Low Carbon Fuel Deployment in Puget Sound

1. Low Carbon Fuel Deployment in Puget Sound Final Results July 18, 2019 Puget Sound Clean Air Agency

2. Project Overview The primary objective of the analysis conducted and presented here is to bring clarity to the complexity of transportation fuel markets that impact the Puget Sound region. Over a series of tasks, ICF and the Agency worked together to: • Outline the baseline conditions for conventional and alternative fuel production, fuel supply, and fuel distribution • Conduct scenario modeling that reviewed different combination of strategies to reduce the carbon intensity of transportation fuels in the Puget Sound region • Analyze the economic and air quality impacts of the implementation of a clean fuel standard Note: Puget Sound region defined as King, Kitsap, Pierce, and Snohomish counties

3. Transportation Fuels in Puget Sound • Gasoline: About 1.25 billion gallons of gasoline consumed in four-county region • It is an E10 market, so 10% ethanol blended with gasoline • Diesel: About 340 million gallons of diesel consumed in four-county region. • Low blends of biodiesel in the state • No drivers for renewable diesel or renewable jet fuel blended • Robust biofuel production in state • Biodiesel production: Seattle @ 2MGPY and Grays Harbor @ 100 MGPY • Renewable diesel production: BP Cherry Point, Ferndale REG-P66 • RNG production: Cedar Hills LFG, King County South WWTP, Klickitat PUD LFG, Yakima Valley Dairy Manure, Tacoma’s Central WWTP • Electric vehicles: Demonstrated strong adoption to date

4. Recap of Scenario Modeling The objective of the scenario analysis is to demonstrate the levels of carbon intensity reduction that could be achieved under different market conditions and considerations, and at what (estimated) cost. ICF analyzed four scenarios to demonstrate the feasibility of a carbon intensity standard for the Puget Sound region: • Two scenarios demonstrate that a 10% carbon intensity reduction requires only modest modification to the transportation fuel supply before 2030. • One scenario demonstrates a path to a more aggressive target of 16% carbon intensity reduction. • Lastly, an all-in, push-the limits of feasibility scenario to illustrate the maximum achievable carbon intensity (26%) for the Puget Sound region by 2030.

7. Overview of Economic Modeling • ICF used REMI modeling to measure wider macroeconomic impacts of the four scenarios presented. The REMI model is a peer-reviewed structural economic modeling, forecasting and policy analysis tool. • Key Modeling Inputs/Assumptions: • Fuel production &upstream expenditures • Distribution infrastructure expenditures • Credit allocation • Vehicle expenditures (conservative price difference) • Fuel prices (use maximum pass-through) • These Inputs use conservative estimates, but aren’t forecasts

8. Fuel Production Input/Assumption • Fuel production / upstream expenditures: Many of the alternative fuels may require significant investments in expanded productionor improvements. • Generally, ICF assumed that there is sufficient low carbon fuel production induced from other programs--including California’s LCFS, Oregon’s CFP and federal RFS. The basic assumption is that the low carbon fuel production and commitments to expanded low carbon fuel production are in place. • Example: Low carbon ethanol • ICF assumed that to reduce the CI of ethanolwould require investments at ethanol production facilities.

9. Distribution & Retail Infrastructure Input/Assumption • Distribution infrastructure expenditures: • Some fuels are drop-in (compatible with existing equipment) • Some require modifications • Distribution infrastructure costs were modeled as an increase in exogenous final demand for industries involved in equipment manufacturing or building new infrastructure. • Example: Biodiesel • ICF assumed that biodiesel would be blended up to B5 with no increases in the cost of distribution infrastructure. • However, as the blend rate exceeds B5, additional labeling and equipment is required to move to B20—signage/labeling, dispensers, piping, and tank cleaning.

10. Credit Price Input/Assumption • Assume starts low, but catches up to CA and OR in 3-5 years • Is modeling input/assumption, not forecast Assumed Credit Price in Puget Sound Credit Price History in CA and OR

11. Credit Allocationin REMI Modeling • Modeling of CFP credits is similar to California and Oregon. • For credit seller or generator, credits modeled as a decrease in production costs. • Credit purchases (made by entities producing or importing conventional gas and diesel fuel) are an increase in production costs. • In the case of credits generated through the use of electricity as a transportation fuel, ICF assumed that the value of the credit would be passed to the consumer.

12. Economic Impact Modeling PRELIMINARY REMI Results • Broader economic impacts of low carbon fuel standards are small: Economic growth continues. • Impact across the board was less than 0.05%. Compliance is small fraction of overall economy: consistent with previous findings. • Several sectors consistently show positive economic impacts across all modeling scenarios, with the primary driver(s)identified: • Motor vehicles, bodies and trailers, and parts manufacturing | Increased alternative fuel vehicle sales • Chemical manufacturing | Increased low carbon biofuel production • Utilities |Increased utilization of assets through electric vehicle charging • Electrical equipment and appliance manufacturing |EV charging infrastructure deployment • Primary metal manufacturing | Expanded distribution and fueling infrastructure • Transportation (via Rail, Marine, Truck) |Liquid biofuel transport • The Petroleum and Coal Products Manufacturing Sector has the largest percentage decrease in employment across all modeling runs. • Impacts are small, ranging from -1.0% to -0.4%. • Impacts are not significant enough to indicate an economic disruption such as a refinery closure.

13. Economic Impact Modeling PRELIMINARY REMI Results Gross Product and Employment • Results consistent with previous Washington State analysis (LCA 2014) • All scenarios yield net positive impact on economic growth from a Gross Regional Product (GRP) stand point, +0.1% to +0.4%. • ICF finds that employment continues to grow in all scenarios. • With respect to baseline growth, the impact on employment in the four-county Puget Sound region ranges from -0.05% to +0.02% (e.g. 9.95% to 10.02% vs 10.00%, still net growth in employment). • The scenarios with the highest level of fuel diversification—Scenario C and Scenario D, yield net positive macroeconomic impacts with both higher and lower credit prices. Note: Results discussed and shown for the four-county region

14. Economic Impact Modeling PRELIMINARY Refinery Impacts • CFP compliance yields varying levels of decreases in gasoline and diesel consumption in the Puget Sound region. • Increase use of alternative fuels will correspond with a decrease in consumption of petroleum fuels. For economic modeling purposes: • 50% of reduced fossil fuel consumption volume will be sold in other markets. • The other 50% of reduced fossil fuel consumption volume will not be refined – reduced throughput. Refining industry impacts modeled as: • The reduction in crude refining was estimated based on an ICF analysis of the so-called crack spread for West Coast refiners (estimated at about $15/bbl). • For the additional exported volumes, ICF assumed a corresponding decrease in revenue in the export markets because of increased freight costs (estimated at $5/bbl).

15. Questions? Contact information Jeff Rosenfeld, Jeffrey.Rosenfeld@icf.com Philip Sheehy, Philip.Sheehy@icf.com Emily Peterson, Emily.Peterson@icf.com