Energy Law Alert: Washington State Adopts Minimum Renewable Fuel Content Requirements

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On March 30, Governor Christine Gregoire signed into law ESSB 6508, establishing one of the most aggressive alternative fuels requirement in the nation. The bill amends and adds new sections to the Motor Fuel Quality Act (19.112 RCW) to require that diesel and gasoline sold in the state contain minimum percentages of biodiesel and denatured ethanol. It becomes effective on July 1, 2006.

Last August, the Energy Policy Act of 2005 (§ 1501, amending 42 U.S.C. § 7547) established a general renewable fuels standard (RFS) requiring the use of 4 billion gallons of renewable fuels in the United States in 2006 and increasing to 7.5 billion gallons by 2012. These state and federal requirements, in conjunction with the many other incentives in the EPACT, will assist in establishing new markets for alternative fuels and in helping current markets mature.

ESSB 6508 establishes a Biofuels Advisory Committee to advise the Director of Agriculture on a variety of issues. These include implementing the minimum renewable fuel content requirements, the potential for credit trading, compliance and enforcement issues, and suspending the RFS requirements if they are deemed economically or technically infeasible or pose a significant risk to public safety. ESSB 6508 also contains provisions requiring the Governor to suspend the RFS mandate by executive order if content goals are achieved by November 30, 2008. These goals are for Washington's diesel fuel supply and gasoline fuel supply to contain at least 10 percent biodiesel and 20 percent ethanol, respectively, made predominantly from Washington feedstock. If these goals are not achieved by November 30, 2008, the Director of Agriculture is to monitor fuel supplies until they are met.

Biodiesel Mandate

The RFS mandate requires that at least 2 percent of the state's total annual diesel fuel sales will be biodiesel by the earlier of November 30, 2008, or upon determination by the Director of Agriculture that enough feedstock is being grown in the state to satisfy the requirement. Once the requirement is triggered, special fuel licensees under 82.38 RCW, with some exceptions, must provide evidence to the Department of Licensing (DOL) that they are meeting the requirement. If the Director of Agriculture determines that in-state oil seed crushing capacity and feedstocks can satisfy a 3 percent requirement, these licensees must provide evidence that at least 5 percent of the total annual diesel fuel sold in the state is biodiesel. DOL must aggregate this data prior to disclosure in order to protect identifying information about the licensees. Certain financial, commercial, and proprietary information submitted to DOL to satisfy this obligation is exempt from public disclosure.

Only Minnesota has adopted a similar biodiesel mandate, though California, Ohio, Hawaii, and Montana have passed legislation requiring that state governmental agencies use biodiesel. Washington State agencies have been under Executive Order 05-01 since January, 2005, which imposes similar aspirational and long-range requirements. ESSB 6508 largely codifies this Executive Order. By June 1, 2009, state agencies must use 20 percent or more biodiesel as compared to total volume of all diesel purchases made by such agencies to operate diesel-powered vessels, vehicles, and construction equipment. Agencies currently using biodiesel must file quarterly reports with the Department of General Administration (GA) documenting its use and any problems encountered. GA must also assist state agencies in meeting biodiesel fuel requirements and is permitted to use 10-year contracts when purchasing from in-state suppliers using predominately in-state feedstock.

Biodiesel is non-petroleum diesel fuel produced from renewable resources, including waste or recycled cooking oils, microalgae oils, animal fats, and soybean and canola (rapseed) oils. It can either be blended with petroleum or used in its pure form (B100). According to the United States Department of Energy, blends of up to 20 percent (B20) can be used in nearly all diesel equipment with little or no engine modifications; however, concerns over the RFS have been expressed in the wake of problems with biodiesel quality and engine damage. Minnesota had to temporarily suspend its program, and the Washington State Ferries requested exemption from the Executive Order after experimentation with B20 clogged fuel filters.

In response to these concerns, supporters of ESSB 6508 note the flexibility inherent in the biodiesel requirement. Unlike the original plan to require 2 percent biodiesel per gallon, the final bill leaves it to stations and suppliers to determine how best to meet the annual sales mandate. They are free to sell a variety of concentrations (or no concentrations) provided the RFS mandate is met. The bill also contains pump labeling requirements to inform consumers of the biodiesel concentration. The Director of Agriculture must adopt rules containing standards for biodiesel fuels based on standards set forth by the American Society for Testing and Materials (ASTM), the National Institute of Standards and Technology (NIST), and the Environmental Protection Agency (EPA). The bill also contains provisions for testing and enforcement, including fines and imprisonment for knowing violations. The enforcement provisions do not apply to the reporting requirements (Sections 2 and 3) of the bill.

Ethanol Mandate

On December 1, 2008, certain motor vehicle fuel licensees must provide evidence on a quarterly basis that "at least 2 percent of total gasoline sold in Washington" contains denatured ethanol. High octane gasoline used in aircraft that is not blended with ethanol is exempt. The Department of Ecology may increase the ethanol RFS to 10 percent upon determining that (1) a higher percentage will not jeopardize attainment of federal Clean Air Act ambient air standards and (2) sufficient raw materials are available within the state to support production of ethanol at higher levels. As with the reporting requirements for biodiesel, public disclosure of financial, commercial and proprietary information is prohibited unless it is disclosed in aggregate form.

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