Oregon Department of Environmental Quality

November 15 – 16, 2018ENTER EQC MEETING DATE mm dd, yyyy

Oregon Environmental Quality Commission Meeting

Agency Staff Report

Rulemaking Action Item NO. XX

CFP 2018 Rulemaking

Table of Contents

DEQ recommendation to the EQC  2

Overview  3

Statement of Need  5

Rules affected, authorities, supporting documents  7

Fee Analysis  9

Statement of fiscal and economic impact  10

Federal relationship  16

Land Use  17

Advisory Committee  18

Public Hearings  20

Summary of comments and DEQ responses  20

Commenters  21

Implementation  22

Five-year review  24

Draft Rules – With Edits Highlighted  25

Draft Rules – With Edits Included  26

DEQ recommendation to the EQC

DEQ recommends that the Environmental Quality Commission adopt the proposed rules in Attachment A as part of Chapter 340 of the Oregon Administrative Rules.

Overview

Short summary

DEQ proposes to amend Oregon Clean Fuels Program rules under Division 253 of Chapter 340 of the Oregon Administrative Rules. The proposed rule changes would:

•  update the models used to determine the carbon intensities of fuels and the resulting changes to the lookup table values, clean fuel standards, energy economy ratios, and temporary fuel pathway codes;

•  add new categories of fuel applications that can be used to generate credits, including forklifts and transport refrigeration units, and add new fuels that could generate credits such as alternative jet fuel and renewable propane; and

•  make some additional housekeeping changes and updates.

DEQ also proposes to amend rules under Division 12 of Chapter 340 of the Oregon Administrative Rules to classify certain violations and establish or clarify enforcement criteria for violations of the Oregon Clean Fuels Program.

Brief history

The 2009 Oregon Legislature passed House Bill 2186 authorizing the Oregon Environmental Quality Commission to adopt rules to reduce lifecycle emissions of greenhouse gases from Oregon’s transportation fuels by 10 percent over a 10-year period.

The EQC adopted phase 1 rules on Dec. 7, 2012 that required Oregon transportation fuel producers and importers to register, keep records, and report the volumes and carbon intensities of the transportation fuels they provide in Oregon.

The EQC adopted phase 2 rules on Jan. 7, 2015 that required Oregon transportation fuel importers to reduce the average carbon intensity of fuels they provide in Oregon by 10 percent over a 10-year period.

The 2015 Oregon Legislature passed Senate Bill 324 that removed the Dec. 31, 2015 sunset date in House Bill 2186 (2009) and further amended the authorizing statute, ORS 468A.275, for the Oregon Clean Fuels Program.

The EQC adopted updated rules on Dec. 9, 2015 to implement SB 324 (2015).

The EQC adopted temporary rules on April 21, 2016 to correct a miscalculation in the clean fuel standards and certain carbon intensity values. Permanent rules for the correction were adopted on August 18, 2016.

The 2017 Oregon Legislature passed House Bill 2017 that added provisions for a Credit Clearance Market (CCM) as an additional cost containment mechanism and reorganized the portions of ORS 468A that authorize and set requirements for the Clean Fuels Program. The sections authorizing the Clean Fuels Program were renumbered to ORS 468A.265 through 277.

The EQC adopted updated rules on Nov. 2, 2017 adding the CCM mechanism, updating several provisions relating to electricity’s use as a transportation fuel, and adding market monitoring provisions.

Regulated parties

The Clean Fuels Program currently has 154 businesses that are registered to participate, including:

•  Importers of Blendstocks - These are businesses that import liquid fuel components which can be blended with another fuel component or used alone. There are currently 58 businesses registered as importers of blendstocks.

•  Importers of Finished Fuels - These are businesses which only import fuels that can be used directly in a motor vehicle, such as clear gasoline, gasoline blended with 10 percent ethanol, clear diesel and diesel blended with 5 percent biodiesel. There are currently 50 businesses registered as importers of finished fuels, 35 businesses are large (more than 500,000 gallons per year) and 15 are small (less than 500,000 gallons per year). Small importers of finished fuels are largely exempted from the program, except for the requirement to register and annually file a report through the agency’s greenhouse gas reporting program. To note, the program’s definition of a “small importer,” required by statue, does not align with the statutory definition of a “small business” that is used to analyze the fiscal and economic impact to small businesses.

