The maritime industry is entering a transformative period as governments, fuel producers, ports, and vessel operators work to reduce greenhouse gas emissions from one of the world’s most difficult sectors to decarbonize. Commercial shipping accounts for roughly 3% of global greenhouse gas emissions today, and that share is expected to increase as international trade continues to expand. At the same time, many commercial vessels remain in service for 30 to 60 years, making rapid fleet replacement impractical and elevating the importance of lower-carbon drop-in and near-drop-in fuels.
As a result, biodiesel, renewable diesel, renewable natural gas (RNG), renewable methanol, ethanol, and other renewable fuels are receiving increased attention as practical solutions that can reduce emissions while leveraging much of today’s existing fueling infrastructure.
Yet while the technology continues to mature, the policy environment surrounding these fuels has become increasingly complex.
Federal tax incentives, Renewable Fuel Standard reforms, state clean fuel programs, biodiesel mandates, international emissions regulations, and port-level decarbonization initiatives are all evolving simultaneously. Together, these policies have the potential to dramatically accelerate adoption of renewable marine fuels—but differing eligibility requirements, carbon accounting methodologies, and implementation timelines have also created uncertainty for producers, investors, fuel suppliers, and vessel operators.
Understanding this rapidly changing policy landscape has become just as important as understanding the fuels themselves.
Shipping’s Decarbonization Challenge
Unlike passenger vehicles or urban transit fleets, commercial ships face unique operational challenges that make decarbonization particularly difficult. Ocean-going vessels, Great Lakes freighters, tugboats, ferries, and workboats require tremendous amounts of energy, operate for extended periods between fueling, and often travel routes where charging infrastructure or alternative fuels remain unavailable.
While electrification will play a role for some short-distance vessels, most analysts agree that liquid and gaseous renewable fuels will remain essential for medium- and long-range marine transportation for decades to come.
This reality has prompted significant investment throughout the shipping industry. Global carriers are ordering vessels capable of operating on renewable methanol and other alternative fuels, while many commercial operators continue evaluating biodiesel and renewable diesel because they can often be used in existing diesel engines with minimal operational changes.
At the same time, renewable fuel producers increasingly view marine transportation as an important growth market as highway transportation continues diversifying through electrification and other technologies.
Federal Tax Policy Creates New Opportunities
One of the most significant recent federal developments has been implementation of the Clean Fuel Production Credit under Section 45Z of the Internal Revenue Code.
Unlike previous incentives focused on individual fuel types, Section 45Z is technology-neutral, rewarding fuels based on lifecycle greenhouse gas performance. The lower a fuel’s carbon intensity, the greater the potential tax credit available to producers.
Recent Treasury guidance has provided greater certainty by clarifying eligibility requirements for fuels, production facilities, and lifecycle emissions calculations.
Perhaps most significant for the maritime sector, Treasury clarified that qualifying transportation fuels do not lose eligibility simply because they are ultimately consumed in marine applications rather than highway vehicles or aircraft. If the fuel is commercially suitable for qualifying transportation markets and satisfies all other program requirements, producers may still claim available credits.
This clarification strengthens the economic outlook for renewable diesel, biodiesel, renewable natural gas, ethanol, renewable methanol, and other renewable fuels being considered for marine applications.
The Renewable Fuel Standard Remains an Untapped Opportunity
While tax credits encourage production, another major federal policy—the Renewable Fuel Standard (RFS)—continues to drive renewable fuel markets throughout the United States.
For nearly two decades, the RFS has supported ethanol and biomass-based diesel production through Renewable Identification Numbers (RINs), which provide additional economic value to qualifying renewable fuels.
Today, however, renewable fuels consumed aboard most ocean-going vessels generally do not receive the same benefit. Associated RINs must typically be retired, preventing producers from realizing their market value.
Several members of Congress have introduced legislation that would change this by allowing qualifying renewable fuels used in commercial marine vessels to participate fully in the RFS.
If enacted, such legislation could significantly improve the economics of renewable marine fuels by allowing producers and blenders to monetize RIN value while offering more competitive pricing to vessel operators.
For many industry observers, modernizing the Renewable Fuel Standard represents one of the greatest opportunities to accelerate renewable fuel adoption throughout the maritime sector.
Low Carbon Fuel Standard Programs Gain Momentum
While federal incentives provide an important foundation for renewable fuel production, states continue to play an increasingly influential role in shaping markets for lower-carbon transportation fuels.
Among the most significant policy trends is the continued expansion of Low Carbon Fuel Standard (LCFS)-style programs, which reward fuels based on lifecycle greenhouse gas performance rather than fuel type. California’s LCFS remains the nation’s most established market-based clean fuel program, generating tradable credits for fuels with lower carbon intensity.
Similar programs are now operating in Oregon, Washington, and New Mexico, creating additional revenue opportunities for producers of biodiesel, renewable diesel, renewable natural gas (RNG), ethanol, renewable methanol, and other qualifying low-carbon fuels.
Momentum is also building throughout the Midwest.
Illinois lawmakers have introduced legislation to establish a statewide Clean Transportation Standard modeled after California’s LCFS, while policymakers and industry stakeholders in Michigan continue exploring a similar Clean Fuel Standard that could capitalize on the state’s agricultural resources, renewable fuel production capacity, automotive expertise, and strategic role in the Great Lakes maritime economy.
Although neither proposal has yet been enacted, both reflect growing interest in market-based policies that could complement federal incentives while creating new opportunities for lower-carbon transportation fuels, including those used in marine applications.
Incentives and Biodiesel Mandates Continue Supporting Market Growth
In addition to LCFS-style programs, many states continue supporting renewable fuel adoption through targeted tax incentives, infrastructure investments, and biodiesel blending requirements.
