Impact on Offset Demand from Washington State’s Climate Commitment Act.

Washington state’s Climate Commitment Act (CCA) is set to begin January 1, 2023, providing another source of offset demand. The program will cap industrial facilities, fuel suppliers, in-state electricity generators and importers, and natural gas distributers with annual emissions over 25,000 metric tons of carbon dioxide equivalent. These entities will be required to reduce emissions or purchase allowances, with a small amount of allotted offset usage. As proposed, from 2023 through 2026, 5% of required emission reductions can come from offsets, of which 50% must provide direct environmental benefit (DEBs) to the state. Included in offset allotment from 2023-2026, entities can purchase 3% of their compliance obligation from offsets produced on federally recognized Tribal Lands. From 2027- 2030, entities can use offsets to meet 4% of their emission reductions, of which 75% need to be DEBs. It is unclear if enough offset supply will be generated if WA adopts CARB’s offset protocols.

The Washington Department of Ecology is tasked with determining which carbon offset protocols will be eligible. The program may adopt the California Air and Resources Board’s (CARB) Livestock, Urban Forestry, and U.S. Forest Projects protocols. Projects will be eligible if started after July 25^th, 2019. It is difficult to determine what offset supply will look like to the Washington CCA program. The U.S. Forest Projects protocol is entering its tenth year in existence and many large landowners willing to enroll in the program already participate through CARB. However, a WA DEBs-fueled price increase on top of already high offset demand may be enough to convince new landowners to join the program but only if prices are significantly above those in the voluntary market, which has much less expensive development and monitoring requirements. As written, the Urban Forestry protocol has yet to deliver credits due to low urban tree carbon sequestration and storage opportunity relative to project monitoring costs. Many livestock projects are already converting to LCFS pathways. In order to increase offset supply, there are a number of forest protocol improvements that Washington could make in order to reduce development and monitoring costs, which is the single largest hurdle to bringing projects online. Improvements include allowing alternatives to on-the-ground re-inventory post-crediting period and less expensive statistical approaches to verification, among other things.

So far, the Department of Ecology has indicated that it will work with tribal groups and small forestland owners to help develop protocols and increase supply of offsets. If the Department of Ecology determines that offset supply from within the state is too low to meet demand, they may adjust the 50% and 75% DEBs requirements. Whether or not protocols are created or adjusted, tracking WA compliance offset supply will be interesting, given the voluntary market’s strong appetite for Washington based credits. Increased demand and prices will hopefully lead to increased competition driving prices up to allow smaller projects in the market.

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