Why Oregon Needs the Healthy Climate Act

Author’s note: Originally, the pie charts in this article included industrial electricity and natural gas use under the industrial sector. I have since updated the emissions and estimated allowance value pie charts to instead categorize emissions (and resulting allowance value) from industrial use of electricity and natural gas under the electricity and natural gas sectors. 

In the short 2016 legislative session, Oregon lawmakers have a chance to pass the Healthy Climate Act, a bill that would enforce the climate pollution reduction goals Oregon legislators passed nearly a decade ago. By enforcing limits on pollution and “cashing in our carbon,” as we like to think of it, Oregon can seize the opportunity to transition off outdated fuels, build a thriving clean energy economy, and generate broadly shared prosperity and local jobs while protecting our families and safeguarding our climate.

A little background

Why does Oregon need to limit greenhouse gas pollution?

Pollution imposes major costs on Oregonians, from hospital expenses that lung diseases like asthma foist on families and the healthcare system to the losses in life and property that drought and wildfire inflict on farmers and communities. Burning fossil fuels spews pollutants that form a heat-trapping blanket in our atmosphere, warming the planet. A modest rise in global temperatures could lead to a 54 percent increase in area burned by wildfire in Western states by 2050. The pollution also seeps into our oceans, causing acidification—a sort of “osteoporosis of the sea”—that is already harming Oregon’s shellfish industry. If we don’t act now, climate pollution will cost Oregonians billions of dollars in healthcare outlays, vanished salmon and seafood, and recreation industry losses.

Where does Oregon’s greenhouse gas pollution come from?

Cars and trucks churn out the biggest chunk of Oregon’s climate pollution, followed by electricity and natural gas utilities and industrial facilities. Together, those sectors account for about 85 percent of Oregon’s emissions—around 52 million metric tons of carbon dioxide equivalent (MMT CO₂e), out of a statewide total of 61 MMT.

Original Sightline Institute graphic, available under our free use policy.

So, what would the Healthy Climate Act do?

The Healthy Climate Act would put an enforceable cap on carbon pollution from the approximately 70 largest polluters in the transportation, electricity, natural gas, and industrial sectors. The state would enforce the cap by issuing a limited number of allowances—one allowance per ton of emissions allowed under the cap. Then, the state would cash in for us! Specifically, it would invest in our families and communities by funding road maintenance, electricity bill assistance for low-income households and small business, and climate-smart projects like efficiency and solar in the most disadvantaged and economically distressed communities. More detail on that in a bit.

1. It would enforce a cap and collect some dough.

Periodically, large businesses will have to verify to the state that they hold enough allowances to match their emissions. Each year, as the cap tightens, the state issues fewer allowances.

Most regulated businesses—fuel refiners, power plants, utilities, and large industrial facilities—will buy their allowances in a state-run auction. To prevent emissions and jobs from “leaking” out of Oregon, the state will give some allowances for free to factories that could be undercut by out-of-state competitors that still pollute for free (these entities are known as “energy-intensive, trade-exposed,” or “EITE,” for those who love jargon). Rather than continuing to emit the same amount and pay for the same amount of allowances each year, businesses will seek the lowest-cost ways of reducing pollution from their operations.

The hard cap requires slow and steady emissions reductions: 20 percent below 1990 levels by 2025, 45 percent by 2035, and 75 percent by 2050. The declining cap walks pollution down the stairs, gradually ushering the economy away from fossil fuels and towards clean energy.

2. It would incentivize clean energy investments and infrastructure in Oregon.

Without pollution limits, Oregon ratepayer dollars might flow to propping up old coal plants. A price on pollution would instead make new solar and wind facilities, energy efficiency investments, improved grid management, demand response, and electric vehicles more enticing to utility planners.

Similarly, without pollution limits and with low prices at the pump, Oregon cities, counties, and businesses might continue to support infrastructure for gas-powered cars. As the supply of allowances slowly decreases, though, the price of each allowance will rise, and Oregonians will invest in efficiency, clean energy, and climate-friendly transportation options.

In addition to diverting existing investments, an Oregon pollution price will also attract new investments from private, clean-tech, venture capitalists who see the state as a welcoming place. California has the strongest pollution price in the United States, and in 2014, it attracted the majority of all US clean-tech venture capital—$5.7 billion (up from $2 billion in 2005, the year before the California legislature passed the state’s climate action law, AB 32).

3. It would spend that carbon cash on a climate-smart future.

Fuel refineries, power plants, and factories would all pay for an allowance for every ton they emit. Assuming the auction price for allowances in 2020—the first year of the Oregon program—is $18 (a bit higher than the current Western Climate Initiative auction price of $13 per ton), Oregon’s 51 million allowances would be worth around $900 million in 2020.

