Tag: Clean Fuel Standard

National Canadian Clean Fuel Standard to be Rolled Out Soon

The Clean Fuel Standard (CFS) is a proposed regulation under the Canadian Environmental Protection Act, 1999, which aims to reduce greenhouse gas (GHG) emissions by reducing the lifecycle carbon intensity (CI) of liquid fossil fuels used in Canada. While the initial scope of the CFS included liquid, gaseous and solid fuels, the scope of the CFS was narrowed under Canada’s latest climate change plan, A Healthy Environment and a Healthy Economy, to include only liquid fuels.

The objective of the CFS is to decrease the CI of liquid fuels approximately 13% by 2030. The proposed Clean Fuel Regulations (CFR, under the Canadian Environmental Protection Act, 1999) would establish annual lifecycle CI limits per type of liquid fossil fuel, expressed in grams of carbon dioxide equivalent per megajoule (gCO2e/MJ). The liquid fossil fuels that would be subject to the annual CI reduction requirement are gasoline, diesel, kerosene and light and heavy fuel oils. This obligation would be placed on primary suppliers (i.e. producers and importers) who domestically produce or import at least 400 cubic metres (m3) of liquid fossil fuel for use in Canada. Under the proposed CFR, primary suppliers would be required to reduce the CI of the liquid fossil fuels they produce in and import into Canada from 2016 CI levels by 2.4 grams of carbon dioxide equivalent per megajoule (gCO2e/MJ) in 2022, increasing to 12gCO2e/MJ in 2030, at a rate of 1.2 gCO2e/MJ per year. Reduction requirements for the years after 2030 would be held constant at 12 gCO2e/MJ, subject to a review of the regulations and future amendments.

The proposed CFR allows for flexible compliance options to enable primary suppliers to choose the lowest-cost compliance actions. Primary suppliers are required to satisfy their emission reduction requirements by creating or acquiring compliance credits. Primary suppliers can obtain compliance credits by:

1. undertaking activities that generate credits for its own account;
2. acquiring credits from others; or
3. paying into a compliance fund to acquire credits at a price of $350/tonne.

The proposed CFR would establish a credit market, where each credit would represent a lifecycle emission reduction of one tonne of CO2e. Parties that are not fossil fuel primary suppliers would be able to participate in the credit market as voluntary credit creators.

For each compliance period (typically a calendar year), a primary supplier would demonstrate compliance with their reduction requirement by creating credits or acquiring credits from other creators, and then using the required number of credits for compliance. Once a credit is used for compliance, it is retired and can no longer be used. For primary suppliers unable to satisfy their reduction requirement by June 30 following the end of a given compliance period, a market-clearing mechanism that facilitates credit acquisition by primary suppliers would also be available. The proposed CFR would set a maximum price for credits acquired, purchased or transferred in the credit clearance mechanism (CCM) at $300 in 2022 (CPI adjusted) per compliance credit. Where primary suppliers are unable to acquire sufficient compliance units through the CCM, they may carry forward up to 10% of their compliance obligation into subsequent compliance periods for up to two years. However, a 20% annual interest rate applies to amounts carried forward.

Compliance credits may be created by primary suppliers or voluntary credit creators who take one of the following actions:

1. Compliance Category 1: undertaking projects that reduce the lifecycle CI of fossil fuels;
2. Compliance Category 2: supplying low-CI fuels; or
3. Compliance Category 3: end-use fuel switching in transportation.

Environment and Climate Change Canada (ECCC) has identified four initial quantification methodologies for development in respect of Compliance Category 1, including: (i) carbon capture and storage (CCS); (ii) low-carbon intensity electricity generation; (iii) enhanced oil recovery; and (iv) co-processing of biocrudes in refineries and upgraders. In addition, a generic quantification methodology will be developed that can be utilized for activities which do not have their own bespoke quantification methodology, which will apply to such projects as energy efficiency, cogeneration, electrification and methane reductions. Project proponents would apply to ECCC to have a project recognized for credit creation and then submit an annual validation report with a third-party verification report and verification opinion. The credit period is 10 years with a possible five-year renewal for most projects, and a 20-year credit period and five-year renewal for CCS projects.

