wind turbines in the Oiz eolic parkThe Oregon legislature’s Joint Committee on Carbon Reduction has introduced HB 2020, a highly anticipated bill that would establish a cap-and-trade system to significantly reduce greenhouse gases attributable to sources within the state. The bill, prepared by the Joint Committee led by Senator Michael Dembrow of Portland and Representative Karin Power of Milwaukie, aims to reduce the state’s greenhouse gas emissions to 45 percent below 1990 levels by 2035, and then to 80 percent below 1990 levels by 2050.

The ambitious legislation, which comprises over 50 pages of text, is a high priority of both the Democratic leadership in the state legislature and of Governor Kate Brown, who made cap-and-trade legislation a promise of her successful campaign for reelection in 2018. As proposed, the bill would have a significant effect on a wide range of industries throughout the state. To implement the program, the bill would establish a new Carbon Policy Office and the need for new rulemaking by a number of agencies.

HB 2020 aims to achieve the state’s carbon reduction goals by establishing a firm cap on emissions starting in 2021; the cap would then be reduced annually by a tonnage amount calculated to meet the program’s emission reduction goals. As the cap took effect, market forces would shape who may continue to pollute, based on which emitters are willing to pay at auction for the state-issued allowances needed to emit greenhouse gases. Some of the highest-emitting market participants, like public utilities, would initially receive a certain amount of allowances without paying for them, but would see these so-called “direct allocations” reduced annually at the same rate as the program’s overall emissions cap. Regulated entities would also be permitted to achieve up to eight percent of their compliance obligation through carbon “offset projects” with verifiable impacts.

The program would directly impact a large portion of Oregon’s economy. Covered emissions would include those produced by transportation fuels like gasoline and diesel (but excluding fuels for aviation, watercrafts, and trains), which represent the largest portion of Oregon’s greenhouse gases. Other regulated emissions include those resulting from electricity generated within the state (and electricity imported for use in the state), emissions resulting from natural gas supplied for use in Oregon buildings, and emissions from large industrial sources, including certain manufacturing processes and landfills.

Proceeds from the sale of emissions allowances would be used to invest in projects that advance the transition to a low-carbon economy. For example, some of the proceeds would be deposited into a “Just Transition Fund” to assist Oregonians who lose their jobs due to emissions reduction efforts. Other proceeds from the program would be invested in projects that mitigate the impacts of climate change or that help adapt to those impacts. With a nod to specific provisions within the state’s constitution, the legislation designates certain transportation-related proceeds to a new account within the State Highway Fund, and other proceeds to the Common School Fund.

The bill establishes a mechanism for direct Supreme Court review to evaluate anticipated legal challenges on two issues in particular: Whether the legislation is subject to the constitution’s revenue-raising requirements, and whether the legislation’s use of revenue is in conformance with the constitution’s Highway Funds requirement.

The Joint Committee on Carbon Reduction has included a trove of information about the proposed legislation on its website, which features a helpful FAQ page and a summary of the policy’s core elements.