Notice of House and Senate Passage for Engrossed Second Substitute Senate Bill 5126

Office of the Governor / Office of Financial Management sent this bulletin at 04/26/2021 02:55 PM PDT

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E2SSB 5126, titled AN ACT Relating to the Washington climate commitment act, has been passed by the House of Representatives. The Office of Financial Management has identified this bill as requiring a ten-year projection of increased cost to the taxpayers or affected fee payers.

Ten-year projection:

Fiscal
Year

Auction Revenue

Auction Revenue - to FFA

GHG Reporting Fee

Total

2022

2023

101,020,158

127,341,000

$ 228,361,158

2024

102,957,188

356,697,000

$ 459,654,188

2025

94,630,430

366,558,000

$ 461,188,430

2026

100,914,180

359,117,000

1,291,984

$ 461,323,164

2027

111,775,115

359,117,000

1,281,204

$ 472,173,319

2028

121,442,597

359,117,000

1,281,204

$ 481,840,801

2029

116,366,145

359,117,000

1,281,204

$ 476,764,349

2030

103,518,865

359,117,000

1,281,204

$ 463,917,069

2031

112,541,010

359,117,000

1,281,204

$ 472,939,214

Total:

$ 965,165,688

$ 3,005,298,000

$ 7,698,004

$ 3,978,161,692

Department of Ecology:

Note regarding the Clean Energy Transformation Act: Revenue estimates do not account for changes in GHG emissions related to the Clean Energy Transformation Act, which could have an indeterminate impact on auction revenue approaching and following calendar year 2030.

Note regarding Transportation Funding Act Contingency: Section 20 would delay compliance obligations under the act unless a separate additive transportation funding act were to become law, as defined in section 20(7). The fiscal note assumes that these conditions would be met; in the event that these conditions were not met, Ecology would suspend compliance obligations for covered entities. This could reduce costs and auction revenue during the suspension of compliance requirements.

Cash Receipts from Purchases of GHG Emissions Allowances:

Under section 11, auction proceeds would be collected by the financial services administrator and transferred to the State Treasurer for deposit as follows:

Auction revenue up to the amounts specified below would be deposited in the Forward Flexible Account (FFA) each fiscal year, distributed equally among the number of auctions held, not to exceed $5,200,000,000 over sixteen years, and the remaining proceeds would be deposited into the Climate Investment Account (CIA) created in section 23.

a) FY 2023: first $127,341,000 to the FFA, with the remaining auction revenue to the CIA;

b) FY 2024: first $356,697,000 to the FFA, with the remaining auction revenue to the CIA;

c) FY 2025: first $366,558,000 to the FFA, with the remaining auction revenue to the CIA;

d) FY 2026 through FY 2037: first $359,117,000 to the FFA, with the remaining auction revenue to the CIA;

For fiscal year 2038 and each fiscal year thereafter, fifty percent of auction proceeds would be deposited in the Forward Flexible Account, and the remaining auction proceeds would be deposited in the Climate Investment Account. Auction revenue estimates were calculated based on program requirements as established in the bill, and the following assumptions.

Ecology would be required to set annual GHG allowance budgets, which would be designed to reduce emissions over time in order to meet statewide emission limits established in RCW 70A.45.020. The initial annual allowance budgets for the first compliance period, calendar years 2023 to 2026, would have to be adopted through rulemaking by October 1, 2022. For purposes of revenue assumptions, allowance budgets for the first and second compliance period beginning January 1, 2027 are based on currently available GHG reporting data and the statewide GHG inventory published in accordance with RCW 70A.45.020.

Section 9 would designate the criteria for program coverage and criteria for participation for groups of covered entities that would enter the program during the first and second compliance periods. The first compliance period would begin January 1, 2023, and the second compliance period would begin January 1, 2027. Per section 9, landfills would not enter program coverage until 2031.

The average annual eligible emissions from 2015 to 2019 (excluding biogenic emissions, which would be exempted as biomass under section 9) were calculated for all entities meeting the thresholds and criteria for each compliance period, as described in Section 9. The total baseline annual emissions for covered entities in the first compliance period was calculated to be 56.5 MMT CO2e, which is 58% of total statewide emissions.

Statewide emissions would be limited to achieve the reductions specified in RCW 70A.45.020, which are as follows: 45% below 1990 levels by 2030, 70% below 1990 levels by 2040, and 95% below 1990 levels by 2050.

1990 statewide emissions were 90.5 MMT CO2e

The 2035 statewide emissions target is 49.8 MMT CO2e

The 2022 statewide emissions estimate (based on a four-year average of annual emissions for 2015 through 2018 in the Statewide GHG Inventory Report, published January 2021) is projected to be 97.9 MMT CO2e

The goal for emissions reduction from 2023 to 2030 is 49.8 - 97.9 = -48.1 MMT CO2e

The emissions reduction goal for covered entities, based on their 58% share of statewide emissions is calculated to be -36.4 MMT CO2e over the eight-year compliance period through 2030.

Emissions allowances would need to decline by 6.1% each year for all entities incurring coverage obligations during the first compliance period, starting with calendar year 2023. This reduction pathway assumes that non-covered entities would also be voluntarily reducing emissions at a rate proportionate to the regulated/covered entities, based on the non-covered entities’ portions of statewide emissions.

