A4739

An Act concerning greenhouse gas emissions from transportation fuel and supplementing Title 26 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. The Legislature finds and declares that:

a. A low-carbon transportation fuel standard is central to reducing the State’s greenhouse gas emissions and that, without policies specific to the transportation sector, reductions in greenhouse gas emissions will not be achieved in a timeframe consistent with the goals of the State’s Energy Master Plan;

b. A low-carbon transportation fuel standard that is technology-neutral and science-based is an effective policy to reduce greenhouse gas emissions in the transportation sector, while also achieving other co-benefits such as improving public health due to a reduction in air pollution emissions;

c. By creating a low-carbon transportation fuel standard that rewards environmental performance, the State will incentivize the creation of jobs in a wide variety of sectors;

d. A low-carbon transportation fuel standard will induce the creation of new competitive and innovative markets;

e. The demand created for alternative fuels and cleaner forms of mobility under a low-carbon transportation fuel standard will not only help reduce greenhouse gas emissions, but will also have the co-benefit of reducing air pollution, thereby helping to improve the health of citizens of the State, especially those with the most exposure or sensitivity to motor vehicle emissions;

f. To help prompt the use of low-carbon fuels and zero emission vehicles, other states, such as California, Oregon, New Mexico, and Washington have successfully implemented programs that reduce the carbon intensity of their transportation fuel while providing lower cost options and improving the resiliency of their fuel markets; and

g. It is fitting, proper, and in the public interest to support the deployment of low-carbon transportation fuel technologies through a carefully designed program that reduces the carbon intensity of transportation fuel used in the State, and that permits New Jersey to harmonize its program to those enacted by other states now and in the future.

2. As used in this act:

“Alternative fuel” means any fuel that is not gasoline or diesel and is used for transportation purposes, including, but not limited to, ethanol, biomass-based diesel, renewable diesel, sustainable aviation fuel, sustainable marine fuel, electricity, biomethane, biogasoline, renewable natural gas, renewable propane, fuels from carbon capture and utilization, electrofuels, and hydrogen, provided that the fuel achieves a lifecycle carbon intensity at least 10 percent lower than petroleum-derived gasoline or diesel, and at least 20 percent lower than petroleum-derived gasoline or diesel within 10 years after establishment of the program, as determined using the most recent Argonne National Laboratory GREET model.

“Argonne National Laboratory” means the science and engineering research laboratory located in Lemont, Illinois, and operated by the University of Chicago on behalf of the United States Department of Energy.

“ASTM” means ASTM International, formerly known as the American Society for Testing and Materials, the international organization that develops and publishes technical standards.

“Carbon intensity” means the quantity of greenhouse gas emissions associated with the production, transportation, distribution, and use of a unit of fuel, measured over the entire life-cycle of the fuel, including both direct and indirect emissions, and expressed in grams of carbon dioxide equivalent per megajoule of energy generated by the fuel (gCO2e/MJ), calculated in accordance with the most recent version of the Argonne National Laboratory GREET model and shall include, for electricity based pathways, emissions from energy generation, transmission, and distribution, as determined by the most recent GREET model.

“Credit generator” means an entity that produces or imports a low carbon fuel for use in New Jersey, which, with respect to electricity used as a transportation fuel, includes, but is not limited to, electric vehicle charging station providers, electric utilities, automakers, and electric vehicle fleet operators.

“Department” means the Department of Environmental Protection.

“Diesel” means a liquid that, without further processing or blending, has practical and commercial fitness for use in the propulsion engine of a diesel-powered vehicle.

“Electrofuel” means a carbon-based fuel that is obtained from carbon dioxide and water, employing a renewable or low-carbon source of electricity as the primary source of energy.

“Feedstock” means the required material inputs to the industrial processes for the manufacture of gasoline, diesel, or alternative fuels.

“Gasoline” means all products commonly or commercially known or sold as gasoline that are suitable for use as a motor fuel. “Gasoline” does not include products that have an ASTM octane number of less than seventy-five as determined by the “motor method,” ASTM D2700-92.

“Greenhouse gas” means carbon dioxide, methane, nitrous oxide,

hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, or any other substance that contributes to global warming, as designated by the department.

“GREET model” means the Greenhouse gases, Regulated Emissions, and Energy use in Technologies model developed at the Argonne National Laboratory, which measures the energy use and greenhouse gas emissions output of various vehicle and fuel combinations.

“Low-carbon transportation fuel standard” means a mandated annual standard for the carbon intensity of a transportation fuel.

”Overburdened community” means the same as the term is defined in section 2 of P.L.2020, c.92 (C.13:1D-158).