The Department of Environmental Quality (DEQ) still needs to do more analysis to calculate exact numbers. For example, DEQ must identify how much assistance industrial facilities need to prevent them from moving out of state, but the bill assigns the allowance value roughly as follows:

Original Sightline Institute graphic, available under our free use policy.

• More than $400 million in revenue from allowances auctioned to the transportation sector will be deposited into the Climate Investments subaccount in the State Highway Trust Fund, to be invested in projects that help reduce climate emissions (local road maintenance can cut pollution). At least 20 percent of this money must be used for projects that are geographically located in disadvantaged communities and an additional 20 percent for projects that benefit those communities.
• Around $60 million in revenue from auctioned allowances will be deposited in the Oregon Climate Investments Fund to be invested in projects that contribute to the reduction of greenhouse gas pollution and the transition to a clean-energy economy. At least 40 percent of the money must be invested in projects that are geographically located in disadvantaged communities, and at least 40 percent must be invested in projects geographically located in economically distressed areas, particularly for job training.
• Around $10 million in revenue from auctioned allowances will be deposited in a Just Transition Fund to provide job training and other benefits to workers who are adversely affected by climate change or climate policies.
• Assuming utilities receive 90 percent of their allowances, around $380 million worth of allowances will be given to electricity and natural gas utilities, with the requirement that the utilities sell the allowances back into the state auction and use the revenue to help their customers—especially low-income households and small businesses—through bill assistance and climate credits. Climate credits would be like a tiny dividend—a flat amount that each household would receive on its bill a few times a year. Because low-income households tend to spend less on energy than higher-income households, but they would both get the same climate credit, the credit is progressive.
• Assuming industrial facilities need, on average, 35 percent of their allowances for free to ensure they remain competitive with out-of-state competitors that are not paying a pollution price, around $20 million worth of allowances might be given to Oregon industries that are both energy-intensive and trade-exposed.
• Around $10 million from auctioned allowances will be used to create a reserve of allowances to prevent price volatility and to provide funds to encourage voluntary investments in renewable energy.

Okay, but how much will this cost Oregon?

By holding polluters accountable, Oregon would not spend any more money than it does now; it would just spend the money on investments—low-cost clean energy, job training, assistance for low-income families and communities, road maintenance—that are more valuable and more productive than fossil fuels. Nothing against 20^th-century fossil fuels (they got our civilization to where it is today, and we are grateful), but it’s the 21^st century, and there are better options.

Oregonians will continue to pay for energy one way or the other, but the Beaver State has a choice about where its energy dollars should go. The money Oregonians currently spend on out-of-state fossil fuels could instead go toward clean energy, more local jobs, and improved public health. At last count, Oregonians already spend twice as much of their hard-earned money on fossil fuels as they do on K-12 education.

In short, consider the options. Oregonians can:

1. Continue to pay directly for out-of-state fossil fuels and also pay indirectly for the hospital bills, firefighters, lost fishing jobs, and lost snowpack that pollution causes, or
2. Exchange slightly higher prices for polluting fuels like oil and coal for local investments that are better for Oregon’s families and communities. We hold the biggest polluters accountable, we keep more energy dollars in the state, and we transition to abundant, local, clean resources that create more local jobs, fund better maintained roads, and deliver higher quality of life.

Oregon buys most of its coal and oil from out of state. Boardman, the only in-state coal plant, is shutting down in 2020, and Oregon has no oil refineries. So every time an Oregonian buys a gallon of gas, an out-of-state oil company profits.

Meanwhile, each dollar invested in clean energy creates two to seven times as many jobs as spending that dollar on fossil fuels, and what’s more, Oregon reaps a double-benefit from transitioning to more efficient buildings powered by solar delivered over a smart grid because clean energy jobs are more likely to be local. By shifting to low-cost cleaner resources, Oregon keeps more hard-earned dollars at home creating local jobs.

Original Sightline Institute graphic, available under our free use policy.

Portland State University’s modeling shows that charging a price for pollution and re-investing the revenue in Oregon will create jobs and increase wages across the state. So making fossil fuel prices honestly reflect their full costs won’t damage the economy; it will be good for Oregon.

Is this really a good idea? Who says?

Ten American states and three Canadian provinces have already been holding polluters accountable with similar pricing systems for years, and two more provinces will soon join them. Pollution pricing programs have helped states and provinces not only de-board from the fossil fuel rollercoaster, but also attract clean energy investments, create local jobs and benefits, and grow their economies. For example, the nine northeast “RGGI” states spent most of their allowance revenue on energy efficiency, creating 16,000 jobs in the program’s first few years.

In 2015, 39 countries and 23 cities, states, and provinces were already using pricing mechanisms to limit greenhouse gas pollution. And by the end of 2016, nearly one-quarter of all climate pollution in the world will have a price tag attached. That’s a club we want to join. The Oregon Healthy Climate Act helps us get there.

Original Sightline Institute graphic, available under our free use policy.