State Emission Limits.

The United States Environmental Protection Agency (EPA) and the Department of Ecology (Ecology) identify carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride as greenhouse gases (GHGs) because of their capacity to trap heat in the Earth's atmosphere.  According to the EPA, the global warming potential (GWP) of each GHG is a function of how much of the gas is concentrated in the atmosphere, how long the gas stays in the atmosphere, and how strongly the particular gas affects global atmospheric temperatures.  Under state law, the GWP of a gas is measured in terms of the equivalence to the emission of an identical volume of carbon dioxide over a 100-year timeframe (carbon dioxide equivalent or CO2e).

Since 2008 state law has established limits on GHG emissions in Washington.  Ecology is responsible for monitoring and tracking the state's progress in achieving these emissions limits.  In 2020 the statewide emissions limits were updated to the following:

• by 2020, reduce overall emissions of GHGs in the state to 1990 levels, or 90.5 million metric tons of carbon dioxide equivalents (MMT CO2e);
• by 2030, reduce overall emissions of GHGs in the state to 45 percent below 1990 levels, or 50 MMT CO2e;
• by 2040, reduce overall emissions of GHGs in the state to 70 percent below 1990 levels, or 27 MMT CO2e; and
• by 2050, reduce overall emissions of GHGs in the state to 95 percent below 1990 levels, or 5 MMT CO2e, and achieve net-zero GHG emissions.

Clean Fuels Program.

Since 2023 Ecology has implemented a Clean Fuels Program (CFP) limiting the GHG emissions attributable to each unit of transportation fuel (carbon intensity) to 20 percent below 2017 levels by 2038.  In reaching the carbon intensity reduction of 20 percent below 2017 levels by 2038, Ecology's rules to implement the CFP were required to reduce the carbon intensity of transportation fuels each year relative to the previous year of the CFP by no more than:

• 0.5 percent in 2023 and 2024;
• 1 percent in 2025, 2026, 2027;
• 1.5 percent in 2028, 2029, 2030, 2031; and
• no reduction in 2032 and 2033.

In addition, Ecology's rules are prohibited from increasing the carbon intensity reductions required under the CFP by more than 10 percent until:

• there is at least a 15 percent net increase in in-state liquid biofuel production and the use of foodstocks grown or produced in Washington;
• at least one new or expanded biofuel production facility representing at least 60 million gallons of biofuel production or production capacity per year has received all siting, operating, and environmental permits and any timely and applicable appeals of such permits have concluded—at least one new facility producing at least 10 million gallons of biofuel production or production capacity must be part of achieving this threshold; and
• a Joint Legislature Audit and Review Committee (JLARC) report on the first five years of program operations has been completed, and the 2033 regular Legislative session has adjourned.

The rules adopted by Ecology to implement the CFPestablish cumulative carbon intensity reductions relative to 2017 levels as follows:

• 2023: 0.5 percent;
• 2024: 1 percent;
• 2025: 2 percent;
• 2026: 3 percent;
• 2027: 4 percent;
• 2028: 5.5 percent;
• 2029: 7 percent;
• 2030: 8.5 percent;
• 2031, 2032, 2033: 10 percent; and
• 2034, 2035, 2036, 2037, 2038: 20 percent.

Ecology's rules establish a process 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.  Ecology rules require that the carbon intensity assigned to a fuel pathway based on this lifecycle analysis must be third-party verified.

Ecology's CFP rules establish registration and reporting requirements for producers and importers of transportation fuels, including processes for assigning and verifying bankable, tradeable credits for the transportation fuels with carbon intensities lower than the carbon intensity standard.  A regulated entity that produces deficit-generating fuels above the carbon intensity standard must retire credits in an amount equal to its compliance obligation, which is based on the number of deficits generated by the regulated entity.  Ecology's rules establish a credit clearance market, in which regulated parties that have a net deficit balance at the end of a compliance period must participate.  The credit clearance market provides an opportunity for regulated parties to purchase credits pledged by credit sellers at no more than a maximum price of $200 in 2018 dollars for 2023, adjusted for inflation.

