Washington State has been in the news recently for its twice-failed efforts to pass a carbon tax via voter initiative. The state would have been the first U.S. jurisdiction to impose a carbon tax, and its failure to enact the tax has been deemed a “parable” for the challenge of addressing climate change. Both critics and environmentalists have proffered the electoral outcome as evidence not only of opposition among Washington voters to this particular policy, but as further proof of global voter antipathy to carbon pricing. If Washington is a parable, however, it is a mistake to read it as a parable strictly about the folly of carbon pricing. Instead, it may offer a different lesson: a failure at the ballot box (or in the legislature) does not necessarily foreclose climate action. While the ballot initiatives were Washington State’s preferred pathway to reducing greenhouse gas emissions, the State has been developing a regulatory back-up since 2015 under its existing authority. The success of this plan is now in the hands of the Washington Supreme Court.
Background
The Washington legislature adopted greenhouse gas emission reduction targets in 2008, but it has not enacted legislation that would allow the state to achieve these targets.[1] As a result, recent data suggest that the state is not on track to reduce emissions to 1990 levels by 2020, much less to achieve its 2050 goal of reducing emissions 50 percent below 1990 levels.[2] Recognizing this problem, Governor Jay Inslee has long been agitating for the legislature to give the Washington Department of Ecology (“Ecology”) the means to achieve these statutory targets. The most recent push came in 2015, when Inslee tried to persuade the legislature to pass a cap and trade bill to achieve the state’s statutory goals. After the 2015 effort failed, Inslee directed Ecology to adopt a greenhouse gas control program using the agency’s existing authority under the state Clean Air Act to set emission standards.
The Clean Air Rule
Ecology announced its intention to create a regulatory program for GHGs in September 2015 and proposed the Clean Air Rule (“the rule”) in January 2016. After receiving significant public comment, Ecology issued a new draft rule for public comment in May 2016 and finalized the rule in September 2016 (full rulemaking timeline). The rule, characterized as a greenhouse gas emissions standard, was in reality a hybrid emission standard and cap-and-trade program[3] covering carbon dioxide emissions from major in-state sources such as refineries, petroleum importers and distributors, and natural gas distributors that emit over 100,000 metric tons[4] of greenhouse gases annually. Ecology estimates the rule will eventually cover less than 70 total entities,[5] comprising about sixty percent of in-state emissions (the rule would cover approximately the same share of emissions as the failed 2018 proposed ballot initiative). The rule allows regulated entities to comply either by reducing their own emissions or by offsetting their emissions with emission reductions from a variety of in-state activities or credits from out-of-state GHG emission markets. Covered entities are required to reduce their emissions 1.7 percent per year through 2035. Not all emitters are covered; the rule does not apply to agriculture, to the state’s remaining coal plant (which is subject to a separate statutory provision that requires it to close by 2025), stationary sources covered by the federal Clean Power Plan (which is in the process of being repealed), or to jet fuel or exported petroleum products.
Litigation
Industry petitioners immediately challenged the rule in state court. In December 2017, a state trial court ruled that the agency had exceeded its statutory authority in enacting the rule (the opinion was not released until April 2018). The primary legal issue was whether Ecology’s cap-and-trade program was an “emission standard” authorized by the Washington Clean Air Act, RCW 70.94.331(2)(b) (Ecology shall “adopt emissions standards which shall constitute minimum emissions standards throughout the state” (emphasis added)). The Act defines “emission standard” to mean “a requirement established under the Federal Clean Air Act or this chapter that limits the quantity, rate, or concentration of emissions of air contaminants on a continuous basis, including any requirement relating to the operation or maintenance of a source to assure continuous emission reduction….” RCW 70.94.030(12).