All low CI fuels supplied to the Canadian market, including fuels used to comply with existing federal and provincial renewable fuel regulatory requirements and British Columbia’s Renewable and Low Carbon Fuel Requirements Regulation, would be able to create credits under the proposed CFR.

To incentivize investments in low carbon fuels, the proposed CFR imposes limits on the proposed compliance options. These include a 10% limit of payment into the compliance fund mechanism, a 10% limit on the trading credits across fuel classes, and a 10% limit on carrying forward a credit obligation.

The CFR will retain the volumetric requirements under the existing federal Renewable Fuels Regulations (RFR) (5% low carbon fuel content in gasoline, 2% low carbon fuel content in diesel/fuel oil). This means that each primary supplier would be required to demonstrate for each compliance period that, of the total number of compliance credits it retires for compliance, a minimum (equivalent to 5% of its gasoline pool and 2% of its diesel and light fuel oil pool) is from low-CI fuels. These compliance credits are part of the total credits used to meet reduction requirements, but the same compliance credit cannot be used to meet the 5% and 2% requirements respectively. Prior to repeal of the RFR in 2024, companies will be entitled to rollover any existing compliance units and convert those units into credits recognized under the CFR.

The consultation period for the proposed CFR ended on March 4, 2021. Final regulations are expected to be published in the Canada Gazette, Part II in late 2021. Once the regulations are published, credit creators can register for and begin to create credits in the credit trading system. The CFR is expected to come into force on December 1, 2022.

Environment and Climate Change Canada releases proposed regulations for Clean Fuel Standard

In November 2016, the federal government announced plans to implement a clean fuel standard (CFS) to reduce Canada’s greenhouse gas (GHG) emissions. The objective of the proposed CFS is to achieve 30 megatonnes of annual reductions in GHG emissions by 2030, contributing to Canada’s effort to achieve its overall GHG mitigation target of 30% emission reduction below 2005 levels by 2030.

The CFS will establish lifecycle carbon intensity requirements separately for liquid, gaseous and solid fuels that are used in transportation, industry and buildings. Consultations on the development of the CFS were launched in January 2017 and a discussion paper was released in February, seeking input to help inform the development of a regulatory framework. In November 2017, ECCC released a report entitled Clean fuel standard: summary of stakeholder written comments on the discussion paper, which summarized stakeholder feedback received during the consultation period.

On December 13, 2017, ECCC published a regulatory framework on the CFS, which outlines the key elements of the design of the CFS regulation, including: scope, regulated parties, carbon intensity approach, timing, and potential compliance options such as credit trading.

The proposed CFS will use a lifecycle approach to set carbon intensity values and requirements, accounting for the amount of GHG emitted to produce a unit of energy. ECCC has indicated that the CFS may lead to changes in crop demand and land management practices that impact GHG emissions, which will be included. However, indirect GHG emissions that may result from the clean fuel standard will not be considered in the design, at least initially. The proposed CFS regulatory framework contemplates the following key design elements:

  • Partitioning – The CFS will set separate carbon intensity requirements for sub-sets of fuels, as well as rules for credit trading, in order to achieve GHG reductions from each of the transportation, building and industry sectors. In particular, the CFS will set separate carbon intensity requirements for liquid, gaseous and solid fuel streams. For gaseous fuels, consideration will be given to setting volumetric requirements for renewable content or a hybrid approach, such as volumetric requirements with GHG performance standards. Approximately 80% of liquid fuels are used for transportation. Setting a separate carbon intensity target for liquid fuels will ensure GHG reductions are achieved from transportation fuels. Consideration may be given to further groupings of fuel types within fuel streams (e.g. grouping transportation fuels together in the liquid fuel stream), along with some trading of credits between the fuel streams.
  • Scope – The CFS will apply to liquid, gaseous and solid fuels combusted for the purpose of creating energy including “self-produced and used” fuels, that is, those fuels that are used by producers or importers. The CFS will not apply to fuels when they are primarily used as feedstocks in industrial processes or when used for non-combustion purposes (for example, solvents). Certain fuels will be excluded from application of the carbon intensity requirements of the clean fuel standard, including fuels that are exported from Canada, fuels that are in transit through Canada, and coal combusted at facilities that are covered by coal-fired electricity GHG regulations. Other exclusions may be considered.
  • Regulated parties – Fuel producers and importers, or in some cases distributors, will be subject to the clean fuel standard and will need to meet specific requirements for the fuels that they produce, import or distribute.
    • In the case of liquid fuels:
      • the producers or importers of the liquid fuel (for example, gasoline, diesel, and heavy fuel oil) will be the regulated parties.
    • In the case of gaseous fuels:
      • for pipeline-quality natural gas delivered via gas distribution pipeline systems, the distributors of the natural gas will be the regulated parties.
      • for other gaseous fuels supplied to end-users other than through a gas distribution pipeline system (for example, biogas, natural gas from producers),the regulated parties remain to be determined.
    • In the case of solid fuels:
      • the producers or importers of the fuel (for example, coal and petroleum coke) will be the regulated parties.
    • Setting carbon intensity requirements – Carbon intensity values will be expressed in grams of carbon dioxide equivalents (g CO2e) per unit of energy in megajoules (MJ), and will account for GHG emissions over the lifecycle of a fuel. Carbon intensity values will not include an estimate of the impact of indirect land use change on GHG emissions. Baseline carbon intensity values and carbon intensity requirements will be set for either each fuel in a stream (liquid, gaseous, solid) or for groupings that include some or all fuels in a stream. The CFS regulations will set carbon intensity requirements expressed either as absolute values or as percent reductions from the relevant baselines. The carbon intensity requirements will become more stringent over time, with the goal of achieving at least 30 Mt CO2e of emission reductions annually commencing in 2030.
    • Calculation of lifecycle carbon intensity of fuels – For renewable fuels, other low carbon fuels and energy sources and technologies, carbon intensity will be differentiated by type and origin of the fuel to reflect the GHG emissions associated with different feedstocks and technologies. In the case of crude oil-based fuels, the regulation will not differentiate among crude oil types, or on whether the crude oil is produced in or imported into Canada. A Canadian-average default carbon-intensity for crude oil produced and imported and consumed in Canada will be used. For other fossil fuels, consideration is being given to whether or not the same approach as for crude oil-based fuels should be applied.
    • Renewable fuel content – The federal Renewable Fuels Regulations require 5% renewable content in gasoline and 2% renewable content in diesel fuel and heating distillate oil. In the short-term, these volumetric requirements will be maintained. In the longer-term, the CFS will replace the Renewable Fuels Regulations. With respect to natural gas, setting carbon intensity requirements is the intended approach, but further consideration will be given to setting volumetric requirements for renewable content or a hybrid approach, such as volumetric requirements with GHG performance standards.
    • Compliance pathways – The CFS will provide a range of compliance pathways other than reducing the carbon intensity of the fuel produced or imported for use in Canada. A key pathway for fossil fuel suppliers will be to include renewable fuel content in their product. Under the proposed CFS, it will be possible to generate compliance credits for actions that improve carbon intensity throughout the lifecycle of the fuel. One issue to be determined is whether to specify a minimum threshold for process improvements that qualify for credit creation. It will also be possible to generate credits through fuel switching and the deployment of energy sources and technologies that displace fossil fuels, such as electric vehicles. Credits will be tradeable among regulated parties within each stream of fuels (liquid, gaseous and solid). There will also be limited banking of credits. Consideration is being given to allowing some use of credits across streams of fuels.
    • Timing – ECCC plans to publish draft regulations in Canada Gazette, Part I in 2018 and final regulations in Canada Gazette, Part II in mid-2019. Carbon intensity requirements for liquid, gaseous and solid fuel streams will come into force at the same time; however, the coming into force date is still to be determined.

ECCC will be accepting written comments on the proposed CFS regulatory framework until January 19, 2018.  Following stakeholder consultations in early 2018, ECCC expects to publish proposed regulations in late, followed by publication of final regulations in mid-2019.

