Washington State’s Economy-Wide Climate Plan Takes Shape: Ecology Seeks Comment on Proposed Climate Commitment Act Program Rule

The Washington Division of Ecology (Ecology) has proposed new guidelines to implement an economy-wide “cap-and-invest” program in Washington State. With feedback due on June 30, 2022, these guidelines have the potential to influence companies in lots of industries throughout the state.

Final Might, the Washington State Legislature handed the Local weather Dedication Act (CCA), the state’s economy-wide greenhouse gasoline (GHG) “cap and make investments” program, which we described intimately right here. The CCA mandates a declining cap on GHG emissions from main emitters in Washington supported by an emissions allowance public sale and buying and selling system. The CCA goals to attain a 90% discount within the state’s GHG emissions over 1990 ranges by 2050. Revenues from the public sale can be invested in quite a lot of applications aimed toward supporting Washington’s decarbonization efforts, lowering air pollution in traditionally underserved communities, and investing in local weather resiliency.

On Might 17, 2022, one yr to the day after Gov. Jay Inslee signed the CCA, Ecology introduced that it’s looking for public touch upon its proposed Local weather Dedication Act Program Rule (Chapter 173-446 WAC). The proposal would undertake particular administrative guidelines governing operation of Washington’s “cap-and-invest” program.

Key Takeaways

• Feedback on the proposed rule are due by June 30, 2022. A collection of public hearings on the proposed rule might be held in late June. Closing adoption of the rule is anticipated by September 29, 2022.

• The proposed rule supplies particular steering on how Ecology will administer the CCA’s 25,000-ton threshold to establish “main emitters” that might be topic to emissions limits and subsequently be required to acquire emissions allowances. It additionally proposes necessities for utility of this system to particular industries corresponding to railroads, and for therapy of allowances owned by affiliated entities.

• The proposed rule supplies vital particulars about how Ecology will run allowance auctions, distribute no-cost allowances to Emissions-Intensive Commerce-Uncovered industries (“EITE”) and utilities, and the way allowance reserve accounts meant for brand new industries and to stabilize the allowance market might be handled.

• Ecology’s proposal lays out specifics associated to quite a lot of administrative features, together with enforcement and reporting necessities.

• Ecology proposal would govern carbon offsets, that are verifiable carbon discount or elimination credit that may be bought by voluntary individuals to main emitters needing allowances to satisfy their emissions limits.

• The proposed rule is of vital significance to any massive emitter of greenhouse gasses within the State of Washington in addition to for any entity wishing to promote offset credit within the state.

Abstract of the Proposed Rule

Ecology’s complete proposal supplies vital particulars describing how Ecology intends to handle a number of features of the CCA. These embody:

• Program protection, registration, and account necessities:

  • Coated entities. Entities that emit 25,000 metric tons or extra of carbon dioxide equivalents yearly should adjust to CCA necessities. The proposed guidelines present particulars on how this threshold might be calculated for utilities that import electrical energy whose emissions exceed the brink. As well as, Ecology proposes that waste-to-energy amenities and railroad corporations that meet the 25,000 metric ton threshold might be required to adjust to CCA necessities starting with the second (2027-2030) and third (2031-2042) compliance durations respectively.

  • Remedy of Entities Close to the Threshold: If an entity initially exceeds the 25,000-ton threshold however later falls beneath this restrict, it should proceed to adjust to CCA necessities during the three-year compliance interval through which it exceeded the brink, however wouldn’t be lined in subsequent compliance durations. Equally, an entity that’s exempt on the outset however exceeds the 25,000-ton threshold after this system is initiated should adjust to relevant allowance necessities the next yr.

  • Distribution of allowances. Ecology proposes to determine baseline emissions limits based mostly on the mixture GHG emissions of main emitters lined by this system. Baselines are calculated yearly and are particular to every compliance interval. For instance, within the first compliance interval, the entire emissions restrict can be calculated because the sum of the annual common of lined emissions for every facility, electrical utility, or sector from 2015 by means of 2019. The proposal lays out particular strategies to calculate the GHG emissions related to EITEs, pure gasoline suppliers, fossil gas suppliers, carbon dioxide suppliers, and electrical utilities.

• Allocating allowances, allowance budgets for the primary compliance interval (2023 – 2026), and distribution of allowances:

  • Allowance price range. The variety of GHG allowances that could be auctioned or distributed might be decided yearly by Ecology with the restrict reducing by 7% annually. For instance, the 2023 allowance price range might be 93% of the entire program baseline (the annual common of lined emissions from 2015 to 2019), the 2024 allowance price range might be 86% of the entire program baseline, the 2025 allowance might be 79% of the entire program baseline and so forth.