The initial allowance budget for January 1 to December 31, 2023, would equal a calculated reduction of 6.1% from the baseline annual emissions for each of the covered entities during this compliance period. This would result in a total allowance budget of 52.9 MMT CO2e. The budget would continue to decrease from the baseline by an additional 6.1% of baseline emissions each successive year.

During the second compliance period, starting on January 1, 2027, the reduction curve for entities continuing from the first compliance period would be remain at 6.1% of initial baseline emissions. For new CO2e emissions that would be added to the program for the second compliance period, the reduction pathway would be 12.3% of baseline emissions each year. The baseline calculated emissions for entities incurring a compliance obligation in the second compliance period is 20.4 MMT CO2e, and the CY 2027 allowance budget would be reduced by 12.3%, adding 17.8 MMT CO2e to the CY 2027 allowance budget.

Each covered entity would need to purchase an allowance for each ton of carbon dioxide it emits.

Per section 11, Ecology would hold a maximum of four auctions for allowances annually. Ecology assumes the auctions for the first period would be conducted January, April, July, and October 2023. The schedule is assumed to remain the same for future compliance periods. Each covered entity would need to purchase an allowance for each ton of carbon dioxide it emits, and Ecology assumes that 100% of all available allowances subject to auction would be sold at each auction.

Section 12 would provide for an allocation of free allowances to be available for Energy Intensive Trade Exposed (EITE) entities, which would be 100% of each entity’s allowance budget in the calendar years 2023 through 2034. The allocations would decline starting in 2035. This fiscal note assumes that the decline would be one percentage point a year. Therefore, in 2035, EITE entities would receive 99% of their allowance budgets as no-cost allowances.

Section 12 (3) would provide for a carbon intensity (CI) benchmarking pathway for EITE allowance allocations; because the allocations would be based on the benchmarks, which would be calculated based on consultation with industries and rulemaking, impacts to allowance budgets and no-cost allocations from CI calculations would be indeterminate and are not considered in this revenue estimate. The CI benchmarks would be a different metric from the allowances used in this revenue model. For this reason, the 3% reduction pathways proposed for CI benchmarks in Section 12 (3) are not applied this revenue estimate. The application of CI benchmarks would have an indeterminate impact on allowance budgets, allocations of no-cost allowances, and auction revenue.

Rulemaking would determine the criteria for EITE designation in calendar year 2027 and beyond. This fiscal note assumes no change in EITE status from the designations established in 12 (1).

Section 12 (1) (j) would include petroleum refining facilities with North American industry classification system (NAICS) codes “324110” as EITE entities.

Section 13 would provide for an allocation of no-cost allowances to be distributed directly to electricity generators in order to mitigate potential impacts on electricity rates. This fiscal note assumes that all electricity utilities and providers supplying electricity to Washington State rate payers would receive no-cost allowances equivalent to their allowance budgets for each year of program coverage. Both consumer-owned and investor-owned electricity utilities and providers would have the option to consign all no-cost allowances to auction for the benefit of rate payers during the first compliance period, and Ecology would adopt rules specifying consignment requirements for the second and subsequent compliance periods. This fiscal note assumes that all no-cost allowances for electricity would be used to meet compliance obligations for all compliance periods.

Section 14 would require Ecology to adopt rules for allocating no-cost allowances to natural gas utilities for the benefit of Washington State rate payers. This fiscal note assumes that all natural gas utilities supplying natural gas to Washington rate payers would receive free allowances equivalent to their allowance budgets for each year of program coverage. Section 14 (2) would require natural gas utilities to consign a specified percentage of the no-cost allowances to auction each calendar year for the benefit of rate payers, prioritizing low-income customers.

Section 15 would authorize establishment of an emissions containment reserve, allowing available allowances to be placed in reserve to meet emissions limits per RCW 70A.45.020, and would require 2% of allowances to be placed in the reserve in CYs 2023 through 2026. The fiscal note assumes that allowances would continue to be withheld to the reserve at the same rate in future compliance periods.

Section 16 would require Ecology to set a minimum of 2% of the total number of allowances available aside for a price containment reserve during the years 2023 through 2026. The department would establish by rule the amount to be placed in the reserve beginning in the 2026 compliance period. This fiscal note assumes that allowances would continue to be withheld to the reserve at the same rate in future compliance periods.

For purchases from the price containment reserve, we looked at reserve price auction activity in other jurisdictions. California holds vintage allowances for several years. To provide a conservative estimate, this estimate assumes that 30% of the prior year’s reserve will be sold at the prior year floor price each year, leaving unsold allowances in the reserve to carry forward.

Ecology would also be required to establish by rule auction floor prices. Allowance floor prices are assumed to be the same as those in California. California floor prices are projected to grow approximately 7% per year, from a current price of $16.68 in 2020 to $33.73 in 2030. Ecology assumes that allowance prices in Washington would be equivalent to those in California. Cost of allowances is estimated to start at $20.60 in 2023 and increase by 7% each year in ensuing years. Revenue estimates assume all allowances not in the price containment reserve would be purchased at the estimated floor price for the year.

All allowances are estimated to be purchased at floor prices. Actual prices would vary, based on the conditions of the allowance market. This assumption is intended to result in a minimum revenue estimate.

