Clean Fuel Standard: proposed regulatory approach

Part I : Context 1. Context The Government of Canada is developing a Clean Fuel Standard to reduce the lifecycle carbon intensityFootnote 1 of fuels and energy used in Canada. The objective of the Clean Fuel Standard is to achieve 30 million tonnes of annual reductions in greenhouse gas emissions by 2030, making it an important contribution to the achievement of Canada’s target of reducing national emissions by 30% below 2005 levels by 2030. In meeting its greenhouse gas reduction goal, the Clean Fuel Standard will aim to stimulate investments and innovation in low-carbon-intensity fuels while enabling low-cost compliance. The Clean Fuel Standard regulations will cover all fossil fuels used in Canada, but will set separate requirements for liquid, gaseous and solid fossil fuels. It is being developed in a phased approach (fuel types will be referred to as classes). The regulations for the liquid fossil fuel class are being developed first, with draft regulations planned for publication in the Canada Gazette, Part I by early 2020 and final regulations by early 2021. Draft regulations for the gaseous and solid fuel classes are targeted for publication in the Canada Gazette, Part I, in mid-2021, with final regulations in 2022. The government intends to bring liquid class regulations into force in 2022 and the gaseous and solid classes in 2023. 1.1 Document on Proposed Regulatory Approach This document presents the full regulatory approach for the liquid fossil fuel regulations of the Clean Fuel Standard, developed with extensive engagement and consultations with stakeholders. It builds upon the Regulatory Design Paper published in December 2018Footnote 2 as well as the Clean Fuel Standard Regulatory Framework published in December 2017Footnote 3 . This document provides the full set of requirements and credit creation opportunities that will be included in the liquid class regulations. While most elements of this document represent further elaboration of the regulatory requirements presented in December 2018, some key elements are new. Those new elements include: Annual carbon intensity reduction requirements for the liquid fuel class : Carbon intensity reduction requirements for liquid fuels will start in 2022, requiring a 3.6 g CO 2 e/MJ reduction for all liquid fossil fuels, increasing by 0.8 g CO 2 e/MJ annually to achieve a 10 CO 2 e/MJ carbon intensity reduction requirement in 2030.

: Carbon intensity reduction requirements for liquid fuels will start in 2022, requiring a 3.6 g CO e/MJ reduction for all liquid fossil fuels, increasing by 0.8 g CO e/MJ annually to achieve a 10 CO e/MJ carbon intensity reduction requirement in 2030. Land-use change : The regulations will account for land-use change in two ways: the Fuel Lifecycle Modelling Tool will account for greenhouse gases associated with direct land-use change; the regulations will identify sustainability criteria for feedstocks that address certain land-use changes – including indirect land-use change – and land management practices. Only feedstocks adhering to these criteria will be eligible for credit creation under the Clean Fuel Standard.

: The regulations will account for land-use change in two ways: New credit creation opportunities : no credit creation threshold (previously proposed a threshold of 10 kt CO 2 e) for emission reduction projects; carbon capture and use and carbon capture and storage at industrial facilities in addition to oil and gas facilities; the production of biogas, including using biogas on-site; and the production and on-site use of biofuels at industrial facilities

: Fund Compliance Mechanism: A regulated party (referred to as a “primary supplier”) will be able to meet up to 10% of its annual compliance requirement by making a payment at a set price into a list of approved funds.

A regulated party (referred to as a “primary supplier”) will be able to meet up to 10% of its annual compliance requirement by making a payment at a set price into a list of approved funds. Credit Clearance Mechanism: Primary suppliers will have to buy credits at a price that cannot exceed the set price under the Credit Clearance Mechanism to clear a credit shortfall before carrying forward a deficit (of up to 10% of their annual compliance requirement) into a subsequent compliance period.

Primary suppliers will have to buy credits at a price that cannot exceed the set price under the Credit Clearance Mechanism to clear a credit shortfall before carrying forward a deficit (of up to 10% of their annual compliance requirement) into a subsequent compliance period. Verification, reporting, measurements and records requirements will be set out in the Clean Fuel Standard to ensure consistent quality and robustness of data and information, and to ensure that credits are valid. The Proposed Regulatory Approach does not further any design elements for gaseous and solid fossil fuels beyond the December 2018 Regulatory Design Paper, other than adding some early credit creation opportunities for reducing the carbon intensity of gaseous and solid fossil fuels. Design elements for the gaseous and solid fuel classes that were published in the Regulatory Design Paper are reproduced in Annex II. 1.2 Complementing carbon pollution pricing The Clean Fuel Standard is one of the complementary policies under Canada’s climate plan, which will work in concert with carbon pollution pricing to reduce emissions across the economy. These complementary policies will help make carbon pollution pricing more effective and create incentives for innovation and clean growth. Investments in clean technology and innovation help accelerate development of the next generation of technologies and ideas that will further lower emissions in the future. The Clean Fuel Standard and carbon pollution pricing also send mutually reinforcing price signals. For example, actions by a fossil fuel supplier (such as a refinery) to reduce its emissions by installing more energy efficient technology will reduce its exposure to carbon pollution pricing: it will either pay less or will be able to earn credits that it can sell to others covered by the pricing system. It will also create credits that can be used or sold for compliance under the Clean Fuel Standard.

Part II: Proposed regulatory approach 2. Application and exemptions 2.1 Parties regulated under the Clean Fuel Standard: “primary suppliers” The Clean Fuel Standard regulations will require those who produce and import liquid fossil fuels in Canada to reduce the carbon intensity of the liquid fossil fuels they produce and import annually. These parties will be referred to as “primary suppliers”. Primary suppliers who produce or import less than 400 m3 of liquid fossil fuel will not be subject to the regulations. 2.2 Liquid fossil fuel subject to the annual reduction requirements Liquid fossil fuel types Liquid fossil fuels that will be subject to the annual carbon intensity reduction requirements include gasoline, diesel, kerosene and light and heavy fuel oils. Non-fossil fuels will not have a carbon intensity reduction requirement. Self-produced and used fuels Fossil fuels are sometimes produced and used on-site by fossil fuel producers in the process to produce a finished fuel or in their facility operations. This fuel is referred to as “self-produced and used fuel”. In most cases, the Clean Fuel Standard will not set separate carbon intensity reduction requirement for these fuels, as their carbon intensity will be accounted in the lifecycle carbon intensity of the finished fuels that are produced with them. As such, self-produced and used fuels for stationary uses will not have separate carbon intensity reduction requirements. However, all self-produced and used transportation fuels produced at refineries and upgraders (diesel fuel and gasoline) will be subject to the reduction requirements for gasoline and diesel under the Clean Fuel Standard. Exemptions The Clean Fuel Standard will not apply to liquid fossil fuels for the following uses: non-combustion purposes (e.g. solvents or diluents); feedstocks that are used for non-combustion purposes in industrial processes (e.g. steel production); and for scientific research. Liquid fossil fuels that are: in transit through Canada; imported in a fuel tank that supplies the engine of a conveyance that is used for transportation by water, land or air (e.g. the fuel tank of a car); or exported from Canada, are not subject to the regulations. The following exemptions will be included in the Clean Fuel Standard: Remote communities: The expected impact on households in remote communities would be disproportionally high given the already high cost of energy in these communities, and given limited energy infrastructure and supply constraints Footnote 4 .

The expected impact on households in remote communities would be disproportionally high given the already high cost of energy in these communities, and given limited energy infrastructure and supply constraints . Liquid fuels for international marine use : The International Maritime Organization adopted an interim strategy for greenhouse gas emissions in 2018, which will be reviewed in 2023. The Government of Canada supports the International Maritime Organization as the appropriate forum to address international maritime shipping emissions, and the work it has undertaken to address these emissions. Therefore, liquid fuels for international marine use will not be subject to the Clean Fuel Standard.

: The International Maritime Organization adopted an interim strategy for greenhouse gas emissions in 2018, which will be reviewed in 2023. The Government of Canada supports the International Maritime Organization as the appropriate forum to address international maritime shipping emissions, and the work it has undertaken to address these emissions. Therefore, liquid fuels for international marine use will not be subject to the Clean Fuel Standard. Liquid fuels for international aviation use : The International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation is mitigating greenhouse gas emissions from international aviation. The Government of Canada supports the International Civil Aviation Organization as the appropriate forum to address international aviation emissions, and the work it has undertaken to address these emissions. Therefore, jet fuel that is used for international flights will not be subject to the Clean Fuel Standard. The treatment of domestic aviation fuels and credit creation for low-carbon-intensity aviation fuels is still under consideration, and is being examined in conjunction with carbon pollution pricing policies.

