CPP - NW Natural

New DEQ Climate Regulation in Oregon

A new climate program in Oregon, if approved as designed, will impact every energy user in Oregon, both at the pump and on their utility bills. The Oregon Department of Environmental Quality (DEQ) is currently creating new rules for its Climate Protection Program (CPP)—a process that will take several more months to complete, including a formal public comment period this summer.

NW Natural is anticipating that utility customers will see CPP costs on their bills beginning as early as the first year of the program’s implementation.

What is the Climate Protection Program?

The CPP was developed by the DEQ with the objective of reducing greenhouse gas emissions across the state. The program is in response to former Governor Kate Brown’s 2020 executive order (EO 20-04) directing state agencies to design programs to achieve a 45% reduction in emissions by 2035 and an 80% reduction by 2050. Learn more about the CPP: oregon.gov/deq/ghgp/cpp

How does it work?

Natural gas distributors, transportation fuel providers and others will be required to reduce emissions using a specified set of compliance tools. Some compliance tools that provide verifiable emission reductions will take time to develop at scale, such as renewable natural gas or clean hydrogen. Another type of compliance tool, designed by DEQ and unique to Oregon, is called a “Community Climate Investment” (CCI). As currently designed, DEQ will select a non-profit organization that will sell these CCI credits to entities like NW Natural. The non-profit will use the proceeds from these CCI sales to help fund various projects that could – but are not required to – result in emissions reductions at some point in the future.

How will customers’ bills change as a result of the CPP?

All of the fees collected from customers will be used to cover the compliance costs for their emissions. Based on the draft rules published on May 9, 2024, we estimate that residential customers could initially see their monthly bills increase by approximately 14% because of the CPP.
Within the first nine years of the program, those costs alone could increase monthly bills by approximately 35%.[1]Most recent RGGI auction price available at: https://www.rggi.org/auctions/auction-results/prices-volumes; BC carbon tax price available at: https://www2.gov.bc.ca/gov/content/environment/climate-change/clean-economy/carbon-tax Commercial and industrial customers will also see bill increases associated with their emissions.

Frequently Asked Questions

How did NW Natural calculate these CPP cost estimates?

NW Natural’s cost estimates are based on draft rules published by DEQ on May 9, 2024, and the average usage for our residential customers with average weather conditions for our territory. Estimates could change based on new rules, the timing of CCI availability, customer usage, weather, and compliance instrument changes. These estimates do not include commodity price fluctuations or new charges associated with system safety and reliability investments.

It’s important to note that natural gas use is impacted by weather. NW Natural’s estimates represent both average weather and cold weather scenarios. Given NW Natural can’t anticipate the weather, the company will need to purchase compliance tools to cover potential emissions caused by colder weather to avoid DEQ penalties, which are priced at $12,000 per ton of carbon emitted over the cap set for the program. While highly unlikely given the aggressive nature of the program’s cap on emissions, costs for compliance tools that are purchased to cover colder weather but not needed would be carried forward into the next compliance year, reducing the cost of that period.

Is a CCI the same as a carbon offset?

No – there are a few key differences between carbon offsets and how DEQ has designed its CCIs. With carbon offsets, there are well-documented international standards and protocols to guarantee that an offset results in projects that measurably lower emissions. By comparison, in its carbon accounting, DEQ will include CCIs as emissions savings even if a project has not reduced emissions.

Price is another difference between CCIs, offsets and allowances in other carbon markets. DEQ’s price per ton of CO2e is the most expensive in North America. Compliance tools in other carbon markets range from $21 per ton to $80, whereas DEQ set the 2023 price of a CCI at $123 per ton—and has recently chosen to increase the price to $129 to start with escalating costs through time.

What will NW Natural do with the CPP fees from customers?

100% of the fees collected from customers to cover the CCI compliance costs of their emissions will be paid to a non-profit selected by DEQ. In its previous rulemaking for the CPP, the DEQ selected Seeding Justice to run the program. Last year, Seeding Justice anticipated that the program would generate $150 million a year for them to disperse to other non-profits and partners for both project and administrative costs.[2]

[2] OPB, “Oregon DEQ selects nonprofit to distribute millions from climate investment program”, available at: https://www.opb.org/article/2023/08/31/seeding-justice-climate-change-oregon

Will my business receive credit for the investment we're making in the CCI program?

No – because of the limitations of DEQ’s CCIs, a business' payments will not meet the requirements to qualify for federal programs (such as Inflation Reduction Act tax credits) or the widely accepted greenhouse gas reporting protocols and Climate Action Plans in many local jurisdictions. This also means that entities – even the state of Oregon – will need to keep two sets of records for their carbon accounting; one set for federal or local purposes and a second set that’s specific to just DEQ’s rules that allows for deemed, but not actual, emission savings from CCIs.

Are there changes to the rules that could be made to lower costs while reducing emissions?

For several years, NW Natural has provided DEQ with substantive recommendations and feedback to help make the program more affordable. We believe any climate program in Oregon must be lawful, focused on emission reductions, have clear accountability for effectiveness, and retain energy affordability and security. For example, DEQ could allow for a slower reduction requirement that recognizes the complexity of decarbonization. The program could include cost caps, and it could direct the investments paid for by natural gas customers to go back to those customers to fund deeper energy efficiency, carbon offsets, and new technologies – all changes that could lower costs. NW Natural has asked state leaders to consider these changes and will continue to do so.

What is the status of the court case for the CPP?

In December 2023, the Oregon Court of Appeals issued a ruling in the court case that we and other plaintiffs filed in 2022 regarding the CPP that was enacted by the DEQ. The court found that the CPP rules were invalid on the basis that the state did not comply with the necessary heightened disclosure requirements for the program. Under Oregon judicial rules, the court did not address the other substantive arguments raised against the CPP rules in the case because the procedural error made the entire rule invalid. As such, the Court did not address whether the DEQ had authority to adopt the rules. This is not an endorsement of authority, rather, the Court simply could not and did not address that issue. We believe any climate program DEQ enacts must be within their lawful authority, focused on emission reductions, have clear accountability for effectiveness, and retain energy affordability and security. We look forward to working with our customers and communities on constructive solutions to meet our shared climate goals.

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