SB2999 CD1

SECTION 1. The legislature finds that by creating a clean fuel standard that rewards environmental performance, the State will incentivize investment and job creation in various sectors, including agriculture, construction, energy, forestry, landscape restoration, transportation, and waste management. A clean fuel standard can create new markets for what is usually considered waste, including but not limited to municipal solid waste, construction and demolition debris, used cooking oil from food processing, agricultural and forestry residuals, industrial emissions, invasive species biomass from landscape restoration projects, and renewable electricity. Furthermore, the demand created for alternative fuels and cleaner forms of mobility under a clean fuel standard will not only help reduce greenhouse gas emissions but may also have a co-benefit of reducing air pollution, thereby improving the health of citizens of the State.

The legislature further finds that transportation is the State's largest source of lifecycle greenhouse gas emissions and that the tourism industry is the State's largest economic driver and biggest transportation sector consumer.

The legislature additionally finds that better management of waste and resources is critical to environmental stewardship and a clean fuel standard is central to reducing lifecycle greenhouse gas emissions while also protecting the State's economic competitiveness, public health, and the environment. To prompt the use of clean fuels and zero-emission vehicles, other states like California, Oregon, and Washington have successfully implemented programs that reduce the carbon intensity of their transportation fuels.

The legislature also finds that without policies specific to the transportation sector, emissions will not be reduced in a timeframe consistent with the State's goals. Therefore, a clean fuel standard that is technology-neutral and market-based is an effective policy for reducing emissions in the transportation sector while also achieving other co-benefits.

It is the intent of the legislature to support the deployment of clean transportation fuel technologies through a carefully designed program that reduces the carbon intensity of fuel used in the State to:

(1) Reduce lifecycle greenhouse gas emissions;

(2) Stimulate the local, state, and regional economies, thereby providing economic development;

(3) Promote public and environmental health by increasing sustainability and encouraging a circular economy and landscape restoration activities; and

(4) Support existing jobs in the clean fuel industry and create new jobs in new innovative clean fuel technologies.

In 2025, the department of transportation began an independent analysis of the best estimated range of probable costs or cost savings attributable to the clean fuels program per gallon of gasoline, per gallon of diesel, and per kilowatt of electricity, based on existing programs, covering each year of the program projected through 2045. The analysis is to be informed by input from regulated industries and experience in jurisdictions that have adopted similar clean fuels policies.

Accordingly, the purpose of this Act is to require the department of transportation to adopt rules by January 1, 2028, establishing a clean fuel standard for alternative fuels in the State.

SECTION 2. Chapter 279C, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§279C- Clean fuel standard for alternative fuels. (a) No later than January 1, 2028, the department of transportation shall adopt rules pursuant to chapter 91 governing a clean fuel standard for alternative fuels in the State. The rules shall include:

(1) A schedule to phase in the implementation of the clean fuel standard for alternative fuels in a manner that reduces the average carbon intensity at a rate to enable the State to achieve the targets in sections 225P-5, 225P-7, and 225P-8 as quickly as possible, but beginning with targets no less than ten per cent below 2019 levels by 2035 and no less than fifty per cent below 2019 levels by 2045, including the establishment of annual carbon intensity standards for alternative fuels;

(2) An implementation date for the clean fuel standard for diesel and gasoline beginning January 1, 2029;

(3) Standards for measuring lifecycle greenhouse gas emissions using the most recently updated version of the Argonne National Lab's Greenhouse gases, Regulated Emissions, and Energy use in Technologies (GREET) model attributable to the production and use of diesel, gasoline, and other alternative fuels throughout their lifecycles, including feedstock production or extraction, fuel production, and the transportation of raw materials and finished fuels;

(4) A mechanism by which alternative fuel that has a carbon intensity below the annual carbon intensity standard is used within the State to generate a credit;

(5) A mechanism to adjust the carbon intensity of alternative fuel when the alternative fuel is used in a powertrain that is not equal in efficiency to that of the reference fuel and drivetrain combination;

(6) A mechanism by which diesel or gasoline that has a carbon intensity above the annual carbon intensity standard would generate a deficit;

(7) A mechanism by which an alternative fuel that has a carbon intensity above the annual carbon intensity standard would generate a deficit;

(8) A mechanism that requires diesel, gasoline, or other alternative fuel that is sold, supplied, or dispensed for consumption within the State to retire any associated credit or debit;

(9) Exemptions for diesel, gasoline, or other fuels used by aircraft, railroad locomotives, military vehicles, and interstate waterborne vessels;

(10) Procedures for verifying credits and deficits generated under the clean fuel standard; and

(11) A requirement that the department of transportation shall use the most recently updated version of Argonne National Lab's GREET model, or its successor model, and shall update its lifecycle analysis methodology at least biennially or triennially by rule.