“Transportation” means the use of motorized vehicles or other machinery to move persons, goods, or other tangible items, including off-road applications.

3. a. No later than 18 months after the effective date of this act, the department shall establish an annual low-carbon transportation fuel standard for gasoline, diesel, and alternative fuels, and a program to implement and enforce the standards. Each refiner, wholesaler, or importer of diesel or gasoline, and each producer of alternative fuel that opts in to the program, shall ensure that the transportation fuel refined, sold, imported, or produced by the entity, as applicable, and supplied for use in the State, meets the low-carbon transportation fuel standard for that fuel on an annual basis. The department shall establish a system of salable and tradable credits, under which transportation fuel that exceeds the low-carbon transportation fuel standard shall generate credits, which shall represent one metric ton of avoided greenhouse gas emissions, as compared with the standard, and under which transportation fuel that does not meet the low-carbon transportation fuel standard shall generate deficits. The department shall develop a system under which credits generated may be redeemed to offset deficits. Each refiner, wholesaler, or importer of diesel or gasoline, and each producer of alternative fuel that opts in to the program, shall demonstrate compliance with this act by redeeming sufficient credits to ensure that it generates no net deficits over each annual reporting period.

b. The low-carbon transportation fuel standard program shall, at a minimum, include:

(1) a schedule to phase in the implementation of the low-carbon transportation fuel standard for diesel and gasoline in a manner that reduces the average carbon intensity of diesel and gasoline used in the State by five percent below 2019 levels by the year 2030, subject to biennial reviews commencing in 2027, to assess technological advancements, market readiness, and environmental impacts;

(2) an implementation date for the low-carbon transportation fuel standard on or before the eighteenth month after the effective date of this act;

(3) standards for measuring, using a GREET model, the net greenhouse gas emissions associated with a fuel over its entire life-cycle, including direct emissions from fuel use and indirect emissions from electric energy consumption, land use changes, all stages of feedstock production or extraction, all stages of fuel production and distribution, the transportation and storage of raw materials and finished fuels, and any greenhouse gas sequestrations, including, but not limited to, sequestrations of carbon dioxide as organic compounds in soil and geological storage;

(4) a mechanism by which a refiner, wholesaler, or importer of gasoline or diesel that exceeds the low-carbon transportation fuel standard and is supplied for use within the State can generate credits for all carbon dioxide and carbon dioxide equivalent reductions as determined by the GREET model;

(5) a mechanism by which a producer or importer of an alternative fuel that exceeds the low-carbon transportation fuel standard and is supplied for use within the State can generate credits for all carbon dioxide and carbon dioxide equivalent reductions as determined by the GREET model, and a mechanism by which program participants can generate credits from activities and projects that result in the reduction of carbon intensity of transportation fuels;

(6) a mechanism to adjust the carbon intensity of alternative fuel when the alternative fuel is used in a powertrain that is more or less efficient than the reference fuel and drivetrain combination;

(7) a mechanism by which a refiner, wholesaler, or importer of gasoline or diesel that fails to meet the low-carbon transportation fuel standard and is supplied for use within the State would generate deficits;

(8) a mechanism by which a producer of an alternative fuel that fails to meet the low-carbon transportation fuel standard, including through an carbon intensity adjustment carried out pursuant to paragraph (6) of this subsection, would generate a deficit;

(9) mechanisms that allow credits to be traded and to be banked for future compliance periods;

(10) a requirement that diesel, gasoline, or alternative fuel that is exported from the State would not generate any associated credit or debit;

(11) exemptions for diesel, gasoline, and alternative fuels that are used in volumes below certain thresholds, as established by the department;

(12) exemptions for gasoline, diesel, or other fuels used by aircraft, railroad locomotives, military vehicles and interstate waterborne vessels, or for other non-transportation uses, with eligibility to generate credits on a voluntary, opt-in basis, provided that the fuels achieve an initial minimum 10 percent lifecycle carbon intensity reduction, increasing to 20 percent within 10 years, compared to the carbon intensity of conventional petroleum-derived gasoline or diesel, as determined using the most recent Argonne National Laboratory GREET model;

(13) procedures for verifying the validity of credits and deficits generated under the low-carbon transportation fuel standard;

(14) requirements that participants in the program that are electric public utilities, State agencies, and State authorities direct at least 40 percent of that participant’s overall credit value to electrified transportation programs, projects, or investments to directly benefit overburdened communities; and

(15) a review and request for additional GREET modeling scenarios from Argonne National Laboratory, as necessary, to reflect New Jersey-specific fuel pathways, after consultation with industry stakeholders and scientific experts, to ensure consistency with national best practices.

