Ottawa has one last chance to get its most belaboured climate policy right

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Ottawa’s most tortuous climate-policy saga is nearing its merciful end.

By the end of June, the federal government is expected to unveil the final version of its Clean Fuel Standard – something that has been in the works since early in Prime Minister Justin Trudeau’s first term. It’s a regulatory policy meant to reduce greenhouse-gas emissions from transportation fuels consumed domestically, both by lowering the carbon intensity of fossil fuels and by directing investment toward new non-emitting fuel sources.

But after six years of twists and turns, even the policy’s strongest advocates seem unsure whether it’s all been worth it, amid complaints that it’s been watered down to near meaninglessness under heavy oil and gas lobbying.

That leaves Mr. Trudeau’s government facing a choice, in the final weeks it has left to complete the long-delayed regulation in order for it to take effect by year’s end.

It can cut its losses and move on – accepting that the standard will play only a modest role in reducing national emissions and building renewable-fuels sectors, despite initial billing that it would be pivotal for both.

But there is good case for the other option: Environment Minister Steven Guilbeault can take a last stab at toughening it up, even if that risks backlash from fossil-fuel producers and their political allies, and further distraction from everything else his department is supposed to be focusing on.

While fiendishly complex, the Clean Fuel Standard is modelled on policies already in place in California and Europe, as well as the province of British Columbia. The premise is that increasingly stringent targets for reducing life cycle emissions from fossil fuels consumed within Canada are met through the creation of a credit market.

Producers and importers of gasoline and diesel are required to earn a minimum number of credits via either a reduction in emissions during the production of the fuel (such as through carbon capture or process efficiencies) or investment in low-carbon fuel options (for example, hydrogen or biofuels that can be inserted into their gasoline mix).

If they don’t generate enough credits themselves, they can purchase them from others – including, crucially, non-fossil-fuel companies that opt into the market. The idea is to help give rise to emergent sectors, from biofuels to electric-vehicle charging, that will contribute to decarbonization.

It was initially projected to reduce GHG emissions by 30 megatonnes (MTs) annually by 2030 – more than 10 per cent of the current national emissions-reduction commitment.

That was when the policy was also going to cover other sorts of fuel consumption, such as natural gas for building heating. When those aspects were dropped midway through development and it became solely about transportation fuels, the government’s projected GHG reductions went down to about 20 MTs.

But it may not even achieve anywhere close to that lower figure. Projections by the climate and energy modelling company Navius Research Inc., commissioned by the Pembina Institute, found that annual GHG reductions from the regulation in its most recent draft would only be in the range of three-to-six MTs.

Meanwhile, clean-energy producers are complaining that they’ll see little benefit from the credits system that was supposed to help them grow.

“It’s going to be a net cost to us,” says Ian Thomson, the president of the industry association Advanced Biofuels Canada. He suggests his members will face high compliance costs for market participation, yet little demand for their credits.

The broad concern is that the way the regulation has been structured, fossil-fuel companies will mostly be able to earn enough credits just through reduced pollution during production and refining processes – improvements they would largely make anyway, because of other federal and provincial policies such as carbon pricing and new methane rules.

In other words, double counting with other programs could make the CFS somewhat redundant.

That can partly be chalked up to circumstances changing since Ottawa started developing the regulation in 2016, when some of those other programs didn’t exist or weren’t as strong.

But environmental groups say the Clean Fuel Standard’s modest projected impact is also attributable to it having emerged weaker than the versions elsewhere, including B.C.

In particular, they point to a couple of unique loopholes that they’re calling on the government to close.

One of those is that, as the draft rules have been written, fossil-fuel companies could earn credits for reducing production emissions on fuels they export. That means they’ll have to do less in terms of emissions reductions for fuels sold domestically, which is what the regulation is supposed to cover.

The other is that, while the CFS otherwise covers only transportation fuels, companies could earn credits for cleaning up production of oil used for other purposes, such as plastics. Here, again, process improvements for fossil fuels could be overcounted to the point where there’s little need for new investment in fuel sources that pollute less when consumed.

There is also the more basic question of stringency: the target for emissions reductions around which the credits market is built. Currently, it’s supposed to rise so that by 2030, fossil-fuels’ carbon intensity is reduced 16 per cent from 2016 levels. Pembina and another organization, Electric Mobility Canada, recently called for it to be at least 20 per cent, which they said would cut an extra six MTs annually.

At this stage, though, there seems little chance of Mr. Guilbeault revisiting the central emissions-reduction threshold. If anything, he’s likelier to try to close the loopholes – particularly the exports one, which a government official acknowledged is something being explored. (The Globe and Mail is not identifying the official because they were not authorized to speak on the government’s behalf.)

It remains to be seen, though, how much appetite the government has even for that sort of last-minute tinkering.

Ottawa may not want to chance raising the ire of oil companies on a file where they’ve generally been appeased, as it braces for other contentious dealings (especially around promised sectoral emissions caps). It may also want to avoid any suggestion of a toughened Clean Fuel Standard causing higher fuel costs for consumers, considering current inflationary pressures, even if realistically it will be years before the regulation significantly effects prices given its gradually rising stringency.

Mostly, it may not want to waste more resources, since Mr. Guilbeault’s ministry has limited capacity to deliver many other environmental regulations in the works.

But at this point, a little extra headache is probably worth it.

If the CFS proves toothless, the lost emissions cuts will make it even more challenging to meet Canada’s already daunting 2030 climate targets.

It could also make it harder to attract clean-fuel investment, especially when competing against jurisdictions with more robust credits systems.

And it might send a signal that Ottawa will live with dilution of core pieces of its climate agenda, if stakeholders succeed in dragging out bureaucratic consultation processes long enough.

After all the time and effort put into the Clean Fuel Standard, the government should be sure it has something to show for it.

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