How Washington state passed the “gold standard” for U.S. climate law and now faces a Big Oil fueled backlash


How Washington state passed the “gold standard” for U.S. climate law and now faces a Big Oil fueled backlash

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Former lawmaker Reuven Carlyle is back in the private sector as strategist and investor helping companies navigate the new climate economy

As chair of the Environment, Energy and Technology Committee in the state of Washington, Carlyle played a key role in drafting and passing the state’s sweeping Climate Commitment Act (CCA) — “cap and invest” legislation now described by the Environmental Defense Fund as the “gold standard” of U.S. climate policy. 

The CCA, drafted in consultation with climate leaders in California and Canada’s Quebec province, puts the state on a path to Paris Agreement targets and most likely among states to reach 2030 climate targets, according to nonprofit thinktank RMI. It is also designed so that Washington’s market can be linked to those in California and Quebec. In 2023, its first year selling carbon allowances through auctions, Washington state raised more than $2 billion earmarked for carbon reduction and resiliency projects. 

Last year, after 14 years in the state legislature, Carlyle returned to the private sector and launched a global strategy consultancy and investment firm, Earth Finance, for businesses trying to meet net-zero goals and position themselves for the new climate economy. He talked with Climate & Capital Media. 

Huus: What are your thoughts on the recently concluded climate conference, COP28? Depending on the observer, it’s portrayed as another disappointment or a great success for beginning to talk about the need to phase out fossil fuels.

Carlyle: We continue to see from COP28 — no matter how clunky or rocky — a growing alignment between public policy and market forces for climate action. The agreement that our journey to 2050 requires moving away from fossil fuels is central to scaling renewable energy, circularity and innovation. Period. Full stop. How we embrace that journey requires a “Yes, And.” We see more than anything from Dubai that it’s all hands on deck for a decarbonized future. 

We see from COP28 — no matter how clunky or rocky — a growing alignment between public policy and market forces for climate action.

How is Washington state’s Climate Commitment Act an improvement on climate legislation in other states, like California? What sets it apart?

Carlyle: I think the reason [that EDF and RMI praised the bill] is because it covers 75% of our state’s economy, meaning, the 100 largest emitters in our entire state — that is, food processors, refineries (we have five refineries); that is the manufacturing of airplanes and the manufacturing base of timber… It is fundamentally economy-wide. It’s a firm cap on emissions that declines between 2023 and 2050. So the price of allowances goes up because companies have to purchase a declining number of allowances, and at some point, they make a simple business choice to decarbonize. So it has accountability and a strong cap on emissions, and there are other attributes, such as unprecedented environmental justice language. We had the luxury of going second and learning from California’s insights, data, experience and building on them. They have 10 years of wisdom from carbon pricing that is helpful to us all. 

How does it improve upon California’s climate policies?

Carlyle: There’s no question in my mind that a firm cap on emissions is one of the most meaningful policies allowing us to reach the letter and the spirit of the Paris Agreement. California and Quebec began that journey 10 years ago. For Washington state, having just passed the legislation in 2021, our slope of declining emissions between now and 2030 is quite steep, but… there is very little chance of companies or governments reaching the Paris Agreement and limiting to 1.5 or 2 degrees if we don’t achieve our 2030 goals.

One of the main elements that’s different is that our legislation covers about 75% of our economy. California’s covers about 16-plus percent so they have additional policies and programs and regulatory structures that, in effect, provide regulatory structure to large emitters. We don’t have as many of the additional belts and suspenders that California has chosen. And that’s not a value statement one way or the other. 

How does this climate legislation overlap or dovetail with other climate policies in Washington state?

Ultimately, the CCA, the cap-and-invest program, is the foundational policy. But built upon that we have other absolutely critical policies that we think get us to the letter and the spirit of the Paris Agreement. One is the Clean Fuel Standard. That’s a deep decarbonization plan for lower carbon intensity for transportation fuels and for electrification. That supports the decarbonization of the transportation sector and it prompts and promotes sustainable aviation fuels, maritime, and energy storage.

Another category of policy that it interacts very closely with is building efficiency. Buildings, of course, are our second largest (emitting) category… So building efficiency standards (2019) are very important. 

Another category that’s critical to our overall picture is methane capture [proposed rule] on landfills and dairy farms, as well as other super pollutants like hydrofluorocarbons [rule adopted in Nov. 2023]…. So those are specific policies that are representative of our broader package of legislation. 

When we met, you talked about how Washington got this legislation through. I assume it’s not just because it is a “blue” state… 

Carlyle: There’s a perception that Washington is a deep blue state and it’s easy to pass climate legislation. We have only a three-vote majority in the State Senate and a handful more in the State House. So it’s much closer than people perceive. [Gov. Jay Inslee, and a team of players in the House and Senate focused on transportation, climate justice and the Clean Fuel Standard] put together that package in a holistic way politically to build a sense of ownership so people felt aligned. They saw themselves in that comprehensive package, and ultimately, we could stitch together a partnership, and the vote. The key vote in the state senate on this legislation was 25-24, but it set in motion the success of the grand bargain. [There were other] critical partners…. For example, we have the tribes — 29 federally recognized tribes who are absolutely indispensable; we had the Build Back Black Alliance, which was very helpful and incredibly engaged. So we built partnerships with BP, Microsoft, tribes, and a number of other organizations who really leaned into the work of trying to make this grand bargain successful.