Section 18 (3) (a), (b), and (e) would provide for regulated entities to meet up to 5% of compliance obligations with offset credits in the first compliance period, and up to 4% of compliance obligations in the second compliance period, and ongoing, for offset projects; entities can apply offset projects on federally recognized tribal land to meet an additional 3% of compliance obligations in the first compliance period and 2% of obligations in the second compliance period. Revenue estimates assume maximum usage of offset credits - offset credits are removed from the net priced allowances.

Over Allocations attributed to COVID-19 – The Rhodium Group published a report on estimated GHG emissions changes in the future, depending on the recovery rates from the COVID-19 pandemic. This study is available at this link (https://rhg.com/research/taking-stock-2020/) and supports an assumption that the carbon market may have excess allowances in the future. Excess allowances are subtracted from the net priced allowances and are based on estimated emissions reductions following a curve informed by the Rhodium Group study. The net effect is a reduction in revenue based on the excess allocations.

Total proceeds from auctions for each calendar year, starting with calendar year 2023, were estimated for each corresponding fiscal year, based on an assumption of all required allowances being purchased equally across each of the four annual auctions.

The fiscal year-based auction revenue is estimated in the Forward Flexible Account and the Climate Investment Account based on the allocations specified in Section 11.

The amount paid by each fee payer would be based on the fee payer’s GHG emissions and the number of allowances purchased.

Greenhouse Gas Reporting Fees:

Section 25 would modify GHG reporting requirements, which would influence GHG reporting workload costs and the number of reporting facilities. Ecology assumes that fee modifications related to the changes in section 25 would be set during rulemaking for this section and would incorporate workload changes related to the modification of GHG reporting requirements. The fee changes would take effect in FY 2026.

Under current law, RCW 70A.15.2200, GHG reporting fees are set to equal but not exceed projected direct and indirect costs for Ecology's development and implementation of the program in the forthcoming year. Cash receipts are estimated to equal expenditure estimates for the GHG reporting program in the Air Pollution Control Account in this fiscal note.

Individual fee levels and the number of fee payers is indeterminate at this time. Rulemaking and stakeholder feedback would determine which entities would be required to pay a fee and what portion of the program each class of participant would support.

Department of Revenue:

Note: This fiscal note reflects language in E2SSB 5126, 2021 Legislative Session.

This fiscal note only addresses those sections of the bill that impact the Department of Revenue (Department).

CURRENT LAW:

Washington does not currently have a cap and trade system and there is no Washington-based market for businesses to trade carbon allowances.

DIFFERENCES FROM PREVIOUS VERSION:

Senate amendment AMS WM S2397.5 makes various changes that do not appear to directly impact the Department. These changes include:

- Section 3 prohibits the Department of Ecology (Ecology) from imposing requirements on high priority emitters in overburdened communities that are disproportionate to the emitters' contributions to air pollution in those communities.

- In Section 8(3), the deadline for Ecology to complete an evaluation of the greenhouse gas (GHG) cap and investment program is changed from December 31, 2028 to December 31, 2027. This subsection also requires Ecology to make public the metrics used in evaluation of the program's achievement of emission reduction limits.

- Section 10(7) and 10(10) require Ecology to provide information about the contents of participants' holding accounts and a roster of entities in the program on a public website.

- Section 12(3) sets a schedule for Ecology to allocate allowances to emissions-intensive trade-exposed facilities over the four-year compliance periods beginning in 2023, 2027, and 2031.

- Section 18(7) states that certain limitations on offsets go into effect beginning in 2031.

- Section 26 is moved into Section 9(9).

OVERVIEW

The bill requires Ecology, by January 1, 2023, to implement a program to cap GHG emissions in the state. Under the program, Ecology must set a budget of annual emissions and distribute emission allowances by auction through a qualified contractor. The program must also allow participants to buy, sell, and trade allowances to and from other participants.

Allowance Auction and Trading

The bill requires Ecology to set the annual allowance budget to ensure that the emission limits for 2030, 2040, and 2050 in RCW 70A.45.020 are met. The bill stipulates that Ecology shall distribute emission allowances by auction not more than four times per year, except for any necessary reserve auctions. Ecology must use an electronic tracking system to track compliance and to track the buying, selling, and trading of allowances obtained at auction.

Offset Credits

Ecology is required to adopt rules that allow entities to meet a limited portion of their compliance obligation with offset credits. Ecology may grant offset credits to entities that carry out projects that result in a reduction in GHG emissions and that directly benefit Washington or take place in Washington or a linked jurisdiction. Ecology must ensure that offset credits are registered and electronically tracked.

Price Containment Mechanisms

To minimize price volatility, Ecology must establish a price containment reserve. Certain allowances are to be placed in the price containment reserve, including 2% of 2023 - 2026 budgeted allowances, budgeted allowances that go unsold, and unused allowances of closed facilities. Ecology must set a trigger price for auctions, such that if auction prices are below the trigger price, then there will be automatic withholding of a portion of allowances for sale in the auction. Such withheld allowances will be placed in the price containment reserve. Ecology also must establish an auction floor price, an auction ceiling price, and a schedule for these prices to increase by a predetermined amount each year. Companies will not be allowed to purchase allowances below the auction floor price. To prevent prices from exceeding auction ceiling prices, Ecology may auction allowances held in the price containment reserve. If the number of allowances in the price containment reserve approaches zero, then Ecology may issue price ceiling units as compliance instruments. Price ceiling units will be offered for sale only to entities that do not hold enough compliance instruments for the current compliance period. Price ceiling units cannot be sold or transferred and must be retired at the end of the compliance period.

