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Strange things about the Clean Fuel Standard

2020 has been a strange year by many accounts. At the very beginning we started to hear news stories out of China about a virus and drones following people, yelling at them to get back in their houses. Some people scoffed, thinking, “Only in a Communist country. Thankfully I don’t live there.” But then, we saw the upset of our very own norms in Western, democratic, freedom-based countries. In mid-March, much of Canada was put into lockdown to stop the spread of the COVID-19 virus. Now, several months into the global pandemic, we’re buying hand sanitizer by the litre and wearing masks without question, even outside while walking alone or driving in our car alone. What we would have found “strange” and “an unacceptable level of government control”, has become our “new normal” – the “it” phrase of 2020.

It’s easy for things to become accepted as “just the way it is” without question, including “environmental” policy. Take for instance the Clean Fuel Standard (CFS), a new piece of Canadian legislation that will be implemented in 2022 that aims to reduce carbon emissions by 2030 by 30 million tonnes as part of Canada’s target of reducing national emissions by 30 percent below 2005 levels by 2030.

To understand the magnitude of the challenge, 30 percent below 2005 levels (730 MT) would require a reduction of 219 MT to 511 MT. Based on the graph below from the Government of Canada website, it’s going to be difficult, to say the least.

Beyond the seemingly unrealistic target the Canadian federal government has set, I find several things about the CFS strange.

Strange thing #1 - Reducing emissions sounds like a noble path forward that we should all willing follow; unfortunately, oddly enough, I can’t seem to find any info from the government on what standards they are going to place on an imported barrel of oil or other fuel. Surely this isn’t going to be another one-sided piece of legislation that is going to have detrimental consequences to Canada’s oil and gas sector while not impacting other producing jurisdictions, much like Bill C-48 where Canadian oil tankers are banned from travelling while American tankers float on by.

Strange thing #2 - Only domestic air travel is covered under the CFS. This seems like a “made in Canada” destruction-of-Canada plan. Of all the aviation fuel used in Canada, only 30 percent is for domestic travel; therefore, 70 percent of aviation fuel is not subject to the CFS. This same “domestic only” standard applies to marine fuel too. This is strange because it disadvantages Canada.

Strange thing #3 - Natural Resources Canada, as quoted in this Montreal Economic Institute article, reports that “Canadian consumers have reduced their GHG emissions per person by around 20% since 2000.” Why won’t the government recognize and applaud Canadians for this? We’ve been doing our part for decades, and that’s pretty exceptional, but it rarely gets a mention.

Strange thing #4 – the CFS will apply on top of the existing national carbon tax and all other emissions-reduction initiatives such as upstream oil and gas methane regulations and ethanol blending in gasoline. All of these regulations add costs to Canadians, whether we notice them or not.

Strange thing #5 - The government delayed implementation of the standard. I wonder why? The official statement was that it was “due to the extraordinary circumstances during the COVID-19 pandemic”. I thought this was going to be a job creator and a benefit to the economy?

Strange thing #6 - Canada doesn’t produce enough low-carbon fuels now to meet current renewable fuel regulations; therefore, we have to import product from the USA or Europe. Isn’t it strange that the government is implementing a plan when we aren’t even self-sufficient with our own supply?

Even though the government speaks about all the potential opportunities, little seems to be coming to fruition. Consider a personal story about my friend. Over a year ago he began working for a biofuels start-up in Alberta. At first the opportunity seemed promising as the company was moving forward with an innovative, proprietary production system.

Like all start-ups, they needed capital, but any money they were able to raise was private equity and private debt. Canadian banks were not willing to loan money because the technology was not proven and the company had no cash flow. Investment banks in New York did not want to pursue investment in Canada. They said it was due to Canada’s continually changing regulations related to the green energy plan and the related uncertainty around those regulations. The unpredictability of how the Canadian government treats energy projects also factored into the New York investment banks’ decisions. A lack of business certainty created by complicated, poor regulations and an uncompetitive tax environment also contributed.

Without sufficient capital, the company has been unable to move forward with construction of the production facility.

There may be a lot of ideas for how to create low-carbon fuels, but there is limited government support for these innovations because the government won’t invest in these projects unless they’re proven to make money. The government invests in growth, not new ideas. This minimizes the risk for the taxpayer, but it doesn’t encourage innovation and experimentation, even within the green energy space.

Strange thing #7 - there isn’t a lot of conversation around the impacts of the increasing use of food crops to create fuels. There are impacts. Look at what is happening with the Ogalalla aquifer in the US mid-west as a result of increased farming and associated irrigation needs. It’s being depleted at an unsustainable rate as farming has increased in the region, which is a large supplier of the feedstock for biofuels.

Strange thing #8 - Isn’t the CFS infringing on provincial jurisdiction, much like the national carbon tax, which is sitting with the Supreme Court of Canada and a number of lawyers to litigate?

Strange thing #9 – The CFS places a 10 percent limit on cross fuel stream trading, which may impede industries’ ability to efficiently meet compliance burdens, as well as potentially limit reduction opportunities and the overall feasibility of achieving the 30 MT target. Allowing cross stream trading ensures that the lowest cost emission reductions occur first, which can help mitigate the cost impacts to industry and end consumers, while still incenting industry to reduce emissions.

Strange thing #10 - The creation of a carbon market appears to me to be like the creation of a new stock market. I recently met a person who shared a story about an Alberta-based clean fuel company that moved its headquarters to California because the carbon credits they could receive would exceed $100/ tonne ($133/ tonne at the time, and rising) versus $30 in Alberta and staying roughly around the same as the carbon price. It appears companies can play the market by moving jurisdictions.

Strange thing #11 - No other country in the world has this type of standard. Climate change is a global problem because CO2 doesn’t stop at the Canadian border; therefore, all countries need to have similar legislation to help solve the problem and to ensure businesses have a level field of competition to avoid carbon leakage.

Strange thing #12 - In California, compressed natural gas and liquefied natural gas are both considered low-carbon-intensity fuels that generate credits. Unfortunately, in Canada, a country with abundant supplies of natural gas (300 years’ worth in Alberta alone), the CFS will punish natural gas producers and consumers by adding cost burdens.

As American writer Upton Sinclair is quoted as saying, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Don’t be influenced by those salaried people. Don’t stop improving, but it’s okay to question new legislation. Don’t let anyone with an agenda tell you that you’re a bad person living in a bad country that is destroying the planet; you aren’t.

Call to action

If you would like to learn more about the CFS and biofuels, please check out:

If you have concerns about this legislation, talk to your provincial and federal elected representatives and senators. Tell them you want regulations that enhance Canada’s competitiveness and that you don’t want more costs placed on your overburdened household.

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