November 18, 2024

The Climate Commitment Act Survived a Repeal Initiative: What Comes Next for Offsets?

On November 5, Washington voters rejected Initiative 2117, which would have repealed the Climate Commitment Act in its entirety and prohibited Washington from implementing any type of greenhouse gas emissions cap and trade system. By a clear margin, voters chose to retain the Climate Commitment Act, along with its compliance requirements for entities in the state emitting more than 25,000 MT of greenhouse gases annually. Entities must turn in an “allowance” for every ton of emissions over that threshold; allowances are purchased, traded, or given to businesses in certain industries. Alternatively, entities may purchase offset credits to account for a certain percentage of a compliance obligation. Now that the Climate Commitment Act survived I-2117, what happens next for offset projects and credits under the program?  

Regulatory Changes to Offsets are Already Underway 

Even before voting on I-2117 began, the Washington Department of Ecology was engaged in rulemaking to modify offsets. First, Ecology is developing rules to support linking Washington’s allowance market to the shared market in California and Quebec, and linkage will require certain changes to all three jurisdictions’ programs. Washington currently requires offsets for compliance with the Climate Commitment Act to provide “direct environmental benefits” within the state. California’s program requires only that 50% of offsets purchased for a compliance obligation be in California.  

If the jurisdictions link their programs, Ecology’s draft rule would require that, in the first compliance period ending in 2026, at least 50% of purchased offsets be sourced from projects that provide direct environmental benefits to Washington; the remaining 50% must provide direct environmental benefits within linked jurisdictions. In later compliance periods, entities must source 75% of compliance offset credits from projects with direct environmental benefits in Washington; the remaining 25% must provide direct environmental benefits within linked jurisdictions. These changes would allow Washington entities to look outside of the state for at least a portion of their allowance purchases, including to California where there is an established offset project pipeline.  

Ecology has also announced it is considering adopting new protocols or modifying existing protocols to be Washington-specific. When the Climate Commitment Act went into effect, Ecology adopted a limited number of protocols for projects to reduce greenhouse gases in U.S. forestry, urban forestry, livestock projects, and ozone depleting substances. These protocols were adopted wholesale from the California Air Resources Board, which has long established the playbook for guiding offset project development. Now, Ecology is convening technical working groups and an environmental justice working group to consider new protocols and revisions that would tailor all protocols to Washington’s program. Protocol rulemakings are an opportunity for stakeholders—including interested landowners, potential project developers, and regulated entities that may purchase credits—to participate in shaping future offset credits in Washington. 

Final Thoughts

With the failure of I-21117, the future of the Climate Commitment Act is more secure. Stakeholders, including regulated entities considering offset credit purchases and offset project developers, can track and participate in regulatory developments with more certainty that offsets developed under evolving protocols will be eligible for compliance with Washington’s cap-and-invest program. Washington offset projects that also comply with California’s rules will also generate credits to comply with that state’s rules, providing access to an even larger market of entities looking for cost-effective compliance options.