U.S. production of renewable diesel and biodiesel fell sharply in the first quarter of 2025 due to uncertainty related to federal biofuel tax credits and renewable volume obligations, leading to negative profit margins.
The U.S. Energy Information Administration forecasts production of both fuels to increase as the year progresses but biodiesel production to remain less than in 2024.
Renewable diesel and biodiesel are biobased diesel fuels that can replace petroleum-based distillate and be used to comply with renewable volume obligations (RVOs) in the Renewable Fuel Standard administered by the U.S. EPA.
Renewable diesel can be used in diesel engines in any concentration because it is chemically equivalent to petroleum-based distillate fuel. Biodiesel is typically blended with petroleum diesel or renewable diesel at concentrations of 20 percent or less. However, recent developments in engine and fuel system upfit technologies have led to broader adoption of higher blends, including B100.
In January 2025, U.S. production of biodiesel fell to 60,000 barrels per day, the lowest level since January 2015, and approximately 40 percent less than in January 2024. Following low output in January, biodiesel producers partially ramped up production in February and March, resulting in quarterly production of about 70,000 barrels per day, a decrease of more than 30 percent from the first quarter of 2024.
U.S. renewable diesel production averaged about 170,000 barrels per day in the first quarter of this year, down 12 percent from the first quarter of 2024. The decrease in renewable diesel production was not as large on a percentage basis as the decrease in biodiesel production, mostly because renewable diesel production increased at a greater rate than biodiesel production in 2024. The reduced output at renewable diesel plants was also partially offset by the nearly 20 percent increase in renewable diesel production capacity since the first quarter of 2024.
Compared with the fourth quarter of last year, when renewable diesel production capacity was comparable to current levels, first-quarter production was down almost 25 percent. Poor profitability in the first quarter and policy uncertainty contributed to declines in renewable diesel production, with Diamond Green Diesel, Phillips 66, and Marathon all reporting operating losses from renewable diesel in Q1.
Recent reports have also shown that biodiesel producers are operating at negative margins, with many plants scaling back production, idling, or shutting down operations. Biodiesel producers face considerably more risk due to the smaller scale of many of the producers and competition with producers of renewable diesel and SAF, which are often much larger corporations, for the same low-carbon feedstocks.
Before 2025, producers and importers of biomass-based diesel received a $1 per gallon blenders tax credit (BTC) for each gallon blended with petroleum diesel. Under the Inflation Reduction Act, the BTC was slated to be replaced with the section 45Z clean fuel production credit in 2025. This new credit would change the flat $1-per-gallon tax credit to a value based on the carbon intensity of the feedstocks used. Delays in releasing final guidance for the tax credit, however, have left biofuel producers uncertain about their ability to turn a profit.
Despite the uncertainty, the EIA forecasts that production of renewable diesel and biodiesel will increase as the year progresses to meet existing RFS mandates. In its May Short-Term Energy Outlook, the EIA forecasts that 2025 annual renewable diesel production will rise about 5 percent from 2024 due to increased capacity. In the same report, the EIA forecasted 2025 annual biodiesel production to be 15 percent lower than in 2024, due to low production early in the year and the assumption that some biodiesel plants with less favorable economics may close.
Article adapted from this article shared by Biobased Diesel Daily. Title and content updated for purpose and clarity.
Photo credit: Pixabay – PIX1861