Carbon Capture and Storage Under Canada's Clean Fuel Regulations

CC1 reduction credits, CC2 negative-CI removal credits, and the emerging role of CCS in powering data centers, SAF mandates, and CORSIA compliance.

By Koorosh Behrang • February 2026 • 15 min read

Carbon capture and storage is uniquely positioned within Canada's CFR as a pathway that generates credits in two fundamentally different ways: CC1 reduction credits for decarbonizing fossil fuel production, and CC2 negative-CI credits when deployed on biofuel production — creating carbon removal value. With the longest crediting horizon under the CFR (up to 25 years), stackability with Alberta TIER and BC LCFS, and emerging demand from data centers, SAF mandates, and CORSIA, CCS is becoming a cornerstone of multi-program carbon credit strategy in Canada.

Carbon capture and storage occupies a distinctive position in Canada's Clean Fuel Regulations. Unlike renewable fuels or electrification — which reduce emissions by substituting fossil energy — CCS reduces the lifecycle carbon intensity of fossil fuel production itself. This makes it one of the few pathways that can generate credits while the underlying fossil fuel value chain continues to operate.

CCS projects generate credits under two distinct CFR pathways:

Together, these pathways make CCS one of the most versatile and high-value credit generation strategies under the CFR — particularly when stacked with complementary programs like Alberta TIER and voluntary carbon markets.

Under Category 1, CCS projects deployed anywhere on the gasoline and diesel production value chain — from upstream extraction through refining — can generate liquid compliance credits. The mechanism is straightforward: by capturing CO₂ that would otherwise be vented and permanently storing it in geological formations, the project reduces the lifecycle carbon intensity of the resulting fuel.

This makes CC1 CCS credits among the most directly impactful pathways under the CFR — they address emissions at the source of the fuel that obligated parties are required to decarbonize.

Under the CC1 quantification framework for CO₂ capture and permanent storage, projects must demonstrate that carbon dioxide is captured in Canada and injected into a geological formation capable of ensuring permanent storage, as defined by applicable provincial or territorial regulations. Eligible capture sources are defined as per specific methodology developed by ECCC.

Before any credits can be created, project proponents must submit an Application for Recognition to Environment and Climate Change Canada (ECCC). This application defines the project boundary, capture and injection infrastructure, baseline emissions, and monitoring and verification approach. Credit creation may begin only after the project is formally recognized by the Minister.

Credits are created annually and issued in the liquid class, reflecting the fact that CCS projects reduce the lifecycle carbon intensity of liquid fossil fuels such as gasoline and diesel.

By default, the owner or operator of the injection facility is the registered credit creator. However, credit creation rights may be contractually reassigned to another party under section 21 of the Regulations.

Where multiple parties assert credit ownership for the same project, ECCC will withhold credit issuance until a single registered creator is formally designated. Early contractual clarity on credit ownership is therefore essential for multi-party CCS infrastructure.

Emission reductions are calculated as the difference between baseline emissions (continued venting of CO₂) and project emissions (capture, compression, transport, and injection), with a mandatory 0.5 percent discount applied to injected CO₂ to conservatively account for long-term leakage or reversal risk.

Credits are also prorated based on the share of fossil fuels ultimately used in Canada. Only the portion of captured CO₂ associated with fuels consumed domestically is eligible for CFR crediting, ensuring alignment with the Regulations' objective of reducing emissions from Canadian transportation fuels.

Projects must submit annual credit creation reports supported by independent third-party verification, demonstrating compliance with all quantification, monitoring, and permanence requirements.

When CCS is deployed on the production of low-carbon fuels — RNG, biodiesel, sustainable aviation fuel (SAF), or hydrogen — something remarkable happens: the lifecycle carbon intensity of the resulting fuel can go negative. The biogenic carbon already captured by the feedstock (biomass, organic waste) is permanently stored underground, creating net carbon removal rather than merely reduction.

