Comments on Wash. draft rule reveal variety of concerns

Source: Debra Kahn, E&E reporter • Posted: Thursday, March 3, 2016

Public comments about a Washington state proposal to control greenhouse gases may give a clue to the changes that state officials will make to the regulations that it withdrew last week.

Gov. Jay Inslee’s (D) Department of Ecology received a wide variety of feedback from private companies, utilities and environmental groups between proposing its Clean Air Rule on Jan. 5 and withdrawing it Friday. Agency staff suggested that the comments influenced their decision to replace the draft rule with a new one in the spring.

The state heard early on from industrial emitters, including aluminum, steel, cement and paper manufacturers. While the proposed rule gave them a three-year grace period, allowing them to begin compliance in 2020 rather than 2017, they still wanted more favorable treatment.

The now-defunct proposal would have subjected emitters of more than 100,000 tons per year of carbon to a 5 percent reduction every three years. About 70 facilities were targeted, including refineries, landfills and aerospace manufacturers (ClimateWire, Feb. 29).

While not specifying their exact demands, the companies warned they would be unable to pass on increased energy costs to their customers because they compete with businesses around the world that aren’t subject to similar regulations.

“[W]e are very disappointed with the outcome of the proposed rule and the treatment for EITE [energy-intensive and trade-exposed] entities,” Nucor Corp., Kaiser Aluminum, Weyerhaeuser Co. and other manufacturers wrote Jan. 29.

A state program over the CPP?

Public utilities were more concerned about how the program would mesh with U.S. EPA’s Clean Power Plan, a carbon rule for existing power plants. The Public Generating Pool, a group of 10 public utilities that serves about 1 million customers, filed comments in January asking for more information about how the state rule would fit into emissions trading under the CPP. It raised the possibility of being excluded from the state rule altogether.

“Has Ecology considered the possibility of excluding electricity generators from the CAR and instead regulating these solely under the CPP?” the pool asked. “If not, why not?”

The state’s largest investor-owned utilities, Pacific Power and Puget Sound Energy, didn’t submit comments after the draft rule came out, although they had previously argued to be left out of the rule in favor of participating directly in the federal program.

Public utilities and environmental groups were concerned that the proposed rule did not envision any carbon restrictions on imported energy. While the Public Generating Pool was worried about a competitive disadvantage for its in-state natural gas plants, environmental groups said the exemption would hurt the integrity of the emissions reductions.

NextGen Climate, the advocacy group founded by California billionaire Tom Steyer, noted that the majority of emissions from Washington’s electricity sector come from coal and that the majority of that coal-fired power is imported from out of state.

“Excluding imports would not only create a narrower, less effective program, but would also create a significant perverse incentive to achieve the reductions required by substituting imported fuels and electricity for in-state production,” wrote climate policy advocate Colin Murphy.

‘Not consistent’ with federal program

Environmental and market experts also stressed that the state should set an overall emissions cap and distribute allowances equal to the cap, as opposed to the method proposed by the state. Ecology had planned to assign each emitter an emissions trajectory, which would allow them to generate and sell credits if they reduce emissions faster than the goal of 1.67 percent annually.

Besides providing more environmental integrity, a statewide cap with straightforward, fungible allowances would make the program more compatible with other markets, including the CPP, environmental groups said.

If Washington designs a cap that could eventually link with the Regional Greenhouse Gas Initiative or the Western Climate Initiative Inc., it would limit the potential for transferring emissions out of state and expand the market for carbon credits and offsets, and “share administrative burdens and demonstrate momentum behind robust climate policy,” NextGen Climate said.

Another group, the nonprofit Climate Solutions, emphasized the advantages of an allowance-based system in complying with the CPP.

“[I]t would be a missed opportunity to design the Clean Air Rule in a way that clearly would not satisfy CPP requirements,” wrote Ross Macfarlane and Vlad Gutman of Climate Solutions. “The current baseline-and-credit approach is not consistent with the CPP and would increase the potential for sources to face duplicative and potentially inconsistent compliance obligations.”

They added, “An allowance-based approach, on the other hand, is more likely to allow the state to use the rule as a mass based ‘State Measures’ approach or to enter into regional compacts to meet its CPP compliance obligations, if it deems that appropriate.”

Another think tank, the Stockholm Environment Institute, suggested setting an overall cap while still setting targets for individual businesses. The cap would have a set-aside pool of allowances to give out to new emitters, which SEI estimated would happen roughly once every three years.