Is Washington saving the climate or depleting your lunch money? A look at Initiative 2117

Three years ago, Washington politicians passed arguably the most ambitious climate law in the state’s history, putting a price on greenhouse gas emissions with the intention of putting the state on a path to a cleaner economy.

In two months, voters will be asked whether to shoot down the law just as it’s getting off the ground.

The state set a goal in 2020 to reduce greenhouse gas emissions significantly each decade until reaching net-zero by 2050. In 2019, the last year with complete emissions data, more than 102 million metric tons of carbon dioxide or its equivalent were released from within Washington state.

After years of failed attempts to put a price on greenhouse gas emissions, the Legislature approved the Climate Commitment Act in 2021, capping how much can be emitted in the state each year and requiring businesses that emit the most carbon to bid for an “allowance” to emit a small portion of that overall cap.

Billions have been raised since the first cap-and-trade auction in 2023, money the state has poured into hundreds of projects, including the purchase of electric buses, air quality monitors and air filters in schools, the conversation of the state’s diesel powered ferries to hybrid-electric models, and work to boost salmon populations.

Those auctions also have raised costs for fuel and other products from businesses that have to pay those higher fuel costs, systemwide price increases that are borne by consumers.

The question Initiative 2117 poses: Is the state’s attempt to slow climate change in the long-term a bigger priority than the hit to voters’ wallets, and do they trust Washington leaders to effectively manage the program?

Every few months, dozens of the state’s largest emitters, including fuel suppliers and electric utilities, apply to bid in that quarter’s cap-and-trade auctions. If those companies reduce emissions faster than the state’s goals, they can bank extras or sell them to companies that are slower to change.

There are a lot of major exceptions, however.

Many of the state’s big emitters, mostly manufacturers, including potato product producers in the Columbia Basin and Kaiser Aluminum in Spokane Valley, will get most or all of their credits for no cost until 2035, on the theory that they are sensitive to out-of-state competition and are most likely to shrink or relocate if they had to suddenly pay the full costs for their emissions.

Fuel refineries are by far the biggest emitters getting a pass for the next decade and will receive enough free allowances to emit more than 6.7 million metric tons of carbon dioxide this year.

Other companies, like Spokane County’s largest private landowner, the Inland Empire Paper Company, also are exempted because most of their emissions qualify as “biogenic,” under the theory that the carbon released by processing crops like a tree will eventually be recaptured again by the next tree the company plants. Inland Empire is owned by the same parent company as The Spokesman-Review.

The roughly 100 corporations that have to purchase credits can choose to invest in lowering their emissions, thereby reducing the number of credits they have to buy, or purchase enough credits to avoid paying for emissions reductions.

Advocates say emissions reductions will be inevitable over time. As exemptions end, the number of available credits decrease and companies become increasingly unable to buy their way out of making changes. In the meanwhile, cap-and-trade is supposed to leave companies wiggle-room while they adapt.

The sizable proceeds – more than $200 million in the most recent auction earlier this month and more than $2 billion since cap-and-trade’s inception – are invested across the state in environmental projects.

By and large, companies aren’t eating those costs. Refineries might be exempt from credits, but fuel suppliers aren’t, raising prices for gasoline and for electricity powered by natural gas, for instance.

What are the costs to consumers, exactly?

It’s difficult, if not impossible, for a consumer to gauge how much their bills have gone up as a result of the cap-and-trade system due both to the complexity of pricing and the at-times obfuscating rhetoric from the pro and con camps.

Some costs are pure guesswork, and even the clearer price hikes come with a lot of qualifiers.

Higher energy bills from utilities can be one of the easiest data points to pin down, but those costs still come with a number of caveats. Avista, for instance, estimates that the average residential customer pays between $1.33 to $14.96 more per month on their energy bills as a direct result, a wide range depending on the time of year and whether the customer began their service more recently. Lower-income customers are supposed to be exempt from those surcharges, however.

Gas prices are more complicated.

Let’s Go Washington, a political action committee that formed to champion several initiatives aimed mostly at repealing progressive policies adapted by the Legislature, and other opponents of the cap-and-trade system argue gas costs as much as 50 cents more per gallon, if not more. In events at gas stations across the state, Let’s Go Washington has held events lowering the price of gas to the national average, implying those could be the prices Washingtonians would pay if I-2117 is successful.

“We’re showing you what you would be paying if you were in a free state, versus this one,” Brian Heywood, the leader of Let’s Go Washington, said during an August event in Spokane.

Washington, however, has had significantly higher-than-average gas prices long before the cap-and-trade system was created.

Gas prices in the state were 47 cents higher than the national average at the beginning of 2023, just before the first carbon credit auction, and recently were 73 cents higher, a 26-cent difference, according to the U.S. Energy Information Administration. In August, that difference was closer to 19 cents, underscoring the complicated fluctuation of fuel costs.

