In his announcement today, Prime Minister Mark Carney has paused Canada’s light-duty zero-emissions vehicle sales mandate, suspending the 2026 requirement that 20% of new light-duty vehicle sales be zero-emission as part of his ‘nine-point’ strategy to support businesses affected by tariffs. Carney indicated that the move is intended to give the auto industry relief as it faces significant financial pressure from US tariffs, which include 50% levies on steel and aluminum and 25% duties on auto parts and finished vehicles.
Automakers are facing liquidity and cost pressures from US trade policy, which has prompted the government to suspend the EV mandate to prevent further strain on the sector. Autos are Canada’s second-largest export, employing 125,000 people directly and another 500,000 across supply chains. The largest three US automakers, GM, Ford, and Stellantis, operate significant plants in Canada and now face dual pressures - tariffs on US-bound exports and higher domestic policy costs.
Carney stressed that the government's priority is to safeguard competitiveness and protect jobs before resuming focus on long-term EV adoption. He emphasized that the government cannot rely on its largest trading partner to the same extent as in the past and that the near-term focus must be on stabilizing the auto sector through the ongoing trade disruption.
The decision represents a significant shift in Canada’s climate and industrial policy, easing near-term pressure on automakers while keeping the longer-term 2035 100% ZEV sales target technically in place, though now under review with an outcome expected in the next 60 days.
The EV mandate suspension is part of a broader “nine-part strategy” announced to stabilize sectors hit hardest by tariffs that includes:
- The “Buy Canada” procurement policy will require federal institutions to prioritize Canadian suppliers, with a phased rollout starting in October 2025and full implementation by spring 2026.
- Ottawa is expected to launch a CAD 5 billion Strategic Response Fund to provide emergency support to industries facing trade disruptions from tariffs.
- Employment insurance will be made more flexible, offering extended benefits for workers laid off in industries impacted by tariffs.
- Expanded loan flexibility for auto and manufacturing businesses dealing with higher input costs.
- A a plan to expand Canada’s exports to overseas markets, targeting 50% non-US trade by 2030 was also announced.
On biofuels, the government is introducing a two-year, CAD 370 million production incentive to support domestic renewable diesel and biodiesel producers and help restructure their value chains. This measure is partly aimed at offsetting the impact of China’s 75.8% tariff on Canadian canola, which threatens one of the sector’s key feedstocks.
Canadian biofuel facilities have come under significant strain due to recent shifts in US subsidies and policies, leading some plants to scale back operations or temporarily shut down. Without federal intervention, this decline could heighten Canada’s dependence on US imports and weaken demand for domestic crops like canola.
To address these risks, the government plans to introduce targeted amendments to the Clean Fuel Regulations (CFR). These amendments will include a time-limited production incentive for renewable diesel and biodiesel producers, developed in coordination with provinces and territories, to strengthen the resilience of Canada’s low-carbon fuel sector while preserving the CFR’s primary focus on reducing emissions.
The Biofuels Production Incentive will be delivered on a per-litre basis, supporting up to 300 million litres per facility between January 2026 and December 2027. This represents a signal of medium-term stability for the CFR program, reinforcing its longevity. Natural Resources Canada will release further program details in the coming weeks. In parallel, the government will work with provincial and territorial partners to design longer-term strategies that ensure Canada’s low-carbon fuel industry remains both stable and globally competitive.
ClearBlue estimates that production incentives could provide meaningful per-liter support if current Canadian biodiesel and renewable diesel capacity operates near 85% utilization rates. Incentive values could be somewhat lower in 2026 if additional capacity comes online, spreading the available support across a larger production base.
This marks meaningful progress, as Canada’s production incentive could offer stronger support than the current US credit (45Z) available for canola-based renewable diesel made with North American (US, Canadian and Mexican) feedstocks. That said, it still remains well below the potential value of the 2026 US 45Z tax credit for other feedstocks, which could be significantly higher- especially if ILUC penalties are removed for virgin-oil-based renewable diesel such as soybean oil RD.
Even with the Canadian production incentive in place, producers outside British Columbia would still need a CFR credit price of about CAD 350 per tonne to breakeven. This highlights the importance of provincial measures, such as blend mandate requirements that permit only domestically sourced fuels, in supporting Canadian producers with limited access to the BC market.
From a balance perspective, ClearBlue views these developments as directionally bearish for CFR credit prices, though the bank is expected to remain tight, with more than 3 billion liters of biomass-based diesel required to meet annual compliance obligations in 2026–2027. That said, pricing is projected to still hover between the Credit Clearance Mechanism (CCM) (which acts as a soft ceiling) and fund credit levels. As of 4 September, the CFR spot price stands at CAD 324 per tonne, nearly at par with an estimated 2025 CCM price of CAD 325. Note, the CFR price is elevated as anticipated following the removal of the federal fuel charge as discussed in ClearBlue’s recent Canada CFR Supply and Demand Report.
On the ZEV front, the pause on Canada’s ZEV mandate appears temporary, pending future policy direction. While directionally bullish for CFR prices, the immediate impact is expected to be modest, even with ZEV sales likely to stagnate near 2024 levels. The stagnation would reflect the combination of weaker Quebec ZEV regulations, phased-out provincial rebate support in Quebec and BC, and the continued absence of federal rebates.
ClearBlue estimates that the ZEV mandate delay could meaningfully tighten the CFR credit bank compared to a scenario where the mandate remained in place, adding to pressure already expected as competition for biofuels increases in the coming years. If the delay continues well past the near term, the impact could become significantly bullish for credit prices, though the potential reintroduction of federal consumer rebates could soften this effect.
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