Linkage With Other Jurisdictions' Cap and Trade Programs

To the extent possible, Ecology should link the auction and allowance trading system with other jurisdictions. If Washington links its program to other jurisdiction(s), then trigger prices should be set equal to the levels established in such other jurisdiction(s), including suspension of trigger prices as necessary.

Zero-Cost Allocations

Prior to December 2034, Ecology must allocate a portion of allowances at zero cost to businesses in EITE industries, based on their proportionate share of budgeted emissions. Ecology must provide rules to allow businesses in EITE industries to apply for additional zero-cost allowances based on facility-specific benchmarks. In addition, the bill provides for Ecology to allocate a portion of allowances at zero cost to electric utilities and natural gas companies.

New Accounts

The bill requires the transfer of auction proceeds to the state treasurer for deposit in designated accounts. A financial services administrator contracted by Ecology will conduct the auction and transfer the funds. Auction proceeds up to approximately $127 million in fiscal year 2023 will first go to the forward flexible account created in this bill. (Higher amounts are designated to the forward flexible account for later years.) Upon appropriation, revenues in the forward flexible account may be used only for transportation projects. After funding the forward flexible account, any additional auction proceeds raised in the auction will be deposited in the new climate investment account. Upon appropriation, money in the climate investment account may be used to cover the program's costs, to implement the working families tax rebate, for programs that mitigate GHG impacts in overburdened communities, for clean transportation programs, for natural climate resilience solutions, for clean energy transition and assistance programs, and/or for emission reduction projects.

EFFECTIVE DATE

The bill takes effect 90 days after final adjournment of the session in which it is enacted. Section 20, which requires entities to transfer compliance instruments annually to pay for emissions during the period, is contingent on the passage of a transportation funding act with at least $500 million per biennium of new revenues to the motor vehicle fund and multimodal transportation account. The $500 million of new funding must be attributable to revenues from this bill (the Washington climate commitment act).

ASSUMPTIONS

- A transportation funding act meeting the conditions in 20(7) is passed, so there is no delay to the bill's compliance obligations.

- Ecology will administer the program described in Sections 7-22, including the emission allowance auction and market.

- The emission allowances budgeted by Ecology for a compliance period may be purchased at auction and/or traded in secondary markets.

- Auction sales of emission allowances and sales on secondary markets will begin in January 2023.

- The market price of emission allowances are determined by market participants participating in auctions and otherwise buying and selling allowances from one another.

Background

- The Department currently administers the business and occupation (B&O) tax, which is a tax on the gross proceeds of sales and the gross income of a business.

- The B&O tax applies to most types of business receipts.

- The B&O tax rate for "services and other activities" is 1.5% or 1.75%, with the latter rate applying to entities with more than $1 million of taxable gross receipts in the services and other category.

Applicability of B&O Tax

- Since no specific B&O exemption is created for sales of emission allowances to other entities, it is assumed such sales will qualify as taxable events under the B&O tax and will be taxed at the services and other activities tax rate, as described in RCW 82.04.290.

- It is assumed that all entities selling emission allowances will meet the taxable receipts threshold to be required to pay the higher 1.75% services and other B&O tax rate.

- Given that there is currently no data to estimate the buying, selling, or trading of emission allowances in Washington, the revenue impact to the state general fund from any B&O taxes collected as a result of the sale of carbon credits is indeterminate.

B&O Tax Collections (Example)

- For example, if in FY 20XX:

- The market price of emission allowances is $20 per allowance, with each allowance representing 1 MT of CO2-equivalent emissions;

- The year begins with 20 million emission allowances available, including allowances budgeted by Ecology for auction in FY 20XX and unused allowances carried over from the previous year.

- Of these, 15 million allowances are either utilized in FY 20XX by the original owner of the allowance or banked for future use;

- The remaining 5 million allowances are sold to other entities on Washington's emission allowance market during FY 20XX;

- Then the B&O tax collected on such allowance sales in FY 20XX would be:

$20 x 5 million x 1.75% = $1.75 million.

The example above is provided to illustrate the calculation of the B&O tax on sales of emission allowances and is not intended as a revenue estimate.

TOTAL REVENUE IMPACT:

Indeterminate

Ten-year projection prepared in consultation with the following agencies:

The following legislators voted yea:

Representative Pat Sullivan
Democrat
(360) 786-7858
Pat.Sullivan@leg.wa.gov

Representative Eileen Cody
Democrat
(564) 888-2493
eileen.cody@leg.wa.gov

Representative Frank Chopp
Democrat
(206) 905-6681
frank.chopp@leg.wa.gov

Representative John Lovick
Democrat
(253) 275-1405
john.lovick@leg.wa.gov

Representative Sharon Tomiko Santos
Democrat
(360) 786-7944
sharontomiko.santos@leg.wa.gov

