Oregon Environmental Quality Commission Adopts Amendments to the Climate Protection Program

On November 16, 2023, Oregon Environmental Quality Commission adopted the Department of Environmental Quality (DEQ) proposed changes to the Climate Protection Program (CPP), Greenhouse Gas Reporting Program and Third-Party Verification Rule as part of the Climate 2023 Rulemaking. The rulemaking is filed and effective as of November 16, 2023. The main regulatory updates that DEQ proposed to the CPP are summarized below:

Modifications to Best Available Emissions Reductions (BAER) for Stationary Sources

DEQ clarified circumstances that require BAER review prior to approval of modifications for new and existing stationary sources. If a new source proposes a modification to their facility (through a Notice of Intent to Construct form or permit modification application) that would increase their potential to emit covered emissions by 10,000 metric tons (MT) CO2e or more, and their facility’s total Potential to emit after the modification would be 25,000 MT CO2e or more, then the modification would need to go through BAER review before DEQ approval. Existing sources would be subject to BAER review if their actual covered emissions are at or above 25,000 MT CO2e regardless of whether they are proposing to make modifications. DEQ may choose to not require the BAER assessment completion at the time of the modification for these existing sources and instead call the facility at a later time.

Additionally, DEQ clarified requirements for the public comment period. In cases where the facility is subject to BAER review, the facility needs to complete the BAER assessment itself and provide the documents to DEQ. Once received, DEQ will provide public notice with a copy of the BAER assessment and open up a 30-day comment period. DEQ will use the BAER assessment that was completed by the facility, its own analysis and public input to establish a BAER order that provides timelines and requirements that the covered stationary sources must implement to reduce their covered emissions. DEQ will also provide public notice with a copy of DEQ’s draft BAER order and a 30-day comment period. All changes to the BAER program are detailed in Division 216 of Oregon Administrative Rules.

Modifications to Compliance Instruments for Non-Natural Gas Fuel Suppliers

As part of the CPP, DEQ sets an annual cap for the compliance instruments (CI) available for distribution to natural gas utilities and non-natural gas fuel suppliers for each evaluation period. As demonstrated in the figure below, the natural gas utilities receive a fixed number of CIs (set in Table 4 of rule OAR 340-271-9000), while the non-natural gas fuel suppliers receive a proportional CI based on their covered emissions during the evaluation period. A portion of the compliance instruments are also held in a reserve for new covered fuel suppliers.

DEQ modified the CI distribution methodology for non-natural gas suppliers only. In an effort to improve implementation of the program for new entrants, DEQ shortened the evaluation period from three years to one year. Additionally, DEQ will use self-reported rather than verified emissions data to determine the annual compliance instrument distribution. DEQ will allow fuel suppliers to use the higher of 2022 or 2023 emission data for the initial transition year of 2024, since 2022 emission data has not been used in compliance instrument distribution calculations for the previous evaluation period. However, moving forward the reporting entities will need to utilize the most recently available emissions data. DEQ also pushed back the distribution deadline from March 31^st to June 30^th of the cap year. Moving the deadline to June allows DEQ to use the self-reported emissions data in April of each reporting year to determine the compliance instrument distribution for that year. Since DEQ internal audit and third-party verifications would not be complete before the distribution date, any errors in the self-reported emissions data will affect all covered fuel suppliers. To remedy any issues arising from over/under reporting, DEQ will adjust the compliance instrument distribution in the following year for each affected entity by using a correction factor (refer to 340-271-0420(4)(b)(B) for the revised CI calculation formula).

To discourage non-competitive market behavior, DEQ will have limits on the number of compliance instruments that can be held by a covered entity. DEQ will calculate a customized holding limit based on the emissions of each the non-natural gas fuel supplier. The following table summarizes the associated regulatory timelines for holding limits:

If the covered fuel supplier does not show compliance for the holding limit by the above timelines, DEQ will calculate a compliance instrument holding limit reduction which will be applied to the CI distribution formula for the following year. This value is calculated using the number of compliance instruments from any prior year held by the covered fuel supplier that exceeds one and a half times the sum of the covered fuel supplier’s annual compliance obligation(s) for each year of the prior compliance period.

Lastly, DEQ removed the cap on the compliance instrument a company can receive from the reserve to provide more certainty for covered entities on the number of CIs they can received from the reserve and allow for flexibility in allocating the CIs in the reserve. All discussed updates are detailed in Division 271 Oregon Administrative Rules.

In addition to the modifications discussed, the rulemaking made revisions to Greenhouse Gas Reporting Program regulation (Division 215) and the Third-Party Verification Program regulation (Division 272).

If you would like to discuss the modifications to the Climate Protection Plan or updates to other programs discussed as part of the Climate 2023 Rulemaking and how they may impact your facility, please email Parastoo Ali Pour from Trinity’s Mobile Source and Fuels Business Line or call 949.241.3626.