  • No-cost allowances for EITEs. To attenuate the inducement for main industries competing in worldwide markets to relocate their operations to areas with less-restrictive GHG necessities, the CCA contains provisions to attenuate compliance prices for EITEs. Throughout the first compliance interval (2023 by means of 206), EITEs are allotted allowances equal to one hundred pc of the power’s baseline GHG emissions for gratis. Throughout the second and third compliance durations, EITEs are allotted 97 % and 94 % of the allocation baseline for gratis. To be allotted no-cost allowances, EITEs should submit data documenting their GHG emissions to Ecology. Ecology proposes a particular methodology for calculating emissions baselines and allowance allocations for EITEs.

  • No-cost Allowances for Electrical Utilities. CCA additionally supplies for an allocation of no-cost allowances to utilities which is meant to attenuate the prices imposed on utility ratepayers. To allocate allowances, Ecology proposes to contemplate utility-specific forecasts of retail electrical hundreds, the technology useful resource gas kind for use to serve these electrical hundreds, emissions elements particular to pure gasoline, coal, renewable sources, or unknowable sources, and an equation to measure the fee burden on retail ratepayers.

• Public sale registration necessities, flooring, and ceiling costs:

Ecology will maintain 4 auctions yearly beginning in 2023. Ecology will present public discover of the auctions and all data wanted to register and take part. Allowance costs are capped to make sure affordability, but additionally excessive sufficient to advertise funding in decarbonization. The 2023 public sale flooring worth is $19.70, and the ceiling worth is $72.29. The ceiling worth will improve yearly by 5% plus inflation.

• Tier I and Tier II costs for allowance worth containment reserve auctions:

To keep up secure compliance prices, at any time when compliance prices rise unexpectedly, Ecology will maintain a reserve of allowances that may be bought at predefined costs. Ecology will maintain these auctions (1) if previous public sale costs attain the tier 1 worth for allowances, (2) if allowances are exhausted by entry of recent entities, and (3) as soon as annually after the ultimate public sale for that yr’s allowances. Within the first compliance interval, tier 1 worth might be $46.05 and tier 2 worth might be $59.17.

• Emissions containment reserve:

Ecology proposes to droop the public sale worth flooring till reinstated by future rulemaking. Therefore, there isn’t a set off worth beneath which allowances might be withheld from sale at public sale by Ecology to extend allowance costs to a degree that can assist vital GHG reductions. As an alternative, Ecology proposes to withhold allowances if allowance costs in an public sale are unacceptably low. Withheld allowances can then be bought in future auctions or allotted to new or increasing industries for gratis.

If a serious emitter fails to acquire sufficient allowances to satisfy its compliance obligation, Ecology proposes that the emitter will lose 4 allowances for each allowance that it falls quick. Non-compliant entities thus danger shedding allowances to emit 4 metric tons of CO2e for each allowance or offset credit score they fall quick. Entities who fail to submit penalty allowances are topic to a financial penalty of as much as $10,000 per day and violation. Each metric ton of CO2e emitted and never lined by an allowance or offset credit score can be thought-about a separate violation. The non-compliance penalty might improve to $50,000 if Ecology finds that an entity offered false data, withheld materials data, or violated any public sale, registration, or conduct guidelines. Entities topic to fines might enchantment to the Air pollution Management Hearings Board below RCW 43.12B. Along with these enforcement mechanisms, non-compliant utilities should notify their prospects and the environmental justice council that they’ve paid a financial penalty for non-compliance.

• Procedures and protocols for offset tasks:

CCA permits carbon offsets for use for compliance with GHG limits. For use as a compliance instrument, an offset credit score should meet the next standards: (1) characterize a quantifiable and everlasting GHG discount or elimination, (2) meet the necessities for compliance reporting and recording emission reductions, and (3) be permitted and listed as a verified offset venture by Ecology. Ecology might approve an offset venture solely after it precisely quantifies the venture’s potential for GHG emissions discount or elimination, establishes knowledge assortment and monitoring procedures, and accounts for “leakages” of emissions to different states. As well as, the offset venture should present direct environmental advantages in Washington, the venture can’t already be required by legislation, and it should adjust to all native, state, and nationwide necessities for environmental influence assessments.

• Forms of Offset Initiatives. Offset tasks might embody livestock tasks, elimination of ozone-depleting substances, and forestry tasks. Ecology proposes completely different protocols for every of all these tasks. Main emitters might use offsets to satisfy not more than 5% of the allowances they’re required to submit to satisfy their particular GHG limits.

• Linkages. Though the CCA permits Washington to hyperlink its allowance auctions to comparable applications in different jurisdictions, corresponding to present emissions markets in California, Quebec, and others, Ecology doesn’t suggest any such linkages.  

Conclusion

The proposed rule is of curiosity to nearly each trade within the state, together with massive GHG emitters who might be lined by this system, smaller industries that might be able to generate and promote carbon discount credit into this system, and firms that may present GHG discount applied sciences.

events could have the chance to form the ultimate administrative rule by means of Ecology’s notice-and-comment rulemaking course of. Ecology has revealed the next timeline for public participation:

Extra rulemaking supplies could also be seen right here.

Gabriella Lanzas and Anna Beyette contributed to this text