Canada’s New Clean Fuel Standard

On July 6th, Canada released its Clean Fuel Standard (CFS), which will aim to reduce greenhouse gas emissions and accelerate the use of clean technologies and fuels. The standard, which is modelled after California’s Low Carbon Fuel Standard, will aim to force primary energy suppliers, including refineries and fuel importers, to reduce the “carbon intensity” of gasoline and diesel. In order to reduce the carbon impact of fossil fuels and comply with the CFS, energy suppliers can either:

1. reduce the amount of emissions in the petroleum production process through increasing energy efficiency or using carbon capture technologies; or
2. dilute petroleum products with biofuels such as ethelyne.

A credit system has also been developed under the CFS, allowing companies to buy or sell carbon credits from low-carbon projects that have demonstrated emission reductions. The idea of the national clean fuel credit market is to drive investments in low-carbon clean fuel production and infrastructure. Credits may be generated through projects such as replacing coal or natural gas power plants with renewable electricity sources, employing clean technology such as carbon capture and storage, and producing and distributing biofuels.

The CFS will go into effect on July 1, 2023, when an emissions cap will be introduced on the carbon intensity of fuel, increasing slightly each year to 2030 when it’s anticipated that carbon intensity will be reduced by 15% with over 26 million tonnes of greenhouse gas pollution being cut. However, according to the standard’s “impact analysis”, the CFS is expected to increase the cost of production to primary energy suppliers, which in effect, will increase costs of gasoline and diesel by up to 13 cents per litre by 2030.  The overall cost of the program is forecasted to be between $22.6 billion and $46.6 billion, or approximately $151 per tonne of emissions reduced.

This added cost will significantly impact households and industrial users, including retail fleet costs. Given businesses and consumers already face significant inflation resulting from high petroleum prices and that low carbon medium- and heavy-duty vehicles remain costly in addition to an inadequate charging/fueling infrastructure network, RCC plans to continue dialogue with ECCC to push for more appropriate rollout timelines.