Amazon, BP Counter Push to Repeal Washington Climate Law

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(Bloomberg) -- When regular gas prices in Seattle blew past $5 last month, it appeared to play into the hands of conservative activists and politicians who say the surefire way to bring down fuel prices is repealing Washington state’s most ambitious climate policy: a cap-and-trade program.

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Created under Washington’s 2021 Climate Commitment Act, “cap and invest,” as it’s known in the state, requires companies with high emissions to pay for their pollution in a carbon market that began operating last year. It’s raised roughly $2 billion to help fund state programs. November’s ballot initiative I-2117, bankrolled by a wealthy Seattle-area investor, would repeal that law and prevent anything similar from taking its place.

Deep-blue Washington and its outgoing Governor Jay Inslee, who put climate at the top of his agenda, have sought to lead the US in carbon-cutting commitment. But the backlash to his signature policy could come with its own serious costs to the environment that would extend beyond the state.

Scrapping cap-and-invest “would dramatically increase pollution that we are fighting in Washington,” Inslee said in a phone interview with Bloomberg Green. “We can’t afford” the repeal initiative, Inslee said, “because it would strip Washingtonians of major benefits they’re now getting because of the Climate Commitment Act.”

The conservative effort to end the carbon market rests largely on the argument that it has increased fuel costs for those who can least afford it, as oil companies have passed on some of their compliance costs to consumers. “Gasoline is extremely inelastic demand,” meaning people need and buy it even when prices go up, said Brian Heywood, the money manager who has poured millions of dollars into this and five other ballot initiatives, including one to repeal the state’s new tax on capital gains.

That, he said, makes the cap-and-trade policy “like Marie Antoinette — let them drive Teslas.”

Meanwhile, some unlikely bedfellows have come together to defend the climate program. Organized labor joined forces with some of the state’s largest companies, including Inc and Microsoft Corp. Environmental groups are backing the effort alongside oil major BP Plc. In a “No on 2117” press release, BP said it urged state voters “to vote no on this initiative and keep the state’s carbon pricing program alive.”

The coalition has raised more than $11 million to defeat the repeal initiative. (Chris Stolte, a co-founder of Tableau Software Inc., gave $1 million. So did Bill Gates.) In a coalition video, a wildland firefighter, a dairy farmer and a solar power entrepreneur all describe repeal as the costlier option.

And there is a price in terms of Washington’s contribution to global carbon emissions. The world is on track for dangerous levels of warming — between 2.5 to 3 degrees Celsius this century. President Joe Biden set a target of halving national emissions by 2030 compared to 2005 levels.

Washington’s cap-and-invest program “is one of the strongest things happening right now in the US, state or federal, on climate,” said Pam Kiely, associate vice president for US climate policy at the Environmental Defense Fund. “So losing those tons matters not just to Washington and how they are going to meet their goals, but it broadly matters in the context of how the US is going to meet its targets,” she added.

Read More: Following California, Washington Starts Cap and Trade Market

This isn’t the first time that Washington climate policy was settled at the ballot box. Voters rejected ballot initiatives proposing a state carbon tax in 2016 and again in 2018. Back then, oil and gas companies funneled millions of dollars into opposing the ballot initiatives, far outspending the carbon tax proponents.

Democrats in the state legislature have since managed to pass a series of climate bills, making Washington one of 10 states that have committed their emission reductions targets to law. It’s among an even smaller subset of states with a robust strategy for meeting those goals, explained Kiely.

A big part of that strategy is the cap-and-trade program. “We are pretty reliant on it,” said Joel Creswell, climate pollution reduction program manager at the state’s Department of Ecology.

Here’s how it works: The state’s largest emitters must buy allowances covering most, if not all, of their greenhouse gases at auctions run by the state or in secondary markets; certain companies, such as gas and electric utilities, currently get their allowances largely for free. The largest emitters are companies producing 25,000 metric tons of carbon dioxide equivalent or more a year in the state, including but not limited to oil and gas companies. The number of available allowances (the “cap”) decreases every year so as to incentivize companies to cut emissions. Companies that reduce their emissions can sell surplus allowances to companies that want more (the “trade”).

The auctions held so far have raised around $1.9 billion dollars. This money is going into a mix of infrastructure, transportation and climate programs — helping low-income homeowners replace their fossil fuel-run HVAC systems with heat pumps, installing air filtration systems in schools and paying for young riders to use public transportation for free statewide.

Some of the program’s critics say that it’s not the most effective way to actually reduce carbon. “The system is not set up to maximize CO2 reductions or to get the most bang for the buck,” said Todd Myers, head of the environmental practice at the Washington Policy Center, a right-leaning think tank. “The system is set up to maximize tax revenue.” Myers said he preferred a flat carbon tax to make pollution more costly.

The other critique is that the program is pushing up gas prices, which are higher in Washington state than almost anywhere in the US. The cost of buying carbon allowances has led oil companies to pass on an average 34 cents per gallon to consumers so far this year, according to Bo Quin, an analyst with BloombergNEF. Geopolitics and normal annual price cycles are also pressuring prices across the US.

Inslee said it’s “a falsity” for cap-and-trade opponents to claim that repealing the program would lower gas prices, pointing to other factors that make it expensive on the West Coast. He said his ultimate goal is to “drive down gas prices to zero, and that means you don't have to use this stuff.”

It’s too early to predict the likelihood of the repeal effort succeeding, but cap-and-trade supporters are taking that risk seriously. The coalition to defeat the initiative has polling showing that additional ballot language detailing the cost of repeal — a reduction in funds for climate initiatives — makes voters more likely to oppose it.

The repeal threat is already distorting the carbon market’s auctions. Whereas allowances went for about $63 in the state auction last August (and even higher in the secondary market), they went for just nearly $26 in the state’s March auction, barely over the minimum price of $24 set by law. Some companies may delay purchasing allowances until the law's fate is determined in November, said Qin.

A planned merger of Washington’s relatively small carbon market with California and Quebec’s, which have been linked since 2014, could be finalized next year if there’s no repeal, which would likely further stabilize prices. Officials in both California and Quebec said linkage would be a plus, pointing to both the global nature of the problem and the larger market providing more opportunities to reduce emissions and lower the cost of mitigation.

Repeal would force the Washington legislature and officials back to the drawing board to come up with a new way to meet aggressive climate goals — to slash emissions 45% by 2030, 70% by 2040 and 95% by 2050 over 1990 levels. Other solutions might not be “quite so flexible, quite so economically efficient,” said Creswell. And in the end, he said, “the cost could be higher.”

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