: The International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation is mitigating greenhouse gas emissions from international aviation. The Government of Canada supports the International Civil Aviation Organization as the appropriate forum to address international aviation emissions, and the work it has undertaken to address these emissions. Therefore, jet fuel that is used for international flights will not be subject to the Clean Fuel Standard. The treatment of domestic aviation fuels and credit creation for low-carbon-intensity aviation fuels is still under consideration, and is being examined in conjunction with carbon pollution pricing policies. Aviation gasoline: Aviation gasoline is gasoline that is used in smaller, piston engine aircrafts (e.g. Cessna). This is different than the fuel used in large commercial airliners, known as jet fuel, which is similar to a diesel and kerosene. Aviation gasoline will not be subject to the Clean Fuel Standard. The volumes of aviation gasoline used and its contribution to Canada’s greenhouse gas emissions are small, and aviation gasoline certification bodies have not yet focused on suitable low-carbon-intensity gasolines for aviation use. They remain focused on finding unleaded aviation gasoline alternatives. 3. Lifecycle carbon intensity The Clean Fuel Standard sets performance standards for liquid fossil fuels based on their lifecycle carbon intensity. The lifecycle carbon intensity is a measure of the greenhouse gas emissions released throughout the full lifecycle of a fuel, from oil extraction to combustion, and is expressed in grams of carbon dioxide equivalents (g CO 2 e) per unit of energy in megajoules (MJ). Low-carbon-intensity fuels and alternative energy sources that are used to reduce the carbon intensity of fossil fuels will also be assessed on a lifecycle carbon intensity basis. More information is provided in section 4, Carbon intensity reduction requirements and section 5.2 Production of low-carbon-intensity fuels. 3.1 Fuel Lifecycle Assessment Modelling Tool Environment and Climate Change Canada is developing a new Fuel Lifecycle Assessment Modelling Tool to support the Clean Fuel StandardFootnote 5 . The objective of the Fuel Lifecycle Assessment Modelling Tool is to provide a robust, user friendly and transparent modelling tool to calculate carbon intensities of fuels used in Canada. The tool will be used under the Clean Fuel Standard to set baseline lifecycle carbon-intensity values for refined petroleum produced fuels used in Canada, and to quantify the lifecycle carbon intensity of low-carbon-intensity fuels used in Canada. Environment and Climate Change Canada will make the modelling tool available publically at no cost. For example, a person who desires to create credits for the supply of low-carbon-intensity fuels or for specific end-use fuel switching in transportation will be able to use the modelling tool, as detailed in Section 5.2 and 5.3. The development of the Fuel Lifecycle Assessment Modelling Tool is being supported by a Technical Advisory Committee, led by Environment and Climate Change Canada with representatives from Agriculture and Agri-Food Canada, Natural Resources Canada, and the National Research Council Canada. Periodic updates to the background data sets in the model are expected. 4. Carbon intensity reduction and minimum low-carbon-intensity fuel content requirements 4.1 Fossil fuel baseline lifecycle carbon intensity values All fossil fuels of the same type produced and imported in Canada will be assigned the same carbon intensity baseline that is a Canadian average lifecycle carbon intensity value, calculated from the Fuel Lifecycle Assessment Modelling Tool, based on 2016 data. These values, presented in Table 1, will be used to set the annual carbon-intensity reduction requirements that primary suppliers will have to meet for the fuels they supply to Canada. The Clean Fuel Standard will not differentiate among crude oil types, or on whether the crude oil is produced in or imported into Canada. The calculation of the Canadian average lifecycle carbon intensities for refined petroleum products in Table 1 accounted for the suite of different crude types used in Canada. The fossil fuels baseline values do not account for land-use change. A presentation and a report are available upon request for more details on the methodology used to calculate these baseline values. The national average carbon-intensity value of the crude oils used in Canada will be monitored through reporting requirements under the Clean Fuel Standard, outlined in Section 10. The Clean Fuel Standard’s five-year review will consider the carbon intensity trend in the crude oil mix used in Canada and will provide an opportunity for Environment and Climate Change Canada to mitigate increases in carbon intensity of the crude mix, if warranted. Such action could include, for example, making adjustments to the reduction requirement of primary suppliers to account for changes in the carbon intensity of the crude mix, similar to what is done under California’s Low Carbon Fuel Standard program. The baseline Canadian average fossil fuel carbon intensity values will be set out in the regulations and will not be updated prior to full implementation in 2030. This will provide certainty to investors and primary suppliers planning for compliance.

Table 1: Canadian Average Baseline Carbon Intensity Values for Liquid Fossil Fuels Fuel Carbon intensity

(g CO 2 e/MJ) Gasoline 92 Diesel 100 Kerosene 88 Light Fuel Oil 84 Heavy Fuel Oil 99 Jet Fuel 86

4.2 Annual reduction requirement and carbon intensity limits The Clean Fuel Standard will set a carbon intensity limit for each fossil fuel type for each annual compliance period (from January 1 to December 31). The limit will be determined according to an annual carbon intensity reduction requirement set from the baseline Canadian average lifecycle carbon intensity values (Table 1). Carbon intensity reduction requirements and limits will be expressed in grams of carbon dioxide equivalents (g CO 2 e) per megajoule (MJ). Non-fossil fuels will not have carbon intensity reduction requirements. The carbon intensity limits for liquid fossil fuel will start in 2022 and will become more stringent over time, capping at a carbon intensity reduction requirement of 10 g of CO 2 e per MJ in 2030. This 2030 carbon-intensity reduction requirement represents a decrease of 10% to 12% in carbon intensity below 2016, depending on the fuel type, which is equivalent to up to 23 Mt of incremental emission reductions in 2030. Reduction requirements for the years after 2030 will be held constant at 10 g of CO 2 e per MJ, subject to a review of the regulations and future amendments. A carbon intensity reduction requirement of 3.6 g of CO 2 e per MJ in 2022 is being set. It is an achievable requirement, as it takes into account the following business-as-usual actions that will be allowed to create credits: As of the final publication of the regulations in Canada Gazette, Part II, participants will have the possibility to create and bank credits for actions that include current federal and provincial renewable fuel mandates and the BC Low Carbon Fuel Standard, and the current supply of electricity to electric vehicles; and

In 2022, compliance flexibilities will begin, such as the ability to use credits created from the gaseous and solid fuel classes, and the rollover of the compliance unit bank from the Renewable Fuel Regulations. The carbon intensity reduction requirements from 2022 to 2030 will follow a linear trajectory for all fuels. This linear reduction approach was taken for the following reasons: allows for investment lead time;

incentivizes innovation in the short and the long term;

steadily reduces the carbon intensity of fossil fuels over time, providing a constant and predictable increase in compliance requirement; and

avoids oversupply of credits, balancing the full suite of compliance flexibilities such as unlimited banking, cross-class use of credits, Compliance Fund Mechanism, Credit Clearance Mechanism and deficit carry-forward, which help ensure sufficient credits for compliance. Table 2: Annual carbon-intensity reduction requirements and limits

Annual Carbon Intensity Reduction Requirement (g of CO 2 e per MJ) Year 2022 2023 2024 2025 2026 2027 2028 2029 2030 and thereafter All fuels 3.6 4.4 5.2 6.0 6.8 7.6 8.4 9.2 10.0

Annual Carbon Intensity Limits (Canadian average lifecycle carbon intensity value minus the carbon intensity reduction requirement) Year 2022 2023 2024 2025 2026 2027 2028 2029 2030 and thereafter Gasoline 88.4 87.6 86.8 86.0 85.2 84.4 83.6 82.8 82.0 Diesel 96.4 95.6 94.8 94.0 93.2 92.4 91.6 90.8 90.0 Kerosene 84.4 83.6 82.8 82.0 81.2 80.4 79.6 78.8 78.0 Light Fuel Oil 80.4 79.6 78.8 78.0 77.2 76.4 75.6 74.8 74.0 Heavy Fuel Oil 95.4 94.6 93.8 93.0 92.2 91.4 90.6 89.8 89.0

4.3 Compliance with the annual reduction requirements and carbon intensity limits Primary suppliers will have an annual reduction requirement based on the net amount (expressed in MJ of energy) of each fossil fuel they produce and import for use in Canada (exempted fuels would be deducted from these amounts). The reduction requirement will be represented by tonnes of carbon dioxide equivalent (t CO 2 e) and will be calculated on a company-wide basis, summing up the reduction requirements per liquid fossil fuel type for each of a company’s production facilities and for their total imports. Annex III presents the methodology for calculating the annual reduction requirement. For each compliance period, a primary supplier calculates their reduction requirement for each liquid fossil fuel type and must satisfy these requirements with credits that represent CO 2 e reductions from the activities described in Section 5 (credits are canceled when they are used to satisfy reduction requirements). The regulations will be flexible, and will allow primary suppliers to apply any type of credit to satisfy any fossil fuel type’s reduction requirement, with limitations on credits created from other classes. 4.4 Minimum low-carbon-intensity fuel content requirements The Clean Fuel Standard will incorporate the minimum renewable fuel content requirements that are in the federal Renewable Fuels Regulations. The Clean Fuel Standard will require a minimum 5% low-carbon-intensity fuel content in gasoline and 2% low-carbon-intensity content in diesel fuel and heating distillate oil. The last compliance period for the Renewable Fuels Regulations will be 2021. The final reporting and true-up period will be in 2022, and the regulations will be repealed in 2023. Under the Clean Fuel Standard, each primary supplier will be required to demonstrate for each compliance period that, of the total number of Clean Fuel Standard credits it retires for compliance, a minimum (5% of its gasoline pool and 2% of its distillate pool) is from low-carbon-intensity fuels. The information required to demonstrate compliance with this requirement for low-carbon-intensity fuel type and volumes, will be coded into the credit identification numbers and will also be obtained from the information required to be supplied for credits transfers.

