Canada’s CFS Program: A Review of the Proposed Regulation

Environment and Climate Change Canada (ECCC) published its proposed Clean Fuel Standard (CFS) regulations in the Canada Gazette on Dec. 19, 2020. The proposed regulations would require liquid fossil fuel primary suppliers (i.e., producers and importers) to reduce the carbon intensity (CI) of the liquid fossil fuels they produce in and import into Canada from 2016 CI levels by 2.4 gCO2e/MJ in 2022, increasing to 12 gCO2e/MJ in 2030. This report provides a summary overview of the proposed program, and it will be updated when the program is finalized later this year.

Between 2021 and 2040, ECCC estimates the cumulative GHG emission reductions attributable to the proposed regulations are to range from 173 to 254 megatons (Mt), with a central estimate of approximately 221 Mt. To achieve these GHG emission reductions, ECCC estimates the proposed regulations could result in societal costs that range from CAN$14.1 to CAN$26.7 billion, with a central estimate of CAN$20.6 billion. The expected GHG emission reductions would be achieved at an estimated societal cost per ton between approximately CAN$64 and CAN$128, with a central estimate of CAN$94.

Canada’s program goes further than other low carbon fuel programs such as in California and the EU as it will apply to any type of liquid fuel, not just those used in transportation – except for jet fuel. With respect to the latter, ECCC notes, “Jet fuel that is used for international flights would not be subject to the proposed Regulations. The treatment of domestic aviation fuels and credit creation for low CI aviation fuels is still under consideration and is being examined in conjunction with carbon pollution pricing policies.” The government originally intended to include gaseous and solid fuels as well, but ultimately decided that was too complicated an approach that would hinder the development and promulgation of the current proposed program.

Key Points

• The proposed regulations would require liquid fossil fuel primary suppliers to reduce the CI of the liquid fossil fuels they produce in and import into Canada from 2016 CI levels by 2.4 gCO2e/MJ in 2022, increasing to 12 gCO2e/MJ in 2030.
• The program goes further than other low carbon fuel programs such as in California and the EU as it will apply to any type of liquid fuel, not just those used in transportation – except for jet fuel.
• Original mandates for biodiesel (2%) and ethanol (5%) will be retained in the CFS program and those targets must still be met.
• Baseline CI values have been proposed for different fossil fuels and default pathways have been established for a range of feedstocks, including hydrogen and for electricity produced in the provinces.
• Parties can also apply for new pathways under the program.
• The proposed regulation proposes flexible, novel approaches for compliance: Supplying low CI fuels, implementing GHG reducing projects (such as CCS) and engaging in end-use fuel switching in transportation (e.g., electric vehicles, hydrogen).