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Legislature passes cap-and-trade program and low-carbon fuel standards

After a contentious battle, the Legislature has passed two environmental measures long sought by Governor Inslee: A cap-and-trade mechanism and low-carbon fuel standards (LCFS). AGC opposed both measures but appreciated language inserted into both bills that tie them to a future transportation-funding package.

The first, E2SSB 5126, would cap greenhouse gas emissions by major carbon emitters. The cap would slowly decrease over time and companies would need to shrink their emissions or purchase carbon allowances, a trade-off that proponents say encourages industries to invest in green energy. Revenue raised would go toward a handful of proposed funds, including transportation projects and programs that help fund transitions to cleaner energy sources. A summary of the very complex legislation can be found here; the bill as passed can be found here.

The bill is connected to a transportation-investment package in two ways: It says that compliance obligations for covered and opt-in entities will not take effect until a separate additive transportation-funding act, which includes a gas-tax increase of at least five cents, is enacted. Plus, it directs distribution of part of the auction revenues for the Forward Flexible Account, an account that would be created by Sen. Hobbs’ transportation-funding package, for specified purposes including clean transportation, natural climate resiliency, clean-energy transition and assistance, and energy-efficiency projects.

Senate Transportation Committee chair Steve Hobbs introduced a 16-year, $17.8-billion undertaking known as Forward Washington, which counts on $5.2 billion of cap-and-invest revenue. The measure also includes a gas-tax increase. Hobbs’ package contained money to rebuild the U.S. 2 trestle in Snohomish County, pay Washington’s share of a new I-5 bridge across the Columbia River, fund dozens of new projects and fish-passage obligations, increase preservation and maintenance funds, build new state ferries and bolster public transit. The package did not pass the Legislature, but the linkages to it contained in the cap-and-trade bill help ensure its consideration in a special legislative session or in the 2022 legislative session.

Meanwhile, the Legislature also passed E3SHB 1091, implementing a low-carbon fuel standard (LCFS). LCFS legislation has long been oppose by AGC and it failed in each of the last four legislative sessions. This year, however, the Democratic majority was large enough to overcome opposition.

The bill directs the Department of Ecology to adopt rules establishing a Clean Fuels Program (CFP) to limit the aggregate, overall greenhouse-gas emissions per unit of transportation fuel energy to 20 percent below 2017 levels by 2035 by, for example, increasing the percentage of low carbon-emitting biofuels used in a gallon of gas. It also requires the CFP to include processes for registering, reporting and tracking compliance obligations and to establish bankable, tradeable credits used to satisfy compliance obligations. A summary can be found here; the bill as passed can be found here.

This bill also has a link to a transportation package, as its compliance mechanism would not take effect until a major transportation-funding package is enacted.

For more information, contact AGC chief lobbyist Jerry VanderWood.

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