In March, we announced that our second cap-and-invest auction will be held on May 31, but there's been plenty of other goings-on over in the Air Quality program as well. Since it's been a while since our last update, there's no time to waste on preamble — let's dive right in!
Lending an ear on linkage
We held three public sessions in March and April to collect feedback on whether it would benefit Washington to link its cap-and-invest program with similar programs in California and Québec, which already operate in a common market.
More than 180 people attended those sessions, along with a separate meeting for tribal representatives held earlier this year. In the sessions, the public had the chance to learn more about the cap-and-invest program itself, and why the Legislature included linkage in the design of the Climate Commitment Act.
Attendees also had the chance to break into smaller groups and talk through some of the criteria the law requires Ecology to evaluate before linking.
Why is this so important?
Even though the Washington cap-and-invest program is up and running successfully, with our first emission allowance auction under our belt in February and the second set for May 31, linking to the larger combined market in California and Québec would offer economies of scale, potentially reducing the price of allowances and offering greater liquidity.
Because of these potential benefits, the Climate Commitment Act requires Ecology’s director to consider linking — and the law required Ecology to design the cap-and-invest program in a way that allowed it to link to similar systems.
However, the Climate Commitment Act sets specific criteria that must be met before linking, including determining that:
- Joining markets would not negatively impact Washington's ability to meet the emissions-reduction commitments set in state law.
- Linking would reduce the cost of compliance for covered businesses.
- The linking jurisdictions have provisions to ensure their programs provide benefits to vulnerable populations and overburdened communities.
- Linking would not have an overall negative effect on highly impacted communities in any jurisdiction.
In addition, Ecology is required to conduct an environmental justice assessment before we can approve a linkage agreement.
Ecology’s goal is to reach a preliminary decision about whether to pursue linkage in the summer or early fall of 2023.
Not too late to weigh in
If you missed the public meetings, it’s not too late to provide input. You have until May 15, 2023, to submit comments on linkage. Along with that online option, you can also share your input by mail, email, voicemail, or by participating in a survey:
WA Dept. of Ecology – Air Quality Program
P.O. Box 47600
Olympia, WA 98504-7600
Keep in mind that, even if Ecology determines that linking would be in the best interest of Washington, California and Québec would need to make their own determinations before we could begin negotiating a linkage agreement.
Should linkage negotiations go forward, the public in Washington will have the chance to provide feedback before an agreement is finalized, and there would also be public review of any regulatory changes needed in order to link.
You can learn more about this process and the requirements laid out in the law on our Linkage webpage.
One rulemaking, coming right up!
On April 26, we sent an early notice that Ecology plans to conduct rulemaking to clarify provisions for the Allowance Price Containment Reserve (APCR) auctions.
The APCR is a tool designed to assist in containing compliance costs for covered and opt-in entities. If, during a quarterly auction, the settlement price reaches a certain threshold (the APCR Tier 1 price, which is $51.90 for 2023), Ecology holds a separate APCR auction.
Only covered and opt-in entities can participate in an APCR auction.
Unlike other allowances, the allowances sold in an APCR auction do not have a “vintage,” so they can be used for compliance in any year or any compliance period. Adding the APCR allowances into the market helps ensure that covered and opt-in entities can obtain enough allowances at a reasonable price to meet their compliance obligations.
In the rulemaking, we are adopting two changes to the rules concerning the APCR to:
- Clarify that holding limits apply to APCR allowances. This means that entities cannot hold more than a certain number of allowances in their accounts at a time. The limit applies to all allowances an entity has in its compliance and holding accounts.
- Clarify that any allowances purchased in an APCR auction must be deposited directly into an entity’s compliance account. This means that those APCR allowances cannot be sold or traded on the secondary market to generate revenue — they can only be used to cover a company's emissions.
In order to ensure the new rules are in place should an APCR auction become necessary, Ecology plans to use the “emergency” rulemaking provisions, which allow the agency to amend a rule immediately if there is a statutory basis to do so. You can read more about that process on our rulemaking webpage.
Should allowance prices meet the APCR trigger price in the upcoming May 31 auction, the following APCR auction would likely be scheduled for Aug. 9, 2023, and would be conducted under the amended rules.
We would announce the number of APCR allowances to be offered, as well as how many would be sold at the Tier 1 ($51.90) and Tier 2 ($66.68) prices. Just like the number of allowances to be sold at our normal quarterly auction, this information will be announced in a formal APCR Auction Notice, to be issued at least 60 days prior to an APCR auction.
Rule changes adopted under the emergency provisions remain in effect for up to 120 days, but can be renewed while a permanent rulemaking process is conducted.
Catching up with offsets
Carbon offsets are an alternative compliance tool under the Climate Commitment Act. Under the offset program, projects that deliver permanent, quantifiable, verifiable and enforceable reductions in emissions can earn credits that can be used to cover a portion of the compliance obligation for businesses covered by the cap-and-invest program.
We have been busy developing the offset program, including setting up a webpage dedicated to all things offsets, which includes links to offset project listing forms. We’re also offering two offset trainings in May.
Developing Offset Projects in the Cap-and-Invest Program
On May 24, we will offer a training for offset project development. This training will walk through the process, timeline, and requirements for developing an offset project in the cap-and-invest program.
The session will discuss the four offset protocols adopted by Ecology, as well as the process to determine whether or not an offset project provides direct environmental benefits to Washington state.
The training will include information on third-party verification requirements, and the first steps to begin listing an offset project in the cap-and-invest program.
Date: May 24 at 10 a.m.
Using Offset Credits for Compliance in the Cap-and-Invest Program
On May 10, we held a training on the use of offsets for compliance purposes, walking through the process and considerations for using offset credits for compliance in the cap-and-invest program.
The session covered the basic requirements for offsets in the program, as well as the offset usage limits for covered entities. The training also covered considerations for offset procurement, such as invalidation, reversal, and direct environmental benefits to Washington state.
If you were not able to attend but would like to request a copy of the recording and slides, please email CCAOffsets@ecy.wa.gov.
All about allowance allocation
Under the Climate Commitment Act, electric utilities that are subject to Washington’s 2019 Clean Energy Transformation Act (CETA) are eligible for no cost emission allowances to mitigate their costs from the cap-and-invest program.
In April, Ecology released information on the amount of no cost allowances that electric utilities will receive during the first compliance period of the program. Ecology determined the number of allowances for each utility using forecasts of the generation resources needed to supply that utility’s retail electric load.
The CCA directs us to provide utilities with no cost allowances in order to mitigate potential price impacts on utility customers, both directly from their local utility and further upstream when utilities import electricity from sources outside of Washington.
Utilities can use no cost allowances for their own compliance needs, bank them for future use, transfer them upstream to electric power generating facilities, or have us auction them off on their behalf to generate revenue (called ‘consignment’). If a utility chooses to consign allowances they receive for free, however, they are required to use the proceeds for the benefit of their ratepayers.
Electric utilities began receiving their allowances earlier this month, and Ecology is continuing to help utilities set up the allowance account needed to receive their allowances.
See you in June!
We'll announce the results of our May auction on June 7 at 12 p.m. PST in our quarterly Auction Summary Report, posted to our Auctions and Trading webpage. We'll also confirm the total proceeds raised later that month, so keep your eyes peeled for your June blog edition for those details and much more!
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