SB5126 – Creates a cap and trade program.
Prime Sponsor – Senator Carlyle (D; 36th District; NW Seattle) (Co-sponsor Saldaña – D) (Requested by the Governor)
Current status – To the Governor
In the Senate – Passed
Had a hearing in the Senate Committee on Environment, Energy and Technology January 19th. Replaced by a substitute, amended, and voted out of committee February 25th. Referred to Ways and Means, and had a hearing there March 15th. Replaced by a second substitute, amended a number of times, and passed out of committee March 22nd. Referred to Rules, amended on the floor, and passed the Senate 25-24 on April 8th. Senate concurred in House amendments April 24th.
In the House – Passed
Referred to the Committee on Environment and Energy; had a hearing April 14th; replaced by a striker, amended repeatedly, and passed out of committee April 16th. Referred to Appropriations, had a hearing there on April 19th, was replaced by a new striker, further amended, and voted out of committee April 20th. Referred to Rules. Replaced by a new striker on the floor, amended, and voted out of the House April 23rd. Referred to the Senate for consideration of concurrence in the House’s changes.
Next step would be – To the Governor
Legislative tracking page for the bill.
Comments –
The cap and trade program is a revised version of the one in Senator Carlyle’s SB5981, from 2019-2020.
Summary –
Changes on the House floor –
The striker removes the provision that made the transfer of funds to the account for transportation reduction after 2027 dependent on enacting a clean fuel standard with a carbon intensity reduction of more than 10% by then. It would now make the program contingent on a gas tax increase of at least 5 cents a gallon after April 2021, rather than on the addition in some budget cycle of at least $500 million per biennium above the November 2020 forecast to the transportation accounts. It now allows EITEs to bank unused allowances, “including for future sale and investment in best available technology when economically feasible”. It restores the Senate’s language about allocations of allowances to electric utilities, allowing them to bank allowances without limits and dropping the specifications about Ecology’s rulemaking from the earlier House versions, among other things.
It says that the State, agencies and other jurisidictions may only consider the State’s greenhouse gas emissions reduction targets “in a manner that recognizes, where applicable, that the siting and placement of new or expanded best-in-class facilities with lower carbon emitting processes is in the economic and environmental interests of the state of Washington, and it makes a number of changes in the language about siting and permitting facilities in Section 10 (9), including “expanded” facilities as well as new ones, and saying agencies “shall” rather than “may” allow them to meet their GHG mitigation requirements under SEPA by complying with this act’s requirements.
The striker exempts railroads from coverage for the first eight years of the program. It restores the Sustainable Farms and Fields grants program; and adds forest health and clean energy to the list of potential workforce development areas. It requires Ecology to do a formal evaluation of the potential consequences of permitting the use of banked allowances from a linked program before entering into an agreement, and it specifies that isn’t acceptable unless a linking jurisdiction has provisions to ensure the distribution of benefits from the program to vulnerable populations and overburdened communities; Ecology determines it won’t produce net adverse impacts to either jurisdictions’ highly impacted communities or “analogous communities in the aggregate; and it won’t adversely impact our ability to meet the State’s targets. These and other changes are summarized by staff at the end of the new version.
One amendment requires annual reporting on the recipients, amounts, and actual results of funding, the reductions in emissions (if any) from each project and their cost per tonne, as well as a comparison to other projects, to facilitate the development of cost-benefit ratios for them. Another requires Ecology to develop a proposal in collaboration with stakeholders for assisting residential households that use fuels that besides electricity or natural gas for home heating, giving priority to assisting low-income households through weatherization, conservation and efficiency services, and bill assistance.
In House Appropriations –
The striker in Appropriations creates a new Air Quality and Health Disparities Improvement Account, and declares the Legislature’s intention to dedicate at least $20 million per biennium to it, for reducing criteria pollutants and improving health outcomes in overburdened communities through spending on capital projects and transportation. Though it retains the provisions in Section 13(4)(a) for reducing EITEs emissions between 2035 and 2050, it now also requires Ecology to request legislation in the 2022 session outlining a pathway, developed in consultation with stakeholders, for EITEs to achieve their share of the state’s emissions reductions through 2050, and it says that no expenditures of the program’s revenues may be made if the Legislature has not “considered and enacted” that request legislation by April 1st, 2023. It replaces the provision saying no state agency may adopt or enforce a program that regulates greenhouse gas emissions from a stationary source except as provided in this chapter by specifying that the cap and trade program preempts the Clean Air Rule.
