Interview with Advanced Biofuels Canada: Reflecting on the Roll-Out of the Canadian Clean Fuel Regulations

May 29, 2024

May 29, 2024



In May of 2023, ahead of the July 2023 implementation of the Canadian Clean Fuel Regulations (CFR), Stillwater’s Carbon Crew chatted with Ian Thomson, President of Advanced Biofuels Canada (ABFC) about the state of biofuels production and usage in Canada. Our write-up of that conversation is available here. In October 2023 we checked back in with Ian’s colleague Fred Ghatala, Director of Carbon & Sustainability at ABFC to see how things were going in the early days of the CFR roll-out. That interview write-up is available here. This month, a year after our first conversation, we circled back with the ABFC team for an update. Enjoy!

Stillwater: Nearly one year in, what is your overall perception of how the roll-out of the Canadian Clean Fuel Regulations (CFR) is going?

Advanced Biofuels Canada: Any new, complex regulation will have rollout issues, and the CFR is no exception. The rollout has been generally functional; there have been quasi-panic moments for registered parties, but the CFR team at Environment and Climate Change Canada (ECCC) has been responsive and reachable. They’ve been able to provide guidance that clarifies regulatory requirements. Fuel and feedstock contracting has a long lead time, and ECCC has been aware of the commercial impacts of changes and delays.

Have you heard about much resistance to the program?

No. In its inception and during the design consultations, there was considerable pushback and concern expressed regarding ability to meet requirements. But there is a general recognition that the CFR, as finalized, has flexibilities well beyond other low carbon fuel (LCF) programs, and that the timeframes and carbon intensity (CI) reductions are attainable.

Have you seen signs of changes to the fuel mix?

Yes. Biofuel blending is up markedly, as you can see in the Biofuels in Canada 2023 report. Biofuels have been the easiest compliance tool for fuel suppliers – the obligated parties – and sources like ethanol are a very low-cost credit source. As one example, we are seeing the quiet but steady adoption or trialing of E15, and new sectors – industrial, rail, marine – are adding to credit-generating biofuel demand.

Have you noticed any specific implementation challenges?

Pathway applications are required to be re-filed with ECCC effective July 1st as they adopt an updated version of the lifecycle analysis (LCA) tool – OpenLCA. Re-filing pathway applications is a lot of extra work but is unlikely to interrupt compliance. There had been concerns about introducing a new lifecycle tool, but OpenLCA has proven to be quite workable. There is also a large set of accredited verifiers to provide services required for the credit creation reports and updated CI applications.

How have covered entities responded so far?

We are seeing a lot more biofuel blending and, notably, new capital projects to produce advanced biofuels. For example, Imperial Oil is in advanced stages of bringing online a billion-litre renewable diesel facility in Edmonton, and other projects (Parkland, Tidewater, Braya, etc.) have commissioned new or upgraded capacity to meet CFR and provincial demand. Many of Canada’s fuel suppliers have been working under provincial RFS/LCFS programs for years and are adapting their practices for higher CFR inclusion rates as well as looking at more newer pathways.

Are there any data on supply and demand for compliance credits at this point?

No, none officially from ECCC, which is still determining when to post credit transaction data and what data to provide. They consulted earlier this year on options.

Are there many trades occurring at this point?

There are industry indications of active and evolving credit markets, and a number of service providers are working on CFR credit price projections, but nothing final yet.

Has Canada seen an impact of CFR credit prices on fuel prices yet?

Any price impact would likely come from the marginal cost of low-carbon fuels, not the credit market. Unlike the California LCFS, where the majority of compliance has flowed through credit markets, Canada’s oldest and only LCFS in BC has seen ~15% on average of compliance flow through the credit market. Most observers regard the credit market as the option used after cheaper physical blending options have been fully tapped, so credits will be more expensive than biofuel blending generally. Determining CFR cost impact will be difficult, as the biofuels used to meet most provincial renewable fuel standards (RFS) also generate CFR credits. In the case of BC, it will likely have zero cost or blending impact, whereas in provinces with no standing RFS, it will be more noticeable.

Speaking of BC, can you clarify for our readers whether the CFR adds additional value to fuels in BC beyond the value added by the BC-LCFS?

All of the provincial programs (RFS and LCFS) stack with the CFR – actions at the provincial level will count towards CFR, but not all CFR actions will count in provincial programs. What value a provincial credit will realize is a more nuanced matter.

BC is a unique case in Canada. The 30% BC-LCFS target by 2030 will be the most stringent fuels regulation in Canada. So, on the face of it, modelling shows no additional action would be needed in BC to meet CFR requirements. Also, because BC has yet to adopt appropriate carbon pricing on biofuels, it loses that demand signal that would be in palce were BC, for example, to adopt the federal approach to carbon pricing on fuels. Most observers believe that the CFR impact in BC will be modest at most. BC also has a light-duty zero-emission vehicle (ZEV) mandate; the province has the highest portion of ZEV new car sales in Canada, and charging is eligible to generate BC-LCFS credits (as they are in the CFR). That, and the 30% target, are likely to more or less isolate BC from CFR impacts. Oh, and the SAF mandate will add more crediting unique to the LCFS.

So, in summary, the CFR is unlikely to create accretive demand for low-CI fuels in BC because of the stringent nature of the BC-LCFS, but, yes, the clean fuels used to meet BC-LCFS compliance are eligible for generating CFR credits.

Do you have any insight on the split between domestically produced and imported fuels being used for compliance?

Not at this point, and we are not sure that ECCC reporting will be granular enough to see domestic/foreign supply. The trade data are available if not fully straightforward; we provide our members with up-to-date trade flow data, and we know generally that new ethanol supply will be almost fully imported. As RD plants come online, we expect that domestic supply of low-CI diesel alternatives will increase. Of course, the transition in the U.S. from Blenders Tax Credit to the Clean Fuel Production Credit (45Z in the Inflation Reduction Act) will impact trade flows.

We understand that different provinces have varying max fuel prices, and this is also based on summer vs. winter grades. How does this interact with the credit price environment? Do these max fuel prices ever produce fuel shortages?

With exception of the four Atlantic provinces which have very small fuel volumes and which do regulate pump prices, fuel prices are not regulated in Canada. These Atlantic markets are in the process of determining how to reflect CFR costs in a regulated environment – it’s a work in progress. There have been no fuel shortages associated with these regulated markets.

Learn more about Stillwater’s Credit Price Outlooks