As Washington State advances its Clean Fuel Standard (CFS) into its third year, the 2025 legislative session has introduced Senate Bill 1409, a proposal to deepen carbon intensity (CI) reductions for transportation fuels. Under the existing rule, fuel suppliers must achieve a 20 percent CI reduction below 2017 levels by 2034. SB 1409 seeks to nearly double that ambition, mandating a 45 percent reduction by January 1, 2038. For obligations running through the late 2030s, this tighter schedule will fundamentally change compliance planning. Suppliers that anticipate and adapt to these heightened requirements now will secure competitive advantage, avoid last minute scramble, and manage costs more effectively.

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Overview of SB 1409’s Enhanced Targets

SB 1409 retains the CFS’s core structure annual benchmarks, credit generation for low CI fuels, and deficits for high CI fuels but steepens the long term reduction curve. Instead of a linear glide path to a 20 percent reduction by 2034, the bill phases in progressively steeper annual CI targets, culminating in a 45 percent reduction by 2038. Early in the next decade, the year on year incremental carbon cuts will average around 3 percent, compared to roughly 1 percent under the current rule. This acceleration means that pathways relying on marginal improvements in feedstock sourcing or process efficiency may no longer suffice; only the cleanest fuels renewable natural gas (RNG), advanced biofuels and sustainable aviation fuel (SAF) will generate sufficient credits to meet growing deficits.

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Implications for Obligated Parties

Fuel suppliers face two primary pressures under SB 1409. First, annual deficits will rise sharply as benchmarks tighten, requiring the purchase of an ever increasing volume of credits. Historical CFS trading data show wide price swings credits traded near $100 in August 2023 before settling around $40 in mid 2024  and under a steeper demand curve, prices are likely to firm in the $80–$120 range. Second, compliance complexity will increase: suppliers must track a broader portfolio of low CI pathways, register new fuels through Washington’s Alternative Fuel Portal, and reconcile credits and deficits each quarter via the Washington Fuels Reporting System, with third party verifications required every three years. Failure to anticipate these shifts risks last minute credit shortages, higher procurement costs and potential civil penalties.

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Strategic Recommendations for Compliance

To thrive under SB 1409, fuel suppliers should adopt a proactive, multi pronged strategy that centers on diversification, early engagement and robust data management. First, diversify compliance portfolios across multiple low CI pathways. Renewable natural gas projects especially dairy and landfill gas offer some of the lowest lifecycle scores and can generate negative CI values, making them indispensable under steep benchmarks. Advanced biofuels, including waste based biodiesel and cellulosic ethanol, provide additional supply resilience, while sustainable aviation fuel can serve niche blending requirements and command premium credit values.

Second, engage early with regulators and stakeholders. Initiating pathway certification discussions with the Department of Ecology during rulemakings or public comment windows streamlines approval and clarifies modelling assumptions under WA GREET (Washington’s adaptation of the GREET model). Early registration accelerates time to first credit issuance and reduces carry over risk.Third, invest in data and verification systems. Accurate feedstock tracking, real time monitoring of production processes and comprehensive lifecycle analysis documentation underpin confidence in CI scores. A robust data infrastructure not only eases quarterly reporting but also supports defenses against audits and third party verifications. Suppliers should also establish internal cross functional teams combining regulatory, sustainability and trading expertise to monitor evolving CI benchmarks, manage credit portfolios and execute timely trades.

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Financing and Offtake Strategies

Under a more ambitious CFS, financing low CI projects requires layered revenue models. For in state producers or vertically integrated suppliers, offtake agreements with credit buyers utilities, transit agencies or large fleets provide predictable revenue streams. Fixed price collars, with agreed floors and ceilings on credit prices, hedge against market volatility while preserving upside. Upstream financiers, including tax equity investors and commercial lenders, increasingly demand binding offtake or tolling contracts before committing capital.

Out of state developers can partner with regional fuel distributors to secure CFS obligations, leveraging the state’s Emerging Clean Energy Projects incentives such as preferential permitting timelines under House Bill 1216 to reduce project delivery risk. Stacking federal incentives from the Inflation Reduction Act (e.g., Section 45V clean hydrogen credits for power to liquids pathways) with state CFS credits further enhances returns and widens the potential investor pool.

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Case in Point: A Hypothetical Supplier Transition

Consider a mid sized natural gas distributor that currently meets 80 percent of its CFS obligations through RNG contracts and the remainder by purchasing advanced ethanol credits. Under the existing rule, this mix may yield a slight surplus of credits that can be banked for future deficits. Under SB 1409, however, ethanol credits with CI values near 50 gCO₂e/MJ may cover progressively fewer deficit megajoules, forcing the supplier to secure additional RNG or invest in new low CI pathways such as landfill gas or SAF. By forecasting bench-mark curves, renegotiating long term RNG contracts to include higher volumes and exploring joint ventures in regional landfill biogas projects, the supplier can maintain compliance cost certainty and avoid last minute credit scarcity.

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AFS Commodities’ Support Services

AFS Commodities provides end to end guidance for navigating SB 1409’s enhanced CFS framework. Our services encompass:

• Regulatory Advisory: Assessing impacts of proposed benchmark trajectories and advising on rulemaking participation.
• Pathway Development: Preparing Tier 2 and temporary pathway applications, compiling WA GREET lifecycle data and liaising with Ecology to expedite certification.
• Portfolio Optimization: Modeling credit supply and demand under various CFS scenarios, recommending optimal mixes of RNG, advanced biofuels and SAF.
• Trading & Risk Management: Structuring offtake contracts with price collars, executing credit trades to capitalize on market arbitrage and hedging credit-price exposure.
• Reporting & Verification: Managing quarterly filings in the Washington Fuels Reporting System, coordinating third party verifiers and maintaining audit-ready documentation.

By combining deep regulatory insight with robust market intelligence and trading expertise, AFS Commodities helps clients transform SB 1409’s heightened requirements into strategic advantages.

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SB 1409 represents a paradigm shift in Washington’s Clean Fuel Standard, raising the bar for carbon intensity reductions and reshaping compliance dynamics. Fuel suppliers that anticipate steeper benchmarks, diversify low CI pathways, engage proactively with regulators and deploy sophisticated financing and trading strategies will be best positioned to thrive. With comprehensive services that span regulatory advisory, pathway certification, portfolio management and trading execution, AFS Commodities stands ready to guide clients through the complexities of Washington’s next generation CFS. Contact our team today to develop a strategic roadmap tailored to your compliance and commercial objectives.