The CFP rules establish methods for determining the carbon intensity of electricity supplied by electric utilities participating in the CFP based on the mix of generating resources used by each electric utility, and mechanisms that allow for the certification of electricity that has a carbon intensity of zero.  Electricity is not required to have a carbon intensity of zero in order to be eligible to generate credits.  The CFP rules also are required to establish mechanisms that allow for the assignment of credits to an electric utility for residential electric vehicle charging or fueling.  Fifty percent of revenues earned by electric utilities from electricity supplied to retail customers to generate credits under the CFP must be used for transportation electrification, which may include the production and provision of hydrogen. 

Of this 50 percent, 60 percent of the transportation electrification projects must be in or directly benefit federal Clean Air Act maintenance or nonattainment areas, areas at risk of maintenance or nonattainment designation, areas designated as maintenance or nonattainment, or areas identified by the Department of Health as disproportionately impacted communities, if such areas are within the service area of the utility.

For the other 50 percent of revenues, each electric utility must spend revenues on programs or projects selected from a list developed jointly by Ecology and the Department of Transportation.  The list must be developed based on GHG emission impacts and transportation sector decarbonization potential, and must include at least four categories of projects or programs, including the provision of zero-emission vehicles at no cost or a discount to certain entities and grid capacity expansions to enable transportation electrification investments.

Violations of the CFP requirements are subject to the following civil and criminal penalties under state Clean Air Act authority:

• Knowing violations of the CFP requirements subject a person to a gross misdemeanor, punishable upon conviction by a fine of up to $10,000 or imprisonment in the county jail for one year or both.
• Persons that violate the CFP requirements may incur a civil penalty of up to $10,000 per day for each violation.

The Department of Commerce must develop a periodic fuel supply forecast to project the availability of fuels and credits necessary for compliance with CFP requirements.  This forecast must be finalized no later than 90 days before the start of a CFP compliance period.  If the Department of Commerce's periodic fuel supply forecast predicts that there will not be sufficient credits during an upcoming compliance period, Ecology must issue a forecast deferral of CFP compliance obligations.  A forecast deferral may include the temporary adjustment of the scheduled standard, a requirement that regulated parties comply only with the standard applicable only during the compliance period prior to the forecast deferral, a suspension of deficit accrual for part or all of the forecast deferral period.

Zero-Emission Vehicle Program.

Under the federal Clean Air Act (federal CAA), most states, including Washington, are restricted from enacting their own emissions standards for new motor vehicles, which is an authority generally reserved to the federal government.  California is the only state allowed under the federal CAA to adopt state standards for vehicle emissions.  California's vehicle emissions standards must be at least as protective of public health as federal standards and must be approved by the EPA.  Other states may adopt vehicle emissions standards that are identical to California's vehicle emissions standards for specific vehicle model years.  The motor vehicle emissions standards established by California contain two program components:  low-emission vehicle (LEV) requirements and zero-emission vehicle (ZEV) requirements.  Washington has statutorily adopted California's LEV and ZEV requirements, and requires Ecology to adopt rules to implement these programs.

The California ZEV program requires that a specified percentage of the vehicles delivered for sale in the state by manufacturers must be ZEVs.  California's most recently adopted ZEV standards for passenger cars, light-duty trucks, and medium duty vehicles, known in California as the advanced clean cars II rule and in Washington as the clean vehicles program rule, require that manufacturers of vehicles delivered for sale or lease in Washington obtain ZEV credits equal to 100 percent of vehicles beginning in 2035.  These requirements do not apply to used vehicles, and the 100 percent ZEV credit requirement may be achieved, in whole or in part, by obtaining tradable ZEV credits, including credits banked from previous years of the program.  Up to 20 percent of ZEV credits may be obtained through the sale or lease of partial hybrid-electric vehicles that meet certain minimum standards.

Other.

Civil penalties under the Clean Air Act, including the CFP penalties, are appealable to the Pollution Control Hearings Board (PCHB).  Penalties collected from violations of CFP requirements must be deposited into the Clean Fuels Program Account, which is used to implement the CFP.

The 2021 Climate Commitment Act (CCA) created a number of accounts to receive Cap-and-Invest Program revenues.  Among the CCA accounts is the Carbon Emissions Reduction Account, which is used for specified types of transportation uses.

