Washington Cap-and-Invest Offsets Rule Draft Maintains Program Stringency
New draft rules for Washington state carbon offset credits show the state is maintaining a tight approach to verification and environmental justice in the emissions offsets market.
Regulators on Tuesday published full draft rule language for Cap-and-Invest offsets rulemaking ahead of public meetings later this month. The state Department of Ecology would operate the offsets market more strictly than other compliance offset markets, according to OPIS analysis, highlighted by a focus
on direct environmental benefits to the state (DEBS) and State Environmental Policy Act (SEPA) compliance in the draft rulemaking.
The new draft lays out rules to “ensure an offset credit can be used as a compliance instrument” in Washington state. Full language is available on the Ecology website.
According to OPIS policy analyst Kate Haerizadeh, the new draft rules underscore Washington state’s more stringent regulatory approach compared to California’s. Stronger verification processes included in this draft, along with other rules like the requirement that Ecology credits provide DEBS, could lead to a tighter supply of Washington offset credits.
“I believe pricing may reflect the reduced availability of credits and potentially increased demand from industries needing compliance flexibility, and overall be influenced by the stricter requirements,” Haerizadeh said.
Haerizadeh noted the Ecology offset program will expand as more sectors are included, but that the draft rulemaking does not mention future market stability or collaboration with the Western Climate Initiative (WCI).
“Instead, the focus was on Washington regulating even more stringently than California, underscoring the state’s current independent approach,” the analyst said.
OPIS on Wednesday assessed benchmark California Carbon Offset (CCO) prices at $15.70/mt for the CCO-3, $15.55/mt for the CCO-8 and $15.95/mt for the Golden CCO. DEBS offset credits were assessed at a $15.10/mt premium to non-DEBS credits.
The new rules also introduce stricter compliance with the State Environmental Policy Act (SEPA), specifically in avoiding future harm to the environment due to offset projects.
“When analysis under [SEPA] is required for an offset project, a project-level SEPA analysis finding no significant adverse environmental impact after mitigation fulfills this requirement,” according to the draft rule.
Haerizadeh said the draft also provides “tougher rules” for third party project verification and credit invalidation should projects not meet standards.
Ecology will host a public meeting specifically on Environmental Justice and the rulemaking on Oct. 21. Haerizadeh said the draft rules emphasize protecting tribal and low-income communities, with provisions for additional Environmental Justice sessions.
Washington regulations also call for reduced usage of offset credits for compliance obligations compared to California. The rule initially caps offset usage at 5% through 2030, before a gradual decrease “pushing for more direct emissions reductions,” Haerizadeh said.
Compliance entities may use offsets for up to 5% of their obligation until 2030, but starting in 2026 that percentage begins to decrease. The general offset limit falls to 4%, though entities are then able to use offsets generated on tribal land for an additional 2% of their obligation.
“The general offset limit remains at 5% until 2030, but starting in 2026, it decreases to 4% for non-tribal offsets. However, entities can use an additional 2% from tribal projects, allowing for some flexibility and bringing the total possible offset usage to 6%,” Haerizadeh said.
The rulemaking allows for expansion of project types, and also provides new specifics for the Ozone Depleting Substances (ODS) protocol Ecology plans to adapt.
Changes to the ODS protocol, according to OPIS analysis, include updates to new accounting values, expansion of eligible aerosol ODS sources and revised emissions factors in line with new Environmental Protection Agency data.
“The ODS protocol revisions modernize GHG accounting by adopting AR5 values (instead of AR4) and expanding eligibility, but this will likely reduce the number of credits generated,” Haerizadeh said.
The expansion of eligible ODS supplies include federal sources and medical aerosols, but the rules indicate it will be a highly regulated expansion of these sources according to Haerizadeh. The new protocols allow for regular program updates based on new EPA data, and the ODS rules have stricter requirements for transparency and accuracy, Haerizadeh said.
Ecology in March 2023 approved both the American Carbon Registry and Climate Action Reserve as cap-and-invest offset project registries. Ecology issued its first offset credits in December 2023 to two ODS projects, ahead of a smaller issuance in Feb. 2024 to another ODS project.
Reporting by Slade Rand, srand@opisnet.com
Editing by Kylee West kwest@opisnet.com
© 2024 Oil Price Information Service, LLC. All rights reserved.