Oregon drafts a reboot of the state’s flagship climate program

Oregon is asking the public to weigh in on a plan to reboot the Climate Protection Program, which aims to reduce carbon emissions from oil and gas companies and support some of the communities that will be hardest hit by climate change.

Environmental regulators are working to reestablish the carbon emissions reduction program after their first attempt was invalidated by a state appeals court late last year.

The Oregon Department of Environmental Quality hopes to see the revised Climate Protection Program get a fresh start next year.

People can submit comments on the draft plan through 4 p.m., Aug. 30.

Related: Oregon Court of Appeals finds state carbon reduction rules invalid

The program was originally designed to reduce 90% of carbon emissions from oil and natural gas companies by 2050. Under DEQ’s reworked draft rules, the program would now also regulate other industries that are heavy carbon emitters, like paper mills and concrete manufacturers.

Other changes include:

• Regulated entities — like oil and gas companies, as well as those heavy carbon emitters — would have two years to comply with new regulations, instead of three.
• DEQ would work with the Oregon Public Utilities Commission to monitor how the program affects customers’ natural gas bills.
• A planned carbon credit program would allocate 4.5% of its funding to administrative costs to improve how the program is implemented.

That carbon credit program, the Community Climate Investment program, aims to serve what DEQ calls environmental justice communities, the disadvantaged groups most impacted by climate change. It would use funds raised through the sale of carbon credits to pay for projects like adding more renewable energy to the grid and retrofitting homes. The draft rules state at least 15% of these funds would be used for projects for federally recognized tribes and tribal communities in Oregon.

“Our goals are still to significantly reduce emissions, we still want to have equitable outcomes, alleviate burdens for any environmental justice communities. We want to do this in a way that provides flexibility to our compliance entities,” DEQ’s Climate Protection Manager Nicole Singh said.

Most importantly, Singh said, the state’s carbon emissions reduction goals will stay the same — 50% reduction by 2035 and 90% reduction by 2050.

Since the Department of Environmental Quality created the program under an order issued by former Gov. Kate Brown in 2021, Oregon has sought to make the Climate Protection Program one of the strongest climate action programs in the nation. It aims to reduce nearly all carbon emissions from oil and gas companies by 2050. The Oregon Climate Action Commission says launching the Climate Protection Program is necessary to meet the state’s climate goals.

But the program’s debut generated pushback from NW Natural, Cascade Natural Gas and other fossil fuel companies. They sued to block the program entirely, and late last year, an appeals court ruled the program invalid, saying Oregon had not followed Clean Air Act rules when implementing it.

Now, some business groups that would be regulated under the reworked program say carbon credit costs will rise over the long term and could potentially drive regulated industries out of business — or out of the state. Environmental advocates, meanwhile, say the program is not moving fast enough, and that its delay will continue to impact Oregonians most affected by climate change.

Related: DEQ to start over with Climate Protection Program after Oregon Court of Appeals decision

Strengthening the Climate Protection Program

The Climate Protection Program’s most recent proposed rules reflect feedback the agency received from an advisory committee of 26 members. It included people from environmental and climate groups to fossil, oil and gas industries, as well as public comment received after each committee meeting.

But the Department of Environmental Quality didn’t start from scratch in drafting those rules.

DEQ used what it learned from its first attempt, which took more than 20 months and included more than 7,000 comments, Singh, the climate protection manager, said. That earlier work helped fast-track the second rulemaking process.

“We had a lot of great experience with implementing the program before it was invalidated,” she said. “So, we obviously used all that information, but we also wanted, as best as we could, [to] take the opportunity to have a rule-making process where we could have our advisory committee and we could look for any opportunities where we could potentially strengthen the program or improve the program.”

Regulating energy-intensive industries

Based on feedback from the advisory committee, DEQ expanded Climate Protection Program regulations beyond fossil fuel utilities. The new draft rules also regulate companies the agency calls “Emissions Intensive Trade Exposed Sources,” Singh said. These industries, like food processors and steel manufacturers, use high levels of energy and collectively emit more than 15,000 metric tons of carbon dioxide. That’s the equivalent to the greenhouse gasses more than 3,500 gas-powered vehicles would emit in a year.

Bill Gaines, executive director of the Alliance of Western Energy Consumers, said his advocacy group was happy to see some of its recommendations were adopted, including regulating carbon emissions of energy-intensive businesses. But there is still more work to be done to “get the economics right,” he said.

“The program puts declining limits on the consumption of natural gas over time,” Gaines said.

