The New and the Familiar: Canada’s Clean Fuel Standard is Finally Here

As the phrase goes, your reputation can precede you. It's an expression often used to describe someone with a presumed character that precedes arrival in a situation. And, with the Canadian Clean Fuel Regulations (CFR) coming into force this July, it's an expression that can also apply to a government policy.

In the case of Canada's new CFR, its reputation in some circles is that it is hyper-technical, complex, and challenging to fully understand. But Canada's CFR is, at its heart, fundamentally simple—especially for those who already understand the value of ethanol.

First, despite being "new," the CFR is conceptually familiar to existing low-carbon fuel standards (i.e., California and British Columbia), which focus on carbon intensity (CI) rather than volume. The CFR requires fuel suppliers to reduce the carbon intensity of the fuels supplied to the Canadian market and measures greenhouse gas (GHG) emissions reductions using a lifecycle approach. It also requires producers and distributors of fossil fuels to reduce the carbon intensity with increasing stringency through 2030. And, like other credible and modern fuel standards already in force, biofuels are forecast to be a key compliance option under the CFR. In the case of ethanol, which already reduces GHG emissions by at least 50% compared to traditional gasoline, blending is projected to reach 15% by 2030.

Another key and recognizable aspect is that the CFR is performance-based and designed to incent and reward low-carbon fuels and technology. Like the California LCFS and the U.S. IRA, the CFR incorporates lifecycle analysis assessment (LCA) methodology to determine a fuel’s CI. To do this, Environment and Climate Change Canada developed a new LCA tool for the CFR. For the CFR to reach its full potential, its LCA must be based on credible, science-based methods, align with other established LCA tools, and be updated to recognize the specific agriculture and clean tech advancements, including innovative onfarm practices, and producing biofuels from waste. Technical expertise, challenges, and advocacy to ensure a quality LCA is something our industry already knows all too well, from negotiating low carbon fuel standards to promoting new tax credits and incentives for hydrogen projects in the U.S. and Canada. And finally, the CFR is built on flexibility. Under the CFR, obligated parties can decide how to best lower the carbon intensity of their fuels. A newly created market of CFR compliance credits will make it easy to find the lowest-cost compliance options available. In many cases, this means higher levels of biofuel use. This is excellent news for consumers compared to other “polluter pay” carbon policies. In the case of carbon pricing, GHG emission reductions are uncertain. By comparison, the CFR combines GHG reduction targets with compliance options. What do I mean by this? It means it allows obligated parties to choose based on cost. Ethanol continues to be affordable, readily available and can lower prices at the pump. Earlier this year, a study from energy economists from the University of California-Berkeley found that adding ethanol to the gasoline supply saves the average American household more than $750 annually. As much as Canada's CFR is ushering in a new era of clean fuel policy, it is also built-off many proven regulatory elements.

Overall, the CFR policy strongly reflects the ethanol industry itself; it is practical, innovative, rewards ambition, and will work to position the economy for the future.