SB 6203

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As of February 12, 2018

Title: An act relating to reducing carbon pollution by moving to a clean energy economy.

Brief Description: Reducing carbon pollution by moving to a clean energy economy.

Sponsors: Senators Carlyle, Ranker, Palumbo, Nelson, Pedersen, Frockt, Billig, Rolfes, McCoy, Keiser, Wellman, Liias, Hunt, Chase, Saldaña and Kuderer; by request of Governor Inslee.

Brief History:

Committee Activity: Energy, Environment & Technology: 1/16/18.

Brief Summary of Bill

  • Imposes a carbon pollution tax equal to $20 per metric ton of carbon dioxide on the sale or use of fossil fuel within the state of Washington and the sale or use of electricity in Washington generated using fossil fuels, beginning July 1, 2019.

  • Increases the tax rate by inflation, as measured by the consumer price index, plus 3.5 percent beginning January 1, 2020.

  • Directs the carbon tax revenue to be allocated into three accounts for activities that reduce greenhouse gas (GHG) emissions connected to energy use and other activity in Washington; provides assistance to vulnerable communities and workers in fossil fuel industries; and increases the resilience of Washington's natural resources to the impacts of climate change.

  • Establishes the Clean Energy Investment Program to allow an electric or gas utility to claim a credit of up to 100 percent against the carbon tax for approved investment in projects that reduce or offset carbon emissions from the utility.


Staff: Kimberly Cushing (786-7421), Jeffrey Mitchell (786-7438)

Background: Washington's GHG Emission Reduction Targets. At the state level, GHGs are regulated by the Department of Ecology (Ecology) under the state Clean Air Act. In 2008 the Legislature set the following GHG reduction targets for the state:

Fuel Mix Disclosure Program. Each retail electric utility in the state must disclose its actual or imputed annual fuel mix used to generate electricity. The disclosure must provide the percentage attributable to each of the following generation sources:

Utilities may separately report a subcategory of natural gas generation to identify high efficiency cogeneration. Under the Fuel Mix Disclosure Program, any specifically identified source of electricity, such as wind or natural gas, is called a declared resource. Utilities that do not declare their resources must report the fuel mix of the Northwest power pool, called the net system power mix.

Renewable Energy and Energy Efficiency Projects. The Washington State Energy Office within the Department of Commerce (Commerce) has a variety of programs that help improve energy efficiency for homeowners, businesses, public facilities, and low-income residents; improve access to financing for energy-efficiency upgrades; and support the development and deployment of clean energy technologies.

Centers for Excellence. The State Board for Community and Technical Colleges (State Board), in consultation with business, industry, labor, state agencies, and the colleges, designates Centers of Excellence. These centers will employ strategies such as building a diverse, competitive workforce for strategic industries. Each center is funded through the State Board and is housed at a community or technical college. Currently, there are ten Centers of Excellence around the state, including The Pacific Northwest Center of Excellence for Clean Energy at Centralia College.

Fish Barrier Correction Projects. In 2001, 21 Western Washington treaty tribes filed suit in U.S. District Court, United States v. Washington, alleging that the existence of state-owned barrier culverts under roads that restrict or completely block salmon and trout access to historic spawning and rearing habitat is a violation of treaty rights. In March 2013, a permanent injunction was issued requiring the State of Washington to accelerate barrier correction on salmon and steelhead streams within specified areas. The Washington State Department of Transportation (WSDOT) is correcting fish passage barriers for dedicated fish passage projects and those completed as part of transportation projects.

Forest Health Treatment Assessment. The Department of Natural Resources (DNR) has direct charge of and supervision over all matters pertaining to the forest fire service of the state, specifically including the work of suppressing forest fires. In 2017, the Legislature directed DNR to establish a forest health assessment and treatment framework that consists of biennial forest health assessments, treatments, and progress review and reporting. A specific goal of the framework is to assess and treat one million acres by 2033.

Summary of Bill: Carbon pollution tax (carbon tax). Imposition. Beginning July 1, 2019, a carbon pollution tax applies to:

From July 1, 2019, through December 31, 2019, the tax rate is $20 per metric ton of carbon dioxide emissions. Beginning January 1, 2020, and each calendar year thereafter, the tax rate increases by inflation, as measured by the consumer price index, plus 3.5 percent.

