Clean Energy Canada is a clean energy think tank at the Morris J. Wosk Centre for Dialogue at Simon Fraser University. Through media briefs, we aim to provide useful factual and contextual information related to Canada’s clean energy transition. Please use this as a resource, and let us know if there are any topics that you would like to see for future media briefs.
The federal government’s Clean Fuel Regulations, finalized in June 2022, took effect this month. The following media brief explores the purpose of the regulations and the impact they will have on consumers and the Canadian fuels industry.
What are the Clean Fuel Regulations?
- The Clean Fuel Regulations set increasingly stringent requirements on fuel producers and importers to reduce the carbon intensity of transportation fuels such as gasoline and diesel with the eventual goal of decreasing the carbon intensity by approximately 15% (below 2016 levels) by 2030.
- The new regulation, which came into effect this month (July 2023), is currently at just a quarter of its full stringency in 2030. This means the carbon intensity of fuels must be reduced by less than 4% this year (compared to 2016 levels), rising to 15% by 2030.
- B.C., California, Oregon, and Washington state have similar regulations in place.
- The federal government has also introduced a complementary program, the $1.5 billion Clean Fuels Fund, to support clean fuel production in Canada, including advanced biofuels and hydrogen projects.
Why is the policy needed?
- The transportation and oil and gas sectors each accounted for 150 and 189 megatonnes of emissions respectively in 2021—just over half of Canada’s total. The federal government’s 2030 Emissions Reduction Plan, which would see Canada meet its international climate commitments, suggests that transportation emissions would need to be reduced to 143 megatonnes and oil and gas emissions to 110 megatonnes by 2030.
- According to Environment and Climate Change Canada, the Clean Fuels Regulations will help cut up to 26.6 megatonnes of greenhouse gas pollution in 2030, one of the largest reductions from Canada’s portfolio of climate policies.
- Industry association Advanced Biofuels Canada estimates the annual economic contribution from domestic clean fuel production will be $14.1 billion in 2030, almost triple the sector’s $5.3 billion in 2020.
What does it mean for gas prices?
- In seven years, when the regulation is in full force, the federal government estimates the measure to add between 6 to 13 cents per litre of gasoline. Price impacts in the earlier years of the policy are expected to be minimal.
- Similarly, Advanced Biofuels Canada estimates, based on real world data, that the Clean Fuel Regulations would add around 9 cents per litre to the cost of gasoline and diesel in Canada by 2030.
- A recent Parliamentary Budget Officer’s report estimated that the regulation could add up to 16 to 17 cents per litre respectively to the price of gasoline and diesel purchased in Canada in 2030. However, the PBO acknowledges that its “estimates should be regarded as upper bound estimates.” The PBO also indicates it doesn’t account for the technology change the policy is designed to incentivize, which could lower the regulation’s economic impact. Advanced Biofuels Canada says the PBO’s estimate overstates compliance costs by 80% to 95% and that the methodology is not supported by real world evidence from jurisdictions where similar policies have already been implemented.
The shift to EVs
- The Clean Fuel Regulations are accompanied by other federal policies to make electric vehicles more affordable and available. These include:
- The federal government’s incentives for zero-emission vehicles offers rebates of up to $5,000 for Canadians hoping to purchase an EV.
- The federal government’s forthcoming regulated sales targets for zero-emission vehicles will ensure that at least 20% of new vehicle sales are zero-emission by 2026, at least 60% by 2030, and 100% by 2035. A study from Environmental Defence found that requiring automakers to sell 100% EVs by 2035 would lead to a 20% reduction in electric vehicle prices because automakers would have to put affordable models on the market instead of just focusing on luxury models.
- A recent Clean Energy Canada analysis compared the total ownership costs of a number of popular electric car models with gas-powered equivalents. With just one exception, the electric version of every car analyzed was cheaper, usually significantly so. The analysis found that the electric Hyundai Kona, Canada’s second best-selling EV in 2021, is $17,800 cheaper to own than the gas-powered Kona when gas prices are $2 per litre.