(b) The department of transportation shall adopt rules pursuant to chapter 91 that include:

(1) A cost containment mechanism designed to allow for sufficient compliance flexibility and maximum greenhouse gas reductions;

(2) Mechanisms whereby an electric utility, electric vehicle charging provider, or energy producer can generate credits for electricity used in transportation; provided that the department of transportation shall develop these mechanisms based on best practices in other states and in consultation with industry stakeholders;

(3) Mechanisms whereby exempt end-uses, such as aviation, marine, rail, and military, can opt in to the clean fuel standard to generate credits when using alternative fuel;

(4) Mechanisms whereby alternative fuel users can opt in to the clean fuel standard to generate credits when it displaces the combustion of gasoline or diesel in off‑road, heating, cooling, and temporary power generation;

(5) A schedule to phase in the implementation of the standards for alternative fuels that have achieved a predominant market share and have an average carbon intensity that exceeds the annual diesel or gasoline carbon intensity standard;

(6) A mechanism through which electric utilities and public agencies direct at least fifty per cent of their overall credit value to electrified transportation programs, projects, or investments to directly benefit overburdened or underserved populations. Electrified transportation programs, projects, or investments under this paragraph may include rebates for the purchase of electric vehicles, electric micromobility devices, and related charging equipment;

(7) Any standards, specifications, testing requirements, and other measures as needed to ensure the quality of gasoline, diesel, and alternative fuels used in accordance with the clean fuel standard;

(8) Consultation and coordination with other jurisdictions that are also implementing clean fuel standard programs to promote best practices and administrative efficiency; provided that the department of transportation may base the State's clean fuel standard on similar policies in jurisdictions such as California, Oregon, and Washington;

(9) A method to utilize the carbon intensity pathways already approved in other states like California, Oregon, and Washington to reduce the burden of administering and certifying the carbon intensity of transportation fuels in the clean fuel standard;

(10) Mechanisms that allow credits to be traded and to be banked for future compliance periods;

(11) Exemptions for diesel, gasoline, and alternative fuels that are used in volumes below thresholds established by the department of transportation; provided that the department of transportation shall develop these exemptions based on best practices in other states;

(12) An automatic acceleration mechanism designed to tighten carbon intensity targets to mitigate the risk of credit oversupply, such as credit clearance markets, credit price ceilings and floors, and other mechanisms; provided that the department of transportation shall develop this mechanism based on best practices in other states; and

(13) Mechanisms for electric vehicle charging providers to calculate and generate credits based on the capacity of public fast charging infrastructure to charge electric vehicles; provided that the department of transportation shall develop these mechanisms based on best practices in other states.

(c) The rules adopted under this section shall establish a credit clearance market to protect Hawaii consumers from unreasonable fuel price increases resulting from the clean fuel standard; provided that the rules shall establish a maximum credit price per compliance period, which shall not exceed $200 in 2026 dollars, adjusted annually for inflation pursuant to the consumer price index for all urban consumers as published by the United States Bureau of Labor Statistics; provided further that regulated parties who are unable to retire sufficient credits by the end of an applicable year shall participate in the credit clearance market, with any remaining deficit carried forward without penalty, subject to interest not exceeding five per cent per year.

(d) The department of transportation shall annually calculate and publish the per-gallon consumer cost of the clean fuel standard for gasoline and diesel as follows: the difference between the carbon intensity of the applicable fuel and the annual carbon intensity standard, multiplied by the fuel's energy density in megajoules per gallon, multiplied by the energy economy ratio of that fuel (which for gasoline and diesel, as the reference fuels under the program, shall be 1.0), divided by one million, and multiplied by the volume-weighted average credit price. Results of this calculation, including all inputs, shall be submitted to the legislature by March 1 of each year.

If the per-gallon compliance cost calculated under this subsection exceeds fifteen cents for gasoline or diesel in any compliance year, the department of transportation, within sixty days of the date on which the calculation is submitted to the legislature, shall publicly determine whether consumer protection action is warranted. If the department of transportation determines that action is warranted, the department shall take one or more of the following actions:

(1) Reduce the carbon intensity schedule to the prior compliance period standard;

(2) Activate the credit clearance market outside the standard calendar; or

(3) Implement consumer cost containment measures consistent with best practices established in other states having similar clean fuel standard programs.

If the department of transportation determines that no action is warranted, it shall publish its findings and reasoning on its website and submit them to the legislature within the same sixty-day period.

(e) Within two years following the adoption of a clean fuel standard for alternative fuels and biennially thereafter, the department of transportation shall submit a report to the legislature no later than twenty days prior to the convening of each regular session. The report shall include:

(1) The program's implementation status;

(2) Metrics demonstrating the program's effectiveness, including emissions reduction data;

(3) The program's market impacts and credit activity;

(4) Anticipated program modifications or expansions, if any; and

(5) Any proposed legislation.

(f) Within one year following the adoption of a clean fuel standard for alternative fuels and biennially thereafter, the department of transportation shall conduct public informational sessions in each county to provide updates on the implementation and performance of the clean fuel standard on alternative fuels; provided that the department may supplement in-person sessions with virtual engagement opportunities.

(g) For any substantive rule amendments or expansion of the clean fuel standard for alternative fuels adopted on or after January 1, 2028, the department shall conduct at least one public informational session in each county, including virtual participation options, no less than one hundred twenty days prior to the effective date of the rule or expansion.

(h) For the purposes of this section:

"Alternative fuel" means any fuel that is not fossil fuel‑based and is used for transportation purposes.

"Carbon intensity" means the quantity of lifecycle greenhouse gas emissions per unit of fuel energy, expressed in grams of carbon dioxide equivalent per megajoule.

"Clean fuel standard" means standards for the reduction of greenhouse gas emissions, on average, per unit of fuel energy.

"Greenhouse gas" means carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and other gases designated by the department of transportation or the Hawaii state energy office by rule, in consultation with the department of health; provided that consultation with the department of health shall not limit, transfer, or supersede the rulemaking authority of the department of transportation or Hawaii state energy office."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect on July 1, 2026.

THE SENATE	S.B. NO.	2999
THIRTY-THIRD LEGISLATURE, 2026		S.D. 1
STATE OF HAWAII		H.D. 2
		C.D. 1