The Clean Fuel Regulations Are Here. What Do They Mean for Canada’s Green Economy and Net-Zero Landscape?

Just about six years in the making, Canada’s Clean Fuel Regulations (CFR) were finalized and published on July 6, 2022.

The regulations create a requirement for suppliers of gasoline and diesel to reduce the carbon intensity of these fuels used in Canada. This carbon intensity calculation considers emissions from the full lifecycle of the fuel: how it is extracted, how it is refined, and emissions from combustion.

The regulations start with a reduction requirement of 3.7% in 2023, gradually increasing to 15% by 2030, once fully phased in.

Under the policy, the government recognizes three different ways to reduce the carbon intensity from liquid transportation fuels:

• Making fossil fuels themselves cleaner. For example, integrating low-carbon hydrogen into fossil fuel production.
• Blending in higher amounts of renewable fuel. For example, a higher percentage of ethanol in gasoline, and more renewable diesel in the diesel pool.
• Charging an electric vehicle, or fuel cell vehicle.

The CFR establishes a credit market. Parties can generate credits by decarbonizing fuels using any of these three methods. The credits generated can then be redeemed by fossil fuel suppliers (Canadian producers and importers) to fulfill the mandatory reduction requirement.

The CFR provides a key incentive to build out a renewable fuels industry in Canada. It targets transportation decarbonization and investment in domestic supply chains to provide low-carbon fuels to Canadians. It also encourages non-obligated parties to reduce their emissions and enter the marketplace on their own as a voluntary credit generator.

Carbon intensity (CI) becomes the name of the game. Carbon intensity is the measurement of greenhouse gas (GHG) emissions associated with producing and using a unit of energy – in this case, liquid gasoline and diesel. It measures emissions across the entire lifecycle, from activities associated with extracting the fuel, to the many components of fuel production, to the eventual consumption of fuel in transportation. The CFR rewards innovation and clean technology adoption as companies will push to lower the CI score of their fuels, thus reducing emissions at every stage of production and input, not just at the tailpipe.

Future iterations of the CFR have the potential to assist hard-to-decarbonize industries such as aviation and marine shipping by incentivizing Sustainable Aviation Fuel production and more biodiesel and renewable diesel applications. As Canada and the world increase focus on carbon markets, expect to see more regulatory frameworks and pathways to grow, support, and integrate clean technologies and a greener economy.