Greenhouse Gas Emissions Reporting.
The United States Environmental Protection Agency (EPA) and the Department of Ecology (Ecology) identify carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride as greenhouse gases (GHGs) because of their capacity to trap heat in the Earth's atmosphere. According to the EPA, the global warming potential (GWP) of each GHG is a function of how much of the gas is concentrated in the atmosphere, how long the gas stays in the atmosphere, and how strongly the particular gas affects global atmospheric temperatures. Under state law, the GWP of a gas is measured in terms of the equivalence to the emission of an identical volume of carbon dioxide over a 100-year timeframe (carbon dioxide equivalent or CO2e).
Under the federal Clean Air Act, GHGs are regulated as an air pollutant and are subject to several air regulations administered by the EPA. These federal Clean Air Act regulations include a requirement that facilities and fuel suppliers whose associated annual emissions exceed 25,000 metric tons of CO2e report their emissions to the EPA. At the state level, GHG reporting is regulated by Ecology under the state Clean Air Act. This state law requires facilities, sources, and sites whose emissions exceed 10,000 metric tons of CO2e each year to report their annual emissions to Ecology. Distributors of gasoline, diesel, and aircraft fuel whose GHG emissions exceed 10,000 metric tons and who pay fuel taxes to the Department of Licensing (DOL) must use the fuel sale information submitted for the DOL fuel tax purposes to report to the state the GHG emissions associated with the fuel.
Ecology and the Department of Commerce must report to the Governor and Legislature by December 31 of even-numbered years regarding total GHG emissions and GHG emissions by source sector in Washington. According to the most recent Ecology data, as of 2017 the total annual GHG emissions in Washington were estimated at 97.5 million metric tons (MMT) of CO2e. Of these emissions, a total of 43.26 MMT CO2e were attributable to transportation sources, of which on-road gasoline accounted for 21.53 MMT CO2e and on-road diesel accounted for 8.36 MMT CO2e.
Statewide Emissions Limits.
In 2008 Washington enacted legislation that sets a series of limits on the emission of GHGs within the state. Ecology is responsible for monitoring and tracking the state's progress toward the emission limits. In 2020 additional legislation was enacted to update the state limits to the following:
Clean Energy Transformation Act.
Under the Clean Energy Transformation Act, electric utilities in Washington must:
Environmental Justice.
A proviso in the 2019-2021 Biennial Operating Budget directed the Governor's Interagency Council on Health Disparities to convene and staff an Environmental Justice Task Force (Task Force). The Task Force was directed to recommend strategies for incorporating environmental justice principles into future state agency actions across Washington. The Task Force published a report with its recommendations in the fall of 2020.
In 2018 a collaborative group began making available to the public an interactive mapping tool that compares communities across Washington for environmental health disparities, known as the Washington Environmental Health Disparities Map (Map). The Map was developed by the University of Washington's Department of Environmental and Occupation Health Sciences, Front and Centered, the departments of Health and Ecology, and the Puget Sound Clean Air Agency. The Map includes 19 specific indicators of health disparities, which are divided into four themes: environmental exposures; environmental effects; sensitive populations; and socioeconomic factors.
Washington Healthy Environment for All Act.
The Washington Healthy Environment for All Act (HEAL Act) of 2021 (Engrossed Second Substitute Senate Bill 5141) requires certain state agencies, including Ecology, to apply and comply with specified environmental justice requirements with respect to agency activities.
The HEAL Act establishes the Environmental Justice Council to advise covered agencies on incorporating environmental justice into agency activities.
Cap and Invest Program.
In order to ensure that greenhouse gas (GHG) emissions are reduced consistent with the state's 2030, 2040, and 2050 emissions limits, the Department of Ecology (Ecology) must implement a cap on GHG emissions from covered entities and a program to track, verify, and enforce compliance through the use of compliance instruments (Cap and Invest Program, or Program), with the Program commencing by January 1, 2023.
The Program must consist of:
Ecology must consider opportunities to implement the Cap and Invest Program in a manner that allows linking the Program with those of other jurisdictions.
In setting the number of allowances offered at each auction, Ecology must consider the allowances in the marketplace due to the marketing of no-cost allowances issued under the Cap and Invest Program. Ecology may offer only such number of allowances at each auction as will enhance the likelihood of achieving the state's GHG emissions limits.
Environmental Justice.
Cap and Invest Program Review.
To ensure that the Cap and Invest Program achieves reductions in criteria pollutants as well as GHG emissions in overburdened communities highly impacted by air pollution, Ecology must:
Prior to listing any entity as a high-priority emitter, Ecology must notify that entity and share the data used to rank that entity as a high-priority emitter, and provide a period of not less than 60 days for the covered entity to submit more recent data or other information relevant to the designation of that entity as a high-priority emitter.
Beginning in 2023, and every two years thereafter, Ecology must conduct a review to determine levels of criteria pollutants, as well as GHG emissions, in identified overburdened communities. This review must also include an evaluation of initial and subsequent health impacts related to criteria pollution in overburdened communities.
Once this review determines the levels of criteria pollutants in an identified overburdened community, Ecology, in consultation with local air pollution control authorities, must:
Ecology must also adopt, along with local air pollution control authorities, stricter air quality standards, emission standards, or emissions limitations on criteria pollutants, consistent with the authority of Ecology under the state Clean Air Act, and may consider alternative mitigation actions that would reduce criteria pollution by similar amounts. After adoption of the stricter air quality standards, emission standards, or emissions limitations on criteria pollutants, Ecology must require that all permitted or registered sources operating in an overburdened community obtain an enforceable order from Ecology or the appropriate local air authority as necessary to comply with the stricter standards or limitations.
