Washington state now has the nation's most ambitious climate policy

In May 2019, I wrote in Vox that “one weird trick can help any
state or city pass clean energy policy.” Spoiler: the one weird
trick is electing Democrats.


My home state of Washington elected a whole mess of Democrats
over the last several cycles and it is paying off handsomely.
Without much national attention, the last few years have seen
Washington quietly put into place the most comprehensive and
ambitious slate of climate and energy policies of any US state.
Yes, I’m talking to you, California.


The legislature just passed a carbon cap that will reduce
economy-wide greenhouse gas emissions 95 percent by 2050 (it
awaits Gov. Jay Inslee’s signature). I want to talk about that
bill, but first, to understand its significance, we need to
quickly review all the other stuff the Washington legislature has
been up to lately.


Let’s run through the last three years. It’s a lot. (And this is
only the climate stuff; there’s much more: police reform, a
capital gains tax, reduction in penalties for drug possession,
etc.)


In 2019, the legislature passed:


* the Clean Energy Transformation Act (CETA), the most
significant energy bill in state history, which will require
state utilities to reach carbon neutrality by 2030 and 100
percent self-generated carbon-free electricity by 2045; it also
contains a bunch of sexy utility business-model reforms;


* the Clean Buildings bill, a first-in-the-nation program
that requires large commercial building owners to address the
energy efficiency of their existing buildings;


* a bill on hydrofluorocarbons (HFCs), which will phase out
dangerous ozone-depleting (and climate-warming) aerosols, foams,
and refrigerants (making Washington the second state, after
California, to do so); and


* HB 2042, which puts about $170 million toward transportation
electrification, through tax incentives for mid-market EVs, money
for charging stations, and money to transit agencies to electrify
buses.


In 2020, it passed:


* SB 5811, which adopts California’s Zero-Emissions Vehicle (ZEV)
program and California’s Advanced Clean Truck Rule, requiring
rising sales of ZEV passenger vehicles and heavy- and medium-duty
trucks, respectively; and


* an update of the state’s greenhouse gas emission goals: 45
percent reduction from 1990 levels by 2030, 70 percent by 2040,
and 95 percent/net-zero by 2050.


In 2021 so far, it has passed:


* HB 1050, another HFC bill that goes beyond recently adopted
federal standards;


* HB 1084, the Healthy Homes and Clean Buildings Act, which would
take a number of steps to gradually phase out natural gas utility
service and boost building electrification [Correction:
1084 did not actually pass; it died in the Appropriations
Committee, but several of its provisions passed via the state
budget]; and


* HB 1091, which would establish a clean fuels standard (CFS)
that gradually reduces the carbon content of liquid fuels in the
state, similar to laws already in place in California, Oregon,
and British Columbia (making a declining carbon standard for
fuels the law of the land from the Mexican border to the Yukon).
This has been a long fight in Washington — the CFS is one of Big
Oil’s least-favorite policies — and this is the third attempt to
pass it, so victory is sweet.


So, the legislature has already passed laws specific to
electricity, transportation, buildings, and fuels. All of this
activity sets the context for last week’s finale: SB 5126, the
Climate Commitment Act (CCA — here’s the bill text).


I wrote last year that carbon pricing has been dethroned in
left-leaning carbon policy circles, in favor of industrial policy
— sector-specific standards, investments, and justice (SIJ). But
the dream of carbon pricing never died in the hearts of Jay
Inslee and Washington legislators. The CCA is a “cap-and-invest”
program that would impose a declining cap on emissions and
distribute allowances under the cap, thereby placing an
escalating price on carbon.


There’s lots to say about this, but the first thing to note is
that this is not carbon pricing instead of SIJ — note all the
sector-specific policies passed before and alongside it. It is
carbon pricing as a complement, part of a comprehensive suite of
carbon policies.


Note also that this bill comes at the tail end of a long record
of failure on carbon pricing in Washington, including two
citizen-led ballot initiatives, one based on economists’
recommendations and one based on the environmental left’s
recommendations, both of which were defeated. There’s a lot of
history here.


