Clean Fuel Standard: Backgrounder

December 2018 update

The Clean Fuel Standard is one of the most important emissions-reduction policies in Canada’s climate and clean growth plan, and is expected to reduce greenhouse gas emissions by 30 million tonnes annually by 2030. The Clean Fuel Standard will complement Canada’s approach to pricing carbon pollution by driving investments in cleaner fuels.

The regulations will be developed in two phases, starting with liquid fuels. Once finalized, the Clean Fuel Standard will apply to liquid, gaseous and solid fuels used in Canada.

This will mean that the fuels Canadians use get cleaner each year. In order to comply, fuel importers and suppliers will have flexibility to take different actions like adding more renewable and low carbon fuels, such as ethanol to gasoline and biodiesel to diesel; switching away from fossil fuels to clean fuels, such as by choosing electric vehicles; or by investing in more efficient processes that pollute less.

The Clean Fuel Standard will open new opportunities for Canadian clean fuel providers—both the companies producing renewable fuels and the farmers who supply them—and for clean technology companies across the economy.

Environment and Climate Change Canada has worked with stakeholders across the country on the design of the Clean Fuel Standard. The Regulatory Design Paper sets out the main design elements of the Clean Fuel Standard regulations for liquid fuels. A framework for assessing the costs and benefits of the Clean Fuel Standard for the liquids stream will be released in early 2019.

Carbon intensity limit for liquid fuels

The first phase of the regulations will set annual carbon intensity limits for each type of finished liquid fossil fuel (i.e., gasoline, diesel, fuel oil and jet fuel) produced or imported and consumed in Canada.

The Regulatory Design Paper proposes to lower the carbon intensity of liquid fossil fuels by approximately 11% by 2030, which is expected to result in up to 23 million tonnes of greenhouse gas reductions that year. Supplying fossil fuels with a carbon intensity that is higher than the limit will result in a net compliance obligation. The remaining reductions will be achieved through the gaseous and solid fuel streams.

This regulation will spur investment in low-carbon fuels and clean technologies, including:

• actions to lower emissions throughout the fossil fuel production and supply chain, including improvements in production of fuels (i.e., improvements in energy efficiency at refineries)
• increased use of renewable and low-carbon fuels such as ethanol, renewable diesel and synthetic fuels
• switching from higher-carbon to cleaner fuels or energy sources, such as choosing to power vehicles with electricity instead of fossil fuels

Credit trading system

Compliance will be based on a system of tradeable credits. Actions that lower the carbon intensity of fuels will generate credits measured in tonnes of carbon dioxide equivalent.

Both fossil fuel suppliers and voluntary credit generators will be able to create credits by reducing emissions along the supply chains of fossil fuels. Each year, fossil fuel suppliers will need to acquire sufficient credits to offset their compliance obligation.

The credit system will provide flexibility for fossil fuel suppliers to meet their requirements cost effectively while creating a strong price signal that supports investment in low-carbon technologies.

Companies will be able to earn credits for early action and to bank credits for future compliance. Environment and Climate Change Canada is considering including additional mechanisms to help ensure a stable and predictable credit market that sustains long-term investment in clean technology.

Next Steps

Interested parties are invited to submit comments on the Regulatory Design Paper by February 1, 2019. These comments will help inform draft regulations for the liquid fuel stream, which are expected to be published in mid-2019. Draft regulations for the solid and gaseous fuel streams are expected to be published in fall 2020.

Environment and Climate Change Canada will continue technical regulatory design consultations through the Clean Fuel Standard Technical Working Group and the Multi-stakeholder Consultative Committee. ECCC is also establishing a multi-stakeholder group to discuss regulatory design elements of interest to emission-intensive, trade-exposed sectors.

Comments on the Regulatory Design Paper should be addressed to:

Executive Director, Oil, Gas and Alternative Energy Division
Clean Fuel Standard
Energy and Transportation Directorate
Environment and Climate Change Canada
351 St. Joseph Boulevard, 12th Floor
Gatineau, QC
K1A 0H3
Email: ec.cfsncp.ec@canada.ca