Executive Summary: Key Legal and Evidentiary Issues

• The Federal Court held that Environment and Climate Change Canada’s (ECCC) interpretation of subsection 25(3) of the Clean Fuel Regulations, as applied to Enhance Energy Inc.’s Clive Project, was unreasonable and allowed the application for judicial review, setting ECCC’s decision aside.

• The Court found that the September 29, 2023 meeting between Enhance and ECCC, together with the October 6, 2023 follow-up email, constituted a renewed exercise of ECCC’s discretion and therefore a reviewable “decision,” rather than a mere courtesy response.

• Arguments based on legitimate expectations were rejected because ECCC’s pre-meeting communications and the decision to hold a meeting did not amount to clear, unambiguous, and unqualified assurances about any specific procedure or opportunity.

• The Court partially admitted the January Ryan Affidavit, striking those passages that engaged in advocacy or legal opinion while retaining factual explanations of the Regulations, and selectively admitted certain ECCC policy and implementation documents as relevant extrinsic aids to statutory interpretation.

• On reasonableness review, the Court concluded that ECCC failed to adequately engage with the text, context, and purpose of subsection 25(3), particularly its broad wording and legislative history, and that subsection 25(3) encompasses Compliance Category 1 (CC1) projects such as the Clive Project.

• The Court ordered ECCC to receive Enhance’s credit creation report for the period June 21, 2022 to August 12, 2022, remitted to ECCC the question whether to grant provisional credits for that period, and awarded costs to Enhance totalling $10,320.

Facts of the case

Enhance Energy Inc. is a management company that operates the Clive Project, which sequesters carbon dioxide in a subsurface reservoir near Clive, Alberta. The Clive Project is a Compliance Category 1 (CC1) project under the Clean Fuel Regulations, SOR/2022-140, and is registered to create compliance credits. The Regulations were registered on June 21, 2022. On July 15, 2022, Enhance submitted a request to ECCC to recognize the Clive Project as a credit creation project, and on July 29, 2022, it requested that ECCC both recognize the Project as soon as possible and allow it to create credits starting from the date the Regulations were registered. ECCC responded that CC1 credit creation starts on the day specified in the recognition application or on the day the Minister recognizes the project. On August 12, 2022, the Minister recognized the Clive Project. From August 2022 to April 2023, Enhance repeatedly sought clarification and an earlier start date for credit creation, but ECCC maintained that under paragraph 32(2)(d) of the Regulations, the start date was August 12, 2022 and that this interpretation was firm. A June 12, 2023 meeting and a June 18, 2023 email reiterated that there was no possibility of changing the Project’s start date for provisional credits. On July 20, 2023, Enhance provided ECCC with a legal opinion supporting an earlier start date, raising arguments about other provisions and the legislative history. On July 31, 2023, Enhance sent an addendum noting that the text of the Regulations does not distinguish start dates among CC1, CC2, and CC3 projects. A further meeting took place on September 29, 2023, in which ECCC representatives stated that they had taken the request “seriously,” had discussed it with the Department of Justice, and continued to consider paragraph 32(2)(d) determinative, while indicating they would “close the loop” in writing. On October 6, 2023, ECCC sent an email confirming that its interpretation remained unchanged. Those events form the decision challenged by judicial review.

Key statutory and regulatory framework

The Clean Fuel Regulations create an incentive structure to reduce the carbon intensity of gasoline and diesel. Primary Suppliers must acquire credits to meet carbon intensity reduction requirements and may either create credits or purchase them from Registered Creators who conduct qualifying activities under sections 19 and 20 of the Regulations. The activities are grouped into three compliance categories: CC1, which covers actions that reduce lifecycle carbon intensity of liquid fossil fuels (including carbon capture and storage); CC2, which concerns the supply of low carbon intensity fuels; and CC3, which relates to end-use fuel switching in transportation. All types of projects create provisional credits which become credits when reported in a credit creation report. Section 25 of the Regulations governs timing. Subsection 25(2) prohibits a registered creator from creating provisional credits under subsection 19(1) or section 20 until the day after they become a registered creator. Subsection 25(3) provides that a person who submits a registration report within the 60-day period beginning on the day the Regulations are registered may create provisional credits as of that day. CC1 projects, including the Clive Project, are subject to a specific quantification method under sections 31(1) and 32(1), and paragraph 32(2)(d) requires that such a method “establish a period of no less than 10 years, beginning on the later of” the day on which the Minister recognizes the project and any preferred day referred to in paragraph 34(2)(b), at the end of which the project ceases to create compliance credits. The key interpretive dispute in this case is whether subsection 25(3), which does not distinguish among project categories and is textually linked to sections 19(1) and 20, applies to CC1 projects, or whether paragraph 32(2)(d) instead sets the earliest start date for CC1 projects at the date of Ministerial recognition.

