Canada releases details of renewable fuel regulations

April 27, 2010

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 conditions.

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 fuel;
     
  • 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.

Record-keeping

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 following:

  • 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, 2012.
     
  • 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, 2012.
     
  • 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, 2012.
     
  • 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.

Implementation timetable

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.

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