Canada CFR Q1 2025 Compliance Credit Market Report Review

On October 31, Environment and Climate Change Canada (ECCC) released its Q1 2025 Clean Fuel Regulations (CFR) quarterly credit market report, detailing average prices, trading activity, and credit generation from low-carbon biofuels (CC2 and CC3 categories). 

Specifically, the report summarizes credit generation for Q1 2025, with transfer activity related to transactions over the 12-month period ending March 31, 2025. ECCC had earlier indicated in early Q3 2025 that it would release the annual 2024 credit market report later in the year, covering aggregated credit generation across CC1, CC2, and CC3 pathways as well as deficit data for the 2024 compliance year. That report has not yet been published.

Join our upcoming webinar for additional insights into developments impacting the Canadian carbon markets.  REGISTER HERE

ECCC noted that 2024 compliance remains ongoing, with compliance reports submitted on July 31, 2025. The Compliance-Credit Clearance Mechanism (CCM) did take place for 2024 compliance, concluding October 31, 2025. The CCM covered 15,302 credits at a price cap of CAD 319/t, with final compliance true-up occurring between October 31 and November 30 through additional Compliance Fund contributions or deficit carry-forwards. Final CCM reports are due December 15, 2025. 

ECCC also disclosed that as of October 2025, the program held about 13.6 million active credits — a stock largely accumulated while compliance obligations were still ramping. Although no detail was provided on whether this figure includes Q2 2025 credits, the timeline suggests it likely does. The composition of these active credits likely includes banked credits following  2023 compliance, credits generated from 2024 fuel supply, and CI-adjustment credit from 2022/2023 supply that have not been retired for 2024 compliance. Contact ClearBlue for more information about the impact of the high reliance on default CI values at the start of the program and subsequent CI adjustments. Netting the active credits against outstanding obligations, ClearBlue expects the volume of banked active credits to decline significantly, leaving a decreased buffer for hedging needs.

Market Implications

This report reflects ongoing bullish market fundamentals for the CFR program, with proactive banking behavior suggesting regulated entities are accumulating credits ahead of rising compliance costs expected from 2026 onward, as the CI-reduction curve steepens materially:

• The Q1 2025 data highlight a sharp slowdown in HDRD and biodiesel imports that is only partially offset by steady ethanol demand. 
• The report supports expectations for a steep credit bank draw in 2025.
• Assuming diesel and gasoline demand remain robust the CFR credit bank could see its first meaningful contraction. 
• Activation of the CCM at CAD 319/t trigger price confirms deficits are emerging at the margin.
• Import dependence remains high, with about two-thirds of liquid-fuel credits originating from foreign supplies. 

Credit Generation Overview

ECCC reported 1,763,358 credits created in Q1 2025 from the production or import of liquid and gaseous low-carbon fuels generating CC2 and CC3 credits — a 27 percent decline from the Q2 2024 peak. The slowdown reflects reduced biomass-based diesel imports, while ethanol remained comparatively steady amid seasonal fluctuations. Ethanol retained its position as the largest credit source, though it declined slightly on a quarterly basis, while imported HDRD – the second-largest reported generation source – posted a modest quarter-over-quarter increase in credit generation, even as ECCC reported a higher CI and lower volumes for Q1, suggesting some reporting discrepancies or significant volumes of undisclosed domestic-sourced supply.

Among CI trends, RNG saw the sharpest year-over-year improvement, with ECCC reporting a minimum CI of –106 g/MJ and an average CI improvement from 64.5 g/MJ in Q1 2024 to 24 g/MJ in Q1 2025. Fuels classified as “Other low-CI fuels” (which include domestic biomass-based diesel) also posted substantial gains, improving from 31.7 to 20.6 g/MJ between Q1 2024 and Q1 2025.

Looking at overall balances, while forthcoming CC1 and CC3 credits from pathways such as carbon capture and low-CI co-processed fuels could lift overall totals once reported, Q1 2025 generation is still likely to fall short of both ECCC’s estimated annual 2024 deficit (12 million credits, or roughly 3 million per quarter) and ClearBlue’s 2025 quarterly deficit estimate of about 3.7 million. The shortfall underscores continued bullish sentiment heading into 2026, as obligated parties hedge more aggressively against rising compliance costs. Below we provide a  breakdown of credit generation by pathways.