This striker no longer requires Ecology to revise linkage agreements to ensure reductions of criteria pollutant emissions or to reduce the offset limits and the allocation of no cost allowances to entities identified as high priority emitters of criteria pollutants with a source that’s correlated with their emissions of greenhouse gases. It no longer requires the Climate Investment Account to be included in the legislature’s balanced budget requirements, and makes some other changes summarized at the end of it.
One of the amendments says that in dealing with criteria pollutants in overburdened areas Ecology can’t impose requirements on a permitted stationary source that are disproportionate to the source’s contribution to air pollution compared to other permitted stationary sources and other sources of criteria pollutants in the community. One requires Ecology to conduct an environmental justice assessment before entering into a linkage agreement, and makes a number of other clarifications, adjustments and procedural changes that are summarized at the end of it. One amendment modifies the provisions about SEPA review, specifying that Ecology must evaluate any potential net cumulative greenhouse gas emissions resulting from the project “as compared to other existing facilities and existing or emerging low carbon processes that supply the same product or end use,” authorizing Ecology to decide the appropriate threshold for an analysis of the potential net emissions rather than requiring one for projects emitting over 25,000 tonnes a year, and no longer specifying a life-cycle analysis. (That may already be required by SEPA.) It makes some other changes to the interactions of the program with SEPA that I don’t follow, but which are summarized by staff at the end of it. I also don’t see how the text amends the definition of “supplier” for the GHG reporting requirements, though the summary says it does.)
An amendment rewrites the section on EITEs. It drops the provisions for adjusting the requirements to get to the state’s targets, creates a formula for set reductions of 3%, adjusted for production levels, in each compliance period through 2035, leaves what happens after that open, and makes it easier for aerospace industries to shift from mass-based accounting to carbon intensity accounting, (There’s a summary of these and other changes at the end of the amendment.) (Fitzgibbon supported this amendment, suggesting that the provision for enacting legislation about the 2035-2050 compliance path for EITEs by 2023 in order to keep the program going would put a lot of pressure on the Legislature to replace this section in the next session.)
An amendment drops grants for sequestration under the sustainable farms and fields bill from the list about funding programs, activities, or projects that achieve agricultural energy efficiency or emissions reductions “including…”, and adds grants, rebates, and other financial incentives for agricultural harvesting equipment, heavy-duty trucks, agricultural pump engines, tractors, and other equipment; grants, loans, or financial incentives to food processors for projects that reduce emissions; renewable energy projects; farmworker housing weatherization programs; dairy digester research and development; and alternative manure management.
House Environment & Energy amendments –
The striker deposits the fixed dollar amounts of revenue that the final Senate version dedicates to Flexible Forward transportation spending (roughly sixty percent of the total program revenue) in a new carbon emissions reduction account, which can only be used to reduce transportation sector carbon emissions through measures including alternatives to single occupancy passenger vehicles; reductions in single occupancy vehicle miles traveled; and reductions in per mile vehicle emissions, including through funding alternative fuel infrastructure and incentive programs, as well as emission reduction programs for freight vehicle and rail transportation, ferries and other maritime and port activities.
After deducting up to 5% for administration, it transfers 75% of the revenue remaining to the climate commitment account, and the other 25% to a natural climate solutions account. It specifies that 35 % of total investments from these accounts must provide direct and meaningful benefits to vulnerable populations within the boundaries of overburdened communities (and that 40% is a target). The projects, activities, and programs funded from these two accounts “include, but are not limited to” many of those listed for potential funding from the climate commitment account in the final House version. (The striker adds grants supporting local GMA land use planning, fish passage correction investments, and the intention to dedicate at least $50 million per biennium to supporting tribes’ efforts to mitigate and adapt to climate change to its list.)