Ecology, in consultation with Commerce, will determine the amount of carbon dioxide emissions derived from the combustion or oxidation of various fossil fuels as part of a carbon calculation. The calculation will include a determination of the carbon dioxide emissions from generating electricity. For the sale or consumption of electricity sourced from an asset controlling supplier (ACS) such as the Bonneville Power Administration, the department will calculate a system emissions factor for all ACSs recognized by Ecology. A system emissions factor reflects the estimated average carbon intensity of power sourced from an ACS, i.e., metric tonnage of carbon dioxide emissions per megawatt hour (MWh). If the source used to generate electricity is unknown or unspecified, the carbon dioxide inherent in the electricity is assumed to be one metric ton per MWh.

Point of Taxation. The carbon tax is imposed on the first sale or use of the fossil fuel in Washington. A sale of fossil fuel takes place in the state when the fossil fuel is delivered in this state to the purchaser or a person designated by the purchaser. A use of fossil fuel occurs in this state when the fuel is consumed by the taxpayer in the state or the taxpayer possesses or stores the fossil fuel in the state in preparation for actual consumption by the taxpayer. For motor vehicle or special fuels, the carbon pollution tax would generally parallel the points of taxation used for fuel taxes.

Exemptions. The carbon pollution tax does not apply to:

A light and power business or gas distribution business may claim a 100 percent credit against the carbon pollution tax for clean energy investments approved by Commerce or the Utilities and Transportation Commission (UTC) as part of a clean energy investment program.

Reporting. Commerce, with support from DOR, must annually report to the Governor and Legislature by October 31, 2020, through 2030, and biennially thereafter. The report must contain:

Rules and Technical Assistance. DOR, Ecology, and Commerce may adopt rules to administer the tax. Commerce, Ecology, and the WSU Energy Program must provide technical assistance to DOR as necessary to effectively implement the carbon tax.

State Preemption. No local government in the state may impose any comparable carbon tax or charge on the sale or use of fossil fuels or the retail sale or consumption of electricity generated through the combustion of fossil fuels.

Revenue Allocation. A Carbon Pollution Reduction Account (Account) is created in the State Treasury. All revenues generated from the carbon tax, and any other revenues directed by the Legislature, are deposited into the Account. First, funds must be appropriated to DOR for administrating the carbon tax, and then the remainder is distributed as follows:

Energy Transformation Account. The Energy Transformation Account is created in the state treasury and, subject to appropriation. Commerce must use funds in the account for projects and programs that reduce GHG directly connected to energy use in Washington. Priority must be given to projects and activities that benefit low-income communities, communities of color, and communities of indigenous peoples. Public entities and private entities are eligible to receive funds from the Energy Transformation Account.

Categories of eligible projects include:

Funding recipients for projects must submit a progress report to Commerce with required information, including a summary of the investment made and verification of the avoided GHG emissions from a qualified third party. The third party must report on whether a project was built or implemented according to the approved funding contract, a verification plan detailing the methods of evaluating the project, a review of the recipient's accounting of current and projected emissions reductions, site visits by verifiers, and additional data Commerce identifies to evaluate the project for emissions reductions.

Commerce must design project funding contracts, monitor project implementation, track contract performance, and identify qualified third party verifiers. Commerce may also suspend or terminate funding when projects do not achieve projected reductions as provided in the funding agreement or require a return of grant funding in cases of gross misuse of funds. To administer the projects and programs, funds may be appropriated to Commerce from the Energy Transformation Account and Commerce may adopt rules.

Commerce must develop an implementation plan for the investment of the Energy Transformation Account by June 30, 2019. The planning and preparation must include:

Water and Natural Resource Resilience Account. The Water and Natural Resource Resilience Account is created in the state treasury and subject to appropriation. In consultation with the Department of Fish and Wildlife, WSDOT, and the Recreation and Conservation Office, Ecology may use the funds for eligible projects and activities that must consider future climate impacts in their planning, siting, design, and implementation. These projects and activities must include:

The Department of Natural Resources (DNR) may use this account to improve forest and natural lands health and resilience, reduce wildfire risk, and prepare for and suppress wildland fires. DNR may undertake or provide grants for projects and activities that improve forest health, which includes thinning or prescribed fire, with priority for projects that are:

Additionally, DNR may support agency activities or provide grants for wildland fire prevention and suppression, and projects that help communities reduce their risk and improve their ability to adapt to wildland fires.

