The impact of the federal Clean Fuel Regulations on the British Columbia LCFS credit price

British Columbia's credit price fell by roughly two thirds in three years while the provincial standard tightened, and the 2025 compliance data show the balance has already turned.

British Columbia's low-carbon fuel credit averaged $472 per tonne in 2023 and $153 across the first half of 2026, a fall of 68 per cent in three years during which the provincial standard tightened rather than weakened. The federal Clean Fuel Regulations, whose first reduction requirement took effect on 1 July 2023, allow a litre of low-carbon fuel supplied in British Columbia to earn a federal credit alongside the provincial one, and the renewable diesel that moved north to collect both overwhelmed a market that had until then been structurally short.

A decade of rising prices

British Columbia has operated a Low Carbon Fuel Standard since 2010, the first in North America, and the credit price rose from approximately $171 per tonne in 2016 to $472 in 2023 as the carbon intensity target ratcheted down each year and the compliance obligation grew with it.

Three sources carried the market. Ethanol, held near the blend wall and still supplying only 10.2 per cent of the gasoline pool in 2025, remained roughly flat; electricity grew with the vehicle fleet from a small base, from 190 GWh in 2016 to 604 GWh in 2025; and renewable diesel, a drop-in fuel with no blend wall, supplied the balance as the swing volume the province pulled in to cover a widening gap, at a cost that rose as the gap widened.

That gap sat on the gasoline side, since gasoline carries the larger compliance obligation while ethanol, the principal gasoline-side credit, cannot grow past the blend wall. Each year the gasoline class ran a structural deficit that renewable diesel, a diesel-side fuel, had to cross-subsidise, and a tightening standard working against a capped gasoline supply is a rising price.

Credit stacking

The two programmes stack. A litre of renewable diesel supplied in British Columbia earns a federal credit and a provincial credit at once, the same physical litre paying into two markets, and from 1 July 2023 that arithmetic applied to every litre moving north.

Renewable diesel supply grew 61 per cent in 2023 and a further 40 per cent in 2024, reaching 1,182 million litres, while the renewable share of the diesel pool rose from 5.2 per cent in 2016 to 31.2 per cent in 2024. A fuel that had been scarce and expensive became abundant and cheap because a second credit was paying for it.

Oversupply and the price break

The diesel category has carried a renewable fuel requirement of 4 per cent since 2011, raised to 8 per cent in 2025, and the credit stack pulled supply far beyond it. The renewable share of the diesel pool reached 31.2 per cent in 2024, close to eight times the volumetric requirement, and the diesel class generated a credit surplus of 1.28 million credits, roughly double the 627,000 of 2023 and seven times the 188,000 of 2022.

That surplus was briefly large enough to carry the whole market. The gasoline class ran a deficit of 1.03 million credits in 2024 and the enlarged diesel surplus more than covered it, leaving the province in surplus on fuel supply alone for the only time since 2016. The cover did not last, since the diesel surplus fell back to 423,000 credits in 2025 while the gasoline deficit widened to 1.18 million.

The transfer record shows the same glut being distributed. Credit transfers rose 59 per cent between 2023 and 2025, from 1.09 million credits to 1.73 million, while the total value of those transfers fell from $513 million to $449 million, so a substantially larger volume changed hands for less money than two years earlier, which is the signature of holders monetising a surplus rather than of buyers competing for scarce cover.

The annual volume-weighted price approached $500 in the closing quarter of 2023, held above $440 through the first three quarters of 2024, broke to $329 in the fourth quarter of that year and averaged $260 across 2025 and $153 in the first half of 2026. The whole of that decline occurred while the standard was tightening, which is the clearest available evidence that the price was being set outside the province.

The 2025 turn

Debits incurred in 2025 rose 23.1 per cent to 4.66 million as the tighter target took effect, while credits generated from fuel supply were flat at 4.08 million, leaving the province 582,698 credits short on fuel supply alone. Credits awarded under initiative agreements covered part of that, and the compliance period closed with a net draw of 269,206 credits, the first annual drawdown since 2022.

Renewable diesel credit generation fell 11.2 per cent in 2025 even though supplied volumes were broadly stable, and alternative jet fuel supplied most of the offset that kept the shortfall from widening further. The cross-subsidy that had held the market together is thinning from both directions at once, with the gasoline deficit growing and the diesel surplus shrinking against it.

The credit bank stood at 2.41 million credits at the end of 2025, against annual debits of 4.66 million. Coverage of roughly six months is thin for a market trading near its historic lows, and it is the clearest indication that the price and the balance have separated.

The feedstock constraint

Renewable diesel is limited by cost rather than by volume. North America produces far more than the province consumes, and the scarcity sits in the feedstock instead. The low-carbon-intensity inputs that earn the most credits are globally limited, and California, the wider United States market and the European Union bid for the same barrels.

The 2025 feedstock record shows that substitution is already under way. Used cooking oil fell 76 per cent from its 2023 peak, to 102 million litres, while tallow rose to 581 million litres and canola to 514 million, so the marginal litre now comes from rendered fats and crop oils rather than from the waste oils that carry the lowest carbon intensities. The consequence is visible in the fuel itself, whose weighted average carbon intensity rose from 16.83 gCO₂e/MJ in 2022 to 24.78 in 2025, a 47 per cent increase that means every litre supplied earns materially fewer credits than it did three years ago.

Provincial policy has narrowed the qualifying pool at the same time, although not yet in a way that binds. Renewable content used to meet the diesel renewable fuel requirement has had to be Canadian-produced since 1 April 2025, and the same condition extended to gasoline renewables on 1 January 2026. The 2025 requirement obliged suppliers to provide renewable content equal to 8 per cent of the diesel subject to it, and the volume that qualified came to 13 per cent, so the province met the requirement with room to spare. The condition governs that volumetric requirement rather than credit generation, so imported renewable diesel continues to earn credits, and the restriction will bite only as that margin closes.

The return to shortage

The carbon intensity target continues to tighten toward a 30 per cent reduction by 2030, so the obligation grows every year and the gasoline-side deficit widens with it, while the capped fuels cannot close the gap. Ethanol sits at its blend wall, and electricity, although it has more than tripled since 2016, remains small against an obligation measured in millions of credits.

Climate Decode models the British Columbia balance forward on the tightening standard, and on the central case the bank thins from 2027 and the market returns to genuine shortage before the end of the decade. At that point the province has to pay to pull the marginal low-carbon-intensity litre away from California and the United States, and the non-compliance penalty of $600 per tonne becomes the binding constraint on how far that repricing runs rather than a theoretical ceiling. The only path on which the market stays loose is one in which the standard stops tightening after 2030.

The fragility in the linkage

The stacking that caused the flood is also the market's principal fragility, since it rests on the federal credit and the United States production incentive holding their value. Should either weaken, cheap renewable diesel would stop moving north, and British Columbia would re-price upward faster than its own standard alone would drive it.

Position

British Columbia's low-carbon fuel market is no longer a provincial story. Its price is set by the North American renewable diesel balance and by the federal credit stacked on the provincial one. The 2026 price is the visible half of that linkage, and the 2025 compliance data are the half the market has not yet priced.