Stillwater Flash Report: Washington Legislature Passes Clean Fuel Standard

April 26, 2021

Over the weekend, the Washington State Legislature passed HB 1091, the state’s Clean Fuel Standard. The bill is now on Governor Jay Inslee’s desk awaiting signature. Assuming Governor Inslee signs the legislation, which is all but certain, Washington will join California, Oregon, and British Columbia as states/provinces on the West Coast to enact LCFS style programs that mandate the reduction of carbon emissions in the transport fuel sector. The legislation establishes a regulation requiring the reduction of fuel carbon intensity (CI) to 10% and 20% below 2017 levels in 2031 and 2038, respectively. The CI reductions begin in 2023, and the schedule includes a constant 10% CI reduction level for the three-year period between 2031 and 2033 to enable legislative review of the program before increasing by 2% per year to the 20% CI reduction level specified in 2038.

The legislation also requires several conditions to be met in order to proceed. First, the state must increase its fuel tax by at least five cents per gallon before the Department of Ecology can assign compliance obligations and allow generation of credits. Separately, in order to continue increasing the CI reduction requirement after the beginning of 2028, additional conditions include a 15% increase in both in-state biofuel production and the use of in-state feedstocks as well as increased biofuels production capacity of 60 million gallons per year. The final version of HB 1091 also establishes a Credit Clearance Market (CCM), like California’s, in which the price for credits sold is set at $200 in 2018 dollars, inflated based on the Consumer Price Index.

Table 1 below shows the CI reduction schedules for approved North American LCFS programs through 2030. This demonstrates the considerable increase in demand for low carbon fuels that is expected this decade.

Table 1. LCFS Programs CI Reduction Schedules

The Washington Department of Ecology will draft and finalize the regulations around this new Clean Fuels Program over the next couple of years. Stillwater will follow and report on these developments; be sure to subscribe for our full, ongoing analysis.