By January 1, 2019, Ecology must establish an advisory committee with specific representatives to help identify, evaluate, and prioritize infrastructure needs and projects that will increase the resilience of Washington's natural resources to expected impacts of climate change. To administer the projects and programs, funds may be appropriated to Ecology from the Water and Natural Resource Resilience Account.

Within the first 12 months after the carbon tax is implemented, Ecology must develop an implementation plan for the investment of the Water and Natural Resources Resilience Account. The plan must include:

Ecology must work with the Climate Impacts Group at the University of Washington to provide an assessment of the state's resilience to climate change impacts and remaining major vulnerabilities, and recommendations for additional projects and activities by October 1, 2022, and every four years thereafter.

Transition Assistance Account. The Transition Assistance Account is created in the state treasury and, subject to appropriation. Commerce must use the funds for three purposes. First, Commerce must provide assistance to vulnerable communities and households to provide for an equitable transformation to a clean energy economy. Assistance may include support for low-income energy assistance, low-income weatherization, public health programs, rural economic development, low-carbon innovation and entrepreneurship, affordable transportation and housing options and services, and community services and infrastructure needed to increase resilience to climate impacts and environmental pollution.

Second, Commerce must use the funds to assist workers in fossil fuel industries affected by the transition to a cleaner energy economy, including wage replacement benefits, training and education subsidies, job placement support, and relocation assistance. Commerce must administer funds through existing assistance programs and work with the Employment Security Department (ESD) to identify the best use of funding.

Third, the State Board for Community and Technical Colleges (State Board) must use funds to establish three separate Clean Energy Centers for Excellence in the state community and technical college system:

  1. Renewable energy integration and generation development;

  2. Smart grid technology and the next generation of hydropower resources development; and

  3. Renewable forest products promotion and research to improve forest health and reduce fire risk.

Commerce must establish a citizen advisory group with specific stakeholders to provide input on the use of the Transition Assistance Account funds. To administer the projects and programs, funds may be appropriated to Commerce from the account and Commerce may adopt rules.

Within the first 12 months after the carbon tax is implemented, Commerce must work with ESD, the Department of Health, and other agencies to establish an implementation plan for the Transition Assistance Account. This plan must identify disproportionately impacted communities, provide guidance to evaluate wage and benefit value for affected workers, and propose outreach and education to engage eligible recipients for funding support.

Clean Energy Investment Program (Investment Program). Each electric utility or natural gas business may claim a credit of up to 100 percent against the carbon tax imposed in the same calendar year, beginning July 1, 2019.

To be eligible for the credit under the Investment Program, an electric or gas utility must receive approval of a clean energy investment plan (investment plan) and execute an agreement with Commerce or the UTC authorizing it to reinvest an equivalent amount of carbon tax revenues collected from customers during that year, the preceding year, or any of the three subsequent years. Each electric and gas utility claiming a credit must establish a separate Clean Energy Investment Account (Investment Account) for the investment funds, and may not earn a rate of return on these investment funds.

Beginning July 1, 2020, an electric or gas utility seeking a credit under the Investment Program, must submit an investment plan that must includes:

Additionally, an electric or gas utility must submit a summary of public input received during the development of the investment plan through public processes and a schedule for independent evaluation of activities financed though the investment plan, including verification of carbon emissions reductions.

At least 20 percent of the investment funds must be additional funding dedicated for low-income energy assistance. The investment plans may only include the following types of investments or expenditures:

An electric or gas utility must submit and receive approval of an updated investment plan every three years to maintain eligibility for the tax credit and to continue to retain authority to expend investment funds. Additionally, a utility must submit an annual report to Commerce or the UTC that includes the status of projects approved; an accounting of GHG emissions and reductions achieved and the cost per metric ton of emissions reductions; and updated estimates of future GHG emissions reductions and the cost per metric ton. Annually, Commerce must provide DOR with a report summarizing who is entitled to the credit, over what timeline, and any additional information DOR needs to administer the credit.

