Proposed CFR amendments would reshape credit supply and compliance demand

The amendments are still proposed and may change before registration. If adopted in their current form, several provisions would apply beginning with the 2026 compliance period.

01The funding-program limit would rise from 10% to 15%

Primary suppliers can currently use funding-program credits for up to 10% of their total reduction requirement. The proposed amendment raises that limit to 15%.

That increases the portion of compliance demand that can be settled at the funding-program price and reduces the volume that must be sourced elsewhere in the credit market. The effect grows with the size of the national obligation. In Climate Decode’s current model, applying a 15% limit instead of 10% would increase the funding-program allocation by approximately 1.6 million credits in 2030.

The December compliance sequence would also change. Suppliers seeking to use funding-program credits would first have to purchase their allocation of credits pledged through the compliance-credit clearance mechanism, unless no credits were pledged. Pledged credits would also have to transact at the prescribed maximum price rather than at or below it.

The result is a stronger price backstop for the market and a larger role for the funding program in meeting the national obligation.

02Canadian fuel production would receive additional credits

The most significant supply-side change is a new system of “related credits” for eligible fuels produced in Canada.

The additional credits are calculated as P × N × Fr, where N is the number of original credits, Fr is the fuel-specific factor in the new Schedule 3.1 and P represents the share produced from North American feedstock.

At a P value of 1, the effective credit multipliers would be:

The policy is explicitly tied to domestic production. Imported fuels do not receive related credits, and the liquid-fuel multiplier is reduced where part of the feedstock originates outside North America.

Production in Newfoundland and Labrador receives special treatment. Its P value is set to one regardless of feedstock origin, meaning eligible production there receives the full multiplier. This could be particularly relevant to renewable fuel production at Come By Chance.

The amendment applies the related-credit provisions from the 2026 compliance period. If registered as drafted, eligible fuel produced this year could therefore receive the additional credits.

This is a material change to project economics. Credit generation would depend not only on carbon intensity and fuel volume, but increasingly on where the fuel is produced, what fuel is produced and where its feedstock originates.

03Imported gaseous credits would face a new 5% limit

The Regulations currently allow gaseous-class credits to satisfy up to 10% of a primary supplier’s obligation, without a separate limit for foreign supply.

The proposal keeps the overall 10% gaseous limit and introduces a new 5% sub-limit covering imported gaseous fuels and credits from qualifying gaseous-fuel projects outside Canada.

Domestic gaseous credits retain access to the full 10% limit.

This creates a clear distinction between domestic and imported RNG, renewable propane and hydrogen. If imported supply grows beyond the new 5% ceiling, additional foreign credits may have limited compliance value even while room remains under the broader gaseous limit.

For suppliers and project developers, the relevant market would therefore become two-tiered, with separate scarcity conditions for domestic and imported gaseous credits.

04Carbon-intensity rules would change before and after approval

Several amendments affect how credits are generated while a carbon intensity is being approved and how those credits are corrected later.

The default carbon intensities for several gaseous fuels would fall materially. Biogas, RNG and qualifying hydrogen would receive a default CI of 61 gCO₂e/MJ, while renewable propane would receive 67 gCO₂e/MJ.

Both values are below their respective reference carbon intensities. That means these fuels could begin generating credits before their project-specific CI is approved. Under the existing default schedule, which is 77 gCO₂e/MJ for 2026, many of these fuels cannot generate credits during that period.

The adjustment process would also become more comprehensive. Section 88 adjustments would extend into the year in which the CI is approved, up to the approval date, rather than covering only the preceding three compliance periods.

Once an actual CI is established, the section 89 true-up would become mandatory in both directions. If too few credits were created, additional credits would be issued. If too many were created, the excess would be cancelled.

The tolerance bands that can trigger invalidation or re-application would also double, from 1 gCO₂e/MJ, 5% and 5 gCO₂e/MJ to 2 gCO₂e/MJ, 10% and 10 gCO₂e/MJ. This should reduce the number of relatively small changes that require a new CI process.

05Credit-market reporting would become more transparent

The amendments also strengthen the reporting of compliance-credit transfers.

Transfer prices would become mandatory rather than optional. A zero-price or below-market transfer would require an explanation, and where the credit buyer also purchased the underlying fuel, the fuel price would have to be reported.

Over time, this should materially improve the quality of the transaction data available from ECCC. It may also make related-party transfers and transactions bundled with fuel sales easier to distinguish from arm’s-length credit-market prices.

Other changes are narrower. The gasoline definition would expand slightly through a lower vapour-pressure threshold, increasing the gasoline pool at the margin. The charging-site-host definition would also formally exclude residential chargers paid for by the occupant, consistent with the treatment already applied in Climate Decode’s EV modelling.

06The combined effect is a more segmented CFR market

The proposed amendments move several parts of the CFR in the same direction.

Domestic low-carbon fuel production receives stronger credit support through the new multipliers. Imported gaseous supply faces a tighter compliance-use constraint. The funding program can satisfy a larger share of the obligation, strengthening the regulated price backstop. Revised default CIs bring gaseous fuels into credit creation earlier, while mandatory true-ups ensure those provisional credits ultimately reconcile to actual performance.

The effects will differ materially by fuel and market position. A Canadian renewable diesel producer with North American feedstock could see substantially higher credit generation. An imported RNG supplier could face a binding new usage limit. A primary supplier could rely more heavily on the funding program while facing a different mix of available market credits.

07Climate Decode is updating its CFR model

We are updating the Climate Decode CFR market model to incorporate the proposed amendments, including the 15% funding-program limit, the new fuel-specific multipliers and North American feedstock factor, the 5% imported-gaseous sub-limit, revised default carbon intensities and the new adjustment mechanics.

We will use the updated model to assess how the changes affect national credit supply and demand, market balances, compliance costs and the economics of individual fuel pathways.