Politically, there are two salient facts bounding the bill.


On the downside, implementation of both the CFS and the CCA is
contingent on the passage of a transportation package containing
a boost in the gas tax of at least five cents per gallon. Many
state climate activists are angry about this, because in its
current condition, the transportation package is highway-heavy.
(I’ll get into this more later.)


On the upside, once it is in effect, the CCA is authorized to
stay in effect until its emission goals are reached. This is a
really big deal: there won’t be a big legislative fight over
re-authorization like there was in California in 2017, which
weakened that state’s program. There is no sunset or time limit
on the CCA. It stays in place until the state is net-zero. A
declining cap is now the status quo, and it’s always more
difficult to pass a new bill to change the status quo than it is
to keep it in place.


Before we get too deep in the politics, though, let’s look at
what the CCA does. It adopts the same broad outlines as
California’s cap-and-trade system, but with this guiding
principle, as articulated to the Seattle Times by state Sen.
Reuven Carlyle (D-Seattle), the bill’s key Senate architect: “I
had a check list, and I made sure in my own head that we
addressed these criticisms and weaknesses of the California bill,
and not just danced around them.”


Cap-and-invest will issue a declining number of allowances


The CCA is a program to achieve the state’s carbon targets, as
updated last year: 45 percent reduction from 1990 levels by 2030,
70 percent by 2040, and 95 percent/net-zero by 2050.


Keep in mind: this is not just the electricity sector. It’s
electricity and transportation and oil and gas and more —
somewhere between 75 and 80 percent of the state’s total
greenhouse gas emissions. Only California has comparable
economy-wide aspirations, but Washington’s rate of reductions
will need to be much more rapid than California’s to reach its
targets. In terms of the sheer pace of change to which a state
has committed, Washington has taken the lead.


With a few exceptions, the cap will cover all entities that emit
at least 25,000 tons of energy, process, or landfill emissions a
year — around 100 entities total. Each year, a declining number
of allowances will be issued. Most of them will be distributed
via auction (sold to raise revenue for the state), with a few
exceptions.


Electric utilities are already covered by CETA, so they get their
allowances free. They can use their allowances for compliance
and, if they reduce emissions ahead of schedule, auction off the
remainder. Any benefits from those auctions are to be used “for
the benefit of ratepayers, with the first priority the mitigation
of any rate impacts to low-income customers.”


Natural gas utilities get free allowances equal to their
emissions the first year, with that number declining by about 6.5
percent a year through 2030, commensurate with the cap. Starting
in 2023, natgas utilities must auction 65 percent of those free
allowances, with the number by rising by 5 percent a year up to
100 percent. The auction proceeds must be returned to customers
“by providing nonvolumetric [equal for each customer] credits on
ratepayer utility bills, prioritizing low-income customers, or
used to minimize cost impacts on low-income, residential, and
small business customers through actions that include, but are
not limited to, weatherization, decarbonization, conservation and
efficiency services, and bill assistance.” But there’s a twist:
excepting low-income households, only households that are already
connected to the natural gas system when the bill goes into
effect can receive these rebates. Subsequent hookups do not, a
significant disincentive California doesn’t have.


Finally, so-called energy-intensive trade-exposed (EITE) entities
— industries where marginal increases in energy costs could prove
a competitive disadvantage and potentially push them out of state
— are not exempt from the cap. They will receive a steadily
declining share of free allowances through 2035, based on their
output.


Note: some environmental-justice activists have criticized this
provision, but a) the carbon-tax bill the EJ community supported
earlier this session, Washington STRONG, would exempt all EITE
entities from its cap, forever, b) EITE entities can have their
access to offsets cut off if they are harming local air quality,
and c) the air-quality regulations in the CCA serve as a backstop
for local air quality. This is about as good as you’ll find any
state doing on EITE businesses.


