Pacific Northwest Climate Law Update: Recent Developments Cloud the Future of Oregon and Washington Climate Programs

Two developments toward the end of 2023 have clouded the future of climate policy in the Pacific Northwest. First, on November 21, 2023, opponents of Washington’s Climate Commitment Act (CCA) submitted more than 400,000 signatures to the Washington Secretary of State’s office supporting Initiative 2117 (I-2117). If approved, I-2117 would repeal the CCA. Second, on December 20, 2023, the Oregon Court of Appeals struck down Oregon’s Climate Protection Program, concluding that the Oregon Department of Environmental Quality (DEQ) did not provide proper notice when it adopted the program by administrative rulemaking. Northwest Natural Gas Co. v. Oregon Environmental Quality Commission, 329 Or.App. 648, __ P.3d __ (2023). 

At this point, it is difficult to predict whether the advocates of either I-2117 or the Oregon litigation will ultimately prevail, but if either should occur, it would represent a substantial setback for climate policy in the Pacific Northwest. Meanwhile, beginning with the November 2 decision of the Department’s director, the Washington Department of Ecology (Ecology) is moving forward to link Washington’s carbon credits market with the markets in California and Quebec, in parallel with legislation that would amend the CCA to better align Washington’s markets with those existing markets.

Key Takeaways

• If the Washington Secretary of State concludes that enough valid signatures have been submitted in support of I-2117, which is likely, the initiative will be presented to the upcoming session of the Washington Legislature. If rejected by the Legislature, which is all but inevitable, I-2117 will appear on Washington’s November 2024 ballot. The I-2117 ballot measure would repeal Washington’s Climate Commitment Act, the economy-wide cap-and-trade system adopted by the 2021 Washington Legislature.

• The Oregon Court of Appeals has invalidated Oregon’s Climate Protection Program on procedural grounds. The program could be re-adopted by DEQ in a new rulemaking that addresses the notice problems identified by the Court of Appeals or enacted as legislation by the Oregon Legislature that would render new rulemaking unnecessary. At this point, it is difficult to predict how Oregon will react to the decision, but it is unlikely that the Court’s decision will be the last word.

• Meanwhile, the Washington Department of Ecology is moving forward with efforts to link Washington’s market for carbon compliance credits and offsets to existing markets in California and Quebec. Ecology has proposed legislation that would smooth the way for such a linkage. I-2117, however, may greatly complicate any legislative effort to amend the CCA.

Background and Analysis

Washington’s Climate Commitment Act (CCA)

After years of struggle to overcome a divided legislature, in 2021, a narrow Democratic majority in the Washington Senate and a wider House majority approved the CCA, long a goal of Gov. Inslee. Since the adoption of the CCA, Ecology has been rolling the program out on an expedited basis, adopting, for example, a “Program Rule” setting forth regulations for allowance auctions, the operation of the market for carbon allowances and offsets, and moving forward with efforts to refine the rules governing carbon offset projects that are eligible to generate carbon credits that can be used for compliance under the program. In 2023, the first year of auctions of carbon allowances under the CCA produced $1.8 billion in revenues for the State government, which will be spent on climate resiliency, climate-related transportation improvements, and several other programs approved as part of the CCA. As for offsets, those instruments can be traded alongside allowances in secondary compliance markets, but covered entities can only use offsets to meet a fraction of their compliance obligation. Eligible offset projects must register with Ecology and conform to program standards before issuing compliance-ready offset credits.

Opponents of the CCA, characterizing it as a “tax” that has produced high gasoline prices in Washington, sponsored I-2117 and spent several million dollars on a signature collection drive. Approximately 400,000 signatures have been presented to the Washington Secretary of State and, assuming the Secretary concludes that at least 324,516 signatures are valid, the initiative will be presented to the legislative session that begins January 8.

