Revised questions and answers on the Federal Renewable Fuels Regulations: part 2


Sections 10 and 11 (and Schedule 2) - Participants in the Trading System

J.1: Who is eligible to elect into the trading system and become participants?

Under section 11 of the regulations, a person who registers with Environment Canada and does one or more of the following activities may become an elective participant:

  • blend renewable fuel with liquid petroleum fuel,
  • produce liquid petroleum fuel, other than gasoline, diesel fuel or heating distillate oil, by using biocrude as a feedstock,
  • import liquid petroleum fuel, other than gasoline, diesel fuel or heating distillate oil, with renewable fuel content, or
  • sell neat renewable fuel to a neat renewable fuel consumer, or use the neat renewable fuel themselves.

A primary supplier is not an elective participant - they are automatically a participant in the trading system. The exception to this is small-volume primary suppliers who are exempt under section 2 of the regulations; however they may opt into the regulations under section 3.

J.2: What do I need to do in order to participate in the trading system?

You must meet the conditions of an elective participant as set out in section 11 of the regulations and submit to Environment Canada the information specified in registration report in Schedule 2 of the regulations, at least one day before you first create a compliance unit.

J.3: Do I have to make an election every year?

No. You need to make an election only once.

J.4: What will I be required to do if I elect to be an elective participant?

You will be required to comply with the regulations in full, including all recordkeeping, reporting and audit requirements. Elective participants do not have to meet the requirements for renewable fuel described in Part 1.

J.5: I want to create compliance units but do not want to have to meet all the requirements placed on a participant. How do I create compliance units without becoming a participant?

You cannot. Only a participant may create compliance units.

J.6: I blend very small volumes of renewable fuel. Am I required to participate in the trading system?

No. There is no obligation to register as an elective participant and hence participate in the trading system and you cannot create or trade compliance units.

Nevertheless, if you wish to participate, you may, by electing into the trading system, no matter how small the volume of renewable fuel that you are blending.

J.7: If I produce or import gasoline, diesel fuel or heating distillate oil, can I elect to participate in the trading system?

No. As a primary supplier, you are automatically a participant in the trading system. The exception is small-volume primary suppliers who are exempt under section 2 of the regulations; however, such persons may opt into the regulations under section 3.

J.8: If I produce or import only heavy fuel oil, jet fuel or fuel other than gasoline, diesel and heating distillate oil, can I elect to participate in the trading system?

Yes, you can if you do one or more of the following activities:

  • blend renewable fuel with your petroleum fuel,
  • produce your petroleum fuel by using biocrude as a feedstock,
  • import your petroleum fuel with renewable fuel content, or
  • sell neat renewable fuel to a neat renewable fuel consumer, or use the neat renewable fuel yourself.

J.9: When do I have to submit the registration report?

You must submit your one-time registration report at least one day before you create a compliance unit.

J.10: What happens if the information I submitted in my registration report changes?

If the registration information changes, other than the information in items 1(b) and (c) of Schedule 2 of the regulations (the contact information), you must submit a notice to Environment Canada that updates the changed information. This must be done no later than five days after the change. This requirement and the timing for the notice are the same as in other federal fuel regulations. If you do not submit the updated data by this time, you would be in contravention of the regulations.

As of August 28, 2011, information regarding the company name and address (item 1(a)) is required to be updated. This is to facilitate Environment Canada tracking the company's information in its database.

J.11: What information is required when I register a new blending facility?

You must provide the information listed in Schedule 2. If, because the facility has just begun operations, there is no volumetric data for the previous year, then you would enter a zero for that information.

J.12: What if I do not know some of the information that is asked for in the registration report in Schedule 2 of the regulations?

In Schedule 2, some of the information is qualified by the phrase "if known". For such information, if you do not know it, you are not obliged to report it. If this phrase is not present, you are obligated to submit the information to Environment Canada.

The information collected under this and other registration reports is intended to assist Environment Canada in understanding your operations and the operations of other regulated parties, and assist in a more effective and efficient administration of the regulations.

J.13: Why is the trading system limited to only those who undertake one of the specified activities? Why cannot anyone participate in the trading system?

Primary suppliers are obligated to meet the requirements for renewable fuel in their gasoline and distillate pools (the volumes of gasoline, diesel fuel and heating distillate oil that they produce and import). The sole mechanism for demonstrating compliance with these requirements is the ownership of compliance units. It is therefore imperative that compliance units are easily accessible to primary suppliers, which is facilitated through the various limitations on the trading system, such as this limitation on participation. These limitations are also intended to minimize the possibility of some parties potentially speculating on the price of compliance units.

J.14: If I wish to withdraw from the trading system, what must I do?

Under subsection 11(3) of the regulations, an elective participant may withdraw from the trading system at any time. Such a person must send a notice advising Environment Canada of the date of their withdrawal, provide any outstanding annual reports and the auditor's reports and cancel any remaining compliance units that they own as of the date of their withdrawal.

A small-volume primary supplier who has opted into the regulations may rescind their opt-in by fulfilling similar conditions, pursuant to subsection 3(3).

J.15: Does an elective participant need to make records and submit annual reports if they do not create any compliance units in a given compliance period and have not opted out of the trading system?

Generally, no. Records by an elective participant are only required for the creation of compliance units, if any, and reports are only required for compliance periods in which compliance units were created. Nevertheless, an elective participant in such a situation might consider informing Environment Canada of their situation.

An elective participant in this situation may still have to keep records or make reports under other provisions of the regulations (for example, if they imported or produced renewable fuel).

Sections 12 to 16 - Creation of Compliance Units

K.1: What are the various ways by which compliance units may be created? When are compliance units created?

View table that summarizes the ways that compliance units may be created and when they are created.

K.2: Can I create compliance units by blending renewable fuel into the fuels excluded under subsection 6(4) of the Regulations (e.g., fuel used in Newfoundland or used in aircraft)?

Yes, you may. The exclusions under subsection 6(4) only relate to the calculation of a primary supplier's pool; the exclusions themselves do not place limits on the type or use of fuel to which renewable fuel may be blended into, however the type of compliance unit created does depend on the petroleum fuel into which the renewable fuel is blended (refer to section 13).

K.3: How are compliance units used under the regulations?

Compliance units are used by producers and importers of gasoline, diesel fuel and heating distillate oil to demonstrate their compliance with the renewable fuel requirements of the regulations. A compliance unit may only be used once and only to demonstrate compliance in respect of a compliance period during which it was created, or carried forward or carried back into.

K.4: Does Environment Canada issue the compliance units?

No. Compliance units are created by participants in the trading system.

K.5: I am a participant. How exactly do I "create" a compliance unit? Once it is created, where does it exist and how do I identify it?

You create a compliance unit by fulfilling the requirements of sections 12 to 17 of the regulations and making the records required under sections 31 and 32. Once created, the compliance unit exists as the record you have made, pursuant to section 32, and in your compliance unit account book, pursuant to section 31. The entry in the account book must be supported by other records required under these regulations and by supporting documentation.

K.6: I blend renewable fuel with petroleum fuel - how do I get compliance units?

Provided you are a participant, you may create compliance units upon blending (refer to sections 13 and 17 of the regulations).

