This is a two-part post. Click here for Part 1

Credit Prices Slump Amid Oversupply

The first Washington Clean Fuel Standard (CFS) credits were transacted around the $100 mark in August 2023. However, credit value has steadily declined since the program began. The latest market data made available by Ecology indicated a $40 average for credits transferred in June 2024, with only 4 recorded transfers. Credit pricing has continued to decline since, with trades in July reported as low as $20, similar to levels seen for the Oregon Clean Fuels Program.  

Ecology To Make Changes to CFS Rules

Ecology continues to hold workshops to collect stakeholder feedback on potential changes to the program. Changes being proposed include:

• Integrating sustainable aviation fuel (SAF) into the program
• Requiring third-party verification for fuel pathway applications and fuel transaction reports
• Expanding the zero-emission infrastructure capacity crediting program to align with changes proposed for the CA-LCFS
• Adjusting book-and-claim accounting requirements for electricity and renewable natural gas

Notably, Ecology will not be modifying the carbon intensity targets in this rulemaking, despite the apparent oversupply of credits and declining credit prices. 

Initiative 2117

In November, Washington voters will consider Initiative 2117 which, if approved, would repeal the Climate Commitment Act and the state’s Cap and Invest program. While Initiative 2117 leaves the Clean Fuel Standard intact, the balance of credits and deficits may be impacted: “Repealing the Climate Commitment Act will likely have an impact on the flow of renewable diesel to the state of Washington as the [Cap and Invest] program increases the cost of diesel made from crude oil, the exact thing renewable diesel is replacing. Without this policy in place, renewable diesel will likely go elsewhere where this type of carbon policy pricing arbitrage exists such as California and Canada” says Will Faulkner, founder of CarbonAcumen.

Recent polling indicated that 48% of respondents would vote to repeal the Climate Commitment Act, with an additional 18% undecided.

This is a two-part post. Click here for Part 2.

Last month, the Washington Department of Ecology (Ecology) published the latest credit and deficit data for the state’s Clean Fuel Standard (CFS). With a full year of program data available, we can take a look at some emerging trends and compare against forecasts developed ahead of the launch of the program. 

Growing Credit Bank

After the first year of the program, the cumulative credit bank (a measure of net credits and deficits generated over the life of the program) was just shy of one million credits. The number of excess credits generated in Q4 was almost 350,000, compared to only about 150,000 in Q1 of the program. Meanwhile, the number of deficits generated has declined slowly over the past year, while the number of credits has been steadily increasing.

Ethanol and Residential EV Charging Lead Credit Generation

CFS credit generation in 2023 was led by ethanol (39%) and electricity (37%), with most of the credits from electricity generated by residential EV charging. Residential EV credits are issued to utilities based on estimates. Note that previous quarterly reports did not include the quantity of residential EV credits because they were issued all at once earlier this year. Credits from bio-based diesel (renewable diesel and biodiesel) represented another 23% of credits generated in 2023.  

2022 Fuel Supply Forecast

In September 2022, before the CFS was initiated, the Washington Department of Commerce commissioned a fuel supply forecast to estimate the number of credits required to comply in the first year of the program. While the forecast relies on a number of assumptions in a rapidly changing sector, it is intended to provide a reasonable preview of how the program will perform in its first year. With the latest data release from Ecology, it is now possible to compare the fuel supply forecast against actual credit and deficit generation in 2023. 

The 2022 forecast underestimated the number of credits that would be generated from ethanol, EVs, and renewable diesel, while overestimating the number of credits from biodiesel. Most significantly, the Commerce study estimated the program would end the year with a net bank of 300,000 credit. Instead the net bank was over three times that amount. 

The greatest variance was electricity, where the forecast underestimated the number of credits by an order of magnitude. Possible explanations may include:

• Greater than expected EV adoption rates – the forecast relied on vehicle registration data from 2021 and through June 2022. However, the state saw the largest increase in EV market share in 2023 of any state, with a 43% increase in EV and plug-in hybrid (PHEVs) registrations. Nearly one-fourth of vehicles delivered to dealerships in 2023 were EVs and PHEVs. 
• Lower carbon intensity –  the number of credits generated from EV is partially a function of the carbon intensity (CI) of the electricity used to charge the vehicle. The forecast uses a statewide average CI score to calculate EV credits, similarly to how the California LCFS program works in this regard. However, the Washington CFS uses utility-specific CIs. The CI score in Seattle, for instance, is significantly lower than the CI in Spokane. A closer look at vehicle registration data would likely show that EV adoption rates are much higher near Seattle than in eastern Washington.

Under the CFS regulations, the Department of Commerce is required to develop a “periodic fuel supply forecast to project the availability of fuels to Washington necessary for compliance with clean fuels program requirements.”

Click here for Part 2.