The BC credit value stack: how CFR price discovery is reshaping BC-LCFS credit prices

This article concludes a three-part series. The first article introduced the four archetypes of market participants found in every low-carbon fuel credit market; the second explained why the British Columbia (BC) and Canadian credit markets behave differently from California’s. In this article we ask a question those differences make pressing: with Canada’s Clean Fuel Regulations (CFR) now adding a second credit on top of the BC Low Carbon Fuel Standard (BC-LCFS) credit, does the price gap between renewable and conventional fuels still anchor the combined value of the two credits – or has the CFR changed what drives the BC-LCFS credit price?

BC credit valuation has passed through four distinct phases: 1) a single-instrument period where, with renewable diesel (RD) as the swing fuel, the BC-LCFS credit was the only instrument adding value to RD; 2) an information gap period where the Canadian Clean Fuel Regulations (CFR) added unobserved value to RD on top; 3) an adjustment period where BC-LCFS prices declined to redistribute the combined stack toward the imputed RD credit value; 4) and a 2025 divergence where the two credits moved in opposite directions under different compliance pressures. Whether that divergence marks a temporary dislocation or a structural change in how the two credits relate is the question the current evidence cannot yet resolve.

The imputed value as a benchmark: four phases

The imputed RD credit value (i.e., the total credit value the market must deliver to close the price gap between RD and conventional diesel) provides a benchmark against which the evolution in BC-LCFS credit price behavior can be assessed.^[1] Before the CFR, that benchmark had to be met entirely by the BC-LCFS credit. With the CFR now in place, the question is whether the combined stack of BC-LCFS and CFR credits continues to match the price gap between RD and diesel with the same reliability.

Phase 1: Before the CFR
Before the CFR was introduced in 2022, the imputed RD credit value functioned as the natural benchmark for the BC-LCFS market. The total compliance value reaches credit generators through three channels: the credit price itself, the fuel price premium that buyers pay for low-CI fuel above the cost of conventional diesel, and the compliance cost avoided by displacing fossil diesel with RD. Reported BC-LCFS credit prices generally ran below the imputed value, reflecting this distribution across these channels. With no second instrument in the stack, the benchmark was relatively clean: the BC-LCFS credit had to deliver the full imputed value on its own, and the gap between reported prices and imputed value was interpretable against that single reference point.

Phase 2: The information gap period
The CFR’s introduction in mid-2022 immediately complicated the benchmark. In theory, the combined BC-LCFS and CFR stack should roughly match the benchmark described above, but reality was a bit more complicated. At the start of the CFR, national compliance conditions were structurally different from BC’s: ethanol remained the dominant incremental compliance pathway nationally, meaning CFR credit prices reflected a different compliance reality than the one driving BC-LCFS prices. Furthermore, Environment and Climate Change Canada (ECCC) did not publish any CFR credit market data during this period, and independent spot pricing services did not begin covering the CFR market until approximately mid-2024. As such, for the first two years of the CFR’s existence, the CFR component of the stack was invisible to market participants.

During this period, the BC-LCFS market showed no apparent response to CFR dynamics. Without a visible CFR credit price, there was no basis for recalibrating what the BC-LCFS credit needed to deliver. In retrospect, once CFR credit prices became available, it became clear the combined stack had been running above the imputed value during this period: the BC-LCFS was carrying the full imputed value while CFR credits were stacking value on top.

Phase 3: The adjustment period
When ECCC published its first CFR credit market data and independent spot pricing services began covering the market in mid-2024, both components of the stack became observable simultaneously for the first time. Accordingly, BC-LCFS credit prices began to decline, consistent with the market recognising that the CFR credit was now contributing to the combined stack and that the BC-LCFS credit no longer needed to carry the full imputed value on its own.

But the adjustment dynamic was asymmetric. CFR credit prices remained relatively stable^[2] during this period while BC-LCFS prices did the moving, effectively redistributing the combined stack value between the two instruments. The benchmark hadn’t changed; what changed was that the market could now see both components and price them accordingly. By the end of this adjustment period, the combined stack had moved closer to the imputed RD credit value.

One important caveat: ECCC’s regulatory data, when published, reflected all credit transfers including those under longer-term bilateral agreements, reported at the time of transfer rather than when the underlying agreement was made. Independent spot pricing, by contrast, covered only real-time transactions. Neither source provided the complete picture that would allow participants to assess total market-wide deficit positions or the full distribution of credits by fuel pathway and other compliance mechanisms. So the benchmark was becoming more observable, but significant gaps in market transparency remained.

Phase 4: The 2025 divergence
The reliability of the imputed value as a benchmark came under pressure in the second half of 2025. CFR spot credit prices rose sharply, driven by year-end compliance pressure, a perceived shortage of available credits, and the continuing absence of a real-time official price signal. The partial ceiling provided by contributions to registered emission-reduction funding programs (CAD $380 per credit, applicable to up to 10% of a regulated party’s annual obligation) was insufficient to restrain the broader spot price movement. The CFR’s Compliance-Credit Clearance Mechanism provides a nominal price cap adjusted from a $300 base, but participation by credit holders is voluntary. If insufficient credits are pledged, the mechanism will not operate as a price cap, leaving primary suppliers without a guaranteed backstop.^[3] Under these conditions, spot prices from independent pricing services were free to rise well above any administrative reference point.

Meanwhile BC-LCFS credit prices fell, producing an inversion where the two programs moved in opposite directions simultaneously. This matters for the benchmark question because it means the stack composition shifted dramatically even though the total stack value may have moved less. The imputed RD credit value is agnostic about which program delivers it; but if the two credits are moving independently in response to different compliance pressures, the combined stack stops tracking the imputed value and can no longer be read as a benchmark of overall compliance value.

Two hypotheses and what distinguishes them

Through Phase 3, the evidence favored an initial interpretation of market behavior: once CFR credit prices became observable, the BC-LCFS price adjusted toward the benchmark, suggesting the market was beginning to function as expected under the two-instrument structure. The 2025 divergence reopened the question of what is driving BC-LCFS credit prices, and the most recent evidence available supports two competing hypotheses, with available data not yet sufficient to determine which is correct.

Hypothesis 1: the imputed value of RD credits still anchors the combined credit stack
Under this hypothesis, the 2025 divergence was a temporary dislocation driven by specific conditions that market maturation is likely to address. The CFR market in late 2025 was still seeking a stable clearance price for credits; compliance communities had not yet developed the forward purchasing practices and trading relationships needed to clear the market efficiently under year-end pressure. At the same time, the episode appears to have been due to a distribution problem rather than a genuine aggregate shortage. The credits existed in the market; the market lacked the liquidity and intermediary infrastructure to redistribute them to where they were needed in time. As the CFR matures, compliance communities deepen, and ECCC improves its price and credit/deficit reporting cadence, these conditions should improve. The Phase 3 adjustment, where BC-LCFS prices declined in response to visible CFR credit values and the combined stack moved toward the imputed value, supports this reading: when both credits were observable and the market had time to adjust, it did.

Hypothesis 2: the imputed value of RD credits no longer anchors the combined credit stack
Under this hypothesis, the CFR’s introduction in 2022 structurally changed the credit market in ways that the single imputed value (i.e., credit stack) cannot capture. The two credits respond to different compliance pressures (national versus provincial), have different participant bases at the margin, and are subject to different price-reporting arrangements. A national market that is structurally illiquid may not converge toward the imputed RD value even as it matures, if the distribution problem persists at scale. When compliance pressures diverge, as they did in 2025, the stack can move in ways that are inconsistent with the imputed value of RD credits as a unifying benchmark. Under this interpretation, a more nuanced analytical framework is needed: one that tracks the two credits separately and models their interaction, rather than treating the stack as a single price-setting instrument benchmarked against a single fuel’s price differential.

Three considerations would help determine which hypothesis holds:

1. ECCC’s disclosure of total annual deficits created and retired by compliance year would allow the 2025 spike to be characterized as either a market-wide distribution problem or a deeper structural supply issue. If it was a distribution problem, it may be addressed through market development; if it reflects a structural supply deficit, the divergence is more likely to recur.
2. Credit generation volumes by fuel pathway and other credit creation mechanisms would show how dominant RD is in the national CFR credit supply and therefore how tightly the CFR credit price is likely to track the RD margin as the program matures.
3. Notably, the Canadian fuels market is roughly ten times the size of the BC market; as the CFR credit market deepens, it can be argued that CFR credit prices are likely to become the dominant component of the combined stack. Whether RD will be the price-setting fuel in a mature, liquid CFR market is not yet known: if RD dominates the national compliance picture, the imputed RD credit value may continue to serve as a reliable benchmark for the value of the combined credit stack. If, however, the CFR’s broader range of compliance pathways causes the national credit price to settle at a different level, a different framework for understanding BC credit prices will be needed.

Stillwater’s 2026 CFR Outlook, planned for release in August, will provide an in-depth analysis of the national credit market, including credit price trajectories, compliance period dynamics, and the evolving relationship between CFR and BC-LCFS credit prices. Our 2026 BC-LCFS Outlook will follow in November. Participants seeking a deeper analytical framework for the combined stack will find both outlooks a useful reference.