K.7: If I blend renewable fuel with petroleum fuels, can I buy compliance units?

Unless you are also a primary supplier (a producer or importer of gasoline, diesel fuel or heating distillate oil), you cannot acquire compliance units from others. You may create compliance units yourself and sell them to primary suppliers, if you have elected to participate in the trading system.

K.8: I am not involved in the fuels business, but would like to buy compliance units - how do I do this?

You cannot acquire any compliance units.

K.9: If I blend renewable fuel into a liquid petroleum fuel but have not submitted a registration report and am not a primary supplier, can I create any compliance units?

No, you cannot. Only elective participants and primary suppliers may create compliance units. You must submit a registration report under section 11 of the regulations to become an elective participant prior to creating compliance units.

K.10: If I am not a primary supplier, do I have to register in order to create compliance units?

If you are not a primary supplier but wish to create compliance units, you may elect to participate in the trading system by registering under section 11 of the Regulations. You must meet the criteria specified in that paragraph 11(1)(a) in order to register.

K.11: Will there be government validation or clearinghouse for compliance units as a way to protect obligated parties against involuntary non-compliance from acquiring non-valid compliance units?

No, Environment Canada will not validate compliance units. The regulations have requirements for third-party audits and records and reports will be subject to inspections by Environment Canada's enforcement officers.

K.12: Why isn't a compliance unit created upon production or import of renewable fuel, in the same way that a RIN is created under the U.S.Renewable Fuel Standard? Why does the regulation not include provisions for identification numbers for compliance units, like the U.S. EPA has for RINs?

The creation of RINs (compliance units) under the U.S. system is done by producers and importers of renewable fuel, for each batch of renewable fuel produced or imported. That approach requires extensive tracking of individual batches and RINs from cradle to grave and links each RIN to a particular batch of renewable fuel.

The Canadian regulation shifts the creation of compliance units "downstream" to the point of blending (and of import of blended liquid petroleum fuels). The persons doing these activities are often the obligated party under these regulations. By leaving out the front end of the distribution chain of the renewable fuels, the approach is simplified and facilitates acquisition of compliance units by the obligated party. In addition, this approach does not require identification numbers to link compliance units to individual batches of renewable fuel, nor tracking of those batches throughout the distribution chain.

K.13: In the case of multiple parties owning or importing a batch that is blended, are there any requirements on the agreement between them identifying the creator of the compliance unit? What if the parties cannot reach an agreement?

Such an agreement must be in writing, signed by all parties, and must identify a single party as being designated to be the creator of the compliance units. At the discretion of the parties involved (and outside of the scope of these regulations), the agreement may or may not cover other issues, such as any subsequent distribution of the compliance units, management fees, future obligations, etc. If parties cannot reach an agreement, no compliance units are created.

K.14: How many owners can the blended batch have? How many owners can the pre-blended batch have?

The regulations do not limit the number of owners a batch may have (either the blended batch or the pre-blended batch). The limitation under subsection 12(2) of the regulations is that if the owners wish to create any compliance units from blended batch, they must have an agreement designating one of the owners to be the sole creator and owner of the compliance units.

K.15: I own a terminal where products are blended with renewable fuel. Do I own all the compliance units created at my terminal?

Not necessarily. Ownership of compliance units created from blending renewable fuel with liquid petroleum fuel is based on who owns the blended fuel (that is, the fuel that is created from the blending of the renewable fuel and the liquid petroleum fuel) upon its blending.

K.16: At a terminal, I blend renewable fuel that I own into liquid petroleum fuel that I own. The blending takes place in the dispensing pipe that fills a tanker truck. Who creates the compliance unit, me or the owner of the fuel when it is in the truck?

The person who creates the compliance unit is the person who owns the blended fuel at the moment of its blending, even if the blending is in a dispensing pipe and only seconds before the ownership of the fuel is transferred.

K.17: During a blending process, I use a monthly gauge balance method to measure my volume. When must the record of the volume be made? When is the compliance unit created?

Section 37 states that "records must be made as soon as feasible but no later than 15 days after the information to be recorded becomes available." In this case, the information to be recorded would not be available until the end of the month. So, the record would have to be made as soon as feasible after the end of the month but no later than 15 days after the end of the month.

K.18: At the end of blending season, I use diesel fuel to flush out my storage tank containing renewable fuel. Is this considered blending? Do I create distillate compliance units?

Yes, this would be considered blending of a renewable fuel with a petroleum fuel, but there is no obligation to create a compliance unit. You must create records under sections 31 and 32 in order for you to create compliance units. Subsection 13(4) states that "Without that recording, the compliance unit is deemed never to have been created." If you do not wish to create compliance units from this blending, no record need be made and no volumes need be measured. However, if you do wish to create compliance units, records and measurements of volume must be made according to the provisions of the Regulations (refer to sections 4 and 35 and Schedule 8). Note that in order to create compliance units, the renewable fuel in the bottom of the tank must also fully comply with the definition of "renewable fuel" in subsection 1(1) of the Regulations.

K.19: At the beginning of the blending session, I add a new stock of renewable fuel to my storage tank that contains last session's leftover fuel (the "heel"). Do I create compliance units?

If the heel (that is, residual liquid in the tank) meets the definition of "gasoline", "diesel fuel" or "heating distillate oil", then you may create the applicable compliance unit, provided that the measurement method for this operation meets the requirements of section 4 and has been reported accordingly under section 35 and Schedule 8. You must also make sure that if you create these compliance units all applicable records are made under sections 31 and 32. Note that if the heel does not meet one of those definitions, no compliance units can be created from this blending operation.

K.20: What does it mean that the creation of a compliance unit is confirmed on recording of the prescribed information? What happens if I do not record the information until sometime after the time of creation? What if I do not have all the required information?

The creation of compliance units occurs at the time of blending, importation, use of biocrude or the time of sale or use of the neat renewable fuel. However, this creation is not confirmed(or realized, validated or finalized) until the recording of the required information. If the recording were never made, then the associated compliance unit would be deemed to never have been created.

The issue of the timing of the recording is significant. For example, if a batch were blended on December 28, 2014, compliance units would be created on December 28, 2014, even if the records were not made until January 13, 2015. In other words, those compliance units could only be used in respect of the 2014 compliance period, not for the 2015 compliance period (unless they were subsequently carried forward pursuant to sections 21, 22 or 23 of the regulations).

K.21: What is the status of compliance units that I have created but not yet confirmed pursuant to sections 13 to 16 of the regulations? Do they actually exist? Do I own them? Can I trade them?

The creation of compliance units must be confirmed(that is, crystallized, perfected, validated or finalized) by the recording of the required information under sections 31 and 32. If the recording is never made, then the associated compliance unit are considered to never have been created. As such, compliance units created but not yet accurately confirmed cannot be owned or traded.

K.22: I am a trading system participant. I carried out an action listed in sections 13 to 16 of the regulations and made records regarding this. Four months later, I discover that I made an error and that the records I made do not reflect the true number of compliance units (either more or less) that I should have created for that action. How do I correct this? What is the status of the compliance units?

