North American carbon markets remain fragmented, with California’s Low Carbon Fuel Standard facing weaker credit prices as Canada’s Clean Fuel Regulations have quietly emerged as one of the world’s highest-priced carbon markets. Michael Berends, CEO of ClearBlue Markets, explains the forces behind this divergence and how “incentive stacking” is reshaping cross-border trade flows.
Environmental Finance: Canada’s federal Clean Fuel Regulations (CFR) market has now been live since mid-2023. What is the current state of the market, and what’s driving the record pricing we’re seeing?
Michael Berends: To understand North American clean fuel standards carbon markets right now, you have to look north. While California’s Low Carbon Fuel Standard (LCFS) credits are trading near $70 and British Columbia’s programme has softened to roughly CAD100 ($73), the CFR has clearly separated itself from the pack. Credit prices have surged past CAD350 per tonne, approaching the compliance fund price ceiling of CAD380 for 2025.
A year ago, CFR prices were closer to CAD100, so this has been a remarkable shift. Several factors came together to drive this rally. First, political certainty following Canada’s federal elections strengthened confidence in the programme. Second, the removal of the federal fuel charge on petroleum fuels meant the CFR suddenly had to carry much more of the decarbonisation burden. The price signal needed to work harder to incentivise low-carbon fuels.
At the same time, feedstock prices like soybean, canola and other oils, increased and US incentives evolved, particularly the transition from the Biodiesel Blenders Tax Credit to the Inflation Reduction Act’s (IRA) Section 45Z domestic credit. Our Vantage data platform shows demand for credits is currently outpacing new supply generation. Compliance entities are realising that inexpensive compliance options are scarce.
In practical terms, it’s a seller’s market, and that makes Canada an increasingly attractive destination for project developers looking to monetise credits.
EF: You’ve noted that British Columbia’s credit prices are lower than the federal CFR, yet you still advise clients to prioritise the British Columbia market. Can you explain why?
MB: This comes down to one of the most important concepts in clean fuel markets: price does not equal profit. Many participants look at headline credit prices and assume the highest price market automatically delivers the best returns. That’s often wrong.
We encourage clients to focus on what we call the “Total Value Stack.” North American clean fuel policies are highly stackable. If a supplier sells renewable diesel into British Columbia, they don’t just earn the provincial credit priced around CAD100. They also generate a federal CFR credit worth roughly CAD350.
When you combine those revenue streams, British Columbia becomes one of the most lucrative jurisdictions globally for renewable diesel – even though its standalone credit price appears lower.
This “incentive stacking” significantly lowers suppliers’ breakeven costs and drives trade flows across borders. That’s why modelling interactions between policies is critical. If you only look at individual credit prices, you’re missing the real economics of the commodity.
EF: What potential regulatory amendments are being considered, and how could they reshape the market?
MB: Canada is trying to address a competitiveness challenge created by US subsidies under the IRA – specifically the 45Z tax credit – which heavily supports American biofuel producers. Because fuels can move across borders, those incentives effectively follow the fuel into Canada, putting domestic producers at a disadvantage.
Environment and Climate Change Canada is considering targeted amendments to address this imbalance. One proposal discussed in late 2025 involves credit multipliers, perhaps combined with or minimum domestic content blending. For example, with the multipliers, domestic biomass-based diesel could receive 1.4 credits for every unit generated, helping Canadian producers match the 45Z incentives enjoyed by US renewable diesel producers.
However, this introduces a balancing challenge. Multipliers that are too generous could rapidly increase credit supply and weaken prices across the market. That would also affect electricity and renewable natural gas credits.
Our modelling suggests that a high multiplier applied broadly could create oversupply and materially lower CFR prices. A smaller, carefully calibrated multiplier could support domestic production without disrupting market balance. Regulators appear aware of this risk, but uncertainty remains. As a result, we’re advising clients to stress-test portfolios against multiple regulatory scenarios.
EF: Looking beyond near-term volatility, what is your long-term outlook for North American clean fuel markets through 2030?
MB: In our most likely scenario, the CFR market remains structurally tight through 2030 – assuming no major policy changes that weaken programme stringency. Credit demand continues to grow each year as carbon intensity targets become stricter.
What will change dramatically is the composition of supply. Over the next several years, we expect the centre of gravity to shift away from a heavy reliance on liquid fuels such as ethanol and renewable diesel and toward carbon capture, electricity, and renewable natural gas (RNG).
RNG is particularly interesting. The Canada CFR is currently the only North American clean fuel standard allowing gaseous fuel crediting outside the transportation sector. That creates unique opportunities, especially for ultra-low carbon intensity gas produced from dairy or swine digesters.
There is a constraint, however: gaseous credits are capped at 10% of total compliance. Our outlook suggests that cap could be reached around 2030, which is already creating competition for long-term offtake agreements.
Right now, ultra-low-carbon intensity RNG commands a meaningful premium in Canada. Producers with very low – or even negative – carbon intensity scores can generate significantly higher credit value than in other markets. This is driving what we describe as a “gold rush” of negative-carbon intensity gas moving north.
Ultimately, the winners will be those who secure supply contracts early, reinforcing the importance of long-term strategy in what is becoming one of the world’s most dynamic clean fuel markets.
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