the few policy planks that leading GOP gubernatorial candidate Dave Reichert has announced so far.

“On DAY ONE as governor, I will pause the taxes that are costing you 50 cents more a gallon for gas and are increasing your utility bill. The current policy is not affordable, and worse, it fails to live up to its promise to protect our environment,” Reichert posted on X (formerly Twitter).

Sen. Mark Mullet (D), a Democratic gubernatorial candidate, has introduced a bill to tweak the cap-and-invest program. “You have to make [the program] more affordable [at the gas pump]. You need to fix it, or voters will overturn it,” he told NetZero Insider.

The state is raising a huge amount of money from cap-and-invest — roughly $1.8 billion so far in its first year — which the Legislature is allocating toward clean energy development and programs that mitigate the impacts of climate change, particularly on disadvantaged communities. The Inslee administration predicts the program will raise an additional $941 million in the first six months of 2024, with most of the money going to climate change mitigation. Inslee wants to use some of that money to create a one-time $200 credit applied to the utility bills of roughly 750,000 low- and moderate-income households in Washington.

Changes Ahead?

Meanwhile, Rep. April Connors (R) has introduced a bill to send any cap-and-invest revenue the Legislature has not appropriated by July 1, 2024, back to state residents as a rebate.

At a Jan. 4 legislative press conference in Olympia, Reps. Timm Ormsby (D) and Chris Corry (R), respectively chair and ranking minority member of the House Appropriations Committee, said some type of rebate could be considered this session.

“There’s a high likelihood that all parts of the Climate Commitment Act will be considered for changes,” Ormsby said. Corry added that a rebate “is a start. It scratches the surface.”

Inslee and Democratic legislative leaders have been taking political flak from critics who blame the state’s high gasoline prices on the cap-and-invest program, due to oil companies passing their auction costs to the pump, which accounts for a 21- to 50-cent increase in gasoline prices depending on how calculations are made. Gas prices in the three West Coast states of Washington, Oregon and California are usually among the highest in the nation for economic and geographic reasons outside of the cap-and-invest program.

The most ambitious proposed legislation in the upcoming session would force oil companies to open their finances to state scrutiny. Inslee and Democratic leaders believe the oil industry has not been upfront about the reasons for Washington’s high gasoline price.

“We would like to see more transparency around oil prices,” Rep. Beth Doglio (D), chair of the House Environment and Energy Committee, said in an interview.

Modeled after a new California office, the bill would create a Division of Petroleum Market Oversight under the umbrella of the Washington Utilities and Transportation Commission.

The proposed office would require fuel suppliers, refinery operations and others in the fuel supply chain to provide the state with details on fuel pricing, profit margins and transaction data. The bill would likely explore establishing fines for collusion, shutting down fuel chain equipment and other forms of market manipulation, officials said in a press briefing on the proposed legislation.

“This is to simply unpack the black box of how oil companies set their prices. … Who’s selling to whom at what volume?” Becky Kelley, Inslee’s climate change policy adviser, said at the briefing.

Nguyen expects the proposed office to collect “thousands of data points” from the oil industry.

Meantime, Mullet has introduced Senate Bill 5783 to help tackle the criticism that high settlement prices for carbon allowances in the cap-and-invest auctions are driving up Washington’s gas prices.

The quarterly settlement prices in 2023 — $48.50 to $63.03 per metric ton of emissions — were much higher than what state experts predicted in 2021. By comparison, California’s settlement auction prices began in in 2012 at $10 per allowance, ending up slightly above $36 per allowance in 2023.

Inslee said a 2021 state forecast predicted lower gasoline price increases — the often-quoted “pennies a gallon” that critics are using against the governor — because analysts expected allowance auction prices to be similar to California’s when that sate began its program in 2012.

“They did their best job trying to predict what was going to happen,” Inslee said.

A reason for California’s lower auction prices is that Washington is trimming carbon emissions at roughly twice the rate as the Golden State over the next decade, before flattening out, according to observers. That translates into Washington having fewer allowances to auction off than California, driving up prices in the Evergreen State.

