Canada will soon have new clean fuel rules. This is what they cost when you fill up
As the calendar moves into July, a long-awaited federal policy will kick in, aimed at reducing the amount of pollution from cars and trucks while trying to keep prices affordable at the pump.
Clean fuel regulations were first proposed in 2016, but have faced delays and revisions along the way.
Although the new policy has met with political opposition, it has received support from several environmental groups. The industry likes it too.
“I want to reassure Canadians that it’s good policy, it’s good regulation, it will produce significant results [emission] said Bob Larocque, president and CEO of the Canadian Fuels Association, which represents companies that process crude oil and market products.
There won’t be much change in pump prices across the country on July 1, experts say, though there will be a noticeable increase several years later.
That’s in addition to existing state and federal fuel taxes, which are likely to entice more drivers to switch to electric vehicles.
The pricing effects of the regulation will be largely based on how refiners and the fuel industry decide to comply, which experts say remains a big unknown.
Industry on board
The clean fuel standard goes into effect on Canada Day, but the requirements to meet it are relatively straightforward for refiners and fuel importers.
Add to that the fact that many provinces already have this clean fuel or fuel blending regulations in place, and experts do not predict an immediate change in pump prices.
“The policy is off to a pretty soft start because what it requires is, to some degree, even less than what is actually required from other pre-existing policies,” said Michael Wolinetz, a partner at Vancouver-based Navius Research, which provides consulting services. delivers on energy and the environment.
“We don’t expect the policy to really take hold until around 2025.”
One of the reasons the industry likes the policy is that the federal government does not mandate any specific method for reducing pollution from the transportation sector, instead leaving it largely to individual companies to choose how to comply.
Companies must meet carbon emission reduction targets each year by earning credits through improvements to production facilities (such as building a carbon capture and storage facility at a refinery), reducing the carbon intensity of the actual fuel (for example, by adding more ethanol) and by offering the charging of electric vehicles and the refueling of hydrogen-powered vehicles.
There is also a credit trading system that allows businesses to spend money to meet.
Adding more ethanol to gasoline and diesel is probably the most common way the industry will comply, experts say, because it’s already being done, just in smaller amounts.
Pain in the pumps
As the need for clean fuel increases, prices at the pump will also increase as fuel companies face increased expenditures such as the purchase of more biofuels.
The parliamentary budget office predicts a price increase of 17 cents per liter by 2030, although it warns that this is considered an upper limit. Experts agree and say estimation is probably the maximum price impact.
“There is a zero percent chance that it would be worse than what the parliamentary budget office says,” said Wolinetz, who predicts a cost impact of less than 10 cents per liter by 2030.
Environment and climate change Canada estimates a price increase at the pump by 2030 of between six and thirteen cents per liter for gasoline. That’s on top of the 37 cents the carbon tax could add to a gallon of gasoline by 2030, as well as all other federal and state (and part municipal) taxes levied on the purchase of petrol and diesel.
There is also the volatility of oil prices to consider and the cost of producing and transporting fuel. Add it all up and experts say the pain at the pumps could drive a big surge in electric vehicle sales over the next decade.
“[On] July 1, people won’t really notice it. But every year, as that target begins to bind more and more, the cost curve starts to get quite steep,” said Ross McKitrick, an economics professor at the University of Guelph in Ontario, who co-authored a study on modeling the economic impact of clean fuel regulation.
Ottawa is OK with high pump prices in the future, he said, because “they just want to try and get people over to electric cars.”
Exhaust emissions are increasing
The federal government’s focus on reducing the carbon intensity of fuels is understandable given that emissions from the transportation sector have increased by 16 percent since 2005.
Overall, exhaust emissions from all cars, trucks, SUVs and lorries are a major obstacle for Canada to meet its climate goals.
The transportation sector is the second largest source of emissions in the country – after the oil and gas sector – accounting for about 25 percent of total emissions.
“If we really want to meet our emissions reduction targets, this is the kind of policy we need to implement,” said Michelle Coates Mather, executive director of the Canadian Transportation Alliance, a nonprofit think tank that studies the future of road transportation.
Canada ranks well below the global median for biofuel use, according to a study released by the organization in February.
Greater demand for biofuels
Producing more ethanol in Canada seems like a logical choice given the amount of canola and soy grown. However, the country already relies on imports to meet existing federal and provincial requirements.
“We’re going to import. We’ve been importing ethanol from America for a long time, so that’s not a change,” said Ian Thomson, president of Advanced Biofuels Canada, an industry association.
Still, Thomson said, the clean fuel rules could significantly change the country’s biofuel sector due to increased demand in the coming years.
“It’s changing the face of the industry,” he said.
Environment Minister Steven Guilbeault says the federal government will help Atlantic Canadians “get rid of heating oil.”
Canadian companies have largely relied on importing US ethanol produced from corn. In the past, imports even came from Brazil, where ethanol is produced using ethanol sugar cane.
As clean fuel regulatory requirements increase each year, the amount of ethanol, biodiesel and renewable diesel will increase.
Canada needs to increase the amount of biofuel production or “we could be dependent on the United States for 15 percent of our fuel by 2030, which we are not today,” said Larocque of the Canadian Fuels Association.
Demand for ethanol could rise, especially as more US states adopt their own clean fuel policies.
“You do have to deal with the difficulty that suddenly everyone is looking for the [same] product all at once,” said McKitrick of the University of Guelph.
“The biggest risk here is toward cost surprises on the upside, rather than on the bottom.”
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