Peter Boag
President and CEO, Canadian Fuels Association

May 2019

Transparency needed on Clean Fuels Standard

The polarized and partisan debate over carbon taxes is sucking up all the oxygen in the public discourse over climate policy. Meanwhile, potentially more disruptive and costly climate policy initiatives like the proposed Clean Fuel Standard are receiving little to no public or political attention.

The Clean Fuel Standard is a federal proposal that aims to cut 30 Mt per year of GHG emissions by 2030, by regulating the ‘carbon intensity’ of the fuels we all consume. It’s a key component of the Pan Canadian Framework put in place to achieve Canada’s Paris Accord target, expected to make a substantial contribution to Canada’s 2030 emissions reduction target. Yet, most Canadians have never heard of it, let alone understand its implications. Rarely does it get any ‘airtime’ in the public debate about climate policy.

The proposed Clean Fuel Standard is sweeping in its scope and complex in its design. No other government in the world has tried to regulate the carbon intensity of fuels used in the transportation, buildings and industrial sectors.

The Canadian Fuels Association endorsed the Clean Fuel Standard concept when it was first announced in late 2016. We saw it as an important opportunity to build a well-balanced, national regulation that was flexible, transparent and cost-effective, and put an end to the inefficient and costly existing patchwork of provincial and federal renewable fuels standards. Since then, we have actively participated in consultations on regulation design, providing technical, economic and practical insights based on our 100+ years of supplying Canadians with reliable, high quality, and cost-competitive fuels.

This consultation process is still underway. Federal regulators are working toward publishing a draft regulation as early as this summer. It will focus on requirements for liquid fuels used in transportation that will come into force in 2022, imposing obligations on refiners and importers of gasoline, diesel, jet fuel, home heating oil, etc., to reduce the carbon intensity of these fuels by roughly 11 per cent by 2030. Similar regulations for gaseous and solid fuels used in the buildings and industrial sectors will come later.

The draft regulation is expected to describe a number of compliance ‘pathways’ for obligated businesses. These pathways are built on a number of assumptions that carry varying levels of uncertainty. These uncertainties have real implications for the ability of the Clean Fuel Standard to deliver on the objective of a scientifically credible, transparent and cost-effective approach to achieving GHG emission reductions from fuel consumption.

We are not alone in highlighting these issues. To their credit, Environment & Climate Change Canada officials acknowledged in their Clean Fuel Standard Cost Benefit Analysis Framework released earlier this year that “Currently there are no models within the department designed to model emission reductions, credit supply or economic impacts of a CFS policy in detail”. This kind of transparency is helpful, and it highlights the need for broader scrutiny of the Clean Fuel Standard.

Lack of transparency about unintended consequences, particularly as they apply to cost and the potential for ‘hidden taxes’, is always a risk with prescriptive, regulated solutions to environmental problems. Just ask Ontarians about soaring electricity rates, driven in part by legislation and regulations to promote wind and solar energy. Or ask Vancouverites about the cost of gasoline, where compliance costs for BC’s Low Carbon Fuel Standard are likely one factor in what are now the highest gasoline prices in North America.

Several voices have already weighed-in with analysis on the potentially substantial costs of the Clean Fuels Standard – Canada’s Ecofiscal Commission, the C. D. Howe Institute, the Canadian Chamber of Commerce, and most recently the Canadian Energy Research Institute. However, these voices have attracted little public attention and have failed to generate the kind of robust public examination that a sweeping regulatory concept like the Clean Fuel Standard deserves.

For our part, we will continue to work with regulators, validating underlying assumptions, reinforcing the need for robust analysis and careful consideration of unintended consequences such as excessive compliance costs. We seek full transparency on the costs of the Clean Fuel Standard for Canadian individuals, families and businesses. Fundamental to our engagement is promoting the need for the Clean Fuel Standard to enable maximum compliance flexibility for obligated fuel suppliers, adopt a technology neutral approach (avoid picking winners and losers), and lever the power of markets to drive to the lowest cost compliance options.

The Clean Fuel Standard is an important opportunity for the federal government to show national leadership by creating a credible, transparent and cost-effective national approach to achieving GHG emission reductions from fuel consumption - an approach that eliminates costly red tape and regulatory duplication by replacing the current patchwork of provincial renewable fuel mandates.

All Canadians have a stake in achieving this outcome. Canadian Fuels Association