Canada’s clean fuel credit market and carbon dioxide removal: The case for legislative reform

This article was prepared with the assistance of summer student Chan-Min Roh.

Canada’s Clean Fuel Regulations (CFR) have created one of the country’s most significant compliance credit markets. Recent data from Environment and Climate Change Canada (ECCC) confirms this market is growing rapidly: the average compliance credit price reached $216.65 in Q3 2025, climbing to $358.18 by June 2026. Yet despite this expanding demand, an important category of climate technology – carbon dioxide removal (CDR) – remains largely unable to participate.

This gap has practical consequences for Canadian businesses developing CDR technologies and raises questions about whether the current regulatory framework is aligned with Canada’s broader climate objectives.

What are the Clean Fuel Regulations?

The CFR require fossil fuel producers and importers to progressively reduce the lifecycle carbon intensity of the fuels they produce and sell in Canda. Companies taking qualifying actions to lower carbon intensity, such as blending biofuels or investing in approved low-carbon projects, earn compliance credits. Companies falling short of their reduction targets can purchase credits from those that have generated a surplus. The compliance credit market is the mechanism through which these credits are traded.

The problem: CDR technologies are excluded

CDR refers to a range of technologies and processes that actively remove carbon dioxide (CO₂) from the atmosphere and store it durably. One of the most promising CDR approaches is bioenergy with carbon capture and storage (BECCS), which involves generating energy from biomass and then capturing and permanently storing the resulting emissions underground, achieving a net removal of CO₂ from the atmosphere.

Despite the clear climate benefits, CDR technologies like BECCS are not currently eligible to generate credits in the federal CFR market. This means Canadian companies investing in CDR cannot access one of the country’s most valuable carbon pricing mechanisms to support the commercial viability of their projects.

A competitive imbalance with the United States

The exclusion of CDR from the CFR market has competitive implications. The current framework is biased toward U.S. credit realizations, meaning American projects are better positioned to capture market value from CDR activities. Canadian CDR companies are consequently disadvantaged relative to their U.S. counterparts at a time when global demand for verified CDR is increasing.

Industry participants have recognized this imbalance and are actively advocating at the federal level for the inclusion of BECCS CDR credits in CFR markets. Their position is straightforward: Competitive credit pricing requires Canadian CDR projects be allowed to participate in the domestic compliance market, rather than ceding that opportunity to foreign competitors.

The case for legislative change

There are indications that the federal government is open to reform. ECCC has published a discussion paper on targeted amendments to the CFR, signalling a willingness to evolve the regulations in response to market developments and technological change.

Expanding CFR eligibility to include verified CDR credits would accomplish several objectives:

• Create a domestic revenue stream for Canadian CDR projects. Allowing carbon removal technologies to generate compliance credits would provide a meaningful commercial incentive for continued investment in Canadian CDR capacity.
• Increase the supply of compliance credits. As credit prices continue to rise, expanding the pool of eligible credit-generating activities would help manage costs for obligated parties while maintaining the environmental integrity of the program.
• Align the regulatory framework with Canada’s climate goals. Canada has committed to achieving net-zero emissions by 2050. CDR is widely recognized as a necessary component of any credible net-zero pathway, and the regulatory framework should reflect that.
• Reduce the current market bias toward U.S. credit realizations. Legislative action would help ensure Canadian CDR projects can compete on a level playing field with their American counterparts.

What Canadian businesses should consider

Businesses operating in the carbon removal, clean energy and carbon capture sectors should be aware of the following developments:

• Monitor ECCC’s consultation process. The discussion paper on targeted CFR amendments indicates that a regulatory review is underway. Stakeholders with an interest in CDR credit eligibility should consider participating in any forthcoming consultation.
• Assess the commercial implications. If CDR credits become eligible under the CFR, the compliance credit market could represent a significant new revenue stream for CDR projects. Businesses should evaluate how this change would affect project economies and investment decisions.
• Engage with industry advocacy efforts. Industry participants are already advocating for BECCS CDR inclusion at the federal level. Businesses with aligned interests may benefit from coordinating their engagement.
• Review existing carbon credit strategies. Companies currently generating or purchasing compliance credits should consider how an expanded credit market might affect pricing, supply and their overall carbon management approach.

MLT Aikins continues to monitor developments in Canada’s carbon pricing and clean fuel regulatory landscape. If your organization would like assistance in assessing how potential changes to the CFR may affect your operations or carbon credit strategy, please reach out to any member of our Energy team.

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