Understanding Oregon’s ‘cap and invest’ climate bills
Oregon lawmakers this week dove into the most complicated and controversial debate of the upcoming 35-day legislative session: legislation that sets up a market-based, carrot-and-stick approach to reducing greenhouse gas pollution.
The two bills will pit environmental advocates determined to see the state do more to combat climate change against business interests who believe the policy is either not ready for primetime or, worse, a job-killing energy sales tax that will deliver little benefit for the planet.
If this sounds familiar, it’s because this polemic has been playing out worldwide for years, most recently with the Trump administration’s abandonment of the Paris climate accords. That prompted politicians across the country, including Oregon Gov. Kate Brown, to double down on local and regional commitments to combatting climate change. In the absence of consensus, however, it’s not clear how high the legislation will rank among Brown’s or legislative leaders’ priorities.
Oregon has been trying to thread this political needle for a decade. It first developed the framework for a carbon pricing program in 2007 with other western states. Since then, the Legislature considered various iterations of a “cap and trade” program, and backers have been refining the most recent plan in a series of workgroups since July.
Oregon isn’t inventing the wheel; a similar system is up and running in California and Canada with reportedly little ill effect on the economy. Oregon has the option of linking up with that market. And economists generally consider carbon pricing the most efficient way of reducing greenhouse emissions.
That’s not to say this policy is simple, cheap or devoid of potentially unintended consequences. Ballpark estimates put annual revenues from the proposed Oregon program in the neighborhood of $700 million initially. Advocates counter that early costs would be far less due to concessions designed to soften the blow on various industries.
Moreover, much of the money would go toward reducing emissions – and thus compliance costs – as well as to cushion the economic hit on consumers and help communities and workers adapt to climate change, which could impose staggering costs across the landscape.
How would it work? The state would replace its current greenhouse gas reduction goals – which it’s projected to miss – with an economy-wide emissions limit that declines each year. Ultimately the target would ratchet down to meet the new emission caps: 45 percent below 1990 levels by 2035 and 80 percent below 1990 levels by 2050.
The policy applies to companies and facilities emitting more than 25,000 metric tons of carbon dioxide equivalents a year. They would be required to acquire “allowances” every year to cover each ton of their emissions, either in a state auction or from other participants trading on a secondary market. The Department of Environmental Quality says about 100 entities would be regulated, comprising more than 80 percent of state emissions.
The state would systematically reduce the supply of allowances auctioned each year in line with the statewide emissions limits. Tighter supply would mean higher auction prices. Businesses that could comply more cheaply by reducing emissions would do so, while other would continue buying allowances to cover their pollution.
In theory, that’s it. In practice, there’s some head-spinning complexity involved, with concessions designed to lessen the impact on specific industries, the ability to comply by investing in offset projects, and a detailed prescription for the use of the auction proceeds.
The cap and invest program would apply differently to various sectors, which fall into three separate buckets: transportation, electric and gas utilities, and industry. What follows is a primer on how Legislative Concepts 44 (Senate version) and 176 (House version) would work; cost estimates based on current emission levels and a projected $16 floor price for allowances in 2021; and how the legislation envisions using the revenue.