c. The low-carbon transportation fuel standard program may contain the following provisions as needed to implement the standard for gasoline, diesel, or alternative fuels, as determined by the department:

(1) a cost containment mechanism that is designed to allow for both sufficient compliance flexibility and maximum greenhouse gas emissions reductions;

(2) a mechanism by which greenhouse gas emissions reductions associated with the production of low carbon electricity or renewable natural gas can be indirectly accounted for when used as transportation fuel or when used in the production of diesel, gasoline, or an alternative fuel that is used within the State;

(3) mechanisms whereby a refiner, wholesaler, importer, or producer of an exempt fuel, including a fuel exempted pursuant to paragraph (12) of subsection b. of this section, can voluntarily opt-in to the program to generate credits;

(4) mechanisms whereby producers of alternative fuel, including a fuel exempted pursuant to paragraph (12) of subsection b. of this section, can voluntarily opt-in to the program to generate credits when the fuel is used for transportation; and

(5) any standards, specifications, testing requirements or other measures as needed to ensure the quality of gasoline, diesel, and alternative fuels used in accordance with the provisions of this act.

d. The department shall consult with fuel and transportation experts while developing the low-carbon transportation fuel standard program, and may consider linking New Jersey’s program with similar policies in other jurisdictions.

e. Co-processed fuel, which is produced by blending biomass-based feedstocks with petroleum in refineries, shall be considered low-carbon transportation fuel for the purposes of this act, provided that the co-processed fuel meets a minimum 20 percent reduction threshold, as compared with the equivalent petroleum-based fuel, as calculated using the GREET model.

f. No person shall bank more than 10 percent of its total compliance obligation in low-carbon transportation fuel credits with the intent to manipulate market supply.

g. (1) Whenever the Commissioner of Environmental Protection finds that a person has violated any provision of this act, or any rule or regulation adopted pursuant thereto, including, but not limited to, the sale, import, or production of transportation fuel without meeting the low-carbon transportation fuel standard or paying an alternative compliance payment pursuant to section 4 of this act, and fraudulently receiving a low-carbon transportation fuel program credit, the commissioner may bring an action for a civil penalty in accordance with paragraph (2) of this subsection or levy a civil administrative penalty in accordance with paragraph (3) of this subsection.

(2) Any person who violates the provisions of subsection f. of this section shall be subject to a civil penalty of up to $75,000 for a first offense, a civil penalty of up to $250,000 and a one-year suspension from the low-carbon transportation fuel standard program for a second offense, and permanent disqualification from the low-carbon transportation fuel standard program for a third offense. Any person who engages in collusion, price-fixing, or insider trading of low-carbon transportation fuel credits shall be subject to a civil penalty of up to $500,000 for each offense, as well as permanent disqualification from the low-carbon transportation fuel standard program. Any person who submits false or misleading information to the department regarding fuel types, carbon intensity, or credit transactions shall be liable to a civil administrative penalty of up to $250,000 for each offense, as well as the forfeiture of any improperly obtained low-carbon transportation fuel credits and suspension from the low-carbon transportation fuel standard program for up to two years. Civil penalties shall be collected by the Commissioner of Environmental Protection in a civil action by summary proceeding under the “Penalty Enforcement Law of 1999,” P.L.1999, c.274 (C.2A:58-10 et seq.). The Superior Court and the municipal court shall have jurisdiction over proceedings for the enforcement of the penalty established by this section.

(3) The commissioner may assess a civil administrative penalty of not more than $75,000 for a first offense, and not more than $250,000 for the second and every subsequent offense. Each day that a violation continues shall constitute an additional, separate, and distinct offense. No assessment may be levied pursuant to this paragraph until after the violator has been notified by certified mail or personal service. The notice shall include a reference to the section of the statute, rule, regulation, or order violated, a concise statement of the facts alleged to constitute a violation, a statement of the amount of the civil administrative penalties to be imposed, and a statement of the person’s right to a hearing. The ordered person shall have 20 calendar days from receipt of the notice within which to deliver to the commissioner a written request for a hearing. After the hearing and upon finding that a violation has occurred, the commissioner may issue a final order after assessing the amount of the fine specified in the notice. If no hearing is requested, the notice shall become a final order after the expiration of the 20-day period. Payment of the assessment is due when a final order is issued or the notice becomes a final order. The authority to levy a civil administrative penalty is in addition to all other enforcement provisions in this act, and the payment of any assessment shall not be deemed to affect the availability of any other enforcement provisions in connection with the violation for which the assessment is levied. The commissioner may compromise any civil administrative penalty assessed under this section in an amount the commissioner determines appropriate.

h. Based on the department’s review of technological advancements, market readiness, and environmental impacts pursuant to section 6 of this act, the department may recommend adjustments to the carbon intensity reduction targets to the Legislature to ensure alignment with the State’s long-term decarbonization goals.