Ecology must create and adopt a supplement to its community engagement plan developed pursuant to the HEAL Act. The supplement must describe how Ecology will engage with overburdened communities and vulnerable populations in:
The community engagement plan must include methods for outreach and communication with those who face barriers, language or otherwise, to participation.
Environmental Justice Assessment.
When allocating funds from the Carbon Emissions Reduction Account and the Climate Investment Account or administering grants or programs funded by these accounts, state agencies must conduct an environmental justice assessment consistent with the requirements of the HEAL Act and establish a minimum of not less than 35 percent and a goal of 40 percent of total investments that provide direct and meaningful benefits to vulnerable populations within the boundaries of overburdened communities.
Agencies allocating funds or administering grants or programs from the Climate Investment Account must:
Environmental Justice Council.
The Environmental Justice Council created in the HEAL Act must provide recommendations to the Legislature, agencies, and the Governor in the development and implementation of the Cap and Invest Program and the programs funded from the Carbon Emissions Reduction Account and the Climate Investment Account.
In addition to the duties and authorities granted in the HEAL Act, the Environmental Justice Council must:
For the purpose of performing the duties under the Cap and Invest Program, two additional tribal members are added to the membership of the Environmental Justice Council.
Tribal Consultation.
Agencies that allocate funding or administer grant programs appropriated from the Climate Investment Accounts must develop a consultation framework in coordination with tribal governments that includes best practices, protocols for communication, and collaboration with federally recognized tribes. Under this consultation framework, before allocating funding or administering grant programs agencies must offer consultation with federally recognized tribes on all funding decisions and programs that may impact, infringe upon, or impair the governmental efforts of federally recognized tribes to adopt or enforce their own standards governing or protecting the tribe's resources or other rights and interests in their tribal lands and lands within which a tribe or tribes possess rights reserved by treaty.
If any funding decision, project, activity, or program that impacts land within which a tribe or tribes possess rights reserved by federal treaty, statute, or executive order is undertaken or funded under the Cap and Invest Program without consultation with a federally recognized tribe, an affected tribe may request that all further action on the decision, project, activity, or program cease until meaningful consultation with any directly impacted federally recognized tribe is completed.
A project or activity funded in whole or in part from the Climate Investment Account must be paused or ceased in the event that an affected federally recognized Indian tribe or the Department of Archaeology and Historic Preservation provides timely notice of a determination to Ecology that the project will adversely impact cultural resources, archaeological sites, or sacred sites. A project or activity paused at the direction of Ecology may not be resumed or completed unless the potentially impacted tribe provides consent to Ecology and the proponent of the project or activity.
Climate Commitment Governance Structure.
The Governor shall establish a governance structure to implement the state's climate commitment to provide accountability for achieving the state's GHG emissions limits, to establish a coordinated and strategic statewide approach to climate resilience, to build an equitable and inclusive clean energy economy, and to ensure that the government provides clear policy and requirements, financial tools, and other mechanisms to support achieving those limits.
The governance structure for implementing the state's climate commitment must include, but not be limited to, the following elements:
The Office of the Governor must develop policy and budget recommendations to the Legislature necessary to implement the state's climate commitment by December 31, 2021.
Cap and Invest Program Budget and Timelines.
The program budget of allowances established under the Cap and Invest Program must be set to achieve the share of reductions by covered entities necessary to achieve the state's 2030, 2040, and 2050 emissions limits. Ecology must adopt annual allowance budgets for the Program on a calendar year basis that provide for substantially equivalent reductions on an absolute basis for each year.
An allowance distributed under the Program, either directly by Ecology or through auctions, expires eight years after issuance and may be held or banked.
Ecology must complete an evaluation by December 31, 2027, and by December 31, 2035, of the performance of the Program, including its performance in reducing GHG emissions. If the evaluation shows that adjustments to the annual budgets are necessary to ensure achievement of the 2030 and 2040 emission reduction limits, Ecology must adjust the annual budgets accordingly. Ecology must complete additional evaluations by December 31, 2040, and by December 31, 2045, and make adjustments in the annual budgets to ensure achievement of the 2050 emission reduction limit. Ecology must determine and make public the circumstances, metrics, and processes that would initiate the public consideration of additional program adjustments to ensure successful achievement of the emission reduction limits.
First Compliance Period, 2023-2026.
By October 1, 2022, Ecology must adopt a budget of allowances for the first compliance period of the Cap and Invest Program to be distributed from January 1, 2023, through December 31, 2026. The program budget of allowances for the first compliance period must be based on an emissions baseline establishing the proportionate share that the total GHG emissions of covered entities for the first compliance period bears to the total anthropogenic GHG emissions in the state during 2015 through 2019, based on data reported to Ecology under the state's GHG Emissions Reporting Program.
Second Compliance Period, 2027-2030.
By October 1, 2026, Ecology must add to its emissions baseline by incorporating the proportionate share that the total GHG emissions of new covered entities in the second compliance period bear to the total anthropogenic GHG emissions in the state during 2023 through 2025. Ecology must adopt a program budget of allowances for the second compliance period to be distributed from January 1, 2027, through December 31, 2030.
Compliance Periods Beginning in 2031.
By October 1, 2028, Ecology must adopt by rule the annual program budgets of allowances for the calendar years 2031 through 2040.
Entities Covered Under the Cap and Invest Program.