Could you talk a little about what were the most challenging issues and what was key to passing CCA?

Politics is the art of the possible. We had two public initiatives in the past ten years relative to carbon taxes that failed. And I think that ultimately, this time, we were able to put together a broader deal and consensus because we really listened deeply and learned a lot and focused on a cap and invest rather than a carbon tax. We learned from our own journey, from California …and Quebec… We listened to a lot of folks in the community who had deep reservations about the market-based trading system of the CCA. And what we learned from them is that how you spend the money raised from this really matters. So we have a direct nexus of the value of the money — estimated at perhaps $10 billion over decades, was initially about $7 billion. It’s now going to be substantially more than that. And the nexus of that value, of engaging the community in how we spend those dollars, is central. So I’m really proud of the fact that the dollars do not evaporate into the general fund or into the ether. They are dedicated back into the community that deals with adaptation and mitigation and emissions reduction. 

I’m really proud of the fact that the dollars do not evaporate into the general fund or into the ether. They are dedicated back into the community that deals with adaptation and mitigation and emissions reduction.

Can you get a little more specific about how the government is spending or plans to spend the proceeds?

Carlyle: The single largest source of emissions in state government is our ferry system. We have a very large Washington State ferry system and it’s diesel and it spews tens of thousands of metric tons, so we are building hybrid ferries and all-electric ferries and modernizing a fleet that is so old and such an incredible pollutant. Another use of proceeds as an example is young people 18 and younger travel on all public transportation for free — all buses, all ferries, all trains, are all free for youth. I think that’s important to the long-term evolution of how people value public transportation. We have a lot of incentives relative to electrification infrastructure, charging infrastructure, a lot of benefits for ebikes, and for bicycling to school in the city. And in rural areas we are making sure that they have access to charging infrastructure as well.

Another use of proceeds is the heavy-duty truck infrastructure. If you think about hundreds and hundreds of large 18-wheel trucks that line up at the port and pick up all of the supplies for Walmart, Target, Home Depot, and everyone else, and then they deliver them to their warehouses — Amazon, Costco everyone. So we are trying to electrify that infrastructure. That means charging, trucks and infrastructure. The value to that is enhanced because so many of those trucks line up in low-income neighborhoods near highways and really do a lot of damage and pollution because they only get about 4-5 miles per gallon of diesel. So [electrifying] is a public health benefit, it’s beneficial to truck drivers, it’s beneficial to the environment, it’s beneficial to new business models. And it helps companies like Amazon and others to decarbonize their Scope 3 emissions. So it’s a triple win.

Another area of multi-billion dollar CCA investment is salmon restoration and fish culvert removal. Salmon are part of the soul of the Pacific Northwest.

It’s an amazing time in climate work.

You mentioned you were being tapped to talk about Washington’s climate legislation. Can you talk a bit about that?

It’s an amazing time in climate work. States are looking for innovative ways to take meaningful action in climate, and looking for how to pay for it… The Inflation Reduction Act is historic in scale and scope, but state policy has an important role to play, and innovation — the entrepreneurial energy and innovation spirit of the private sector is essential in areas like heavy-duty trucks, for example, in areas like use of data and artificial intelligence to ensure that we have real-time data about emissions. You think about it, the public policy opportunity for different states, it’s not a red and a blue question. There are new business opportunities and new business models such as circularity. There’s workforce development, adaptation, water quality, agriculture and timber communities, salmon restoration, carbon removal, and ocean acidification. Every single issue that inspires people to build our quality of life has a direct nexus to climate action. So that’s why we’re seeing so many states want to make meaningful progress. But it’s so much more than the public sector.

Every single issue that inspires people to build our quality of life has a direct nexus to climate action

In your view, how much can the IRA do to catalyze economic transition? 

Carlyle: It’s dramatic. It’s substantial. I think it will come into play for years to come. And it will take a few years, candidly, for the public to wake up to the magnitude, and the impact and the value… It’s not about a direct grant. It’s about leveraging your own tax investment, so it’s massive in scale. I think people are trying to figure it out. But that’s where there’s a business opportunity for Earth Finance and so many others, and that’s what’s exciting. Because this is about investing in your own future. 

I was interested to see that Shell was a sponsor of the CCA, but I understand they sort of shifted gears on you. What happened?

Carlyle: Shell formally endorsed the bill near the end of the legislative process and was supportive. The challenge now is that they’re major participants in the Western States Petroleum Association, which is a well-funded oil industry trade group here in the West that actively opposes CCA and any meaningful climate legislation. They are funding an organization running a campaign… called the Affordable Fuel Washington and direct TV ads on Seattle Seahawks games and beyond in which they blame the CCA for the increase in the cost of gasoline. So Shell has made a choice, like the other oil companies with the notable exception of BP, to attempt to overturn our state’s climate bill.

