From $93 to $358: Canada's Clean Fuel Credit Surge Leaves Carbon Removal on the Sidelines

Canada’s Clean Fuel Regulations have quietly produced one of the fastest-appreciating compliance credit markets anywhere: the average credit price went from CAD 93.08 in the first quarter of 2025 to CAD 358.18 by June 2026, according to data from Environment and Climate Change Canada (ECCC). Yet the technology category attracting the most capital in global carbon markets, carbon dioxide removal (CDR), cannot generate a single credit in it. A legal analysis published this week by law firm MLT Aikins lays out the case that this exclusion now needs a legislative fix, and the argument matters beyond Canada for anyone watching how compliance demand gets allocated between fuel switching and durable removals.

A Compliance Market That Repriced Fourfold in Fifteen Months

The Clean Fuel Regulations (CFR) require fossil fuel producers and importers to progressively reduce the lifecycle carbon intensity of the fuels they sell in Canada. Companies that take qualifying actions, such as blending biofuels or investing in approved low-carbon projects, earn compliance credits. Companies that fall short of their reduction targets buy credits from those with a surplus. That trading mechanism is the CFR compliance credit market.

The price trajectory in ECCC’s credit market reports is steep. ClearBlue Markets recorded an average of CAD 93.08 per tonne for Q1 2025 trades, itself down 41 percent year on year. The BC Bioenergy Network’s summary of the Q2 2025 report shows CAD 142.19, with more than 2.28 million credits created in that quarter alone. By Q3 2025 the average had reached CAD 216.65, and by June 2026 it stood at CAD 358.18. From the Q1 2025 low, the price has nearly quadrupled in about fifteen months.

For obligated fuel suppliers, that repricing turns the CFR from a background compliance cost into a first-order procurement problem. For project developers, it makes eligibility rules, not just abatement costs, the deciding variable in whether a project clears its financing hurdle.

The Exclusion: No Credits for Removing Carbon

CDR covers technologies and processes that actively pull CO2 out of the atmosphere and store it durably. The most prominent example relevant to fuel markets is bioenergy with carbon capture and storage (BECCS), where energy is generated from biomass and the resulting emissions are captured and stored underground, producing a net removal.

Despite fitting the climate logic of the regulation, CDR technologies like BECCS are not currently eligible to generate credits in the federal CFR market. A Canadian company building a removal project cannot monetize that removal through one of the country’s most valuable carbon pricing mechanisms, even as credit prices approach levels that would transform project economics.

The practical consequence is a demand imbalance. Obligated parties bid up a constrained pool of eligible credit-generating activities, while a category that could add both supply and durable climate benefit sits outside the market entirely.

A Competitive Tilt Toward the United States

The MLT Aikins analysis points to a cross-border distortion that should concern policymakers beyond the carbon market itself. The current framework is biased toward U.S. credit realizations: American projects are better positioned to capture market value from CDR activities, while Canadian developers are locked out of their own domestic compliance demand.

Industry participants have recognized the imbalance and are actively advocating at the federal level for the inclusion of BECCS CDR credits in the CFR market. Their position is straightforward: competitive credit pricing requires that Canadian CDR projects participate in the domestic compliance market rather than ceding that opportunity to foreign competitors. With global demand for verified removals rising, the exclusion risks exporting both the projects and the credit value.

What Reform Would Change

There are signs Ottawa is open to adjustment. ECCC has published a discussion paper on targeted amendments to the CFR, signalling willingness to evolve the regulations as markets and technology develop. Extending eligibility to verified CDR credits would do four things at once, according to the analysis:

• Create a domestic revenue stream for Canadian CDR projects, providing a commercial incentive for continued investment in removal capacity.
• Increase the supply of compliance credits, helping manage costs for obligated parties as prices rise, without weakening the program’s environmental integrity.
• Align the framework with Canada’s net-zero-by-2050 commitment, which depends on removals being part of the toolkit.
• Reduce the bias toward U.S. credit realizations by letting Canadian projects compete on level terms.

Each of these is a design choice regulators in other jurisdictions are also facing, which makes Canada’s decision a useful leading indicator for how compliance systems treat removals more broadly.

What Buyers and Developers Should Do Now

For CDR developers, the actionable items are concrete: monitor ECCC’s consultation process on the targeted amendments and participate in it, model project economics under a scenario where CFR eligibility lands at prices anywhere near CAD 350 per tonne, and coordinate with the industry advocacy already underway at the federal level.

For credit buyers and obligated parties, the implication runs the other way. If CDR supply enters the CFR market, today’s tight credit pool loosens, and the procurement assumptions behind CAD 358 pricing change with it. Companies currently buying compliance credits should be stress-testing their carbon management strategies against both outcomes: a market where removal supply stays excluded and prices keep climbing, and one where eligibility reform brings new supply into the pool.

What to Watch

Three checkpoints will show where this goes. First, the scope of ECCC’s targeted amendments: whether CDR eligibility, and BECCS in particular, makes it into the draft regulatory text or gets deferred. Second, the next quarterly credit market reports, which will show whether the June 2026 price of CAD 358.18 was a plateau or a waypoint. Third, the positioning of obligated fuel suppliers in the consultation: their support or resistance will signal whether they see CDR credits as cost relief or as dilution.

Canada built one of the world’s most significant compliance credit markets almost by accident of design. Whether it becomes a demand engine for carbon removal is now an explicit policy choice, and the price signal says the market is waiting.