Canada’s Clean Fuel Regulations (CFR) 101 webinar transcript

Canada announced its updated low-carbon fuel standard, the Clean Fuel Regulations (CFR), in July 2022 as an update to the legislation previously known as the Clean Fuel Standard. EcoEngineers experts gave a 10,000-foot view of the regulations in a webinar on Nov. 3, 2022.

Lyndsey Nielsen (00:00):

I want to introduce myself. My name is Lyndsey Nielsen and I’m the marketing manager at EcoEngineers. Welcome to our webinar on the New and Improved Canada Clean Field regulations. Our teams have been doing a lot of research since the announcement earlier this year, and we have hired a political strategist based in Ottawa who we’ll hear from during this webinar. So now I’d like to introduce our speakers. Lisa Hanke is our newly hired regulatory engagement director with nearly two decades of experience in advising companies, government and environmental groups on sustainability issues and international clean field policies. She’s also based in Ottawa, which is boots on the ground for the CFR, and then ethanol services director Mark Heckman is on board too. He has been working in the ethanol agriculture industry for decades and has been spearheading our internal research on the updated regulation. So before we start the presentation, there’s going to be a video about eco engineers and a message from our CEO, Shashi Menon, on how we can help you. Enjoy.

Narrator (01:00):

Carbon is the biggest disruptor of the 21st century and the world as we know it is changing. EcoEngineers can guide you to make the best decisions as you navigate toward your clean energy goals. Our diverse team of carbon analysts, engineers, scientists, auditors and regulatory specialists are trusted advisors of the clean energy fuel sectors. Worldwide clean energy regulations are a maze. We simplify them with an unbiased approach and fully manage your compliance. Modeling your carbon reduction is complicated. We quantify your emissions with a rigor based in science. Together we can create markets that will protect and grow your investment. We create sustainable solutions for a better tomorrow. We are EcoEngineers.

Shashi Menon (01:56):

Hi, I’m Shashi Menon, a CEO of EcoEngineers. That video you just saw is EcoEngineers in a nutshell. We’re a team of consultants, auditors, and engineers and scientists with deep expertise in low carbon fuels and emerging technologies and policies that are helping decarbonize the world. We are at the heart of the energy transition. At EcoEngineers, we are laser focused on aiding, assisting and supporting this transition to a clean energy economy. Through our education programs, our science-based approach to lifecycle carbon analysis, through our asset development support, our engagement with policy makers and through our compliance management and auditing teams, we provide a 360 approach to usher in the clean energy transition. The ultimate success of low carbon field projects and ultimately the future of our planet depends on the successful execution of net zero goals, and that’s exactly what our team is here to help you do. Thank you.

Mark Heckman (02:58):

Thank you, Shashi. EcoEngineers is excited about the possibilities with the Canada market. Canada’s all in committing several billion dollars to the resources to increase renewable fuels consumption and production. Canada’s focus and dedication of resources is creating projects. 56 of them is estimated by Advanced Biofuels Canada with a national focus that compliments the provincial legislation already in place and they’re ready to begin this process today. With this webinar, we’ll provide a general overview of the CFR and expect to stimulate ideas that’ll encourage participants in this market, which we think has the ability to generate revenues for you. As well as Canada being all in, Eco, as you can see, is also all in. I want to introduce Lisa Hanke, director of regulatory engagement and a resident of Canada to step through our process in how you can begin to participate in this valuable market. Lisa?

Lisa Hanke (04:06):

Thanks so much, Mark. The publication of the Canadian Clean Fuel Regulation has been long awaited and though not ideal to many, most can agree that it’s a big step forward toward Canada meeting its plans to cut national emissions by 40 to 45% by 2030 from 2005 levels. First introduced in 2016 by Prime Minister Justin Trudeau’s, newly elected liberal government, the plan initially was to include liquid gaseous, and solid fuels. The clean fuel regulation we see today is focused on liquid fuels with a PACE trajectory breaching 16 million tons of CO2 equivalent savings by 2030. Environment in Climate Change Canada, affectionately known as ECCC, has said that gaseous fuels will be added at a later date, eventually followed by solid fuels. Though this regulation was introduced by the liberal government, the other three main political parties in Canada have largely supported the regulation in recent months, even if they all have ideas on how to improve it. Regulatory certainty in renewable fuels is a bit of an oxymoron. However, the consensus in Canada seems to be that the CFR is here to stay.

(05:24):

Now let’s dive a little deeper to the ins and outs of the CFR. Following four slides are available upon requests to please reach out to the eco team to obtain a copy, a primary supplier, perhaps better known as an obligated party. The annual reduction requirements is calculated on a company-wide basis, summing up the reduction requirements per liquid fossil fuel type for each of the companies production facilities and for their total imports. This is based on the energy content of fossil fuel. The CFR allows primary suppliers to meet their obligations using three different compliance categories. The first is to reduce the CI of the fossil fuel itself. This can be done using CCS, renewable electricity, RNG, or co-processing. Primary suppliers can use credits from compliance category one to satisfy up to 10% of their annual obligations.

