Carbon Market Outlooks

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Stillwater bases this Canadian CFR outlook on our detailed U.S. Renewable Fuel Standard (RFS) outlook which is built on our outlook for fundamental marginal cost of supply. This linking of the CFR to the larger and more established RFS RINs market is supported by several factors:

1. The renewable liquid fuels (Category 2) credits of the CFR are generated by the same fuels used to supply RINs for the RFS market in the U.S. There are, however, differences in regulatory structure, credit generation, and compliance options.[1] We take these differences into account in our CFR forecasting methodology.
2. Canada’s transportation fuel volume is less than one twelfth the size of the corresponding U.S. market; as such, the larger U.S. market sets the low-carbon fuel value in the region.
3. There is considerable trade in renewable liquid fuels across the U.S.-Canadian border, driving the market towards a pricing equilibrium. Where this equilibrium falls will ultimately be influenced by potential tariff impacts which are currently uncertain.
4. In addition to the RFS and CFR, there are several state and provincial LCF programs in North America. California’s LCFS, Oregon’s Clean Fuels Program (CFP), Washington’s Clean Fuel Standard (CFS), and the British Columbia LCFS (BC-LCFS) are all very similar to each other and the Canadian CFR. Additionally, as of this writing, New Mexico is in the rulemaking process for implementation of that state’s Clean Transportation Fuel Program (CTFP) which is slated to come online in 2026. Although the credits generated and traded in each of these LCF programs are not fungible across jurisdictions, the various credit prices will be linked via the swing low-CI fuel in each program.

Hydrogenation-Derived Renewable Diesel (HDRD)[2] as Canada’s Swing Fuel: Our methodology focuses on the parity of HDRD (also referred to as renewable diesel or RD) value under the CFR and RFS programs in future years since the same fuel from many of the same suppliers is supplied to both regions. RD plays a unique role in these programs as it is the only fuel which can be freely and incrementally substituted for a deficit-generating fuel consumed in vehicles currently on the road in large numbers. RD supply has been rapidly growing. Accordingly, RD is assumed to be the swing fuel for future credit generation between the RFS and CFR.

[1] For example, the RFS features annual volume targets for set categories of fuels while the CFR is focused on CI reductions obtained not only from biofuels, but also from electric vehicles (EVs) and fuel cell vehicles (FCVs) and from reductions in the CI of petroleum fuels supplied.

[2] Generally referred to, more simply, as Renewable Diesel (RD) in U.S. markets.

In this section, we will highlight key differences between the CFR and the RFS. For foundational, primer-level background on these programs, view our CFR 101 and RFS 101 articles.

Program Credits
The CFR and RFS both utilize tradeable program credits used as “currency” by regulated parties to demonstrate program compliance. Credits are used instead of fixed “per-gallon” or annual average standards to enable the market to find the lowest cost route to compliance considering the large variability in compliance costs between parties with different market participation strategies, geographic footprints, and scale. This market-based approach is seen as especially appropriate for regulations focused on greenhouse gas (GHG) emission reductions as this is largely a global issue with less concern for the locations where the reductions are achieved.

Summarizing the key features of the credits for the two programs:

• RFS – There are five types of RINs, each designated by a “D-code.” Fuels are produced by different pathways[1] and each is assigned a D-code based on combinations of feedstock, fuel product, and GHG reduction criteria. The number of RINs associated with each gallon of renewable fuel is determined by that fuel’s energy density relative to that of ethanol. Obligated parties (refiners and importers of gasoline and diesel) comply with the four nested annual RFS obligations by acquiring a mix of RINs which satisfy each of the obligations. RINs must be used for compliance in the calendar year in which they were generated or in the following calendar year. Accordingly, RINs trade in the marketplace based on their D-code and vintage (year in which they were generated).
• CFR – There are three categories of credits which are defined by how the CI reductions are achieved. Credits in all categories are in units of metric tons of CO2e reductions and regulated entities (suppliers of petroleum gasoline and diesel) can comply by acquiring credits from any combination of five categories during each compliance period. These Compliance Categories are:
  • Category 1 – projects that reduce the life cycle CI of liquid fossil fuels (e.g., carbon capture and storage, on-site renewable electricity). These are generally comparable to Project Credits offered under the LCFS;
  • Category 2 – supply of low-CI fuels (e.g., ethanol, biodiesel);
  • Category 3 – supply of fuel or energy to advanced vehicle technology (e.g., electricity or hydrogen in vehicles);
  • Contributions to a Registered Emission-Reduction Funding Program;[2] and,
  • Renewable Fuels Regulation (RFR) rollover^[3]

Credits, once generated, can be used in any subsequent compliance period; there is no expiration date. Thus, all credits traded are fungible.

