What are the Clean Fuels Regulations?
Canada’s Clean Fuel Regulations (CFR) are a set of rules and requirements implemented by the Federal government to reduce greenhouse gas (GHG) emissions from the transportation sector. These regulations aim to encourage the use of cleaner fuels and technologies to mitigate climate change and help lower our collective environmental impact.
The transportation sector currently accounts for 22%[1] of Canada’s total GHG emissions, and the new CFR will require a 15% decrease in emission intensity by 2030, compared to 2016 levels. The new regulations apply to gasoline and diesel used in transportation. The GHG reduction obligations cover producers, importers, distributors and anyone who supplies transportation fuels to the Canadian market.
The CFR is a performance-based regulation that sets progressively more stringent annual reduction requirements, or targets, for the carbon intensity of transportation fuels used in the Canadian market. Carbon intensity (CI) refers to the amount of carbon emissions produced throughout the lifecycle of a fuel, including its extraction, production, distribution and use.
This approach differs from the previous Renewable Fuel Regulations which mandated a minimum percentage of biofuels in gasoline and diesel. These volumetric requirements will remain in place under the CFR.
Complying with the Clean Fuels Regulations
As of July 1, 2023, the CFR mandates a reduction in the carbon intensity of transportation fuels; suppliers and importers can comply with these regulations in several different ways:
Emissions Reduction Strategies: Conventional fuel production facilities, including refineries, can implement various strategies to reduce the carbon intensity of their process. These include adopting more energy-efficient technologies, and investing in activities to reduce carbon emissions at the facilities, for example, low CI electricity, low CI hydrogen, co-processing, carbon capture, utilization and storage (CCUS) or renewable natural gas (RNG).
Supplying more low-carbon fuels like biofuels and other renewable fuels: Companies can also supply renewable fuels and biofuels including ethanol, biodiesel, renewable diesel, sustainable aviation fuel (SAF) and other advanced biofuels derived from renewable feedstocks such as agricultural residues, algae, or waste materials.
Fuel switching to advanced vehicle technology: It is also possible to earn credits through end-use fuel switching, for example moving from a gasoline vehicle to an electric vehicle through the installation of electric charging stations. Other examples include moving to renewable natural gas (RNG) or hydrogen refuelling.
Emissions Reductions Fund: Up to 10% of the annual reduction requirement can also be met by contributing to an emissions reduction funding program.
The Credit Trading System: The CFR introduces a credit trading system to provide flexibility for fuel producers and suppliers. If a company subject to the CFR scores well below the required carbon intensity reduction, it can generate credits that can be sold to other companies who may not have achieved their targets. Accordingly, producers who exceed the target can buy credits to help meet the requirements of the regulations.
Understanding the Cost of the CFR
With any new regulatory framework there will be a cost of compliance, and the CFR is no different. However, there are conflicting schools of thought regarding what the cost of the CFR will be and, as with many forward-looking statements or projections, there are limitations to some of the predictions being made.
Several factors influence the fuel retailing market, and without a crystal ball to see into the future it is difficult to predict how costs may vary over time and by region. For example, current forecasting does not take into account future technology innovations or their potential to accelerate and scale emissions reduction activities – inevitably lowering costs over time. A supportive public policy framework could further reduce costs.
Environment and Climate Change Canada’s (ECCC) Regulatory Impact Analysis Statement (RIAS)[2] predicts that by 2030 the majority of consumers will begin experiencing a price increase at the fuel retail outlets of anywhere between six and 13 cents per litre for gasoline. Atlantic Provinces will feel the increase sooner, due to the implementation of a CFR adjuster to their regulated markets. The fuels industry will continue to work with ECCC as more information becomes available and the regulations begin to be implemented.
Collaboration and Innovation are Key for Cleaner Fuels
While the release of the CFR is an important milestone in Canada’s journey to net-zero, the CFA and its members have not waited until now to demonstrate how we can support the low-carbon economy.
Our current fuels network – consisting of hydrogen and biofuel production, refineries, fuel terminals and retail locations – is a strategic asset for Canada that can be leveraged and adapted to support our climate change goals, meaning we are not starting from scratch when it comes to building a low-carbon transportation system.
Since unveiling our Driving to 2050 vision two years ago, CFA members have announced plans to invest upwards of $8 billion in low-carbon solutions that have the potential to reduce GHG emissions by more than 10 million tonnes while creating sustainable and well-paying jobs in the process.
Learn more about how Canadian Fuels members are helping reduce emissions from transportation and reach our collective climate goals.
Associated Links:
If you have questions about the CFR and its implications for Canada’s transportation energy sector, email us at media@canadianfuels.ca.
[1] https://www.canada.ca/en/environment-climate-change/services/environmental-indicators/greenhouse-gas-emissions.html
[2] https://www.gazette.gc.ca/rp-pr/p2/2022/2022-07-06/html/sor-dors140-eng.html
