The Down and Dirty on Oregon's 'Cap and Trade' bill
SALEM — The arguments and critiques are flying across the state about Senate Bill 1530, Oregon's plan to set limits on — and shrink — the state's greenhouse gas emissions.
Proponents of the so-called "cap and trade" program say it's needed in the face of federal inaction on climate change, which is already affecting the state.
Opponents say it would do little to solve climate change while increasing costs for consumers across the state and particularly damaging Oregon's rural economy.
The legislation, which stretches dozens of pages and has been amended repeatedly, has many moving parts. The bill is expected to make fuel, natural gas and other carbon-intensive energy sources more expensive. Proponents say that will spur efficiencies and innovations that could cause energy prices to drop.
The Oregon Capital Bureau consulted energy and climate policy experts and reviewed state and federal reports and analyses to cut through political claims and focus on what the program would do as proposed and how Oregonians would be affected.
What are greenhouse gases, and why does the state want to cut back on them?
Greenhouse gases trap heat in the atmosphere and change the Earth's climate, according to the U.S. Environmental Protection Agency.
The largest is carbon dioxide, released into the atmosphere by burning fossil fuels, solid waste and biological materials.
According to a 2018 report from the Oregon Global Warming Commission, the effects of increased greenhouse gas emissions are already here. The report states that forest fires start earlier, last longer, are more intense and produce smoke that's particularly harmful to sensitive groups. The report also states that Oregon is seeing less snowpack, which can result in droughts.
In the long term, Oregon could see a dramatic die-off of forests or sea-level rises in coastal communities, according to the report.
According to that same report, Oregon emitted about 65 million metric tons of carbon dioxide equivalent in 2017. The state wants to cut that dramatically by 2050.
What environmental impact will this bill have?
Climate change is a global phenomenon. Critics of the current effort say that Oregon's emissions account for just a tiny sliver of total released worldwide.
After President Donald Trump pulled out of the Paris climate agreement in 2017, Gov. Kate Brown announced that Oregon would join other states, cities and countries to reduce greenhouse gas emissions.
Cap and trade programs can improve local air quality by reducing pollution, while lowering global greenhouse gas emissions.
I've heard this will make gas at the pump more expensive. Is that true?
The program will require companies importing fuel into Oregon to pay for emissions those fuels will generate.
Gas prices could increase by about 20 cents per gallon in 2022 in areas where the program will start, according to an analysis provided by state Sen. Michael Dembrow, D-Portland, a leading author of the bill. After 2022, gas prices could increase by 1 to 2 cents per gallon annually.
According to that analysis, large parts of the state are years from experiencing an increase because the legislation would phase in the requirement on fuel importers by geography as follows:
2022: Cities within the Portland are Metro boundaries (basically, the urban portions of Clackamas, Multnomah and Washington counties.)
2025: Benton, Clatsop, Columbia, Douglas, Hood River, Jackson, Josephine, Lane, Lincoln, Linn, Marion, Polk, Tillamook and Yamhill counties and the rest of Clackamas, Multnomah and Washington counties.
2028: Coos and Curry counties, and the metropolitan areas of Bend and Klamath Falls.
Counties not included: Baker, Crook, Deschutes, Gilliam, Grant, Harney, Jefferson, Klamath, Lake, Malheur, Morrow, Sherman, Umatilla, Union, Wallowa, Wasco, Wheeler.
Counties can volunteer to join the program, which would give them access to new state money to use for local environmental projects aimed at reducing greenhouse gases.
Once 23 counties are covered by the regulations, the entire state would require fuel importers to buy allowances, essentially a permit to pollute from the state, that corresponds to emissions.
To insulate some Oregonians from those higher fuel costs, Senate Bill 1578 would provide a tax credit for people making less than $65,000 per year who live in areas of the state where fuel importers have to buy allowances. Those credits would be higher in rural counties subject to the regulation, where the average resident travels longer distances by car.