Washington State introduces Comprehensive Climate Change Initiatives

In December 2014, Washington State Governor Jay Inslee introduced an ambitious climate change policy agenda for 2015, including the establishment of an all-encompassing carbon pricing program. This policy follows the signing of Executive Order 14-04 (Washington Carbon Reduction and Clean Energy Action) by Governor Inslee on April 29, 2014, which set out a plan for state climate action.
If passed by state lawmakers, the program would raise an estimated $1 billion a year through a new levy on greenhouse gas emissions. In particular, the program would cap statewide pollution rates at levels that decline over time, with polluters allowed to trade state-sold pollution allowances among themselves. It would aim to address emissions covered other similar programs operating in the US, while avoiding pitfalls of other programs, such as giveaways for certain polluters. The technical aspects of Washington’s proposed program are considered best practices and as such, they have been lauded by outside observers such as the Environmental Defense Fund.
The program has been designed to help Washington get on track toward meeting its legislated goal of reducing emissions to 1990 levels by 2020, with a further 50% reduction by 2050. A November 2014 report by the Carbon Emissions Reduction Taskforce (which was established by Governor Inslee in April 2014 to provide recommendations on the design and implementation of a carbon emissions limits and market mechanisms program for Washington) concluded that Washington is not on target to comply with the 2008 law regarding required reductions in greenhouse gas pollution. It found that the requirement of reducing yearly pollution levels back to 1990 levels in 2020 would “likely” be met if a new cap and trade policy is implemented. Further steps would be needed to meet more ambitious reductions required by 2035 and 2050.
The proposed program would cover an estimated 85% of greenhouse gas emissions produced by Washington and it is anticipated that approximately 130 companies would be required to pay a levy, generating approximately $1 billion a year in revenue. Revenue generated under the cap-and-trade proposal would help to cover shortfalls in transportation and education spending, reduce taxes and fund household energy efficiency improvements for poorer residents, as well as help meeting the general costs of running the state.
Below is an overview of the legislative proposals aimed at reducing Washington’s greenhouse gas emissions:
• Carbon Pollution Accountability Act: The proposed Carbon Pollution Accountability Act (SB 5283 / HB 1314) would create a new market-based program that limits carbon emissions and requires regulated entities to pay for their emissions. The limit will decrease gradually over time, allowing emitters time to transition to cleaner technology and more efficient operations. The program will generate about $1 billion annually which will be used for transportation, education and disadvantaged communities. The draft Carbon Pollution Accountability Act can be found here.
• Clean Transportation: The Department of Transportation has three strategies to decrease transportation emissions: cleaner cars, cleaner fuels and moving people and goods more efficiently.
• Electric Vehicles (EVs): Legislation will extend tax incentives for EVs, create an EV infrastructure bank, and require urban cities and counties to adopt EV incentive programs. Draft legislation can be found below:
o Alternative Fuel Vehicle Sales Tax Exemption (SB 5445 / HB 1925): This bill extend a sales tax exemption on the first $60,000 on the purchase of alternative fuel vehicles.
o Electric Vehicle Infrastructure Carbon Pollution Accountability ActBank (SB 5444 / HB 1572): An EV bank would give financial assistance to install publicly accessible high-speed charging stations.
o Electric Vehicle Readiness in Buildings (SB 5446 / HB 1929): This bill would require urban cities and counties to adopt high speed EV charging station incentive programs.
• Zero Emission Vehicles (ZEVs): The Department of Ecology has requested legislation to allow Washington to adopt the Zero Emission Vehicle program.
• Clean Fuel Standard: The Department of Ecology is preparing a draft rule that outlines a clean fuel standard that would help the state to transition to cleaner fuels over time.
• Sustainable Transportation Planning: To reduce carbon pollution that comes from cars, trucks and other transportation-related sources, the Department of Transportation has developed a five-part action plan.

Public hearings on the proposed Carbon Pollution Accountability Act are continuing and have attracted great interest. Stay tuned for more details.