Unlocking the Future of Canada’s Clean Fuel Market: Policy Shifts, Market Insights, and Near Term Projections

Key Takeaways

• CFR credit prices have tripled since January 2025, driven by low credit generation from biofuels and electric vehicles along with rising deficits.
• Ethanol and HDRD (hydrotreated renewable diesel) showed modest increases in volume from 2023 to 2024, while RNG (renewable natural gas) volume surged by 417.5%; however, reductions in average carbon intensity were shared across the board, with credit growth led by HDRD (105.6% increase) and ethanol (30.8% increase).
• In Q2 2025, zero emission vehicle (ZEV) as a portion of total light duty sales decreased to 8.56%, the lowest rate in the past five quarters.
• Ethanol’s blend in gasoline dropped to 8.53% (from ~10% in Q1 2025), and the renewable/biodiesel blend in the diesel pool declined to 10.3% (from a ~20% high in Q2 2024).
• The BC LCFS maintains the most appealing Canadian market for low-carbon fuels due to credit stacking, and saw diesel renewable content at 31% and ethanol at ~11%. However, British Columbia ZEV sales recorded a 27.63% year-over-year decline.
• Even with a low credit bank BC LCFS price decline suggests an inverse relationship with CFR prices.
• cCarbon’s baseline scenario for the CFR sees a nation a wide RD blend of 50% and ZEV sales representing ~40% of total LDV sales in 2030. Using data provided so far by ECCC, we see no surplus of credits in the system.

On 9th October 2025, cCarbon hosted its latest webinar, unveiling the Canada CFR: Evolving Credit Markets, Regulatory Shifts, where key updates regarding Canada’s clean energy policies and market dynamics were discussed.

Canada’s Clean Energy Transition: Policy Shifts, Market Insights, and Projections

On September 5, 2025, Canadian Prime Minister Mark Carney announced a suite of policy measures aimed at accelerating Canada’s clean energy transition. The package includes a $370 million biofuel production incentive, a suspension of the 2026 Electric Vehicle Availability Standard (EVAS) target, and support for agricultural producers, signaling a strategic response to current market conditions, and changing trade dynamics for Canada’s biofuel and feedstock producers.

Key Policy Changes: Strengthening Biofuels and Adjusting ZEV Mandates

One of the key elements of the September announcement is the introduction of amendments to the Clean Fuel Regulations. These amendments represent the first substantial modification to the CFR since its implementation in July 2023. They are designed to enhance the resilience of Canada’s biofuel sector while maintaining the country’s focus on emissions reductions. This move is a direct response to the challenges facing Canadian biofuel producers, particularly in light of policy shifts in the U.S. that have put domestic producers at a competitive disadvantage.

Additionally, the government revealed a $370 million biofuel production incentive to support Canadian biodiesel and renewable diesel producers from January 2026 to December 2027. This incentive, which will provide per-liter production support with facility caps of 300 million liters, aims to mitigate the effects of U.S. policy changes on Canadian biofuel production.

In a notable policy shift, the Prime Minister also announced the suspension of the 2026 Electric Vehicle Availability Standard (EVAS) target, which required 20% of vehicle sales to be zero-emission vehicles (ZEVs). The decision also initiates a 60-day regulatory review to assess the feasibility of the 2035 target for 100% ZEV sales, introducing uncertainty about future requirements. Furthermore, the Quebec government has scaled back its 2035 ZEV mandate, reducing its target to 90% and including plug-in hybrid vehicles (PHEVs) in the target.

Market Insights: Credit Prices Surge Amid Tightening Supply

Between January and March 2025, credit prices in Canada remained relatively stable, fluctuating between CAD 80 and CAD 100. However, a significant price surge began in April 2025, with prices more than tripling by September 2025 to approximately CAD 350. This dramatic increase reflects tightening market conditions, driven by a combination of slow-growing biofuels production, stricter carbon intensity standards, and rising compliance needs.

The narrowing bid-offer spreads in the market indicate increased liquidity and a more balanced market. According to cCarbon, this price increase is largely due to tightening supply-demand fundamentals, as compliant low-carbon fuels, particularly advanced biofuels and renewable diesel, are unable to keep pace with rising demand. Delays in new biofuel projects and competition for feedstocks – both domestically and from U.S. buyers – have further strained supply, exacerbating the market’s tightness.

Looking Ahead: Canada’s Clean Fuel Outlook for Q4 2025 and Beyond

As we approach the fourth quarter of 2025, Canada’s clean fuel and carbon markets are poised to tighten further under both the Clean Fuel Regulations (CFR) and British Columbia’s Low Carbon Fuel Standard (BC LCFS). CFR credit prices have more than doubled since January 2025, signaling a deepening credit shortfall. This shortfall is particularly acute in biofuels and electric vehicle credits, which have underperformed relative to the growing demand for credits as emissions reduction standards tighten.

