SB5981 – Creates a cap and trade system.
Prime Sponsor – Senator Carlyle (D; 36th District; Seattle)
Current status – Referred to Senate Committee on Environment, Energy & Technology. Had a hearing March 21st. Still in committee by the 2019 cutoff; reintroduced and retained in present status for 2020 session. Scheduled for a hearing on a draft substitute, February 4th 2020 at 10:00 AM.
Next step would be – Action by the committee.
Legislative tracking page for the bill.
2020 Substitute –
The substitute delays any implementation of its provisions until a new act providing at least $2 billion per biennium in new transportation funding has been passed. It creates a fourth destination for the revenue, the Strategic Transportation Investment Account, though the draft leaves the division of funding between the four accounts open. This account must be used to provide cost-effective congestion relief, enhance all modes of mobility, assist highly impacted communities, and address the impacts of the transportation system on carbon pollution and other quality of life issues, including impacts to salmon. This funding can include projects to reduce congestion and improve air quality, including multimodal alternatives; ones to reduce carbon emissions from transportation including ones to accelerate the deployment of zero emission vehicles or deploy grid infrastructure for vehicle charging; and fish barrier correction projects.
The new version specifies that Ecology must allocate allowances to electric utilities between 2021 and 2035 covering their average annual emissions over each previous three year period, and that it’s to adopt rules “providing the method for distribution of no-cost allowances” to them between 2035 and 2050. (I assume this means the rules would gradually step down their allowances in some way to be determined in the future.) The substitute exempts emissions associated with electricity exported from the state. The State would actually get the allowances back immediately, auction them, and then give the proceeds to the utilities, to be used exclusively to minimize the bill’s impacts on customers. Each utility would have to develop a plan, conforming to rules from the UTC or the Department of Commerce, with a portfolio of mechanisms for aiding customers, like weatherization, energy efficiency, electrification of heating in buildings, electric vehicle incentives, and infrastructure. At least half the money would now have to go to rate relief.
Natural gas suppliers would be covered by a similar scheme, but their starting allocation in 2022 is left open in the draft, and it would be required to step down annually between then and 2035 in proportion to the gas utilities’ share of the reductions needed to meet the State’s 2035 target. Their plans would have to give the highest priority to assisting low-income customers, and use at least twenty-five percent of the money for rate relief for residential customers. Proceeds from the sale of allowances are used for investments to reduce emissions, including efficiency and renewable gas projects. The UTC is to provide for timely recovery for prudent and reasonable costs associated with complying with the act, and gas companies are prohibited from passing costs on to customers whose emissions are covered by its other provisions.
The substitute specifies that energy efficiency projects, carbon capture, and sequestration may be used to provide offsets. (It would no longer allow the aggregation of temporally separate offset activities.) It raises the limit on using offsets between 2024 and 2034 from 6% to 8%. The current bill requires certain percentages of offset projects to provide direct environmental benefits to the state. The substitute lets projects within the state count toward those requirements, and raises the required percentage between 2024 and 2034 from 50% to 90%. It says Ecology can restrict the use of offsets from areas and plants failing to meet air quality standards; eliminates the provisions allowing the use of up to an extra 5% of offsets from tribal lands; directs Ecology to keep the total quantity of allowances and offsets below the total of required compliance obligations “to the extent practicable,” and adds a regular review of the offset protocols.
The substitute drops the section prohibiting regional air quality agencies and other jurisdictions from directly regulating greenhouse gas emissions through a cap, charge, low-carbon fuel standard or clean fuels standard, or charge upon sale or use. It adds some progressive requirements about standards that have to be met by parties receiving project contracts, and moves various dates forward a year.
Summary of the 2019 bill –
Raises the State’s targets for greenhouse gas reductions to match the Paris Accords’. Creates a state greenhouse gas emissions cap and trade program requiring allowances for each metric ton of emissions above a gradually decreasing cap. Allowances are sold at auction, and can be sold or traded within the state and in linked programs in other jurisdictions. Requires setting a floor and a ceiling on prices for allowances, and mechanisms for increasing or decreasing the allowances available to help keep prices within that range.
