Nova Scotia’s Utilities and Review Board has ruled that 3.74 cents per litre will be added to gasoline prices and 4.17 cents to diesel prices to account for the cost of new federal clean fuel regulations, which will begin to hit consumers on Friday.
Newfoundland and Labrador imposed the exact same charges in that province early Thursday morning.
The amounts are half of what is expected to be an eight-cent charge in New Brunswick.
Parties connected to the petroleum industry in Nova Scotia pushed for the province to follow New Brunswick’s eight-cent plan, but the board found fault with that approach, according to David Roberts.
“Nobody thought that the cost was really going to reach that amount,” said Roberts, who is Nova Scotia’s consumer advocate.
He argued an eight-cent increase is well beyond expenses oil companies are likely to face and would punish drivers needlessly.
“There’s not going to be any rebates going back to consumers if, as it turns out, they were paying four or five cents a litre more than the clean fuel regulations would have required to compensate suppliers,” he said in an interview.
Campaign launched over cost
The New Brunswick government has been waging a major social media and advertising campaign to convince residents the upcoming eight-cent increase on gasoline and diesel is required.
It claims the full amount is necessary to help oil companies pay for the high cost of federal clean fuel regulations that otherwise they would claw from the vulnerable retailers they supply.
“New Brunswick has made amendments to how regulators set maximum prices because if this change was not made, small retailers in the province would have to absorb the additional cost of the federal government’s clean fuel regulation,” the province wrote in materials distributed last week that included rare, full front-page newspaper advertisements.
“Prices may go up by as much as eight cents per litre as a result of the clean fuel regulations.”
But Nova Scotia has decided four cents should be adequate, a ruling that will save consumers in that province about $1 million a week in clean fuel charges over what New Brunswick consumers will pay.
Clean fuel regulations took effect in Canada on July 1, but costs associated with them are to be included in formulas that set regulated prices in Nova Scotia and New Brunswick for the first time this Friday.
The national regulations are meant to cut the “carbon intensity” of automotive fuels sold across the country.
They are aimed at making refiners and importers of fuel lower the emission intensity of products they manufacture or resell by setting targets for those emissions and establishing financial rewards and penalties to reach them.
The regulations do not apply to heating fuels or to petroleum products exported from Canada.
Companies can earn credits by changing practices
Refiners can comply with the new rules in different ways, including putting more ethanol in domestic gasoline, selling biodiesel products or finding ways to reduce their own refining emissions.
Companies that come in below the federal government’s emissions intensity ceiling will earn credits they can sell on a market being set up for that purpose. Other producers can buy those credits if their fuels fall short.
It’s also possible to earn credits through investments in things unrelated to refining, like electric-vehicle charging stations.
Oil companies have complained that making those changes will be costly and, in response, the New Brunswick and Nova Scotia governments each passed new rules to allow those costs to be passed to consumers.
The New Brunswick Energy and Utilities Board and Nova Scotia’s Utilities and Review Board each held its own hearing to determine what those costs might be, but ultimately reached different conclusions.
Both regulators hired Angie Brown, with the consulting company Grant Thornton, to report on what would be fair.
She built a model around existing clean fuel rules and credit-trading markets operating in California and estimated, based on the California experience, it would take roughly eight cents per litre added to gasoline and diesel retail prices in both provinces to compensate refiners and importers.
Brown was questioned about the relevance of using California data to estimate costs of the new Canadian policy, but she said there were few examples to go by.
“I acknowledge this is an imperfect solution and relying on actual data would likely get you a better outcome,” said Brown during her Nova Scotia testimony.
However, she argued if oil companies were under-compensated for new costs, they could decide to stop supplying local markets.
“I think there are some pretty significant risks if you do take the wait-and-see approach,” she said.
Too early to fix costs, consultant says
Brown’s modelling and recommendations went largely uncontested in New Brunswick, but not in Nova Scotia.
The Nova Scotia board hired a second expert who argued that because no one knows yet how expensive the new clean fuel rules will be, it is too early to charge consumers for them.
Vijay Muralidharan, with Calgary’s R Cube Economic Consulting Inc., agreed the new regulations will add costs to oil companies, but said regulators should wait at least a couple of months to get some data on how companies actually respond to the rules.
“Any cost projection at this point would be an estimation with a relatively high degree of potential error, said Muralidharan in his evidence.
“Therefore, we recommend that the Board wait and conduct a study with the primary suppliers of fuel, once the new Clean Fuel Standard has been initiated, to understand the realized impact on their business before amending the current regulatory framework.”
Reasons for the decision have not yet been issued, but its ruling to add four cents of clean fuel costs falls halfway between Grant Thornton’s eight-cent recommendation and R Cube’s advice of no immediate increase.
Roberts said R Cube’s involvement in the Nova Scotia hearing likely had an important influence on the outcome, that was missing in New Brunswick.
“The difference is that there were no alternate scenarios put to the New Brunswick board other than the one that was included in the Grant Thornton report,” said Roberts.
“The New Brunswick board accepted the [Grant Thornton] recommendation. The Nova Scotia board did not.”
Newfoundland and Labrador regulators have not held a hearing on clean fuel costs yet but were instructed by the province to implement an interim charge and earlier Thursday selected Nova Scotia’s amounts as its own.