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Washington Issues Final Rule Limiting Greenhouse Gas Emissions From Large Facilities, Creating Unique Opportunities for Agriculture, Waste Treatment, and Advanced Energy Technologies

September 28, 2016 posted by Eric Christensen

On September 15, the Washington Department of Ecology issued the final version of its “Clean Air Rule,” which imposes a cap on carbon emissions from large GHG emitters in the state and requires them to steadily reduce their GHG emissions through 2035.  Initially, the rule applies to facilities producing 100,000 tons of carbon dioxide equivalent per year, with the threshold reduced in steps to 70,000 tons in 2035 and beyond.  Initially, Ecology has identified 24 facilities that will be subject to the rule growing to roughly 60-70 by 2035.  These include major industrial facilities such as refineries, paper mills, and natural gas-fired generators, as well as landfills and the local distribution territories of natural gas utilities. 

The rule creates a two compliance tracks.  For covered facilities that are not classified as “Energy Intensive and Trade Exposed” (“EITE”), the rule sets a facility-specific cap and requires those facilities to reduce their GHG emissions at the rate of 1.7% annually through 2035.   The second compliance track, for EITE, is designed to reduce the pressure on industries that could move production to unregulated countries or states.  The emissions targets for EITE are set by reference to the average efficiency of similar facilities in the emitter’s industry, and are designed to drive emissions reductions through increasing efficiency.   The EITE provisions are notable because they were added after Ecology’s original rule was withdrawn in response to industry comments.  Finally, the rule specifies that if a covered party is complying with Washington’s State Implementation Plan for the U.S. EPA’s Clean Power Plan, it will be considered in compliance with the Clean Air Rule, thus avoiding duplication of the two rules.

In addition to reducing emissions from covered facilities, the Clean Air Rule allows compliance to be achieved through emissions credits, referred to as “Emissions Reduction Units” (“ERUs”).   ERUs can be created through emissions reduction activities in a number of industries, ranging from livestock production to transportation and advanced energy technologies.  The Rule’s ERU provisions create the potential for a variety of industries in Washington to add significant revenues to their operations if they can reduce GHG emissions.  These include, for example, livestock operations and landfills, which can earn and then sell ERUs by capturing and destroying methane, in the process also creating electricity or saleable natural gas.  Similarly, businesses can create and sell ERUs if they achieve commute trip reductions in excess of existing targets and utilities can create and sell ERUs if they conserve energy in excess of I-937 targets.  Similarly, industries can create and sell ERUs by replacing sulfur hexafluoride and certain refrigerants with products that have a lower GHG potential.  The Rule also provides for combined heat and power plants (sometimes referred to as “microgrids”) to create and sell ERUs.

The Clean Air Rule is unlikely to be the last word in GHG regulation in Washington.  Litigation has already been filed against the rule by Washington's natural gas utilities and additional litigation is likely.  In fact, although the Rule was largely a product of the Inslee Administration, and came about after Gov. Inslee was unable to move climate legislation through the Washington legislature, the Rule was also driven in part by litigation.  In response to a lawsuit filed against the state by a group of schoolchildren arguing that unchecked GHG emissions threaten their future, the King County Superior Court concluded that the Clean Air Rule, if issued by the end of 2016, would meet the state’s trust obligations to future generations.  Hence, any perceived backsliding by the state is likely to provoke additional litigation from environmental advocates.   Finally, Washington voters in November will decide whether to impose a carbon tax and are likely to see additional referendums in the future seeking to impose a California-style cap-and-trade system with revenues to programs for energy efficiency, renewable energy research, and low-income heating assistance.