4. a. The department shall establish an alternative compliance payment system, under which a refiner, wholesaler, or importer of diesel or gasoline may pay an alternative compliance payment to the department, for each metric ton of greenhouse gas emissions associated with the transportation fuel refined, sold, imported, or produced by the entity, as applicable, in lieu of satisfying the low-carbon transportation fuel standard established by section 3 of this act. The alternative compliance payment shall be structured as follows: if the low-carbon transportation fuel credit price is below $100 per metric ton, the alternative compliance payment rate shall be set at $75 per metric ton; if the low-carbon transportation fuel credit price is between $100 and $150 per metric ton, the alternative compliance payment rate shall be set at $90 per metric ton; and if the low-carbon transportation fuel credit price exceeds $150 per metric ton, the alternative compliance payment rate shall be set at $125 per metric ton. The department shall adjust the rate of the alternative compliance payment annually based on the Consumer Price Index, provided that annual increases do not exceed five percent, to prevent excessive compliance costs. The department shall conduct a triennial review of the alternative compliance payment pricing structure to ensure it remains competitive and reflective of credit market trends. At least 90 days before the implementation of a modification to the alternative compliance payment rates, the department shall publish the proposed rate change in the New Jersey Register. The department shall provide at least 30 days for the public to submit comments, and shall publish a response to the comments at least 30 days prior to the rate change being implemented.

b. There is established in the Department of Environmental Protection, a dedicated, non-lapsing, revolving fund to be known as the “Low-Carbon Transportation Fuel Alternative Compliance Fund.” Moneys in the “Low-Carbon Transportation Fuel Alternative Compliance Fund” shall be used only to provide grants to transportation infrastructure projects that reduce greenhouse gas emissions from the transportation sector pursuant to subsection d. of this section.

c. The “Low-Carbon Transportation Fuel Alternative Compliance Fund” shall be credited with:

(1) alternative compliance payments imposed pursuant to subsection a. of this section;

(2) moneys as are appropriated by the Legislature;

(3) any return on investment of moneys deposited in the fund; and

(4) moneys made available to the department for the purposes of the fund.

d. The department shall establish a program to award grants from moneys in the “Low-Carbon Transportation Fuel Alternative Compliance Fund.” The department shall establish guidelines and procedures for the submission of applications, eligibility and ranking criteria, and acceptable uses of grant moneys. Transit agencies and municipalities shall be eligible for grants from the program, and priority shall be given to projects that demonstrate the highest greenhouse gas emissions reductions per dollar spent.

e. The department, in consultation with the Department of Transportation, shall develop and adopt a strategic funding plan to guide the distribution of moneys from the “Low-Carbon Transportation Fuel Alternative Compliance Fund.” The plan shall prioritize:

(1) the electrification of public transit systems, including the purchase of electric buses and rail vehicles;

(2) the expansion of charging and fueling infrastructure for zero-emission transit fleets;

(3) other low-carbon transportation initiatives, such as hydrogen fueling stations and fleet conversion programs; and

(4) projects in overburdened communities, such that at least 50 percent of grant moneys shall be directed to transit electrification projects in underserved and overburdened communities to advance environmental justice.

f. The department, in cooperation with the Department of Transportation, shall review the grant program at least every three years, to assess is effectiveness in reducing greenhouse gas emissions from the transportation sector.

g. The department shall annually issue a report to the Governor and to the Legislature, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), on the grant program. The report shall provide details about grants provided, the greenhouse gas emissions impact of the program, and the community benefits provided by funded projects. The department shall also publish a copy of the strategic funding plan adopted pursuant to subsection e. of this section, and the report issued pursuant to this subsection on its Internet website.

5. a. The department shall establish a secure, anonymous reporting system for individuals to submit evidence of fraud, credit hoarding, or market manipulation related to the low-carbon transportation fuel program established pursuant to this act. Under the system, the identity of a whistleblower shall remain confidential, unless the whistleblower voluntarily waives anonymity.

b. The department shall conduct a preliminary investigation of all reports received under the system within 30 days of receipt. If credible evidence of wrongdoing is found during the preliminary investigation, the department shall launch a formal investigation and suspend credit trading privileges for any entity under investigation. The department may refer cases of severe fraud to the Attorney General for criminal prosecution.

c. A person who provides substantial evidence leading to an enforcement action pursuant this act shall be eligible for financial compensation from the penalties collected. The amount of the compensation shall be determined by the department, in consultation with the Attorney General, and shall range from 10 percent to 30 percent of the penalty collected, depending on the severity of the violation, the amount of financial harm prevented, and the extent of the evidence provided by the whistleblower.

d. The department shall annually issue a report to the Governor and to the Legislature, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), on the anonymous reporting program established pursuant to this section. The report shall provide details about reported violations of the provisions of this act, the amount of penalties collected, and the amount of rewards distributed to whistleblowers. The department shall publish a copy of the report on its Internet website.

