Why the credit multiplier cannot close Canada’s CFR shortage

Every litre of gasoline and diesel sold in Canada has to get a little cleaner each year. A fuel supplier can do that by blending in low-carbon fuel, or by buying credits from somebody who did. In December 2025, Environment and Climate Change Canada put out a paper on changing how those credits are earned. A litre made in Canada would count for more than a litre made abroad. Comments closed on 15 January 2026 and nothing has been published since.

We ran it through our model at 1.5 credits for every Canadian litre, starting in 2027. On the numbers, it does what it says. Around 3.1 million tonnes of extra credits turn up in 2030, which covers about three quarters of the shortfall Canada is facing that year. The average price of a credit falls. And no extra fuel comes into the country at all.

Volumes: StatCan 25-10-0081 (2024). Recallable volume: Climate Decode CFR model.

On 5 September 2025 the federal government said it would amend the Clean Fuel Regulations to help Canadian biofuel producers, who were losing ground to American competitors. The discussion paper setting out how landed that December. Two options are on the table. Either a minimum share of the blend has to be Canadian, or Canadian litres earn more credits than imported ones.

The reason is as much agricultural as industrial. Ninety per cent of the renewable and bio-diesel made in Canada is made from Canadian canola, and canola growers have had a rough couple of years. Money came with the announcement too — the Biofuels Production Incentive, over $372 million across two years, paying Canadian biodiesel and renewable diesel producers by the litre from January 2026 to December 2027.

ECCC is refreshingly clear about what the multiplier is for. It is there to match what Washington pays. The US production tax credit is worth roughly 23 cents a litre to a renewable diesel plant. At a credit price of $300 a tonne, ECCC works out that a multiplier of 1.4 would hand a Canadian producer the same amount. For ethanol, the American credit is worth about 5 cents a litre, which comes out at 1.14.

On its own terms this is a coherent piece of industrial policy. It supports plants that are already running, it supports the farms that feed them, and it takes some heat out of a credit market that has been climbing hard. It is not a climate measure, and ECCC does not pretend otherwise. The paper says plainly that the extra credits “would not represent incremental emission reductions”.

The market it would land in has moved a long way already. Take the highest arms-length trade in each quarter of the 2025 compliance year and average the four, and you get C$409.62 a tonne, against C$282.94 the year before. The single highest trade ECCC has ever recorded is C$465.50.

There is a second number floating around, and it is a lot lower. Average every priced transfer by volume and you get C$295.60. That gap has a dull explanation. Plenty of credits change hands between companies that share an owner, or bundled with a physical commodity at a set price, at prices nobody negotiated, and those trades drag the average down. If you actually have to buy credits, the higher number is the one that matters. At around C$410 a tonne, the CFR is adding roughly nine cents to a litre of gasoline.

A multiplier would take some of that away. It brings down what a typical credit costs, and a typical credit is most of what sits in a fuel supplier’s book. But the last tonne is a different thing.

Prices this high are the market asking somebody to build a plant, and a multiplier makes that ask louder. A Canadian producer earning 1.5 credits a litre only needs two thirds of the credit price to cover the same costs. That is a real change to the economics of a new facility. What it can’t do is speed up construction. Four years pass between a company committing the money and the first litre coming out. Decide this year, and you have fuel in 2031, by which point the tight years, 2028 to 2030, are already behind you.

So the amendment does what it sets out to do. ECCC is careful not to oversell it, conceding in the paper that multiplying credits “may not provide a sufficient financial incentive” for the sector it is meant to help.

The bigger question is whether it closes the gap between what Canada has to blend and what Canada can make. It doesn’t. It takes pressure off the price, and the physical shortage — the litres Canada cannot make — sits exactly where it was.

To see why, follow the fuel.

Start with ethanol, because it is the easy half. Canada made 1.756 bn L of it in 2024 and sold 0.112 bn L abroad. That is 6.4% of everything it produced. Canadian plants cover 39.9% of the roughly 4.1 bn L that goes into Canadian gasoline, and the rest comes up from the United States.