Market Scale
The U.S. fuels market is roughly 12 times the size of the Canadian market, largely reflecting the relative population of the two nations. The Canadian market also features, to date, a lower proportion of renewable fuels. Implementation of the CFR can be expected, over time, to narrow the difference in renewable fuels usage between the two markets. The differences in relative scale for petroleum and renewable fuels usage between the two markets are illustrated in the following two figures. The larger scale of the U.S. market for both petroleum and renewable fuels has led to the U.S. market’s strong influence on Canadian fuel prices.

U.S. and Canadian Petroleum Fuel Consumption 2023*Sources: Statistics Canada, EIA, Stillwater Analysis
*2024 Canadian data are not yet available

U.S. and Canadian Biofuels Consumption 2023*Sources: Statistics Canada, EIA, Stillwater Analysis
*2024 Canadian data are not yet available

Program Type
The CFR and RFS are substantially different programs. The RFS aims to achieve annual volume targets set by the U.S. Environmental Protection Agency for renewable fuel use in the U.S. As such, the RFS neither specifies nor requires specific CI reductions. The CFR, by contrast, is an LCF program requiring that the annual fuel pool CI targets are met in Canada.

[1] An RFS pathway is a combination of feedstock, production process, and fuel product produced at one or more locations.

[2] Regulated parties can earn up to 10% of their required credits through contributions to a Registered Emission Reductions Funding Program; any such credits must be used for compliance in the year they were acquired. This option effectively sets a cap on credit prices.

[3] The Canadian Renewable Fuel Regulation (RFR) was a regulation requiring minimum average annual blend percentages of renewable biofuels in gasoline and diesel fuel. The RFR was replaced with the CFR as of July 1, 2023. Regulated parties with unused RFR credits at the termination of that program were allowed to roll them forward as credits under the CFR.

The CFR was generally modeled after the California LCFS, and both programs share many of the same principles and methods that are used in credit and deficit calculations.[1] As the CFR aligns with the oldest LCF program in the U.S. on this structural point, we compare the CFR with the LCFS here rather than with the RFS.

The major differences between the LCFS and CFR are:

• Implementation year – The LCFS became effective in 2011 while the CFR became effective in mid-2023.
• Location of obligation – In Canada, the primary supplier of a liquid fossil fuel retains the CFR obligation whereas in California the LCFS credits and obligation may transfer through the supply chain. On this point, the CFR more closely resembles the RFS than the LCFS.
• CI reduction schedules (displayed below) – The CFR aims to reduce the CI of transportation fuels in Canada by approximately 15% below 2016 levels by 2030. Meanwhile, the California LCFS currently targets a 20% CI reduction below 2010 levels by 2030; program amendments adopted by CARB in November 2024, and in effect since July 1, 2025, increase these targets to a 30% CI reduction by 2030 and a 90% CI reduction by 2045. These CI reductions are expressed as a series of annual CI reduction targets (alternately called limits, standards, or benchmarks).

Annual CFR Benchmarks and Percent CI Reduction Compared to LCFS CI Reduction
Note: LCFS reduction schedule shown is based on amendments adopted by CARB in November 2024 and in effect since July 1, 2025.

Sources: Environment and Climate Change Canada, CARB, Stillwater analysis

Market Scale
The figure below provides perspective on the market scope for the California LCFS and the Canada CFR.[2] It illustrates the market size and gasoline-to-diesel ratios for the two markets. As can be seen, the two markets are of similar size, with the LCFS liquid gasoline market being about 25% larger than the corresponding CFR market while the liquid diesel fuels volumes covered by the LCFS are about 23% smaller than those covered under the CFR. The California and Canadian markets are each about 10% the size of the U.S. fuel market.

Liquid Fuel Volume Comparison by Program (2023)*
Sources: Stillwater analysis of Statistics Canada and California Air Resources Board (CARB) data

*2024 Canadian data are not yet available

The figure below illustrates the relative volume of credits generated in each program. As can be seen, credit generation is markedly larger in California than in Canada. This is attributable to the marked difference in the maturity of each program (in 2024 the LCFS was in its 14^th year, and the CFR in its second), and the difference in the respective CI reduction standards (the LCFS was at 12.5% and the CFS was at 5.3% or 5.0 g/MJ[3] in 2024).