Details –
The cap is to be set and adjusted over time so that covered entities contribute their proportional share of the overall State reductions needed to meet the new targets.
Covered entities
You need allowances if your facility emits more than 25,000 metric tons/year of CO2 equivalents (on its own or when the emissions associated with your direct purchases of electricity are included); if the associated emissions from your generating electricity in the state, importing it, or supplying natural gas are above that level; or if you’re a supplier of other fuels like gasoline or diesel that would produce emissions above that level when combusted. You can also opt-in to the program if you’re responsible for emissions but aren’t required to participate (if, for example, you can make reductions cheaply and want to make money by selling the allowances you earn), or if you just want to trade in the market. Allowances can be banked and used in later years. There’s a penalty of $200 per allowance, adjusted for inflation starting in 2025, for failing to provide enough of them to cover your emissions in a given year, as well as a penalty of up to $10,000 for violations of the rules.
Offsets
Between 2021 and 2023 up to 8% of an entities’ obligations may be met with approved offset credits, provided at least 75% of those reduce emissions in the state; through 2034 up to 6% of them may be met with offsets if at least 50% of those reduce emissions in Washington. At any point another 5% may be met through offsets on tribal land in the US or a linked jurisdiction. (The bill may intend this to mean tribal land in the state, but it doesn’t say so.) The bill creates an advisory committee to provide guidance on rules to increase offset projects with other environmental benefits in the state while prioritizing projects that “benefit highly impacted communities, Indian tribes, and natural and working lands.”
Exemptions
The bill exempts biomass from various approved sources, all biofuels, aviation fuel, coal burned at the Transalta plant, marine fuel burned outside the state, vented or unintentional emissions, and military installations.
Between 2021 and 2035, it provides a gradually decreasing number of free allowances to energy-intensive trade exposed industries in eleven categories, and to any others the Department of Commerce may identify through quantitive criteria about their energy use and trade exposure. (However, the bill also says in Section 14(1) that they don’t have to start complying until 2023…) The number of free allowances is to decrease at the same rate needed for reductions in allowances for covered entities as a whole to result in meeting the targets; facilities with relatively lower emissions are to receive more allowances. (The Department’s to review the program every two years to see if it is avoiding significant leakage from the transfer of activities out of state, or awarding more free allowances than are necessary for that goal.)
If a 100% Clean Electricity bill passes, the bill requires the Department of Ecology to develop rules, in consultation with Commerce and the UTC, providing utilities with enough free allowances through 2035 to avoid the bill’s impacting rates or charges. It provides natural gas utilities free allowances for the gas sold to low-income customers, so the company does not have to pay to offset those emissions. (I think that the bill requires the value of those allowances to be spent funding measures to benefit low-income consumers such as weatherization, conservation, and help paying bills.)
Investments
The bill creates a climate oversight board with a lot of members, including representatives of the Governor, the Commissioner of Public Lands, the Auditor, four legislators, two tribal representatives, various stakeholders, and an indeterminate number of other experts. (It isn’t clear how some of these people are to be selected.) It’s responsible for ongoing review of the cap and trade system and the funding provided by it, but the bill doesn’t say what happens to any conclusions it draws from that review, or what if any power it has to affect what it “reviews”.
The bill creates an environmental and economic justice panel, appointed by the Governor. The panel’s to include two members representing union labor; two members representing tribal governments; and five other members, including at least one tribal leader and at least two nontribal leaders representing the interests of vulnerable populations residing in “highly impacted communities”. (Those communities are to be identified by the Department of Health, considering “vulnerable populations” and environmental hazards; including census tracts that are partly or wholly on tribal land; and building on a particular analysis already completed by the UW.) The panel’s to be co-chaired by a tribal leader and a representative of the interests of highly impacted communities. It’s to make recommendations on the plans for spending this revenue and their implementation, evaluate the funding levels, and analyze the policies to determine if they produce the intended improvements. The Department of Ecology is to consult with the panel and “accord substantial weight” to its recommendations in developing implementation plans for spending from each of the funds the bill sets up, and in developing biennial spending plans for each of them. It’s to update the identification of highly impacted areas every two years “under advisement from” the panel.
