Under Washington’s cap-and-invest law — which went into effect on Jan. 1, 2023 — oil companies and middleman fuel distributors are not allowed to pass the extra costs of the carbon pricing program on to the agricultural world. Driver and the farmers he advises are not supposed to be paying any more to run their tractors or transport their products on the highway.
That exemption looks good on paper. But a complicated real world makes complying with the new rules very convoluted for farmers and truckers. A lawsuit against the state concerning farm fuel costs described the situation as “Kafkaesque.”
These complexities plus insufficient outreach have created a hit-or-miss situation to protect farmers from increased fuel cost due to the cap-and-invest program.
“There’s no education nor outreach from the state [ecology department] at all. …There is no clarity on who is paying for which,” Driver said.
Sheri Call, executive vice president of the Washington Trucking Association, agrees that there’s a real misunderstanding about how the new program works in the supply chain. Bre Elsey, government affairs director for the Washington Farm Bureau, adds: “Some distributors figured it out and some haven’t.”
The messy situation led the Washington Farm Bureau and Washington Trucking Association to jointly file a lawsuit in Thurston County Superior Court in mid-2023 against the Washington Department of Ecology, arguing more planning and better rules are needed to administer the program and its agriculture exemptions. The Ecology Department argued it has its act together. Judge Chris Lanese dismissed the lawsuit on July 29, saying the Ecology Department’s new rules complied with the Legislature’s intentions when it created the cap-and-invest program.
The messiness involves the multiple paths gasoline can travel from refineries to farmers. Sometimes a wholesale gasoline distributor ships fuel directly to a farm, making the tracking easy. Other times, fuel goes through one or more middlemen before it reaches a farm, which makes tracking any exemptions more difficult.
Oil refineries are among those paying surcharges in the new system because they are among the bidders at the state’s quarterly carbon auctions. When their fuel is sold to farmers and those transporting their crops, it is supposed to be exempted from those extra costs, which are otherwise passed on for non-agriculture uses. As supporters of the new program have acknowledged: Putting a price on carbon and making it more expensive to expend fossil fuel is supposed to make it less attractive and make other, cleaner energy sources look better in comparison.
But somewhere in the hodgepodge of uncoordinated supply chains, because farmers don’t buy directly from refineries and mostly not from wholesale distributors, the accounting gets messy. And farmers aren’t always getting the exemptions they were promised.
Big farms have accounting staffs to track complex supply chains. Smaller family farms don’t have that regulatory expertise. “I’m not big enough to have a full-time bookkeeper,” Driver said. Sixty-seven percent of Washington’s roughly 32,000 farms are small, Elsey said.
Major fuel distributors don’t serve a lot of small farms, which often buy their gasoline from retail filling stations. A rural gas station usually does not have the paperwork or trained employees needed to track their sales of farming and non-farming gasoline, Elsey and others said.
Another complication is that fuel is dyed red to signal that it’s to be used exclusively on farmland. It’s now also a signal to suppliers that this fuel should not be subject to any surcharges related to pay for extra costs from bidding on carbon pollution allowances. But it is illegal to use red-dye fuel on Washington’s roads, so it can’t be used to transport crops. Farmers “know [that if] they mess up, the fines are astronomical,” Elsey said.
So farms use regular gasoline to haul their crops to warehouses, grain elevators and food processors. But then they have an accounting nightmare to deal with. It is extremely difficult to parse regular gasoline use on roads into farming and non-farming uses, Driver said.
Opponents of Washington’s new Climate Commitment Act — the formal name of the cap-and-invest program — are using its agriculture impact as one reason to reject it at the ballot box. They have an initiative on the November ballot to do just that. The oil and gas industry has passed much of the costs they have accrued at the quarterly carbon auctions on to consumers at the gas pump, resulting by some estimates in 21 cent- to 50 cent-per-gallon increases. But numerous factors impact the rise and fall of Washington’s gasoline prices, which means it is difficult to pin down the exact cap-and-invest effect.
The program has raised roughly $2.15 billion since Jan. 1, 2023, which has been spent by the Legislature on numerous health, transportation, environmental, salmon and other projects.