This is quantified under a separate CC2 quantification methodology — distinct from the CC1 storage-only framework. The negative CI value translates directly into amplified credit generation, as the carbon intensity differential between the displaced fossil fuel and the negative-CI biofuel creates outsized credit volumes per unit of fuel produced.

Model Your CCS Credit Revenue

Our team can quantify your CCS project's credit potential across CC1, CC2, and stacked provincial and voluntary programs.

CCS projects are among the most stackable pathways in Canada's carbon market ecosystem. A well-structured CCS project can generate credit value across multiple programs simultaneously — each with its own compliance demand, pricing dynamics, and eligibility rules.

For CC1 (reduction) CCS projects: Alberta's TIER system explicitly allows sequestration credits to be stacked with CFR CC1 credits. The same CCS project at a refinery or upgrader can generate value in both the federal fuel standard and Alberta's industrial compliance system. BC LCFS stacking is also possible for projects in British Columbia.

For CC2 (removal) CCS projects: The stacking opportunity is even more compelling. Negative-CI biofuel producers can stack CFR CC2 credits with TIER offsets and — critically — with voluntary carbon market removal credits. As corporate demand for high-integrity removals grows, these credits command premium pricing, creating a third revenue layer on top of compliance value.

CCS-enabled fuel pathways are converging with three powerful demand drivers that amplify the economic case for investment — each creating new markets for the credits CCS projects generate.

Data Center Energy Demand

The explosive growth of AI and cloud computing is creating unprecedented demand for low-carbon energy. Data center operators face mounting pressure — from corporate sustainability commitments, ESG requirements, and power purchase agreements — to source low-carbon electricity and offset their energy footprint.

CCS enables this transition in two ways: first, by decarbonizing natural gas power generation that supplies data centers (creating CFR CC1 credits); and second, by providing high-integrity carbon removal credits (via CC2 BECCS pathways) that data center operators can use to meet their carbon-neutral commitments. CFR credits stacked with TIER and voluntary removal credits can help make low-carbon energy economically viable for Canada's growing data center sector.

SAF Mandate and CORSIA

Canada's anticipated SAF blending mandate and the international CORSIA framework (Carbon Offsetting and Reduction Scheme for International Aviation) are creating structural demand for ultra-low and negative-CI aviation fuel. CCS deployed on SAF production pathways directly addresses both requirements.

When further stacked with provincial programs (Alberta TIER, BC LCFS) and voluntary removal credits, a CCS-enabled SAF facility represents one of the most revenue-dense low-carbon fuel projects currently possible in Canada. The convergence of compliance obligations from the CFR, SAF mandate, CORSIA, and provincial systems creates compounding demand for the same negative-CI fuel.

This is not theoretical — the policy architecture is already in place. Project developers who move early to integrate CCS into low-carbon fuel production will secure positioning in what is rapidly becoming Canada's most valuable intersection of carbon credit markets.

Unlock Your CCS Project's Full Credit Potential

From CC1 reduction credits and CC2 negative-CI removals to multi-program stacking with TIER, BC LCFS, and CORSIA — Climate Decode provides end-to-end CCS credit advisory powered by TerraNova.

About the Author

Koorosh Behrang Founder, Climate Decode Founder of Climate Decode with more than 10 years of experience across decarbonization strategy, corporate sustainability, Net Zero target setting, and compliance carbon markets. His work centers on the interaction between decarbonization pathways and regulated carbon systems, translating that complexity into finance-grade insight for executive decision making. He has worked extensively across programs including WCI, Ontario EPS, Alberta TIER, BC OBPS, Canada's Clean Fuel Regulations, the EU ETS, the EU Shipping ETS, and FuelEU Maritime, integrating carbon pricing exposure, credit strategy, and regulatory trajectory into capital allocation and long-term compliance planning. Koorosh leads the design and functionality of TerraNova, building finance-grade decarbonization solutions that dynamically incorporate energy prices, carbon market fluctuations, and regulatory strategy into structured roadmaps to Net Zero — with a focus on risk-adjusted returns, capital efficiency, and long-term resilience. Speak to Koorosh → LinkedIn →