The Clean Fuel Regulations in practice: how credits are created in Canada and where biogas fits

The Clean Fuel Regulations (CFR) are Canada's federal system that obliges producers and importers of liquid fuels to reduce the carbon intensity of those fuels, and compliance is made possible by credits created by registered entities and traded in an electronic registry. Biogas can obtain credits in this system, but the pathway depends on what happens to the gas: electricity generation, gas for vehicles and renewable gaseous fuels are covered by separate provisions.

Who is obligated

The obligation rests on the "primary suppliers" of fossil liquid fuels, that is, producers and importers of petrol and diesel. Each of them has an individual reduction requirement expressed in credits and must cover it in a given compliance period. According to Blakes, the carbon intensity limit falls every year in 2023–2030, so as to reduce the carbon intensity of liquid fuels by about 15% relative to 2016 by 2030.

Who can create credits

Credits can be created not only by obligated parties but also by other registered entities ("registered creators") that carry out actions consistent with the regulations, for example by supplying fuels with a lower carbon intensity or carrying out projects that reduce lifecycle emissions of fuels. This is the key difference from simple blending obligations: the system creates a market in which participants can trade the value of reductions.

The CATS registry and settlement

All credits are recorded and transferred in the Credit and Tracking System (CATS). The registry acts as a ledger of ownership: it confirms who owns a credit, when it was generated and whether it has been cancelled. Credits can be bought bilaterally or through the clearance mechanism. According to Blakes, the maximum price of credits acquired through this mechanism is CAD 300 in 2022 (adjusted for CPI inflation), which limits the risk of an extreme rise in compliance costs.

Where biogas fits

Under section 96 of the regulations, a person who in Canada produces biogas used in equipment generating electricity and displacing fuel from the gaseous class can create provisional compliance credits in the gaseous class. Separate sections (98 and 99) concern gas for vehicles and renewable gaseous fuels. In practice this means that a developer should analyse carefully in what category and on what terms it wants to create credits, and confirm the interpretation in the current guidance of Environment and Climate Change Canada and in the full text of the regulations.

Economic factors

Credit revenue is an addition to revenue from energy or gas and may complement provincial credits (e.g. in British Columbia). Profitability is decided by: the carbon intensity of the gas (the lower it is, the more credits per unit of energy), the price of the credit on the market and the cost of verification and reporting. Reporting and verification obligations are a significant cost for smaller installations.

Verification and reporting

Creating credits requires documenting data: fuel volumes, carbon intensity, the calculation methodology used and compliance with eligibility criteria. Registration in the system also includes notification of the project and supporting documents. These requirements increase transparency, but they mean administrative costs which in small biogas projects can be a significant part of credit revenue.

Typical pitfalls for developers

• An unclear credit category — the same undertaking may fall into different categories depending on what happens to the biogas (electricity, heat, RNG, transport fuel).
• Double counting — gas or energy cannot be accounted for in both the CFR and a provincial system in a manner contrary to the regulations; the exclusion rules must be checked.
• Changes to the rules — the regulation is new and may be amended, and technical guidance updated.
• Price risk — the price of a credit depends on supply and demand and on the shape of the clearance mechanism.

Comparison with other systems

The CFR resemble the Californian LCFS and EU mechanisms for reducing fuel emission intensity. They are distinguished by an open credit market, price caps and a federal registry. In Canada they coexist with provincial systems and with obligations on gas distributors, as in Quebec.

How to read these rules when planning a project

The first step is to establish what fuel or energy is to be the final product: electricity, heat, RNG or transport fuel. The second is choosing a methodology for calculating carbon intensity and collecting data on feedstocks, transport and process emissions. The third is checking whether the project qualifies for federal credits, provincial credits or both, and what the rules are for excluding double accounting. Only then does it make sense to model revenue and sensitivity to the credit price.

What this means for Poland and Europe

For European biogas market participants, the Canadian example illustrates the role of a central registry and a price cap as a safeguard for compliance costs. The registry makes it easier to exclude double counting — an issue that also matters for the EU's Union Database and guarantees of origin.