The trial court found that the statute limited Ecology to imposing emissions standards on direct emitters—that is, facilities that actually emit pollution, rather than entities that sell commodities, such as natural gas distributors and petroleum product producers and importers, because these entities do not directly emit air contaminants. Accordingly, the trial court held that the Clean Air Rule cannot impose an emission standard on these facilities since they lack direct emissions. Moreover, the trial court held that because the majority of the rule’s benefits were the result of regulating these indirect emitters (75-80 percent of the emissions reductions required by the rule), the rule was not severable. The trial court did not address several of petitioners’ other claims, including whether the rule violates a statutory mandate regarding emissions data, whether the rule is an unconstitutional tax, whether the agency violated a requirement to produce an environmental impact statement, or whether Ecology’s cost-benefit analysis was arbitrary and capricious.
In May 2018, the state appealed directly to the Washington Supreme Court (“WSC”), which is slated to hear arguments on March 19, 2019 (read the briefs here). While the question of Ecology’s statutory authority is the primary issue, there are eight other legal issues that will be before the WSC, including the question of severability and whether the program is in fact a tax, among others. On the question of authority, the state argues that Ecology has broad authority under the state’s Clean Air Act, which should be construed liberally in support of its expansive duties to control air pollution. The state contends that the rule simply “limits the quantity, rate, or concentration of emissions of” greenhouse gases on a continuous basis.
Looking Ahead
How the WSC will rule is uncertain, but there are a variety of possible outcomes. The first possibility is that the WSC holds for Ecology on all nine issues before the court. Total victory would be a significant win for the Governor and for climate activists. Not only would it consistently and significantly reduce emissions over time—including emissions from the state’s largest single source, on-road gasoline—it would also provide another policy model for states looking to reduce their emissions.
Another possibility is affirmance of the trial court’s order. While this would undoubtedly set back climate change mitigation efforts in the state, it might also finally induce the legislature—which is now controlled by Democrats—to act (although perhaps not; while Republicans controlled the Senate in 2015 when the cap and trade bill failed, it never made it out of the Democratic-controlled House as a result of opposition from moderate Democrats).
But there are also several other possible outcomes. One possibility is that the WSC finds that the rule is within Ecology’s statutory authority, but that the agency must re-do its cost-benefit analysis. Perhaps the most impactful alternative, short of the WSC completely invalidating the rule, is for the WSC to agree with the trial court on its interpretation of “emissions standard” but reverse on severability. In that case, the rule would stand, but would only apply only to stationary sources (responsible for about 20-25 percent of the emissions covered by the rule). Ecology indicated in its briefs that it intends to move forward with the rule if it is severed, but severing these sources will significantly curtail the rule’s impact on emissions.
Regardless of the outcome, the parable of Washington’s climate change story is more complicated than the 2018 electoral results alone suggest. If there is a lesson at all, it may be that, as with climate action the federal level, the real action continues to be in the agencies and the courts, rather than legislatures and voters, that decide the scope of climate action in the U.S. This may be suboptimal, but it is better than nothing.
[1] In fact, the ballot initiative was designed to achieve the state’s targets. Initiative 1631 would have enacted a carbon tax, and the tax would have increased until the state’s greenhouse gas emission reduction goals were met.
[2] This is especially true given the Department of Ecology’s recommendation to strengthen the targets beyond 2020.
[3] The program has been dubbed “cap-and-reduce,” which differs from a traditional cap-and-trade program because there is no cumulative, state-wide cap and no official state exchange. Each individual regulated entity must annually reduce emissions 1.7 percent below its baseline emissions, and reductions beyond that baseline generate credits. Credits may also be generated from qualifying offset projects in Washington state or through GHG emission markets outside of Washington (e.g., California’s cap and trade program). See WAC 173-442-110. This differs from California’s cap and trade program, where the state issues permits, which entities are required to purchase or obtain to comply with the state-set cap.
[4] This number declines to 70,000 metric tons by 2035. This threshold level of emissions is quite high; California’s cap and trade program has a threshold of 25,000 metric tons per year, as does Oregon’s proposed cap and trade program.
[5] This is the estimated number of entities that will be compelled to comply with the program; it is likely that many entities will voluntarily participate in order to generate credits, which they can then sell to other covered entities.