Representative Steve Kirby
Democrat
(360) 786-7996
Steve.Kirby@leg.wa.gov

Representative Timm Ormsby
Democrat
(360) 786-7946
timm.ormsby@leg.wa.gov

Representative Mike Sells
Democrat
(360) 255-0152
mike.sells@leg.wa.gov

Representative Larry Springer
Democrat
(425) 947-8921
larry.springer@leg.wa.gov

Representative Debra Entenman
Democrat
(253) 330-5504
ENTENMAN_DE@leg.wa.gov

Representative Roger Goodman
Democrat
(360) 786-7878
roger.goodman@leg.wa.gov

Representative Joe Fitzgibbon
Democrat
(564) 888-2362
joe.fitzgibbon@leg.wa.gov

Representative Tina Orwall
Democrat
(253) 656-5265
tina.orwall@leg.wa.gov

Representative Marcus Riccelli
Democrat
(509) 866-4954
marcus.riccelli@leg.wa.gov

Representative Cindy Ryu
Democrat
(206) 307-0769
cindy.ryu@leg.wa.gov

Representative Steve Tharinger
Democrat
(564) 888-2366
steve.tharinger@leg.wa.gov

Representative Laurie Jinkins
Democrat
(253) 393-2990
laurie.jinkins@leg.wa.gov

Representative Sharon Wylie
Democrat
(360) 786-7924
Sharon.Wylie@leg.wa.gov

Representative Drew Hansen
Democrat
(206) 333-2975
drew.hansen@leg.wa.gov

Representative Gerry Pollet
Democrat
(206) 307-0409
gerry.pollet@leg.wa.gov

Representative Jessica Bateman
Democrat
(360) 545-9513
jessica.bateman@leg.wa.gov

Representative Steve Bergquist
Democrat
(253) 214-3275
steve.bergquist@leg.wa.gov

Representative Jake Fey
Democrat
(206) 653-9974
jake.fey@leg.wa.gov

Representative Monica Jurado Stonier
Democrat
(360) 786-7872
monica.stonier@leg.wa.gov

Representative Emily Wicks
Democrat
(425) 903-8186
WICKS_EM@leg.wa.gov

Representative Tana Senn
Democrat
(360) 786-7894
tana.senn@leg.wa.gov

Representative Mia Gregerson
Democrat
(253) 981-6278
mia.gregerson@leg.wa.gov

Representative Lillian Ortiz-Self
Democrat
(360) 786-7972
lillian.ortiz-self@leg.wa.gov

Representative Strom Peterson
Democrat
(564) 888-2336
strom.peterson@leg.wa.gov

Representative Noel Frame
Democrat
(206) 962-5098
noel.frame@leg.wa.gov

Representative Shelley Kloba
Democrat
(564) 888-2377
shelley.kloba@leg.wa.gov

Representative Laurie Dolan
Democrat
(360) 786-7940
Laurie.Dolan@leg.wa.gov

Representative Mike Chapman
Democrat
(564) 888-2321
mike.chapman@leg.wa.gov

Representative Nicole Macri
Democrat
(206) 333-4228
nicole.macri@leg.wa.gov

Representative Vandana Slatter
Democrat
(425) 458-7240
vandana.slatter@leg.wa.gov

Representative Javier Valdez
Democrat
(206) 905-8739
javier.valdez@leg.wa.gov

Representative Bill Ramos
Democrat
(425) 654-4402
RAMOS_BI@leg.wa.gov

Representative Lisa Callan
Democrat
(425) 651-2341
CALLAN_LI@leg.wa.gov

Representative Mari Leavitt
Democrat
(253) 256-0302
LEAVITT_MA@leg.wa.gov

Representative Melanie Morgan
Democrat
(360) 786-7906
MORGAN_ME@leg.wa.gov

Representative Lauren Davis
Democrat
(206) 673-3501
DAVIS_LA@leg.wa.gov

Representative Debra Lekanoff
Democrat
(360) 419-5266
LEKANOFF_DE@leg.wa.gov

Representative My-Linh Thai
Democrat
(206) 333-4107
THAI_MY@leg.wa.gov

Representative Sharon Shewmake
Democrat
(360) 746-6939
sharon.shewmake@leg.wa.gov

Representative Amy Walen
Democrat
(425) 883-3366
WALEN_AM@leg.wa.gov

Representative Davina Duerr
Democrat
(425) 318-1303
DUERR_DA@leg.wa.gov

Representative Alex Ramel
Democrat
(360) 786-7970
alex.ramel@leg.wa.gov

Representative Jesse Johnson
Democrat
(206) 333-2989
JOHNSON_JE@leg.wa.gov

Representative David Hackney
Democrat
(206) 490-0914
David.Hackney@leg.wa.gov

Representative Tarra Simmons
Democrat
(360) 930-8127
Tarra.Simmons@leg.wa.gov

Representative Dan Bronoske
Democrat
(360) 786-7958
Dan.Bronoske@leg.wa.gov

Representative Jamila Taylor
Democrat
(360) 868-6290
Jamila.Taylor@leg.wa.gov

Representative Liz Berry
Democrat
(206) 709-5260
Liz.Berry@leg.wa.gov

Representative April Berg
Democrat
(425) 939-8423
April.Berg@leg.wa.gov

The following legislators voted nay:

Representative Eric Robertson
Republican
(360) 786-7866
Eric.Robertson@leg.wa.gov

Representative Bruce Chandler
Republican
(360) 786-7960
Bruce.Chandler@leg.wa.gov

