Imagine an environment minister meeting with her three deputy ministers to design a policy package to reduce emissions from vehicles. The proposal of one deputy will reduce emissions 10 percent, another 15 percent and the other 20 percent. Each policy has a different name and claims to cause emission reductions in different ways, albeit all from vehicles. The minister decides to implement all three policies and publicly announces a total reduction of 45 percent.
Are you suspicious? You should be.
If several individual policies each target emissions in the same sector (electricity, transportation, buildings, for example), their combined effect is likely to be significantly less than the sum of what each policy would achieve if applied in isolation. Indeed, it is entirely possible that the combined effect of the three policies in this scenario would be 20 percent rather than 45 percent. The policy that would achieve 20 percent does just that, and adding the other two policies has no effect.
We collaborate in analyzing energy-climate policies alone and in combination. In analyzing Canada’s proposed Clean Fuel Standard (CFS), we have found important interaction and combination effects among policies. The objective of the policy is to reduce Canada’s annual emissions by 30 million tonnes (30 Mt) of carbon dioxide equivalents by 2030. But we estimate that, as currently designed, it will reduce emissions by only 7 Mt at best once the effects of existing federal and provincial policies are factored in.
A primer on Canada’s Clean Fuel Standard
The Clean Fuel Standard was conceptualized in 2016 as part of the Pan-Canadian Framework on Clean Growth and Climate Change and has been undergoing consultation and review ever since. If the stated objective of the policy is achieved, it will account for about 15 percent of the 219 Mt that Canada needs to cut to achieve its 2030 emissions target.
The policy requires fuel suppliers to reduce the average life cycle carbon intensity of fuels sold (from extraction through production, delivery and final use). Fuels are divided into three streams:
- liquid fuels (gasoline and diesel, for example)
- gaseous fuels (natural gas, for example)
- solid fuels (coal, for example)
Each stream has distinct requirements to reduce emissions intensity. To hit the target of 30 Mt, the policy seeks to reduce 23 Mt from the liquids stream, 5-6 Mt from the gaseous stream and the rest from the solid stream.
Fuel suppliers have several pathways to comply with the CFS. These are some of the options:
- Blending lower-carbon fuels into any fuel stream. For example, many biofuels (ethanol and biodiesel, for example) have a lower emissions intensity over their life cycle relative to gasoline or diesel, and as a result can be used to lower the average carbon intensity of fuel used.
- Switching to a lower-carbon end-use fuel. For example, switching to electricity- or hydrogen- powered vehicles to displace gasoline or diesel qualifies for compliance in the liquids stream.
- Reducing emissions from the production of fuel (called “upstream” emissions), such as through process improvements, electrification or carbon capture and storage.
- Following “flexibility mechanisms” in the CFS. For example, the policy will allow for a limited portion (10 percent) of compliance obligations to be transferred between fuel streams.
By requiring a reduction in emissions intensity, the CFS targets emissions associated with fuel use across the economy but allows reductions to come from several places along the life cycle of the fuel. There are other policies, however, already in practice or on the books, that also target these various reduction opportunities. This can result in the kind of double counting portrayed in our opening scenario.
The likely reality of Canada’s CFS in practice
The CFS will interact with several federal and provincial policies that are different in name and mechanism but target the same emission reductions that will count for compliance under the CFS. This means that the emission reductions achieved by the CFS, after accounting for its interaction and overlap with other policies, will be much smaller than intended; that is what leads to our calculated reduction of only 7 Mt rather than the intended 30 Mt.
First, renewable and low-carbon fuel policies, including the federal renewable fuels regulation, BC’s low-carbon fuel standard and the renewable fuels regulations in a number of provinces (including Alberta, Saskatchewan, Manitoba, Ontario and Quebec), are already expected to achieve 8.9 Mt by decreasing the carbon intensity of fuels used in the transportation sector. Credits for these reductions will be eligible for compliance under the CFS but are not a result of the CFS.
Second, current renewable natural gas requirements in BC and Quebec will create another 6.1 Mt of emission reduction credits by decreasing the carbon intensity of the natural gas used in these provinces. These reductions are not driven by CFS implementation but will also be eligible for compliance under the policy.
