What are the Clean Fuel Regulations?

Overview

As the world strives to achieve net-zero emissions by 2050, a major shift will occur to lower carbon and produce non-emitting fuels. Canada is in a position to be the producer and consumer of these fuels that consumers are looking for now, and will increasingly be looking for in the future.

The Clean Fuel Regulations increase incentives for the development and adoption of clean fuels, technologies and processes. The goal of the Clean Fuel Regulations is to significantly reduce pollution by making the fuels we use every day cleaner over time. The Clean Fuel Regulations require liquid fossil fuel (gasoline and diesel) suppliers to gradually reduce the carbon intensity – or the amount of pollution – from the fuels they produce and sell for use in Canada over time, leading to a decrease of approximately 15% (below 2016 levels) in the carbon intensity of gasoline and diesel used in Canada by 2030.

The Clean Fuel Regulations will deliver up to 26 million tonnes (Mt) of GHG emissions reductions in 2030. This is equal to removing about two weeks of greenhouse gas emissions from the Canadian economy.

To speed up the transition to clean fuels, technologies and processes across Canada, the Government of Canada is supporting the development of a clean fuels sector in Canada through a series of investments and initiatives that complement the Clean Fuel Regulations.

The Regulations will replace the current federal Renewable Fuels Regulations. By moving to regulations that focus on emissions throughout the lifecycle of fuels, the Government of Canada is following similar approaches that already exist in British Columbia, California, Oregon and other jurisdictions. These jurisdictions have benefited from the expansion of clean technology industries as a result of these regulations.

These measures include the Government of Canada’s recent investment of $1.5 billion towards a Clean Fuels Fund, which will increase support for domestic production and adoption of low-carbon fuels, such as hydrogen and biofuels. By supporting the increased production of clean hydrogen, these investments will also help implement early opportunities identified in the Hydrogen Strategy for Canada.

This domestic growth will help position Canada to become a world-leading supplier of hydrogen and hydrogen technologies, generating economic opportunities through exports and direct foreign investment.

Benefits of the Clean Fuel Regulations

The Clean Fuel Regulations are part of a suite of complementary climate policies designed to enable Canadian investments in clean energy and the adoption of technologies and processes that use clean energy as outlined in Canada’s 2030 Emissions Reduction Plan: Clean Air, Strong Economy.

More specifically, the Clean Fuel Regulations will increase demand for low carbon intensity fuels, including those derived from canola and other agricultural crops. This represents an opportunity for Canadian farmers to diversify their business. For example, the canola sector has identified domestic biofuels opportunities as an important element of market diversification. 

The Clean Fuel Regulations will accelerate the growth of the clean energy economy. Already, it is one of the country’s fastest growing sectors and employed 322,000 Canadians in 2020. Workers in this field earned an average of more than $96,000 per year.

The fossil fuels we use for transportation also have significant impacts on Canadians’ health, creating harmful air pollution when they’re extracted, refined and burned in car and truck engines. By encouraging the adoption and use of cleaner fuels, the Clean Fuel Regulations will also have positive health outcomes for Canadians today and for future generations.

It also promotes investments in low carbon fuels and new low carbon technologies in Canada. This will:

• drive innovation and create conditions for jobs across multiple sectors of the economy, including in clean technology and low carbon energy sectors, such as biofuels and hydrogen;
• help diversify energy choices and grow Canada’s clean fuels industry at a time when the global market for clean solutions is rapidly expanding; and
• create opportunities for industries that are producing renewable fuels, and accelerate the purchase of zero-emission vehicles.

How fuels will become cleaner

The Clean Fuel Regulations take a lifecycle approach, meaning it takes into account the emissions associated with all stages of fuel production and use – from extraction through processing, distribution, and end-use.

The Clean Fuel Regulations require liquid fossil fuel primary suppliers (i.e., producers and importers) to gradually reduce the carbon intensity of the gasoline and diesel that they produce and sell for use in Canada. The carbon intensity of a fuel is a measure of the GHG emissions from the extraction, refining, distribution, and use of the fuel. In 2023, the carbon intensity reduction requirement will start at 3.5 gCO2e/MJ. It will increase by 1.5 gCO2e/MJ each year, reaching 14 gCO2e/MJ in 2030. To achieve this, fuel producers will need to provide innovative solutions.