5. Credit creation activities The Clean Fuel Standard will provide several options to meet the carbon intensity limits. Credits will be created by primary suppliers and by parties that are not primary suppliers (voluntary credit creators) for actions taken in the following compliance categories: actions throughout the lifecycle of a fossil fuel that reduce its carbon intensity; the supply of low-carbon-intensity fuels; and specific end-use fuel switching in transportation. 5.1 Compliance category 1: Actions throughout the lifecycle of a fossil fuel that reduce its carbon intensity The Clean Fuel Standard will recognize actions that directly reduce a fossil fuel’s carbon intensity through greenhouse gas emissions reductions projects at any point along the lifecycle of a fossil fuel. Credits can be created as of the publication of final regulations in Canada Gazette, Part II. Emission reductions from a project will not be pro-rated or reduced from credit eligibility for the volumes of crude oil or refined petroleum fuels exported. Credits created for these projects will be created annually for a minimum period of 5 years, with longer periods set for carbon capture and storage projects and consideration for longer periods for other projects will be considered during the development of each project specific quantification methodology. Any extension of the ability to create credits for a project beyond 5 years would consider the length of the amortization period of the capital investment. Examples of these emission reductions projects include electrification; switching from a higher carbon intensity fuel to a lower-carbon-intensity fuel; renewable energy integration; and carbon capture and storage. These actions can be taken by primary suppliers or by other oil and gas actors in the fossil fuel lifecycle, with the exception of carbon capture and use and carbon capture and storage, where the action can be taken by industrial facilities in addition to oil and gas facilities. The regulations will set out criteria against which projects will be assessed for approval to create credits. To be eligible, a project will have to: reduce the carbon intensity of a fossil fuel;

be conducted in Canada;

determine its reduction, sequestration or use of CO 2 e emissions with a quantification methodology that is applicable to the project and provided by Environment and Climate Change Canada; and

e emissions with a quantification methodology that is applicable to the project and provided by Environment and Climate Change Canada; and begin to reduce, sequester or use CO 2 e emissions, as defined in the quantification methodology, on or after July 1, 2017. This may include either a new project or an expansion project. A person may apply to Environment and Climate Change Canada to have a CO 2 e emission reduction project recognized for creating credits. The application must be signed by the authorized official of the participant and contain the information set out in Annex IV. Once the application is approved and the project is recognized, Environment and Climate Change Canada will assign a unique alphanumeric identifier to the project. The participant may create a number of compliance credits determined in accordance with the quantification methodology provided by the department. For each compliance period, the proponent will be required to submit the information specified in that quantification methodology. This information will need to be accompanied by a third-party verification report including a verification opinion. For the liquid class regulations, credits may be created in respect of the liquid, gaseous and solid classes, as of final publication in Canada Gazette, Part II. Gaseous class and solid class credits may be banked and traded or, starting in 2022, used for compliance with the liquid class regulations within the limits set out in section 7.3. A project that reduces greenhouse gas emissions throughout the fuel lifecycle of only one fuel class will create credits in that class type. If a project reduces the carbon intensity of fossil fuels in more than one fuel class (e.g., at refineries that produce liquid, solid and gaseous fuels), the credit creator will be allowed to select which fuel class the credits are created in, which could be a proportion split between the fuel classes. Project applicants will be permitted to change the selection of the fuel class and the proportion split between fuel classes once for a given project, following publication of the gaseous and solid fuel class regulations. Projects may include an aggregation of emission reductions from multiple sources or facilities owned or operated by the primary supplier or a voluntary credit creator. Projects may also be aggregated by a third party across several companies. Project must yield measurable greenhouse gas emission reductions, but no minimum emission reductions threshold will be set. Additionality of emission reductions To be able to create credits under the Clean Fuel Standard, a project will have to generate emission reductions that are real and incremental to a defined base case (i.e., additional). Additionality will be assessed during the development of the quantification methodology for each project type. The additionality assessment will take into account many factors, including the financial aspect of the project, regulatory considerations (e.g., whether an action is required by other law or regulations), technological and financial barriers, emissions (in the defined base case and projected reductions), and the penetration rate of the technology or practice. As the following project types are not considered to be additional, they will not be eligible for credit creation under the Clean Fuel Standard: projects that are legally required by other federal, provincial, territorial, or municipal laws or regulations that are not carbon pollution pricing-related;

the use of renewable or low-carbon-intensity fuels on sites if that fuel already created credits under the Clean Fuel Standard;

the use of renewable hydrogen, produced from renewable natural gas, if that renewable natural gas already created credits under the Clean Fuel Standard;

changes in the type of crude oil or raw natural gas processed by a facility (e.g., switching from processing a heavy crude oil to a light crude oil or from a sour gas to a sweet gas);

replacement of pneumatic devices;

curtailment, that is the intentional operational and/or physical change exclusively for the reduction or cessation of fuel production; or

maintenance activities. The Clean Fuel Standard will recognize the following projects as eligible for credit creation, as long as the project is compliant with the criteria set out in the relevant quantification methodology: a project that overlaps with the compliance requirements or enables the creation of credits under federal, provincial or territorial carbon pollution pricing systems; and

a project that meets the criteria for compliance category 1 and that overlaps with BC’s Low Carbon Fuel Standard, such as co-processing biocrudes at a refinery. In addition, some projects that receive funding under federal, provincial, territorial or municipal mechanisms may be eligible. The incrementality of emission reductions for projects that receive funding will be assessed in the development of quantification methodologies and on a case-by-case basis. More details about the additionality assessment of projects undertaken by new oil and gas facilities are discussed below. Emission reduction quantification methodologies The ability of a project to create credits will be governed by a quantification methodology provided by Environment and Climate Change Canada for specific types of projects. The quantification methodology for a type of project will: be consistent with ISO Standard 14064-2;

be based on data that are verifiable for a given period of time;

be based on emission factors that are from generally recognized scientific sources;

not yield a result that is considered an overestimate;

establish the time period after which the carrying out of the project ceases to create compliance credits (no less than 5 years);

set out data necessary to determine the compliance credits created each year for the project in operation; and

set out the reporting and verification requirements to create credits annually. Quantification methodologies will be made available and maintained by Environment and Climate Change Canada outside of the Clean Fuel Standard regulations. New quantification methodologies will be developed by a team of technical experts including Environment and Climate Change Canada representatives and reviewed by a broader consultative committee. There will be a process to develop a new quantification methodology, which will also be specified outside of the Clean Fuel Standard regulations. Parties may propose the development of a quantification methodology to Environment and Climate Change Canada, if an existing methodology does not exist, is not applicable to their project, or is not sufficiently tailored to their project. Environment and Climate Change Canada has prioritized and is undertaking the development of quantification methodologies for the following project types, and will take into consideration existing emission reduction accounting methodologies or offset protocols in other jurisdictions: carbon capture and storage;

enhanced oil recovery;

low-carbon intensity electricity integration;

methane reductions that are additional to regulatory requirements;

co-generation;

electrification; and

co-processing of biocrudes in refineries and upgraders. New oil and gas facilities The Clean Fuel Standard will provide an incentive for existing oil and gas facilities to reduce the carbon intensity of the fuels they produce, and for new oil and gas facilities to use the most efficient technologies and processes possible. As such, for some technologies and practices, a benchmark above which new facilities could create credits is being considered. For refineries and upgraders, a benchmark utilizing the complexity weighted barrel metric is being considered. This metric is used by the Federal Output-Based Pricing System and Alberta’s Carbon Competiveness Incentive Program. Refineries and upgraders that perform better than the benchmark would be eligible to create credits for the technologies they deploy. For other facility types, such as in-situ oil sands facilities or gas processing plants, a suitable benchmark may not be possible across facility types. Project-specific benchmarks for certain technologies are being considered, for example for electrification, co-generation and methane reductions that go beyond regulatory requirements. The additionality of emission reductions for these technology-specific projects – including in the cases where a project receives governmental funding – will be assessed during the development of the quantification methodologies for those projects. For all facility types, there could be specific cases where a typical new facility would not have implemented an innovative technology or practice, but may be encouraged to do so as a result of credit creation opportunities under the Clean Fuel Standard. In these cases, the quantification methodologies will provide the same credit creation opportunities to new facilities as to existing facilities, without using a benchmark. These cases would be for carbon capture and storage, enhanced oil recovery, low-carbon-intensity electricity integration and co-processing of biocrudes in refineries and upgraders. 5.2 Compliance category 2: Supply of low-carbon-intensity fuels A key pathway to reducing the lifecycle carbon intensity of fossil fuels is to blend low-carbon-intensity fuels with fossil fuels or use low-carbon-intensity fuels in their neat form. Low-carbon-intensity fuels are fuels, other than the fossil fuels subject to the carbon intensity reduction requirements, which have a carbon intensity that is equal to or less than 90 % of the credit reference carbon intensity value for the fuel. Credits will be created under the Clean Fuel Standard for low-carbon-intensity fuels produced and imported in Canada. For the liquid class regulations, credits may be created for liquid and gaseous low-carbon-intensity fuels, as of final publication in Canada Gazette, Part II. Gaseous low-carbon-intensity fuel credits may be banked and traded, or starting in 2022, used for compliance with the liquid class regulations within the limits set out in section 7.3. Eligible fuels in the liquid class may include (but are not limited to): ethanol; renewable diesel; biodiesel; hydro-treated vegetable oil; low-carbon-intensity jet fuel; synthetic fuels; and renewable methanol. For the liquid class regulations, low-carbon-intensity fuels in the gaseous class are limited to: hydrogen; biogas; renewable natural gas; and renewable propane. This limitation has been set as the Fuel Lifecycle Assessment Modelling Tool will not have the capacity to accommodate all gaseous low-carbon-intensity pathways initially. In that context, gaseous fuels in commercial use now have been prioritized. As the gaseous class regulations are further developed, Environment and Climate Change Canada will consider credit creation for the supply of other low-carbon-intensity gaseous fuel. Credits for low-carbon-intensity fuels will be created by the producer and importer of those fuels. For low-carbon-intensity fuels that are imported in a blended product (e.g., E10), the credit will be created by the importer of the blended fuel. The right to create credits may be transferred from the default credit creator to a party downstream of the production or importation point. A written agreement between the parties is required. Credit creation All low-carbon-intensity fuels supplied to the Canadian market, including fuels used to comply with existing federal and provincial renewable fuel mandates and the BC Low Carbon Fuel Standard, will be able to create credits under the Clean Fuel Standard, as long as its carbon intensity is at least 10% lower than the credit reference carbon intensity value. However, the portion of a low-carbon-intensity fuel made of feedstock at risk of indirect land-use change (see later in this section) will not be eligible for credit creation. Credits for low-carbon-intensity fuels will be created based on the difference between the lifecycle carbon intensity of the low-carbon-intensity fuel and the credit reference carbon intensity value for the fuel. For a fuel that is liquid at standard conditions, the credit reference carbon intensity value is the liquid class credit reference carbon intensity value. For biogas used for heating or in high efficiency equipment that produces electricity, renewable natural gas and hydrogen, the credit reference carbon intensity value is the interim credit reference carbon intensity value for natural gas. For renewable propane, the credit reference carbon intensity value is the interim credit reference carbon intensity value for propane. For biogas used in low efficiency equipment that produces electricity, Environment and Climate Change Canada is considering credit creation based on the difference between the lifecycle carbon intensity of the electricity produced from biogas and the default carbon intensity that will be representative of the provincial grid mix in which the production of electricity from biogas took place. The credit reference carbon intensity for liquid class fuels is the average carbon intensity for all liquid fuels supplied in Canada in 2016 (fossil and renewable fuels) minus the carbon intensity reduction requirement for all liquid fuels for a given compliance year. The interim credit reference carbon intensities for natural gas and propane are equivalent to the baseline carbon intensities for natural gas and propane, respectively, minus 0.2 g CO 2 e/MJ. The interim credit reference carbon intensity for natural gas and propane will be reviewed when the gaseous and solid class regulations will be published. The credit reference carbon intensity values by year are shown in Table 3.

