Oregon Acts on Carbon Cap and Trade But by Administrative Rule

Peter Pearsall, US Fish and Wildlife Service

This blog was coauthored by Angus Duncan, Oregon/Pacific Northwest consultant to NRDC.

Oregon's Environmental Quality Commission (EQC) recently adopted the Climate Protection Program(CPP), a sweeping greenhouse gas (GHG) emissions rule that-if fully implemented, together with other Oregon actions-would reduce emissions emanating from the state by some 50 percent by 2035, and 90 percent by 2050. While that would still leave additional reductions to be captured to reach Oregon's overall goal of more than 90 percent by 2050, it is a very substantial down payment on the state's contributions to reductions globally.

The rule would put the largest GHG emitters in the state, after the electric utilities, on a carbon diet, one that will grow stricter every year till 2050 (see more below); these will include gas utilities, gasoline and diesel combustion in transportation uses, and the largest Industrial stationary sources (e.g., tech manufacturing, cement production, etc.).

Each of these sources or aggregated sources (i.e. vehicle fuels and natural gas combusted by individual consumers and businesses would be regulated at supplier level) would be issued free credits to release a fixed amount of GHG (CO2e, or "carbon dioxide equivalent") gases in a year. If the source emits more than the allowed level, it would have to buy credits from other regulated entities that emitted less than their allotment, or from the state. Each year, the total available quantity of credits issued would decline, with emissions falling commensurately.

This approach is, effectively, a parallel to the cap-and-trade authorized legislatively in the state of California (AB 32 in 2008) and in Washington State's Climate Commitment Act (2023), but it is grounded in the general authority of the state of Oregon to regulate polluting gas emissions. As such, it offers to other states looking to pursue their GHG reduction strategies an alternative pathway to moving those strategies forward in the face of inaction and hostility from a Trump administration. Not every state has the leverage in either its legislature or at the ballot box to adopt these complex emissions management arrangements. As Oregon discovered, the economic and community effects of regulating energy emissions have real-world consequences for household, community, and business energy use…and budgeting. The structure and functioning of a cap-and-trade regime requires careful shaping and balancing to extract the maximum emissions savings with a minimum of gratuitous economic interference in business and personal choices.

The legislature has already adopted carbon emissions caps (in HB 2021, passed in 2021) on the state's two largest electric utilities (which, together, accounted for roughly a third of Oregon's emissions). That measure required 80 percent carbon-free electricity by 2030, 90 percent by 2035, and 100 percent by 2040. It was developed by the two utilities and an informal group of stakeholders and was carried by this coalition through the 2019 legislative session.

Oregon had twice earlier sought an economy-wide legislative cap (in 2019 and 2020). On both occasions, a Democratic majority had the votes to adopt the cap-and-trade measure but was frustrated by a united Republican minority and an outlier "two-thirds of Members present" quorum requirement for the state of Oregon. Republicans simply didn't show up in the chamber.

In response, Governor Kate Brown issued Executive Order 20-04, directing climate action by all pertinent state agencies. She specifically tasked the EQC and the Department of Environmental Quality (DEQ) with developing an administrative carbon cap that relied on existing pollution control authorities. Because Oregon's authority only extends to emissions sources withinthe state's boundaries, the rule as drafted did not reach to outside emissions sources-such as fugitive emissions from gas wellheads and pipelines-resulting from in-state demands (HB 2021, the electric utility cap, counts emissions from many fossil power plants outside Oregon that serve Oregon loads).

DEQ staff worked with stakeholders into 2022 to fashion the program for implementation, which was adopted by the EQC in November 2022. It was immediately challenged in state court by the entities whose emissions activities would be regulated: three natural gas utilities, all in-state gasoline/diesel fuel suppliers, and stationary sources-mostly industrial-that emitted in excess of 15,000 metric tons of CO2e in 2020 or annually thereafter. In 2023, the Oregon Court of Appeals ruled that the DEQ had failed to comply with one of its procedural requirements and invalidated the rule.

After consultation with stakeholders, the DEQ elected not to contest the ruling but instead immediately commenced a new rulemaking to remedy the procedural flaw. The agency finished its drafting and vetting by the end of summer 2024. On November 21, 2024, the EQC adopted the substitute rule, which will incorporate the same 2035 and 2050 cap levels that the earlier, invalidated, rule included but with its kickoff date lamentably delayed by the court-forced repeat rulemaking. However the commission adopted the same 2035 and 2050 goals proposed in the first rule, thus requiring a faster reduction pace to 2035.

Assuming the new rule passes any subsequent court review, the reissued CPP will offer other states an alternative, administrative pathway to capping carbon emissions and incorporating an emissions credits trading mechanism to contain cost impacts, just as California's and Washington's legislative actions are doing.

Together with Oregon's earlier action on electric utilities, the state will finally have the tools necessary to drive down GHG emissions to the state's 2050 goalof 95 percent below 1990 levels, a goal adopted almost 20 years ago (since updated) and, absent these tools, hardly honored over those two decades.

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