Protecting your competitive advantage with high-value carbon credits from EV charging
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Opinion
Oct 26, 2022
Kevin Heal

Canada’s new carbon credits program has created a lucrative revenue stream for businesses and fleet owners across the country, but now is the time for companies to start acting on it, writes Radicle’s Kevin Heal

A brand-new Canadian market for high value carbon credits was created this summer with the unveiling of a federal low-carbon fuel standard (LCFS). It has the potential to be a game-changer for fleet operators involved in or considering a shift to electric vehicles.

Carbon credits available through Canada’s new low-carbon fuel standard offer an important revenue stream to help businesses and fleet owners manage the transition to electrification, and now is the time to start acting on it, writes Radicle’s Kevin Heal

A brand-new Canadian market for high-value carbon credits was created this summer with the unveiling of a federal low-carbon fuel standard (LCFS).  

It may seem like more government red tape — but the reality is Canada’s new regulation uses market mechanisms to hasten the transition to a post-combustion future for transportation and has the potential to be a game-changer for fleet operators involved in or considering a shift to electric vehicles.

The federal Clean Fuel Regulations (CFR), introduced on June 21, 2022, is modelled after similar LCFS programs that have been in effect for over a decade in California, Oregon and British Columbia.

Two eligible pathways for creating CFR credits is through hosting and operating electric vehicles and EV charging stations. If your organization operates non-residential EV charging stations in Canada — either for your own fleet or for public EV charging — you are eligible to create high-value credits that you can then sell.

One of the questions I hear most often is, “How much revenue can my carbon credits generate?

Well, today, carbon credits sold into the B.C. LCFS market are among the world’s highest value, with prices this year averaging over $435 per credit.

So, if your organization has EV charging station assets and you are not investigating or taking advantage of revenue from carbon markets, you are leaving money on the table — giving your competition a growing advantage.

How to get in the game

As with any government regulation, there are complicated rules to follow, acronyms to learn and constant changes to keep track of when it comes to generating carbon credits. But taking it step-by-step makes the process easier.

There are three main categories chargers can fall into with respect to the ability to generate carbon credits (or not):

  • If the charging station is in your home garage, you are out of luck. You are not allowed to create credits from chargers intended for private dwellings;
  • If your organization operates EV charging stations primarily to charge your commercial EV fleet, you are eligible for credits and there are no restrictions on what you do with the revenue from the sale of those credits; and
  • If your charging station is not for your own fleet and, instead, you operate a network of public EV charging stations, you are also eligible for credits but you will also be subject to a revenue reinvestment requirement.

For options two and three, first, you must register with the federal tracking system to start the clock on your EV charging credit development program. You could also enter into an agreement with a third-party credit aggregator to develop credits on your behalf. There is no retroactive crediting allowed.

EV charging network operators, as seen above, are subject to a “reinvestment requirement.” This means 100 per cent of your credit revenue must be reinvested within two years into either expanding your charging infrastructure or reducing the cost of EV ownership by providing financial incentives to purchase EVs.

And, if your charging stations are located in British Columbia, there is another layer to consider.

As of January 1, 2022, the B.C. LCFS allows the owner of the charging station to generate credits for the use of electricity as a transportation fuel. Therefore, you can now create both CFR and B.C. LCFS credits from the same charging activity.

(For those of us grounded in the GHG quantification concept of “additionality” this sounds suspiciously like double counting. However, in the world of LCFS policymaking, it makes sense when one considers that regulated companies located in B.C. now face two compliance obligations.)

Carbon credit potential

There are a lot of hoops to jump through to access the federal carbon credit system. So, what level of gain can be realized if you do it right?

Let’s take one of the best-case scenarios: a Class 6 electric “last mile” delivery van operating in British Columbia.

Right away we need to note that provincial and federal carbon credit regulations, while sharing similar policy objectives and design, have significantly different rules and methodologies and represent separate carbon markets.

The assumptions are that the van consumes 50,000 kWh per year and that you own the affiliated charging stations and have the necessary documentation. Starting in 2022, you can expect to generate between 63-78 credits under CFR and continue to generate similar volumes of credits yearly. Under B.C. LCFS, you might generate about 37-44 credits for the same activity.

The federal credit generation potential is indeed a higher volume than B.C. So, why the difference? This is mostly because the B.C. LCFS has had a 10-year head start in gradually reducing its fuel carbon intensity target. As the federal target comes down over the next few years the gap between the two should also decrease.

However, it’s not just the number of credits that varies, but also the likely value of them.

The B.C. LCFS market was implemented in 2013 and has consistently traded over $400/credit since 2021. The CFR is new this year with no trading history.

But, if we assign CFR and B.C. market prices of $100 and $400 respectively, that Class 6 E-van in the first year of ownership could generate federal carbon market revenues of $6,300 to $7,800, plus B.C. revenues of $14,800 to $17,600. Many policy observers of the CFR expect increasing demand and market forces to contribute to rising revenue over the course of this decade.

Class 6 E-VanAnnual CreditsAnnual Revenue Potential
Federal CFR63-78$6,300 – $7,800
B.C. LCFS37-44$14,800 – $17,600
Total100-122$21,100-$25,400
A model of a carbon credit outcome for a Class 6 electric “last mile” delivery van operating in British Columbia.

For a transportation industry confronted with tight cash flows and rising energy costs, a fresh and recurring revenue source from carbon markets will become increasingly important to Canadian fleet operators managing the decarbonization transition. It adds to other total cost of ownership advantages for EV fleet operators including reduced fuel expenditures, lower maintenance costs and mitigated exposure to rising carbon taxes.

If your company is already electrifying its vehicle fleet, participating in increasingly accessible carbon markets is a no-brainer. If you are on the fence, the revenue boost from EV charging credit monetization could be enough to tip the scales.

Kevin Heal is a clean energy and carbon market professional and Director of Business Development based in Calgary with Radicle, Canada’s largest developer of aggregated carbon credits.

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