Credits Generated by Program (2023-2024)Source: Stillwater analysis of ECCC and CARB data

[1] The CFR differs from the LCFS in lifecycle analysis models employed, some units of measurement, and basic constants.

[2] Canadian CFR volumes exclude Newfoundland and Labrador as they are exempt from the CFR.

[3] The LCFS standards are expressed in terms of percentage reductions from baseline CI while the CFR standards are expressed in terms of g/MJ reductions from baseline CI.

Comparison of Fuel Markets
Canadian fuel specifications are generally aligned with those of the U.S. However, Canadian usage of biofuels has lagged that of the U.S. This is unsurprising as the U.S. has largely been a net exporter of biofuels while Canada has been a net importer and, simultaneously, Canada has been a net exporter of petroleum while the U.S. has been a net importer. As a result, while the U.S. gasoline pool has been effectively at E10 saturation for many years, Canadian gasoline has been a mix of E5 and E10. Similarly, Canadian use of BD and RD (collectively biomass-based diesel or BBD) has also lagged that of the U.S. The following figure, based on monthly data from Statistics Canada illustrates the ethanol content of the Canadian gasoline pool and the BBD content of the Canadian diesel pool since 2019. As can be seen, the ethanol content of gasoline in Canada has been steadily rising and exceeded nine volume percent for the first time in the fourth quarter of 2024. The BBD content of diesel has also been on a rising trend, but exhibits considerable seasonality, with significantly lower blend levels during the winter quarters. This is likely due to the more challenging cold flow properties of BD (RD does not share these challenges; as the use of RD increases in the future, we expect that this seasonality will decrease).

Biofuels Usage in Canada (2019-2Q2025)

Source: Statistics Canada, Stillwater analysis

In developing our outlooks, we observe that most low-carbon fuels are constrained by the availability of supply (e.g., dairy and swine digester RNG) or the limited demand from the corresponding vehicle technology (e.g., electricity, hydrogen, and liquefied natural gas/compressed natural gas [LNG/CNG]). Ethanol has been an option for incrementally increasing low-carbon fuels usage in existing gasoline vehicles; however, as ethanol content of the gasoline pool approaches 10 volume percent (i.e., the “blendwall”),[1] this will cease to be the case. Recently, RD (a true drop-in replacement fuel for diesel) has become increasingly available with numerous projects under construction. BD is also utilized but its utilization is constrained by technical specifications related to cold flow properties. Therefore, RD and BD are the fuel types which can be varied in the short-term to achieve program compliance since they replace ULSD for existing vehicles.

Shared Low-Carbon Fuels
In addition to petroleum product supply, low-carbon fuels are supplied to Canada via domestic production as well as imports by rail and water, international power transmission and natural gas pipelines.

Since local production is inadequate to meet the needs of the CFR or the RFS, suppliers of the renewable fuels that utilize the same sources and transportation modes to the U.S. and Canada have the option to supply either of these markets; suppliers are incentivized to sell product into the market with the highest value, thus the markets are driven to price parity that provides indifference as to whether fuels are delivered and sold into U.S. RFS markets[2] or Canada.

The supplies of fuel that come from outside of Canada to earn credits under the CFR are:

• Ethanol railed primarily from the Midwest,
• Biodiesel (BD) railed primarily from the Midwest with a small amount imported by water and rail,
• RD supplied by rail and by water from various regions in the U.S. or overseas,
• Renewable Natural Gas (RNG) supplied via common-carrier pipeline and granted RFS and CFR credits via book-and-claim accounting.

As low-carbon fuels and renewable fuels are shared between the states and provinces of the U.S. and Canada without LCF programs, their values are expected to have parity under the RFS and CFR barring constraints around supply, demand, usage (such as blending restrictions), or local logistics. In the case of RNG, demand in each state is constrained by the number of appropriate vehicles on the road, with Canada having a slightly higher percentage.[3]

Estimation of CFR Credit Value
To illustrate how common fuels link the value of CFR credits and RFS RINs, we have used historical monthly RINs values from 2022 to project CFR values and compared that to the reported CFR credit values in the following table. The curves in the table illustrate the projected value of CFR credits based on equating the value of CFR credits for corn ethanol to the value of D6 RINs, and the solid lines indicate the reported Environment and Climate Change Canada (ECCC) annual average credit price. Note: While credit generation under the CFR began in 2022, the CFR did not fully come into effect until the third quarter of 2023. As such, we see that the projected CFR credit value has essentially converged with the ECCC annual average price.

