In late 2016, the Government of Canada announced that it would develop a national low carbon fuel standard called the Clean Fuel Standard (CFS) that would require greenhouse gas (GHG) emission reduction through the use of lower-carbon fuels, energy sources, and technologies. Unlike low carbon fuel standards in California [1], Oregon [2], or British Columbia [3], however, the Canadian federal government’s policy would extend beyond transportation fuels and require low carbon fuels to be used in industrial operations. As a result, CFS policy will have wide-reaching and potentially significant financial impacts for all Canadian businesses.
This is the first of a series of blog posts where we look to dive deep on the CFS regulation. The CFS is a complex regulatory design with material implications across the fuel value chain - so we look to break it down piece-by-piece. In this update, we provide an overview of the CFS development process including a recap on the work that has taken place already. In future newsletters, we will look to detail the CFS requirements, credit creation, trading and markets, and other important topics that your business will need to understand.
Background
The stated objective of the CFS program is to achieve 30 million tonnes of GHG reductions by 2030. This additional reduction is needed for Canada to achieve its Paris Climate goal of reducing emissions by 30% by 2030 compared to a 2005 baseline. This policy is intended to be complementary to other climate policies such as the national price on carbon.
The CFS will cover all fossil fuels with separate requirements for liquid, gaseous, and solid fossil fuels. Environment and Climate Change Canada (ECCC) has set out to tackle the liquid fuel stream first. ECCC will use a performance-based approach in their design of the CFS with the intention of building a policy that incents low-carbon technologies from the upstream oil and gas sector, to the development of fuels, right through to their end-use.
Engagement and consultation
ECCC began the consultation process in January 2017 with an information webinar following the November 2016 announcement of the CFS (see Figure 1). In February 2017, ECCC held a roundtable with industry, provinces and territories and non-governmental organizations. This roundtable discussion helped to set the stage for a discussion paper [4] that set out to seek views on the regulatory framework. The discussion paper laid out different approaches being used under low carbon fuel standards in other and posed technical questions related to the CFS scope, timing and stringency. A summary of the comments receive in response to the discussion paper were provided to ECCC in a report prepared by the International Institute on Sustainable Development (IISD) [5].
Figure 1 – Highlights of the CFS engagement and consultation process
In March 2017, ECCC hosted a multi-stakeholder workshop in Ottawa to hear initial views on the key elements and considerations in the design of the regulatory framework and in April 2017 hosted a series of five technical webinars to seek early input from stakeholders in advance of the development of a proposed CFS framework. These discussions culminated in a regulatory framework on the CFS that was published by ECCC in December 2017. The framework outlines the key elements of the CFS regulation, including its scope, regulated parties, carbon intensity approach, timing, and potential compliance options such as credit trading. The framework was published in Canada Gazette, Part 1 on December 23, 2017 [6].
Following the release of a regulatory framework, three groups were stood up to further the regulatory design and development of the standard:
- A multi-stakeholder consultative committee that consists of representatives from industry associations, academia, environmental non-governmental organizations, and government departments. This committee is the forum where ECCC provides updates to all interested parties on progress and seeks input on the draft regulations.
- A technical working group consisting of a small number of technical subject experts from the affected industries, non-government organizations and academia who provide technical advice and data and feedback on the regulatory design. The work of the technical working group is reported back to the multi-stakeholder consultative committee.
- A Task Group on Emission-Intensive and Trade-Exposed Sectors which will consider options to mitigate competitiveness impacts.
In July 2018, ECCC announced they would develop the liquids portion of the CFS first, followed by gaseous and solid fuels together. In December 2018, ECCC released a Regulatory Design Paper for the CFS [7] focusing on policy design elements for liquid fossil fuels. Shortly after the release of the Regulatory Design Paper, ECCC followed-up with a Cost-Benefit Analysis Framework for the Clean Fuel Standard [8]. The cost-benefit analysis is part of a regulatory impact analysis statement (RIAS) that is required to be published in the Canada Gazette along with regulations.
The most recent document ECCC has published in relation to the CFS is the Proposed Regulatory Approach which was released in June 2019 [9]. This document presents the proposed design for the liquid-fossil-fuel regulations of the Clean Fuel Standard and builds on the Clean Fuel Standard: Regulatory Design Paper, published in December 2018, as well as the Clean Fuel Standard Regulatory Framework, published in December 2017.
One of the key elements in the policy design of the CFS is a lifecycle assessment model that will be used to determine the carbon intensity of the various fuels produced in and imported into Canada. ECCC has not yet released this model, but the has provided the following timeline for the model’s development:
- public launch of model: 2021
- interface and final software model: 2021
- low carbon fuel pathways and default carbon intensity values: fall 2019
- revised fossil fuel baseline carbon intensity values: winter 2020
- request for proposals on the Government of Canada’s Buy and Sell: July 2018
A pause for COVID-19 and next steps
ECCC recently announced that due to the extraordinary circumstances during the COVID-19 pandemic, the publication of the proposed regulations for the liquid fuel class would be delayed from spring until fall 2020. The revised timeline for the development of the liquid fuels portion of the CFS program are outlined in Figure 2. The development of gaseous and solid fuel regulations is expected to follow a similar timeline for the liquid fuel class regulations, plus 12 months.
Figure 2 – Regulatory development timeline for the liquid fuels portion of the CFS program
This revised timeline provides stakeholders a little more time to prepare for the implementation of the CFS regulations. That is likely welcomed news given the potentially significant financial cost that CFS could impose on regulated parties. However, don’t confuse this delay with an indefinite pause. ECCC has already begun further engagement with the Technical Working Group on key regulatory design elements. Proposed regulations are almost certainly coming in Fall 2020. Use this delay to your advantage and start preparing your organization for a world where CFS is part of the normal course of business.
References
[1] https://ww2.arb.ca.gov/our-work/programs/low-carbon-fuel-standard
[2] https://www.oregon.gov/deq/aq/programs/Pages/Clean-Fuels.aspx
[3] https://www2.gov.bc.ca/gov/content/industry/electricity-alternative-energy/transportation-energies/renewable-low-carbon-fuels
[4] https://www.canada.ca/en/environment-climate-change/services/canadian-environmental-protection-act-registry/clean-fuel-standard-discussion-paper.html
[5] https://www.iisd.org/library/clean-fuel-standard-summary-stakeholder-written-comments-discussion-paper
[6] http://gazette.gc.ca/rp-pr/p1/2017/2017-12-23/html/notice-avis-eng.html#ne1
[7] https://www.canada.ca/en/environment-climate-change/services/managing-pollution/energy-production/fuel-regulations/clean-fuel-standard/regulatory-design.html
[8] https://www.canada.ca/en/environment-climate-change/services/managing-pollution/energy-production/fuel-regulations/clean-fuel-standard/cost-benefit-analysis-framework-february-2019.html
[9] https://www.canada.ca/en/environment-climate-change/services/managing-pollution/energy-production/fuel-regulations/clean-fuel-standard/regulatory-approach.html