Led by conservative interests, cap-and-invest opponents argue that the Democrat-controlled state government is forcing people to pay more for gasoline to fund its pet programs.
Cap-and-invest supporters — led by Democratic leaders and liberal organizations — argue that the revenue is paying for numerous programs across Washington. At least 30 percent of the money raised in carbon auctions is supposed to go to disadvantaged communities, especially those disproportionately affected by pollution.
Notably, most of the state’s oil industry is neutral about the cap-and-invest program, wanting to keep it while also modifying the system. British Petroleum has announced its opposition to the initiative to repeal the program.
Jeff Perrault is the fourth-generation president of Toppenish-based Perrault Farms, harvesting 1,000 acres of hops and 52 acres of blackberries. A believer in environmentally responsible farming, he understands both the arguments and the counter-arguments.
“Cap-and-invest’s intentions are good, but the economics in the long run don’t bode well for consumers. You can’t argue with where the money is being spent,” Perrault said. He argues the cap-and-invest surcharges have hard-to-define ripple effects on transportation and storage of his hops as they travel from the field to warehouses and then breweries.
His operation has a full-time accounting staff. But so far, it has not figured out the entire financial picture of all the moving economic parts of cap-and-invest.
Meanwhile, trucking companies face their own dilemmas.
With 65 trucks and 125 employees, Signature Transport Inc. of Kelso goes through 18,000 to 20,000 gallons of fuel a week as it hauls poultry for a Kelso chicken processing plant, wood wastes and other items across Washington and Oregon. Company president Dale Lemmons figures the cap-and-invest program has increased his fuel costs by 12 percent — “close to a half-million dollars a year.” Signature gets a quarterly refund from the state on the poultry trips.
However, Signature has a problem with a competitor based in Oregon. That competitor can buy its diesel and gas in Oregon (which does not have cap-and-trade surcharges) at a cheaper price and offer lower bids in competition with Signature. While Washington and Oregon companies have been arguing for a long time about their contrasting tax laws (Oregon has an income tax and Washington doesn’t, while Oregon doesn’t have a general sales tax but Washington’s sales taxes start at 6.5%) which create business disadvantages, the carbon pricing system adds another element to that debate.
The 46,000 members of the Washington Farm Bureau and 600 members of the Washington Trucking Association (70 percent of those members own one to five trucks) filed a lawsuit against the Washington Department of Ecology, arguing the state has done an inadequate job of consulting with truckers and farmers and a poor job of mapping out rules and procedures. They want these processes revisited.
“Ecology knowingly adopted a regulatory structure which failed to exempt fuel used for agricultural purposes from the scope of the regulations, and saddled Washington’s farmers and those transporting agricultural products with costs that the Legislature determined they should not bear,” the plaintiffs alleged in one court filing.
The plaintiffs’ filings said the Ecology Department was aware it needed new procedures to account for the highway transportation of agricultural products, but did not create an effective solution. The filings also allege the cap-and-invest program is weak on making fuel distributors separate regular and farm-related fuel, and at tracking auction-related surcharges among distributors.
“I was pretty disappointed with the attitude of the [Ecology] folks,” Lemmons said.
In its filings, the Ecology Department countered that it scrupulously followed the Legislature’s intentions when it set up the farming exemptions; communicated with farmers and truckers in setting up the procedures; and adequately communicated the regulations to the public. Judge Lanese ruled in the state’s favor by dismissing the lawsuit.
Joel Creswell, climate pollution reduction program manager for the Ecology Department, said exemption information is being accurately transmitted through the supply chains, but the state is not getting adequate feedback on those efforts. He said many suppliers are not passing the auction-related surcharges down the supply chain. The surcharges are supposed to be eliminated at the top end of the supply chain.
“We’re interested in feedback and happy to make changes,” he said.
The Legislature attempted to address this issue earlier this year by appropriating $30 million to reimburse farmers who ended up paying the auction-related surcharges on their fuel. “I’ve told farmers to keep all their receipts,” Elsey said.
Elsey argued $30 million is an inadequate allocation. “I’d say we need in excess of $250 million,” she said.
“We asked her for her data … We’re skeptical of payments of hundreds of millions of dollars,” Creswell of the Ecology Department responded to Cascade PBS.
