Prices in Washington’s carbon market have continued to trend upward as the price of emission allowances reached an all-time high this month.
The state held four auctions between September and December and raised just over $1.1 billion by selling over 16 million carbon emission allowances. One allowance represents 1 metric ton of emissions. The two most recent quarterly auctions also exceeded a trigger" price, and a special additional auction was held in November, with another announced for February.
Allowances cost $64.30 in the September auction and $70.86 in December, signaling an increase compared with prices earlier this year and since the program faced a recall in November 2024. The latest auctions bring the total amount raised by the program to over $4.3 billion.
When the program launched in 2023, the average price of an allowance from a quarterly auction was around $54.86 but then dipped to $31.46 in 2024. This year, the average price from a quarterly auction landed around $60.92.
The low prices in 2024 likely reflected the threat of Initiative 2117, which sought to repeal the state’s landmark climate change law. Before the initiative was defeated in a landslide last year, allowance prices had fallen below $30.
The Climate Commitment Act requires the state’s largest polluting businesses to reduce their emissions or purchase allowances to cover them. Since 2023, state officials have reduced the number of allowances sold, ramping up pressure on the industries to lower their emissions. The first of seven three-year compliance periods closes at the end of 2026.
The revenue goes toward funding programs like electric school buses, solar and heat pump installations, battery research, electric vehicle rebates and energy credits. Money from the program also makes up a third of Washington’s 16-year transportation plan.
Critics of the carbon market have portrayed it as a cash grab by the state and say that it has led to higher prices for utilities, fuel and other consumer goods.
In an emailed statement, Kelsey Nyland, a spokesperson for climate advocacy group Clean & Prosperous, said the average price of a carbon allowance this year still falls below what was forecast by a third-party group in 2022 before the program was implemented and the prices are still settling.
The prices observed in the September and December quarterly auctions have exceeded the state Department of Ecology's "high bounding" forecasts, which were released in June this year, though Nyland said these forecasts tend to be conservative to avoid over budgeting.
In an interview, state Rep. Joe Fitzgibbon, D-West Seattle, said the recent high allowance price could reflect that entities buying allowances are still "catching up" after easing off buying them in 2024. The high price could also reflect increased demand as the number of allowances being sold is coming down, he said.
"We're seeing some decarbonization take effect, but the function of the cap is to drive scarcity of allowances so the covered entities look for more ways to decarbonize, and I think that is inevitable from an auction price of $70," Fitzgibbon said.
The Climate Commitment Act requires the state to reduce its carbon emissions 45% by 2030, 70% by 2040 and 95% by 2050 compared with 1990 levels.
Acknowledging "the squeeze that the end of this decade would pose" and "the expectation of higher prices in the future," Fitzgibbon said lawmakers passed House Bill 1975 earlier this year to ease allowance prices.
The bill increases the number of carbon allowances available at auction as well as the number of allowances available during special auctions, he said. The bill also sets a cap on the maximum price of an allowance at $80 for 2026 and 2027 with the cap growing with inflation for future years. In 2025, Ecology set the price ceiling at $94.85, Fitzgibbon said.
"If we were actually at the price ceiling, we would have to ask a lot of questions about the program, but we're not there," he said.
Ecology is still in rule-making to implement the bill, which means the carbon market is currently "unnecessarily constrained as additional allowances have not yet been made available, Nyland said. According to Clean & Prosperous, the bill makes over 20 million additional allowances available through 2030.
In November, Ecology released a comprehensive report on where CCA money has been spent in a publicly available dashboard where users can look at climate projects throughout the state and sort the data by fiscal year, agency, region and more.
Nearly $2.8 billion has been earmarked for specific projects but with the upcoming legislative session, more of the funds are likely to be appropriated. Around $1.5 billion has actually been spent across 37 state agencies, according to Ecology.
In the two most recent auctions, around $340 million went to utilities, which sold nearly 5 million allowances it received for free as part of the program. The revenue from those allowances must be used for the benefit of ratepayers.
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