Sections 13 to 16 stipulate that confirmation of the creation of a compliance unit occurs on the making of a record of its creation, referred to in section 31 which sets out the information that must be recorded in the compliance unit account book, and a record of certain other information set out in section 32. Subsection 31(3) stipulates that the record in the compliance unit account book must be made within 15 days after the end of the month in question. If, after duly recording this information, you discover an error in the information as recorded, you must correct it as soon as possible. The correction is required in order to ensure that the confirmation accurately records the compliance unit that was actually created. As stipulated in subsections 13(4), 14(4), 15(4) and 16(4), without that recording of the actual information required, the compliance unit is considered to have never been created.

Finally, if the corrected entry is made more than 15 days after the end of the month in question, you would be in contravention of subsection 31(3).

K.23: Where did the ratios for the two types of biocrude come from? How were they developed?

The ratios for the two types of biocrude were developed in consultation with the Industry Technical Advisory Group. The ratios set out in the regulations were generally agreed upon by that group based on information that was available at the time. If more information becomes available in the future on the use and yields of biocrude, these ratios might be adjusted through amendments to the regulations.

K.24: Why does triglyceride-derived biocrude create more distillate compliance units than other types of biocrude?

Because of the nature of triglyceride-derived biocrude and refinery processes, current information suggests that most of this type of biocrude will end up in distillate products. This biocrude also has fewer yield losses. Consequently, the use of this type of biocrude creates 17 distillate compliance units for each 20 litres of biocrude used, but does not create any gasoline compliance units. If new data become available in the future on the use and yields of biocrude, this ratio might be adjusted through amendments to the regulations.

K.25: Why are gasoline compliance units created through renewable content in fuels other than gasoline?

The Government of Canada is committed to expanding the production and use of all renewable fuels. While it is expected that gasoline compliance units (which can only be used to meet the renewable fuel requirement for gasoline) will be created mostly from the addition of ethanol into gasoline, the regulations also provide the flexibility to create gasoline compliance units by the addition of any renewable fuel to liquid petroleum fuels other than diesel fuel and heating distillate oil (which would create distillate compliance units).

K.26: Is there any maximum limit on the number of distillate compliance units that I can assign to meet the gasoline requirements?

No, but you cannot assign more distillate compliance units than you own.

K.27: Can I create compliance units from the use of neat renewable fuel in industrial boilers and domestic-type oil burners?

Yes, you can, provided you meet the conditions of section 16. The type of compliance unit created depends on the type of combustion device. Pursuant to the provisions of the regulations:

  • If the neat renewable fuel is used in a domestic-type oil burner, one distillate compliance unit may be created for each litre of neat renewable fuel so used.
  • If the neat renewable fuel is used in an industrial boiler, one gasoline compliance unit may be created for each litre of neat renewable fuel so used.

Note that under the regulations, "neat renewable fuel" is biodiesel, or another renewable fuel that is

  • produced at a facility that uses only renewable fuel feedstock for the production of fuel;
  • suitable for use in a combustion device; and
  • chemically indistinguishable from gasoline, diesel fuel, heating distillate oil, or another liquid petroleum fuel that is suitable for use in a combustion device.

Also refer to question H.2.

K.28: Can I create compliance units from the use of neat renewable fuel in engines?

Yes, you can, provided you meet the conditions of section 16. The type of compliance unit created depends on the type of engine. Pursuant to the provisions of the regulations:

  • If the neat renewable fuel is used in a diesel engine, one distillate compliance unit may be created for each litre of neat renewable fuel so used.
  • If the neat renewable fuel is used in a gasoline engine, one gasoline compliance unit may be created for each litre of neat renewable fuel so used.

Also refer to question H.2.

K.29: Do I get compliance units from using a fuel with a renewable content or neat renewable fuel in my fleet of vehicles?

In the case of using a fuel with renewable content, compliance units may be created by the owner of the blended fuel upon its blending, or by the importer, upon its import (refer to section 13 of the Regulations).

In the case of using a neat renewable fuel, the participant who sells the neat renewable fuel to a neat renewable fuel consumer may create compliance units according to paragraphs 16(1)(a) and 16(2)(a). A participant who uses the neat renewable fuel himself may only create compliance units from using neat renewable fuel that they produced or imported (see paragraphs 16(1)(b) and 16(2)(b)).

K.30: I purchased a batch of ethanol-blended gasoline with 10% ethanol content (e.g., E10). I then blended more ethanol into it so the final batch has 85% ethanol content. How many compliance units are created? How do I document this?

You would create 1 gasoline compliance unit for each litre of ethanol that you blended into the batch of E10. You would not create any compliance units from the ethanol that was already in the batch of E10. To create the gasoline compliance units for the blending that you did, you would have to make the required records under subsections 32(1) and 32(3) of the regulations and in the compliance unit account book under section 31. Note that you must be the owner of the final batch upon its blending in order to create the compliance units.

K.31 What is high-renewable-content fuel?

Refer to question B.41.

K.32: What records and documentation are required in order to create compliance units in respect of the sale or use of high-renewable-content fuel and neat renewable fuel?

You must have records establishing that either:

Option 1 -

  • the fuel was sold in Canada for use as fuel in a combustion device and was identified as being high-renewable-content fuel or neat fuel in a cautionary statement that identifies the renewable fuel type, and in the case of high-renewable-content fuel its minimum renewable fuel content, and that states that it may not be suitable for some engines and that the owner's manual ought to be consulted; and
  • the statement was on the fuel dispensing device in a location and manner to be easily read by a person while dispensing the fuel, or in a document provided, prior to the sale or transfer of the fuel, to the person who will use it as fuel in a combustion device; or

Option 2 -

  • you produced or imported the fuel and then used it in Canada as fuel in a combustion device. In addition, you must have records establishing the type of combustion device and the address of each facility to which the high-renewable-content fuel or neat renewable fuel was delivered to be dispensed into a fuel tank of a combustion device and the date of that delivery; or

Option 3 -

  • you produced or imported high-renewable-content fuel (e.g., B50), and it was subsequently blended at a blending facility to result in liquid petroleum fuel that was not high-renewable-content fuel (e.g., B5 or lower blends).

K.33: Why is the cautionary statement as set out in the above answer required?

This more stringent level of proof is required because the blend levels are greater than are currently accepted in the marketplace and for which vehicle manufacturers warranty engines.

K.34: Does the cautionary statement for high-renewable-content fuels have to be in both official languages even if the document is a contract between the trading system participant and the fuel users?

Yes, it does. Refer to subparagraph 32(3)(a)(i).

K.35: If I sell a fuel with a high content of a renewable fuel which is indistinguishable from petroleum fuel, do I have to provide a cautionary statement to the consumer of that fuel?

No, you do not. Such fuel is specifically excluded from the regulatory definition of "high-renewable-content fuel". Therefore, subsection 32(3) does not apply to that fuel and so no cautionary statement is required.

K.36: Why are records required on the type of combustion device and facilities to which the high-renewable-content fuel was delivered?

The type of compliance unit created depends on the type of combustion device. These records are also required because of the greater potential for high-level blends to be re-blended and potentially used to create a second set of compliance units based on the same volume of renewable fuel.

K.37: How do I know how much renewable fuel is in gasoline, diesel fuel or heating oil that I import?

