As part of its 2030 Emissions Reduction Plan, the federal government is implementing its Clean Fuel Regulations (CFR) as of July 1, 2023. These regulations require gasoline and diesel suppliers to gradually reduce the carbon intensity of the fuels they produce and sell in Canada. Carbon intensity refers to the quantity of carbon dioxide emitted during fuel processing, from extraction to consumption. The new federal regulations are modelled on what is already in place in jurisdictions like British Columbia and California.

Previous federal regulations required gasoline and diesel to be composed of a minimum percentage of biofuels. The CFR take a different approach, one that sets lower and lower limits for the carbon intensity of gasoline and diesel from one year to the next to ultimately reach a limit of approximately 15 percent below 2016 levels in the carbon intensity of gasoline and diesel used in Canada by 2030. The CFR will deliver up to 26 million tonnes (Mt) annually of greenhouse gas (GHG) emissions reductions by 2030.

The CFR are not a carbon tax: there is no government surcharge being imposed on a litre of fuel.

Suppliers (i.e. producers or importers) of liquid fuels who do not meet the required intensity standard on their own in a given compliance period can purchase credits from other suppliers who have exceeded the standard.

Tradable credits can be generated in three ways. The first consists of using carbon capture and storage or electricity generated from renewable sources or from co-processing (using waste) in the oil extraction or refining processes. The second consists of investing in ethanol and biodiesel in fuels. And the third involves investing in initiatives to increase the supply of electric or hydrogen vehicles.

The CFR will complement other climate policies and investments, including the price on carbon, the federal strategy to reduce methane emissions, the forthcoming cap on greenhouse-gas (GHG) emissions in the oil and gas sector, and the Carbon Capture, Utilization and Storage (CCUS) investment tax credit. The government has also created a $1.5 billion Clean Fuels Fund to build new or expanded clean fuel production facilities.

The CFR have been designed such as to ensure no immediate impact on fuel prices. In the longer term, any price impacts will depend on the choices suppliers make for meeting intensity limits. Under the CFR, they have the flexibility to find the most cost-effective ways to reducing the GHG intensity of their fuels.