Table 3: Credit reference carbon intensity for the liquid and gaseous classes (g CO 2 e/MJ) Class 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Liquid Class Credit Reference 89.9 89.9 89.1 88.3 87.6 86.8 86.0 85.2 84.5 83.7 Interim Credit Reference for Natural Gas 61.8 61.8 61.8 61.8 61.8 61.8 61.8 61.8 61.8 61.8 Interim Credit Reference for Propane 74.8 74.8 74.8 74.8 74.8 74.8 74.8 74.8 74.8 74.8

Annex V provides the calculations for credit creation for low-carbon-intensity fuels as well as for the liquid class credit reference carbon-intensity value. Carbon intensity values of low-carbon-intensity fuels In order to be able to create credits, a low-carbon-intensity fuel producer/importer will be required to obtain an approved carbon intensity value for the low-carbon-intensity fuels it produces/imports. The regulations will require the use of either the Fuel Lifecycle Assessment Modelling Tool to calculate facility-specific carbon intensity values using facility specific data, or the use of a set of disaggregated default values. The use of the Fuel Lifecycle Assessment Modelling Tool will only be authorized when at least 12 consecutive months of steady-state operating data has been obtained, as described below. An application for a carbon intensity value must be submitted to Environment and Climate Change Canada for approval, along with supporting data and the corresponding verification or validation report by a third-party verification or validation body. The application will have to contain specific information, listed in Annex V. Additional information will be required when the Fuel Lifecycle Assessment Modelling Tool is used. Environment and Climate Change Canada will approve the application if the determination of the carbon intensity value is based on: data and results that are verifiable;

results of calculations that are within the prescribed materiality thresholds;

emission factors, input data, background data sets and a methodology that are appropriate for that determination and are conservative in the sense that they do not result in an under-estimation of the carbon intensity value; and

a methodology consistent with ISO 14040 and ISO 14044 and with the Methodological Basis for the Fuel Lifecycle Assessment Modelling Tool, for applications using the Modelling Tool (modified or new pathways). Once the application is approved, Environment and Climate Change Canada will assign a unique alphanumeric identifier for each specific low-carbon-intensity fuel pathway . The same requirements will apply to imported low-carbon-intensity fuels, whether imported neat or in a blend with petroleum fuel (e.g., E10). Using disaggregated default values to obtain a carbon-intensity value for a low-carbon-intensity fuel The carbon intensity value for each low-carbon-intensity fuel pathway can be determined by using the disaggregated default values set out in the regulations, according to the calculation provided in Annex V. The carbon intensity value for a given fuel is the sum of each of the disaggregated default values for cultivation and extraction, land-use change, fuel production, transportation and combustion. Disaggregated default values are available for various fuel types, feedstock types and technologies used in the production process. The applicant must select the most appropriate disaggregated default values for their fuel, their feedstock and their process or, if no defined disaggregated default values apply, use the more conservative generic default values. The use of disaggregated default values provides a less burdensome means for obtaining a carbon intensity value; however, the value will be conservative in nature. New facilities that have less than one year of operating data must use the disaggregated default values as a provisional carbon intensity value until one year of operating data is obtained. A provisional carbon intensity value allows new facilities to create credits while they acquire enough process data to apply for a facility-specific carbon intensity value using the Fuel Lifecycle Assessment Modelling Tool, which they can do after one year of operating data has been obtained. Once a facility-specific value has been obtained, credits may be created for the 12 consecutive months preceding their facility specific application for the difference between the provisional carbon intensity and the approved facility specific carbon intensity. Using the Fuel Lifecycle Assessment Modelling Tool to obtain a carbon intensity value for low-carbon-intensity fuels The Fuel Lifecycle Assessment Modelling Tool will be used to determine carbon intensity values for low-carbon-intensity fuels that reflect the greenhouse gas emissions associated with different feedstocks and production processes. A facility specific carbon intensity value may be obtained using the Fuel Lifecycle Assessment Modelling Tool, provided at least 12 consecutive months of steady-state operating data has been obtained. There are 3 options to obtain a carbon intensity value using the Fuel Lifecycle Assessment Modelling Tool, which are used in the order specified below: Existing low-carbon-intensity fuel pathway – Low-carbon-intensity fuel suppliers provide defined input data values (energy, feedstock, volumes, co products etc.) to calculate the carbon intensity for a given defined pathway that is pre-defined in the Fuel Lifecycle Assessment Modelling tool. Modified low-carbon-intensity fuel pathway – Low-carbon-intensity fuel suppliers provide defined data values and process flows or background datasets to calculate the carbon intensity to modify a given pre-defined pathway in the Fuel Lifecycle Assessment Modelling Tool. This option would be used when background data sets need modification or slight modifications are required to the process flows. This would be the scenario used for imported fuels. Supplemental data and a description of any data sets or changes made to the model would be required to be verified. New fuel pathway – Low-carbon-intensity fuel suppliers provide defined data values and process emissions to create a new pathway in the Fuel Lifecycle Assessment Modelling Tool. A new fuel production pathway would be required to be built in the model database to create a carbon intensity value. A comprehensive description of the lifecycle analysis assessment, including data sources, assumptions and allocation approach, would be required to be verified. The new pathway will have to follow 14040 and 14044 standards as well as be consistent with the methodology of the Fuel Lifecycle Assessment Modelling Tool. Validity of carbon intensity values An approved carbon intensity value will be valid until criteria specified in the regulations requiring a review or update of the value are triggered. Carbon intensity values will also be a part of a credit creator’s annual third-party verification requirements. The input data supporting each fuel’s carbon intensity (e.g., feedstock type, energy requirements) will be required to undergo verification. The approved carbon intensity values will no longer be valid if there are changes noted that increase the carbon intensity of the fuel. Carbon intensity values will also be subject to review by Environment and Climate Change Canada. Minimum threshold requirements The Clean Fuel Standard will reward continued improvements in the carbon intensity of low-carbon-intensity fuels. If a facility undergoes process changes that reduce the carbon intensity of the low-carbon-intensity fuels it produces, an application may be submitted for an updated carbon intensity value. A minimum threshold of an improvement of 1g CO 2 e/MJ or 5% difference between the current value and the proposed new value, whichever is greater, will be required in order to submit a request for a new carbon intensity value. Facilities with an approved carbon intensity value that incorporate process modifications must continue to use the approved carbon intensity value until steady-state operation has occurred for 12 months with the new process modification. Facilities will continue to create credits with existing approved carbon intensity values and once a new carbon intensity value is approved, the facility can create credits for the difference between the old and new approved carbon intensity values, for the 12 months preceding the application for this new carbon intensity value. Land-use change Direct land-use change happens when a particular parcel of land is converted to grow crops for biofuel production. Indirect land-use change occurs when crops grown for biofuels displace traditional food and animal feed crops, leading to a demand to produce that displaced food crop elsewhere (i.e., land somewhere else is converted to grow the food crop). If new agricultural land expands into areas with high carbon stock such as forests, wetlands and peat land this leads to additional greenhouse gas emissions. If it occurs in a highly biodiverse land, it can lead to lost biodiversity. While it is very difficult to quantify and determine what actions cause indirect land-use change and to separate it from direct land-use change, there is global consensus that it does happen and is an important issue to consider. Applying best practices developed in other jurisdictions can help mitigate undesired direct and indirect land-use impacts resulting from the increased use of low-carbon-intensity fuels under the Clean Fuel Standard. To do so, the regulations will account for land-use change in two ways: the Fuel Lifecycle Assessment Modeling Tool will account for greenhouse gas impacts of direct land-use change in the carbon intensity of low-carbon-intensity fuels;

the regulations will define sustainability criteria for biofuels and their feedstocks, related to land-use change – including indirect land-use change – and land management practices. The portion of a fuel made from feedstocks associated with land-use changes that do not meet the criteria will not count for credit creation under the Clean Fuel Standard. The criteria referred to in the second bullet above align with the sustainability criteria in the European Union’s Renewable Energy Directive II of December 21, 2018 and the European Union’s Delegated Regulation on high indirect land-use-change-risk feedstockFootnote 6 . The criteria will vary depending on the type of feedstock (i.e. agricultural or forest biomass), and will apply to both domestically-produced and imported biofuels and feedstocks. For agricultural feedstock, the criteria include: feedstocks at high risk of indirect land-use change : the portion of a biofuel comprised of feedstocks at high risk of indirect land-use change will not count towards credit creation for Clean Fuel Standard;

: the portion of a biofuel comprised of feedstocks at high risk of indirect land-use change will not count towards credit creation for Clean Fuel Standard; high biodiversity or carbon stock land: raw material used in the production of biofuels may not come from land that has the status of high biodiversity land or high carbon stock land on or after January 1, 2008; and

raw material used in the production of biofuels may not come from land that has the status of high biodiversity land or high carbon stock land on or after January 1, 2008; and protected areas: raw material used in the production of a biofuel may not come from land that has the status of protected area on or after January 1, 2008. For forest feedstock, the criteria include: sustainable forest management: forest biomass used to produce biofuels must meet a set of sub-criteria to ensure it is harvested in a country/area where sustainable forest management is practiced; and

forest biomass used to produce biofuels must meet a set of sub-criteria to ensure it is harvested in a country/area where sustainable forest management is practiced; and protected areas: raw material used in the production of biofuel may not come from land that has the status of protected area on or after January 1, 2008. Details on the proposed criteria are provided in Annex VI. The Clean Fuel Standard will require third-party verification or certification to ensure the criteria along with all the regulatory requirements are met. Work is underway to develop these verification and certification requirements.

