Now That the Climate Commitment Act Has Passed, What Does That Mean For the Future of Cap-and-Invest in the United States?

Right after Earth Day 2021, the Washington State House of Representatives passed the landmark Climate Commitment Act (CCA). The CCA passed the House by a margin of 54-43 late Friday afternoon on April 23rd, and then passed the Senate 27-22 the following day. This came on the heels of President Biden’s announcement that the U.S. would commit to cutting emissions in half by 2030. Governor Jay Inslee plans to sign the bill into law with a ceremony on May 17th.

After many years of heated debate, Washington joins a long list of states with some type of carbon market, including California, Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Delaware, Maryland, Virginia, and soon Pennsylvania. As the pioneers of cap-and-invest in the United States, these states will have a strong voice in determining how subsequent carbon markets will work in the U.S. and abroad.

How Did It Pass?

Washington State has set an example for how to build a coalition capable of passing an economy-wide cap-and-invest system. At the request of Governor Jay Inslee, the CCA was introduced by well-established climate champion Sen. Reuven Carlyle, who introduced carbon market legislation at the federal level back in 2009. In addition to being spearheaded by a governor who specialized in climate change during his 2020 presidential run, the CCA was also a major funding component of a larger transportation package that Washington’s political leadership has been working on for over a decade. This confluence of circumstances sent a clear message to Washington lawmakers that the CCA was a top priority.

The Washington Business Alliance’s Clean and Prosperous Washington campaign for the CCA also demonstrated how to effectively put together a winning coalition for cap-and-trade. The CCA received support from a multitude of groups from a variety of the most powerful factions in environmental politics. The coalition included social justice organizations such as the Washington Build Back Black Alliance and Tacoma Pierce County Black Collective. It also received support from Native American groups, including the Quinault Indian Nation and Snoqualmie Indian Tribe. President of the National Congress of American Indians, Fawn Sharp, praised the CCA on the day of it’s passage, saying, “It was never a matter of if, but when, Washington State would boldly confront the existential threat of climate change. Today was the day.”

Some of the region’s most notable businesses, including McKinstry and REI Co-op, were also part of the coalition. Labor Unions such as the SEIU, Sheet Metal Workers Local 66, and the Washington Federation of State Employees also threw in support. Even local celebrities like the Seattle-based rock band Pearl Jam and the organizer of the very first Earth Day Denis Hayes vocalized support during the legislative session.

As this trend continues both down the East Coast and up the West Coast, it is more important than ever to understand carbon pricing — both what it is and what it could do in terms of emissions reductions at scale. 

What is the Climate Commitment Act (CCA)?

Unlike Washington’s 2016 and 2018 ballot initiatives, the CCA creates a cap-and-invest carbon market, as opposed to a carbon tax. Cap-and-invest as a policy has some serious momentum. California has the largest carbon market in the country, the Western Climate Initiative (WCI), and in the Northeast, the Regional Greenhouse Gas Initiative (RGGI), covers the electric sector as the largest such market in the East Coast. RGGI has continued to expand and now even reaches beyond the Northeast and Mid-Atlantic into the Southeast. The RGGI states are also currently in the final stages of creating a similar cap-and-trade scheme for transportation, the Transportation and Climate Initiative (TCI).

The CCA is not specific to the electric or transportation industry, like RGGI or TCI, but rather it is economy-wide. The compliance period for the program begins on January 1st, 2023, when Ecology (colloquial name for Washington’s Department of Ecology) will implement a cap-and-invest program to reduce greenhouse gas emissions consistent with the statewide emissions limits of 45 percent below 1990 levels by 2030, 70 percent below 1990 levels by 2040, and 95 percent reduction below 1990 levels by 2050. Allocation of allowances are structured to correspond to the state’s economy-wide emissions limits.

With the passage of the CCA, Washington has gotten ahead of the curve in preparing its economy for the future without needing to pilot a new cap-and-invest program from scratch. Proponents of the CCA learned from other programs in California, RGGI, TCI, the EU, China, and other carbon markets. For example, CCA supporters learned from California that effective Environmental Justice considerations cannot be added retroactively to a cap-and-invest program, but must actually be the driving force that governs how the policy operates from the beginning. The CCA therefore doesn’t just allocate some funds to token projects with a justice label, but rather mandates that all revenue earned be reviewed, evaluated, and guided by an Environmental Justice Council, specifically focusing on the needs of overburdened communities.

How Does It Work?

It’s not surprising that this policy tool is so popular; it directly impacts the polluter’s bottom line. In doing so, it internalizes the existential threat of climate change squarely into the decision-making framework that businesses already use — finances. So, it also shouldn’t be surprising that cap-and-invest in the Pacific Northwest has received support from some of the region’s largest employers. Some of the private sector’s biggest names, including Microsoft, Nike, Uber, and many others have expressed support for cap-and-invest in Oregon even before the CCA was drafted in Washington.

Cap-and-invest systems make fewer allowances available for purchase every year, forcing businesses to plan for intentional emissions reductions and a low-carbon future. Creating this clear and collective pollution reduction signal encourages a cooperative, rather than adversarial relationship between the public and private sector. It also gives businesses a constant, lasting financial incentive to reduce pollution in their own most cost-effective manner, reducing the risk of passing costs onto consumers or having businesses leave the state entirely. If cap-and-invest continues its momentum, businesses looking to escape financial responsibility for their carbon emissions will find they have nowhere to go.

What’s Next For Cap-and-Invest?

As more states pass legislation that is friendly to the development of carbon markets, emitting industries will respond to the price signal that the most powerful country in the world is sending. If the U.S. can get more businesses to start investing in emissions-reducing technologies for their own financial benefit, those businesses will, perhaps inadvertently, benefit the planet as well. Despite Americans’ current polarization, the U.S. is still a strong beacon of democracy in the world, and what it does will continue to demonstrate to the rest of the planet what is possible. The rest of the planet can take solace in the fact that both of America’s Washingtons are finally taking the fate of the world seriously.

Featured Image: Photo by Nikopoley via Wikimedia Commons