OPIS Insights

Oregon House Republicans have introduced legislation that would not only cap the state’s key climate program for transportation fuels but also restrict the ability of local governments to regulate fossil fuel infrastructure. In effect, it would fundamentally alter the state’s approach to reducing transportation emissions. While the bill faces significant political and procedural hurdles, if passed it could pose a risk to the state’s clean fuel credit market prices. 

Capping the Clean Fuels Program

House Bill (HB) 4129, introduced Feb. 2, would permanently cap the Clean Fuels Program (CFP) at a 10% reduction target, halting further progress toward the program’s current goals of a 20% reduction by 2030 and a 37% cut by 2035. The program, which creates a market-based credit system to incentivize cleaner fuels, currently requires fuel importers to reduce the carbon intensity (CI) of transportation fuels. 

The market impact of this proposed legislation would be significant. Under the current program structure, the CI reduction target is set to become more stringent over time, with goals of a 20% reduction by 2030 and 37% by 2035. This schedule creates a predictable, increasing demand for credits, which supports their market price. If the program is permanently capped at a 10% reduction, this forward-looking demand signal would vanish. The market would immediately price in the fact that no new demand would be created, causing a significant drop in the price of credits as their long-term value and scarcity premium evaporate. Consequently, the market would shift from a demand-driven system to a saturated one, lowering credit prices from current levels and reducing the financial incentive for producing and importing very low-carbon fuels like renewable diesel and sustainable aviation fuel in Oregon.

The bill, however,  conflicts with a new rulemaking at the Department of Environmental Quality (DEQ), designed to strengthen the CFP. Gov. Tina Kotek, through Executive Order 25-29, has directed the DEQ to set at least a 50% reduction in the CI of transportation fuels by 2040.  

The conflict between the bill and the governor’s order could lead to a constitutional standoff. While the Legislature could theoretically override an executive order, doing so would require navigating complex constitutional questions over the separation of powers. 

For now, there has been no indication DEQ will pause its rulemaking process despite the potential legislative challenge. Its rulemaking schedule is unchanged, with final rules expected in 2027. 

Local Control Over Fossil Fuel Infrastructure

The House Republican bill also would  end local governments’ zoning authority over fossil fuel infrastructure by prohibiting municipal governments from banning or restricting fossil fuel terminals, storage facilities, and related infrastructure in industrial zones.

In addition, the preemption would apply retroactively, nullifying local ordinances in cities like Portland and Eugene which have restricted fossil fuel infrastructure.

This is a significant preemption of local control. It would prevent cities and counties from using their land use authority to restrict the expansion or operation of fossil fuel infrastructure, including  oil-by-rail terminals, propane terminals or fuel storage depots within their jurisdictions. 

Political Outlook 

The bill’s prospects are dim in the Democratic-controlled Legislature. It is more a political statement of Republican priorities and a marker for future negotiations. Still, it would force a debate over the cost of the CFP program and could serve to frame the state’s climate goals as a choice between environmental progress and economic cost, a central theme in the broader political debate over the state’s climate policy. 

Next Steps

The bill has been referred to the House Committee on Climate, Energy, and Environment, but with no hearing scheduled. It is widely seen as a messaging tool rather than viable legislation.