ClearBlue Markets’ three-part, Clean Fuels Markets in Practice learning series was designed to give project developers, compliance teams, and credit buyers an end-to-end understanding of environmental credit markets. Our second session drilled down into the complex, evolving landscape of North American clean fuels.
Hosted by ClearBlue's clean fuels experts, including Jennifer McIsaac (Chief Market Intelligence Officer), Mehr Imran (Senior Market Analyst), and Omamoke Kagho (Carbon Market Analyst), this session included regulatory updates and analysis of how policy shifts, incentive stacking, and arbitrage opportunities are actively shaping commercial decisions today.
Here is a summary of the session’s key messages and what it all means for market participants.
The Convergence of Divergent Markets
While North America operates with a patchwork of unlinked fuel standards (California, Oregon, Washington, BC, and the Federal Canada CFR), competition for clean fuels based on relative payback values is driving convergence across markets that have very different credit prices.
The Update: The Canada Clean Fuel Regulations (CFR) currently command the highest credit prices, surging past CAD $350 per tonne. This is partly due to higher feedstock costs, firming policy signals from the 2025 Canadian federal elections, and shifting US incentives. The removal of the Canadian federal fuel charge, forces the CFR price signal to work harder to drive decarbonization. Conversely, British Columbia’s LCFS prices have softened to around $100 due to arbitrage pressures from stacking CFR credits, while California’s LCFS prices have rebounded from lows near USD 50 in early January to around $ 70 USD as the program adjusts to realign with a regulatory tightening from recent program amendments.
Practical Impact:
- For Fuel Suppliers: You must understand "incentive stacking." A credit price in one jurisdiction is not the whole story. For example, while BC credit prices are lower than the federal CFR, the combined value (BC LCFS + Canada CFR + US 45Z tax credit) makes BC one of the most attractive destinations for renewable diesel.
- For Buyers: We are seeing cross-jurisdictional convergences in the "total value stack" required to attract the marginal fuel (Renewable Diesel) across borders. Understanding this helps in forecasting future procurement costs.
Read also: Creating and Selling Credits in Canada’s Clean Fuel Regulations (CFR) Market
The Renewable Diesel (RD) Anchor
The session highlighted that Renewable Diesel is currently the "marginal fuel" setting the price for these markets. Because RD is scalable and a drop-in fuel, it balances the system when deficits rise.
The Update: The cost to produce RD, largely driven by feedstock prices, is significantly higher than fossil diesel. The "Green Premium" must be covered by stacking the US 45Z tax credit or Canada’s Biofuel Production Incentive, RINs, and LCFS/CFR credits.
Practical Impact:
- For Developers: As the US transitions from the Blender’s Tax Credit to the 45Z production credit, carbon intensity (CI) scores become even more critical for US producers. A lower CI score now directly correlates to tax revenue, not just credit generation.
- For Traders: Any policy that shifts the economics of RD (like tariffs or feedstock restrictions) will ripple through credit prices in both Canada and the US immediately.
Critical Regulatory Watch: ECCC Targeted Amendments
A major focus of the session was the potential amendments to the Canada CFR aimed at protecting domestic producers against the influx of subsidized US biofuels.
The Update: Environment and Climate Change Canada (ECCC) is considering two mechanisms:
- Domestic Content Requirement: Mandating a specific percentage of renewable fuel comes from Canadian sources.
- Credit Multipliers: Offering, for example, a 1.4x multiplier on credits generated by domestic biomass-based diesel to level the playing field against the US 45Z credit.
Practical Impact:
- For Compliance Teams & Investors: This is a high-stakes variable. Our analysis suggests that a high multiplier (e.g., 1.4x for all renewable diesel) could lead to a oversupply of credits, putting bearish pressure on prices. A more moderate multiplier would also lend support to domestic producers without breaking the market balance. Monitoring the final rulemaking here is essential for long-term modeling.
The Great RNG Arbitrage: US vs. Canada
One of the most practical insights from the session was the divergence in value for Renewable Natural Gas (RNG) based on Carbon Intensity (CI).
The Update:
- High CI RNG (e.g., Landfill gas): The US market offers better returns due to the structure of RINs and LCFS.
- Ultra-Low CI RNG (e.g., Dairy/Swine manure): The Canada CFR offers significantly higher returns for fuels with negative CI scores (e.g., -150 CI), potentially paying out over $60 USD/MMBTU compared to below ~$50 in California.
Practical Impact:
- For Project Developers: If you are developing a digester project, Canada is currently the premium market. Further, the CFR allows credit generation even when RNG is used outside the transportation sector, a feature not available under other North American fuel standards. However, there is a catch: the Canada CFR has a 10% limit on "Gaseous Class" credits or non-transport RNG credits.
- For Strategic Planning: Our models predict this 10% cap could be hit around 2030. Developers need to race to secure offtake agreements with fuelling station operators now, or risk facing a widening discount for gaseous credits once that cap is reached. Optionality between the California and Canadian markets should be kept open.
Market Outlook: Tightness Ahead
Setting aside any potential downside from the ECCC targeted amendments, which should be kept in mind, looking toward 2030 and 2035, the Canada CFR market is otherwise expected to remain tight. While ethanol and renewable diesel dominate early compliance, the heavy lifting in the latter half of the decade will shift toward Carbon Capture, Utilization and Storage (CCUS), RNG and electrification. However, there are policy risks to this forecast. The most imminent risk stems from proposed CFR amendments, including credit multipliers for domestic biofuels, which could loosen market balances if set too aggressively
The Bottom Line: Despite regulatory flux, demand for credits is outpacing supply generation in the most likely scenarios. For compliance entities, relying solely on the spot market may become risky as we approach 2030. Still, participants should remain attentive to ongoing policy developments that could reshape program mechanics and materially affect market balances.
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Join us for Part 3: We conclude our series on February 25th with Pathways to Monetizing Carbon Capture and Storage Across the Clean Fuel and Carbon Markets. We will explore how CCUS projects can stack value across the CFR, provincial markets, and voluntary avenues.