The Clean Fuel Standard (CFS) is an ambitious new piece of Canadian legislation that will be implemented in 2022 that aims to reduce carbon emissions by 2030 by 30 million tonnes, an amount equal to taking seven million cars off the road, as estimated by Clean Energy Canada, a group endorsing the CFS.
The purpose of the CFS is for Canada to meet its target of net-zero emissions by 2050 and meet its Paris 2030 goals. It aims to do so by requiring the suppliers (refiners, diesel importers, etc.) of hydrocarbons to reduce the overall lifecycle carbon intensity of those fuels. There are three options for compliance:
1. Generate CFS credits based on approved Environment and Climate Change Canada’s approved GHG emission reduction protocols.
2. Blend low-carbon fuels into existing fuel feedstocks, such as ethanol blending in gasoline.
3. Switch to lower carbon intensity energy sources, such as going to self-generated renewable natural gas for operations instead of using natural gas from a pipeline.
The CFS will apply to all types of fuels - liquids, gaseous, and solids - something that makes Canada’s legislation unique because no other jurisdiction in the world applies a similar standard to gaseous and solid fuels.
Fuel suppliers are obligated to meet the imposed targets, but if they are not able to, they will have to:
1. Purchase credits from other parties or contribute to a compliance fund to cover the difference, or
2. Halt the supply of fuel, which could result in ceasing operations, or
3. Face criminal penalties.
Although the cost of purchasing credits has not been formalized by the government, independent analysis estimates costs at $200 to $350/ tonne of CO2, a price that is dependent upon the ease of ability to create more credits. As they have seen in California under their Low Carbon Fuel Standard, as the standard gets tougher, the price of the credits becomes more expensive. A study conducted by the Canadian Energy Research Institute (CERI) estimates that compliance costs per tonne of CO2 reduced will be between $163 and $170. Considering that the national carbon tax will be $50/ tonne when the CFS is implemented, these rates are punitive to both the supplier and the consumer. The Government of Canada website indicates that $50/ tonne will add 11.05 cents to a litre of gasoline. Every $10/ tonne increase in the carbon tax, increases gasoline prices by 2.21 cents.
Many provincial jurisdictions in Canada already have renewable fuel blending requirements in place. However, the CFS is federal legislation and does not recognize the existing provincial requirements, meaning both will have to be met, even if they’re duplicative.
How will the CFS affect you?
It will impact every industry in the country. Every business, large and small, industrial or digital, uses fuel of some sort. It will impact economically-vital industries like agriculture and oil and gas. A recent poll showed that economic recovery was the top priority for Canadians at 44% and that 59% of Canadians agree that supporting the oil and gas sector can help decrease debt and get our economy back on track. The CFS will derail this opportunity.
The above mentioned CERI study estimates that:
1. The cost of gasoline and diesel will increase by 5 – 11 cents per litre by 2030.
2. Natural gas will increase by $0.94 - $1.88 per gigajoule (GJ) by 2030.
3. The total cost impacts to the Canadian economy are estimated to range from $7.6 billion to $15.3 billion annually by 2030.
4. The costs to the upstream oil and gas industry are around $1 -2 billion per year.
Make no mistake, expenses related to fuels will be passed on to Canadian businesses and consumers. They have to be. Businesses who cannot pass on these costs, like plastics manufacturers, will fail or they will move out of Canada, leading to even more job losses.
Canadians for Affordable Energy published an assessment of the CFS and found that regulations would result in a 60% increase in the cost of natural gas.
A CERI report in 2019 estimated the carbon tax and CFS to cost an average $1,395 a year per household by 2030.
The CFS is a quiet piece of federal legislation that is going to have a big impact on Canadians at a time when we can least afford it due to the COVID-19 pandemic.
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. https://www.ourcommons.ca/members/en