1. Page 1 Legal and Policy Directions for Biofuels Proposed Federal Renewable Fuels Regulations Biofuels: Legal and Policy Dimensions The Law Foundation of Ontario Toronto, Ontario June 17, 2010 Helen Ryan Executive Director, Oil Gas & Alternative Energy Environment Canada

2. Page 2 The Federal Renewable Fuels Strategy is led by the Minister of Agriculture It’s drivers are: –Reducing greenhouse gas emissions from fuel use –Encouraging greater domestic production of biofuels –Accelerating the commercialization of new biofuels technologies –Providing new market opportunities for agricultural producers and rural communities There are four key elements to the Strategy: 1.Regulations to require renewable content (Environment Canada) 2.Support for farmer participation through $20 million Biofuels Opportunities for Producers Initiative and $200 million ecoAgricultural Biofuels Capital Initiative (Agriculture and Agri-Foods ) 3.Production incentives under the $1.5 billion ecoENERGY for Biofuels program to encourage investment in biofuels industry and increase annual domestic production capacity (Natural Resources Canada) 4.Support for next generation technologies through a $500 million NextGen Biofuels Fund™ for large scale demonstration facilities (Sustainable Development Technology Canada)

3. Page 3 The strategy will help increase production, create jobs and address climate change Incentives/capital assistance have helped stimulate industry development –Canadian plants now have capacity to produce about 2/3 of the required 2.2 billion litres of ethanol; biodiesel capacity is further behind Increased production should result in roughly 8500 direct and indirect jobs, new markets for farmers and new opportunities for rural communities Requiring renewable fuels will help reduce GHG emissions –Next generation technologies will result in greater GHG emission reductions and pave the way for a broader bio-based economy Federal leadership may have helped stimulate provincial action – provinces west of Quebec have incentives and mandates announced or in place The federal regulations will help create a market and provide assurance producers need to access financing

4. Page 4 The proposed Renewable Fuel Regulations were published April 10 th Regulatory approach and key elements are consistent with previous Government decisions and announcements The regulations would require petroleum fuel producers and importers to have an average renewable fuel content of at least 5% based on the volume of gasoline, commencing in September 2010 There are provisions for a 2% average renewable fuel content requirement in diesel fuel and heating oil, to be implemented by 2011 or earlier subject to technical feasibility

5. Page 5 The Regulations will be made under the Canadian Environmental Protection Act, 1999 CEPA 1999 provides authority for the regulation of sellers, producers and importers of fuel Amendments were made to CEPA 1999 in 2009 to provide additional authorities needed to make efficient national regulations requiring renewable content in Canadian fuels: –Authority to regulate at point of blending –Authority to track exports –Exemption for small volume producers / importers

6. Page 6 The Regulations are a key element of the Government’s Renewable Fuels Strategy They will fulfill the commitments to reduce GHG emissions from liquid petroleum fuels and create a demand for renewable fuels in Canada The objective of the Regulations is to reduce GHG emissions –Estimated reduction of about 1 Mt CO2e per year The Regulations promote an integrated and nationally consistent approach to achieve significant reductions in GHGs

7. Page 7 The regulations provide a national approach to requiring renewable content Canada has a policy to generally align vehicle, engine and fuel standards with those of the U.S. General approach is based on U.S. Environmental Protection Agency Renewable Fuel Standard, with some simplifications –The renewable fuel requirement applies to the volume of petroleum fuel produced and imported –Tradable compliance units are the basis for complying with the regulations

8. Page 8 Feasibility of renewable diesel use under Canada conditions is being assessed The Renewable Diesel Demonstration Initiative (NRDDI) is addressing industry and end-user questions about renewable diesel use under Canadian conditions –Administered by Natural Resources Canada who contributes up to 50% of the total project costs Issues being addressed include: –Cold temperature operability –Long term storage stability –Interaction with seasonal variations of ULSD –Materials/engine compatibility –Distribution and storage infrastructure Complete results are expected in mid 2010 2% diesel mandate will be implemented if demonstration results are positive through an amendment to the regulation, implementation targeted by 2011 or earlier

9. Page 9 Regulatory compliance to be on a company basis Required renewable fuel content to be based on the volumes of gasoline, diesel fuel and heating oil that a company produces or imports Regulations not to apply to individual facilities or provinces of import

10. Page 10 The regulations are to be based on annual volumes Not every litre of gasoline, diesel fuel and heating oil produced or imported would be required to contain renewable fuel

11. Page 11 The regulations are to include a credit and trading system Companies may acquire credits from other parties in lieu of having renewable fuel content in their gasoline and distillate pools Credits may be created by: –Blending renewable fuel into petroleum fuel –Importing fuel with renewable content –Producing fuel from bio-crude –Use of neat renewable fuel

12. Page 12 The regulations include a number of flexibility mechanisms 1.Limits are annual, not per-litre 2.Limits are company-wide 3.Compliance units may be traded 4.A broad suite of liquid renewable fuels may be used 5.Compliance units may be created from use of renewable fuel in any liquid petroleum fuel 6.Distillate compliance units may be used to meet the 5% gasoline requirement 7.Distillate compliance units created before the distillate requirement comes into effect may be carried over into first distillate compliance period 8.Small volume (< 400 m 3 ) producers and importers are not subject to requirements 9.Fuel for special uses may be excluded from the regulated pool 10.Gasoline and distillate for use in the Territories and Quebec above 50 o N may be excluded from the regulated pool 11.Gasoline for use in Newfoundland & Labrador and Quebec above 50 o N may be excluded from the regulated pool 12.The first compliance period is extended to 16 months 13.Definition of “renewable fuel” encompasses small amounts of non-renewable components 14.Compliance units may be created from use of bio- crude feedstock or neat renewable fuels 15.There is a 90-day trading period following the end of a compliance period for “truing-up” 16.Some excess compliance units may be carried forward to the next compliance period 17.Compliance units created during a “true-up” period to be used for compliance during the previous compliance period

13. Page 13 The regulations will not include: Regional requirements Fuel quality specifications Differential weightings (biases) assigned to renewable fuels –Differential weightings may be considered in the future once there is a better knowledge base on the life cycle analysis of various fuels.

14. Page 14 Estimated costs and benefits of the proposed Regulation 5 % renewable requirement will reduce GHG emissions by one tonne per year Based on CO2 price of $25 per tonne, benefits estimated at $581 million over 25 years Costs estimated at $3 billion over the same period To make fuels regulations under the Fuels Division of CEPA 1999, Governor in Council must be of the opinion that the regulation could make a significant contribution to the reduction in air pollution

15. Page 15 Status and Next Steps Proposed regulations were published in the Canada Gazette, Part I on April 10th –60 day comment period concluded June 9 th Submissions are being reviewed, with publication of final regulations in the Canada Gazette, Part II targeted for later this summer 5% requirement for gasoline to take effect September 1 st 2% requirement for diesel fuel and heating oil to be implemented by 2011 or earlier, subject to technical feasibility –National Renewable Diesel Demonstration Initiative to inform decision on technical feasibility this summer –Implementation requires amending the new regulation