State Emission Limits.
Since 2008, state law (RCW 70A.45) has established limits on the emission of greenhouse gases (GHGs) in Washington. The Department of Ecology (Ecology) is responsible for monitoring and tracking the state's progress in achieving these emissions limits. In 2020 additional legislation was enacted to update the statewide emissions limits to the following:
Climate Commitment Act Overview.
Under the 2021 Climate Commitment Act (CCA), in order to ensure that GHG emissions are reduced consistent with the state's 2030, 2040, and 2050 emissions limits, 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, which include allowances or eligible offset credits. The Cap-and-Invest Program (Program) must commence by January 1, 2023.
The Program must consist of:
Allowance Budgets.
Compliance obligations under the Program are phased in over the following four-year compliance periods:
By October 1, 2022, Ecology must adopt annual allowance budgets for the first compliance period to be distributed from January 1, 2023, through December 31, 2026. Ecology must also adopt annual allowance budgets for the second compliance period. By October 1, 2028, Ecology must adopt by rule the annual allowance budgets for the calendar years 2031 through 2040. The annual allowance budgets established under the 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. Annual allowance budgets must be set such that the use of offsets as compliance instruments does not prevent the achievement of the state's emissions limits.
Allowance Auctions, Compliance Obligations, and Enforcement.
Except for directly distributed, no-cost allowances allocated to certain entities, allowances must be distributed via allowance auctions. Auctions are open to covered entities, opt-in entities, and general market participants that are registered entities in good standing. Ecology must hold a maximum of four auctions each year, plus any necessary reserve auctions. An auction may include allowances from the allowance budget of the current year and those from 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.
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:
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. 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 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 must issue an order requiring the entity to submit the appropriate penalty allowances. If a covered or opt-in entity fails to submit the appropriate penalty allowances, Ecology must issue an order or a penalty.
Offset Credits.
Ecology must adopt by rule protocols for establishing offset projects and securing offset credits. The protocols adopted by Ecology must align with specified policies, including policies identifying the role of the forest products sector in carbon sequestration.
Offset projects must:
In adopting protocols governing offset projects and covered and opt-in entities' use of offset credits, Ecology must:
The use of offset credits by covered entities is limited to specified percentages of their compliance obligations. Program allowance budgets must be set so that the use of offsets does not prevent the achievement of state emission limits. In setting annual allowance budgets, Ecology must reduce the number of allowances in the budget in an amount equivalent to offset use, or according to a similar methodology that Ecology may adopt by rule.
Exempt Emissions.
The following emissions are exempt from coverage under the Program, regardless of emission level:
Allowance Price Containment.
To help minimize allowance price volatility in an 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 trade 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 Allowance Price Containment Reserve (APCR) auctions. The ceiling price must increase annually in proportion to the price floor.
For calendar years 2023 through 2026, Ecology must place no less than 2 percent of the total number of allowances available from the allowance budgets for those years in the APCR. The APCR must be designed as a mechanism to assist in containing compliance costs for covered and opt-in entities in the event of unanticipated high costs for compliance instruments.
Ecology must adopt rules for holding auctions of allowances from the APCR when the settlement prices in the preceding auction approach the adopted auction ceiling price. The auction must be separate from auctions of other allowances.
If no allowances remain in the APCR, Ecology must issue a number of price ceiling units (PCUs) for sale sufficient to provide cost protection for facilities at a price level set by Ecology. Price ceiling units may only be purchased by entities that do not have sufficient eligible allowances or offset credits to meet their compliance obligation for the current compliance period. Funds raised in connection with PCU sales must be expended to achieve emission reductions that are real, permanent, quantifiable, verifiable, and enforceable.
Preemption.
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 CCA.
The CCA preempts Ecology's Clean Air Rule (Ch. 173-442 WAC), which had been adopted in 2016 to limit emissions of GHGs from certain stationary emission sources and from fuel supplied by petroleum product producers and importers and natural gas distributors, and which was subsequently partially invalidated by a state Supreme Court decision.
Climate Commitment Act Accounts.
Five accounts are created by the CCA, and into which revenues from Program auctions are or are intended to be deposited:
Environmental Justice Provisions in the 2021 Climate Commitment Act.
In 2021 the Legislature enacted Senate Bill 5141 (SB 5141), which established several requirements applicable to how state agencies consider environmental justice in their decision-making. The departments of Agriculture, Commerce, Ecology, Health, Natural Resources, and Transportation and the Puget Sound Partnership must apply and comply with specified environmental justice requirements. The environmental justice duties of these agencies include creating and adopting a community engagement plan by July 1, 2022, that describes planned engagement with overburdened communities and vulnerable populations, and that identifies and prioritizes overburdened communities for purposes of implementing the agency's environmental justice responsibilities. State agencies must also conduct an environmental justice assessment for certain types of agency activities. An Environmental Justice Council was formed for purposes of advising state agencies in the implementation of their responsibilities under SB 5141. The Environmental Justice Council consists of 14 members that meet specified criteria.
Senate Bill 5141 passed the Legislature two weeks prior to the enactment of the CCA, and numerous provisions of the CCA explicitly reference and build upon provisions established in SB 5141.
To ensure that the Program achieves reductions in criteria pollutants (which are certain traditional monitored pollutants under the Clean Air Act, such as particulate matter), Ecology must:
Beginning in 2023, Ecology must review levels of criteria pollutants and health impacts every two years in overburdened communities, with the Department of Health. After review, Ecology must:
Ecology must adopt a supplement to its SB 5141 community engagement plan. The supplement specifically focuses on criteria air pollutant emissions and emitters in overburdened communities.
