cCarbon’s 2035 WA CFS Market Outlook

The Washington Clean Fuel Standard (CFS), implemented statewide in 2023 and substantially updated in 2025, is a market-based program aimed at reducing greenhouse gas emissions from the transportation sector. Transportation accounts for nearly 45% of the state’s carbon pollution, making the CFS a critical policy tool to drive decarbonization.
On 17th May 2025, Washington State updated its clean fuels policy with the passage of Second Substitute House Bill 1409 in 2025. This new law not only raises the stringency for carbon intensity (CI) reduction but also introduces a sophisticated framework for compliance, enforcement, and transparency.
This legislative revision mandated annual declines of approximately 3–4% starting in 2026.
These Analyst note presents the cCarbon’s updates on the recent amendment.

The note presents:

• cCarbon’s 2035 credit, deficit, bank, and credit price forecasts using the CFS.CarbonOutlook model
• Three market scenarios
• Supply-demand equilibrium projections through 2035

cCarbon published an article exploring these forecasts. You can read it here.

The Washington Clean Fuel Standard (WA CFS) is a rapidly evolving clean fuel program aimed at reducing the carbon intensity (CI) of transportation fuels in Washington. Launched in 2023, the program follows a credit-based system similar to other West Coast markets, requiring fuel suppliers to progressively lower emissions while promoting the adoption of low-carbon alternatives.

Under the program, fuels with lower CI—such as renewable diesel, electricity, and renewable natural gas (RNG)—generate credits, while conventional fuels like gasoline and diesel generate deficits. This creates a compliance market where obligated parties must balance deficits with credits, driving investment toward cleaner fuel pathways.

A major development in the program is the passage of House Bill 1409, which significantly strengthens the policy framework. The bill increases the CI reduction target from 20% to 45% by 2038, with a potential extension to 55% depending on climate benchmarks. It also introduces stricter compliance penalties and mandates annual CI reductions of 3–4% for transportation fuels starting in 2028, making Washington one of the most ambitious clean fuel markets in the United States.

Despite these ambitious targets, current market dynamics present challenges. Washington’s fuel mix remains heavily dependent on gasoline and diesel, while renewable fuel adoption—particularly renewable diesel—has shown volatility in blending rates. This has contributed to fluctuations in credit generation, with a notable decline in biofuel credits in recent periods.

Electric vehicles (EVs) are expected to play a critical role in future compliance, with electricity credits becoming increasingly important. However, variability in EV adoption trends adds uncertainty to long-term credit supply. Additionally, the availability of low-CI fuels and the pace of infrastructure development will be crucial in meeting tightening targets.

Looking ahead, the WA CFS is likely to transition into a credit-tight market as targets become more stringent. Rising compliance pressure is expected to push credit prices upward, making early investment in clean fuel supply chains and EV infrastructure essential for managing future costs and ensuring market stability.