So there is very little to bring home. Stop every ethanol export tomorrow and the Canadian share of what the country burns goes from 39.9% to 42.2%. That is under three percentage points, and it is the absolute best case. The 2.5 bn L Canada imports isn’t sitting in American tanks waiting for a better price. Canada doesn’t have the plants to make it.

The other way to use more Canadian ethanol would be to put more ethanol in the tank. Canadian gasoline runs about 10% ethanol today, and we have it reaching 13% by 2030. But the gasoline pool is shrinking underneath that as people move to electric cars, from 43.2 bn L in 2025 to 40.3 bn L in 2030. Ethanol volumes peak near 5.2 bn L around 2030 and fall away after. On this half of the market, a multiplier moves money between companies and leaves the fuel exactly where it is.

Renewable diesel is the half worth looking at. Canada made 1.119 bn L of renewable and bio-diesel in 2024 and exported 0.930 bn L of it, or 83.1% of output. In the same year, it imported 1.479 bn L. Canadian fuel goes south into the American RFS and California’s LCFS, where it earns more, and Canadian obligations get met with fuel coming back the other way.

This is where a multiplier finally has something to work with. Almost a billion litres a year leave the country, and any of them could be sold at home instead. That shift has already started without a rule change. Exports dropped from 0.930 bn L in 2024 to 0.498 bn L in 2025 while production held near 1.1 bn L, and the share staying home went from 18.5% to 44.8% in a single year.

From 2028, California caps soy, canola and sunflower oil at 20% of any company’s biomass-based diesel book. Canadian plants run on about 95% vegetable oil. So a big slice of what they currently ship south stops earning California credits, and it comes home whatever the Canadian credit price happens to be.

We put that volume at 0.400 bn L from 2028. What’s left for a Canadian multiplier to fight over is the fuel that would only come home if Canada paid enough for it: 0.200 bn L. That number stays flat across the whole forecast, because Canadian production stays flat.

Canada’s entire renewable diesel industry is three plants, and ECCC puts their combined capacity at 2,380 million litres. Two of them do most of the work. Braya, on the site of the old Come-by-Chance refinery in Newfoundland, runs about 18,000 barrels a day, or 1.04 bn L a year, and sells mainly into export markets. Imperial’s Strathcona plant outside Edmonton started up in 2025 and adds about 20,000 barrels a day, roughly 1.15 bn L. We model the capacity Canada can actually call on at about 2.2 bn L from 2027. Nobody is building a fourth plant, nobody has committed the money to build one, and a plant like this takes years.

Here is what the mandate asks Canada to blend against that.

Canadian capacity held flat at nameplate, with no new build. Climate Decode CFR model.

Even in the best case — every Canadian litre stays home, California hands back everything it refuses — Canada is still short. And it gets worse each year, because demand keeps climbing while capacity sits still.

Canada owes 31.70 Mt of reductions in 2030, and we find 19.99 Mt of supply to meet them. Multiply the Canadian share by 1.5 and 3.09 Mt of credits appear, taking the shortfall from 4.04 Mt down to 0.96 Mt. Nobody has to do anything differently for that to happen. The same fuel, at the same cost, just counts for more.

Multiplier modelled at 1.5× on the domestic share of the liquid credit pool from 2027. Climate Decode CFR model.

Every one of those credits comes off fuel that was going to be blended in Canada anyway. That is why the shortfall shrinks without a single extra litre arriving at a terminal. It also wears off over time — most of the gap in 2028, three-quarters in 2030, under half by 2035 — because the obligation keeps growing while the Canadian volume behind the multiplier doesn’t.

The gap closes on paper and the clearing price doesn’t move. Get our CFR supply-demand run for your own position under both cases.

To see why Canada keeps buying American, look at what an American litre earns on its way out of the plant.

