HB1036 – Implements a low-carbon fuel standard.
Prime Sponsor – Representative Fitzgibbon (D; 34th District; SW Seattle & Vashon Island) (Co-Sponsor Slatter – D)
Current status – This bill has been replaced by HB1091, an updated version. (The only substantive change requires fuels to have associated emissions at least 20% below 2017 levels to generate credits.) Assigned to the House Committee on Environment and Energy.
Next step would be – Scheduling a hearing.
Legislative tracking page for the bill.

Summary –
The Department of Ecology is to establish rules to reduce the intensity of transportation fuels, including electricity, used in the state. They’re to take effect January 1st, 2023, and to reduce the full life-cycle greenhouse gas emissions attributable to fuels other than electricity to 10% below 2017 levels by 2028 and 20% below 2017 levels by 2035. (By 2031, Ecology is to update them so emissions from transportation sources will meet the state’s target of a 95% reduction from 1990 levels by 2050.)

The rules are to create a system of trackable, verifiable, tradeable, and bankable credits, generating a credit (or a deficit) when the production, importing, or dispensing of fuel with a lower (or a higher) carbon intensity than the department’s standard results in the emission of a metric ton of CO2e. The estimates of greenhouse gas emissions may not privilege fuels from any particular places, and must reflect the carbon intensity of each electric utility’s mix of generation sources. The rules must include cost containment mechanisms, such as provisions allowing  the department to establish a credit clearance market and sell credits at a price it sets after the end of each compliance period, a similar means for complying if participants haven’t been able to acquire enough credits to meet the requirements by the end of a period, and a similar means of ensuring that the prices of credits don’t significantly exceed those of credits in similar programs in other jurisdictions. (Such mechanisms must be designed to financially disincentivize participants from relying on them rather than reducing emissions.) Persons associated with the supply chains of transportation fuels covered by the program and those generating credits from fuels that aren’t not covered by the program may elect to participate in the market. (The department may also designate an entity to aggregate and use credits generated by any persons covered by the program that generate credits but choose not to participate.)

Electricity and fuels used by aircraft, vessels, railroad locomotives, and military vehicles are not covered by the program. Fuel for off-road logging vehicles, construction and mining, and agriculture isn’t covered until 2028, but can be used to generate credits and trade them before then. Ecology is also authorized to allow the generation of credits associated with electric or alternative transportation infrastructure that already exists when the bill becomes effective.

The rules must allow generating credits from providing zero emission vehicle refueling infrastructure and other low carbon fuel infrastructure including, fast charging battery electric vehicle infrastructure and hydrogen electric vehicle refueling infrastructure. They may allow generating credits from any activities that reduce emissions in the state, including carbon capture and sequestration projects, such as innovative crude oil production projects including carbon capture and sequestration; refinery investments in it; or direct air capture projects; and fueling of vehicles with electricity the department certifies as net-zero. (This must include electricity for which a renewable energy credit or other environmental attribute has been retired or used only for purposes of the program; electricity produced using a zero emission resource that’s directly supplied as a transportation fuel by its generator, and the smart charging of an electric vehicle when the carbon intensity of grid electricity is comparatively low.) The department’s to periodically consult with and advisory panel, including representatives of forestland and agricultural landowners, on how to best incentivize and allot credits for sequestration through activities on agricultural and forestlands. It may set yearly limits on the credits that can be generated by emissions reducing activities that it chooses to include, providing those “take into consideration” the return on investment needed for it to be financially viable.

Before each compliance period, the Department of Commerce, in consultation with Agriculture and Ecology, is to estimate whether the expected supply of low-carbon fuels will generate enough credits to meet the program’s compliance requirements.

Utilities must spend half of their low carbon fuel standard revenues from supplying retail customers of projects supporting the use of electrification or renewable hydrogen in transportation. Sixty percent of that must go to projects in or directly benefiting areas with high levels of air pollution or disproportionately impacted communities identified by the department of health. Ecology may adopt requirements, developed in consultation with utilities, for spending the other half of these revenues.

The department may obtain additional information it needs to estimate fuel emissions from suppliers and utilities; companies covered by the program should be allowed to demonstrate appropriate carbon intensity values to the department if that doesn’t counter the reduction goals of the program or prove administratively burdensome.