Question Period Note: LIQUID BIOFUELS

Q1 – Do the Clean Fuel Regulations increase costs to Canadian farmers?
Q2 – Are the Clean Fuel Regulations another ‘carbon tax’?
Q3 – What is the Government of Canada doing to help Canadian biofuel producers stay competitive?
Q4 – What about potentially fraudulent used cooking oil (UCO) being used in the Canadian biofuel market?
Q5 – What about the sustainability of agriculture-based biofuels?

R1 - The Regulations represent an opportunity for increased demand for agriculturally-derived biofuels, providing market stability and diversification, and reducing reliance on exports for crops such as canola.
R2 - The Regulations are not a tax and are a market-based mechanism designed to spur innovation of clean technologies and expand the use of less polluting fuels throughout the economy.
R3 - To support this market, on September 5, 2025, the Government of Canada announced a new time-limited Biofuel Production Incentive, led by Natural Resources Canada, with over $370 million for domestic producers to address immediate competitiveness challenges.
The Government also intends to make targeted amendments to the Clean Fuel Regulations to strengthen the resiliency and support the development of Canada’s low-carbon fuel sector, while maintaining the Regulations’ primary focus on lowering carbon emissions.

R4 - The Government of Canada is aware of concerns related to imported UCO from certain jurisdictions.
The Clean Fuel Regulations include oversight and traceability mechanisms to detect feedstock that is fraudulently mislabeled as UCO and provides the authority to undertake enforcement actions should fraud be detected.

R5 - The Clean Fuel Regulations’ Land Use and Biodiversity Criteria aim to ensure that the biofuels that are used to generate credits under the Regulations will support our goals to protect biodiversity and the environment.
The Land Use and Biodiversity Criteria recognize the strong sustainability record of Canadian farmers.

Biofuels are liquid fuels derived from non-fossil biomass, mainly ethanol and biomass-based diesel (i.e., biodiesel or renewable diesel) that are blended into liquid fuels to displace petroleum-based gasoline and diesel in transportation.

Biofuels are an important source of market diversity for Canadian farmers, particularly for corn and canola. Biofuels create economic opportunities for the Canadian agricultural sector while helping mitigate climate change by reducing transportation-related GHG emissions.
Canola oil is a key feedstock for the production of biomass-based diesel. AAFC recognizes that the canola value chain is facing challenges accessing its largest export markets. A strengthened domestic biofuels industry can help drive demand for Canadian agricultural feedstocks, like canola, helping mitigate export related risks.
Canadian produced biomass-based diesel is currently uncompetitive compared to imported biomass-based diesel from the United States (U.S.). With support in place to enhance the competitiveness of Canadian biofuel producers, Canada has the necessary biofuel refinery capacity, from existing and new biofuel production facilities, to greatly increase domestic biofuel production and associated demand for Canadian agricultural products. Canada also has the necessary feedstock processing capacity – including canola crushing capacity – to meet the demand from further buildout of the domestic biofuel sector.
Biofuel trade and market access
Under the previous U.S. Blender's Tax Credit, American fuel suppliers sought the most cost-effective biofuel to meet their mandate, which allowed Canadian biofuel producers to compete and export their product on a level playing field. However, the U.S. shifted its policy under the 45Z Clean Fuel Production Credit. The new production tax credit, implemented on January 1, 2025, is strategically designed to provide support to the U.S. biofuels industry and its supply chains.
The Government of Canada recognizes the continuing importance of the U.S. biofuels market as a source of diversification and income for the Canadian canola sector. As such, AAFC continues to work with government and industry partners to advocate for the fair treatment of Canadian canola as key feedstock in the U.S. biofuels industry.
Supports for Canadian biofuel production
On September 5, 2025, the Government of Canada announced a Biofuels Production Incentive as a time-limited program that will provide over $370 million over two years to support the stability and resiliency of domestic producers of biodiesel and renewable diesel. This incentive will be provided on a per litre basis to Canadian producers of biodiesel and renewable diesel and will be available from January 2026 to December 2027 for up to 300 million litres per facility. Natural Resources Canada will provide more details about the program in the coming weeks.
The Government also intends to make targeted amendments to the Clean Fuel Regulations (CFR), Canada’s main driver of biofuel consumption. The CFR require producers and importers of gasoline and diesel used in Canada to reduce the carbon intensity of these fuels by, for example, supplying low-carbon fuels. The Government intends to amend the CFR to strengthen the resiliency and support the development of Canada’s low-carbon fuel sector, while maintaining the Regulations’ primary focus on lowering carbon emissions. Only targeted amendments that advance this objective will be considered at this time.
Canadian biofuels and Used Cooking Oil (UCO)
Used cooking oil (UCO) refers to oils and fats of vegetable or animal origin that have been used in the cooking or preservation of food and are no longer suitable for their original purpose. UCO is a choice feedstock for biofuel production globally, and when used to produce biomass-based diesel fuel and Sustainable Aviation Fuel (SAF) is a direct competitor with canola oil and other agricultural feedstocks. As a waste product, it is affordable and is given a lower carbon intensity score under many regulatory frameworks such as Canada’s CFR.
Being sourced from multiple gathering points, with limited ability to perform traceability checks or test the product for compliance, UCO has a high risk of fraud. This has prompted some jurisdictions to initiate investigations into UCO imports. Fraud can occur when virgin oils that would otherwise be ineligible feedstocks (e.g. palm oil in the CFR) are fraudulently mislabeled as UCO or where virgin oils are intentionally used to disguise their origin.
Canada has trusted domestic sources of UCO, and other waste oils like tallow, that are collected in Canada and used for biofuel production. Concerns about fraud have centered on imported UCO arriving in Canada through complex international supply chains. To date, no evidence of fraud has been found in Canada under the CFR, however ECCC continues to monitor.
Agriculture and the Clean Fuel Regulations (CFR)

The biofuels market is driven primarily through domestic and international government initiatives seeking to stimulate biofuel demand in order to reach environmental objectives, notably GHG emission reductions from the transportation sector. In Canada the main demand drivers include the federal Clean Fuel Regulations (CFR) and provincial blending mandates and low-carbon fuel standards.

