With Oregon's recent implementation of rules to cap greenhouse gas (GHG) emissions, the entire West Coast is now subject to some form of GHG emissions cap program. We have previously discussed California's and Washington's cap and trade policies, as well as the multi-year efforts by Oregon policymakers to enact the state's own cap program.

Below we summarize key aspects of Oregon's newly enacted administrative program, known as the Climate Protection Program (CPP).

DEQ's Climate Protection Program and How It Works

How Oregon Got Here

After legislative efforts to pass a cap and trade bill shut down the Oregon legislature two years in a row, Oregon Governor Kate Brown signed Executive Order 20-04 in 2020, a sweeping administrative order aimed at reducing GHG emissions in Oregon by at least 80 percent below 1990 levels by 2050. A primary component of EO 20-04 was tasking the Department of Environmental Quality (DEQ) with developing and implementing rules to cap and reduce GHG emissions in order to meet the stated reduction goals. Late last year, the Oregon Environmental Quality Commission voted to adopt the CPP to fulfill that task.

Establishes a Greenhouse Gas Cap, Through Fuel Suppliers

As we've discussed previously, the CPP imposes a cap on GHG emissions attributable to fuel suppliers, measured by metric tons of carbon dioxide equivalent (CO2e) emitted annually, from the combustion of fossil fuels within the state. The program imposes an overall cap on the covered fuel suppliers' emissions, with the cap decreasing annually, and allocates emission allowances to the fuel suppliers to comply with their program obligations. Compliance is measured over three-year compliance periods, with the first compliance period running from this year through 2024.

The rules cover GHG emissions from fuel and natural gas combustion, with some notable exceptions. Fuel suppliers subject to the declining emission cap include local natural gas utilities, as well as gasoline, diesel, kerosene, and propane distributors with covered GHG emissions above the program's annual threshold amount. That threshold significantly decreases over time, with the program expected to eventually cover nearly all suppliers of sources using liquid fuels and propane combustion emissions in the state.

As referenced above, however, there are some notable exceptions to covered emissions. These include emissions derived from biofuels and biomass fuels, as well as natural gas used at large electricity-generating facilities.

Compliance Options for Fuel Suppliers

The CPP will issue annual emission allowances, known as compliance instruments, to covered fuel suppliers for use in Oregon. Each compliance instrument authorizes the emission of one metric ton of CO2e emissions. The number of available compliance instruments will be reduced over time. Fuel suppliers will be allowed to trade their compliance instruments among themselves with banked remaining balances capable of being rolled over.

Fuel suppliers can also meet part of their obligations through Community Climate Investments (CCIs) credits, through which DEQ-approved third parties invest CCI funds in projects to reduce GHG emissions, with a particular emphasis on assisting environmental justice communities historically disproportionately affected by air pollution and vulnerable to the impacts of climate change. A fuel supplier's contributions to CCIs as a compliance mechanism is capped at 10 percent of a company's emissions reduction requirement for the first compliance period. That limit increases up to 20 percent for the third compliance period.

Stationary Sources Subject to Best Available Emissions Reductions

In addition to the cap for covered fuel suppliers, the CPP also includes rules to reduce GHG emissions from certain covered large stationary sources. These rules implement a best available emissions reduction (BAER) approach for facilities that emit at least 25,000 metric tons of covered CO2e from processes that are not regulated through covered fuel suppliers, such as from industrial processing.

As with fuel suppliers, not all emissions (including those from larger electric power plants) are covered by the rules. The BAER rules require covered stationary sources to submit assessments to DEQ of potential strategies to reduce their emissions, which DEQ takes into consideration in developing site-specific compliance obligations moving forward. It remains uncertain what the results of the BAER process will look like, but the CPP establishes twin goals of reducing total covered emissions from covered stationary sources (without specifying a particular amount) and reducing covered emissions from covered stationary sources that are the result of combustion of solid or gaseous fuels by 50 percent by 2035.

With implementation of the CPP just underway, it is not yet evident how all the components of the program will work in practice, as well as both their environmental and economic effects. The rules require DEQ to perform periodic reviews of the CPP and to investigate increases in fuel prices in comparison to changes in prices in some neighboring states.

It will be interesting to see how the program develops and whether, over time, the CPP relates—or does not—to the programs in the neighboring states. But that's a subject for another blog.

* Taylor Sutton is a law clerk in the Washington, D.C. office of Davis Wright Tremaine.

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