5.3 Compliance category 3: Specific end-use fuel switching in transportation The Clean Fuel Standard will allow some end-use fuel switching to create credits for the liquid class regulations. End-use fuel switching occurs when an end-user of fuel changes or retrofits their combustion devices (e.g. an engine) to be powered by another fuel or energy source. End-use fuel switching does not directly reduce the carbon intensity of the fossil fuel. Instead, it reduces greenhouse gas emissions by displacing the fossil fuel with a fuel or energy carrier with lower-carbon intensity. In the liquid class, end-use fuel switching in the transportation sector from a higher carbon intensity fossil fuel to the following less carbon intensive fuels will be eligible for credit creation: natural gas and renewable natural gas (including compressed and liquefied), hydrogen (including compressed and liquefied), propane and renewable propane, and non-carbon energy carriers, such as electricity or hydrogen. For fuel switching in transportation end-uses, a baseline and additionality requirement will not be applied. All low-carbon-intensity fuel volumes supplied for transportation would be eligible to create credits. Credits for early action (i.e. prior to the start of the reduction requirements in 2022) for specific end-use fuel switching in transportation may be created in the liquid class after the publication of the liquid class regulations in Canada Gazette, Part II, which is expected in 2021. End-use fuel switching to non-carbon energy carriers: electricity and hydrogen Electricity supplied to on-road light-duty and heavy-duty electric vehicles as well as to all off-road vehicles will create credits based on: the energy supplied to the vehicles; the difference between the carbon intensity limit of the fossil fuels being displaced and the carbon intensity of the electricity being used to charge the electric vehicles; and the energy efficiency ratio for the type of vehicles being displaced. Credits for light-duty passenger electric vehicles and heavy-duty electric vehicles will be calculated as a substitute to gasoline and diesel, respectively. The regulations will also allow credits to be created for hydrogen fuel cell vehicles in a similar manner as electric vehicles, with credit calculations based on: the energy supplied to the vehicles; the difference between the carbon intensity limit of the fossil fuels being displaced and the carbon intensity of the hydrogen being supplied to fuel cell vehicles; and the energy efficiency ratio for the type of vehicles being displaced. Credit creators for electric and hydrogen fuel cell vehicle charging Public and private electric vehicle charging The Clean Fuel Standard will allow credits to be created by the following parties for public and private electric vehicle charging: electric vehicle charging network operators will create credits for public charging of electric vehicles; and

site hosts will create credits for private/commercial charging of electric vehicles. Residential charging For residential charging, the credit creator needs to be able to measure charging data accurately to ensure that credits are based on actual electricity use. Accurate and verifiable charging information can be obtained from vehicles with telematics capabilities that collect detailed charging data, including the quantity of electricity and the location of the charging taking place; home charging stations connected to a network; new dynamic and precise data measurement solutions; or other smart home technologies that can accurately measure electricity supplied to electric vehicles. A two-tiered approach for residential charging will provide opportunities for a range of credit creators: For homes equipped with charging stations connected to a network or that have other smart technologies that can accurately measure electricity supplied to electric vehicles, the network or smart technology operator will be able to create credits.

For all other residential charging, original equipment manufacturers will be the default credit creators. A reinvestment requirement for residential charging credit creators is being considered, in the range of 50% to 100%, as detailed below. Charging site hosts will be eligible to create credits for the electricity supplied to electric buses if the transit service provider owns or leases the charging stations and is the exclusive user of that equipment. This will include both en route and depot charging, contingent upon the use of dedicated electricity meters or integrated electricity meters within the charging stations for the purposes of reporting only the electricity that has been supplied to these electric vehicles. Charging site hosts will be eligible to create credits for electricity supplied to electric trains and other rail transport vehicles propelled by an electric motor whose source of electricity is from a third rail, overhead catenary system or a rechargeable battery, with similar requirements for the electricity supplied to be measured by a dedicated meter. Environment and Climate Change Canada is considering setting a baseline for credit creation for electricity supplied to trains and other rail transport vehicles. Subways will not be considered as electric trains for the purposes of credit creation, however, as these are by default powered by electricity. For hydrogen supplied to fuel cell vehicles, the station site host is the owner or operator of a hydrogen refuelling station and will be the default credit creator, contingent upon the refuelling station having information pertaining to the source of the hydrogen it distributes, such that the carbon intensity of each batch of hydrogen can be determined. The hydrogen refuelling station will be required to report the quantity of hydrogen dispensed in kilograms by vehicle weight category to: light-duty vehicles/medium-duty vehicles (to calculate credits as gasoline replacement); heavy-duty vehicles (to calculate credits as diesel replacement). The default credit creator can transfer their rights to create credits to other voluntary credit creators or primary suppliers provided no other entity is creating credits for the electricity or hydrogen dispensed through the same charging station or hydrogen fuelling station. Any credit revenue reinvestment requirements applicable to the default credit creator will also be transferred to the secondary entity to whom the credit creation rights were transferred. The following table summarizes the default credit creator for electric vehicle charging and hydrogen refuelling.

Table 4: Default credit creators Activity Default credit creator Electric vehicles – Residential charging (without charging network data or other accurate metering technology) Original equipment manufacturers Electric vehicles – Residential charging (with charging network data or other accurate metering technology) Charging network operators or smart technology operator Electric vehicles – Public charging (service provided by site host) Charging site hosts Electric vehicles – Public charging (service provided by network operator)* Charging network operators Electric vehicles – Private/commercial non-residential charging for exclusive use (metered only)** Charging site hosts Fuel cell vehicles – Hydrogen refuelling Station site hosts

*regardless of whether the site is publicly or privately owned.

**e.g., workplace, fleets.

Methodology for Credit Calculation Credits for electricity used in electric vehicles and hydrogen used in fuel cell vehicles will be determined on the basis of the total energy supplied to the electric or hydrogen fuel cell vehicles, the energy efficiency ratio to determine fossil fuel energy displaced, the carbon intensity limit of the fossil fuel being displaced and the carbon intensity of the alternative energy. The carbon intensity of the electricity will be set out in a document incorporated by reference in the Regulations, which will accompany the Fuel Lifecycle Assessment Modelling Tool. These default values will be updated periodically. The carbon intensity value will be representative of the provincial grid mix in which the electric vehicle charging took place, with options to modify this value if the participant has input data regarding the source and quantity of electrical energy supplied to electric vehicles at the charging station for a period of at least 12 consecutive months. For hydrogen, the station site host must obtain information from its hydrogen suppliers to determine the mass-weighted average carbon intensity of all hydrogen distributed to fuel cell vehicles during the compliance period. The carbon intensity of hydrogen must be determined either by using disaggregated default values or the Fuel Lifecycle Assessment Modelling Tool provided at least 12 consecutive months of steady-state operating data has been obtained (see section 5.2). When one year of operating data has been obtained, participants who have been using default carbon-intensity values for electricity or disaggregated default values for hydrogen may apply for a facility-specific carbon-intensity value. Once they have this facility-specific value, they may create credits for the 12 consecutive months preceding their facility-specific application for the difference between the carbon-intensity values obtained from the default or disaggregated default values and their approved facility-specific carbon intensity. The calculation for determining the number of credits created is described in Annex V. Energy Efficiency Ratio The energy efficiency ratio measures the relative efficiency with which a vehicle or engine uses a specific fuel. The higher the energy effectiveness ratio is, the more efficient the use of the fuel or energy, as compared to a reference fuel or energy. Energy efficiency ratios are specific to the vehicle type, the alternative fuel being used and the fossil fuel being displaced. Energy effectiveness ratios will be used in the calculation to create credits for electric and hydrogen fuel cell vehicles. Table 5 below provides the energy efficiency ratios that will be listed in the regulations. The ratios will be reviewed as part of the Clean Fuel Standard five-year review given that vehicles and their energy efficiency change over time, and other more specific fuel and vehicle applications may be necessary as technology evolves.