The price of allowances will have a floor and a ceiling


The price of allowances, as established by auctions, will have a
“collar,” meaning it will have a rising floor (to ensure the
program produces reliable revenue) and a rising ceiling (to make
sure it doesn’t get too expensive). The ceiling will take the
form of an allowance price containment reserve, which basically
means that if the price hits the ceiling, unlimited allowances at
that price can be released from the reserve until prices go back
down.


The price collar will effectively cause the system to behave a
little more like a carbon tax, with price fluctuations confined
to a predictable range.


There will also be an “emissions containment reserve,” set to a
trigger price, that will allow the department to withdraw subsets
of allowances from the system if the targets are not being met.
(For more on emissions containment reserves, see this post from
Resources for the Future.)


The state Department of Ecology will set the floor, ceiling, and
trigger prices through rulemakings involving public and
stakeholder input. In 2027, 2035, 2040, and 2050 — and whenever
else it elects to — the department will review whether the
program is on track to meet its targets and take any corrective
action necessary. For instance, in the event of oversupply of
allowances, a problem that bedevils the California system, the
department can withdraw allowances from the system to push the
price as high as necessary to get on the right trajectory.


Offsets will come in under the cap


Regulated entities may meet 8 percent of their compliance
obligations through carbon offsets in the first compliance period
(2023-2026); from then on, it is 6 percent. Of those offsets, 3
and then 2 percent respectively must go to projects on tribal
lands; 50 and then 75 percent of the benefits, respectively, must
be within Washington state.


Offsets are a huge source of controversy, in this system as in
all systems where they play a role. A recent blockbuster
investigation by ProPublica revealed that California’s biggest
forestry offset programs are basically bogus — failing to reduce
emissions and blowing the state’s carbon budget.


The dangers of offsets — explained in more detail in my interview
with energy analysts Danny Cullenward and David Victor — are very
real, but the bill contains a few key provisions that reduce
those risks.


First and most importantly, unlike in California, offsets in
Washington’s system are beneath the cap. This is a tricky concept
to get your head around, so let me walk through some idealized
examples.


Say, in a California-style system, the state’s emissions limit
for the year is 1,000 tons. It allows 8 percent of compliance via
offsets, so in addition to issuing 1,000 allowances, it allows 80
offset credits.


Note: there are now 1,080 tons worth of compliance instruments on
the market (allowances + offsets). However, California believes
that each offset represents a ton of carbon reduced elsewhere,
outside the covered sectors. So 1,080 tons of compliance
instruments - 80 tons of carbon reduced elsewhere = 1,000 tons,
the state emissions limit. So far so good.


However! If the 80 offsets turn out to be bogus — if they don’t
represent real carbon reductions elsewhere in the economy — then
the system will net out at 1,080 tons of emissions, blowing past
the state’s purported limit.


That, basically, is what critics say has been happening in
California: because so many of the millions and millions of tons
of offsets in the system are bogus, the state is actually
permitting emissions well above its stated limits.


Washington legislators learned from California’s example and
designed their system differently.


Say Washington’s emissions limit for the year is 1,000 tons. It
also allows 8 percent compliance via offsets. However, its
offsets are beneath the cap, meaning the state will issue 920
allowances and allow 80 offsets — a total of 1,000 tons worth of
compliance instruments.


If all 80 offsets are bogus, then the state comes in at its
limit: 1,000 tons. If the 80 offsets are valid, if they represent
actual emission reductions outside the covered sectors, then they
push emissions below the statutory cap. The system will actually
have netted out at 920 tons of emissions, well under the state
limit.


This is worth repeating: in the Washington system, insofar as
offsets represent valid emission reductions, they are effectively
a bonus, over and above the reductions required by statute. (This
could help push the system to net-zero eventually.) Because the
Washington system doesn’t rely on the validity of offsets to hit
its caps, some of the political pressure is taken off of them.


