A8
STATE
Blue Mountain Eagle
Wednesday, February 26, 2020
An explainer on Oregon’s proposed cap and trade bill
By Claire Withycombe
and Jake Thomas
Oregon Capital Bureau
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 program
say it’s needed in the face of fed-
eral inaction on climate change,
which is already affecting the
state.
Opponents say it would do
little to solve climate change
while increasing costs for con-
sumers across the state and par-
ticularly 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, nat-
ural gas and other carbon-in-
tensive energy sources more
expensive. Proponents say that
will spur efficiencies and inno-
vations 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 politi-
cal 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 Protec-
tion 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 Warm-
ing Commission, the effects of
increased greenhouse gas emis-
sions 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, accord-
ing to the report. According to
that same report, Oregon emit-
ted 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 Ore-
gon’s emissions account for
just a sliver of the 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 low-
ering 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 analy-
sis provided by Sen. Michael
Dembrow, D-Portland, a lead-
ing 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: Portland metro area.
2025: Benton, Clackamas,
Clatsop, Columbia, Doug-
las, Hood River, Jackson, Jose-
phine, Lane, Lincoln, Linn,
Marion, Multnomah, Polk, Til-
lamook, Washington and Yam-
hill counties.
2028: Coos and Curry coun-
ties, and the metropolitan areas
of Bend and Klamath Falls.
Counties not included:
Baker, Crook, Deschutes, Gil-
liam, Grant, Harney, Jefferson,
Klamath, Lake, Malheur, Mor-
row, Sherman, Umatilla, Union,
Wallowa, Wasco and Wheeler.
Counties can volunteer to
join the program, which would
give them access to new state
money to use for local environ-
mental projects aimed at reduc-
ing greenhouse gases.
Once 23 counties are cov-
ered 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 Orego-
nians 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 cred-
its would be higher in counties
subject to the regulation that are
also more rural, where the aver-
age resident travels longer dis-
tances by car.
Greg Dotson, assistant pro-
fessor of law at the University
of Oregon who is an expert in
environmental and energy law,
said that before a similar sys-
tem went into effect in Califor-
nia, critics predicted gas prices
in that state would spike.
But he pointed to U.S.
Energy Information Admin-
istration numbers showing
that between 2014 and 2016,
gas prices on the West Coast
dropped by a dollar while Cal-
ifornia was enacting its car-
bon pricing program. Numbers
show that gas prices in Califor-
nia since then have ebbed and
flowed.
The global oil market largely
dictates gas prices, Dotson said.
“These state programs,
they’re just the gnat on the dog,
which is the global oil mar-
ket,” 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 manufactur-
ers 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 emis-
sions 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 man-
ufacturer continues to meet that
benchmark, it can still qualify
for free allowances.
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 util-
ity bills due to cap and trade in
2022.
I heard that lawmak-
ers are rushing the bill
through. Is there anything
Fuel suppliers and utilities they don’t know yet about
supplying natural gas and elec- the proposal?
How will this affect other
businesses?
tricity will have to get allow-
ances for their emissions. Alto-
gether, about 100 companies
could have to abide by the new
regulations, according to the
state Carbon Policy Office.
The Carbon Policy Office
doesn’t expect electricity util-
ities, which already have to
abide by state laws moving
them to clean energy sources, to
increase rates as a result of cap
and trade.
Businesses using natural gas
might see increases in their util-
ity bills. If companies are con-
sidered “trade exposed,” utili-
ties will get help mitigating rate
increases for that natural gas
use.
Natural gas utilities would
be given allowances associated
with emissions from “trade-ex-
posed” 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-ex-
posed businesses. As a result,
those businesses would be pro-
tected from rate increases for
There’s no thorough estimate
of how much money the law
would raise for the state, accord-
ing 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 Pol-
icy Office estimates the pro-
gram 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 emis-
sions, including making trans-
portation 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.
What is cap and trade?
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 Dot-
son. “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 prov-
ince of Quebec.
So how does it work?
The basic idea: charge com-
panies for their emissions. The
aim is to nudge companies to
pollute less, and encourage
them to use more efficient tech-
nology or rely more on renew-
able sources of energy.
Oregon’s proposed pro-
gram sets a statewide limit
— the cap — on emissions in
terms of metric tons of green-
house gases. Over time, that
limit is reduced. The trade part:
Total emissions are divided into
allowances. One allowance cor-
responds to one metric ton of
greenhouse gases. An allow-
ance, 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, pro-
vided 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 effec-
tively make businesses import-
ing 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 diox-
ide equivalent. That means the
state would distribute 55 mil-
lion allowances in that first year.
The legislation sets state-
wide emissions targets. The
2035 goal is 26 million metric
tons and the 2050 goal is 9 mil-
lion metric tons, according to
the state Carbon Policy Office.
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