First Compliance Period, 2023-2026.
A person is a covered entity as of the beginning of the first compliance period and all subsequent compliance periods if the person reported emissions for any calendar year from 2015 through 2019 under the GHG Emissions Reporting Program, or if additional data reported to Ecology indicates that emissions for any calendar year from 2015 through 2019 equaled or exceeded any of the following thresholds:
Second Compliance Period, 2027-2030.
A person is a covered entity as of the beginning of the second compliance period and all subsequent compliance periods if the person reported emissions for any calendar year from 2023 through 2025 where the person operates a waste-to-energy facility utilized by a county and city solid waste management program and the facility's emissions equal or exceed 25,000 MTCO2e.
Compliance Periods Beginning in 2031.
A person is a covered entity beginning January 1, 2031, and all subsequent compliance periods if the person reported emissions for any calendar year from 2027 through 2029, where the person operates a landfill utilized by a county and city solid waste management program and the facility's emissions equal or exceed 25,000 MTCO2e.
Exempt Emissions.
The following emissions are exempt from coverage under the Cap and Invest Program, regardless of emissions levels:
Facility Siting.
The Legislature intends to promote a growing and sustainable economy and to avoid leakage of emissions from manufacturing to other locations. The state must pursue the state's GHG emissions limits in a manner that recognizes that the siting and placement of new best-in-class facilities that provide for the displacement of more carbon intensive processes is in the economic and environmental interests of the state.
For new or expanded facilities that require review under the State Environmental Policy Act (SEPA) and which would result in annual GHG emissions in excess of 25,000 MTCO2e, a lead agency must evaluate the life-cycle GHG emissions of the facility, including any potential net cumulative emissions resulting from the project. Ecology may adopt rules to determine how to evaluate net cumulative emissions.
A lead agency may determine that compliance with the requirements of the Cap and Invest Program constitutes mitigation for covered GHGs from the facilities that have a compliance obligation under the Cap and Invest Program. A lead agency may also determine that inclusion as a covered entity constitutes mitigation of significant adverse impacts with respect to covered GHGs that have a compliance obligation under the Cap and Invest Program for a low carbon-intensive facility subject to the requirements of the SEPA.
A facility constructed with a new or revised permit must have included in applicable permits a conditional clause, should the Cap and Invest Program cease to apply to the facility, to require adherence to a GHG emissions performance standard and perform GHG mitigation consistent with the state's emissions reduction limits, as those requirements existed when the permit was granted.
Registration Requirements.
All covered entities must register to participate in the Cap and Invest Program, following procedures adopted by Ecology by rule. Entities registering to participate in the Program must describe any direct or indirect affiliation with other registered entities.
A person responsible for GHG emissions that is not a covered entity may voluntarily participate in the Program by registering as an opt-in entity. An opt-in entity must satisfy the same registration requirements as covered entities. Once registered, an opt-in entity is allowed to participate as a covered entity in auctions and must assume the same compliance obligation to transfer compliance instruments equal to their emissions at the appointed transfer dates. An opt-in entity may opt out of the Program at the end of any compliance period by providing written notice to Ecology at least six months prior to the end of the compliance period. The opt-in entity continues to have a compliance obligation through the current compliance period. An opt-in entity is not eligible to receive directly distributed, no-cost allowances.
A person that is not covered by the Program and is neither a covered entity nor an opt-in entity may voluntarily participate in the Program as a general market participant. General market participants must meet all applicable registration requirements specified by rule. Federally recognized tribes and federal agencies may elect to participate in the Program as opt-in entities or general market participants.
Ecology must maintain a public roster of all covered entities, opt-in entities, and general market participants on its public website.
Auctions of Allowances.
Except for directly distributed, no-cost allowances allocated to certain entities, allowances under the Cap and Invest Program must be distributed through auctions. Ecology must hold a maximum of four auctions each year, plus any necessary reserve auctions. An auction may include allowances from the annual allowance budget of the current year and allowances from the annual allowances budgets of prior years that remain to be distributed. Ecology must make future vintage allowances available through parallel auctions at least twice annually in addition to the auctions through which current vintage allowances are exclusively offered.
Ecology must engage a qualified, independent contractor to run the auctions. Ecology must also engage a qualified financial services administrator to hold the bid guarantees, evaluate bid guarantees, and inform Ecology of the value of bid guarantees once the bids are accepted.
Auctions are open to covered entities, opt-in entities, and general market participants that are registered entities in good standing. Ecology must adopt by rule the requirements for a registered entity to register and participate in a given auction.
To protect the integrity of the auctions, a registered entity or group of registered entities with a direct corporate association are subject to auction purchase and holding limits. Ecology may limit these if the agency deems it necessary to protect the integrity and functioning of the auctions. A covered entity or an opt-in entity may not buy more than 10 percent of the allowances offered during a single auction. A general market participant may not buy more than 4 percent of the allowances offered during a single auction and may not in aggregate own more than 10 percent of total allowances to be issued in a calendar year. No registered entity may buy more than the entity's bid guarantee. No registered entity may buy allowances that would exceed the entity's holding limit at the time of the auction.
Ecology must adopt by rule provisions to guard against bidder collusion and minimize the potential for market manipulation. A registered entity may not release or disclose any bidding information. Ecology may cancel or restrict a previously approved auction participation application or reject a new application if the agency determines that a registered entity has:
Ecology must design allowance auctions so as to allow, to the maximum extent practicable, linking with external GHG emissions trading programs in other jurisdictions and to facilitate the transfer of allowances when the state's program is linked with other external GHG emissions trading programs. Ecology may conduct auctions jointly with other linked jurisdictions.