Illinois has emerged as one of the nation’s leaders through its sales tax exemption for diesel blends containing more than 19% biodiesel, significantly improving the competitiveness of B20 and higher blends while encouraging greater use of soybean-based biodiesel.
Iowa and Missouri have likewise strengthened renewable fuel markets through a combination of production incentives, retail infrastructure funding, and tax policies that expand access to higher biodiesel and ethanol blends.
Additional proposals continue to emerge across the Midwest, with Michigan evaluating incentives to encourage renewable fuel production and fueling infrastructure, while Indiana policymakers continue exploring measures to expand biodiesel infrastructure, improve renewable fuel availability, and strengthen the state’s growing biofuels economy.
Minnesota provides another successful policy model through its longstanding biodiesel blending requirements, mandating a minimum B20 blend during the warmer months and B5 during winter.
Together, these incentives and mandates have created one of the nation’s most consistent biodiesel markets while demonstrating that higher blends can be successfully integrated into statewide diesel supplies.
Collectively, these state policies illustrate that support for renewable fuels extends well beyond the West Coast and that complementary incentives, mandates, and infrastructure investments can strengthen fuel markets, improve supply chains, and expand fuel availability for emerging maritime applications.
Feedstock Policy Is Becoming Increasingly Important
As renewable fuel markets mature, policymakers are placing greater emphasis on feedstock sourcing.
Some state clean fuel programs increasingly favor waste-derived feedstocks—including used cooking oil, animal fats, distillers corn oil, and agricultural residues—because of their favorable lifecycle greenhouse gas profiles.
Conversely, recent federal tax policy emphasizes feedstocks sourced within the United States, Canada, and Mexico, reflecting broader domestic manufacturing and agricultural priorities.
These differing approaches may require producers to optimize operations differently depending on which markets they intend to serve, adding another layer of complexity to investment decisions.
Ports Are Driving Regional Innovation
Many of the most ambitious decarbonization efforts are occurring not through legislation, but through individual ports and regional partnerships.
Port authorities increasingly recognize that improving air quality requires a comprehensive approach that includes cleaner vessels, expanded shore power, lower-carbon fuels, cleaner cargo-handling equipment, and coordinated infrastructure investments.
Ports including Seattle and Detroit have adopted long-term decarbonization strategies encouraging renewable fuels alongside electrification and other emerging technologies.
At the same time, Green Shipping Corridor initiatives are bringing together ports, vessel operators, fuel suppliers, governments, and cargo owners to coordinate investments along specific trade routes. By aligning infrastructure development with vessel deployment, these partnerships reduce uncertainty while helping create reliable markets for renewable marine fuels.
International Regulations Continue to Evolve
Outside the United States, international policy continues advancing rapidly.
The International Maritime Organization (IMO) remains focused on reducing greenhouse gas emissions from global shipping through increasingly stringent fuel standards and long-term decarbonization goals. Although negotiations surrounding implementation timelines and economic mechanisms remain politically challenging, the overall direction points toward continued reductions in maritime emissions.
Europe has moved even faster.
The European Union’s FuelEU Maritime regulation establishes progressively stricter lifecycle greenhouse gas intensity requirements for fuels used aboard large commercial vessels calling at European ports. Meanwhile, the expansion of the EU Emissions Trading System to maritime shipping places an increasing economic cost on vessel emissions.
The United Kingdom is implementing similar policies through its own emissions trading framework.
Although these regulations differ in how they calculate emissions and evaluate renewable fuels, together they reinforce growing global demand for lower-carbon marine fuels.
Regulatory Alignment Will Shape Future Investment
Despite increasing momentum, one of the greatest challenges facing renewable marine fuels remains regulatory consistency.
Federal tax incentives, Renewable Fuel Standard policies, state clean fuel programs, international emissions standards, and regional port initiatives all pursue similar environmental objectives. However, they frequently rely on different carbon accounting methodologies, feedstock requirements, eligibility standards, and compliance timelines.
For investors, these inconsistencies create uncertainty. For fuel producers, they complicate feedstock selection, facility design, and marketing strategies. For vessel operators, they create uncertainty regarding fuel availability and long-term operating costs.
Greater coordination among these policies would improve market certainty, accelerate infrastructure investment, reduce compliance costs, and strengthen renewable fuel supply chains.
Looking Ahead
The maritime industry is unlikely to rely on a single solution to achieve meaningful emissions reductions. Instead, biodiesel, renewable diesel, renewable natural gas, renewable methanol, ethanol, sustainable aviation fuel production synergies, electrification where practical, operational efficiencies, and future technologies will all contribute to lower-carbon shipping.
Renewable fuels represent one of the most immediate opportunities because they can often leverage existing vessels, fueling infrastructure, and well-established agricultural and fuel supply chains.
Whether those opportunities are fully realized will depend not only on continued technological innovation, but also on the stability and consistency of public policy.
As Treasury finalizes implementation of Section 45Z, Congress considers modernization of the Renewable Fuel Standard, states continue expanding clean fuel policies, and international organizations refine emissions regulations, the regulatory landscape will remain one of the most influential drivers of investment.
For producers, ports, fuel suppliers, vessel operators, and policymakers alike, understanding—and adapting to—this evolving framework will be essential to building a competitive, lower-carbon maritime sector capable of meeting both economic and environmental objectives for decades to come.
Notice: The Michigan Advanced Biofuels Coalition (MiABC) does not lobby or influence policy in any way. The policy interests of Michigan soybean farmers and biodiesel producers are supported by the Michigan Soybean Association and Clean Fuels Alliance America, respectively. This post is shared for educational purposes only.