•  Oregon Producers of Transportation Fuels - There are currently three registered Oregon producers of biofuels. One produces ethanol from corn, one produced ethanol from waste food products and one produces biodiesel from used cooking oil.

•  Credit Generators – These are businesses that provide or produce clean fuels (natural gas, renewable natural gas, propane, electricity and hydrogen). These businesses are not required to participate with the program, but must register in order to generate credits if they choose to. Importers of blendstocks and Oregon producers may also generate credits due to the nature of fuels they provide, but an entity registered as a credit generator is doing so solely because it provides clean fuels. There are currently 43 businesses registered as credit generators.

Request for other options

During the public comment period, DEQ requests public comment on whether to consider other options for achieving the rules’ substantive goals while reducing the rules’ negative economic impact on business.

Statement of Need

Climate change poses a serious threat to Oregon’s economy, environment and public health. Transportation sources account for approximately one third of all greenhouse gas emissions in Oregon. The goal of the CFP is to reduce greenhouse gas emissions from Oregon’s transportation fuels by promoting lower-carbon production methods for existing fuels and the innovation, commercialization, and deployment of new low-carbon alternative fuels. While the CFP has been operating since 2016, there are several needs that this proposed rulemaking is seeking to address as described below.

Lead division

Air Quality Division

Program or activity

Oregon Clean Fuels Program

Chapter 340 action

Adopt - OAR

Amend - OAR

Statutory authority - ORS

Statutes implemented - ORS

Legislation

Documents relied on for rulemaking  

This rulemaking does not involve fees.

Statement of fiscal and economic impact

The Oregon Clean Fuels Program is a technology-neutral, market-based regulatory program to reduce carbon pollution from transportation fuels and promote the commercialization and deployment of innovative low-carbon fuels. The program does not mandate the use of any particular type of fuel or technology. Instead, it creates a performance standard to reduce the average carbon intensity of fuels sold by 10 percent over 10 years. The program allows for many strategies to be employed for meeting the clean fuel standards, giving each regulated party the flexibility to consider its particular circumstance, perspective and business needs when devising its own strategy to meet the standard.

The scope of this fiscal and economic impact statement is limited to the impact of the proposed rule changes contained in this rulemaking, it does not re-assess the existing CFP in its entirety. The proposed rule changes fall into four broad categories: 1) changes in the potential market value of lower carbon fuels based on the updated carbon intensity values; 2) potential benefits to new fuel types and fuel uses; and 3) potential costs related to enforcement. The proposed rule revisions are based on discussions and input from DEQ’s CFP 2018 Rulemaking Advisory Committee.

•  Updates to the models used to calculate carbon intensity values and the resulting changes to carbon intensity values and the clean fuel standards

◦  Update to OR-GREET 3.0

◦  Update to OPGEE 2.0

◦  Revised carbon intensity values

◦  Revised clean fuel standards

•  New fuel types and fuel applications that can generate credits in the program

◦  Forklifts

◦  Transport refrigeration units

◦  Alternative jet fuel

◦  Renewable propane

•  Updates to enforcement provisions

Statement of Cost of Compliance  

General Direct Costs

•  Administrative Costs

There is a one-time cost of staff time to register with the program if the business is not already registered. There are on-going costs to keep records, submit reports, obtain carbon intensities, and generate and transfer credits.

The proposed rule changes would make it easier to submit a Tier 1 application and would not otherwise change the administrative costs associated with participating in the program.

•  Costs Related to Enforcement

There are costs related to being involved in an enforcement action that includes responding to requests for additional information, correcting the violation and the payment of civil penalties if assessed.

The proposed rule changes would not have an economic impact on businesses, individuals or government entities unless they violate the program rules.

•  Costs to Reduce Carbon

To achieve the existing and updated clean fuel standards, each regulated party could provide greater volumes of lower carbon fuels, blend different types of lower carbon fuels or purchase credits from providers of clean fuels. These options would have varying costs. Since clean fuel credits are bought and sold in a free market and their prices are negotiated between private businesses, DEQ cannot accurately predict the actual cost impacts related to the credit market.

