February 5, 2017
Fuel use represents a major source of greenhouse gas (GHG) emissions in Canada, with fuel use in the transportation sector alone accounting for more than a quarter of Canada’s emissions. Low Carbon Fuel Standards (LCFS) have become an increasingly popular policy to reduce emissions in the transportation sector, thanks to their high GHG reduction potential and low cost to consumers. In 2010, British Columbia included an LCFS as part of its Renewable and Low Carbon Fuel Requirements Regulation, following the lead of California and the European Union, and recently joined by Oregon. Currently, both the Government of Canada and the Government of Ontario have proposed LCFSs, with the notable difference that the federal government’s proposal also applies to fuels outside the transportation sector.
• A Low Carbon Fuel Standard (LCFS) is a flexible regulation that specifies mandatory reductions in the GHG intensity of fuels sold within a jurisdiction. Existing LCFSs have been applied exclusively to transportation fuels. LCFSs define the emissions performance required and allow suppliers flexibility in reaching the standard, including through credit trading. Suppliers of alternative low-carbon fuels — which in the transportation sector include biofuels, propane, hydrogen, and electric vehicle charging — can earn credits.
• British Columbia is the only Canadian jurisdiction with an existing LCFS, however both Ontario and the federal government are currently proposing LCFSs. The LCFS proposed by the federal government looks to extend the policy beyond just transportation fuels to include fuels used in buildings and industry as well. This raises a number of new questions about policy design.
• LCFSs have high greenhouse gas (GHG) reduction potential. BC’s Renewable and Low Carbon Fuel Requirements Regulation is credited with 25% of BC’s emissions reductions from 2007-2012. The federal government has indicated that a national LCFS could achieve up to 30MT of GHG emissions reductions annually by 2030.
• Not only do LCFSs have an immediate effect by improving the emissions intensity of fuels used today, they also encourage clean innovation and accelerate the transition to cleaner fuels for tomorrow.
• There are some key design elements for an effective LCFS, including broad coverage, stringent and predictable targets, and flexible compliance mechanisms. However there remain important design questions around regional impacts, equity concerns, cost effectiveness, and innovation impacts.
• LCFSs can complement other national and sub-national GHG mitigation policies, including carbon pricing, renewable fuel standards and existing LCFSs, but policy interactions are complex and need to be considered in the early stages of policy design.