On April 10, 2010, the Government of Canada published details of
previously announced renewable fuel regulations under the
Canadian Environmental Protection Act, 1999. The proposed
regulations are aimed at fulfilling two commitments under the
Government's Renewable Fuels Strategy : the reduction of
greenhouse gas (GHG) emissions from liquid petroleum fuels and
encouraging increased demand for renewable fuels in Canada. The
proposed regulations target "primary suppliers" (i.e.
producers and importers of gasoline, diesel fuel or heating
distillate oil), imposing an annual average 5% renewable content in
gasoline starting in September 2010, and a 2% renewable content in
diesel fuel and heating oil by 2011. When the 2% requirement comes
into force depends on the results of technical feasibility testing
for renewable diesel fuel under a range of Canadian
Development of the regulations
In 2007, GHG emissions from the transportation sector accounted
for approximately 27% of Canada's federal emissions inventory.
The proposed renewable fuel regulations are part of a broader plan
to cut GHG emissions that also includes regulations that will
promote more fuel-efficient vehicles (beginning in 2011), among
other measures, and are expected to result in an incremental
reduction in GHG emissions of approximately one megatonne per year
- equal to the emissions of 250,000 motor vehicles - over and above
reductions attributable to existing provincial requirements in
Ontario, Manitoba, Saskatchewan and British Columbia.
In developing these new regulations, the federal Department of the Environment, commonly known as Environment Canada, consulted with industry, environmental non-governmental organizations, other federal government departments and Canada's provincial and territorial governments. Environment Canada also engaged in discussions with the U.S. Environmental Protection Agency (EPA) and has stated that the general approach of the new regulations is based on the U.S. Renewable Fuel Standard, with modifications to address Canadian conditions and further modifications in response to stakeholder consultations.
Comments or a notice of objection on the draft regulations, published in the Canada Gazette , may be submitted to Environment Canada before June 6, 2010.
Thresholds and excluded fuels
Certain significant segments of the market are not caught
by the renewable fuel content requirements of the regulations.
Persons that produce or import less than 400 m³ of gasoline,
diesel fuel or heating distillate oil in a compliance period, which
will generally correspond to a calendar year, are excluded.
However, a person producing or importing quantities below this
threshold may elect to participate in the compliance unit trading
system (discussed below), in which case all applicable requirements
of the regulations would apply.
Also excluded from the renewable fuel content requirements are primary suppliers who only import and/or produce diesel fuel, heating distillate oil and/or gasoline, as specified, (a) for particular purposes (including aviation, competition vehicles, scientific research, chemical feedstock and military combat equipment), (b) sold or delivered for use in Newfoundland & Labrador, the Northwest Territories, Nunavut, Yukon, Quebec (North of 60º), or (c) for export or in transit through Canada, or any combination of such uses. The foregoing excluded entities are nevertheless subject to some of the record-keeping provisions of the regulations.
Compliance unit trading system
The regulations include provisions governing the creation of
gasoline and distillate compliance units and creating a trading
system for "participants" in which such units - each
representing one litre of renewable fuel - can be created or
obtained in order to meet renewable fuel requirements. Participants
include (automatically) primary suppliers, as well as
"elective participants" who may, at their option, choose
to participate in the trading system provided that they qualify in
virtue of carrying out any of the five activities that are listed
in the following paragraph.
Compliance units are created by participants at the time of:
- blending renewable fuel with liquid petroleum fuel;
- importing liquid petroleum fuel with a renewable content;
- using biocrude as feedstock to produce liquid petroleum
- selling neat (pure) renewable fuel to a neat renewable fuel
final user for use in a combustion device; and
- using neat renewable fuel produced or imported as fuel in a combustion device.
The compliance unit trading system will enable primary suppliers to obtain compliance units where they are not able to blend renewable fuels, recognizing the fact that renewable fuels are most often blended at locations downstream of the refinery, proximate to their point of use.
Generally, compliance units may be used to demonstrate compliance only in the compliance period in which they are created. However, under specified conditions, a limited number of compliance units may be applied toward a previous compliance period and excess units may be carried forward for use in the following compliance period.
Importantly, there can be only one creator for each compliance unit, who is also its initial owner. The regulations state that if there is more than one person described in any of the five methods of creation listed above, the creator of the compliance unit is deemed to be the participant who is designated as being its creator pursuant to a written agreement between such persons. If there is no such agreement, no compliance unit will be created.
Finally, the regulations only permit the trading of compliance units to primary suppliers, and also limit the number of compliance units that a primary supplier may own at the end of each month during a compliance period.
The regulations also include requirements for record-keeping and
reporting to Environment Canada. Applicable to primary suppliers,
elective participants, producers or sellers of renewable fuels and
sellers of fuel for export, these requirements include the
- Auditor's report. Records and reports
prepared by participants in the trading system and producers and
importers of renewable fuel must be audited by an independent
auditor. The audit report must be submitted by June 30 following
the end of a compliance period, with initial reports due June 30,
- Registration and reporting for primary
suppliers. A one-time registration report must be
submitted by primary suppliers at least one day before producing
and/or importing the 400th m³ of gasoline or diesel
fuel and/or distillate oil during a compliance period. Such persons
must also maintain prescribed records in respect of fuel produced
and imported and submit an annual report by April 15 following the
end of a compliance period, with initial reports due April 15,
- Compliance unit accounts. Participants must
maintain records in respect of compliance units created,
transferred, carried forward and back, cancelled and otherwise used
as permitted by the regulations and submit a report by April 15
following the end of a compliance period, with initial reports due
April 15, 2012.
- Registration and reports for producers and importers of
renewables. A one-time registration report must be
submitted by producers and/or importers of renewable fuels at least
one day before producing and/or importing the 400th
m³ of renewable fuel during a compliance period. Such persons
must also submit an annual report by February 15 following the end
of a compliance period, with initial reports due February 15,
- Measurement methods. Any person who submits a
registration report must also submit a one-time report on the
methods used for measuring volumes, as well as updates in respect
of any change to information in the report.
- Records and reports for sellers of fuel for export. Persons other than participants or producers and/or importers of renewable fuels who sell for export a minimum of 1000 m³ of renewable fuel or liquid petroleum fuel with renewable content, must retain certain records and submit an annual report by February 15 following the end of a compliance period, with initial reports due February 15, 2012.
All records or copies of reports and notices and supporting documentation must be retained by the regulated entity for at least five years in Canada for inspection upon request.
While certain provisions of the regulations will only come into force on the day they are registered, the 5% renewable requirement for gasoline and the provisions for compliance units, reporting and record keeping (with the exception of the registration and measuring method reports) are scheduled to come into force on September 1, 2010. The initial compliance period for the gasoline requirement will end on December 31, 2011 and each subsequent compliance period will correspond to a calendar year.