In 2024, equating the value of Canadian CFR credits and U.S. D6 RINs for corn ethanol appears to provide a reasonable basis for predicting CFR credit price as reported by OPIS. This does not appear to be the case for predicting actual CFR credit transaction prices as reported by ECCC for 2022 and 2023, likely due to the very limited amount of reported trading and the delay between the trading date and ECCC’s publishing date. This is illustrated in the following figure.

Predicted vs. Reported CFR Credit Prices (Ethanol Basis) (2022-2025)
Sources: ECCC, OPIS, Stillwater analysis

Going forward, we expect our ability to forecast CFR credit prices to improve as trading volume increases and a larger body of historical program data becomes available. As ethanol content of Canadian gasoline appears to be approaching E10 saturation, however, we believe it will not be a swing fuel in CFR and cease to be the most reliable basis for our price outlook, with RD taking its place as the swing fuel.

RD has played a key role in the recent performance of the CFR and RFS programs and is expected to continue as the pricing link between the two programs as RD capacity grows. Beginning in 2021 for the RFS and 2023 for the CFR, these programs saw accelerated growth in credit generation with corresponding leaps in RD use first in the U.S. and then in Canada. The figure below illustrates the increase in RD volumes under the RFS and CFR programs in the past five years[4] and the rapidly growing percentage of RD in the liquid diesel pools in North America.[5]

RD Volumes by Country

Source: Stillwater analysis of EIA, U.S. EPA, ECCC, and Statistics Canada data. Canada RD data not yet available for 2025.

To illustrate how RD has affected credit generation in these programs, the following figure demonstrates how credits from RD have grown as a percentage of the total credits since 2020 in the RFS and since 2022 in the CFR,[6] establishing a lead position among fuels in both programs.

RD Credits by Program

Source: Stillwater Analysis of U.S. EPA and ECCC data

[1] Canada has approved the use of E15. However, retail availability of this fuel is currently very limited.

[2] i.e., excluding Alaska, which does not participate in the RFS and the LCF states (currently California, Oregon, and Washington) where low-carbon fuels have additional sources of value.

[3] The U.S. has approximately 175,000 NGV (afdc.energy.gov) registered out of a total vehicle population of 284.6 million (https://www.fhwa.dot.gov/policyinformation/statistics/2023/mv1.cfm). Canada has around 20,000 registered NGVs (natural-resources.canada.ca) out of 26.3 million total vehicles (www150.statcan.gc.ca).

[4] Canadian RD data are only available for full-year 2022 through 2024.

[5] As Canadian RD data are only available annually, the total is divided equally by quarter for this graph.

[6] CFR credit data are only available on an annual basis.

Stillwater’s CFR outlook is based on our April 2025 RFS RINs Outlook. The figure and table below show the forecast CFR credit prices using the methodology described above applied to our RFS RINs Outlook.[1] Note that these are annual-average credit prices; we expect considerable volatility to be observed between the two programs in shorter-term views. The large increase in credit prices projected between 2024 and 2025 is attributable to the Canadian gasoline market approaching E10 saturation and the resultant switch from ethanol to RD as the fuel linking the two credit markets.

Our outlook for CFR credit prices is more uncertain [speculative] than our other outlooks because:

1. Only limited data on credit generation, trading volumes, and credit prices are available for the CFR and only for the years 2022 through 2024. Data for 2025 are expected to become available during the summer of 2026.
2. No data on CFR deficit generation are available.
3. While some estimation of Category 2 CFR credits is possible based on Canadian monthly fuel volume data, no such insight is available for Category 1 and Category 3 credits.
4. Biofuels trade between the U.S. and Canada is currently duty-free. As of this writing, however, the Trump administration is considering the imposition of tariffs on a wide range of goods traded between the two countries; if that were to occur, it may be anticipated that Canada would respond in kind. If tariffs or non-tariff barriers were to be imposed on the importation of U.S. biofuels into Canada, this would be anticipated to raise the price of CFR credits.

For purposes of this outlook, we assume that the currently adopted CFR and RFS regulations remain in place through the outlook period. If adjustments are made to the currently assumed schedules, our outlook would require adjustment.

Note: The CFR includes a de facto price cap of CAD^[2] 350/MT (adjusted annually for inflation after 2022) by allowing primary suppliers (the obligated parties under the regulations) to satisfy up to 10% of their annual CI reduction requirement by purchasing non-tradeable credits in a registered Emission Reduction Funding Program; any such credits expire after the end of the compliance period when they are acquired.

[1] D6 RIN prices are used in years when ethanol is the basis for calculation of the CFR value; D4 RIN prices are used when RD is the basis.

[2] Canadian Dollars