Representative Ed Orcutt
Republican
(360) 786-7990
Ed.Orcutt@leg.wa.gov

Representative Joel Kretz
Republican
(360) 786-7988
Joel.Kretz@leg.wa.gov

Representative Mike Steele
Republican
(509) 782-3436
mike.steele@leg.wa.gov

Representative Joe Schmick
Republican
(253) 275-1425
joe.schmick@leg.wa.gov

Representative Jacquelin Maycumber
Republican
(360) 786-7908
MAYCUMBE_JA@leg.wa.gov

Representative Brad Klippert
Republican
(360) 786-7882
brad.klippert@leg.wa.gov

Representative J.T. Wilcox
Republican
(253) 329-5194
jt.wilcox@leg.wa.gov

Representative Paul Harris
Republican
(360) 786-7976
Paul.Harris@leg.wa.gov

Representative Brandon Vick
Republican
(564) 888-2271
brandon.vick@leg.wa.gov

Representative Drew MacEwen
Republican
(360) 786-7902
drew.macewen@leg.wa.gov

Representative Jesse Young
Republican
(360) 786-7964
Jesse.Young@leg.wa.gov

Representative Bob McCaslin
Republican
(360) 786-7820
Bob.McCaslin@leg.wa.gov

Representative Dan Griffey
Republican
(360) 786-7966
Dan.Griffey@leg.wa.gov

Representative Gina Mosbrucker
Republican
(360) 786-7856
gina.mosbrucker@leg.wa.gov

Representative Michelle Caldier
Republican
(360) 786-7802
Michelle.Caldier@leg.wa.gov

Representative Tom Dent
Republican
(509) 941-2346
tom.dent@leg.wa.gov

Representative Skyler Rude
Republican
(509) 593-4559
RUDE_SK@leg.wa.gov

Representative Mary Dye
Republican
(564) 888-2380
mary.dye@leg.wa.gov

Representative Andrew Barkis
Republican
(360) 584-9846
andrew.barkis@leg.wa.gov

Representative Mike Volz
Republican
(509) 456-2750
mike.volz@leg.wa.gov

Representative Vicki Kraft
Republican
(360) 786-7994
vicki.kraft@leg.wa.gov

Representative Jim Walsh
Republican
(360) 485-0547
jim.walsh@leg.wa.gov

Representative Carolyn Eslick
Republican
(360) 786-7816
ESLICK_CA@leg.wa.gov

Representative Jenny Graham
Republican
(509) 960-5393
GRAHAM_JE@leg.wa.gov

Representative Matt Boehnke
Republican
(509) 315-2315
BOEHNKE_MA@leg.wa.gov

Representative Dave Paul
Democrat
(360) 553-4226
PAUL_DA@leg.wa.gov

Representative Keith Goehner
Republican
(360) 786-7954
GOEHNER_KE@leg.wa.gov

Representative Chris Corry
Republican
(509) 571-1048
CORRY_CH@leg.wa.gov

Representative Jeremie Dufault
Republican
(509) 728-9174
DUFAULT_JE@leg.wa.gov

Representative Larry Hoff
Republican
(360) 786-7812
HOFF_LA@leg.wa.gov

Representative Kelly Chambers
Republican
(360) 786-7948
CHAMBERS_KE@leg.wa.gov

Representative Robert Sutherland
Republican
(425) 341-4816
SUTHERLA_RO@leg.wa.gov

Representative Alex Ybarra
Republican
(360) 786-7808
YBARRA_AL@leg.wa.gov

Representative Rob Chase
Republican
(360) 786-7984
Rob.Chase@leg.wa.gov

Representative Greg Gilday
Republican
(360) 939-1211
Greg.Gilday@leg.wa.gov

Representative Mark Klicker
Republican
(360) 786-7836
Mark.Klicker@leg.wa.gov

Representative Joel McEntire
Republican
(360) 786-7870
Joel.McEntire@leg.wa.gov

Representative Peter Abbarno
Republican
(360) 786-7896
Peter.Abbarno@leg.wa.gov

Representative Cyndy Jacobsen
Republican
(253) 449-8545
Cyndy.Jacobsen@leg.wa.gov

Representative Kirsten Harris-Talley
Democrat
(206) 971-1222
Kirsten.Harris-Talley@leg.wa.gov

Representative Alicia Rule
Democrat
(360) 746-3744
Alicia.Rule@leg.wa.gov

The following legislators were absent:

Representative Drew Stokesbary
Republican
(253) 245-1963
drew.stokesbary@leg.wa.gov

Legislative Bill Information Website: http://apps.leg.wa.gov/billinfo/

Initiative 960 Website: http://www.ofm.wa.gov/tax/default.asp

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E2SSB 5126, titled AN ACT Relating to the Washington climate commitment act, has been passed by the Senate. The Office of Financial Management has identified this bill as requiring a ten-year projection of increased cost to the taxpayers or affected fee payers.

