# Growing Washington’s Economy in a Carbon-Constrained World A Comprehensive Plan to Address the Challenges and Opportunities of Climate Change

December 2008 Publication no. 08-01-025

## Publication and Contact Information This report is available on the Department of Ecology’s website at www.ecy.wa.gov/climatechange/2008CompPlan.htm

For more information contact:
Laurie Dumar P.O. Box 47600 Olympia, WA 98504-7600
E-mail: ldum461@ecy.wa.gov Phone: (360) 407-6606

Washington State Department of Ecology - www.ecy.wa.gov/

o Headquarters, Olympia (360) 407-6000

o Northwest Regional Office , Bellevue (425) 649-7000

o Southwest Regional Office, Olympia (360) 407-6300

o Central Regional Office, Yakima (509) 575-2490

o Eastern Regional Office, Spokane (509) 329-3400

If you need this publication in an altern ate format, call Laurie Dumar at (360) 407-6606. Persons with hearing loss can call 711 for Washi ngton Relay Service. Persons with a speech disability can call 877-833-6341.

# Growing Washington’s Economy in a Carbon-Constrained World
A Comprehensive Plan to Address the Challenges and Opportunities of Climate Change

It is not an exaggeration to say that th e future of human prosperity hinges on finding a way of supplying the world’s gr owing energy needs in a way that does not irreparably harm the environment. Until recently, it looked as if we had plenty of time to meet that challenge. No longe r. Surging oil and gas prices have drawn attention to the physical and political constraints on raising production—and the vital importance of affordable supplies to the world economy. And the latest scientific evidence suggests that the pa ce of climate change resulting from manmade emissions of greenhouse gases—the bulk of which come from busing fossil fuels—is faster than predicted. The urgent need for a veritable energy revolution, involving a wholesale global shift to low-carbon technologies, is now widely recognized . (International Energy Agency, World Energy Outlook 2008 , page 51)

Washington State Department of Ecology Olympia, Washington 98504-7600 Washington State Department of Community, Trade, and Economic Development Olympia, Washington 98504-2525iv This page is purposely left blankv 

# Table of Contents

Acknowledgments ........................................................................................................... vii Executive Summary...........................................................................................................1 1. Introduction................................................................................................................ ....5 2. Washington’s Greenhouse Gas Emissions...................................................................9 3. A Plan to Reduce Greenhouse Gas Emissions...........................................................13 4. Washington’s Green Economy ...................................................................................17 Potential for Job Creation ............................................................................................17 How Climate Action Helps the Green Economy.........................................................19 Taking Action on the Green Economy ........................................................................20 5. Actions Underway........................................................................................................23 Policies in Place ...........................................................................................................23 Vehicle Emissions Labeling ........................................................................................32 GHG Emissions Reporting ..........................................................................................33 6. Climate Action Team Recommendations ..................................................................35 Energy Efficiency and Green Buildings ......................................................................35 Waste Reduction and Recycling ..................................................................................40 Transportation Choices and Reducing Emissions........................................................44 State Environmental Policy Act...................................................................................50 7. Land Use and Climate Change ...................................................................................55 Compact Urban Development......................................................................................56 Recommendations........................................................................................................57 8. Western Climate Initia tive Cap-and-Trade ..............................................................59 WCI Cap-and-Trade Design ........................................................................................60 Alternatives to Cap-and-Trade.....................................................................................66 9. Regulatory Offsets and Other Credits .......................................................................71 Agency Recommendations for Offset Development ...................................................72 WCI Design for Offsets ...............................................................................................72 Overview of Offset Criteria and Standards..................................................................73 Other Credits................................................................................................................75 Role of Local Governments.........................................................................................76 Landfill Gas and Anaerobic Digesters.........................................................................76 Agriculture ...................................................................................................................7 8 Forestry ....................................................................................................................... .78 10. Conclusion ................................................................................................................. .81 Glossary and Acronym List ............................................................................................83 Appendices..................................................................................................................... ...87vi 

# List of Figures and Tables Figures
Figure 2-1. Washington’s Hi storical GHGs and Statut ory Emissions Reductions..............9 Figure 2-2. Gross GHG Emissions by Sector for Washington ..........................................11 Figure 3-1. Emissions Reductions Necessary to Reach 2020 Statutory Requirements.....13 Figure 5-1. Sample Vehicle Label From California Showing Emissions Scores..............33 Figure 8-1. Map of WCI States and Provinces ..................................................................59 Figure 8-2. Annual Washington Emissions Cap Under WCI Cap-and-Trade...................61 Figure 8-3. Washington’s Total GHG a nd Capped Emissions for 2012 and 2015............62



## Tables
Table 2-1. Estimated Washington GHG Emissions by Sector (MMtCO 2 e)......................11 Table 3-1. Emissions Reductions in 2020 from CAT Proposals .......................................16 Table 4-1. Job Growth Projecti ons for Oregon and Washington.......................................19 Table 5-1. Projected 2020 GHG Emissions Reductions from Policies in Place................23 Table 6-1. Summary of Energy Efficien cy and Green Building Strategies.......................40 Table 6-2. Summary of Beyond Waste Strategies.............................................................43 Table 6-3. Summary of Tr ansportation Strategies.............................................................50vii 

# Acknowledgments

We thank the many authors and contributors for thei r extensive input to the development of this report. Primary Authors

• Janice Adair, Department of Ecology

• Justin Brant, Department of Ecology Contributing Authors

• Hedia Adelsman, Department of Ecology

• Julie Anderson, Department of Communit y, Trade, and Economic Development

• Stephen Bernath, Department of Ecology

• Kirk Cook, Department of Agriculture

• Anne Criss, Departme nt of Transportation

• Chad Kruger, Washington State University

• Craig Partridge, Department of Natural Resources

• Brett Rude, Department of Ecology

• Marsh Taylor, Department of Ecology

• Cheryl Smith, Department of Commun ity, Trade, and Economic Development

• Tony Usibelli, Department of Community, Trade, and Economic Development
Comments and Technical Assistance

• Gustavo Collantes, Department of Comm unity, Trade, and Economic Development

• Joanna Ekrem, Department of Ecology

• Michael Lazarus, Stockholm Environment Institute

• Eli Levitt, Department of Ecology

• Peter Moulton, Department of Communit y, Trade, and Economic Development

• Nancy Pritchett, Department of Ecology

• Spencer Reeder, Department of Ecology

• Robert Saunders, Department of Ecology

• Linda Steinmann, Office of Financial Management

• Matt Steuerwalt, Governor’s Office Editing and Production

• Laurie Dumar, Department of Ecology

• Christy Shelton, Cascadia Consulting Group

• David Workman, Department of Ecologyviii This page is purposely left blank1 

# Executive Summary

Global climate change is the economic and envir onmental issue of our lifetime. The science is clear that we must move forward quickly to re duce greenhouse gas (GHG) emissions in order to mitigate its effects. Without action, climate change will negatively affect nearly every part of Washington’s economy through changes in temper ature, sea level, and water availability. This report describes the comprehensive pl an for Washington State to reduce our GHG emissions and expand our green economy. It presents a coordi nated set of policies—including incentives, regulations, and disincentives—to meet the GHG emissions reductions adopted into law in 2008 as part of E2SHB 2815. The required reductions are designed to:

• Return to 1990 GHG emissions levels by 2020.

• Reduce emissions 25 percent below 1990 levels by 2035.

• Reduce emissions 50 percent below 1990 levels by 2050. These actions will also help the state reach its goal of sustaining 25,000 green economy jobs by 2020, up from 8,400 in 2004. 1 Confronting climate change wi ll unleash technological innovation and further cement Washington’s position as a green economy hub now and into the future. It will allow us to be a winner in the worldwide competition in energy efficiency and clean energy, creating quality family-wage jobs here in Washington State, jobs that cannot be outsourced. But we must act quickly. If we fail to act now on climate change, we will miss many of these opportunities. The central policy of this plan is participation in the regional cap-and-t rade program designed by the Western Climate Initiative (WCI). By capping GHG emissions, we will achieve the environmental certainty scientists sa y is critical if we are to slow the rate of climate change. The cap-and-trade program will provide emitting indust ries with flexibility on how they make the needed reductions. It will make clean energy s ources more competitive with fossil fuel. It will also provide the regulatory cer tainty needed to su pport long-term investments in the green economy, investments that will move us toward the low-carbon future, creating jobs along the way. Launched in 2007, the WCI is a collaboration am ong seven U.S. states and four Canadian provinces to design a regional cap-and-trade program. The WCI has proposed the most comprehensive cap-and-trade program in the wo rld to date. We estimate it will cover over 90 percent of Washington’s emissions by 2015 in the following sectors: 2

• Electricity, including imported electricity.

• Industrial and commercial combustion of fossil fu els at large sources, su ch as factories and refineries.

• Industrial process emissions, such as those produced at cement kilns.

1 E2SHB 2815 can be found at http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2815&year=2008

. 2 The first three sectors will be covered beginning in 2012.2 • Fuels used for transportation.

• Residential and commercial fuels, such as oil and natural gas used for home heating.

• Fuels used at industrial faciliti es that are below the emissions threshold for direct coverage. WCI’s preliminary economic modeling of its pro posed program found it will result in modest overall cost savings to the regional economy. Complementar y policies—regulatory, voluntary, and incentive-based policies—improve the effici ency of cap-and-trade and make the program more cost-effective. Within this report, we present a suite of complementary policies the state’s Climate Action Team (CAT) has identified as strategies th at will further reduce GHG emissions. 3 Many of the CAT recommendations will improve energy efficien cy, lowering the overall cost of reducing GHG emissions. The CAT focused on reducing emissions through changes in the transportation sector, buildings and land use, and waste reduction. If fully implemented, these policies will:

• Reduce electricity and energy demand through en ergy efficiency programs, green building requirements, and increases in combined heat and power plants.

• Reduce transportation emissions by increasing public transit and ri deshare options and promoting compact development that minimizes VMT.

• Reduce the amount of solid waste generated an d disposed of through increased recycling, reuse programs, and improved product design.

• Protect Washington’s working fo rests and agricultural lands. Highly energy-efficient building codes show how complementary policies work with cap-andtrade to reduce GHG emissions and create jobs. Th e cap-and-trade progra m will cover electric utilities, requiring them to re duce their GHG emissions. One of the best ways to do that is to reduce demand for the electricity they provide. By requiring improved energy efficiency for new and renovated buildings, electricit y demand will decrease. In tur n, utilities will reduce their GHG emissions. The owners and operators of those bui ldings will enjoy lower electric bills, while skilled Washington labor will be used to build or renovate those buildings. The state has already adopted a number of complementary policies that will reduce GHG emissions. Examples of these policies include:

• Standards for GHG emissions from vehicles, kno wn as the California clean car standards.

• The renewable portfolio standard adopted in Initiative I-937.

• The requirement that utilities pu rsue all available conservation th at is cost-effective, reliable, and feasible. Taken together and once fully implemented, the policies already in place will achieve approximately 45 percent of the emissions redu ctions required for 2020. Our analysis indicates that with the regional cap-and-trade program and the current policies in place, our 2020 emissions reductions are within reach.

3 For more information on the Climate Action Team, see www.ecy.wa.gov/climatecha nge/2008CAT_overview.htm

.3 Much work remains on the details of the WCI cap-and-trade program. What has been recommended to date is the policy framework that outlines what must be the same across the participating jurisdictions to have a functiona l regional market. The framework also defines where each state or province may exercise it s own discretion without distorting the carbon market. The areas of discretionary authority will be determined through legislative and administrative processes here in Washington. This plan should not be thought of as static. To the contrary, it is vita l that we be nimble, adaptive, and that we learn from the experiences of other jurisdictions. Further actions will be needed to meet our 2035 and 2050 emissions re ductions. Many of the recommendations related to land use and transportation are longer-term st rategies. Innovation will make things possible tomorrow that may seem out of reach today. Transforming our economy to one that uses cl ean renewable power in the most efficient way possible will require all of us working together at every level—individual ly, as a society, and as a nation. Only with an engaged and powerful commitment will meaningful change occur.4 This page is purposely left blank5 

# 1. Introduction

The potential impacts of global warming dwarf those of other environmental threats. So began the chapter on global warming in the Department of Ecology’s report, Washington Environment 2010 , issued in 1990 under then-director and now Governor Chris Gregoire. Even then, it was clear the societal threat that climat e change presents is of a nature and magnitude unlike any other we have faced. Climate change poses a significant threat to our economy but also offers enormous opportunities. Washington is well-positioned to lead a transformation to the new green economy, creating jobs and economic growth along the way. We were the first state to make workforce training a key component of our climate policy. Washington ranks f ourth in the nation in private investments in clean energy. We rank fifth in wind power production. Forbes , the national business and financial news publisher, ranks Washington as one of the top three states in which to do business. Responding proactively to the thr eat of climate change has opened the door for new economic opportunities and will continue to do so. Global climate change is the economic and envir onmental issue of our lifetime. It stands to negatively affect nearly every part of Washington’s economy th rough changes in temperature, sea level, and water availability. 4 Some of those changes are alrea dy being felt. In just over three years, between January 2005 and July 2008, Gover nor Gregoire declared 16 weather-related emergencies—more than were declared (15) in the entire previous eigh t years, from 1997 to 2004. The resulting damages to property and res ources cost all of us billions of dollars. The science is clear that we must move fo rward quickly to reduce greenhouse gas (GHG) emissions. In 2007, the Nobel Prize-winning In tergovernmental Panel on Climate Change concluded:

• Climate change is largely the result of emissions of carbon di oxide, methane, nitrous oxide, and other greenhouse gases from human activities.

• There is a less than 10 percent chance that natu ral variation is causing th e current rise in the earth’s temperature. John Holdren, professor of envi ronmental policy at Harvard, di rector of the Woods Hole Research Center, former President of the Ameri can Association for the Advancement of Science, and President-elect Obama’s nominee for sc ience adviser, may have said it best: The most important conclusions about global climate disruption—that it’s real, that it’s accelerating, that it’s al ready doing significant harm, that human activities are responsible for most of it... have not been c oncocted by... enemies of capitalism. They are based on an immense edifice of painstaking studies

4 Washington Economic Steering Committee and the Clim ate Leadership Initiative, Institute for a Sustainable Environment, University of Oregon, Impacts of Climate Change on Washington’s Economy: A Preliminary Assessment of Risks and Opportunities , report for the Department of Ecology and Department of Community, Trade, and Economic Development, November 2006. www.ecy.wa.gov/pubs/0701010.pdf6 published in the world’s leading peer-reviewed scie ntific journals. They have been vetted and documented in excruciati ng detail by the largest, longest, costliest, most international, most in terdisciplinary, and most thorough formal review of a scientific topic ever conducted. 5 

## Building the Economy, Creating Jobs
The world is currently facing one of the worst economic crises in hist ory. Washington has not been immune from these problems, experiencing job losses and declines in public and private revenue. Investing in the green economy will cr eate jobs now and is a key to our state’s economic recovery. Upgrading buildings; increa sing recycling; improving our infrastructure; developing, designing, and deploying green technologies; and creating a trained workforce will create family-wage jobs and reduce our GHG emissions. To take advantage of the green economy, the stat e must create markets that drive investment in low-carbon technologies, reducing GHG emissions along the way. By aligning our research universities with the indust ry capabilities in software , biotechnology, nanotechnology, and sustainable design, we will expand the clean tec hnology industry and create thousands of green jobs in the state. A study by the Center for Amer ican Progress found that a large investment in energy efficiency, mass transit, and renewable en ergy as part of an economic stimulus package has the potential to prod uce 40,000 jobs in Washington over the next two years. 6 Creating these jobs will require an upfront investment from businesses and government. Many of these investments will pay themselves back, cr eating revenue in the long run. A report by McKinsey and Company found that a wide variety of investment s such as energy efficiency measures, water heaters, and industrial pr ocess improvements fall into this category. 7 McKinsey reports that most companies can reduce their emissions 20 to 50 percen t by implementing those measures that will pay for themselves, saving money and becoming more cost-effective over the long term. 8 Investing in these opportunities creat es positive ripple effects throughout the economy, as money that would have been spent on energy can be reinvested in jobs and goods. Businesses are not the only ones who will bene fit from action to reduce GHG emissions. An economic analysis conducted for the Western Cl imate Initiative (WCI) found that implementing the WCI cap-and-trade program, along with comple mentary policies, will produce modest cost savings throughout the economy. Money invested to reduce emissions will be returned through savings realized by consumers using less energy and fuel each year as result of increased efficiency and options in the marketplace. Th e complementary policies include the vehicle tailpipe standards and efforts to reduce de mand for energy and vehicle miles traveled.

5 Thomas L. Friedman, Hot, Flat, and Crowded: Why We Need a Green Revolution—And How It Can Renew America (2008), pages 124-125.

6 Center for American Progress, Green Recovery: A New Program to Create Jobs and Start Building a Low-Carbon Economy , 2008. www.americanprogress.org/issues /2008/09/green_recovery.html

7 McKinsey and Company, Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost? 2007. www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_final_report.pdf7 To attract the needed investment in energy effici ency and clean energy that will create jobs and reduce household costs, we must act quickly. Worldwide competiti on is underway to transform to the new green economy, and Washington is current ly on the leading edge. But, if we fail to act now to create needed markets, we will lose our leadership position a nd many of the opportunities it presents. 

## A Framework for Reducing Emissions
In 2008, the Washington State Le gislature passed E2SHB 2815. 9 This bill created a framework for reducing GHG emissions in Washington’s econo my. It emphasized the importance of being a leader on climate change mitigation. By acting qu ickly, the legislature sought to ensure that “Washington businesses and citizens will have adequate time and opportunities to be well positioned to take advantage of the low-carbon economy.” E2SHB 2815 put into law the state’s GHG emis sions reductions first adopted by Governor Gregoire in Executive Order 07-02. 10 Washington must reduce emissions to:

• 1990 levels by 2020.

• 25 percent below 1990 levels by 2035.

• 50 percent below 1990 levels by 2050. E2SHB 2815 requires Ecology to develop a comp rehensive plan to achieve the required reductions and to submit that plan to the legi slature in December 2008. This report provides an initial plan and focuses on the emissions reductions required by 2020. To reach our emissions reductions, we will need to implement a central policy to address emissions throughout the economy. Ecology and CTED recommend the adoption of the WCI regional cap-and-trade program. It also includes recommendations of the Climate Action Team (CAT). The CAT recently released its final report outlining 24 “most promising” strategies for consideration by the governor and legislature. If fully implem ented, the CAT recommendations will strengthen Washington’s economy and redu ce emissions in both the short and long term. They will also allow Washington to meet the vehicle miles traveled reduction benchmarks established as part of E2SH B 2815. An overview of the CAT’s recommendations can be found in Chapter 6; the full report is available at www.ecy.wa.gov/climatechange/2008CATdocs/ltw_app_v2.pdf

. In addition, several of the CA T’s Implementation Working Groups , as well as two of CTED’s Policy Advisory Committees, addressed the impa cts of land use and development patterns on climate change. These groups propose the overarchi ng goal of directing growth to compact and transit-oriented communities and away from ru ral and resource lands. Th is long-range planning and development will encourage the transformati ons necessary for Washington to meet its 2050 emissions reductions and also help maintain the state’s rural, agriculture, and forestry lands. Recommendations on land use can be found in Chapter 7.

9 E2SHB 2815 can be found at http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2815&year=2008

. 10 RCW 70.235.020

.8 E2SHB 2815 also directed the Department of Ecology (Ecology) and the Department of Community, Trade, and Economic Development (CTED ) to continue their participation in the WCI, a collaboration of seven states and four Ca nadian provinces to desi gn a regional cap-andtrade program. By establishing firm limits on em issions, we provide th e certainty businesses need to invest in reducing emissions. Cap-and-trade will make the other strategies outlined in this report more effective at reducing GHG emissi ons and creating the jobs that accompany those actions. The final design of the WCI cap-and-trade program can be found at www.ecy.wa.gov/climatechange/WCIdocs/0923 08WCI_DesignRecommendations_full.pdf

. Ecology and CTED were required by E2SHB 2815 to report the follo wing information related to the cap-and-trade program, which can be found in Chapters 8 and 9:

• The specific recommendations for enacting the WCI cap-and-trade prog ram, including the proposed law, funding, and schedule needed to run the program by January 1, 2012.

• Any changes to the GHG reporting law needed to enact the cap-and-trade program.

• Actions the state should take to prevent manipulation of th e new market for GHG emissions.

• Recommendations on how local governments could take part in the cap-and-trade program.

• Recommendations on how forestry and agricu ltural lands and practices might voluntarily participate as an offset or ot her credit program in the cap-and -trade program. Such efforts may include afforestation; reforestation; co mmercial and other work ing forests, including accounting for site-class specific forest manage ment practices; forest products, including accounting for substitution of w ood for fossil fuel-intensive re sources; and forest land set aside or managed for conservation on or after the effective date of the law. 11

• Recommendations for how electricity or alternative fuel from landfill gas and anaerobic digesters may receive an offset or credit in the cap-and-trade program. The actions the state already has underway (outli ned in Chapter 5), together with the WCI capand-trade program and the policies recomme nded by the CAT, form the foundation for the state’s comprehensive plan to meet the statutory emissions reductions. We believe moving forward now is critical for Washington State. It wi ll strengthen our economy and stabilize our climate, leadi ng toward a safer, more prosper ous future. The economic crisis and effects of climate change already visibl e in Washington require us to act and make investments in our future. Failure to act now w ill make future Washingtonians vulnerable to the fluctuations in energy prices, political instability, and the eff ects of climate change resulting from reliance on carbon-based fuels. We must ch allenge ourselves to fi nd the political will to look ahead, work together, and act on their behalf.

