Canada will begin enforcing a Clean Fuel standard next July refocused on gasoline and diesel.
Federal regulators today began registrations to generate credits to comply with a national low-carbon fuel standard (LCFS) that begins enforcement in July 2023. Years of revisions whittled down a program that once included solid and gaseous carbon emissions to focus on reducing the carbon intensities of road transportation fuels.
Regulators this spring deepened the cuts to carbon intensities that suppliers must achieve for gasoline and diesel to reduce by about 15pc by 2030. Decisions in the final rulemaking sought to better balance credit and deficit generation to support a transition away from petroleum road fuels.
LCFS programs set maximum-allowed carbon intensity levels for transportation fuels that fall each year. Higher-carbon petroleum fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from distributing approved lower-carbon alternatives.
Canada's program will become the fifth in North America to come into force, and the second largest program by fuel consumption. California remains larger by both gasoline and diesel demand for 2019, based on state and Canadian federal data. Canada has not yet reported 2021 road fuel demand; California consumption last year trailed 2019 demand. British Columbia will continue to administer a provincial LCFS program implemented in 2013.
The Canadian final regulation limits the participation of carbon capture projects and excises regulations for heating oil, kerosene or other non-transportation fuels. Canada will consider both domestic and foreign carbon capture and storage projects directly tied to road fuel in Canada, narrowing previous, more general inclusion of domestic carbon capture efforts that many of the country's energy giants plan to pursue. Carbon capture projects required to satisfy other regulations cannot contribute to Clean Fuel credit generation.
Regulators in the final rule allowed obligated parties to carry deficits for five years, to add to those deficits, and reduced the interest carrying deficits would incur — all to soften the effects of credit shortfalls. Registrations underway now will allow the generation of credits ahead of enforcement, helping the program to build a reserve to ease compliance next year. Early assessments forecast annual new deficits to begin exceeding credits in 2027. Like US programs, Canadian regulators expect electric transportation to steadily replace both high- and low-carbon liquid fuels.
Canada must compete for liquid alternative fuels with a ravenous California LCFS program where renewable diesel, in particular, nets a trio of state and federal benefits. Fuels delivered to California may generate LCFS and US Renewable Fuel Standard credits. Renewable and biomass-based biodiesel supplies also receive federal tax credits.
Fuels supplied to British Columbia will generate both provincial and federal credits. But the program offers a much smaller and more opaque fuel market.