To create any compliance units from your imported fuel, you must make or have a record that quantifies the volume of renewable fuel in the imported fuel, and contains all the information required by subsection 32(2) of the regulations. If the imported fuel is high-renewable-content fuel, you must have a record that contains all the information required by subsection 32(3) as well. The determination of the volume must be done in accordance with section 4.

K.38: If I import a batch of "E10" gasoline, what volume do I include in my pool? How many compliance units do I create?

You must include the entire volume of the batch of E10 gasoline in your pool; however, under subsection 6(5) of the Regulations, you may subtract from your pool the actual volume of renewable fuel contained in the batch if you have a record that establishes that that volume is renewable fuel.

Under section 14 of the Regulations, you may create one gasoline compliance unit for each litre of renewable fuel contained in the imported batch of E10 gasoline. Under section 32(2) of the Regulations, you must also make a record of the volume of renewable fuel contained in that batch.

K.39: Could I import a cargo of E85, add gasoline to dilute the mixture to less than 10% by volume and sell the resulting product as E10 on the local market, and create the applicable amount of gasoline compliance units for the E85?

No, you could not. Compliance units for such high-renewable-content fuels are only created where there is a record made under subsection 32(3) of the regulations that evidences the actual combustion of the E85 fuel or sale to its final consumer. Refer to subsections 13(3), 14(3) and 32(3).

K.40: Can I use my surplus compliance units to create offsets under a federal or provincial greenhouse gas offset program?

This would be determined by the rules of the offset program. You would need the federal or provincial authority responsible for the offset program to answer this question for you.

Section 17 - Limitations on Creation of Compliance Units

L.1: Where do the limits on renewable fuel content come from?

The regulations set a maximum level of renewable content in petroleum fuels for creating compliance units. The maximum level is 80% for all non-gasoline fuels, based on the U.S. level for diesel fuel in respect of incentives. For gasoline, the maximum level is 85% to account for the use of E85 fuel.

L.2: Why are the limits necessary?

The maximum limits establish boundaries between "renewable fuel" and "liquid petroleum fuel" with high renewable content. They have been set to address the potential of a person blending a small volume of gasoline into a renewable fuel and being able to create significant quantities of compliance units and manipulate the market for compliance units. The maximum limits create a "buffer zone" between what is renewable fuel and what is liquid petroleum fuel with renewable fuel in it.

Under the definition of renewable fuel in the Renewable Fuels Regulations, a renewable fuel may contain some non-renewable substances. For example, in the case of ethanol, this may be up to 4.76% denaturant plus another 1.0% additives and other non-renewable substances and 1.0% water. Therefore, under the regulations, E94 (gasoline with 94% ethanol content) would be a renewable fuel, whereas E92 would not be a renewable fuel. To remove any ambiguity and any possibility of double creation of compliance units when blending at these high levels, maximum limits have been established (as noted above) for the creation of compliance units from these high-renewable-content fuels.

These maximum blend limits for creation of compliance units also apply to liquid petroleum fuels with renewable content that is chemically indistinguishable from the liquid petroleum fuel. Even though such fuels are not encompassed in the definition of "high-renewable-content fuel", the limits and limitations regarding creation of compliance units still apply in this regard.

L.3: How many compliance units do I create if I blend or import a batch of liquid petroleum fuel that exceeds these limits on renewable content? Do I create compliance units up to the limit?

You do not create any compliance units for the blending or importation of such a batch of fuel. This limitation also covers the situation when the renewable content is from a renewable fuel that is indistinguishable from liquid petroleum fuel.

L.4: I purchased a batch of ethanol-blended gasoline with 10% ethanol content (e.g., E10). I then blended more ethanol into it so the final batch has 86% ethanol content. How many compliance units do I create? What happens to compliance units that were created in respect of the original 10% ethanol content?

You do not create any compliance units, because the blended batch exceeds the maximum limit of 85%, set out in paragraph 17(1)(a) of the regulations. The person who blended the original batch of E10 retains the gasoline compliance units that they created, because they were created in respect of a different batch.

L.5: Paragraph 17(1)(c) of the regulations stipulates that no compliance units are created "in respect of a batch of renewable fuel that results from blending". What does that wording mean?

This provision is intended to prevent potential creation of a second set of compliance units based on the same volume of renewable fuel in the situation where a batch of high-renewable-content fuel, E85 for example, is blended with enough renewable fuel that the resulting batch meets the definition of renewable fuel (which allows for small amounts of non-renewable material). Such a resulting batch of renewable fuel could then be blended again with petroleum fuel to create a second quantity of compliance units. This provision, in conjunction with the recordkeeping and reporting requirements of the regulations, is intended to prevent that possibility.

L.6: How were the requirements pertaining to use of municipal solid waste as a renewable fuel feedstock developed?

The limitations on the use of municipal solid waste as a renewable fuel feedstock were developed in consultation with the Canadian Renewable Fuels Association, as a subgroup of the Industry Technical Advisory Group during consultations in the spring of 2009. Following publication of the proposed regulations, paragraph 17(2)(b) was adjusted to address comments received. That provision requires records demonstrating that the municipal solid waste was sorted and pre-processed at a facility that is designed and operates, in compliance with its operating permit, to remove all but trace quantities of specified hazardous wastes.

L.7: Why must municipal solid waste contain at least 50% biogenic material in order to be a renewable fuel feedstock?

Municipal solid waste can contain large quantities of non-renewable material, particularly plastics. The requirement for a content of at least 50% biogenic carbon is intended to limit the inclusion of plastics and other such non-biogenic material.

If municipal solid waste meets the requirements of subsection 17(2) of the regulations, then each litre of renewable fuel produced from it can create a compliance unit pursuant to sections 13 to 16. If the municipal solid waste does not meet these requirements, no compliance units are created from any fuel produced from it.

L.8: Is the limitation of municipal solid waste too restrictive to encourage diversion of waste from landfills?

Environment Canada considers that the definition is appropriate to encourage the use of municipal solid waste to produce liquid renewable fuels, while ensuring that there is a sufficient level of biogenic material as feedstock in the production of renewable fuel.

Sections 18 and 19 - Ownership of Compliance Units

M.1: When is a compliance unit created?

Please refer to question K.1.

M.2: Can I enter into an agreement as to how compliance units created by one party will be distributed among various parties?

Yes.

M.3: Can I enter into an agreement to jointly own a compliance unit with another party? Can I own a fraction of a compliance unit or a fraction of a jointly-owned pool of compliance units?

A compliance unit can only be owned by one person at a time and is not divisible.

M.4: What happens if I buy compliance units from another party in order to meet my obligation but it is later found that those compliance units were not created?

If the compliance units are found not to have been created, you cannot use them. You must correct your records and compliance unit account book as soon as possible. You should also report the matter to Environment Canada.

M.5: Why are there limits on the number of compliance units that I, as a primary supplier, can own?

Primary suppliers are obligated to meet the requirements for renewable fuel in their gasoline and distillate pools. The sole mechanism for complying with these requirements is through the ownership of compliance units. It is therefore very important that the compliance units are readily accessible to primary suppliers. The various limitations on the trading system, such as this limitation on maximum ownership, are intended to facilitate this and minimize the possibility of parties manipulating the market for compliance units and speculating on the price of these units.

M.6: Do I have to be below the limit on ownership of compliance units at the end of each month, or just at the end of the compliance period?