11 The law took effect on June 12, 2008.9 

# 2. Washington’s Greenhouse Gas Emissions

Addressing climate change requires that we reduce our greenhouse gas (GHG) emissions. Therefore, our discussion about climate change po licies begins with a review of the sources of the state’s emissions. Only by understanding the sources of greenhouse gases can we develop a credible program to reduce them. The Department of Community, Trade, and Economic Development (CTED) and the Department of Ecology (Ecology) publishe d the current Washington GHG inventory in December 2007. 12 This inventory updates past inve ntories CTED published in 1999, 2004, and 2006. As directed by the legislature, Ecology an d CTED will update the Washington inventory every two years, beginning in 2010. 13

Figure 2-1. Washington’s Historical GHGs and Statutory Emissions Reductions
In 1990, Washington emitted 88.4 million metric tons carbon dioxide equivalent (MMtCO 2 e). 14 Emissions grew steadily between 1990 and 2000 (Figure 2-1). Our emissions then dropped significantly over the next two years, before resuming a steady increase between 2003 and 2005. The permanent shutdown of much of Washingt on’s aluminum manufacturing industry created

12 Department of Ecology; Department of Community, Trade, and Economic Development; and Center for Climate Strategies, Washington State Greenhouse Gas Inventory and Reference Case Projections, 1990-2020 , December 2007. www.ecy.wa.gov/climatechange/ghg_inventory.htm

13 RCW 70.235.020(2)

. 14 Each of the six GHGs included in the inventory has a diff erent effect on climate change based on its atmospheric lifetime and heat trapping properties. To look at each GHG on the same term s, they are all presented in a common metric, carbon dioxide equivalent (CO 2 e). To calculate CO 2 e, the amount of each gas emitted is multiplied by its contribution to global warming relative to CO 2 . The result is called the “global warming potential” (GWP) of the gas. Methane, for example, is 21 times more powerful than CO 2 as a GHG.10 the drop in 2001 and 2002. Producing aluminum is a large source of GHGs because of the process emissions and large energy require ments associated with its manufacture. In 2005, Washington’s GHG emissions were about 94.8 MMtCO 2 e, a 7 percent increase over 1990, as shown in Table 2-1. In both 1990 and 2005, Washington emissions were dominated by burning fossil fuels such as gasoline and natural gas, as shown in Figure 2-2. The main source of emissions in Washington is the transportation sector, which produces almost half of the state’s GHG emissions. The next largest sector was emissions from electricity consumption, followed by combustion emissions in the industrial and residen tial/commercial sectors. Our reliance on hydropower gives Washington a uni que emissions profile compared with much of the United States. A much la rger proportion of our emissions comes from transportation (46 percent, compared with 28 per cent nationally), while electricity emissions are a much smaller component of our inventory (20 percent, comp ared with 34 percent na tionally). Washington’s per-capita emissions rate of 15 metric tons per person is also well below the national average of 24 metric tons, as a result of our clean electricity sector, early investment in energy efficiency, and moderate climate. Our inventory calculates emissions from all el ectricity consumed in Washington. Overall, Washington produces more electricity than it consumes, making it a net exporter. Most electricity produced in Washington comes from hydropower, with peak pr oduction in the spring and early summer when snow melts. However, our peak demand comes in the winter when temperatures are coldest. To meet our winter ne eds, we must import electricity from outside the state. Most, but not all, of th e state’s imported power is genera ted from fossil fuels, making GHG emissions from power consumed in Washington la rger than emissions from power produced in here. About 15 percent of our emissions are not the re sult of fossil fuel combustion. Rather, they are released directly into the atmosphere from:

• Waste management —Methane emissions from landfills and wastewater treatment plants.

• Agriculture —Methane and nitrous oxide emissions from soil, livestock, and manure.

• Industrial processes and foss il fuel fugitive emissions —Industrial process emissions are a byproduct of chemical reactions in a manuf acturing process. Cement and aluminum manufacturing are major producers of process emissions. Fugitive emissions are unintended emissions that usually come from leaks or as a byproduct at manufacturing facilities. Fugitive emissions from the fossil fuel industry ar e primarily methane and carbon dioxide from mining, production, transmission, and distribution of natural gas, coal, and oil. Leaks of refrigerants from consumer products are also included in this sector.11 Table 2-1. Estimated Washington GHG Emissions by Sector (MMtCO 2 e)
Sector 1990 2005 2020 Transportation 37.5 44.5 56.9 Electricity 16.9 18.9 24.9 Industrial 11.8 11.0 14.6 Residential/Commercial 6.8 8.4 9.8 Fossil Fuel Industry Fugitive 0.5 0.9 1.1 Industrial Processes 7.0 3.3 7.3 Waste Management 1.5 2.4 3.6 Agriculture 6.4 5.4 4.8 Total Gross Emissions 88.4 94.8 121.9 Source: Department of Community, Trade, and Economic Deve lopment; Department of Ecology; and Center for Climate Strategies, Washington State Greenhouse Gas Invent ory and Reference Case Projections , 1990-2020, December 2007. www.ecy.wa.gov/climatechange/ghg_inventory.htm

Figure 2-2. Gross GHG Emissions by Sector for Washington Totals in this report may not equal exact sum of subtotals due to rounding.12 

### Business-as-Usual Projection for 2020 The business-as-usual (BAU) case is a projecti on of Washington’s emissions between 2006 and2020, if no additional actions to reduce emissions are taken. The projection is based on sectorspecific energy use, population, and employment gr owth rates from the federal government and state. The current BAU case does not include GHG reduction actions implemented after 2005, including new vehicle emissions standards and the renewable portfolio standard for energy generation. Chapter 5 addr esses these programs. Under BAU, the gross emissions in Washington are projected to increase nearly 29 percent to 121.9 MMtCO 2 e between 2005 and 2020. Burning coal, natural gas, oil, and petroleum is projected to keep producing almost 90 percent of Washington’s emissions, with a similar share of statewide emissions projected from the three largest sector s in 2020 as in 2005 (Figure 2-2). Industrial processes are projecte d to contribute a larger portion of Washington’s emissions in 2020. Expanded use of powerful GHGs such as hydrofluorocarbons (HFC s), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ) are responsible for most of this increase. HFCs and PFCs are used primarily as substitutes for ozone-depleting substances. These extremely potent greenhouse gases replaced chlorofluorocarbons (CFC s) as a refrigerant and aerosol propellant after a global treaty to address ozone deplet ion took effect in 1989. Several developments in the past year may ha ve changed the outlook of future energy demand, including once higher and now falling energy pr ices, coupled with the economic downturn. Given uncertainty about future economic growth and energy pri ces, we continue to use the assumptions detailed in the 2007 Washington Greenhouse Gas Inven tory & Reference Case Projections . Using the original estimate allows us to be consistent with previous reports. 15 The state projections will be updated, along with the inventory, in 2010.

15 For example, Leading the Way on Climate Change: The Challenge of Our Time , 2007. www.ecy.wa.gov/climatechange/CATdocs/020708_InterimCATreport_final.pdf13 

# 3. A Plan to Reduce Greenhouse Gas Emissions

To achieve Washington’s statut ory greenhouse gas (GHG) emissions reductions, we must change from our current course of stead ily increasing emissions. This shif t will require a wide range of strategies to reduce emissions in all sectors of Washington’s economy. To return to 1990 emissions by 2020, we will need to reduce emissions 33.5 MMtCO 2 e from our current business-as-usual (BAU) projection. If fully implemented, GHG emissions reductions policies adopted since 2005 will result in about 45 percent of our necessary 2020 emissions reductions, as shown in Figure 3-1. 16 The policies in place will:

• Provide consumers with fuel-efficient vehicles designed to run on clean transportation fuels grown and produced in Washington.

• Guarantee that Washington’s large utilities us e new clean renewable power for at least 15 percent of their electricity.

• Decrease electricity and natural gas demand through energy efficiency measures, building energy codes, and strict appliance standards. To calculate the expected reductions from the policie s in place, we assume that they will be fully implemented according to the timeline set out in statute or rule. Currently, only the California clean car standard is behind schedule for implementation. We now assume this policy will take effect in 2010; if it does not, we will need to update the emissions savings. Without the California clean car standards, we estimate the policies in place will generate 41 percent of our 2020 emissions reductions.

Figure 3-1. Emissions Reductions Necessary to Reach 2020 Statutory Requirements

16 For additional information, see Chapter 5, Actions Underway

.14 

### Remaining Emissions Reductions Even with our policies in place, we need to reduce emissions by an additional 18.5 MMtCO 2 e to meet our 2020 emissions reductions. To generate these reductions, we need a centerpiece policy to address emissions throughout the economy. We recommend implementing the WCI cap-andtrade program. A cap-and-trade program sets the total quantity of emissions permitted and ensures reductions will occur. It allows the market to determine the most cost-effective strategies to reduce emissions. By letting individual so urces choose when and how to reduce their emissions, cap-and-trade fosters the development of new technology and solutions, creating jobs and expanding the green economy at the least co st. Implementing a cap-and-trade program will also provide businesses with th e regulatory certainty to i nvest in reducing GHG emissions. When the WCI cap-and-trade prog ram begins in 2012, it will cove r emissions from electricity, industrial manufacturing, and industrial proces ses. In 2015, the WCI cap-and-trade program will expand to cover emissions from the combustion of fuel used for tran sportation as well as residential, commercial, and i ndustrial sources. We estimate over 90 percent of Washington’s emissions will be covered under the cap by 2015. In addition to setting a limit on emissions, the WC I cap-and-trade program was designed to work with other regulatory, voluntary, and incentive-based policies, su ch as those recommended by the Climate Action Team (CAT). The recommenda tions of the CAT will create jobs, promote investment, and make cap-and-trade work more efficiently. The policy recommendations identified by the CA T would achieve GHG emissions reductions in many sectors of our economy. Implementing all of these strategies will generate jobs and could produce about 39 percent of the reductions necessary to meet our 2020 emissions reductions (Table 3-1). To reach this level of emissi ons reductions, these policies must be fully implemented in a timely manner. If implemented, these strategies will:

• Increase public transportation a nd ridesharing options, providing i ndividuals with a variety of alternatives to singl e occupancy vehicles.

• Direct growth and development to compact and transit-oriented areas, away from rural and resource lands.

• Create jobs by expanding energy efficiency programs, strengthening building and energy codes, and increasing the use of combined heat and power. To realize the full potential from the CAT reco mmendations outlined in Table 3-1, a number of changes to existing policies and regulations wi ll be needed to address the way our communities are built and increase transportation choices. Th ese enabling actions do not produce any direct GHG reductions themselves; instead, they remove barriers and establish a framework in which other actions can reduce emissions. To reach our statutory emissions reductions, we must also enact policies to reduce emissions and remove GHGs from the atmosphere from sources outside of the cap-and-trade program. Sources that will be outside the cap-a nd-trade program include those s ectors not covered by the cap and facilities within covered sectors with emissions below the threshold fo r inclusion in the cap. Given the proposed scope of the WCI cap-and-trade program, these reductions will need to come15 from the forestry and agriculture sectors as well as through waste re duction and recycling programs. Our recommendations concentrate on:

• Forest practices that increase the amount of carb on stored in forests a nd in long-lived forest products.

• Taking organic waste out of landfills.

• Reducing methane emissions from cattle manure.

• Agricultural soil carbon management. Implementation of cap-and-trade will create in centives for GHG reductions outside of capped sectors through the regu latory offset market. Two worki ng groups spent considerable time assessing the opportunities for forestry and agricu lture lands and practices to participate in the cap-and-trade program as offsets. Th ese working groups found many opportunities. 17 The Agriculture Carbon Market Working Group and the Beyond Waste Implementation Working Group associated with the CAT have both proposed policies that can significantly reduce emissions from waste management through increases in recycling, reuse, and anaerobic digesters (Table 3-1). The Forest Carbon Market Working Group on C limate Mitigation has proposed a number of recommendations on how forest lands might pa rticipate in a cap-and-trade program. Their recommendations address avoided and mitigation conversion of forest land to non-forest uses, urban reforestation, and forest management to increase carbon sequestration and storage. We have not determined which of the CAT recommendations will be proposed for implementation in 2009. Most of these strategies have not yet been fully vetted, and thus their implementation timeline remains unclear. The st rategies considered by the CAT that will produce direct emissions reductions in Washingt on have been included in Table 3-1. These options provide a menu for consideration by the legi slature as we continue to reduce our state’s GHG emissions. As the legislature determines which of these pol icies will move forward, we will update our plan accordingly. As the cap-and-trade program is de veloped, we will be leading the efforts to develop or modify protocols for projects that will focus on forestry and agricultural lands and practices as well as waste management. If fully implemented, we believe the strategies outlined in this report will enable Washington to meet our 2020 GHG emissions reductions. The cap-a nd-trade program will play an increasingly important role to meet our long-term emissions reductions for 2035 and 2050. As required by E2SHB 2815, Ecology will monitor the implementati on and performance of these measures to ensure this plan produces the expected reductions . Ecology’s facility-level emissions data will improve in 2010 with the intr oduction of mandatory reporting for major GHG sources. If it becomes apparent that additional strategies ar e necessary to reach the statutory emissions reductions, we will recommend additional strategies including any from the CAT processes that have not been adopted.

17 For details, see Forestry Carbon Market Working Grou p and Agriculture Carbon Market Working Group reports in Appendix 6 and Appendix 7

.16 This plan is not static. We will continue to upda te it regularly to ensure Washington meets both our short- and long-term statutor y emissions reductions with the greatest possible benefit to our economy and citizens.
Table 3-1. Emissions Reductions in 2020 from CAT Proposals

Proposed Strategies 2020 Reductions (MMtCO 2 e) Transportation Increased Transit and Rideshare 2.6 Compact and Transit-Oriented Development 1.7 Transportation Pricing 1.0 Energy Efficiency Measures 2009 State Energy Code Improvements and 2030 Building Goals 4.7
Improved Energy Efficiency in New and Renovated Public Buildings 0.5
Expanded Implementation of Distributed Energy and Combined Heat and Power 0.3
Waste Management Collection and Anaerobic Digestion of Organic Municipal Solid Waste 1.5
Retailer Collaboration to Reduce Waste and Packaging 0.2 Agriculture Anaerobic Digestion of Manure Forestry 0.5

Avoided Conversion not quantified Urban Forestry not quantified Forest Management not quantified Proposed Strategies TOTAL 13.017 

# 4. Washington’s Green Economy

The transition to a new, green, and sustainabl e economic model will have a deep impact on business production, cost competitiveness, and investment decisions. Although it may seem counterintuitive, a strong c limate change policy actually creates a strong business climate. Decisive leadership must continue for Washi ngton to remain competitive in the green economy. Our state is a strong competitor in the race to become the premier location for development and production of green economy products , but we are far from alone in this endeavor. Globally, a rush is underway to take advantage of new sust ainable industries and promote “green jobs.” Our challenge is to help the State of Washington pull ahead in a crowded field. 

### Economic Stimulus Plans All of the states, Washington among them, stand to receive an influx of federal stimulus monies in the new administration. Energy e fficiency, renewable energy, and gr een jobs are likely to be a significant focus of those funds. Readiness to put these funds to work immediately, creating jobs and reducing GHG emissions, is essential to take advantage of this opportunity. 

## Potential for Job Creation
Strong climate change policies can improve the ove rall quality of life of our region and provide economic opportunities to create jobs now and jobs for the future. 

### Jobs Today Washington already enjoys a high co ncentration of “clean tech” firms, partly as a result of our strong leadership on climate change, re newable energy, and energy efficiency. As of 2004, Washington jobs were calculated at:

• Energy efficiency —4,200 jobs (a 47 percent increase in only 7 years). 18

• Solar —380 jobs.

• Wind —110 jobs. Even more jobs have been created since 2004. D ecisive climate change policies will stimulate growth in these and additional sectors of the green economy, both now and in the future. Tremendous opportunities exist for green jobs that do not depend on new technologies or industries. For example, energy efficiency a nd waste reduction both rely on many existing technologies. With implementation of this comprehensive plan, we can draw on our knowledgeable workforce and immediately creat e jobs in these i ndustries and others.

18 Department of Community, Trade, and Economic Development, A 2005 Look at Renewable Energy, Energy Efficiency, and Smart Energy Industries in Washington State , 2005.18 Residential Weatherization Though new green buildings command much atten tion, weatherization of existing residential buildings can also produce sizeable gains in building efficiency. 19 This subset of the green building industry is essential to jump-sta rting Washington’s green economy. For every $1 million invested in weatherization programs, 79 jobs are created or sustained. 20 Additionally, energy efficiency targeted to low-income house holds may be more economically productive than other public investments, such as charitable fuel funds or discounts that help defray the cost of heating inefficient homes. Such energy efficiency investments return at least $7 to society for every $1 invested. 21
Recycling Recycling also provides a unique opportunity for immediate reductions in GHGs and job creation. Recycling creates significantly more local jobs than di sposal of waste. According to the Institute for Local Self-Reliance, recycling mate rials creates ten times more jobs per ton than disposing of waste in a landfill. Manufacturing new products from recycled materials creates even more jobs. 22


### Jobs Tomorrow The global market for green economy technolog ies is estimated to be about $1.3 trillion, according to German-based Roland Berger Strategy Consultants. 23 It is projected to rise to $2.7 trillion in 2020. The global green economy includes:

• Energy efficiency technologies (e.g., appliances, industrial processes, electrical motors, insulation)—$617 billion at present; $1.23 billion in 2020.

• Waste management and recycling —$41 billion at present; $63 billion in 2020.

• Water supply, sanitation, and water efficiency —$253 billion at present; $658 billion in 2020.

19 In the 1970s, weatherization meant only ceiling insulation, lath and plastic storm windows, caulking and weatherstripping. This was called “winterization.” Now, weatheriza tion is more technically sophisticated. New diagnostic tools and techniques such as dense pack insulation, computer energy audit tools, blower door technology, pressure pans, flow hoods, and carbon monoxide detectors were incorporated in the program to help make cost-effective weatherization decisions, identify improv ement needs and choices, and prevent h ealth and safety problems. See also McKinsey and Company, Reducing U.S. Greenhouse Gas Emi ssions: How Much at What Cost? 2007. www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_final_report.pdf

20 Information provided by Steve Payne, CTED Housing Impr ovements and Preservation. CTED operates the state’s only publicly funded weatherization program for low-income populations and has documented this multiplier effect based on many years of experience.

21 Jerrold Oppenheim and Theo MacGregor, The Economics of Poverty: How Investments to Eliminate Poverty Benefit All Americans , report developed for Entergy, 2006.

22 Institute for Local Self-Reliance, Neil Seldman, Ph.D., Waste to Wealth: Recycling Means Business , 2006. www.ilsr.org/recycling/r ecyclingmeansbusiness.html

23 Roland Berger Strategy Consultants, Green Tech Made in Germany , 2007.19 • Sustainable transport (e.g., efficient engines, hybrids, fuel cells, alternative fuels)—$247 billion at present; $493 billion in 2020. 24
Not only are green industries growing abroad, they are growing domestically. Clean Edge Research, which has been tracking the growth of clean energy market s since 2000, reports a 40 percent increase in our region’s revenue growth for solar panels , wind, biofuels, and fuel cells between 2006 and 2007. 25 The future looks even brighter. In all, the study found these industries have the potential to create more than 41,000 new jobs in the Pacific Northwest by 2025, as shown in Table 4-1. 26

Table 4-1. Job Growth Projections for Oregon and Washington

Year Solar PV Manufacturing Wind Power Development Green Building

Design Services Bioenergy Smart Grid TOTALS

2007 800 2,217 3,826 3,207 1,280 11,330 2010 1,863 3,043 4,284 3,224 1,491 13,905 2015 3,677 2,650 6,899 4,100 1,715 19,041 2020 9,260 3,408 10,137 5,688 2,209 30,703 2025 14,182 4,507 12,937 6,946 2,669 41,241


## How Climate Action Helps the Green Economy
Taking immediate action to address climate change will not only create new jobs, it will help Washington’s business community. Implementi ng this comprehensive plan to reduce GHG emissions will provide businesses with regulatory certainty, which is crucial to help firms with long-term planning. This certainty allows firms to position themselves in the market and to direct investment strategically. Firms in Washington State need a clear sense of the competitive stakes and the true costs of continuing with business-as-usual. Li kewise, they need an understanding of what opportunities are available for new products and se rvices. The certainty of cap-and-trade also makes many investments in re ducing emissions more cost-e ffective, encouraging their implementation.

24 United Nations Environment Programme, Green Jobs: Towards Decent Work in a Sustainable, Low-Carbon World , accessed October 2008. www.unep.org
25 Clean Edge, Clean Energy Trends 2007 , 2007.

26 Clean Edge, Carbon-Free Prosperity , report for Climate Solutions, 2008.20 A strong policy framework to address climate change will also create a market for products that help reduce emissions and increase efficiency. Strong leadership from the state government will create a solid market for many products and en courage investments in those technologies. Anything less is risky and does not provide businesses with conf idence that their investments will pay off. In anticipation of the effect of a carbon reduction policy such as cap-and-trade, firms start to reduce their emissions voluntaril y, for the following reasons:

• Head start over competitors in learning what works.

• Prepare to respond rapidly once regulations do take effect.

• Better manage the costs of em issions reductions over time. By speeding the transition to the new green economy, we will help our businesses in the following areas:

• Risk Management— It is widely accepted that not addressing climate change will have costs. These losses are likely to be very serious . Large firms seeking to manage their risk will reduce emissions.

• Efficiency— Businesses gain advantage by holding down costs and reducing wasteful practices. Reducing emissions and becoming more efficient will make a business more competitive and profitable.