As described above, the proposed clean fuel standards for gasoline are slightly lower than the current values and the proposed clean fuel standards for diesel are slightly higher than the current values, reflecting recalculations of the baseline carbon intensities for gasoline and diesel. The proposed changes to OR-GREET do not result in any significant change to the carbon intensities of gasoline or diesel substitutes. The proposed changes to the values for the gasoline and diesel clean fuel standards would not have a significant economic impact.

The proposed rules would add additional credit generation from alternative jet, renewable propane, forklifts, and transport refrigeration units and may have an impact on credit prices as these applications increase in use over time. Individual businesses that provide these fuels or use them in the specified fuel applications would benefit economically by their inclusion in the program.

Potential Impact to Fuel Consumers

Fuel consumers could experience both positive and negative impacts as regulated parties pass their savings and costs to their customers. For example, if the retail price of lower carbon fuels are less than the fuels they replace, then costs should decrease. Conversely, if the retail price of lower carbon fuels are greater than the fuels they replace or if regulated parties had to purchase credits to comply with the standards, costs could increase. The proposed rule changes do not significantly change this impact.

DEQ and other state agencies, federal agencies, local governments

Direct Impact on DEQ: The proposed rule changes will increase the amount of work for CFP staff in terms of having additional parties register in the program. This additional work will be absorbed into the current 2.5 FTE allocated to implement the program.

Direct Impacts on other agencies: The proposed rule changes do not impose direct fiscal or economic effects on state or federal agencies or local governments unless they import transportation fuel or provide clean fuels. If so, see the discussions about the General Direct Costs above.

Indirect Impacts: State and federal agencies and local governments are fuel consumers. See the discussions about the Potential Impact on Fuel Consumers above.

Public

Direct Impacts: The proposed rule changes do not impose direct fiscal or economic effects on the public.

Indirect Impacts: Members of the public purchase fuel for their personal vehicles. See the discussions about the Potential Impact on Fuel Consumers above.

Large businesses - businesses with more than 50 employees

Many large businesses participate in the program including but not limited to fuel terminal operators, biofuel producers, fuel marketers, natural gas and electric utilities, EV charger owners, and transit districts. The proposed rule changes would add owners or operators of forklift fleets or warehousing operations to the types of businesses that could participate in the program.

Direct Impacts: See the discussions about General Direct Costs above.

Indirect Impacts: Large businesses are fuel consumers. See the discussions about the Potential Impact on Fuel Consumers above.

Small businesses – businesses with 50 or fewer employees

Direct Impacts: See the discussions about General Direct Costs above.

Indirect Impacts: Small businesses are fuel consumers. See the discussions about the Potential Impact on Fuel Consumers above.

a. Estimated number of small businesses and types of businesses and industries with small businesses subject to proposed rule.

Approximately 50 small businesses are registered with the program, primarily fuel distributors, credit generators, and biofuel producers.

b. Projected reporting, recordkeeping and other administrative activities, including costs of professional services, required for small businesses to comply with the proposed rule.

There proposed rule changes would not affect these costs except in the case of a new small business registering to generate credits from the proposed additions to the program. In this case they will incur minimal administrative costs described in the discussions about the General Direct Costs above.

c. Projected equipment, supplies, labor and increased administration required for small businesses to comply with the proposed rule.

The proposed rule changes would not affect these costs.

d. Describe how DEQ involved small businesses in developing this proposed rule.

DEQ convened a 25-member advisory committee that included small businesses to discuss the proposed rule changes.

Documents relied on for fiscal and economic impact

Advisory committee

DEQ appointed the CFP 2018 Rulemaking Advisory Committee to provide input on the proposed rules and for input on the fiscal and economic impact statement. As ORS 183.333 requires, DEQ asked for the committee’s recommendations on:

•  Whether the proposed rules would have a fiscal impact,

•  The extent of the impact, and

•  Whether the proposed rules would have a significant adverse impact on small businesses and complies with ORS 183.540.

