On November 21, 2016 the Oregon Department of Environmental Quality (DEQ) released a draft study on a market-based approach to reduce greenhouse gas (GHG) emissions. The study focused on a policy known as “cap-and-trade.” The draft is not just a discussion document. DEQ prepared the Draft at the direction of the State Legislature. A final report is due in February when Legislators will decide about next steps.
Cap and trade is a familiar way to abate pollution. In addition, DEQ writes that cap and trade best meets certain Legislative criteria and direction, including possible “links with other jurisdictions.” DEQ focuses on compatibility with the Western Climate Initiative, linking cap and trade programs in California, Quebec, and, soon, Ontario. Cap and trade is seen as less prescriptive than regulatory programs. DEQ writes that cap and trade allows “businesses to reduce pollution by establishing financial incentives that make emission reductions in their economic interests and thereby collectively achieving the policy goals.”
With cap and trade, regulators set a top-most pollution limit – the “cap,” in this case for carbon dioxide (CO2). Regulators establish a price for each ton of pollutant. An industrial facility or power plant which emits, say, 25,000 tons of CO2 annually, would need to buy the “allowances” permitting such emissions. Importantly, the cap decreases over time. In anticipation, businesses take steps to decrease emissions. If a company cannot make timely decreases it buys allowances from another company – the “trade,” within cap-and-trade. Rising allowance costs give companies a clear reduction incentive. Those costs, of course – to buy the allowances, to invest in pollution controls and to possibly purchase new equipment or systems – are passed on to ratepayers or customers.
DEQ estimates that total costs “would be small relative to the size of the state economy; that is, on the order of 1 percent of gross state product;” or about $2.1 billion, based on OR’s GSP of $217.6 billion (2016). The Draft does not define “total cost.” In fact, the Draft’s economic modeling is incomplete because a contractor’s work was not available for the November release. The final report, for legislators, will be updated.
In comments at a December 13 meeting of the House Interim Committee On Energy and Environment DEQ’s Colin McConnaha estimated that cap and trade revenue could total “a couple hundred million (dollars) each year.” Naturally, who controls and spends that money, and what it’s spent on, can be contentious. Those decisions need to be hammered out by lawmakers.
On Monday, December 19, DEQ held a public hearing in Portland on the Draft study (written comments were due Thursday, December 22). During the hearing DEQ staff said they had not received too many comments yet, but were expecting more. All comments will eventually be posted on DEQ’s website.
(Oregon is not meeting its 2020 goal to reduce GHG 10 percent below 1990 levels. In fact, absent additional controls, emissions could exceed the 2020 goal by approximately 11 million metric tons.)
Nine people presented comments at the public hearing, all supporting cap and trade implementation. There was only one business represented – Calpine Corporation, an independent electricity generator. Other presenters were from advocacy organizations or businesses dependent on pollution trading, such as the International Emissions Trading Association (IETA). Mike Mercer spoke for a business advocacy group called E2, which likes DEQ’s proposal because, according to Mercer, it would add market certainty and it could attract new technology and clean energy businesses.
In joint written comments, Associated Oregon Industries and the Oregon Business Association were not as enthusiastic about DEQ’sDraft, raising questions about overall costs, implementation, programmatic control and, of course, revenue impacts and policies. They also questioned the scope of the program. DEQ, for example, suggests that just 50 businesses might be newly regulated. AOI/OBA said that number might be far too low.
After reviewing comments, DEQ will finalize the Draft, including the critical economic modeling for presentation to legislators in February. At the December 13 House hearing committee members questioned impacts on agriculture and forests, fuel costs, particularly for vehicles, and revenue projections. In introductory remarks, Committee chair Jessica Vega Pedersen (D47, Portland) referred to cap and trade as a “possible topic of consideration in the ’17 session.” Stay tuned.
Tom Ewing is a freelance writer specializing in energy and environmental issues. tfewing1@yahoo.com
