The new Clean Fuel Regulations, SOR/2022-140, (the "Regulations") aim to displace the use of fossil fuels and promote the use of electric and hydrogen fuel cell vehicles.
To achieve this, the Regulations set fuel carbon intensity limits for gasoline and diesel, which decrease year by year until 2030 as illustrated in the following table from section 5 of the Regulations:
Fuel Carbon-Intensity Limits
Entities that own, operate, control or manage gasoline and diesel production facilities in Canada, or that import these fuels, are referred to in the Regulations as "primary suppliers" and are subject to the Regulations if they produce or import 400 m3 or more of gasoline or diesel into Canada during a compliance period. To enable primary suppliers to comply with their greenhouse gas emission reduction obligations, the Regulations use the tool of "compliance credits." A compliance credit is deemed to reduce the amount of CO2e released by the fuel by one metric tonne over its life cycle during the compliance period.
The goal of promoting electric vehicles and the goal of displacing the use of fossil fuels come together in a way: on the one hand, primary suppliers have an interest in acquiring compliance credits to comply with the reduction requirements, and on the other hand, the Regulations allow entities that operate charging stations, which the regulations refer to as a "charging-site host," to create such compliance credits, which the host may sell to a primary supplier.
The regulation defines a charging-site host as:
charging-site host means a person who owns or leases a charging station and who has the legal right to have the charging station installed. (hôte d’une station de recharge)
And the notion of "charging station" is defined as follows:
charging station means a device that is used in Canada to charge the battery on board an electric vehicle by supplying electricity to the electric vehicle and that is capable of communicating with a server, whether through the Internet or using a cellular signal or connected vehicle communications, to report the quantity of electricity supplied and the time at which it is supplied. (borne de recharge)
Registered Creator and Agreement to Create Compliance Credits
A person who intends to create compliance units must be recognized as a "registered creator" by the Minister.
Note that the registered creator may enter into an agreement to create compliance credits with a person who is carrying out a CO2e emission-reduction project. One way to reduce CO2e emissions is to enter into an agreement to create compliance credits with the charging-site host.
The registered creator can create compliance credits using a quantity of electricity as the energy source. This requires that the electric vehicles fall into one of the categories mentioned in the Specifications for calculating carbon intensity using the Fuel Lifecycle Assessment (LCA) Model Methodology, and in the case where the charging station is not one that is owned by and primarily intended for occupants of a private dwelling or in the case of a public charging station.
The Regulations provide a formula for determining the number of compliance credits. The formula is quite complex and takes into account the following elements, among others:
- The difference between the so-called baseline carbon intensity for gasoline and diesel and the carbon intensity of the electricity used by electric vehicles;
- The amount of electricity supplied to electric vehicles.
Compliance Unit Transfer Mechanism
Once compliance credits have been created, they can be sold using the compliance-credit transfer system.
We will discuss this system in a future bulletin.