Washington Policy Center environmental director Todd Myers says it’s possible gas prices may not go up as much as had been projected when the state’s cap-and-trade program goes into effect next year.
Still, he thinks the state's claim that the new carbon tax will only increase gas prices by about 5 cents per gallon is a bit optimistic.
Myers’ cheaper-than-expected assessment is based on an auction held earlier this month by the Nodal Exchange for futures on Washington’s carbon allowances. About 25,000 metric tons of carbon dioxide sold for $35 per metric ton.
If that is the baseline, then it translates into about 28 cents per gallon of gas and 34 cents per gallon of diesel fuel, Myers wrote on Dec. 15.
Earlier this year, Department of Ecology estimated that the permit price would average $58.31 per metric ton. In July, Myers explained that translated into a 46-cent price hike per gallon of gas and a 56-cent price hike per gallon of diesel fuel.
The current state gas tax is nearly 50 cents per gallon.
Passed by the state Legislature in 2021, the Climate Commitment Act — Senate Bill 5126 — directs Ecology to develop and implement a statewide cap-and-trade program to cut carbon pollution by requiring emitters to obtain “emissions allowances” equal to their covered greenhouse gas emissions. Similar to stocks and bonds, these allowances can be obtained through quarterly auctions hosted by Ecology.
The Nodal Exchange auction represents but a fraction of the permits expected to be sold in February, but does offer some insight to how the new carbon tax will impact prices at the pump.
“The sale was pretty small, so it is hard to know if this is indicative,” Myers said in email remarks to The Center Square. “The key is that we really don’t know. But since this is the first tangible price we have, it is worth sharing.”
Also worth sharing in Myers’ estimation: balking at Ecology’s claim the tax will only increase gas prices by some 5 cents. He said that goes against the department’s own analysis of the Clean Fuel Standard law that assumes the cost of the tax will be passed onto consumers.
The Clean Fuel Standard law requires fuel suppliers to gradually reduce the carbon intensity of transportation fuels to 20% below 2017 levels by 2038.
“They came to this conclusion by running the total cost of the CO2 tax though a macroeconomic model which estimated the impact on fuel prices would be between 0.67 and 1.9 percent,” Myers wrote. “I asked Ecology to explain how they came to this conclusion or to connect me with the company who did the modeling and they responded only that, ‘Our contract with Vivid (who did the analysis) is now concluded.’ So, how they came to that conclusion is not clear.”
Myers takes Ecology’s insistence on the nickel figure with a grain of salt in the gas tank.
“But Ecology is sticking to 5 cents a gallon,” he told The Center Square. “That is just bizarre to me.”