6. The Department of Environmental Protection shall conduct a fuel price impact study every three years to evaluate the program’s effect on fuel prices, credit market stability, and economic feasibility. The study shall analyze fuel price fluctuations attributable to the program’s credit market dynamics, the program’s impacts on costs of gasoline, diesel, and alternative fuels, projected credit price trends and the influence on compliance costs for fuel providers, and competitiveness of alternative fuel markets and investment incentives. If the study identifies significant market disruptions or price volatility, the department shall propose regulatory adjustments to mitigate adverse economic effects while maintaining the program’s emissions reduction goals. The study shall be submitted to the Governor and to the Legislature, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1) and shall be posted on the department’s Internet website.

7. The department shall adopt, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), rules and regulations as necessary to implement the provisions of this act.

8. This act shall take effect immediately.

STATEMENT

This bill would establish a low-carbon transportation fuel standard program in the Department of Environmental Protection (DEP).

Under the program, each refiner, wholesaler, or importer of diesel or gasoline, and each producer of alternative fuel, would be required to ensure that the fuel refined, sold, imported, or produced by the entity, as applicable, and supplied for use in the State, meets the low-carbon transportation fuel standard, on an annual basis. The low-carbon transportation fuel standard would be a maximum level of greenhouse gas emissions associated with the entire life-cycle of a given unit of fuel, including its production, transportation, storage, and consumption. An alternative fuel, under the bill, is any fuel used for transportation other than gasoline or diesel. Such fuels could include hydrogen, biodiesel, or electricity.

In implementing the program, the DEP would be required to establish a system of salable and tradable credits and deficits, under which a given unit fuel that exceeds the low-carbon transportation fuel standard would generate a credit and a given unit of fuel that does not meet the standard would generate a deficit. Entities regulated under the program would be required to ensure that they do not generate any net deficits in a given year, after offsetting their deficits with credits they generate or purchase from third parties.

The bill would establish certain requirements for the low-carbon transportation fuel standard program, as enumerated in subsection b. of section 3 of the bill, including the requirement that the program reduce the greenhouse gas emissions associated with the diesel and gasoline used in the State by five percent below 2019 levels by the year 2030 subject to biennial reviews commencing in 2027, to assess technological advancements, market readiness, and environmental impacts. The bill would also enumerate certain optional requirements for the program, in subsection c. of section 3 of the bill, including a cost containment mechanism that is designed to allow for both sufficient compliance flexibility and maximum greenhouse gas emissions reductions. The bill would establish penalties for persons who violate the bill’s provisions, including by selling fuel that does not meet the low-carbon standard and by fraudulently obtaining credits under the program. Maximum civil penalties would range between $75,000 and $500,000 for each offense, depending on the nature of the violation, and maximum civil administrative penalties would be set at $75,000 for a first violation and $250,000 for a second and each subsequent violation.

The bill would direct the DEP to establish an alternative compliance payment (ACP), which fuel suppliers and producers could pay in lieu of satisfying the low-carbon transportation fuel standard. The amount of the ACP would range between $75 and $125 per metric ton of greenhouse gas emissions, depending on the price of a low-carbon transportation fuel credit. The ACP would be collected by the DEP and used to provide grants to transportation infrastructure projects that reduce greenhouse gas emissions from the transportation sector. Section 5 of the bill would also establish the “Low-Carbon Transportation Fuel Alternative Compliance Fund” (fund) in the DEP and direct the DEP to establish a program to award grants from the moneys in the fund.

The bill would also direct the DEP to establish an anonymous reporting system whereby whistleblowers could report potential violations of the bill’s provisions. The bill would direct the DEP to begin investigating reports within 30 days of receipt. The bill would provide that, in cases where the whistleblower’s report led to the collection of monetary penalties, the whistleblower would receive between 10 percent and 30 percent of the penalties collected. Finally, the bill would require the DEP to conduct a fuel impact study every three years to evaluate the program’s effect on fuel prices, credit market stability, and economic feasibility.