BILL REQ. #:  S-2108.2 

READ FIRST TIME 02/25/09.   

     AN ACT Relating to reducing greenhouse gas emissions; adding new sections to chapter 70.235 RCW; and creating new sections.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   (1) The legislature reaffirms the state limits on greenhouse gas emissions adopted in RCW 70.235.020. The legislature finds that the recent downturn in economic activity has reduced the rate of growth in greenhouse gas emissions and that it is unnecessary at this time to adopt new regulatory limits across significant sectors of emissions sources. The legislature further finds that full implementation of current policies regarding energy efficiency, new clean energy technologies, efficient building practices, new energy efficient transportation technologies, and other policies and programs may achieve nearly one-half of the estimated statewide emissions reductions needed to meet the state's 2020 emissions limits. The legislature further finds that these policies and additional complementary policies should be accelerated and expanded in order to delay the need for adoption of a multisector regulatory framework of emissions reductions. The legislature further finds that the state should assist emissions sources in achieving reductions that may be recognized in the event that a national program of emissions reductions is adopted and applies to the state or in the event that the legislature authorizes the state's participation in a regional emissions reduction program.
     (2) Therefore, it is the intent of the legislature by this act to:
     (a) Begin immediately to adopt statewide emissions planning targets by which to assess the state's progress toward meeting the emissions limits in RCW 70.235.020;
     (b) Assist persons with significant emissions to monitor and record their emissions reductions and to advocate for recognition of such reductions in the event a national or other program applies to emissions in this state;
     (c) Direct state agencies to vigorously implement existing policies and programs that provide emissions reduction benefits;
     (d) Provide for early identification of additional complementary measures that maximize the state's emissions reductions, including incentives, assistance, and other actions to replace electricity generated by the traditional combustion of coal with other sources of generation, to expedite the transition to electric vehicles and other low-emission transportation systems, and to increase energy efficiency in buildings and business applications;
     (e) Assess the advantages and disadvantages of participating in a regional market-based or other regulatory framework of emissions reductions; and
     (f) To provide a thorough review and set of recommendations to the 2011 legislature regarding the merits of implementing a multisector emissions reduction program in this state, as well as recommended actions by the state to reflect the interests of emissions sectors in this state in the event that a national emissions reduction framework is adopted that will apply in this state.

NEW SECTION.  Sec. 2   When presenting the state's position on any regional or national emissions reduction program that relies on a multisector, market-based approach to regulating greenhouse gas emissions, the state shall adhere to the following policies:
     (1) In the event the state participates in a regional cap and trade program, no allowances may be auctioned by the state while it participates in that program;
     (2) Biomass combustion for electricity or process steam production is carbon neutral;
     (3) The point of regulation of emissions from the electricity sector in Washington shall be applied only to the source of emissions located within the state;
     (4) New entrants to the program represent economic development and must be encouraged, but not to the detriment of existing covered entities and sectors;
     (5) Combustion of residential and commercial fuel must be regulated outside a cap and trade program through complementary policies that promote energy efficiency;
     (6) The financial integrity of the state's electric utilities must be protected from adverse compliance costs that will arise from the interaction of cap and trade regulation and low water conditions that reduce power production, but not in any manner that reduces the allocation of allowances to other covered entities or sectors;
     (7) Cost containment and market design mechanisms must be included in a cap and trade system to protect the state's economy from volatile and escalating costs of allowances or offsets;
     (8) Early actions taken by regulated and potentially regulated entities to reduce their greenhouse gas emissions must be rewarded;
     (9) Regulations must be designed in such a manner as to minimize their economic impact on regulated entities and consumers and to preserve employment in Washington's manufacturing, agriculture, and export industries, while promoting opportunities for green jobs, especially in energy efficiency; and
     (10) A national cap and trade system must take precedence over a regional cap and trade program.

NEW SECTION.  Sec. 3   The department shall design voluntary annual statewide emissions targets beginning with calendar year 2009. The purpose of the targets is to assess interim progress toward meeting the emissions limits in RCW 70.235.020. The department may design additional targets specific to sectors or categories of emissions solely for the purpose of assisting emissions sources in tracking their emissions and obtaining recognition for early reductions and subsequent reductions as provided in section 4 of this act. The targets should be established at levels that provide for comparable reductions in each calendar year so that there will not be a disproportionate level of reductions needed in the years immediately prior to 2020.