Greg Dotson, assistant professor of law at the University of Oregon who is an expert in environmental and energy law, said that before a similar system went into effect in California, critics predicted gas prices in that state would spike.
But he pointed to U.S. Energy Information Administration numbers showing that between 2014 and 2016, gas prices on the West Coast dropped by a dollar while California was enacting its carbon pricing program. Numbers show that gas prices in California since then have ebbed and flowed.
The world oil supply largely dictates gas prices, Dotson said.
"These state programs, they're just the gnat on the dog, which is the global oil market," said Dotson. "And these big global oil market forces are determining oil prices."
How could this law affect manufacturing?
The program would apply to about a dozen manufacturers in the state that emit more than 25,000 metric tons of man-made greenhouse gases every year.
Potentially, nine of these facilities could be considered "trade exposed." That means these companies are subject to competition from states where environmental policies are less stringent, and they would be excused from paying for emissions if they are using the best technology available for their industry to control emissions.
What's considered "best available technology" would be assessed every nine years to figure out if those technologies have changed. As long as manufacturer continues to meet that benchmark, it can still qualify for free allowances.
How will this affect other businesses?
Fuel suppliers and utilities supplying natural gas and electricity will have to get allowances for their emissions. Altogether, about 100 companies could have to abide by the new regulations, according to the state Carbon Policy Office.
Whose idea was this?
Cap and trade was pioneered under Republican President George H.W. Bush to reduce acid rain.
"The 1990 Clean Air Act set up a program to require electric utilities to reduce the amount of pollution they emitted in order to address acid rain," said Dotson. "And that program has generally been regarded as a big success."
Similar programs to deal with greenhouse gas emissions are now in place in California, the European Union and the northeastern region of the U.S., as well as the Canadian province of Quebec.
So how does it work?
The basic idea: charge companies for their emissions. The aim is to nudge companies to pollute less, and encourage them to use more efficient technology or rely more on renewable sources of energy.
Oregon's proposed program sets a statewide limit - the cap - on emissions in terms of metric tons of greenhouse gases. Over time, that limit is reduced. The trade part: Total emissions are divided into allowances. One allowance corresponds to one metric ton of greenhouse gases. An allowance, simply put, is a certificate allowing a producer to emit that one ton.
Those allowances would be distributed to companies through a state-run auction, provided for free or given under certain conditions, also known as "consignment." Companies can also buy and sell allowances to each other. A share will also be "retired," which will effectively make businesses importing fuel exempt in certain, more rural areas of the state.
According to the Oregon Carbon Policy Office, in 2022, when Oregon's cap and trade program would begin, the state is expected to emit 55 million metric tons of carbon dioxide equivalent. That means the state would distribute 55 million allowances in that first year.
The legislation sets statewide emissions targets. The 2035 goal is 26 million metric tons and the 2050 goal, 9 million metric tons, according to the state Carbon Policy Office.
Will my electric bill go up?
The Carbon Policy Office doesn't expect electricity utilities, which already have to abide by state laws moving them to clean energy sources, to increase rates as a result of cap and trade.
The Citizens' Utility Board, which advocates for residential and small business customers, said in its analysis that the new program "should not have any harmful effects on electricity consumers."
Oregon lawmakers in 2016 required a phase out of coal-fired electricity by 2030, while pushing large utilities to use more renewable energy sources. Since the utilities already are adjusting for that requirement, there shouldn't be additional costs to electricity customers as a result of the greenhouse gas program, the Citizens' Utility Board concluded.
"Electric service consumers will likely benefit from enhanced energy efficiency and other clean energy programs because a price on (greenhouse gas) emissions will improve these programs' cost effectiveness," the board said in a briefing paper.
Dotson said that a regional greenhouse program covering 10 states in the Northeast and Mid-Atlantic has reduced carbon emissions while power bills have decreased. A consultant's report in 2018 found that consumers covered by the initiative saw their energy bills decrease because of efforts to improve energy efficiency.
