3E modelling with NATEM

Compliance Costs under the Clean Fuel Regulations: Estimating near-term credit prices, compliance costs, and impacts on fuel prices

2023

Independent Assessment funded by Environment and Climate Change Canada

In June 2022, the Government of Canada enacted the Clean Fuel Regulations to replace the federal Renewable Fuels Regulations, with new lifecycle carbon intensity reduction requirements that took effect on July 1, 2023.  The Clean Fuel Regulations require producers and importers of gasoline and diesel to reduce the life cycle carbon intensity from the fuels supplied for use in Canada.  The Regulations provide producers and importers with a suite of compliance options from which to choose, and any price impacts will depend on which choices are made by regulated and voluntary parties. 

ESMIA has undertaken a report entitled Compliance Costs under the Clean Fuel Regulations: Estimating near-term credit prices, compliance costs, and impacts on fuel prices.  The main goal of the study is to estimate the incrementalcosts of the Clean Fuel Regulations. The modeling involved quantifying the potential for credit creation and calculating credit costs and estimated market prices for the three compliance categories (CC1: reducing the carbon intensity of fossil fuel supply chains, CC2: supply of low carbon intensity fuels, and CC3: supply of energy for advanced vehicle technologies). A least-cost approach was applied to project total compliance cost, average cost per credit, and gasoline and diesel price impacts on consumers per province.  

Based on economic modelling of compliance pathways, the report finds that estimated fuel price impacts are negligible in 2023 and 2024, with increases of less than 1 cent per litre for gasoline and diesel.  The report also finds some variability in provincial costs as well as higher fuel price impacts for 2030, with an average increase of 4.3 cents per litre for gasoline in Canada. The higher cost impacts in 2030 are partly a result of significant contributions to a registered emission reduction funding program by regulated parties, required to meet the obligation amounts due to insufficient credit supply – although there is high uncertainty in credit supply and credit prices in the second half of the decade. The report may serve utilities and provinces in understanding the potential CFR price impacts over the next years and help inform regulatory decisions.

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