Procedural history and motion to strike

The Respondent brought a motion to strike the judicial review application. It filed an affidavit from Lisa Ryan dated October 29, 2024, which contained a detailed outline of the Regulations. The Court noted that affidavits are generally not permitted on motions to strike applications for judicial review because such motions proceed on the assumption that the pleaded facts are true and the defect must be obvious without further evidence. Authorities cited included JP Morgan Asset Management (Canada) Inc v Canada (National Revenue), where this principle was explained. The Court rejected the Respondent’s argument that a jurisdictional challenge justified admission of the affidavit, holding that the general prohibition still applies for affidavits addressing jurisdiction on motions to strike applications for judicial review. The Court concluded that the October Ryan Affidavit was not admissible for the motion. On jurisdiction, the Respondent argued that there was no reviewable decision and therefore no jurisdiction. The Court held, with reference to section 18.1 of the Federal Courts Act and case law such as Global Marine Systems Ltd v Canada (Transport), that a “matter” includes decisions and other reviewable actions, and that Enhance’s position—that the September 2023 meeting and October 6 email affected its legal rights by fixing the start date of allowable credits—was not “bereft of any possibility of success.” The Respondent also argued that Enhance was barred from relief because it had not claimed credits for pre-recognition activities, but the Court noted the extensive email exchanges in which Enhance had sought to change the start date, and held that the failure to earlier challenge ECCC’s interpretation did not bar the present application, citing Key First Nation v Lavallee. The Respondent further contended that requested remedies such as mandamus and declarations were unavailable. The Court found this argument irrelevant to the viability of the application, as attacking two of several requested remedies could not justify striking the entire proceeding. The Applicant sought enhanced costs for the late timing of the motion to strike. The Court found the timing “far from ideal” and acknowledged procedural redundancies, but held that enhanced costs are usually reserved for dishonesty, malice, or bad faith, and that no such conduct was alleged against the Respondent. The motion to strike was dismissed, and the Court awarded the Applicant $1,620 in costs for that motion.

Evidentiary rulings at the merits hearing

At the merits stage, the Respondent submitted a further affidavit by Lisa Ryan dated January 26, 2024, which largely overlapped with the earlier affidavit and explained the operations of the Regulations, credit registration and reporting processes, and related matters. The Applicant argued that certain paragraphs improperly engaged in advocacy, asserted legal conclusions, or attempted to buttress ECCC’s reasoning, and therefore should be struck or given no weight. The Respondent maintained that the affidavit was needed to assist the Court in understanding the technical Regulations, the decision-making process, and the steps taken in relation to procedural fairness, and that concerns about advocacy should go to weight, not admissibility. The Court accepted that, despite the general prohibition on new evidence not before the decision-maker, affidavits may be used where they help explain the decision-making record and technical schemes without undermining the administrative role, and cited authorities such as Association of Universities and Colleges of Canada v Access Copyright and Bernard v Canada (Revenue Agency). It also referred to cases like Photocure ASA and Canadian Union of Public Employees v Canada (Transport) on the use of affidavits to describe decision-making processes. However, emphasizing that affidavits must be confined to facts within the deponent’s personal knowledge and should not engage in advocacy, the Court identified and struck specific portions of the January Ryan Affidavit that mixed legal opinion and argument with factual explanation: the last sentence of paragraph 14, the first sentence of paragraph 27, all of paragraph 33, and paragraph 50, which the Court found to be largely advocacy. The Respondent also challenged five exhibits attached to Ms. Ryan’s cross-examination as irrelevant. Two were not in issue. The Court admitted Exhibit 1 (the 2019 Proposed Regulatory Approach) and Exhibit 4 (a June 2023 implementation presentation) as extrinsic aids relevant to legislative history and ECCC’s communication of the Regulations’ operation to regulated parties, while noting that such materials do not formally define the Regulations or constitute their legislative history but can inform the Court’s understanding of how ECCC applies them. Exhibit 3, a June 2024 credit market data report, was excluded as irrelevant because it post-dated the September 2023 meeting and did not bear on the impugned decision.

