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Canada CFR Q3 2025: Compliance Credit Market Review and Outlook

Canada CFR Q3 2025: Compliance Credit Market Review and Outlook

Overview

Environment and Climate Change Canada (ECCC) has published the compliance credit market report for the Q2 2025 compliance period. The report primarily highlights credits generated from low CI fuels under compliance category 2, as well as from the production or import of renewable propane and renewable natural gas (RNG) used for vehicle fueling under compliance category 3. A total of 2.38 MT compliance credits were generated in Q2 2025, with overall credit generation increasing by 37% QoQ and 9% YoY. The report also provides insights into credit transfers, including the average credit price.

Key takeaways from Q2 2025

Q3 2025 CC2 credit generation reached 2.93 MMtCO2e, an increase of 21.49% YoY from 2.41 MMtCO2e in Q3 2024.
Imported renewable diesel generated 0.91 MMtCO2e of credits, accounting for 31.23% of total credit generation in Q3 2025. Similar to historical trends, domestically produced renewable diesel continued to generate negligible credits under the CFR.
Renewable diesel credit generation increased 15.55% YoY, despite renewable diesel volumes rising by only 8.66% YoY. The stronger growth in credits was primarily driven by a 12.09% YoY decline in the carbon intensity of renewable diesel, from 36.4 gCO₂e/MJ in Q3 2025 to 32.0 gCO₂e/MJ in Q3 2025.
Ethanol remained the largest source of CC2 credits, generating approximately 1.30 MMtCO2e in Q3 2025 and accounting for 44.55% of total credit generation during the quarter.
Ethanol credit generation increased 5.22% YoY and 12.89% QoQ, supported by ethanol volumes that rose 6.87% YoY and 10.51% QoQ, while the average carbon intensity remained broadly stable at around 39 gCO₂e/MJ.
Biodiesel generated approximately 0.46 MMtCO2e of credits in Q3 2025, representing 15.94% of total CC2 credit generation. Credit generation increased by 5.20% YoY, while biodiesel volumes grew by 41.99% YoY, indicating that higher volumes were partly offset by changes in the fuel’s average carbon intensity and resulting credit intensity.
SAF credit generation remained import-driven, increasing 23.94% YoY despite fuel imports rising by more than 130%. The slower growth in credits reflects a 98.29% YoY increase in average carbon intensity, from 29.3 gCO₂e/MJ in Q3 2024 to 58.1 gCO₂e/MJ in Q3 2025.
RNG credit generation increased 195.19% YoY, supported by a 256.2% YoY rise in fuel volumes. Average RNG carbon intensity declined by 30.59% YoY, continuing its downward trajectory.
Figure 1: Credit Composition in Q3 2025

cCarbon’s forecasting accuracy & Outlook

cCarbon’s forecast outlook estimated a total of 23.5 million active compliance credits for 2025 for which ECCC estimates 24 million compliance credits available for 2025 compliance, marking a forecast accuracy of 97.7%.
While our reduction requirements (deficits) for 2025 estimate 15.9 MT compared to ECCC’s estimate of 15.6 MT indicating a high forecast accuracy of more than 98%.
For the first time since inception of CFR in July 2022, deficits volumes are expected to surpass credit generation volumes in 2025. As the program continues to mature and increase the CI requirements market is expected to get tighter leading to higher prices.
ECCC reported the compliance credit bank at 8.4 million credits, compared with cCarbon’s estimate mentioned in our previous article stands at 8.0 million credits, representing a variance of approximately 5%.
Canadian CFR is entering a new phase characterized by tightening credit fundamentals, where rising compliance obligations and a narrowing credit surplus are expected to provide sustained support for compliance credit prices and increase the importance of strategic credit procurement.

Conclusion

Q3 2025 continued to reflect strong domestic production and imports of low carbon intensity fuels, with ethanol remaining the dominant source of compliance credits and imported renewable diesel continuing to play a significant role in the diesel pool. At the same time, rapid growth in RNG credits and improving carbon intensities across several fuel pathways supported overall credit generation, although the market continued to rely heavily on imported renewable diesel to meet compliance needs.

cCarbon’s latest outlook indicates that 2025 is expected to mark the first year in which compliance deficit creation exceeds compliance credit generation since the CFR came into effect. As annual carbon intensity reduction requirements continue to tighten, the existing compliance credit bank is expected to gradually decline, leading to increasingly tighter market fundamentals.

To address longer-term supply challenges, ECCC has proposed amendments to the CFR, including the introduction of credit multipliers for domestic low carbon intensity fuels to better align with incentives available in the United States. Assuming these amendments are implemented and provide a strong, clear and durable market signal, domestic low carbon intensity fuel production is expected to strengthen over the coming years, although the market is still likely to transition toward a structurally tighter supply-demand balance, supporting compliance credit prices.