Background: Greenhouse Gas Reporting Requirements. Under the federal Clean Air Act, greenhouse gases (GHGs) are regulated as an air pollutant and are subject to several air regulations administered by the United States Environmental Protection Agency (EPA). These federal Clean Air Act regulations include a requirement that facilities and fuel suppliers whose associated annual emissions exceed 25,000 metric tons of carbon dioxide equivalent (CO2e) report their emissions to the EPA. At the state level, greenhouse gas (GHG) reporting is regulated by Ecology under the state Clean Air Act. This state law requires facilities, sources, and sites whose emissions exceed 10,000 metric tons of CO2e each year to report their annual emissions to Ecology.

Ecology and the Department of Commerce (Commerce) must report the total GHG emissions, by source sector, in Washington State. According to the most recent data from Ecology in November 2019, as of 2017 the total annual GHG emissions in Washington State were estimated at 97.5 million metric tons (MMT) of CO2e. Of these emissions, 44.6 percent were attributable to transportation sources.

Clean Air Rule. In September 2016, Ecology adopted a rule citing the state Clean Air Act authority (Clean Air Rule) to limit emissions of GHGs from certain stationary emissions sources, petroleum product producers and importers, and natural gas distributors.

In March 2018, the Thurston County Superior Court ruled parts of the Clean Air Rule are invalid. The superior court's ruling prevents Ecology from implementing Clean Air Rule regulations that cap and gradually reduce major sources of carbon pollution. Compliance with the rule is currently suspended. On May 14, 2018, Ecology filed an appeal with the Washington State Supreme Court.

Clean Fuel Programs in Other States. California and Oregon have each instituted policies requiring reductions in GHG emissions associated with transportation fuels, as measured against a standard unit of fuel energy (carbon intensity). California's program, which began in 2010, requires a 10 percent reduction by 2020 and a 20 percent reduction by 2030 in the carbon intensity of gasoline and diesel fuel, in conjunction with the use of fuels serving as substitutes for those fuels. Oregon's program, which began in 2015, requires a 10 percent reduction by 2025 in the carbon intensity of transportation fuels.

2015 Transportation Revenue Package. In 2015, the Legislature enacted a bill that raised revenue for transportation purposes from a variety of transportation-related sources (transportation revenue package). Among other sources of revenue, the transportation revenue package generated revenue by increasing fees for:

enhanced and commercial driver's licenses; and
vehicle weight fees that apply to passenger vehicles and motor homes.

In general, the enhanced and commercial driver's license fees are deposited into the Highway Safety Fund—used for driver's license implementation, driver improvement, and financial responsibility, among other programs—and vehicle weight fees are deposited into a combination of the Multimodal Transportation Account—used for transportation purposes—and the Freight Mobility Multimodal Account—used for certain freight mobility projects.

Under the transportation revenue package, if a clean fuel standard policy is adopted by rule or otherwise initiated by a state agency prior to July 1, 2023, additional revenue raised from the driver's license and vehicle weight fee increases would be redirected from the Highway Safety Fund, Multimodal Transportation Account, and Freight Mobility Multimodal Account, and instead deposited into the Connecting Washington Account. This account is located in the Motor Vehicle Fund and is used for highway projects that have been identified in a transportation appropriations act as Connecting Washington projects or improvements.

Summary of Bill (Proposed Striking Amendment): Clean Fuels Program. Ecology is directed to adopt rules establishing a Program limiting GHG emissions attributable to each unit of transportation fuel energy (carbon intensity) to 10 percent below 2017 levels by 2028 and 20 percent below 2017 levels by 2035. The Program must start no later than January 1, 2022, or as soon thereafter as the contingent effective conditions occur.

Transportation fuel means electricity and any liquid or gaseous fuel sold, supplied, offered for sale, or used to propel motor vehicles or intended for transportation purposes.

Exempt Fuels. The following are excluded from the carbon intensity reduction requirements under the Program:

transportation fuel exported or otherwise not used in Washington State;
electricity;
transportation fuel used for the propulsion of all aircraft, vessels, or railroad locomotives;
military tactical vehicles and tactical support equipment;
transportation fuels used in volumes below thresholds adopted by rule; and
any other fuels Ecology may exempt by rule in order to avoid mismatched incentives in similar GHG or low carbon fuel programs, fuel shifting between markets, or other outcomes counter to the intent of this Program.