There is a public initiative to repeal the CCA funded by a wealthy Republican activist, who has put about $5 million of his own money into repealing the CCA, that is expected to be on the November 2024 ballot.

Can you talk about other challenges to CCA?

There is a public initiative to repeal the CCA funded by a wealthy Republican activist, who has put about $5 million of his own money into repealing the CCA, that is expected to be on the November 2024 ballot.

How concerning is that for you?

It’s going to be a very serious political, campaign and policy challenge. There’s no question we’re living in a time where issues of affordability of college and healthcare and civil unrest and challenges with global oil economies contribute to public anxiety. The repeal campaign simply blames high gas prices on state climate policy and that’s it. We have to educate people that gas prices are driven by global commodity prices and industry practices more than state climate bills…We take it very seriously on every level and are not taking anything for granted. We are organizing a full-scale campaign to protect the CCA and climate action. 

What are you up to with Earth Finance?

Carlyle: Once I left office I was super excited to lean in, personally and professionally on the work of climate action.I founded a company with a couple of friends to tackle the really serious challenge of climate strategy — figuring out what to do and then how to pay for it. We have the 1% of companies like Amazon and Microsoft and others who have chief sustainability officers and large budgets and they have lots of support at the board level for a net-zero strategy. And then we’ve really got 99% of everyone else. Most companies want to be good corporate citizens and decarbonize but have to figure it out in real time.

This is challenging. What does it take to engage your investors and your shareholders? So we set up a strategy and a consulting firm and we’re building out a suite of high-value products on the climate finance and investing side, such as tax increment financing, some co-investing, power purchase agreement financing. We raised $14 million of private capital in a seed round of funding in February of [2023]. We expect to raise additional capital for further growth and investments in 2024 or 2025.

We’re working with premier companies that are super passionate about being a good corporate citizen, trying to figure out the letter and spirit of their role in the Paris Agreement and trying to figure out how to pay for it. 

That means leveraging public and private dollars, tax policy, and being deeply intentional about partnerships. I’ll give you an example: Why in the world would Walmart, Target, Home Depot and Costco not partner on moving additional renewable energy forward? What a wonderful opportunity to share in renewable energy such as wind, hydro, solar, nuclear? Really exploring ways to partner in new business opportunities. 

So, that’s my passion. We want to focus on the 80-20 — real work, real decarbonization strategies and how do you pay for it. You’ve got to evolve your business model. A lot of the business models that exist today are not sustainable 30 years from today with climate change. So we’re doing strategy consulting. We’re doing creative finance. And we’re trying to help organizations that are deeply committed to this work figure out a pathway forward with climate action in operationally and financially viable ways.

Knowing how to build partnerships with tribes and disproportionately impacted communities can’t be a department down the hall. It has to be part of the DNA of this work

Ultimately, renewable energy is the core of it. But it is also showing up with grace and humility. Knowing how to build partnerships with tribes and disproportionately impacted communities can’t be a department down the hall. It has to be part of the DNA of this work…. We have to have the courage to act and evolve business models. So that’s our passion at Earth Finance.

There’s a lot of talk about a backlash against ESG and DEI, that companies’ commitments to climate are waning. What’s your perception? 

Ultimately, the work of climate action sometimes is about mitigation and reducing carbon footprint, but sometimes it is really about adaptation and resiliency and adjusting to tomorrow’s world. It’s about how we will show up in this world 20, 30, 40 years from now. Let’s just take random examples: Starbucks and Hershey’s. Their coffee and cacao products come from the equatorial belt. The area of the world most profoundly affected by climate change. How are Starbucks and Hershey’s going to show up in 30 years in this conversation?

We might see pushback on ESG. But I don’t see a pushback on climate towards business risk mitigation, fiduciary protection of long-term financial interests, or adaptation. 

Do you find the clients are truly committed to changing or do you run into people who are more interested in image vs action?

We overwhelmingly see the former. We see real companies really want to be intentional and thoughtful. They want to be good corporate citizens. But they also have day jobs. They are trying to figure out how to pay for this in responsible ways. … But I think ultimately, if you look at the future of energy, the future of transportation, the importance of agriculture and timber if you look at fish, issues around meat and dairy and the issues that surround them, if you look at methane capture. If you look at all of these categories, building efficiency standards, there is something profoundly important to this concept of best practices, of global best practices such as you see in the book Drawdown.

If you think about Denmark, Sweden, Germany, Israel, and places around the world that really have explored some of these policies, there are opportunities to share those around the world in a way that didn’t exist years ago. I think it’s the opposite of “Not Invented Here.” It’s What Works — How Can We Show It? Let’s embrace that, and let’s scale. Scale. scale to reach the letter and spirit of the Paris Agreement. We can do this together. Don’t lose hope. Believe in what’s possible. Your grandchildren’s grandchildren deserve no less.

Featured photo source: Climate Group

Written by

Kari Huus

Kari Huus is a writer and editor based in Seattle. She was a staff reporter for from 1996-2014, with stints covering international business, foreign policy, and national affairs. Earlier, she reported on China for the Far Eastern Economic Review in Hong Kong, and Newsweek in Beijing. From 2015 to 2020, she was managing editor for the website Money Talks News.