By Bora Plumptre
This article was published by the Pembina Institute on Jan. 27, 2021.
The Clean Fuel Standard, a proposed federal regulation released in December for public comment, will introduce a broad set of incentives to accelerate Canada’s transition to clean-burning liquid fuels and electric mobility. The policy is a critical measure for reaching this country’s climate goals, especially when paired with a price on carbon pollution. It will drive job creation while improving Canada’s competitive advantage as countries and companies around the world accelerate efforts to decarbonize.
Why is this regulation so powerful?
While carbon pricing motivates a gradual reduction in greenhouse gas emissions across the economy, the Clean Fuel Standard gets to work right away by regulating the amount of carbon pollution in (or the “carbon intensity” of) our fuel supply. Put simply, to meet the gradually declining standard, fuel suppliers will have to supply greater amounts of cleaner fuels. This, in turn, creates an immediate and growing domestic market for a range of technologies like biofuels (including ethanol made from waste), electric vehicle charging infrastructure, hydrogen, synthetic fuels, and, yes, cleaner gasoline and diesel (via renewable feedstocks, more efficient processes, integration of renewable electricity, carbon capture and storage, and other options). Because it doesn’t play favourites with technologies or fuel sources, this regulation encourages a portfolio of low-carbon efforts to achieve steep emissions reductions.
The regulation very usefully recognizes both the relatively high costs of fuel-switching and the corresponding societal value of achieving steep, sustained emissions reductions in transportation, which is responsible for 25 per cent of Canada’s carbon pollution. According to the government’s official regulatory proposal, the standard on liquid fuels would help Canada cut more than 20 million tonnes of carbon pollution annually, in turn delivering about 10 per cent of the progress needed to achieve our fast-approaching 2030 emissions target. With public and private investments in clean fuel solutions picking up pace around the world, Canada can’t afford to wait a decade until carbon prices finally start touching levels that would otherwise allow low-carbon technology developers to begin recouping the true value of their products. By then, we would be not only behind, but too late.
Spurs clean energy solutions
The regulation’s ability to spur the development of clean energy solutions is pivotal to meeting growing global demand for low-carbon fuels. Clean fuels such as sustainable biofuels, zero- or low-carbon hydrogen, and electricity from renewables are at the core of all countries’ net-zero ambitions. While the removal of gaseous and solid fuels from the regulation will somewhat scale back the potential for the regulation to promote broad-based decarbonization, hydrogen and renewable gases supplied for transportation will still qualify, as will limited quantities of these fuels blended into the general gas distribution system.
This regulation — which, far from being a tax, actually creates a new market — will lay the groundwork for broader clean-fuel deployment as Canada moves toward a net-zero economy. Its requirements on liquid fuels are similar to those of British Columbia’s Low Carbon Fuel Standard, a policy that has regulated the carbon intensity of transportation fuels in that province since 2010. California and Oregon have also had similar low-carbon fuel regulations in place since 2009 and 2015, respectively. And the European Union’s Fuel Quality Directive requires reduction of the greenhouse gas intensity of transport fuels by a minimum of 6 per cent by 2020 from a baseline of 2010. All of these jurisdictions have shown that policy to achieve life cycle reductions from fuels is technically feasible, affordable, and necessary to reach climate goals in transport.
Builds Canada’s competitive advantage
Given the global push to decarbonize, Canada’s new regulation will help build our country’s competitive advantage and empower us to keep pace with innovation happening elsewhere. It will give us a chance to gain an edge against U.S. competitors, to prepare for the possibility of similar federal regulatory action on fuels by the new Biden-Harris administration, and to safeguard access to international markets increasingly interested in carbon border adjustments. Further, as industry decarbonizes, the Clean Fuel Standard provides the foundation for a new environmental commodity of enormous potential significance both in Canada and abroad: the CFS credit. At the Pembina Institute, we look forward to watching the development and maturation of this commodity in the coming compliance market.
Helps industry meet net-zero commitments
But what of Canada’s fossil fuel industry? In terms of industrial decarbonization over time, by regulating the carbon intensity of our fuel supply, the CFS will actually help Canadian fossil fuel companies reach their publicly stated net-zero commitments. Indeed, the gradual decline in carbon intensity required by the standard roughly matches the decline in corporate emissions trajectories already implied by the growing number of net-zero commitments made by fuel producers. Beyond emissions reductions, Canadian industry will also recognize that this regulation is in keeping with existing health- and market-motivated rules to remove other pollutants from our fossil fuels, including sulphur, lead, and benzene.
Meanwhile, Canadian consumers can rest assured that the Clean Fuel Standard will result in marginal cost increases at the pump (estimated to range from an additional 4 cents to 11 cents per litre of gasoline) and will even reduce fuel costs for those who use more biofuels, low-carbon electricity, or hydrogen. While carbon pricing gives consumers incentives to seek out such lower carbon options, the Clean Fuel Standard will reduce the carbon content of those options while also increasing their availability. Considering the enormous and growing cost of climate change to all Canadians, as well as the opportunity for economic growth in clean fuel sectors, this regulation is both fair and cost-effective.
The implementation of this policy follows years of extensive consultation with a broad range of stakeholders across industry and civil society. Given that the standard will no longer require reductions in carbon intensity from gaseous and solid fuels, it’s imperative that the proposed liquid fuel regulation achieve every emission reduction possible. Enforcement of the liquids rule in 2022 is critical to bending the curve on rising GHGs from transportation and other sectors. We must act as quickly as possible to make up lost ground and prevent the release of avoidable emissions that we would otherwise have to neutralize later. Delay is not an option, only a costly form of denial.
Bora Plumptre is a senior analyst for the Pembina Institute’s federal policy program.