After months of uncertainty, new policies and market developments are creating a more positive outlook for biodiesel ─ creating good news for Michigan soybean farmers who supply soybean oil for biodiesel production.
“There are many reasons to be optimistic about biodiesel going into 2026,” says Hanna Campbell, market development director for the Michigan Soybean Committee and managing director for the Michigan Advanced Biofuels Coalition (MiABC). “With new and updated policies in place, conditions are more favorable for producing and using biodiesel.”
W2 Fuel, LLC, one of Michigan’s two biodiesel producers, responded to the positive market outlook by resuming biodiesel production in September. W2 Fuel had paused production at the beginning of 2025 in response to market uncertainties caused by changing biofuel policies. But now the company is ramping up production in hopes of reaching its full 15-million-gallon capacity by January 2026.
At full capacity the Adrian, Michigan, plant would use oil from 10.8 million bushels of soybeans annually. Having local demand for soybean oil adds value to Michigan soybean farmers, especially while soybean export markets remain uncertain.
A few hours northeast in Sandusky, Michigan, biodiesel producer Thumb BioEnergy also looks to rebuild production after scaling back in early 2025 due to market uncertainties. At full capacity, Thumb BioEnergy can produce an estimated 1 million gallons of biodiesel. Used cooking oil (UCO) collected by the company’s B20-powered collection fleet serves as the feedstock.
Why Biodiesel Production Slowed In 2025
This positive outlook is a dramatic turnaround from earlier this year. In the first quarter of 2025, U.S. biodiesel production was running at only 38% of capacity1, with several factors to blame:
- Lower requirements for the amount of renewable fuel that must be blended into the nation’s fuel supply. For details on how these requirements affect the biodiesel market, see sidebar article “Decoding the Renewable Fuel Standard”
- A new clean fuel producer tax credit (PTC) had passed, but unfortunately biodiesel producers could not claim these credits because rules had not yet been established by the U.S. Treasury Department
- An agri-biodiesel small producers tax credit of 10 cents per gallon expired at the end of 2024. This credit applied to producers making up to 60 million gallons of biodiesel annually
- The federal biodiesel blenders tax credit (BTC) expired last January, thrusting biodiesel producers into uncharted and volatile waters
“The $1.00-per-gallon blenders tax credit had been in place for the past 10 to 15 years. It was critical to maintaining positive margins for W2 Fuel,” says Roy Strom, president and CEO of W2 Fuel. “Without the blender’s credit, we watched our revenue drop by an estimated 70 cents per gallon. We were completely upside down, where it cost more to produce biodiesel than we could get in return.”
The company had no choice but to cease operations and wait for market conditions to improve.
While not actively producing biodiesel, W2 Fuel utilized the downtime for extensive plant maintenance and efficiency improvements, helping the plant avoid layoffs for its full-time staff
Positive Market Impacts
Meanwhile, the following new policy developments improve potential for a more viable biomass-based diesel market heading into the coming months and years:
- In June 2025, the EPA proposed significantly higher renewable fuel use requirements under RFS
- New legislation extended the producer tax credit and removed penalties targeting crop-based feedstocks such as soybean oil
- The small agri-biodiesel producer tax credit was reinstated effective July 2025 and increased to 20 cents per gallon. The credit runs through 2026
Based on these policies, both W2 Fuel and Thumb BioEnergy express optimism about the outlook for biodiesel.
“This year began with significant uncertainty due to the changes in policy. However, we remain optimistic as these policies are clarified and can begin to offer more stability to the industry,” says Alex Ritter, vice-president and co-owner of Thumb BioEnergy.
Adds Strom: “For now, we’re bullish on biodiesel. Policies are pointing in the right direction, and I expect our markets to come back.”
Looking To The Future
While weathering the ups and downs of biodiesel markets and policies, W2 Fuel remains steadfast in its commitment to provide sustainable, renewable biodiesel fuel, using soybean oil as a feedstock.
“W2 Fuel believes in alternatives to fossil fuels. Our mission in producing biodiesel is to achieve energy independence, clean air, and environmental responsibility,” Strom says. “Biodiesel can be a volatile business, but it’s a mission we believe in. Although W2 Fuel is a business to make money, the investment also pays off socially, globally, and environmentally.”
Both Michigan biodiesel producers agree that more support is needed to ensure consistent and financially viable markets.
“Our business faces high market risks due to policies that cause price fluctuations. It is hard to manage when policies change every few years,” Strom says. “In order for us to invest in greater biodiesel production capacity, we need assurance that policies will remain in place for at least 10 years, giving us enough time to get a return on that investment.”
State-specific tax credits would also help create incentives to strengthen and expand Michigan’s biodiesel industry
“Michigan is one of the few states without any incentives for biodiesel, so the approval of a state-level blender and producer tax credit would be a critical step in supporting and retaining biodiesel production within Michigan,” says Ritter.
The Michigan Soybean Association (MSA) is working to support such legislation in Michigan but has faced challenges due to state budget constraints.
MiABC Continues To Support Biofuels
The ups and downs of the biofuels market make the mission of MiABC even more important. Founded in 2022 by Michigan Soybean Committee (MSC) and MSA, MiABC works to increase understanding and adoption of biodiesel and other advanced biofuels produced from renewable resources such as soybean oil. MiABC provides training and educational resources for users and potential users of biodiesel, renewable diesel, and sustainable aviation fuel (SAF), including Michigan farmers, fleet operators and marine shippers.
W2 Fuel and Thumb BioEnergy were among the first stakeholders in the Michigan Advanced Biofuels Coalition (MiABC). For more information on MiABC and its other stakeholders, visit www.miadvancedbiofuels.com/stakeholders.
Article drafted by MiABC and shared in Biobased Diesel Winter 2025 issue. Image Credits: Michigan Advanced Biofuels Coalition; Groen Solutions LLC.