September 27, 2024

How will Initiative 2117 to Repeal the Climate Commitment Act Affect Washington Offset Projects?  

The Climate Commitment Act is on the ballot in November. I-2117 would repeal Washington’s greenhouse gas emissions cap-and-invest program, which went into effect in 2023. Over the past two years, the program has achieved significant milestones—covered entities reported new emissions data and registered to purchase allowances, the Washington State Department of Ecology held its first compliance auctions, and entities in certain industries received no-cost allowances to protect against leakage of jobs and emissions out of Washington—that would be erased if I-2117 passes. In December 2023, Ecology achieved another significant milestone when it issued the program’s first offset credits. Offset credits are now available to reporting entities to account for a portion of their compliance obligation under the law. If I-2117 passes, what will happen to offset projects that have generated credits or that are under development to generate credits under the Climate Commitment Act?   

Offsets under the Climate Commitment Act 

The Climate Commitment Act requires Washington entities that emit above 25,000 metric tons of greenhouse gases annually to turn in allowances for each ton of emissions. Ecology auctions allowances at least quarterly, and entities may also purchase allowances on the secondary market. In its first year, the program brought in roughly $1.8 billion, much more than the Legislature projected.  

As an alternative to allowances, regulated entities can use offset credits for a portion of their compliance obligation. Offset projects are designed to reduce, remove, or avoid greenhouse gas emissions. Typical offset projects include reforestation or forest management projects, methane capture on dairy farms, or fuel switching.  

To generate credits under the Climate Commitment Act, offset projects must result in real, permanent, quantifiable, verifiable, and enforceable emissions reductions. To help ensure offsets will achieve real environmental benefits, offset project development is strictly regulated. Offset projects must be registered with Ecology-approved registries and verified by Ecology-approved verifiers to generate credits for compliance with the Climate Commitment Act.  

Offset credits are a potentially cheaper option for compliance. Through 2026, an entity may use offsets for up to 5% of its compliance obligation, with an additional 3% from offset projects on tribal lands. After 2026, these limits decrease to 4% and 2%, respectively. Although an entity may purchase offsets for only a small portion of its compliance obligation, offset credits will likely be cheaper than allowances purchased at auction or on the secondary market. Offsets for compliance with California’s emissions cap-and-trade program have typically cost 20-30% less than allowances. For Washington businesses facing higher-than-expected allowance prices in the early days of the Climate Commitment Act, a lower-cost compliance option would be welcome.   

I-2117 Would Repeal Offset Project Rules 

Initiative 2117 will ask Washingtonians whether the Climate Commitment Act should be repealed. If I-2117 is approved, the entire program—including entities’ compliance obligations and the state’s future program revenues—would be dismantled. Registered offset credits and offset projects under development could lose value without the market of potential purchasers looking for a cheaper way to comply with the Climate Commitment Act.  

There are, however, other prospective purchasers looking for quality offset credits. The Climate Commitment Act was modeled on California’s cap-and-trade system. As an example, to support early offset project development, Ecology initially adopted four offset project protocols from the California Air Resources Board (CARB). Regulated California entities frequently purchase out-of-state offset credits that comply with CARB protocols, are verified by CARB-approved verifiers, and are listed on CARB-approved registries. By so closely following CARB’s lead in regulating offsets, Washington has ensured that offsets credits developed for compliance with the Climate Commitment Act will also likely comply with California’s program, which is not on the ballot in November, preserving a market for Washington credits. 

Additionally, CARB offset protocols and CARB-approved verifiers frequently set the standard for high-quality offsets in the voluntary carbon market. This market serves any entity looking to reduce its carbon profile, outside or beyond a regulatory requirement. By following CARB’s lead and setting strict standards for project development and credit issuance, Washington has ensured that offset projects in the state will retain value and could be attractive to voluntary market participants, even if the regulated market in Washington is repealed. 

Final Thoughts 

As a relatively new regulatory program being challenged by a ballot initiative in November, there is major uncertainty regarding anything related to the Climate Commitment Act. Strict regulation of offset project development, however, may help Washington credits and projects retain value even if the Climate Commitment Act is repealed. If the Climate Commitment Act survives I-2117, other changes may be on the horizon. Stakeholders, including regulated entities considering offset credit purchases and offset project developers, will be watching the initiative effort closely and should be ready to act when the votes are in.