• New Market— Operating under a carbon reduction fram ework, firms not only manage risk, they also have opportunities to profit from investments in reducing emissions. 

## Taking Action on the Green Economy
The 2008 Legislature recognized both the impor tance of and potential opportunities for expanding Washington’s green eco nomy. Section 9 of E2SHB 2815 di rects named state agencies to spur development of a green economy a nd increase the number of green economy jobs. Five specific issues are to be addressed:

• Definitions— How will we define a green economy? What is a green-collar job?

• Labor market survey— What kinds of jobs are out there already? Who is investing in new green jobs?

• Workforce development planning— What are demands for green economy skills? Where are the current and expected skill gaps? How can the workforce development system best close these gaps?

• Strategic plan for growing a green economy— Identify the best methods and practices to stimulate green industries and new technologies.

• Minority and women-owned enterprises— How can we best help all Washingtonians make a good life for themselves, their communities, and our state?21 The definitions are completed and are undergoing a final review. They will be attached to the Green Economy Strategic Framework, which th e Department of Co mmunity, Trade, and Economic Development (CTED) is exp ected to release in December 2008. The labor market survey is underway, and the an alysis is slated for completion in January 2009. The workforce development planning has yet to be funded. 27 The workforce development system is incorporating green skill sets into some existing programs. The system also is developing some new green programs. These are scattered efforts, however, and the system is not yet positioned to bring green training to a statewide scale. Such an expansion will require funding the Green Jobs Training Account or a similar mechanism. The evaluation of minority and women-owned en terprises, conducted by the University of Washington, is due in December 2008 and will be attached the Green Economy Strategic Framework. 

### Green Economy Definitions Green economy, clean economy, green collar, and cl ean tech are all terms used frequently and somewhat interchangeably. To accomplish the tasks laid out in E2SB2815, we must use consistent definitions. In Washington State, we define green economy as: The development and use of products and services that promote environmental protection and/or energy security

. “Green” is a cross-cutting term that can be a pplied to activities and products that exist in virtually all of today’s sectors a nd industries. Green is a matter of degree, and defining a job or an industry as green is not clear-cut. In fact, the green economy is best viewed as the “greening” of our existing economy. All industries are—and will be—in a st ate of transition in a carbon-c onstrained world. Efficiencies and new energy sources will develop and be adopted over time. It is difficult to tell where the green economy or green jobs begin and where they end. Despite this challenge, the development of definitions is crucial if Washi ngton State is to track the impact of public policy on the economy and to de sign systems to support a green economy. The development of tax programs, college curricul um, and company recruitment programs benefit greatly when they are anchored by standard, well-understood definitions. Within our definition are the following industry groupings:

• Clean energy —Energy efficiency, renewable energy, and alternative energy.

• Green building —Construction and retrofitting of buildings.

27 Two important but yet-to-be-funded workforce strategies were established in Section 9 of E2SHB 2815. First, the Green Jobs Training Account was established (but not funded) to competitively fund development of high-demand education and training programs for the green economy. Second, as a necessary prec ursor to education program development, E2SHB 2815 created pilot Industry Skill Pane ls targeted at green economy industries. Skill panels convene industry leaders (business and labor) to identify specific skill gaps and implement tactics for closing those gaps.22 • Transportation —Products or systems designed to re duce the use of petroleum-fueled engines and single o ccupancy vehicles.

• Environmental protection —Waste management and water conservation. Each of these industry groupings, with a representa tive sample of processes, products, firms, and jobs, will be detailed in the Green Economy Definitional List. 

### The Green Economy Strategic Framework CTED’s report, expected in December 2008, will be the first phase of a strategic plan for growing a green economy. 28 Many of the recommendations, such as the deve lopment of commercial finance models and evaluating the regulatory environment, will requir e additional work. The framework will seek to identify products and processes that will be ne eded to support the recommended set of climate change policies. It will also pres ent the economic opport unities of adoption. In general, the framework will assess Washingt on’s comparative advantages and disadvantages in a green economy and will identify how we might fully leverage our existing assets. Using informational interviews with industry leaders, an interagency advisory team, and literature reviews, the Green Economy Strategic Framework will provide overviews of and recommendations for: 29

• Economic drivers—the need for deliberate action.

• Related initiatives—CAT, Puget Sound Partne rship, housing initiatives, and land use.

• The challenges of growing a green economy.

• Principles for growing a green economy.

• Washington’s assets—our foundation for a green economy.

• Skills and labor—talent in a green economy.

• Washington’s opportunities—i nnovation, products and services, and global and domestic markets.

• Open for business—strategies for private-s ector engagement (e.g., regulation, incentives, research and development).

28 Another phase is required to incorporate the findings of the Employment Security Department’s labor market analysis as well as the climate strategies advanced by the Climate Action Team.

29 Employment Security Department; Community, Trade, and Economic Development; Higher Education Coordinating Board; State Board of Community and Technical Colleges; the Workforce Training and Education Coordinating Board; Washington State Labor Council; Association of Washington Business; Washington Clean Tech Alliance; and Climate Solutions.23 

# 5. Actions Underway

Policies in Place
The state already has a number of policies in place that will reduce greenhouse gas (GHG) emissions. These policies have the potential to produce approximately 45 percent of the reductions necessary to reach our 2020 emi ssions reductions, as shown in Table 5-1. 30 However, these strategies must continue to be implement ed fully to produce these predicted reductions. Most of these regulatory and in centive-based policies reduce emi ssions from the transportation and electricity sectors, which together, account for almost 70 percent of Washington’s total emissions. The policies in place have also helped estab lish Washington as a lead er in the green economy. For example, early adoption of energy e fficiency programs has helped reduce energy consumption and GHG emissions, while making our state a hub for research and investment. This investment has also created over 4,000 green jobs in the state.
Table 5-1. Projected 2020 GHG Emissions Reductions from Policies in Place

Policy 2020 GHG Reduction (MMtCO 2 e) Portion of WA 2020 Reductions 2007 Federal CAFE Standard 3.7 11% California Clean Car Standards 1.3 4% State and Federal Renewable Fuel Standards 1.2 4% Current State Energy Codes 0.5 1% Current State and Federal Appliance Standards 1.3 4% Utility Energy Efficiency 2.4 8% Renewable Portfolio Standard 4.1 12% State Fleet Efficiency Measures 0.3 0.9% Green Building Standards for Public Buildings 0.2 0.5% TOTAL 15.0 45% 

### Transportation Three types of strategies can reduc e GHG emissions from transportation:

• Clean cars, so that each vehicle is as efficient as possible.

• Clean fuels, so that each gallon of fuel used produces fewer emissions.

• Vehicle miles traveled reduction strategies, so that consumers have the opportunity to drive less.

30 The analysis of actions needed to meet the 2035 or 2050 emissions reductions has not yet been completed.24 The sections below outline the existing policies related to these three strategies. Clean Cars: Tailpipe Emissions Standards In 2005, the Washington State Legislature adopted Califor nia’s clean car standards. 31 Washington is one of 14 states that ha ve adopted the California standards. The law requires that cars sold in Washington meet strict emissions standards, including limits on GHG emissions. It takes eff ect beginning with the 2009 mode l year. However, the U.S. Environmental Protection Agency (EPA) must fi rst approve California’s petition before these tailpipe emissions standards can be required. In December 2007, the EPA administrator denied California’s greenhouse gas waiver request. 32 Washington and 17 other states have challenged the denial in federal court. It is widely expect ed to be approved under the new, incoming federal administration. To address this delay, Washington will allow a phase-in period for automakers to meet the requirements.

CAFE Standards In December 2007, the U.S. Congress enacted th e Energy Independence and Security Act of 2007 (EISA). 33 In part, this law raised the federa l Corporate Average Fuel Economy (CAFE) standard for vehicles. The new CAFE standard will raise the average fuel economy of the combined fleet of passenger cars and light trucks sold in the Un ited States to 35 miles per gallon by 2020. In April 2008, the National Highway Traffi c Safety Administration proposed the CAFE standard for model years 2011-2015. 34
Comparing Tailpipe Emissions Standards and CAFE Standards The California Air Resources Bo ard (CARB) reviewed the fede ral CAFE standards and the California tailpipe emissions st andards. Applying the CARB resu lts to Washington shows that adopting the federal CAFE standards will re duce Washington’s GHG emissions by 3.7 million metric tons of carbon di oxide equivalent (MMtCO 2 e) in 2020. The California tailpipe standards, however, are estimated to reduce GHG emissions by 5.0 MMtCO 2 e, an additional 1.3 MMtCO 2 e over the federal standards in 2020 as long as they are implemented in a timely manner. 35 If the California clean car standards are implem ented before 2010, the federal and California tailpipe emissions standards wi ll contribute 15 percent of th e reductions to meet our 2020

31 Codified as RCW 70.120A , adopted in WAC 173-423

. 32 EPA granted a waiver for the criteria air pollutant reduc tions also mandated under California clean car standards, which take effect in the 2009 model year.

33 U.S. Congress, Energy Independence and Security Act of 2007 , H.R 6, December 2007. http://frwebgate.access.gp o.gov/cgi-bin/getd oc.cgi?dbname=110_cong_b ills&docid=f:h6enr.txt.pdf

34 In April 2008, the National Highway Traffic Safety Administration (NHTSA) proposed the CAFE standard for model years 2011-2015. The standard requires new passenger cars and light trucks to meet average fuel economies of 35.7 miles per gallon (mpg) and 28.6 mpg, respectively, for a fleet average of 31.6 mpg or better.

35 California Air Resources Board, Comparison of Greenhouse Gas Reduction for the United States and Canada Under ARB Greenhouse Gas Regulations and Proposed Fe deral 2011-2015 Model Year Fuel Economy Standards , 2008.25 statutory emissions reductions. Al one, the federal tailpipe standa rds contribute 11 percent of the reductions to meet our 2020 emissions reductions.
Clean Fuels: Renewable Fuels

Renewable Fuel Standard The Renewable Fuel Standard (RFS) in Washingt on sets minimum sales percentages of ethanol and biodiesel. 36 By November 30, 2008, biodiesel must repres ent 2 percent of all diesel fuel sold in Washington. This figure rises to 5 percen t when Washington’s feedstock production and processing capacities can satisfy a 3 percent requirement. By December 1, 2008, ethanol must represent 2 percent of al l gasoline sold in Washington. The st ate can increase the ethanol figure to 10 percent, based on availability of suffic ient raw materials with in Washington to support economic production of ethanol at higher levels and continued satis faction of federal Clean Air Act standards for ozone pollution. As of September 2008, ethanol accounted for 6.8 percent of gasoline sales in Washington, exceeding the state requirement. The Washington State Department of Ag riculture (WSDA) and Department of Ecology (Ecology) are curren tly assessing whether Washington’s production capacity warrants raising the mandate to 10 percent ethanol. Also as of September 2008, biodiesel sales accoun ted for 0.9 percent of diesel fuel sales, down from a high of 1.7 percent in July 2007. Higher pri ces have reduced biodiesel use. For example, due to cost overruns, King County Metro suspende d its plans to use 20 percent biodiesel in its buses. The legislature has also approved several tax in centives for the production, distribution, and use of biodiesel and other cl ean alternative fuels.

Federal Renewable Fuel Standard The 2007 Energy Independence and Security Act al so extended the exis ting federal renewable fuel standard (RFS) and encouraged development of new biofuels. The federal standard requires that transportation fuel sold in 2008 include 9 bi llion gallons of corn-based ethanol. The mandate rises to 36 billion gallons by 2022, with corn-based etha nol expected to t op out at 15 billion gallons in 2015. Based on estimates of fuel us e in 2020, the federal RFS requires ethanol to represent 17 percent of gasolin e sales nationwide and biodiesel to compose a minimum of 2 percent of diesel sales. Increasing levels of advanced biofuels are requ ired beginning in 2009. These biofuels must have a GHG savings of 50 percent or more, throughou t the life cycle, wh en compared with conventional gasoline. In 2020, at least 10.5 billion gallons must be cellulo sic biofuels with a savings of at least 60 per cent over conventional gasolin e throughout the life cycle. 37 Together the federal and state renewable fuel standards are expected to reduce Washington’s emissions by 1.2 MMtCO 2 e in 2020.

36 Codified as RCW 19.112

. 37 Life cycle analyses of GHGs for biofuels quantify the emissions created by the manufact ure of the fuel, including its inputs, through transporting the fuel to the consumer, use and disposal. U.S. Department of Energy, Energy Efficiency and Renewable Energy, Federal Biomass Policy

. www1.eere.energy.g ov/biomass/federal_biomass.html26 Biofuel Production in Washington Sources for biofuels in Washingt on differ significantly from those of ten used to produce biofuels in other regions. According to the U.S. Depart ment of Agriculture’s Farm Service Agency, Washington currently has 13,324 acr es of canola, rapeseed, mustard, and camelina, up from 7,314 acres in 2006. A portion of these crops are goi ng to biodiesel produc tion in the state. WSDA reports 170,000 acres of grain corn producti on in Washington. At present, this corn is used almost exclusively for liv estock feed rather than etha nol production. The relatively low acreage devoted to energy crops reflects the diversity of agriculture in Washington, where farmers grow over 300 high-value commodity and specialty crops. The state has other biomass resources that may be used to develop bio-based products and fuels, including cellulosic ethanol. Washington’s most abundant sources of cellulosic biomass include wood waste, agricultural biomass, and municipal solid waste. Thes e sources are referred to as cellulosic biomass because the energy and fuel pot ential lies in the plant structure itself (the cellulose), rather than the seeds. Using cellulo sic biomass can help address environmental and social concerns associated with traditional feedstocks by avoiding competition with food crops and improving carbon and energy effi ciencies in fuel production. Since 2006, Washington has invested over $30 million to research and develop new technologies and strategies to grow and suppor t our bioenergy industries. Thes e efforts are creating ways of collecting, transporting and conve rting biomass and other organic waste streams into energy. They are also improving existing sources of biom ass, creating new sources, and developing highvalue renewable products to strengthen the economy. A Washington State University study, with fundi ng from Ecology, indicate s that biomass—from municipal solid waste, straw, animal waste, a nd forest residues from harvesting and thinning— could help Washington meet its energy needs. Fo r example, if half of the available resource could be collected and converted ef ficiently, the resulting fuel coul d support nearly 25 percent of the state’s transportation fuel needs. The Energy Freedom Program helps develop bioe nergy production facilities in Washington. 38 During the 2007-2009 biennium, the state provided more than $14.5 million in grants and lowinterest loans to support vita l bioenergy infrastructure ar ound the state. Projects include integrated oilseed crushing and biodiesel producti on projects, anaerobic digesters, and combined heat and power facilities fueled by woody biomass for rural schools. Washington now has several plants producing alternative fuels, including the nation’s largest biodiesel plant in Grays Harbor. Many more ar e in development, with most focusing on opportunities to produce biodiesel an d ethanol from cellulosic biom ass and various organic waste streams. Plug-in Hybrid Electric Ve hicles and Electrification Plug-in hybrid electric vehicle (PHEV) technology offers a lot of potential as a method to reduce GHG emissions from transportation. In 2007, the legislature directed the Department of Community, Trade, and Economic Developmen t (CTED) and Ecology to analyze vehicle

38 Codified as RCW 43.325

.27 electrification. The purpos e of this program is to speed adoption of this technology, remove barriers, create incentives, s upport demonstration projects, and provide for the integration of PHEVs with the power transmission and transportation infrastructure. ES2HB 2815 also directed CTED to make r ecommendations on “how projects funded by the green energy incentive account may be used to expand the electrical tran smission infrastructure into urban and rural areas of the state for purpos es of allowing the recharging of plug-in hybrid electric vehicles.” At the cu rrent time, no funds are in the green energy account. In addition, plug-in hybrid vehicles are not commercial avai lable. Even when such vehicles do become available, CTED does not believe that there will be near-term limitations on the state’s electric transmission or distribution syst ems which would limit the ability to install recharging stations.

Clean Fuels Tax Incentives Beginning January 1, 2009, new passenger cars, li ght-duty trucks, and medium-duty passenger vehicles powered by a clean alternative fuel are exempt from the state sales and use tax. 39 This tax exemption applies to purchases of new vehi cles that are powered exclusively by a clean alternative fuel (such as natura l gas, propane, hydrogen, or electri city). It also applies to new vehicles that use hybrid technology and have an EPA estimated highway gasoline mileage rating of at least 40 miles per gall on. The exemption is effective from January 1, 2009, to January 1, 2011. The current state and federal renewable fuel stan dards contribute 4 percent of the reductions to meet our 2020 statutory emissions reductions. The reductions from other renewable fuels policies have not been quantified. 

### Energy Efficiency
Electric Utility Energy Efficiency In 2006, Washington voters passed Initiative 937 (I-937), the Energy Independence Act. 40 In part, the law requires utilities serving more than 25,00 0 customers to adopt all cost-effective measures to promote energy efficiency in their service areas. I-937 requires each utility to set both two-year and ten-year conserva tion targets by January 1, 2010. In setting its targets, each ut ility must use methods the Northwest Power and Conservation Council described in its Fifth Power Plan . The Power Plan estimates that 2,800 aMW (average megawatts) in cost-effective en ergy-saving measures can be a dopted throughout the Northwest by 2025. 41 As a result, Washington could save an addi tional 60 aMW each year. This quantity is equal to the amount of electri city that about 40,000 Washingt on residents use each year. By reducing energy consumption, the I-937 effi ciency measures are projected to reduce Washington’s GHG emissions by 2.4 MMtCO 2 e in 2020. I-937’s efficiency measures contribute 8 percent of the reductio ns to meet our 2020 statutory emissions reductions.

39 RCW 82.08.809 and RCW 82.08.813

. 40 Codified as RCW 19.285

. 41 An average megawatt is 1000 kilowatt- hours delivered continuously for a year.28 Appliance Standards When the state legislature adopted minimum efficiency standards for 12 products in 2005, Washington became one of only ten states with standards for energy efficiency of specific products not covered by federal standards. 42 Later in 2005, federal standards preempted six of these state standards. The 2007 Energy Security and Independence Act (EISA) set standards for ten additional products and required the U.S. Department of En ergy to update a number of existing standards. With the passage of EISA, federal standards now preempt all Washington appliance standards, except those for refrigerators. The biggest energy saver among th e new federal standards is fo r common light bulbs. EISA requires by 2014 light bulbs to use 25 to 30 percen t less energy than today’ s typical incandescent bulbs. By 2020, light bulbs must use at least 60 pe rcent less energy. Several bulbs already on the market, like compact fluorescent lamps (CFLs) and light-emitting diodes (LEDs), meet these targets. The new EISA appliance and lighting standards are projected to reduce emissions 0.7 MMtCO 2 e below business-as-usual in 2020. The current state and federal appliance and li ghting standards contribute 4 percent of the reductions to meet our 2020 st atutory emissions reductions. Building Energy Codes Energy codes decrease building energy use by requiring the adoption of minimum energy efficiency technologies, building technique s, and practices in new construction. Washington’s first statewide en ergy code was adopted in 19 86. The Washington State Building Code Council develops and implements statew ide residential and commercial energy codes. 43 These codes are updated every three years. Larg e cities can adopt ener gy codes for commercial buildings that are more stringent than the state’ s code. For example, Seattle has a more stringent energy code for commercial buildings. State energy code changes passed in 2005 and 2007 include a number of pr ovisions that increase both residential and commercial building energy efficiency. The ne xt revision is currently under discussion and will be implemented in 2010. The current state building energy codes contribute 1 pe rcent of the reductions to meet our 2020 statutory emissions reductions. Fo r further information and analys is on upcoming code revisions, see Chapter 6 of this report.

