Opinion | The ‘High-Cost’ Fuel Standard

With the expected announcement of the “Clean Fuel Standard” possibly only a few weeks away, there are some key points that Canadians should know before they will have to start paying for another costly regulatory policy.

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In 2016, the Federal Liberal government set in motion the proposal for a “Clean Fuel Standard”, which in fact will be a High-Cost Fuel Standard, with a stated goal to reduce fuel emissions intensity by 30 megatonnes per year by 2030.

The standard covers all fossil fuels and will be rolled out in different phases starting with liquid fuels (gasoline, diesel). There are a wide host of implications that could come from the implementation of this high-cost fuel standard.

Many experts indicate that it will cause economic harm while doing little to help the environment. The draft regulations will be rolled out in early December 2020, and the program will begin in 2022.

This new regulation is primarily aimed at the producers of fuels, namely the Canadian oil and gas industry. Producers will have to have to figure out how to reach these carbon intensity measurements. This is likely to impose compliance costs on an industry that is already at the forefront of innovation and technology and has already set ambitious goals for “net-zero” and material reductions in emissions intensity.

The government acknowledges that this High-Cost Fuel Standard will increase expenses for businesses and everyday Canadians. It is expected to cost consumers at least three to four times as much as the carbon tax according to this study by the Canadian Energy Research Institute.

However, the compliance cost put forward by the government shows that it could be around $350 per tonne of emissions reduced.

Policies like carbon taxes are regressive and could cause energy poverty, so Canada introduced rebates to help vulnerable Canadians. Even though these new regulations will cost significantly more, the government does not seem interested in providing tax relief for struggling Canadians during a pandemic.

In another study, LFX Associates estimated compliance costs for the “Clean Fuel Standard” to be $9.1 billion to reduce 30 megatonnes per year.

If Navius Research is correct in their estimates that it will only reduce 7 megatonnes, it will cost the Canadian economy over $1,300 per tonne of actual carbon reduced. If you include the current estimates by the Conference Board of Canada that the carbon tax costs $550 per tonne of emissions reduced, Canadians could be paying $1,850.

This is an exceptionally large number considering the Government of Canada estimates the social cost of carbon to be around $54.70 per tonne in 2030.

Canadians need to seriously ask why we are costing ourselves as much as 30 times the estimated social cost of carbon? This is a classic big-government approach to solving problems.

The oil and gas industry is leading on the principle of reducing emissions and already has set ambitious targets. The industry needs cooperation, not hindrance from the government, to let private innovation meet emissions intensity goals.

This High-Cost Fuel Standard will impose a new layer of expensive regulations on a faulty foundation of inefficient carbon taxes and existing regulations.

The most progressive way forward to reduce emissions intensity from fuels is to set a target and let the industry use their innovation and know-how to get there.

Instead of trying to push a “great reset” or “green new deal” recovery during a pandemic and recession, the government should be focused on stimulating a responsible recovery that drives employment and improves the lives of Canadians who have struggled over the past 8 months.

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