Category Archives: In Rules – House of Origin 2022

HB1864

HB1864 – Provides funds to help recruit or retain researchers or instructors with skills to further clean energy innovation at public academic and research institutions; provides a credit against B&O taxes for research and development spending on innovations in clean technology.
Prime Sponsor – Representative Boehnke (R; 8th District; Tri-Cities)
Current status – Had a hearing in the House Committee on Finance January 27th. Amended and passed out of committee February 17th. Referred to Rules.
Next step would be – Action by the Rules Committee.
Legislative tracking page for the bill.

Comments –
The bill doesn’t specify a funding source for the Technology Leadership Account it would create. It also declares the Legislature’s intention to extend the tax credit if more businesses are claiming it over time; that would be a very poor basis for concluding that the credit was actually contributing to that growth, rather than other factors.

Summary –
Substitute –
The substitute adds clean electrolytic hydrogen storage; marine renewable energy; solar and wind energy; sustainable aviation fuel; low carbon advanced manufacturing; transmission and distribution grid modernization technologies; zero carbon and energy efficient building technologies; energy grid cyber security; electric and zero carbon transportation technologies; recycling; and earth-abundant materials technologies to the definition of qualified clean technology R&D. It drops grid-scale electricity storage, zero carbon steel, zero carbon fertilizer, underground electricity transmission, and zero carbon alternatives to palm oil. It rephrases “clean hydrogen that is produced without emitting carbon” as “clean, electrolytic hydrogen production”; “plant and cell-based meat and dairy” and “drought and flood-tolerant food crops” as “advanced agriculture and food technology”; and “coolants that do not contain F-gases” as “technologies that allow transition from hydrofluorocarbons.” It adds investments in laboratory build-out and equipment to qualified R&D expenditures.

Original bill –
The bill would create an Advanced Technology Leadership and Security Strategic Reserve Account dedicated to providing funding to support recruiting or retaining a researcher or instructor with skills needed to assist in clean technology innovation at a Washington State academic institution, state laboratory or national laboratory. The Director of the Department of Commerce would be able to authorize expenditures from the account in response to a request from the President of one of these organizations including a signed declaration and supporting materials to be specified by the Director. The Department could also draw on the account to provide assistance with the analysis and decision making for awards requested by an academic institution or deemed necessary for due diligence by the Director. The Director would be required to develop factual findings establishing the connection between the amount awarded and furthering advanced technology leadership and security for Washington’s economy, and the Department would report each year to the Legislature’s economic development committees on awards and the findings to support them.

The bill would create a credit against the business and occupation tax for each “person” with research and development spending on innovations in clean technology during the year more than 0.92% of taxable income. That would include research on clean hydrogen produced without emitting carbon, next generation nuclear fission, nuclear fusion, grid-scale electricity storage, electrofuels, advanced biofuels, zero carbon steel, plant and cell-based meat and dairy, zero carbon fertilizer, carbon capture, underground electricity transmission, zero carbon plastics, geothermal energy, pumped hydropower, thermal storage, drought and flood-tolerant food crops, zero carbon alternatives to palm oil, and coolants that do not
contain F-gases. Operating expenses directly incurred in qualified clean technology research and development by a person claiming the credit, including wages, compensation of a proprietor or a partner in a partnership, benefits, supplies, and computer expenses  would count as spending in calculating the credit. Up to 80% of payments to a “person” other than a public educational or research institution to conduct qualified clean technology research would also count.  Payments to a “person” other than a public educational or research institution; capital costs; and overhead such as expenses for land, structures, or depreciable property would not count.

The credit would be the greater of the person’s qualified clean technology research and development expenditures or 80% percent of the amounts received by a person other than a public educational or research institution in compensation for the conduct of qualified research and development; minus 0.92% of the person’s taxable amount for that, multiplied by 1.50%. It would be limited to the lesser of $900,000 a year or the tax due. An organization receiving the credit could assign part or all of it to the person contracting for the performance of the qualified research and development.

The credit would expire at the end of 2022, but the bill declares the Legislature’s intention to renew it if there’s growth in the clean technology industry in Washington, as measured by the number of businesses claiming the credit.

HB1792

HB1792– Expanding various tax exemptions for the production, distribution, and use of hydrogen made by electrolysis.
Prime Sponsor – Representative Ramel (D; 40th District; Whatcom County.) (Co-Sponsors Representatives Orcutt, Abbarno – Rs, and Fitzgibbon -D)
Current status – Referred to Rules.
Next step would be – Action by the Rules Committee.
Legislative tracking page for the bill.

Summary –
In the House –
Had a hearing in Environment & Energy January 18th. Passed out of committee January 21st. Referred to Finance. Had a hearing there February 7th. Amended by the prime sponsor to reduce the length of the exemption to 15 years, and passed out of committee February 17th.

Original Bill –
The bill would define electrolytic hydrogen production facilities (using any energy source) as “fuel cell vehicle infrastructure”, including them in the current sales and use tax exemptions for labor, services, and materials used in installing, constructing, repairing, or improving fuel cell infrastructure. That definition would also exempt leased public land used for installing, maintaining, and operating electrolytic hydrogen facilities from the excise tax ordinarily collected from leaseholders in place of the property tax. (These exemptions all currently expire July 1st, 2025.)