I-2117 is an initiative to the legislature, which means that the Legislature will have the option to accept the initiative, reject the initiative, or adopt an alternative to the initiative that would be placed on the ballot alongside I-2117. Given the Democratic majorities in both houses of the legislature and the fact that Governor Inslee, a major proponent of the CCA, occupies the Governor’s office, there is no chance that the initiative will be adopted as proposed. An alternative to the initiative is possible. Reports indicate that several alternatives that would involve changes to the CCA, such as authorizing some of the funds raised through carbon allowance auction to be refunded directly to Washington drivers, may be considered. If that occurs, the Legislature’s alternative will appear on the November ballot along with I-2117, and the proposal that receives the highest number of votes in the November election will become law. At this juncture, it is unclear whether or what alternative the Legislature might adopt and, if it does so, whether the alternative would ultimately prove more popular with voters than I-2117. 

Stepping beyond the political drama, it is worth noting that Ecology continues to move forward with the implementation of the CCA. Perhaps the most significant recent development is Ecology’s November 2, 2023, decision to move forward with efforts to link Washington’s carbon allowance market with parallel markets in California and Quebec (those two markets have been successfully linked since 2014; Ontario also was, briefly, a linked market until withdrawing from the program in 2018). To accomplish linkage, Ecology has developed a set of CCA amendments to better align the Washington program with those in California and Quebec. I-2117, however, complicates the amendment process because any changes to the CCA will likely have to be considered as an alternative to I-2117 on the November ballot. Given this complication, the CCA’s advocates in the Legislature may conclude that it is better to wait rather than to force the issue, which would delay linkage beyond the 2025 date currently contemplated by Ecology, assuming Washington voters do not repeal the CCA.

Oregon’s Climate Protection Program (CCP)

Developments in the Oregon courts leave an equally unsettled situation in that state. In 2019 and 2020, the Oregon Legislature appeared poised to pass legislation that would create a cap-and-trade system similar to the CCA to control greenhouse gas emissions. However, in both sessions, to forestall action by strong Democratic majorities in both houses, Republican state senators staged walk-outs that denied the Legislature a quorum and prevented action on cap-and-trade legislation. As a result, then-Governor Kate Brown adopted Executive Order No. 20-04, which directed agencies across state government to address climate change to the maximum extent permissible under existing statutes.

Responding to Executive Order No. 20-04, the Oregon DEQ adopted the Climate Protection Program, which creates a cap-and-trade system applicable to major emitters of GHGs in Oregon, through administrative rulemaking. On December 20, the Court of Appeals struck down the program, concluding that DEQ had not complied with heightened notice requirements when DEQ proposed to regulate “major sources” covered under Title V of the Clean Air Act. The Court did not address a number of other challenges brought by the challengers to the rules, nor did it upset the validity of the underlying Executive Order. Accordingly, assuming that the Oregon Supreme Court does not reverse the Court of Appeals, it remains possible that DEQ will return to square one of the administrative process and issue a notice that meets the applicable requirements. The rule would then very likely face renewed litigation challenging it on the grounds that the Court of Appeals did not address. 

Another possible outcome is that strong Democratic majorities in the Oregon legislature will pass legislation that would authorize a cap-and-trade program that would eliminate the need for an administrative rulemaking of the type struck down by the Court of Appeals. The walkout gambit previously used by Oregon Republicans to thwart cap-and-trade legislation has now been eliminated or at least substantially weakened. In the 2022 election, Oregon voters approved Measure 113, which bars legislators from holding office if they have ten or more unexcused absences during a single session. The Oregon Supreme Court will soon hear arguments on the exact meaning of Measure 113, but it is clear that the measure exacts a significant political price for walkouts of the type engaged in by Republicans in 2019 and 2020. 

Conclusion

Over the last few years, climate legislation has enjoyed considerable political momentum in Oregon and Washington. I-2117 and the Oregon Court of Appeals decision in Northwest Natural Gas may represent a slackening or even reversal of this momentum, although the ultimate outcome of these developments is far from certain. Entities facing compliance obligations under these programs, participating in carbon markets, or with interest in climate policy in the Pacific Northwest should keep a careful eye on these developments.

Beveridge & Diamond's Air and Climate Change practice groups guide clients through the rapidly-changing landscape of climate-related law and regulation. With an office in Seattle, we closely track West Coast GHG regulatory developments and their impacts on stakeholders. We represent clients engaged in all aspects of the carbon and carbon offset markets, including entities acquiring carbon offsets for compliance or voluntary purposes, carbon offset project developers, and secondary market participants. For more information, please contact the authors.