Table 5: Energy efficiency ratios by application Fuel/vehicle application Energy efficiency ratio Electric vehicles for light- and medium-duty application (replacing gasoline) 4.1 Electric vehicles for on-road heavy-duty applications and off-road vehicles (replacing diesel) 5 Electric trains 3.3 Electric commercial marine vessels 3.1 Hydrogen fuel cell vehicles for light- and medium-duty applications (replacing gasoline) 2 Hydrogen fuel cell vehicles for on-road heavy-duty applications and off-road vehicles (replacing diesel) 1.9

Requirement to reinvest electric vehicle credit revenue The Clean Fuel Standard will require a proportion of credit revenue to be reinvested to further incent the adoption of zero-emission vehicles, as some credits for electric vehicle charging may be created with minimal or no incremental investment in zero-emission vehicles related to the Clean Fuel Standard. The credit revenues will have to be invested into projects, programs, policies or other types of action that: expand the network of electric vehicle charging infrastructure to make travelling long distances with an electric vehicle or owning an electric vehicle for those without access to home charging easier; reduce the cost of electric vehicle ownership though financial incentives to purchase or operate an electric vehicle; or educate or inform consumers of the benefits of electric vehicles, their environmental benefits and lower costs of ownership compared to fossil fuel powered vehicles (e.g., marketing campaigns, outreach programs). Environment and Climate Change Canada is considering allowing part of the reinvestment requirement to be discharged by transferring revenues to electricity distribution utilities for the purpose of improving or updating the electricity grid (e.g., residential transformers) to accommodate additional electric vehicle charging. Investments in new electricity generation would not count toward the re-investment requirements. The amount of reinvestment required will depend on the credit creator, and is represented in the following table as a portion of the total revenue obtained by the sale of the credits from each activity. Revenues will be required to be re-invested within one year after the end of the compliance period in which the credits were sold.

Table 6: Credit revenue reinvestment requirements Default credit creator Fraction of credit revenue that must be reinvested Charging network operators and original equipment manufacturers 50% – 100% Site hosts* 0%

* Site hosts – including both charging site hosts and station site hosts – will not be required to reinvest revenue as credit revenue may be used to improve the business case for investing in these vehicles and their associated fuel supply equipment. Other end-use transportation fuel switching The supply of natural gas and renewable natural gas (including compressed and liquefied), hydrogen (including compressed and liquefied) as well as propane and renewable propane that displaces liquid transportation fuels will create credits. This includes fuel switching in vehicles, both on-road and off-road, and in locomotives and marine vessels. Credit creators and methodology for credit calculation for other end-use transportation fuel switching The fuelling facility owner will be the default credit creator for fuelling for transportation purposes for compressed and liquefied natural gas and propane, including the fossil portion of any blend with a renewable fuel component. The credits will be created in the liquid class as this represents a displacement of liquid transportation fuel. Credits for the supply of compressed or liquefied natural gas and propane for transportation uses will be determined based on the volume of fuel supplied, its energy density, its carbon intensity and the liquid class credit reference carbon intensity (CI LCR ). An illustrative example of this, for liquefied natural gas, is shown in Figure 1. The carbon intensity of compressed or liquefied natural gas (CI LNG ) and propane will be set out in a document incorporated by reference in the Regulations, which will accompany the Fuel Lifecycle Assessment Modelling Tool. These values will be updated periodically.

Figure 1: Illustration of the credit calculation for the supply of liquefied natural gas for transportation purposes (numbers are illustrative)

Long description CI RNG (5) CI L-RNG (16) (16–5 = 11) CI CR for NG (61.8) CI NG (62) CI LNG (73) (73–62 = 11) CI LCR (89.9) (89.9–73 = Credits fuelling station owner) CI Diesel (100)



For low-carbon-intensity fuels that are renewable natural gas, renewable propane, or hydrogen, or for the portion of these fuels in a fossil fuel blend, the default credit creator will be split between the producer/importer of these fuels and the fuelling facility owner who supplies them for transportation uses. This split, shown in Figure 2, will reduce the risk of the fuelling facility owner and the producer/importer being credited for the same carbon intensity improvements. Figure 2: Illustration of the credit calculation for the supply of liquefied renewable natural gas for transportation purposes (numbers are illustrative)

Long description Total credits for liquefied RNG used for transportation purposes:

CI RNG (5)

(5) CI L-RNG (16)

(16) CI CR for NG (61.8)

(61.8) CI NG (62)

(62) CI LNG (73)

(73) CI LCR (89.9)

(89.9) CI Diesel (100) CI RNG (5) to CI L-RNG (16) = 11 CI NG (62) to CI LNG (73) = 11 CI RNG to CI CR for NG = Credits portion producer or importer of RNG liquid credits if transportation use, otherwise gaseous credits

CI CR for NG to CI NG = Credits portion 1: Fuelling station owner CI LNG to CI LCR = Credits portion 2: Fuelling station owner

The producer/importer of renewable gas, renewable propane and hydrogen would create gaseous class credits for the volumes produced/imported, or liquid class credits if there is documentation that these fuels were distributed for transportation use. The number of credits will be calculated in both cases based on the volume of fuel supplied, its energy density and the carbon intensity difference between the interim credit reference for natural gas (CI CR for NG ) or propane and the carbon intensity of the gaseous low-carbon-intensity fuel (CI RNG ). The number of credits is the same, but the class of credits is different. The producer/importer of these gaseous low-carbon-intensity fuels will determine their carbon intensity either by using disaggregated default values or the Fuel Lifecycle Assessment Modelling Tool, provided at least 12 consecutive months of steady-state operating data has been obtained (see section 5.2). After one year of operating data has been obtained, participants who have been using disaggregated default values may apply for a facility-specific carbon intensity value determined by using the Fuel Lifecycle Assessment Modelling Tool. Once they have this facility-specific value, they may create credits for the 12 consecutive months preceding their facility-specific application for the difference between the carbon intensity values obtained from disaggregated default values and their approved facility-specific carbon intensity. The fuelling facility owner will create liquid class credits for the volumes they supply for transportation uses. There are two portions in the calculation of credits, to account for the compression of the gas for transportation uses, which are added together to calculate the total number of credits. The first portion is the number of credits for the supply of low-carbon-intensity fuels and is calculated based on the volume of fuel supplied, its energy density and the carbon intensity difference between the carbon intensity of natural gas or propane (CI NG ) and the interim credit reference for natural gas or propane (CI CR for NG ). The second portion is the number of credits for the supply of compressed or liquefied natural gas and propane for transportation uses. The number of credits will be determined based on the volume of fuel supplied, its energy density, and the carbon intensity difference between the liquid class credit reference (CI LCR ) and the carbon intensity of compressed and liquefied natural gas and propane (CI LNG ). The right to create credits may be transferred from the default credit creator to a party downstream of the production or importation point or upstream of the fuelling station. A written agreement between the parties is required. Environment and Climate Change Canada is not considering the use of energy effectiveness ratios in the calculation to create credits for natural gas and propane vehicles. The method for determining the number of credits created is provided in Annex V.

6. Credit trading system Environment and Climate Change Canada will establish and administer a credit trading system under the Clean Fuel Standard to facilitate the acquisition of credits for primary suppliers and create market opportunities for the deployment of low-carbon-intensity fuels. 6.1 Participants Participants in the credit trading system include primary suppliers and voluntary credit creators. These participants will be able to create, own, transfer and acquire credits. Other parties will be allowed to participate in the credit trading system if they enter in an agreement with parties that conduct activities eligible for credit creation, for the purpose of acting on behalf of these parties. A voluntary credit creator will be able to end its participation in the Clean Fuel Standard trading system (i.e., be relieved of reporting requirements) at any time upon satisfying its annual requirements respecting record keeping and reporting requirements and the cancellation of remaining credits owned. 6.2 Credit trading procedures Environment and Climate Change Canada is developing and will maintain an on-line electronic trading platform to enable the Credit Trading System. Credit account Upon registration, Environment and Climate Change Canada will open a credit account in the Credit Trading System for the participant. Three types of accounts will be created: a liquid fuel class credit account;

a gaseous fuel class credit account; and

a solid fuel class credit account. To ensure the cross-class trading requirements are respected, only transfers between the same types of account will be allowed. Credit trading transactions Credit trading transactions will be conducted through the on-line electronic platform. A participant (the “transferer”) who transfers credits to another participant (the “transferee”) will submit the following information for each trade through the transaction system, and includes a trading authorized official signature: the name, civic address (or GPS coordinates) and mailing address of the transferer; the name, title, civic and postal addresses, telephone number and if any, email address and fax number, of their trading authorized official of the transferer; the name, civic address (or GPS coordinates) and mailing address of the transferee; and the following information with respect to the credits that are to be transferred: the number of those credits; the type of credits to be transferred: liquid, gaseous or solid fuel class; the year in which the credits were created; the total price for the trade, if any, and the type of low-carbon-intensity fuel that was produced or imported into Canada to create the credit, if applicable. After the transferer submits the information and the transfer request, it is reviewed and accepted by an authorized representative of the transferee. Environment and Climate Change Canada will then transfer the credits from the transferer’s account to the transferee’s account. 6.3 Provisions to support the integrity and liquidity of the trading system A number of provisions have been developed in order to support the integrity as well as the liquidity of the credit trading system. To support the integrity of the trading system, the following requirements will apply: a unique identification number to be assigned to each credit;

credit creations, trades and uses to be verified by a third-party annually; and

invalid credits to be replaced, as detailed in Section 8.3. To support liquidity in the credit market, the Clean Fuel Standard will include the following provisions, in addition to the flexibility and stability mechanisms described in Section 7: credits will not expire;

there will be no limit to the number of credits that can be transferred among parties; and

there will be no limit to the number of times a single credit can be transferred.

