What is the clean fuel standard?
Canadians and businesses use fuel every day – to produce and transport goods, and get from place to place. These fuels help power our economy, but their extraction and combustion also represent a significant source of pollution in Canada. In fact, the largest sources of greenhouse gas (GHG) emissions in Canada are from the extraction, processing and combustion of fossil fuels. 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.
As the world strives to achieve net-zero emissions by 2050, a major shift will occur to lower carbon and non-emitting fuels. Canada is in a powerful 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 Standard will drive investment and growth in Canada’s clean fuel sector by increasing incentives for the development and adoption of clean fuels and technologies and processes. The goal of the Clean Fuel Standard is to significantly reduce pollution by making the fuels we use every day cleaner over time. The Clean Fuel Standard will require liquid fuel (gasoline, diesel, home heating oil) suppliers to gradually reduce the carbon intensity of the fuels they produce and sell for use in Canada over time, leading to a decrease of approximately 13% (below 2016 levels) in the carbon intensity of our liquid fuels used in Canada by 2030.
To speed up the transition to clean fuels, technologies and processes across Canada, the Government is supporting the development of a leading clean fuels sector in Canada through a series of significant investments and initiatives that complement the Clean Fuel Standard regulation.
These measures include the Government of Canada’s recent investment of $1.5B towards a Low-carbon and Zero-emissions Fuels Fund, which will increase support for domestic production of low-carbon fuels and their adoption, such as hydrogen and biofuels. These investments will also help implement early opportunities identified in the Hydrogen Strategy for Canada, which was announced by Natural Resources Canada on December 18 2020, by supporting the increased production of clean hydrogen.
This domestic growth will also position Canada to become a world-leading supplier of hydrogen and hydrogen technologies, generating economic opportunities through exports and direct foreign investment.
In addition, Canada's fall economic statement announced $150 million in additional funds to accelerate the deployment of infrastructure for zero-emission vehicles and the government’s intention to continue supporting electrification of public transit systems across Canada. The fall economic statement also proposed $2.6 billion in funding for home energy retrofits which can reduce home heating costs for all Canadians through energy efficiency upgrades. In particular, this program will enable Atlantic Canadians to pursue home heating oil retrofits and avoid costs associated with the Clean Fuel Standard. These measures will work hand in hand with the CFS in supporting Canadians in their transition to a low-carbon future and in the uptake of ZEVs.
In the context of the continued increase to the carbon price and the new measures to support the production of hydrogen and biofuels, the scope of the Clean Fuel Standard has been narrowed to target only liquid fossil fuels, like gasoline, diesel and oil, which are mainly used in the transportation sector. This is a progression in the design of the Clean Fuel Standard from its initial discussion in 2016, when it was proposed that the new measure will cover liquid, gaseous and solid fuels. According to Environment and Climate Change Canada’s (ECCC) estimates, the liquid-class Clean Fuel Standard will reduce GHG emissions by more than 20 million tonnes in 2030 – that is equivalent to taking 5 million cars off the road each year.
How fuels will become cleaner
The Clean Fuel Standard takes 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 Standard will require liquid fossil fuel primary suppliers (i.e., producers and importers) to reduce the carbon intensity of their liquid fossil fuels used in Canada from 2016 carbon intensity levels. In 2022 the carbon intensity reduction requirement will start at 2.4 gCO2e/MJ. It will gradually increase over time reaching 12 gCO2e/MJ in 2030. To achieve this, fuel producers will need to provide innovative solutions and new fuel options to consumers.
To drive innovation at the lowest cost, the Clean Fuel Standard establishes a credit market. Regulated parties (mainly refineries) must create or buy credits to come into compliance with the performance standard. Parties with an excess of credits can bank them for use in later years or sell them. The Clean Fuel Standard also provides opportunities for non-regulated parties to create credits.
