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ECCC Publishes Discussion Paper and Launches Consultation on Effective Carbon Markets

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Environment and Climate Change Canada (ECCC) recently published a discussion paper on “Driving effective carbon markets in Canada” (the Discussion Paper). The Discussion Paper sets out proposed changes to the federal benchmark criteria ahead of the federal government’s review next year. ECCC also launched consultations on the Discussion Paper, seeking comments and responses to questions included in the Discussion Paper from stakeholders.  This bulletin briefly summarizes the key topic areas, current requirements, the federal government’s proposal and considerations, and next steps set out in the Discussion Paper. Common scope of coverage Current requirement. The current benchmark requires that carbon pricing systems maintain a common scope, covering, at a minimum, an equivalent percent of combustion emissions as the federal backstop. It also requires market-based systems to cover industrial process emissions, and to limit eligibility for OBPSs, performance rebates, or the free allocation of allowances to sectors that are at risk of carbon leakage and competitiveness impacts of carbon pricing. Proposals and considerations. ECCC notes that the removal of the fuel charge (see our earlier bulletin here) requires rethinking how scope of coverage should work. The federal government is considering the following three options to modify the benchmark to specify the common scope criteria explicitly to ensure consistent minimum coverage across systems: Option 1: A threshold-based approach that would cover all facilities in specific sectors emitting above a certain level annually. Thresholds under consideration are 10kt per year (Option 1A) and 25kt per year (Option 1B). Option 1A would cover a large number of facilities and industrial activities, which would support market function and liquidity, but could create intra-sectoral competitiveness risks in some sectors. Option 1B would reduce these risks by covering fewer industrial activities where there is a significant split between emissions above and below the threshold, but may negatively impact market function…

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Canada Announces Proposed CFR Amendments

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Environment and Climate Change Canada (ECCC) published a discussion paper to invite views and information related to targeted amendments to the Clean Fuel Regulations (CFR) on December 3, 2025. The proposed amendments are largely intended to complement Canada’s Biofuels Production Incentive (announced in September), which is expected to provide more than $372 million over two years to support the stability and resiliency of domestic producers of biodiesel and renewable diesel. This bulletin provides a brief summary of the discussion paper.  Background. The CFR require producers and importers of gasoline and diesel (i.e., primary suppliers) to reduce the life cycle carbon intensity of gasoline and diesel produced and imported for use in Canada, with the intent of reducing GHG emissions. A life cycle approach considers the GHG emissions involved in multiple stages of the fuel’s production process, from feedstock extraction or cultivation to fuel combustion. CFR credits can be created by:  compliance category 1 – undertaking projects that reduce the life cycle carbon intensity of liquid fossil fuels (e.g., carbon capture and storage, renewable electricity, co-processing) compliance category 2 – supplying low-carbon intensity fuels (e.g., ethanol, biodiesel) compliance category 3 – supplying fuel or energy to advanced vehicle technology (e.g., electricity or hydrogen in vehicles) The discussion paper notes that the majority of credits created to-date under the CFR come from the supply of low-carbon intensity fuels. While an important share of these credits comes from fuel produced in Canada, Canada does not currently produce enough low-carbon intensity fuels to meet the total domestic demand. As such, a large share of CFR credits for low-carbon intensity fuel supply reportedly come from imports, mostly from the United States (see Annex 1). Policy goal. The stated goal of the CFR amendments is to strengthen the resiliency and support the development of Canada’s low-carbon fuel sector, while maintaining the Regulations’ primary focus on…

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ECCC Publishes Preliminary Draft DACCS Offset Protocol