That’s the first thing. The second thing is that the CCA directly
addresses the long-standing concern over “hot spots.” The concern
is that some heavily polluting facilities, often located in
low-income or minority neighborhoods, will buy tons of cheap
offsets and continue to pollute. The CCA — in addition to setting
up a whole apparatus to measure local air quality and screen for
vulnerable communities — says that if the state determines a
particular facility is harming an “overburdened community,” it
can restrict the facility’s access to offsets (a provision also
absent in California).


Third, the Department of Ecology will be charged with determining
which of California’s offset protocols to accept; it is not
required to accept them all.


Critics of offsets have long said that the incentives are
inevitably skewed in these systems: offset providers want lax
standards so they can sell in bulk, regulated entities want lax
standards because cheap offsets bring down the overall cost of
compliance; politicians want lax standards because they also
benefit from the optics of cheap compliance. Regulators, the only
participants with an interest in maintaining standards, are under
constant pressure.


It’s definitely true that the success of Washington’s program, on
offsets and elsewhere, will depend on judicious action from
future regulators. But that’s true of any system.


The revenue will go to climate mitigation and adaptation


Auctioning allowances every year will bring in billions of
dollars in state revenue, the exact level depending on the price
they bring. The state estimates that, if allowances sell at the
California floor price, they will raise around $500 million a
year, rising up to the high 600s over time — about $8 billion
total through 2037. In reality, the Department of Ecology will
set its own floor and in practice the price is likely to exceed
it, given Washington’s ambitions.


Here’s how the revenue is allocated.


First, between the start of the cap-and-invest program and 2037,
$5.2 billion of CCA revenue will go to transportation projects
that reduce carbon emissions, mostly transit but also
electrification, including electrification of Washington ferries
(a huge win for local air quality).


We will get into the controversy over Washington’s transportation
package later — remember, implementation of the CCA is contingent
on its passage — but it is worth emphasizing that the CCA itself
will spend roughly five times what the last transportation
package allocated for transportation decarbonization projects.
From 2037 on, 50 percent of CCA revenue will go to such projects.
None of these funds can go to roads.


Second, every two years, $20 million will go to the Air Quality
and Health Disparities Improvement Account (see below).


Third, the remaining funds — around $3 billion, assuming
California’s floor price — will go to the Climate Investment
Account, which will divide it as follows:


* 75 percent to the Climate Commitment Account, which will fund
climate mitigation and some adaptation projects; it will also set
aside $250 million to help relocate tribal communities threatened
by sea-level rise; and


* 25 percent to the Natural Climate Solutions Account, which is
dedicated to natural resources management and resilience.


All of the Climate Investment Account spending is subject to high
labor standards, like the money spent in CETA (more on that
here). The intent is to use the investments to create
high-quality in-state union jobs.


Air-quality standards and targeted investments will address
environmental justice


There are provisions throughout the CCA related to environmental
justice.


First, one of the objections EJ communities often have to
cap-and-trade is that it doesn’t guarantee improvement in local
air quality, especially in overburdened communities. The CCA
addresses this in Section 3, which sets up a system for local
air-quality monitoring and regulation.


The state will identify overburdened communities using a tool
like the Washington Environmental Health Disparities Map (which
grades communities on over a dozen metrics) and deploy
air-monitoring systems in the identified communities — something
Washington, like many states, now lacks.


It will direct state and local air agencies to adopt new
standards and regulations such that the overburdened communities
either meet federal National Ambient Air Quality Standards
(NAAQS) or have air quality equal to nearby communities,
whichever is more protective. Since all of Washington complies
with NAAQS, these standards will go beyond federal air quality
standards to specifically identify and eliminate wide disparities
often based on class and race.


Every two years, the Department of Ecology will review the
state’s progress to ensure that criteria pollutants in
overburdened communities are declining on schedule.


Second, all the investments made with CCA revenue must target:


* at least 35 percent to overburdened communities, with a target
of 40 percent, and


* and additional 10 percent to projects sponsored by tribal
nations.


In California, a similar provision has meant roughly $3 billion
invested in that state’s overburdened communities since 2014. Now
Washington’s overburdened communities will receive a steady
stream of investment as well.


