Canada’s clean fuel standard: Reducing pollution, fighting climate change and driving clean growth

Backgrounder

The Government of Canada is developing a Clean Fuel Standard to make fuels used in our buildings, vehicles, and industries cleaner. This reduces air pollution, fights climate change, and drives clean growth.

By setting performance standards for various types of fuels, the Clean Fuel Standard will encourage the production of clean fuels, drive innovation in the oil and gas sector, and create an incentive to use less-polluting fuels. Similar standards are in place in British Columbia, California, Oregon, and the European Union. These jurisdictions have experienced growth in their clean fuel sectors and in uptake of electric vehicles since adopting standards for cleaner fuels.

Environment and Climate Change Canada is designing the Clean Fuel Standard to reduce greenhouse gas emissions by 30 million tonnes (Mt) a year by 2030, making an important contribution to meeting Canada’s Paris Agreement target. The Clean Fuel Standard complements other climate policies and investments in Canada’s national climate plan, including pricing pollution and rebates for the purchase of new zero-emission vehicles. Together, these policies will reduce pollution, fight climate change, and drive innovation and clean growth.

On June 28, 2019, Environment and Climate Change Canada published a proposed regulatory approach for the treatment of liquid fuels under the Clean Fuel Standard for public comment. Draft Clean Fuel Standard regulations for liquid fuels are now expected in early 2020, and final regulations in 2021. The standard for liquid fuels will come into effect as planned in 2022, and will gradually become more stringent from 2022 to 2030.

How it reduces pollution

In its final form, the Clean Fuel Standard will apply to all fossil fuels — liquid, solid, and gas. The first phase will focus on liquid fuels, such as gasoline and diesel, which are typically used for transportation. By making liquid fuels cleaner, the Clean Fuel Standard will help to reduce pollution from transportation, which accounts for roughly 25% of Canada’s total greenhouse gas emissions.

Canada’s Clean Fuel Standard will require fossil fuel suppliers to reduce the lifecycle carbon intensity of fuels, meaning that they need to account for all greenhouse gas emissions associated with its extraction, production, distribution, and use.

By 2030, the carbon intensity of liquid fuels such as gasoline and diesel will be 10–12% lower than it was in 2016. Fossil fuel suppliers will be able to meet the performance standard by taking action themselves or by purchasing credits from low-carbon-intensity fuel producers and other credit generators, such as companies that manufacture electric vehicles and charging stations, or farmers who turn waste products into renewable biofuels. 

The Clean Fuel Standard gives companies flexibility to meet the requirements in a cost-effective way while creating an incentive to innovate and adopt cleaner technologies. In Canada’s Clean Fuel Standard, companies can create credits in three ways:

  1. reducing emissions at any points along the lifecycle of fossil fuels, for example, improving energy efficiency at refineries;
  2. supplying low-carbon-intensity fuels, for example, ethanol and biodiesel; and
  3. switching to cleaner sources of energy, such as electric vehicles.

How it drives innovation and economic growth

The demand for credits under the Clean Fuel Standard will create a market signal for investment in low-carbon-intensity fuels and technologies, sparking clean economic growth. Statistics Canada found that Canada’s clean energy sector employed 282,000 Canadians in 2017. Together with the investments by the Government of Canada, including $2.3 billion to support clean technology in Canada and the growth of Canadian firms and exports, the Clean Fuel Standard will accelerate the growth of Canada’s clean energy economy.

The following real-world examples illustrate how the growing demand for cleaner fuels is already helping Canadian companies develop innovative technologies, create well-paying jobs, fight climate change, and deliver clean solutions to global markets.

Case Study 1: Actions to reduce carbon intensity of a fossil fuel along its lifecycle

Carbon Engineering, a British Columbia-based company, uses Direct Air Capture to take carbon dioxide from the atmosphere to be stored underground or converted into carbon-neutral fuel. In partnership with Occidental, Carbon Engineering plans to build the world’s largest direct air capture facility in the Permian Basin in Texas, which will capture 500,000 tonnes of carbon dioxide annually. The captured carbon dioxide would be used in enhanced oil recovery operations and subsequently stored underground permanently. The Clean Fuel Standard will incentivize investment in projects like this in Canada by enhancing the demand for clean technology, which in turn improves the conditions that allow Carbon Engineering, and companies like it, to innovate and find markets for their technologies.

Case Study 2: Supplying low-carbon-intensity fuels

In operation since 2007, Greenfield Global’s ethanol distillery, located in Varennes, Quebec, produces about 200 million litres of renewable, low-carbon ethanol from locally grown corn each year. This ethanol is blended with gasoline for retail distribution throughout the province, reducing greenhouse gas emissions and supporting local manufacturing and agricultural jobs. Through the Clean Fuel Standard credit trading system, facilities such as Varennes will be able to create credits that can be sold to fossil fuel suppliers to help meet their compliance obligation cost-effectively.

As well, the facility is fuelled in part by renewable methane biogas produced by the adjacent SEMECS anaerobic digestion facility, which allows it to produce some of the lowest carbon intensity renewable fuel in Canada. Because the Clean Fuel Standard uses a lifecycle approach for measuring carbon intensities, the fuel produced by Varennes will be able to generate more credits than a similar quantity of ethanol produced without that technology — illustrating how the Clean Fuel Standard will create incentive to continue to find innovative solutions to produce cleaner renewable fuels.

Case Study 3: End-use fuel switching

The City of Surrey, B.C.’s, biofuel facility processes the city’s organic waste into a 100% renewable natural gas, which is then used to fuel the city’s garbage trucks and to heat Surrey’s city centre. Surrey estimates that its facility reduces about 49,000 tonnes of greenhouse gas emissions per year. By producing renewable natural gas, the facility will be eligible to receive credits under the Clean Fuel Standard as a low-carbon-intensity fuel supplier for gaseous fuels. The use of this renewable natural gas to fuel Surrey’s garbage trucks — an example of end-use fuel switching — would allow the municipality’s fuelling stations to create additional credits for displacing diesel.


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