42 RCW 19.260.040

. 43 For more information, see www.sbcc.wa.gov/sbccindx.html

.29 

### Renewable Energy
Electricity Supply Washington State leads the nation in hydroelectric power generati on and in generation from all renewable resources combined. 44 We ranked fourth in the nation in 2007 in private investment (about $121 million) in clean energy, according to Thomson Financial and the National Venture Capital Association. 45 To continue our progress toward a clean energy economy, I-937 established a renewable portfolio standard. By 2020, utilities with at least 25,000 customers must obtain 15 percent of their electricity from new renewable resources lik e wind and solar. The law sets interim targets of 3 percent by 2012 and 9 percent by 2016. The current renewable portfolio standard contri butes 12 percent of the reductions to meet our 2020 statutory emissions reductions. Wind Energy As of October 2008, eight wind projects were operating in Washington. These projects can produce more than 1,300 megawatts (MW) of powe r. Other projects totaling more than 250 MW are in the planning stage. Add itional projects that could add another 1,000 MW to our wind power capacity have been proposed. 46 Washington currently ranks fifth in U.S. wind power production after Texas, Califor nia, Minnesota, and Iowa. 47

Wave and Ocean Energy Washington and Oregon have the la rgest wave energy resources in the lower 48 states. Several sites in Puget Sound with excellent tidal resources could be developed, with potential output of several hundred megawatts of tid al power. While no commercial wave or tidal projects have been developed in Washington, 11 projec ts are planned for the near future. In December 2007, the Federal Energy Regulatory Commission (FERC) granted its first license for wave or tidal energy to a Washington project . Fenevera Renewable Ocean Energy received a five-year conditional license for a demonstration turbine to generate about 1 MW of electricity at Makah Bay. Snohomish County Public Utility Dist rict has preliminary permits for seven other potential sites for tidal power in Puget Sound. Electric Utility Emissions Performance Standard ESSB 6001 requires a GHG performance standard for all new electricity generation, including power purchased under contracts of five years or longer. The perfor mance standard requires that new power sources produce no more emissions than the rate of an average new natural gas,

44 U.S. Department of Energy, Energy Information Administration, State Energy Profiles

. http://tonto.eia.doe.gov/state/

45 National Venture Capital Association, Clean Tech Interim Report , 2007.

46 Northwest Power Conservation Council. www.nwcouncil.org/energy/powersupply/Default.htm

47 American Wind Energy Association. www.awea.org/projects/projects.aspx?s=Washington30 combined-cycle combustion turbine. 48 The law allows for storing (sequestering) of carbon dioxide to meet the performance standard. In June 2008, Ecology and the Energy Facility Site Evaluation Counc il adopted rules to implement and enforce the Emissions Performance Standard. 49 

### Government Operations
State Fleet Efficiency In 2000, the Department of General Administrati on (GA) became the first state agency in the nation to contract for the pur chase of Toyota Prius hybrid cars for the state fleet. Now Washington agencies can purchase hybrid H onda Civic, Toyota Camry, and Ford Escape vehicles in addition to the Pr ius. Public agencies have pur chased nearly 1,000 hybrids through GA so far. Several local governments have been l eaders in the use of hybrid s. Clallam, Garfield, Island, Jefferson, King, and San Juan are the top five counties for hybrid purchases by local governments. The 2007 Cleaner Energy Act requires all state and local government-owned vessels, vehicles, and construction equipment operate to the maximum extent practicab le on electricity or biofuels by 2015. 50 According to GA’s September 2008 report, bi odiesel currently comprises just over 3 percent of diesel use in the state fleet. In addi tion, the Washington State Ferries (WSF) system is using a 20 percent biodiesel blend in three vessels as part of a successful biodiesel pilot program. WSF uses approximately 17.6 million gallons of di esel fuel annually and is the largest public user of diesel fuel in the st ate. In addition, the state Depart ment of Transportation plans to introduce biodiesel use in its Ea stern Washington fleet and incr ease biodiesel blends for the Western Washington fleet in 2009. The current state fleet efficiency program will c ontribute 0.9 percent of the reductions to meet our 2020 statutory emissions reductions if fully implemented in a timely manner. Diesel Emissions Reduction Projects The Cleaner Energy Act also exte nded an incentive program that encourages replacing school buses that are 1994 models or older with new models. Ecology will provide $350,000 to replace 20 of the oldest, most polluting school buses in th e state with new more efficient models by the summer of 2009.

48 This rate is approximately 0.5 metric tons carbon dioxide equivalent per megawatt hour of electric power.

49 Ecology rules can be found at WAC 173-407 and WAC 173-218 ; EFSEC’s rules can be found at WAC 463-80 and WAC 463-85

. 50 House Bill 1303 , Cleaner Energy Act , Section 202. Codified as RCW 43.19.648

.31 School bus replacement is in addition to a number of other diesel emissions reduction projects in Washington. These programs concentrate on reducing particulate emissions from diesel engines, a major public health concern. The key piece is a joint program between Ecology and local air agencies that pays the cost to retrofit school bus es and other publicly or privately owned diesel equipment. School districts have retrofitted at least 5,600 diesel school buses to reduce their emissions. The program is now concentrating on local government vehicle feels and has already provided funds to retrofit over 1,000 diesel vehicl es in city, county, port, and transit authority fleets. Ecology has also funded a number of programs that reduce fuel use in heavy diesel vehicles throughout Washington. These programs include pr oviding idle reduction technologies to one public vehicle fleet and a number of sw itchyard and short-haul locomotives. Ecology has also helped fund electri fication projects at the Port of Seattle and two truck stops. These projects allow docked cruise ships and long-haul trucks park ed overnight to use electricity to run equipment instead of idling their diesel en gines. The port electrifi cation program alone is projected to reduce diesel fuel use by 35 metric tons per ship call. Emissions reductions from diesel projects were not quantified, but they are expected to be modest. Green Public Buildings Government Offices In April 2005, Governor Gregoire signed the High-Performance Public Buildings Act, setting green building requirements for construction of state-funded projects larger than 5,000 square feet. 51 It requires that these buildings reach at leas t the Leadership in Energy and Environmental Design (LEED) Silver standard of the U.S. Green Building Council. 52 Green building standards result in major energy savings and other improvements. Before the 2005 law, the state owned or leased 14 LEED-certified buildin gs. Since then, 47 state buildings have applied and are wait ing for LEED system certification. The current green building practices for public buildings will contribute 0.5 percent of the reductions to meet our 2020 st atutory emissions reductions. High-Performance Schools The Office of the Superintendent of Public Instruction (OSPI) developed the Washington Sustainable Schools Protocol (WSSP ) to define high-performance schools in Washington. As of July 2007, all new K-12 school projec ts in districts with more than 2,000 students must be built to either the WSSP or LEED Silv er standard. Projects in smaller school districts were required to meet the same requirements beginning in July 2008. To test the protocol, OSPI chos e five construction projects for a pilot program. All of the pilot schools opened in September 2008, and four achie ved certification under the WSSP standard.

51 Codified as RCW 39.35D

52 LEED stands for Leadership in Energy and Environmental Design and is a trademarked program of the U.S. Green Building Council.32 While schools can choose between WSSP and LEED, all schools have chosen WSSP so far. One school did both and achieved LEED Gold. Calculation of GHG emissions re ductions from this program ar e included in the above number for reductions from public buildings. Affordable Housing CTED is providing grant funding to 39 afford able housing projects aiming for LEED Silver certification or higher. The GHG savi ngs attributed with this effo rt were not calculated, although they are expected to be modest. 

## Vehicle Emissions Labeling
In 2008, the legislature passed the Greenhouse Ga s Emissions—Disclosure—New Vehicles Act, SSB 6309, requiring automobile manufacturers to labe l certain new vehicles to show how much GHG each model produces or emits. 53 The law applies to all ne w passenger cars, light-duty trucks, and medium-duty passenger vehicles sold in Washington. The label must compare the vehicle’s GHG emissions to other vehicles in the same model year. The law takes effect with the 2010 model year. The label must include a rating that shows both numbers and visual information related to GHG emissions. SSB 6309 directs Ecology to consult with stakeholders on label design and adopt rules to implement the program. The law also requ ires Ecology to update the program as needed to keep the public informed and to review re quests from automakers for alternative labels. Under the law, Ecology is allowed to adopt a GHG label that is approved for use in California. During testimony on the bill, automakers strongl y urged Washington to adopt the California label to limit the number of labels they will need to produce. In June 2008, the California Air Resources Board adopted a rule requiring an “E nvironmental Performance” label. Figure 5-1 shows the California label, which is a model for the Washington program. The California rule also takes effect for the 2010 model year. Given the clear preference from auto manufacturer s, Ecology decided that further consultation was not necessary. Ecology is proceeding to adopt Ca lifornia’s rule and expe cts that the rule will be in place in January 2009.

53 Codified in RCW 70.120A

.33 Figure 5-1. Sample Vehicle Label From California Showing Emissions Scores 

## GHG Emissions Reporting
As required by E2SHB 2815, Ecology is in the process of adopting a mandatory GHG reporting rule. 54 The data reported under this rule will be used to refine the Washington inventory, determine compliance with regulations, and tr ack progress toward m eeting our statutory emissions reductions. The rule will require the following owners or op erators to report their to tal annual emissions of GHGs, beginning with the reporting of 2009 emissions in 2010. Facilities will be required to report if they have annual emissions from either:

• A fleet of on-road motor vehicles with emissi ons of at least 2,500 me tric tons of GHGs, expressed as carbon dioxide equivalent.

• Stationary emissions sources or mobile emissi ons sources used to transport people or cargo with emissions of at least 10,000 metric t ons of GHGs, expressed as carbon dioxide equivalent.Ecology’s Air Quality Program convened a rule advisory committee made up of a broad crosssection of stakeholders to assi st with development of the rule. The committee held its first meeting in September 2008 and is expected to continue meeting on a monthly basis through February 2009. In an effort to engage additional stakeholders and interested parties, Ecology established a rule website and also sends periodic email update s on the progress of the rule making to a rule list-serve as well as a broader climate change list-serve. 55 Ecology is also participating in the WCI as it develops a model rule for mandatory reporting of GHGs for the regional cap-and-trade program. Ec ology will incorporate relevant elements from WCI into Washington’s reporting rule. Additionally, The Climate Registry (TCR) is currently

54 E2SHB 2815 is codified as RCW 70.94.151 . The rule will establish a new chapter, WAC 173-441.

55 The rule website includes advisory committ ee meeting information and can be accessed at www.ecy.wa.gov/programs/air /globalwarm_RegHaze/GreenHou seGasreporting_rule.html

.34 developing a common database system to support mandatory reporting for states and provinces. Ecology is working with TCR to assure the common system meets Washington’s mandatory reporting needs. Ecology anticipates having a draft rule availabl e for public review and comment in spring 2009 and to adopt a final rule in summer 2009.35 

# 6. Climate Action Team Recommendations

The Climate Action Team (CAT) was establishe d in 2007 as part of Governor Gregoire’s Climate Change Challenge. The CAT, a broad- based group of Washington business, academic, tribal, state and local government, labor, reli gious, and environmental leaders, worked throughout 2007 to develop a comprehensive set of state-level policy recommendations to meet the state’s statutory emissions reductions. The CAT created the “Comprehensive Climate Approach,” defining 12 targeted areas and 45 sets of mitigation strategies that Washington could undertake to reduce greenhouse gas (GHG) em issions efficiently and effectively. 56 In 2008, E2SHB 2815 directed the CAT to contin ue its work and recommend “most promising actions to reduce emissions of greenhouse gases or otherwise respond to climate change.” This chapter summarizes the recommendations of the Implementation Working Groups convened by the CAT to reduce emissions in the built environment, from waste management, and in transportation. The CAT also convened an Implementation Working Group to examine the role of the State Environmental Policy Act (SEPA) in climate ch ange. SEPA currently l acks specific guidance on how to address climate change. Thus, the CAT’s SEPA Implementation Working Group (SEPA IWG) made recommendations to include climat e change explicitly in SEPA processes and documents. For a more detailed look at the CAT reco mmendations, please see the full report at www.ecy.wa.gov/climatechange/2008CATdocs/ltw_app_v2.pdf

. The CAT recommendations provide a number of strate gies that will create jobs and drive new investment in Washington’s economy. These stra tegies will also reduce emissions in both the short and long term. 

## Energy Efficiency and Green Buildings
Building and community design decisions have a major impact on Washington’s ability to meet its long-term requirements for reducing emissions . Both new construction and existing buildings will contribute to GHG emissions through their en ergy use. Their design and renovation will also affect the amount of those emissions. By 2030, new buildings constructed in the prece ding two decades (since 2010) will account for 20 to 25 percent of all commercial building floo r area and more than 20 percent of all housing units. Over the same 20-year period, it is expe cted most existing buildings will undergo some type of renovation, install new equipment, a nd will add or replace many energy-using devices. Thus, the time is right to improve the effici ency of our public and private building stock.

56 Climate Action Team, Leading the Way: A Comprehensive Approach to Reducing Greenhouse Gases in Washington State: Recommendations of the Washington Climate Advisory Team , February 2008. www.ecy.wa.gov/climatechange/CATdocs/020708_InterimCATreport_final.pdf36 To increase energy efficiency of new and exis ting buildings, the Energy Efficiency and Green Building Implementation Working Group ( EEGB IWG) developed a set of policy recommendations. 57 The policies aim to strengthen the en ergy efficiency and green building industries and to help reach the state’s green economy job goals. Using energy more efficiently is the quickest, cheapest, and mo st environmentally sound way to meet our future energy demands. By improving e fficiency, we can forgo building costly new power plants and reduce GHG emissions. In addition, many strategies to increase energy efficiency create green jobs and pay for themselves through energy savings. The policy recommendations summarized below include near-term opport unities to increase building energy efficiency and long-term strate gies to help Washington meet its statutory emissions reductions. 

### Energy Efficiency Incentives This recommendation calls for legislation to crea te incentives to foster the design, construction, and operation of buildings to levels of superior energy performance. It also encourages the use of combined heat and power, distri buted electricity generation, and other distributed and district energy and water systems, includi ng district heating and cooling. This approach would reward actual demonstrated energy performance with ta x credits. The two type s of incentive programs are summarized below. Energy Efficiency Quality In vestment Program (EEQUIP) The proposed Energy Efficiency Quality Inve stment Program (EEQUIP) has a number of elements outlined below. Near-term high-priority legislative concepts for this action include:

• Use Public Utility Tax (PUT) credits for non-reside ntial buildings that meet specific levels of energy performance based on actua l utility data. The utilitie s serving the building will provide 50 percent of the PUT credit.

• Modify the law related to Local Improvement Di stricts (LID) to add energy efficiency as a qualifying activity. This change wi ll allow LIDs to issue bonds to fund the upfront cost of energy efficiency investments. Homeowners who voluntarily receive funds will pay them back as part of thei r property taxes. Other most promising future legislative concepts for this action include providing partial sales tax refunds for:

• New non-residential buildings that achieve ener gy performance standards equivalent to an ENERGY STAR Target Finder rating of 90, und er the U.S. Environmental Protection Agency (EPA) program.

• New and existing residential buildings that meet a level of energy performance equivalent to an ENERGY STAR No rthwest-rated home.

57 For additional information, see full EEGB IWG Report in Appendix 2

.37 These ideas are designed to work with fa miliar programs of meri t (LEED, ENERGY STAR, Built Green, or other verifiable third-party or independent certifications) that have gained acceptance in the commercial and residential buildi ngs market. In addition, standards to qualify for incentives become increasingly stringent over tim e to drive the market in Washington toward more energy-efficient building de sign, construction, and operation. Combined Heat and Power (CHP) and Distributed Energy Systems

This recommendation offers tax incentives to su pport the development and use of combined heat and power (CHP) and other distributed ener gy systems. Potential incentives include:

• Business and occupation (B&O) tax credits.

• PUT credits for buildings and industries that use CHP or other distri buted energy systems.

• Sales tax exemptions on machinery and equi pment used in CHP and distributed energy systems.

• Property tax exemptions for distri buted energy and water systems. In the short term, sales tax exemptions on purchas es of equipment used in distributed energy and water systems—consistent with the existi ng manufacturing and retail sales tax and use exemptions (which include exemptions for CHP systems used in manufacturing)—are the simplest to apply. This recommendation also includes:

• Efficiency requirements for CHP systems.

• Similar eligibility criteria for incentives for other distributed energy systems. The Department of Community, Trade, and Ec onomic Development (C TED) will set criteria based on the effectiveness of the system and incentive models established for CHP.

• For district water projects, a baseline amount of water demand reduction needed to receive incentives. The proposal uses a tiered approach so higher percentage re ductions qualify for higher incentives.

• Ways to address barriers to completion of distributed energy systems, including interconnection with the el ectricity grid, dispatching of gene ration resources, split incentives between project owners and tenants, and compliance with local and state rules. 

### Energy Efficiency, Benchmarking, and Performance Disclosure
Public Buildings The EEGB IWG recommends legislative acti on to upgrade the energy efficiency and sustainability of publicly constr ucted and operated buildings, in cluding both new and existing buildings. The proposed bill includes different provisions for state agencies, colleges, universities, and school distri cts and for cities, counties, and other taxing authorities.38 Key elements include the following:

• Require benchmarking, auditing, and adoption of energy effici ency measures in existing public buildings. These energy efficiency require ments become stricter over time using a tiered or phased approach.

• Require that new and substantially renovated pub lic buildings meet strict energy performance standards, again with requirements becoming stricter over time using a tiered or phased approach.

• Emphasize education and promotion as cen tral to the succe ss of the program.

• Leverage existing programs and fundi ng in state and local governments.

• Partner with EPA’s ENERGY STAR program. This key step is already underway.
Private Buildings This recommendation on energy benchmarking and energy performance disclosure includes two major parts:

• Develop, use, and require public disclosure of an energy benchmark (e.g., energy use per square foot) for private non-residential and resi dential buildings at time of sale or lease.

• Let potential building buyers and users know that a system of Energy Performance Certificates should be creat ed and used in Washington. 

### State Energy Code Improvem ents and 2030 Building Goals This recommendation aims to improve energy effi ciency in new buildings. We are proposing two strategies that include upda ting current energy codes and establishing a long-term building energy reduction plan. The sections be low summarize these two strategies. Revision of Washingto n State Energy Code Revise the current Washington State Energy Code (WSEC) as part of the scheduled 2009 revision cycle to:

• Achieve a 30 percent reduction in new buildi ng energy use, compared to the 2006 edition of the WSEC.

• Provide efficiency advances in the code for remodeling, retrofit, and equipment replacement.

• Set a process for periodic review and improvement of building energy codes.

• Consider how codes affect the availability of incentives throu gh utility demand-side management programs.

• Provide education and technical assist ance in applying the updated codes.39 Establishment of 2030 Building Goals The EEGB IWG recommends legisla tive action to provide direction in creating and using a longterm State Building Efficiency and Carbon Reduc tion Strategy. A bill would direct CTED to develop a 2010 State Strategy for Building En ergy Efficiency and Carbon Reduction. This strategy would set targets for build ing energy use intensity and a ta rget for new buildings similar to the Architecture 2030 Challenge. This strategy would review several methods including the following options:

• State codes and appliance standards.

• Emerging technologies.

• User incentives.

• Education and technical assistance.

• Measurement. The EEGB IWG recommended CTED update the stra tegy every three years before the routine code review development and adoption process for state buildings. In addition to reducing GHG emissions, short- and long-term efficiency improvements to buildings and use of CHP and distributed/distri ct energy systems can provide these additional benefits:

• Reduce emissions of non-GHG air pollutants.

• Reduce water use.

• Increase the use of in-state renewable fuel s and reduce the use of imported fossil fuels. District energy systems can also play a role in promoting compact development to reduce transportation demands. Savings in energy costs ar e expected to exceed the costs to state and local governments, building owners, and developers. Enacting the recommendations will require commitments and sustained, coordinated effort s from both government and the private sector. Table 6-1 summarizes the strategies for energy e fficiency and green building and their projected emissions reductions in 2020.40 Table 6-1. Summary of Energy Efficiency and Green Building Strategies

Strategies Projected 2020 Reductions (MMtCO 2 e) Energy Efficiency Quality Investment Program (EEQUIP) 0.8 Expanded Implementation of Distributed Energy and Water, Combined Heat and Power (CHP), and Renewable Energy 0.3
Energy Efficiency in Existing, New and Renovated Public Buildings, and Energy Benchmarking and Energy Pe rformance Disclosure in Public and Private Buildings 1.2

State Energy Code Improvements and Establishment of 2030 Building Goals 6.4 TOTAL Gross Emissions Reductions 8.7 TOTAL Estimated Overlap Among Energy Efficiency and Green Building Options and Recent Actions 3.2

TOTAL Net Emissions Reductions 58 5.5


## Waste Reduction and Recycling
The disposal of solid waste produces GHG emissions in a number of ways:

• Decay of waste in landfills produces meth ane, a GHG 21 times more potent than carbon dioxide.

• Burning (incineration) of waste pr oduces carbon dioxide as a byproduct.

• Transporting wastes to disposal sites produces emissions from fuel. In addition, throwing away materials means new ra w materials must be mi ned, manufactured, or otherwise obtained, often leading to increased G HG emissions in those sectors of the economy as well. Washington has long been a leader in waste ma nagement. In 1989, the state legislature passed the Waste Not Washington Act, setting a 50 percent recycling goal for the state by 1995. 59 Washington now diverts about 48 percent of solid waste generated in the state to reuse, recycling, and other beneficial uses. Our recy cling rate exceeds the national average of 33 percent. The Beyond Waste Implementation Working Group (B W IWG) recommended five strategies to reduce and recycle “the next 50 percent”—the remaining half —of solid waste in Washington. 60

58 Total Net Emissions Reductions are projected if all of the Implementation Working Group recommendations and all policies in place are fully implemente d together. Many of these policies re inforce each other and thus overlap. See each IWG’s final report for a full acc ounting of the overlap between policies.

59 RCW 70.95

. 60 See full Beyond Waste IWG report in Appendix 3

.41 These strategies will work together to re duce waste, increase r ecycling, and reduce GHG emissions. Their recommendations begin with setting a new state recycling goal of 80 percent. They then focus on ways to reach that goal by 2020. They build on the parts of the current waste management system that are working well, and th ey target products and organic materials with the largest potential to reduce GHG emissions. Using these strategies, Washington could reduce GHG emissions by 6 MMTCO 2 e per year by 2020. Because many materials and products cons umed in Washington are produced around the world, not all of these reductions will occur within the state. As a result , we cannot include the full potential of these reductions in meeting Washington’s GHG emissions reductions. Given the global nature of climate change, however, the BW IWG believes that any actions Washington takes to reduce worldwide em issions are worthy activities. 

### Enhance the Collection of Recyclable Materials To meet the new goal to recycle 80 percent of th e overall solid waste stream by 2020, recyclable materials must first be collected. The existing waste collection system should be improved to decrease the quantity of recycl able materials and products, orga nic materials, and construction and demolition debris that is sent to landfills. The BW IWG strategies include the following:

• Residents and businesses should se parate their solid wastes into at least three categories:

• Recyclable materials and products. 61

• Organic materials, including yard, garden, and food wastes.

• Remaining solid wastes that cannot be recycled or composted.

• Local governments should update their comprehens ive solid waste management plans, which describe the services that will be provided. Participation would be optional for small rural counties and small population areas.

• Affected local governments should develop reus e and recycling policies for construction and demolition wastes as part of their solid waste management plans.

• The state should provide financial and other incentives to the private sector to foster capital investment in the infrastructure needed to support this action. 