Commerce and the UTC must create a Technical Advisory Committee (Committee) to provide advice or review Commerce and UTC's standards and guidelines to evaluate quantify, and verify GHG emissions reductions proposed by investment plans. The Committee duties include: advising on standard protocols for verification and evaluation of GHG emissions reductions from utility investments, recommending common planning assumptions for investment plans, and advising on a standard reporting format for all investment funds.

Commerce must adopt rules for consumer-owned utilities and the UTC must adopt rules for the investor-owned utilities concerning the process, timelines, report, and documentation to implement the Investment Program, as well as requirements for review, approval, and independent monitoring and evaluation of investment plans by July 1, 2019. To the extent practical, Commerce and the UTC must adopt similar rules to ensure a coordinated and consistent implementation of the Investment Program.

Decarbonization Planning. Commerce must develop a statewide plan for how Washington would achieve mid-century net GHG emissions reductions of 80 percent or greater within two years of the effective date of this act. Commerce must convene and staff a Decarbonization Advisory Committee to provide recommendations on the scope and content of the statewide plan. The committee must have representatives from local and state government, businesses, public interest organizations, the energy industry, and the public. Commerce may establish technical committees and contract for technical analysis as needed.

Appropriation: None.

Fiscal Note: Available.

Creates Committee/Commission/Task Force that includes Legislative members: No.

Effective Date: Ninety days after adjournment of session in which bill is passed, except section 2 which takes effect July 1, 2019.

Staff Summary of Public Testimony: PRO: Inaction is not an option and Washington citizens want a pollution tax to support projects that reduce emissions. This bill is the best way for the state to fulfill its clean energy commitments. Clean energy jobs are a growing sector of the economy, and this bill will continue the development of local green businesses and jumpstart new industries. This bill will promote carbon neutral buildings in Washington and create demand for skilled architects. This bill is not economy-crippling. The cost of renewable energy decreases the more we invest. The EITE exemption prevents negative impacts to the cost of business. Effects of climate change, such as hurricanes, are much worse financially than any economic impact of this policy. This bill will aid in fostering equality: low income people, tribes who are relocated due to rising sea levels, fossil fuel workers facing dislocation. International research and modelling support this bill. A price on carbon is the only option that will achieve emissions goals. Outdoor recreation generates huge economic activity and creates clean jobs. Healthy waters and forests and access to parks are great benefits that this bill will protect. Ocean acidification has a large impact on business that relies on marine life, and it can be prevented by reducing GHGs. Climate change is impacting local bird populations. Climate change is a public health emergency.

CON: People of color, low income people, tribes, and workers must be included in decisions. A carbon tax will impact rural Washingtonians, who often commute to work. Funds collected by this bill should be put toward programs benefiting the disadvantaged. This bill is a step backward from previous efforts because it pushes the initial tax price up and fails to provide a cap or a floor. The point of taxation should shift to apply to a sale within the state, not fuel as it travels through the state. More research is needed on how this bill correlates with other carbon reduction policies to ensure that utilities are able to invest in a broad scope of carbon reductions without mandates on resource acquisitions. DNR should be allowed to undertake projects or provide grants to increase the ability to adapt to and remediate the impacts of ocean acidification. The bill fails to take leakage seriously; manufacturers will move production to another area where carbon is not restricted, causing a loss of Washington jobs, but no net positive impact on global emissions. This bill disproportionately impacts certain industries. The food industry and paper product sector are EITEs, and this bill could make local businesses’ products unaffordable. EITE language needs clarifying throughout. Electricity companies cannot pass along costs of the tax to customers and remain competitive, but they also cannot afford to absorb the costs. The natural gas industry is already using the best fuel available, and electricity customers have no control over the sources used. The bill needs to account for the Bonneville Power Administration short term market purchases. For smaller public utility districts (PUDs), an aggregation of the tax exemption would be helpful. Collaboration between agencies could increase fiscal impact on businesses.