Until January 1, 2028, the following fuels are also exempt from the Clean Fuels Program's carbon intensity reduction requirements:

special fuel used off-road in vehicles used primarily to transport logs;
dyed special fuel used in vehicles that are not designed to transport persons or property, not designed to be operated on highways, and that are used primarily for construction work, including timber harvest and mining; and
dyed special fuel used for agricultural purposes that are exempt from state fuel taxation.

Implementation of the Clean Fuels Program. The rules adopted by Ecology to implement the Program are as follow.

Standards for assigning levels of GHG emissions attributable to transportation fuels based on a lifecycle analysis that considers emissions from the production, storage, transportation, and combustion of the fuels, and associated changes in land use. Hydroelectricity must be attributed zero associated lifecycle GHG emissions. Ecology must establish separate carbon intensity standards for gasoline and its substitutes and diesel and its substitutes.
Processes for assigning and verifying bankable, tradeable credits for fuels produced, imported, or dispensed for use in Washington State with associated lifecycle GHG emissions that are less than 80 percent of the 2017 baseline carbon intensity levels; or when other specified activities are undertaken that support reducing GHG emissions associated with transportation in Washington State.
A determination of the carbon intensity of electricity supplied by electric utilities participating in the Program based on the mix of generating resources used by each electric utility.
A requirement to register in the Program for producers or importers of transportation fuels that are ineligible to generate credits.
The option to register and participate in the Program for persons associated with transportation fuels with a carbon intensity below the carbon intensity standard, and persons associated with exempt transportation fuels.
Cost containment mechanisms.

Ecology's rules may allow the generation of credits from specified activities associated with the reduction of greenhouse gas emissions associated with transportation, including:

specified carbon capture and sequestration projects;
fueling electric vehicles directly with zero-carbon electricity or through the retirement of renewable energy credits associated with the electricity;
the provision of zero emission vehicle infrastructure; and
using smart vehicle charging technology that results in electric vehicle fueling during times of comparatively low carbon intensity of the electric grid.

Transportation fuels derived from palm oil are ineligible for credit generation, and Ecology must consider land use changes in determining the carbon intensity of transportation fuels made from sugar cane.

Ecology is also authorized to adopt rules to provide the opportunity to evaluate transportation fuels using a third-party screening protocol that assesses social, environmental, or labor impacts associated with a fuel.

Except where inconsistent with specific statutory direction from the Legislature, Ecology's rule establishing the Program should seek to harmonize with similar programs adopted by other states with significant amounts of transportation fuel supplied to or from Washington State. In adopting the rule for the Program, Ecology must consider whether GHG emission reduction units earned under the Clean Air Rule are eligible for credit under the Program, and vice-versa.

Ecology may require electric utilities and transportation fuel suppliers to submit GHG emissions data and information different from the types of data currently submitted to the state by those entities.

Ecology may also require periodic reporting on Program activities from producers and importers of transportation fuels. Transactions transferring ownership of fuels in the Program must be accompanied by documentation assigning compliance responsibility for the fuels. To the extent practicable, Ecology's reporting rules for persons associated with transportation fuels supply chains must be consistent with the reporting procedures of similar clean fuels programs and programs requiring similar information to be reported by regulated parties in other states, including electric utilities.

To the extent the Program conflicts with the state Motor Fuel Quality Act, the Program's requirements supersede.

The requirement that Ecology limit the carbon intensity of transportation fuel is declared not to acknowledge, deny, or limit any authority that existed prior to the bill to adopt rules related to the GHG emissions intensity of fuel under the Clean Air Act.

Public Reporting Requirements. Beginning December 1, 2023, Ecology must annually submit recommendations for any draft legislation to more efficiently achieve the GHG emission reduction goals of the Program. Additionally, beginning May 1, 2024, Ecology must annually post on its website certain information regarding the previous year's Program, including credits and deficits generated, volumes of transportation fuels, and total GHG emissions reductions attributable to the Program. Ecology must contract with an independent consultant to determine the best estimate or range in probable costs or cost savings per gallon of gasoline and per gallon of diesel attributable to the Program.

Commerce must develop a periodic fuel supply forecast to project the availability of fuels and credits necessary for compliance with Program requirements. This forecast must be finalized no later than 90 days before the start of a compliance period.

By December 1, 2028, the Joint Legislative Audit and Review Committee is required to perform an analysis of the first five years of the Program and report to the Legislature. This analysis must include the costs and benefits of the Program, using specific metrics, an evaluation of the information summarized by Ecology in their annual reports, and the total statewide costs of the Program per ton of GHG emissions reductions achieved.