(06:23):

The second category is to replace fossil fuel with a low CI alternative such as ethanol or biodiesel. This category will make up the bulk of the annual obligations as it must account for a minimum of 80% of compliance credits. This category is where ethanol producers, biodiesel producers, and marketers of renewable fuels fall in.q Third category is end fuel switching and transportation. It allows for retrofitting a fossil fuel combustion device to be powered by another fuel or energy source such as EVs or hydrogen. This also has an 10% annual limit on compliance credits that can be generated. Each primary supplier must lower the CI of their fuel using compliance credits. Compliance credits are the only way to meet obligations. During each compliance period, the primary supplier must use the number of credits necessary to meet their reduction obligations. Credits can be created by primary suppliers themselves or can be transferred to them by other registered creators.

(07:37):

This slide provides an overview of the application and reporting requirements of the CFR. My colleague Mark will discuss this a bit more later in the presentation. For those of you familiar with the California LCFS, you’ll notice that the structure is quite similar. The process starts with the registration of the facility. Next, a CI application that needs to be validated is completed. The CI is then certified by each [inaudible 00:08:05]. The next requirement is completing the quarterly reporting at which time credit creation can begin. Finally, there’s an annual reporting requirement, which includes a CI data update. Starting in 2024, there’s an obligation to have fuel transactions and CI data verified by a certified third party verifier.

(08:30):

Here we have a summary of key CFR actions and start dates. As you can see, the registration of facilities has already begun and the program as outlined today will be in full force January 1st, 2024. These graphs outline the CI limits and reduction requirements through to 2030 for both the CFR and the California LCFS in gasoline diesel pool. The gray line represents the LCFS and the blue line is the CFR. You can see at the top of each chart the baseline CI for the fossil fuel under the CFR. This was calculated specifically for Canadian fossil fuels and includes data from imports. As mentioned before, the CI limit comes into force on July 1st, 2023. As you can see, Canada has set its targets to align quite closely with California. The LCA methodologies used are different, which may contribute to the variations.

(09:32):

ECCC has developed its own LCA model called openLCA. EcoEngineers has run a few scenarios in openLCA and then ran the same in GREET 3.0, which is used by California. Results generally have been within a few CI points, but this is very facility specific. Canada set an option for facility specific CI and a temporary CI, which is also similar to the California approach. Carbon intensity is calculated using lifecycle analysis. LCA is an analytical method for estimating the total quantity of greenhouse gases admitted during a full fuel lifecycle. In general, the CI includes the direct effects of producing and using the fuel as well as any indirect effects that may be associated with the fuel. Components of an LCA calculation done for the CFR are feed stock extraction or cultivation and transportation, fuel production, compression or liquefaction, production of the electricity used and the transportation of the end product. Finally, fuel combustion is included.

(10:49):

openLCA has fixed values for feed stocks. In some instances, reductions could be made if the GHG savings are demonstrated. However, this is the required baseline by feed stock. To compare to California where corn has a CI of 32.89 and then on top of that an ILUC factor valued at 19 points, the Canadian CI for corn is 35. The list of waste feed stocks is quite consistent with other similar regulations including things like MSW, fats and oils. Now let’s take a look at other biofuel mandates or regulations within Canada. Almost all provinces have some level of a volumetric renewable fuel requirement. Some like Alberta and Ontario have a GHG component integrated as well. For example, in Alberta, 5% of the gasoline pool must contain renewable fuel. This renewable fuel must have a 25% GHG savings over its fossil counterpart. Canada also has federal volumetric renewable fuel mandate, 5% in gasoline and 2% in diesel. This regulation has been incorporated into the CFR. Finally, the province of BC has an RFS as well as an LCFS, which is quite aligned with the California program.

(12:15):

The next slides are also available to anyone who’s interested. Please just reach out to someone from the Eco team and will be happy to help. Here we compare key components of the CFR to the US RFS. I won’t go through each of these points, but some of the key differences are that the RFS is a volumetric mandate where the obligations are set on an annual basis or every two years. Now, this may get extended in the reset, however that remains to be seen. The CFR is based on carbon intensity reductions that have been set out until 2030. Another key difference is around feed stock and product. The RFS has a very specific list of feed stocks that can be used. The CFR takes a feed stock and product agnostic approach.

