As a major contributor of greenhouse gas (GHG) emissions, the transportation sector has been identified by policy makers as a sector in which significant emission reductions can be achieved. In British Columbia (BC), the transportation sector accounted for approximately 37.1% of the province’s total GHG emissions in 2011.  One of the policy instruments designed to reduce GHG emissions is the low carbon fuel standard (LCFS), which is intended to reduce the carbon intensity of transportation fuels measured on a life-cycle basis.  The LCFS also requires a reduction in the carbon intensity of life cycle emissions, which is intended to spur improvements in fuel production and refining efficiency, while promoting a broader range of fuel alternatives and innovation in vehicle technology to accommodate the growth in fuel options.

While the LCFS is a flexible policy tool, it is also a complex one because any number of market variables can impact the potential effectiveness of the LCFS in achieving emission reductions. These variables include, among others:

  • uncertainties in feedstock availability and costs;
  • CI values of alternative fuels;
  • need for investments in alternative fueling infrastructure; and
  • consumer preferences for alternative fuel and alternative fuel vehicles.

A number of jurisdictions are considering or have implemented an LCFS.  California was one of the first jurisdictions (in 2007) and BC followed suit in 2008 with the introduction of the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act (the Act) and associated Renewable and Low Carbon Fuel Requirements Regulation (the Regulation).  BC’s commitment is to reduce transportation fuel life-cycle emissions by 10% by 2020.

The Act and Regulation support BC’s efforts to reach its target of reducing GHG emissions by at least 33% below 2007 levels by 2020.  The Act has two parts aimed at reducing GHG emissions from transportation fuels: (i) Part 2 sets requirements for renewable content  in gasoline and diesel fuel used for transportation or heating, and (ii) Part 3 requires suppliers to reduce the carbon intensity of the fuel they supply. All fuel producers and importers in BC are considered to be fuel suppliers and are therefore subject to the Regulation.  Part 3 low carbon fuel requirements apply to gasoline, diesel fuel, natural gas, propane, ethanol, biodiesel and electricity used for transportation (new low carbon fuels will be added to the list as they become commercially available).

One of the mechanisms available to fuel suppliers to assist them in complying with Part 3 requirements is a system of credits and debits. As of July 1, 2013, fuel suppliers in BC are required to measure compliance in terms of credits for low carbon fuels and debits for high carbon fuels. Credits and debits represent the difference (in tonnes of carbon dioxide equivalent) between the actual emissions of the fuel and what the emissions would have been if the fuel had a carbon intensity equal to the prescribed limit. At the end of each compliance period, fuel suppliers need to ensure that they have at least as many credits as debits; if a supplier has more debits than credits, it will be subject to an automatic penalty of $200 multiplied by the difference between the number of credits and debits.

In addition to being able to acquire credits from other fuel suppliers, parties can also enter into agreements with the Director of Renewable and Low Carbon Fuels. These agreements are known as Part 3 Agreements and commits eligible fuel suppliers to take actions that would have a reasonable possibility of reducing emissions through the use of low carbon fuels sooner than would occur without the agreed upon action. In October 2013, the Ministry released a consultation paper on Part 3 Agreements (the Consultation Paper),  the comment period for which closed on November 22, 2013.  It is anticipated that the credit component of BC’s low carbon fuel program will be finalized in early 2014.

For a more detailed look at BC’s LCFS regime and an update on the state of California’s LCFS program, please see the November 2013 edition (Volume 5, Issue 5) of the Environment and Energy Bulletin from the Business Council of British Columbia.