(Corrects information about power sector throughout)

Washington state will next month unveil its revised CO2 market plan, with officials considering whether to put limits on the use of out-of-state credits, eventually exclude power generators, and set intensity-based targets for heavy industries exposed to carbon leakage.

The state’s Department of Ecology aims to open a consultation once the plan is announced in mid-to-late May, hold webinars in late June, and adopt the measure in late summer, officials told a webinar on Wednesday.

The scheme is designed as the centrepiece of state efforts to force big emitters to cut their GHG output to help Washington halve its GHGs from 1990 levels by 2050.

An initial plan was tabled in January that restricted trade to operators but allowed unlimited use of  allowances from RGGI and WCI, and US-based offsets, but was withdrawn after stakeholders clamoured for changes.

Officials said the re-released plan will retain most of the original elements, including the 2017 start date and gradually reducing entry threshold that will regulate facilities emitting more than 100,000 tonnes of CO2 per year at launch.

The proposal, mandated by Washington Governor Jay Inslee, faces competition from at least two separate carbon tax proposals, whose backers will seek to get them approved either via the state legislature or via the ballot box in November’s elections.

Slides from the webinar will be made available online here.

Based on Wednesday’s webinar, the following section outlines what officials are considering to change and to keep from the original plan:

WHAT’S NEW?

• Intensity targets for trade-exposed industries – The revised plan will place no compliance obligation on heavy industrial facilities deemed to be exposed to competition from outside the state for the first compliance period (2017-2019). Thereafter, rather than face absolute emissions limits, they would get site-specific, output-based targets based on decreasing CO2 intensity baselines. There will be three tiers of baselines set against national averages for energy efficiency, and reducing with every compliance period. The officials said they were considering this change to address concerns that the programme did not previously acknowledge that the state contained many US-leading facilities for energy efficiency, or did not adequately accommodate growing sectors. One official said the change would mean these facilities could increase production without penalty.
• Reserve pool – An emissions reduction reserve with allowances to be tapped by new entrants and restarting or expanding facilities. Officials said this pool of allowances would be drawn by taking 0.1% of each firm’s initial cap as well as from the portion allotted to idled facilities.
• Limits on out-of-state offsets – To encourage more emissions cuts from within the state, the plan will feature limits on the previously unrestricted use of out-of-state units. Officials did not give full details but said these limits could restrict units from certain markets, project types or time periods, as well as the outright quantity. In addition, the department will set up a state registry and other institutions to promote domestic abatement projects.
• Power sector – The power sector will initially be regulated under the market, for the first phase and possibly the second, but it will be exempted if and when the federal Clean Power Plan comes into effect, which is tentatively expected in 2022.

WHAT REMAINS?

• Coverage – Apart from excluding power generators, the coverage list will be retained and includes metal manufacturers, natural gas distributors, petroleum fuel producers and importers, waste facilities and other large industrial polluters. As with the initial plan, coal-fired power plant Centralia is excluded, in part due to an existing plan to close it by 2025. Agriculture, woody biomass burners, and imported power producers are also excluded.
• Targets – The plan is designed to help Washington meet its targets to bring its GHG emissions back to 1990 levels by 2020, and to cut them by 25% by 2035 and halve them by 2050.
• Trading periods – Three-year compliance cycles from 2017.
• Thresholds – The number of installations covered by the system would grow over time as the threshold for coverage drops by 5,000 metric tonnes every three years, declining from 100,000 tonnes a year in 2017-2019 to 70,000 tonnes from 2035. The officials said they expect this will cover 24 firms at launch accounting for around 60% of the state’s emissions, up to about 70 by 2035.
• Allocation – Installations will receive no allowances upfront, but rather earn tradable emission reduction units for cutting against established baselines, which – apart from trade-exposed heavy industries – would be set using operator emission levels from at least three years between 2012 and 2016. Instead of receiving a predetermined allowance quota, installations will be assigned an emissions reduction pathway, representing an annual decrease from a set baseline. It is not clear if the original set baseline of 1.66%, or 5% every three years, will be retained.
• Compliance – Companies will need to report their emissions annually but will only need to comply at the end of each period, with compliance reports requiring third-party verification.
• Volunteers – Voluntary participation will also be allowed.
• Flexibilities – Installations that fail to meet their targets on site may buy units from firms exceeding theirs or from reduction units generated from projects within the state from a wide range of sectors, or from (albeit now limited) out-of-state projects and carbon markets. This includes emissions allowances from RGGI, California and Quebec in addition to certified offsets from livestock, mine methane and ozone depleting substance projects in California. The original rules suggested that exchange-based trading of Washington units is unlikely to be permitted and said trade may only take place between covered entities, meaning participation from intermediaries would be limited. The rules also allowed for the unlimited banking of unused allowances from one phase to the next, but proposed that all units face a 10-year usage life that starts from the first time they are banked.

By Ben Garside – ben@carbon-pulse.com

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