### Market Development for Diverted Organics In addition to diverting organic materials from landfills, the state should also provide end uses for organic waste and byproducts. The BW IWG stra tegies focus on raising the value of organic materials and building markets for co mpost and recycled organics by:

61 Recyclable materials must at a minimum include recoverable paper, container metals, container glass (with some exceptions), and plastics (PET and HDPE, codes 1 and 2).42 • Encouraging anaerobic digestion of composta ble organics—including food scraps, manures, and food processing wastes—through incentives.

• Expanding use of composts and other organic materials by:

• Changing purchasing laws and regulations to expand the types of organic materials allowed in making compost for the Washingt on State Department of Transportation.

• Providing subsidies to farmers, through th e Conservation Districts, to promote agricultural use of composted organi cs suitable for land application.

• Using both voluntary and regulat ory offset markets to provide incentives for local governments and businesses to conduct organi cs diversion projects. Waste management has been identified as a priority for offset credits in the WCI cap-and-trade program design. 

### Environmentally Preferable Purc hasing Programs in Government The governor, through a new executive order, shoul d create a workgroup to find ways to change purchasing laws, rules, and practices to make sure that all levels of government conduct environmentally preferable pur chasing (EPP). Current governm ent purchasing follows three criteria: price, availability, and physical pe rformance. The BW IWG recommends adding a fourth criterion to the list: environmental performance. The workgroup created by the new executive order would develop strategies to integrate this fourth criterion. The proposed strategies could in clude legislation that would fo cus first on purchasing products with reduced GHG emissions. Other environmental factors, such as lowe st possible toxicity, could also be included. 

### Team With Retailers to Reduce Consumer Waste Waste prevention reduces more GHG emissions than recycling. The BW IWG recommended creating a voluntary program with major reta ilers to reduce waste from the products and packaging they sell. Current estimates find that at least 50 percent of household wastes come through retailers. This program has the potential to produce major reductions in waste generated throughout the state. Teaming with retailers provides an effective way to reach producer s, suppliers, and consumers of products. These projects can often al so benefit retailers through reduced shippi ng costs of lighter weight packaging and less spoilage of food. Two example programs have shown success in the United Kingdom.

• The “Love Food, Hate Waste” campaign , which engages retailers and producers in designing packaging for longer safe food storage. Retailers also provide information about how to store food properly. More than one-third of food purchased is currently thrown away, so the potential for savings is high.

• The GlassRite bottle initiative , where retailers work with wi ne producers to use lightweight wine bottles. The program also im ports bulk wine and bottles it in country, closer to the point of sale. Both of these strategies reduce shipping costs and GHG emissions.43 

### Product Stewardship Framework This program would expand the Washington elec tronics recycling program to other products such as carpet, mercury-containi ng lighting and thermostats, pain t, and rechargeable batteries. 62 A new law would be needed make producers of c overed products responsi ble for their products from cradle-to-grave, or from manufacture to end of life. The BW IW G did not obtain input on this strategy from affected groups, includi ng product manufactures and other industry representatives. The group unders tands this input would be n eeded before moving forward on this strategy. Manufacturers have the most in fluence on product design, manufact uring, and use. Accordingly, as with the electronics recycli ng program, this strategy would hold them responsible for reducing environmental and health im pacts of their products. The strategy recommends that Ecology be respon sible for identifying the products to be covered by this program based on their impact on th e environment and public health. Manufacturers would then be required to set up and run the product stewardship programs for their products. Such efforts would be designed to reduce the envir onmental and health impact s of products in all stages of their life cycl e, including GHG emissions. Table 6-2 summarizes the Beyond Wa ste strategies and their proj ected emissions reductions in 2020.
Table 6-2. Summary of Beyond Waste Strategies

Strategies Projected 2020 Reductions (MMtCO 2 e) * Optimize the Collection of Recyclable Materials 0.08 Product Stewardship Framework N/A Market Development for Diverted Organics 1.65 Government Environmentally Responsible Purchasing N/A Collaborate with Retailers to Reduce Consumer Waste 0.65 TOTAL Gross Emissions Reductions 2.3 TOTAL Estimated Overlap Among Beyond Waste Options and Recent Actions 0.9

TOTAL Net Emissions Reductions 1.4

* Only includes projected emissions reductions in Washington State. See Beyond Waste IWG report in Appendix 3 for full GHG accounting of these recommendations.

62 For more information on Washington St ate’s electronics recy cling program, see www.ecy.wa.gov/programs/swfa/ eproductrecycle/index.html

.44 

## Transportation Choices and Reducing Emissions
Transportation accounts for nearly half of Wa shington’s total GHG emissions. To meet its statutory emissions reductions , Washington must reduce trans portation-related GHG emissions. 63 To do so, the state must meet its short- and long-term benchmarks for reducing vehicle miles traveled (VMT). 64 Washington faces a crisis in tr ansportation funding that require s urgent action. The challenge facing the state is how to reach Washington’s requirements to reduce GHG emissions and VMT, given limited budgets. At the same time, the state needs to address:

• Effects of the current revenue shortage on st ate and local transportation infrastructure.

• Operating expenses and the ability of transit agencies to provide appropriate levels of service. Washington’s gas tax funds transportation projec ts. This link creates a dilemma because, as the state makes progress in reducing VMT and incr easing the efficient use of fuel, the funding available to provide transportati on service will further diminish. Given this challenge, the Transportation Implem entation Working Group (TIWG), as part of the CAT, found an opportunity to rethink transpor tation in Washington. Their recommendations seek to move Washington toward a future where:

• Citizens can choose public trans portation, walking, bicy cling, or rideshar ing for their daily activities.

• Transportation choices that are more environmen tally friendly, easier to use, more reliable, safer, and less expensive for the user than the current system ar e readily available.

• Future funding decisions foster reductions in GHG and VMT, promote Washington’s economic competitiveness, and reduce fuel imports. To achieve this vision, Washingt on must review how all levels of government make investments in transportation infrastructure and services. The TIWG recommendations are summarized below. For additional details on the recommendations and specific propos als, see the full TIWG report in Appendix 4

. 

### Transit, Rideshare, and Commuter Choice This recommendation consists of three programs to meet the demands of three different types of areas: large urban, small urban, and rural. Reduci ng VMT per person will be easiest in denser areas with land use and development patterns th at support bicycling, walk ing, and public transit use. These areas also have a larg er share of total statewide VMT.

63 For additional information, see final TIWG report in Appendix 4

. 49 According to E2SHB 2815, vehicle miles traveled (VMT) is the number of miles that vehicles less than 10,000 pounds are driven. VMT is a proxy for GHG emissions from the transportation sector.45 Success with these strategies also requires co ordination among Regional Transportation Planning Organizations, cities, counties, the Washington State Department of Transportation (WSDOT), transit agencies, and tran sportation stakeholders. Develop and Enhance a Washington St ate Transportation Access Network A “Washington State Transportation Access Networ k” is a strategy to ensure that public transportation provides vital conne ctions to enable travel thro ughout Washington and to provide affordable alternatives to a car-dependent lifestyle. Given the di fferent land use and transportation demands in Washingt on, the access network will have different features in various areas around Washington. The TIWG recommends several actions for state and local agencies to overcome existing barriers and implement this statewide public transportation system. Enhance Urban Commute Trip Re duction and Rideshare Programs

• Expand the number of urban commute trips by vanpool, carpool, and telework. Implement compressed work week schedules statewide.

• Invest in vans and “park-and-pool” sites, where people can park their ca rs and ride together in a carpool or vanpool.

• Invest in ride-matching tec hnology, outreach, and incentive progr ams—such as commute trip reduction, Growth and Transportation Efficiency Centers (GTECs), and residential-based trip reduction—to support growth in all commute options.
Create a Statewide Residential Trip Reduction Program

• Recommend an outreach and in centive strategy to encourag e all travelers, not just commuters, to use ways other than driving alone for their trips.

• Use tailored marketing strategies to inform tr avelers of their options and broaden the state’s trip reduction efforts beyond the commute. 65


### Compact and Transit-Oriented Development Compact and Transit-Oriented Development (CT OD) provides the density, infrastructure, and amenities to encourage the use of forms of transportation besides single occupancy vehicle. Washington’s Growth Management Act (GMA) al ready enables, but does not require, local government planning to promot e urban centers or CTODs. The following recommendations focus on five speci fic elements of CTOD that represent the most promising ways to reduce per-person VMT:

65 Over 75 percent of all trips taken are for other purpos es than commuting to and from the workplace. In urban areas, many trips are short trips (five miles or less), and over 50 percent of the shortest trips (one mile or less) are made in cars.46 Promote and Support Housing and Employment Density

• Legislatively expand the Multi-Family Tax Ex emption to allow any city planning under GMA to leverage and maximize the use of this tool.

• Adjust grant criteria to support CTODs, incl uding creating new reve nue sources to fund them—such as tax credits, loans, and revolving funds. Identify new finance mechanisms that support increased density in CTODs.

• Develop measures to reduce per-person VMT. Invol ve the public in preparing these measures for inclusion in the Regional Transportation Pl ans. WSDOT should cond uct this work with Regional Transportation Planning Organizations and Metropolitan Planning Organizations. This recommendation goes with several reco mmendations from the Land Use and Climate Change (LUCC) committee outlined in Chapte r 7: land use consistency with regional transportation plans, financing tools for develope r incentives, and new funding targeted to urban centers. Develop and Provide Parking Incentives and Management

• Make regional parking maximums a require ment of Regional Transportation Plans.

• Develop parking management education prog rams and assistance that recognizes the importance of parking management in CTODs.

• Explore revenue and funding options, such as a parking tax for dense urban locations. Use these funds for projects and programs in the CTOD and tax credits for lower parking ratios.

• Provide regional transportation funding for transi t and multimodal facilities, such as transit centers, in return for developers increasi ng development density and minimizing project parking.

• Prohibit the construction of prin cipal-use long-term parking. A llow shared parking, such as between businesses and reside nts at a mixed-use complex.

• Maintain state grant support for trip reduction programs focused on CTODs.
Encourage Bicycle and Pedestrian Accessibility The legislature should affirm that walking and bicy cling for transportation o ffer many benefits to individuals, their communities, and the state, including better health for people and no harmful pollution. As part of a balanced transportation system, walking and bicycling will reduce car trips and the GHG emissions they cause. The legislature should adopt polic y based on the concepts identif ied in the Complete Streets national movement, while recognizing certain c onditions (such as high cost for particular elements). Encourage Urban Brownfield Redevelopment State funding and a grant program should be included to enhance the state’s brownfield revolving loan fund to promote compact development.47 Transportation Concurrency The TIWG and CTED’s LUCC committee develope d recommendations related to transportation concurrency. 66 The specific LUCC recommendations that align with the TIWG concurrency recommendations are:

• Better enable GMA Transportation Concurrenc y to address all modes of transportation.

• Provide assistance and guidance to local governments on how to support multimodal improvements or strategies in their transportation concurrency regulations.

• Require local governments to consider multim odal improvements or strategies in their transportation concurrency regulations. 

### Funding Criteria and New Revenue Sources The transportation funding recomm endation includes two parts: Align Transportation Investments and Operations With E2SHB 2815 State, regional, and local tran sportation investments and operati ons should be aligned with the statutory reductions for VM T and GHG emissions in E2SHB 2815. Harmonizing these efforts will mean reviewing not only proposed new invest ments but also existing investments. The review should ensure that Washington’s tr ansportation policies can achieve GHG and VMT reductions as well as meet other objectives of transportation funding.
Pursue New Revenue Sources to Support Transportation Choices Washington State should seek new revenue sources to support transportation choices, particularly transit options. The state needs to make system-wide improvements in distributing funds to meet the existing obj ectives of Washington’s transp ortation sector. In addition, Washington needs a funding approach to trans portation that produces revenue sufficient to provide those options—including support for transit—that are v ital to meeting Washington’s GHG emissions and per-person VMT reduction be nchmarks. The current local and state transportation funding sources are not adequate or stable. The gas tax cannot supply revenue to support increased local tran sit needed to reduce GHG emissions and per-person VMT. 67 Creating new transportation funding options based on user fees other than the gas tax provides the best opportunity to produce future re venue for system improvement, operation, and maintenance. Such an approach can also help reduce demand for single oc cupancy vehicle travel and support transportation options.

66 Transportation concurrency means that transportation infrast ructure (e.g., roads) must be available to carry the traffic of a proposed new development at designated level-of-service standards. Local governments can require developers to pay impact fees to help cover the cost of the necessary infrastructure improvements.

67 Of Washington State’s transportation funding, 79 percen t is generated through the state’s 37.5 cent per gallon gas tax and the federal gas tax. The transportation sector’s dependence on gas consumption for revenue creates a paradox: as citizens contribute to climate solutions by driving less and using more fuel-efficient vehicles, the revenue available for transportation projects declines, in cluding potentially for those projects designed to reduce GHG emissions and per-capita VMT. More over, external factors such as unst able fuel prices and improving fuel economy standards result in less fuel usage, further reducing revenue.48 The 2007 CAT identified several revenue tools fo r the legislature to consider. The TIWG prepared a recommendation on transportation pricing (see below) proposed for the 2009 legislative session. The original list from 2007 remains relevant, however. It contains revenue tools worthy of more consideration, including user fees, local option taxes, and statewide
revenue sources. 

### Transportation Funding and Pricing Strategies Transportation pricing strategies ar e recommended to meet three goals:

• Reduce per-person VMT and GHG emissions.

• Raise needed revenue.

• Manage the system for better efficiency and reliability. Usage-based pricing strategies—such as tolls, parking charges, and VMT or gasoline taxes— cause travelers to adjust their travel hab its and reduce per-capita VMT and GHG emissions accordingly. Pricing strategies can contribute to more reduc tions in GHG emissions and VMT per person when they fund alternatives such as transit, ridesharing, bicycling, and walking. They can also provide incentives to invest in more fuel-efficient vehicles. The following recommended actions could increase the effect of prici ng to achieve the perperson VMT and statutory GHG emissions reductions:

• Consider per-person VMT and GHG emissions reductions as a third objective to WSDOT’s existing tolling objectives of re venue generation and efficient traffic management. 68 Include this objective in pr oject design, development of pricing strategies and actions, and regulation of toll rates.

• Use toll revenues to fund more sustainable travel patterns , such as public transit and carpooling. The legislature shoul d direct WSDOT to include transit operations and other sustainable transportation investments, such as improved freight mobility in urban corridors, as part of tolling decisions.

• Design toll strategies to provide incen tives for individuals to reduce their VMT and GHG emissions. The Washington St ate Transportation Commission s hould establish toll rate policies that encourage drivers to make fewer and shorter trips, use less polluting vehicles, and consider alternative m odes besides driving alone.

• Apply tolling more broadly to promote revenue, efficien cy, and GHG emissions reductions. Two specific recommendations include:

• In 2009, the legislature should gr ant authority for tolling of the cross-Lake Washington corridor, including both State Route 520 and Interstate-90.

68 E2SHB 1773 established a legislative policy framework for tolling. This framework provides the legislature with authority to impose tolls and maintains the Transportation Commission’s role to set toll rates for tolled facilities. By law, Washington State’s objectives for tolling include bo th generating revenues for transportation and providing a mechanism to help manage traffic volumes and congestion.49 • In 2010, the legislature should establish a ta sk force to review tolling authority. The group should explore how to move toward a system-wide tolling policy, rather than a project-by-project approach.

• Establish a task force on state and local transportation funding to propose tolls and other pricing mechanisms. These funds could support transportation and transit needs and create price incentives to reduce per-capita VMT a nd GHG emissions. Passing expanded legislation on transportation pricing and funding should be the goal. The pricing mechanism should be designed to:

• Give priority to transit and freight operat ions to improve the movement of people and goods.

• Be fair, consistent, and transparent, so that users can see the value of the pricing. Pricing mechanisms should provide users with reasonable alternatives, such as improved transit service and reliability. Stakeholders, such as freight interests, should receive direct benefits from their user fees. 

### Non-VMT Actions to Redu ce Transportation Emissions We need a multi-part way to address the climate impacts of the transportation sector, one which can be scaled to meet the size of Washington’s need. Building on the work of the 2007 CAT, five additional transportation policies are recommen ded. (See the full TIWG report for a list of potential specific projects and actions.)

• Increase the use of rail for the movement of both passengers and freight.

• Encourage GHG emissions reductions and fu el-efficiency improvements in diesel engines by enacting the original 2007 CAT strategy (T-7: Diesel Engine Emission Reductions and Fuel Efficiency Improvements ).

• Implement a package of Transportati on Systems Management strategies. The TIWG has built on the work of the 2007 CAT and identifi ed the potential GHG em issions reductions from transportation system management strategies. The TIWG is not making a recommendation beyond that of the 2007 CAT.

• Speed the availability and use of Plug-In Hybrid Electric Vehicles (PHEVs) and electric vehicles.

• Ecology and other affected agencies should seek resources from th e 2010 legislature to evaluate and adopt a Low Carbon Fuel Standard (LCFS) appropriate for Washington. (Note that a 2010 request would come after th e implementation of the California LCFS and allow Washington to benefit fr om California’s experience). Table 6-3 summarizes the transpor tation strategies and their proj ected emissions reductions in 2020.50 Table 6-3. Summary of Transportation Strategies Strategies Projected 2020 Reductions (MMtCO 2 e) Transit, Rideshare, and Commuter Choice 2.6 Compact and Transit-Oriented Development 1.7 Climate Change and Transportation Funding N/A Transportation Pricing 1.0* Non-VMT Reduction Strategies Not Quantified TOTAL Gross Emissions Reductions 5.3 TOTAL Estimated Overlap Among Beyond Waste Options and Recent Actions 0

TOTAL Net Emissions Reductions 5.3

*Quantified as part of 2007 CAT Report. 

## State Environmental Policy Act
The State Environmental Policy Act (SEPA) provi des a way to identify possible environmental impacts, including the effects of greenhouse ga s (GHG) emissions, that may result from governmental decisions. These decisions may be re lated to issuing permits for private projects; constructing public facilities; or a dopting rules, policies or plans. Information provided during the SEPA review pro cess helps agencies, app licants, and the public understand how a proposal will affect the environmen t. This information can be used to change a proposal to reduce likely impacts or to deny or place conditions on a proposal when adverse environmental impacts are identified. The growing concern about GHG emissions and th e recognition of their significant adverse impacts on the climate and the environment have placed a new focus on the SEPA review and decision-making process. Many states and local governments have adopted policies, rules, and guidance to address climate change in their environmental review processe s. Some have done so to help avoid court challenges. In Washington State, many public agencies—along with bus inesses and community groups—are facing pressure to identify and addr ess potential effects of GHG emissions from proposed actions and projects. These entities are seeking clear, consistent , and predictable ways to address how proposed actions aff ect GHG emissions or climate change. The SEPA Implementation Working Group was fo rmed to provide guidance for considering climate change in public decision making. 69 The recommendations focus on how state agencies, local governments, and the private sector should analyze, disclose, and mitigate GHG emissions and the effects of climate change on actions under SEPA. The recommendations also describe ways to use SEPA to provide incentives for “c limate friendly” plans, policies, and projects.

69 For additional information, see full SEPA IWG report in Appendix 5

.51 Some recommendations require more work—m ainly by Ecology and its stakeholders—as the effort to provide clarity on how to address clim ate change under SEPA continues. Some areas also relate to topics covered elsewhere, such as land use and transportation. These areas may need follow-up work before th ey can be put into action. 

### GHG Emissions Measurement and Disclosure
Methods for measuring GHG emi ssions are rapidly evolving, and measurement tools are proliferating. The SEPA IWG recommends that Ecology provide clear direction to SEPA project sponsors and public agencies abou t what to measure and how to measure under SEPA, especially for typical types of projects a nd other non-project actions such as SEPA review of planning documents. Lead agencies would have flexib ility, when needed, to address projects and proposals with different sources of emissions. To provide clear direction to public agencies and project sponsors Ecology needs to:

• Revise the SEPA Environmental Checklis t to include climate change factors.

• Provide guidance on measuring GHG emissions fr om projects and non-project actions. The SEPA IWG prepared an initial set of criteria on what to me asure and a list of 16 emissions
sources.

• Work with other state and local agencies, SEPA project sponsors, and the public to develop and update easy-to-use tools to measure GHG emissions.

• Provide guidance to project spons ors and public agencies on how to use qualitative analyses of GHG emissions when quantitat ive tools are not appropriate for some types of proposals. 

### Develop Approach to Threshold Determination
The threshold of significance is a standard or se t of criteria a SEPA l ead agency uses to determine if the environmental effects of part icular project are signi ficant enough to require preparation of an Environmental Impact Stat ement (EIS) under SEPA. If the proposed action exceeds the significance threshold, the SEPA proj ect sponsor can offer voluntary mitigation to reduce the emissions below the threshold to avoid the need for an EIS. The SEPA IWG recommends that Ecology develops an approach to threshold determination under SEPA based on the following points:

• All lead agencies should a dopt a significance standard.

• Washington should create a statew ide standard of significance fo r lead agencies that lack their own standard.

• Lead agencies should have the option to se t their own standards, subject to minimum requirements set in guidance, rule, or statute.

• Project sponsors should have options for obt aining a Determination of Non-Significance (DNS) for climate impacts.

• Significance standards should be linked to the statewide requirements for GHG emissions reductions.52 

### Guidance on Mitigation A state or local agency with authority over a pr oposal can require actions to mitigate (lessen) adverse environmental impacts. To support the required mitigation, the agency must have “substantive SEPA” policies in place and identify them in its review. Mitigation is voluntary at the threshold determination stage. At the point of final decision s on proposals, agencies have the power to require mitigation but are not required to do so under SEPA. The SEPA IWG recommends that Ecology should a ssist public agencies and project sponsors by:

• Defining criteria or methods for measuring the effectiveness of existing and “newly” identified mitigation strategies (for example, how many tons are mitigated).

