Emissions Intensive Trade Exposed industries (EITEs)
Report to the Legislature
Ecology is in the process of preparing a report to the Legislature on EITE allowance allocation for 2035-2050. Find details below.
In establishing the Climate Commitment Act (CCA), the Legislature recognized that certain industries face unique challenges in reducing their greenhouse gas (GHG) emissions in the early years of the Cap-and-Invest Program. The Legislature decided to give no-cost allowances to these “emissions-intensive, trade-exposed” industries, or “EITEs,” until at least 2034.
I want to...
What are EITEs?
EITEs are important local industries that are mostly manufacturing facilities. They use high levels of energy and release large amounts of GHG emissions, while also facing significant national or global competition for their products.
About 40 facilities in Washington qualify as EITEs as set out in the CCA (RCW 70A.65.110). These facilities produce a variety of products, including paper, food, beverages, steel, aluminum, glass, cement, building materials, airplanes, semiconductors, fertilizer, and transportation fuels.
Why do EITEs receive no-cost allowances?
The CCA plays a key role in reducing Washington’s GHG emissions while also growing Washington’s clean-energy economy and prioritizing environmental justice.
EITEs were given special consideration by the Legislature because sudden or large changes to their operational costs could result in the business or industry limiting operation within the state, or their choosing to relocate outside of Washington.
If EITEs were to limit operation within the state or relocate, it could result in the loss of local jobs and opportunity to reduce emissions overall. People in Washington may instead purchase the same goods from out-of-state companies that aren’t subject to the CCA. Washington’s emissions would appear lower on paper, but in reality, the emissions would simply be occurring in another location. This is called “leakage.”
Washington isn’t the only government to make special considerations for EITEs. Most carbon trading programs around the world, such as those in California and Québec, provide no-cost allowances to EITEs or use other policies to avoid leakage.
Pulp and paper mills are among the categories of business eligible for "emissions-intensive, trade-exposed" provisions in the Climate Commitment Act.
How EITE allocation works
Under the Climate Commitment Act, most Washington state facilities or businesses that produce more than 25,000 metric tons of carbon emissions a year are required to obtain emissions allowances. Some of these allowances are sold in auctions, while others are awarded at no cost.
Under the law, EITE industries are given no-cost allowances each year to cover most of their compliance costs until at least the end of 2034.
EITEs are still required to reduce their emissions and help achieve net zero by 2050, but they have a longer lead time than other businesses in the Cap-and-Invest Program.
How are no-cost allowances calculated?
The specific number of allowances given to EITEs is based on their baseline emissions, or “allocation baseline.” Most EITEs have a “carbon intensity baseline” that determines their average emissions per unit of production during 2015-2019.
A small number of facilities have a ”mass-based baseline” that's based on their average emissions during 2015-2019.
Ecology updates the number of no-cost allowances given to EITEs each year to make sure that number aligns with actual production at EITE facilities. This means that if their output increases, EITEs get more allowances, but if their output decreases, then they get fewer allowances. This process is referred to as “true-up.”
The total number of allowances given to EITEs also is progressively reduced over time, as shown in the table below. This is known as the “reduction schedule.”
| Years | No-cost allowances given to EITEs |
|---|---|
| 2023-2026 | 100% of baseline emissions |
| 2027-2030 | 97% of baseline emissions |
| 2031-2034 | 94% of baseline emissions |
Though EITEs receive no-cost allowances, they still have an incentive to lower emissions in the short-term if they’re in a position to do so. This is because EITEs that emit fewer emissions than their allocation of no-cost allowances can save those allowances for future use, or they can sell them to other program participants.
If an EITE facility’s emissions exceed the amount of no-cost allowances it's given, it will have to purchase additional allowances to cover its full emissions.
Further details on the approach for allocating no-cost allowance to EITEs can be found in the program rule at WAC 173-446-220.
How many no-cost allowances are given each year?
In 2023, the total no-cost allowances to EITEs was about 9.2 million, which was about 15% of the “cap.”
Natural gas and electric utilities also are given no-cost allowance each year. Eligible utilities received a combined 23.5 million allowances in 2023.
For more details of how many no-cost allowances were allocated to EITEs and utilities, please see the “no-cost allowance allocation” tab at the bottom of our auctions and market webpage: Auctions and market - Washington State Department of Ecology.
Report to Legislature on EITE allocation for 2035-2050
When the Legislature established the Cap-and-Invest Program, it didn’t specify the approach to giving EITEs no-cost allowances for 2035-2050.
In 2021, Ecology submitted agency request legislation to propose an approach for allocating allowances to EITEs for 2035-2050; however, this bill (HB 1682) failed to pass during the 2022 legislative session. This was partly because of the difficulty in anticipating what emission reduction opportunities will be available to EITEs into the future.
Ecology has been tasked with preparing a report to the Legislature that offers information and recommendations on how best to proceed. This report will include consideration of:
- Best practices for avoiding leakage (when EITEs relocate or limit their operations)
- Different approaches for measuring the emissions generated by EITEs per unit of production
- Opportunities and barriers for decarbonizing EITEs in Washington
- How to allocate no cost allowance to EITEs from 2035-2050
- Implications for environmental justice outcomes, local air quality, statewide emissions limits, and revenues generated by Cap-and-Invest auctions
Opportunities to provide report input
Ecology will provide multiple engagement opportunities to make sure EITEs, Tribes, covered entities, and other interested parties can provide input into the development of Ecology’s report to the Legislature. This includes establishing two advisory groups, as well as forums for Tribes, the public, and overburdened communities.
To stay updated on the progress of the report, the advisory groups, and public meetings, sign up for the EITE Facilities email list. You can also find more information about the two advisory groups:
- EITE Industries Advisory Group (coming soon)
- EITE Policy Advisory Group