Marten Law Group: Cap and Trade Legislation Proposed in Washington State

In this Emerging Issues Analysis, Svend Brandt-Erichsen and Dustin Till of Marten Law Group discuss a December 2008 proposal by Washington State Governor Christine Gregoire to meet statewide and regional greenhouse gas (GHG) emission reduction targets by establishing a cap-and-trade system beginning in 2012. They also discuss a report authored by the Climate Action Team, a state GHG advisory committee, recommending GHG reductions beyond the cap.

In December 2008, Washington Governor Christine Gregoire proposed to meet statewide and regional greenhouse gas (GHG) emission reduction targets by establishing a cap-and-trade system beginning in 2012. Washington joins California , which announced its own, somewhat different, cap and trade program this week as well. Washingtons system would auction only a portion of GHG allowances, and distribute the remaining allowances for free. California proposes to auction 100% of its GHG allowances. Both Washington and California , along with several other states and Canadian provinces, are members of the Western Climate Initiative (WCI). WCI states have pledged to meet regional reduction goals and have developed a joint framework for a regional cap and trade system, although the allocation of emission allowances and other details are largely left up the individual states. Varying state standards, as well the existence of nearby states that are not yet subject to GHG emission limits, creates at least the potential for competition among the states for industries which emit large amounts of GHGs.

In the case of Washington, large industrial manufacturers--such as cement, pulp and paper and aluminum plants--would receive a threshold GHG emission allowance, but would have to either rapidly curtail their existing emissions or purchase an increment of allowances to cover the remainder. Electric power generators would receive a larger set of allowances free of charge, but also would need to offset load growth and some portion of their existing emissions by purchasing allowances or increasing their renewable energy sources--a step that may be required anyway to meet renewable portfolio standards. Emissions from motor vehicles, residential and commercial buildings and smaller industrial emitters would come into the system in 2015. They would be regulated indirectly, by a cap on emissions from fuel production and distribution.

In order to meet its state and regional reduction targets, however, Washington State --which gets much of its electricity from renewable hydroelectric power--will have to achieve reductions in emissions from more than its manufacturing and utility sectors. That point was brought home in a report authored by a state GHG advisory committee, known as the Climate Action Team (CAT). The CAT issued its recommendations in late November, 2008. Both initiatives are discussed in this article.