Oregon Climate Policy Would Stop Manufacturing Growth

By Oregon Business and Industry,

The Department of Environmental Quality (DEQ) held the final meeting of the Climate Protection Program (CPP) Rulemaking Advisory Committee (RAC) June 25, presenting the draft rule and fiscal impact statement. The draft attempts to address compliance challenges unique to energy-intensive, trade-exposed (EITE) manufacturers but, in fact, does little to ameliorate the program’s exorbitant compliance costs. As a result, it fails to address the CPP’s threat to the competitiveness of Oregon manufacturers while simultaneously having no guarantee that measurable greenhouse gas reduction will occur despite massive fees paid into the program.

EITEs are particularly vulnerable to regulations that increase costs in ways that erode their competitiveness in regional, national or global markets. When faced with such costs, they may have to cease operations or shift production to other states or nations. Such disruptions produce no net environmental benefits, as production and related emissions simply move elsewhere. Meanwhile, such a shift would deprive Oregon of high-wage jobs and other economic benefits.

The draft rule proposes to allow approximately 20 businesses to be regulated directly under the emissions cap for natural gas combustion emissions and would be subject to a slightly slower ramp-down of emissions. However, the draft retains many provisions whose excessive compliance costs would erode the economic viability, at least in Oregon, of EITE businesses.

The Oregon Legislature less than two years ago agreed, through Senate Bill 4, to invest hundreds of millions of dollars in the state’s semiconductor industry. Ironically, the very same state is now making it virtually impossible for chip manufacturers to grow. This disconnect speaks to the need for greater policy coordination as well as a coherent state strategy for economic development.

The draft rule includes additional notable elements. It:

• Reshuffles compliance instruments in a way that reduces the cap for transportation fuel suppliers, making it more difficult for this sector to comply;
• Provides no cost containment measures for non-EITE natural gas consumers, such as residential and commercial customers like schools and hospitals;
• Applies only to the state’s 20 largest EITEs, leaving dozens of manufacturers without options to reduce compliance costs;
• Provides free compliance instruments for the first, three-year compliance period equivalent to a company’s average emissions from 2017-2019. This will create an immediate deficit of compliance instruments for some companies that have already increased production;
• Prohibits growth in the manufacturing sector;
• Provides a small reserve of instruments for new market entrants;
• Does not allow the use of offsets;
• Retains the purchase of costly Community Climate Investment credits as the only method for complying with the program if a business cannot reduce emissions at the rate specified.

OBI is working with members subject to the regulation and other stakeholders to write comments that will be submitted to DEQ before the proposed rule is issued later this summer.

OBI continues to advocate for a legislative solution through a market-based program that could be linked with the Washington and California cap-and-trade programs and result in a more reasonable, workable climate policy.

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