Canada's environmental regulators may reconsider a fast-approaching low-carbon fuel deadline threatened by a lack of key participants.
Environment and Climate Change Canada (ECCC) confirmed "concerns from credit creators" about the feasibility of a 30 June deadline to create the country's first low-carbon fuel standard (LCFS) credits. A dearth of approved auditors this spring could leave valid credits without the verification needed create an early compliance cushion for the program.
The agency did not comment on any specific actions in emailed responses to questions late last week.
"ECCC will be working directly with credit creators to address this issue," the agency said.
LCFS programs require yearly reductions in transportation fuel carbon intensity. Suppliers of higher-carbon fuels exceeding the annual limit incur deficits they must offset with credits generated from lower-carbon fuels distributed in the market.
Canada finalized its Clean Fuel Regulations (CFR) last summer. Suppliers in July start accruing deficits for the gasoline and diesel road fuels they produce for the Canadian market.
Regulators allowed certain low-carbon fuels supplied since last summer — before the start of carbon intensity cuts — to generate credits. These early, 2022 fuels would help create an estimated bank of 3.7mn metric tonnes of credits available to ease the tightening requirements ahead. The ECCC estimates obligated parties will need 4.7mn t of credits to comply with 2023 obligations.
But suppliers must document the fuels in a verified report due 30 June to make them eligible for the program. Canada reported 138 unique parties, including 84 credit creators, registered to participate in the program this spring. As of 12 May, accrediting bodies and the ECCC confirmed a single certified verifier. At least two others — US firms Ecoengineers and SCS Global Services — remained in the certification process.
Anxiety among credit generators climbed as the deadline approached.
"We have been on a dead sprint, trying to get approved by that deadline so we can service these clients," said SCS Global Services director of low carbon fuel regulations Scott Coye-Huhn.
Third-party verification audits the transfers, sources and documentation for fuels moving through the regulated fuel market. Verification can improve confidence in the program for both participants and those responsible for administering it. California and Oregon added the independent auditing requirements years after launching their respective programs. Washington, which began requiring reductions this year, does not yet require third-party verification of reports. British Columbia, which has and will continue to operate a provincial LCFS, similarly does not require third-party verification.
Canadian importers and producers of renewable fuels will file both quarterly and annual reports detailing this information to the regulator. Beginning next year, participants need only verify the annual reports.
The Canadian program requires internationally recognized, independent accreditation. The incorporation of another third party, with its own criteria and pace, also removes some regulator control over the process. California and Oregon regulators approve companies to conduct verification. California has 30 accredited verification companies, and Oregon 18.
The newness of the Canadian program adds other challenges. Each LCFS operates under the same, over-arching principles, but with independent approaches, carbon assessments and other technical details. The first assessment can often take the longest, generators and verifiers said, as both parties become familiar with specific program demands.
Initial checks can add four to six weeks to a process than may already take several weeks to satisfy, Ecoengineers chief executive Sashi Menon said. But verifiers can also work on multiple companies and across multiple jurisdictions at the same time.
"Having done this for many years, we don't really have much difficulty launching a new program," Menon said. "Having said that, there are always unknown unknowns, and the best-intentioned policies can stumble during implementation."
Some companies have hoped for more time to deliver the first, 30 June report. ECCC did not comment on whether that was under consideration.
"If for some reason we do not get approved in time, I have to make sure my clients get taken care of," Coye-Huhn said. "So I am hoping that Canada is going to allow a little bit of an escape valve here."
