You’ve probably heard about the federal government’s commitments to work with the provinces and territories to take action on climate change. But have you heard about the Clean Fuel Standard (CFS)? This key policy is expected to have the largest carbon impact of any policy under the Pan-Canadian Framework on Clean Growth and Climate Change.
How big an impact are we talking? The stated policy goal is to reduce Canada’s annual carbon emissions by 30 megatonnes by 2030. To put that into perspective, consider that Canada’s national carbon emissions decreased by 28 megatonnes between 2005 and 2016. Alone, the CFS aims to achieve annual reductions greater than Canada’s national reductions over a span of 10 years. And in addition to driving significant carbon reductions, evidence suggests that a Canadian CFS can improve health outcomes and encourage new innovation opportunities.
Performance-based standards will move us forward
At present, the federal Renewable Fuels Regulations requires a minimum average renewable fuel content for gasoline, diesel fuel and heating distillate oil. In 2016, the Government of Canada announced plans to replace this regulation with the CFS, ushering in national performance-based standards for fuels used in transportation, industry and buildings.
Rather than simply requiring a specified volume of renewable fuel content, the CFS will set a lifecycle carbon intensity requirement (based on the direct and indirect impacts over the full life cycle of a fuel) for liquid, gaseous, and solid fuels. As industries adapt over time, these standards will become increasingly stringent, prompting fuel importers and suppliers to switch to lower carbon fuels and energy sources such as ethanol, biodiesel and even electricity. A key advantage of this approach is that it will allow the market to determine an optimal combination of low carbon solutions that meet the carbon intensity requirements, as opposed to the government enforcing specific solutions for the market. Overall, the CFS is expected to play a catalytic role in leading Canada on a path towards a low-carbon economy.
An evidence-based policy
This policy idea is not new. In 2011, California implemented a Low Carbon Fuel Standard as a key component of the state’s comprehensive climate plan. Designed to decrease the lifecycle carbon intensity of transportation fuels, the program has successfully promoted clean energy through the adoption of low-carbon fuels, and is playing an increasingly influential role in accelerating the uptake of EVs.
Similar to what’s being proposed for the CFS, California uses a performance-based approach and includes a credit trading mechanism that allows the market to support the most cost-efficient low carbon alternatives. Credits from the Low Carbon Fuel Standard can be used to offset future carbon emissions, or they can be traded with firms that exceed the required standards. This market-based system provides financial incentives for firms to meet and exceed the minimum carbon intensity standards, and to reinvest revenues from credit sales into low-carbon technologies.
Changes are on the way
While there is some precedent for a regulation like the CFS, it remains a very complex undertaking – particularly as the federal government seeks to broaden the range of fuels and sectors typically covered by such a policy. Key design elements require extensive consideration and consultation to ensure the policy’s effectiveness while mitigating any adverse economic impacts.
However, progress is being made. In December 2018, Environment and Climate Change Canada released a regulatory design paper highlighting key elements of the policy framework for the liquid fuels stream – read TAF’s comments on this to learn more. We expect to see the draft regulations for the liquid fuels stream by summer 2019, with the requirements coming into force by 2022. As for the gaseous and solid fuels, proposed regulations are scheduled for publication in fall 2020, with requirements coming into force by 2023.
The CFS remains a key policy priority for TAF, and we will provide progress updates as it continues to take shape.