The committee reviewed the draft fiscal and economic impact statement and its findings are stated in the meeting summary and in submitted written comments posted here: https://www.oregon.gov/deq/Regulations/rulemaking/Pages/rCFP2018.aspx. The committee determined the proposed rules would not have a significant impact on businesses in general, nor an adverse impact on small businesses in Oregon.

The following advisory committee work was instrumental to the design of the Oregon Clean Fuels Program.

2018

From February through July 2018, DEQ worked with a 25-member advisory committee that included small businesses. The committee discussed updates to the lifecycle accounting models, additions to the program, other miscellaneous improvements, and enforcement provisions proposed in this rulemaking. Membership and meeting summaries are at: 2018 Advisory Committee.

2016-7

From November 2016 through June 2017, DEQ worked with a 29-member advisory committee that included small businesses. The committee discussed cost containment updates to the program and other miscellaneous improvements proposed in this rulemaking. Membership and meeting summaries are at: 2017 Advisory Committee.

2015

From July through August 2015, DEQ worked with a 20-member advisory committee that included small businesses. The committee discussed updates to the program proposed in this rulemaking. Membership and meeting summaries are at: 2015 Advisory Committee.

2014

From June through August 2014, DEQ worked with a 21-member advisory committee that included small businesses. The committee discussed phase 2 design of the Clean Fuels Program. Membership and meeting summaries are at: 2014 Advisory Committee.

2013

During the first half of 2013, DEQ conducted extensive outreach to fuel importers and producers across the state to determine who was regulated and non-regulated. This included small businesses. Outreach included a web-based survey, individual phone conversations and in-person meetings in Portland, Eugene, Salem, Medford, Bend and Pendleton.

2012

In May 2012, DEQ convened an advisory committee to focus on the fiscal and economic impact of implementing phase 1. Membership and the meeting summary are at: 2012 Advisory Committee.

2009-2010

From November 2009 through November 2010, DEQ worked with a 29-member advisory committee that included small businesses. The committee discussed the design of the Oregon Clean Fuels Program. Membership and meeting summaries are at: 2009 Advisory Committee.

Housing cost

As ORS 183.534 requires, DEQ evaluated whether the proposed rules would have an effect on the development cost of a 6,000-square-foot parcel and construction of a 1,200-square-foot detached, single-family dwelling on that parcel. DEQ determined the proposed rules would have no effect on the development costs because the proposed rules only affect transportation fuels used in Oregon.

Relationship to federal requirements

ORS 183.332, 468A.327 and OAR 340-011-0029 require DEQ to attempt to adopt rules that correspond with existing equivalent federal laws and rules unless there are reasons not to do so.

The proposed rules are “in addition to federal requirements” since there are no federal regulations that require the reduction in the average lifecycle content of greenhouse gases in transportation fuels. The proposed rules protect the environment and residents of Oregon by reducing greenhouse gas emissions.

What alternatives did DEQ consider if any?

In designing the Clean Fuels Program, DEQ considered many alternatives contained in the proposed rule. Input from advisory committees in 2010, 2012, 2014, 2015, 2016, 2017, and 2018 and extensive outreach with affected stakeholders throughout the process informed the design of the Oregon Clean Fuels Program. Documentation is in the rulemaking record.

Land-use considerations

In adopting new or amended rules, ORS 197.180 and OAR 340-018-0070 require DEQ to determine whether the proposed rules significantly affect land use. If so, DEQ must explain how the proposed rules comply with statewide land-use planning goals and local acknowledged comprehensive plans.

Under OAR 660-030-0005 and OAR 340 Division 18, DEQ considers that rules affect land use if:

•  The statewide land use planning goals specifically refer to the rule or program, or

•  The rule or program is reasonably expected to have significant effects on:

◦  Resources, objectives or areas identified in the statewide planning goals, or

◦  Present or future land uses identified in acknowledged comprehensive plans

To determine whether the proposed rules involve programs or actions that affect land use, DEQ reviewed its Statewide Agency Coordination plan, which describes the DEQ programs that have been determined to significantly affect land use. DEQ considers that its programs specifically relate to the following statewide goals:

Goal  Title

 5  Open Spaces, Scenic and Historic Areas, and Natural Resources

 6  Air, Water and Land Resources Quality

 9  Ocean Resources

11  Public Facilities and Services

 16  Estuarial Resources  

Statewide goals also specifically reference the following DEQ programs:

•  Nonpoint source discharge water quality program – Goal 16

•  Water quality and sewage disposal systems – Goal 16

•  Water quality permits and oil spill regulations – Goal 19

Determination

DEQ determined that these proposed rules do not negatively impact land use under OAR 340-018-0030 or DEQ’s State Agency Coordination Program. In fact, these proposed rules have the potential to positively impact the statewide goals in that it has the potential to reduce greenhouse gas emissions and mitigate the impact of climate change.

Background

DEQ convened the CFP 2018 Rulemaking advisory committee. The committee included importers of various transportation fuels; large and small businesses that may be regulated parties; the general public; and conservation organizations with members that may be impacted by the program and met 3 times. The committee’s web page is located at: https://www.oregon.gov/deq/Regulations/rulemaking/Pages/rCFP2018.aspx.

The committee members were:

Meeting notifications

To notify people about the advisory committee’s activities, DEQ sent a GovDelivery bulletin, a free e-mail subscription service, to the Oregon Clean Fuels subscribers to describe how to participate in the advisory committee process.

Committee discussions

In addition to the recommendations described under the Statement of Fiscal and Economic Impact section above, the committee was asked to discuss and provide input on the following topics:

•  Updates to the models used to determine the carbon intensities of fuels

•  The potential for additional credit generation to the program

•  Alignment of the enforcement provisions in Division 12 with the Division 253 rules adopted by the EQC on November 3, 2017

•  Other topics, as identified by DEQ staff

EQC prior involvement

DEQ shares general rulemaking information with EQC through the monthly Director’s Report. DEQ did not present additional information specific to this proposed rule revision.

Public Notice

DEQ provided notice of the proposed rulemaking and rulemaking hearing on September 1, 2018 by:

•  On September 1, 2018, filing notice with the Oregon Secretary of State for publication in the September 1, 2018 Oregon Bulletin;

•  Posting the Notice, Invitation to Comment and Draft Rules on the web page for this rulemaking, located at: Clean Fuels 2018;

•  Emailing approximately 10,775 interested parties on the following DEQ lists through GovDelivery:

◦  Rulemaking

◦  Oregon Clean Fuels Program

◦  DEQ Public Notices

•  Emailing the following key legislators required under ORS 183.335:

◦  

◦  

◦  

◦  

•  Posting on the DEQ event calendar: DEQ Calendar

DEQ held one public hearing. The hearing was held at the DEQ Headquarters Office, 700 NE Multnomah Street, Portland, OR 97232 on September 20, 2018 at 1:30 p.m. Cory-Ann Wind served as the presiding officer.

The presiding officer convened the hearing, summarized procedures for the hearing, explained that DEQ was recording the hearing, and summarized the content of the rulemaking notice. The presiding officer asked people who wanted to present verbal comments to sign the registration list, or if attending by phone, to indicate their intent to present comments.

4 people attended the hearing in person and 6 people attended by teleconference. 3 people commented orally and no written comments were submitted at the hearing.

Public comment period

DEQ accepted public comment on the proposed rulemaking from September 1, 2018 until 4:00 p.m. on September 28, 2018.

The following summaries represent oral comments received at the public hearing, written comments that were received by the close of the public comment period, and DEQ’s response to the comments. Original comments are on file with DEQ. DEQ changed some of the proposed rules in response to comments described in the response sections below.

