November 22, 2024
Independent Power Producer Sees Risk from Wash. Cap-and-trade
Operators of the gas-fired Grays Harbor Energy Center are concerned that Washington's cap-and-trade program will make the plant less competitive against out-of-state generators.
Operators of the gas-fired Grays Harbor Energy Center are concerned that Washington's cap-and-trade program will make the plant less competitive against out-of-state generators. | JH Kelly
The non-utility owner of a Washington gas-fired power plant says the facility faces unfair treatment under the state’s pending cap-and-trade program.

The non-utility owner of a Washington gas-fired power plant says the facility faces unfair treatment under the state’s pending cap-and-trade program, scheduled to go into effect at the start of next year.

Representatives of Grays Harbor Energy Center, owned by independent power producer Invenergy, voiced concerns last month that the 620-MW plant will not receive an initial allocation of free cap-and-trade allowances from the state, unlike utility-owned generators in Washington.

“All the state’s power plants need to be on the same footing,” Grays Harbor Energy representative Torey Mielke said during a June 21 public hearing to discuss cap-and-trade program rules, which are being developed by Washington’s Department of Ecology.

Plant manager Chris Sherin contended that the state’s other natural gas power plants produce 35% more carbon emissions on the average than Grays Harbor Energy Center.

“The Washington Climate Commitment Act is structured to allocate no-cost allowances directly to utilities. Utilities may then use those no-cost allowances for compliance under the law for the emissions from utility-owned natural gas facilities or other sources,” Invenergy told NetZero Insider in an email. “Grays Harbor Energy Center, which is the state’s least carbon-intensive natural gas facility, is not eligible to receive no-cost allowances directly as it is an independently owned natural gas facility.”

Grays Harbor Energy officials have also expressed concern about their plant having to compete with out-of-state power producers that don’t have to spend money on carbon-combating measures that are required in Washington.

The Ecology Department acknowledged that Grays Harbor Energy is the only gas-fired power plant in Washington that is not owned by a public utility, which means it does not receive the same no-cost carbon allowances as the utility-owned power plants. The carbon emissions are calculated the same way for both utility-owned plants and non-utility-owned plants, they noted.

There is a chance that Grays Harbor could lobby the legislature to make the financial aid the same for both types of gas-fired plants, the agency said. 

Rules Take Shape

The details of Washington’s new cap-and-trade program will continue to be tweaked until it goes into effect on Jan. 1, 2023.

The Department of Ecology held a series of public hearings last month to help nail down the regulations to implement the Climate Commitment Act, passed by the legislature last year.

Changes made so far to the regulations include requiring participants to be subject to Washington’s courts and state administrative tribunals in disputes, said Kay Shirey, the project’s rule development leader at the Ecology Department. 

About 25% of Washington’s carbon emissions won’t be covered by the cap-and-trade law, Shirey said. These include emissions from agriculture, businesses emitting fewer than 25,000 metric tons of carbon a year, landfills, aviation and most marine vessels. 

Washington was the second state to adopt a cap-and-trade law after California, which is in a cap-and-trade pact with Quebec. Washington’s auctions will be handled by the Western Climate Initiative (WCI). No timeline has been set for Washington to link up with the WCI.

A 2021 Ecology Department report put the state’s CO2 emissions at 99.57 million tons in 2018.  A state law calls for overall emissions to be reduced to 50 million tons by 2030, 27 million tons by 2040 and 5 million tons by 2050.

Under cap-and-trade, carbon emitters would have to acquire allowances for specific amounts of carbon pollution, which they can buy, sell or trade with other businesses. The maximum volume of statewide emissions would decrease over time.

The Ecology Department’s plan calls for an undetermined number of emissions allowances to be auctioned four times a year to smokestack industries. The first two auctions are scheduled for the first half of 2023, and the state will set the number of allowances 60 days prior to the auctions.

Companies would bid on the allowances in clusters of 1,000 individual allowances. The number of allowances will be decreased over time to meet 2035 and 2050 decarbonization goals. If Washington chooses to join the California-Quebec pact, it would expand its purchase and trading territory to those two areas.

For each auction, a specific number of allowances would be made available to bidders. All bids must be above a certain price level set in advance by the state. 

The highest bidder would get first crack at the limited number of allowances, while the second highest bidder would get the second crack, followed by additional iterations. The auction ends when the last of the designated number of allowances is bid upon. Then all the successful bidders pay the same clearing price set by the lowest successful bid.

Bidding companies are limited to acquiring 4% to 10% of the total number of allowances, depending on various criteria.

Companies will also be allowed to bid on offset credits that are used to preserve urban and rural forests, which absorb carbon from the atmosphere.

Washington has already begun selling forest-related carbon credits. The Washington Department Natural Resources’ duties include managing the state’s trust lands with the mission of producing revenue from property for various programs such as education. The agency routinely auctions off trees on its lands to be harvested for timber.

A new DNR program will set aside 10,000 acres of forests — with trees that began growing prior to 1900 — that have the potential to be harvested. Offset buyers will bid on carbon credits to keep those carbon-absorbing forests intact. This enables the DNR to achieve its mission of producing revenue from its older forests without having to harvest them for timber.

The new state program has identified 2,500 acres on DNR trust lands to be set aside this year in Whatcom, King, Thurston and Grays Harbor counties, stretching from northern to southern Puget Sound. Another 7,500 acres are scheduled to be identified next year. 

Meanwhile, three owners of urban forests in King County this month sold more than $1 million in carbon credits to Regen Network Development, a Delaware-based blockchain software company. (See Seattle-area Communities Auction Carbon Credits to Preserve Forests.)

Regen is collecting carbon credits from King County to offset its contributions to greenhouse gas pollution elsewhere when its overall carbon footprint is calculated. 

Fossil FuelsIndustrial DecarbonizationNatural GasState and Local PolicyWashington

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