Oregon’s clean fuel bank runs out in 2027

Oregon’s Clean Fuels Program works like most of them. Every gallon of gasoline and diesel sold in the state has to be a little cleaner each year. Suppliers who beat the target earn credits, suppliers who miss it run deficits, and the two have to balance at the end of the year. When the state earns more credits than it needs, the surplus banks and carries forward.

For most of the programme’s life, the bank grew. It stopped growing in 2021 and has been draining since. At the end of 2026 there will be about 300,000 credits left, against an obligation of 3.4 million. That is a month of cover, and one bad year would take it.

Oregon DEQ Clean Fuels Program data; forecast from the Climate Decode OR-CFP model, on the published schedule with no DEQ deferral assumed.

Here is the balance, year by year.

Credits and deficits in millions. Cover is the closing bank as a share of that year’s obligation. Climate Decode OR-CFP model.

2025 is the year the pattern broke. Credit generation fell while the obligation kept climbing, and the state drew down 615,000 credits in twelve months. 2026 draws down most of what is left. From 2027 there is nothing left to draw on. The gap has to be closed with fuel, which means the programme has to pull additional barrels of renewable diesel into Oregon.

Oregon’s credit supply between 2026 and 2035 rises 56%, from 2.98 million credits a year to 4.63 million, as electric vehicle charging and renewable diesel both scale up. The obligation over the same period rises 150%, from 3.42 million to 8.55 million.

A credit is the gap between the state’s carbon-intensity target and the actual carbon intensity of the fuel supplied. The target gets stricter each year, which is the point of the programme. But that target is also what clean fuel is measured against, so as it falls it closes in on the carbon intensity of the clean fuel itself, and the gap the fuel earns on narrows.

Renewable diesel shows it most clearly. Its carbon intensity is 50 and does not move. Oregon’s diesel target falls from 90.4 in 2026 to 64.7 in 2035. A gallon that earned 40.4 points of credit in 2026 earns 14.7 in 2035 — same fuel, same plant, 64% fewer credits. Ethanol and biodiesel lose much the same.

So the tightening standard works on both sides of the ledger at once. It makes every gallon of petrol and diesel owe more, and it makes every gallon of clean fuel earn less. Electricity is the exception, because charging sits so far below the target that its gap stays wide, and credits from it grow 73% by 2035. That growth, plus renewable diesel bought in at the market price, is what keeps Oregon’s total credit rising at all.

Oregon credits traded around $130 in 2023, collapsed to $45 in 2024 when the bank was at its fattest, and came back to $135 in 2025. So far in 2026 the average sits near $143, with individual trades up to $175. That round trip is what a market does when a large surplus is worked off in a hurry.

From here the direction is one way. On the published schedule, with no response from DEQ, our model has the price rising every year through 2035 and the shortfall compounding, because a deficit carried forward becomes next year’s problem plus a penalty. That path is not a forecast of what will happen. It is a forecast of what the schedule says will happen if nobody changes it, and Oregon’s own rules say somebody has to.

Oregon wrote the escape hatch into the programme before any of this happened. Under OAR 340-253-2100, if a fuel supply forecast shows that the credits available in the coming compliance period will be less than 100% of the credits needed, DEQ shall issue a deferral order. The word is shall, the test is forward-looking, and the order has to be issued by 1 December, before the year it governs starts.

DEQ then picks one of three remedies.

Which one DEQ chooses matters enormously, and the rule does not say. Our alternative model applies the middle option, a freeze at the prior year’s standard, because it is the most conservative of the three and the easiest to defend. On that basis the shortfall through 2035 comes out roughly 60% smaller than the un-deferred path, and the price in 2035 lands about 40% lower. Suspending deficit accrual would do considerably more than that.

Three remedies, three very different markets, and an order due by 1 December. Get our OR-CFP run on both the published and deferred paths.

Two provisions are commonly read as ceilings on the Oregon credit price. Neither binds the market where credits actually trade.

The Credit Clearance Market. Under OAR 340-253-1040, a supplier that cannot cover its deficits enters a clearance market each June and July, where credit holders pledge credits for sale. That market has a maximum price, set at $200 in 2017 dollars and escalated by the West CPI every January, which puts it around $260 today.

The 5% carry-forward. A supplier that still cannot cover its position after the clearance market carries the unmet deficits into the next compliance period, grossed up by 5%. That is the real ceiling on what anybody will pay, and it is a soft one. A supplier will pay up to about 5% more than it expects to pay next year, which holds the price down when the shortage is temporary and does nothing at all when the shortage is permanent. Oregon’s, on the current schedule, is permanent.

The October forecast. Everything turns on it. If the forecast filed with DEQ shows credits below 100% of need for the following year, the deferral duty is triggered and an order has to issue by 1 December. That document is the leading indicator for this market, and it moves before the price does.

Which remedy DEQ picks. Adjusting the standard, freezing it, and suspending deficit accrual produce three very different markets. The rule gives DEQ the choice and no guidance on how to make it.

The 2040 target extension. DEQ has proposed extending the programme to at least a 50% reduction by 2040. On a system that cannot meet its 2030 targets from domestic supply, a steeper schedule past 2035 mostly changes the size of the deferral rather than the amount of fuel.

Climate Decode · Advisory

Holding Oregon credits, or supplying into a market about to go short?

Bank trajectories, deferral scenarios and cross-market netbacks across Oregon, Washington, California and the CFR — we work it end-to-end.

Method and Sources

Credit, deficit and bank history from Oregon DEQ Clean Fuels Program quarterly data summaries and the Credit Transfer Activity Report; prices are DEQ reported transfer prices, with 2026 a year-to-date partial. Forecast credits, deficits, bank and price from the Climate Decode OR-CFP model on the published basis, which applies the adopted standard schedule with no DEQ deferral assumed — the deferred path is shown as a comparison and is not the published case. Regulatory provisions read from OAR 340-253-1040 and OAR 340-253-2100. The clearance market maximum is $200 in 2017 dollars escalated by CPI-U West.