Third, Washington’s Environmental Justice Council — created by
the Healthy Environment for All (HEAL) Act, also passed this year
— will provide oversight on the design of the program, the
revenue, and any plans to link the system to California’s. (The
council is a 12-member group, appointed by the governor and
approved by the Senate, drawn from affected communities and state
agencies.)


The state is also instructed to create a tribal consultation
framework and ensure that tribes are involved in all Climate
Investment Account spending decisions that affect tribal lands.
(Tribes can halt projects if such consultation hasn’t taken
place.)


So, the bill contains a combination of specific air-quality
standards for overburdened communities, revenue for overburdened
communities, and formal environmental-justice oversight of design
and revenue decisions. We’ll touch more on the politics around
this below.


Linking to California could be sketchy


Washington may eventually want to link its system to
California’s, which is a politically dicey prospect, given
familiar criticisms of that state’s system. To do so, the two
states would have to agree on mutual exchange of allowances,
align their price floors and ceilings, and integrate their
auction systems, among other things.


Section 24 of the CCA instructs the Department of Ecology to
analyze whether a link would do any harm to Washington’s system.
Any linkage must not only integrate the systems properly, it must
ensure that:


* the jurisdiction being linked to has environmental-justice
provisions in place to get revenue to overburdened communities,


* the linkage will not harm overburdened communities in either
jurisdiction,


* the linkage will not harm Washington’s ability to hit its
targets, and


* Washington retains “all legal and policymaking authority over
its program design and enforcement.”


That’s a pretty stiff set of requirements, and it’s an open
question whether a linkage with California can meet them any time
soon, given that state’s problems with oversupply and local
air-quality concentrations. (More on that below.)


The politics around the CCA are pretty good, but there are
objections


The nature of the news cycle these days is that stories come and
go and are forgotten in a matter of hours. The passage of these
landmark climate and energy bills is probably going to see the
same fate — it will be gone from the headlines long before you
read this, insofar as it got any headlines at all. (This should
teach Democratic lawmakers something: they can pass big ambitious
policies and people will barely register that it happened. Might
as well let loose and pass more!)


Most people, if they noticed the bill passing at all, felt happy
that something was getting done. Climate action is, after all,
extremely popular. Among those engaged with the process, however,
there has been some pushback, falling into three buckets.


1. Some urbanists hate the transportation
linkage.


As I said in the intro, the CFS and the CCA have both passed, but
their implementation is contingent on the passage of a
transportation package (containing a gas tax of at least five
cents a gallon).


Some Seattle urbanists are upset about the state of that
transportation package; they believe it spends too much on
highways, undercutting the CCA’s goals. They are therefore
opposed to the linkage, and want Gov. Jay Inslee — who has a
line-item veto — to strike it from the bill and allow the CCA to
be implemented without restrictions. (That would severely piss
off several moderate Democrats in the Senate.)


One thing to note on this is that all highway spending is not
equal. Big chunks of the Washington highway budget will be taken
up by court-mandated repair of culverts (to help fish). And there
are lots of projects — like the new Columbia River Crossing
bridge, which will include light rail — that most everyone agrees
are necessary.


More importantly, through a twist of Washington law, the CFS and
CCA will likely prevent billions of dollars in road spending. The
use of bonding to borrow money for road spending requires a 60
percent majority in the Washington legislature, which means it
will require several Republican votes. And Republicans are
absolutely not going to vote for a transportation package that
triggers the CFS and the CCA, two policies they passionately
hate. That means no Republican votes and no bonding, which will
sharply curtail, by several billion, the amount of money the
transportation package can devote to roads.


And finally, remember, the CCA will put $5.2 billion toward
transportation decarbonization, five times what the last
transportation package spent on that, none of which can go to
roads.


It seems to me that the benefits of the bill, in transportation
alone, vastly outweigh the harms of a few highway-widening
projects, irksome as they are.


