They say the best solution is always the simplest. But what could be Washington’s greatest weapon against climate change — or yet another roadblock — is anything but.
A new program launching in January will put a cap on fossil fuel emissions and require nearly a hundred of the state’s biggest polluters to partake in a carbon trading scheme.
If successful, the state could make great strides toward achieving net-zero emissions by rebuilding the way people get energy, drive to work or power their homes — providing a model for the rest of the country while minimizing damage to its economy. Failure could create an entrenched system that prevents meaningful change for decades.
Or, as several experts believe, it might not make much of a difference at all.
The program reached a milestone last week when the Department of Ecology published new draft rules that will define the scope and regulations of Washington’s first statewide cap-and-invest program — the country’s second after California kicked off its own in 2013.
The public can submit comments now until June 30. Virtual hearings will also be held on June 21, 22, 27 and 28. Ecology aims to finalize the rules by fall. The agency is mandated to launch the program by Jan. 1.
“It has been a daunting amount of work,” said Becky Kelley, a senior climate policy adviser to Gov. Jay Inslee. “The legislature gave a short timeline to set up a complex program, but we’re feeling good.”
How does it work?
Carbon trading, otherwise known as cap-and-trade or, in Washington’s case, cap-and-invest, is a market-driven compliance tool used to incrementally decarbonize specific industries.
Some argue it’s a friendlier way to push businesses toward net-zero carbon emissions without targeting their bottom line. Others say it allows them to pay their way out of the problem.
For now, what matters most is how the rules are written.
Carbon trading is “the way to transition from fossil fuels that makes real, permanent carbon reductions in the most cost-effective way,” said Lorna Luebbe, vice president of sustainability at Puget Sound Energy. “And that’s assuming proper design.”
Under the Climate Commitment Act, which was signed into law by Inslee in May 2021, participation in the cap-and-invest program is compulsory for entities that emit more than 25,000 metric tons of direct or imported carbon dioxide each year.
These entities will be able to buy allowances through quarterly auctions hosted by Ecology. But over time these allowances will be reduced, therefore raising the price and making it increasingly expensive to continue burning fossil fuels.
In Washington, 98 entities fall on that list, according to Ecology, including public utilities and energy providers, power plants, paper mills and oil refineries throughout the state.
Smaller “opt-in” entities and individuals are allowed to participate voluntarily, though it’s impossible to predict how many will end up doing so before the program begins.
The program will cover about 75% of statewide emissions, including transportation (35%), electricity (19%), natural gas (11%), refineries (6%) and industrial sources (3%).
The remaining 25% — which includes smaller emitters as well as most of the agriculture, aviation and maritime sectors — will be exempt due to existing laws that already regulate energy use in those industries.
Some entities, namely those labeled “emissions-intensive, trade-exposed industries,” could be eligible for no-cost allowances to soften the impact on their bottom lines.
As a market-based system, the cap-and-invest program will give businesses the choice to reduce emissions through a strategy of their choice, or to buy allowances that allow them to continue emitting, at least until the cap is lowered further.
Failure to buy enough allowances, meet emission goals or violate the law in any way will result in “stiff penalties,” according to Ecology.
“It really has teeth to make sure folks are playing fair and square,” said Luke Martland, the CCA’s implementation manager within Ecology.
Allowance auctions are projected to raise $500 million a year in revenue, at least 35% of which must be spent on projects that benefit vulnerable populations within the state’s overburdened communities. More than 10% must be spent on tribal projects.
Revenue will be appropriated by the Legislature.
What is a carbon offset?
However perplexing, carbon trading schemes have the potential to reduce or eliminate harmful greenhouse gases by capping large sources of emissions — and using the revenue to fund or invest in further reductions — thereby shifting society away from fossil fuels and mitigating the growing impacts of human-induced climate change.
But the questions still outnumber the answers.
Will energy prices go up? How will revenue be spent? Will the program eliminate carbon emissions?
Many are probably wondering, quite understandably, what is a carbon offset?
Carbon offsets come in various forms and allow all kinds of entities — be it a person, business, state or nation — to balance their carbon footprint by purchasing “allowances,” the money from which can be used to fund or support efforts to reduce emissions. This could involve investing in clean energy technology or paying for trees to be planted — anything to make up for past or future emissions — but the end goal is always to balance, reduce or eliminate fossil fuel pollution.
Offsets are bought and sold through cap-and-invest programs in which entities can buy allowances to continue emitting. When an entity buys an allowance, someone somewhere is being paid or funded to reduce emissions on their behalf so that the entity can continue to burn fossil fuels.
This is part of why carbon trading is controversial. Critics say allowances enable polluters to kick the can down the road by delaying immediate, meaningful cuts in fossil fuel consumption. There’s no time to put a price on harmful emissions, they say, the planet is warming fast and direct regulation is the answer.
Proponents believe direct regulation would hurt the economy, cause energy prices to skyrocket and force consumers to pay the price.
Taxation is another way to put a price on harmful emissions.
