Washington state’s estimated revenue from a new carbon credit system for the first five years has increased by $1.6bn, because of rising credit values and plans to auction a portion of future allowances.
The Washington Department of Ecology predicts revenue from its carbon allowance auctions will bring the state nearly $3.7bn from 2023-2027, up 81% from projections last year.
According to Ecology, its 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.
The updated estimates also includes future vintage allowances sales at the auctions, which were not part of the 2021 calculation, Ecology said.
"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.
Under the state law, auction proceeds must be invested in climate-related projects across Washington. Based on the updated forecast, Ecology expects that over the first five years of the program, nearly $1.6 billion will invest in projects that reduce emissions from the transportation sector, $60 million will go to a fund for projects that reduce air pollution in overburdened communities and over $2 billion will go to a fund for projects that support energy transition.
The cap-and-trade program will begin on 1 January. Ecology plans to hold the first auction in mid-February, with all revenue from the auctions to be appropriated by the legislature.
The agency said that the figures are best used as a general guideline, as making projections before the launch of the program has "high level of uncertainty."
"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 greenhouse gas emissions by 45% by 2035, compared with 1990 levels, and to achieve 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.