Unintended consequences of Governor’s carbon plan

Gov. Inslee has asked the Department of Ecology to write a rule that would cap and reduce carbon pollution (greenhouse gases). Ecology is focusing on businesses and organizations (see the list here) that are responsible for producing 100,000 metric tons or more of greenhouse gases.

While the specifics of the rule are not yet known, as Ecology is gathering input leading to the unveiling of an official proposed rule in December, the rule would set standards for the amount of greenhouse gas pollution emitted in Washington State. Companies and organizations responsible for the pollution would have an obligation to gradually reduce the amount of carbon they emit over time, with a variety of options to reduce emissions made available.

One of the companies targeted by the rule is Nucor Steel. Nucor’s steel mill in Seattle – the only steel mill in the state – runs on 100% scrap steel and has been in operation since 1905. It is Washington’s largest recycler, processing approximately 810,000 tons of scrap steel last year. Investments in energy efficiency, coupled with the use of hydro power, means the Nucor mill produces product with greenhouse gas emissions that are at a level of less than 20% of the industry average.

“Because Nucor has invested so heavily in energy efficiency, we have little ability to reduce our current GHG emissions, other than by producing less steel,” V.P. and General Manager Matt Lyons told DOE in a recent letter. “As a practical matter, the Clean Air Rule would boil down to a surcharge on our Seattle plant’s energy bill, equal to the cost of the credits we would need to purchase to meet an arbitrary reduction target. The only way to reduce the surcharge would be to produce less steel in Seattle.”

Lyons says the rule could end up increasing, not decreasing, the overall emission of greenhouse gases.
“Nucor recognizes the state of Washington’s desire to play a leading role in addressing the problem of global climate change,” Lyons told DOE. “In perfecting that role, however, Ecology must acknowledge the problem of leakage and the vulnerability of our trade-exposed industries to competition outside the regulated area. In the case of our industry, the unintended consequence would be to increase global GHG emissions by substituting more energy-intensive products made in foreign countries or other states for less energy-intensive steel made in Seattle.”

The Governor’s previous proposals, which failed to pass either the House or Senate, would have taxed carbon emitters and/or created a centralized market to trade credits (cap-and-trade). The new proposal does not contain those elements, although there may be some trading option and likely penalties for missing reduction targets, but enforcement mechanisms have not been determined.

DOE is holding a webinar on Nov. 18, beginning at 10:00 a.m., on its latest thinking on the design elements of a draft rule, based on input received so far. Click here for registration and information.

For more information, contact AGC Chief Lobbyist Jerry VanderWood, 360.352.5000.