Dive Brief:

• A preliminary emission reduction plan released Monday by Oregon's Department of Environmental Quality excludes electric utilities from a cap-and-reduce program. Instead, state officials are looking at potential ratemaking approaches, among other steps.

• The plan says state-specific emission caps only serve to drive generation capacity out of the state, where Oregon cannot regulate emissions.

• Industry and environmental leaders agree that the cap-and-reduce approach is less likely to decrease emissions from power generation compared to other initiatives.

Dive Insight:

A series of preliminary reports suggests electric utilities will be excluded from a potential cap-and-reduce emissions program in Oregon, indicating regulators may take a different approach to cutting greenhouse gas emissions from the energy sector.

The series of reports, released by the Oregon Department of Environmental Quality on May 18, explore strategies for accomplishing Governor Kate Brown's goal of cutting the state's greenhouse gas emissions 80% below 1990 levels by 2050. The Oregon DEQ hones in on four potential strategies:

• establishing a cap-and-reduce program to curtail emissions from "large stationary sources" and other emitters;
• expanding the state's Clean Fuels Program until sales of electric vehicles represent 90% of all automobile sales in Oregon;
• capturing methane from landfills; and
• reducing food waste.

But the cap-and-reduce program, according to the preliminary DEQ report, may not apply to electric generation.

The report notes that the Oregon Environmental Quality Commission, the DEQ's rulemaking body, does not have the authority to regulate emissions that occur outside the state, even though Oregon consumes power generated in other states. And putting Oregon generation sources under a new program could create problems. 

"If the [Environmental Quality Commission] were to regulate the emissions from electric generation in Oregon, it [is] very likely that energy suppliers....would simply (over time) shift their resource utilization out of state," the report concludes. "This form of leakage is a major policy issue in program design, particularly in the electricity sector.As a result, other programmatic approaches are likely to be more appropriate and effective in this area."

Multi-state electric provider PacifiCorp, which operates as Pacific Power in Oregon, Washington and California, agreed that a state-specific cap-and-reduce program "would be limited in its effectiveness in the electric sector," according to company spokesman Spencer Hall.

"The costs and benefits of such a program are extremely difficult to isolate to the jurisdiction imposing" it, Hall said.

On the environmental side, Cesia Kearns, who oversees the Sierra Club's Beyond Coal campaign in the Northwestern U.S. including Oregon, agreed that a cap-and-reduce program may not be the most effective means of reducing electric sector emissions. A single state's regulation won't necessarily force fossil fuel development elsewhere, she said. But in today's market, she continued, least-cost regulations are more likely to drive emissions reductions.

"Thorough regulation that demands utilities adopt the least-cost resource is going to drive coal out of Oregon's grid," she said, "and PacifiCorp's choice to build out wind, solar and battery storage speaks to how much more financially viable clean energy is than new gas plants, regardless of state-to-state regulatory mechanisms."

This appears to be the direction Oregon regulators are headed in as well, said Kearns, pointing to another report developed last week by the Oregon Public Service Commission. That report speaks of the need to consider ways of incorporating the social cost of carbon into resource planning and ratemaking proceedings, and hints at the possibility of community-wide "green tariffs" or possibly performance-based ratemaking measures that aim to reduce a utility's reliance on fossil fuels.

The PUC report also expresses support for new rate schedules that would encourage transportation electrification by supporting "cost-effective electric vehicle charging behavior."

One of Monday's reports from the DEQ indicates Oregon regulators would like to make electric vehicles one of their first priorities under the emission reduction plan. According to that report, preliminary work on clean fuel incentives for electric vehicles and utilities that generate power to charge them could begin as early July 2020. 

According to a May 18 press release, the Oregon DEQ plans to hold virtual workshops and listening sessions over the next six months to refine the emission reductions plan; final rules are expected by the end of 2021.