Third, current zero-emission vehicle sales mandates in BC and Quebec, along with other federal and provincial (BC, Quebec) electric vehicle incentives, will create an additional 6.8 Mt of emission reduction credits by replacing combustion-engine vehicles with electric vehicles on the road. Once again, meeting the requirements of these policies will be eligible for credit under the CFS, but these reductions are expected to occur regardless of the implementation of the CFS.
Accounting for these three overlapping policies, we find that almost three-quarters of the emission reductions the CFS aims to achieve will already be achieved without it.
Fourth, there are other existing policies and trends that are expected to achieve another 1.2 Mt of reduction credits. These include carbon pricing, federal vehicle emission regulations and others listed in our note at the end of this article, as well as market and behavioural forces that encourage zero-emission-vehicle adoption in the absence of policy.
This leaves a remaining 7 Mt of emission reductions that could occur with the addition of the CFS, as shown in figure 1.
We think that our estimate is conservative in that it is likely to over-attribute reductions to the CFS. The interactions in figure 1 are exclusively between the CFS and “downstream” policies intended to reduce emissions from sectors where fuel is consumed. However, as mentioned above, the CFS will further allow for certain “upstream” abatement actions that reduce emissions from sectors that supply fuel to generate eligible credits. For example, electrification of upstream natural gas production in BC, which is driven by the province’s CleanBC strategy, is expected to reduce emissions from the natural gas sector, and these reductions would be eligible for compliance under the CFS. If these additional reductions are accounted for, the actual incremental effect of the CFS will be even lower than 7 Mt.
In the end, the CFS could be much ado about nothing.
- Analysis of the Clean Fuel Standard was done by Navius Research and the Energy and Materials Research Group using the energy-economy model gTech. This model integrates technology, macroeconomy, fuel and electricity modelling to simulate the impacts of climate and energy policies across all sectors and regions in Canada.
- Modelling included simulation of most downstream emission reduction policies. It did not include simulation of upstream emission reduction credits, such as electrification of natural gas production and carbon capture and storage used in bitumen upgrading and fuel refining. It also did not account for the banking of CFS credits from reductions achieved prior to the policy’s implementation. Results therefore underestimate the impact of interacting policies and overestimate the emission reduction potential of the CFS.
- Note that upstream emission reduction opportunities refer to emissions that happen at the point of production of a fuel, such as electrification of natural gas production processes or capturing of carbon pollution at these facilities. Downstream emission reduction opportunities refer to emissions that happen at the point of use of a fuel, such as reducing the carbon intensity of fuel burned in a vehicle or switching to the use of electricity rather than fossil fuel.
- Policies included in this simulation and expected to interact with the CFS include the following:
- Federal ZEV purchase incentives
- Federal Renewable Fuels Regulation
- Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations
- Regulations Amending the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations
- Carbon Pollution Pricing System
- Federal investment in hydrogen fuelling infrastructure
- Federal tax write-offs for zero-emission vehicles
- Federal Venture Capital Catalyst Initiative
- Quebec’s Zero Emission Vehicle Standard
- British Columbia’s Zero Emission Vehicle Standard
- Provincial zero emission vehicle purchase incentives in British Columbia and Quebec
- British Columbia’s Renewable and Low Carbon Fuel Requirement Regulation (and amendment)
- Alberta’s Renewable Fuels Standard
- Saskatchewan’s Ethanol Fuel Regulations and Renewable Diesel Act
- Manitoba’s Biofuels Act
- Ontario’s Greener Gasoline and Greener Diesel Renewable Fuels Regulation
- Quebec’s Renewable Fuels Regulation
- British Columbia’s Renewable Natural Gas Requirement for Industry
- Quebec’s Renewable Natural Gas Requirement
Note that there is uncertainty in the figures presented here, as results are dependent on the final design of the CFS, consumer behaviour, the emission intensities of fuels used, energy prices, innovative technology parameters and the like. Some policy impacts are fairly certain (such as emission reductions associated with zero-emission vehicle mandates in BC and Quebec) while others have less certainty (such as reductions associated with carbon pricing and infrastructure investments). Also note that the emission reductions associated with current policies and policies “on the books” are calculated under the assumption that these policies are implemented and that their stated objectives are achieved.
Mark Jaccard, a distinguished professor and director in the School of Resource and Environmental Management at Simon Fraser University and a Fellow of the Royal Society of Canada, contributed to this article.
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