Washington’s clean fuel surplus is gone by 2029

Washington’s Clean Fuel Standard began in 2023 with gentle early targets. Suppliers over-complied and the state built a large surplus of credits. By the end of 2026 the bank holds about 4.3 million credits against an obligation of 2.9 million, more than a full year of compliance held in reserve.

That is why Washington credits are cheap. They traded at $65 in 2023, fell to $26 in 2024 and $30 in 2025 as the surplus piled up, and have picked up to an average near $55 in 2026 with individual trades at $77. On price alone, Washington is the cheapest compliance market in the region, at a fifth of what an Oregon credit costs.

Washington Department of Ecology Clean Fuel Standard quarterly data; forecast from the Climate Decode WA-CFS model on the adopted target schedule, with no Ecology deferral applied.

The required carbon intensity reduction is 7% in 2026, 14% by 2028, 20% by 2030 and 35% by 2035. Between 2026 and 2028 the obligation grows 78%, from 2.9 million credits to 5.1 million, while credit generation grows about a tenth.

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

2027 takes a million credits out of the bank. 2028 takes nearly two million. By the end of 2029, the surplus that has kept Washington credits at $30 is gone, and the shortfall compounds from there. On the adopted schedule, the state is 21.9 million credits in deficit by 2035.

Washington’s credit generation rises 135% between 2026 and 2035, from 2.9 million credits a year to 6.9 million. The obligation rises 287%, from 2.9 million to 11.1 million. Cover — credits generated as a share of credits owed — falls from 102% in 2026 to about 60% by the early 2030s and stays there.

Most of the supply growth is electricity. Washington gives generous credit to electric vehicle charging, and the charging load it counts nearly triples across the forecast, from 1.3 billion kilowatt-hours in 2026 to 3.6 billion in 2035. Each kilowatt-hour displaces gasoline and earns credits, and the volume compounds as the fleet turns over.

The obligation nearly doubles between 2026 and 2028, which is what empties the bank, and keeps climbing as the required reduction goes from 20% in 2030 to 35% in 2035. Credit supply never catches up on the adopted schedule.

Washington wrote a deferral duty into the rule. Under WAC 173-424-730, a fuel supply forecast arrives each year by 2 October. If it projects that the credits available next period will fall short of the credits needed, Ecology shall issue an order declaring a forecast deferral. That order has to be out by 1 December, before the year it covers begins.

The test is forward-looking. Ecology is required to act on a projected shortage in the year before it occurs, not on an observed one after the fact.

Ecology then chooses among three remedies, the same three available to Oregon DEQ, plus a fourth that is specific to Washington.

We model the targets as adopted, without assuming an order, because that is what the rule currently requires of suppliers. The deferral is the largest single number in this market. Applied from the year the test first bites, it turns a 21.9 million credit deficit in 2035 into a small surplus, and it takes about 60% off the credit price. Which of the three remedies Ecology picks decides how much of that lands, and the rule offers no guidance on the choice.

Four remedies, a 2 October forecast and an order due by 1 December. Get our WA-CFS run on both the adopted and deferred paths.

Under RCW 70A.535.025(6), from the 2030 program year, Ecology may not push the required carbon intensity reduction past 20% on its own. First it has to demonstrate something physical. At least one new or expanded biofuel production facility must have received a siting, operating or environmental permit dated after 1 January 2025.

Without a qualifying permit, the standard holds at 20% from 2030 and the deficit stops growing. The programme keeps running at its 2030 level until a plant is permitted, which ties any further tightening of the standard to new production capacity being approved.

Our base case assumes the brake is released, because several Washington biofuel projects are in permitting and one qualifying permit is enough. That assumption turns on a permitting decision rather than on fuel supply or price.

The October forecast, each year from 2026 on. Washington’s deferral duty turns on a forecast filed by 2 October showing available credits below 100% of need. Under state law producing that forecast is the Department of Commerce’s job. It is the leading indicator for this market, it arrives before the price moves, and it is a public document.

Biofuel permits. One qualifying permit issued after 1 January 2025 releases the 20% brake and lets the standard keep tightening past 2030. Without one, the programme holds at 20% and the post-2030 deficit does not materialise.

The 2038 step. The schedule takes the reduction from 35% in 2035 to 45% in 2038, and the obligation rises with it. Ecology also holds an option to set the 2038 target at 55%. That would add to an obligation the market is already short against.

Washington is the cheaper of the two Northwest markets for three more years. The surplus is doing the same work Oregon’s did, and it runs out the same way.

Climate Decode · Advisory

Buying the cheapest credits in the region while they last?

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

Method and Sources

Credit, deficit and bank history from Washington Department of Ecology Clean Fuel Standard quarterly data and credit transfer reports; prices are Ecology reported transfer prices, with 2026 partial. Forecast credits, deficits, bank and price from the Climate Decode WA-CFS model on the adopted target schedule, with no WAC 173-424-730 deferral order assumed and the RCW 70A.535.025(6) brake taken as released. The deferral is shown as a policy comparison, never as the base case. Regulatory provisions read from WAC 173-424-570, -720 and -730, and RCW 70A.535.025 and .180. Carbon intensity reduction schedule per the adopted standard.