Washington Ecology charts rapid carbon cuts

Published 4:22 pm Tuesday, March 15, 2022

OLYMPIA — Washington’s cap-and-trade program likely will require oil refineries and other manufacturers to cut greenhouse gases by 28% during the first four years, a steeper reduction than mandated by cap-and-trade in Oregon or California.

The Department of Ecology says the rapid reduction is needed to catch up on carbon-reduction goals. California started cap-and-trade more than a decade ago, while Oregon’s new program has a different scope, according to Ecology.

Nevertheless, the Western States Petroleum Association calls Washington’s proposed pace unprecedented and reckless and warns that industries and consumers won’t have time to make dramatic changes to avoid rising energy costs.

“It’s double or triple of what anybody else has tried to do,” petroleum association spokesman Kevin Slagle said Tuesday.

The Washington Legislature in 2021 passed cap-and-trade, the centerpiece of Gov. Jay Inslee’s climate agenda. Cap-and-trade covers about three-quarters of the state’s greenhouse gases.

Beginning next year, large carbon emitters and fuel suppliers will bid for “allowances.” Each allowance represents one ton of carbon. The number of allowances will decline by about 7% a year until 2030 and after that by about 2% a year until 2050.

Ecology has drafted 142 pages of regulations for conducting the auctions. The department expects to make a formal rule proposal this spring.

The auctions will raise money for government. The Legislature this month budgeted $5.4 billion in cap-and-trade revenue over 16 years for transportation programs.

Lawmakers boasted they did not raise the gas tax. Cap-and-trade, however, will raise the cost of producing motor vehicle fuels, said Kriss Sjoblom, senior economist for the pro-business Washington Research Council.

Sjoblom estimated Monday that if in place now, cap-and-trade would be adding 23 cents a gallon to the cost of producing gasoline. That’s based on the current price of allowances in California.

Washington prices could differ, but there’s no doubt cap-and-trade will increase production costs, Sjoblom said.

“Yes, it will have to push up gasoline prices,” he said. “I think the real answer is we don’t know yet by how much.”

Ecology has not tried to estimate cap-and-trade’s impact on gas prices, department spokesman Andrew Wineke said Tuesday in an email.

“As recent events have shown, gas prices are highly volatile, and depend on factors that range far beyond Washington state,” he said.

“The jump in gas prices we’ve seen in the last few weeks is an important reminder that relying on a commodity that is so sensitive to supply disruptions carries very real risks of its own.”

Washington lawmakers abandoned this session a proposal to finance transportation projects with a 6 cent a gallon tax on fuel refined in Washington and exported to other states. The tax would have fallen most heavily on Oregon drivers.

Slagle said cap-and-trade may have the same impact as an export fuel tax. If production costs are higher in Washington, they will likely show up at the pumps in Oregon, he said.

In written comments to Ecology, the petroleum industry said it needs to know more about what Ecology has in mind before it can fully evaluate cap-and-trade’s influence on production costs. Ecology has yet to set minimum and maximum prices for allowances.

Whatever they are, the floor and ceiling will both rise by 5% plus inflation annually. California used the same formula. Allowances there have been selling for close to the floor price.

Washington’s more aggressive reduction in emissions could trigger a demand for allowances at prices at or closer to the ceiling price, according to the petroleum industry.

Washington lawmakers in 2020 committed the state to cutting greenhouse gases by roughly half by 2030, the first milestone toward cutting emissions by 95% by 2050.

The Oregon Department of Environmental Quality finalized rules for that state’s Climate Protection Program in December.

The program limits emissions from large stationary sources, transportation fuels and other liquid and gas fuels. The program calls for a 12% reduction by 2026 from a 2022 baseline, compared to Washington’s proposed 28%.

Washington’s cap-and-trade program more closely resembles California’s. California’s program called for reducing emissions by less than 2% a year in the 2010s and by 3.4% in the 2020s, according to the Western States Petroleum Association.

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