The Clean Fuel Standard provides three ways to create credits:
- Compliance category 1: undertaking projects that reduce the lifecycle carbon intensity of fossil fuels (e.g., carbon capture and storage, on-site renewable electricity, co-processing)
- Compliance category 2: supplying customers with low carbon intensity fuels (e.g., ethanol, bio-diesel)
- Compliance category 3: investing in advanced vehicle technologies (e.g., electric or hydrogen fuel cell vehicles)
Economic benefits of cleaner fuels
The Clean Fuel Standard will create economic opportunities for voluntary parties like biofuel producers and other lower carbon fuel producers to create and sell credits. In turn, this will create opportunities for feedstock providers like farmers and foresters supporting lower carbon fuel production.
The Clean Fuel Standard will also promote the uptake of advanced vehicle technologies, like electric vehicles. To allow for a wide range of participants to have access to this economic opportunity, any party can become a credit creator for residential electric vehicle charging. Revenues from credits generated for residential electric vehicle charging must be reinvested in vehicle charging infrastructure, rebates for consumers or electricity distribution infrastructure.
By promoting investments in low carbon fuels and technologies, the Clean Fuel Standard will:
- create well-paying jobs across the economy including in clean technology and in clean fuels like biofuels and hydrogen;
- 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 accelerated use of zero-emission vehicles.
The proposed regulations for the Clean Fuel Standard were published in Canada Gazette, Part I, on December 18. The draft regulations were available for a 75-day comment period.
Final regulations will be published in late 2021, with the coming into force of the regulatory requirement in December 2022.
Questions and answers
Q1.) What is the Clean Fuel Standard?
The Clean Fuel Standard is an important part of Canada’s approach to growing a cleaner and more competitive economy.. The Clean Fuel Standard is a proposed regulation, to be established under the Canadian Environmental Protection Act, 1999. The regulatory requirement will be imposed on fossil fuel suppliers.
The regulation will require fossil fuel suppliers to make the fuels they supply cleaner and less polluting overall. In so doing, they will contribute to the reduction of GHG emissions, mostly from the transportation sector which accounts for 25 percent of Canada’s total emissions in 2018.
The Clean Fuel Standard builds on current federal and provincial renewable fuel 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.
The Clean Fuel Standard will promote 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 promote faster growth of zero-emission vehicles.
Q2.) How does it work?
Fuel suppliers, such as refineries, will be required to reduce the lifecycle carbon intensity of the fossil fuels they supply. The carbon intensity of a fuel is a measure of the GHG emissions from the extraction, refining, distribution, and use of the fuel.
Fossil fuel suppliers can comply in multiple ways. They can reduce their own emissions associated with the production of fuels. They can also purchase credits created by other parties who reduce the lifecycle emissions of the fuel.
Here are some ways fossil fuel suppliers can comply with the Clean Fuel Standard:
- Undertake projects that reduce the lifecycle carbon intensity of fossil fuels (e.g., carbon capture and storage, renewable electricity);
- Supply low carbon fuels – like ethanol in gasoline or biodiesel in diesel; and
- Support switching from fossil fuels to lower carbon fuels or energy like electricity or hydrogen in vehicles.
The broad range of compliance strategies allowed under the Clean Fuel Standard will give fossil fuel suppliers the flexibility to choose the lowest cost compliance actions available. The Clean Fuel Standard will establish a credit market, where each credit will represent a lifecycle emission reduction of one tonne of CO2e. For each compliance period (typically a calendar year), a primary supplier will demonstrate compliance with their reduction requirement by creating credits or acquiring credits from other creators, and then using the required amount of credits for compliance.
Q3.) What are the benefits of the Clean Fuel Standard?
Canada’s transition to a low carbon future will build a stronger and cleaner economy, by driving innovation, creating new opportunities in clean technology and ensuring we meet Canada’s climate goals. The Clean Fuel Standard, first announced in 2016, is an important part of Canada’s national climate plan.
The Standard will make gasoline and diesel fuel cleaner, which will in turn support cleaner air and healthier communities. And it will reduce pollution from transportation, which accounts for roughly 25% of Canada’s total GHG emissions, which will ensure Canada can meet and exceed its 2030 climate target.
