Notice of Introduction for Senate Bill 5231 - Update: 10 Year Analysis Completed

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SB 5231, titled AN ACT Relating to reducing greenhouse gas emissions by reducing the carbon intensity of transportation fuel, has been introduced in the Senate. 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
2022		$
2023		373,731
2024		858,796
2025		930,837
2026		858,796
2027		930,837
2028		858,796
2029		930,837
2030		858,796
2031		930,837
Total:		$ 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 SB 5231, 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 Ecology will administer the Clean Fuels Program and associated cost containment mechanisms such as the credit clearance market described in Section 4(6).

- A carbon credit clearance 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.

- The Department of Revenue currently administers the business and occupation (B&O) tax, which is a tax on the gross proceeds of sales and the gross income of a business.

- The B&O tax applies to most types of business receipts.

- Unless a specific B&O exemption is created for sales of carbon credits to other entities, such sales will qualify as a taxable event under the B&O tax and will be taxed at the services and other activities tax rate of 1.5% or 1.75%, as described in RCW 82.04.290.

- 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 as a result of the sale of carbon credits 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 Revenue
Department of Ecology
Department of Commerce


Bill sponsors and contact information:

Senator Derek Stanford, Prime Sponsor
Democrat
(360) 786-7600
Derek.Stanford@leg.wa.gov

Senator Rebecca Saldaña
Democrat
(360) 786-7688
rebecca.saldana@leg.wa.gov

Senator Andy Billig
Democrat
(360) 786-7604
andy.billig@leg.wa.gov

Senator Reuven Carlyle
Democrat
(360) 786-7670
Reuven.Carlyle@leg.wa.gov

Senator Mona Das
Democrat
(360) 786-7692
DAS_MO@leg.wa.gov

Senator David Frockt
Democrat
(360) 786-7690
David.Frockt@leg.wa.gov

Senator Sam Hunt
Democrat
(360) 786-7642
Sam.Hunt@leg.wa.gov

Senator Karen Keiser
Democrat
(360) 786-7664
Karen.Keiser@leg.wa.gov

Senator Patty Kuderer
Democrat
(360) 786-7694
patty.kuderer@leg.wa.gov

Senator Marko Liias
Democrat
(360) 786-7640
Marko.Liias@leg.wa.gov

Senator Liz Lovelett
Democrat
(360) 786-7678
Liz.Lovelett@leg.wa.gov

Senator Joe Nguyen
Democrat
(360) 786-7667
NGUYEN_JO@leg.wa.gov

Senator T'wina Nobles
Democrat
(360) 786-7654
T'wina.Nobles@leg.wa.gov

Senator Jamie Pedersen
Democrat
(360) 786-7628
jamie.pedersen@leg.wa.gov

Senator June Robinson
Democrat
(360) 786-7674
june.robinson@leg.wa.gov

Senator Jesse Salomon
Democrat
(360) 786-7662
SALOMON_JE@leg.wa.gov

Senator Claire Wilson
Democrat
(360) 786-7658
WILSON_CL@leg.wa.gov




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

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