Cap-and-Invest rules finalized

September 29, 2022

Washington state reached a major climate action milestone today as the Department of Ecology announced it has finalized Cap-and-Invest regulations:

Washington finalizes historic cap-and-invest plan to slash carbon pollution

This program will go into effect on January 1, 2023, and will help our state achieve the mandated goal of net-zero greenhouse gas emissions by 2050.

Together with the teams at Climate Solutions, The Nature Conservancy, and Washington Build Back Black Alliance, we put together this brief background memo on the Climate Commitment Act’s Cap-and-Invest program.

I. Background on the Climate Commitment Act:

Washington’s Climate Commitment Act (CCA) is a transformational law that limits climate-harming emissions, creates a new program to improve air quality, and generates vital revenue streams that will bolster clean energy and the resilience of communities across the state.
Included in this memo is a spotlight on the promise of these new funds, which could amount to over $1 billion worth of annual investments in critical climate mitigation and resilience initiatives. We also offer insight into some frequently asked questions – namely, the importance of equity and environmental justice in implementing this bill, the role of offsets, and how Emissions Intensive, Trade-Exposed industries (EITEs) are covered under the program and the roadmap for ensuring they make their fair share of emissions reductions.

II. How Does the CCA Work?

The CCA takes an innovative approach to carbon pricing by pairing a “cap-and-invest” program with a program designed to improve air quality in overburdened communities. Recognizing that pollution from the industrial and transportation sectors typically concentrates in low-income, Black, and Indigenous communities and other communities of color, the CCA aims to make drastic cuts in both overall greenhouse gas emissions and local air pollutants. We dive deeper into these air quality improvements and the bill’s equity and environmental justice provisions–including unprecedented levels of investments in tribal climate resilience—in Section III below.

Through the cap-and-invest program, the CCA establishes a statewide cap on climate pollution that gradually declines between now and 2050, when emissions must reach 95% below 1990 levels and achieve net zero. To meet these pollution limits, our largest polluters must do their part by transitioning to clean energy and paying for each ton of carbon that they emit.

The Department of Ecology (Ecology) will hold quarterly auctions where Washington’s top polluters will purchase “allowances” (each worth one metric ton of carbon dioxide equivalent), generating revenue for Washington to invest in clean energy solutions such as electric trucks, efficient heat pumps, and other technologies that improve air quality all across Washington, especially in our most overburdened communities.

In 2023, the Legislature has the opportunity to begin investing billions of dollars in CCA revenue in ways that will help ensure the law achieves the simultaneous goals of cutting climate emissions and local air pollution. In Section IV, we highlight examples of how this funding could be invested–noting that at least 35% of funds must benefit overburdened communities–and help us meet our 2050 goals by rapidly reducing emissions.

III. Equity and Environmental Justice Are Foundational to the Success of the Climate Commitment Act

Coupled with the implementation of Washington’s Healthy Environment for All Act (HEAL Act), the CCA has the potential to set a national precedent for meaningful engagement with communities of color and those most impacted by the effects of climate change.

1. The Environmental Justice Council’s role in strengthening the CCA

The Climate Commitment Act requires Washington’s Environmental Justice Council to play a critical role in developing and implementing the program: from recommending the best use of CCA funds to directly benefit overburdened communities and supporting the creation of community engagement plans, to analyzing the overall CCA benefits or impacts on overburdened communities. In developing the final rulemaking, Ecology is responsible for ensuring the Environmental Justice Council (EJ Council) has adequate resources and time to assess the CCA’s various components, and thoughtfully integrating the Environmental Justice Council’s recommendations. 

2. Funding strong air quality protections in overburdened communities

A key critique of California’s Cap & Trade program is that it hasn’t reduced health-harming criteria pollution. To address this concern, Washington’s CCA included a more expansive air quality program that covers all permitted and unregulated sources of emissions, not just the larger emitters covered under the Cap-and-Trade program.

