Ecology's CFP rules must reduce the carbon intensity of transportation fuels by 20 percent below 2017 levels by no earlier than January 1, 2034.  The annual schedule of carbon intensity reductions is amended to require the following cumulative carbon intensity reductions by January 1 of each of the following years:

• 11 percent by 2027;
• 15 percent by 2028;
• 19 percent by 2029;
• 23 percent by 2030;
• 27 percent by 2031;
• 31 percent by 2032;
• 35 percent by 2033;
• 39 percent by 2034;
• 43 percent by 2035;
• 47 percent by 2036;
• 51 percent by 2037; and
• 55 percent by 2038.

The reduction in the carbon intensity standard is no longer delayed pending the Legislative consideration of the JLARC study or the achievement of biofuel facility and production thresholds.  Ecology must provide analysis and forecasts of the CFP credit markets, including credit prices, supply and demand trends, market activities categorized by type of participant, and trends in in-state biofuel feedstock production.  Ecology must consider this analysis in adopting rules and otherwise implementing the CFP. 

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.

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 may be issued for misreporting that results in the undue claim of credits for failure to report a deficit of up to $1,000 per credit or 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 third-party verification requirements for fuel pathway carbon intensity, as required by Ecology rules.
• 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.

(In support) The current CFP law does not provide sufficient stability and certainty to producers of low-carbon fuels because the compliance trajectory is not aggressive enough at the start of the program, and lumpy in how it changes from year to year.  Prices in the CFP market have been too low to incentivize enough low-carbon fuel production, and have dropped from nearly $100 to $26 per credit.  All jurisdictions on the West Coast have CFPs in place, but Washington's program has the least stringent carbon intensity standards.  Carbon reduction goals in the CFP should be based on research and data.  The longer-term trajectory of the carbon intensity standard is uncertain because it is dependent on the siting of a biofuel production facility, and the CFP's uncertainty and anemic standard makes other businesses hesitant to make low-carbon fuel investments.  The existing penalty structure for the CFP, which relies on the Clean Air Act, is a blunt instrument and includes criminal penalties that are not well tailored to potential violations of the CFP.  The CFP is a huge priority of the conservation community, and has been a successful program.  Low-carbon electricity, renewable natural gas, and renewable diesel used as a transportation fuel are all incentivized by the CFP, and would be more widely adopted with a stronger program.

(Opposed) Increasing the stringency of the CFP will make transportation fuel more expensive.  This program has already lead to higher fuel prices, even though proponents claimed it would not.  Reforms of the CCA should be adopted alongside any changes to the CFP.  The design of the CCA is at odds with the CFP, and certain biofuels fuels encouraged under the CFP are penalized under the CCA.  The changes to the penalty structure are concerning, and raise the question of whether a fuel company should be punished if clean fuels credits are unavailable for them to purchase.  Removing the existing biofuel production facility requirement in order for the CFP to become more stringent will have negative effects on job creation.  The CFP should be audited, as planned, before the program's stringency is allowed to increase.  Climate change is past the tipping point, so don't look up.  Washington should have only one program for reducing GHG emissions, and policymakers should consider the cost burdens from environmental policy on its poorest residents.  Biofuels are not necessarily lower-emitting than fossil fuels.  Criminal penalties for CFP violations should be retained.

(Other) Under the CFP, it is Ecology's obligation to maintain a healthy credit market.  There is currently an oversupply of credits, which reduces decarbonization investment incentives.  Other states with similar programs have much stronger decarbonization targets, which better encourage investments.  The CFP's enforcement provisions need to be clarified.  The penalties for noncompliance should distinguish between accidental reporting errors and accidental omissions or misreporting.  Regulators should be flexible in assessing penalties.  If the biofuel production threshold requirement is going to be removed from the CFP law, policymakers should identify an alternative mechanism to increase in-state biofuel production capacity.  The CFP does not contribute meaningfully to the state's decarbonization efforts in the context of what other programs are accomplishing.  The CFP relies on arbitrary targets that are based on inaccurate predictions of market forces.   