NEW SECTION.  Sec. 4   (1) The department shall design a voluntary Washington emissions reduction registry, whose sole purpose is to assist persons in achieving recognition for emissions reductions. The department's design shall provide protocols for reporting and measuring emissions and emissions reductions, including criteria for determining that the emissions reductions have occurred and are adjusted for reductions in activity, changes in business location, or other factors indicating the reductions are additional to the estimated business as usual emissions levels for that source. Emissions and emissions reductions reported under this section must be for calendar year periods only. The department's design may include protocols for reporting and measuring reductions for previous emissions and reductions of emissions, but may not register reductions taking place prior to January 1, 2000.
     (2) Beginning January 1, 2011, the department's design may include in the registry the voluntary reporting by persons sponsoring offset projects or purchasing offset credits. The department shall adopt protocols for recognition of offset projects and credits, and for determining the equivalence to emissions reductions.
     (3) For emissions reductions or equivalent offset projects or credits satisfying the department's protocols, the department's design shall provide a certification of emissions reductions. Beginning with certifications issued for reductions in calendar year 2010, the department's design shall prioritize financial and technical assistance to emissions sources whose reductions equal or exceed the percentage reductions established in the statewide targets under section 3 of this act. These sources must receive enhanced certification of reductions.
     (4) By December 1, 2009, the department shall provide a report to the standing climate committees in the senate and house of representatives providing recommendations to increase state assistance and to prioritize financial, regulatory, and other incentives for those emissions sources receiving enhanced certification.

NEW SECTION.  Sec. 5   By December 1, 2010, the department of ecology must provide a report to the standing climate committees in the senate and house of representatives recommending additional policies that may accelerate emissions reductions in the state, that may delay the need for a multisector regulatory program, and that would better position the state in the event that a national emissions reduction program is implemented. The report should include but should not be limited to:
     (1) Recommendations for substantially reducing greenhouse gas emissions from the electricity sector, including measures to facilitate the transition from electricity generation derived from any coal-fired facility to generation with significantly reduced emissions;
     (2) Recommendations for greatly expediting the transition to transportation technologies and infrastructure with reduced emissions, including programs providing incentives and assistance to the deployment of electric vehicles and the necessary infrastructure for such vehicles, and policies directing the increased use of these vehicles within the state agency fleets; and
     (3) Recommendations for reducing emissions by increasing energy efficiency in buildings and commercial and industrial applications.

NEW SECTION.  Sec. 6   (1) The department shall establish criteria for recognizing voluntary offset credits for offset projects that may be used to report equivalent emissions reductions under section 4 of this act or that may be projects sponsored in this state that may be offered in emerging carbon markets where state recognition will enhance the market value of the projects. In developing the criteria for offset projects, priority must be given to investigating and developing criteria for offset projects within the forestry, agriculture, and waste management sectors. The department shall present the state's policy on forestry offset projects established under section 7 of this act as the state's position when developing the criteria for forestry offset projects within any other regional or national emissions reduction program.
     (2) Upon recognition by the department of a voluntary offset credit that is reported under section 4 of this act for the purpose of receiving certification of emissions reductions, the department shall retire the voluntary offset credit.
     (3) The department shall ensure that all voluntary offset credits that it recognizes are tracked to ensure that the department knows who holds a given offset credit and when it is retired.

NEW SECTION.  Sec. 7   The department of ecology, in consultation with the forest practices board, the department of natural resources, and the forest carbon working group, shall develop the state's policy for forestry offset projects within Washington. The agencies and the working group shall use the 2008 report of the forest carbon working group as the starting point in developing the policy. The final policy must be completed by December 31, 2009, unless the department of ecology notifies the agencies and working group that the policy is needed sooner. The public must be provided with the opportunity to review and comment on the policy as it is developed. The policy must include:
     (1) Specific standards and guidelines that will support carbon accounting in managed forests participating in an offset program;
     (2) How to ensure that any carbon that is reduced or sequestered by a forestry offset project is eligible for an offset credit within a regional or national emissions reduction program;
     (3) Recognition of management activities that increase carbon stocks including, but not limited to, thinning, lengthening rotations, increased retention of trees after harvest, fertilization, genetics, timber stand improvement, fire management, and specific site class and productivity of a managed forest;
     (4) Specific standards and guidelines to support wood products accounting, recognizing that carbon is stored in products after trees are harvested including the use of the one hundred year method which estimates the amount of carbon stored in the wood products that are projected to remain in use after one hundred years;
     (5) Guidelines on how forestry offset projects and forestry financial incentive programs can work together so that Washington's forest landowners will not be disadvantaged in comparison to other jurisdictions participating in a regional or national emissions reduction program; and
     (6) Recommendations for how to verify or certify carbon stocks that will not be administratively burdensome.

NEW SECTION.  Sec. 8   The department of ecology, in consultation with the forest practices board, the department of natural resources, and the forest carbon working group, shall develop and deliver to the legislature by December 31, 2010, legislation to implement a financial incentives program for forestry and forest products that will recognize activities such as:
     (1) Forest landowners maintaining and actively managing their forest land using management activities such as thinning, lengthening of rotations, increased retention of trees at harvest, fertilization, genetics, timber stand improvement, and fire management;
     (2) Forest landowners continuing the production of wood products while maintaining or increasing their carbon stocks on the ground;
     (3) Retention by forest landowners of high carbon stocks where there is no obligation to retain such stocks; and
     (4) The use by developers and builders of wood building materials instead of more intensive fossil fuel products such as concrete and steel.

