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In 1997, the Oregon Legislature approved and the Governor signed House Bill 3283, revamping the rules for siting energy facilities and establishing the first mandatory measures in the US to control CO2 emissions. This article is a presentation given by Peter West at the NARUC Conference on November 10, 1999, back when Peter worked for RNP. After a brief background on climate change and the need to control CO2 emissions, this article focuses on the Oregon CO2 standards and how they came about.
 

Regulating Carbon Dioxide in Oregon

by Peter West
 
Climate change finally came to fore as a major environmental and political issue in 1997. President Clinton identified climate change from global warming as a top agenda item for the remaining period of his administration. The second Earth Summit focused on controlling the most prevalent climate changing gas, carbon dioxide (CO2). And, the International Conference on Climate Change in Kyoto, Japan brought the first negotiated targets for reducing the emissions of green house gasses.
 
While much progress has been made to address the issue, ratification of the Kyoto Accord is uncertain and few countries have made absolute, immediate commitments to curb the emission of climate changing pollutants. The debate on climate change in the US continues to be long on promises, short on action and plagued by misinformation.
 
Yet, amidst all the ongoing international negotiations, delays and uncertain commitments, Oregon was busy enacting a bill to create the first concrete, measurable requirements to limit CO2 in the US. During the 1997 session, the Oregon Legislature approved and the Governor signed House Bill 3283, revamping the rules for siting energy facilities and establishing the first mandatory measures in the US to control CO2 emissions.
 
After a brief background on climate change and the need to control CO2 emissions, this paper focuses on the Oregon CO2 standards and how they came about.
 
Climate Change
The earth’s atmosphere is like a greenhouse, reflecting the sun’s harmful rays while trapping life-giving heat. Since the industrial revolution, human-caused air pollution has been altering the chemical composition of the atmosphere and building up greater concentrations of heat-trapping gasses.
 
Historical records and scientific evidence indicate that this build-up is raising the earth’s average temperature faster and higher than what would occur under natural conditions. In fact, the rate of warming is twice that ever measured. Leading scientists have concluded that the warming is significantly altering the earth’s climate.
 
Global warming pollutants include CO2, methane, nitrous oxide, sulfur hexaflouride, hydrofluorocarbons and perfluorocarbons. However, CO2 is the major culprit in climate change representing more than 60% of the global warming gasses emitted worldwide and more than 80% of the problem in Oregon.
 
Deforestation and the burning of coal, oil and gas for electricity and transportation are the primary sources of CO2. In Oregon 90% of the CO2 emissions come from driving cars and trucks, generating electricity, and using natural gas in homes and businesses. According to the US Environmental Protection Agency, generating electricity using fossil fuels is responsible for over a third of all CO2 emissions in the US. Trying to control climate-changing pollution involves tackling the thorny issue of how power plants are built and what environmental standards govern them.
 
Getting to New Regulations
Oregon has some of the nation’s more rigorous controls on the siting of power plants. But by 1994 utilities and independent power producers came to view these rules as impediments to operating in the restructuring electricity industry. In 1995 utilities and developers went to the Legislature and tried to re-write the rules. The ensuing uproar resulted in a Legislative compromise that provided for a one-time exemption from some siting rules for a large, gas-fired power plant, and the creation of a Governor’s Task Force to re-evaluate the siting of energy facilities.
 
Immediately, several developers started clamoring for the permit for the exempted power plant. To determine who should get the single permit, the Oregon Energy Facility Siting Council (EFSC) agreed to allocate the permit to the plant that would be the most efficient and least polluting, based on plant design and bids of stronger environmental protections. The idea was to employ a market mechanism to effect an environmental result.
 
In this innovative test, named The Best of Batch Proceeding, power plant proposals were to be evaluated on the basis of net air emissions (including CO2), water impacts (quantity and quality), and land and wildlife effects. Credit was given for efficiency, cogeneration and qualified offsite mitigation. In the end, the winning power plant proposed cogeneration, and CO2 offsets that included: tree planting, solar lighting programs, geothermal district heating, and recovering waste methane to generate electricity.
 
