Carbon Rule Approval May Spark Tussle

Carbon Rule Approval May Spark Tussle
Protecting Washington's environment is something on which everyone agrees. How best to do it is where the dialog thickens. Approval came last week from the State Department of Ecology for Washington's carbon cap rule, an administrative end-run around lawmakers. Legal challenges may ensue. Photo of Mount Rainier, from the Second Burroughs Mountain trail: Matt Rosenberg.

The Washington State Department of Ecology has approved a controversial carbon cap rule that was advanced through administrative fiat and without legislative input by Democratic Governor Jay Inslee. It is the latest salvo in an ongoing battle between some major industrial and energy employers and the state, over how best to limit greenhouse gas emissions.

Lens has reported based on official data that the state’s share of global CO2 and equivalent emissions is one-third of one percent; and Washington emissions are down sharply from 2007 to the most recent year for which state data are available, 2011. The 2011 total shows major movement toward the state’s CO2 reduction goal for 2020, without regulatory intervention.

Putting The Hurt On Employers

In addition, the economic impact would be dramatic, according to the state’s largest association of employers, the Association of Washington Business (AWB).

In formal comments by AWB, the association stated in July that the carbon cap framework “will cost Washington state over 34,000 jobs, and $7.3 billion in sales by year 2035” with 46 percent of the lost jobs and $3.1 billion of reduced sales falling on small businesses. The figures were developed for AWB by the firm Energy Strategies.

Inslee and Ecology have said the need for further action on a one-off basis in Washington is nonetheless urgent, while major emitters have called for a national policy or site-specific improvements rather than a new state rule.

Costs Could Exceed Benefits

In a required “Concise Explanatory Statement” (CES) issued last week responding to submitted public comments, Ecology does concede for the first time that based on how calculations are made, the costs of the carbon cap rule to employer stakeholders could exceed societal benefits.

Ecology also states in the CES that it will lobby the state legislature in 2017 to make the rule’s requirements more stringent, calling the rule “an appropriate starting point.”

The rule would require employers emitting more than 100,000 metrics tons of carbon dioxide (CO2) and CO2 equivalents annually to cut emissions annually five percent every three years, or an average of 1.7 percent annually. Distributors of motor vehicle fuel and natural gas are included and warn costs would be passed on to consumers. Also subject to the rule are power, pulp and paper plants, metal manufacturers and waste facilities.

The number of covered employers will grow as the annual emissions ceiling gradually ratchets downward. Compliance options include reduced output or sales, or purchases of so-called Emissions Reductions Units (ERUs).

Rule Could Have ‘Perverse’ Effects

Dan Kirschner is the Executive Director of the Northwest Gas Association (NGA). He told Lens, “It’s a bit perverse that the rule could have exactly the opposite effect as intended” on a national and global scale. 

Chris McCabe, Executive Director of the Northwest Pulp and Paper Association said he was “greatly disappointed” with the final rule because it did not incorporate key suggestions from energy-intensive trade-exposed (EITE) emitters on making compliance less burdensome. The five affected Washington state pulp and paper mills compete globally and within their own corporate families, and McCabe said production may well shift to far more carbon intensive facilities outside of Washington.

‘Competitive Disadvantage’

In a statement, AWB President Kris Johnson said, “We are disappointed that Gov. Jay Inslee is moving forward with the rule in its current form. Washington state is already a low-carbon leader in the nation and the world, and we agree there is more work to be done. Unfortunately, this Clean Air Rule will create a confusing and untested carbon cap system that puts our state at a competitive disadvantage to our neighboring states.

“More importantly, under this new regulation, consumers will face higher costs to heat their homes, drive to work, and at the grocery store…A similar experiment in California has slowed manufacturing substantially – a piece of our economy we can’t afford to let slip out of the state, or, worse yet, our country.

A different take came from Ecology Director Maia Bellon. She said in a statement that the rule represents  “a strong and practical plan to reduce greenhouse gases” and that as a result the state is “doing our fair share to tackle climate change.”

The rule goes into effect October 17, with a delay until 2020 for EITE emitters. 

Potential Courtroom Action

Spokesman Jason Hagey said only that AWB was mulling potential responses to the rule.

Kirshner said, “the legislative arena is the appropriate place for this to play out…it is where these dialogues and debates need to happen.”

Foreshadowing potential courtroom action, AWB in July comments to Ecology challenged the state’s legal standing to adopt the rule. One thrust of the AWB legal critique was that distributors of fuel and natural gas aren’t subject to a state “emissions standard” because use of those materials is more intermittent and less continuous than at an industrial plant. State Senator Judy Warnick (R-13) also underscored similar concerns in a letter to Ecology this summer.

Ecology in the final rule and the CES it issued last week disagrees with legal criticisms raised by commenters, and states it is within its authority under state law.

Cost-Benefit Numbers Change

One thing that did shift in the final rule was estimates of costs and benefits.

Ecology in its May 2016 preliminary cost-benefit analysis of the rule estimated Washington employers would lose over 20 years just $1.3 billion to $2.8 billion as a result. Additionally, using a methodology promoted by the U.S. Environmental Protection Agency (EPA) called the “Social Cost of Carbon” (SCC), Ecology had also forecasted a robust $14.5 billion in benefits to society over coming decades from the implementation of the rule.

The estimated costs and benefits changed in the final analysis, after a critique from AWB where it commented about Ecology lowballing the costs to business, and inflating the benefits due in part to misapplication of the SCC framework.

Ecology now pegs the potential costs to employers as much higher, ranging from a low of $400 million to as much as $7 billion over 20 years, depending on modelling assumptions. In another shift, Ecology has adjusted down the benefits to $10 billion, from the previous estimate of $14.5 billion. The agency adds that like the costs of implementing the rule, the benefits of the state carbon cap may vary according to modelling inputs, from a low of $2 billion to a high of $18.6 billion. 

  

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