Washington State’s Carbon Cap Experiment

With my final papers submitted and my first year of grad school officially in the books, I left Durham for a little R&R in my hometown of Seattle, Washington.

Of course, it’s not so easy to switch off the gears that have been cranking full-speed through the last nine months of classes. Despite my best efforts to turn off my brain, I recently found myself looking up the latest news on climate policy in my home state.

As it turns out, Washington State began 2017 by launching its own program to reduce carbon emissions. (Somehow it never came up in my Climate Economics and Climate Law classes!)

Like the federal government during the Obama years, Washington State has suffered from major gridlock between a governor who champions action on climate change and a Republican-controlled legislature that refuses to cooperate. So last fall, Governor Inslee took a page out of Obama’s playbook and took matters into his own hands.

The newly finalized Clean Air Rule sets a cap on carbon emissions for each of the state’s largest emitters, which will decline by 1.7% each year.

The regulation is the first significant step taken by Washington to ensure that it meets its carbon reduction targets set in 2008 – returning to 1990 levels of emissions by 2020 and cutting an additional 25% of emissions by 2035.

The Tesoro oil refinery in Anacortes, Wash. is among the facilities that must limit their carbon emissions under the state’s new Clean Air Rule. Source: Wikimedia Commons.

But while Washington is one of 20 states to have such a target, there are currently only two other carbon caps in place in the U.S. The Regional Greenhouse Gas Initiative, or RGGI (pronounced “reggie”), limits carbon pollution from electric power plants in nine northeastern states, and California has had an economy-wide cap-and-trade program since 2012.

Unlike California and RGGI, however, Washington does not plan to auction off carbon permits to businesses, or set up a system for companies to trade permits with one another. If a company can’t produce it goods with less carbon pollution, it can fund other emissions-reducing projects, or seek out other companies willing to sell their carbon pollution rights.

The Clean Air Rule is the first program to implement legally binding carbon caps without a trading platform for regulated businesses – think of it as “cap-and-cap” rather than cap-and-trade. Washington could thus become a natural experiment of sorts for economists studying climate change: how effective will cap-and-cap be at reducing emissions? How much will it cost?

But all this presumes that the Clean Air Rule is implemented as is. In this political landscape, that’s never a sure thing.

Earlier this month, an assortment of business interest groups sued the Washington Department of Ecology, alleging the Clean Air Rule amounts to an illegal tax on businesses.

The lawsuit resembles a suit against California’s cap-and-trade program on similar grounds, which was rejected by the state court of appeals last month. The main difference is that Washington would not receive any revenue from the Clean Air Rule – making the “illegal tax” argument even more of a stretch than in California’s case.

Another possible headwind to the Clean Air Rule is the prospect of a Washington State carbon tax. Although no state has ever implemented a carbon tax, three bills are now active in the state legislature, and one proposal may end up on the state ballot in 2018. It’s not clear how a tax and carbon cap system would work in tandem, so such a scenario may lead the state to revise its current rule.

Regardless of how this policy drama plays out, one thing is clear: Washington is a state to watch in the world of climate policy.

Will “cap-and-cap” become a politically feasible model for other states with carbon targets but no plan to reach them? Will it evolve a trading mechanism of its own, perhaps eventually linking with other states’ carbon programs? Or will it fall victim to a legal challenge, ballot referendum or some new idea from the Governor’s office?

Grab a cup of coffee, an apple, and maybe a raincoat* and stay tuned.

The Seattle waterfront. Puget Sound Energy, which distributes natural gas to Seattle and the rest of Washington, will also be required to reduce its emissions under the Clean Air Rule.

(*Umbrellas are for tourists)

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