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 current structure of the law, which may change (see below), 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.
- For the 2022 legislative session, Ecology is required to propose an alternative approach for the EITE sector to achieve their proportionate share of the reductions necessary to achieve the state’s greenhouse gas reduction limits.
- By the end of 2026, Ecology is required to report on a compliance pathway for EITEs for 2035 and beyond (see below).
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 Aug. 4 and plans to propose rule language in winter 2021. The Climate Commitment Act requires the EITE definitions to be adopted by July 1, 2022.
Future EITE legislation
The Climate Commitment Act requires us to bring agency request legislation in the 2022 legislative session that outlines an EITE compliance pathway allowing these businesses to achieve their proportionate share of the state's emissions reduction limits through 2050. The law requires us to develop this legislation in consultation with emissions-intensive, trade-exposed businesses, covered entities, environmental advocates, and overburdened communities.
The law prohibits the expenditure of funds from accounts created through the Climate Commitment Act if the Legislature has not enacted such legislation by April 1, 2023.
By Dec. 1, 2026, the law requires us to report on alternative methods for determining the amount and a schedule of allowances for EITEs from 2036 to 2050, including a review of global best practices to ensure against economic harm or emissions being shifted elsewhere, and describing alternative methods of emissions performance benchmarking and allocation of no cost allowances. The law requires us to form an advisory group including EITE representatives.
If the Legislature does not adopt a compliance obligation for emissions-intensive, trade-exposed facilities by Dec. 1, 2027, those facilities will continue to receive allowances under the terms for the compliance period beginning Jan. 1, 2031.