Ottawa should clear up confusion about its plans for clean fuel standards, according to a new report by the C.D. Howe Institute. In “Speed Bump Ahead: Ottawa Should Drive Slowly on Clean Fuel Standards” author Benjamin Dachis argues federal policymakers must examine the inherent limitations and potential economic costs of a clean fuel standard system.
Clean fuel standards are an evolution of government-imposed renewable fuel mandates that are common across Canada. Unlike current programs that promote, for example, the use of ethanol or biofuels, a clean fuel standard is a broader policy tool that tracks the overall lifecycle of emissions – from production site to refining and transportation to end combustion. Following the lead of British Columbia, the federal government aims to have their clean fuel standard in place by 2019.
“A clean fuel standard (CFS) could have a large economic cost relative to pure emissions pricing, especially on energy-intensive, trade-exposed sectors. The federal government has released neither a clear rationale for the proposal nor an economic costing of it,” said Dachis.
The federal government has not made an explicit case for a CFS as opposed to other means of reducing emissions. A price on emissions —like a carbon tax or cap and trade regime —is the lowest-cost way to reduce emissions in the long term. A CFS only makes sense if it is not politically feasible to impose a carbon price high enough to effectively reduce emissions, argues Dachis.
Among the author’s recommendations are:
- The federal government should complete and release its own estimates of the economic cost of a CFS. If the economic cost of the proposed CFS plan is higher than a price on emissions, the federal government should have specific cost/benefit reasons to justify a CFS in addition to a price on emissions.
- Ottawa should be mindful of policies that are effective when targeted at households, but burdensome for businesses, particularly emissions-intensive, trade-exposed businesses.
- To favour a price on emissions over a CFS, since it is the most cost-effective way to reduce emissions. A CFS should only be considered should effective carbon pricing become politically unachievable.