7. Market flexibility and stability mechanisms Market flexibility and stability mechanisms are designed to work together to give regulated parties access to lower-cost compliance opportunities, provide a price signal for the development and provision of low-carbon-intensity fuel alternatives, and support market stability. 7.1 Renewable Fuel Regulations compliance unit bank roll-over Under the Renewable Fuels Regulations, primary suppliers are able to own a limited bank of surplus compliance units. In 2022, following the final reporting and true-up period for the Renewable Fuels Regulations, primary suppliers will be able to convert their remaining surplus compliance units into Clean Fuel Standard credits, one time only, prior to December 31st, 2022. Gasoline compliance units will be converted to Clean Fuel Standard credits using the following calculation: Clean Fuel Standard credits = Number of gasoline compliance units (litres) x energy density of gasoline (MJ/L) x [carbon intensity Liquid Class Credit Reference – carbon intensity ethanol (gCO 2 e/MJ) ] The carbon intensity of ethanol will be a Canadian average representative value of 59 gCO 2 e/MJ.

Distillate compliance units will be converted to Clean Fuel Standard credits using the following calculation: Clean Fuel Standard credits = number of distillate compliance units (litres) x energy density (MJ/L) x [carbon intensity Liquid Class Credit Reference – carbon intensity hydrogenation-derived renewable diesel / biodiesel (gCO 2 e/MJ)] The carbon intensity of the renewable fuels will be a Canadian average representative value for renewable diesel (hydrogenation-derived renewable diesel and biodiesel) of 35 gCO 2 e/MJ.

7.2 Banking The Clean Fuel Standard will allow for unlimited banking of surplus credits. 7.3 Using credits from other classes for liquid class compliance A primary supplier will be able to use credits from the gaseous or solid fuel classes to satisfy up to 10% of its total liquid reduction requirement, annually. 7.4 Early credit creation The Clean Fuel Standard will allow credits to be created for all compliance categories, before the January 1, 2022 start of the reduction requirements. After the publication of the liquid class regulations in Canada Gazette, Part II, liquid class credits and some gaseous and solid class credits will be able to be created, as described in section 5. Gaseous and solid class credits may be banked and traded, or used for compliance with the liquid class regulations within the limits set out in section 7.3. 7.5 Credit Clearance Mechanism The Clean Fuel Standard will establish a Credit Clearance Mechanism. Jurisdictions with programs similar to the Clean Fuel Standard have implemented this type of mechanism to increase certainty regarding compliance cost, enable the sale of credits, strengthen incentives to invest in and produce low-carbon-intensity fuels, and reduce the probability of credit shortfalls.Footnote 7 Participation in the Credit Clearance Mechanism will be mandatory for a primary supplier with a credit shortfall for a given compliance period. If there are not sufficient credits available in the Credit Clearance Mechanism for all primary suppliers to satisfy their outstanding reduction requirement, each primary supplier will need to acquire a pro-rated amount of the available credits, as detailed below. Once the Credit Clearance Mechanism is depleted of all pledged credits, a primary supplier must contribute into the Compliance Fund Mechanism. Then, it can carry forward its outstanding deficit into a future compliance period, of up to a maximum of 10% of its total reduction requirement for the compliance period that just ended. Functioning of the Credit Clearance Mechanism If there is at least one primary supplier in a deficit position, Environment and Climate Change Canada will hold a Credit Clearance Mechanism on August 1st for the preceding compliance period. Credits obtained through the Credit Clearance Mechanism must be used to reduce or satisfy the primary supplier’s reduction requirement for the preceding compliance period. Determining the need to hold a Credit Clearance Mechanism Primary suppliers must submit a Compliance Report on June 30th, indicating if they have sufficient credits to satisfy their total liquid reduction requirement or a shortage of credits. Environment and Climate Change Canada will establish a Credit Clearance Mechanism if at least one primary supplier reports that it does not have enough credits to satisfy their total liquid reduction requirement. Pledging credits into the Credit Clearance Mechanism Trading system participants may pledge an amount of credits they own into the Credit Clearance Mechanism when they submit their annual Credit Balance Report (for non-primary suppliers) or their annual Compliance Report (for primary suppliers) on June 30th. Once a participant has pledged credits, those credits cannot be used or transferred, other than through the Credit Compliance Mechanism, until the end of the market on October 1st. Notification about the Credit Clearance Mechanism Before August 1st every year, Environment and Climate Change Canada will notify trading system participants whether a Credit Clearance Mechanism will be held. If a Credit Clearance Mechanism is to be held, Environment and Climate Change Canada will provide information in a notice, including: the total number of credits that have been pledged; the total amount of credits that are required by primary suppliers to satisfy their reduction requirement; and if applicable, the pro-rated amount of credits available to each primary supplier in the market. Credit transfer transactions Credit transfer transactions under the Credit Clearance Mechanism will occur between August 1st and September 30th. A primary supplier is limited in the amount of credits it may acquire through Credit Clearance Mechanism to the lesser of: the number of credits they indicated in their Compliance Report that they required in order to satisfy their total liquid reduction requirement for the preceding compliance period; and the pro-rated amount determined by Environment Climate Change Canada, determined by the formula C × R P /R T . Where:

C total number of credits pledged under the Credit Clearance Mechanism R P the number of credits that a primary supplier still requires to satisfy their liquid reduction requirement for the preceding compliance period R T the total number of credits required for all primary suppliers to satisfy their total liquid reduction requirement for the preceding compliance period, that has not yet been satisfied

Price for credits acquired, purchased or transferred in the Credit Clearance Mechanism The Clean Fuel Standard regulations will set a maximum price for credits acquired, purchased or transferred in the Credit Clearance Mechanism. In setting the maximum price for trades under the Credit Clearance Mechanism, Environment Climate Change Canada will account for the objectives of: providing market certainty about compliance costs, providing incentives to invest in and produce low-carbon-intensity fuels, and avoiding price spikes. 7.6 Compliance Fund Mechanism The Clean Fuel Standard will allow primary suppliers to offset up to 10% of their annual liquid class reduction requirement for a compliance period by payment at a fixed price into a fund that invests in, and obtains greenhouse gas emissions reductions, in the short term. This option is an additional optional compliance flexibility intended to ensure a range of options for regulated parties to come into compliance. Contributions will be made at a price specified in the Clean Fuel Standard. This price may not be the same as the maximum price for credit trades under the Credit Clearance Mechanism. In setting the contribution price, Environment Climate Change Canada will account for the objectives of: providing market certainty about compliance costs, providing incentives to invest in and produce low-carbon-intensity fuels, and avoiding price spikes. Upon contribution to a fund, a primary supplier will create credits that are non-tradable and non-bankable (i.e. they must be used in the compliance period for which the contribution is made). Primary suppliers will be able to make a contribution to a fund during the true-up period, until they submit their Compliance Report (June 30). They will also be able to make a contribution in October and November, if required to satisfy their reduction requirement after participating in the Credit Clearance Mechanism, before any deficit is carried forward. Criteria to determine eligible funds The Clean Fuel Standard regulations will set out the criteria that a fund will have to meet in order to be eligible to receive Clean Fuel Standard contributions. Environment Climate Change Canada will maintain a list of approved funds. A primary supplier will be able to choose the approved fund or funds to which it contributes. The fund criteria include: contributions received are used only to finance projects or activities in Canada that support the demonstration, commercialization or deployment of technologies or processes that reduce greenhouse gas emissions;

contributions must finance projects that will achieve emission reductions in the short term: by 2030 for contributions made up to the end of the 2025 compliance year; or within 5 years for contributions after the 2025 compliance year.

the fund establishes and publishes policies, criteria or procedures for distribution of the monies in the fund, including a policy for avoiding conflicts of interest when making decisions regarding that distribution;

the fund makes public, annually, a report that provides specified project details (e.g. name of project, recipient, amounts of funding received, location of the project, project milestones and estimated reductions in greenhouse gas anticipated to result from the project and actual reductions in greenhouse gas emissions that result from the project).

the fund maintains financial and management control systems, information systems and sound management practices; and

the fund is subject to an annual independent financial audit. 7.7 Deficit carry forward The Clean Fuel Standard will allow a primary supplier to carry forward up to 10% of its annual liquid reduction requirement into the next compliance period with a 20% annual interest rate. Before a primary supplier can carry forward a deficit into a future compliance period, it must use the Credit Clearance Mechanism to acquire credits. If enough credits are available in the Mechanism to satisfy every primary supplier’s reduction requirements, no deficit may be carried forward. Similarly, a primary supplier also has to use its maximum contribution of 10% into an emission reduction fund before being authorised to carry forward a deficit. The deficit must be satisfied within two years and no further deficit carry forward may be accrued until the deficit is satisfied. 7.8 Summary of mechanisms Table 7 presents a summary of the Clean Fuel Standard market flexibility and stability mechanisms and how they can be used for compliance.

Table 7: Summary of market flexibility and stability mechanisms Mechanism Using the mechanism for compliance Renewable Fuel Regulations compliance unit bank roll-over Primary suppliers who have surplus compliance units under the Renewable Fuels Regulations will be able to convert these units into Clean Fuel Standard credits.

This conversion can be done one time only, after the final reporting and true-up period in 2022 of the Renewable Fuels Regulations, and prior to December 31st, 2022.

Once converted to a Clean Fuel Standard credit, the credit can be used the same way as other Clean Fuel Standard credits (e.g., unlimited banking, etc.). Banking Unlimited banking for all surplus credits, with no expiry date on credits.

Banked credits can be used to meet reduction requirements, without any limit (i.e., for up to 100% of the reduction requirements). Cross-class trading Gaseous and solid class credits can be used for up to 10% of the reduction requirements in the liquid class. Early credit creation Credits created before 2022 and after publication of the final liquid class regulations can be used for compliance in any compliance period and are fully bankable and tradeable. Credit Clearance Mechanism Must be used by primary suppliers to acquire credits when they have a deficit for the preceding compliance period. Compliance Fund Mechanism Can be used to satisfy a maximum of 10% of the reduction requirements for a given compliance period.