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Environment and Climate Change Canada (ECCC) today published the preliminary draft Direct Air Carbon Dioxide Capture and Geological Storage federal offset protocol (the DACCS Protocol). The DACCS Protocol is intended to create an incentive for proponents to undertake projects that capture carbon dioxide (CO2) directly from the atmosphere and store it in subsurface geological formations. Eligible projects would be able to generate federal offset credits under the Canadian Greenhouse Gas Offset Credit System Regulations (see our earlier bulletin here).   Overview. Eligible projects under the DACCS Protocol must generate CO2 removals (CDRs) from the storage of CO2 captured directly from the atmosphere in onshore, subsurface geological formations. Project sites must be located in Canada, in a single province or territory, and the capture facility within the project site must have been operating on or after January 1, 2022. Projects cannot take place on land that is not covered by a CO2 geological storage regulatory framework and CDRs cannot be generated from (i) the storage of point-source captured CO2 (e.g. an industrial facility), (ii) the storage of CO2 in any materials or products (e.g. concrete and mining waste), or (iii) the use of CO2 for the purposes of enhanced oil recovery (EOR).    Eligible project activities. Eligible project activities under the DACCS Protocol include: Operation of a capture facility within the project site. There is no restriction on the specific direct air CO2 capture processes used, including liquid solvents, solid sorbents, or any other existing or emerging methods. Further, during the crediting period, the capture facility within the project site may provide captured CO2 for purposes/end uses other than CO2 geological storage.  Operation of transport infrastructure within the project site (e.g. pipeline, rail, truck). The DACCS Protocol provides that the transport infrastructure within the project site used to transport the captured CO2 may have been operating prior to January 1, 2017,…

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Canada Publishes Finalized Clean Electricity Regulations

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Canada’s Minister of Environment and Climate Change (the “Minister”) yesterday announced the finalization and publication today of the Clean Electricity Regulations (“CER”) in the Canada Gazette, Part II (see our earlier bulletin on the draft CER here). CER establishes significant annual emission limits (“AEL”) to reduce greenhouse gas (“GHG”) emissions from fossil fuel-generated electricity generation facilities in all provinces and territories across Canada starting in 2035. Requirements to reduce emissions under CER start in 2035 with a pathway to reaching net-zero in 2050. Environment and Climate Change Canada (“ECCC”) estimates that the CER would reduce approximately 181 megatonnes of cumulative GHG emissions between 2024 and 2050. The CER imposes significant registration, record keeping, and reporting obligations on covered electricity generation facilities.   This bulletin briefly summarizes the key provisions of CER and federal financial support to help decarbonize and expand Canada’s electricity system.   Scope. A “unit” is regulated under the CER if it meets all of the following three criteria: It has an electricity generation capacity of 25 megawatts (“MW”) or greater (or is a new unit located at a facility where the sum of all new electricity generation unit capacity is 25 MW or greater); It generates electricity using fossil fuel; and It is connected, directly or indirectly, to an “electricity system” that is subject to North American Electric Reliability Corporation (“NERC”) standards. A unit that has an electricity generation capacity of less than 25 MW is deemed to meet the first criteria if the unit’s commissioning date is on or after January 1, 2025 and the sum of the electricity generation capacity of all units, other than planned units, that are located at the facility where the unit is located and that also have commissioning dates on or after January 1, 2025 is at least 25 MW.   CER does not apply…

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ECCC Publishes Paper on Facilitating GHG Offset Projects on Crown and Public Land

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Environment and Climate Change Canada (ECCC) has released a discussion paper entitled Facilitating Projects on Crown and Public Land in Canada’s Greenhouse Gas Offset Credit System (the Paper). The purpose of the Paper is to gather feedback on preliminary considerations for projects in Canada’s Greenhouse Gas (GHG) Offset Credit System (Offset System) on provincial Crown land or public land administered by territorial governments (Crown or public land).    These considerations include (i) respecting Indigenous rights, (ii) acknowledging the role of provinces and territories in authorizing project activities, and (iii) demonstrating entitlement for offset credits issued for GHG emission reductions. These considerations were formed based on feedback from a 2022 discussion paper entitled Carbon Pollution Pricing: Considerations for facilitating Indigenous participation in the Federal Greenhouse Gas Offset System and ongoing engagement activities. Earlier this year, ECCC published a protocol for improved forest management (IFM) on private land (see our earlier bulletin here). ECCC continues to indicate that it will be initiating the development of a protocol on IFM on public land later this year.   This bulletin briefly summarizes the three key considerations outlined in the Paper:    1. Aligning with the principle of recognizing and upholding Indigenous rights   Requirements for offset projects will be guided by the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) and the right of Indigenous peoples to free, prior, and informed consent (FPIC). ECCC is proposing that projects on Crown or public land must have, as a matter of policy, the consent of Indigenous peoples holding asserted or established Aboriginal or Treaty rights in the project area before they can be registered in the federal Offset System.   Consent must be documented and must reflect support of the rights-holding group in their preferred approach. Depending on the Indigenous nation or community, this could take the form of a Band Council Resolution, Memorandum of…

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