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A substitute version of SB 6203, the carbon tax proposal championed by Governor Inslee, passed out of the Senate Energy Environment and Technology Committee on February 1st. The substitute version is a significantly modified version of the original bill. It includes a reduced carbon tax rate, additional exemptions for various industries, new funding priorities for multi-modal transportation and rural economic development, as well as requirements for utilities, claiming credits, to eliminate carbon in the electric sector by 2050. Next, the bill moves to the Ways and Means committee, where it can be further modified. If it passes the Ways and Means committee, it will move to the floor of the Senate.

We are hopeful that this bill, even with the modifications, will move forward. In particular, we welcome the new focus on rural economic development and the provision requiring utilities to decarbonize by 2050, which ensures they are using the retained revenue to reduce their reliance on coal and natural gas. However, we are concerned that the lower price and additional exemptions will reduce the carbon reduction impact of the policy.

Carbon Washington therefore advocates returning to the original $20 per ton carbon price, removing the exemption for Transalta’s coal plant and reducing exemptions for non-EITE industries, as well as additional focus on low-income and middle-class financial support. Read on for a section-by-section breakdown of the bill. The table below also outlines the major changes between the original bill and the substitute.

SB 6203 matrix

Section by Section Summary

This section-by-section summary of SB 6203 (first substitute) is designed to be an aid to those who want to better understand the carbon reduction bill passed out of the Senate Energy, Environment & Technology committee, without investing the time needed to read the full 62-page bill. By it’s nature, a summary cannot capture every important nuance of the full legal language. If you want to read the bill in its entirety, you can download Substitute SB 6203 S-4742.1 here.

Title

An act related to reducing carbon pollution by investing in rural economic development and a clean energy economy.

Section 1 – Preamble

Climate pollution and local air pollution are a threat, especially to vulnerable communities. Transitioning to a clean future will benefit our economy and citizens. In doing so, we must protect our businesses and jobs while leveraging our innovation and skilled workers. This Act creates a carbon tax to generate revenue to invest in rural economic development, climate adaptation, and a transition to clean energy.

Section 101 – Definitions of Note

(13) “Energy-intensive trade-exposed manufacturing business” means a manufacturing business that meets the numerical criteria established by the department of commerce in section 103(3)(b) of this act, or has a proper primary North American industry classification system [NAICS] code as provided in section 103(3)(c) of this act.

(16) “Greenhouse gas” means carbon dioxide (CO2), methane (CH4), nitrogen trifluoride (NF3), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and other fluorinated greenhouse gases.

(17) “Highly impacted communities” means those areas designated pursuant to section 502 of this act.

(In Sec 201 & 503) “Low income” means at or below or below eighty percent of area median income or two hundred percent of the federal poverty level.

Section 102 – Carbon Pollution Tax

Beginning July 1st, 2019, a tax of $10/ton is applied to carbon dioxide (CO2) inherent in fossil fuels or electricity, at the point of first sale, combustion, or oxidation within the State of Washington. Starting July 1st, 2021 – and each year thereafter – the tax increases by $2/ton until reaching a cap of $30/ton in 2030. The tax rate is not adjusted for inflation.

This is a consumption-based carbon tax, which excludes exports, and taxes the embodied carbon content inherent in energy consumed within the State. Provisions exist to avoid double taxation and to estimate the carbon content of electricity from unspecified/unknown generation sources, and electricity sold by the Bonneville Power Administration (BPA).

Section 103 – Exemptions and Credits

Not subject to the tax:

(a) Fossil fuels and electricity moved into the state via the primary fuel supply tank of a motor vehicle, vessel, locomotive, or aircraft.

(b) Energy the state is prohibited from taxing under State or Federal constitutional law

(c) Fossil fuels or electricity exported out of the State

(d) Electricity produced by coal at TransAlta’s power plant in Centralia (Coal Transition Power)

(e) Diesel, biodiesel, and aircraft fuel used solely for agricultural purposes

(f) Certain biofuels

(g) Aircraft fuels

(h) Fossil fuels and electricity used by timber extraction, processing, and wholesale companies

(i) Manufacturing facilities for equipment to generate “eligible renewable energy” as defined by I-937

(j) Fossil fuels and electricity used on-site by an energy intensive trade exposed (EITE) facility

(k) EITE’s can be identified by a quantitative calculation of energy intensity and trade exposure by an

agency rule making process that takes into consideration approaches used in other jurisdictions

(l) 57 industry categories identified by NAIC’s codes are legislated as EITE’s – This list includes most manufactures and food processors including: Steel, Aluminum, Cement, Glass, Aircraft, Fertilizer, Petroleum, Pulp & Paper, Spices, Cookies, Bakeries, Cereal, Flour, Seafood, Meat, Ice-Cream, Milk, Fruits, Vegetables, and the production of Eggs and Poultry.