The Clean Fuel Standard will increase demand for low carbon 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 Standard will accelerate the growth of the clean energy economy. Already, it is one of the country’s fastest growing sectors and employed 317,000 Canadians in 2018.
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 CFS will also have positive health outcomes for Canadians today and for future generations.
Q4.) Who has been consulted on this regulation?
Since early 2017, the Government of Canada has worked with provincial, territorial, and industry stakeholders on the development of the Clean Fuel Standard. Industry consultations included the businesses that will be regulated under the standard and those that are expected to be voluntary participants in the credit market. These included: oil and gas sector, low carbon fuels sector, and vehicle sector. Industrial consumers of fuels were also included, such as fertilizer and chemistry. In addition, environmental non-governmental organizations (ENGOs), academia and technical experts were engaged.
The Government of Canada met regularly with these parties during periods of regulatory design, as well as around key milestone dates, in order to discuss detailed aspects of the regulatory design as it was developed, as well as key any concerns.
Q5.) Which other countries and jurisdictions currently have low carbon fuel policies, such as renewable fuel mandate or a clean fuel standards?
Alberta: the Renewable Fuels Standard (RFS) 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 RFS, 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 8.5% of ethanol in their gasoline. The Biodiesel Mandate requires fuel suppliers to blend 2% renewable content in on- and off-road diesel fuel. Under the recently released Made-in-Manitoba Climate and Green Plan, ethanol content in gasoline will rise to 10% from 8.5%, and the biodiesel content in diesel will rise to 5% from 2%.
Ontario: As of 2017, 4% of the total volume of diesel fuel must be bio-based. The bio-based diesel component must have 70% lower GHG emissions than standard petroleum diesel. Ethanol must also account for 10% of the total volume of gasoline by 2020 for Southern Ontario and by 2023 for northern regions. The ethanol blend must also lower GHG emissions by 45%. Consultations are underway to increase the ethanol content to 15% by as early as 2025.
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: there is no mandate in effect, but the province is currently consulting on establishing a proposed mandate of 10% ethanol by 2021 and 15% by 2025, with benefits for cellulosic ethanol. The province is also proposing a renewable diesel mandate of 2% by 2021 and 4% by 2025.
United States: The Renewable Fuel Standard is a federal program that requires transportation fuel sold in the country to contain 36 billion gallons of renewable fuel blended into gasoline or diesel by 2022.
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.
Q6.) How much emissions will be reduced by the Clean Fuel Standard?
The Clean Fuel Standard for liquid fuels will reduce GHG emissions by more than 20 million tonnes by 2030.
Q7.) Will the removal of the CFS gaseous stream negatively impact the demand for low-carbon gaseous fuels, such as hydrogen and renewable natural gas?
The Clean Fuel Standard for liquid fuels provide economic opportunities for biogas, renewable gas and hydrogen including:
- Credits for using low-carbon intensity hydrogen as a feedstock in the production of fossil fuels or low-carbon intensity fuels.
- Credits for supplying renewable gas and hydrogen to the transportation sector (fuel cell vehicles and natural gas vehicles).
- Credits for supplying biogas, renewable gas and hydrogen used as a fuel for non-transportation purposes. These credits can be used to comply with up to 10% of the annual reduction requirements.
Canada’s strengthened climate plan will provide extensive support for the production and use of clean gaseous fuels.
Q8.) How does removing the gaseous and solid fuels obligations affect gaseous and solid credit creation opportunities and incentives for uptake of low carbon gaseous and solid fuels?
The Clean Fuel Standard will continue to have some credit creation opportunities for low carbon gaseous fuels like hydrogen and renewable natural gas (RNG).
Canada’s strengthened climate plan will provide extensive support for the production and use of clean gaseous fuels.
Learn more about the Clean Fuel Standard, including compliance options for industries and how the regulations will be implemented in the years ahead.
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