• Providing information on costs and savings from each strategy, if and when available. 

### Conceptual Ideas for Leveraging SEPA
The SEPA IWG recommends four ideas for us ing SEPA to provide incentives to promote climate friendly development. This “leveraging of SEPA” is an area for future work. The SEPA IWG recommends the following four ideas to leverage SEPA to reduce GHG emissions:

• Neighborhood and District-Level Exemptions— This “exemption” would be for certain areas within an urban growth area (UGA), where property owne rs agree to comply with minimum standards for sustainabl e development set in statute.

• Upfront SEPA— This idea would allow the use of pr ogrammatic SEPA review and adoption of rules that address and mitigate impacts of climate change. The Land Use Climate Change Advisory Committee has a similar recommendation.

• Voluntary Mitigation List and “Green List” Projects— Under this idea, projects that include mitigation measures contained on a “green list” can be fully or partially exempt from further GHG reduction requirements.

• Regional Planning— This idea involves adoption of a statewide EIS for a regional or statewide Climate Change Plan, which could th en be adopted into lo cal plan-level EISs.



### Future Vulnerabilities in th e Environmental Checklist
The SEPA IWG recommends that Ecol ogy should take the following actions:

• Revise the SEPA Environmental Checklist to in clude analysis of how predicted changes in the existing environment due to climate change , combined with proposed actions, may create additional impacts on the natural and built environment.

• Provide guidance on how to conduct the analysis outlined above. The required analysis should be based on readily available tools and resources and not requir e project sponsors to conduct new studies.53 As future work and recommendations are put in to action to include c limate provisions under SEPA, these additional concerns should be considered:

• Resources, capacity, and constraints of the lo cal governments charged with enacting the new policies.

• Training and funding for lead agencies and applicants.54 This page is purposely left blank55 

# 7. Land Use and Climate Change

By 2025, we expect 1.5 million more people will live in Washington. To meet emissions and vehicle miles traveled (VMT) reductions, we need to direct this growth to compact urban developments, while also reducing low-density development. The Climate Action Team (CAT) and other policy committees working on climate cha nge agree that priorities for action are to integrate land use and transpor tation planning and development. Focusing on these priorities will help redu ce VMT and greenhouse gas (GHG) emissions related to transportation. They will also help protect rural and resour ce lands from conversion for development. Several compatible land use and transportation-rela ted actions are being recommended from these various efforts, with wi despread support from diverse perspectives and stakeholders. These ideas clearly point to the ne ed for an integrated climate change strategy on land use that covers planning, e nvironmental review ( under the State Environmental Policy Act, SEPA), development standards, incen tives, guidance, and voluntary tools. The decisions we make about how we develop and use land directly affect transportation options available to residents, including how far they need to travel from their homes to get to work, shopping, and other family activi ties. We need to slow down development of farm and forestland, and instead to direct development into higher density urban areas. This change can reduce VMT per person by 20 to 40 percent and transportation-related GHG emissions by 7 to 10 percent by 2050. 70
The recommendations and ideas in this chapter have been genera ted by, and are consistent with, the collective thoughts of the workgroups below.

• The Climate Action Team (CAT) has three Implementation Working Groups that addressed land use topics: Transportation (TIWG), Energy Efficiency and Green Building (EEGB), and the State Environmental Policy Act Im plementation Working Group (SEPA IWG).

• CTED’s Land Use and Climate Change Policy Advisory Committee (LUCC) 71

• The Forest Sector Workgroup on Climate Mitigation (FSW) 72

• CTED’s Transfer of Development Rights (TDR) Policy Advisory Committee These various strategies and recommendations al so reinforce a number of other major public policy initiatives underway in Washington, incl uding the Action Agenda of the Puget Sound Partnership (PSP), and Ecology’s Mitig ation that Works Forum (MTWF).

70 Urban Land Institute, Growing Cooler: The Evidence on Ur ban Development and Climate Change , October 2008.

71 Created with the passage of SB 6580. For additional details, see final report at www.ecy.wa.gov/climatechange/2008G MAdocs/2008LUCC_finalreport.pdf

. 72 The Forest Sector Workgroup on Climate Change Mitigation report is available in Appendix 6

.56 

## Compact Urban Development
Promoting compact urban development and re ducing low-density deve lopment is already Washington’s policy as stated in the Growth Management Act (GMA). 73 All local communities in Washington can achieve compact urban developm ent at a scale appropriate for them. Compact urban development refers to ar eas intentionally selected to:

• Promote high density of housing and jobs.

• Provide efficient transportati on options and connections, including transit, walking, and bicycling.

• Include a full range of land uses.

• Incorporate strong provisions addressing building design, effec tive street design, and a full range of amenities (e.g., parks/open space, “comp lete streets”) that at tract people to walk.

• Include various housing types, particularly a ffordable housing options for different economic segments of the community, in cluding vulnerable populations. In many cases, compact urban development ma y also include these additional features:

• Regional public and institutional uses , such as libraries or schools.

• A receiving area for transfer of development ri ghts (TDR), in jurisdictions where a TDR program is in place. 74

• Parking management, to reduce the amount of land used for parking. 

### Benefits of Compact Urban Development
Directing growth to compact urban cent ers can provide the following benefits:

• Decreasing the need to travel by privat e vehicle and vehicle miles traveled.

• Decreasing transportation-related GHG emissions.

• Conserving resource lands, incl uding agricultura l, forestry, and mineral lands of long-term commercial value.

• Preserving rural areas, including prior ity habitat for fish and wildlife.

• Providing public and private infrastruc ture and services more efficiently.

• Decreasing energy use per capita.

• Promoting economic development and jobs in close proximity to a majority of residents in urban areas.

73 RCW 36.70A.020 (1) and (2)

. 74 A receiving area is designated for high -density development in a TDR program. Developers in receiving areas can purchase development rights from landowners in areas desi gnated for preservation to allow them to develop areas at higher density than would otherwise be allowed.57 • Improving water quality in nearby water bodi es by reducing runoff and through higher quality and more efficient stormwater management.

• Providing various housing types mo re likely to be affordable than a dominant pattern of single-family housing.

• Promoting recreation and tourism industrie s in rural and natural resource lands. 

## Recommendations Planning
These recommendations make the connection betw een land use planning, transportation, VMT, and GHG emissions. Local governments need help to make progress in reducing GHG emissions and VMT through smarter land use patterns. The next updates to local comprehensive plans under GMA are due starting in 2011. Near-term action on these ideas is need ed to help provide the tools that local communities need to addr ess climate change and reduce VMT through land use and development.

• Amend the environment goal in the Growth Management Act (GMA) to address climate change. Cities and counties would be required to consider climate cha nge issues in their comprehensive plans (LUCC).

• Require counties and the cities within them to set policies for addressing climate change (LUCC).

• Require local governments to consider all mode s of transportation in their planning efforts (LUCC, TIWG).

• Require local comprehensive plans to be cons istent with the regional transportation plans (LUCC, TIWG).

• Provide technical guidance to local governments on:

• Planning multimodal transportation systems and transportation concurrency (LUCC, TIWG).

• Voluntary incentives for devel opers that local governments can use to encourage compact development in urban growth areas or designated urban centers (LUCC). 

### Leveraging SEPA to Promote Compact Urban Development The review process under the State Environmenta l Policy Act is another tool for promoting compact urban development. We recommend leveraging SEPA to:

• Encourage greater use of SEPA during pl anning for neighborhoods and subareas to streamline project-specific environmental anal ysis for compact development (LUCC, SEPA IWG).

• Fund and amend the Planning and Environmen tal Review Fund (PERF) to become a revolving loan fund to fund SEPA reviews “upfront” (LUCC, PSP).58 • Prioritize PERF funds to support compact urban development projects (LUCC, PSP).

• Allow local governments to charge back SEPA review costs to developers (LUCC, PSP).

• Develop lists of voluntary mitigation and “green” projects (SEPA IWG). Note this conceptual idea is recommended for further consideration.

• Develop a statewide Environmental Impact St atement (EIS) on GHG emissions, impacts, and mitigation that can be adopted into local EISs (SEPA IWG). Note this conceptual idea is recommended for further consideration.

• Include future vulnerabilities and adap tation measures in EISs (SEPA IWG). Note that this idea is not a recommendation, but an idea advanced for further analysis by Ecology. 

### Additional Tools, Requirements, and Incentives The following recommendations are also made related to compact urban development.

• Support regional transfer of development right s programs to encourage compact development in urban areas and conserving farms, worki ng forests, rural lands, and open space (LUCC, TDR, PSP, FWG, MTWF).

• Encourage biking and walking, including adoption of the concepts in the Complete Streets national movement (TIWG).

• Parking incentives and management de signed to decrease car trips (TIWG).

• Promote redevelopment of polluted “brownfiel ds” to encourage infill and promote economic activity (TIWG, PSP).

• Provide incentives for housing and employme nt density, including expanding use of the multi-family tax exemption in HB 1910, maximizing financing to support existing infrastructure and development, and using public/private partners hips (TIWG, LUCC). 75

• Establish incentives and code requirements to increase energy efficiency and green building techniques (EEGB, FWG).

All of these recommendations a nd ideas share the same goals:

• Promoting well-planned density and infill development in existing urban areas.

• Providing housing near jobs and services.

• Increasing access to and use of clim ate-friendly transportation options. Broadly, these recommendations and ideas sh are the goal of promoting higher density development that provides a range of uses and a variety of multi-modal transportation options. Helping communities plan for and build these comp act communities is a key part of meeting the state’s required reductions in GHG emi ssions and benchmarks for VMT reduction.

75 Codified as RCW 84.14

.59 

# 8. Western Climate Initiative Cap-and-Trade

Launched in 2007, the Western Climate Initiative (W CI) includes seven states and four Canadian provinces, as shown in Figure 8-1. Together, the WCI represents more than 70 percent of the Canadian economy and 20 percent of the U.S. economy. This chapter summarizes the WCI design for a cap-and-trade program to create a regional market and reduce greenhouse gas (GHG) emissions.

Figure 8-1. Map of WCI States and Provinces60 

## WCI Cap-and-Trade Design
E2SHB 2815 directed the Department of Ecology (Ecology) and the Depa rtment of Community, Trade, and Economic Development (CTED ) to provide the legislature with:

• The cap-and-trade program designed by the WCI.

• The legislation and budget to implement it on January 1, 2012.

• Recommendations on how to prevent manipulatio n of the allowance market created by the program.

• Any changes needed to the mandatory reporting rule included in the bill.

• Recommendations on how certain elements of the Washington economy can voluntarily participate in that market. This chapter presents a summary of these issu es. The legislation and budget will be delivered separately. The recommended cap-and-trade program designed by the WCI will create the most comprehensive cap-and-trade program in the wo rld to date. By 2015, we estimate the WCI will cover over 90 percent of Washington’s emissi ons, as shown in Figure 8-2. The WCI has done some preliminary economic modeling of the desi gn. That modeling found that the program will result in a modest overall cost savings to the economy. The upfront investment to reduce emissions is returned to businesses and individuals through savings on energy bills. Much work remains to do on the details of the WCI cap-and-trade design. What has been recommended to date is the policy framework th at largely outlines what must be the same between the participating jurisdic tions to have a functional regional market, and where each state and province may exercise its discretion without distorting the market. The specific details for the cap-and-trade program will be determined th rough administrative and le gislative processes. 

### WCI Cap-and-Trade Program Highlights Under the recommended design, the program will set a total limit (or “cap”) on GHG emissions for each of the jurisdictions partic ipating in the regional program. The state will issue allowances (tradable permits for emissions) in an amount th at equals the estimated total emissions from capped sectors, as shown in Figure 8-2. These distributions will likely happen on a quarterly basis each year. The cap will decline over time to levels specified by Washington State’s statutory emissions reductions. The steady dec line in emissions ensures that Washington will meet its statutory reductions for GHG emissions in 2020. Below is a brief summary of the WCI cap-and-tr ade program design. For a full explanation of these and other elements of the program, see the full WCI Design Recommendations

. 76

76 Available at www.ecy.wa.gov/climatechange/WCIdocs/092308WCI_DesignRecommendations_full.pdf

.61 Figure 8-2. Annual Washington Emissions Cap Under WCI Cap-and-Trade


### Regional Cap and Budgets The WCI regional cap will establish the combin ed limit on GHG emissions in the whole WCI. Each participating state and pr ovince will receive a sh are of that regional cap, called a budget, which is based in part on its own GHG reduction goal. In 2012, the first year of the program, a one-tim e adjustment to each WCI state or province budget will be made. Each jurisdiction will cont ribute 1 percent of its initial budget into a common pool. That common pool of allowanc es will then be redistributed among the participating jurisdictions based on the amount of electricity it generates and consumes, its population growth, and its share of th e total emissions between 2001 and 2005. 

### Early Reduction Allowances Another one-time adjustment will be made in 2012 that will rec ognize certain early actions to reduce emissions. A facility or entity covered by the program that reduces its GHG emissions between 2008 and 2012 (or the day before the prog ram starts) may receive allowances for those early reductions if they meet certain criteria. The WCI states and provinces are currently developing those criteria. These al lowances are in addition to th e state and province budgets and are referred to as “Early Reduction Allowances.” They will have the same value and use as any other allowance in the system.62 

### Program Coverage The WCI program covers all six major GHGs and the following sectors of the economy, as shown in Figure 8-3: 77

• Electricity, including imported el ectricity (beginning in 2012)

• Industrial and commercial combustion of fossil fu els at large sources, su ch as factories and refineries (beginning in 2012)

• Industrial process emissions, such as those pr oduced at cement kiln s (beginning in 2012)

• Gasoline and diesel fuel used fo r transportation (beginning in 2015)

• Residential and commercial fuel use, such as oil and natural gas us ed for home heating (beginning in 2015)

• Industrial fuels sold to faciliti es below the emissions threshold for direct coverage (beginning in 2015)

Figure 8-3. Washington’s Total GHG and Capped Emissions for 2012 and 2015

77 The six primary GHGs covered in the program include carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), perfluorocarbons (PFCs), hydrofluorocarbons (HFCs), and sulfur hexafluoride (SF 6 ).63 

### Reporting and Compliance
Consistent with the direction in E2SHB 2815, the program will start in 2012. Facility emissions reporting for the WCI must begin in 2011 for 2010 emissions. Under the current Washington law, reporting from facilities whose emissions exceed 10,000 metric tons of the covered greenhouse gases (expressed in metric tons of carbon dioxide e quivalents, or MtCO 2 e) annually will begin in 2010 for 2009 emissions, consistent with the WCI requirement. The WCI cap-and-trade program will regulate facil ities that emit more than 25,000 metric tons of the covered greenhouse gases each year. Beginning in 2015, the cap wi ll also cover facilities that deliver transportation, residential and commercial fuels as well as industrial fuels to users below the threshold. Each covered entity will need to submit to the state enough allowances to cover its emissions during the preceding th ree-year “compliance period.” (The initial three compliance periods are 2012 to 2014, 2015 to 2017, and 2018 to 2020.) 

### Compliance Flexibility The proposed WCI design contains a great deal of flexibility, which will further enable covered facilities to make reductions when and where they are most cost eff ective. Cap-and-trade is itself a flexible compliance mechanism as it does not mandate where reductions occur. The multi-year compliance periods also provide flexibility as do the Early Reduction Allowances. In addition, the design recommends the acceptance of offset credit s. Those are credits for projects that reduce emissions outside the capped sector s or at facilities that are w ithin a capped sector but whose emissions are below the threshold. Allowances may be indefinitely banked be tween compliance periods , although borrowing fromfuture compliance periods will not be allowed. A limited amount of allowances from other capand-trade programs will also be accepted to help meet a compliance obligation. 

### Offset Projects The WCI recommends that forestry, agriculture, a nd waste management be the priority areas for development of offset projects. The program limits the use of offset credits to 49 percent of the total reductions required. This limit will ensure a majority of the reductions come from within the capped sectors and increases the potential th at the capital investments needed to achieve reductions and the jobs associated with those investments occur in Washington. Individual WCI states and provinc es may have lower limits on the use of offset credits. There will be no limitation on the location of offset pr ojects. The WCI will develop or modify existing protocols for offset projects to en sure that the credits issued fo r those projects are fully fungible throughout the WCI region. 

### Auctions Finally, the design recommends that a minimum of 10 percent of the allowances be auctioned and that the auctions be coor dinated throughout the region to mi nimize any market distortions. This percentage is recommended to increase to at leas t 25 percent by 2020. Some amount of auctioning is necessary for pr ice discovery, which help s prevent manipulation in the secondary allowance market. Beyond that , however, the WCI believes that the maximum auction level should be determin ed by each state and province, taking into account the potential64 economic impacts on the industries that would have to participate in that auction, the potential for job leakage or manufacturing slow down if ther e are shifts to states that are not limiting greenhouse gas emissions or auctioning allowan ces, and the potential revenue that may be generated by the auctions. 

### What Elements Must Be the Same in Each State and Province For the WCI to have a functioning regional market, certain elements of th e program must be the same in each state or province. 78 Generally, these elements are t hose areas of the program that affect the value and tracking of allowances or o ffsets, including the reporting requirements that assure all covered emissions are reported, measured or calculat ed in the same way, and that reductions or increases in emissions are proper ly captured. The elements of the cap-and-trade program that must be the same in each of the jurisdictions are:

• Minimum reporting requirements.

• Sectors and gases covered by the program.

• Where specific fuels and emissions are regulate d (referred to as the point of regulation).

• How GHG emissions are calculated at the state and facility level.

• How to set the cap for the entire region and dist ribute allowances to the states and provinces.

• The length of the compliance periods.

• Policies on banking and borrowing of allowances.

• Criteria for recognizing early actions.

• Criteria and protocols for offsets.

• Maximum amount of offset credits allowed.

• Rules for holding auctions, including how to set the auction reserve price.

• Links to other cap-and-trade programs.


### What Elements Can Be Different Between the States and Provinces Other elements of the program can be tailored to the individual st ate or province without affecting the functioning of the market. Each WC I state or province has complete discretion for determining those elements, which include:

• The allocation of allowances within the state: free, auctioned, or a combination.

• To whom allowance should be allocated: co vered sources, individual citizens, or any combination.

• The maximum percentage of allowances auctioned.

78 The WCI states and provinces are in the process of develo ping a joint work plan to address these issues, including how stakeholders can be more actively involved in them. The budget request from the Department of Ecology includes a request to participate in this joint development process.65 • More stringent limits on th e use of offset credits.

• Setting aside allowances for specific uses such as for new entrants.

• Recognition of reductions for early actions that do not meet the requirements for Early Reduction Allowances. 

### Preventing Manipulation of the Allowance Market Preventing market manipulation is a top prio rity of Ecology and C TED. Operating under a contract with Ecology, ICF International was aske d to examine the potentia l for manipulation of the allowance market and recommend opti ons for limiting this type of behavior. 79 There are three primary areas of the allowance market that are of concern:

• Auction design and operation.

• Market oversight.

• How and when certain information is disclosed. The general findings were:

• There is no evidence of market manipulati on in existing cap-and-trade programs (U.S. SO 2 , NO x , or the European Union Emissions Trade Scheme).

• The Commodities Futures Trading Commi ssion, Federal Energy Regulatory Commission, and the Security and Exchange Commission w ill likely have oversight responsibility for some portion of the WCI allowance market.

• Allowance markets bear no resemblance to electricity markets because:

• Carbon allowances will be much more broadl y owned, making it difficult for a handful of bad actors to create a shortage.

• Carbon allowances can be banked unlik e electricity, which cannot be banked.

• There are no “critical” times for carbon allowances—there is a three-year compliance period that allows ample time for covered faci lities and entities to acquire the necessary allowances. Electricity demand on the other ha nd must be met instantly to maintain system reliability. Specific recommendations from IC F included that the WCI should:

• Contract with an independent market monitor to provide monitoring and oversight as did the Regional Greenhouse Ga s Initiative (RGGI). 80

• Adopt the “beneficial ownership” disclo sure requirements, also as did RGGI. 81

79 The paper is now available on the climate change page of the Department of Ecology website. For more information on ICF, see their website at www.icfi.com

. 80 RGGI is a regional cap-and-trade program for electric ity GHG emissions that includes Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont66 • Use the “single-round, uniform price” method for any auctions conducted. 82

The WCI has formed a new committee on Market Operations and Oversight. Preventing manipulation and excessive speculation are part of the primary tasks of this committee. The WCI will work with RGGI on lessons learned from its initial auction and how it oversees its allowance market. The WCI also expects to work with EP A, which has successfully operated the sulfur dioxide (SO 2 ) and nitrogen oxides (NO x ) cap-and-trade programs. 

## Alternatives to Cap-and-Trade
To reach our statutory emissions reductions, we believe it is necessary to implement a centerpiece policy to reduce GHG emissions. Ec ology and CTED recommend adopting the WCI cap-and-trade program for many of the reasons outlined above. Two other centerpiece policies that could be used to regulate GHG emissions ei ther in place of cap-and-tr ade or in addition to cap-and-trade are discussed below. 

### Carbon Tax Some legislators and stakeholde rs have expressed interest in pursuing a carbon tax to reduce GHG emissions instead of adop ting a cap-and-trade program. 83 The two policies are not mutually exclusive and can be implemented side-by-side. This approach is most effective when both set an equivalent price on GHG emissions. Under an emissions tax, policymakers would le vy a fee for each ton of carbon dioxide-equivalent emitted or for each ton of carbon contained in foss il fuels. Companies and individuals would be motivated to cut back on their em issions if the cost of doing so was less than the cost of paying the tax. The general rule of thum b is that each $1 in tax will add about 1 cent to the cost of gasoline. With a carbon tax, the price for emissi ons is certain but the amount of reductions are not. Indeed, it is possible that a carbon ta x would cause no reduction in GHG emissions. In contrast, under a cap-and-trade program, polic ymakers set a limit on total emissions, which ensures reductions in emissions happen. Permits to emit, or allowances, would be bought and sold in the marketplace. The price for emissions would fluctuate with market demand and the use of other cost-containing design measures su ch as offsets and banking of allowances. Both of these market mechanisms work by intern alizing the cost of GHG emissions, rather than requiring companies or individuals to adopt sp ecific technologies or behaviors to reduce pollution. Accordingly, market mechanisms provi de compliance flexibility to the regulated community.