The limit applies at the end of each month.

M.7: How do I know how many compliance units I own at the end of each month?

Paragraph 31(4)(c) requires you to keep a record of your month-end balance of compliance units.

M.8: There is a limit on the number of compliance units that I may own at the end of each month. Creation of compliance units is not confirmed until I make records under sections 31 and 32, so compliance units created during a month are in "limbo" until these records are made. Do I own any such compliance units that are created but not confirmed at the end of the month? If yes, how can I own them if their creation has not been confirmed?

The recording of the creation of compliance units confirms their existence from the moment of their creation. Consequently, the creator of a "confirmed" compliance unit owns the compliance unit at the end of the month of its creation (unless it is used for compliance or traded after its confirmation). Until confirmation occurs, compliance units are not owned. Also refer to question K.21.

Further, if contrary to subsection 31(3), the record confirming the existence of the compliance unit is not made until later than 15 days after the end of the month in which it was created, the compliance unit is owned, on confirmation, for the purpose of the section 19 limit, at the end of the month in which it was created (and as well at the end of any intervening months). In such a case of a late record, in addition to having contravened subsection 31(3), you may be required to cancel further compliance units with respect to any intervening months.

M.9: Why, under subsection 19(3), is the number of compliance units that a primary supplier owns at the end of a month deemed to not include the number of compliance units transferred in trade that is in excess of the number of units received in trade during the next month?

This provision provides a "true-up" period during which a primary supplier may trade away compliance units in excess of the monthly limits.

M.10: What was the basis for the factors used in the limits on ownership of compliance units? What is the purpose of the two approaches to calculate the maximum number of compliance units allowed?

The factor of six in paragraph 19(1)(a) recognizes that there may be primary suppliers who only deal with E85 fuel. For each 100 litres of E85, there are 15 litres of gasoline and 85 litres of renewable fuel. Therefore, 85 gasoline compliance units are created for each 15 litres of gasoline, or a ratio of 85 to 15, or approximately 6 to 1.

A person who only imports might not import fuel in the first few months of a year. Under paragraphs 19(1)(a) and (2)(a), such a person would have a zero limit for those months. Paragraphs 19(1)(b) and (2)(b) recognize that such a primary supplier could carry forward compliance units and accounts for this with a second limit based on the allowable carry forward of compliance units as set out in sections 21 and 22.

The factor of 0.01 for the limit under paragraph (b) is based on the carry forward provisions, and is derived from 20% of the renewable fuel requirement for gasoline (i.e., 20% of 5% = 0.01). For most months, the limit under paragraph (a) will provide a larger allowance.

M.11: Is there a limit on the number of distillate compliance units that a primary supplier may own prior to the start of the first distillate compliance period?

No. Note however, there is a limit on how many distillate compliance units a primary supplier can carry forward into the first distillate compliance period. (Refer to subsection 22(3)).

M.12: Is there a limit on the number of compliance units that a primary supplier may own during the last three months of a trading period in respect to a compliance period?

No. However, there is a limit for these same three months in respect to next compliance period.

M.13: Why are there no limits on the number of compliance units that an elective participant can own?

The limitations of section 19 are intended to minimize the possibility of some parties acquiring large numbers of compliance units and speculating on the price of these units. As an elective participant cannot obtain compliance units from others, they can own only those that they create. Hence, no explicit limit is needed for elective participants.

Section 20 - Trading of Compliance Units

N.1: How do I "trade" a compliance unit?

The regulations specify that compliance units may be traded. Primary suppliers and elective participants may sell or trade compliance units to others; only primary suppliers may buy or receive compliance units. The latter limitation is included in the regulations to ensure that compliance units flow to persons obligated to meet the requirements for renewable content in the gasoline and distillate pools. Except for these limitations, and some recordkeeping and reporting requirements, the regulations do not specify how trading occurs or how much the compliance units are worth.

N.2: Can I transfer in trade compliance units that I created, but for which I have not yet made records under sections 31 and 32?

No, you cannot. Such compliance units are not yet confirmed in their creation, and if the record is never made they are deemed never to have been created.

N.3: Is trading restricted to primary suppliers only?

Any participant may trade compliance units, provided that the party receiving the compliance units is a primary supplier.

N.4: Why can't compliance units be traded between elective participants?

Primary suppliers must meet the requirements for renewable fuel in their gasoline and distillate pools. The sole mechanism for complying with these requirements is through the ownership of compliance units. It is therefore very important that compliance units be fluid and obtainable by primary suppliers. The various limitations on the trading system, such as this limitation on trading, are intended to achieve this and minimize the possibility of some parties manipulating the market for compliance units and speculating on the price of these units.

N.5: Can anyone buy a compliance unit?

No, only primary suppliers can acquire compliance units from others. No other person can do so.

N.6: Will Environment Canada buy my surplus compliance units? Will Environment Canada sell me compliance units if I need them?

No.

N.7: Compliance units do not have an identification number as RINs do. How do I identify a compliance unit that I trade to or acquire from someone?

Each trade of compliance units is recorded in your compliance unit account book (and the book of the other participant), as required under section 31 of the regulations. You must also record the details of each trade, under subsection 32(6), including the number and type of compliance units traded, the date of the trade, and the name of the other party. You (and the other participant) must submit a summary of these trades to Environment Canada in your annual report. Your auditor must also review the records pertaining to all trades that you undertook during a trading period.

N.8: How do I determine if compliance units I want to buy are valid?

It is up to individual parties to assess the validity of the compliance units that they are buying. Environment Canada receives annual and audit reports from all participants and may inspect participant's records and compliance unit account books to verify compliance with the regulations. Environment Canada does not assess the validity of compliance units for the purposes of validating trades between participants.

N.9: Can I trade at any time? Can I trade any compliance unit?

Compliance units created during, or carried forward into, a compliance period may be traded at any time during the associated trading period; that is, from the start of the compliance period (usually January 1) to March 31 following the end of the compliance period. Compliance units that have been carried back may not be traded.

N.10: Can I trade compliance units created during the previous compliance period?

Compliance units created during a compliance period may be traded during the trading period associated with that compliance period. As the last three months of a trading period falls in the next compliance period (e.g., January 1 to March 31), you may be trading compliance units in relation to two compliance periods during this time. However, compliance units may only be used to establish compliance with the compliance period in which they were created (with the exception of carry forward and carry back provisions).

For example, in order to establish compliance in 2014, you may trade compliance units created in 2014 until March 31, 2015. You may also trade compliance units created during January 1 to March 31, 2015, but those units could only be used for determining compliance in 2015.

In addition, compliance units that were carried forward into a compliance year from the previous compliance period (under sections 21 to 23 of the regulations) may be traded in the trading period associated with the compliance period into which they were carried.

N.11: Can I trade compliance units that will be created during the next compliance period?

No. Only compliance units in existence may be traded. However, this does not preclude the possibility of agreements between participants to trade compliance units once they are created. The actual trade, however, cannot take place until the compliance unit is created and confirmed.

N.12: Can I transfer in trade compliance units that I carried back from the next compliance period?

Any compliance units that were carried back (under section 24 of the regulations) may not be traded once carried it back. This results from the limitation in subsection 20(2) which only allows trading of compliance units created during, or carried forward into, a compliance period.

