Gas prices in Washington are artificially high as a direct result of the state’s new cap-and-trade program. It’s clear the new mechanism needs to be modified to provide a better balance between Gov. Jay Inslee’s efforts to combat climate change and heaping punitive, soaring costs on businesses and consumers in what already is an inflationary environment.

We say this with an understanding that steps need to be taken to reduce carbon emissions, but the at-any-costs approach in place is compromising business competitiveness and quality of life for the working class, most of which doesn’t have the luxury of running out and buying an electric vehicle at the premiums they fetch in the current market.

To understand the current market dynamics, one has to have a grasp of the cap-and-trade practice. The program sets a limit on overall carbon emissions in the state and requires businesses to purchase allowances for greenhouse gasses they generate beyond a certain threshold. Those allowances, or credits, are sold at auction by the Washington state Department of Ecology quarterly, but also can be sold and traded on the secondary market.

Over time, the cap will be reduced, and the credits will become more expensive. In theory, that expense is expected to compel those who generate carbon emissions to modify their practices to generate fewer greenhouse gasses. 

In general, we prefer programs that incentivize changing behavior rather than those that are punitive in nature. The cap-and-trade program is clearly all stick and no carrot, which makes it problematic in principle.

But conceding that it’s likely here to stay, it needs to be modified, as it’s proving to be problematic in practice as well. As the Association of Washington Business reports, the carbon credits are selling for far more than had been projected out of the gate, and costs are rising faster than anticipated.

In the second quarterly auction earlier this year, the state sold 8.5 million credits at just over $56 each, well above the starting price of $22.20 and above the $48-per-credit price tag on the first auction.

The types of business most profoundly affected include fuel suppliers and utilities that generate electricity and provide natural gas. Consequently, the most visible consequence is the price at the pump.

In Spokane early this week, the average price for a gallon of gas was $4.77 a gallon, according to AAA. Across the border in Coeur d’Alene, the same source shows the average price was a full 75 cents a gallon lower. A portion of that price difference is a lower state gas tax in Idaho, but the cap-and-trade program clearly has widened that gap.

The obvious, but less visible, cost is throughout the supply chain, increasing the costs of goods and services in what, once again, already is an inflationary environment.

AWB recommends that the cap-and-trade program should be adjusted, for now, so that the credits come in closer to $30 each. That would make price increases more gradual and to give all more time to invest in new technologies or change behaviors to comply with the new laws. It’s a fabricated market that artificially inflates demand, so those adjustments are as possible as they are needed.

As it stands, the stick is too big, and the punishment is compromising quality of life for all Washingtonians. Let’s hope our politicians aren’t tone deaf to that reality and do what’s fair, while moving toward more Earth-friendly measures.