Any agency receiving funding from the system must consult with Indian tribes “on all decisions that may affect Indian tribes’ rights and interests in their tribal lands.” (Perhaps this only covers decisions implementing this bill, but it doesn’t seem to say that.) The process must be independent of any public participation process required by state law, or by a state agency, and regardless of whether the agency receives a request for consultation. No project that affects tribal lands can be funded without “meaningful consultation” with affected Indian tribes. Any project that “directly impacts” tribal lands must have written consent from the relevant tribal governments.
40% of the revenue goes to an energy transformation account, to be spent on projects and programs in Washington that provide additional reductions in carbon pollution. These include residential, industrial, construction, transportation, and agricultural investments in renewable energy, efficiency, conservation, sequestration, and carbon emissions reductions. They have to provide real, specific, quantifiable, additional, and verifiable reductions for periods of time to be determined by the Department, and meet high labor standards. They have to be ranked and sortable based on quantitative performance metrics, including the avoided cost of a ton of carbon dioxide, though the bill does not say they have to be selected on that basis, or provide any criteria for deciding which projects that meet the basic standards will be selected, beyond saying 10% of these funds have to be spent in highly impacted areas.
35% of the revenue goes to an energy transition account, to provide funding to assist low-income households with increased energy prices; to help provide clean energy and low-carbon housing, transportation options, and technologies to people with greater barriers to accessing those, and where pollution is concentrated; and to support displaced fossil fuel-related industry workers. Spending has to be prioritized to help with additional energy and transportation costs resulting from policies and programs to reduce fossil fuel use, and to assist displaced workers, but it can also be used “to reduce carbon pollution and reduce vulnerable population characteristics or environmental burdens in highly impacted communities.” Thus, the money can be spent in a very wide variety of ways, including direct financial assistance, social and health services programs, energy bill subsidies, efficiency and weatherization services, affordable transportation, affordable housing, and improved community services. The Department must develop a worker support program for bargaining unit and nonsupervisory fossil fuel industry workers who are affected by the transition away from fossil fuels to a clean energy economy, and may allocate additional funds to it if there’s an unexpected amount of dislocation.
25% of the revenue goes to a climate impacts resilience account. Expenditures from it are to prioritize funding and investments to benefit “highly impacted communities”. At least half of it’s to go to community preparedness and awareness “before, during, and after” wildfires; resources to help tribal communities deal with wildfires; relocating tribal communities impacted by flooding and sea level rise; and programs to increase awareness of and preparedness for impacts of climate change and to educate people about ways to reduce pollution. The remainder’s to be spent on “natural resources resilience and related purposes” including, but not limited to, funding for improving forest and natural lands’ health and resilience to climate change, including thinning and prescribed fire projects and wildland fire prevention; for reducing stormwater impacts; for reducing flooding risks; for improving the availability and reliability of water supplies for in-stream and out-of-stream uses; for fish barrier correction projects; for projects to prepare for sea level rise and restore habitats, including small forestland owner fish passage barrier projects; and for adapting to and remediating the impacts of ocean acidification.
Details –
There are provisions for entering into agreements linking the program and its auctions with other jurisdictions’. The bill requires creating an advisory committee to make recommendations about designing and implementing the system, and to report on its functioning every two years. It requires appointing an independent organization to monitor and report on the auctions and on secondary markets that buy and sell allowances. It requires creating an electronic system for handling allowances and the auctions, or sharing another jurisdiction’s.
It prohibits regional air quality agencies and local jurisdictions regulating greenhouse gas emissions through “a cap, charge, low-carbon fuel standard or clean fuels standard, or charge upon the sale or use”.