In September, the Washington State Department of Ecology’s (Ecology) Fuel Exemptions Workgroup wrapped up four months of work. Whether it was successful or not might depend on who you are talking to.
Washington State’s Climate Commitment Act, which includes a cap-and-invest program, went into effect in January 2023 and requires covered entities that meet a certain threshold, including many fuel suppliers, to purchase allowances equal to their greenhouse gas emissions. In preparation, fuel suppliers began tacking on a fuel surcharge that was passed down to fuel distributors and, ultimately, to consumers. However, the cap-and-invest program exempted emissions in certain situations, including:
• Watercraft or maritime fuels combusted outside of Washington.
• Aviation fuel.
• Emissions from fuels used in agricultural operations.
• Emissions from fuels used to transport agricultural products to market on public highways.
Ecology is responsible for implementing and managing the cap and invest program and was tasked with determining a method for exempting fuels used to transport ag products on public highways for the next five years. However, when the legislation went into effect, no exemption mechanism was in place. Producers were stuck paying thousands of extra dollars in fuel surcharges while the fuel industry, legislators, and state agencies tried to pin the responsibility elsewhere.
“The idea was that we would try to get the stakeholders involved with exempt fuels together around the table to talk out some of the problems we were facing, that they were facing, and really try to think of solutions together. How to make sure farmers and end users did not pay surcharges on exempt fuels and try to get through those problems so the system could work as planned,” explained Luke Martland, Ecology’s Climate Commitment Act implementation manager.
The workgroup consisted of 37 participants representing a wide swath of stakeholders, including truckers, the maritime industry, agriculture, energy suppliers and distributors, environmental nonprofits, and state government. The first few meetings focused on identifying the most important issues and then “working towards solutions” meeting by meeting.
Meeting agendas and summaries can be found under the workgroup tab at ecology.wa.gov/air-climate/climate-commitment-act/cap-and-invest/emissions-reporting
In Martland’s opinion, the workgroup was successful in that progress was made and stakeholders were better informed on how the cap-and-invest program and compliance obligations are meant to work, although he acknowledged that it didn’t solve all the problems. One misunderstanding was that fuel distributors and fuel suppliers had to account for every gallon of gas, where it went, who it went to, and whether it was exempt or not. Martland said that Ecology allows fuel suppliers to “true up” their accounts at the end of the year by tracking the volume of exempt fuel sold. In June, Ecology was aware of two fuel suppliers that weren’t imposing surcharges. By August, that number had increased to 23. Many fuel suppliers and distributors are using a combination of certification and card locks to avoid charging exempt users.
“That really came from farmers understanding that they shouldn’t have to pay surcharges and talking to their fuel supplier and fuel distributor. It was a matter of info and advocacy that really made a difference,” Martland said.
One area in particular that the workgroup struggled with was how to apply the exemption for fuel used to transport ag products on public highways, including how to apply the exemption when buying fuel at a gas station with no line of sight back to the supplier or no card lock, and how to deal with “mixed” loads of ag and nonag products. Martland said Ecology will be issuing guidance on mixed loads and what constitutes an ag product. Certification was also suggested as a workaround for buying exempt fuel at a gas station.
“This is the toughest of them all. I don’t want to oversell and pretend everything is fixed, because it’s not. But I feel even with this tough scenario, we are beginning to make progress. We’ll just see how it works over time. We are going to keep talking to fuel suppliers and keep working with them and doing everything we can to assist in that process,” he said.
Refunds and rebates were another area of misunderstanding, although there is some progress there as well. During the workgroup meetings, two fuel suppliers said they’ve issued rebates, and Ecology hopes the market pushes more suppliers to do the same.
“A lot of folks thought Ecology had the money from the surcharges imposed on exempt fuels. Of course, we don’t. We don’t want there to be surcharges on exempt fuels. We hadn’t ordered that or mandated that. It wasn’t required. In our view, it was contrary to the law, and we don’t have the money from it,” Martland said. “Once we explained that we don’t have the money and we don’t think surcharges should be imposed, that helped (the workgroup) move forward with solutions.”
Martland said Ecology will continue working with covered entities and providing technical assistance to help them comply with the program.
“I truly appreciate everyone participating in the workgroup,” he said. “Sometimes we had difficult conversations. We had a lot of perspectives in the room, but there were a lot of folks that really contributed and, I think, really moved things forward, so we really appreciate that.”
What do the participants think?
Andy Juris, president of the Washington Association of Wheat Growers (WAWG), was a little more pessimistic about the success of the workgroup. He said a lot of the time was spent trying to identify a problem that seemed fairly obvious — Ecology failed to do a job it was supposed to. Despite all the workgroup discussions and suggestions, Juris feels that the agency is simply going to wait for the fuel industry to solve the problem itself.
“It’s not like they didn’t see this coming. It wasn’t legislation passed a week before being enacted. They saw this coming, and nobody did anything. The onus is on the state to truly exempt these industries,” he said.
Juris acknowledged that some fuel suppliers and distributors have implemented their own solutions to honor the exemptions, although he has yet to be offered a rebate for the thousands of extra dollars he’s spent on fuel used on his Klickitat County farm. He also pointed out that this issue (and the workgroup) brought together multiple parts of the energy industry. It also demonstrated how invested local co-ops are in working closely with their customers.
“You got to hear from lots of different industries, hear their problems, hear their concerns. We aren’t the only ones struggling with this. Other industries are grappling with this as well,” he said. “However, I wish Ecology had approached this problem solving and rulemaking with the same energy that they litigate landowners for infractions.”
Jon DeVaney, president of the Washington State Tree Fruit Association, also participated in the workgroup. He said whether or not the workgroup was successful depends on one’s definition of success.
“It didn’t fully resolve all the issues for all of the ag producers who should be exempt under the Climate Commitment Act but are currently not able to get their fuels exempted,” he said. “It was helpful in identifying many of the unresolved issues and providing some additional guidance or clarification of Ecology’s interpretation of the law. I think that has helped some fuel suppliers move towards solutions on their own.”
DeVaney feels the workgroup was successful in helping participants understand how complicated the fuel production and distribution supply chain is and highlighted why it is so difficult to exempt just part of the system.
“From Ecology’s perspective, I think they felt that they fully stated their intent and were hoping fuel suppliers would then figure out how to do it, whereas many of the fuel suppliers seemed to think they need firmer ground on what the expectations and authorities are in order to do some of those things,” he added. “Ultimately, these parties need to complete their work on these issues to provide the relief promised to growers by the Legislature.”
Tony Wisdom, CEO and founder of Skagit Valley Farm, one of the state’s major fresh market potato producers, felt the workgroup might have helped other industries, but it made little difference in addressing agriculture producers’ frustrations and concerns. He added that most of the progress thus far has come from farmers working with their own suppliers and pushing them to come up with solutions.
“From day one, my personal opinion was that Ecology should have called in the refiners and the major fuel suppliers and gotten them in a room in Olympia, and they could have solved all these problems within a week. I feel like the workgroup was just an opportunity to allow everybody a chance to voice their frustrations and concerns, but I don’t really think it moved the needle at all with regards to helping the ag industry solve this exempt fuel problem,” he said. “I’m frustrated because ag users were exempt from day one, and yet we have all paid the tax/fee to our suppliers, and very few refunds have been given to date. That’s robbery unless they pay back those fees with interest. I mean, we paid the tax/fee with borrowed money, and yet we are getting no interest on that money that we are paying interest on,” he said.