Heating, Industrial and Transport Fuels to Meet Carbon Intensity Standards in Canada

At first glance, Environment and Climate Change Canada’s new fuels strategy paper Canada: Fueling A Lower Carbon Future, would seem to only affirm what has been clear for months – lifecycle carbon intensity fuels standards will supplement minimum designated renewable fuel additive (think ethanol) “mandate” standards.

Ambitious Plans for CFS

In November 2016, Environment and Climate Change Canada (ECCC) clearly signaled its preference for a lifecycle-based low carbon fuel methodology for its clean fuel standard (CFS).   The CFS is held out as federal pillar in Canada’s larger strategy to achieve its greenhouse gas (GHG) emissions reduction target of 30% below 2005 levels by 2030.

The CFS adoption of a lifecycle formula was affirmed a month later in the Pan-Canadian Framework on Clean Growth and Climate Change released in December 2016.   The design specifics of the CFS are the subject of the current consultation process (ending April 25th) but should include:

  • broad application to liquid, gaseous and solid fuel types;
  • direct or indirect incentives for lower carbon fuels and alternative energy sources and technologies such as natural gas, hydrogen, and renewable fuels.
  • compliance “flexibility” such as a crediting and trading system (hopefully far more robust than the current Renewable Fuels Regulations compliance unit scheme);
  • carbon intensity requirements measured against a baseline, likely either using a sector-wide average or one facility-specific; and
  • fuel producer GHG emission reductions (consistent with the lifecycle approach).

In short, the full implications of the CFS are not yet clear but an effective updated version of the British Columbia (lifecycle) Low Carbon Fuels Standard (LCFS) will be adopted across Canada.

Federal Intensity and Existing Mandates Must Be Met

Assuming jurisdiction, the CFS is additional to, and does not replace, the existing federal and provincial renewable fuel standards.  As the federal government has been largely absent from the regulation of renewable fuels (other than an effective baseline 5% renewable fuel content requirement under the RFR – exceeded by many provincial programs), the CFS may well create redundancies and methodological compliance challenges.

For the provinces with only mandate requirements, such as Manitoba and Saskatchewan, their provincial programs will be much more narrowly targeted than the CFS, which is easily the most far-reaching standard in Canada, applying to on-road transportation (light-duty and heavy-duty vehicles), most off-road sources, rail, marine and aviation.  The CFS scope requirements would make the maintenance of the (suddenly parochial) provincial program cumbersome if not difficult to integrate into a coherent CFS strategy.

For those provinces already adopting some form of intensity standards in combination with mandates, such as Alberta and Ontario, there will be a need for methodological harmonization efforts with the CFS (in fact, Ontario is undergoing this process now in all but name).

Only BC’s LCFS will likely avoid much revision, though certainly an expansion of scope.

Heating and Industrial Fuels Caught by CFS Expansion 

What is truly new (or perhaps finally clear) under the Canada: Fueling A Lower Carbon Future policy is that the CFS will apply a lifecycle low carbon intensity standard to building heating systems and industrial fuel usage:

  • residential and IC&I building will no longer have access to space heating oil free from the costs of carbon-reduction inputs; and
  • the expansion from non-road gasoline and diesel fuels to natural gas, heavy fuel oils, and potentially including electricity, solid fuels and other liquid and gaseous fuels used in industry will be profound.

Questions remain for fuels not easily replaced with those CFS-compliant. Avoidance of “double carbon taxation” for those regulated with their input fuels and output emissions should also be part of the final policy deliberations.

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Regardless, the takeaway is that lifecycle low carbon intensity fuel standards have outgrown the transportation sector alone and have finally come inside.

Jonathan D. Cocker heads the Firm’s Environmental Practice Group in Canada and is an active member of firm Global Consumer Goods & Retail and Energy, Mining and Infrastructure groups. Mr. Cocker provides advice and representation to multinational companies on a variety of environment, health and safety matters, including product content, dangerous goods transportation, GHS, regulated wastes, consumer product and food safety, extended producer responsibilities and contaminated lands matters. He appears before both EHS tribunals and civil courts across Canada. Mr. Cocker is a frequent speaker and writer on EHS matters, an active participant on EHS issues in a number of national and international industry associations and the recent author of the first edition of The Environment and Climate Change Law Review (Canada chapter) and the upcoming Encyclopedia of Environmental Law (Chemicals chapter).