The following are oral comments presented at the September 20, 2018 public hearing:

Comment #1

Name: Graham Noyes

Organization: Low Carbon Fuels Coalition

Comment #2

Name: Graham Noyes

Organization: Noyes Law Corporation, representing alternative jet fuel producers (World Energy Paramount, Fulcrum bioenergy, Gevo, Neste, Red Rock Biofuels, and Velocys)

Comment #3

Name: Oscar Garcia

Organization: Chevron

Comment #4

Name: Jeff Bissonnette

Organization: Union of Concerned Scientists

The following are written comments submitted via CFP 2018 Rulemaking webpage:

Comment #5

Name: Jessica Spiegel

Organization: Western States Petroleum Association

Comment #6

Name: Shailesh Sahay

Organization: POET, LLC

Comment #7

Name: Veronica Bradley

Organization: Airlines for America

Comment #8

Name: Chris Bliley

Organization: Growth Energy

Comment #9

Name: Blake Wojcik

Organization: RPMG

Comment #10

Name: John Duff

Organization: National Sorghum Producers

Comment #11

Name: John Thornton

Organization: CleanFuture, Inc.

Comment #12

Name: Jana Gastellum

Organization: Oregon Environmental Council

Comment #13

Name: Graham Noyes

Organization: Noyes Law Corporation, representing alternative jet fuel producers (World Energy Paramount, Fulcrum bioenergy, Gevo, Neste, Red Rock Biofuels, and Velocys)

The proposed rules would become effective on January 1, 2019mmm, dd, yyyy.

Notification

•  DEQ would notify affected parties via email using the Clean Fuels Program GovDelivery list.

•  DEQ will update its webpage to reflect the current information.

•  DEQ will publish the adopted rules in the Oregon Bulletin.

Describe Notification (PARTIES AND METHOD USED TO PROVIDE NOTICE)

Compliance and enforcement

•  DEQ would notify affected parties via email using the Clean Fuels Program GovDelivery list.

Reporting

•  DEQ will modify the CFP Online System to incorporate these rule changes.

Training

•  DEQ will provide technical assistance about program requirements to regulated parties, credit generators and brokers.

•  DEQ will provide general education to decision makers, interested stakeholders and the general public about changes to the program.

Five-year review ORS 183.405

Requirement  

Oregon law requires DEQ to review new rules within five years after EQC adopts them. The law also exempts some rules from review. DEQ determined whether the rules described in this report are subject to the five-year review. DEQ based its analysis on the law in effect when EQC adopted these rules.

Exemption from five-year rule review

The Administrative Procedures Act exempts the following proposed rules from the five-year review because the proposed rules would amend or repeal an existing rule or correct errors or omissions in the existing rules:

OAR 340-012-0054, OAR 340-012-0135, OAR 340-012-0140, OAR 340-012-0150, OAR 340-253-0000, OAR 340-253-0040, OAR 340-253-0060, OAR 340-253-0100, OAR 340-253-0200, OAR 340-253-0250, OAR 340-253-0310, OAR 340-253-0320, OAR 340-253-0330, OAR 340-253-0340, OAR 340-253-0400, OAR 340-253-0450, OAR 340-253-0470, OAR 340-253-0500, OAR 340-253-0600, OAR 340-253-0620, OAR 340-253-0630, OAR 340-253-0640, OAR 340-253-0650, OAR 340-253-0670, OAR 340-253-1000, OAR 340-253-1005, OAR 340-253-1010, OAR 340-253-1020, OAR 340-253-1030, OAR 340-253-1040, OAR 340-253-1055, OAR 340-253-2000, OAR 340-253-2100, OAR 340-253-8010, OAR 340-253-8020, OAR 340-253-8030, OAR 340-253-8040, OAR 340-253-8050, OAR 340-253-8060, OAR 340-253-8070, OAR 340-253-8080, OAR 340-253-8090, OAR 340-253-8100

Five-year rule review required

No later than November 15, 2023, DEQ will review the newly adopted rules for which ORS 183.405(1) requires review to determine whether:

•  The rule has had the intended effect

•  The anticipated fiscal impact of the rule was underestimated or overestimated

•  Subsequent changes in the law require that the rule be repealed or amended

•  There is continued need for the rule.

The review will apply to OAR 340-253-0350. DEQ will use “available information” to comply with the review requirement allowed under ORS 183.405(2). DEQ will provide the five-year rule review report to the advisory committee to comply with ORS 183.405 (3).

GIBSON Lynda, 2018-10-09T15:32:00Z
Bill, please provide an appropriate response.

GIBSON Lynda, 2018-10-09T16:31:00Z
Bill, please provide a response to this…