An allowance is not a property right.
Auction Proceeds.
Upon completion and verification of auction results, the financial services administrator must notify winning bidders and transfer the auction proceeds to the State Treasurer for deposit each fiscal year, as follows:
The deposits into the Carbon Emissions Reduction Account made in fiscal years 2023 through 2037 must not exceed $5.2 billion over the first 16 years of the Cap and Invest Program, and any remaining auction proceeds must be deposited into the Climate Investment Account. The deposits into the Carbon Emissions Reduction Account must be prorated equally from the proceeds of each of the auctions occurring during each fiscal year.
For fiscal year 2038 and each year thereafter, upon completion and verification of the auction results, the financial services administrator must notify the winning bidders and transfer the auction proceeds to the State Treasurer for deposit, such that 50 percent of the auction proceeds are deposited into the Carbon Emissions Reduction Account and the remaining auction proceeds are deposited into the Climate Investment Account.
No auction proceeds may be transferred to the Carbon Emissions Reduction Account after December 31, 2027, if a clean fuel standard with a carbon intensity reduction of greater than 10 percent is not enacted by that date.
Allocations of Allowances to Emissions-Intensive, Trade-Exposed Industries.
First Compliance Period, 2023-2026.
Facilities owned or operated by a covered entity must receive an allocation of allowances for the covered emissions at those facilities at no cost if the operations of the facility are classified as emissions-intensive and trade-exposed (EITE), as determined by being engaged in one or more of the following industry processes:
Second Compliance Period, 2027-2030.
By July 1, 2022, Ecology must adopt by rule objective criteria for both emissions intensity and trade exposure for the purpose of identifying EITE manufacturing businesses during the second compliance period of the Cap and Invest Program and subsequent compliance periods. A facility covered for the first compliance period is considered an EITE facility and is eligible for allocation of no-cost allowances for the second compliance period. In addition, any covered entity that is a manufacturing business that can demonstrate to Ecology that it meets this criteria is also eligible for treatment as an EITE business and is eligible for allocation of no-cost allowances.
For all compliance periods prior to December 31, 2034, the annual allocation of allowances for direct distribution to a facility identified as EITE must be equal to the facility's proportional obligation of the program budget, multiplied by 100 percent.
Beginning January 1, 2035, and each year thereafter, the annual allocation of no-cost allowances for direct distribution to EITE facilities must be reduced by an equal amount each year between 2035 and 2050 such that in 2050 the facility's proportionate share of the allowance budget is equal to the proportionate share in 2035. The annual allocation beginning in 2035 must decline from the average of the facility's annual allocation of no-cost allowances from 2031 through 2034. If the EITE facility can demonstrate that there have been abnormal periods of operation that materially impacted the facility, then the baseline period must be expanded to include years prior to 2031.
Facility-Specific Carbon Intensity Benchmarks.
Ecology must by rule provide for owners or operators of EITE facilities to apply for and receive from the agency an adjustment to the allocation for direct distribution of allowances based on a facility-specific carbon intensity benchmark. If Ecology determines that the net quantity of no-cost allowances awarded according to the facility's proportional obligation of the program budget, multiplied by 100 percent, is lower than when using the facility-specific carbon intensity benchmark, Ecology must award additional no-cost allowances up to the quantity of allowances resulting from using the facility-specific carbon intensity benchmark. Ecology must adjust the no cost allocation of allowances and credits to an EITE facility to avoid duplication with any other no-cost allowances transferred under the Cap and Invest Program.
"Carbon intensity" means the amount of carbon dioxide equivalent emissions from a facility in metric tons divided by the facility-specific measure of production including, but not limited to, units of product manufactured or sold over the same time interval.
Mass-Based Baseline.
If an EITE facility is not able to feasibly determine a carbon intensity benchmark based on its unique circumstances, the entity may elect to use a mass-based baseline that does not vary based on changes in production volumes.
For each year during the first compliance period, these facilities must be awarded no-cost allowances equal to 100 percent of the facility's mass-based baseline. For each year during the second compliance period, these facilities must be awarded no-cost allowances equal to 97 percent of the facility's mass-based baseline. For each year during the compliance period beginning January 1, 2031, these facilities must be awarded no-cost allowances equal to 94 percent of the facility's mass-based baseline.
Except for aerospace product and parts manufacturing EITE facilities, if a facility elects to use a mass-based baseline, it may not later convert to a carbon intensity benchmark during the first three compliance periods of the Cap and Invest Program.
An aerospace product and parts manufacturing EITE facility that is utilizing a mass-based baseline must receive an additional no-cost allowance allocation in order to accommodate an increase in production that increases its emissions above the baseline on a basis equivalent, in principle, to those awarded to entities utilizing a carbon intensity benchmark. Ecology must establish methods to award, for any annual period, additional no-cost allowance allocations to such an aerospace product and parts manufacturing EITE facility and, if appropriate based on projected production, to achieve a similar ongoing result through the adjustment of the facility's mass-based baseline. An eligible facility that has elected to use a mass-based baseline may not convert to a carbon intensity benchmark until the next compliance period.
Emissions-Intensive, Trade-Exposed Facility Work Group.
By April 1, 2022, Ecology must convene a work group of EITE facilities and their affiliated trade associations, and independent experts in emissions regulation, industrial practices, or other related fields (Work Group).
