The Carbon Auction Rebate (CAR) program

The Climate Commitment Act (CCA), passed by legislative Democrats in 2021, enacted a carbon tax that significantly increased the cost of doing business in Washington for the petroleum industry. This new tax – which went into effect in January 2023 – collected far more than the state needed or anticipated. Businesses have passed on these new costs to consumers in the form of higher gas prices. As a result, in the summer of 2023, Washington state earned the distinction of having the highest gas prices in the nation. Learn more here: FAQs: How regressive Democratic policies increased Washington’s gas prices

Washingtonians, already grappling with high inflation and economic uncertainty, need financial relief. House Republicans have a plan: it’s called the Carbon Auction Rebate (CAR) program. This proposal would take the excess earnings of the carbon tax and send the money directly to registered vehicle owners in the form of a check. CAR checks would help families struggling to make ends meet without affecting the effort to reduce greenhouse gas emissions.

Relief for high gas prices

  • Would send a $100 Carbon Auction Rebate (CAR) on July 1, 2024, to registered vehicle owners in Washington state. For a typical two-vehicle household, that would be $200.
  • This would be funded exclusively from the revenue of the state’s new cap-and-trade program that is over-and-above the amounts originally forecast in the last fiscal note for Senate Bill 5126 (2021).
  • CAR checks would be sent to drivers in subsequent years at the time of vehicle license renewal notification and would be in amounts that divide the over-collected revenue from cap-and-trade among vehicle owners.

The CCA is costing motorists nearly three times more than what the government estimated at the time lawmakers voted to pass this policy. The act requires regulated parties — industry and utilities that emit greenhouse gases — to buy carbon allowances for emissions that are over an annual “cap” or emissions limit that is set by the state. The cost of those allowances at the quarterly state auction has been much higher than originally projected. Regulated industries, including in-state petroleum refiners, have been passing on the cost to customers as seen in Washington’s gas price spike that started in January of 2023 when the CCA went into effect. See chart below.

The CAR bill would provide rebates through an annual check sent to the registered owners of Washington licensed vehicles at the time of their vehicle tab renewal. The amount of the check would vary depending on how much the state has collected above what was forecasted to be collected in 2021 when the bill was enacted.  CAR amounts would vary each year depending on how much more the state is collecting at carbon allowance auctions than was forecasted. The Department of Ecology is not expected to update revenue projections to take into account the higher than expected auction prices until the end of 2023 — at that time, more realistic projections of CAR amounts can be developed.

Because car tab renewal charges vary based on the value of a vehicle and the car owner’s place of residence, in part depending upon whether an owner lives in a Sound Transit jurisdiction, providing an on-bill credit might zero-out charges for tab renewal before providing the same amount of money that would be available if the CAR payment came as a check. Sending out a check prevents a situation in which those with lower value vehicles receive less than those with higher value vehicles, allowing a uniform payment.

Because this bill would leave the structure of the CCA intact, the same regulated entities will face the same emissions cap, and carbon credit auctions will continue working the same way. This bill would change what happens with the money that is collected. Anything collected above initial revenue forecasts would go back to drivers.

As proposed, the bill would provide CAR checks to the small number of vehicle owners who do not purchase gas. The purpose for doing so is two-fold. First, it would provide an incentive to switch to an electric vehicle and thus further incentivize carbon emission reductions from the transportation sector, a central goal of the CCA.

Second, electric vehicle owners are seeing increased cost of living as a result of the CCA — higher gas prices result in higher costs for goods and services that those drivers buy, even if they are not paying more for gas. They experience cost impacts in fueling up their vehicles with electricity that is more costly to generate and deliver under the CCA. For these reasons, including EV owners, even though the cost impacts of the CCA are experienced in a different way by those drivers, is an important part of this policy.

First, there would be no “donative intent” — intent to give a gift — which is a prerequisite to a “gift of public funds.” This would be a partial rebate of amounts already paid by drivers so that the impact of the carbon reduction policy on Washington residents is more in line with initial government estimates. In short, this is about keeping the state’s premier carbon emission reduction policy within some semblance of affordability for working families and the cost impacts Democrats projected.

Second, the CCA already offers on-bill credits for utility bills in anticipation of the cost impacts of the policy on natural gas utilities and those electric utilities that get power from natural gas and coal plants. What the CAR bill would do is provide relief for household transportation budgets similar to what the CCA included in its original design: a mechanism to provide relief for the impacts on household energy bills.