Gaines said if the companies cannot meet those limits, they will have to buy community climate investment credits. That could end up being more expensive than the price of buying natural gas, he said.

If a regulated company chooses not to lower emissions or exceeds its carbon emission limits set under the draft rules, that company could instead buy a community climate investment credit for $129 per every metric ton of carbon emissions it emits. That’s the rate set for the first two years of the program, starting in 2025.

The Alliance of Western Energy Consumers estimates that a small pulp and paper company would pay hundreds of millions of dollars over the life of the Climate Protection Program to buy enough credits to keep using natural gas at current rates.

“So it’s very large numbers and may not be economical for these businesses, particularly the businesses that have production facilities elsewhere and can shift their production elsewhere,” Gaines said.

That could lead companies to leave Oregon, he said, and emit those greenhouse gasses in another state.

Gaines said there was a strong desire among the rules advisory committee members to prevent companies from shifting carbon emissions out of Oregon, and he hopes DEQ will address the risk before issuing its final rules.

Meeting emissions targets could be easier for some industries than others

Oregon Fuels Association representative Mike Freese said folks from the transportation industry are comfortable with the drafted Climate Protection Program rules.

“The transportation fuel sector really demonstrated that they could meet and exceed the carbon reduction targets that were set out in the previous rule making, and those were accounted for in this draft,” he said.

Some companies, like fuel suppliers, have already been reducing emissions and were working to follow the rules set out in the Climate Protection Program’s previous version, before those policies were ruled invalid. DEQ is recognizing those reduced emissions by granting companies some carbon credits at no cost, DEQ’s Singh said.

Freese, who represented the Oregon Fuels Association as a member of the rules advisory committee, said those granted carbon credits allow Oregon-based fuel distributors and retailers some flexibility and benefits in the short term for importing renewable fuels.

But Freese worries it still may be difficult to reach the state’s overall emissions reduction target goals.

“Everybody is trying to do what they can to meet those targets,” he said. “I don’t know whether or not technology is going to exist to help us meet those targets, or what the expense will be.”

Related: Oregon DEQ selects nonprofit to distribute millions from climate investment program

Community Climate Investment Program delay

When the Climate Protection Program was ruled invalid, carbon emission rules were not the only thing put on hold. Oregon had already selected Portland-based nonprofit Seeding Justice to lead investments in programs to reduce emissions, support clean energy and promote public health in groups identified as “environmental justice communities.” Seeding Justice had hoped to start offering those Community Climate Investments in early 2024 and estimated the fund would generate $150 million each year.

Executive director Se-ah-dom Edmo said Seeding Justice plans to reapply to lead those community investments when the Climate Protection Program is ready to begin again.

But Edmo is also frustrated that the new rules could delay some investments, she estimates by as much as a decade.

That’s due to the combination of how long companies are now being allowed to come into compliance before they must buy credits for emissions, along with the carbon credits they’re being granted at no cost, she said.

“It’s a significant amount,” she said. “So regardless of the fact that we may have Community Climate Investments on the opening day, they will not have any incentive to make those.”

The organization had already identified 17 climate action projects, like weatherizing homes, heat pump installation and community solar projects, to begin on day one, Edmo said.

“Those projects will now be delayed by as many as nine years,” she said. “They might even not come to fruition.”

Meredith Connolly, director of policy and strategy for advocacy group Climate Solutions, who was also part of the rules advisory committee, said Seeding Justice was on the cusp of investing in communities and organizations in need. Then the court ruling that invalidated the Climate Protection Program put that on hold.

“The can has been kicked down the road for a very long time for our major oil and gas industry to be responsible for their emissions” she said.

DEQ’s Singh acknowledged the agency and Seeding Justice were weeks away from implementing the program in early 2024 but said “our hands are tied in terms of what we can do to compensate for these kinds of delays.”

Some, like Xitlali Torres, air quality and climate program coordinator at environmental nonprofit Verde, suggested DEQ should front-load the community climate investment program with funding rather than wait. Torres was also part of the rules advisory committee.

“If we really are trying to prioritize and gear up our communities, I believe that those investments should come even before emissions are required to go down so that we have the foundation to make an energy transition,” Torres said.

Even though this is DEQ’s second rulemaking process, Singh still expects to receive thousands of public comments.

“It is a balancing act for us to obviously hear all that feedback,” she said. “Obviously our job is to do our best to hear that feedback, construct something that we can put out.”

DEQ will hold a virtual public hearing on the draft rules on at 4 p.m., Aug. 21.

The deadline to submit public comment for the agency’s draft rules is 4 p.m., Aug. 30.