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.