By July 31, 2022, the Work Group must establish procedures for calculating carbon intensity benchmarks. The carbon intensity benchmark must be based on data from 2015 through 2019, unless the EITE facility can demonstrate that there have been abnormal periods of operation that materially impacted the facility and the baseline period should be expanded to include years prior to 2015.
By September 15, 2022, each EITE facility must submit its carbon intensity benchmark for the first compliance period to Ecology. The calculation must be consistent with the procedures established by the Work Group.
By November 15, 2022, Ecology must review and approve each EITE facility baseline carbon intensity benchmark.
Report to the Legislature.
By December 1, 2030, Ecology must provide a report to the appropriate committees of the Legislature that describes alternative methods for determining the amount and a schedule of allowances to be provided to facilities owned or operated by each covered entity designated as an EITE manufacturing business. The report must include a review of global best practices in ensuring against emissions leakage and economic harm to businesses in carbon pricing programs and describe alternative methods of emissions performance benchmarking and mass-based allocation of no-cost allowances. In developing the report, Ecology must form an advisory group that includes representatives of the manufacturers designated as EITE manufacturing businesses for the first compliance period.
Allocation of Allowances to Electric Utilities.
Ecology must adopt an allocation schedule by rule, in consultation with the Department of Commerce and the Utilities and Transportation Commission, for the provision of allowances at no cost to electric utilities, consistent with a forecast of each utility's supply and demand and the cost burden resulting from the inclusion of the covered entities in each sequential compliance period, as follows:
Under no circumstances may utilities receive any free allowances after 2045.
During the first compliance period, 25 percent of the allowances allocated at no cost to consumer-owned and investor-owned electric utilities must be consigned to auction for the benefit of ratepayers, including at a minimum eliminating any additional cost burden to low-income customers from the implementation of the Cap and Invest Program. Rules adopted by Ecology must increase the percentage of allowances consigned to auction by 25 percent each subsequent compliance period until a total of 100 percent is reached.
Revenues from allowances sold at auction must be returned by providing nonvolumetric credits on ratepayer utility bills, prioritizing low-income customers, or used to minimize cost impacts on low-income, residential, and small business customers through actions that include, but are not limited to, weatherization, conservation and efficiency services, and bill assistance.
Allocation of Allowances to Natural Gas Utilities.
By October 1, 2022, Ecology must adopt rules, in consultation with the Utilities and Transportation Commission, establishing the methods and procedures for allocating allowances to natural gas utilities at no cost during the first two compliance periods. The rules must allow for a natural gas utility to be provided allowances to cover their emissions and decline proportionally with the cap. Allowances allocated at no cost to natural gas utilities must be consigned to auction for the benefit of ratepayers, deposited for compliance, or a combination of both.
By October 1, 2028, Ecology must adopt an allocation schedule for the provision of allowances for the benefit of ratepayers at no cost to natural gas utilities for the compliance periods between 2031 and 2040.
Beginning in 2023, 65 percent of the no-cost allowances allocated to natural gas utilities must be consigned to auction for the benefit of customers, including at a minimum eliminating any additional cost burden to low-income customers from the implementation of the Cap and Invest Program. Rules adopted must increase the percentage of allowances consigned to auction by 5 percent each year until a total of 100 percent is reached.
In order to qualify for no-cost allowances, covered entities that are natural gas utilities must provide copies of their GHG emissions reports filed with the United States Environmental Protection Agency under 40 C.F.R. Part 98 subpart NN - Supplier of Natural Gas and Natural Gas Liquids for calendar years 2015 through 2021 to Ecology on or before March 31, 2022. To continue receiving no-cost allowances, these reports must be provided to Ecology for each reporting year in the manner and by the dates provided under the state GHG Emissions Reporting Program as part of the GHG reporting requirements of the Cap and Invest Program.
Emissions Containment Reserve Withholding.
To help ensure that the price of allowances remains sufficient to incentivize reductions in GHG emissions, Ecology must establish an emissions containment reserve and set an emissions containment reserve trigger price by rule. The trigger price must be set at a reasonable amount above the auction floor price and equal to the level established in jurisdictions with which Ecology has entered into a linkage agreement. In the event that the trigger price is met during an auction, Ecology must automatically withhold allowances as needed. Ecology must convert and transfer any allowances that have been withheld from auction into the Emissions Containment Reserve Account.
Allowance Price Containment.
To help minimize allowance price volatility in the auction, Ecology must adopt by rule an auction floor price and a schedule for the floor price to increase by a predetermined amount every year. Ecology may not sell allowances at bids lower than the auction floor price. Ecology's rules must specify holding limits that determine the maximum number of allowances that may be held for use or traded by a registered entity at any one time. Ecology must also establish an auction ceiling price to limit extraordinary prices and to determine when to offer allowances through the allowance price containment reserve.
Offsets.
Ecology must adopt by rule the protocols for establishing offset projects and securing offset credits that may be used to meet a portion of a covered or opt-in entity's compliance obligation under the Cap and Invest Program.
A total of no more than 5 percent of a covered or opt-in entity's compliance obligation during the first compliance period may be met by transferring offset credits. During these years, at least 50 percent of a covered or opt-in entity's compliance obligation satisfied by offset credits must be sourced from offset projects that provide direct environmental benefits in the state.
No more than 4 percent of a covered or opt-in entity's compliance obligation during the second compliance period may be met by transferring offset credits. During these years, at least 75 percent of a covered or opt-in entity's compliance obligation satisfied by offset credits must be sourced from offset projects that provide direct environmental benefits in the state. Ecology may reduce the 75 percent requirement if it determines there is not sufficient offset supply in the state to meet offset demand during the second compliance period.
