Climate Change Law Alert: Washington State Adopts GHG Emissions Reduction Legislation
5/4/2007

On May 3rd, Washington took a major step towards reducing greenhouse gas ("GHG") emissions. Following California’s lead last September, Governor Christine Gregoire signed Substitute Senate Bill 6001 (SSB 6001), which establishes statewide GHG emissions reduction goals, and imposes an emissions performance standard on baseload electric generation. The new legislation will impose significant restrictions on the procurement of fossil-fuel-fired baseload generation. While Governor Gregoire vetoed one portion of the bill as voted out by the Legislature, that section was considered by many to be redundant.

GHG Emissions Reduction Goals

Washington State previously set a number of GHG emission reduction targets through Executive Order 07-02, issued by Governor Gregoire on February 7, 2007. That order established the following targets for reducing Washington’s GHG emissions:

• By January 1, 2020, reduce GHG emissions to 1990 levels,
• By January 1, 2035, reduce emissions to 25 percent below 1990 levels, and
• By January 1, 2050, reduce emissions to the lesser of 50 percent below 1990 levels or 70 percent below the projected annual emissions level for 2050.

SSB 6001 adopts these goals into law. It also adopts another of the targets set in Executive Order 07-02, which is to increase jobs in the clean energy sector from the 8,400 such jobs in Washington State in 2004 to 25,000 by January 1, 2020.

The governor is tasked with developing policy recommendations for the legislature on how the state can achieve the goals adopted by SSB 6001. The recommendations are to be submitted to the appropriate committees of the House of Representatives and the Senate for consideration in the 2008 legislative session.

Emissions Performance Standard for Baseload Generation

The new legislation also imposes an emissions performance standard on baseload electric generation, modeled on California’s Senate Bill 1368. Approximately 16 percent of Washington’s GHG emissions come from in-state electric generation. Like California’s Senate Bill 1368, however, SSB 6001 would apply to all generation used to serve load in Washington, whether or not that generation is located within the state.

The statute defines baseload generation as generation that is "designed and intended to provide electricity" at an annualized plant capacity factor of at least 60 percent. Beginning July 1, 2008, electric utilities entering into a "long-term financial commitment" for baseload generation must show that the baseload generation complies with the GHG emissions performance standard. The performance standard applies to both investor-owned utilities ("IOUs") and consumer-owned utilities ("COUs"), which include municipal utilities and public utility districts. For IOUs, the performance standard will be enforced by the Washington Utilities and Transportation Commission, and the governing boards of COUs are tasked with ensuring compliance with the standard. "Long-term financial commitment" is defined as (i) any new or renewed contract for baseload generation with a term of five or more years, (ii) a new ownership interest in baseload electric generation, or (iii) the modification of a baseload electric generation facility designed primarily to increase the capacity of that facility.

The emissions standard would also apply to any baseload electric generation that commences operation after June 1, 2008 and is located in Washington, whether or not that generation serves load located within the state.

Baseload generation facilities must initially comply with a 1,100 pounds of CO2 per megawatt hour GHG limit. This is the same limit currently imposed in California. The limit must be reviewed and adjusted every five years by the Energy Policy Division of the Department of Community, Trade and Economic Development to match the average rate of emissions of new combined-cycle natural gas thermal electric power generation turbines. The first such rate review shall be completed by June 30, 2013.

Effects on Fossil Fuel Generation

Conventional coal-fired generation (i.e., pulverized coal), produces GHG emissions well in excess of the new emissions standard of 1,100 pounds of CO2 per megawatt hour. The legislation thus effectively bars Washington utilities from entering into long term financial commitments for any pulverized coal-fired generation unless they use some form of carbon sequestration. Any emissions permanently sequestered in geological formations or by other methods do not count in determining whether the plant meets the performance standard. New coal combustion technologies, such as Integrated Gasification Combined Cycle (IGCC) technology, can be developed as one of its benefits is the ability to capture carbon for sequestration.