NEW SECTION.  Sec. 9   (1) By December 31, 2010, the department of ecology shall report to the legislature on how the state may participate in a regional or national emissions reduction program.
     (2) The report must include an analysis of an auction design, including the following:
     (a) Elements that minimize allowance price volatility, guard against bidder collusion, and minimize the potential for market manipulation;
     (b) Provisions to ensure that bidders are financially able to purchase allowances if they are the successful bidder;
     (c) Provisions to limit the number of allowances any one party may purchase as necessary to help ensure that available allowances go to persons with a voluntary compliance obligation; and
     (d) A flexible process that allows for ongoing modification of the auction design and procedures in response to allowance market conditions and allowance market monitoring data, provided that the process allows for public review and comment.
     (3) The report must include an analysis of measures to ensure a functional and efficient market, including the following provisions:
     (a) Requiring or conducting audits, investigations, and surveillance of the market;
     (b) Actions to prohibit conflicts of interest between emitters, verifiers, monitors, auditors, investigators, or surveillance persons;
     (c) Establishment of measures to address market emergencies;
     (d) Prevention of fraud to the greatest extent possible;
     (e) Prevention of speculators from unfairly affecting the price of allowances in the program to the greatest extent possible;
     (f) Issuance of orders, and penalties established by rule, sufficient to address market manipulation; and
     (g) Other conditions or provisions necessary to prevent market manipulation.
     (4) The report must incorporate an economic analysis by the forecasting office of the office of financial management, in consultation with members of the governor's council of economic advisors, of the impact to Washington consumers, businesses, and citizens if Washington entered into a regional or federal emissions reduction program. The economic analysis must include:
     (a) Various economic scenarios, such as when Washington has a robust economy and when Washington is in an economic downturn;
     (b) The economic impact sector by sector, including the impact to the forest products manufacturing sector and Washington's port districts;
     (c) How to address trade competition from countries and states that are not participating in an emissions reduction program;
     (d) How to ensure that economic benefits are available to both urban and rural communities; and
     (e) The impact on the cost and affordability of food, housing, energy, transportation, and other routine expenses on low and moderate-income people.

NEW SECTION.  Sec. 10   The director is authorized to monitor and discuss with representatives of other jurisdictions within the western climate initiative the formation of an organization, including a nonprofit corporation that may carry out the following administrative functions:
     (1) Coordination of a regional auction of allowances;
     (2) Tracking of emissions and providing of public information about progress towards the regional greenhouse gas reduction goals;
     (3) Monitoring and reporting on market activity, including potential market manipulation;
     (4) Serving as a forum for jurisdictions within the capped region to update one another on program progress;
     (5) Coordination of review and adoption of protocols for offsets;
     (6) Coordination of review and adoption of updated reporting protocols for greenhouse gas emissions;
     (7) Coordination of review and issuance of offset credits; and
     (8) Suggesting criteria and means to accredit service providers to deliver validation and verification services.

NEW SECTION.  Sec. 11   The department of ecology, in consultation with Washington State University and the Washington state department of agriculture, shall reestablish the agriculture carbon working group to develop recommendations for agricultural offset projects within Washington. A report on the progress of the agriculture carbon working group must be submitted to the legislature for review by July 1, 2010. The policy recommendations must include:
     (1) A process and timeline to survey and catalog Washington soils in order to establish the carbon emissions soil sequestration level of the soils;
     (2) Activities that would qualify for carbon emissions soil sequestration offset projects;
     (3) Guidelines and standards for carbon emissions soil sequestration offset projects; and
     (4) How Washington agricultural lands can participate in a regional, national, and international offset market.

NEW SECTION.  Sec. 12   The voluntary climate emissions reduction incentives account is created in the state treasury. All federal funds provided to the state for developing and promoting renewable energy, all federal funds for the reduction of greenhouse gas emissions, and any other moneys directed to the account by the legislature must be deposited into the account. Moneys in the account may be spent only after appropriation. The first priority for expenditures from the account is for providing technical and financial assistance to persons reporting emissions reductions and receiving enhanced certification under section 4 of this act. Expenditures from the account may also be used for activities and programs that achieve emissions reductions and carbon sequestration in agriculture, forestry, waste management, and other sectors.

NEW SECTION.  Sec. 13   The department shall report to the legislature its designs under sections 3 and 4 of this act by December 1, 2009. The designs may not be implemented until approved by the legislature.

NEW SECTION.  Sec. 14   Sections 2 through 4, 6, 10, 12, and 13 of this act are each added to chapter 70.235 RCW.