The CFR were published in Canada Gazette, Part II, on June 21, 2022. Under the CFR, as of July 1, 2023, fossil fuel producers or importers are required to reduce the carbon intensity of liquid fuels they provide.

The CFR uses lifecycle analysis to assess the carbon intensity of various fuels, with a view to incenting those that offer the deepest carbon reduction potential for the cost. The CFR is not a tax and is a market-based mechanism designed to spur innovation of clean technologies and expand the use of less polluting fuels throughout the economy. The actual price impacts will depend on the choices of oil refiners, who have the flexibility to find the most cost-effective and innovative approaches that work best for them, whether investing in cleaner production or more affordable fuels for their customers.
There are three ways to comply with the CFR: 1) improvements to conventional fossil fuel production that reduce the lifecycle carbon intensity of fuels, 2) blending of low-carbon fuels, like those derived from agricultural production, and 3) end-use fuel switching, such as electrification. The CFR is anticipated to create a significant increase in demand for renewable fuels, including agriculturally-derived biofuels, as a method for regulated parties to comply with the standard through compliance option two. In June 2024, ECCC published the first CFR Credit Market Data Report. This report demonstrated that biofuels were being used to generate significant CFR credits, with more than half of the total CFR credits in the compliance period coming from the supply of low-carbon-intensity fuels.

The CFR will reduce up to 26.6 million tonnes (Mt) of GHG emissions in 2030. ECCC modelling projects that this will include more biofuel blending, delivering up to 6.7 Mt in annual GHG reductions, beyond existing blend mandates. Despite the focus on liquid fuels, gaseous and solid fuel production and use can still be used to fulfill CFR requirements, or generate CFR credits, within certain parameters. An example would be the production of biogas from anaerobic digestion of agricultural material.

The CFR are anticipated to increase the cost of gasoline and diesel. In 2030, Canadians who drive fossil fuel-powered vehicles may see an increase of between $0.06 to $0.13 per litre for gasoline and
$0.07 to $0.16 per litre for diesel (2021 dollars). Fuel prices are the result of several market factors, including distribution constraints, market share competition, refinery capacity and production, and fuel demand. Given the variability in fuel prices paid at the pump, increases in fuel costs due to the CFR may not be noticeable by most consumers, including farmers. The Government of Canada is aware that the CFR impacts will be higher in some provinces than in others as some regions may have fewer credit creation opportunities. Some farm fuel prices will increase more than others, impacting producers differently based on type of farming activity and part of the country.

AAFC is continuing to work with ECCC on aspects of the CFR including future versions of the Fuel Life Cycle Assessment Model.

Background on biofuel production and consumption
Canadian production of grains and oilseeds was 86.9 million metric tons (MMT) in the 2023/24 crop year. According to AAFC estimates, about 6.7% of that total, or 5.8MMT of grains and oilseeds, went into Canadian biofuels production in 2023/24. Approximately 3.7MMT of corn (24% of production) and 0.5MMT of wheat (1.5% of production) were used to produce ethanol, while approximately 0.9MMT (4.7% of production) of canola and 0.7MMT (10% of production) of soybeans were used to produce biodiesel.

In 2024, domestic biofuel production was approximately 1.8 billion litres of ethanol and 1.15 billion litres of biomass-based diesel. Market uncertainty has meant that in 2025 many facilities have reduced capacity or are idling. Canada currently has limited production of renewable diesel, though multiple projects have recently come online. Canada imports more than 60% of its ethanol consumption, most of which is from the U.S.

In 2023, biofuel consumption in Canada increased significantly in part due to the CFR taking effect, increasing by 25% in 2023, on top of the 20% increase in 2022. In 2024, biomass-based diesel consumption rose 9% to almost 1.5 billion litres per year, while ethanol increased 6% to 4.2 billion litres per year.

AAFC supports biofuel-related science, research, and adoption of low-carbon biofuels through departmental research, and the Agricultural Clean Technology and AgriScience programs. In addition, AAFC scientists are taking the lead to increase our understanding of how crop choice, climate smart agricultural practices, region, soils and climate in Canada interact to impact GHG emissions and, in turn, contribute to the production of lower emission feedstocks.

AAFC is also delivering $429.4 million over seven years through the Agricultural Clean Technology Program – Adoption and Research and Innovation Streams to support the research, development, and adoption of clean technologies in the agriculture sector.

• The production of low-carbon biofuels represents an important opportunity for farmers to find new customers while contributing to Canada’s climate change commitments.
• Domestic biofuels can create a valuable, additional market for canola and other agricultural feedstocks, complementing existing exports while helping mitigate the volatility of global markets.
• In September 2025, support measures for the biofuels industry were announced, including a new Biofuel Production Incentive with over $370 million over two years for domestic producers.
• Targeted amendments to the Clean Fuel Regulations to strengthen the resiliency and support the development of Canada’s low-carbon fuel sector were also announced.
• These measures will help reduce Canada’s reliance on imported clean fuels, provide market diversification opportunities, and support Canadian farmers and businesses.