Since carried-back compliance units cannot be distinguished from other compliance units that a person has, this means that once a primary supplier carries back any gasoline or distillate compliance units, it cannot transfer in trade any compliance units of that type for the compliance period into which the compliance units were carried back. A primary supplier may still receive in trade compliance units.

N.13: Can I trade distillate compliance units that were created during the pre-distillate compliance period?

Yes, you can trade them. Refer to question O.15.

N.14: Are there any limits to the number of compliance units I can trade or receive in trade?

The number of compliance units you can transfer in trade is limited to the number of compliance units that you own. If you are a primary supplier, you may want to retain enough compliance units to meet your renewable fuel requirement for gasoline, and once it is in force, your renewable fuel requirement for diesel fuel and heating distillate oil. As an elective participant, you may wish to trade away all of the compliance units that you created or you can carry forward your compliance units, under section 23 of the regulations, for trading in the next compliance period. The maximum number of compliance units that an elective participant can carry forward is the number of compliance units it created during the compliance period. Note that elective participants cannot acquire compliance units from others.

If you are a primary supplier, there is no limit on the number of compliance units you can receive in trade; however, you must comply with the monthly limits on ownership under section 19 of the regulations. If you are an elective participant, you cannot receive in trade any compliance units.

N.15: What do I provide to other primary suppliers if I wish to trade compliance units to them? What should I receive from primary suppliers from whom I have received compliance units?

A party in a trade must make a record, under subsection 32(6) of the regulations, containing information on the trade, including the name of the other party, the date of the trade, the number and type of compliance units traded. The two parties involved in a trade must provide each other with such information and must record the trade in their compliance unit account book (section 31). The parties must also ensure that all the conditions required for making trades, under section 20, are fulfilled.

N.16: At what price are compliance units to be bought or sold?

The regulations do not set a price for compliance units; this is outside their scope. It is up to individual parties to agree to a price.

N.17: Will compliance units be worth more at the start of a compliance period, or at the end of a compliance period?

This is outside the scope of the regulations. The value of the compliance units will be subject to market forces of supply and demand.

N.18: Proof of combustion for neat renewable fuel may be difficult to establish. If I choose not to buy compliance units created from the use of neat renewable fuel, how will they be separated out?

It is up to you to decide from whom you purchase compliance units. A person who has created compliance units from the sale or use of neat renewable fuel must have records confirming the creation of those compliance units, including records evidencing that the fuel was combusted, or sold for that purpose to a neat renewable fuel consumer. If no such records are made, no compliance units are created. Once created, the regulations do not distinguish between compliance units, other than being either gasoline or distillate compliance units.

N.19: How do I know who I can trade with? Will Environment Canada help me find someone that will buy my compliance units, or to whom I can sell them? Is Environment Canada planning to publish a list of registered participants?

You must find your own trading partners; however, you can contact Environment Canada for a list of registered participants via e-mail at: fuels-carburants@ec.gc.ca.

N.20: Under the regulations, is there any required format for a contract to sell or buy compliance units? And if so, will Environment Canada provide a template for such contracts?

There is no required format for such a contract, and Environment Canada does not intend to provide a template for such a contract.

N.21: Am I required to report the sale price of any traded compliance units?

No, you are not.

N.22: At the end of a trading period, I completed my compliance unit account book and filed my annual report. Subsequently, the validity of some compliance units of a party from whom I purchased compliance units has come into question. As a result, I may have a shortage, and not have enough compliance units to meet my pool requirements. How would I correct this? What are my rights with respect to the seller of the invalid compliance units should I be found in non-compliance of the pool requirements?

Compliance with the Renewable Fuels Regulations is mandatory. You may wish to put in place practices and procedures to ensure the validity of any compliance unit that you receive in trade.

Environment Canada's Enforcement officers apply the Canadian Environmental Protection Act, 1999 in a fair, predictable and consistent manner and will examine every instance of suspected non-compliance with the regulation. If a violation is confirmed, action will be taken using one or more of the enforcement toolsavailable under the Act, such as warnings, directions, tickets, orders of various types, including environmental protection compliance orders, injunction or prosecution.

Sections 21 to 23 - Carrying Forward of Compliance Units

O.1: As a primary supplier, how do I know how many surplus compliance units I have available to carry forward?

The equations for calculating how many surplus compliance units you have are found in subsection 21(2) of the regulations for gasoline compliance units and subsection 22(2) for distillate compliance units. The formulae are basically the number of compliance units you have at the end of the trading period minus the required renewable fuel volume.

O.2: I am a Primary supplier. Is there a limit on the maximum number of surplus compliance units that I can carry forward? Why?

There is a maximum limit on the number of surplus compliance units that can be carried forward. For a primary supplier, the maximum for gasoline compliance units is 20% of your renewable fuel requirement for gasoline (20% of 5% = 0.01), and the maximum for distillate compliance units is 20% of your renewable fuel requirement for diesel fuel and heating distillate oil (20% of 2% = 0.004).

The reason for setting a limit is to help ensure a smooth and predictable demand for renewable fuel. For example, if a person managed to accumulate a surplus of compliance units equal to their next year's pool requirement, that person might not purchase any renewable fuel for that year. This could lead to market uncertainty for renewable fuel and disrupt production.

O.3: I am an elective participant. Is there a limit on the maximum number of surplus compliance units that I can carry forward? Why?

An elective participant may carry forward compliance units up to a maximum of the number of compliance units that they created during a compliance period. These compliance units may be carried forward indefinitely as long as the maximum limit is respected. The reason for setting a limit is to help ensure a smooth and predictable demand for renewable fuel.

O.4: I am a primary supplier. Can I carry forward compliance units in respect of a compliance period prior to the end of that period?

No. You can only carry forward compliance units that are surplus and your surplus cannot be determined until the end of the compliance period.

An exception to this is that distillate compliance units can be carried forward into the first distillate compliance period at the end of the pre-distillate compliance period.

O.5: I am an elective participant. Can I carry forward compliance units in respect of a compliance period prior to the end of that period?

Yes.

O.6: I am a primary supplier. How many distillate compliance units can I carry forward into the first distillate compliance period?

A primary supplier may carry forward unused distillate compliance units created during the pre-distillate compliance period up to a specified maximum. The maximum carry forward of such distillate compliance units into the first distillate compliance period is 0.004 multiplied by the primary supplier's distillate pool, determined using the pre-distillate compliance period (December 15, 2010 to June 30, 2011) as if it were the distillate compliance period (20% of the 2% requirement = 0.004). This maximum is not related to the actual renewable fuel contained in your diesel fuel or heating distillate oil.

The reason for setting this limitation is to help facilitate a smooth and predictable demand for renewable fuel.

O.7: I am a primary supplier. Can I carry forward distillate compliance units that were created during the first gasoline compliance period into the second gasoline compliance period?

Distillate compliance units created during the pre-distillate compliance period can be carried forward by a primary supplier into the first distillate compliance period. They cannot be carried into a gasoline compliance period.

O.8: I am an elective participant. Can I carry forward distillate compliance units that I created during the first gasoline compliance period into the second gasoline compliance period? Can I carry distillate compliance units that I create during the pre-distillate compliance period into the first distillate compliance period?