Renewable diesel costs more to make than the fossil diesel it replaces, and somebody has to cover the difference. In the United States, three programmes pay into the same litre. The federal Renewable Fuel Standard pays a D4 RIN when it gets blended. Section 45Z pays a tax credit when it gets made. California’s LCFS pays again for the carbon it avoids. A Canadian litre sold in Canada gets one cheque, from the CFR.

Cost gap = renewable diesel production cost less the diesel rack it competes with. 45Z expires at the end of 2029, which is why the 2030 column shows no gain from it. Climate Decode CFR model.

That is the stacked revenue an American plant works with. The RIN comes when the fuel is blended, the California credit when it is burned there, and 45Z when it is made. 45Z is the common one. Every American plant collects it on every litre it produces, wherever that litre ends up, and it runs out at the end of 2029. A Canadian plant collects none of the three. It has the CFR and nothing else.

Canada’s own support runs out first. The Biofuels Production Incentive stops paying on 31 December 2027, and it is capped at 300 million litres a year while it lasts.

Even with the multiplier, Canada is still short. The gap narrows, and it never closes, so Canada still has to import, and the last barrel it needs comes from the United States.

That barrel has somewhere else to go. To bring it north, the CFR has to pay it at least what it would have earned by staying home — its RIN, and the California credit. That is the number Canada’s credit price has to clear, and it is set in American markets.

A Canadian credit multiplier cannot reach it. An American litre earns one credit whatever Ottawa pays Canadian producers, so the clearing price is the same with the amendment as without it.

What the multiplier does change is the average. More credits against the same obligation means the typical credit costs less, while the last one costs exactly what it did before.

If you are an obligated party. Budget against the clearing price. The reported average will always look kinder, partly because it includes those affiliate trades that never tested the market, and the amendment pushes the two further apart. The last tonne you have to buy still costs what an imported barrel costs.

If you are a Canadian producer. The uplift is real in the years Canada is short, because the clearing price holds while your credits multiply. A plant earning 1.5 credits needs two thirds of the price to cover the same costs, and that is a genuine reason to build. It is also a reason that pays off in the 2030s.

If you are ECCC. If the goal is fuel made in Canada, the thing in the way is plant, and Canada’s disadvantage sits on the production side of the ledger, which is where 45Z sits too. A multiplier rewards origin after the fuel already exists. It can’t shorten a construction schedule, put capital at risk, or answer a US production tax credit. Canada’s one production-side programme is capped at 300 million litres a year and expires on 31 December 2027 — one day before California shuts its door to canola, and two years before Washington stops paying 45Z.

The amendment answers a fair question about who captures the value the CFR creates. It leaves the harder one alone. Where is Canada’s renewable diesel going to come from?

Climate Decode · Advisory

Buying CFR credits, or building the plant that makes them?

Clearing-price exposure, cross-border netbacks and project economics across the CFR, the RFS and California — we work it end-to-end.

Method and Sources

Volumes from Statistics Canada 25-10-0081 (production, imports, exports, refinery and blender net inputs) and 25-10-0082 (plant feedstock inputs). Amendment detail, the $372 million Biofuels Production Incentive, the 1.4 and 1.14 multiplier illustrations, the facility counts and the quoted passages are from ECCC’s Discussion Paper to inform the draft targeted amendments (December 2025). Credit prices and creation from ECCC’s Compliance Credit Market Dataset, on the August–July compliance year. The settled price is the average of the four quarterly highs among arms-length transfers, with affiliated-party trades struck out; the average price is the volume-weighted mean of all priced transfers. California crop cap per CARB LCFS FRO §95482(i). RIN and 45Z values from the model’s US cost stack; 45Z expiry at 31 December 2029 per current law. Capacity from announced nameplate at Braya Come-by-Chance and Imperial Strathcona; four-year FID-to-production lead. Gap, pool and cost-coverage figures are Climate Decode CFR model outputs; the multiplier is modelled at 1.5× applied to the domestic share of the liquid credit pool from a 2027 start, with no assumed capacity response.