OTHER: The bill must address the interaction and impacts of the tax on energy markets and companies’ ability to continue their participation in those markets. During the bill’s transition period, the tax could become too high too quickly; a lower tax with a more gradual increase would allow for further study on the tax’s impact. The bill adds too much bureaucratic complexity. Investments, not price, are the primary driver in reducing emissions, and the state should look to institute competitive grant projects. Incentives should be provided to promote uniformity across customer classes regardless of geography. Clarification is needed on who the taxable entity is. Utilities must be able to retain funds so that they can offset the cost of emissions. The Bonneville Power Administration short term market purchases should be considered. The right governance structure is needed for the collection and spending of customer's investments. A carbon policy for Washington should be proportional and must ensure that any future carbon pricing is executed in accordance with the standards and requirements of a regulated utility. The bill needs greater transparency for how the tax is collected. The end user must be aware of their carbon impacts when using the taxed gas. The protections in the bill for EITE industries are not secure enough and should be by NAICS code. Carbon regulation must value the carbon-free resources available in Washington such as hydro power. Make the funds available to other technologies besides electric vehicles as there are a number of vehicles that can use natural gas as a lower carbon alternative. Some of the revenues should fund the Working Families Tax Rebate program to protect working class citizens. Centers of Excellence may not be able to help with the bill’s goals.

Persons Testifying: PRO: Phyllis Farrell, League of Women Voters; Mike Massa, Carbon Washington; Gail Gatton, Audubon Washington; Lorrell Noahr, Washington Education Association; Jeff Johnson, Washington State Labor Council and President, AFL-CIO; Kim Powe, Interim Executive Director, Puget Sound Sage; Clifford Traisman, State Lobbyist, Environmental Priorities Coalition, Washington Environmental Council; Andrew Nicholas, Associate Director of Fiscal Policy, Washington Budget and Policy Center; Bill Dewey, Government Relations, Taylor Shellfish; Patti Case, Government Relations, Green Diamond; Tom Bugert, The Nature Conservancy, State Legislative Director; Jay McLaughlin, Executive Director, Mount Adams Resource Stewards; Perry England, VP Building Performance, MacDonald Miller; Stacy Smedley, Preconstruction Manager, Skanska; Marc Berejka, Director of Government and Community Affairs, REI; David McCaughey, Account Executive, Ameresco; Kent Palosaari, Mira's Garden; Cathryn Chudy, citizen; Alona Steinke, citizen; Mira Palosaari, Mira's Garden; Don Steinke, Alliance for Jobs & Clean Energy; Katie Wrubel, Makah Tribe; Cathy Carruthers; Mike Mallory, Climate Reality Leadership Corps; Marilyn Mallory, 350 Everett; Matthew Lang, Alliance for Jobs and Clean Energy; Elizabeth Rodrick, Olympia Unitarian Universalist Congregation; Meagan Murphy, citizen; Gretchen Chambers, citizen; Brian Gunn, Climate Reality; Gary Piazzon, Whidbey Environmental Action Network; Andrew Villeneuve, Northwest Progressive Institute; Carmen Mendez, Yakima City Councilwoman; Kirsten Smith, American Institute of Architects.

CON: Sheri Call, Washington Trucking Association; Kathleen Collins, PacifiCorp; Bill Stauffacher, Northwest Pulp and Paper Association; Mary Catherine McAleer, Association of Washington Business; Tim Boyd, Industrial Customers of Northwest Utilities, Northwest Industrial Gas Users Association; Sheri Call, Washington Trucking Association; Jim Halstrom, Washington State Tree Fruit Association.

OTHER: Katherine Mahoney, State Board of Community and Technical Colleges; Barbara Hins-Turner, State Board of Community and Technical Colleges, Center of Excellence Clean Energy; Pat Jablonski, Nucor Steel Seattle; Steve Secrist, Puget Sound Energy; Todd Myers, Washington Policy Center; John Rothlin, Avista Corporation; Dave Warren, Department of Natural Resources; Charlie Brown, Cascade Natural Gas; Pam Barrow, Northwest Food Processors Association; Kyle England, Kaiser Aluminum; Jessica Matlock, Snohomish County PUD; Eric Jacobson, citizen; George Caan, Washington PUD Association; Therese Hampton, Public Generating Pool; Kevin Tempest, Washington Business Alliance; Isaac Kastama, Benton & Franklin PUD; Irene Plenefisch, Microsoft.

Persons Signed In To Testify But Not Testifying: OTHER: Dan Kirschner, Northwest Gas Association.