Upon contribution to a fund, a primary supplier will receive credits that are non-tradable and non-bankable. Deficit carry forward A primary supplier will be authorized to carry forward up to 10% of its reduction requirements only if: there were not sufficient credits in the Credit Clearance Mechanism to satisfy its deficit; and it has used its maximum contribution to an emission reduction fund (10% of its reduction requirements).



8. Primary suppliers using credits to satisfy reduction requirements 8.1 Using credits to meet reduction requirements At the end of the true-up period, a primary supplier will have to retire a number of credits equal the number required to satisfy its annual liquid reduction requirement plus any deficit carried-forward from previous years, with interests. Only credits created under the Clean Fuel Standard regulations may be used. A primary supplier may use either credits that it created or credits that it acquired from other trading system participants. The reduction requirements and credit balance of primary suppliers will be maintained separately for each of the three fuel classes. A primary supplier must meet its annual liquid reduction requirement with credits from the liquid class, with the exception of up to 10%, which can be met with credits from other classes, as explained in section 7. 8.2 Cancelling credits for exports of low-carbon-intensity fuel Any low-carbon-intensity fuel produced/imported for the purposes of export will not be eligible for credit creation. The procedure to address this situation depends on the circumstances. When a low-carbon-intensity fuel producer/importer produces/imports a low-carbon intensity fuel for the purpose of exporting it, the producer/importer cannot create credits for that fuel. In other circumstances, a low-carbon-intensity fuel provider may have produced/imported a low-carbon intensity fuel and sold it to a third-party who subsequently exported the fuel. The low-carbon-intensity fuel producer/importer may have created credits for that fuel. In that case, the party that exported the low-carbon-intensity fuel will be responsible for cancelling a number of credits equivalent to those created for the low-carbon-intensity fuel upon its production or import. In the case where a producer/importer knows that it is selling a fuel to a party that intends to export it, the producer/importer may chose to refrain from creating credits and provide evidence to the buyer that no credits were created. With that evidence, the fuel exporter will not have to cancel credits. The Clean Fuel Standard will require third-party verification for exported low-carbon intensity fuels to ensure the regulatory requirements, including credit cancellation, are met.

9. Verification The Clean Fuel Standard is a market-based instrument, the success of which is dependent on the trust and confidence in the credit market. A robust program that comprises requirements for validation, certification and verification ensures consistent quality and robustness of data and informationand an assurance that credits are valid, in turn promoting greater liquidity in the credit market. The Clean Fuel Standard will have requirements for validation, certification or verification for the key elements supporting the reporting of information, creation of credits, carbon intensity values and trading system. These requirements are in line with similar programs, such as the United States Renewable Fuel Standard 2, California’s Low Carbon Fuel Standard and the European Union’s Renewable Energy Directive II. The following is a summary of the major provisions related to this program: Validation of applications for obtaining an approved carbon intensity for low-carbon-intensity fuels where 12 consecutive months of steady-state operating data is not available;

of applications for obtaining an approved carbon intensity for low-carbon-intensity fuels where 12 consecutive months of steady-state operating data is not available; Verification of data submitted for the purpose of: obtaining an approved carbon intensity for low-carbon-intensity fuels or electricity where 12 consecutive months of steady-state operating data is available; demonstrating that the low-carbon intensity fuel or the electricity supplied in the compliance period is accurately represented by the approved carbon intensity value (Carbon Intensity Pathway Report); credit creation (quarterly and annual Credit Creation Reports are verified annually); demonstrating that an original equipment manufacturer or a charging network operator has invested the net credit proceeds according to the requirements to reinvest electric vehicle credit revenues (Net Credit Proceeds Report); quantifying base case emissions and reductions resulting from the greenhouse gas emission reduction project in a compliance period; quantifying the reduction requirement and demonstrating compliance (Compliance Report / Credit Clearance Mechanism Compliance Report); and credit trading transactions (currently under consideration);

of data submitted for the purpose of: Certification of: imported low-carbon-intensity fuels for the purpose of creating credits; and imported feedstock used to produce low-carbon-intensity fuels or used in greenhouse gas emission reduction projects for the purpose of creating credits;

of: Data quality requirements for the quality of: the quantification methodology for CO 2 e emission reduction projects, using ISO 14064-2: 2019 Greenhouse gases – Part 2; and monitoring requirements (including the data management system and controls) for entities that will be required to obtain verification and validation of their reports or applications;

for the quality of: Qualifications and accreditation requirements for third-party validation bodies, verification bodies and certification bodies;

for third-party validation bodies, verification bodies and certification bodies; Reporting requirements for verification and validation, as well as for certifications; and

for verification and validation, as well as for certifications; and Procedures for the conduct of validation, verification and certification processes. 9.1 Verification and validation procedures Verification and validation will have to be conducted in accordance with procedures set out in the standard ISO 14064-3: 2019 Greenhouse gases - Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions in addition to specific requirements set out in the Clean Fuel Standard. Some key requirements are summarized below. ISO 14064-3: 2019 requirements for conducting verification of greenhouse gas statements related to greenhouse gas inventories, greenhouse gas projects and carbon footprints of products; requirements for validating the assumptions, limitations, and methods that support a statement about the outcome of future activities or projects; requirements to perform verification in accordance with the risk-driven approach; requirements and guidance for persons performing verification and validation of greenhouse gas data and information; and requirements for site visits and situations for which site visits are mandatory.

Clean Fuel Standard specific requirements a reasonable level of assurance to conduct verification; the materiality thresholds to be used for validation or verification; quantification methods, application processes and reporting requirements that will be included in the verification and validation assessments; the submission of a verification or validation report, including the corresponding opinion; and certifications for imported feedstock or imported low-carbon-intensity fuels.

9.2 Verification or validation outcome Environment and Climate Change Canada will require an unmodified or a modified opinion from the verification or validation processes in order to consider that the requirements of the Clean Fuel Standard have been adhered to by the party undergoing verification or validation. This means that the third-party performing the verification or validation processes must come to the conclusion and state that there is a reasonable level of assurance that the submitted data, report or application contains no material errors, omissions or misstatements and that it was prepared in accordance with the regulations. Types of opinion The opinion issued by the verifier should report the conclusion reached by the verifier on whether the criteria were applied appropriately in all material respects and that the information adheres to the requirements in the regulations. The opinion issued by the validator should report the conclusion reached by the validator on whether the assumptions are a reasonable basis for the forecast and that the forecast has been prepared in accordance with the regulations. Validators and verifiers can arrive at three types of conclusions: unmodified, modified, and adverse. An unmodified opinion can be issued when there are no material misstatements and the submitted data, report or application has been prepared in accordance with the regulations. A modified opinion has no material misstatements but there is departure from the regulation or a limitation on the scope. In issuing a modified opinion, the validator and/or verifier should report a description of the departure and limitation and if any, adjustments that could be made to the submitted data, report or application. An adverse opinion is issued when there are material misstatements in the submitted data, report or application and/or the submitted data, report or application has not been prepared in accordance with the regulation. The validator and/or verifier must provide an adverse opinion if: there is a material quantitative discrepancy that exceeds the Clean Fuel Standard regulatory Material Threshold; or

the relative error exceeds the Clean Fuel Standard Material Threshold; or

there is a qualitative finding that is deemed to be material. Disclaimer In both validation and verification, a validator or verifier may disclaim a validation or verification in the event there is insufficient information to arrive at a conclusion. A disclaimer is not an opinion because a conclusion cannot be formed. 9.3 Certification outcome For imported feedstock and for imported low-carbon-intensity fuels that create credits under the Clean Fuel Standard, Environment and Climate Change Canada will require the submission, by the importer or by the fuel or feedstock owner, of a certification (including the supporting documentation) stating that the imported feedstock or the imported low-carbon-intensity fuels adhered to the Clean Fuel Standard requirements. 9.4 Qualifications and eligibility of third-parties performing verification, validation and certification The Clean Fuel Standard will set out the qualifications and eligibility criteria for third parties performing verification, validation or certification under the regulations. These include technical competencies, official accreditations and independence requirements. Technical competencies and accreditation requirements To be accredited to perform verification, validation or certification for the Clean Fuel Standard, a third-party must: be an organization (rather than an individual);

be accredited by the Standard Council of Canada or by the American National Standards Institute to all of the following standards: ISO 14065: 2013 Greenhouse gases – Requirements for greenhouse gas validation and verification bodies for use in accreditation or other forms of recognition; ISO 14066: 2012 Greenhouse gases – Competence requirements for greenhouse gas validation teams and verification teams; ISO 14064-3: 2019 Greenhouse gases - Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions; and ISO 14064-2: 2019 Greenhouse gases - Part 2: Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements; ISO 14040:2006 Environmental Management - Lifecycle Assessment - Principles and Framework;

demonstrate that they have the skills and experience to address the subject matter and conduct the validation and/or verification;

have technical competence in the applicable technical area(s) described in Annex VII and is accredited to the applicable technical area; and

have a qualified independent reviewer – the independent reviewer must have the following skills and experience: familiarity with the quality control procedures of the validation and/or verification body; experience in conducting validations or verifications; an understanding of the technical area; an understanding of the requirements of an independent reviewer; and, an understanding of the documentation requirements for the reviewer's role including documentation of discrepancies and their resolution.

In addition to the criteria above, a third-party who wishes to be accredited for certification under the Clean Fuel Standard will have to be accredited by the American National Standards Institute to the standard ISO/IEC17065 : 2012 - Conformity assessment – Requirements for bodies certifying products, processes and services. Independence requirements A third-party who wishes to be accredited under the Clean Fuel Standard cannot have a real or potential threat to independence, or a real, perceived or potential conflict of interest that compromises its impartiality. A third-party cannot perform validation or verification activities for a specific client for more than six 