From 2025 Uncertainty to 2026 Opportunities: Stillwater’s Perspective on North American Clean Fuel Programs

The Trump 2.0 administration took office in 2025 with an agenda to roll back renewable energy mandates, promote fossil fuels, relax environmental regulations and support the burgeoning AI industry. These objectives introduced significant federal policy uncertainty, prompting states to revise their strategies either to protect environmental and energy programs or to align with the administration’s fossil fuel-friendly objectives, depending on political leanings. In this article, Stillwater’s Carbon Crew summarizes how all of this played out for North American clean fuel programs in 2025 and considers what may be headed our way in 2026. 

Big Picture: Renewable fuel markets and greenhouse gas reduction programs across North America moved ahead in 2025, but players in many markets spent the year “flying blindfolded” amid policy uncertainty, shifting credit prices, and growing public concern about affordability. At the same time, fuel and vehicle markets continued to adjust to overlapping and sometimes contradictory federal, state, and provincial requirements, often with limited clarity on long-term rules. 

From Stillwater’s perspective, four crosscutting themes defined 2025 and will shape 2026: 

• Protectionism Abounds: The U.S. and Canada have proposed or implemented fuel policies intending to incentivize and reward domestic production. 

• Policy uncertainty at the federal level, especially around the Renewable Fuel Standard (RFS) Set 2 rule and the section 45Z clean fuel production tax credit. 

• Diverging state and federal trajectories, with some state programs tightening aggressively, others struggling with public pushback and cost visibility, and tectonic shifts at the federal level running contrary to these state efforts. 

• Physical and economic limits on low-carbon fuels and vehicles, as feedstock constraints, infrastructure gaps, and consumer price sensitivity increasingly limit what programs can deliver. 

Federal policy: RFS and 45Z in the U.S. and CFR in Canada

What stood out in 2025 

Under the RFS, the U.S. Environmental Protection Agency (EPA) proposed Set 2 volumes that continued to increase obligations, particularly for the advanced biofuel and biomass-based diesel (BBD) categories, while explicitly addressing the treatment of imported renewable fuels. The proposal contemplates halving RIN generation for imported renewable fuels and domestic fuels produced from imported feedstocks, amplifying concerns in markets that rely heavily on imports.  

EPA also moved through a substantial backlog of small refinery exemptions (SRE) petitions, returning to a policy of granting many of the petitions and introducing partial (i.e., 50%) waivers for many others. The upshot: a significant increase in the RIN bank, prompting EPA to issue a supplemental proposal for Set 2 reallocating some or all of these historical SRE volumes to the 2026-2027 RVOs.   

All this added yet another layer of uncertainty for obligated party compliance planning. RIN prices were generally weak through much of 2025, reflecting both oversupply and uncertainty about EPA’s proposed import RIN reduction and how EPA would ultimately handle reallocation of volumes associated with SREs.  

On the U.S. tax code side, the policy pivot from the longstanding biomass-based diesel blenders tax credit (BTC) to the new section 45Z clean fuel production credit weighed heavily on biofuels markets throughout 2025. Whereas the BTC provided credits to blenders based on volume sold and procured from any source, Section 45Z allocates the credit to the fuel producers, switches to a carbonintensity-based credit and, critically, applies only to domestically produced volumes. In general, the value of the tax credit under 45Z is considerably lower than under the BTC. Treasury and IRS are required to issue foundational 45Z guidance, including emissions-rate tables linked to a GREET-based model, but issuance has been delayed by the change in administration and revisions to 45Z contained in the One Big Beautiful Bill Act (OBBBA) passed during the summer. As the year ended, Treasury moved key proposed rules into Office of Management and Budget (OMB) review, implying potential issuance in early 2026. However, details remained incomplete enough that many market participants approached 45Z transactions cautiously, discounting expected credit value to reflect regulatory risk. 

Moving north to Canada, year two of the Clean Fuel Regulations (CFR) saw credit prices climb sharply, confirming that the program is now a binding driver of compliance behavior. Average CFR credit values moved into the low- to midCAD 200/tonne range by mid-2025, with spot transactions at times reported higher as marginal deficits emerged and the credit clearance mechanism (CCM) cap became increasingly relevant. The federal data show slowing growth in high-CI diesel and gasoline deficits and a meaningful draw on the credit bank, consistent with tighter conditions heading into 2026. 

What to watch in 2026 

In 2026, stakeholders should be watching for: 

• Final RFS Set 2 volumes and SRE treatment: Ongoing litigation is likely to push EPA to finalize the Set 2 rule in the first quarter, but the precise timing and the final approach to imported volumes and reallocation of SRE volumes remain uncertain. 

• Full implementation of section 45Z: Treasury and IRS are expected to finalize emissions rate guidance and confirm use of a dedicated 45Z GREET variant, giving producers a clearer basis for project economics. 

• Increased CFR Stringency: Further CFR stringency or implementation refinements will be discussed and likely proposed, tightening national credit balances beyond what markets currently expect. 

• CFR Protectionism: We are keeping an eye on potential adjustments around import dependence – specifically potential regulatory adjustments to require minimum domestic content or credit multipliers for domestic low-CI fuels. 

Until those pieces are in place, North American biofuels and low-carbon fuel markets will continue to operate with significant regulatory risk embedded in 2026-2027 investment and trading decisions. 

State and provincial clean fuel programs

West Coast Low-Carbon Fuel (LCF) programs 

California’s Low Carbon Fuel Standard (LCFS) implemented the 2024 amendments in mid-2025, but credit prices remained in the doldrums amid a sizeable bank of surplus credits. In a somewhat surprising turn, renewable diesel (RD) blending, which had been climbing toward a very high share of the on-road diesel pool, pulled back in the first half of 2025 as weaker LCFS and federal credit values undermined the marginal economics of further growth. Public awareness of the LCFS’ contribution to retail gasoline and diesel prices rose meaningfully during the year, intersecting with broader concerns about refinery closures and California’s long-term fuel supply.  

Oregon’s Clean Fuels Program (CFP) moved into a very different phase in 2025, with high credit prices reflecting repeated quarterly deficits through 2Q25 and a growing recognition that the value of CFP credits must meet that of other states with both LCF and carbon programs. Oregon does not yet have a fully functional market-based cap-and-invest system in place for transportation fuels, so the CFP credit price has taken on a de facto carbon price role for the sector. Regulatory discussions on potential CFP adjustments, including stringency and design changes, kicked off in 2025 and are expected to continue through a formal rulemaking in 2026. 

Washington’s Clean Fuel Standard (CFS) went the other way on pricing: CFS credit prices remained relatively low because Washington’s Cap-and-Invest allowance prices were high, leaving limited room in the value stack for CFS credit value to be necessitated. The legislature adopted House Bill 1409, which increases the required CI reductions over time, and presents Ecology with a range of stringency pathways to implement via rule. Public understanding of the cumulative cost of Cap-and-Invest plus the CFS is beginning from a low base but appears to be growing as gasoline and diesel price impacts become more salient. 

British Columbia’s LCFS (BC-LCFS) continued to evolve alongside the CFR, including implementation of a sustainable aviation fuel (SAF) blend mandate and measures aimed at favoring local production.1 BC-LCFS credit prices softened relative to earlier peaks as overlapping CFR incentives carried some of the weight in the BC value stack. 

Looking forward to 2026 along the West Coast, Stillwater is watching: 

• California LCFS: Potential tightening of surplus conditions as quarterly credit surpluses shrink and new feedstock restrictions and accounting rules gradually phase in, with the possibility that LCFS prices will firm if the bank stops growing. 

• Oregon CFP: High credit prices are likely to persist as long as the reinstated Climate Protection Program (CPP) has little direct market impact, and as terminal, storage, and local land use issues continue to constrain low-carbon fuel logistics. We’ll be keeping a close eye on how the 2026-2027 rulemaking shapes up this year. 

• Washington CFS: Ecology’s rulemaking to implement HB 1409 will provide needed clarity on the effective CI path and will determine how quickly CFS credit prices might rise as Cap-and-Invest and CFS obligations interact. 

• BC-LCFS: We expect continued efforts to support Canadian and BC-based feedstocks and fuels; credit prices should remain relatively soft as CFR credits provide additional support to renewable fuel producers. 

Emerging and proposed LCF programs 

New Mexico advanced a comprehensive Clean Transportation Fuel Standard through proposed regulations and a lengthy, contentious public hearing process in 2025. By statute, the program is required to become effective no later than July 1, 2026, which leaves limited room for major redesign; any substantial changes would likely require restarting portions of the rulemaking process. 

Elsewhere, 2025 saw renewed LCF program proposals in several states, including Pennsylvania, Massachusetts, and Hawaii, among others. None of these bills crossed the finish line, but the legislative interest is notable given the backdrop of federal policy uncertainty and ongoing debates about EV mandates. Shortened legislative calendars in this election year will complicate new program adoption in 2026, but Stillwater expects multiple jurisdictions – including the above and potentially Maryland – to make another run at clean fuel legislation. 

State carbon markets and market linkages 

California policymakers advanced plans to rename and extend the state’s cap-and-trade system as “Cap-and-Invest” and pursued changes to allowance budgets that effectively tighten supply, with implications for transportation fuel costs through 2026 and beyond. California’s rebranded Cap-and-Trade program was extended in 2025 with statutory and regulatory changes that tighten the allowance budget, particularly by altering how offset (CCO) usage affects future-year caps. Amendment development extended into 2026, while the state continued exploring linkage with Washington’s Cap-and-Invest system.  

Washington’s Cap-and-Invest allowance prices, which were already elevated, rose further in 2025, in part because the program launched with little preexisting allowance inventory, magnifying early scarcity. The last two auction settlement prices triggered Allowance Price Containment Auctions to supplement the available C&I allowances. In December, Ecology reported that steps toward linkage with California and Quebec are expected to be completed in 2026, with Washington joining the joint allowance auction in 2027, the first year of a new compliance period for all three jurisdictions. 

Oregon’s CPP was reinstated in 2025 after a court-imposed pause, but stakeholders across the political spectrum have signaled interest in replacing it with a more conventional cap-and-invest framework. Whether Oregon can move legislation to accomplish that in 2026 is uncertain, but the direction of travel is toward convergence with the West Coast carbon market architecture that now centers on California and Washington. 

On the East Coast, the Regional Greenhouse Gas Initiative (RGGI) continued to evolve as Pennsylvania formally exited the program, while discussions around a potential Virginia reentry remained live. The patchwork of regional carbon pricing schemes is thus in flux at the same time as transportation-sector LCF proposals are spreading in individual states. 

In 2026, Stillwater is focused on: 

• How quickly and on what terms California, Quebec, and Washington can operationalize linkage, and what that implies for allowance and fuel price trajectories in both jurisdictions. 

• Whether Oregon advances a cap-and-invest bill that could ultimately join a broader West Coast carbon market. 

• How RGGI and potential new state-level carbon programs will interact with emerging low-carbon fuel standards in the MidAtlantic and Northeast. 

Fuels and vehicles: Economics meet physical limits

Ethanol, BD, RD, SAF, RNG, and electricity 

Ethanol markets enjoyed strong fundamentals in 2025, with record production and exports and a national blending rate that, for the first time, exceeded 11 percent in October. California approved E15 use, and Iowa’s E15 availability mandate took effect on January 1, 2026. Following years of debate over volatility waivers and summer-driving restrictions, multiple Midwestern states rescinded the 1-psi RVP waiver for E10 only for it to be essentially nullified when EPA issued another emergency fuel waiver extending the RVP waiver nationwide for E15. National discussions over a permanent national fix for E15 volatility to support its year-round use continue. More ethanol plants brought carbon capture and storage (CCS) projects online, positioning producers for improved CI scores under both 45Z and various state programs. 

