Utilities, Industry Sue On State Carbon Cap

Utilities, Industry Sue On State Carbon Cap
Advocates, employers and utilities all agree protection of Washington State's remarkable environment is crucial. They disagree on how to do it, and a recently-issued state carbon cap rule has prompted legal challenges. Seen here: Summerland Meadow in Mount Rainier National Park, on September 25, 2016. Photo: Matt Rosenberg.

The next moves have been made in the chess game encompassing Washington State’s new and controversial carbon cap rule, one that has been advanced through administrative order by Governor Jay Inslee and the Department of Ecology without legislative involvement. Industry associations and natural gas utilities this week challenged the rule in state and federal courts.

The business groups filed a sweeping 10-point challenge accenting lack of legal authority. The utilities want the state to back off a planned sharp curtailment of out-of-state emission allowance credits.

Backdrop For 2017 Legislative Deal?

Yet, a 2017 legislative compromise on the rule brokered by lawmakers, who have been left out so far, could conceivably develop. That’s what the House Environment Committee Chairman State Rep. Joe Fitzgibbon (D-34) told Lens this summer prior to the recent court action.

With the legal challenges and likely appeals taking months, if not a year or more to resolve, the stage could be set for talks. Such an agreement would have to modify the rule in some of the ways emitters and utilities want, and now also include withdrawal or settlement of the new legal challenges.

The path to compromise may be more clear for another reason. When the 2017 session starts in January voters will have decided a related ballot measure which now complicates matters. It is Initiative 732 to establish a state carbon tax.

Bed Of Quicksand

This week, a coalition of industry groups led by the Association of Washington Business (AWB) filed suit against Ecology in a Thurston County branch of state court to block the rule. They argue it is invalid for 10 reasons, and rests on a bed of quicksand because it lacks statutory authority.

Meanwhile, four natural gas utilities – Avista, Cascade Natural Gas, Northwest Natural Gas, and Puget Sound Energy – have gone after Ecology in federal court with a more narrow line of attack. They will file in state court, too.

Boosting Demand For Carbon Credits, While Restricting Supply

Unless the rule drops limitations over time on availability of out-of-state “allowances” for “emission reduction units” (ERUs), similar to carbon credits, the utilities say it should not stand. That’s because the cap would increase demand for the allowances while gradually ratcheting down their supply from markets outside Washington in violation of U.S. constitutional protections against “undue burdens” on interstate commerce. The utilities plan to file their claims in state court, too.

Joining AWB in the initial Thurston County state court action were the Industrial Customers of Northwest Utilities,the Northwest Food Processors Association, Northwest Industrial Gas Users, the Northwest Pulp and Paper Association, the Washington Farm Bureau, Washington Trucking Associations, and the Western States Petroleum Association.

Regulating Non-Emitters

They stress that the agency has erred in exercising administrative authority to act because under one statute claimed by Ecology as a basis, “emission standards” cannot be applied to non-emitters such as natural gas distributors or motor fuel producers and importers, who only sell a commodity used intermittently by consumers.

The AWB alliance further argues the state’s greenhouse gas reduction goals approved by lawmakers in RCW 70.235.020, which are also claimed by Ecology as a basis for the rule, actually provide no such authority to do so. Rather, the associations contend the law only “directs the agency to submit a (greenhouse gas) emission reduction plan to the legislature for its consideration.”

Ecology Sees Legislative Intent Backing Rule

Ecology in rule-making to date has attempted to buttress its case in part by citing a subsection of the emissions reduction goals law, RCW 70.235.005. The agency says that establishes the intent of lawmakers for the state to participate in a “multi-sector market-based system to help achieve…emission reductions” and deploy “other market strategies to reduce emissions of greenhouse gases.”

The subsection also holds that “it is the intent of the legislature that the state will limit and reduce emissions of greenhouse gas consistent with” the stated goals.

Legal lines of attack and defense were first reported by Lens in July.

The rule requires specified industries now producing 100,000 metric tons of carbon dioxide (CO2) and equivalents annually to cut emissions five percent every three years by reducing business activity or seeking Ecology’s approval of ERUs. Each ERU represents one metric ton in reductions.

The ERUs can come from reductions beyond what’s required under the rule, plus in-state programs, or out-of-state “allowances” purchased on carbon trading markets, such as California’s. However those external options are sharply curtailed over time under the rule, as the natural gas utilities emphasize in their federal court action.

Wide Variance In Projected Costs And Benefits

In its final rule issuance, Ecology for the first time conceded the compliance costs to business could exceed the societal benefits of the rule, depending on how the calculations are made.

In a statement issued by AWB this week, President Kris Johnson said, “If this rule is allowed to stand, it will put Washington manufacturers at a competitive disadvantage to national and international competitors, and it will force natural gas and fuel suppliers to pass on increased costs to families, making it more expensive to heat homes, drive to work and buy groceries.”

Johnson added, “AWB and its members are committed to reducing greenhouse gas emissions through innovation and private investment…We can and will do more to reduce our state’s carbon emissions. This rule is not the way to accomplish that goal.”

Camille St. Onge, Climate Policy Section Manager for Ecology, told Lens in a statement, “When we adopted the Clean Air Rule we joined California and nine other states in the Northeast to do our part to reduce greenhouse gas emissions. We’re currently evaluating the legal challenge and will continue our work to implement the Clean Air Rule.”

The compliance clock begins ticking January 1 for the first batch of covered parties. More emitters are subject to the rule over time as the floor for inclusion is lowered.

‘Nationwide Solution’ A ‘Better Approach’ 

In their own statement, the natural gas utilities said, ”a better approach…is a comprehensive nationwide solution to reduce greenhouse gases…Customers will incrementally be incentivized away from clean natural gas, toward other fuels such as wood or less efficient electricity to heat their homes” resulting in “more greenhouse gas emissions and increased particulate pollution from less efficient, more polluting sources of energy.”

In their suit, the AWB-led coalition makes nine other claims for relief beyond the lack of statutory authority. Among their contentions: the rule requires a full environmental impact statement; and it violates the state Administrative Procedures Act through “arbitrary” analyses of costs and benefits and of so-called “least burdensome alternatives.”

The groups also argue that under the rule, fuel suppliers are being illegally subjected to a regulatory pile-on from added reporting and compliance requirements. They say that’s because existing state law and a related regulation already specify emissions reporting by the suppliers based “exclusively on data reported to the (state Department of Licensing) for tax purposes.”



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