Up to 100% credits for:

(a) Taxes owed by electric or gas utilities if spent pursuant to section 302 of this act

(b) Against a comparable carbon tax (ie a federal or another states’ carbon tax) already paid on the consumption of the same energy consumed in Washington State

(c) Carbon tax previously paid in Washington on energy that is exported from the state.

Section 104 – Refinery Offsets

Refineries are allowed to claim a 10% credit against any carbon taxes they pay if the funds are used to implement an emission reduction plan, approved by the Department of Commerce. The plan may reduce emissions from the refinery or from other sources within 50 miles of the facility. Reduction methods may include increased efficiency, switching to lower carbon intensity fuels, carbon capture and storage, as well as equivalent offsets within the surrounding 50-mile area.

Section 105 – Rule Making and Other Administrative Authority

Agencies may adopt rules, via a stakeholder process, necessary to administer this act.

Section 106 – Report by the Department of Commerce

In Dec, 2020 and each following year the Department of Commerce must submit a report to the Joint Committee on Climate Programs Oversight (JCCPO – created in section 801). The report must recommend audit processes for account uses and include: recommendations for improving the act, total carbon tax collected + list of who paid, agency administrative costs, plus economic & job leakage analysis. The report also must provide a summary of expenditures by all investment accounts, including credits received by refineries and utilities and their progress towards their approved transition plans, which are required to receive credits.

On or before December, 2030 the Department of Commerce is to provide recommendations to JCCPO as to whether the carbon tax rate should be increased or decreased in order to successfully reduce greenhouse gas emissions to 25% below 1990 levels by 2035.

Section 107 – Technical Assistance

State agencies must provide technical assistance to the Department of Revenue as needed.

Section 108 – Carbon Pollution Reduction Account

All receipts from the carbon tax get deposited into the Carbon Pollution Reduction Account. Funds in this account can only be spent after appropriation. After appropriating administrative funds to agencies, and $100 million to the multimodal transportation account, the remainder is divided as follows:

  • 50% to the energy transformation account
  • 20% to the water and natural resources resilience account
  • 15% to the transition assistance account
  • 15% to the rural economic development account

Section 201 -> 306 – Clean Energy Investment Fund for IOU & COU Utilities

These sections lay out the rules and requirements for utilities seeking to receive credits against their carbon tax obligations. The rules for Investor Owned Utilities (IOU) are regulated by the Utilities and Transportation Committee (UTC), while those for Customer Owned Utilities (COU) are administered by the Department of Commerce. Utilities can request credits for up to 100% of their carbon tax obligation. To receive credit, the utility must have an approved clean energy investment plan for disbursing the funds and a separate clean energy investment account into which the funds are deposited. IOUs may not earn a rate of return for investors on any retained funds. Reasonable administration can be charged to the clean energy investment account.

A clean energy investment plan must be developed with public input, and seek, to the extent possible, to eliminate the utility’s carbon tax obligation associated with electricity by 2050. Plans include independent evaluations of financed activities including verification of emission reductions, seek to achieve significant CO2 reductions over the shortest time frame, require proof of additionality taking into consideration existing laws like I-937, and shall provide sufficient funding to mitigate increases in electric and natural gas costs from the carbon tax for qualifying low-income households.

A fairly broad set of potential expenditures exists for these funds, including: conservation, efficiency, eligible renewable energy, low carbon fuel advancement, renewable natural gas, electric vehicle (EV) infrastructure, EV sales incentives, demand response, transmission and distribution systems to support smart and distributed grids, and others. Large industrial and gas customers can receive self-directed funds from their utility’s clean energy investment account for these purposes. Up to 10% of the funds can be spent on research and development of conservation measures and zero-emission energy resources.

All expenditures must be included in the approved clean energy plan, which is updated every two-years. A utility must achieve performance standards as stipulated within the plan, or be subject to reduced credits and/or returning remaining money back to the Department of Revenue. A group of COU’s can enter into agreements to aggregate their carbon tax credits and develop a joint clean energy plan.

Section 401 – Energy Transformation Account Funds

After administrative costs and $100 million being moved to the multi-modal account, 50% of the remaining funds are moved to the Energy Transformation Account. Funds in this account can only be spent after appropriations.

