Cap and Trade Bill Is Taking Shape in the Oregon Legislature

The bill is a contentious partisan effort to reduce greenhouse gas emissions, with Democrats pushing it forward and Republicans vowing to kill it. This week, Democrats revealed some of the key policy details.

by Ted Sickinger, The Oregonian / May 10, 2019

(TNS) — Democratic lawmakers in Oregon this week unveiled what’s close to the final version of a proposed carbon cap and trade policy, the expansive and complex legislation that would put the state at the forefront of U.S. efforts to reduce greenhouse gas emissions and combat climate change.

More than a decade in the making, lawmakers have made myriad changes to the policy this year, including big concessions designed to reduce costs of the policy for electric utilities, industrial companies and low-income households who could be hurt by higher energy prices.

“I think we’re pretty much there now,” said Sen. Michael Dembrow, D-Portland, co-chair of the Joint Committee on Carbon Reduction. “There may be a few tweaks.”

Dembrow added that he’s waiting on fiscal and revenue analyses, and expects the bill will likely move out of committee next week. He expects a full Senate vote by the end of the month.

That remains to be seen. Debate over the carbon policy has been lost in the sound and fury over new corporate taxes and Republican lawmakers’ walkout to deny Democrats the quorum they need to pass that bill. But the carbon bill is a huge, complicated and far-reaching piece of legislation that is likely to grab center stage in the next few weeks.

Republicans included it on a hit list of bills they want killed before they’ll come back to the Legislature. Democratic leaders say it’s still one of their top priorities.

The amendments unveiled Monday include another targeted set of concessions, as well as a number of technical fixes to the policy and the minutiae of its implementation.

Environmental advocates and other backers applauded the changes and are anxious to get on with the voting. But some businesses say they still aren’t satisfied.

The amendments do “little to address the concerns raised during the hearings held around the state,” said Preston Mann, spokesman for a business coalition calling itself the Partnership for Oregon Communities. ”The token rebates included in the amendment will do little to offset the significant financial burden every Oregonian will face under the program, especially considering the program’s imperceptible environmental benefits.”

To recap the basics, the legislation would set an overall cap on greenhouse gas emissions that would decline over time, with the goal of reducing them 45 percent below 1990 levels by 2035 and 80 percent below 1990 levels by 2050.

The state’s largest emitters of greenhouse gases — including electric utilities, transportation fuel providers and industrial companies — would be required to purchase “allowances” to cover their greenhouse gas emissions each year. As the state gradually curtailed the allowance supply, they would get more expensive and incentivize emissions reductions.

The latest amendments include:

New concession for natural gas utilities: Earlier versions of House Bill 2020 had included free emissions allowances for gas utilities intended to offset any rate impacts on low-income residential customers. Utilities such as NW Natural complained that would still leave other residential, commercial and industrial customers exposed to big rate increases.

Under the amended bill, gas utilities would receive an additional “consignment” of free allowances — equal to another 60 percent of their emissions. But instead of using those for compliance purposes, they would be required to sell them in the annual state auction, and invest the proceeds to bolster energy efficiency and transition to more “renewable” natural gas projects. At least 25 percent of those proceeds would be used for customer bill credits.

The gas companies would still be responsible for buying allowances to cover about 85 percent of their emissions in the annual state auction, a compromise environmental groups say they can live with.

“In a perfect word we wouldn’t need this consignment, but based on where the utilities were lobbying from, it’s a pretty good outcome,” said Brad Reed, a spokesman for Renew Oregon.

The consigned allowances are not the solution the gas companies lobbied for. They wanted 100 percent free allowances in year one, declining proportionately with the state cap in subsequent years. But the revenue from the sale of the consigned allowances will help offset some of the price impacts on customers, though NW Natural says it's impossible to know how much until it develops a plan with state regulators to spend the proceeds.

“We appreciate the work that’s gone on to improve the bill,” said Bill Edmonds, NW Natural’s director of environmental policy and sustainability. “This is an improvement.”

New emission standard for industrial companies: Studies suggest that almost all the industrial companies regulated under the program are so-called "energy-intensive, trade-exposed" businesses, meaning they’re vulnerable to out-of-state competition and carbon pricing could lead them to shift production and jobs elsewhere.

The bill’s sponsors have offered numerous concessions to mitigate that impact and the latest version goes further. Industrial companies will initially get 95 percent free emissions allowances, then can maintain that level of freebies if they can demonstrate that they are using “best available technology” for reducing emissions in their facilities.

To demonstrate compliance, the companies will have to submit a third-party analysis, certified by the Carbon Policy Office. They will be able to seek review of that certification decision through a contested hearing. They’ll have to re-certify that they’re meeting the benchmark every nine years, instead of every six years, which will give companies more time to recover any investment in updated equipment or processes.

“This was a proposal from industry that they feel comfortable with,” Dembrow said. He added that the program will devote some of its auction revenues to a program that Business Oregon is developing to help industries become more energy efficient.

Chris McCabe, executive director of the Northwest Pulp & Paper Association, said the latest version “continues to put thousands of family-wage jobs at risk and is certain to cause higher global emissions as production shifts from green, low-carbon emitting mills here in the Pacific Northwest to locations in other countries and states with far less stringent environmental regulations. It’s a lose-lose for both jobs and the environment.”

Natural and working lands: Proceeds from allowance auctions to industrial and natural gas companies will go to the Climate Investment Fund, and backers expect that will amount to about $150 million a year. The amended bill dedicates 20 percent of those revenues to projects that reduce emissions or store carbon in the agriculture and forestry sectors. That could include projects to reduce wildfires and flooding, improve irrigation efficiency, or prepare for sea level rise.

Governance: The amendments add more specificity regarding the responsibility and makeup of various oversight bodies, including the Oregon Climate Board, the Just Transition Advisory Committee, and a Citizen’s Advisory Committee that will help prepare a biennial plan to invest auction proceeds.

©2019 The Oregonian (Portland, Ore.). Distributed by Tribune Content Agency, LLC.

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