Notice of Committee Passage for Substitute House Bill 1091

You are receiving this email as a subscriber to the Initiative 960 email list. RCW 43.135.031 (I-960) requires that notices be sent each time a bill that raises taxes or fees is: introduced in either house; scheduled for a public hearing; approved by any legislative committee; or passed by either house of the Legislature.

Please note: This email message was sent from a notification-only address. Please do not reply to this message.

SHB 1091, titled AN ACT Relating to reducing greenhouse gas emissions by reducing the carbon intensity of transportation fuel, has been passed by the House Committee on Appropriations. 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		367,578
2024		851,675
2025		923,716
2026		851,675
2027		923,716
2028		851,675
2029		923,716
2030		851,675
2031		923,716
Total:		$ 7,469,142

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 SHB 1091, 2021 Legislative Session.

CURRENT LAW:

Under current law, the Department of Ecology requires facilities and entities selling fossil fuels in Washington that emit at least 10,000 metric tons of carbon dioxide (CO2)-equivalent on an annual basis to report greenhouse gas (GHG) emissions.

DIFFERENCES FROM PREVIOUS VERSION:

The substitute bill removes the exemption of electricity from the program. It also establishes requirements for how electric utilities will utilize revenues under the program, clarifies additional minimum requirements of the program, and authorizes the Department of Ecology to require documentation of compliance.

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

PROPOSED LAW:

Overview

The substitute bill creates a low-carbon fuel standard to reduce levels of air pollutants and GHG emissions.

The Department of Ecology must 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, and must reduce GHG emissions per unit of fuel to 10% below 2017 levels by 2028 and 20% below 2017 levels by 2035. By December 31, 2031, the Department of 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 the Department of 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 Department of 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-limiting activities, including:

- Producing or importing transportation fuels with emissions below program standards;

- 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;

- Fuels used in volumes below thresholds set by the Department of 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: 

Administration

- The Department of Ecology will administer the Clean Fuels Program, including the credit clearance market described in Section 4(7). 

- Under the Clean Fuels Program, producers and importers of low-carbon fuels will generate tradable credits.

- Producers and importers of fuels that do not meet the Department of Ecology's clean fuel standards will generate deficits that can be offset by acquiring credits.

- A carbon credit clearance market allows participants in the Clean Fuels Program to buy and sell credits at prices established by the Department of Ecology. 

Background

- The Department 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.

- The B&O tax rate for "services and other activities" is 1.5% or 1.75%, with the latter rate applying to entities with more than $1 million of taxable gross receipts in the services and other category.

Applicability of B&O Tax

- Since no specific B&O exemption is created for sales of credits to other entities, it is assumed such sales will qualify as taxable events under the B&O tax and will be taxed at the services and other activities tax rate, as described in RCW 82.04.290.

- It is assumed that all entities selling credits will meet the taxable receipts threshold to be required to pay the higher 1.75% services and other B&O tax rate.  

B&O Tax Collections (Example)

-  For example, if in FY 20XX:

     - The Department of Ecology sets prices at $150 per credit, with each credit representing 1 MT of CO2-equivalent emissions;

     - 1 million credits are earned by Clean Fuels Program participants for credit-generating activities; and

     - One-third of credits generated are banked for future use and two-thirds are sold to other program participants;

- Then the B&O tax collected on such credit sales in FY 20XX would be:

$150 x 1 million x 66.67% x 1.75% = $1.75 million.

The example above is provided to illustrate the calculation of the B&O tax on Clean Fuels Program credits and is not intended as a revenue estimate.

TOTAL REVENUE IMPACT:

Indeterminate

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

Department of Revenue
Department of Ecology
Department of Commerce

The following legislators voted do pass:

Representative Eileen Cody
Democrat
(564) 888-2493
eileen.cody@leg.wa.gov

Representative Frank Chopp
Democrat
(206) 905-6681
frank.chopp@leg.wa.gov

Representative Timm Ormsby
Democrat
(360) 786-7946
timm.ormsby@leg.wa.gov

Representative Joe Fitzgibbon
Democrat
(564) 888-2362
joe.fitzgibbon@leg.wa.gov

Representative Cindy Ryu
Democrat
(206) 307-0769
cindy.ryu@leg.wa.gov

Representative Steve Tharinger
Democrat
(564) 888-2366
steve.tharinger@leg.wa.gov

Representative Drew Hansen
Democrat
(206) 333-2975
drew.hansen@leg.wa.gov

Representative Gerry Pollet
Democrat
(206) 307-0409
gerry.pollet@leg.wa.gov

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

Representative Monica Jurado Stonier
Democrat
(360) 786-7872
monica.stonier@leg.wa.gov

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

Representative Mia Gregerson
Democrat
(253) 981-6278
mia.gregerson@leg.wa.gov

Representative Noel Frame
Democrat
(206) 962-5098
noel.frame@leg.wa.gov

Representative Laurie Dolan
Democrat
(360) 786-7940
Laurie.Dolan@leg.wa.gov

Representative Nicole Macri
Democrat
(206) 333-4228
nicole.macri@leg.wa.gov

Representative Debra Lekanoff
Democrat
(360) 419-5266
LEKANOFF_DE@leg.wa.gov

Representative Jesse Johnson
Democrat
(206) 333-2989
JOHNSON_JE@leg.wa.gov


The following legislators voted to refer the bill without recommendation:

Representative Pat Sullivan
Democrat
(360) 786-7858
Pat.Sullivan@leg.wa.gov


The following legislators voted do not pass:

Representative Bruce Chandler
Republican
(360) 786-7960
Bruce.Chandler@leg.wa.gov

Representative Larry Springer
Democrat
(425) 947-8921
larry.springer@leg.wa.gov

Representative Mike Steele
Republican
(509) 782-3436
mike.steele@leg.wa.gov

Representative Joe Schmick
Republican
(253) 275-1425
joe.schmick@leg.wa.gov

Representative Paul Harris
Republican
(360) 786-7976
Paul.Harris@leg.wa.gov

Representative Drew MacEwen
Republican
(360) 786-7902
drew.macewen@leg.wa.gov

Representative Drew Stokesbary
Republican
(253) 245-1963
drew.stokesbary@leg.wa.gov

Representative Michelle Caldier
Republican
(360) 786-7802
Michelle.Caldier@leg.wa.gov

Representative Skyler Rude
Republican
(509) 593-4559
RUDE_SK@leg.wa.gov

Representative Mary Dye
Republican
(564) 888-2380
mary.dye@leg.wa.gov

Representative Matt Boehnke
Republican
(509) 315-2315
BOEHNKE_MA@leg.wa.gov

Representative Chris Corry
Republican
(509) 571-1048
CORRY_CH@leg.wa.gov

Representative Larry Hoff
Republican
(360) 786-7812
HOFF_LA@leg.wa.gov

Representative Kelly Chambers
Republican
(360) 786-7948
CHAMBERS_KE@leg.wa.gov

Representative Cyndy Jacobsen
Republican
(253) 449-8545
Cyndy.Jacobsen@leg.wa.gov



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

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