The Canadian Clean Fuel Regulations (CFR) program, enabled under the Canadian Environmental Protection Act, is designed to reduce vehicle emissions of greenhouse gases (GHGs) by reducing the average carbon intensity (CI) of transportation fuels used in Canada. The regulations seek to promote the use of renewable fuels, stimulate investment in low-carbon technologies, and encourage sustainable practices across the fuel sector.
The CFR came into force on June 21, 2022. Credit creation was permitted from that date forward, while deficit creation did not begin until July 1, 2023; the first compliance period closed December 31, 2023. The CFR requires producers and importers of gasoline and diesel to reduce the average CI of the fuel they supply for use in Canada by 14 grams of CO2 equivalent per megajoule (gCO2e/MJ or, simply, g/MJ) below the regulatory baseline by 2030,[2] about a 14.7% reduction for the gasoline pool and a 15.1% reduction for the diesel pool. Producers and importers satisfy this requirement using compliance credits, which they can generate themselves (for example, by blending in low-carbon fuels or reducing emissions at their facilities) or acquire from other companies through trading. The CI reduction schedule specified under the CFR is displayed in Table 1.
Table 1. CFR Annual CI Limits[3]
Source: SOR/2022-140 § 5
The CFR is a low carbon fuel (LCF) program – similar to the California Low Carbon Fuel Standard (LCFS), which was implemented in 2011, and the British Columbia LCFS (BC-LCFS), which began in 2010. Although it is a nationwide program, the CFR differs significantly in its concept and application from the nationwide U.S. program, the Renewable Fuel Standard (RFS), which is a volumetric requirement for renewable fuels usage that lacks incentives for increasing reductions in the CIs of fuels. The CFR is administered by Environment and Climate Change Canada (ECCC). The first compliance period for obligated parties was 2022-2023.
Primary Sources of Credit and Deficit Generation
Under the CFR, credits are generated by fuels with CIs below the annual standard, and deficits are generated by fuels with CIs above the standard. The CFR is a market-based system in which demand for credits is created by deficit generation; regulated parties must use credits they purchase or generate to offset their deficits. Currently, the deficit-generating fuels are the petroleum portions of gasoline and diesel. Other fuels may become deficit-generating in future years as the CFR standards are reduced below those fuels’ CIs.
Credits may be generated under three Compliance Categories:
- Compliance Category 1 (CC1) credits are generated by projects that reduce the life cycle CI of liquid fossil fuels (e.g., carbon capture and storage, on-site renewable electricity);
- Compliance Category 2 (CC2) credits are generated by the supply of low-CI fuels (e.g., ethanol, biodiesel, renewable diesel); and
- Compliance Category 3 (CC3) credits are generated by the supply of fuel or energy to advanced vehicle technology (e.g., electricity, hydrogen, or renewable natural gas (RNG) used in vehicles).
Like other LCF programs, the underlying rationale of the CFR is that, by providing a structure which allows the market to pick the mix of fuels used to comply with the regulations, the mandated CI reduction targets can be achieved at the lowest cost. As shown in Figure 1, the near-term is dominated by the mix of fuels which can be utilized by vehicles already in service in Canada. Compliance and program success in the longer term will depend on fleet turnover to vehicles with technologies capable of utilizing a different, lower-CI mix of fuels.
Figure 1. Credit Generation by Fuel as a Percentage of Total Low-Carbon Fuel Credits
(2025 through Q3)
Source: Environment and Climate Change Canada, Stillwater analysis
In 2025 (through Q3), the contributions of credit-generating fuels include a mix of ethanol (52.1%), renewable diesel (25.7%), biodiesel (13.7%), renewable natural gas (2.9%), and SAF (0.7%).
Figure 2 below shows the historical trend in the percentage of liquid fuel energy supplied by renewable sources from January 2022 through May 2026. Since the implementation of the CFR, there has been a continuation in the slow growth trend for ethanol which predated the start of the CFR. Over the same time, there was little material change in the contribution of biomass-based diesel (biodiesel and renewable diesel) until 2026. In 2026, blending levels of biomass-based diesel (BBD) appear to have increased significantly. This may be attributable to average ethanol blending levels approaching 10% of gasoline and, thereby, driving a need to increase BBD blending in order to meet CFR obligations.
Figure 2. CFR Renewable Fuel as % of Gasoline and Diesel Volume
Source: Statistics Canada, Stillwater analysis
Feedstock Sustainability Requirements
Beyond reducing carbon intensity, the CFR also requires that feedstocks used to generate credits meet Land Use and Biodiversity (LUB) criteria intended to prevent harm to soil, water, and wildlife habitat where those feedstocks are grown or harvested. Feedstock grown in ways that damage sensitive lands, such as wetlands, forests, or grasslands, cannot be used to generate CFR credits, regardless of how low its carbon intensity may be. Canadian and U.S. producers can generally meet these requirements by complying with agricultural and environmental regulations already in place in their jurisdiction, rather than undergoing a separate approval process specific to the CFR.