(13:04):

The registration processes generally align, but at this point it seems the CFR process will be simpler if a pathway doesn’t exist in the CFR, ECCC is open to adding new ones when they do updates if it’s warranted. Finally, the programs use different LCA models to determine the CI of the fuel, as discussed earlier. This table examines the California LCFS versus the Canadian CFR. In this table, we’re able to see that at their core, these programs are quite similar. Some key differences to highlight are the different baseline CIs for fossil fuel and the different LCA models that the programs use. Another key difference is that the Canadian CFR takes a more neutral approach, where California often sets rules that favor facilities within the state. Now I’m going to turn it back over to Mark to talk next steps.

Mark Heckman (14:05):

Thanks Lisa. So what are your next steps? There are several things you can do today to position yourself for this market. One, Lisa highlighted a lot of information. If you’re interested in the PDFs she spoke of, please reach out following this webinar. Two, ask questions and begin to get your facility registered if you have not already, and do what you can to understand the process and the applications. July, 2023 is just around the corner, and if you want to participate in that market, there are parameters and things that you must do in order to do that. And although the process is open and meant for facilities to work direct, the process can be burdensome and Eco stands ready to support your efforts, in the same way that we support other LCFS programs and when complications or special conditions play into this, we’re here to help.

(15:00):

As we look at the locations of the ethanol plants in the US, many plants are well positioned to serve this market and as you heard from Lisa, the Canada market is open and ready to accept applications. How can we help? We have boots on the ground in Canada and we’re focused on supporting all the efforts by Canada and the US to increase the renewable fuels. Our experience with pathways, regulatory engagement, compliance in general, monitoring, reporting and validation and our commitment to the customer success are the primary reasons customers look to us for assistance. We’re excited about the market in Canada and look forward to hearing from you for your interest in this market as well.

(15:45):

If you have a project you’re considering, we’d love to hear from you. This journey to a clean energy world can be challenging. We’re here to help and any area in blue or orange is a place where we can help you with your success. Also note in this situation, some facilities even before they get to this process, are looking to Eco for preliminary CI calculations. The second point to note is that consulting and audit functions cannot be completed by the same company. So decide as you begin this process on a consultant and on an audit company and even in the preliminary calculations and assistance with that would be consideration or could be consideration for a conflict of interest. We’re sincerely appreciative of all the interest in this. We appreciate your time today and we’re going to open this up for questions and answers.

Lyndsey Nielsen (16:46):

So we do have a lot of questions here that are coming in, a lot about the anticipated credit pricing. Do we know what that could look like for each compliance category?

Lisa Hanke (17:00):

The pricing is mostly still to be determined. There is a little bit of information on it, but at this point they’re waiting for the program to get started. So if anyone wants any information that is available, please feel free to reach out.

Lyndsey Nielsen (17:18):

Going the registration aspect there, someone is asking, there’s no tier one and tier two systems like with the LCFS application, is that correct?

Lisa Hanke (17:30):

It is correct, but there is an ability to do a preliminary CI.

Lyndsey Nielsen (17:40):

A lot of stacking questions too. And you guys get a sneak preview. That is going to be our next webinar on just what kind of credits you can stack onto each other and what projects are most lucrative in that respect. But for now, do we know what kind credits can be stacked on of the CFR?

Lisa Hanke (18:02):

No, I was just going to say, a BC is indeed stackable.

Lyndsey Nielsen (18:11):

But there is a difference between you can’t gain credits both on fuel that you’re shipping. You can’t gain US RFS credits on fuel you’re shipping to Canada and vice versa.

Lisa Hanke (18:23):

That’s correct, yeah.

Lyndsey Nielsen (18:29):

How about, here’s another one. Can you elaborate on any restrictions under the CFR and credit generation regarding transport of RNG across multiple provinces or states?

Lisa Hanke (18:45):

I think that’s a question that we should probably take offline. It’s getting quite into the weeds, but we’d be happy to help out with that one.

Mark Heckman (18:57):

Most of the focus and the rules right now has been on the liquid biofuels and much of the gaseous is, like you say, is yet to come. I will also, Lyndsey, I want to circle back on the credit generation and the stacking. I’d certainly take that question up with your tax consultants. So for instance, all the new tax credits that are coming out in the Inflation Reduction Act, it talks about biofuels production in the Inflation Reduction Act and so there may be some stackable characteristics in that where if you are selling into Canada you can still claim the tax credits in the US. I’m not certain of that or how those are handled. So I’d certainly suggest reaching out to a tax consultant.

Lyndsey Nielsen (19:49):

Some questions about the similarities between CI scores between green openLCA and LCA in general. Can you speak a little bit to what the similarity looks like for the different fuel types and what might cause those differences?

Lisa Hanke (20:08):

Yeah, there’s so many different components. We have run several scenarios in several different models. We’re not seeing huge differences, but it really, really is facility specific things like the electricity that you’re using, all energy input, transportation. So it’s important to make sure that you look at your facility specifically to see how it compares.