A grant program is developed by the Department of Commerce to purchase verifiable carbon reduction projects in Washington State. Funded projects should be additional to projects expected to occur as a result of current carbon tax rate, utility clean energy plan investments, and other existing policies. The grants, combined with the utility clean energy investments and complementary policies, shall seek to reduce greenhouse gas emissions to 25% below 1990 levels by 2035.

Project activities can include but are not limited to:  transportation; combined heat and power; energy; livestock and agricultural; waste and wastewater; industrial sector; sequestration, including wood product substitution; and other activities on a technology-neutral basis.

Priority must be given to projects that: leverage non-state funds; are proposed by COU’s with less than $5 million in annually retained utility credits; or that provide benefits to low-income communities, communities of color, and communities of indigenous people (provided these projects are competitive on an emission and cost basis with other proposals).
Recipients must provide detailed measurement and verification of the carbon reductions achieved and funds expended. Funding may be terminated if grant proposal projections are not achieved, or be returned to the department in the case of gross misuse of funds. The department must publish an electronic database that ranks projects based on metrics including avoided cost of a ton of carbon dioxide.

Section 402 – Sequestration of Carbon

Energy Transformation Account Funds can be used to fund carbon sequestration activities. Identified carbon sequestration pathways include: terrestrial, riparian, and aquatic habitat; agricultural lands and soils; aquatic marine and freshwater natural resources; and working forest conservation easements or deed restrictions.

Section 403 – Implementation Plan for the Energy Transformation Account

This section provides guidance for implementation of the Energy Transformation Account grant program. The Department of Commerce, in consultation with the Washington State University (WSU) Extension Energy Program, will analyze carbon reduction opportunities which may include a marginal abatement cost curve providing guidance on the cost to reduce emissions in various sectors with various technologies. Analysis of various grant making strategies and measurement and verification methods will be completed to ensure efficient and transparent allocation of funds and tracking of results. An independent audit must be completed every two-years and reported to the JCCPO.

Section 501 – Transition Assistance Account

After administrative costs and $100 million being moved to the multi-modal account, 15% of the remaining funds are moved to the Transition Assistance Account. Funds in this account can only be spent after appropriations. This account provides economic and public health supports, programs, services, and assistance to low-income households.

Section 502 – Communities Highly Impacted by Fossil Fuel Pollution and C.C.

The Department of Health must produce by Dec. 2018 a cumulative impact analysis to designate communities highly impacted by fossil fuel pollution and climate change in Washington. The analysis must map, rank, and designate a percentile of census tracts as highly impacted, considering characteristics of vulnerable populations and environmental burdens. The designation of highly impacted communities must be updated in 2023 and every two-years thereafter. The cumulative impact analysis must be updated in 2025 and every four years thereafter.

Section 503 – Energy Transition Assistance to Low-Income Households

Transition Assistance Account funds can be used to provide funding to assist low-income households with higher energy costs during the transition to cleaner energy sources. Potential methods include grants, subsidies, rebates, expansion of existing State programs, and new programs that create direct financial assistance. The department must consult with and take into strong consideration the recommendations of a broadly representative transition assistance advisory group. An implementation plan, including recommended appropriations and legislative action, must be submitted to JCCPO by December, 2018.

Section 504 – Energy Transition Assistance to Displaced Workers

Transition Assistance Account funds can be used to provide assistance to displaced workers in fossil fuel related industries. Assistance may include: wage, pension, and health benefits for up to two years plus social security, training, peer counseling, and relocation expenses.

Section 505 – Reporting

The Department of Commerce must report to the JCCPO regarding financial assistance provided to low-income citizens and displaced workers.

Section 506 -> 508 – Vehicle Fee Exemptions for Low-Income Individuals

Some vehicles fees are removed for low-income residents and the revenue loss replaced by funds from the Transition Assistance Account. Individuals at or below 200% of the federal poverty line do not need to pay initial or renewal vehicle license fees (currently $30), vehicle weight fee (currently $25-$45) or the $3 filing fee.

Section 601 – Water and Natural Resource Resilience Account

After administrative costs and $100 million being moved to the multi-modal account, 15% of the remaining funds are moved to the Water and Natural Resource Resilience Account. 50% of these funds are allocated for water related projects and activities. The other half of the funds are allocated 75% to the forest resilience account, and 25% to the fire prevention and suppression account.

Funds cannot be used for projects that would violate tribal treaty rights or result in long-term damage to critical habitat. The departments of Ecology & Natural Resources must report on progress to the JCCPO and provide information necessary for consultation with Indian tribes.

A citizen advisory group is created to provide input in addition to the Economic and Environmental Justice Oversight panel regarding the development of project funding criteria and decisions. Annual progress reports are required by all recipients receiving funding.

