Potential Amendments To The Federal Clean Fuel Regulations

On December 3, 2025, the federal government published a white paper¹ exploring potential amendments to the Clean Fuel Regulations² (CFR or Regulations) to strengthen and support Canada's low-carbon fuel industry in response to threats posed by increasing international competition and ongoing global trade challenges, including imbalances arising from biofuel production tax incentives in the United States. These threats to Canadian low-carbon biofuel producers in turn threaten the Canadian agricultural sector which supplies important feedstocks like canola to the low-carbon fuel industry. Amendments to the Regulations will complement the federal government's previous commitments³ to support Canada's canola sector.

By way of background, the Regulations were implemented in mid-2023 to reduce the carbon intensity of gasoline and diesel produced and imported for use in Canada by 15% (relative to 2016 levels) by 2030. The Regulations consider a "life cycle approach" which considers the emissions involved from upstream production through to combustion by the end consumer. A credit market was established whereby regulated parties must create or buy credits to comply with liquid fossil fuel carbon intensity reduction requirements. Each credit represents one tonne of CO2e. There are three methods for creating CFR credits:

To date, most credits are created under compliance category 2 through the production or importation of low-carbon fuels. Canada's domestic low-carbon fuel production does not meet domestic demand, so a sizable portion of credits are generated through imports, primarily from the US.

The white paper

The white paper explores two amendment options to increase demand for domestic low-carbon biofuel production and ensure long-term industry competitiveness while also maintaining the CFR's key objectives of furthering emissions reduction initiatives and transitioning to a low-carbon economy. These options are not intended to be formal proposals but rather are provided to explore high-level policy considerations and request comprehensive stakeholder feedback. Instead, the white paper identifies a number of key questions and issues in respect of the amendment options and seeks input from stakeholders on the amendment options and any other options to amend the CFR to support Canada's low-carbon fuel sector while also maintaining credit market stability and furthering Canada's climate objectives. The comment period to provide feedback on the amendment options is open until January 15, 2026.

The first amendment option would establish minimum content requirements for low-carbon biofuels produced in Canada. The second amendment option would introduce a credit multiplier resulting in more credits being issued for domestic low-carbon biofuel production than for the equivalent quantity of imported low-carbon biofuels.

First amendment option – minimum percentage

The first amendment option would require that gasoline and diesel be comprised of a minimum percentage of domestically produced low-carbon biofuels. Currently, at least 5% of the volume of gasoline⁴ and at least 2% of the volume of diesel must be comprised⁵ of low-carbon biofuels but there is no minimum requirement for Canadian low-carbon biofuels.

This minimum percentage approach could guarantee demand for domestic production which would support both Canadian low-carbon biofuel producers and the Canadian agriculture industry. It is unknown whether there will be any relief or exemptions for lower volume primary suppliers (producers or importers of gasoline and diesel) or a progressive policy whereby there would be a lower percentage of domestically produced low-carbon biofuels required for smaller primary suppliers.

This option is similar to the actions taken by the Government of British Columbia and the Government of Ontario under their respective provincial low carbon fuel standard regulations in response to these trade and competitiveness challenges.

Second amendment option – credit multiplier

The second amendment option would incentivize domestic low-carbon biofuel production by introducing a credit multiplier whereby more credits would be created for domestically produced low-carbon biofuel than for equivalent imported quantities. The white paper provides sample calculations comparing credit multiplier values to the equivalent production tax incentives applicable in the United States.

The credit multiplier approach might provide additional revenues to current domestic low-carbon biofuel producers, but in doing so several potential risks were identified. First, it may reduce demand for domestic low-carbon biofuel production because it would allow producers to achieve their compliance requirements with lower volumes of low-carbon biofuel. Further, the credit multiplier approach may impose downward pressure on credit prices and would create additional credits without corresponding incremental emission reductions which could delay the CFR's key objective of reducing the carbon intensity of liquid fossil fuels. We encourage stakeholders and the government to consider and address these risks, as well as any potential market volatility risk prior to finalizing any amendments.

Conclusion

Both amendment options aim to increase demand for and the competitiveness of Canadian low-carbon biofuels while also strengthening Canada's agricultural sector. However, each amendment option raises unique policy and operational considerations. We are optimistic that Environment and Climate Change Canada's engagement with stakeholders this early in the process and its identification of key issues and considerations will lead to CFR amendments that meaningfully support Canada's low-carbon fuel sector while maintaining the primary objectives of the CFR.

Footnotes

1. Environment and Climate Change Canada, "Discussion paper to inform the draft targeted amendments – Clean Fuel Regulations" (3 December 2025), online: https://www.canada.ca/en/environment-climate-change/corporate/transparency/consultations/share-view-ideas-targeted-amendments-clean-fuel-regulations/discussion-paper.html [White Paper]. ↩

2. Clean Fuel Regulations, SOR/2022-140 [Regulations]. ↩

3. Prime Minister of Canada, News Release, "Prime Minister Carney meets with canola industry leaders from across the Prairies" (16 September 2025), online: https://www.pm.gc.ca/en/news/readouts/2025/09/16/prime-minister-carney-meets-canola-industry-leaders-across-prairies (These commitments include a CA$370 million low-carbon biofuel incentive program, increased loan limits for canola producers, and investments in agricultural trade diversification). ↩

4. Regulations, supra note [X], s 6(1). ↩

5. Ibid, s 7(1). ↩

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