Ecology's CFP rules must reduce the carbon intensity of transportation fuels by either 45 percent below 2017 levels or 55 percent below 2017 levels by January 1, 2038.  The standard beginning in 2038 for the carbon intensity of transportation fuels is 45 percent below 2017 levels unless Ecology determines, taking effect no earlier than January 1, 2032, that either:  

• at least one rule that is part of the zero-emission vehicle program was not being enforced as of January 1, 2030; or
• based on emissions data reported to Ecology for 2030 under the state Clean Air Act:  (1) greenhouse gas emissions from transportation fuels covered under the CFP have not proportionately been reduced related to the 45 percent reduction set in state emission limits; and (2) that an increase of the CFP carbon intensity standard to 55 percent by 2038 is necessary to proportionately reduce the GHGs associated with transportation fuels covered under the CFP relative to the 70 percent reduction set in state emission limits for 2040.

If Ecology determines that either of the above scenarios is in effect, Ecology may adjust the carbon intensity standard to 55 percent below 2017 levels beginning in 2038, and may accordingly adjust the carbon intensity standards for the year 2032 through 2037.

The annual schedule of carbon intensity reductions is amended to require the following additional carbon intensity reductions by January 1 of each of the following years:

• 5 percent by 2026;
• 4 percent by 2027; and
• between 3 and 4 percent, as determined by Ecology rule, for each year from 2028 through 2038.

Ecology may also adjust the carbon intensity standard for a calendar year by up to 2 percent below the percentage reduction in the carbon intensity standard that would otherwise apply if Ecology determines that doing so is necessary to avoid issuing a forecast deferral. 

The reduction in the carbon intensity standard beyond a 10 percent reduction is no longer delayed pending the Legislative consideration of the JLARC study or the achievement of biofuel facility and production thresholds in 2028.  However, beginning with program year 2030, Ecology may not increase the carbon intensity standard beyond 20 percent until Ecology demonstrates that at least one new or expanded biofuel production facility has received a siting, operating, or environmental permit after January 1, 2025.

Ecology must seek to adopt CFP rules that are harmonized with the rule updates of other states with similar low carbon fuel programs that supply Washington with significant quantities of transportation fuel or receive significant quantities of transportation fuel from Washington.

Ecology must provide analysis and forecasts of the CFP credit markets, including credit prices, credit supply and demand trends, market activities categorized by fuel type, and trends in in-state biofuel feedstock production.  Ecology must consider this analysis in adopting CFP rules.

All regulated parties and credit generators are required to submit reports in a timely manner to meet compliance obligations, and must comply with requirements for recordkeeping, reporting, transacting credits, and obtaining a carbon intensity calculation.  Ecology is authorized to issue corrective action orders for noncompliance with CFP requirements.

State Clean Air Act civil and criminal penalties no longer apply to violations of the CFP requirements.  Instead, Ecology may issue the following penalties for violations of the CFP:

• A penalty of up to four times the maximum price of the most recent credit clearance market may be issued for each deficit that is not retired at the end of a compliance period, unless the registered party participates in the credit clearance market.
• A penalty of up to $1,000 per credit or deficit may be issued for misreporting that results in the undue claim of credits or the failure to report a deficit.  A penalty may not be issued for misreporting that is corrected by the end of a quarter's reporting period.
• A penalty of up to $10,000 per day may be issued for each day a regulated entity or credit generator does not submit a required report.
• A penalty of up to $1,000 per credit may be issued for each illegitimate credit generated that exceeds the Ecology-adopted carbon intensity standard.
• A penalty of up to $25,000 per month may be issued for a deficit generator's failure to register with Ecology.
• A penalty may be issued to an electric utility of up to four times the credit revenue improperly spent by the utility.
• A penalty of up to $50,000, or $10,000 per day may be issued for a violation of third-party verification requirements for fuel pathway carbon intensity, as required by Ecology rules.  Registered parties are not subject to penalties demonstrated to be due to an error by a third-party verifier.
• A penalty of up to $10,000 per day may be issued for other violations by a deficit or credit generator of the CFP requirements or orders issued by Ecology.

Electric utilities must notify retail customers in published form within three months of paying a CFP penalty.

The CFP penalties are appealable to the PCHB and collected penalties must be deposited in the Carbon Emissions Reduction Account.