The 2nd cap-and-trade state?

Source: Benjamin Storrow, E&E News reporter • Posted: Thursday, November 30, 2017

Oregon Democrats are increasingly optimistic they can pass a cap-and-trade bill early next year, raising the hopes of greens desperately in search of carbon reductions following President Trump’s rollbacks of federal climate policies.

The bill calls for strengthening the state’s emissions targets and creating a carbon market where a steadily decreasing number of allowances are bought and sold. Proceeds from the auctions would be reinvested in emissions reduction strategies like energy efficiency and electric vehicle infrastructure.

Gov. Kate Brown (D) and Democratic legislative leaders, who control the state House and Senate, have labeled the legislation a priority for next year’s shortened session in Salem, the state capital.

“There’s a feeling like we can’t just sit around waiting for the federal government to act. And it’s not just rhetoric,” said state Rep. Ken Helm, a Democrat who represents a suburban Portland district and is a lead author of the legislation. “The bill, the ‘Clean Energy Jobs’ bill, is evidence we can address climate at the state level.”

Oregon is in a growing queue of states seeking to redouble their climate efforts in the face of federal inaction. California recently reauthorized its own carbon cap-and-trade program. The Regional Greenhouse Gas Initiative, a cap-and-trade program encompassing the power sector in nine Northeastern states, has agreed to make an additional 30 percent reduction in power plant emissions between 2020 and 2030. Virginia and New Jersey are now poised to join the program.

Oregon’s proposal is particularly notable against that backdrop for both its promise and challenges. The bill puts Oregon on track to become the second U.S. state to impose an economywide cap on carbon and the first to join California’s stringent cap-and-trade program, the Western Climate Initiative. The Canadian province of Ontario recently joined Quebec and California in the program.

Cooperation with California offers several benefits to Oregon, lawmakers there say. The Golden State is a large market and already has experience running auctions where carbon allowances are bought and sold. Oregon lawmakers also see an opportunity for economic development in linking up with California. Under California’s present plan, businesses are allowed to offset 8 percent of their total emissions under the state’s cap. Oregon lawmakers believe their state is a natural market for companies looking to buy offsets.

“We really see our forests particularly as an engine to sequester carbon and help other states,” said state Sen. Michael Dembrow (D), the proposal’s leading champion in the upper chamber.

He added: “I think it’s really important to follow up on the momentum that we’re seeing in the WCI with Ontario joining and now California renewing its program. It’s clear we need to move this momentum to other states. Oregon is really well-poised to do that. There is a lot of interest in creating a pan-Pacific carbon pricing agenda. However you’re doing it, cap and trade, carbon tax, having the entire West Coast pricing carbon is creating a lot of heft that can move a lot of markets.”

British Columbia already employs a carbon tax. And Washington Democrats, having recently taken control of all three branches of elected government in Olympia, are considering their own carbon-reduction strategy.

Transportation troubles

But California’s experience also hints at the limitations of state action.

The state’s carbon emissions declined by 16 million metric tons between 2015 and 2016, in large part driven by reductions from the power sector.

The problem: California boasts a relatively green power sector by national standards, and transportation is the leading source of emissions. And unlike overall emissions, the state’s transportation emissions edged up in 2016.

Oregon faces a similar challenge, said Michael Wara, a senior researcher at Stanford University’s Woods Institute for the Environment.

“Pretty much everywhere you look around the world, you see strong responses to a carbon price from the power sector and pretty much no response from transportation and [heavy] industry,” he said. “It’s great to see Oregon moving toward a carbon-pricing regime. No regime is forever. This is a first step in a process. California has taken its second step now. Maybe Oregon can benefit from some of that learning.”

Oregon also boasts a green power sector. It relies heavily on hydropower for much of its electricity generation. Its lone coal plant is scheduled to retire in 2020, and the Legislature last year passed a law phasing out its utilities’ reliance on out-of-state coal generation.

Transportation emissions, meanwhile, are a major hurdle to Oregon’s climate goals. The sector’s share of the state’s emissions pie is roughly 36 percent, according to the state Global Warming Commission. By comparison, the combined emissions output of electricity and heating consumption associated with the state’s residential and commercial sectors was 35 percent, the commission found.

The commission’s 2017 report to the Legislature said Oregon “is not expected to come within striking distance” of its present greenhouse reduction goals without further action. The state’s current target is 10 percent below 1990 levels by 2020 and 75 percent of 1990 levels by 2050. That would increase under the proposed legislation to 20 percent by 2020 and 80 percent by 2050.

Oregon greens acknowledged the challenges presented by transportation but argued that it is too soon to say cap and trade is an ineffective means of holding down emissions from the sector. California’s cap, they noted, only expanded to include transportation in 2015.

They also pointed to Oregon’s recently implemented low-carbon standard for transportation fuels and the passage last year of a transportation package that includes incentives for low-carbon transit. Those policies will work in concert with cap and trade to incentivize further reductions, they argued.

“The way to think about this is it’s a holistic backstop that needs to be viewed as a long-term policy that will set long-term expectations across the economy,” said Noah Long, legal director for Western energy at the Natural Resources Defense Council. “It’s unrealistic to think you will see significant drops in emissions in every sector of the economy in the first few years.”

Industry opposition, time crunch

The proposal faces other hurdles. Investment in transportation is complicated by a provision in the state constitution that only allows revenue from transportation fuel taxes to go to improvement of state roads. It remains to be seen how much legal latitude Oregon will have to direct cap-and-trade revenues to transportation, Dembrow said.

He nevertheless expressed confidence that money could be spent on bus and bike lines, electric vehicle infrastructure, and tree-planting programs along roadways.

PacifiCorp and Portland General Electric Co., the state’s leading utilities, have raised concerns about the proposal, saying it could increase costs to consumers. A cap-and-trade program is repetitive and adds a layer of costs on top of the state’s renewable portfolio standard and coal phaseout plan, said Steve Corson, a spokesman for Portland General Electric.

“We support carbon reduction. We support effective policies to do that,” he said. “But we are concerned that what is being discussed right now would basically charge our customers twice, would single them out to pay extra for little, if any, carbon reduction beyond what existing policy may be driving.”

There is also the matter of timing. Even-numbered years make for compressed legislative sessions in Oregon. In 2018, lawmakers will only spend February in Salem. Some legislators argue that such short sessions should be limited to budgetary matters and say debate over cap and trade should be delayed.

Advocates say such a debate is long overdue. A carbon-pricing proposal has been made in every session since 2003, said Helm, the state representative. The idea has been seriously considered since 2015. A bill introduced this year, which is serving as the template for 2018 discussions, was heavily debated. Twelve working groups held meetings and took public comment throughout the fall.

With that work done, Democrats say they are prepared to make a final push.

“We have unprecedented coordination between the governor’s office, the Senate and House here,” Helm said. “I couldn’t really hope for more from the governor’s office right now. My speaker and majority leader, this is a top priority for them.”

Next year will tell if they have enough time, and support, to make that priority a reality.