How much will Washington’s new CO2 tax increase gas prices? Let’s bet!

Aug 10, 2022

Based on the Department of Ecology’s projections, Washington state’s new tax on CO2 emissions will add about 46 cents to the cost of a gallon of gas next year. Governor Inslee disagrees. He says the impact will be “pennies.”

This calls for a bet.

Bets can provide a modicum of accountability for politicians and others who make claims that are often based on politics rather than reality. Another way to put it is that bets are a tax on BS.

The Department of Ecology’s estimate for 2023 is that the cost of a permit to emit one metric ton of CO2 will be $58.31. For gasoline with a 10% ethanol blend, this amounts to an additional 46.6 cents per gallon.

The calculation is an estimate because, unlike a typical gas tax which sets a flat amount for the increase, the new law creates a market for a limited number of emissions permits. As demand for permits and companies’ ability to cut emissions efficiently fluctuates, so too will permit prices. That translates into a range of projections for how the CO2 law will translate into gas prices. Ecology’s projections are based on an independent analysis by Vivid Economics which modeled the projected market for next year and produced a price estimate.

The governor disputes those results. He says it will add only “pennies.” He told a reporter from Fox 13 that consumers “are not going to see much higher gas prices” due to the new taxes.

Let’s see who is right. I bet Washington's gas prices will be even higher above the national average next year than they already are.

Since January, the average difference between Washington state gas prices and U.S. gas prices has been 45.5 cents per gallon, according to the U.S. Energy Information Administration. The difference can vary widely from week to week. The gap has been as low as 20 cents per gallon. Currently, Washington residents pay about 70 cents per gallon more than the average price in the U.S.

Given the fluctuation in the difference between Washington’s prices and the national average, and the uncertainty of implementation of the CO2 law, here is the bet we are offering.

  • I predict that between January and the end of July 2023, the average price of regular gasoline (all formulations) in Washington state will be an average of 70 cents per gallon higher than the national average. This is the current 45-cent per gallon gap plus an additional 25 cents per gallon from the new tax on CO2 emissions.
  • If the average difference is above 70 cents per gallon, then I win. If it is less than 70 cents per gallon, I lose.
  • I will bet $50 to charity. If I win, losers will make a donation to Plastic Bank, an organization that reduces the amount of plastic in the ocean.
  • We will use data from the U.S. Energy Information Administration -

The governor has a history of making claims that are contradicted by his own agency or real-world experience. But if he believes his rhetoric, he should take me up on this bet. I am willing to test my prediction. Is he?

Others who believe the governor’s claim, including legislative sponsors of the bill, are welcome to participate as well, although it is first-come-first-served, and I will probably cut off the number of bets after two or three.

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