It also makes imported electricity a covered source in the first compliance period rather than the second, and adds an account for retiring allowances generated by voluntary renewable generation projects. It restores the provisions from the original bill for establishing a governance structure to implement the state’s climate commitment, provide accountability for achieving the state’s targets, establish a coordinated approach to resilience, build an equitable and inclusive clean energy economy, and ensure that the government provides clear policy, requirements, financial tools, and other mechanisms to support achieving the targets. (It omits the Senate bill’s specifications as to what that structure would include.)
It replaces a number of definitions of environmental justice terms in the Senate version with references to the nearly identical definitions in SB5141 (the HEAL Act), except that it seems to refer to a definition for “Environmental justice assessment” that doesn’t exist in the HEAL Act, though the body of that act does specify what’s required for one in considerable detail.
It specifies that allowances cannot be banked for more than eight years. It specifies detailed rules for governing electric and gas utilities’ use of the free allowances they’re to receive for the benefit of ratepayers, and makes some other changes summarized by staff at the end of the striker.
Other amendments require considering the number of no cost allowances in the marketplace in setting the number of allowances offered at each auction, specify that the Department must only offer a number of allowances at each auction that will enhance the likelihood of achieving the state limits, and prohibit EITE’s free allowances being sold or traded. They advance the first environmental review of the program by two years, to 2023; require the review to include an evaluation of initial and subsequent health impacts related to criteria pollution; and require permitted or registered sources in an overburdened community to get an enforceable order under the Clean Air Act if Ecology has imposed stricter standards on the area after a review. Fitzgibbon’s amendment prohibits revenue from being transferred to the account for transportation reduction after 2027 unless a clean fuel standard with a carbon intensity reduction of more than 10% has been enacted by then, allows transferring allowances among an owner or operator’s EITE facilities, and makes some other adjustments about EITEs and landfill emissions that are summarized at the end of it. An amendment adds an exemption for fuel used for agricultural purposes, and provides for creating a five year exemption for fuel used for transporting agricultural products on highways. An amendment eliminates the provisions about the State Environmental Policy Act that prohibit state emission limits from being the basis for the denial of a permit application or for judicial review and the provision establishing that compliance with cap and trade program requirements is the only mitigation for greenhouse gases that can be required by a state agency or local government, but it allows lead agencies to decide that compliance is sufficient mitigation, and makes a number of other changes about the interaction of SEPA and the bill that are summarized at the end of it. An amendment requires permits for new or revised facilities to include a clause requiring the facility to comply with the greenhouse gas emission limits if they stop being covered under the cap and trade program. An amendment prohibits the Department from granting any free or discounted allowances to emissions-intensive, trade-exposed facilities that are built or modified after the effective date of the bill and that would increase detectable criteria pollutants or other pollutants harmful to human health in overburdened communities. An amendment establishes a program to assist small forestland owners seeking to benefit from carbon sequestration markets; it would include providing 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. It allows assisting multiple landowners to aggregate sufficient acreage to provide the scale to offer offset credits at a competitive price. It directs that $10 million from revenues go to the Forestry Riparian Easement program, and declares the Legislature’s intention to appropriate $2 million per biennium to assist small forestland owners.
Senate floor amendments –
Senator Carlyle’s floor amendment specified that compliance with the program is the only mitigation for greenhouse gases that can be required by any agency or other jurisdiction; moves up the first evaluation by a year, to December 2027; requires Ecology to take steps to reduce criteria pollutants in overburdened areas if that is not happening, including the option of reducing a EITE facilities’ free allowances; and makes a number of other clarifications and small adjustments that are summarized at the end of it.
The other floor amendments specify percentage reductions over several three year periods for facilities using mass-based baselines, rather than having Ecology establish obligations and allocations for them that are comparable to those for facilities with carbon intensity baselines. They specify that aerospace industries have to get additional free allowances to accommodate increased production on a basis comparable to those for other facilities, and that if it was “appropriate based on projected production”, Ecology must “achieve a similar ongoing result” by adjusting a facility’s baseline. They require Ecology to recommend whether to provide EITEs with an annual allocation for process emissions beyond 2034 based on a best available technology limitation. They also require Ecology to notify the Legislature whenever an entity is no longer covered by the program; to retain a list of all the covered entities, opt-in entities and market participants on its website; and to maintain a searchable website showing the contents of each holding account, including its allowances.
