After several years marked by policy uncertainty, reduced production, and inconsistent market signals, the U.S. biodiesel and renewable diesel industry is beginning to regain momentum following the implementation of record Renewable Fuel Standard (RFS) biomass-based diesel volumes in 2026.
Industry leaders say the stronger Renewable Volume Obligations (RVOs) are already encouraging producers to restart idled capacity and increase production. However, rebuilding the supply chain after a prolonged downturn will take time. Feedstock procurement, fuel contracts, workforce readiness, and plant operations cannot be restored overnight, particularly after many facilities spent much of 2025 operating well below capacity.
According to industry representatives, domestic biodiesel production had fallen to roughly half of available capacity during 2025 due to low RVO levels and uncertainty surrounding federal tax incentives. With the new 2026 and 2027 requirements now finalized, producers are expected to steadily increase output, though achieving the utilization levels anticipated by EPA will require sustained market confidence and efficient feedstock supply chains.
Looking Beyond 2027
While the newly finalized volumes provide an important near-term boost, industry stakeholders emphasize that long-term growth depends on establishing a clear regulatory pathway beyond 2027. Multi-year certainty is considered essential for attracting investment in production facilities, feedstock development, transportation infrastructure, and emerging technologies.
Industry advocates also continue to push for reforms that prevent Renewable Fuel Standard obligations from being reduced through small refinery exemptions. Many producers argue that unexpected exemptions granted in previous years weakened demand and created significant economic challenges throughout the biodiesel supply chain.
E15 Expansion Raises Questions
Debate surrounding federal legislation that would allow year-round sales of E15 gasoline has generated mixed reactions within the broader biofuels sector. While many agricultural and renewable fuel organizations support expanded ethanol access, some stakeholders have expressed concerns that increased ethanol demand could affect the allocation of renewable fuel volumes within the RFS framework.
Industry representatives note that any potential impacts on biomass-based diesel would not occur immediately, as proposed changes would not take effect until 2028. That timeline would provide an opportunity for biodiesel advocates to work with EPA to ensure future renewable volume requirements appropriately account for any exempted gallons and maintain demand for diesel-based biofuels.
Market Confidence Reaches the Farm
The improved outlook is also being felt by agricultural producers. Farmers say stronger demand projections for soybean oil and other feedstocks help support long-term planning decisions, from equipment purchases to land management investments.
For many growers, predictable biofuel demand provides confidence that extends beyond a single growing season. Stable markets help justify investments in machinery, crop inputs, and operational improvements that may take years to generate returns.
At the same time, recent investments in soybean processing capacity have dramatically expanded domestic crushing capability. While those facilities create new opportunities for soybean oil demand, they also increase supplies of soybean meal, creating additional challenges and opportunities for export markets.
Trade and Soybean Processing
Major soybean processors continue to monitor international trade conditions, particularly relations with China. Although reduced Chinese purchases can temporarily benefit domestic crushers by increasing available soybean supplies, long-term market growth remains tied to strong export demand.
Over the past several years, processors have invested billions of dollars in new crush facilities, plant expansions, and export infrastructure designed to support growing demand from renewable fuel markets. Maintaining access to both domestic and international markets will remain important as those investments come online.
45Z Guidance Remains a Key Issue
Despite the positive impact of stronger RFS volumes, uncertainty surrounding implementation of the federal 45Z Clean Fuel Production Credit continues to weigh on industry planning.
Producers, farmers, and feedstock suppliers have called for timely guidance that provides clarity on eligibility requirements, carbon intensity calculations, and credit valuation. Industry leaders say that while the RFS has significantly improved market conditions, long-term investment decisions still depend on understanding how the 45Z program will operate in practice.
Many stakeholders believe that combining strong renewable fuel obligations with a predictable tax-credit framework would create a more stable environment for future growth.
Feedstock Diversity Will Be Critical
Meeting the higher biomass-based diesel volumes will require contributions from a wide range of feedstocks. Soybean oil, distillers corn oil, used cooking oil, animal fats, and other renewable feedstocks are all expected to play important roles in supplying the market.
Industry leaders also point to emerging feedstock opportunities, including winter oilseeds, cover crops, and other innovations that can provide both environmental benefits and additional renewable fuel feedstocks. Continued investment and market certainty are expected to encourage further development of these resources.
Energy Security Benefits Highlighted
Recent geopolitical instability and concerns about global fuel supplies have renewed attention on the value of domestic renewable fuel production. Industry advocates argue that biodiesel and renewable diesel help strengthen energy security by diversifying the nation’s fuel supply and reducing dependence on imported petroleum.
Today, biomass-based diesel contributes a meaningful share of the U.S. distillate fuel pool. Supporters contend that without those gallons, diesel markets would likely face greater supply constraints and higher costs, particularly during periods of global uncertainty.
As the industry works to ramp production and restore capacity, many stakeholders view the new RFS volumes as a critical step toward rebuilding confidence and positioning biodiesel for long-term growth.
Adapted from an article shared by DTN Progressive Farmer. Image Credit: iStock by Getty Images