EITE facilities are core industries, primarily manufacturing, that release large amounts of greenhouse gas emissions and face significant national or global competition for their products. Special consideration was given to EITEs in the Climate Commitment Act because, if faced with sudden, substantial changes to their operations, they could limit operations, close or transfer production elsewhere without achieving a reduction in worldwide emissions.
Washington state is not the only government to make special considerations for these types of industries — provisions for EITEs are common in most carbon pricing systems. Other programs frequently use a slightly different term — "energy-intensive, trade-exposed industries." The categories of businesses eligible as EITEs in Washington are identified by the Legislature in the statute, based on federal industrial classification codes.
The separate emissions reduction pathway for these industries was designed to incentivize early investment in efficiency and process improvements; to facilitate financing for larger, longer-term decarbonization, and protect the jobs and investments that these businesses bring to Washington.
How the EITE program works
Under the Climate Commitment Act, most facilities or businesses in Washington 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, EITEs will be given emissions allowances at no cost until 2034. The amount of no-cost allowances an EITE receives, however, depends on several factors:
- During the first compliance period, 2023-2026, EITEs will receive allowances equal to 100% of their emissions based on a carbon intensity benchmark for their emissions for 2015-2019. The carbon intensity benchmark establishes the amount of emissions a facility generates in order to produce given volume of product. That means that a facility’s total emissions could rise if their sales expand. EITEs can also choose to instead use a mass-based baseline that does not reflect production volumes.
- During the second compliance period, 2027-2030, EITEs will receive allowances equal to 97% of their carbon intensity or mass-based baseline.
- During the third compliance period, 2031-2034, EITEs will receive allowances equal to 94% of their carbon intensity or mass-based baseline.
If an EITE facility’s emissions exceed the amount of no-cost allowances it is given, it will have to purchase additional allowances to cover its full emissions. If an EITE facility emits fewer emissions than its no-cost allowances, it can bank the unused allowances for future use, or sell them to other emitters to generate revenue to invest in lower carbon technologies.
The initial categories of industries eligible for the EITE program are set in the law, but the Climate Commitment Act requires Ecology to develop objective criteria for classifying additional or new facilities as EITEs starting in 2027.
We announced the EITE rulemaking on Aug. 4, 2021 and proposed rule language on Dec. 22. The Climate Commitment Act requires the EITE definitions to be adopted by July 1, 2022.
EITE legislation addressing future emission reductions
As required by the Climate Commitment Act, we have proposed agency request legislation (HB 1682) for the 2022 legislative session to create a pathway from 2035-2050 for energy-intensive, trade-exposed industries to achieve their proportionate share of the state's emissions reduction limits.
Our proposal establishes a pathway for EITEs to substantially reduce their greenhouse gas emissions in the long term, while partnering with these industries today to incentivize early investments in emissions-reduction technology to help them thrive in the low-carbon-economy of the future. Gov. Jay Inslee's proposed 2022 supplemental budget includes $50 million for investments in emission reduction technology for EITE industries.
- In our proposal, beginning Jan. 1, 2035, EITE facilities would be awarded no-cost allowances equal to 88% of the facility's baseline.
- For each year beginning Jan. 1, 2036, until Jan. 1, 2050, these facilities must be awarded no-cost allowances 6% below the percentage of no-cost allowances awarded during the preceding year.
- Starting in 2031, EITEs may apply to receive additional allowances upon demonstration that they have employed best available technology and further emissions reductions are not feasible.
- These reductions would put total emissions in Washington on track to meet the greenhouse gas emission limit set in state law for 2050, which requires a 95% reduction in emissions below 1990 levels.
- Our proposal also adds EITE emissions reduction and decarbonization projects to the list of projects eligible to receive funding from auction proceeds in the Climate Commitment Account, thereby establishing a pathway for long-term financial assistance to EITEs that invest in our shared environmental future.
- House Bill 1682
Consistent with legislative direction, we developed this legislation in consultation with Tribes, emissions-intensive, trade-exposed businesses, covered entities, environmental advocates, and overburdened communities.
Enactment of our proposal will satisfy requirements in RCW 70a.65.230, unlocking approximately $8.4 billion in CCA funds through 2040.