The U.S. biodiesel industry stands at a critical juncture in 2025, facing both significant challenges and opportunities as political, regulatory, and market forces reshape the sector’s landscape.
Production Capacity Expansion
Production capacity continues to expand, with more ambitious projections than previously anticipated. According to the U.S. Energy Information Administration, renewable diesel production capacity could more than double from current levels, potentially reaching 384,000 barrels per day (5.9 billion gallons per year) by the end of 2025, significantly higher than earlier estimates of 5.2 billion gallons. This acceleration comes despite economic headwinds affecting some producers.
“Many producers do not intend to run due to impossible economics,” a biodiesel producer told Fastmarkets, citing concerns about interest rates exceeding net income margins for some facilities. However, major energy companies including BP, Chevron, Marathon, Phillips 66, and Shell have either announced or already added renewable diesel production to their portfolios, signaling long-term confidence in the sector.
Tax Credit Transition
The industry is navigating a transformative shift in its incentive structure. The transition from the $1 per gallon Blenders Tax Credit (BTC) to the new Clean Fuel Production Tax Credit (45Z) represents one of the most significant policy changes in years. Beginning January 1, 2025, the familiar blenders credit will become a domestic producer credit available to various on-road and aviation fuels that achieve lifecycle carbon reductions of at least 50%.
In January 2025, the U.S. Department of the Treasury released comprehensive guidance on the implementation of the Clean Fuels Production Tax Credit, clarifying eligibility requirements and the methods for determining lifecycle emissions. The credit amount will be 0.20pergallonfornon-aviationfueland0.35 per gallon for sustainable aviation fuel (SAF), with significantly higher credits (1.00pergallonfornon-aviationfueland1.75 per gallon for SAF) available to facilities that satisfy prevailing wage and apprenticeship requirements.
Legislative efforts to bridge the transition period remain active, with a bill introduced in July 2023 to extend the existing $1 per gallon blenders tax credit through the end of 2025, which could provide additional stability during this pivotal period.
Feedstock Challenges
The feedstock landscape remains particularly volatile. “The next steps for biofuel policy and used cooking oil (UCO) tariffs are the difference between sub-40-cent bean oil and 50-cent bean oil,” notes Alex Fox, partner at Stabro Corp. The potential implementation of new tariffs on feedstock imports from China, Mexico, and Canada could significantly impact domestic soybean oil demand and prices.
A key development for U.S. soybean farmers involves the measurement standards for lifecycle emissions. The new producer credit specifies use of Argonne National Labs’ GREET model, which U.S. biodiesel and renewable diesel producers are already familiar with from state programs like California’s Low Carbon Fuel Standard. However, concerns remain about how U.S. crops will be evaluated under these models and whether domestic feedstocks will be disadvantaged compared to imported alternatives.
Policy Landscape Under Trump Administration
Policy changes under the Trump administration continue to reshape the industry’s trajectory. Chris Hairel, vice president of consulting with Argus Media, anticipates less aggressive Renewable Volume Obligations (RVOs) than might have been expected under a continued Biden administration. The possible return of small refinery exemptions, which previously reduced national RVO requirements by approximately 20%, could significantly impact biofuel demand.
However, some industry experts see potential bright spots. Mike McAdams, president of the Advanced Biofuels Association, suggests that while the industry may not be a primary focus of the administration, there could be opportunities through “surgical adjustments” to existing policies. The emphasis may shift from carbon intensity reduction to agricultural support, potentially maintaining support for biofuels through different policy mechanisms.
Market Fundamentals
Market fundamentals remain complex. The U.S. Energy Information Administration projects biodiesel supplies will decrease slightly in 2025, while renewable diesel production is expected to increase from 210,000 to 230,000 barrels per day. Global market dynamics, including China’s elimination of its 13% export tax rebate for UCO, continue to reshape feedstock availability and pricing.
State-Level Initiatives
Looking ahead, state-level initiatives may become increasingly important. Paul Winters, Clean Fuels Alliance America’s director of public affairs, emphasizes the need for industry unity to achieve larger biofuel mandates for 2026 through 2028. California’s Low Carbon Fuel Standard continues to drive renewable diesel expansion, though its 20% limit on vegetable oil feedstocks presents challenges for soy and canola oil utilization.
Outlook
The industry’s ability to navigate these complex policy and market dynamics while maintaining operational efficiency will be crucial for success in 2025 and beyond. As the sector adapts to the new producer-focused tax credit system, domestic production capabilities and feedstock innovations will likely determine which companies thrive in this evolving landscape. While uncertainty remains, the projected doubling of production capacity suggests a long-term confidence in renewable diesel’s role in America’s energy future.