Each year or biennium, when allocating funds or administering grants or programs from three CCA Accounts (the Carbon Emissions Reduction Account, the Climate Investment Account, and the Air Quality and Health Disparities Improvement Account), state agencies must:
Funding allocated through these three CCA Accounts must adhere to the requirements that apply to funding and expenditure decisions by covered agencies under SB 5141, and must also adhere to four principles:
State agencies allocating or administering funds from these three accounts must:
In addition to its duties under SB 5141, the Environmental Justice Council must:
Two additional tribal members are added to the Environmental Justice Council for purposes of its CCA-focused duties.
Vetoed Provisions of the Climate Commitment Act.
Section 22 of the CCA was vetoed by Governor Inslee. Among other Program details included in Section 22 that were not included elsewhere in the CCA, Section 22:
Public Records Act Exemption.
The following Climate Commitment Act (CCA) records are confidential and are exempt from public disclosure in their entirety:
Preemption.
State agencies may not adopt or enforce a greenhouse gas (GHG) pricing or market-based emissions cap and reduce program for stationary sources, or enforce GHG emission limitations from stationary sources, except as provided in the CCA, as authorized or directed by state statute, or as required to implement a federal rule, statute, rule, or program. The CCA preempts the provisions of Ecology's Clean Air Rule, and Ecology must repeal the Clean Air Rule.
Allowance Budgets, Auctions, and Compliance Obligation Logistics.
Some, but not all, of the provisions contained in vetoed Section 22 of the CCA are re-enacted in identical or amended form, and provide that:
The emissions baseline for the Program in 2026 must incorporate the proportionate share of emissions from new covered entities in the second compliance period, as measured using 2015 through 2019 emissions data, rather than 2023 through 2025 emissions data.
Offset credits are no longer required to be certified by a recognized register after July 25, 2021, or within two years prior to July 25, 2021. Instead, offset credits must have been issued for reporting periods wholly after July 25, 2021, or within two years prior to that date. Offset credits used must be consistent with offset protocols adopted by Ecology.
The "auction ceiling price" that limits extraordinary prices by determining when to offer allowances through an allowance price containment reserve auction is renamed as the "reserve auction floor price." Ecology must adopt rules for holding auctions of allowances from the price containment reserve when the settlement prices in the preceding auction exceed the adopted reserve auction floor price.
If a jurisdiction with which Ecology might enter into a linkage agreement does not have an emissions containment trigger price, Ecology may suspend the trigger price that it is otherwise required to adopt by rule in order to ensure that allowance prices are sufficient to incentivize reductions in GHG emissions, and which functions by requiring Ecology to withhold allowances at auction if the trigger price is met.
Climate Commitment Act Accounts and Environmental Justice Provisions.
A Price Ceiling Unit Emission Reduction Investment Account is created to receive receipts from PCU sales. The allowable uses of the Account are the same emission reduction investment allowable uses for funds from PCU sales as specified in the 2021 CCA.
The $5.2 billion, 16-year limit on deposits into the Carbon Emission Reduction Account (used for specified types of transportation uses) is specified to be measured on a fiscal year basis.
The environmental justice assessment and other environmental justice provisions that apply to the Climate Investment Account, the Carbon Emissions Reduction Account, and the Air Quality and Health Disparities Investment Account also apply to the Climate Commitment Account and the Natural Climate Solutions Account. The duties of the Environmental Justice Council with respect to expenditures from the other accounts created by the CCA are extended to apply to expenditures from the Natural Climate Solutions Account and the Climate Commitment Account. The duties assigned to the Environmental Justice Council in the CCA are enumerated and integrated with the other duties assigned to the Environmental Justice Council.
Other.
Annual GHG emission reports to Ecology by electric power entities are due by June 1 of each year instead of the March 31 deadline that applies to other types of reporting emission sources.
Municipal wastewater solids are added to the types of biomass that are exempt from CCA program coverage when combusted.
An eligible facility sited after July 25, 2021, that receives no-cost allowance allocations as an emissions-intensive trade-exposed facility must mitigate increases in particulate matter in overburdened communities due to its emissions.
Various clarifications and technical corrections are included, including updated codification references, and revised references to use defined terms.
The striking amendment makes the following changes to the Engrossed Second Substitute Senate Bill:
(In support) The Climate Commitment Act (CCA) is set to begin implementation in 2023, and the changes in this bill will help resolve conflicts in existing law that might prove a barrier to the program working as intended. Sensitive market information needs to be exempted from public disclosure, both to preserve market integrity and to allow linkage with other climate programs in other states in the future. The changes to the preemption provisions are consistent with the Legislature's intent in enacting last year's law. This bill does not address every remaining policy question with respect to the CCA, such as the treatment of emissions-intensive trade-exposed facility emissions, which are addressed in separate legislation this year. Linkage to other climate programs in other jurisdictions will be important in order to contain CCA program costs. Washington's law should be amended to support linkage with other jurisdictions in a number of ways. The Department of Ecology should adopt a rule sooner than in 2026 to address the emissions from electricity from centralized electricity markets, since electricity is covered in the first compliance period of the program.
(Opposed) None.
(Other) There should be additional flexibility given to regulated entities to smooth their compliance obligations over a four-year period, in order to account for years in which hydroelectric power generation is low and emissions spike from the need to replace that power. Washington's program design does not need to mirror that of California's in all respects in order to allow for linkage with their program. The emission reductions in the CCA will be unprecedentedly steep beginning in 2023, and it is not clear how a 7 percent reduction in statewide emissions will be able to be achieved by regulated parties. Additional changes to the CCA should be considered in the coming years as the program begins to be implemented in order to address practicality and feasibility issues with compliance. The CCA should be the state's primary greenhouse gas emission program, and should broadly preempt other state programs to regulate covered greenhouse gas emissions. Washington gets food and other products from thousands of miles away, which is an environmental catastrophe not addressed by the CCA due to its exemption for interstate shipping and aviation emissions.