Canada’s CFS: Success is in the Details

FROM THE JULY ISSUE: Making sure Canada's Clean Fuel Standard lives up to expectations requires ironing out the details.
By Andrea Kent | June 18, 2019

Shortly after being elected Prime Minister in 2015, Justin Trudeau enthusiastically signed the Paris agreement. At the United Nations ceremony, Trudeau told the crowd “climate change will test our intelligence, our compassion, and our will. But we are equal to that challenge.” Fast forward almost four years, and Canada is about to put its proverbial money where its mouth is.

The government’s climate action plan is anchored by two landmark policies: a national price on carbon and a new Clean Fuel Standard. The proposed CFS design is decidedly more ambitious than similar systems already in place elsewhere (e.g., British Columbia, Oregon and California), as it will apply to transportation fuels as well as fuels used in industry and buildings. Although the CFS has been intentionally ambitious, complex and unprecedented, carbon pricing has dominated much of the country’s energy policy debate—until now. 

The draft regulations addressing requirements for liquid fuels under the CFS were expected by the end of June (after press time of this column). This will allow just enough time before Canada’s fall election for stakeholders to review and comment on the contents. Barring any change of plans, the liquid fuels regulations will be finalized in 2020 and come into force in 2022.

For many of us, the CFS process has entailed three years of rigorous consultation and exchanges across a variety of stakeholders. The product is promising. However, creating the optimal investment environment for renewable fuels requires ensuring the finer details of the CFS hit the mark.

1.  Carbon Intensity and Life Cycle Assessment Modeling

The CFS requires fuel suppliers to reduce the carbon intensity of the fuels supplied to the Canadian market. As such, the method by which the CFS measures carbon intensity is among the policy’s most important aspects. The Canadian government opted to create a new LCA tool for this purpose. The more closely the new model aligns with established LCA tools, the greater the certainty for industry. If there is too much variation, different jurisdictions in Canada could report different greenhouse gas (GHG) emission reductions, increasing compliance burdens, and limiting the potential revenue and build-out of low carbon fuels production. In this context, it will be important for the new LCA tool to fully account for all life cycle emission benefits from innovative industries with proven technology, such as production of biofuels from waste. 

2. Credit Trading System

Under the CFS, companies can decide on how to best lower the carbon intensity of their fuels. A newly created market of CFS compliance credits will make it easy to find the lowest-cost compliance options available. In many cases, this would mean higher levels of biofuel use, but seemingly minor changes to policy details could hinder investment and growth. Fortunately, the CFS will include the ability to generate early action credits as of the time the policy is finalized in 2020. CFS credit trading should be transparent, with the government making information regarding all credit transactions readily available, like the quantity of credits traded and credit price. Whether the CFS allows fossil fuel producers to generate credits for upstream GHG reductions on exported fuels is another notable consideration impacting the role of biofuels.

3. Flexibility vs. Obligation

Flexibility is a core principle of the CFS, but policy guardrails are essential to prevent eroding the demand and market value of low-carbon fuels. For example, the CFS sets separate targets for liquid, solid and gaseous fuels. Each of these fuel types will have its own stream of credits. Limiting credit trading between these three streams is essential to sending a strong market signal for investment. Technical analysis by Renewable Industries Canada (RICanada) showed that to strike a fair balance, the CFS should not allow more than 10 percent of the liquid fuel targets to be met by credits from the other streams.

In the big picture, Canada’s CFS presents a real opportunity for biofuels and the environment. It’s a grand and sweeping policy that can offer many benefits: expanding renewable fuels use and production, spurring new technologies, creating jobs, and increasing choice for consumers, all while helping fight climate change. But, as we pursue these admirable ambitions, it is essential to keep an eye on the specifics and the mechanics of implementation. As the CFS proves, success is in the details.

Author: Andrea Kent
Vice President of Government and Public Relations, Greenfield Global
Board Member, Renewable Industries Canada