By Jade McLean and Marla Orenstein
Published in the Winnipeg Free Press

July 3, 2019

Manitoba has some of the highest standards in the country for reducing emissions from transportation, which has resulted in per capita emissions 15 per cent below the national average. So, when the federal government rolls out new legislation on carbon emissions later this month, what will it mean for Manitoba?

In the coming weeks, the federal government is expected to provide details about the Clean Fuel Standard (CFS) — its latest and potentially most ambitious climate policy yet.

The CFS will require all suppliers (producers, importers and distributors) of fossil fuels in Canada to reduce the carbon intensity (CI) of the fuel — that is, the amount of greenhouse gas emissions associated with producing and consuming the fuel.

Its goal is to support Canada’s efforts toward achieving a 30 per cent reduction in total emissions from 2005 levels by 2030. Yet, this raises the question: isn’t that why we have a carbon tax?

While both policies are intended to chip away at Canada’s overall emissions levels, they are to do so in a way that is complementary. The carbon tax is intended to reduce the amount of fuel consumed by making it more expensive; the CFS is intended to make the fuel that is used less carbon-intensive. One bird, two stones.

The federal government has been developing the CFS for more than two years. Once details of the policy are released, implementation is set to start in 2022.

In Manitoba, the transportation sector is responsible for one-third of the province’s greenhouse gas emissions. Currently, biofuel mandates in the province require all gasoline contain an 8.5 per cent ethanol content (compared to the national standard of five per cent) and all diesel a two per cent biodiesel content. But we know biofuels have questionable environmental records; in fact, some biofuels generate greater emissions over their lifecycle than some fossil fuels.

The CFS partly avoids this issue by being technology-neutral, meaning CI reductions can be achieved in any way and at any point in the life cycle, from “well to wheels.” While biofuels are one option, so are electrification, increased energy efficiency or switching to less energy-intensive hydrocarbons (e.g. from coal to natural gas). Another benefit of broadening the policy beyond biofuels is it may stimulate more innovative and less expensive approaches to reducing greenhouse gases.

Other jurisdictions have witnessed success under similar policies — at least with respect to transportation. British Columbia, California and the European Union have had similar policies in place for transportation fuels (gasoline and diesel) since 2011, and in all cases, the CIs of fuels were successfully reduced. However, the CFS is wading into uncharted territory in that it will extend beyond transportation to include building and industry fuels, as well.

We support the intentions of the CFS; reducing global greenhouse gas emissions is critical. At the same time, we have seen the federal government struggle to get Canadians on board with other environmental legislation, such as the carbon tax and Bill C-69 (which overhauls the environmental-review process). Clearly, the best of intentions don’t necessarily translate to success in implementation.

There are several key lessons to be learned from these efforts that will be critical considerations for the ultimate success of the CFS in Manitoba and in the rest of Canada. They include:

Involvement of the provinces: We’ve seen environmental policies flounder when there is insufficient flexibility on how they are implemented across different provinces. Manitoba has consistently stressed the importance of adopting a climate strategy that adheres to its unique circumstances — not one that is a blanket approach, but respects the province’s environmental progresses. Collaboration with the provinces and respect for their distinct challenges and policy approaches will be critical.

Fairness: The CFS will create winners and losers — within and across sectors, within and across regions and for the competitiveness of Canada in the global marketplace. This is important, as Manitoba’s economy is highly reliant on trade-exposed and emissions-intensive industries — with manufacturing, construction, agriculture, forestry, oil and gas contributing to more than 30 per cent of the economy. There is some concern the policy may hamstring these sectors, as most producers cannot raise prices to offset any increased costs under the CFS.

Regulatory burden: The implementation of the CFS will be complex, requiring substantial work on the part of both fuel suppliers and government agencies to demonstrate compliance has been achieved. If the policy is to be successful, the administrative costs of the policy must not outweigh its benefits.

Cost: A key question is what the CFS will cost. This is much more difficult to answer than for carbon tax, where the price is clear and is borne by the end consumer. Under the CFS, any costs are borne by the fuel supplier. These costs may be low or high, depending on the cost of the approach the supplier uses to implement the CI reduction.

In some cases, costs may be passed on to the end consumer, but the challenge is different for trade-exposed industries that have to compete with international imports. Ultimately, the costs of the CFS will be less visible to consumers than the carbon tax — and therefore perhaps more palatable politically — but the costs will still be present.

Many questions remain as to how this policy will play out among Manitoba’s different sectors over time. The details provided by the federal government will help establish how successful — politically, economically and environmentally — the policy is likely to be.

Jade McLean is a policy analyst and Marla Orenstein is director of the Natural Resources Centre at the Canada West Foundation.