The new Clean Fuel Regulations 1 (the "Regulations") are intended to reduce the demand for gasoline and diesel and promote the use of electric and hydrogen fuel cell vehicles.
Hydrogen Fuelling Stations and Hydrogen Fuel Cell Vehicles
In a previous article 2, we discussed what the Regulations call "charging-site host" for electric vehicles. In this article, we discuss the operation of what the Regulations refer to as "fuelling station," which is defined as follows:
(...) a facility in Canada at which vehicles are supplied with fuel or with hydrogen used as an energy source and includes a mobile facility.
And while we're dealing with definitions, we also note the definition of "hydrogen fuel cell vehicle" which is defined as follows:
(...) a vehicle propelled solely by an electric motor that uses electricity produced by an electrochemical cell from hydrogen.
There are very few hydrogen refuelling stations and very few hydrogen fuel cell vehicles in Canada. From this perspective, the purely commercial reasons for operating a hydrogen fuelling station have not yet been realized.
This is where the compliance-credit transfer system put in place by the Regulations comes into play; it is part of the system to reduce the use of liquid fuels and promote the use of low-carbon-intensity fuels or hydrogen as an energy source.
The first step in the regulatory design is to set carbon intensity limits for gasoline and diesel. The intensity limits decrease year over year from 91.5 g CO2e/MJ for gasoline in 2023 to 81.0 g CO2e/MJ in 2030, and from 89.5 g CO2e/MJ for diesel in 2023 to 79.0 g CO2e/MJ in 2030.
As a result, importers and producers of gasoline and diesel will most likely be in a "deficit" position – where greenhouse gas emissions from gasoline and diesel imported or produced is higher that permitted by the Regulations – between 2023 and 2030 and possibly beyond.
The second step in the regulatory design is then to create an economic mechanism and provide a compliance pathway for importers and producers by way of "registered creators" who can supply "compliance credits."
The Notion of "Registered Creator" and the Creation of Compliance Credits
Registered creators must enter into a compliance credit creation agreement with a person who is carrying out a CO2e emissions reduction project. One option is to enter into a compliance credit creation agreement with the operator of a hydrogen fuelling station.
The Regulations provide that the owner or operator of a hydrogen fuelling station may create compliance credits for a compliance period 3 by replacing the use in Canada of a volume of fuel in the liquid fuel category with the use in Canada of hydrogen during the same compliance period.
This can be done in two ways: first, by the use of hydrogen as a power source in a vehicle, and second, by the use of hydrogen as a low-carbon fuel in a vehicle other than a hydrogen fuel cell vehicle.
3 The notion of "compliance period" is defined as follows in the Regulations:
(a) the period that begins on the day on which these Regulations are registered and ends on December 31, 2022;
(b) the period that begins on January 1, 2023 and ends on June 30, 2023;
(c) the period that begins on July 1, 2023 and ends on December 31, 2023; or
(d) after December 31, 2023, each calendar year. (période de conformité)
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