Cap-And-Invest in Oregon

In early February 2018, Oregon Senator Michael Dembrow (D) and Representative Ken Helm (D) will introduce legislation intended to drive down statewide greenhouse gas emissions (GHGs). Their cap-and-invest bill from the 2017 legislative session (SB 1070) serves as the backdrop, but this new legislation will reflect stakeholder input from interim session workgroup activity. This article provides national and State history, a review of policy basics, and a summary of CUB’s organizational priorities in this debate.

National and Oregon History
The idea to address climate change through a cap-and-invest approach has floated around for years – first in wonky policy circles, but eventually joining mainstream conversations. At the start of President Obama’s first term, his administration chose to use their political capital on healthcare reform. While a cap-and-trade bill did materialize on the House side of Congress in 2009, the “American Clean Energy and Security Act” never made it through the Senate, and so President Obama ordered the Environmental Protection Agency to establish new administrative rules known as the Clean Power Plan. These rules served as the basis for the United States contribution to Paris Climate Accord negotiations. Early this year, the Trump administration began the lengthy process of dismantling those rules, and signaled an exit from the international agreement in 2020.

In Oregon, cap-and-invest has a similarly long history. However a key difference is that, since 2007, the Oregon Legislature, with significant input from CUB, has passed two landmark bills aimed at reducing carbon emissions from investor-owned electric utilities. The most recent bill, The Clean Electricity and Coal Transition Act of 2016 (SB 1547), doubles Oregon’s Renewable Portfolio Standard (RPS) – which the legislature first adopted in 2007 – from 25 to 50 percent by 2040. The bill also requires Oregon’s two largest electric utilities in Pacific Power and Portland General Electric (PGE) to eliminate coal from their electric mix by 2030 with the exception of a 2035 deadline related to PGE’s partial ownership of a Montana plant.

At the same time, many groups have continued to call for further, economy-wide reductions. They say (and CUB generally agrees) that the most efficient way to achieve these multi-sectoral emission reductions is to implement a statewide cap-and-invest program.

While national views vary on the need for legislation to address climate change, climate change denial is, thankfully, not a major element in Oregon policy discussions. However, opposition to legislation to drive emission reductions beyond electric utility commitments still exists. The discussion in Oregon continues to focus on cap-and-invest legislative details.

Cap-and-invest basics
First, we’re not talking about a carbon tax. Second, the terms cap-and-trade and cap-and-invest are often used interchangeably, with the “invest” terminology stressing the opportunity for investments with community and job creation benefits. Third, any such program would serve as a backstop to Oregon’s current energy policies.

The “cap” in cap-and-invest refers to the top-end limit established for allowable greenhouse gas emissions (GHGs) within a political jurisdiction. The jurisdiction often sets the cap in relation to GHG emission levels at or below a certain year. For instance, Oregon’s SB 1070 charts a course for statewide GHG levels in 2050 to dip below 80 percent of 1990 levels. The next step is for the jurisdiction to define for what sources the cap applies. The approach most often taken is to define an emitter floor – which SB 1070 sets at 25 million tons per year. Emitters, referred to as “covered entities”, that often exceed the 25 million ton floor, include but are not limited to energy (electric and gas) utilities and suppliers, industrial facilities, food processors, and pulp and paper mills.

Each year, the regulatory body (DEQ in Oregon’s case) issues allowances to match the overall cap. For example, a 500 million ton cap would equal 500 million allowances. This establishes a marketplace from where covered entities must obtain allowances equal to their emissions for a given year as defined by the regulator. The overall cap declines over time by a pre-determined percentage, incentivizing covered entities to make cost effective emissions reductions in lock step with the decline rate. More innovative entities can also sell their excess allowances on the market for financial gain. The price per allowance sees an increase relative to the overall cap decline, creating a pool of revenue. Jurisdictions can use those revenues to offset energy utility cost increases for customers, make additional social investments, or other investments to spur further emissions reductions.

Covered entities unable to maintain their emissions at or below their allowable level can either purchase excess allowances on the market or invest in offset projects. Examples of emissions offset projects include but are not limited to collecting and burning methane though an anaerobic digester or carbon sequestration through land and forestry management. However, offset projects do have a fractious history. Environmental justice groups continue to accuse large emitters of over-reliance on offsets to the detriment of surrounding communities’ public health. In response, many jurisdictions impose a percentage cap on allowable offset use. For example, SB 1070 limits offset credits to eight percent of any single facility’s compliance obligation.

In the absence of national policy direction, it makes economic sense for smaller jurisdictions like states or provinces to establish inter-governmental agreements among themselves to link markets. Two established markets currently exist in North America: The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector. More recently, New Jersey and Virginia have expressed interest in joining the RGGI. The Western Climate Initiative – which Oregon would join – is a separate collaborative among California and the Canadian provinces of British Columbia, Ontario, Quebec, and Manitoba.

Interim Work Groups and 2018 Legislation
During the fall of 2017, Representative Ken Helm and Senator Michael Dembrow, co-sponsors of SB 1070, convened four workgroups: (1) Agriculture, Forests, Fisheries, Rural Communities, Tribes; (2) Utilities and Transportation; (3) Regulated Entities; and (4) Environmental Justice and Just Transition. Each workgroup held three fall workshops to receive feedback from impacted organizations and constituents from around the State. The starting point for discussion was SB 1070, the Clean Energy Jobs bill. Senator Lee Beyer, Chair of Utilities and Transportation group, invited CUB’s executive director, Bob Jenks, to participate in an official capacity, while CUB’s advocacy team monitored each work group meeting. Workgroup activity wrapped up in late October in time for the November bill filing deadline.

Each work group developed a multitude of amendment concepts, and we expect to see a broad outline of the 2018 legislation sometime before Christmas, but won’t review the actual legislation until January 8. Therefore, CUB cannot endorse nor object to any specific bill at this time. For the policy wonks that just can’t wait until the new year, DEQ developed a report in advance of the 2017 legislative session, offering helpful background reading on Oregon-specific dynamics in crafting legislation.

CUB’s Early Take
CUB generally supports a cap-and-invest approach for Oregon because to decarbonize the state’s economy, we must reduce GHG emissions across all sectors. As a member of the Utilities and Transportation work group, we advocated for strong customer protections, for both residential customers and small and medium sized businesses, through careful blending of cap-and-invest legislation with existing energy policy, namely SB 1547 mandates. We also share concerns with environmental justice allies for climate change impacts imposed on Oregon’s most vulnerable low-income and historically marginalized communities.

Ultimately, while CUB supports economy-wide emission reductions to slow the pace of climate change and enshrine Oregon’s place as a policy innovator, we do so while pushing for a balanced approach to sharing both the costs and benefits of any new policy. Stay tuned for blog updates as 2018 legislative details emerge, as well as throughout the 2018 legislative session (February 5 through March 9).

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