Research
Summary
We describe the Clean Fuel Regulations (CFR), previously known as the Clean Fuel Standard (CFS), and share insights from recent work conducted about the policy for industry and governments across Canada. We review the Canada Gazette Part I version of the CFR, published in December 2020. We find that the CFR will create a multi-billion dollar credit market that is sensitive to external market dynamics (e.g., electric vehicle adoption, benchmark oil prices etc.) and to changes in policy design.
Highlights:
- The credit market is sensitive to changes in macroeconomic conditions such as variations in global oil prices, and to different technology evolution pathways like the rate at which battery costs may decline in the future.
- CFR impacts are also sensitive to policy design variations like changing the limits on credits generated via fuel switching to electricity, which provides policymakers with a powerful lever to adjust policy outcomes in response to unforeseen market developments.
- Credit prices are likely to rise in the earlier years of compliance, stabilizing between 2025 and 2027 as the impacts of other policies begin to increasingly interact with the CFR.
- The policy creates a multi-billion dollar credit market, providing funding for multiple low-carbon reduction initiatives, including biofuels supply, carbon capture and storage deployment, transport fuel switching to electricity and hydrogen, among other actions.
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