A snap federal election set for next month could shift Canada's balance of power, as the country prepares to implement a national low-carbon fuels mandate.
Canadian prime minister Justin Trudeau last week called a new federal election in a bid to return his Liberal Party to an outright parliamentary majority. The 20 September election comes as regulators are finalizing Canada's Clean Fuel Standard (CFS) and as the country ramps up other efforts to cut greenhouse gas emissions.
Canada's new parliament will have little opportunity to change the new low-carbon fuel standard program before its expected publication by the end of this year. But a new majority, whether a single party or coalition, could change the tone of the country's approach going forward.
"If there is a majority Liberal government, that might be the license they perceive themselves to need to make the CFS more stringent," Advanced Biofuels Canada president Ian Thomson said. "If there is a minority government, the parties needed to keep the Liberals in power might press for more stringency."
Major parties have focused on jobs, housing and the pandemic in the first week of campaigning, and generally declined to comment on questions regarding transportation policy.
The Liberal Party was about 15 seats short of an outright majority in the House of Commons when parliament dissolved on 15 August.
The federal government in June accelerated by five years to 2035 a goal to end the sale of new internal combustion engine vehicles under Liberal party control of executive positions — a more aggressive position than assumed in the rule published last year. A party representative reiterated support for the CFS as proposed last December.
"The federal Clean Fuel Standard — coupled with our C$1.5bn ($1.2bn) Clean Fuels Fund — will help position Canada as a leading producer of these fuels by driving innovation, investment and increasing domestic capacity for production," the party said.
Canada's Conservative leader Erin O'Toole urged his party earlier this year to address climate change or face another loss to the Liberals. Campaign documents published this month directly address climate change and propose policies encouraging zero-emissions vehicles and allowing credits from land use changes or other offsets to satisfy the CFS.
Conservatives held 119 House seats – 51 shy of a majority - and 19 Senate seats at dissolution. Party members in March rejected climate change language from the formal party platform while promoting alternative energy and transitional fuels, supported in part through tax incentives.
Bloc Quebecois would redirect federal subsidies for fossil fuels to renewable energy and research, while pushing to block any new oil transportation between provinces. The party, which held 32 seats, had no platform policies specific to transportation but advocates a "polluter pays" policy for emissions.
The New Democratic Party (NDP), which had 24 members in the most recent parliament, has criticized the Liberal party's climate commitments and proposed cutting emissions by half by 2030. The party called the draft CFS published last December a regressive policy imposing higher costs on lower- and middle-income families. NDP referenced its recent pledge to end all federal funding to oil companies, including on low-carbon fuel programs, but did not respond to specific inquiries about the CFS.
Driving change
Regulators plan to finalize the CFS after the election and before the end of this year. Industry stakeholders do not expect significant changes from the December 2020 proposal. Under that plan, credit generation, tracking and lifecycle analysis would launch by the end of 2022, with trading to begin in early 2023.
With 2019 fuel demand of 764,000 b/d of gasoline and 559,000 b/d of diesel, Canada is expected to become the second-largest low-carbon fuel standard (LCFS) market in North America, behind California. Similar to US programs, regulators expect the early years of Canada's fuel standard to produce an ample surplus of credits. They do not anticipate net deficits drawing down credits until 2027.
The Canadian LCFS carries many of the hallmarks of its predecessors in California and Oregon. Fuel suppliers under the program would have to steadily reduce the carbon intensity of Canada's transportation fuels, reaching about a 13pc reduction in 2030, relative to 2016.
A federal lifecycle analysis still under development will determine carbon intensity for alternative road and jet fuels used in Canada. Petroleum-based fuels would incur deficits, which would grow larger over the course of the program. Low-carbon fuels used in Canada would generate credits that suppliers need to offset the deficits. Sustainable aviation fuel would generate credits used to satisfy the mandates, but conventional jet fuel would face no carbon intensity requirements under the program. Obligated parties also would acquire credits by changing refinery processes or other non-blending activity.
The CFS will build on existing federal mandates for 5pc ethanol and 3pc biodiesel blending, with much of the focus remaining on liquid fuels. Credit generation for electric vehicle charging is expected to increase over time but would still total less than a quarter of the credits attributed to ethanol blending alone over the roughly 20-year forecast period detailed in the draft rule.
Regulators assumed that by 2030 the blended ethanol content of gasoline will reach 15pc, higher than today's 5pc minimum in Canada and the ubiquitous, almost 10pc blend of ethanol in gasoline across the US. Nearly half of Canadian fuel terminals operating at the time of the rulemaking lacked capacity to supply 15pc ethanol blends and would need further investment.
The rulemaking also assumed any new stations built since 2016 have dispensing equipment compatible with 15pc ethanol blends, one of several hurdles for higher-ethanol distribution in the US.
Canada will lean on the US and other sources to meet its goals. Imports will make up any supply shortfall, the draft rule assumes. Moving fuels into Canada could increase their carbon intensity and spur more domestic production. Decisions voters make next month will influence Canada's approach to emission reduction going forward.