To drive innovation at the lowest cost, the Clean Fuel Regulations establish a credit market. Regulated parties (producers and importers of gasoline and diesel) must create or buy credits to comply with the reduction requirements. Parties with extra credits can bank them for use in later years or sell them.

Learn about compliance options for industries and how the regulations will be implemented in the years ahead.

How cleaner fuels drive innovation and economic growth

The demand for credits under the Clean Fuel Regulations create a market signal for investment in low carbon intensity fuels and technologies. This also creates economic opportunities for voluntary parties such as biofuel producers and other lower carbon fuel producers to create and sell credits. In turn, this will create opportunities for feedstock providers such as farmers and foresters supporting low carbon fuel production.

The Clean Fuel Regulations also promote the uptake of advanced vehicle technologies, like electric vehicles. Charging network operators can create credits for residential and public electric vehicle charging, and charging site hosts can create credits for private or commercial charging. To allow for a wide range of participants to have access to this economic opportunity, any party could register to become a credit creator for residential electric vehicle charging. Revenues from credits associated with residential and public electric vehicle charging must be reinvested in vehicle charging infrastructure, electricity distribution infrastructure that supports electric vehicle charging, or financial incentives for consumers.

By promoting investments in low carbon fuels and technologies, the Clean Fuel Regulations:

• support sustainable jobs across the economy in clean technology and in clean fuels;
• will grow Canada’s clean fuels industry at a time when the global market for clean fuels is rapidly expanding;
• create opportunities for companies producing renewable fuels and the farmers and foresters supplying their feedstock; and
• promote the purchase of zero-emission vehicles.

Examples of other clean fuel standards

Here are examples of countries and jurisdictions that have low carbon fuel policies, such as renewable fuel mandate or a clean fuel standard:

Alberta: the Renewable Fuels Standard requires a minimum annual average of 5% renewable alcohol in gasoline and 2% renewable diesel in diesel fuel sold in Alberta by fuel suppliers. To meet the Renewable Fuels Standard, renewable fuels must demonstrate at least 25% fewer GHG emissions than the equivalent petroleum fuel.

Manitoba: Manitoba’s Ethanol Mandate requires fuel suppliers in Manitoba to blend at least 10% of ethanol in their gasoline. The Biodiesel Mandate requires fuel suppliers to blend 5% renewable content in on- and off-road diesel fuel.

Ontario: the Cleaner Transportation Fuels regulation requires that fuel suppliers blend 10% of renewable content in gasoline from 2020 to 2024. The renewable content requirement increases to 11% in 2025, 13% in 2028, and 15% in 2030 and onwards. The renewable content must emit fewer greenhouse gas emissions than fossil gasoline on a lifecycle basis by 45% before 2030 and 50% from 2030 onward. The regulation also requires fuel suppliers to continue to blend 4% renewable content in diesel. This renewable content must emit 70% fewer greenhouse gas emissions than fossil diesel on a lifecycle basis.

Saskatchewan: the Renewable Diesel Act requires fuel distributors to include 2% renewable diesel content. The province also has a 7.5% ethanol mandate.

British Columbia: the Renewable and Low Carbon Fuel Requirement mandates a 5% ethanol content in gasoline and 4% in diesel fuel. In addition, the province has a Low Carbon Fuel Standard, which aims to achieve a 20% reduction in fuel carbon intensity by 2030.

Quebec: effective January 1, 2023, gasoline and diesel fuels distributed in Québec will incorporate clean fuels. Quebec will require 10% low-carbon fuel content in gasoline in 2023 and increase this to 15% by 2030. Low-carbon fuel content in diesel will begin at 3% in 2023 and increase to 10% by 2030. In both fuel pools, the low-carbon content volume requirements will be adjusted by a carbon intensity factor.

United States: The Renewable Fuel Standard is a federal program that now requires transportation fuel sold in the country to contain 36 billion gallons of renewable fuel blended into gasoline or diesel.

California: The Low Carbon Fuel Standard is a state regulation that requires a 20% reduction in transportation fuel carbon intensity by 2030.

Oregon: The Clean Fuels Program (CFP) is a state law that requires a 10% reduction in transportation fuel carbon intensity in 10 years.  Phase I of the CFP was adopted in 2009 to study the impact of such a reduction. In 2015, it was fully implemented. 

European Union: fuel suppliers are required to reduce carbon-intensity by 6% for transportation fuels supplied to the EU. This requirement is integrated with the EU’s Renewable Energy Directive. Both policies require Member States to enforce targets.