Key Takeaways

1. 41 of the state’s largest emitters are exempted from the WA cap and invest program for the next 12 years to prevent massive fluctuations in the regional markets and global trade.
2. Many entities operating within the state fall under the program and they collectively emit approximately 49.48 million MTCO2e, roughly half of the state’s total GHG emissions.
3. The Transportation Fuel Supply sector on its own accounts for 50% of the highest emitters within the state.

Background: Washington’s Cap-and-Invest Program

Washington’s legislature passed the Climate Commitment Act in 2021 to establish a market-based cap-and-invest program aimed at eliminating or offsetting all the state’s GHG emissions by 2050. The state has been making great strides to streamline the mechanism and build a comprehensive program and has recently announced the program regulations. The program is set to commence in January 2023 and the first auction will take place in mid-February 2023. The program will be administered by the State Department of Ecology and would require 99 of the state’s largest emitters to either reduce their emissions or pay hefty fees to continue burning fossil fuels. Upon further analysis, however, we found out that many of these emitters will be exempted from paying hefty fines and can continue to pollute the environment at little to no cost for at least the next 12 years. Because some entities were designated by the state Legislature as falling within industries particularly susceptible to the fluctuations of regional markets and global trade, they have been exempted from program requirements.

Identifying the High Emitters

The Washington cap and invest program covers entities from the electricity generation and import, fossil fuel distribution, and natural gas supply sectors that exceed the 25-thousand-ton annual emission threshold. Many entities operating within the state fall under this program and they collectively emit approximately 49.48 million MTCO2e. Among these, TransAlta Centralia Generation LLC is the largest emitter with 5.84 million MTCO2e, followed by Tereso Refining & Marketing Company, BP West Coast Products LLC, Phillips 66 Company, and Equilon Enterprises LLC among others.

Reviewing Sectoral Emissions – Entities and beyond

The required participants in the program account for about 75% of state-wide emissions, spanning transportation, electricity, natural gas, refineries, and other industrial sources. Agriculture, aviation, and maritime industries, which make up most of the remaining 25%, were left out of the program due to existing state laws and federal regulations. A majority share of Washington’s GHG emissions comes from its Transportation Fuel Supply sector, followed by the Power Plant sector, Petroleum Systems sector and Pulp and Paper sector. The Transportation Fuel Supply sector on its own accounts for 50% of the highest emitters within the state. 54% of the state’s top 25 emitters come from the Transportation Fuel Supply sector, followed by the Power Plants sector with 22%.

Washington’s Exempted Entities – Who and Why?

Approximately 41 entities within the state fall under the category of ‘Exempted Entities’ in terms of the upcoming cap-and-invest program. These entities collectively account for 10% of state-wide emissions covered by the program and will be “exempted” from compliance by meeting the requirements laid down by the program. Exempted industries include petroleum refineries, pulp and paper mills, and chemical, mineral, and metal manufacturers. A detailed analysis of the emissions, sectors and names of these entities can be found below.

Conclusion

Washington is in line with other states to meet the terms of the Paris Agreement with science-based targets. While its exemption of certain entities may avoid some fluctuation in terms of cost and availability of materials, the move has been frowned upon by critics who believe that this could negatively affect program performance. On the other hand, without this exemption, many entities in these high-emitting sectors may be unable to maintain global market competitiveness. With such program exceptions, the state is seeking to cut emissions without creating too much of a burden on important in-state businesses. Most of all, the state is wary of a cap and invest program that results in businesses resorting to extreme cost-cutting measures or closing shop altogether. By including these exemptions, the WA program is attempting to strike a delicate balance between protecting its economy and making sufficient emissions reductions to avoid the worst of climate change. As with CA, and many other ETS programs, it remains to be seen if the program can ultimately find the sweet spot between the two. Analyst Contact:

• Megha Jha (mjha@ckinetics.com)