This program will require reductions in harmful pollutants such as particulate matter and ozone. These pollutants are linked to detrimental respiratory and other poor health outcomes and are often concentrated in industrial and transportation corridors in low-income neighborhoods. Revenue from the cap-and-invest program will be dedicated to establishing an air quality monitoring program, which takes a multi-pronged approach to addressing criteria pollutants. Through this new program, Ecology must:

  1. Identify all communities overburdened by air pollution in Washington State.
  2. Expand and improve the air monitoring network statewide.
  3. Set air quality goals for overburdened communities.
  4. Beginning in 2023, every two years, conduct analysis to ensure reduction goals are being met and ensure compliance.
  5. If criteria pollutants are not being reduced, Ecology and/or local air agencies will issue an enforceable order to the applicable facilities operating in overburdened communities.

 Ecology is in the early stages of undertaking this critical program and is seeking input on the methodology for identifying communities most impacted by poor air quality in our state. Although the general public is welcome to submit comments, the agency specifically calls out the importance of input from community members experiencing the harms of air pollution first-hand, as well as from tribes and environmental justice advocates. This comment period closes on November 4th, 2022. More information on their outreach can be found here. 

3. The opportunity to consult and work with tribes on implementation

Tribes played a leading role in the passage of the CCA, and it is imperative that Ecology continue to consult with them to shape the program’s implementation. Ten percent of all CCA revenue is required by statute to fund projects that directly benefit tribes, with priority for those projects actually led by tribal governments. In 2022, the Legislature created the Tribal Consultation Grant Program for exactly this purpose: to provide resources to tribes to consult on all funding decisions that might impact tribal resources as defined by the law. These grants are an important starting point to enabling meaningful government-to-government engagement, but Ecology must take all the necessary steps to provide enough time and information considering tribes’ own timelines and review capacity.

Wetland and coastal resilience is also a critical consideration for certain tribes. Recognizing the need for improved resilience and, in scenarios where resilience isn’t feasible, adaptation, the Legislature dedicated $50 million in CCA funds per biennium for helping tribes to adapt to the impacts of climate change, including supporting relocation of traditional villages due to sea-level rise, flooding, and other challenges. This is an unprecedented level of funding, unmatched even at the federal level.

Tribes will also have an important role in ensuring Washington has a strong offset program. Ecology created a Tribal Carbon Offset Assistance Grant Program to help and encourage tribes to design and implement offset projects on tribal land. Although businesses are only allowed to direct a small portion (5% in the first compliance period) of their allowances toward offset programs, this funding will help rehabilitate and conserve acres and acres of Tribal land and coastlines. 

IV. The CCA Provides Critical Funding to Accelerate Carbon Reductions and Reduce Air Pollution in Overburdened Communities

The money generated through the cap-and-invest program can help us close the gap on meeting our 2050 goals while reducing harmful air pollution. We’ve highlighted three ways that this funding could transform Washington’s climate landscape, with the understanding that the EJ Council’s recommendations will play a leading role in shaping the CCA’s investment priorities.

1. Transforming our transportation sector

With the adoption of the Move Ahead Washington transportation package in 2022, the legislature made clear its commitment to transforming our transportation sector. This 15-year, $17 billion investment package includes a historic $5.4 billion investment in carbon-reducing multimodal infrastructure and services. While this is a significant starting point for transitioning to a clean transportation system, there is more work to be done.

Diesel emissions from medium- and heavy-duty vehicles have more than doubled since 1990, so we must accelerate our efforts to clean up pollution from these larger vehicles. School buses, garbage trucks, and delivery vans drive right through our neighborhoods, while semi-trucks drive up and down highways that intersect overburdened neighborhoods. These vehicles release high levels of particulate matter and other toxic air pollutants that have serious health impacts on residents. But solutions are available right now – zero-emissions trucks are already on the road in states like California, some of which are being produced in a manufacturing facility right here in Washington. Coupled with new federal funding opportunities, the CCA provides a great opportunity to accelerate the transition to zero-emission trucks and buses in Washington and relieve the harms of poor air quality in overburdened communities through point-of-sales incentives and investments in critical charging infrastructure.