An elective participant cannot carry forward distillate compliance units into the first distillate compliance period nor into any gasoline compliance period that ends before the start of the first distillate compliance period.

O.9: Section 23 stipulates that an elective participant cannot carry forward distillate compliance units into the first distillate compliance period, or into any gasoline compliance period that occurs before the first distillate compliance period. I am an elective participant.

(a) Can I carry forward those distillate compliance units?

No. As an elective participant, you cannot carry forward distillate compliance units into the first distillate compliance period, or into any gasoline compliance period that occurs before the first distillate compliance period.

(b) Can I transfer those distillate compliance units in trade?

Yes, once you have made the records which confirm creation of the compliance units. You may trade distillate compliance units created prior to the first distillate compliance period (i.e., prior to July 1, 2011) to a primary supplier at any time on or before September 30, 2011.

O.10: Is the timing of the pre-distillate compliance period different in Quebec and the Maritimes (due to the optional pool exclusions prior to 2013) than the rest of Canada?

No, the pre-distillate compliance period is the same for all parts of Canada, regardless of optional pool exclusions for some regions. It is defined in subsection 1(1) as "the period that begins on December 15, 2010 and that ends on June 30, 2011."

O.11: Will Environment Canada approve my carry forward of compliance units?

No. Environment Canada does not approve the carrying forward of compliance units. All such carrying forward of compliance units must comply with the requirements of sections 21, 22 or 23 of the regulations, as the case may be. Environment Canada will monitor compliance with the regulations, through annual and audit reporting provisions for participants and may inspect participant's records, compliance unit account books and other required supporting information. Also, all annual reports are to be audited by the third-party auditor.

O.12: At the end of a trading period, I carried forward some compliance units. Subsequently, I discovered an error in my calculation of surplus compliance units. My actual surplus was less than the number of units I carried forward. How do I correct this?

You should revise your records, including those in your compliance unit account book to make the necessary correction. If you submitted a report reflecting the error, you should inform Environment Canada immediately. Note that you would be in contravention of record making provisions of the regulations.

O.13: I am a primary supplier. What happens to the distillate compliance units that I created during the pre-distillate compliance period? How do I keep track of them and how do I distinguish them?

Distillate compliance units created before July 1, 2011 are recorded in your compliance units account book. As per subsection 22.1(2), distillate compliance units created between July 1, 2011 and September 30, 2011 must be distinguished from distillate compliance units created before July 1, 2011. Records of all transactions must indicate when the compliance units were created and a written statement must be provided to buyer of these distillate compliance units.

O.14: Why do the pre-distillate compliance units need to be tracked separately?

Because there is a limit on carry forward for these pre-distillate compliance units, these units must be distinguished from distillate compliance units created on or after July 1, 2011. On October 1, 2011, pre-distillate compliance units not carried forward or assigned are cancelled and therefore no further tracking is needed.

O.15: Can I trade these distillate compliance units or carry them forward into the first distillate compliance period?

Yes, distillate compliance units created prior to the first distillate compliance period (i.e., prior to July 1, 2011) may be traded to a primary supplier at any time on or before September 30, 2011. Such units can then be carried forward by a primary supplier (subject to limits of subsection 25(6)) and used to meet the 2% requirement in the distillate compliance period into which they were carried forward into. They may also be used to meet the renewable fuel requirement for gasoline for the first gasoline compliance period, if the distillate compliance units are assigned for that purpose on or before September 30, 2011.

O.16: Will I be able to assign those distillate compliance units for compliance with the 5% renewable fuel requirement for gasoline after September 30, 2011?

Yes, you can use them to meet the 5% requirement for gasoline after September 30 by assigning them to the 5% requirement on or before that date. Please note that pre-distillate compliance units not carried forward or assigned to be used to meet the 5% requirement for gasoline are cancelled as of October 1, 2011.

O.17: I created distillate compliance units during the pre-distillate compliance period, but I did not carry them forward into the first distillate compliance period or assign them to meet the gasoline requirement prior to October 1, 2011. Can I carry forward or assign these compliance units after that date?

No, you cannot. Under subsection 25(6), all distillate compliance units created during the pre-distillate compliance period that were not carried forward or assigned prior to October 1, 2011, are cancelled.

O.18: It appears that elective participants can carry forward more of their compliance units than primary suppliers. Is this true?

The provisions of section 23 of the regulations permit elective participants to carry forward all of the compliance units that they created during a compliance period. Because an elective participant cannot obtain any compliance units other than those that they create, they cannot accumulate excess quantities of compliance units.

O.19: Why can't elective participants carry forward distillate compliance units into the first distillate compliance period?

This limitation is intended to help facilitate the smooth and predictable demand for renewable fuel.

O.20: Can I keep carrying forward any surplus compliance units year after year?

Yes, subject to the specified maxima. Each year a primary supplier must calculate both the number of surplus compliance it has and the maximum number of compliance units it can carry forward. Allowing compliance units to be carried forward is intended to help facilitate smoothing out year-to-year irregularities in the demand for renewable fuels. It also offers a "cushion" for primary suppliers to counter unforeseen circumstances.

O.21: Can I carry forward compliance units every compliance period?

Yes, you can. However, subsections 21, 22, 22.1 and 23 limit the number of compliance units that can be carried forward, depending on the situation.

Sections 24 - Carrying Back of Compliance Units

P.1: What is carry back? Why are provisions for carrying back compliance units included in the regulations?

Compliance units that have been created after the end of a compliance period but before the end of the associated trading period (i.e., between January 1 and March 31) are eligible for carry back by a primary supplier`. The concept of carrying back compliance units has been introduced to mitigate possible minor unforeseen circumstances and small accounting errors by primary suppliers. The use of the carried back of compliance units permits the primary supplier to compensate for such unplanned for irregularities.

P.2: When must a compliance unit be created in order to be eligible to be carried back into the compliance period?

To be carried back into a compliance period, a compliance unit must be created during the last three months of the trading period associated with the compliance period. That is, the compliance unit must be created between January 1 and March 31 following the compliance year.

For example, if a compliance unit is created on February 22, 2015, it may be used for compliance with the 2015 compliance period, or it may be carried back by a primary supplier for use in the 2014 compliance period. A compliance unit created on or after April 1 of any year cannot be carried back for use.

P.3: Why is the maximum number of compliance units that I can carry back smaller than the maximum number I can carry forward?

The number of compliance units that can be carried back is small, in keeping with the intent of this "accounting-correction" provision. It is not intended to be used very often.

The maximum number of gasoline compliance units that can be carried back is 5% of the renewable fuel requirement for gasoline (5% of 5% = 0.0025). For distillate compliance units, the maximum number is 5% of the renewable fuel requirement for diesel fuel and heating distillate oil (5% of 2% = 0.001).

P.4: Can I carry back distillate compliance units and use them to meet my renewable fuel requirement for gasoline?

Yes, you can.

P.5: Are there any associated requirements with carrying back compliance units?

Yes, there are. You must cancel two compliance units of the applicable type for each compliance unit that you carried back. These compliance units must be cancelled prior to the end of the trading period (i.e., before April 1) in respect of the compliance period into which they were carried back into.