Clean Fuels Program Account and Fee. Ecology may require persons electing or required to participate in the Program to pay a fee to cover Ecology's direct and indirect costs for development and implementation. If Ecology elects to require Program participants to pay a fee, it must adopt rules to set a payment schedule and the amount of the fee. Fees are deposited into a Clean Fuels Program Account (account) used to carry out the Program.

Violations of Program requirements are subject to civil penalties under the state Clean Air Act. Penalties collected from Program violations must be deposited into the account.

Electric Utility Revenues. Fifty percent of revenues earned by electric utilities from electricity supplied to retail customers to generate credits under the Program must be used for transportation electrification projects. Of this 50 percent, 60 percent of the transportation electrification projects must directly benefit highly impacted communities within the service area of the utility.

Ecology may adopt rules governing the limitations on the use of the remaining 50 percent of revenues in consultation with electric utilities participating in the Program.

Project of Statewide Significance. A renewable fuels production facility producing more than 100 million gallons of renewable energy products per year is defined as a project of statewide significance.

Transportation Fees. The current distribution is retained for revenues granted by the 2015 Transportation revenue package, eliminating changes that would have been triggered as a result of the establishment of a clean fuels standard.

Contingent Effective Date. To ensure adequate funding for transportation needs in the future and to augment the revenue increase from this act with the other needed resources for transportation infrastructure investments, Ecology may not implement a Clean Fuels Program until an additive transportation funding act is enacted. An additive transportation funding act means and act that provides (1) new revenues to the motor vehicle fund and multimodal transportation account that exceed two billion dollars and (2) sufficient funding and a plan to complete replacements of the I-5 bridge over the Columbia River and the US 2 trestle.

Staff Summary of Public Testimony on Engrossed Second Substitute House Bill (Environment, Energy & Technology) (Regular Session 2019): The committee recommended a different version of the bill than what was heard. PRO: A Clean Fuel Standard (CFS) is a program that requires producers of transportation fuels to gradually reduce the GHG and intensity of those fuels over time and they can do that in a number of ways—including by producing cleaner fuels such as biofuels which have a lower carbon intensity than petroleum based fuels or by acquiring credits from other producers of clean fuels. Rather than picking winners and losers we are establishing a policy to reduce GHG intensity of transportation fuels which are by far the largest source of GHG emissions in this state. California, Oregon, and British Columbia have comparable programs. Canada is about to implement a program nationwide. Europe has a similar program. From these experiences, we've seen significant investments in the production of cleaner fuels. Washington has abundant farms and forests to provide feedstock for the production of these clean fuels. The Port of Seattle has set aggressive goals for reducing carbon emissions and is implementing sustainable aviation fuels. Sustainable aviation fuel has reduced particulate emissions. A low carbon fuel standard (LCFS) in other states is pushing production of alternative fuels from Washington to Oregon and California because of their markets are more lucrative. Citizens are pushing for more climate action. Cities cannot meet their GHG emissions reduction goals without state action. In Oregon, the impact on gas prices has been negligible. Providing support for transit agencies for transforming their transit fleet is key. Low carbon fuels need to be more widely available to meet climate goals. Cleaner fuels will improve health in all communities, particularly vulnerable committees. The sale of electricity to electric vehicles would generate credit. The revenue from the credits can be used for a variety of activities and will benefit ratepayers across the state. This is a comprehensive way to reduce transportation carbon and opportunity to leverage EV rollouts with funding for infrastructure. The Puget Sound Clean Air Agency is looking at picking up this tool if the Legislature does not. Air pollution effects patients who struggle with asthma and chronic lung disease, as well as infants, elderly, and low-income people in communities with increased pollutants. Medical issues are expensive. What we breathe and put into our lungs matters. We have a choice as a state as to what we put into our air. Renewable diesel acts like fossil counterparts. Renewable natural gas is the lowest cost alternative available today. Oil prices are impacted by the global market, and the best way to insulate from this is to use alternative fuels. I would happily pay a little more for gasoline if it prevents burning down my house—we are already paying the cost of climate change. We need many different polices to impact the building, transportation, and electricity sectors. CFS is one way. There is not one single magic bullet policy. This is an economically efficient policy and technology agnostic. Transportation is not the lowest cost place to get emissions reductions, but we need to get reductions in transportation sector. CFS will create opportunities to transform waste streams, enable development of low carbon fuel production facilities, and create long-term good jobs. CFS will save Washington consumers by creating competition and enabling lower cost per mile vehicles and fuels.

CON: The advanced biofuels are not market ready to make this program work. Most costs are passed on to consumers in form of higher gas prices. Incredibly price-sensitive products such as food do not have a lot of room for cost increases. Distributors drive many miles. Fuel costs go into food costs and impact lower and middle-income families. People on fixed incomes will not be rushing out to buy EVs. There are no buses in rural Washington. According to the California Energy Commission, the price increase will be $0.16 per gallon. A LCFS is a hidden gas tax and is regressive. The increase in the price of tax will not go toward transportation projects. If gas prices increase, it should be because of a gas tax. For trucking, fuel is one of the top two operating costs. Trucks burn more alternative fuel. This will increase the cost in consumer goods. Other innovations are coming.

OTHER: Modifications are need to ensure all alternative fuel can generate credits like electricity. All alternative fuels should be explicitly excluded from the carbon intensity reduction requirements. The carbon intensity for liquid fuel should be determined on a plant by plant basis. The provision limiting how utilities may spend revenues earned through the selling of credits intrudes on the responsibility of the public utility district commissioners to develop and oversee budgets.

Staff Summary of Public Testimony on Proposed Striking Amendment (Transportation) (Regular Session 2020): PRO: With the added provisions from last year, this resolves the conflict in competing priorities between our obligation to improve the environment and ensuring the need for a transportation investment package is addressed. This is about establishing a policy to reduce the carbon intensity of transportation fuels which are by far the largest source of GHG emissions in this state. This builds off the success in California, Oregon, and British Columbia which have already implemented similar programs. The fuel by logging trucks and construction sector is exempt. This will create an incentive for biofuel industry in the state. We must address the carbon pollution impacts of our transportation sector. The fuel price differential in California has actually come down since California implemented their carbon fuel policy. This will create thousands of high paying jobs through the development of a biofuel economy in the state. The carbon pollution reductions resulting from this bill will have numerous public health benefits. The use of fossil fuels disproportionally impact low income and so this bill is partially an equity issue. By moving away from petroleum products, this will help move us away from being subject to fuel price volatility. The impacts of climate change are here and now, and we must act now. Many of the jobs created from the new activities promoted in the bill will help rural communities. If there is a need to mitigate the impact on the timber industry we can do that, but this should not be an excuse not to act. This is vendor and technology neutral policy. Diesel particulate matter is the number one cause of cancer. The experience from other states shows that the policy can result in reduced health care costs and does not have the negative economic impacts as the opposition argues. This would create a West Cost alternative fuel marketplace. The electrification infrastructure is being developed and this will increase those trends. There are many societal benefits beyond the specific environmental improvements that will come from this legislation. These incentives to utilities will benefit ratepayers. Climate changes is one of the greatest public policy challenges facing us and this bill takes a significant step to addressing it. It builds off the documented success in other states.

CON: This will push more of our economic development offshore and make the state less competitive. This is an ineffective tool to reduce climate emissions. This new policy will reduce our livelihood and this is not the way to go about addressing climate issues. The bill is a virtual gas tax increase and does not provide any needed funding for transportation infrastructure. This will cause major impacts on the already struggling timber industry. This will hit those on fixed incomes, students, and the low income the hardest. This will have disproportionate impact on commuters who have no way to escape the impact from higher gas prices. This is too costly and will impact local economies and the costs far outweigh the benefits. The trucking industry already operates on slim margins and the fuel price increases will cause some to go out of business. This will have a direct impact on families. The impact on agriculture and farm workers is significant. Some of these impacts from higher fuel prices will be borne by local government. The heavy use of ethanol for compliance will cause increases in food prices and other consumer products. Some of the economic benefits will flow to other states and other countries. The technology around electrical vehicles for many of these purposes does not exist. The trucking industry has already made significant environmental improvements. We can do better than enacting a policy similar to the flawed system in California. The lower carbon intensity will result in less power and the need to increase fuel usage to compensate and therefore this policy will not achieve the intended environmental benefits. The reduction in carbon and particulate matter in California has been small. The use of an E15 blend could void vehicle warranties and increase maintenance costs. The benefits of this proposal goes to wealthy communities rather than low income. There are more effective ways to reduce carbon emissions that do not have all these negative economic impacts and unintended consequences.

OTHER: E10 works for marine uses, but E15 does not. The exemption for marine fuel is needed. Further improvements are needed to adequately address the fact that liquefied products are going to be part of the state’s fuel mix.

Persons Testifying (Transportation): PRO: Representative Joe Fitzgibbon, Prime Sponsor; Leah Missik, Climate Solutions; Cliff Traisman, Washington Environmental Council/Washington Conservation Voters; Bryce Yadon, Transportation Choices Coalition; Jeff Bissonnette, Union of Concerned Scientists; Matthew Hepner, IBEW; Lindsey Grad, SEIU; Samantha Grad, UFCW 21; Craig Kenworthy, Puget Sound Clean Air Agency; Carrie Nyssen, American Lung Association; Dan Evans, Promus Energy; Mo McBroom, The Nature Conservancy; Commissioner Hilary Franz, Commissioner of Public Lands, Department of Natural Resources; Mendy Droke, Seattle City Light; Michael Mann, Forth; Kate White Tudor, Natural Resources Defense Council; Neil Beaver, Recology; Dave Foster, King County; Victoria Hunt, Councilmember, City of Issaquah; Fred Felleman, Commissioner, Port of Seattle, Northwest Seaport Alliance; Scott Richards, National Biodiesel Board; Kent Hartwig, Renewable Energy Group; Ian Hill, SeQuential; Phyllis Farrell, League of Women Voters; Nina Kapoor, The Coalition for Renewable Natural Gas; Donna Warndof, Neste; Dave Warren, Klickitat PUD/Renewable Hydrogen Alliance, Washington Clean Energy Company; William McPherson, JUUsticeWA; Ali Lee, Climate Reality; Dr. Warren Burrows, citizen; Sean Graham, Washington State Medical Association; Kelsey Hamlin, citizen; Adam Maxwell, Audubon Washington; Brian Emanuels, citizen; Steve Christensen, citizen; Dennis McLerran, Cascadia Policy Solutions; Don Blagsvedt, Climate Rea;oity Corp; Reed Schuler, Office of the Governor. CON: William White, WW Trucking; Gerald Todd Stoffel, GT Stoeffel Trucking LLC; Darren Culbertson, citizen; Marvin Witherow, Alaska Pacific Trucking Ink; Brandon Miller, citizen; John Hogan, citizen; Kelly Waliser, Westsound Logging and Excavation; Benjamin Hamilton, Ben Hamilton and Son Trucking LLC; Ronald M. Parsons, citizen; Jerry VanderWood, Associated General Contractors; Mike Ennis, Association of Washington Business; C Davis, informed citizens project; Ben Buchholz, NW Agricultural Cooperative Council; Bob Edwards, Former Port of Seattle; Neil Falkenburg, Westbay Marina, NW Marine Trades Association; Clifford Iotte, Timber Unity; Justen Katzer, citizen; Delon Chapman, Chapmas Way Trucking Inc.; Rick Collins, Rick Collins Trucking; Jessica Spiegel, WSPA; John Holbert, citizen; Michele Kiesz, Adams Co. WAWG and Farm Bureau, East Basin Irrigators Association; Sheri Call, Washington Trucking Associations; Robert Thompson, Vitners Logisitics LLC; Louis Vogel, Louis Vogel Jr. Trucking; Brad Mayer, Premier Transport; Carmen Smith, RL Smith Logging; Bob Hillier, Hire Trucking; Josh Swanson, IUOE Local 302; Billy Wallace, DC LIUNA; Lori Williams, citizen; John Dickinson, Dickinson Dump Trucking; Dustin Hines, Timber Unity; Jim Clay, citizen; Robert Gordon, Councilman, Town Of Bucoda; Dale Girven, Pacific Logging LLC; Justin Maine, Justin Maine Logging; Joshua C. Wagner, TM Trucking; Casey Winters, Casey Winters Trucking Inc; Pat Ruble, citizen; Stacy Mills, Colburn Timber; David Crippen, Crippen Contracting; Caleb Gweder, Gweder Swiss Acres; Carolyn Logue, Washington Food Industry Association; Gary Christensen, Christensen Trucking; Mark Booker, farmer/owner operator; Barry Swanson, citizen; James King, Independent Business Association; Jerrold Bonagofsky, Washington Contract Loggers Association; Bryan Kelley, ASA Northwest; Joel Baxter, ASA Northwest; Eric VanRuff, Wilderness Chevron; Todd Ainsworth, ASA Northwest; Jeff Lovell, ASA Northwest; Mark Simons, ASA Northwest; Sherie Suter, citizen; Hannah Joy, Timber Unity; Paul Larkin, citizen. OTHER: Tom McBride, Growth Energy; Todd Myers, Washington Policy Center; Isaac Kastama, Low Carbon Prosperity Institute.