The offset limits for the first and second compliance periods may be modified by rule when appropriate to ensure the achievement of the statewide emissions limits and to provide for alignment with other jurisdictions to which the state has linked. The limits may also be reduced for a specific covered or opt-in entity if Ecology determines that the entity has or is likely to:
An offset project on federally recognized tribal land does not count against the offset credit limits established for the first and second compliance periods. No more than 3 percent of a covered or opt-in entity's compliance obligation may be met by transferring offset credits from projects on federally recognized tribal land during the first compliance period. No more than 2 percent of a covered or opt-in entity's compliance obligation may be met by transferring offset credits from projects on federally recognized tribal land during the second compliance period.
Any offset credits used may not be additional to or allow for an increase in the program allowance budgets. The offset credit must be registered and tracked as a compliance instrument.
Beginning in 2031, the limits on offset credits established for the second compliance period apply unless modified by rule as adopted by Ecology after a public consultation process.
Assistance Program for Offsets on Tribal Lands.
In order to ensure that a sufficient number of high-quality offset projects are available, Ecology must establish an assistance program for offset projects on federally recognized tribal lands in the state. The assistance may include, but is not limited to, funding or consultation for federally recognized tribal governments to assess a project's technical feasibility, investment requirements, development and operational costs, expected returns, administrative and legal hurdles, and project risks and pitfalls. Funding or assistance may be provided upon request by a federally recognized tribe.
It is the intent of the Legislature that not less than $5 million be provided in the biennial omnibus operating appropriations act for the purposes of an assistance program for offsets on tribal lands.
Assistance Program for Small Forestland Owners.
Ecology, in cooperation with the Department of Natural Resources, must establish an assistance program for small forestland owners that seeks to benefit from carbon sequestration markets, including the provision of offset credits that qualify under the Cap and Invest Program. The assistance may include, but is not limited to, funding or consultation to assess a project's technical feasibility, investment requirements, development and operational costs, expected returns, administrative and legal hurdles, and project risks and pitfalls. Ecology may assist multiple landowners to develop projects that aggregate sufficient acreage to provide the scale necessary to offer offset credits at a competitive price in either or both voluntary and regulatory carbon markets. Funding or assistance may be provided upon request by a small forestland owner.
It is the intent of the Legislature that not less than $2 million be provided in the biennial omnibus operating appropriations act each biennium for the purposes of this section.
Compliance Obligations.
A covered or opt-in entity has a compliance obligation for its emissions during each four-year compliance period beginning January 1, 2023. A covered or opt-in entity must transfer a number of compliance instruments, including eligible offset credits, equal to their covered emissions by November 1 of each calendar year in which the entity has a compliance obligation. Ecology must set by rule a percentage of compliance instruments that must be transferred in each year of the compliance period such that covered and opt-in entities are allowed to smooth their compliance obligation within the compliance period, but must fully satisfy their compliance obligation over the course of the compliance period, in a manner similar to external GHG emissions trading programs in other jurisdictions.
A covered or opt-in entity submitting insufficient compliance instruments to meet its compliance obligation is subject to a penalty.
Allowances must be transferred in the order in which they were purchased. A covered or opt-in entity may not borrow an allowance from a future allowance year to meet a current or part compliance obligation. Upon receipt by Ecology of all compliance instruments transferred by a covered entity or opt-in entity to meet its compliance obligation, Ecology shall retire the allowances or offset credits.
Contingent Effective Date for Compliance Obligations.
Compliance obligations for covered entities and opt-in entities do not take effect until separate, additive transportation funding is received by the state, at which time the Department of Licensing must provide written notice to the Chief Clerk of the House of Representatives, the Secretary of the Senate, and the Office of the Code Reviser.
"Additive transportation funding" means receipt of funding by the state in which the combined total of new revenues deposited into the Motor Vehicle Fund and Multimodal Transportation Account exceed $500 million in any biennium attributable solely to separate additive transportation funding.
Enforcement.
All covered and opt-in entities are required to submit compliance instruments in a timely manner to meet their compliance obligations and must comply with all requirements for monitoring, reporting, holding, and transferring emission allowances and other provisions of the Cap and Invest Program.
If a covered or opt-in entity does not submit sufficient compliance instruments to meet its compliance obligation by the specified transfer dates, a penalty of four allowances for every one compliance instrument that is missing must be submitted to Ecology within six months. When a covered entity or opt-in entity reasonably believes that it will be unable to meet a compliance obligation, the entity must immediately notify Ecology. Upon receiving notification, Ecology shall issue an order requiring the entity to submit the penalty allowances.
If a covered or opt-in entity fails to submit penalty allowances as required, Ecology must issue an order or issue a new penalty of up to $10,000 per day per violation, or both, for failure to submit penalty allowances. The order may include a plan and schedule for coming into compliance.
Ecology may issue a penalty up to $50,000 per day per violation for violations of the provisions protecting against bidder collusion and market manipulation. For the first compliance period, Ecology may reduce the amount of the penalty by adjusting the monetary amount or the number of penalty allowances.
All penalties must be deposited into the Climate Investment Account.
Appeals of order and penalties must be made to the Pollution Control Hearings Board.
Preemption Provisions.
No city, town, county, township, or other subdivision or municipal corporation of the state may implement a charge or tax based exclusively upon the quantity of GHG emissions.
