Fueling the Future: Canada’s Plan to Reduce Greenhouse Gas Emissions under the Clean Fuel Regulations

  • April 05, 2021
  • Holly Sherlock, Talia Gordner, Julia Loney and Ralph Cuervo-Lorens

On March 3, 2021, the public consultation period for the federal government’s proposed Clean Fuel Regulations[1] to be established under the Canadian Environmental Protection Act, 1999[2] came to an end. The Regulations are part of the federal government’s commitment to reduce Canada’s greenhouse gas (GHG) emissions under the Paris Agreement. The Regulations also build on the already existing federal Renewable Fuels Regulations and various provincial renewable fuel requirements that are equal to or higher than the current federal requirements and British Columbia’s Renewable and Low Carbon Fuel Requirements Regulation.

The proposed regulations require liquid fuel suppliers to gradually reduce the carbon intensity of the fuels they produce and sell in Canada, leading to a sustained decrease in the carbon intensity of liquid fuels used in Canada by 2030 from the 2016 carbon intensity levels.

This bulletin provides an overview of the proposed Regulations and a brief survey of their potential impact.

Clean Fuel Requirements

The proposed Regulations require that producers, importers and distributors (i.e. suppliers) of liquid fossil fuels (such as gasoline, diesel and heavy fuel oil) reduce the carbon intensity of the fuels that they supply to Canadians. The Regulations specifically target the energy, building and transportation sectors and certain sectors, such as commercial aviation, are exempt. In addition, fuel that is produced and exported out of Canada is not captured by the Regulations.

The Regulations phase in the reduction requirements applicable to fossil fuels starting in 2022, gradually increasing until 2030.[3] To calculate the carbon intensity of fuel, the Regulations consider GHG emissions through the fuel’s entire lifecycle, including extraction, refining, distribution and ultimate use. In order to meet the carbon reduction requirement, suppliers must generate (through reduction of the carbon intensity of fuel) or purchase carbon credits to ensure that the total mix of fuels they supply meets the designated carbon reduction standard. Each credit represents a lifecycle emission reduction of one tonne of CO2e.

The Regulations also establish a credit market through which suppliers can create or purchase credits in order to come into compliance with the carbon reduction standard. Suppliers create credits by undertaking certain designated activities such as reducing the total amount of carbon in their fuels or investing in green technology. Credits can also be purchased from third parties who create credits by engaging in similar activities.