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Canada’s Plan to Strengthen Domestic Low-Carbon Fuel Production through Proposed CFR amendments

Canada’s Plan to Strengthen Domestic Low-Carbon Fuel Production through Proposed CFR amendments

Key Takeaways

Canada’s proposed CFR amendments aim to strengthen domestic low-carbon fuel production, reduce reliance on imports, and support agricultural feedstocks.
Options include one or a combination of a minimum domestic content requirement that ensures stable demand for Canadian fuels, and a credit multiplier that boosts incentives for domestic producers.
cCarbon’s outlook shows that credit multipliers could lift domestic blending to ~23% by 2030, up from ~17% in the base case.
cCarbon projects that the combined credit multiplier and minimum blend approach could add about 10.7 million credits by 2030.

Introduction

On December 5, 2025, the Government of Canada released a discussion paper proposing targeted amendments to the Clean Fuel Regulations (CFR) to enhance the resilience and competitiveness of the domestic low-carbon fuel sector. These amendments respond directly to rising reliance on imported low-carbon fuels and increasing competitive pressures on Canadian producers. Environment and Climate Change Canada (ECCC) are inviting stakeholder submissions until January 15, 2026.

The intent is clear: secure domestic supply, support Canadian feedstocks such as canola, and ensure the CFR continues to deliver sustained greenhouse-gas emission reductions. This direction aligns with ECCC’s stated goals to maintain emission reductions while addressing challenges in the clean fuel sector.

Regulatory Approaches Under Consideration

Minimum Domestic Content Requirement

The CFR currently requires 5 percent low-carbon-intensity (LCI) content in gasoline and 2 percent in diesel. Under the new proposal, a defined portion of these volumes must be sourced from Canadian-produced low-CI fuels.

This approach would:

Secure a stable domestic market for biofuels such as ethanol and renewable diesel
Strengthen demand for agricultural feedstocks including canola
Improve supply reliability as CI requirements ramp up toward 2030
Allow flexibility for regional differences and supply disruptions

As per the discussion paper, this approach ensures a predictable market and reduces exposure to disruptions in imported supply.

Credit Multiplier Approach

A second option is to award additional CFR credits for each litre of low-CI renewable fuel produced domestically compared with imported equivalents. While this method strengthens incentives for Canadian producers, it may exert downward pressure on credit price.

Potential implications include:

Stimulating additional credit creation
Lowering overall CFR credit prices
Reducing economic incentives for competing compliance.

cCarbon Model Outlook

Based on the proposal above, cCarbon has done modelling analysis and created scenarios as follows.

Model Assumptions

Based on the discussion paper, three scenarios have been considered, as outlined in Table 1

Source: cCarbon Model Outlook

Minimum Blending assumption

For domestically produced ethanol, the base case assumes a constant 4% blend in the gasoline pool. Under the minimum blend percentage approach, cCarbon assumes a constant 5% blend from 2026 to 2030. This assumption is anchored to British Columbia’s mandate requiring a minimum 5% ethanol blend in the gasoline pool.

For domestically produced renewable diesel and biodiesel, cCarbon assumes Canada could adopt an 8% minimum domestic blend requirement in the diesel pool from 2026, aligned to British Columbia’s mandate. Domestic RD and BD blending rose from 1.2% in Q1 2025 to 7% in Q3 2025. This suggests supply can scale toward an 8% domestic blending requirement if a mandate is introduced, especially because much of the supply was previously exported to other markets. Under a higher credit price regime, and with a minimum blending mandate in place, the economics improve for retaining more volumes domestically and supporting higher domestic flows.

Credit Multiplier Approach

For the Credit Multiplier Approach, the following variables will affect the multiplier:

S. production tax incentive levels in CAD, which will be determined based on RIN prices, 45Z credits, and dollar exchange rates.
The average carbon intensity (CI) of the renewable fuel produced and the benchmarked CI.
The actual credit cost per tonne.

The discussion paper provides an example scenario for calibrating credit multipliers to match U.S. production tax incentives.

Based on the above example, for the modelling, a fixed production incentive of 23 cents per litre in Canadian dollars for renewable diesel (RD) and approximately 5 cents per litre in Canadian dollars for ethanol, with a credit cost of CAD 300 per tonne, is assumed. The average carbon intensity (CI) is the only variable that changes year on year basis. Using these assumptions, various scenarios have been run, and the resulting model output is presented below.

Domestic RD and BD Supply Could Rise to 23% by 2030 Under Credit Multipliers

cCarbon has analyzed currently operating and planned renewable diesel facilities in Canada. At present, 5 plants are active, with a combined production capacity of 515.8 million gallons per year, while 7 additional plants are under planning. If all planned facilities become operational by 2030, their combined output could meet about 15% of Canada’s total diesel demand through renewable diesel supply. Facility-wise production capacity is provided in the table below:

Source: cCarbon’s Research

Based on currently announced renewable diesel capacity additions, cCarbon assumes that in most likely scenario the domestic share of renewable diesel and biodiesel in the blending pool increases from roughly 8% in Q1 2026 to about 17% by Q4 2030.

However, if Canada adopts a credit multiplier approach, cCarbon expects improved credit economics to encourage additional capacity announcements in late 2026 or early 2027. Under this scenario, domestic renewable diesel and biodiesel supply could rise to about 23%, supported by higher credit prices and stronger incentives.

Source: cCarbon Projections

Credit multipliers with minimum blend add 10.7 million more credits.

cCarbon projects that under the minimum blend approach, an 8% blending mandate for renewable diesel (RD) and biodiesel (BD) would not require any adjustment unless the mandate increases over time. Credit generation is expected to increase due to higher ethanol blending, rising from 4% in the base case to meet the minimum 5% requirement % blend.

Under the most likely scenario, cCarbon projects that a minimum blend approach alone would add only about 0.5 million credits between 2026 and 2030, which is insufficient to materially improve domestic market incentives. In contrast, combining a credit multiplier with a minimum blend approach could add about 10.7 million credits over the same period, driven by higher domestic fuel supply and greater credit generation enabled by the multiplier.

Source: cCarbon Projections

Conclusion

cCarbon’s analysis suggests that a credit multiplier would make the domestic market more attractive for Canadian low carbon fuel producers. This could support higher blending levels and, over time, encourage additional renewable diesel capacity.

ECCC’s discussion paper also considers a progressive minimum domestic blending approach, (e.g. 8% in 2026–2027, 10% in 2028–2029, and 12% in 2030). For analysis, however, cCarbon assumes a simpler policy case of an 8% minimum domestic blend in the diesel pool and a 5% minimum blend in the gasoline pool.

At the same time, directing stronger support only toward domestic low carbon fuel producers could reduce the relative investment appeal of other compliance pathways, such as CCS and EV charging, which depend more directly on strong federal incentives to remain competitive.

Overall, the draft CFR amendments signal a clear policy intent to strengthen domestic production and improve sector resilience. By shifting incentives toward Canadian-produced low carbon fuels, the amendments aim to build a more stable and competitive supply base, reduce reliance on imports, support Canadian feedstocks, and keep the CFR aligned with national climate objectives.