For example, in February 2015, you carried back 100 gasoline compliance units for use in the 2014 compliance period. You must then cancel 200 of your remaining gasoline compliance units before April 1, 2015.

You must also make the records in your compliance unit account book required by paragraphs 31(2)(h) and (i) and report on the number of compliance units carried back and cancelled according to items 9(1)(c) and (d) and 10(a) of Schedule 5. As well, the number of cancelled compliance units must be included in the values of CBGand CBD reported under items 2 and 4 of Schedule 4.

P.6: What happens if I carry back compliance units, but don't have enough compliance units to cancel two compliance units for each one that I carried back?

If you wish to take advantage of the carry back provisions, you must have enough compliance units to cancel.

For example, if you wish to carry back 50 compliance units, you would have to cancel 100 of your remaining compliance units, thus requiring 150 compliance units in total. If you only have 100 compliance units, you could not carry back 50 compliance units. However, you could carry back 33 compliance units and cancel 66 of your remaining compliance units, thereby using a total of 99 compliance units.

P.7: Can I carry back compliance units every year?

Yes.

P.8: Why was the proposed limitation on not allowing carrying back in consecutive years not included in the final regulations?

After reviewing comments received from stakeholders, Environment Canada removed this proposed limitation. Environment Canada believes that the requirement to cancel two compliance units for each compliance unit so carried back will appropriately limit the use of this provision which is intended to provide some flexibility for unforeseen circumstances.

P.9: Why can't an elective participant carry back compliance units?

Elective participants cannot carry back compliance units, because they do not have any requirements for renewable content. Refer to question P.1. Prior to the end of a trading period, an elective participant may transfer in trade compliance units to a primary supplier, who could then carry back those compliance units for the primary supplier's use.

Section 25 - Cancellation of Compliance Units

Q1: Under what circumstances am I required to cancel compliance units?

You are required to cancel compliance units:

  • as part of the condition allowing the carrying back of compliance units; and
  • to cover the renewable content of exported fuel,

Compliance units are cancelled if

  • the number owned is in excess of the monthly maximum, or
  • they are unused at the end of the trading period and not carried forward.

If you withdraw from the trading system, pursuant to subsection 11(3) of the regulations, you must cancel all outstanding compliance units as of the date of your withdrawal.

Note that under subsection 22(3), distillate compliance units carried forward into the first distillate compliance period are considered to be in the process of being carried forward prior to the beginning of the first distillate compliance period. Hence such units are not required to be cancelled at the end of a trading period that occurs before the beginning of the first distillate compliance period.

You must make the records in your compliance unit account book as required by section 31 and report on the number of compliance units cancelled according to Schedule 5.

Q.2: When do I have to cancel my compliance units?

Generally, you must cancel compliance units by the end of the trading period for which the cancellation is required. Compliance units in excess of the monthly maximum allowance are cancelled at the end of the month following the month in which the excess occurs.

If you withdraw from the trading system, pursuant to subsection 11(3) of the regulations, you must cancel all outstanding compliance units as of the date of your withdrawal.

Q.3: How do I cancel compliance units?

You cancel compliance units for carry back, for renewable content in exported fuel, or for withdrawal from the trading system by recording the cancellation in your compliance unit account book, pursuant to paragraphs 31(2)(i), (j), or (m) of the regulations.

Compliance units are automatically cancelled if in excess of the monthly maximum, or unused at the end of the trading period and not carried forward. These cancellations are also required to be recorded in your compliance unit account book, pursuant to paragraphs 31(2)(k) or (l) of the regulations.

Q.4: Subsection 25(4) results in cancellation of compliance units that are neither used nor carried forward. How do I determine if a compliance unit has been "used"?

For a primary supplier, unused gasoline and distillate compliance units are those that are surplus under subsections 21(2) or 22(2), as the case may be. For an elective participant, unused compliance units are those that they own.

Q.5: There are a number of provisions regarding compliance units that are tied to "the end of the trading period". What happens in regards to compliance units at the end of the trading period?

At the end of a trading period, primary suppliers and elective participants must balance and finalize their compliance unit account books. For primary suppliers compliance with the renewable fuel requirements of section 5 is determined based on the number of compliance units in respect of the relevant compliance period that they own on this day. Under subsection 25(4), compliance units that were neither used nor carried forward at the end of a trading period are cancelled. The record of such cancellations would be the last entry made in your compliance account book in respect of any compliance period, and can only be made once you determine how many compliance units are neither used nor carried forward at the end of the trading period.

Q.6: Why must I cancel two compliance units for each compliance unit that I carry back? When must this cancellation occur?

The provisions for carry back permit a primary supplier to compensate for minor unforeseen circumstances and small accounting errors. They are not intended to be used often. To discourage overuse of this flexibility, a primary supplier must cancel by the end of the trading period (March 31), two remaining compliance units of the applicable type for each one they carried back.

Q.7: What if I don't have enough compliance units for the cancellation required for the carry back provisions?

If you wish to take advantage of the carry back provisions, you must have enough compliance units available to cancel. Refer to question P.6.

Q.8: Why do I have to cancel compliance units for fuel with renewable content that was exported?

The Government of Canada is committed to expanding the production and use of renewable fuels in Canada. Any batch of fuel with renewable content may have had corresponding compliance units created for that renewable content, under these regulations. To support the Government's commitment, if that fuel is exported and thus not used in Canada, compliance units must be cancelled.

This provision also removes the possibility of a person creating compliance units both in Canada and RINs in the U.S. (or something similar in another country) for the same batch of fuel with renewable fuel content, and gaining a double benefit from that same volume.

Q.9: Do I have to cancel compliance units for exported fuels produced from biocrude?

Yes, you must cancel compliance units for exports of fuels produced from biocrude. They must be cancelled in proportion to the biocrude-derived fuel exported to the total biocrude-derived fuel produced. If the exported fuel is diesel fuel or heating distillate oil, then distillate compliance units are cancelled. Otherwise, gasoline compliance units are cancelled (see subsection 25(4)).

Q.10: Do I have to cancel compliance units if my affiliate exports a batch of petroleum fuel containing renewable fuel, or fuel produced from biocrude? What if my affiliate is also a participant?

You must cancel compliance units for all batches that your affiliate exported that contained renewable fuel or was produced from biocrude, unless your affiliate is also a participant. In that case, the affiliate would be the one who would have to cancel the compliance units.

Q.11: Do I have to cancel compliance units if I become aware that a batch of fuel was exported by a third party who was not an affiliate of my company?

No, you do not. You cannot be expected to have access to the records of a third party who is not an affiliate of yours.

To assess the extent of any double counting of renewable fuel volumes, the regulation does have a number of provisions which allow Environment Canada to monitor exports of fuel that has renewable content. Primary suppliers, elective participants, producers and importers of renewable fuels, and other persons who sell fuel for export are all required to report on exports of fuel that has renewable content.

Q.12: What happens if cancelled compliance units get misrepresented as being available for use?

This would be in contravention of the Regulations. Such misrepresentation must be corrected as soon as possible. Also, refer to questions K.22 and question M.4M.4.

Report a problem or mistake on this page
Please select all that apply:

Thank you for your help!

You will not receive a reply. For enquiries, contact us.

Date modified: