{"id":22653,"date":"2022-09-13T13:46:24","date_gmt":"2022-09-13T18:46:24","guid":{"rendered":"https:\/\/blogs.edf.org\/climate411\/?p=22653"},"modified":"2025-12-03T11:32:46","modified_gmt":"2025-12-03T16:32:46","slug":"as-washington-state-sets-the-rules-for-its-ambitious-climate-program-regulators-shouldnt-overlook-this-policy-tool","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/climate411\/2022\/09\/13\/as-washington-state-sets-the-rules-for-its-ambitious-climate-program-regulators-shouldnt-overlook-this-policy-tool\/","title":{"rendered":"As Washington state sets the rules for its ambitious climate program, regulators shouldn&#8217;t overlook this policy tool"},"content":{"rendered":"<p><em>This post was co-authored by Natalie Hurd, Western states climate policy intern at EDF.<\/em><\/p>\n<p>Washington state is on the cusp of finalizing the rules to launch its <a href=\"https:\/\/blogs.edf.org\/climate411\/2021\/04\/13\/the-climate-commitment-act-could-be-game-changing-for-washington-state-and-the-country-heres-what-you-should-know\/\" target=\"_blank\" rel=\"noopener\">ambitious new climate policy<\/a>. This comes at an important moment of opportunity for states to lean into their climate commitments and increase their ambition. The passage of the Inflation Reduction Act will drive an unprecedented level of investment in fighting climate change and building a clean energy future, making it even easier for states like Washington to meet their climate goals. By enacting ambitious cap-and-invest legislation last year, Washington has taken an important step forward \u2014 but now it\u2019s up to regulators to deliver the strongest possible cap-and-invest program.<\/p>\n<p><a href=\"https:\/\/www.edf.org\/sites\/default\/files\/documents\/Washington_state_cap_invest_law.pdf\" target=\"_blank\" rel=\"noopener\">The Climate Commitment Act (CCA)<\/a> pairs carbon emission reductions with new tools to tackle local air quality disparities \u2014 all in the same policy framework. One of the valuable tools included in the cap-and-invest legislation is an emissions containment reserve (ECR) \u2014 a mechanism that guards against long-term uncertainty by ensuring that the program will be made more ambitious if prices for the program become lower than expected. Right now, Washington\u2019s Department of Ecology is making decisions about the details of how to implement the program, including whether or not to include a functional ECR, and EDF has <a href=\"https:\/\/scs-public.s3-us-gov-west-1.amazonaws.com\/env_production\/oid100\/did1008\/pid_202884\/assets\/merged\/6v09i99_document.pdf?v=QC6S49PHE\" target=\"_blank\" rel=\"noopener\">made it clear<\/a> that Washington should include a <a href=\"https:\/\/www.rff.org\/publications\/testimony-and-public-comments\/comments-on-the-proposed-wac-173-446-climate-commitment-act-program-rule\/\" target=\"_blank\" rel=\"noopener\">well-designed, effective ECR<\/a> in the state\u2019s cap-and-invest program. <strong>Regulators once again have the opportunity to lead the way on the West Coast by including a functioning ECR in Washington\u2019s program design.<\/strong><\/p>\n<h3>What is an emissions containment reserve?<\/h3>\n<p>An ECR is a design feature for cap-and-invest programs that was first implemented by the <a href=\"https:\/\/www.resources.org\/archives\/the-next-big-thing-in-carbon-markets-rggi-to-implement-an-emissions-containment-reserve\/\">Regional Greenhouse Gas Initiative (RGGI)<\/a>, a multi-state climate program on the East Coast. <strong>The primary role of an ECR is to ensure that, when demand for emissions allowances decreases, the overall supply of allowances is reduced.<\/strong> By reducing the supply, the ECR reduces the overall amount of climate pollution allowed under the program. In other words, allowances are <strong>reserved<\/strong> from the market and unable to be purchased, to make sure that the overall allowance budget is adjusted so that emissions are further <strong>contained<\/strong>. The amount of allowances that can be removed from the supply and placed in the ECR is relatively small \u30fc for example, in RGGI, the size of the ECR is up to 10% of the allowance budget of participating states.<\/p>\n<figure id=\"attachment_22655\" aria-describedby=\"caption-attachment-22655\" style=\"width: 540px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/uploads\/sites\/7\/2022\/09\/ECR-WA.