Background
In 2021, the Washington State Legislature enacted the Climate Commitment Act (CCA), establishing a “cap and invest” program that limits greenhouse gas emissions from large fuel suppliers — those emitting 25,000 or more metric tons of CO2 equivalent per year. The legislature carved out an exemption for motor vehicle fuel or special fuel used exclusively for agricultural purposes by a “farm fuel user,” conditioned on the buyer providing the seller with an exemption certificate in a form prescribed by the Department of Ecology. Ecology was also directed to expand the exemption to cover fuels used for transporting agricultural products on public highways. Ecology promulgated implementing rules in 2022 under WAC 173-446-040(2)(b)(iii)-(iv), placing the point of regulation on covered fuel suppliers rather than on agricultural end users.
After learning that some suppliers were adding surcharges to the wholesale price of all fuel — including fuel destined for agricultural use — to offset compliance costs under the cap, the Washington Farm Bureau (WFB) petitioned Ecology to open a new rulemaking to create a more workable pre-purchase exemption mechanism and a refund process for improperly surcharged agricultural buyers. Ecology denied the petition, concluding that its existing interim guidance was functioning adequately and that it lacked statutory authority to mandate refunds. WFB then filed a petition for declaratory judgment and APA review in superior court, arguing that Ecology’s rule exceeded its statutory authority and that both the rule and the denial of rulemaking were arbitrary and capricious. The superior court dismissed the petition with prejudice. The Washington Supreme Court granted direct review and retained the case.
The Court’s Holding
The court affirmed, holding that Ecology’s rule was reasonably consistent with the CCA and did not exceed the agency’s statutory authority. The court found that the CCA’s plain language places compliance obligations on fuel suppliers as the “covered entities,” not on agricultural end users. Suppliers, not buyers, are the entities that can claim agricultural exemptions, and the exemption certificates buyers provide serve as the mechanism for suppliers to substantiate those claims. Because the CCA regulates emissions at the supplier level, Ecology’s rule correctly targeting supplier emissions was well within its delegated authority. The court further held that nothing in the CCA required Ecology to make exempt-fuel reporting mandatory for suppliers — mandatory reporting was present in related statutes like the Washington Clean Air Act but was conspicuously absent from the CCA, indicating a permissive framework.
The court also rejected WFB’s arbitrary and capricious claims regarding both the original rulemaking and Ecology’s denial of WFB’s petition to reopen rulemaking. The court noted that WFB’s complaint about agricultural buyers paying surcharges is fundamentally a policy grievance directed at the legislature, not at Ecology. The CCA was enacted to reduce greenhouse gas emissions from large emitters, not to shield agricultural buyers from market costs suppliers incur in complying with emissions caps. Absent a statutory grant of authority to regulate fuel pricing or mandate refunds, Ecology lacked the power to do so, and its denial of WFB’s petition reflected a reasonable exercise of its expertise — not arbitrary or capricious action.
Key Takeaways
- Under the CCA’s cap-and-invest program, fuel suppliers — not agricultural end users — are the regulated “covered entities,” and Ecology’s rules targeting supplier emissions are reasonably consistent with the statute and thus valid.
- The agricultural fuel exemption is structured as a market-based mechanism: buyers provide exemption certificates enabling suppliers to exclude that fuel from covered emissions, but nothing in the CCA prohibits suppliers from imposing surcharges on all fuel sales to recover compliance costs.
- The absence of mandatory exempt-emissions reporting language in the CCA — especially when neighboring statutes contain explicit mandatory reporting requirements — confirms that Ecology’s optional reporting framework is lawful.
- An agency challenging a WFB-type policy result must direct its grievance to the legislature, not to the courts or the implementing agency, when the statutory scheme does not confer the requested authority.
Why It Matters
This decision firmly establishes that Washington’s Climate Commitment Act was designed to constrain large-scale fuel suppliers through market-based emissions caps, not to serve as a pricing-protection statute for downstream agricultural consumers. Attorneys advising agricultural businesses should understand that the CCA’s exemption certificate mechanism benefits farmers only indirectly — by enabling their suppliers to avoid the cap — and does not guarantee that suppliers will pass those savings through. Challenges seeking refunds or mandatory price adjustments for agricultural fuel buyers will need to be pursued through the legislative process, as the court made clear that Ecology’s authority under the CCA does not extend to fuel-price regulation.
For administrative law practitioners, the decision reinforces Washington’s strong presumption of agency rule validity and the high bar challengers face under RCW 34.05.570 — requiring “compelling reasons” that an agency rule conflicts with legislative intent. The court’s method of comparing the CCA’s statutory text side-by-side with Ecology’s implementing rule as a test of “reasonable consistency” offers a practical template for both drafting and litigating agency rules under Washington’s APA.