Substitute and amendments in Ways and Means –
The substitute by Senator Carlyle, the prime sponsor, allowed qualifying as a “biofuel” with a 40% reduction of emissions compared to the equivalent petroleum fuel rather than requiring a 50% reduction; increased the percentage of offsets in the second compliance period that must provide direct environmental benefits in the state from 50% to 75%; placed the entire compliance program in limbo until there’s legislation which will add at least $500 million in new revenue per biennium to the motor vehicle and multi-modal transportation accounts for an indeterminate period; and made a lot of other adjustments which are summarized at the beginning of it.
Carlyle’s first amendment made the status of energy-exposed trade intensive industries permanent; added asphalt industries and all other petroleum products industries to the EITE list; and provided EITEs with free allowances to cover all their compliance requirements until the end of 2034, rather than stepping it down to 75% of the original allocation by 2026. The amendment no longer has Ecology create the rules for allocating allowances to EITE’s. [So far, I find the language in the replacement for Section 12 about the new system it would create baffling, but there’s a staff summary of what it’s apparently supposed to do and of a number of additional changes the amendment would make at the end of it.]
Carlyle’s second amendment eliminated the Governor’s task force, and made a lot of additional changes to the bill, which are summarized at the end of it. Two other amendments included the investment account created by the bill in the State’s requirements for four year balanced budgets and removed the emergency clause.
Substitute and Amendments in Senate Environment, Energy and Technology –
There’s a four page summary by staff of other changes made in the substitute at the beginning of it. Among other things, it directs $650 million of the revenue each biennium between 2022 and 2037 into a Forward Flexible Account; after that 50% of the revenue is to go to funding transportation. The amendments are currently in the committee materials folder for the February 25th session. They allow carbon capture projects to be used as offsets; remove tribal and indigenous populations from the definition of vulnerable communities and revise the language about consultation with tribes; significantly increase the annual amounts going to the Forward Flexible account in the first years of the program and cap total contributions to that fund at $5.2 billion; add petroleum refining to the list of industries getting free allowances in the first phase of the program; and make some minor adjustments to environmental justice provisions, limits on offsets and linkages, and the handling of credits for the benefit of low-income gas customers.
Original Bill –
Climate Commitment Task Force
The bill would have the governor create a comprehensive program to provide accountability and authority for achieving the State’s greenhouse gas reduction targets, establish a coordinated and strategic statewide approach to climate resilience, and build an equitable and inclusive clean energy economy.
By July 1st of this year, he’s to form a climate commitment task force, with representatives from state agencies, other governments, members of highly impacted communities, and other stakeholders. (“Highly impacted communities” and “overburdened communities” are defined by the bill as those at least partly on tribal land, or designated by the Department of Health’s cumulative impact analysis, which is still underway, as highly impacted by fossil fuel pollution and climate change.) By December 1st, it’s to deliver recommendations on the development of the program for the Legislature to review, and to act on during the 2022 session; including advice on a governance structure, reporting requirements, a formal process for coordinating within the state and with other governments, structures to facilitate investments, suggested duties and roles related to resilience, proposed legislation, needed funding, and a schedule for implementing the comprehensive program.
The program is to:
1. Address greenhouse gas emissions from all sectors and sources, ensuring emitters are responsible for meeting targeted reductions and that the government provides clear policy and requirements, financial tools, and other mechanisms to support achieving them;
2. Increase resilience and support an equitable transition for vulnerable populations and overburdened communities, including through early and meaningful engagement of overburdened communities and workers. (“Vulnerable populations” include those in communities that experience a disproportionate cumulative risk from environmental burdens due to adverse socioeconomic factors, including unemployment, high housing and transportation costs, access to food and health care, and linguistic isolation; and sensitivity factors, such as low birth weight and higher rates of hospitalization.)
3. Apply the most current, accurate, and complete scientific and technical information available to guide the state’s climate actions and strategies.