Jurisdiction and the nature of the impugned decision

The Respondent argued that the September 2023 meeting was merely an attempt to help the Applicant understand why its start date was not earlier and should be regarded as a courtesy response, not a decision subject to judicial review. The Applicant contended that ECCC’s handling of its legal opinion and the September 2023 meeting amounted to a renewed exercise of discretion, particularly because the legal opinion and addendum raised new arguments regarding the relevant provisions and legislative history. The Court reviewed the law on reconsiderations and fresh exercises of discretion, citing cases such as Dumbrava v Canada (Minister of Citizenship & Immigration), 1594418 Ontario Inc v Canada (National Revenue), Philipps v Canada (Librarian and Archivist), and Global Marine. It found that ECCC had moved beyond mere receipt of correspondence: ECCC representatives stated at the September 2023 meeting that they had taken the Applicant’s request “seriously,” had “looked into” the matter, and had confirmed their interpretation with the Department of Justice, and the October 6 email stated that ECCC had reviewed the legal opinion and was “closing the loop” on the discussion. This indicated that ECCC reconsidered the matter in light of new submissions and then reaffirmed its interpretation as a final position. The Court held that the September 2023 meeting and the October 6, 2023 email thus reflected a renewed exercise of ECCC’s discretion and constituted a reviewable decision.

Procedural fairness and legitimate expectations

The Court identified two issues for review: procedural fairness and reasonableness. Procedural fairness was reviewed on the correctness standard, with reference to authorities such as Mission Institution v Khela, Canadian Pacific Railway Company v Canada (Attorney General), and Canada (Minister of Citizenship and Immigration) v Vavilov. The Court placed this case at the low end of the Baker spectrum, given the discretionary, non-formal nature of ECCC’s interpretive process and the absence of formal or quasi-judicial hearings, and the Applicant conceded that only a low level of procedural fairness was required. Enhance argued that ECCC’s prior emails and the participation of high-level officials created a legitimate expectation that it would be able to elaborate on its legal opinion and respond to ECCC’s concerns. The Court, relying on Agraira v Canada (Public Safety and Emergency Preparedness) and Canada (Attorney General) v Mavi, held that legitimate expectations must arise from clear, unambiguous, and unqualified assurances about process or considerations, comparable to an offer and acceptance. It found that the emails relied on by Enhance did not reach this threshold. Email exchanges showed Enhance repeatedly offering to discuss its legal opinion and ECCC merely confirming receipt; when ECCC later referred to a potential follow-up meeting “if needed,” that wording remained conditional. The eventual scheduling of a meeting, without any specified agenda or commitments about how ECCC would proceed, did not create a legitimate expectation of a particular procedure. The involvement of senior officials was not sufficient, on its own, to establish such an expectation. The Court therefore agreed with the Respondent that there was no legitimate expectation, and it did not find a breach of procedural fairness.

Reasonableness review of ECCC’s statutory interpretation

On the merits, the parties agreed that the applicable standard of review was reasonableness, consistent with Vavilov, Mason v Canada (Citizenship and Immigration), and Pepa v Canada (Citizenship and Immigration). The Court restated that a reasonable decision must be based on an internally coherent and rational chain of analysis and be justified in light of the legal and factual constraints, including the modern principle of statutory interpretation (text, context, and purpose). The Applicant argued that ECCC had not properly engaged with its key submissions. In particular, Enhance emphasized that subsection 25(3) is textually linked to subsection 25(2), which explicitly references sections 19(1) and 20—provisions that include all compliance categories—and that subsection 25(3) itself does not differentiate between CC1, CC2, and CC3 projects. Enhance submitted that subsection 25(3) is the specific provision governing early credit creation and that ECCC’s reliance on paragraph 32(2)(d) as the start-date provision for CC1 projects created a conflict with subsection 25(3). The Court found that ECCC’s reasons, as reflected in the September 2023 meeting and the October 6 email, did not sufficiently grapple with these textual points. ECCC’s position was that subsection 25(3) did not apply to CC1 projects subject to a specific quantification method because paragraph 32(2)(d) governed their earliest start date. However, ECCC did not explain why the broad language of subsection 25(3), which references sections covering all compliance categories, should be read as excluding CC1 projects, nor did it provide a persuasive textual basis for treating paragraph 32(2)(d) as a more specific and controlling provision on start dates. The Respondent argued that the use of “may” in subsection 25(3) contrasted with the mandatory “must” in paragraph 32(2)(d) and supported giving primacy to paragraph 32(2)(d). The Court did not accept that this reading was implicit in ECCC’s reasoning and noted that the permissive language in subsection 25(3) can be understood in light of the voluntary nature of the credit scheme and the optional character of early credit creation, rather than as an indication that the provision is merely general or limited to certain categories. The Court also observed that paragraph 32(2)(d) sets the required duration for projects subject to a specific quantification method, beginning on the later of certain dates, but that the end date for such projects is set elsewhere, in subsection 36(4), and that paragraph 32(2)(d) does not itself purport to address the same early-credit period created by subsection 25(3).