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-22655 size-large\" src=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/uploads\/sites\/7\/2022\/09\/ECR-WA-1024x1024.jpg\" alt=\"A figure describing how an ECR functions\" width=\"540\" height=\"540\" srcset=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/2022\/09\/ECR-WA-1024x1024.jpg 1024w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/2022\/09\/ECR-WA-300x300.jpg 300w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/2022\/09\/ECR-WA-50x50.jpg 50w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/2022\/09\/ECR-WA-768x768.jpg 768w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/2022\/09\/ECR-WA-1536x1536.jpg 1536w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/2022\/09\/ECR-WA-150x150.jpg 150w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/2022\/09\/ECR-WA.jpg 1818w\" sizes=\"auto, (max-width: 540px) 100vw, 540px\" \/><\/a><figcaption id=\"caption-attachment-22655\" class=\"wp-caption-text\">Figure 1: Overview of an ECR (Adapted from <a href=\"https:\/\/www.rff.org\/publications\/testimony-and-public-comments\/comments-on-the-proposed-wac-173-446-climate-commitment-act-program-rule\/\" target=\"_blank\" rel=\"noopener\">Resources for the Future<\/a>)<\/figcaption><\/figure>\n<p>An ECR is activated when the allowance price hits a \u201ctrigger price\u201d, which is a set price that would reflect lower-than-expected demand for allowances. In an auction, if demand for allowances is relatively low, the price of allowances at auction will decrease. If the price of allowances decreases enough to reach the ECR\u2019s trigger price, then a predetermined number of allowances will be removed from the overall allowance supply available at the auction. <strong>By reducing the supply of allowances when the trigger price is reached, an ECR translates lower demand and lower prices into greater climate ambition.<\/strong><\/p>\n<p>One reason why demand for emissions allowances and allowance prices might drop, thus requiring the intervention of an ECR, is if regulated entities are able to cut emissions more quickly than expected.. For example, if a policy like a Clean Fuels Standard reduced emissions more swiftly than anticipated, then the entities impacted by that policy would have lower emissions and therefore require fewer emissions allowances than expected. An ECR helps create a supply for emissions allowances that is responsive to how demand for emissions allowances changes over time.<\/p>\n<h3>What does Washington\u2019s program currently do?<\/h3>\n<p>Despite the added stability and climate ambition that an ECR would bring to Washington\u2019s cap-and-invest program, as imagined in the Climate Commitment Act, the current proposed design for Washington\u2019s program is missing a critical ingredient: an ECR trigger price. <strong>Without a trigger price, there is no way for the ECR to be activated, meaning that Washington\u2019s proposed program does not include a <span style=\"text-decoration: underline;\">functional<\/span> ECR.<\/strong><\/p>\n<h3>Why should Washington include a functional ECR in their program?<\/h3>\n<p>Economic modeling has shown that including an ECR in an emissions market <strong>improves performance<\/strong> by <a href=\"https:\/\/www.journals.uchicago.edu\/doi\/abs\/10.1086\/720690\" target=\"_blank\" rel=\"noopener\">making the market more efficient<\/a> and securing additional emissions reductions. On top of these benefits, an ECR would help ensure that a program like Washington\u2019s will keep running smoothly long-term. For one, the inclusion of a functional ECR can <strong>reduce price volatility in the long ru<\/strong>n, which decreases uncertainty for market participants. Stable market expectations are important to the durability of the program. Cap-and-invest in the state is more likely to be successful going forward if market participants can better anticipate market behavior year-to-year and plan accordingly. In addition, an ECR provides a <strong>predictable, rule-based approach<\/strong> for supply adjustments, helping to avoid the need for other less predictable adjustments to supply by the Department of Ecology to keep Washington on track to meet its climate goals.<\/p>\n<p>Finally, an ECR <strong>can increase the environmental ambition of the program<\/strong> by reducing the overall supply of allowances if demand for allowances falls, thereby reducing the total climate pollution that can be emitted by regulated entities. This is critical because Washington\u2019s cap-and-invest program serves as a backstop, working alongside a suite of programs and investments that will help drive emissions reductions. As these programs and investments interact, it\u2019s essential that the cap-and-invest program\u2019s overall limit on emissions remains ambitious enough to incentivize continued efforts to address climate change, and an ECR can help do this by reducing the supply of allowances when demand for allowances is low.<\/p>\n<h3>Implications for linking with other carbon markets<\/h3>\n<p>In addition to enhanced environmental integrity and economic stability, a functional ECR with a trigger price may be an important factor in potential future program linkage between Washington and other carbon markets. <a href=\"https:\/\/blogs.edf.org\/climate411\/2022\/07\/20\/why-linking-carbon-markets-boosts-climate-and-economic-benefits-for-us-states\/\" target=\"_blank\" rel=\"noopener\">Program linkage<\/a> \u2014 or connecting carbon pricing systems across borders \u2014 can facilitate quicker reductions in emissions regionally. By establishing an ECR, Washington would set an important precedent for other states, as well as provide a strong example of climate policy. The ECR program design has already spread from its initial inception in RGGI, and Washington now has an opportunity to be a leader for states on the West Coast.<\/p>\n<p>Market-based mechanisms to reduce climate emissions are not the only policies that need to be implemented to address the climate crisis, but they are a critical part of a suite of climate solutions, including sectoral strategies to deliver near-term reductions in climate pollution. In addition to maintaining the strength of its cap-and-invest system, it\u2019s crucial that policymakers in Washington and elsewhere work meaningfully with communities to ensure that these policies are designed and rolled out in an equitable and just way, explicitly addressing the disproportionate burden of pollution that is primarily borne by low-income communities and communities of color. <strong>While cap-and-invest programs are only part of the solution, making them as strong and as stable as possible \u2014 such as with the implementation of an effective ECR with a trigger price \u2014 will help facilitate more ambitious and broad climate action for decades to come.<\/strong><\/p>\n<p>During the comment period for Ecology\u2019s latest CCA rulemaking, EDF <a href=\"https:\/\/scs-public.s3-us-gov-west-1.amazonaws.com\/env_production\/oid100\/did1008\/pid_202884\/assets\/merged\/6v09i99_document.pdf?v=QC6S49PHE\" target=\"_blank\" rel=\"noopener\">made it clear<\/a> that Ecology should include a functional ECR with a trigger price in the final rules. Including a trigger price would help the program\u2019s ECR function properly while driving greater reductions in climate pollution when prices are low. By <a href=\"https:\/\/www.rff.org\/publications\/testimony-and-public-comments\/comments-on-the-proposed-wac-173-446-climate-commitment-act-program-rule\/\" target=\"_blank\" rel=\"noopener\">building a strong ECR into its cap-and-invest program<\/a>, Washington can continue to lead the way with effective, ambitious climate action that\u2019s a model for other carbon markets.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This post was co-authored by Natalie Hurd, Western states climate policy intern at EDF. Washington state is on the cusp of finalizing the rules to launch its ambitious new climate policy. This comes at an important moment of opportunity for states to lean into their climate commitments and increase their ambition. The passage of the &#8230;<\/p>\n","protected":false},"author":151379,"featured_media":22654,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71676,107925,108,43,116,20],"tags":[],"coauthors":[107971],"class_list":["post-22653","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-carbon-markets","category-cities-and-states","category-climate-change-legislation","category-economics","category-energy-technologies","category-news"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>As Washington state sets the rules for its ambitious climate program, regulators shouldn&#039;t overlook this policy tool - Climate 411<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.edf.org\/climate411\/2022\/09\/13\/as-washington-state-sets-the-rules-for-its-ambitious-climate-program-regulators-shouldnt-overlook-this-policy-tool\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"As Washington state sets the rules for its ambitious climate program, regulators shouldn&#039;t overlook this policy tool - Climate 411\" \/>\n<meta property=\"og:description\" content=\"This post was co-authored by Natalie Hurd, Western states climate policy intern at EDF. 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Washington state is on the cusp of finalizing the rules to launch its ambitious new climate policy. This comes at an important moment of opportunity for states to lean into their climate commitments and increase their ambition. The passage of the ...","og_url":"https:\/\/blogs.edf.org\/climate411\/2022\/09\/13\/as-washington-state-sets-the-rules-for-its-ambitious-climate-program-regulators-shouldnt-overlook-this-policy-tool\/","og_site_name":"Climate 411","article_published_time":"2022-09-13T18:46:24+00:00","article_modified_time":"2025-12-03T16:32:46+00:00","og_image":[{"width":1600,"height":900,"url":"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/\/2022\/09\/ECR-LinkedIn-Ad-2.jpg","type":"image\/jpeg"}],"author":"Caroline Jones","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Caroline Jones","Est. reading time":"6 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