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Facilities owned or operated by a covered entity must receive an allocation of allowances for the covered emissions at those facilities under this subsection at no cost if the operations of the facility are classified as emissions-intensive and trade-exposed, as determined by being engaged in one or more of the processes described by the following industry descriptions and codes in the North American industry classification system as those classifications existed on January 1, 2026:
Metals manufacturing, including iron and steel making, ferroalloy and primary metals manufacturing, secondary aluminum smelting and alloying, aluminum sheet, plate, and foil manufacturing, and smelting, refining, and alloying of other nonferrous metals, North American industry classification system codes beginning with 331;
Paper manufacturing, including pulp mills, paper mills, and paperboard milling, North American industry classification system codes beginning with 322;
Aerospace product and parts manufacturing, North American industry classification system codes beginning with 3364;
Wood products manufacturing, North American industry classification system codes beginning with 321;
Nonmetallic mineral manufacturing, including glass container manufacturing, North American industry classification system codes beginning with 327;
Chemical manufacturing, North American industry classification system codes beginning with 325;
Computer and electronic product manufacturing, including semiconductor and related device manufacturing, North American industry classification system codes beginning with 334;
Food manufacturing, North American industry classification system codes beginning with 311;
Petroleum refining, North American industry classification system code 324110;
Asphalt paving mixtures and block manufacturing from refined petroleum, North American industry classification system code 324121;
Asphalt shingle and coating manufacturing from refined petroleum, North American industry classification system code 324122; and
All other petroleum and coal products manufacturing from refined petroleum, North American industry classification system code 324199.
By July 1, 2022, the department must adopt by rule objective criteria for both emissions' intensity and trade exposure for the purpose of identifying emissions-intensive, trade-exposed facilities during the second compliance period of the program and subsequent compliance periods. A manufacturing facility covered by subsection (1)(a) through (m) of this section is considered an emissions-intensive, trade-exposed facility and is eligible for allocation of no cost allowances as described in this section. In addition, any covered party that owns or operates a manufacturing facility that can demonstrate to the department that it meets the objective criteria adopted by rule is also eligible for treatment as emissions-intensive, trade-exposed and is eligible for allocation of no cost allowances as described in this section. In developing the objective criteria under this subsection, the department must consider the locations of facilities potentially identified as emissions-intensive, trade-exposed facilities relative to overburdened communities.
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For the years 2023 through 2026, the annual allocation of no cost allowances for direct distribution to a facility identified as emissions-intensive and trade-exposed must be equal to the facility's baseline carbon intensity established using data from 2015 through 2019, or other data as allowed under this section, multiplied by the facility's actual production for each calendar year during the compliance period. For facilities using the mass-based approach, the allocation of no cost allowances shall be equal to the facility's mass-based baseline using data from 2015 through 2019, or other data as allowed under this section.
For the four years beginning January 2027 and in each subsequent four-year period, the annual allocation of no cost allowances established in (a) of this subsection shall be adjusted according to the benchmark reduction schedules established in (b)(ii) and (iii) and (e) of this subsection multiplied by the facility's actual production during the period, except as provided in subsection (9) of this section. The department shall adjust the no cost allocation of allowances and credits to an emissions-intensive and trade-exposed facility to avoid duplication with any no cost allowances transferred pursuant to RCW 70A.65.120 and 70A.65.130, if applicable.
For the purpose of this section, "carbon intensity" means the amount of carbon dioxide equivalent emissions from a facility in metric tons divided by the facility specific measure of production including, but not limited to, units of product manufactured or sold, over the same time interval.
If an emissions-intensive and trade-exposed facility is not able to feasibly determine a carbon intensity benchmark based on its unique circumstances, the entity may elect to use a mass-based baseline that does not vary based on changes in production volumes. The mass-based baseline must be based upon data from 2015 through 2019, unless the emissions-intensive, trade-exposed facility can demonstrate that there have been abnormal periods of operation that materially impacted the facility and the baseline period should be expanded to include years prior to 2015. For the years 2023 through 2026, these facilities must be awarded no cost allowances equal to 100 percent of the facility's mass-based baseline. For each year during the years 2027 through 2030, these facilities must be awarded no cost allowances equal to 97 percent of the facility's mass-based baseline, except as provided in subsection (9) of this section. For each year during the years 2031 through 2034, these facilities must be awarded no cost allowances equal to 94 percent of the facility's mass-based baseline, except as provided in subsection (9) of this section. Except as provided in (b)(iii) of this subsection, if a facility elects to use a mass-based baseline, it may not later convert to a carbon intensity benchmark during the years 2023 through 2034.