Failure to engage with statutory context and purpose

The Court considered ECCC’s treatment of context and legislative purpose. Enhance had submitted that ECCC’s interpretation created a conflict between subsection 25(3), which by its text allows all qualifying projects to create credits from the date of registration if the registration report is filed within 60 days, and ECCC’s understanding of paragraph 32(2)(d) as precluding that earlier start date for CC1 projects. In its October 6 email, ECCC stated that subsection 25(3) was the first day on which credit creation may start and asserted that subsequent provisions then set out rules for each specific type of credit creation. At the hearing, however, both parties acknowledged that later provisions in the Regulations do not address start or end dates for CC2 and CC3 projects. The Respondent argued that these project types are treated differently and that this omission did not speak to CC1 start dates. The Court found that this hearing position contradicted the reasoning suggested in the October 6 email and concluded that ECCC’s written reasons did not accurately reflect the legal context it claimed to apply. On purpose and legislative history, the Applicant had relied on the Regulatory Impact Analysis Statements (RIAS) and other materials, including a 2020 RIAS and the 2023 implementation presentation, to argue that the scheme envisioned early credit creation as of registration and that distinguishing CC1 projects in the way ECCC had done was not supported by the text. The Respondent submitted that the RIAS relied upon by the Applicant were older and did not represent the final intent reflected in the Regulations, and argued that the 2022 RIAS supported early credits only for CC2 and CC3. The Court noted that the 2022 RIAS discussed stakeholder requests for more flexibility upon registration and described how early credit creation would be allowed for two categories, but it did not conclude that CC1 projects could never receive early credits under the final version of the Regulations. It also noted that the 2023 implementation presentation did not distinguish between compliance categories when describing early credit creation and that ECCC’s own communication to regulated entities suggested a uniform understanding of early credit creation beginning upon registration. The Court held that ECCC did not address this legislative history and purpose in its reasons, despite the Applicant’s submissions. Taken together with the failure to address the breadth of subsection 25(3)’s text and its linkage to sections 19(1) and 20, the Court concluded that ECCC had not been adequately “alive” to essential elements of statutory interpretation and that its interpretive decision was unreasonable.

Remedy, remittal, and costs

Having found ECCC’s interpretation unreasonable, the Court turned to remedy. As a general rule, an unreasonable decision is set aside and the matter is remitted to the decision-maker. The Applicant, relying on recent case law such as Pepa, argued that there was no utility in remitting because the interpretive question had only one reasonable answer: subsection 25(3) includes CC1 projects. The Respondent, although preferring its reading, agreed at the hearing that the provision effectively presented a binary interpretive choice. Nonetheless, the Respondent submitted that the Court should not order ECCC to grant credits, citing uncertainty about applying the specific quantification method to early credits and possible unintended consequences. The Court concluded that, on the analysis it had undertaken, restricting subsection 25(3) to only CC2 and CC3 projects was inconsistent with the text, context, and purpose of the Regulations, and that the only remaining reasonable interpretation was that subsection 25(3) also encompasses CC1 projects. It therefore directed ECCC to receive Enhance’s credit creation report for the period between June 21, 2022 and August 12, 2022, which the Applicant may submit within thirty days of the judgment. However, the Court emphasized that subsection 25(3) states that a qualifying person “may” create provisional credits and that other conditions within the Regulations could affect whether credits are ultimately granted. It held that the outcome of the Applicant’s credit creation report was not a foregone conclusion and that determining whether the Clive Project met all necessary requirements during the relevant period fell within ECCC’s role. Accordingly, the Court remitted to ECCC the question whether to grant provisional credits for the period between June 21, 2022 and August 12, 2022. On costs, the Court had already awarded the Applicant $1,620 for the motion to strike. For the merits, the Applicant requested a lump sum of $15,000, while the Respondent proposed that costs be fixed under column III of Tariff B of the Federal Court Rules in the amount of $4,000. The Court reiterated that costs are discretionary and noted that elevated lump-sum requests should generally be supported by a bill of costs and evidence of disbursements, which the Applicant had not provided. It agreed that column III of Tariff B was appropriate, but it did not accept the Respondent’s specific calculation. The Court instead awarded $8,700 in costs for the merits. Adding the $1,620 costs previously awarded on the motion to strike, the total costs awarded to the Applicant amounted to $10,320.

Ruling and overall outcome

The Court allowed the application for judicial review, set aside ECCC’s decision, and ordered ECCC to receive Enhance Energy Inc.’s credit creation report for the period between June 21, 2022 and August 12, 2022, with the report to be submitted within thirty days of the judgment. It remitted to ECCC the determination of whether to grant provisional credits for that period. The Court awarded the Applicant total costs of $10,320, confirming Enhance Energy Inc. as the successful party in the proceeding while leaving the final decision on credit issuance within ECCC’s discretion under the Regulations.