2. Some environmental justice groups oppose
cap-and-trade.


The state environmental justice community is divided on the CCA.
Groups like Puget Sound Sage and Front and Centered have spoken
out against it, but it has received support from 20 state tribes,
El Centro de la Raza, the Washington Black Lives Matter Alliance,
and Washington Build Back Black Alliance.


The opposition arises mainly from opposition to cap-and-trade
itself, which some EJ activists believe is inherently inferior to
a carbon tax like the 2018 state ballot initiative (1631) or
Washington STRONG. To my mind, most of their critiques —
especially around local air quality and participation — are
directly answered by provisions in the bill. And some, like the
idea that cap-and-invest allows companies to “pay to pollute,”
are more true of the carbon taxes they support (which contain no
mandatory emission reductions).


But make up your own mind: the Sage and F&C essays make the
case against; Vlad Gutman-Britten of Climate Solutions addresses
the objections at length here.


3. Some wonks worry about hooking up with
California.


There’s long been a strain of thought in Washington that hitching
up to the much larger California carbon market will effectively
put California in charge of Washington policy. That critique used
to come from the right, but lately there have been versions of it
on the left as well.


There are two basic worries. The first is that California’s
offset protocols are garbage and if Washington adopts them it
will flood its system with bogus carbon reductions. The second is
that California’s system suffers from chronic oversupply of
allowances. The oversupply suppresses prices, and a governor
facing a recall election and needing the support of the building
trades is not going to support reform that raises prices any time
soon. That could drag down Washington’s prices.


To some extent, these objections are answered in the bill.
Offsets are below the cap, so the risks are lower; the Department
of Ecology is not required to adopt all of California’s offset
protocols, it can independently assess them; and the criteria for
linkage specifically include that it not suppress prices.


Nonetheless, there is some tension here. There will be pressure
to link the systems, to hold prices down in Washington. (Unlinked
systems are, by some analyses, three times the cost of linked
systems.) But it’s not totally clear how, once linked, Washington
can enforce its own standards.


Since linkage won’t happen until the middle of the decade at the
soonest, the best-case scenario is that California wrings some of
the oversupply out of its system by then. And Washington linking
could actually help lift prices in California — Washington will
represent a lot of demand, given the steepness of its proposed
emissions trajectory.


Washington is kicking ass


All of these objections are worth taking seriously, but in my
judgment, on balance, Washington’s new bill — or more broadly,
the comprehensive suite of policies the state has constructed —
is overwhelmingly worth celebrating. Among other things, the CCA
will bring billions in investment and new economic growth to the
state, along with hundreds of thousands of new jobs.


Given all the scorn heaped on Washington legislators over the
last decade, especially by climate advocates (including me), it
is worth noting that credit for the CCA goes largely to
legislators, negotiating directly with one another. They finally
got sick of Washington f*****g around on climate pricing, pulled
together the lessons of previous attempts (and California’s
example), hashed out a bill enough Democrats could agree to, and
passed it. And they did a good job: the wonky i’s are dotted and
t’s crossed.


Every success has many parents, and this one is no different, but
special credit goes to Representative Joe Fitzgibbon in the House
and Senator Reuven Carlyle in the Senate, who by all accounts
(and I mean all accounts — one or both were praised by everyone I
contacted, even some bill opponents) were central to
coalition-building around these bills and improving them as they
moved through the process.


Once Inslee signs the CFS and the CCA and a transportation
package passes, both of which most observers expect in relatively
short order, Washington will have the full suite: legally
enforceable programs and standards in place to decarbonize
electricity, transportation, and buildings, and in addition to
that — as a complement, not an alternative — a declining cap that
ensures the rapid emission reductions the state needs to meet its
targets.


The Washington legislature is showing Democrats across the
country that climate politics are good politics, that voters
respond to big climate ambition. Now it’s up to Washington to
show other states that reducing carbon emissions is good for the
economy and good for the health and welfare of state residents.


The fight goes on for effective implementation and enforcement,
but for now, Washington residents are justified in popping some
champagne corks. The state has finally charted a clear path to a
healthier climate future.


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