Lyndsey Nielsen (20:37):

Great. Also talking about openLCA, how does that work? Is an Excel file for something that mimics it that you can test it out or do you have to download the software? I do know that openLCA is reflective of its name, right? So everybody can use it. It’s a free software. Do you have any other thoughts about that, Mark?

Mark Heckman (21:05):

I’ll let Lisa also comment, but in general, openLCA, it’s very similar to the California GREET model or even GREET, it’s an open platform in this case, but more open for the application process. But just because there are nuances and complications in certain plants and situations, that’s where even though it being an openLCA platform, people tend to get guidance in situations and that’s where our team shines, especially if you get into what might be a tier two situation. That’s where we can help walk through that and present to the ECCC. Lisa, anything to add? Certainly.

Lisa Hanke (21:50):

I think you covered it. Mark. I know openLCA is available online. I believe it’s on the ECCC website so you can try and download it, but as Mark said, we’re also here to help. I’m not aware of any other programs that mimic it at this point.

Mark Heckman (22:14):

The point of reference, that’s a really good question of if we can do it ourself, why don’t we? And that’s the case of it. It depends on your level of confidence and your level of expertise and reaching out to somebody like Eco is that’s the space we’re in and if you’re in the space of production and need somebody to help you, guide you through that, that’s what we do.

Lisa Hanke (22:42):

I just see another question on openLCA model, whether it’s complete and ready and it is indeed. Yeah.

Lyndsey Nielsen (22:52):

The one I was going to hit next, too. There’s a question about timelines. At what point should the facilities start to think about becoming registered if they’re not online yet or they are online? Do we want to go back to the key dates slide and the presentation to go over that a little bit?

Lisa Hanke (23:17):

We can certainly do that. I would say unless the facility isn’t going to be up and running for quite some time, I think the time is now in terms of looking at your preliminary CI and beginning the process,

Mark Heckman (23:36):

Yeah, it takes time for all of it and if you are shipping into Canada, there are some requirements that are in place and they’re on the screen there. July one.

Lyndsey Nielsen (23:57):

I have a couple more minutes here. Here’s a question we might need to take offline, but I’m going to ask it anyway. Can a US entity with no operations in Canada send qualifying renewable fuels to Canada and generate markets? So can a brand new fuel provider send fuel under this regulation?

Lisa Hanke (24:18):

My understanding is as long as they’re registered and they meet the LCA CI requirements that yes they can.

Lyndsey Nielsen (24:29):

Will there be temporary CI pathways available for application?

Lisa Hanke (24:34):

There are. There aren’t very many though, but my understanding is that they’re going to be doing an update to the model in 2024, I believe. So at that point they’ll be adding.

Mark Heckman (24:54):

I think it’s worth noting that the 90 days production data is thought to be part of that temporary pathway or their first original part of that.

Lyndsey Nielsen (25:06):

Can we speak a little bit to the baseline? I know internally there were some questions about this baseline CI for feed stock production. Lisa, can you speak to how ECCC is planning on handling the feed stocks CI?

Lisa Hanke (25:23):

So this is a baseline CI for the various feed stocks. California has a similar idea, but there are things that facilities can do to get credits in place of activities that they’re doing that are going to lower their CI. So there is opportunity there to reduce these numbers. Yeah.

Mark Heckman (25:49):

Perfect. And province specific CIs can also be obtained with longer data.

Lyndsey Nielsen (26:00):

So that’s just a follow up. In terms of feed stock usage, do you expect the majority of feed stocks for biodiesel being canola or so bean oil or food crop of waste based feed stock? Can we even predict that?

Mark Heckman (26:17):

That’s in the area of speculation. They can jump on some of that, but just we see a lot of canola in Canada that’s oil based just from that area, but the food waste I can’t say.

Lisa Hanke (26:36):

I’m just reading, there’s a question about whether you can use a renewable book and claim for the calculation of your CI and I believe that the answer is no, except I think there are a few exceptions. Please reach out to us if you want to talk about it in more detail. I think hydrogen is one of those perceptions.

Lyndsey Nielsen (27:09):

And I think that about rounds out our short style webinars. Thank you very much Lisa and Mark for joining us today and providing your knowledge on the topic. When you leave the webinar, there will be a popup for you to do a survey for us. Please let us know how we did and if you have any suggestions in future webinars and then at the end it’ll also, you’ll get a follow up email with a link for who to email if you have questions. We will be providing some of these PDFs upon requests. So if you would like some of the PDFs, including the comparison between the CFR and RFS and the CFR and the LCFS and some of the compliance category tables, we will be giving those out if you want to shoot us a note. So thank you everybody for participating and we’ll see you next time.

Mark Heckman (28:04):

Thanks so much, all.