In 2025, low-CI BBD was feedstock-constrained given uncertainties in the treatment of imported feedstocks under the proposed RFS Set 2 rule, 45Z, and tariffs. Crop-based feedstocks were also impacted by the switch from BTC to 45Z. Biodiesel struggled under intense feedstock competition and policy shifts, with several plants curtailing operations or shutting down during 2025 as economics deteriorated. RD growth slowed and, in some markets, reversed as federal and state credits weakened and as future treatment of imported feedstocks and fuels came into question under 45Z, RFS Set 2, and LCFS feedstock-restriction amendments. SAF volumes grew from a very low base, but high production costs, limited feedstock availability, and overlapping but uncertain incentives (including shifting 45Z parameters) kept adoption well below aspirational targets. 

Renewable natural gas (RNG) volumes continued to grow slowly with fleet growth while average RNG carbon intensity (CI) continued to fall due to more dairy digester-based projects. Interest in RNG for stationary power – especially to serve data centers and AI-driven load growth – intensified with utilities and large energy users issuing RFPs for RNG blends despite the cost premium. Electricity demand from EV charging is becoming just one component of a broader surge in power demand, which stresses transmission and distribution networks and raises questions about whether electricity rates can remain low enough to preserve EV cost advantages over internal-combustion vehicles.  

EVs and the transition challenge 

Light-duty EV sales continued to grow in 2025 but at a slower pace, as the early adopter market saturated and mainstream customers reacted to higher upfront prices, infrastructure constraints, and the gradual loss or restructuring of federal and state incentives. Meanwhile, LCF credit generation by light-duty EV charging kept growing but at a slowing rate, raising questions about whether EV sales can scale quickly enough to support those states’ ambitious CI reduction schedule. Federal actions that rescinded California’s waiver authority for advanced clean car standards clouded the legal basis for state EV mandates, while supply-chain and tariff issues constrained lower-cost EV imports. 

By contrast, medium-duty vehicles, urban buses and commercial applications – especially local delivery – remained a relative bright spot for electrification, where duty cycles, depot charging, and total cost of ownership calculations are more favorable. Heav-duty EV adoption lagged amid range, charging, and payload concerns, while fuel cell electric vehicles remained more of a long-term concept than a near-term solution in most markets. 

All of this plays into a broader question that Stillwater tracks closely: how to manage the transition away from petroleum fuels without a fully articulated, adequately funded plan for alternative fuels and infrastructure. Recent and proposed refinery closures on the West and Gulf Coasts highlight the risk of retiring refinery capacity faster than replacement systems for electricity, hydrogen, and low-carbon liquid fuels can be built and integrated. 

How Stillwater can help in 2026

Across federal, state, and provincial programs, 2025 underscored that clean‑fuel and GHG‑reduction policies must move beyond ambitious targets and actually function in real markets with real constraints. With overlapping programs bidding for the same limited feedstocks, evolving tax rules, tightening carbon markets, and growing public scrutiny of fuel prices, 2026 will require even more careful strategy, compliance planning, and stakeholder communication. 

Stillwater Associates works with refiners, renewable fuel producers, marketers, utilities, investors, and policymakers to: 

• Analyze credit markets and policy designs. 

• Evaluate project economics under emerging incentives such as section 45Z and evolving LCF program rules. 

• Develop robust transition strategies from conventional to low-carbon fuels that account for infrastructure, reliability, and affordability. 

If your organization is navigating these issues in 2026, contact Stillwater Associates to discuss tailored consulting support.  

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