Section 602 – Water-Related Project Activities

The Department of Ecology will develop grants for water-related projects which include but are not limited to: reducing stormwater impacts, reduced risk of flooding by restoring natural floodplains, improving reliability of water supplies, fish barrier correction projects, and ocean acidification mitigation and adaptation.

Section 603 – Natural Resources-Related Projects and Activities

Grants are awarded by the Department of Natural Resources using performance-based criteria and objectives. Project implementations must include measures for monitoring and evaluation. Funds from the Forest Resilience Account must be used to improve forest and natural lands health and resilience to climate change through projects such as thinning and prescribed fires, with priority given to projects identified by existing forest health treatment legislation. Funds may also be used for small forest landowner fish barrier correction and cross laminated timber projects. Fire Prevention and Suppression Account funds are used for agency activities and grants for wildland fire prevention as well as projects that reduce the risk of wildland fires to communities.

The Department of Natural Resources, in partnership with the board of community and technical colleges, will develop a center of excellence and research to promote renewable forest products plus research both forest health and fire risk reduction.

Section 701 – Rural Economic Development Account

After administrative costs and $100 million being moved to the multi-modal account, 15% of the remaining funds are moved to the Rural Economic Development Account. Funds in this account can only be spent after appropriations.

These funds are used to develop grants that provide assistance to rural communities for supporting: low-carbon innovation and entrepreneurship, increased affordable transportation options, encouraging telecommuting through expanded broadband access. Funds are also used for community and technical colleges to establish two clean energy centers for excellence within rural communities, with one focused on renewable energy integration and the other on smart grid technology and the next generation of hydropower resources.

Section 702 – Rural Broadband

The legislature intends to provide $30 million from the Rural Economic Development Account for the fiscal year ending June, 2020 to the Department of Commerce for the purpose of developing strategies & plans with stakeholders for the deployment of broadband infrastructure into unserved and underserved areas of the State.

Section 801 – Joint Committee on Climate Programs Oversight (JCCPO)

A Joint oversight committee is created and meets quarterly to provide ongoing review and recommendations regarding the implementation of this act.  The JCCPO includes the governor, commissioner of public lands, and state auditor (or their designees), plus one senator and one representative from each political party.

Section 802 – Government-to-Government Consultation

The Governor must develop a framework whereby at least once a year all federally recognized Native American tribes can meet with the JCCPO and provide meaningful input and consultation regarding the implementation of this act.

Section 803 – Indian Tribe Consultation

State agencies receiving carbon tax revenue must consult with Indian tribes on all proposed fund usage decisions that may affect the tribes’ rights and interests in their tribal lands prior to being funds being awarded.

Section 804 – Pollution Cleanup Fund Advisory Board

A 21 voting member board is appointed by the governor to oversee implementation of this act toward reducing pollution and facilitating an equitable/sustainable/efficient transition to a clean energy economy. Board members include representatives from: tribal, local government, business, environmental, labor, land conservation, and public health organizations. The board should have balanced representation by geography, gender, and ethnicity with at least 1/3rd of the appointees being members of the Economic and Environmental Justice Oversight Panel.

The board provides recommendations to the Governor, JCCPO, and the legislature regarding the implementation and impact of the act with a focus on the carbon tax impacts and avoiding inequitable effects on citizens and energy intensive trade exposed businesses.

Section 805 – Economic and Environmental Justice Oversight Panel

A subcommittee of the Pollution Cleanup Fund Advisory Board is developed to coordinate implementation, research, and provide recommendations to the governor’s office and related agencies regarding expenditures affecting highly impacted communities. The subcommittee consists of at least 5 members who reside in highly impacted communities and two members representing union labor.

Section 901 -> 902 – Preemptions

No city, town, county, township or other subdivision or municipal corporation of the State may levy or collect a local carbon tax.

No state agency may adopt or enforce a statewide program that establishes a greenhouse gas emission cap or charge except as provided in this chapter. The Department of Ecology is specifically prohibited from enforcing the Clean Air Rule (CAR).

Section 1001 -> 1002 – Changes to I-937 – Renewable Portfolio Standard

Incremental improvements to existing hydroelectric facilities completed after March, 1999 can now be counted as eligible renewable energy and contribute towards utilities’ renewable portfolio standard obligations under I-937.

Section 1101 -> 1107 – Miscellaneous Provisions

This act expires if either a statewide law places a charge, tax, or cap on the level of carbon emissions within the state, or an initiative by the people places a charge, tax, or cap on greenhouse gas emissions that is broadly imposed on persons subject to the carbon tax in this act.