December 2016 Bar Bulletin
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December 2016 Bar Bulletin

Washington Breaks New Ground
with Greenhouse Gas Regulation

By Sarah Wightman

 

On September 15, the Washington State Department of Ecology (“Ecology”) adopted its final Clean Air Rule (“Rule”) after months of stakeholder meetings and public comment, and over a decade of climate policy discussion.1

This rule limits greenhouse gas emissions from the largest producers in the state and represents a unique approach at the state level. The rulemaking is a compromise after comprehensive cap-and-trade legislation failed to gain traction in the Legislature. Even though it will not be coupled with a state carbon tax, on the ballot in November, Washington’s approach could become a model for other states hoping to address climate change in lieu of federal action.

Washington Clean Air Rule

Overview

The Clean Air Rule2 applies only to covered parties, which the Rule defines as: 1) the owners or operators of stationary sources located in Washington; 2) petroleum product producers in Washington or importers to Washington; and 3) natural gas distributers in Washington.3 Once a covered party exceeds a threshold level of greenhouse gas emissions, it is regulated under the Rule and must reduce its emissions.

The greenhouse gas (“GHG”) emissions regulated under the Rule are carbon dioxide (“CO2”), nitrous oxide (“N2O”), methane (“CH4”), hydro fluorocarbons (“HFCs”), perfluorinated compounds (“PFCs”), sulfur hexafluoride (“SF6”), and nitrogen trifluoride (“NF3”).4 The GHGs are measured in metric tons of CO2 or its equivalent, and reductions are measured in emission reduction units (“ERUs”). One ERU equates to one metric ton of CO2 equivalent.5

There are two categories of covered parties under the Rule: Category 1 and Category 2. All covered parties with GHG emissions averaging at least 70,000 metric tons per year between 2012 and 2016 are Category 1 parties under the Rule6 and must notify Ecology of their status as Category 1 parties by January 1, 2017.7 Category 1 parties that emitted a three-calendar-year rolling average of at least 100,000 metric tons of GHG emissions beginning in 2012 must achieve an annual average GHG reduction of 1.7% of their baseline level of emissions between 2017 and 2019.8

This compliance threshold of 100,000 metric tons of GHG emissions lowers by 5,000 metric tons of CO2 every three years, eventually requiring reductions from all Category 1 parties by 2035.9 Reductions are based on each party’s baseline. The baseline for Category 1 parties is calculated by using the average emissions between 2012 and 2016, but may be based on an average calculated with as few as three years if a particular calendar year’s emissions were calculated with a different methodology.10

Category 2 parties include: 1) covered parties that emitted on average less than 70,000 metric tons of GHGs per year between 2012 and 2016; 2) covered parties that did not operate between 2012 and 2016; 3) voluntary participants; and 4) petroleum product importers.11 Once a Category 2 party emits an average of at least 70,000 metric tons of GHGs per year for three consecutive years after 2012 or requests to become a voluntary participant under the Rule, Ecology must calculate a baseline emissions value using the average of three years of emissions from the party’s required annual GHG reports.12 If the operation is modified or new, the baseline is set using a benchmarking process that entails studying the facility and its operating processes, as well as using recent emissions data from similar operations.13

Businesses and organizations that emit 10,000 metric tons of GHGs per year have been required to report to Ecology annually since 2012.14 Consequently, Ecology knows the parties likely to be regulated by the Rule and has compiled a list of potentially eligible parties based on that data.15 This list includes nearly 70 potentially eligible parties, including natural gas distributors; petroleum product producers (i.e., refineries and importers); metal, cement, pulp and paper, and glass manufacturers; power plants; and waste facilities.

While many operations will be required to reduce their GHG emissions under this Rule, especially as the threshold for required reductions lowers, there are many exemptions from regulation, including GHG emissions from: 1) suppliers of coal-based liquid fuels; 2) the industrial combustion of fuel wood; 3) coal-fired, baseload, electric generation facilities in Washington that emitted more than 1 million metric tons of GHGs in any year prior to 2008; and 4) the combustion of certain products by petroleum producers, petroleum importers, and natural gas distributors.16

Stationary sources included in EPA’s Clean Power Plan will be considered compliant with the Rule for the first compliance period (2017–2019) provided that EPA approves Washington’s implementation plan and the approved plan requires greater GHG emissions than otherwise required under the Clean Power Plan.17

In addition to these exemptions, covered parties identified in the Rule as energy intensive and trade exposed (“EITE”) are not considered Category 1 parties, even if otherwise qualified, until 2020, with GHG reductions first due in 2023.18 In addition, EITE parties go through a different baseline and reduction calculation process.19 Examples of EITE parties include manufacturers of frozen fruit, juice or vegetables; animal (except poultry) slaughterers; pulp mills; nitrogenous fertilizer manufacturers; lime manufacturers; iron and steel mills; aircraft manufacturers; and petroleum product importers, among several others.20

Achieving Compliance

The covered parties that emit GHGs above the threshold for regulation must achieve an annual average GHG reduction of 1.7% of their baseline level of emissions and submit a compliance report demonstrating reductions every three years. There are several ways covered parties can make the required reductions.


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