4. Be developed and implemented in consultation and collaboration with all levels of government and society; and implemented with sustained leadership, resources, clear governance, and prioritized investments at the scale necessary to meet the state’s targets in the most effective and efficient manner possible;
5. Include periodic measurement and reporting of progress and changes to the program as needed to meet the limits.
It has to include a strategic plan for aligning existing law, rules, policies, programs, and plans with the state’s greenhouse gas limits; common state policies, standards, and procedures for addressing emissions and climate resilience; a process for prioritizing and coordinating funding; an updated statewide strategy for addressing climate risks and improving resilience; a comprehensive community engagement plan that addresses and mitigates barriers to engagement from historically or currently marginalized groups; and an analysis of gaps and conflicts in state law and programs, with recommendations for improvements.
The Governor is to develop a framework for government-to-government consultation with Indian tribes on the implementation of the act, ensuring meaningful tribal engagement on rule making, programmatic decisions, and investment decisions. He’s to convene an annual meeting with all the Federally recognized tribes in the state to share information and discuss progress toward the bill’s goals.
Cap and Trade Program
The bill requires the Department of Ecology to implement a state greenhouse gas emissions cap and trade program requiring allowances from covered sources for each metric ton of emissions above a gradually decreasing cap. The cap is to be set, evaluated, and adjusted over time so that covered entities contribute their proportional share of the overall State reductions needed to meet our emissions limits. Current and future allowances are sold at auction, but participants with emissions may not buy more than 10% of the ones in an auction, and other participants are limited to 4% of them. Allowances can be sold or traded, and they are to be designed with a number of specified features, and to the extent it’s practical, to allow linking the program with those in other jurisdictions. It requires setting a floor and a ceiling on prices for allowances, and mechanisms for increasing or decreasing the allowances available in an auction to help keep prices within that range.
Covered entities –
You need allowances if your facility emits more than 25,000 metric tons/year of CO2 equivalents; if the associated emissions from your generating electricity in the state exceed that level; or if you’re a supplier of fuels other than natural gas that would produce emissions above that level when combusted. Starting in 2027, you need allowances if you have been responsible for emitting more than that in recent years through the sources of electricity you’ve imported into the state, if you’ve supplied natural gas emitting more CO2 than that when burned, or if your facility and the emissions associated with your direct purchases of electricity exceed that level. A covered entity may request a reduction in its obligations if a change in manufacturing reduces its emissions or changes in its external competitive environment result in a significant increase in leakage risk. Others (including tribal governments and Federal agencies) can also opt-in to the program if they’re responsible for emissions but aren’t required to participate (if, for example, they can make reductions cheaply and want to make money by selling the allowances they earn), or if they just want to trade in the market. Participants who don’t submit enough allowances to cover their emissions are to be fined four allowances for each missing one within six months; they can be fined up to $10,000/day for failing to submit these or other violations of terms or orders, and up to $50,00/day for violating the rules against manipulating an auction.
Offsets –
In 2023 through 2026 up to 8% of an entities’ obligations may be met with approved offset credits, and at least 75% of those must reduce “provide direct environmental benefits” in the state; in 2027 through 2030 up to 6% of them may be offset and at least 50% of those must reduce provide those benefits 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.) Ecology may adjust these limits to ensure achievement of the State’s emission targets or provide for alignment with linked jurisdictions.
Exemptions –
The bill exempts aviation and marine fuel burned outside the state, coal burned at the Transalta plant, and military installations.
Free allowances –
In 2023 through 2040, the bill provides a gradually decreasing number of free allowances to energy-intensive trade exposed industries in ten categories, and to any others that can demonstrate through objective criteria that they meet requirements about their energy use and trade exposure that the Department of Commerce is to establish by January 1st, 2024 . Facilities with relatively lower emissions than others in a sector may receive a larger share of the allowances. Starting in 2027, free allowances for each entity receiving them are to be reduced each year in proportion to the program’s scheduled reductions in total allowances.
The Department of Ecology is to develop rules, in consultation with Commerce, providing electric utilities with free allowances in 2023 through 2026, and providing enough of them to consumer owned utilities in 2027 through 2030 to cover the emissions budgets in their clean energy implementation plans. The bill provides natural gas utilities ongoing free allowances for the gas sold to low-income customers receiving rate or bill assistance. (The utilities are to auction these allowances for the benefit of their ratepayers; gas utilities can only use the proceeds to minimize cost impacts on low-income consumers through actions such as weatherization, conservation, and help paying bills.)