81 This approach requires that every participant must disclose the party sponsoring or benefiting from the agent’s activities in the allowance market, if it was other than themselves or their immediate employers.

82 This auction method is used by RGGI and the U.S. Treasury. Details of RGGI’s auction design can be found at www.rggi.org/docs/rggi_auction_final.pdf

. 83 This discussion relied on the following reports: ICF Consulting, Economic Analysis of a Cap-and-Trade Program: Combining Cap-and-Trade with Other Policy Instruments , August 2008; Congressional Budget Office, Policy Options for Reducing CO 2 Emissions , February 2008, www.cbo.gov/ftpdocs/89xx/doc8934/02-12- Carbon.pdf ; Pew Center on Global Climate Change, www.pewclimate.org

.67 Neither approach is inherently more complex than the other. Both require monitoring and enforcement, either to determine taxable emission s and guarantee payment in the case of a tax, or to ensure that allowances match overall emission s in the case of cap-and-trade. Both approaches also must address the question of how to distri bute costs and benefits. Under a tax, that means determining who pays and what to do with the revenue; for cap-and-trade, it means determining how to distribute emissions allowances. If allowa nces are auctioned, policymakers will also need to decide what to do with that revenue. Both can be designed to target emissions either upstream , where fuels enter the economy, or downstream , where emissions occur. On July 1, 2008 British Columbia instituted a carbon tax. 84 The tax applies to nearly all fossil fuels used in the province. The ta x is currently $10 per metric ton. It will rise in increments to a limit of $30 per metric ton by 2012. Currently, there is no mechanism to adjust the tax to ensure it is sending the same price signa l as the allowance pr ices established th rough the cap-and-trade program. The tax is considered re venue-neutral as any funds collect ed are returned to individuals and businesses, although not necessarily at the sa me level that the carbon tax may be paid by a specific individual or business. The state is recommending a cap-and-trade pr ogram as the centerpiece of our GHG reduction policy because we believe it provides greater benef its overall: the cap assu res reductions and the trading provides an incentive for all sectors of the economy—t hose covered by the program and those that are not—to reduce GHG emissions. Ex cess reductions, which include increased sequestration of GHGs, can be sold in the ma rket place, whether in the form of emissions allowances or offset credits. A carbon ta x does not provide any of these benefits. Advantages of a Carbon Tax The main advantage of a carbon tax is that it sets a clear price on emissi ons. This price provides companies and individuals with more certainty about the financial return of projects that reduce emissions. This price certainty may help lower the risk of investment and provide a stronger incentive for creating new tec hnologies to reduce emissions. A carbon tax also does not create a new market that has the potential to be manipulated. Disadvantages of a Carbon Tax The major disadvantage of a carbon tax is that it does not guarantee a specific amount of emissions reductions, which the science says is cr itical if we are to st em the tide of climate change. If the tax is not set at the right level, or the price response to the tax is not estimated accurately, the intended reductions may not be r eached. Taxes are also considered more difficult politically to put into place than cap-and-trade. Finally, a tax does not create an offset market, which can help promote reduction or sequestration projects outs ide the taxed sectors of the economy.

84 More information can be found at www.bcbudget.gov.bc.ca/2008/backgrounders/backgrounder_carbon_tax.htm

.68 Combining Cap-and-Trade and Carbon Taxes Depending on whether and how a carbon tax inte racts with a cap-and-trade program, the combination of these policies can either furt her reduce emissions or raise costs and be duplicative. For the two methods to work together, the price of an emissions allowance in capand-trade and of the carbon tax must be the same throughout the economy. A tax and a cap-and-trade program can interact in two ways:

• Direct Interaction. The tax is levied directly on emissi ons already covered under the trading program.

• Indirect Interaction. The tax is not on entities covered in the cap-and-trade program, but it still affects the costs for those sectors. It may be possible to avoid any interaction, if a tax is completely independent of the cap-andtrade program. In practice, however, this indepe ndence is likely difficult to achieve especially with an economy wide cap-and-trade program. Th ese three options are discussed below in the following sections.

Direct Interaction Direct interaction between a tax and a cap-and-trade program typical ly increases the cost to meet the emissions cap, without further reducing overall emissions. For example, consider a cap-andtrade program that covers gasoline for transpor tation, as currently recommended for WCI. This cap tends to raise the price of gasoline by internalizing the co st of the GHG emissions in the price of the fuel. If a carbon ta x on gasoline is also applied, th e price of gasoline would rise further, increasing the price si gnal to consumers. If the str onger price signal causes more reductions in gasoline demand, then those additional reductions may take the place of other, lower-cost reductions in other covere d sectors that are under the cap. The result would make it easier for facilities and entities in other sectors that are covered by the cap to meet their obligations, sinc e more allowances have been made available by the decrease in gasoline demand. As a result, the ov erall level of emissions does not change, but the cost of the whole system increases because the tax distorts the market; substituting higher-cost reductions in emissions from gasoline for other, lower-cost options.

Indirect Interaction Like direct interaction between a tax and a cap -and-trade program, indi rect interaction can increase costs without further reducing emissions . For example, consider the combination of a tax on electricity consumption with a cap-and-trade program that covers electricity generators. The tax on electricity consumpti on increases the price of electricity, reduci ng electricity demand. As a result, electricity generato rs would substitute the reduced electricity demand for other, potentially lower-cost abatement options, such as instituting energy efficiencies. Accordingly, the tax on electricity consumption would not re duce the overall level of GHG emissions. Instead, it would change the mix of technologie s used to meet the emissions cap. 85 In this example, the

85 It is possible that overall emissi ons could decrease under certain circumstances, such as if a cap-and-trade program covered only electricity generators and if the electricity tax was particularly high.69 cap-and-trade program directly affects electr icity generators and the tax on electricity consumption affects them indirectly.

No Interaction Combining a carbon tax with a cap-and-trade progr am can achieve more efficient emissions reductions than a cap-and-trade program alone if the policies do not intera ct. Interaction can be prevented or minimized by either:

• Taxing a sector that is neither covered under th e emissions trading program nor an influence on the trading program.

• Equalizing the amount of the tax and the price of an emissions allo wance in the trading program. Meeting the first criterion above may be difficult to achieve due to the broad scope of the proposed WCI program. To understand how the second mechanism works, consider the example of a cap-and-trade program that does not cover proc ess-related emissions from ce ment manufacturing. A carbon tax that was the same cost per ton as allowances in the cap-and-trade program would send roughly the same price signal that may result in cemen t manufacturers reducing their process-related emissions more or less than they otherwise w ould have if those emissions were covered under the trading program. According to economic theory, if the tax is levied at the same rate as the trading program’s allowance price, additional em issions reductions will be achieved without any loss of efficiency. Under a cap-and-trade program, this same cement manufacturer might be encouraged to reduce his emissions more than he would under a carbon tax because of the ability to sell excess allowances. As a general rule, if there is potential for inte raction between a tax and a trading program, using only one policy for carbon pricing will be more efficient in reducing emissions. 

### Clean Air Act and Greenhouse Gases Regulating GHG emissions under the authority of exis ting air quality regulati ons is also possible. A regulatory approach can be used in lieu of or in conjunction with market-based mechanisms. The U.S. Environmental Protection Agency (EPA ) is working to address climate change under the federal Clean Air Act. In April 2007, the U.S. Supreme Court ruled in Massachusetts v. EPA that EPA was required under the federal Clean Ai r Act to regulate greenhouse gases from motor vehicles if it found they “cause or contribu te to air pollution which may reasonably be anticipated to endanger pub lic health or welfare.” In its work to address motor vehicles, EPA is also looking for ways to reduce GHG emissions from stationary sources. The act already cont ains proven approaches for reducing emissions from, power plants and other large industrial so urces, which together wi th mobile sources, emit the majority of greenhouse gases. Many actions n eeded to make these reductions could begin fairly soon since the basic structure of the federal act is set and well-understood.70 Using the federal Clean Air Act to regulate GHGs from these sources, however, poses some challenges that changes to the federal act could remove, such as raising the emissions threshold. Until EPA decides how to apply the federal Cl ean Air Act to GHGs, Ecology is reviewing its authority under the state’s clean air act to he lp meet its GHG reduction requirements. However, regulation under the Washington Clean Air Act is not the state’s preferre d approach. We prefer the flexibility and incentive for innovation provided by a cap-and-trade program or carbon tax. Regulating GHG Emissions Under Washington Clean Air Act The legislature has set binding GHG emissi ons reductions for 2020, 2035, and 2050, but it has not specified how to meet t hose requirements. Under the Wa shington Clean Air Act, Ecology
can:

• Adopt air quality standards to control amo unts of GHG emissions in the outdoor air. Because GHGs from sources in and outside the st ate mix in the atmosphere, it will be hard to meet a particular overall outdoor level of greenhouse gases.

• Adopt rules that limit the amount of GHG emissions from specific sources or categories of sources. This approach may include setti ng overall emissions standards and applying the standards to sources throughout the st ate to reach the 2020 requirements.

• Adopt rules or require permits to impose certain kinds of emissions standards on existing sources. Options include Reasonably Available Control T echnology (RACT) or Reasonable and Available Control Measures (R ACM), as specified under the Clean Air Act.

• Adopt rules under the New Source Review (NSR ) program to set an emissions threshold for requiring a source to obtain a permit. Thes e sources include commercial and industrial facilities. Covered facilities would have to obtain a permit when building or modifying a facility. The requirements would likely only apply to emissions from sources in the state. If a source is subject to NSR, Ecology can issue an order of approval (permit) only if it finds that the new source will achieve Best Av ailable Control Technology (BACT). Ecology cannot directly regulate all GHG emissions in the state under the Washington Clean Air Act through permits. For example, such an appr oach does not apply to the nearly half of Washington’s GHG emissions which are generate d by transportation sources. Certain in-use, operational standards may provide other opti ons for reducing GHG emissions from these
sources. In addition, the Transportation Implementation Working Group (TIWG) formed under the CAT has examined various ways to reduce GHG emi ssions from the transportation sector. Ecology could enact some of these measures under the stat e’s Clean Air Act, such as anti-idling, diesel retrofits, and perhaps a low carbon fuel standard. In summary, though not ideal, the state’s Clean Air Act would provide a way for the state to reduce GHG emissions in some parts of the econo my. Discussions are underway in Washington, D.C. regarding amendments to the federal Clean Air Act that would ma ke it better suited for reducing GHGs.71 

# 9. Regulatory Offsets and Other Credits

As part of the Western Climate Initiative (WCI) cap-and-trade program, Washington will participate in creating a strong re gulatory offset program for the region. An “offset” is a project that reduces greenhouse gas (GHG) emissions or stores additional carbon in source s that are not included in the cap-and-trade pr ogram. These sources are either outside the capped sectors or below the emissions threshold for inclusion. Othe r reduction projects may not meet the offset criteria, but they can still c ontribute to GHG reductions, incl uding increased carbon storage. Allowance set-asides or auction revenue s can support these types of projects. The WCI cap-and-trade program recommends three areas as priorities for the development of offset projects: forestry, agricu lture, and waste management. In 2008, the legislature directed the Department of Ecology (Ecology) and the Depa rtment of Community, Trade and Economic Development (CTED) to recommend: 86

• How local governments might participate in the cap-and-trade program designed by the Western Climate Initiative.

• The circumstances under which generation of elec tricity or alternative fuel from landfill gas and gas from anaerobic digesters might receiv e an offset or credit in the program.

• How forestry and agriculture lands and practices might participate voluntarily as an offset or other credit in the program. Ecology contracted with the World Resources In stitute to help form the recommendations for local governments, landfill gas, and anaerobic digester projects. 87 In addition, the Washington State Department of Natural Resources (DNR), Washington State Department of Agriculture (WSDA), and Ecolog y established two stak eholder working groups on carbon markets, one for agriculture and one for forestry. Both groups have contributed greatly to the state’s understanding of the issu es surrounding these types of projects. Finally, the Climate Action Team’s (CAT) Be yond Waste Implementation Working Group also recommended strategies for anaerobic digestion of compostable organic materials, which has been incorporated in to this discussion.

86 RCW 70.235.030(3)

. 87 WRI is a leading think tank that works on environmenta l and climate change issues. For more information, see www.wri.org

.72 

## Agency Recommendations for Offset Development Opportunities exist for local govern ments, landfill gas, anaerobic di gester gas, and forestry and agriculture lands and practices to participate voluntarily as offs ets in a mandatory cap-and-trade program.
Local Government

• Collection and combustion of methane from landf ills, wastewater treatment plants, or other waste facilities.

• Policies to cluster development in urban or ru ral growth areas, reduci ng its size. Landowners with clustered development can then sell the resulting offsets.

• Transfer of development rights (TDR) programs th at result in more density in urban growth areas and conserve working fore sts. Local governments can partne r with the state to develop these programs. The state may be able to pool an d sell the resulting offset credits, and then it can provide revenue back to local govern ments to run the enhanced TDR programs.

• Local government expansion of urban forests.
Electricity and Alternative Fuel

• Combustion of methane from landfills and anae robic digesters used to produce heat or electricity.
Forestry, Agriculture, and Farming

• Improved soil carbon and nitrogen manage ment on both working agricultural and conservation lands.

• Cattle manure management that captures and destroys methane.

• Forestry practices that increase the amount of carbon stored in the fore st or in long-lived wood products. All of these projects need further evaluation and preparation of protocols. As the WCI develops protocols for these offset projects, the st ate agencies recommend that local industry representatives and members from the Forestry and Agriculture Carbon Market Working Groups continue to advise Washington State and other WCI states and provinces. 

## WCI Design for Offsets
The WCI recommends agriculture, forestry, and wast e management projects as the priorities for participation in its offset program. The WCI states and provinces will jointly set the standards to ensure offset projects meet the strict criteria outlined below. The states and provinces will set clear standards in an open way before the cap-and-trade program starts in 2012. The standards will ensure the emissions reductions and storage (sequestration) are counted accurately and not double-counted. Th e jurisdiction issuing the credit must be able to verify its73 offset projects, and the jurisdic tion accepting the offset credit must be able to enforce it. Each WCI state or province will accept offset credits m eeting these standards for compliance within its jurisdiction, regardless of where the credit was issued. O ffsets that do not meet the WCI standards will not be accepted. The WCI also recommends that each state or province use part of the value of its allowance budget to promote emissions reductions and storag e in agriculture, forestry, and other uncapped sectors. The design also allows ea ch state or province to set asid e allowances from its allowance budget to use as it sees fit. A state or province may decide to set aside allowances and use their value to support reductions a nd storage projects of GHGs in the uncapped sectors that do not meet the requirements for regulatory offsets. 

## Overview of Offset Criteria and Standards
The WCI requires emissions reductions projects to m eet five basic criteria to qualify for offset credits. 88 If the project meets all five criteria, th e agency managing the cap-and-trade program may issue a credit to the project. That credit may then be sold to an entity included in the cap to help it comply, in place of an emissions allowa nce (tradable permit). Offsets can reduce the costs of a cap-and-trade program by giving entities more options for complying. Offsets also provide incentives for sources not included in th e cap to reduce or store GHG emissions. 

### Mandatory Offset Criteria To qualify for a credit, offsets must be:

• Real. An offset credit must represent an actua l net reduction in GHG emissions. In practice, methods for counting emissions reductions must be conservative enough to avoid overstating a project’s effect. It also means that a proj ect’s effects on GHG emissions must be measured fully. 89 Offsets must be designed to minimize leakag e, or ensure that emissions reductions at one source do not cause emissions to increase at other sources.

• Additional/Surplus . Only emissions reductions that o ccur in response to incentives from a carbon offset market can be certified as offsets. Reductions that would occur regardless of an offset market, such as those resulting from “business-as-usual” practices, which includes regulatory requirements, do not count as an o ffset. Since offset credits allow regulated sources in a cap-and-trade program to increa se their emissions (because they are being “offset” by reductions made elsewhere) offset reductions must be “additional” to maintain net emissions levels.

88 Adapted from Derik Broekhoff and Kate Zyla, World Resources Institute, Opportunities and Quantification Requirements for Local Government Participatio n in Greenhouse Gas Emissions Trading Markets , prepared for Department of Ecology, July 8, 2008. www.ecy.wa.gov/climatechange/2008CTdocs/10102008_LocalGovernmentsGHGtrading.pdf

. 89 For a full elaboration of quantification and accounting princi ples for offset projects, see World Resources Institute and World Business Council for Sustainable Development, The Greenhouse Gas Protocol for Project Accounting , Washington, D.C., and Geneva, 2005, Chapter 4. www.ghgprotocol.org74 • Verifiable. Carbon offsets must result from projects whose performance and effects can be readily monitored and verifie d. Verification shows emissions reductions have truly occurred and can be used to offset emissions increases at regulated sources. Projects whose effects cannot be verified easily or measured with confidence are not suitable for carbon offsets.

• Permanent. Since emissions increases are enduring (for example, fossil fuel emissions cannot be put back in the ground), offsets must be permanent as well. Most existing offset programs require emissions reductions to last at least 100 years. Permanence is an issue where a project can be reversed, such as forest ry projects where fire s or other causes can release carbon stored in trees or soils to th e atmosphere. It may be possible to create a discount or some other accounting mechanism fo r offset projects where permanence is an issue.

• Enforceable. Rules and tracking systems that define th e creation of an offset project and its ownership are necessary for offsets and provide transparency in the market. Clear ownership is key to enforcement. In the case of energy-effi cient light bulbs, for ex ample, several parties may claim credit for the emissions reductions the bulbs produce, including the manufacturer, installer, building owner, and utility that prov ided incentives to encourage their use. Rules must define who can claim emissions reducti ons, who is responsible for ensuring results, who is responsible for verification, an d who is liable for any reversals.


### Offset Standards
To create a market for carbon offsets that is as un iform as possible, standa rds and protocols must address the above criteria. In su ch a market, one offset credit equals one ton of carbon dioxideequivalent emissions reductions, regardless of its source. The ag ency responsible for certifying and issuing offset credits must oversee these st andards. Three related sets of standards are needed to define a carbon offset commodity: 90

• Procedural and technical standards. These standards relate to validation, monitoring, and verification of offset proj ects as well as certification and crediting of GHG reductions. Procedural and technical standa rds ensure that offsets are verifiable

.

• Contractual standards . These standards cover property ri ghts related to carbon offsets, information sharing, and liability. They can include terms for payment and delivery, allocation of risk, and compensation where emi ssions reductions are not realized. Contractual standards are needed to avoid double-counting of reductions or credits and to ensure that offsets are enforceable

.

• Accounting standards. These standards relate to counting of carbon offsets. Accounting standards will set methods for handling quantif ication boundaries, baseline emissions, and

90 In addition to these standards, many carbon offset programs will set eligibility criteria for offset projects to ensure they are compatible with goals beyond simply reduci ng GHG emissions. Eligibility criteria may exclude certain types of projects based on secondary en vironmental or social concerns (e.g., nuclear waste, community displacement caused by hydropower reservoi rs), or they may ensure that projects co ntribute to additional social, economic, and environmental objectives (e.g., sustai nable development). While these criteria are in addition to defining a carbon offset’s climate change impacts, they help to define the “commodity” within a particular program and may be important in linking to other trading programs.75 unintended changes in emissi ons (including “leakage” outside the market). Accounting standards also cover ways to prove “additi onality.” Finally, they may set methods for comparing reversible GHG reductions with permanent reductions. Accounting standards ensure that “a ton is a ton” and that offsets are real , additional/surplus , and permanent

. Most carbon offset programs set accounting st andards in the form of “protocols” or “methodologies” describing quantification requiremen ts for specific types of projects. In its report to Ecology on opportunities for local governments in GHG trading markets, WRI lists various project types and identifies which exis ting offset programs have adopted protocols for different project categories. 91


### Quantification and Ownership Issues for Carbon Offsets In theory, any activity that reduces (or stores) GHG emissi ons at uncapped sources can yield carbon offset credits. In practice, regulators of a GHG market are likely to consider some types of activities more favorably than others. Whethe r an activity makes a good offset project depends on how much confidence regulators have that it will meet the criteria outlined above. 

## Other Credits
Offsets are not the only way to reward activi ties that benefit the climate. Many worthwhile projects should be pursued that cannot meet the offset criteria. Any WCI state or province can set its own criteria to suppor t these projects. To do so, a state or province can use the value of emissions allowances, including revenue from any au ctions. It can also set aside allowances for the developers of specific projects. These project s would not result in any kind of credit that would be tradable within the regional market. 

### Set-asides A set-aside occurs when the cap-and-trade progra m gives allowances free of charge to certain entities to support specific strategies to reduce or store em issions. Facilities and entities that receive set-asides can sell thes e allowances and use the revenue to fund the specific projects.


### Allowance Value
The state could direct the holders of some allowan ces to use part of the proceeds from the sale of excess allowances for specific purposes. In addi tion, some allowances may be auctioned rather than given away free of charge. 92 To the extent allowances are auctioned, the state may use revenues to support policies that reduce emissions or increase carbon storage. For example, the state may use auction revenue to provide incentives for forest landowners to commit to long-term carbon storage, where the reduction does not qualify as an offset.

