Policy uncertainty is a roadblock for companies. Biodiesel and renewable diesel producers raced ahead over the past two years. They and their industry partners invested billions in feedstock processing, doubled production and capacity, and built new markets. But mixed signals and delays in Washington have many producers idling right now. They need a green light from policy leaders to get back to business.
The Environmental Protection Agency (EPA) administers the Renewable Fuel Standard (RFS), which carves out a portion — currently 13% — of the on-road gasoline and diesel market for renewable fuels. It’s an important signal for renewable fuel producers to plan production levels, and the RFS statute directs EPA to complete rules more than a year in advance.
According to the Energy Information Administration, biodiesel and renewable diesel are meeting 9% of U.S. demand for distillate fuels — the on-road diesel that powers heavy-duty transportation of goods across the nation. U.S. production reached 4.7 billion gallons in 2024, and demand is growing in new markets: aviation, rail, shipping, construction, and heating.
Unfortunately, when EPA set the 2023-2025 RFS volumes, the agency selected biomass-based diesel and advanced volumes significantly below production trends and proven capacity. The RFS volume for 2024 was just over 3 billion gallons — about 2 billion gallons below what the market actually supported.
EPA is now months behind setting the RFS volumes for 2026 and beyond. The agency has indicated that it is considering a step-change in the RFS volumes to support the growth in biodiesel and renewable diesel. But the agency continues to slow walk the rulemaking, discouraging producers. They need a signal now what the market will look like for 2026. They can’t wait till the end of the year.
Adding to the market uncertainty, the U.S. Treasury this January introduced overdue and incomplete guidance on a major change in tax policy for renewable fuel producers. The new Clean Fuel Production Credit (45Z of the Internal Revenue Code) was intended to be a technology neutral incentive for U.S. production of all renewable fuels — renewable natural gas, hydrogen, sustainable aviation fuel, and others are equally eligible. The value of the credit is based on the calculated emissions rates at each production facility.
Treasury’s delay particularly hurt biodiesel and renewable diesel producers, who were transitioning from a long-standing excise tax credit to the new, facility-specific income tax credit. The value of the tax credit is built into the feedstock and fuel offtake contracts they negotiate up to a year in advance. Without available guidance on the value of the 45Z credit during the final quarter of 2024, many companies simply couldn’t put agreements in place for the first months of 2025.
The devastating impact of the uncertainty is already apparent. According to EPA data, domestic biodiesel production in January 2025 was at the lowest monthly level in the last five years. U.S. renewable diesel production in January fell 17% below the average monthly production in 2024. Some smaller producers are still struggling to understand how the new credit works and what value they can attach to their product.
While Treasury has now published minimal guidance on the tax credit, it hasn’t finalized the rules. Treasury could make changes to the guidance as it takes comment from stakeholders, and Congress could still make changes to the law. The change in presidential administrations is causing additional delays as new Treasury leadership comes in.
Getting back to business is crucial for biodiesel and renewable diesel producers as well as their customers. Fuel consumers planning their fleet operations have increasingly looked to adopt clean fuels like biodiesel and renewable diesel for cost-effective and immediate reductions in carbon and tailpipe emissions. Shortfalls in production would take a significant bite out of an essential U.S. energy supply, impacting the price of nearly every consumer good shipped across the country.
Policy stability is crucial to resuming industry growth, developing new capacity and feedstocks, and meeting increasing demand in new markets. Clean Fuels is working with producers, feedstock suppliers and other stakeholders to advocate for timely RFS volumes and to ensure that the tax credit works for everyone going forward.