By putting a dollar amount for every ton of carbon dioxide emitted, a carbon tax sets the price of emissions and allows the market to determine the respective quantity of emission reductions. Cap-and-trade does the opposite by putting a limit on emissions and letting the market set the price.
The risk with a tax is that emissions might not be reduced quickly enough.
With carbon trading, allowances could become too expensive. Proponents might say that’s by design, but putting an upper limit on the price of allowances could alleviate that issue.
How did we get here?
Washington is required by law to reduce its carbon emissions 45% by 2030, 70% by 2040 and 95% by 2050 compared with 1990 levels. The state is required to eliminate the last 5% through carbon reduction or removal.
The state isn’t alone in attempting to put a price on carbon emissions, nor is the CCA the only major climate policy in the midst of a complex rule making process.
The 2019 Clean Energy Transformation Act committed the state to achieve an electricity supply free of greenhouse gases by 2045, while the Clean Fuel Standard passed in 2021 requires fuel providers to reduce the carbon intensity of transportation fuels to 20% below 2017 levels by 2038.
These two laws, along with the CCA, represent an unprecedented statewide push for clean, sustainable energy.
The auctions will be hosted by Western Climate Initiative, which was founded in 2007 by the governors of Arizona, California, New Mexico, Oregon and Washington before it was reincorporated as a nonprofit in 2011.
WCI now oversees shared emissions trading markets between California and the Canadian province of Quebec, in addition to individual trading systems in Nova Scotia and soon Washington state.
“15 years down the road, we’re barely now starting to see something in Washington state,” said Nives Dolšak, director of the University of Washington’s School of Marine and Environmental Affairs, and an expert on global climate change policy and market-based instruments.
“Politically, it has been a very long and very difficult path.”
Washington’s cap-and-invest program wasn’t born in a vacuum.
Far from it. The narrow vote with which it was passed, compounded by inflation, supply chain issues and volatile gasoline prices, situates the CCA at the center of a global conversation on shifting perceptions of clean and affordable energy.
The CCA was passed last year with a small margin in both chambers of the state legislature, and without a single Republican vote.
“The vote was tight,” said Kelley from the governor’s office. “Regulating pollution is always a bit of an uphill battle.”
Carbon trading schemes have been gaining support over the past two decades in cities, states, regions and countries around the world — Australia, New Zealand and South Korea to name a few — even more if one were to count those with active carbon taxes.
But results remain mixed.
The European Union Emissions Trading System (ETS) is the biggest cap-and-trade program in the world. According to the European Commission, emissions have been slashed by more than 42% in target sectors since the ETS was introduced in 2005.
In the U.S., nearly two dozen states have participated in the development of three major regional carbon trading programs: the Regional Greenhouse Gas Initiative, Midwestern Greenhouse Gas Reduction Accord (or “Midwest Accord”) and the Western Climate Initiative.
Will it work?
What remains unclear is how revenue from the program will be spent, and how progress will be defined or measured.
Dolšak said that without quantifiable, measurable indicators it will be impossible to gauge impact, much less hold the government accountable for its investments in measures to mitigate climate change.
Other experts say entities will have to choose between passing the costs of the program onto customers, or absorbing costs themselves.
Still, state officials and energy providers believe a price hike for customers can be avoided.
“That’s, at least for me, a bit difficult to believe,” said Aseem Prakash, a political science professor at the University of Washington. With climbing inflation and reactionary energy prices, a jump in energy prices might be a secondary concern. “In the current inflationary environment, will consumers even notice it?”
“We’re very concerned about impacts to customers,” said Luebbe from PSE. “We like the fundamental theory behind cap and trade, because we do think a successfully implemented cap and trade system will get the most reductions for the least impact.”
PSE is an energy utility company based in Washington that serves the Puget Sound region using coal, hydroelectric, natural gas and wind power facilities across the state. It serves electricity to more than 1.1 million customers in Island, Kitsap, King, Pierce, Skagit, Thurston and Whatcom counties; and natural gas to 750,000 in six more counties.
“Thoughtful and purposeful implementation is really important,” Luebbe said. “Otherwise you get unintended consequences that nobody wants.”
The WCI hosts a shared carbon trading auction with California and Quebec, the same one Washington could eventually join.
Officials and experts believe the linking of different carbon trading markets could reduce energy price volatility.
California’s cap-and-trade system faced heavy criticism from the moment it began. According to a report by the Los Angeles Times, environmental advocates and analysts say the program not only failed to improve the lives of low-income people of color living near major sources of pollution, but it’s likely it also didn’t impact overall emissions for several years after going into effect.
“What we try to do is learn from other jurisdictions including California and Quebec,” Martland said. “In Washington, a number of things will be done to address those criticisms.”
While Washington state emissions account for a fraction of nationwide and worldwide greenhouse gases, states often serve as testing grounds for federal policy.
In the same way Washington can and has learned from California’s carbon trading program, Prakash believes other parts of the nation are looking this way for inspiration.
“If we can demonstrate that we can enact policy without hurting the economy … then other states might get emboldened to try this experiment,” he said. “Let’s see how far we can go with it.”