Oregon commission approves redo of landmark climate program after gas industry lawsuit derailed it

By Alex Baumhardt, Oregon Capital Chronicle

SALEM, Ore. (KTVZ) -- Oregon’s keystone plan to regulate fossil fuel companies and reduce planet-warming greenhouse gas pollution will be reinstated in early 2025 after being derailed for nearly a year by a gas industry lawsuit.

The Environmental Quality Commission, which oversees the Department of Environmental Quality, voted unanimously on Thursday to approve the program, which sets emission targets and will serve as a foundation for Oregon’s drive to reduce harmful emissions driving climate change. 

The vote comes 11 months after a court invalidated the original 2021 program over a technicality, sending the DEQ back to the drawing board. Little has changed from the original standards, which were passed three years ago by the commission, with the mandated targets for reducing greenhouse gas pollution remaining the same: a 50% reduction in greenhouse gas pollution by 2035 and a 90% reduction by 2050 to confront the growing threat of climate change. 

Gov. Tina Kotek said in a statement that the standards represent Oregon’s determination to address climate change.

“The Climate Protection Program will keep polluters accountable and fund community investments that will reduce greenhouse gas emissions in Oregon,” Kotek said.

To achieve the targets, fossil fuel companies in Oregon will have to gradually decarbonize their energy supply, largely by shifting away from petroleum and natural gas and while incorporating renewable energy sources such as wind, solar and so-called biofuels – made from captured gas and decomposing matter – into their energy offerings. 

Natural gas is almost entirely methane gas, among the most potent climate-warming greenhouse gases that trap heat in the atmosphere. One-third of global warming is due to human-caused emissions of methane, according to the U.S. Environmental Protection Agency. 

In redoing the plan, the Department of Environmental Quality collected more than 10,000 comments over the summer. Most of them called for DEQ to keep the emissions targets and key components of the original program. But a number of commenters expressed concerns that the program could lead to high natural gas prices, said Nicole Singh, DEQ’s climate change manager and co-presenter of the plan during Thursday’s hearing. 

In response, officials included in the rules that the state is obligated to collaborate with the Oregon Public Utilities Commission to ensure the natural gas companies aren’t passing all the costs of decarbonization on to their customers. 

“We kind of are stepping on the shoulders of CPP 2021, and really taking a hard look at things that we could improve in the program potentially going forward,” Singh said.

Under the new rules, some heavy energy users in the state who previously did not have to comply with the climate program will be required to meet emissions reduction targets, and companies will need to show compliance with the program every two years starting in 2028, as opposed to every three years in the original plan. 

The rules include penalties for noncompliance that vary depending on the severity of the violations. They include daily fines calculated to ensure the costs of avoiding or delaying compliance with the program exceed the costs of following the rules, said Lauren Wirtis, a spokesperson for the environmental quality department.

What’s new in the program

The adopted program applies to companies beyond fuel suppliers.

For the first time, the state will regulate the emissions of companies that are heavy natural gas users, and not just natural gas suppliers whose emissions are monitored now. These new companies include some cement, fertilizer and gypsum producers. Gypsum is in plaster, drywall and some cement. Companies operating in Oregon, including cement maker Ash Grove and paper products company Georgia Pacific, will need to meet new emissions standards, Singh said. 

Energy users will have three years to collect data and devise plans for meeting the targets. They’ll be required to begin complying with the Climate Protection Program in 2028. They have to prove that they’re complying with the targets every two years at the end of the compliance period. Singh said during the meeting.

The updated program also includes changes to the investment portion of the previous Climate Protection Program. It provides for a system that essentially give Oregon a carbon crediting market, allowing companies to buy credits to offset their emissions, with the proceeds going to a nonprofit that will invest in climate work, with an eye towards helping impacting communities. 

One credit will be equal to 1 metric ton of carbon dioxide released into the atmosphere, and companies will be able to buy them for $129 per credit. 

That price is higher than the oer-ton cost of carbon credits in most carbon markets, but significantly less than the true “social cost of carbon” – the financial costs to taxpayers from natural disasters, paying for climate adaptation and the cost of losses and damages to natural resources and ecosystems resulting from each ton of planet-warming carbon released into the atmosphere. 

A 2022 study published in the journal Nature by a consortium of scientists and the D.C.-based, nonprofit research institute Resources for the Future found that $185 per ton reflects the true social cost of each metric ton of carbon dioxide sent up into the atmosphere.

Oregon’s carbon credits, called Community Climate Investments, were set to begin generating revenue for community-based climate projects this year before the program was derailed. They were projected to bring in $150 million a year for community decarbonization and renewable energy projects, according to the Portland-based nonprofit Seeding Justice, which had previously been tasked with overseeing the investments.

Credit recipients, largely nonprofits working on community-based projects, will be able to use the grants to help people and businesses reduce greenhouse gases by installing solar panels and heat pumps, for example, or to purchase electric vehicles and chargers and help weatherize homes and buildings. Singh said the focus will be on helping groups that have been heavily impacted by climate change.

Matt Donegan, commission chair, said the program will help the state economy remain competitive while investing in communities that have been the most impacted by climate change. 

DEQ will take about 4.5% from the money generated through the sale of the credits to pay for its oversight of community investment grants and to undertake internal and external auditing to ensure money is being spent appropriately and that projects reduce the amount of greenhouse gas emissions required. 

Under the new rules, companies can offset 15% of their emissions through the purchase of these credits during the first two years of the Climate Protection Program and step that up to 20% during each two-year compliance period thereafter. Previously, companies could only offset 10% of their emissions through the credits in the first two years.

Gas company lawsuit

The 2021 Climate Protection Program was approved by the Environmental Quality Commission after more than a year of meetings, presentations from the environmental quality department and public comment. 

But in 2023, NW Natural, Avista Corporation and Cascade Natural Gas Corporation sued to block the plan, saying that in the process of imposing state regulations to cap and reduce emissions, the commission failed to submit required disclosures to the companies and to other entities that hold federal industrial air pollution permits. The department was required to issue a written statement about why the state was adopting emission limits that exceeded federal rules, disclose a list of alternatives that were considered and explain why they were not adopted. 

Judges on the Oregon Court of Appeals agreed with lawyers representing the gas companies, and in December 2023, ruled the program invalid on those technicalities. Rather than appealing the decision to the Oregon Supreme Court, which would likely not hear the case until mid-2025, state environmental regulators announced in January that they would start over.

It was a difficult decision to accept, but not a difficult choice to make, Singh said.

“There was so much progress being made, it was hard to see that progress stop. But we have been able, I think, to create a better CPP for the future.”

Editor-in-chief Lynne Terry contributed to this story.