A facility with a North American industry classification system code beginning with 3364 that is utilizing a mass-based baseline in (b)(ii) of this subsection must receive an additional no cost allowance allocation under this section in order to accommodate an increase in production that increases its emissions above the baseline on a basis equivalent in principle to those awarded to entities utilizing a carbon intensity benchmark pursuant to this subsection (3)(b). The department shall establish methods to award, for any annual period, additional no cost allowance allocations under this section and, if appropriate based on projected production, to achieve a similar ongoing result through the adjustment of the facility's mass-based baseline. An eligible facility under this subsection that has elected to use a mass-based baseline may not convert to a carbon intensity benchmark until the next compliance period.
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By September 15, 2022, each emissions-intensive, trade-exposed facility shall submit its carbon intensity baseline for the first compliance period to the department. The carbon intensity baseline for the first compliance period must use data from 2015-2019, unless the emissions-intensive, trade-exposed facility can demonstrate that there have been abnormal periods of operation that materially impacted the facility and the baseline period should be expanded to include years prior to 2015.
By November 15, 2022, the department shall review and approve each emissions-intensive, trade-exposed facility's baseline carbon intensity for the years 2023 through 2026.
During the years 2023 through 2026, each emissions-intensive, trade-exposed facility must record its facility-specific carbon intensity baseline based on its actual production.
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For the years 2027 through 2030, the second period benchmark for each emissions-intensive, trade-exposed facility is three percent below the first period baseline specified in (a), (b), and (c) of this subsection.
For the years 2031 through 2034, the third period benchmark for each emissions-intensive, trade-exposed facility is three percent lower than the years 2027 through 2030.
Prior to the beginning of 2027, 2031, or subsequent four-year periods, the department may make an upward adjustment in the next four-year period's benchmark for an emissions-intensive, trade-exposed facility based on the facility's demonstration to the department that additional reductions in carbon intensity or mass emissions are not technically or economically feasible. The department may base the upward adjustment applicable to an emissions-intensive, trade-exposed facility in the next four-year period on the facility's best available technology analysis, and may consider information submitted to the department under subsection (9) of this section. The department shall by rule provide for an emissions-intensive, trade-exposed facility to apply to the department for an upward adjustment to the allocation for direct distribution of no cost allowances based on its facility-specific carbon intensity benchmark or mass emissions baseline. The department shall make adjustments based on:
A significant change in the emissions use or emissions attributable to the manufacture of an individual good or goods in this state by an emissions-intensive, trade-exposed facility based on a finding by the department that an adjustment is necessary to accommodate for changes in the manufacturing process that have a material impact on emissions;
Significant changes to an emissions-intensive, trade-exposed facility's external competitive environment that result in a significant increase in leakage risk; or
Abnormal operating periods when an emissions-intensive, trade-exposed facility's carbon intensity has been materially affected so that these abnormal operating periods are either excluded or otherwise considered in the establishment of the carbon intensity benchmarks.
