A 129-page joint audit and evaluation tabled by Natural Resources Canada in October 2026 documents that the federal government's $1.5-billion Clean Fuels Fund Program lapsed $473.2 million, after spending just 21 percent of its initial grants and contributions allocation over its first four years. Approved under the signature of the Chief Audit and Evaluation Executive, the comprehensive examination covers the fiscal period from 2021-22 through 2024-25, detailing how complex federal approval layers, staffing shortages, and shifting eligibility rules prevented hundreds of millions of dollars from reaching industrial clean fuel facilities.
Announced in December 2020 under the federal Strengthened Climate Plan and funded in Budget 2021, the Clean Fuels Fund was designed as Ottawa's heavy financial engine to decarbonize commercial transport. The program aimed to de-risk capital investments in domestic facilities producing liquid biofuels, renewable diesel, cellulosic ethanol, and hydrogen, supporting the requirements of the Clean Fuel Regulations. The government planned to inject $1.1 billion in direct grants and contributions during the initial four-year ramp-up.
Instead, the joint audit records an operational breakdown that stalled federal capital spending across the country. By the end of the four-year evaluation window, Natural Resources Canada had managed to disburse just $234.2 million in grants and contributions, leaving 79 percent of the planned funding unspent and forcing the department to return 42 percent of its initial budget to the Consolidated Revenue Fund. In year two alone, an astonishing $340 million in capital grants lapsed unallocated.
The Bottlenecks Behind the 42 Percent Lapse
The audit's forensic analysis shows that the fund was overwhelmed by its own administrative architecture from the moment it launched. Natural Resources Canada experienced a flood of applications far exceeding internal forecasts, but lacked the specialized engineering and financial evaluation staff needed to assess complex industrial proposals.
Review times stretched far beyond federal service standards. Industrial proponents spent months navigating multi-phase technical assessments, while the department struggled to establish clear due-diligence protocols. Internal audit discovered that proposal assessment committees operated without documented member selection procedures, and failed to consistently obtain signed conflict-of-interest declarations from all participating evaluators.
Even after proposals received initial ministerial approval, final contribution agreements stalled in protracted negotiations. Commercial terms, intellectual property clauses, and repayment conditions under the Financial Administration Act delayed actual cash transfers. Because heavy industrial construction operates on rigid seasonal windows, administrative delays of three to six months frequently pushed refinery construction into subsequent fiscal years, triggering massive annual funding lapses that could not be re-profiled in time.
The procedural logjam was compounded by claim reimbursement friction. Contribution recipients reported significant delays between the submission of verified project receipts and the actual issuance of federal payments. Cash-flow bottlenecks forced proponents to slow site work, causing capital milestones to slip past March 31 fiscal year-ends and returning authorized funds directly to the federal treasury.
Missing Liquid and Gaseous Reality
The collapse in spending led directly to a structural mismatch between the government's climate policy goals and its real-world industrial output. The Clean Fuels Fund's primary performance targets were explicitly focused on liquid transportation fuels, designed to replace conventional diesel and gasoline in heavy freight trucks, marine vessels, and commercial aviation.
Yet when NRCan's evaluators inspected the project portfolio, they discovered that capital funding had overwhelmingly clustered in gaseous fuels rather than liquids. Nearly all viable capital projects funded under the production stream targeted anaerobic digesters and landfill capture systems producing renewable natural gas (RNG) for local utility grids. While renewable natural gas expands domestic clean energy capacity, it does little to decarbonize long-haul aviation or ocean freight.
As a consequence, the audit officially concludes that the Clean Fuels Fund will fail to meet its federal production capacity targets for liquid fuels. Despite hundreds of millions in allocated authorities, the program could not generate the domestic supply of renewable diesel or biojet fuel that federal climate regulations assume will enter the Canadian fuel pool before 2030.
The only area where the program consistently hit its benchmarks was in administrative development. The CFFP's Codes and Standards Program exceeded its operational target, developing and publishing 74 technical standards between 2022-23 and 2024-25, averaging 25 published standards per year. However, NRCan evaluators noted that tracking the real-world adoption of these standards remains difficult, because provincial and territorial adoption is entirely voluntary unless incorporated directly into binding provincial safety codes.
The Hydrogen ITC Pivot and Repurposed Millions
The failure in hydrogen was even more pronounced. The original mandate promised that the fund would establish regional clean hydrogen hubs across Canada, building commercial-scale electrolyzers to supply clean fuel to heavy industry. The joint audit reveals that the program is far from meeting its hydrogen production facility and capacity targets, with most approved hydrogen spending confined to early-stage feasibility and Front-End Engineering Design (FEED) studies rather than operating physical plants.
Rather than accelerating hydrogen grants, the federal government reversed course. In 2025, following royal assent of the Clean Hydrogen Investment Tax Credit (ITC), Ottawa retooled the fund into Clean Fuels Fund 2.0. To prevent industrial companies from double-dipping across multiple federal incentives, new eligibility criteria explicitly restricted grants for hydrogen production projects. By shutting off direct grants in favor of the tax credit, NRCan ensured that the Clean Fuels Fund's own hydrogen targets will never be achieved.
With hundreds of millions in unspent authorities sitting idle, Budget 2025 executed an administrative salvage operation. The government quietly announced that $175.2 million would be stripped from the Clean Fuels Fund and repurposed to help finance the new Biofuels Production Incentive, a $372-million operating subsidy program. What began as a $1.5-billion capital build-out ended as a cautionary case study in federal program design: a fund that spent just a fifth of its grant budget, missed its core targets, and watched nearly half a billion dollars evaporate in bureaucratic delays.
Investigating the performance of the Clean Fuels Fund Program meant reading through 129 pages of internal audit exhibits, cross-referencing four years of lapsed grants and contributions across departmental balance sheets, and tracking the quiet transfer of $175 million to the Biofuels Production Incentive.
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Source Documents
Natural Resources Canada, Audit and Evaluation Branch. (2026, October). Joint Evaluation and Audit of the Clean Fuels Fund Program. Cat. No. M4-299/2026E-PDF.
Department of Finance Canada. (2021). Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience. Ottawa: Public Works and Government Services Canada.
Department of Finance Canada. (2025). Budget 2025: A Fair Chance for Everyone. Ottawa: King's Printer.