Ten-year projection:

Fiscal
Year

Auction Revenue

Auction Revenue - to FFA

GHG Reporting Fee

Total

2022

2023

101,020,158

127,341,000

$ 228,361,158

2024

102,957,188

356,697,000

$ 459,654,188

2025

94,630,430

366,558,000

$ 461,188,430

2026

100,914,180

359,117,000

1,291,984

$ 461,323,164

2027

111,775,115

359,117,000

1,281,204

$ 472,173,319

2028

121,442,597

359,117,000

1,281,204

$ 481,840,801

2029

116,366,145

359,117,000

1,281,204

$ 476,764,349

2030

103,518,865

359,117,000

1,281,204

$ 463,917,069

2031

112,541,010

359,117,000

1,281,204

$ 472,939,214

Total:

$ 965,165,688

$ 3,005,298,000

$ 7,698,004

$ 3,978,161,692

Department of Ecology:

Cash Receipts from Purchases of GHG Emissions Allowances:

Under section 11, auction proceeds would be collected by the financial services administrator and transferred to the State Treasurer for deposit as follows:

a) FY 2023: first $127,341,000 to the FFA, with the remaining auction revenue to the CIA;

b) FY 2024: first $356,697,000 to the FFA, with the remaining auction revenue to the CIA;

c) FY 2025: first $366,558,000 to the FFA, with the remaining auction revenue to the CIA;

d) FY 2026 through FY 2037: first $359,117,000 to the FFA, with the remaining auction revenue to the CIA;

1990 statewide emissions were 90.5 MMT CO2e

The 2035 statewide emissions target is 49.8 MMT CO2e

The goal for emissions reduction from 2023 to 2030 is 49.8 - 97.9 = -48.1 MMT CO2e

The emissions reduction goal for covered entities, based on their 58% share of statewide emissions is calculated to be -36.4 MMT CO2e over the eight-year compliance period through 2030.

Each covered entity would need to purchase an allowance for each ton of carbon dioxide it emits.

Rulemaking would determine the criteria for EITE designation in calendar year 2027 and beyond. This fiscal note assumes no change in EITE status from the designations established in 12 (1).

Section 12 (1) (j) would include petroleum refining facilities with North American industry classification system (NAICS) codes “324110” as EITE entities.

The fiscal year-based auction revenue is estimated in the Forward Flexible Account and the Climate Investment Account based on the allocations specified in Section 11.

The amount paid by each fee payer would be based on the fee payer’s GHG emissions and the number of allowances purchased.

Greenhouse Gas Reporting Fees:

Individual fee levels and the number of fee payers is indeterminate at this time. Rulemaking and stakeholder feedback would determine which entities would be required to pay a fee and what portion of the program each class of participant would support.

Department of Revenue:

Note: This fiscal note reflects language in E2SSB 5126, 2021 Legislative Session.

This fiscal note only addresses those sections of the bill that impact the Department of Revenue (Department).

CURRENT LAW:

Washington does not currently have a cap and trade system and there is no Washington-based market for businesses to trade carbon allowances.

DIFFERENCES FROM PREVIOUS VERSION:

Senate amendment AMS WM S2397.5 makes various changes that do not appear to directly impact the Department. These changes include:

- In Section 8(3), the deadline for Ecology to complete an evaluation of the greenhouse gas (GHG) cap and investment program is changed from December 31, 2028 to December 31, 2027. This subsection also requires Ecology to make public the metrics used in evaluation of the program's achievement of emission reduction limits.

- Section 10(7) and 10(10) require Ecology to provide information about the contents of participants' holding accounts and a roster of entities in the program on a public website.

- Section 12(3) sets a schedule for Ecology to allocate allowances to emissions-intensive trade-exposed facilities over the four-year compliance periods beginning in 2023, 2027, and 2031.

- Section 18(7) states that certain limitations on offsets go into effect beginning in 2031.

- Section 26 is moved into Section 9(9).

OVERVIEW

Allowance Auction and Trading

Offset Credits

Price Containment Mechanisms

Linkage With Other Jurisdictions' Cap and Trade Programs

Zero-Cost Allocations

New Accounts

EFFECTIVE DATE

ASSUMPTIONS

- A transportation funding act meeting the conditions in 20(7) is passed, so there is no delay to the bill's compliance obligations.

- Ecology will administer the program described in Sections 7-22, including the emission allowance auction and market.

- The emission allowances budgeted by Ecology for a compliance period may be purchased at auction and/or traded in secondary markets.

- Auction sales of emission allowances and sales on secondary markets will begin in January 2023.

- The market price of emission allowances are determined by market participants participating in auctions and otherwise buying and selling allowances from one another.

Background

- The Department currently administers the business and occupation (B&O) tax, which is a tax on the gross proceeds of sales and the gross income of a business.

- The B&O tax applies to most types of business receipts.

Applicability of B&O Tax

- It is assumed that all entities selling emission allowances will meet the taxable receipts threshold to be required to pay the higher 1.75% services and other B&O tax rate.

B&O Tax Collections (Example)

- For example, if in FY 20XX:

- The market price of emission allowances is $20 per allowance, with each allowance representing 1 MT of CO2-equivalent emissions;

- The year begins with 20 million emission allowances available, including allowances budgeted by Ecology for auction in FY 20XX and unused allowances carried over from the previous year.

- Of these, 15 million allowances are either utilized in FY 20XX by the original owner of the allowance or banked for future use;

- The remaining 5 million allowances are sold to other entities on Washington's emission allowance market during FY 20XX;

- Then the B&O tax collected on such allowance sales in FY 20XX would be:

$20 x 5 million x 1.75% = $1.75 million.

The example above is provided to illustrate the calculation of the B&O tax on sales of emission allowances and is not intended as a revenue estimate.

