The Environment and Climate Change Canada (ECCC) recently released the regulatory framework outlining the proposed design of Canada’s Clean Fuel Standard (Standard), a critical element of Canada’s climate strategy that is designed to drive clean growth and reduce greenhouse gas (GHG) emissions.

OVERVIEW

The Standard will be implemented by way of a regulation that will be put in place under the Canadian Environmental Protection Act, 1999. Its goal is to help achieve Canada’s GHG mitigation target of a 30 per cent emission reduction below 2005 levels by 2030, established as part of Canada’s participation in the Paris Agreement and as part of the federal government’s commitments under the Pan-Canadian Framework on Clean Growth and Climate Change, published by ECCC in December 2016. By 2030, ECCC expects the Standard will help reduce GHG emissions by 30 million tonnes annually.

Generally, the Standard will require producers, importers and distributors to reduce the carbon intensity (or the “carbon footprint”) of fuels. Carbon intensity is the measure of GHG emissions associated with production, processing, distribution and use of a fuel. The Standard will set different pollution-reduction targets for gaseous, liquid and solid fuels and will also establish various compliance mechanisms for parties who must comply with the Standard.

REGULATORY FRAMEWORK

  • Covered Sectors: The Standard will seek to reduce the carbon footprint of each of the transportation, building and industry sectors.
  • Covered Fuels:
    • The Standard will apply to liquid, gaseous and solid fuels combusted for the purpose of creating energy, including “self-produced and used” fuels (fuels that are used by producers or importers).
    • The Standard will not apply to fuels when they are primarily used as feedstocks in industrial processes or when used for non-combustion purposes (such as solvents).
    • Certain fuels will be not be subject to the Standard’s carbon intensity requirements, including fuels that are exported from, or in, transit through Canada and coal combusted at facilities that are covered by coal-fired electricity GHG regulations.
  • Carbon Intensity Requirements: The Standard will set separate carbon intensity requirements for liquid, gaseous and solid fuel streams. Furthermore, different requirements may apply by creating sub-groupings of fuel types within a fuel stream (for example, creating a grouping for transportation fuels within the liquid fuel stream).
  • Pricing: The Standard will complement Canada’s approach to pricing carbon emissions, while focusing on reducing carbon intensity throughout the lifecycle of fuels — from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling. The carbon price puts a price on fossil fuels, as well as emissions from industrial activities so as to send a price signal to markets and end-users and further incent GHG emission reductions. For further details on the federal carbon pricing plan, please see our May 2017 Blakes Bulletin: Canada Publishes Technical Paper, Reveals Federal Carbon Pricing Plan.
  • Regulated Parties: Whether the Standard will apply to a party will depend on the type of fuel and the party’s status as a producer, importer or supplier:
    • Producers and importers of liquid fuel (such as gasoline, diesel and heavy fuel oil) will be the regulated parties under the Standard.
    • For pipeline-quality natural gas delivered via gas distribution pipeline systems, the distributors of the natural gas will be the regulated parties, while for other gaseous fuels that are supplied to end-users other than by way of a gas distribution pipeline system (such as biogas and natural gas from producers), the regulated parties have yet to be determined.
    • Producers and importers of solid fuels (such as coal and petroleum coke) will be the regulated parties.
  • Implementation of Requirements: The carbon intensity requirements gradually become more stringent over time, until the ultimate annual emissions reduction goal of 30 million tonnes is achieved in 2030.
  • Renewable Fuel Content: In the short-term, the volumetric requirements of the federal Renewable Fuels Regulations will be maintained for gasoline (five per cent renewable content), diesel fuel and heating distillate oil (two per cent renewable content for each). Down the road, the Standard will replace the Renewable Fuels Regulations. For natural gas, the intended approach is to set carbon intensity requirements in accordance with the above method, though setting volumetric requirements for renewable content and a hybrid approach will also be considered.
  • Compliance: The Standard will provide alternatives for compliance other than the simple reduction of the carbon intensity of fuel produced or imported for use in Canada.
    • Fossil fuel suppliers will be able to comply by including renewable fuel content in their product.
    • Compliance credits may be generated for actions that improve carbon intensity throughout the lifecycle of the fuel. Additionally, credits may be generated through fuel switching and the deployment of energy sources and technologies that offset fossil fuels, such as electric vehicles.
    • Regulated parties within each stream of fuels (liquid, gaseous and solid) may trade their credits. These credits will also be bankable up to a certain limit.

NEXT STEPS

ECCC plans to publish draft regulations in late 2018 and final regulations in mid-2019. ECCC has indicated that the carbon intensity requirements for liquid, gaseous and solid fuel streams will come into force at the same time, with this date to be determined at a later time.