Oregon to reinstate ambitious climate program amid divided reactions from industries, environmentalists

Oregon’s ambitious carbon emissions reduction program is restarting once again.

The program is set to start for a second time in January — after a court of appeals invalidated the state’s first attempt at the Climate Protection Program late last year.

Most industries the program regulates are not happy with the new rules, while environmental organizations celebrated the reinstatement of the program, saying Oregon is now back on track to reduce emissions from the state’s largest polluters.

On Thursday, the Oregon Department of Environmental Quality’s commission voted to unanimously adopt a revamped version of the Climate Protection Program. The program’s main goal is to reduce 90% of carbon emissions from diesel, gasoline and natural gas companies by 2050. The first benchmark regulated entities must comply with is a 50% carbon emission reduction by 2035.

“Oregon is committed to acting boldly and consistently to do our part to protect our climate,” Gov. Tina Kotek said in a press statement. “The Climate Protection Program will keep polluters accountable and fund community investments that will reduce greenhouse gas emissions in Oregon.”

DEQ’s Climate Protection Program is one of the strongest emission reduction programs in the nation. Agency staff have touted the program as “foundational” in helping other state mandates, like electric utilities having net-neutral carbon emissions by 2040, “pick up the slack” to help reduce the state’s overall greenhouse gas emissions.

But the idea of a cap-and-trade program, like the CPP introduces, has been a controversial issue in the state for many years. Republican lawmakers shut down the Oregon Legislature two years in a row to stop majority Democrats from passing a cap-and-trade bill.

An earlier version of the program was also criticized, as fossil fuel groups regulated under the program sued to block it entirely in early 2022. The Oregon Court of Appeals invalidated the program last December, citing procedural technicalities.

Now, the program, which was updated after undergoing a second rulemaking process, is set to start once again in January, with a few changes.

Those include regulating heavy carbon emitters and direct natural gas users, working with the Oregon Public Utility Commission to monitor natural gas rates and adjusting compliance periods to give companies more flexibility.

“This program maintains Oregon’s commitment to addressing climate change, transitioning our economy to remain globally competitive, and investing in our most impacted communities across the entire state,” DEQ’s Environmental Quality Commissioner Chair Matt Donegan said in a statement.

Regulated entities will have three years, starting in 2025, to make adjustments to be in compliance with the new rules. After that, the compliance periods will be two years.

Hitting restart

After DEQ decided not to appeal the court decision that invalidated the program, the agency began a second rulemaking process in March. DEQ fast-tracked the process using the same framework that led to its previous rules. It took more than 20 months to develop the first attempt at a Climate Protection Program, which gathered more than 7,000 public comments and was guided by an advisory committee.

This time around, the agency received more than 10,000 public comments, the most the agency has ever received during any public comment period. That input, and a 26-member advisory committee, helped shape the new rules.

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

But not everyone is happy with the result.

Bill Gaines, executive director of the Alliance of Western Energy Consumers, said there were meaningful discussions about the proposed changes to the program, but there needs to be more protections for consumers as well as businesses that compete regionally and globally.

In comments submitted to the agency from the group in late September, the AWEC wrote, “maintaining a vibrant, growth-oriented economy is not mutually exclusive with the policy of reducing greenhouse gas emissions. The proposed CPP rules, however, will produce major, negative impacts on natural gas consumers, with the greatest impacts on the high-volume gas consumers that are the cornerstone of the State’s economic vitality.”

Gaines said although there was an improvement in the final draft rules for the recently added Energy Intensive Trade Exposed members, the new rules will be costly for Oregon’s natural gas customers. AWEC estimates companies that would be regulated under the new rules would have to pay millions of dollars to comply with the program to keep using natural gas at current rates. That could lead some businesses to leave Oregon, he said.

Gaines also said the group is still questioning whether DEQ has the authority to implement the program.

DEQ has said the agency has full authority to establish and enforce the program

Other regulated companies like NW Natural say it appreciates changes to delay program elements for a small percentage of their customers.

NW Natural was one of the fossil fuel companies that sued to halt the program in 2022.

But Spokesperson David Roy said “the overall negative cost impacts to Oregonians remain, as do our concerns about the accountability for this program to reduce greenhouse gas emissions.”

Roy was referring to the Community Climate Investment carbon credit program. If regulated entities choose to not lower their emissions, they can buy credits at the cost of $129 per ton of greenhouse gas pollution.

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

Under the new rules, DEQ will work with the Oregon Public Utility Commission to evaluate and mitigate significant rate increases many natural gas customers may see due to compliance costs.

Roy said higher carbon credit costs could still impact their customers like hospitals and schools, because they “are still stuck with the most expensive cost of carbon of any program in North America.”

But not all regulated entities are unhappy with the second version of the rules.

Mike Freese with the Oregon Fuels Association said the adjustments made to the final rules governing the transportation industry are workable.

“Oregon’s local fuel sector was critical in lowering greenhouse gas emissions below the aggressive greenhouse gas reduction goals under the prior CPP program,” he said. “We appreciate DEQ recognizing these investments in the rule to help ease impacts on consumers. While the recently adopted CPP rule is an improvement, lawmakers need to carefully monitor this program to ensure Oregonians have access to affordable fuel in all parts of the state.”

During the first two years of compliance under the first version of the Climate Protection Program, the regulated industries reported a reduction in their emissions beyond what was required under the program.

As DEQ underwent the second rulemaking process, the agency said that some industries, like fuels suppliers, were reducing their emissions to beyond what was required to meet the cap with the previous rule. So DEQ is granting those companies additional carbon credits that represent what they would have banked under the first version of the program.

‘Beacon of hope’

The reinstatement of the program puts Oregon back on track to reduce greenhouse gas emissions and invest in communities hit the hardest by climate change, a coalition of environmental groups said.

“Oregon’s actions today are a beacon of hope,” Oregon Environmental Council executive director Jana Gastellum said in a statement. “Every state deserves a program like the Climate Protection Program to not only cut pollution but also generate funds for community projects and business innovation. It’s a win for the people, especially those in frontline communities who’ve long been impacted by climate change.”

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

The Community Climate Investment credits would go toward projects like creating more renewable energy and retrofitting and weatherizing buildings, which would reduce carbon emission within the state’s most vulnerable communities. The program’s aim is to reduce air pollution and improve public health and help communities transition from fossil fuels to cleaner energy.

DEQ has refined what type of projects will be eligible, and the new rules ensure 15% of the funds received will benefit tribal communities in Oregon.

“This holds polluters accountable while uplifting community-led solutions,” Xitlali Torres, air quality and climate program coordinator at nonprofit environmental group Verde, said in a statement. “It directly addresses the harmful pollution that burdens low-income communities of color while building cleaner air, safer homes, and a livable future for all.”

But the implementation of the Community Climate Investment program, which was almost ready to launch when the first version of the Climate Protection Program was ruled invalid, will be delayed under the plan approved Thursday.

DEQ will restart the process of selecting an entity to implement the program and expects the program to be in place by the end of 2026.