The bill would create a new exemption from the public utilities tax for the sales of electricity to an electrolytic hydrogen production business, a business producing hydrogen using renewable resources as the source of the hydrogen and the energy, or a business compressing, liquifying, or dispensing either of these. The exemption would last for 25 years from when the business began commercial operations, provided it began by July 1, 2032, and provided the electricity used for hydrogen was metered separately from the power for the businesses’ general operations, and the price for it was reduced by an amount equal to the tax exemption. (The exemption would not apply to any remarketing or resale of electricity originally obtained by contract for the production of electrolytic hydrogen.)

The bill would authorize public utility districts to produce, use and sell electrolytic hydrogen under the current regulations governing their renewable gas businesses. It would authorize municipal utilities to use renewable and electrolytic hydrogen as well as natural gas.

HB1682

HB1682 – Provides additional free allowances, reduced over time, for emissions-intensive trade-exposed facilities, and allows using cap and invest revenue for reducing their emissions.
Prime Sponsor – Representative Fitzgibbon (D; 34th District; Vashon Island & West Seattle) (Requested by the Department of Ecology)
Current status – Had a hearing in  Environment & Energy Tuesday January 18th. Replaced by a substitute from the prime sponsor and passed out of committee February 1st. Referred to Appropriations, and had a hearing there February 5th. Replaced by a second substitute from the prime sponsor advancing the date for completion of Ecology’s report on alternative methods for managing the distribution of credits to EITEs from 2026 to 2024, providing a detailed statement of legislative intent about criteria for the policies which Ecology is to consider in preparing the report, and making some other changes that are summarized by staff at the beginning of it. Passed out of committee February 28th; referred to Rules.
Next step would be – Action by the Rules Committee.
Legislative tracking page for the bill.

Comments –
Section 26(5) of the Climate Commitment Act (aka the cap and invest bill) prohibited expenditures of the revenues after April 1st, 2023 unless the Legislature had considered and enacted legislation brought forth by Ecology, and developed in consultation with stakeholders, outlining a compliance pathway specific to emissions-intensive, trade-exposed businesses for achieving their proportionate share of the state’s emissions reduction limits through 2050.

Summary –
Substitute –
The substitute would make awards of no cost allowances to facilities using best available technology starting at the fourth compliance period rather than the third, and would replace the general criteria for those with detailed specifications about qualifying and the process; it also makes some minor changes. There’s a staff summary at the beginning of the substitute.

Original bill –
The bill would extend the period during which emissions-intensive trade-exposed businesses receive free allowances to help meet their obligations under the Climate Commitment Act (aka the cap and invest program). The Act stepped down the number of free allowances each facility received during two four year periods, ending January 1st, 2035. (It also prohibited the expenditure of any revenue from the program after April 1st, 2023 unless the Department of Ecology had proposed and the Legislature had enacted a pathway for these facilities to achieve their proportionate share of the state’s emissions reduction limits through 2050.)

In the last of the original Act’s compliance periods, from 2031 through 2034, it required facilities using mass-based estimates of their emissions to get free allowances to cover 94% of their original baseline emissions. (It lowered the free allowances for facilities reporting the carbon intensity of their operations with a 3% reduction from the previous level for each compliance period.) This bill would now grant both kinds of facilities additional free allowances to cover 88% of their emissions during 2035, and then set their free allowances at 6% below the previous year’s level each year until 2050.

The bill shifts from saying Ecology may adjust a facility’s benchmark for a compliance period upward if it demonstrates additional reductions in carbon intensity or mass emissions are not technically or economically feasible to saying that Ecology would be required to adopt rules to provide a process for these adjustments in the third and subsequent periods. (Raising the benchmark reduces the number of allowances a facility needs.) Ecology would be authorized to grant an adjustment based on that determination and other factors including a finding it’s necessary to accommodate for changes in the manufacturing process that have a material impact on emissions; changes to a facility’s external competitive environment that result in a significant increase in leakage risk; or abnormal operating periods when a facility’s carbon intensity has been materially affected. Any adjustments may not increase the total annual allowance budget for the program for any calendar year in the compliance period for which the adjustment was granted or any future calendar year; reduce the progressively equivalent reductions year over year in the annual allowance budgets; or prevent the achievement of this sector’s share of the emissions-intensive and trade-exposed businesses’ proportionate share of the State’s targets. The Department would also be able to adjust the numbers of all these additional free allowances if that was necessary to ensure achievement of this sector’s share of the State’s targets, or to provide for alignment with other jurisdictions to which the state had linked the cap and invest program.

The bill would add programs, activities, or projects that reduce the emissions of emissions-intensive, trade- exposed facilities to the list of those eligible for funding from the revenue generated by the cap and invest program.

It would also eliminate the requirement for a report to the Legislature by December 1, 2026, after consultation with manufacturers, about alternative methods for determining the allowances to be provided to emissions-intensive, trade-exposed facilities from 2035 through 2050, best practices for ensuring against emissions leakage and economic harm to businesses in carbon pricing programs, and alternative methods of emissions benchmarking and mass-based allocation of allowances. It would remove the original Act’s provision for continuing to award free allowances at their level in 2034 if the Legislature doesn’t adopt a program for continuing them by December 1, 2027.