91 Derik Broekhoff and Kate Zyla, World Resources Institute, Opportunities and Quantification Requirements for Local Government Participation in Greenhouse Gas Emissions Trading Markets , prepared for Department of Ecology, July 8, 2008. www.ecy.wa.gov/climatechange/2008CTdocs/10102008_LocalGovernmentsGHGtrading.pdf

92 The WCI calls for a minimum auction of 10 percent in 2012, increasing to 25 percent by 2020. Any WCI state or province may auction more than this minimum percentage.76 

### Quantification Counting GHG emissions reductions under a set-asid e, or where allowance value is used, does not need to be as exact as for regulatory carbon offsets. Errors in measuring reductions will not affect the total emissions mandated under the cap-and-trade program, nor will they affect the market price of allowances and offsets. Unders tanding the effects of different measures on GHG emissions, however, will help choose the right amount of funding and ensure public funds are spent wisely. 

## Role of Local Governments
Local governments that operate landfills, wastewat er treatment plants, or other waste facilities that generate methane may conduct methane capture and combustion projects that could result in offset credits. Local governments can also expand urban forests, which could be an offset in a cap-and-trade program. 93 Local governments play another key role in reducing GHG emi ssions in their communities. Adopting measures that create climate-friendl y communities will reduce emissions from capped sectors. It will help regulated entities meet thei r reduction requirements, reducing the total cost of the system. These measures may create large GHG reductions but likely would not qualify as offsets. The state government can support such e fforts through set-asides and auction revenue. Local governments may own and operate facilities , such as wastewater treatment or power plants, which exceed the threshold for inclusion in the cap-and-trade program. They will be required to make reductions just like th e owners of any othe r capped facilities. Local governments have the ability to adopt local land use ordinances that establish Transfer of Development Rights (TDR) programs and allow for clustering of development. Such programs may be eligible for offsets as a result of in creasing density or havi ng a smaller footprint associated with development. The resulting offset credits, when compared to business-as-usual development, can be sold on the regulatory market. 

## Landfill Gas and Anaerobic Digesters
Capturing and burning methane from landfills a nd anaerobic digesters for manure management benefits the environment. Meth ane is a powerful greenhouse gas w ith a global warming effect 21 times greater than carbon dioxide. Heat from burning methane can produce steam or electricity. We expect that these projects will meet the offset criteria and be eligible to receive an offset credit within a cap -and-trade program. 94

93 The full WRI report on local government participation in GHG trading can be found at www.ecy.wa.gov/climatechange/2008CTdocs/10102008_LocalGovernmentsGHGtrading.pdf

. 94 The full WRI report on landfill gas and anaerobic digesters can be found at www.ecy.wa.gov/climatechange/2008CTdocs/1 0102008_LandfillGas_anaerobicDigesters.pdf

.77 Currently, the United Nations Clean Developmen t Mechanism, U.S. EPA’s Climate Leaders program, and Regional Greenhouse Ga s Initiative in the eastern U.S. have or are writing guidelines for three offset projects to reduce GHG emissions. In addition, the Chicago Climate Exchange (CCX) issues tradable Carbon Financial Instrument contracts to owners and collectors of eligible projects on the basi s of sequestration, dest ruction, or displaceme nt of GHG emissions. The CCX requirements have not been evaluated to determine if they are sufficient for use in a mandatory GHG reduction program. Washington should conduct an inventory of landfills to identify how the f acilities can benefit from an offset program. The inventory shoul d include the following information about each landfill:

• The stage in the landfi ll gas generation cycle.

• The final landfill cover types.

• The gas control systems in use. According to the Agriculture Carbon Mark et Workgroup, Washington has about 450 dairies consisting of nearly 350,000 cattle. 95 According to U.S. EPA, current technology for anaerobic digesters is most effective at dairies with 500 cows or more. 96 Of Washington’s dairies, EPA estimates that about 135 are large enough to consider for an anaerobic digester project. 

### WCI Design Considerations
WCI will not include carbon dioxide emissions fr om burning biogas (biofuels) under the cap but will require reporting of these emissions. Two othe r elements of the WCI design relate to these emissions:

• Emissions associated with landfills will be covered in the cap-and-trade program once an adequate method for quantification exists. 97

• Providing offset credits for alternative sources of electricity could result in double-counting the reduction or conflict with th e use of Renewable Energy Credits. 98

95 Agriculture Carbon Market Workgroup Report can be found in Appendix 7

. 96 U.S. Environmental Protection Agency, Market Opportunity for Biogas Recovery Systems—A Guide to Identifying Candidates for On-Farm and Centralized Systems , EPA 430-8-06-004, 2006.

97 The WCI design recommendations include chemical and biological industrial process emissions within the cap. Emissions associated with waste management would be a biological industrial process emissions source. However, the design also states that adequate quantification methods will be set for emi ssions sources before they are included in the program. An assessment of existing protocols was done, and the WCI found that waste management process and fugitive emissions sources do not have adequate protoc ols available at this time. Should adequate quantification methods be developed for waste manage ment emissions, they will be include d in the cap-and-trade program and would not be eligible to receive an offset credit.78 

## Agriculture Agricultural management practices play a fundamental role in gl obal carbon and nitrogen cycles, with clear impacts on direct and indirect emissions of carbon dioxi de, methane, and nitrous oxide as well as the “entrapment” or “sequestratio n” of atmospheric carbon dioxide in soils. Conventional agricultural management, characteri zed by regular soil disturbance, fallow periods, and uniformly prescribed nutrient management l eads to additional greenhouse gas emissions as well as losses of carbon from soils to the atmosphere. Improved agricultural management, characteri zed by reduced disturbance, improved crop management, and site- and time-specific nutrien t management can both reduce greenhouse gas emissions as well as increase carbon storage in soils. In cases where these improved management strategies can be documented to create posit ive changes in the emissions balance from agriculture, they could be creditable as offset projects. The Agricultural Sector Car bon Market Workgroup (ASCMW) has provided guidance on how to increase the rigor and reliability of me thodologies for measuring and documenting GHG improvements from agricultural carbon manage ment on both working and conservation lands, reductions in nitrogen fertilizer-related gree nhouse gas emissions, and reductions in methane emissions associated with the anaerobic diges tion of manure. 99 It is also important to note that the improved agricultural management strategi es discussed by the ASCMW would lead to significant “upstream” emissions reductions from fuel , electricity, and fertilizer production that are not likely to be creditable as offsets, though they would clear ly further the state’s goals in reducing greenhouse gas emissions. 

## Forestry The multi-stakeholder Forest Sector Workgroup on Climate Change Mitigation was chartered in April 2008 by the Director of the Department of Ecology and the Commissioner of Public Lands to make recommendations in response to dire ction from the Washingt on State Legislature in E2SHB 2815. 100 The Workgroup met intensively and collaboratively for six months and reached consensus on a series of recommendations for ho w Washington forest lan downers can participate voluntarily in an offset or ot her credit mechanism under a regi onal greenhouse gas cap-and-trade program. While most Workgroup members have a va riety of important reservations about some

98 It is important to consider the interaction of an offset program for these types of projects with Renewable Energy Credits, or RECs. RECs are created when renewable po wer generators sell their electricity as conventional electricity and then sell the environmenta l attributes of their powe r separately through a ce rtificate. For example, consumers may purchase conventional electricity from their utility and then separately purchase RECs to subsidize renewable energy elsewhere. Starting in 1999, the National Association of Attorneys General (NAAG) considered the interaction of RECs and offsets. NAAG issued Envi ronmental Marketing Guidelines for Electricity, which concluded that project developers that obtain and use both RECs and offsets for the same activity may be violating consumer protection laws. Just this year, the Federal Trade Commission (FTC) began a regulatory review of its environmental marketing guidelines, also known as the Gr een Guides. The FTC’s public notice included addressing the marketing of carbon offsets and RECs. Therefore, projects that create electri city must to be examined carefully to avoid overlap with either the cap-and-trade program or renewable energy mandates.

99 Agriculture Carbon Market Workgroup Report can be found in Appendix 7

. 100 Forest Sector Workgroup on Climate Change Mitigation report can be found in Appendix 6

.79 of the recommendations, all members agree th is package of recommendations represents a significant step in encouraging Wa shington to lead in larger-scale efforts so as to appropriately recognize the forest sector’s positive contributions to mitigate climate change. The members therefore agree to support th ese recommendations. The recommenda tions are expected to be forwarded to the legislature for its deliberation and, if adopted, set the st age for more detailed design work later. Workgroup members are proud to have participated and look forward to future similar opportunities. The Workgroup is recommending a mix of carbon offset proposals, other carbon incentive proposals, and several related recommendations. The offset and other credit recommendations address avoided and mitigation conversion of forest land to non-forest uses, urban reforestation, and forest management to increase carbon sequestration and storage. 

### Avoided Conversion The Workgroup recommends two offs et opportunities related to re taining forest lands while accommodating inevitable development on a smaller cleared “footprint.”

• In one opportunity, developers could create a ma rketable offset by clustering legally allowed development on a smaller portion of a developa ble parcel in the urban or rural zone, permanently protecting the remaining work ing or conservation forests as forest.

• In the other opportunity, local governments, with the state, could create a marketable offset by creating and implementing a Transfer of Development Rights (TDR) program that succeeded in permanently conserving otherwis e developable forest land by transferring development rights to lands within urban grow th areas and compensati ng forest land owners for the transferred rights. The forest land woul d remain as working or conservation forest land. State start-up funding would be needed for local programs. Revenue from state sale of aggregated offsets would go to local gove rnments to administer TDR programs and transactions.



### Urban Forests The Workgroup recommends that local governments be able to create marketable offsets by establishing and implementing urban tree-plan ting programs meeting specific requirements based on a new California protocol, bu t tailored to Washington State. 

### Forest Management The Workgroup recommends a dual offset and non-offs et approach to increasing and/or retaining carbon storage through forest management, incl uding recognizing and incentivizing forest landowners for current significant contributions to carbon storage.

• The offset approach would be based on a “bus iness-as-usual” baseli ne, with marketable offsets created by forest management projects th at ensure carbon storag e above that baseline, persisting for at leas t 100 years. Contractual and re gulatory safeguards would guarantee project performance against reverses. Admini strative simplicity would also be a program goal. Workgroup agreement to this approach on baseline is con tingent, as described below.80 • Storage can be a combination of in-forest st orage and storage in harvested wood products. All storage pools with significant cha nge would be subject to accounting.

• The non-offset approach is a recommende d Complementary Carbon Storage Incentive Program. It would provide incentives for la ndowners whose forests meet a yet-to-bedeveloped eligibility criterion, who commit to maintaining a level of carbon storage. During periodic enrollment periods, state funding for incentives could come from revenues derived from operation of the cap-and-trade program, as described in Western Climate Initiative recommendations. Payback would be required for losses of credite d carbon storage or landowner withdrawal from the program. This program recognizes a range of important ecological benefits accompanying carbon storage in forests. This program is also an attempt to help meet legislative direction to not disadv antage the state relative to states with lower forest practices regulations, an inherent part of a “business-as-usual” baseline.

• If the Complementary Program is not create d and appropriately f unded, Workgroup members agree that another effort shoul d be made to meet the goal of incentivizing broad forest landowner participation to meet Washington’s em issions reductions. This effort may include using discounting for offsets crea ted above an enrollment threshold.



### Data Needs The forest sector workgroup agreed that fundi ng support for the Washington State Parcel and Forestland Database was a necessary component of tracking offsets or other carbon incentive proposals. 

### Other Related Recommendations The Workgroup discussed several other topics th at fell outside the Workgroup’s scope or about which consensus on detailed recommendations was not achieved, but which the Workgroup believes should be further developed in other venues due to their indirect forest carbon benefits. These include:

• Improved life cycle analysis of embodied greenh ouse gases in building materials, along with a labeling program and potential mitigation under the State Environmental Policy Act.

• Further discussion on guiding foreseeable growth in rural and resource lands.

• Possible creation of ecosystem service districts to formalize mutually be neficial relationships between forest landowners providing ecosystem services and the be neficiaries of those services.

• Incentives for landowners undertaking forest tr eatments that improve forest health and reduce the risk of uncharacteristic wildfires. The Workgroup did not have sufficient time to develop recommendations on several other priority topics including indir ect emissions reductions through energy resource substitution and building material product substitution by forest-derived materials.81 

# 10. Conclusion

Climate change presents a major threat to our economy and environment. We should be proud of what we have already accomplished. Existing policies, if aggressively implemented, will achieve 45 percent of the emissions reductions require d by 2020. To achieve our statutory emissions reductions in 2020 and beyond, however, we must do more. We believe that moving forward now is the righ t thing to do. Transformation of today’s fossil fuel-based economy to one based on clean renewa ble energy is the best and quickest path to economic recovery. Implementing many of the Climate Action Team (CAT) recommendations will produce jobs now. By showing leadership on climate change and investing in the green economy, we will create the green jobs of tomorrow. Washington is well-positioned to take advantage of this opportun ity. We are home to two worldclass research universities and a national laboratory performing research related to climate change. The nationally recognized University of Washington Climate Imp acts Group is unique in its focus on the intersection of climate scien ce and policy. Researchers at Washington State University and Pacific Northwest National La boratory are conducting gr oundbreaking research on energy efficiency technologies, renewable energy, and biofuels. W ith these resources, we are well-positioned to continue our leadership role in energy effi ciency, green job growth, and protection of our natural resources. We must also act now to mainta in our seat at the table with the federal government. Federal action on climate change is not certain and will ta ke years to accomplish. The best way for us to encourage federal leadership, a nd to make sure that the fede ral cap-and-trade program does not disadvantage Washington, is to continue to m ove our regional cap-and-trade program forward. The Department of Ecology and Department of Community, Trade, and Economic Development are recommending a number of policies for the 2009 legislative session. Our recommendations build on the strategies outlined by the CAT. We are focusing on those policies that create jobs and economic stimulus as well as reduce emissions. These policies will be made more effective by implementing the Western Climate Initiative capand-trade program. Cap-and-trade provides the regulatory mechanism and certainty businesses need before they invest in emission-reduc ing technologies. Without cap-and-trade as a centerpiece policy, we will not be able to ensure emissions reductions needed to achieve our statutory requirements. The reductions called for in E2SHB 2815 are well within our grasp. This plan proposes a number of solutions and possibilities to meet the reduction requireme nts, while growing the green economy of the future. This plan will be revised and improved over time. It is important that we be nimble and adaptive as we move forward, lear ning from experiences in other states, regions, and countries. Now is the time for Washington to do its part to strengthen our economy, stabilize our climate, and to lead the globe toward a safer, more pros perous future. The economic crisis and effects of climate change already visible in Washington requ ire us to act and make an investment in our future. Failure to act now will make future Washingtonians vulnerable to the fluctuations in energy prices, political instability, and the effects of climate change that result from reliance on82 carbon-based fuels. We must challenge ourselves to find the political will to look ahead, work together, and act on behalf of the future. Str ong leadership will speed this transition to the greener, post-industrial, and mo re sustainable economy we n eed for a healthy future in Washington and around the globe.83 

# Glossary and Acronym List

Advanced biofuels —Any renewable fuels, other than et hanol derived from corn, that reduce greenhouse gas emissions 50 percent compared to gasoline throughout th e life cycle. Also referred to as second- or third-generation biofuels. BAU —Business-as-usual Benchmarking— Documenting and measuring performance according to national standards; in this context, benchmarking applies to whole- building energy efficien cy and performance. Beyond Waste —Ecology’s waste and toxics redu ction plan for Washington State Biodiesel —A renewable fuel for diesel engines derived from vegetable oils or animal fats (e.g., soybean oil, recycled restaurant grease). Can be used as a substitute for or blended with petroleum-based diesel fuel. Bioenergy —Energy or electricity produced using biom ass (renewable biological material such as plant or tree matter) as a fuel. Biofuels —A liquid fuel derived from bioma ss such as ethanol and biodiesel BW IWG —The CAT’s Beyond Waste Implementation Working Group Cap-and-trade program —A market-based mechanism for re ducing emissions. A cap or limit is placed on emissions from specific s ectors and an emissions market is developed where entities in these sectors can purchase, sell, or tr ade emissions credits, or allowances. CAFE —Corporate Average Fuel Economy CARB —California Air Resources Board CAT —Climate Action Team (previously Advisory) CCS —Carbon capture and storage. An emerging tec hnology to sequester or store carbon dioxide in geologic formations (see Sequestration ). Cellulosic ethanol —Renewable fuel made from cellulosic material, such as corn stalks, rice straw, and wood and grass. CHP —Combined heat and power, also known as cogeneration, refers to the simultaneous production of power and usable he at from a combustion process. CH 4

— Methane CFL —Compact fluorescent light bulb CO 2 —Carbon dioxide CO 2 e— Carbon dioxide equivalent CTED —Washington State Department of Commun ity, Trade, and Economic Development Ecology —Washington State Department of Ecology EFSEC —Energy Facility Site Evaluation Council EISA —Energy Independence and Security Act84 Emissions tax —A tax levied on emissions, such as a carbon tax. The government sets an amount of tax that polluters must pay for each unit of pollution produced. An emissions tax can be used as a substitute to or in tande m with other emissions reduction policies. EO —Executive Order EPA —U.S. Environmental Protection Agency EPS —Emissions Performance Standard Ethanol —A renewable liquid fuel derived from plant matter (starch or sugar) that is used as a substitute or as an additive to gasoline. E2SHB —Engrossed Second Substitute House Bill Feedstock —Corn, soybeans, or other raw materials used to produce biofuels GA —Department of General Administration GHG —Greenhouse gas(es). The six major GHGs that contribute to global warming are carbon dioxide, methane, nitrous oxide, hydrofluorocarb ons, perfluorocarbons, and sulfur hexafluoride. GWP —Global Warming Potential. The ratio of h eat trapped by one unit of mass of a greenhouse gas to that of one unit of ma ss of carbon dioxide over one hundred years. Used to convert all emissions to carbon dioxide equivalent. HOV —High occupancy vehicle. A vehicle with mo re than one passenger, such as a carpool, vanpool, or bus. HFC —Hydrofluorocarbon Infill development —Building and developing in vacant areas in city centers or urban settings. Promotes compact urban development and le aves rural areas and open spaces undeveloped. IPCC —Intergovernmental Panel on Climate Change IWG —Implementation Working Group, part of the CAT LCA —Analysis and valuation of the environmenta l impacts of a product or service across the complete life cycle including mining material s, manufacture, product use, and disposal. LCFS —Low carbon fuel standard LED —Light-emitting diode LEED —Leadership in Energy and Environmental De sign, a voluntary rating system of the U.S. Green Building Council. Ratings include Platinum, Gold, S ilver, Bronze, and Certified. LUCC —CTED’s Land Use and Climate Change Policy Advisory Committee MMtCO 2 e —Million metric tons ca rbon dioxide equivalent Mpg —Miles per gallon MTWF —Ecology’s Mitigation that Works Forum MW —Megawatt(s) N 2 O —Nitrous oxide NWPCC —Northwest Power and Conservation Council85 ODS Substitutes —Ozone Depleting Substance Substitute s. Fluorinated greenhouse gases—such as hydrofluorocarbons, perfluorocarbons, and su lfur hexafluoride—have high global warming potentials and are sometimes used as substitutes to ozone depleting substan ces that contribute to the ozone hole in the Earth’s stratosphere. OSPI —Washington Office of the Superint endent of Public Instruction Park-and-ride— A parking area for drivers transferring to buses, vanpools, or other alternative forms of transportation. PFC —Perfluorocarbon PSP —Puget Sound Partnership RCW —Revised Code of Washington RGGI —Regional Greenhouse Gas Initiative, a regiona l cap-and-trade program for the electricity sector in the eastern United States RFS —Renewable fuel standard SF 6 —Sulfur hexafluoride Sequestration —Processes that remove or store gree nhouse gases from the atmosphere; e.g., trees and plants absorb carbon dioxide from the atmosphere, and carbon capture and storage (CCS) is an emerging technology to sequester or store carbon dioxide in geologic formations. SSB— Substitute Senate Bill SEPA —State Environmental Policy Act SEPA IWG —The CAT’s State Environmental Po licy Act Implementation Working Group SOV —Single occupancy vehicle. A vehicle with a solo driver. SUV —Sport-utility vehicle Telework —Conduct work at home or away from the office using telecommunication TDR —Transfer of Development Rights TIWG —The CAT’s Transportation Implementation Working Group USDA —U.S. Department of Agriculture VMT —Vehicle miles traveled WAC —Washington Administrative Code WCI —Western Climate Initiative. Regional cap-and- trade program that includes seven states and four Canadian provinces WRI —World Resources Institute WSDA —Washington State Department of Agriculture WSDOT —Washington State Departme nt of Transportation WSSP —Washington Sustainable Schools Protocol WSU —Washington State University86 This page is purposely left blank87 

# Appendices

The following appendices to this report are available online at this location, www.ecy.wa.gov/climatechange/2008CompPlan.htm :

• Appendix 1. Leading the Way: Implementing Practical Solutions to the Climate Change Challenge 2008. Final Report of the 2008 Climate Action Team

• Appendix 2. Energy Efficiency and Green Building Implementation Working Group (IWG) Final Report

• Appendix 3. Beyond Waste IWG Final Report

• Appendix 4. Transportation IWG Final Report

• Appendix 5. State Environmental Policy Act (SEPA) IWG Final Report

• Appendix 6. Forest Sector Workgroup on Clim ate Change Mitigation Final Report

• Appendix 7. Recommendations for the Development of Agricultural Sector Carbon Offsets in Washington State

• Appendix 8. Emissions Reductions Quantifica tion Assumptions and Methodologies (forthcoming)