(In support) Representative Joe Fitzgibbon, prime sponsor; Leah Missik, Climate Solutions; Clifford Traisman, Washington Conservation Action; Justin Leighton, Washington State Transit Association; Aimee Higby, Tacoma Public Utilities/Tacoma Power; Michael Breish, Seattle City Light/City of Seattle; Robin Vercruse, Low Carbon Fuels Coalition; Scott Richards, Clean Fuels Alliance America; Cory-Ann Wind, Clean Fuels Alliance America; Sam Wade, Coalition for Renewable Natural Gas; Dean Taylor, Dean Taylor Consulting; Kent Hartwig, I am an official representative of Gevo; and Jonathan Harding, American Biogas Council.

The second substitute bill amends the carbon intensity standard for the Clean Fuels Program (CFP) by:

• specifying a statutory 5 percent reduction in 2026 and a 4 percent reduction in 2027; and
• directing the Department of Ecology (Ecology) to determine by rule whether to reduce the carbon intensity by an additional 3 or 4 percent each year from 2028 to 2038.

The second substitute bill also reduces the target carbon intensity standard for 2038 from 55 percent to 45 percent, unless, taking effect no earlier than 2032, Ecology determines that:

• Ecology's Zero-Emission Vehicle (ZEV) program is not being implemented as of January 1, 2030; or
• based on 2030 transportation emissions data reported to Ecology under the Clean Air Act, a 55 percent reduction is necessary for transportation emissions subject to the CFP to achieve a 70 percent reduction in greenhouse gas emissions by 2040, consistent with state emission limits.

The second substitute bill also:

• authorizes Ecology to lighten the carbon intensity standard by 2 percent in a calendar year, relative to the standard that would otherwise apply to that calendar year, based on consideration of fuel supply forecasts as necessary to avoid issuing a forecast deferral of CFP requirements;
• prohibits Ecology from increasing the carbon intensity standards beyond 20 percent beginning in 2030 unless Ecology determines that one new or expanded biofuel production facility has received a siting, operating, or environmental permit after January 1, 2025;
• prohibits Ecology from issuing penalties to a CFP participant based on a violation demonstrated to be due to an error by a third-party verifier; and
• amends the CFP credit market analysis requirements, including by requiring the analysis to be published on Ecology's website, requiring the analysis to include price analysis of Washington compared to other jurisdictions' clean fuels program markets, and focusing analysis of credit and deficit generation by fuel type, rather than by type of CFP program participant. 

(In support) The initial years of the Clean Fuels Program (CFP) have been successful, but more work needs to be done to ensure the policy reduces greenhouse gas impacts in the transportation sector.  The cost of the bill is small.  The CFP represents an important tool in accelerating the decarbonization of the state's transportation sector, while at the same time improving local air quality and respiratory health.  Strengthening the CFP standards will mean more incentives for and investments in clean fuels, including investments in electric vehicle infrastructure and utilities.  The accelerated carbon intensity reduction timeline and updated enforcement mechanisms will help ensure the CFP achieves its goals.

(Opposed) Increasing CFP stringency affects fuel affordability, and this bill could add between 7 and 20 cents per gallon of gas.  Increased fuel prices impact the state budget, including fleet operations, law enforcement, emergency services, and school districts.  Rising fuel prices also impact food prices and transportation costs and disproportionately affect both low- and middle-income households.  The removal of language related to siting a state biodiesel refinery facility is concerning. 

(Other) The clean fuels market is struggling, and reform is needed.  The trigger related to a state biodiesel refinery should be added back in.

(In support) Representative Joe Fitzgibbon, prime sponsor; Dean Taylor, Seattle City Light; Clifford Traisman, Washington Conservation Action; Leah Missik, Climate Solutions; Scott Richards, Clean Fuels Alliance America; and Yanni Psareas, The Coalition for Renewable Natural Gas.