2. Electrifying our homes and buildings

Climate pollution from homes and buildings is growing at a faster rate than any other sector. Switching to clean electricity to heat our homes and buildings can help us meet our statutory climate pollution limits, while also improving indoor air quality by protecting residents from toxins that leach from fossil gas for heating and cooking. Because combusting gas indoors releases nitrogen oxide, carbon monoxide, and other pollutants, living in a home with gas cooking increases a child’s risk of developing asthma by 42%.
It is critical that Washington transition away from fossil gas and incentivize efficient heat pumps for heating our homes and buildings. Heat pumps also have the benefit of providing cooling and air filtration, which are increasingly important as Washington sees more frequent heat waves and lower seasonal air quality as a result of wildfire smoke. The CCA could play a pivotal role in funding this transition away from fossil gas by expanding on Inflation Reduction Act programs and creating a variety of new incentive-based programs. Programs could include: offering rebates for heat-pump installation in low-income households, affordable housing units, and small businesses, as well as electrifying our schools to protect our children from harmful indoor air pollution.

3. Investing in nature-based solutions to the climate crisis

Longer, more intense rain seasons, flooding, extreme heat, wildfires, and smoke – Washington residents are no strangers to the impacts from climate change. Among our greatest tools to bolster resilience to these growing threats are nature-based solutions that rely on conservation and restoration of our state’s natural resources like forests, coastal wetlands and estuaries. Healthy, functional ecosystems provide habitat for fish and wildlife, including key species like salmon and orca, all while filtering the water we drink, mitigating flooding and storm surges that otherwise threaten homes and businesses, and absorbing and storing carbon. Using CCA funding via the Natural Climate Investment (CI) Account to restore Washington’s natural areas is just one way this funding could increase our state’s resilience to the effects of climate change.

Over 15 years, the Legislature will invest approximately $2 billion dollars with 25% or nearly $500 million for natural carbon solutions through the CI Account, as well as provide money directly to Tribal governments and small forest landowners for assistance in setting up offset programs

V. The Role of Offsets in Encouraging Additional Benefits to Conservation:

The term “offset” in Washington’s cap-and-invest program is somewhat of a misnomer. Unlike California’s cap-and-invest program, which allows businesses to use an offset (i.e., a conservation project that naturally captures carbon) without changing the number of allowances in the market, Washington actually removes an allowance when an entity uses an offset for compliance. In other words, when a business chooses to offset their emissions through an offset purchase, Ecology will also remove that one metric ton of carbon from the allowance pool. This makes the benefit of offsets completely additional to the carbon reduction requirements, rather than as a replacement for reducing emissions, helping Washington stay on track to meet our 2050 deadline. This is a key difference from the program in California.  

VI. How do Emissions Intensive Trade-Exposed (EITEs) entities fit in?

Manufacturers and refineries that have a large carbon footprint and compete in national or global markets are categorized as EITE entities under the CCA. When designing the program, lawmakers weighed the need for rapid reductions in carbon emissions from industry with the potential for “leakage.” Leakage occurs when entities relocate to areas with weaker environmental protections and simply shift their emissions to the new location instead of reducing them altogether.

To ensure we keep industry here while also reducing emissions in the long-term, Ecology provides EITEs with no-cost allowances for the first half of the program. Although their allowances are free, EITE entities’ emissions are still counted under the emissions limit, meaning these big manufacturers are not exempt from the emission-reduction requirements of the program. EITE entities’ ability to sell these no-cost allowances also incentivizes emissions reductions and makes it more cost-effective to pursue investments in clean energy and carbon reduction projects. In the next few years, Ecology will be charged with designing a pathway for EITEs to cut their carbon pollution to meet our 2050 goals and make Washington a leader in clean manufacturing.

VII. For More Information:

In 2021, Washington became the second state in the country to pass a historic law that puts an economy-wide cap on carbon pollution from our largest polluters, which David Roberts then called the “gold standard” for carbon pricing policy. The Climate Commitment Act is a transformational law that limits climate-harming emissions from Washington’s industries and businesses to ensure we achieve our climate pollution limits set in law, all while creating vital revenue streams dedicated to decreasing pollution in overburdened communities and investing in clean energy solutions across the state.

We are four of many organizations, businesses and individuals supporting the passage and equitable implementation of the Climate Commitment Act, along with the Clean Fuel Standard and other landmark climate and clean energy policies in Washington. Our experts can provide more background on this and other policies:

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