Auction Results: Climate Commitment Act working in the face of rising uncertainty

The March 6th Auction results were published today by Ecology. The final settlement price of $25.76 was down substantially from last year’s 3rd Regular Auction peak, settling at $1.74 above the price floor.  This relative price decline closely mirrors the decline from both initial and peak prices in the European Union’s ETS in 2008-9 (see chart below).  While it would be difficult to attribute no price impact to the risk of program repeal, the price decline is not wholly unexpected: It is within the range that we have witnessed in other prominent Cap-and-Invest programs.

Some additional details about the Auction results:

• We calculate the revenue raised to include $135.5 million to the state for re-investment through Climate Commitment Act accounts and $56 million in Utility-consigned revenue for re-investment for ratepayer benefit. 
• Demand continues to outstrip supply (bid ratio of 1.24), while continuing to follow a downward trend across all regular auctions.  The bid ratio was 2.67 in Regular Auction 1 and had decreased steadily to 1.48 by Regular Auction 4.
• A higher proportion of allowances was purchased by the compliance entities, 91.31%, than in previous auctions. This indicates that investors, rather than entities covered by the program, represented the greater share of decreased demand. 

OUR VIEW:  The Climate Commitment Act continues to work as a well-designed and evolving carbon market, even in the face of rising uncertainty.  From a budgetary perspective, as investments are a critical component of a well-functioning program, we anticipate that the rate of revenue generation from this auction is not quite at the level required to fully fund the Climate Commitment Act accounts of the recently passed supplemental budget. Any budget shortfall could force difficult decisions around investment prioritization.  That re-prioritization, though, pales in comparison to the massive stress that repealing the program entirely would put on the state budget, including critical investments enabled by the Climate Commitment Act and, by connection, the larger Move Ahead Washington Transportation budget that is funded in no small part by Climate Commitment Act revenue.