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Recommendations in the report due December 1, 2026, must identify:
i. A proposed method for making annual reductions to emissions-intensive, trade-exposed facility allowance allocation that would ensure total no-cost allowances allocated to emissions-intensive, trade-exposed facilities align with the annual allowance budgets established by the department under RCW 70A.65.070 and are consistent with the emissions limits established in RCW 70A.45.020, including the percentage reductions in emissions-intensive, trade-exposed facility allowance allocation that would be applied each year from January 1, 2035, through January 1, 2050;
ii. Proposed criteria and methods for the department to make adjustments to allowances allocated at no cost to emissions-intensive, trade-exposed facilities to address significant changes in leakage risk and to achieve the purposes of the greenhouse gas emissions cap and invest program established under this chapter including, but not limited to, the achievement of emissions limits established in RCW 70A.45.020;
iii. The proposed design of an allowance allocation policy or method that would require a portion of the allowances provided at no cost to emissions-intensive, trade-exposed facilities to be consigned to auction and for the proceeds to be invested in projects or programs for reducing greenhouse gas emissions at emissions-intensive, trade-exposed facilities, including the percentage of allowances to be consigned to auction and proposed criteria and methods for the distribution and use of consigned funds at emissions-intensive, trade-exposed facilities;
iv. Additional state policies or strategies that may be necessary to support the reduction of emissions and decarbonization of emissions-intensive, trade-exposed facilities in support of the achievement of emissions limits established in RCW 70A.45.020;
v. Provisions of this chapter or other state laws that need to be amended to implement the recommendations developed by the department under this subsection (4)(a);
b. In developing these recommendations, the department must consider input received from representatives of the facilities listed in subsection (1) of this section, covered entities, environmental advocates, overburdened communities, tribes, subject matter experts, and the public, and should consider:
i. Anticipated demand for allowances from emissions-intensive, trade-exposed facilities and other covered entities through 2050;
ii. Potential for deployment of technologies and strategies for reducing emissions at emissions-intensive, trade-exposed facilities through 2050 and other facility-specific or industry-specific factors;
iii. Potential impacts of implementing the recommendations on overburdened communities and vulnerable populations; and
iv. Interactions with other state policies and programs designed to reduce greenhouse gas emissions and achieve statewide emissions limits established in RCW 70A.45.020;
c. If the legislature does not adopt a schedule of allowances to be provided to facilities owned or operated by each covered entity designated as emissions-intensive, trade-exposed facilities from January 1, 2035, through January 1, 2050, by December 1, 2027, those facilities must continue to receive allowances as provided in the years 2031 through 2034 until a schedule is adopted.
If the actual emissions of an emissions-intensive, trade- exposed facility exceed the facility's no cost allowances assigned for that compliance period, it must acquire additional compliance instruments such that the total compliance instruments transferred to its compliance account consistent with this chapter equals emissions during the compliance period. An emissions-intensive, trade-exposed facility must be allowed to bank unused allowances, including for future sale and investment in best available technology when economically feasible. The department shall limit the use of offset credits for compliance by an emissions-intensive, trade-exposed facility, such that the quantity of no cost allowances plus the provision of offset credits does not exceed 100 percent of the facility's total compliance obligation over a compliance period.
The department must withhold or withdraw the relevant share of allowances allocated to a covered entity under this section in the event that the covered entity ceases production in the state and becomes a closed facility. In the event an entity curtails all production and becomes a curtailed facility, the allowances are retained but cannot be traded, sold, or transferred and are still subject to the emission reduction requirements specified in this section. An owner or operator of a curtailed facility may transfer the allowances to a new operator of the facility that will be operated under the same North American industry classification system codes. If the curtailed facility becomes a closed facility, then all unused allowances will be transferred to the emissions containment reserve. A curtailed facility is not eligible to receive free allowances during a period of curtailment. Any allowances withheld or withdrawn under this subsection must be transferred to the emissions containment reserve.
An owner or operator of more than one facility receiving no cost allowances under this section may transfer allowances among the eligible facilities.
Rules adopted by the department under this section must include protocols for allocating allowances at no cost to an eligible facility built after July 25, 2021. The protocols must include consideration of the products and criteria pollutants being produced by the facility, as well as the local environmental and health impacts associated with the facility. For a facility that is built on tribal lands or is determined by the department to impact tribal lands and resources, the protocols must be developed in consultation with the affected tribal nations.
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The purpose of the reporting and planning requirements of this subsection (9) is to establish a framework under which greenhouse gas emission reductions will begin to be achieved at each emissions-intensive, trade-exposed facility. It is not, however, the intent of the legislature that the reporting and planning framework established in this section necessarily be fully implemented as a prerequisite to the legislature taking additional action addressing the allocation of no-cost allowances to emissions-intensive, trade-exposed facilities. The legislature intends, using the provisions of this subsection (9) as a starting point, to begin to establish a framework that will:
Achieve emission reductions by emissions-intensive, trade-exposed facilities in a manner compatible with the overall allowance budgets established under this chapter and the statewide emission limits of chapter 70A.45 RCW;
Provide appropriate financial incentives for early actions by owners and operators of emissions-intensive, trade-exposed facilities; and
Consider such actions when the department considers grant applications or awards other funds deriving from revenues under this chapter.