• Ethanol continued to anchor compliance, generating 1.15 million credits (+2.4% year-over-year) and accounting for about 56% of total credit creation. Imports made up roughly 40% of all credits, while domestic production represented 26%. Total ethanol volumes reached 1.02 billion liters (+3.6% year-over-year, –7% quarter-over-quarter), with the quarterly decline reflecting seasonal trends. The average carbon intensity (CI) rose to 43.2 g/MJ from 39.5 g/MJ in Q4 2024, with values ranging from 33 to 78 g/MJ, suggesting continued use of default CI values.

• Renewable diesel (HDRD) imports generated 345,847 credits (+4.2% year-over-year, +8.5% quarter-over-quarter), representing about 19.6% of total credits. Imports fell sharply to 183 million liters (–38% year-over-year, –11% quarter-over-quarter), yet the average CI remained stable at 53 g/MJ, indicating possible reporting inconsistencies given lower import volumes.

• Biodiesel imports credit generation fell to 60,536 (–26.2% year-over-year, –53.3% quarter-over-quarter) as import volumes declined to 25.3 million liters (–47% year-over-year). The average CI was 39 g/MJ, with a reported range between 14 and 23 g/MJ, indicating an error in the data. 
• Other low-CI fuel (includes HDRD and biodiesel) was reported separately for confidentiality reasons. This category generated 116,863 credits, up from 83,832 in Q4 2024 and 60,241 in Q1 2024. Total volumes reached 51 million liters (+39% quarter-over-quarter, +59% year-over-year), while the average CI improved to 20.6 g/MJ from 31.7 g/MJ, indicating no use of default CI in this group. 

Together, imported HDRD and biodiesel, and aggregated **low-CI fuels accounted for roughly 30% of all Q1 2025 credits. That contribution has thinned –likely reflecting seasonal adjustment —-after reaching a peak of 48% in Q2 2024. On an annualized basis, total biomass-based diesel supply, including aggregated domestic HDRD and biodiesel, is projected at about 1.3 billion liters, down 32% from 2024’s 1.91 billion liters, reflecting tighter diesel-pathway supply given weaker margins and more intense competition with other regions for import volumes and feedstock. 

• Renewable natural gas (RNG) contributed 37,910 credits (+152% year-over-year), representing just over 2% of total credit generation. Average CI was 24.2 g/MJ, with reported minimum pathway’s CI values at –106 g/MJ,indicating some dairy/swine sourced RNG  supply. Although small in scale, RNG remains a strategically important and high-impact pathway given Canada's fast-growing  domestic industry, supporting long-term credit banking.
• Biogas contributed 37,910 credits, reflecting 27.38 million m3 of reported volume, while the average CI stood at 60.6 g/MJ.
• *Other low-CI fuels (including SAF) contributed 10,261 credits (–21% year-over-year), representing just over 0.55% of total generation. The average CI was 28.7 g/MJ for this category.

Overall, the Q1 2025 data highlight diverging trends across liquid-fuel pathways. Ethanol continues to provide volume-driven stability decoupled from the CFR price, while diesel-pathway generation remains constrained by lower imports even as domestic output under the “Other low-CI fuel” category expands. The steady rise of domestic low-CI liquid fuels marks early progress toward balancing Canada’s import dependence as compliance obligations deepen beyond 2025. 

Credit Prices and Trading Activity

For Q1 2025, ECCC reported an average credit price of CAD 93.08/t for trades above CAD 1 — down 41% YoY from CAD 157.23 in 2024. Trading volume in this bracket increased to 1.22 million credits (+33% QoQ, +17% YoY).

According to ECCC, prices strengthened in subsequent quarters: CAD 159.20 in Q2 and CAD 216.65 in Q3 2025. As of late October, the spot price for CC2 credits was quoted near CAD 375/t, only a few percent below the estimated 2025 fund price of CAD 380/t.

Transfers under Section 108 (credit-upon-creation agreements) and Section 106 (zero or near-zero-price transfers) totalled 2.27 million credits, up from 1.04 million in Q4 2024 and 1.39 million in Q2 2024.

Please contact us  for information about our clean fuels markets coverage.