On the other hand, supporters of the Climate Commitment Act have minimized how much prices would go down if cap-and-trade is repealed. Former state Sen. Reuven Carlyle, who spearheaded the Climate Commitment Act, and current state Sen. Joe Nguyen, D-White Center, who chairs a committee tasked with managing auction revenues, have both argued that gas prices won’t necessarily fall if I-2117 is successful.

This is technically true, as gas prices could be raised by unrelated factors more than repeal of cap-and-trade lowers them. It would still seem likely that gas would be cheaper if I-2117 passes than it would be if it fails, though Nguyen argues gas companies can’t be trusted to pass those savings onto consumers.

Critics point out that Gov. Jay Inslee assured Washingtonians that gas prices would only increase by “pennies’ after the Climate Commitment Act began and argue he was being intentionally misleading.

Gas prices fluctuate as a result of many factors and state leaders have been watching prices in Oregon to roughly gauge the climate law’s impact, said Andrew Wineke, deputy communications director for the state Department of Ecology. Oregon gets most of its fuel from the same refineries as Washington, but fuel suppliers are not required to purchase carbon credits for bringing that gas to Oregon gas stations due to nuances in the law, Wineke added.

When factoring in the difference between the state’s gas taxes, average prices in Washington were roughly 10 to 20 cents higher than in Oregon earlier this year, with that number closer to 25 cents more recently, Wineke said. Confusing the matter, those particularly higher prices at the pump recently don’t seem to have been tied to higher costs for carbon credits during the most recent auction, he added.

“Allowances prices are down sharply in Washington this year, but the gap between Washington and Oregon has increased,” he said.

Tod Myers, vice president of the free-market think tank Washington Policy Center, recently debated against cap-and-trade alongside Heywood. He noted in an interview that gas prices in 2023, when credits were far more expensive, were probably more than 40 cents costlier as a result.

Nguyen argued credit prices last year were higher than they should have been because the auctions were new and the market hadn’t yet adapted; Myers argues that credits are unusually cheap this year because markets are waiting to see if the system survives voter scrutiny this November.

It’s even less clear how much the Climate Commitment Act has raised prices on other commodities purchased by Washingtonians such as groceries and consumer goods.

Agriculture benefits from some of the investments from the auction revenue, such as incentives for composting and grants to reduce greenhouse gas emissions on a farm or dairy. The industry is also meant to be exempt from many of the costs of cap-and-trade, including surcharges on fuel used on the farm or to transport produce to market.

These exemptions have not always worked as intended, however, and especially smaller farms regularly found themselves paying those higher fuel prices, something the state has tried to partially rectify with a rebate program.

In an August debate, Heywood estimated that Washingtonians were paying anywhere between $200 and $ 500 more per year for groceries; Myers was more cautious to put a figure on it.

“I tend to be skeptical of those numbers because they are so hard to pin down,” he said.

Investments, reduction goals under microscope

Data on Washington’s overall emissions lags by years, with 2019 being the last year with a complete picture. The next data set isn’t expected until December and will only cover 2020 and 2021, two years in which emissions are expected to be artificially decreased by the pandemic and well before the Climate Commitment Act came into effect.

Let’s Go Washington regularly claims that the state doesn’t track how much or whether the Climate Commitment Act investments are lowering emissions.

There’s some truth to that claim, though it’s more complicated than the ads would suggest.

State law does require programs that receive cap-and-trade money to report whether the investment reduced emissions, and if so, by how much and how cost efficient they were. The state Department of Ecology is supposed to put those reports together every year.

Here’s the problem: The only meaningful report issued so far, and the only one voters will likely get to see before the election, covered the first six months of 2023 when the program was still new. Ecology reported major reporting deficiencies by state agencies receiving the funds, preventing a clear report of how much the projects reduced emissions.

Among what could be reported, Ecology estimated emission reductions of 191,000 metric tons; in 2019, the state produced 102 million metric tons.

Myers argues that even these numbers are “loosey-goosey” and don’t require adequate auditing or penalties if reductions goals aren’t reached.

But state leaders argue flawed reporting early in the program’s life doesn’t mean investments aren’t meaningfully moving the needle.

Hundreds of millions of dollars are being spent on public transportation and “active transportation,” like bike lanes and pedestrian paths, intended to encourage people to drive less; personal vehicles are one of the biggest drivers of emissions statewide. Bus wraps across Spokane advertise free fare for youth, the result of a statewide program funded by cap-and-trade which some communities, such as Walla Walla, have leveraged to provide free fares to everyone.

The state is spending millions more on energy efficiency programs, including replacing boilers in schools or, in one case, at Kaiser Aluminum’s Trentwood rolling mill. The state gave that company $5 million from cap-and-trade revenue, roughly half the cost to replace two boilers, expected to reduce the massive facilities annual admissions by 13,000 metric tons.

Many projects funded by the Climate Commitment Act aren’t intended to quantifiably reduce greenhouse gas emissions, such as funds going to install air quality monitors across the state, including in Spokane, or improve culverts to allow salmon to migrate more successfully.

