Notice of Introduction for House Bill 1036 - Update: 10 Year Analysis Completed

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HB 1036, titled AN ACT Relating to reducing greenhouse gas emissions by reducing the carbon intensity of transportation fuel, has been introduced in the House of Representatives. The Office of Financial Management has identified this bill as requiring a ten-year projection of increased cost to the taxpayers or affected fee payers.

Ten-year projection:

Fiscal Year			Clean Fuels Program Fee	Total
2022			0$	0$
2023			373,731	$ 373,731
2024			858,796	$ 858,796
2025			930,837	$ 930,837
2026			858,796	$ 858,796
2027			930,837	$ 930,837
2028			858,796	$ 858,796
2029			930,837	$ 930,837
2030			858,796	$ 858,796
2031			930,837	$ 930,837
Total:		$	$ 7,532,263	$ 7,532,263

Department of Ecology:

Section 12 would authorize Ecology to require a fee from persons that register or report under the provisions of this chapter. Ecology would adopt rules following an opportunity for public comment that would determine the payment schedule and fee amount. The fee amount would be required to be set so that receipts equal but do not exceed the projected direct and indirect costs for Ecology’s and Commerce’s development and implementation of the program.  

Ecology would be required to establish rules by January 1, 2023, under section 3. Ecology assumes the fee authorized in section 12 would start on this date.  Based on the start date for fee implementation, Ecology estimates that the latter 6 months of FY 2023 expenditures for the Clean Fuels program would be fee-recoverable, and all future expenditures would be funded through fee revenue in the Clean Fuels Program Account.  

Per section 12, the fee amount would be set so that receipts equal but do not exceed projected direct and indirect costs for Ecology's and Commerce’s development and implementation of the program. Cash receipts are estimated to equal expenditure estimates in the new Clean Fuels Program Account beginning January 1, 2023. 

Individual fee levels and the number of fee payers is indeterminate at this time. Rulemaking and stakeholder feedback will determine which entities will be required to pay a fee and what portion of the program should be supported by each class of participant. 

All fee receipts would be deposited in the Clean Fuels Program Account created in section 12.

Department of Revenue:

Note: This fiscal note reflects language in HB 1036, 2021 Legislative Session.

This fiscal note only addresses those sections of the bill that impact the Department of Revenue (Department).

OVERVIEW

The intent of the bill is to create a low-carbon fuel standard to reduce levels of air pollutants, reduce greenhouse gas (GHG) emissions, and create jobs related to clean fuel technologies.

The Department of Ecology (Ecology) shall establish standards (the Clean Fuels Program) to reduce the carbon intensity of transportation fuels in Washington, as measured by the life-cycle GHG emissions per unit of fuel energy. The Clean Fuels Program must take effect by January 1, 2023. By December 31, 2031, Ecology must adopt standards that are consistent with the state achieving the emissions reductions established in RCW 70A.45.020.

The Clean Fuels Program developed by Ecology must include:  

- GHG emission standards to be met by participants.

- Provisions for achieving the emissions reductions established in RCW 70A.45.020, including the allowance of credits for the production or import of fuels with carbon intensity below Ecology standards or for GHG-reducing activities.

- Methods for assigning compliance obligations and tracking and verifying tradable credits.

- Mechanisms for certain persons involved in transportation fuel supply chain activities that are not directly subject to the fuel standards to elect to participate in the program.

- Cost containment mechanisms, such as the development of a credit clearance market whereby emitters that would not otherwise meet the Clean Fuels Program's emissions standards may purchase credits to meet compliance obligations.

Credit Generating Activities

Participants in the Clean Fuels Program may generate credits from GHG emissions-reducing activities, including:

- Carbon capture and sequestration,

- Fueling electric vehicles with electricity certified as zero-carbon, or

- Use of smart vehicle charging technology in fueling vehicles when the carbon intensity of the electric grid is low.

Entities Registering for the Clean Fuels Program

Producers and importers of transportation fuels that do not qualify to generate credits are required to register for the Clean Fuels Program. In addition, other entities must register in order to participate in the Clean Fuels Program and to generate or trade credits.  

Exemptions

The Clean Fuels Program generally does not apply to the following, except in certain instances where producers and importers of such transportation fuels elect to register for the program:

- Transportation fuels exported from Washington,

- Electricity,

- Fuels used in volumes below thresholds set by Ecology,

- Fuels used in aircraft, marine vessels, railroad locomotives, and the operation of military tactical vehicles, or

- Until December 31, 2027, special fuel and dyed special fuels used off-road to transport logs, in construction work, mining and timber harvest operations, and for agricultural purposes.