To receive no-cost allowances associated with greenhouse gas emissions after January 1, 2027, the owner or operator of an emissions-intensive, trade-exposed facility must be in compliance with this subsection (9). The owner or operator of an emissions-intensive, trade-exposed facility must provide the following to the department:
(A) The products, and volumes of such products, produced by the facility;
(B) A qualitative description of the sources of emissions from the facility;
(C) A detailed analysis, supported by data, of the portion and percentage of the facility's emissions attributable to:
(I) Emissions associated with fossil fuel combustion for purposes of producing low-temperature heat;
(II) Emissions associated with fossil fuel combustion for purposes of producing medium-temperature heat;
(III) Emissions associated with fossil fuel combustion for purposes of producing high-temperature heat;
(IV) Emissions associated with industrial processes at the facility involving chemical or physical transformations other than fuel combustion;
(V) Emissions associated with fossil fuel combustion for purposes of on-site electrical generation;
(VI) Emissions associated with the consumption of electricity at the facility for electricity that was not generated on-site at the facility; and
(VII) Other information adopted by the department by rule, or amended types of information specified in (b)(i)(C)(I) through (VI) of this subsection;
ii. By March 31, 2028, and every four years thereafter, a plan, following methods established by the department, that includes an assessment of potentially technically feasible or emerging technology options to reduce covered emissions from the facility. The plan must include all greenhouse gas emission reduction measures that have the potential to result in greater than de minimis greenhouse gas emission reductions, be informed by a best available technology assessment, consider the opportunities associated with different temperature categories specified in (b)(i)(C) of this subsection (9), and be verified by an independent third party, and, at a minimum, include:
(A) The technical aspects of each option, including whether covered emission reductions or direct facility biomass emission reductions from the option would result from an increase in energy efficiency, the substitution of a fuel or energy source, or other changes to facility processes, chemistries, or material inputs;
(B) A description of the expected greenhouse gas emission reductions that would be achieved by each option;
(C) A budget and estimated timeline to implement each option, if the owner or operator of the facility were to choose to move forward with the option;
(D) Identification of options that would be complementary with other options included in the plan, and identification of options that could not be carried out in conjunction with other options;
(E) If applicable, a summary of any greenhouse gas emission reductions or greenhouse gas emission intensity reductions achieved through the implementation of options previously identified in a plan submitted under this section; and
(F) A plain language summary of proposed greenhouse gas emission reduction plans for the upcoming four-year period and to be achieved by 2050, and how existing and emerging technologies and copollutants were and will be considered in greenhouse gas emission reduction planning;
iii. A description and data, submitted at the same time and covering the same time period as the report specified in (b)(i) of this subsection, documenting that the owner or operator of the facility has achieved tangible progress towards implementing best practices for energy efficiency, as determined by the department, at the facility.
c. The provisions of RCW 70A.65.200(5) apply to the requirements of this subsection (9).
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i. The owner or operator of an emissions-intensive, trade-exposed facility that submits information to the department under (b) of this subsection must structure each submission to include two self-contained parts:
(A) A report that contains no information that the owner or operator wishes to keep confidential; and
(B) A report that contains information that the owner or operator requests be made available only for the confidential use of the department, the director of the department, or the appropriate division of the department.
ii. The director shall give consideration to a request by the owner or operator of an emissions-intensive, trade-exposed facility under (d)(i)(B) of this subsection, and if this action is not detrimental to the public interest and is otherwise within accord with the policies and purposes of chapter 43.21A RCW, the director of the department must grant the request for the information to remain confidential as authorized in RCW 43.21A.160. Under the procedures established under RCW 43.21A.160, the director of the department must keep confidential any records furnished by a manufacturer under this chapter that relate to proprietary manufacturing processes.
For purposes of subsection (9) of this section, the following temperature ranges apply, unless alternative temperature ranges are adopted by the department by rule:
"Low-temperature heat" means temperatures of up to 130 degrees celsius;
"Medium-temperature heat" means at least 130 degrees celsius and up to 400 degrees celsius; and
"High-temperature heat" means at least 400 degrees celsius or greater.