Oregon's DEQ Issues Its Preliminary Report on Cap and Reduce Program

In March 2020, Oregon’s Governor Brown signed Executive Order 20-04, directing state agencies to take actions to reduce greenhouse gas emissions. The order sets the state’s greenhouse gas emissions reduction goals to be at least 45% below 1990 levels by 2035 and 80% below 1990 levels by 2050. The order also directed Oregon’s Department of Environmental Quality (ODEQ) to figure out how to meet those goals. Last week, ODEQ issued its preliminary report outlining the cap and reduce program.  The report describes the process, timeline and articulates unresolved issues.  The goal is to have the cap and reduce program finalized in 2021.

The report is not long, and I’d encourage people to read it.  Here are a few takeaways that are worth calling out:

• The cap and reduce program will be science-based.
• The program is wide ranging. Greenhouse gases would be capped from large, stationary sources; transportation use (including gas and diesel); and liquid and gaseous fuel industries.
• Offsets are on the table. Although offsets are not called out explicitly, the report’s language leans that way, allowing emitters “to choose alternative means of complying with an emissions limit, such as contracting with a third party to deliver reductions in emissions by actions at other locations.”
• Authority to auction allowances and generate revenue for the state appears limited.  The report states “it is likely that the EQC cannot hold an auction to sell compliance instruments, and will need to consider forms of direct distribution…to demonstrate compliance.” Nor can it outsource that role, by opining the state “lacks the authority to distribute compliance instruments to a non-profit, third-party, and then authorize the third-party to sell the compliance instruments at auction, using the auction proceeds to fund greenhouse gas emissions reduction programs.”
• Trading would be allowed. ODEQ believes they have the authority to oversee a system where compliance entities could use tradable compliance instruments.   Excess direct reductions and offsets represent two potential tradable commodities.

This last point shows ODEQ’s clear understanding of how offsets are an important tool in regulating greenhouse gas emissions.  The report states, “alternative compliance instruments…could mitigate the costs of compliance, while simultaneously producing greater overall emissions reductions.”  Although the report doesn’t address the criteria for project-based reductions (i.e., offsets) directly, ODEQ appears headed in that direction.  That makes sense given California’s cap and trade program’s successful use of offsets as a pathway to provide lower-cost methods of meeting compliance goals.  If that is the case, offsets could play an important role in the early days of Oregon’s cap and reduce program.