Investments –
Revenues from the program are to go into a climate investment account. Investments from it must meet specified high labor standards, and projects must be be reviewed for a number of equity and opportunity efforts. These funds may only be used for a wide range of specified activities:
1. Covering the costs of administering the program;
2. Implementing the working families tax rebate;
3. Paying for clean transportation programs that reduce emissions, including ones that accelerate the deployment of zero-emission vehicles, provide refueling or grid infrastructure for them, or reduce vehicle miles traveled;
4. Supporting natural resilience to the impacts of climate change and increasing sequestration;
5. Funding clean energy transition and assistance programs, including ones that reduce lower income people’s energy burden and rural residents’ transportation fuel burden, ones that reduce dependence on fossil transportation fuels, such as public transit and car sharing, and community renewable energy projects that provide benefits to qualified participants at reduced or no cost;
6. Supporting fossil fuel workers affected by the transition to a clean energy economy, including providing full wage replacement, health benefits and pension contributions for every worker within five years of retirement, and for one to five years for workers who have been employed for those periods; wage insurance for up to five years for reemployed workers with more than five years of service; up to two years of retraining costs; peer counseling and employment placement services; investing in workforce development; and investing in transportation, municipal services, and technology that supports a community’s capacity for clean manufacturing.
7. Supporting projects in the state that produce verifiable emissions reductions beyond baseline estimates, including deploying renewable energy resources, distributed generation, demand-side technologies and strategies, and grid modernization projects; reduce the emissions of industrial facilities; achieve energy efficiency or emissions in the agricultural sector, including through bioenergy and biofuels; promote low-carbon architecture; promote the electrification and decarbonization of buildings; or improve energy efficiency, including district energy projects and investments in transforming the market for high-efficiency appliances.
The Office of Equity is to creates an environmental justice and equity advisory panel to provide recommendations to the Governor and the Legislature about a number of different aspects of the program and investments made from it . The panel’s to include members representing union labor; a member from each side of the state representing tribal governments; and members with expertise in environmental justice and equity issues representing the interests of vulnerable populations in communities in different areas of the state at least partly on tribal land or identified by the Department of Health as highly impacted by fossil fuel pollution and climate change. There’s to be consultation in advance with tribes on all funding decisions that affect their rights and interests in their lands. Agencies are to report to the panel each year on their progress in meeting environmental justice and equity goals.
When they’re allocating funds or issuing grants using the revenue agencies must conduct an analysis to ensure that a meaningful percentage of total investments from the program provide direct and meaningful benefits to vulnerable populations within overburdened communities by reducing those environmental burdens, or their disproportionate risk from them; supporting community-led project development, or meeting a community need identified by vulnerable members of the community that’s consistent with the intent of the bill. The analysis has to “adhere to” various principles, including that the benefits should reduce state-wide disparities, and be proportional to the health disparities a community experiences. These agencies are to report annually to the environmental justice and equity advisory panel and the office of equity on their progress toward meeting environmental justice and health goals.
Clean Air Act –
The bill responds to a recent Supreme Court decision that limited the scope of Ecology’s authority under the Clean Air Act, specifying that it authorizes the department to adopt air quality standards, emissions standards, or emissions limitations for the production and distribution of fossil fuels or any other products that emit greenhouse gases in the state, and to prioritize reducing emissions of those and criteria pollutants in overburdened communities if that’s needed to meet the bill’s goals. It specifies that Ecology has the authority to regulate indirect emissions from any products whose consumption, use, combustion, or oxidation releases contaminants into the air. It adds single suppliers’ annual electricity emissions over 10,000 tonnes to the reporting requirements, and requires Ecology to establish methods for verifying emission reports, at least for sources over 25,000 tonnes a year. It also allows Ecology to add greenhouse gases included in linked programs to Washington’s definition.
Details –
The bill requires creating an electronic system for handling allowances. There are provisions for managing and maintaining the integrity of the auctions, and it requires appointing an independent organization to run them.