No state agency may adopt or enforce a program that regulates GHG emissions from a stationary source except as provided under the Cap and Invest Program.
Linkage with Other Jurisdictions.
Ecology must seek to link the Cap and Invest Program with those of other jurisdictions in order to:
The Director of Ecology is authorized to execute linkage agreements with other jurisdictions with established external GHG emissions trading programs. A linkage agreement must cover the following:
Before entering into a linkage agreement, Ecology must establish a finding that the linking jurisdiction and the linkage agreement meets certain criteria and conduct a public comment process to obtain input and a review of the linkage agreement by relevant stakeholders and other interested parties. The input received from the public comment process must be considered before finalizing a linkage agreement.
In the event that Ecology determines that a full linkage agreement is unlikely to meet the required criteria, it may enter into a linkage agreement with limitations, including limits on the share of compliance that may be met with allowances originating from linked jurisdictions.
A linkage agreement approved by Ecology must:
The state retains all legal and policymaking authority over the design and enforcement of its Cap and Invest Program.
Rulemaking.
Ecology must adopt rules to implement the provisions of the Cap and Invest Program. Ecology may adopt emergency rules for initial implementation of the program, to implement the state omnibus appropriations act for the 2021-2023 fiscal biennium, and to ensure that reporting and other program requirements are determined early for the purpose of program design and early notice to covered entities.
Expenditure Targets.
It is the intent of the Legislature that each year the total investments made through the Carbon Emissions Reduction Account, the Climate Commitment Account, and the Natural Climate Solutions Account achieve the following:
Carbon Emissions Reduction Account.
The Carbon Emissions Reduction Account is created in the State Treasury. Moneys in the account may be spent only after appropriation. Expenditures in the account are intended to affect reductions in transportation sector carbon emissions through a variety of carbon reducing investments. These can include, but are not limited to:
Expenditures from the account may only be made for transportation carbon emission reducing purposes and may not be made for highway purposes.
It is the Legislature's intent that expenditures from the account used to reduce carbon emissions be made with the goal of achieving equity for communities that historically have been omitted or adversely impacted by past transportation policies and practices.
Climate Investment Account.
The Climate Investment Account is created in the State Treasury. Except as otherwise noted, all receipts from the auction of allowances under the Cap and Invest Program must be deposited into the account.
Projects or activities funded from the account must:
Each contracting entity's proposal for projects and activities funded from the account must be reviewed for equity and opportunity improvements efforts.
Moneys in the account may be used only for projects and programs that achieve the purposes of the Cap and Invest Program. Moneys in the account must first be appropriated for the administration of the requirements of the Cap and Invest Program, in an amount not to exceed 5 percent of the total receipt of funds deposited into the account per biennium.
Beginning July 1, 2024, and annually thereafter, the State Treasurer shall distribute funds in the account as follows:
These allocations must be reviewed by the Legislature on a biennial basis based on the changing needs of the state in meeting its clean economy and GHG reduction goals in a timely, economically advantageous, and equitable manner.
Climate Commitment Account.
The Climate Commitment Account is created in the State Treasury. The account must receive moneys distributed to it from the Climate Investment Account. Moneys in the account may be spent only after appropriation. Projects, activities, and programs eligible for funding from the account must be physically located in Washington and include, but are not limited to, the following:
Moneys in the account may not be used for projects or activities that would violate tribal treaty rights or result in significant long-term damage to critical habitat or ecological functions. Investments from the account must result in long-term environmental benefits and increased resilience to the impacts of climate change.
Natural Climate Solutions Account.
The Natural Climate Solutions Account is created in the State Treasury. All moneys directed to the account from the Climate Investment Account must be deposited into the account. Moneys in the account may be spent only after appropriation. Moneys in the account are intended to increase the resilience of the state's waters, forests, and other vital ecosystems to the impacts of climate change, conserve working forestlands at risk of conversion, and increase their carbon pollution reduction capacity through sequestration, storage, and overall system integrity. Moneys in the account must be spent in a manner that is consistent with existing and future assessments of climate risks and resilience from the scientific community and expressed concerns of and impacts to overburdened communities.
Moneys in the account may be allocated for the following purposes:
Moneys in the account may not be used for projects that would violate tribal treaty rights or result in significant long-term damage to critical habitat or ecological functions. Investments from this account must result in long-term environmental benefits and increased resilience to the impacts of climate change.
Greenhouse Gas Reporting and Verification.
Ecology must adopt rules requiring persons to report emissions of GHGs where those emissions from a single facility, or from electricity or fossil fuels sold in Washington by a single supplier or local distribution company, meet or exceed 10,000 MTCO2e annually. Annual reports must include emissions data for the preceding calendar year and be submitted to Ecology by March 31 of the year in which the report is due. The reporting rules must support implementation of the Cap and Invest Program.
Ecology must establish by rule the methods of verifying the accuracy of emissions reports. Verification requirements apply at a minimum to:
Ecology may adopt rules to accept verification reports from a linked jurisdiction where Ecology deems the methods or procedures are substantively similar.
When a person that holds a compliance obligation under the Cap and Invest Program fails to submit an emissions data report, or fails to obtain a positive emissions data verification statement, Ecology may assign an emissions level for that person.
Ecology may by rule include additional gases to the definition of GHG if that gas has been included in external GHG emission trading programs where Washington has a linkage agreement in effect. Ecology must update its rules whenever needed to ensure consistency with emissions reporting requirements for linked jurisdictions.
Contingent Expiration Date.