The new law distinguishes between those baseload plants that sequester immediately and those that do not. Under the law there is the clear ability to defer sequestration after the effective date of the statute so long the net emissions over the life of the project are compliant. This concept is one that was developed in California in implementing SB 1368. For those facilities that choose to defer sequestration, the Department of Ecology and the Energy Facility Site Evaluation Council are charged with developing criteria to evaluate carbon sequestration plans for new generation that intends to rely on future sequestration to meet the performance standard. The rules shall include the following:

• Provisions for financial assurances sufficient to ensure successful implementation of the sequestration plan,
• Provisions for sequestration to commence within five years of plant operation,
• Provisions for monitoring the effectiveness of the implementation of the sequestration plan,
• Provisions for penalties for failure to achieve implementation of the plan on schedule, and
• Provisions for the owner to purchase emissions reductions in the event of the failure of a sequestration plan.

The legislation would therefore allow a new coal-fired plant up to five years to implement carbon sequestration. The legislation provides a further exemption to projects that are under consideration by the Energy Facility Site Evaluation Council by the effective date of the legislation. The project owner is obligated to make a good-faith effort to implement the sequestration plan, but in the event that the project owner subsequently determines that sequestration is not feasible, the owner would be permitted to meet the performance standard by purchasing verifiable GHG emissions reductions from an electric generation facility located within the western interconnection. These reductions must be reductions that would not have occurred otherwise or absent the contractual commitment, and the sum of the emissions reductions purchased and the plant’s emissions must meet the emissions standard.

The emissions standard will likely also have consequences for natural gas-fired generation, including older combined-cycle gas-fired plants. The emissions standard will remain at 1,100 pounds of CO2 per megawatt hour for five years, at which time it will become the lower of 1,100 pounds of CO2 or the average emissions of new combined-cycle natural-gas-fired turbines as determined by the Department of Community, Trade and Economic Development. The average emissions of new combined-cycle turbines will likely be below 1,100 pounds of CO2 per megawatt hour, resulting in a lower emissions standard being imposed five years after the statute becomes effective. This new emissions standard may force the retirement or repowering of older combined-cycle plants. Furthermore, in developing recommendations to meet the statewide GHG emissions reduction goals, the governor is specifically directed to consider a process for replacing the highest emitting thermal electric plants with newer technologies.

For IOUs, the Utilities and Transportation Commission is also authorized to provide a case-by-case exemption from the emissions standard in the event of unanticipated reliability needs, catastrophic events, or threat of significant financial harm that may arise from unforeseen circumstances. For COUs, the governing board can provide a case-by-case exemption for the same reasons.

If you have any questions about this update or if you would like our assistance in connection with this matter, please contact your Stoel Rives lawyer or one of the following energy attorneys:

For SSB 6001:

Patrick G. Boylston at pgboylston@stoel.com or (503) 294-9116
William H. Holmes at whholmes@stoel.com or (503) 294-9207
Pamela L. Jacklin at pljacklin@stoel.com or (503) 294-9406
Timothy L. McMahan at tlmcmahan@stoel.com or (503) 294-9517
Thomas R. Wood at trwood@stoel.com or (503) 294-9396

For California’s SB 1368 (or AB 32):

Stephen C. Hall at schall@stoel.com or (503) 294-9625
Seth D. Hilton at sdhilton@stoel.com or (415) 617-8943
John A. McKinsey at jamckinsey@stoel.com or (916) 319-4746
Marcus Wood at mwood@stoel.com or (503) 294-9434
Thomas R. Wood at trwood@stoel.com or (503) 294-9396

View this and other Legal Updates on the web at: http://www.stoel.com/alerts.aspx.

This is a publication of Stoel Rives Energy Group for the benefit and information of clients and friends. This bulletin is not legal advice or a legal opinion on specific facts or circumstances. The contents are intended for information purposes only. Copyright 2007, Stoel Rives LLP.