Mullet’s bill would address this issue by flattening out the 2021 law’s steep decline in carbon emissions over the next several years to mimic the smaller California emissions shrinkages. The bill would also shift some future allowance allocations to nearer years. Mullet said this would lead to lower auction prices because more allowances would become available.

Mullet said his bill would mean Washington would miss its 2030 goal of reduced CO₂ emission to 50 million tons, but would still meet the 2050 goal of 5 million tons.

“We get to the same end goal, but do it more gradually,” Mullet said.

Mullet’s bill would also use some cap-and-invest revenue to trim Washington’s vehicle license plate prices.

At the Dec. 4 press conference, Inslee said he opposes Mullet’s bill because it would allow for more emissions in Washington in the near future. “We don’t need more Washingtonians losing their lives because of pollution,” Inslee said.

System Merger

In a move supported by Inslee, Washington Democrats plan to introduce a bill that will allow the state to mesh its cap-and-invest program with the one shared by California and Quebec.

State officials want to join the more established cap-and-trade system with the expectation that a bigger market will keep allowance — and gasoline — prices down. But to do that, the three jurisdictions must share cap-and-trade rules, which will require negotiations. (See Wash. Looks to Join California-Quebec Cap-and-Trade Market.)

A preliminary analysis by the Washington Department of Ecology in October concluded the proposed linkage would likely improve the cap-and-invest program’s economic durability, longevity and efficacy. “In a larger, more liquid market with a greater number of participants, allowance prices would likely be lower and change more predictably. Predictable prices can foster greater investments in decarbonization,” the report said.

However, Dye argues it would be premature for Washington to merge its system, saying the state needs to fix the bugs in its own program first. And she is leery about the state’s predictions of lower auction and gas prices. “These guys don’t have a good track record on being Nostradamus on the effects of their policies,” Dye said.

‘Complex Path’

Meanwhile, some legislators are worried that farmers are paying cap-and-invest costs from which they should be legally exempt. Dye said the Republicans are planning to introduce a bill to address those concerns.

Fuel suppliers fall under Washington’s laws to trim carbon emissions, and some are bidding on cap-and-invest allowances. They are not supposed to pass these costs on to farmers, but they have done so in some cases.

One basic problem is that gasoline and diesel move through a tangled web of middlemen before they reach farmers.

“We know fuel moves through a complex path from refinery to pump,” said Joel Creswell, climate pollution reduction program manager for the Washington Department of Ecology.

“Small operations just aren’t aware of how to navigate [the cap-and-invest system] to get exempt prices,” Ben Buchholz, a lobbyist for the Northwest Agricultural Cooperative Council, said during a Nov. 30 briefing of the Washington Senate Agriculture, Water, Natural Resources and Parks Committee.

Another problem is fuzziness on the definition of an agricultural product.

“If you dry a product, you qualify [for the cap-and-invest exemption]. If you dehydrate a product, you don’t,” Bre Elsey, a lobbyist for the Washington State Farm Bureau, told the committee. Buchholz added that fuel is exempt in a farm truck carrying cows to market, but that the same truck carrying wastes from French fry production for livestock feed is not exempt because that waste is a manufactured product.

Little Money for Ferries

Finally, with Washington’s ferry system suffering multiple breakdowns in its fleet of old diesel vessels, a budget proposal by Inslee and a bill (HB 1904) by Rep. Jim Walsh (R) both propose using cap-and-invest income to pay to build at least one new hybrid electric-diesel ferry.

Sen. Marko Liias (D), chair of the Senate Transportation Committee, said it is unlikely the excess cap-and-invest revenue will be used to speed up Washington’s transition to hybrid electric-diesel ferries beyond the one eyed by Inslee and Connors, which would be finished by 2027.

“I’d love to promise we’d get boats faster, but we have to be realistic,” Liias said.

At the press briefing Jan. 4, Liias and other legislative leaders said factors hampering the construction of hybrid ferries include the need for more shipyards, extra design work and difficulty hiring enough qualified new crew members — as well as other budget priorities.