Emissions Intensive Trade Exposed industries (EITEs)
In establishing the Climate Commitment Act, the Legislature recognized the special nature of certain “hard to abate” industrial sectors. It created a separate compliance pathway for facilities that qualify as “emissions-intensive, trade-exposed” industries, or “EITEs.”
EITE facilities are important local industries that are mostly manufacturing facilities. They release large amounts of greenhouse gas emissions and face significant national or global competition for their products. These facilities produce a variety of products, including pulp and paper, food and beverages, steel, aluminum, glass, cement, building materials, airplanes, semiconductors, fertilizer, and transportation fuels.
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, such as those in operation in California and Quebec. 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 compliance pathway for these industries was designed to motivate early investment in efficiency and process improvements; to facilitate financing for larger-impact, longer-term decarbonization; and protect the jobs and investments that these businesses bring to Washington.
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 facilities or businesses in Washington state 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. This is in recognition of the technological and financial challenges these facilities face in rapidly reducing their emissions and to protect the jobs and investments that these businesses bring to our state.
The specific 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 baseline for their emissions for 2015-2019. The carbon intensity baseline 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. Some EITEs can have a mass-based baseline that doesn't 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's 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.
EITE rulemaking
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, 2021, and proposed rule language Dec. 22, 2021. The final rule was adopted June 1, 2022.
EITE legislation addressing future emission reductions
As required by the Climate Commitment Act, Ecology 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.
Consistent with legislative direction, we developed this legislation in consultation with Tribes, emissions-intensive, trade-exposed businesses, covered entities, environmental advocates, and overburdened communities.
While this draft legislation did not pass, the CCA already outlines a compliance pathway for EITEs through 2034, so there will be no short-term changes in emissions requirements for EITEs.
Originally, the CCA tied the use of auction revenue to the passage of this draft legislation. However, the Legislature addressed this issue in separate legislation, ESSB 5974, which passed both houses and was delivered to the Governor for signature on March 11, 2022. This means that the use of CCA funds for important climate projects is no longer tied to the passage of any additional legislation.