The Best of Batch results showed:
  • the competitive electricity market could afford to internalize some CO2 control;
  • mitigation measures for CO2 were practicable and easily available; and
  • there were local economic development benefits from the mitigation actions. 
These results supported a report signed by more than 2,000 economists that said the US can slow climate change with simple steps, which will cost little and actually benefit the economy.
 
The Governor’s Task Force reviewing the rules on energy facility siting in Oregon concluded from these results and other observations that mandatory CO2 requirements should be part of the environmental controls new power plants face. They also concluded that other administrative requirements for siting power plants should be streamlined and the process brought up to date with the structural changes in the electricity industry.
 
The Oregon Carbon Dioxide Standard
The recommendations of the Task Force became the foundation for Legislative action as Oregon House Bill 3283, which passed without opposition and was signed into law by the Governor in mid-1997. House Bill 3283 revised the rules for siting power plants in Oregon to reflect the emerging structural changes in the electricity industry. As part of the revised rules, the bill also instituted specific requirements for reducing net CO2 emissions.
 
House Bill 3283 established a set of flexible, enforceable and affordable ways to achieve the new CO2 standards. Some direct responsibility for the environmental consequences of climate change is now embedded into the cost of new energy in Oregon. All other environmental requirements and regulations for energy facilities remain. The law directs the Oregon Energy Facility Siting Council (EFSC) to extend the standards to other types of regulated energy facilities and allows EFSC to tighten the emissions standard as technologies improve.
 
Requirements
The new standard is set relative to the most efficient combined-cycle, combustion turbine plant operating commercially in the US. Net, allowable emissions are set at a level 17% below this reference plant. The standard can be met by any combination of efficiency, cogeneration or offsets from mitigation.
 
At the time the law was established, the best commercially operating plant had a heat rate of 7,200 BTUs/kWh and emitted 0.84 pounds of CO2/kWh when new and clean. As a consequence, the current CO2 emissions rate is set at a limit of not more than 0.70 pounds of CO2 per kWh. The allowable emissions rate for CO2 is net of mitigation measures.
 
As new plants become more efficient the allowable rate of emissions can be adjusted downward to always be 17% below the best a new plant can achieve without CO2 controls. Like the EPA concept of best available control technologies, the reference point for the most efficient plant is regularly redefined.
 
Developers are given credit for the CO2 they avoid by using a plant that is more efficient than current commercial standards for new and clean facilities. However, subsequent developers may have to push the efficiency envelope further to get offset credits, and would not necessarily get to rely on the gains created by their competitors.
 
For base-load plants, the total number of tons that must be avoided, offset or mitigated assumes the plant has a 100% capacity factor and operates for 30 years. Peaking facilities are also assumed to have 30-year lives, but the developer must project an average capacity factor. This projection then forms the basis for calculating the net obligation for CO2 mitigation. Plants that exceed the projected average over a five-year period must mitigate for the excess emissions, with an additional penalty for under forecasting. Plants that operate at less than their projected averages can carry forward credits for later periods.
 
Meeting the Standard
All efforts to meet the standard are part of the site certificate conditions. All mitigation and offsets must be set at the beginning and become part of the sunk, fixed costs for operating the plant. If cogeneration is proposed as an offset, the displaced CO2 must be guaranteed for the amount claimed. If the cogeneration fails, the developer must propose alternative mitigation.
 
Offsets may be demonstrated through either a performance or a monetary path. Under the performance path the applicant proposes mitigation projects and demonstrates the net reduction in emissions likely to be produced. EFSC retains the authority to reject or modify proposals and establish criteria for acceptable offsets. The site certificate would be conditioned on implementing the approved offset measures.
 
Alternatively, the applicant contributes to a qualifying trust fund an amount of money deemed to pay for the offsets needed to meet the standard (in total tons mitigated). The statute establishes the qualifications for an acceptable administrator of the trust funds, and sets an initial rate based on the results of Oregon's Best of Batch Proceeding. Funds must be made available prior to the plant coming into operation in order to get mitigation measures in place as soon as possible.
 