I use natural gas at home. Am I OK?
According to estimates from Dembrow, low-income residential customers would be exempted from any natural gas increases. The state Public Utility Commission would determine who qualifies as low income.
Other residential customers would see, on average, a 7% increase in 2022, according to the analysis provided by Dembrow. For the typical, non-low income customer, Northwest Natural estimates that's about $50 in the first year.
The legislation would provide money to weatherize homes and for other energy projects that could bring down customers' bills.
What about businesses using natural gas?
Businesses using natural gas also might see increases in their utility bills. But if companies are considered "trade exposed," utilities will get help mitigating rate increases for that natural gas use.
Natural gas utilities would be given allowances associated with emissions from "trade exposed" commercial users of natural gas through a process called "consignment." That means the allowances would be sold at auction, and utilities can use the money from the sales to cover costs that otherwise would be passed on to trade exposed businesses. As a result, those businesses would be protected from rate increases for their natural gas.
Businesses not considered "trade exposed" would still be sheltered from at least part of any increase in their natural gas costs.
NW Natural estimates that its small commercial natural gas users can expect to see a $168 cost increase in natural gas utility bills due to cap and trade in 2022.
Will cap and trade make everything else more expensive?
Low-income families will see little to no cost impacts as a result of the program due to exemptions and credits, according to the analysis from Dembrow's office.
Moderate income families can expect to see increases of less than $100 per year, and high-income households in the Portland metro area can expect to see increases of $150 to $400 starting in 2022, depending on how many cars they have and how fuel efficient those cars are. The effect on high-income earners elsewhere will depend on where they live.
But won't this drive up the cost of products?
Business groups have complained that the legislation will increase the cost of doing business in a way ultimately passed on to consumers. Others are more skeptical.
"This is an argument that I've been hearing for 20 years about any policy to address climate change, is that it's just going to raise prices on people and be unfair," said professor Dotson, who previously worked as vice president for energy and environmental policy at the Center for American Progress. "We're in a fundamentally different world now just because renewable energy is, in most cases, actually cheaper than fossil for many applications. So there's this huge opportunity to invest in those things, and actually reap rewards for people."
Dallas Burtraw, a senior fellow at Resources for the Future who also advises California on its cap and trade program, said that economists tend to favor cap and trade because it allows companies to decide for themselves how to comply with the new regulations.
"If I say that you have to do something, and you have to do it in a certain way, and that's legally enforceable, it'll get you to do what I said," Burtraw said. "You might know of a lot cheaper ways to do that, or ways that would give you a lot more flexibility and cause less disruption to your production practices."
He said flexibility is a key feature of cap-and-trade programs.
"You get to decide how you're going to reduce those emissions or whether you're going to reduce those emissions, or whether you're going to pay somebody else to do it," he said.
Burtraw also notes that government money raised through the program in turn funds energy efficiency projects, which can make business more competitive.
"It's important not to just take half the story," Burtraw said. "So half the story is that you're raising the costs of combusting fossil fuels and that, everything else being equal, would seemingly disadvantage an industry compared to competitors in other states... But the response to that, that the state could help amplify through the use of revenues that are collected, is to promote innovation and investments to become more efficient. And there's loads of evidence that this has worked out really well."
I heard that lawmakers are rushing the bill through. Is there anything they don't know yet about the proposal?
There's no thorough estimate of how much money the law would raise for the state, according to the Legislative Revenue Office.
The most authoritative forecast of how much money the law is expected will come from the Legislative Revenue Office. However, that forecast has not been produced.
The state Carbon Policy Office estimates the program could raise $254 million in 2022 and $437 million in the following two-year budget, though it has cautioned those numbers are preliminary. That money would pay for projects to cut greenhouse gas emissions, including making transportation more efficient.
Nonpartisan analysts at the Legislature have estimated that the state would spend about $22 million in the current two-year budget to run the new program.
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