Reports

Ecology must post annual reports beginning May 1, 2025, on the program-wide number of credits and deficits generated and volumes and average price per credit for each transportation fuel in the program.

EFFECTIVE DATE

The bill takes effect 90 days after final adjournment of the session in which it was enacted.

ASSUMPTIONS

- The Department of Revenue will not administer the revenue collection for the carbon credit market or any licensing fees associated with the Clean Fuels Program.

- A carbon credit market allows participants in the Clean Fuels Program to buy and sell credits at prices established by Ecology. Such credits may also be traded in secondary markets.

- Selling carbon credits to other entities is a taxable event under the business and occupation (B&O) tax and would be taxed at the services and other activities tax rate.

- Given that there is currently no data to estimate the buying, selling, or trading of carbon credits in Washington, the revenue impact to the state general fund from any B&O taxes collected from this activity is indeterminate.

REVENUE ESTIMATES 

TOTAL REVENUE IMPACT: 

      State Government (cash basis, $000): Indeterminate.

      Local Government, if applicable (cash basis, $000): Indeterminate.

Ten-year projection prepared in consultation with the following agencies:

Department of Commerce
Department of Revenue
Department of Ecology


Bill sponsors and contact information:

Representative Joe Fitzgibbon, Prime Sponsor
Democrat
(360) 786-7952
Joe.Fitzgibbon@leg.wa.gov

Representative Vandana Slatter
Democrat
(360) 786-7936
vandana.slatter@leg.wa.gov

Representative Lillian Ortiz-Self
Democrat
(360) 786-7972
lillian.ortiz-self@leg.wa.gov

Representative Liz Berry
Democrat
(360) 786-7860
Liz.Berry@leg.wa.gov

Representative Cindy Ryu
Democrat
(360) 786-7880
cindy.ryu@leg.wa.gov

Representative Shelley Kloba
Democrat
(360) 786-7900
Shelley.Kloba@leg.wa.gov

Representative Jessica Bateman
Democrat
(360) 786-7992
jessica.bateman@leg.wa.gov

Representative Debra Lekanoff
Democrat
(360) 786-7800
LEKANOFF_DE@leg.wa.gov

Representative Davina Duerr
Democrat
(360) 786-7928
DUERR_DA@leg.wa.gov

Representative Frank Chopp
Democrat
(360) 786-7920
frank.chopp@leg.wa.gov

Representative Sharon Wylie
Democrat
(360) 786-7924
Sharon.Wylie@leg.wa.gov

Representative Bill Ramos
Democrat
(360) 786-7852
RAMOS_BI@leg.wa.gov

Representative Steve Tharinger
Democrat
(360) 786-7904
Steve.Tharinger@leg.wa.gov

Representative Alex Ramel
Democrat
(360) 786-7970
alex.ramel@leg.wa.gov

Representative Tana Senn
Democrat
(360) 786-7894
tana.senn@leg.wa.gov

Representative Strom Peterson
Democrat
(360) 786-7950
strom.peterson@leg.wa.gov

Representative Mia Gregerson
Democrat
(360) 786-7868
mia.gregerson@leg.wa.gov

Representative Roger Goodman
Democrat
(360) 786-7878
roger.goodman@leg.wa.gov

Representative Javier Valdez
Democrat
(360) 786-7818
javier.valdez@leg.wa.gov

Representative Lisa Callan
Democrat
(360) 786-7876
CALLAN_LI@leg.wa.gov

Representative David Hackney
Democrat
(360) 786-7956
David.Hackney@leg.wa.gov

Representative Marcus Riccelli
Democrat
(360) 786-7888
marcus.riccelli@leg.wa.gov

Representative Gerry Pollet
Democrat
(360) 786-7886
gerry.pollet@leg.wa.gov

Representative Noel Frame
Democrat
(360) 786-7814
noel.frame@leg.wa.gov

Representative Sharon Tomiko Santos
Democrat
(360) 786-7944
sharontomiko.santos@leg.wa.gov

Representative Nicole Macri
Democrat
(360) 786-7826
nicole.macri@leg.wa.gov

Representative Tina Orwall
Democrat
(360) 786-7834
tina.orwall@leg.wa.gov

Representative Lauren Davis
Democrat
(360) 786-7910
DAVIS_LA@leg.wa.gov

Representative Steve Bergquist
Democrat
(360) 786-7862
Steve.Bergquist@leg.wa.gov




Legislative Bill Information Website: http://apps.leg.wa.gov/billinfo/

Initiative 960 Website: http://www.ofm.wa.gov/tax/default.asp