After reviews and adjustments by the Oregon Office of Energy, the winning bid for CO2 in the Best of Batch Proceeding effectively translated into a cost of $0.57 per mitigated ton. This rate, plus an administrative fee, was the initial value established for calculating a developer's obligation through the monetary path. This rate can be adjusted over time by EFSC based on evidence of the actual costs of CO2 offsets.
 
The law establishes guidelines and performance criteria for how trust funds can be managed. Administrative fees are set on a sliding scale of 5% to 10% based on the amount of offset funds required by EFSC from the developer. Funds have to be spent to maximize the amount of CO2 offset or sequestered, with at least 80% going directly to projects.
 
As an example of how the monetary path works, consider a 250 MW gas-fired power plant with a heat rate of 7,200 BTUs/kWh emitting roughly 30 million tons of CO2 over 30 years at a rate of 0.84 pounds/kWh. Based on the current, allowable rate of 0.70 pounds/kWh, this plant would have to avoid, displace or mitigate 5.1 million tons of CO2.
 
The developer of this plant could propose their own program of offsets or they could pay $2.9 million to the trust fund (plus the administrative fee) to satisfy this obligation ($0.57/ton times 5.1 million tons). The developer's legal responsibility to meet the standards is complete after contributing the appropriate amount to the trust fund.
 
The Oregon Climate Trust
The Oregon law, through the monetary path, allows a non-profit to take on the administration of the regulatory responsibility for CO2 offsets. Representatives of the state, environmentalists, developers and utilities have formed the Oregon Climate Trust (OCT), a non-profit dedicated to funding and establishing projects to offset or sequester CO2. OCT is designed to meet the requirements of an organization that can employ funds paid by developers through the monetary path.
 
OCT has a seven-person board including three representatives of the environmental community, three appointed by EFSC and one from the electric power industry. OCT's mission is to finance and support projects to reduce the amount of climate changing gasses in the atmosphere. OCT will seek other funds, leverage existing efforts and expand the set of actions that can reduce, offset or sequester climate changing gasses. However, OCT will concentrate most of its efforts on CO2, since it is the primary climate changing gas.
 
Initial operating funds have come from an unrestricted grant through the state's two largest utilities and three major developers of power plants. The Klamath Generating Project, a joint venture of PacifiCorp and the City of Klamath Falls, has chosen to use OCT to meet some of their mitigation obligations and became the first plant to use the monetary path.
 
OCT has funded two educational programs and two, small offset projects. One of the offset projects is an experimental effort involving neighborhood-based efforts. The other project is a sequestration effort along a degraded riparian area. The sequestration project guarantees a minimum level of carbon storage. The OCT Board is currently in the process of defining criteria for selecting projects, developing a ranking of priorities and issuing an RFP to develop a portfolio of projects totaling more than $1,000,000.
 
Summary
Oregon created the first mandatory requirements in the US to control the most prevalent climate changing gas, CO2. The Oregon standard:
 
  • Regulates CO2 pollution by requiring new power plants to avoid, offset or mitigate at least 17% of CO2 emissions;
  • Establishes specific standards for the most prevalent class of energy plants and requires the Oregon Energy Facility Siting Council (EFSC) to extend these standards to other types of generating facilities;
  • Defines how net CO2 emissions will be determined, maximizes the amount of emissions that have to be avoided, offset or mitigated and encourages developers to build the most efficient plant possible;
  • Creates several methods for meeting the standard with strong oversight by EFSC, including a trust, funded by developers, for CO2 mitigation and related environmental restoration projects; and
  • Gives EFSC the authority to reset and tighten the allowable limits over time, creating an ongoing response to changing technologies. 
The Oregon law creates a set of flexible mechanisms to achieve the standards and offers the opportunity for non-profits to establish and fund projects to reduce atmospheric concentrations of CO2. The CO2 standards are a significant milestone in Oregon’s effort to deal with the issue of climate change.
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