TOTAL REVENUE IMPACT:

Indeterminate

Ten-year projection prepared in consultation with the following agencies:

The following legislators voted yea:

Senator Tim Sheldon
Democrat
(360) 786-7668
Timothy.Sheldon@leg.wa.gov

Senator Steve Conway
Democrat
(360) 786-7656
steve.conway@leg.wa.gov

Senator Karen Keiser
Democrat
(360) 786-7664
Karen.Keiser@leg.wa.gov

Senator Sam Hunt
Democrat
(360) 786-7642
Sam.Hunt@leg.wa.gov

Senator Jeannie Darneille
Democrat
(360) 786-7652
DARNEILL_JE@leg.wa.gov

Senator Bob Hasegawa
Democrat
(360) 786-7616
bob.hasegawa@leg.wa.gov

Senator Christine Rolfes
Democrat
(360) 786-7644
christine.rolfes@leg.wa.gov

Senator Jamie Pedersen
Democrat
(360) 786-7628
jamie.pedersen@leg.wa.gov

Senator Steve Hobbs
Democrat
(360) 786-7686
steve.hobbs@leg.wa.gov

Senator Marko Liias
Democrat
(360) 786-7640
Marko.Liias@leg.wa.gov

Senator Reuven Carlyle
Democrat
(360) 786-7670
Reuven.Carlyle@leg.wa.gov

Senator Derek Stanford
Democrat
(360) 786-7600
Derek.Stanford@leg.wa.gov

Senator Andy Billig
Democrat
(360) 786-7604
andy.billig@leg.wa.gov

Senator David Frockt
Democrat
(360) 786-7690
David.Frockt@leg.wa.gov

Senator Mark Mullet
Democrat
(360) 786-7608
mark.mullet@leg.wa.gov

Senator Annette Cleveland
Democrat
(360) 786-7696
Annette.Cleveland@leg.wa.gov

Senator June Robinson
Democrat
(360) 786-7674
june.robinson@leg.wa.gov

Senator Patty Kuderer
Democrat
(360) 786-7694
patty.kuderer@leg.wa.gov

Senator Lisa Wellman
Democrat
(360) 786-7641
Lisa.Wellman@leg.wa.gov

Senator Rebecca Saldaña
Democrat
(360) 786-7688
rebecca.saldana@leg.wa.gov

Senator Manka Dhingra
Democrat
(360) 786-7672
Manka.Dhingra@leg.wa.gov

Senator Mona Das
Democrat
(360) 786-7692
DAS_MO@leg.wa.gov

Senator Joe Nguyen
Democrat
(360) 786-7667
NGUYEN_JO@leg.wa.gov

Senator Jesse Salomon
Democrat
(360) 786-7662
SALOMON_JE@leg.wa.gov

Senator Claire Wilson
Democrat
(360) 786-7658
WILSON_CL@leg.wa.gov

Senator Emily Randall
Democrat
(360) 786-7650
RANDALL_EM@leg.wa.gov

Senator T'wina Nobles
Democrat
(360) 786-7654
T'wina.Nobles@leg.wa.gov

The following legislators voted nay:

Senator Mike Padden
Republican
(360) 786-7606
Mike.Padden@leg.wa.gov

Senator Mark Schoesler
Republican
(360) 786-7620
mark.schoesler@leg.wa.gov

Senator Jim Honeyford
Republican
(360) 786-7684
Jim.Honeyford@leg.wa.gov

Senator Brad Hawkins
Republican
(360) 786-7622
brad.hawkins@leg.wa.gov

Senator Jim McCune
Republican
(360) 786-7602
jim.mccune@leg.wa.gov

Senator Doug Ericksen
Republican
(360) 786-7682
Doug.Ericksen@leg.wa.gov

Senator Phil Fortunato
Republican
(360) 786-7660
phil.fortunato@leg.wa.gov

Senator Shelly Short
Republican
(360) 786-7612
Shelly.Short@leg.wa.gov

Senator Kevin Van De Wege
Democrat
(360) 786-7646
Kevin.VanDeWege@leg.wa.gov

Senator Judy Warnick
Republican
(360) 786-7624
judith.warnick@leg.wa.gov

Senator Curtis King
Republican
(360) 786-7626
Curtis.King@leg.wa.gov

Senator Ann Rivers
Republican
(360) 786-7634
ann.rivers@leg.wa.gov

Senator Jeff Holy
Republican
(360) 786-7610
jeff.holy@leg.wa.gov

Senator John Braun
Republican
(360) 786-7638
john.braun@leg.wa.gov

Senator Sharon Brown
Republican
(360) 786-7614
Sharon.Brown@leg.wa.gov

Senator Lynda Wilson
Republican
(360) 786-7632
lynda.wilson@leg.wa.gov

Senator Keith Wagoner
Republican
(360) 786-7676
keith.wagoner@leg.wa.gov

Senator Chris Gildon
Republican
(360) 786-7648
GILDON_CH@leg.wa.gov

Senator Liz Lovelett
Democrat
(360) 786-7678
Liz.Lovelett@leg.wa.gov

Senator Ron Muzzall
Republican
(360) 786-7618
MUZZALL_RO@leg.wa.gov

Senator Perry Dozier
Republican
(360) 786-7630
Perry.Dozier@leg.wa.gov

Senator Jeff Wilson
Republican
(360) 786-7636
Jeff.Wilson@leg.wa.gov

Legislative Bill Information Website: http://apps.leg.wa.gov/billinfo/

Initiative 960 Website: http://www.ofm.wa.gov/tax/default.asp

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