ECCC Launches Targeted CFR Review Aligned With Canada’s New Biofuel Production Incentive

Environment and Climate Change Canada (ECCC) has published a discussion paper outlining the federal government’s plan to introduce targeted amendments to the Clean Fuel Regulations (CFR).  This move is closely tied to Prime Minister Carney’s CAD 370-million Biofuel Production Incentive (in effect from January 2026 until December 2027) September announcement, which was intended to stabilize and scale domestic biodiesel and renewable-diesel production. While the incentive is intended to stimulate and stabilize domestic biodiesel and renewable-diesel production, the proposed CFR amendments aim to embed durable, long-term demand for Canadian-produced fuels. 

The Production Incentive offers immediate, short-term financial relief to offset the severe competitive disadvantage caused by foreign subsidies, particularly the US Inflation Reduction Act (IRA). However, the CFR amendments are intended to establish a structural, long-term market mechanism to ensure the sustained viability of the Canadian low-carbon fuel sector and secure demand for domestic feedstocks like canola. This regulatory action seeks to counteract the structural issue wherein 73% of CFR credits from low-carbon fuel supply were generated by imports in 2024, undermining the primary objectives of the CFR.

Proposed Regulatory Approaches

ECCC is now evaluating two main policy approaches to support domestic producers—each with material market implications.

1.  Minimum Domestic Content Approach - Under this option, a defined share of the renewable content blended into gasoline and diesel would be required to originate from Canadian production. This is similar to the policy BC adopted in February this year to safeguard local biofuel producers. This mechanism is intended to establish a stable demand floor for domestic fuels and operate alongside the CAD 370-million federal incentive to support the long-term viability of Canadian biofuel producers. 
   
   
2.  Credit Multiplier Approach - Under this approach, domestic low-carbon fuels would receive more CFR credits per litre than imported fuels. ECCC illustrates the scale of support required by noting that a multiplier of approximately 1.4 for biomass-based diesel and about 1.14 for ethanol would be necessary to replicate the value advantage currently available to US producers under the 45Z production credit. These multipliers are intended to bridge competitiveness gaps and enhance the financial viability of Canadian biofuel producers without imposing new volumetric blending mandates. The higher factor for biobased diesel directly reflects the greater financial incentive necessary to compete with the highly subsidized US renewable diesel sector.

Market Implications

Both regulatory pathways reflect the federal government’s effort to align the CFR with the new biofuel production incentive and offset the competitive advantage US producers receive under 45Z and US RFS. ECCC stresses that any amendment must preserve the CFR’s emissions-reduction mandate while strengthening Canada’s ability to scale domestic low-CI fuel production—an increasingly urgent priority given that more than 70 percent of CFR low-CI credits currently originate from US imports. Canola sits at the center of this challenge: federal data shows that 90 percent of biomass-based diesel used for CFR credit creation relies on Canadian canola, meaning shifts in import economics now pose material risks to crushing margins and planned capacity expansions. As a result, the targeted amendments operate simultaneously as climate and agricultural policy, aimed at stabilizing long-term demand for Canadian feedstocks.

The two policy options carry distinct market consequences. A minimum domestic-content requirement offers the strongest structural support for canola growers and processors by guaranteeing a fixed portion of renewable content be sourced from Canadian production. Note, the paper did not specificity any particular blending percentages in consideration. This mechanism would ensure durable offtake for canola-based renewable diesel and biodiesel while reducing exposure to competition from US soybean oil or imported UCO. However, minimum domestic-content could tighten supply pools—especially in regions without major blending hubs—raising compliance costs and reducing flexibility. It would also require exemption thresholds to avoid burdening smaller import-dependent suppliers, and overly aggressive domestic-content levels could create vulnerability to supply shocks if Canadian facilities faced outages or feedstock constraints. For producers, this approach provides the strongest investment certainty; for primary suppliers, it introduces new procurement and logistical complexity that must be carefully calibrated.

The credit-multiplier approach, by contrast, seeks to boost domestic competitiveness by awarding more CFR credits per litre for Canadian-made fuels. The proposed multipliers—1.4 for biomass-based diesel and 1.14 for ethanol—reflect the uplift required to counterbalance US 45Z support. 

If adopted, both these approaches will be bearish for the CFR credit prices, which exceed the CCM level and currently sit close to the fund price which we consider to be a firm price ceiling. 

These targeted amendments could:

• Meaningfully improve revenue certainty without collapsing overall market value and without fully degrading credit value for the broader clean-fuels ecosystem.
• Support domestic producers whilst reducing imports given lower implied credit values for importers.
• Raise feedstocks costs .

Even so, multipliers must be calibrated carefully. A high multiplier risks injecting excess credits into the market if demand does not rise in parallel, which would depress CFR prices and weaken incentives for other compliance categories such as CCS, refinery projects, and EV charging. Because the multiplier ties producer benefits directly to the future credit price, it offers less stability than a volumetric mandate and requires thoughtful alignment with CI-reduction targets to avoid oversupply.

At today’s blend levels, a minimum domestic content approach would be less disruptive to balances; with only a 2 percent biobased diesel requirement, its near-term impact is limited. But if the government were to raise biobased diesel blending requirements, as BC did when increasing its mandate from 4 to 8 percent—the bearish impact on CFR pricing would grow materially.

The BC-LCFS, however, faces a different dynamic. Higher domestic content requirements or large multipliers at the federal level could divert renewable diesel into the national compliance pool, reducing the supply available to BC and tightening provincial balances. Given BC’s strong dependence on imported renewable diesel, any federal measure that intensifies competition for renewable diesel could offer structural support to LCFS prices. In effect, a policy package that weakens CFR fundamentals may inadvertently strengthen the BC-LCFS. However, depending on the national biobased diesel supply ramp up, the impact could also be bearish for the BC LCFS market if too much renewable diesel makes its way into the province given the federal stackability and a potentially high federal multiplier as it increases the CFR value. 

Next Steps

The consultation period remains open until January 15, 2026, with draft amendments anticipated in the Canada Gazette, Part I early next year. Stakeholders are encouraged to submit written feedback on the issues outlined in the discussion paper to Lisa Ryan (cfsncp@ec.gc.ca) by the deadline. ECCC will review all submissions and integrate relevant input into the development of the draft regulatory amendments. Only comments directly related to the targeted amendments will be considered during this phase.

At the same time, the federal government will begin a deeper assessment of compliance risks associated with imported low-carbon fuel feedstocks, including used cooking oil. This review will examine verification, certification, and traceability requirements used in other jurisdictions, as well as best practices for supply-chain data management. ECCC is also seeking additional stakeholder recommendations on measures that could strengthen oversight and mitigate risks linked to imported feedstocks.

ClearBlue will continue to monitor developments and keep clients updated.