Washington’s new climate policy is taking heat for the state’s highest-in-the-nation prices at the pump. But the law’s backers say oil companies are to blame.

By Laurel Demkovich, Washington State Standard, July 13, 2023

With an average price of around $4.95 for a gallon of regular unleaded – the highest anywhere in the country – gas in Washington is expensive. That’s not in dispute. 

But when it comes to the reasons for the spike, what to do about it, and how much the state’s new cap-and-trade program is to blame, there’s growing disagreement.

Democratic state lawmakers and cap-and-trade supporters claim oil companies are excessively jacking up prices to pad profits. They’re looking at a strategy in the 2024 legislative session that would involve anti-price-gouging legislation and new transparency requirements for the oil firms. 

“The idea that this is all climate policy is a farce and frustrating,” said state Sen. Joe Nguyen, D-White Center.

On the other side of the debate, Republicans and industry-backed groups argue that rising prices are evidence the climate program is flawed, hurting consumers, and should be reworked.

“There are serious problems with the way the program has been configured, and this has become more obvious as time has gone on,” state Sen. Chris Gildon, R-Puyallup, said in a statement. “This isn’t a matter of price gouging by oil companies.”

Cap-and-trade is the state’s marquee climate program. It involves polluters buying allowances at state-run auctions to offset their carbon emissions. The money raised is then supposed to be poured into programs to fight climate change and improve the environment. 

In the two auctions held so far, the going rate for the allowances has come in well above the floor price – 2.5 times higher during the most recent sale in May. The price of a gallon of regular unleaded in Washington has climbed to its current level around $5 from $3.92 last year, before the auctions began, according to the U.S. Energy Information Administration

Cap-and-trade backers and others are quick to point out that there are a wide range of factors that influence gas prices – ranging from global conflicts like the war in Ukraine, to planned maintenance that affected BP’s Olympic Pipeline, which carries fuel through Washington.

While that may be so, critics are unlikely to stop drawing a connection between cap-and-trade and high fuel prices. Meanwhile, even Democrats recognize that they may face a tough path trying to rein prices in with anti-gouging measures.

Options for 2024 session

In a guest commentary this week for the Cascadia Daily News, Rep. Alex Ramel, D-Bellingham, wrote that oil companies should have incorporated the costs of the new program into their bottom line, but are instead passing them on to customers. 

“If oil companies won’t take that step on their own, we should work to address it with windfall profits taxes or anti-price-gouging legislation,” he wrote. 

Gov. Jay Inslee’s office has struck a similar tone, expressing frustration with oil companies’ prices. “Consumers have already paid enough and now it’s time for oil companies to pay their share,” spokesperson Jaime Smith said in an email. 

Inslee’s office said they didn’t have any concrete proposals on gas prices for 2024, but added that they were in talks with lawmakers about how to hold oil companies accountable and improve price transparency. 

Washington remains one of 13 states without a price-gouging law during a time of disaster or emergency, according to the National Conference of State Legislatures. And anti-gouging legislation could become the target of lawsuits if passed.

Laws attempting to limit prices on goods in other states have faced court challenges with opponents arguing they violate the U.S. Constitution’s dormant commerce clause, which bars states from regulating interstate commerce. 

Court rulings on the issue have been mixed.

For example, in 2018, the 4th U.S. Circuit Court of Appeals ruled against a Maryland law that limited price gouging with pharmaceuticals. But a decision from the 6th U.S. Circuit Court of Appeals in 2021 said Kentucky could enforce its price-gouging laws against Amazon retail sellers, after the state accused them of profiting illegally during the COVID-19 pandemic. 

Nguyen acknowledged that a law in Washington trying to limit oil companies’ prices could face legal hurdles, and that a proposal requiring greater transparency may be a more viable option. 

One proposal he is looking at would require oil companies to be more open about what they’re paying for emissions allowances and how that’s affecting their prices.

It would likely mirror a model being implemented in California, which also has a cap-and-trade program. 

The California law creates an independent division of the state to monitor the fuel market daily for any unethical or illegal behavior. The division, which also has the power to subpoena oil executives, can then report any market manipulation, industry misconduct, or price gouging to the Attorney General’s Office, which can issue penalties if warranted.

 Nguyen said he’s also looking at proposals similar to California’s new law that would require oil companies to share more information about when they have scheduled maintenance at their facilities, which can often cause gas prices to go up.

Despite not having a law specifically addressing anti-gouging, Washington does have some options to control prices. 

The attorney general can use the state’s Consumer Protection Act and its antitrust laws, both of which protect consumers from unfair or deceptive business practices and pricing collusion, to go after companies that might be gouging. 

During the COVID-19 pandemic, Attorney General Bob Ferguson took action under the law to block price gouging on emergency goods and services. 

Additionally, consumers who feel they’ve been harmed by deceptive advertising around pricing could bring a lawsuit against a business, spokesperson Brionna Aho wrote in an email.

Aho said she couldn’t disclose any current investigations from the Attorney General’s Office, but that they are talking to legislators about possible proposals going into the 2024 session. She added that Ferguson is “committed to holding accountable entities that fix prices or illegally harm Washingtonians through price gouging.”

‘It’s the state that’s doing it’

Opponents of cap-and-trade reject that it’s price gouging driving up fuel costs and say that the state’s climate program is what’s causing the increases.

“There is gouging going on, but I think it’s the state that’s doing it,” said Dana Bieber, spokesperson for the oil-industry-backed Affordable Fuel Washington coalition. She noted that the program is proving more expensive for companies than originally estimated by the state two years ago. 

During the two quarterly auctions the Department of Ecology has held so far, the state has hauled in more than $850 million. The Legislature estimated having $2 billion over the next two years from the cap-and-trade program, but at the time said that was a conservative estimate. 

“We’ve seen quite a lot more revenue than we anticipated,” Rep. Joe Fitzgibbon, D-West Seattle, said at a Thursday webinar with those developing a cap-and-trade program in New York. 

The Western States Petroleum Association says Washington has not been transparent enough with the public about how the new program is affecting fuel prices. The association, which represents companies in Washington and other states, says state leaders need to acknowledge that their program has “serious flaws” that the Legislature should act to address.

In an emailed statement, the association said “Washington leaders continue to adopt the disingenuous approach of refusing to admit that these programs have any cost impacts at all.”

Gildon, the Republican lawmaker, has ideas of his own for how to bring down prices. In a letter to Ecology last week, he outlined a list of possible changes to the cap-and-trade program. These range from making it easier for companies to comply with emissions targets, all the way to suspending the program.

Democrats have put forward other proposals as well. 

Sen. Mark Mullet, D-Issaquah, who is also running for governor in 2024, is backing a proposal that would cap the price of the pollution allowances. Mullet’s bill would set a price ceiling for the allowances at no more than 20% higher than the most recent auction price in California. 

Allowances in California were around $30.33 during the most recent sale, compared to the May auction price of $56.01 in Washington.

FEATURED IMAGE:  Gas prices in Washington state were around $5 a gallon or more for regular unleaded in early July 2023, including at this gas station in Olympia on July 13. (Bill Lucia/Washington State Standard)

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