Other projects do reduce emissions but are being chosen in part because of other benefits, said Anna Lising, senior climate adviser to the governor’s office who leads the state’s strategies to decarbonize the most emitting sectors, such as transportation. The state has committed $130 million over two years to electrify medium and heavy-duty trucks, primarily the kind that transport goods from ports. The electrification should reduce emissions, but the project was also chosen because it could reduce local air pollution from poorer communities.

Still other projects might reduce emissions in the long term, but there’s no way to quantify it, Lising added, such as job training programs that could bring more people to work in a clean energy field.

Heywood argues that some programs have spent millions with little to show for it, spent on studies, staff and administrative costs but with relatively little going to, for instance, salmon recovery or forest fire mitigation.

Advocates for the Climate Commitment Act argue that it is the dwindling cap on emissions that is expected to be the primary driver of emissions reductions, not the investments from auction revenue. And for some, the emphasis by supporters of Initiative 2117 on the cost-benefits of the law are missing an important part of the equation.

“Nobody’s doing a cost-benefit analysis of doing nothing,” argues Kara Odegard, founder and CEO of Measure Meant, a Spokane consultant focused on sustainability programs and climate planning.

Odegard agrees the state should work toward robust reporting of the effectiveness of its cap-and-trade investments, but disagrees that flaws outweigh the risks of climate change or justify killing the system.

“Until you can show me that taking no action is saving us in health care costs, property damage costs, insurance costs, supply chain issues – costs that climate change is creating today – then that cost benefit argument means nothing to me,” she said. Initiative 2117 “completely hobbles our ability to address climate change in a way that’s not going to break our economy, or forces us to wait for disasters to get worse.”

Advocates also argue that Washingtonians are getting a good deal for their investment. A study funded by environmental groups opposed to repeal efforts and created by Greenline Insights asserts that an estimated $5.3 billion in cap-and-trade revenue over the next eight years could attract another $29 billion from federal, private and other sources.

What happens if I-2117 passes?

Opponents of cap-and-trade are not seeking to reform the Climate Commitment Act at the ballot box. Initiative 2117 would kill cap-and-trade outright and bar the state from trying again in the short term.

Myers argues the system is hopelessly flawed and unsalvageable, subject to political winds and manipulation, and the state needs to go back to the drawing board.

Myers, who emphasized that he believes climate change is a serious threat, has long been an advocate for a “carbon tax,” effectively a tax on all fuels. It would act like a sin tax, incentivizing companies to reduce their carbon emissions to lower their tax burden, Myers argued, and if that tax increase was “revenue neutral,” paired with tax cuts elsewhere, prices for businesses and consumers theoretically wouldn’t spike.

An initiative in 2017 that would have created a carbon tax failed resoundingly, though it wasn’t revenue neutral.

Nguyen believes a carbon tax would do little to reduce emissions, however. Companies could pass those increased costs onto consumers and continue doing business as usual, he argued, and there wouldn’t be a dwindling emissions cap that eventually makes reductions mandatory.

The state’s goals to achieve net-zero emissions by 2050 predates the Climate Commitment Act. Ending the cap-and-trade system does not necessarily mean that the state wouldn’t still pressure companies to lower their carbon emissions, but it would remove the possibility of using one of the more politically palatable tools.

Cap-and-trade markets theoretically give companies more flexibility to weigh the cost-benefit of reducing their emissions or paying for credits in the short- to midterm, compared to a “command-and-control” regulatory regime that mandates reductions directly and dictates how companies should achieve those goals.

Avoiding a heavier hammer is suspected motivator for why major oil companies like BP, which operates one of the state’s five refineries, have supported the Climate Commitment Act.

Big oil hasn’t been spending to defeat repeal however, although the effort is hardly cash strapped. No on 2117, the largest political committee working to defeat the initiative, has reported raising more than $11 million. Let’s Go Washington, meanwhile, has raised $5.5 million, and is spending it to support four initiatives on the November ballot.

Microsoft and its affiliates have been the big backers of No on 2117. Bill Gates, former Microsoft CEO Steve Ballmer and Microsoft itself have collectively provided $4 million, and other Microsoft or Gates Foundation alums have raised another $1 million. The Nature Conservancy and Tableau Software co-founder Chris Stolte are also top donors, giving $1.2 million and $1 million, respectively.

Let’s Go Washington has attracted many of its major donors from the builder, real estate and hospitality industries. The Building Industry Association of Washington was the second-largest donor to the political committee with more than $500,000, and helped form another committee, Main Street Matters to Washington, which has donated more than $1 million. Kaiser Aluminum, despite getting money through the Climate Commitment Act for a boiler, gave that latter committee $75,000.

The biggest Spokane donors to Let’s Go Washington include developer and activist Larry Stone, who gave $100,000, and Stacey and Anne Cowles, who collectively gave $25,000. Stacey Cowles is the publisher of The Spokesman-Review.

Only one donor from Spokane donated as much as $10,000 to No on 2117; Dave Curry, founder and chairman of Demand Energy Networks Inc., a company that makes energy storage systems to manage the intermittent supply of wind and solar power.