The Cap and Invest Program, and any rules adopted by Ecology to implement the Program, are suspended on December 31, 2055, in the event that the statewide 2050 emission limits have been met for two or more consecutive years.
The amended bill does the following:
(In support) Tribal communities are already climate refugees. Tribal nations urge that the state take significant action against climate change. Climate change represents an existential threat to tribal nations and tribal cultural and ecological resources. The tribal consultation provisions in this bill are important. This bill advances climate action by capping and reducing emissions and investing in climate resilience. This bill commits to tracking and reducing other sources of pollution in overburdened communities. Air quality improvements reduce hospitalizations and death. The negative impacts of air quality are borne disproportionately by minority communities. This bill utilizes the Environmental Health Disparities Map hosted by the Department of Health. This bill limits offsets and reduces access to offsets by entities that are not meeting their emissions and air quality targets. Cap and trade is a tried-and-true framework for addressing pollution in the United States. This bill gives a platform that starts to make a future for the next generations. Black Washingtonians will have a seat at the table in the implementation of this bill through the Environmental Justice and Equity Advisory Panel. This bill accommodates the unique operational concerns of natural gas utilities.
(Opposed) Washington has one of the cleanest grids on the nation, and the state should be encouraging manufacturers to site in the state to take advantage of our clean, green power. This program will add 18 cents to a gallon of gas and 21 cents to a gallon of diesel in the first year of implementation, which will exert cost burdens on businesses and consumers in the state. Most of the businesses in this state employ 19 or fewer employees and face razor-thin margins. Ninety-seven percent of trucking companies are small. Alternative fuel trucks are not yet feasible, which will necessitate the trucking industry to bear significant cost increases. Businesses in Washington need to know that their competitors in other jurisdictions will not be given an unfair advantage. Farmers are concerned about fuel cost increases. All farms rely on fossil fuels. Higher fuel costs increase the cost to grow crops and make Washington farmers less competitive. The benefits of this bill do not flow back to farmers because of the labor requirements embedded in the expenditure provisions. Farm workers are very vulnerable to the impacts of climate change and environmental degradation. Farm workers in California have given testimony about the damage of cap and trade programs. Farm workers are finding that it is imperative to continue to fight against policy schemes that give more power to the rich and to corporations. There are too many loopholes for companies to abuse the program. Cap and trade is trickle-down environmentalism. Cap and trade programs do not lower emissions. This bill does not change the policies and corporate practices that impose harms on communities of color.
(Others) There are concerns for easing the burden on EITE businesses. Criteria pollutants and carbon emissions are two distinct policy targets. The bill gets significantly more expensive for EITEs beginning in 2035.
The Appropriations Committee striking amendment makes the following changes compared to the Environment and Energy Committee striking amendment:
(In support) Climate change is a big issue for tribal communities. Tribal governments are committed to climate resilience, wildlife preservation, and ecological restoration. The bill needs to be strengthened so that the state does not subsidize major new polluters. The state would be granting free allowances to a new silicon smelter located in Northeast Washington. Incentives need to be tied to positive outcomes for overburdened communities. This bill would meaningfully and comprehensively confront Washington's impacts from climate change. This bill is projected to reduce greenhouse gas (GHG) emissions significantly by 2030, as well as criteria pollution in overburdened communities. This program is projected to generate billions of dollars of revenue over the next 14 years. This bill has gotten increasingly stronger during the legislative process, particularly as it pertains to transportation expenditures and investments for tribal nations and frontline and overburdened communities. This bill offers the opportunity for generational investments in our communities, our environment, and our people. The bill builds on a history of success with other environmental issues in the United States, similar to how acid rain and other types of pollution were dealt with. This bill is inseparable from the transportation funding package. Aligning with similar programs in other jurisdictions is efficient. The bill would create family wage jobs.
(Opposed) This bill would increase gas prices. All farms rely on fossil fuels, and higher fuel costs increase the cost of growing crops. Increased gas prices would put price pressure on products from small and medium-sized businesses. Cap and trade is a harmful policy made worse in this specific bill. Washington should not join California's failures. Washington's bill is only going to cover one-fourth of the state's emitters. It is impossible for this bill to meet the state's GHG emissions reductions goals. There remains a considerable amount of work to be done on this bill. One missing element in the bill is stronger preemption language. The amendment made in the Environment and Energy Committee created uncertainty around the treatment of electricity marketed by the Bonneville Power Administration. Due to the changes made by the Environment and Energy Committee, emissions-intensive, trade-exposed (EITE) facilities are no longer optimistic that they can comply with the requirements of this bill. This bill should continue to be focused on GHG emissions. This bill will cause GHG leakage to higher-emitting jurisdictions and places rural, union jobs at risk. There are concerns about the treatment of EITE facilities after 2035. Cap and trade systems allow carbon emitters to continue emitting whenever it is expedient for them, and the state Environmental Health Disparities Map shows that it occurs overwhelmingly in overburdened communities. The bill's definition of allowable transportation expenditures is too narrow. When cap and trade is too complex, as in Europe, the policy cannot achieve its goals. The bill ignores the will of the people, as similar policies have already been rejected by voters. Propane is not a GHG and should not be regulated under this bill.
(Other) The Cap and Invest Program must be appropriately harmonized with the Clean Energy Transformation Act (CETA). Washington is likely to be a net taker of credits, which means the fiscal note could be significantly underestimating the economic impacts of this bill. There is potential double regulation between this program and the requirements of the CETA. A greater percentage of auction proceeds should go to benefit low-income individuals.