Question Period Note: Clean Fuel Regulations

The Clean Fuel Regulations came into force on June 21, 2022, and will reduce GHG emissions from transportation fuels across the lifecycle by up to 26 Mt in 2030. They are driving investments in clean technology, low-carbon fuels, and innovation across Canada.

• The Clean Fuel Regulations are cutting pollution across the country. The Clean Fuel Regulations will help turn Canada into an energy superpower and support our farmers and businesses. Moving forward, we will work with partners and stakeholders to examine measures that will reduce our reliance on imported clean fuels and level the playing field for our biofuels sector.

• Once fully implemented, the Clean Fuel Regulations will cut greenhouse gas pollution across the country by up to 26 million tonnes in 2030. This will help prevent the costs of climate change from increasing, with impacts already costing the Canadian economy billions every year.

• This is good for our climate, economy, health, and well-being.

General
• The Clean Fuel Regulations (CFR) aim to reduce greenhouse gas emissions from liquid fossil fuels used in Canada for transportation, i.e. gasoline and diesel. The Regulations require liquid fossil fuel suppliers to reduce the lifecycle carbon intensity of the fuels they produce and import for use in Canada. A lifecycle approach accounts for emissions across all stages of fuel production and use, from extraction through processing, distribution, and end-use.
• The CFR came into force on June 21, 2022. The reduction requirements under the Regulations started on July 1, 2023, and the first reporting on compliance by fossil fuel suppliers was received in July 2024..
• Since the announcement of the Regulations, the CFR has supported over $54 billion in investments across Canada in projects related to the CFR such as low-carbon intensity fuels and carbon capture and storage.
• Considering the competitiveness issues Canada’s biofuel sector is facing (see below), many biofuels projects -mostly renewable diesel and sustainable aviation fuel- have been paused or cancelled.
• Still, some projects continue to move forward, mostly those that can benefit from complementary support such as the Clean Hydrogen Investment Tax Credit and the Carbon Capture, Utilization, and Storage Investment Tax Credit. This includes:
• Imperial Oil’s renewable diesel facility in Strathcona, Alberta, which is scheduled to start production in summer 2025 ($720 million);
• CHAR Technologies’ renewable natural gas/green hydrogen/biocarbon projects in Ontario and Quebec, which are set to start operations late 2025/2026;
• Air Products Net-Zero Hydrogen Energy Complex in Edmonton, Alberta, is scheduled to come on line later in 2025 ($1.6B).

Competitiveness issues in Canada’s low-carbon fuel sector
• Canada’s low carbon fuel industry is struggling. Low carbon fuel production – especially renewable diesel – has increased significantly in the United States in recent years, driven by state policies and tax incentives. This increased production is causing an influx of low-cost imports in Canada impacting the viability of Canada’s industry.
• In 2024, Tidewater Renewables and Braya Renewables, the only two renewable diesel facilities in Canada, announced they are at risk of closure due to dumping of American renewable diesel into the Canadian market. Similarly, most Canadian biodiesel producers have recently idled.
• In that context, British Columbia recently published amendments that will require a minimum content of domestic renewable fuels as part of their Low Carbon Fuel Standard. Those amendments are expected to prevent some producers from shutting down in the short- to medium-term.

Credit Market Report
• On June 26, 2024, Environment and Climate Change Canada published its first Clean Fuel Regulations credit market report that covers the first 18 months of activity. This technical report was highly anticipated by industry stakeholders.
• The first report indicates the Regulations is creating a strong incentive for investments in clean technology, low-carbon fuels, and innovation across Canada.
• While the CFR credit market has not yet reached maturity, it is functioning well and as expected:
o a high volume of credits (11.3 million) were created across numerous types of carbon reducing projects, low carbon fuel use and clean technologies.
o 240 credit transfers have been reported with a price, with an average price of $133.20 per credit. This reflects a healthy market with significant opportunities for credit trading amongst market participants.

CFR Price Impacts
• When the CFR came into force it was criticized for increasing price at the pumps, in particular in Atlantic Canada.
o Atlantic utilities, which regulate retail fuel prices, have adjusted their regulated fuel prices to account for the compliance costs they anticipate fuel suppliers (e.g., refineries) would face. Fuel adjustments have ranged from 1.8 to 7.1 cents per litre, some provinces have since lowered these costs.
• Due to global market conditions lowering price of crude oil and the removal of the consumer carbon price on gasoline and diesel, Canadians interest in fuel prices - including the CFR - has diminished. The CFR does not set a fuel price, instead it requires fuel suppliers to reduce the lifecycle carbon intensity of the gasoline and diesel they produce and import for use in Canada. The compliance obligation is designed to be minimal in the early years.
• Price impacts depend on the compliance choices of the regulated parties in the oil and gas sector, each of which have the flexibility to find the most cost-effective approaches that work best for them, whether investing in cleaner production or blending with low carbon fuels.
• To ensure the compliance costs and fuel price impacts are well understood, ECCC commissioned an independent study of the CFR by ESMIA (Energy Super Modelers and International Analysts).
• That study was published on January 25, 2024. It found that the fuel price impacts from the CFR would likely be negligible in 2023 and 2024, with increases of less than half a cent per litre for gasoline. In 2030, ESMIA estimated an increase of 4.3 cents per litre of gasoline.

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