Despite these challenges, both Canada and British Columbia remain attractive destinations for carbon intensity (CI) credits due to favorable regulatory frameworks and stacking opportunities. The Clean Fuel Incentive Calculator, developed by cCarbon, estimates the total incentives available for biofuels under various low-carbon fuel policies. This tool helps U.S. producers evaluate potential incentives across programs such as California’s LCFS, Oregon’s CFP, Washington’s CFS, British Columbia LCFS, and Canada CFR, offering crucial insights for decision-making.

Zero-Emission Vehicle (ZEV) Sales: Slowing Growth Amid Policy Shifts

Canada’s zero-emission vehicle (ZEV) sales have seen a significant decline, with ZEV penetration falling to 8.56% in Q2 2025 from a high of 18% in Q4 2024. This decline can be attributed to a variety of factors, including the imposition of 100% tariffs on Chinese-made electric vehicles and the abrupt termination of the federal iZEV program in January 2025. The suspension of the 2026 ZEV mandate and uncertainty around the 2035 target have further contributed to this slowdown. As a result, the growth of ZEV sales is expected to remain modest in the near term.

Canada’s Clean Fuel Landscape: Domestic Capacity vs Imports

Canada’s clean fuel landscape shows a continued reliance on imports, particularly for renewable diesel and biodiesel, which are in higher demand than domestically produced biofuels. Canadian production is primarily sourced from facilities like Imperial Oil’s Strathcona refinery and Tidewater Renewables’ refinery, but trade disruptions, including an anti-dumping complaint filed by Tidewater Renewables against U.S. imports, have added volatility to the market. Additionally, the cost disadvantage faced by Canadian producers, particularly in the absence of similar incentives like the U.S. 45Z Production Tax Credit, has further strained domestic production capacity.

Looking Forward: Near Term Market Projections

As Canada progresses toward its 2030 clean energy targets, cCarbon estimates key trends and projections that shape the outlook for the country’s clean fuel market:

Renewable Diesel (RD) Blend Penetration

• Aggressive Scenario: RD blend could reach 60% by 2030, driven by increased imports from the U.S. and strong domestic production.

• Likely Scenario: RD blend is expected to stabilize at 50%, reflecting steady growth in RD imports and domestic production.

• Slow Scenario: RD blend could remain at 40%, with ongoing feedstock and trade challenges limiting growth.

Zero-Emission Vehicle (ZEV) Share of Light-Duty Vehicle (LDV) Sales

• Aggressive Scenario: ZEV sales could make up 50% of total LDV sales by 2030, aligned with long-term policy targets.

• Likely Scenario: ZEV sales are projected to reach 40%, consistent with current purchasing trends.

• Slow Scenario: ZEV sales could account for only 30% of total sales, hindered by high vehicle costs and infrastructure gaps.

Credit Bank and Deficits Through 2026

In terms of credits and deficits, the near-term outlook reveals a tightening market:

2024 Credit/Deficit: Estimated at 12.3 million Deficits, with the final numbers for 2023 deficits still pending publication by ECCC. The 2024 quarterly report, which includes 7.9 million credits for CC2.

2025 Deficit: Expected to worsen due to trade disruptions, with the market entering deficit territory.

2026 Outlook: The deficit is anticipated to continue, with deficits outpacing credits in the near term. Environment and Climate Change Canada (ECCC) has informed cCarbon that it plans to  release the annual credit market report and provide updates on 2023 primary deficit numbers in the fall of this year.

Panel Discussion Insights: Near-Term Outlook and Market Dynamics

During the panel discussion at the webinar, cCarbon staff exchanged views on the near-term outlook for the Canadian clean fuel market with Griffin Swanson, VP Credit Development at Bank of Montreal. The panel discussed the potential impact of the $370 million biofuel production incentive and its role in helping address the credit gap. Panelists highlighted the increasing demand for renewable natural gas (RNG) and the challenges around feedstock availability, suggesting that while there might be some plateauing in the RNG market, further investments could push its growth.An important development highlighted was that, at the Biogas West Conference, it was announced that ECCC is considering accepting RNG use in a refinery for CC1 credit creation, which could stimulate investment and demand for RNG in the credit market. As the webinar concluded, the panelists noted that ECCC’s upcoming report, expected later in 2025, will provide further clarity on credit volumes and market conditions including a possible upward adjustment in credit generation volumes. This report will be crucial for refining projections beyond 2026, with potential changes to the CFR and other policy mechanisms that could influence the market.

Canada Clean Fuels and Carbon Market Summit – November 5th, Calgary

cCarbon looks forward to discussing CFR and BC LCFS market dynamics further at our summit in Calgary next month. We expect to have in depth conversations on the future of credit market dynamics, and look forward to the opportunity to engage with regulators in attendance, such as ECCC and the Government of Alberta. Anyone interested in attending this summit can find more information on the event website here.

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