Historic Credit Trends
To date, ECCC has published only limited credit generation data; Category 1 and Category 3 credit generation data are only available for 2022 and 2023 and no data have been published on deficit generation.[4] Unused compliance credits from the Renewable Fuel Regulation (RFR, which was replaced by the CFR) were allowed to carry over and were allocated by ECCC in 2023. Figure 3 illustrates ECCC’s historical annual credit and deficit data for the CFR program. Because ECCC has only published this data in aggregate, Stillwater parsed it to estimate the cumulative credit bank through the third quarter of 2025. (Note: the rollover from RFR shown in 2023 was a one-off.)
Figure 3. CFR Credit and Deficit Generation Annual and Cumulative Credit Bank
Source: Environment and Climate Change Canada, Stillwater analysis
Historic Credit Price Trends
Although the Canadian fuels market is about the same size as the California market, the CFR is a much newer program with fewer participants (through June 2024, ECCC reports 49 credit transferors and 33 credit transferees compared with 599 regulated parties and 101 registered brokers under the California LCFS through July 2024), resulting in less liquidity and lower transparency in CFR market prices. Figure 4 shows the CFR average credit prices as reported by ECCC.[5] As can be seen, prices and the volume of credit transfers have increased steadily each year since program inception.
Figure 4. Historic CFR Credit Pricing (2022-2026)
Sources: Environment and Climate Change Canada, Bank of Canada exchange rates, Stillwater analysis
Note: Prices do not include transfers automatically executed on credit creation or transfers reported with zero or near-zero prices.
Interaction with Provincial Programs
Given Canada’s size and the diversity in both geography and population across the provinces, some regions have more advanced infrastructure and investment in clean technologies, while others may struggle to meet the stringent CFR requirements. This is recognized in the regulation as Newfoundland and Labrador are exempt from the CFR due to their sparse population and logistical challenges, while deficits are not generated for fuels supplied in the northern Territories (Yukon, Nunavut, and Northwest Territories). This inconsistency could foster regional variability in compliance and may hinder national progress towards emissions reduction targets.
British Columbia is of particular interest concerning provincial differences. The BC-LCFS, which predates the CFR by over a decade, adds a second layer of regulation to encourage the production and use of low-carbon fuels in British Columbia. Suppliers operating both inside and outside of BC may find opportunities for CFR compliance by supplying credit-generating fuels to BC and receiving credits in both programs. However, the interaction between the two credit values has proven more complex than a simple stack: BC-LCFS credit prices did not adjust to reflect the added CFR credit until CFR prices became observable in 2024, at which point the two credits moved in opposite directions while the BC market adjusted. Whether the combined value of the two credits reliably tracks a single benchmark, or whether they now respond independently to distinct national and provincial compliance pressures, is an open question Stillwater examines in a three-part article series, most directly in the concluding piece on the BC credit value stack, and will address further in our BC-LCFS Outlook planned for November 2026.
Looking Ahead
Canada’s CFR continues to evolve, and we expect there to be ongoing changes to both scope and reduction schedule as the program matures. On September 5, 2025, Prime Minister Mark Carney announced his government’s intention to make adjustments to the CFR “to strengthen the resiliency and spur the development of Canada’s low-carbon fuel sector” as part of his proposed wide-ranging measures to support Canadian industries most heavily impacted by U.S. tariffs. Following the Prime Minister’s announcement, ECCC published a discussion paper on December 3, 2025 (updated December 19, 2025) outlining two potential regulatory approaches to increase domestic low-carbon fuel content: a minimum domestic content requirement and a credit multiplier for domestically produced low-carbon fuels. The comment period on the discussion paper closed January 15, 2026, with stakeholder submissions from Canadian biofuel producer and feedstock associations as well as U.S. ethanol trade groups generally supporting the credit multiplier approach over a domestic content mandate, though canola industry groups have raised concerns that neither option goes far enough to secure domestic feedstock demand. ECCC has stated it will publish draft amendments in Canada Gazette, Part I, incorporating feedback from the discussion paper, though a publication date has not yet been confirmed as of this writing. Industry groups have called for publication by summer 2026, but that appears unlikely to be achieved at this juncture.
Separately, the Regulatory Impact Analysis Statement (RIAS) accompanying the CFR’s original registration commits ECCC to a review of the Regulations that will conclude five years after the Regulations came into force, meaning around June 2027, and that will include a review of provisions on CI limits and credit creation opportunities.[6] Stillwater will closely monitor these developments in the coming months.
The ultimate success of the CFR will depend on collective efforts from government authorities, industry players, and the public. At the margin, the CFR shares fuels supply with other LCF jurisdictions in North America, so changes in those programs and tariff structure will impact fuel prices and the price of the credits that are generated by them. The adaptability and resilience of the CFR will also help determine its effectiveness in creating a sustainable energy future. Ongoing challenges related to compliance, technological advancement, and economic implications must be addressed to ensure the program’s success and sustainability in the coming years.
If you’re wondering what Canadian CFR credit price trends are likely to look like into the future… Stillwater has an expert view on that!
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