• The latest quarterly data out of California’s biofuel program shows good news for producers who have been contending with plummeting Low Carbon Fuel Standard credit values. 
  • Federal policy has hurt green diesel production in California.  
  • Are U.S. biofuel feedstock restrictions on a collision course with California’s vegetable oil cap?  

Renewable diesel producers are getting a potential boost in California after years of grappling with a massive glut in the country’s largest low-carbon fuel market. 

California regulators late last week posted the first quarterly drawdown since early 2021 in the bank of credits used to incentivize and track compliance of the state's Low Carbon Fuel Standard (LCFS).

That pushed credit prices higher, good news for biofuel producers dealing with a multi-year oversupply of product that sent prices plunging from historic highs in 2021, when a rush of investment by firms looking to gain from policies meant to fight climate change led to an excess, sending prices to record lows. Starting in July, the LCFS's carbon-reduction benchmark was raised to nearly 23%, up from 13.8% during the year’s first half.  

“It’s a historically big jump and what stakeholders were asking for to eat into that credit bank and drive up prices,” said Stillwater Associates President Megan Boutwell, whose Irvine, California-based consulting firm focuses on downstream markets in the transportation fuels industry. "Renewable diesel producers that had invested in large facilities were looking for a price signal to meet those big capital investments."  

Not 'all good'  

A suite of amendments to the 15-year-old LCFS took force in July 2025. The expansion of the greenhouse-gas reduction targets through 2045 underscores the program's success in decarbonizing the transportation fuel sector, said Cory-Ann Wind, director of state regulatory affairs for Clean Fuels Alliance America. It's a "very long-term signal there for the biomass-based diesel industry." Cory-Ann Wind.jpgCory Ann Wind (LinkedIn photo)

Still, "it wasn't all good ... there are some things that are going to be challenging for the industry moving into the future," Wind said at a recent CFAA conference.  

At the top of the list is a 20% cap on credits for fuels made with fresh vegetable oil like soy, a widely used U.S. commodity for fuel and food. For fuel makers with existing LCFS pathways, the limit starts in 2028. 

"This is a signal from CARB where they are definitely preferring non-crop feedstocks," Wind said. But "just because California has it in their regulation does not mean that it has to exist in other states as well."  

Enter federal rules  Jeremy Martin, director of fuels policy at the Union of Concerned Scientists, said in an interview with Agri-Pulse that the volume of renewable diesel in California began falling significantly starting early last year, more due to uncertainty over federal biofuel policy than the LCFS.  

The share of bio-based diesel in California had reached 79% of the state's total diesel pool in the last three months of 2024, falling to 64% in last year's third quarter, he said.  

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The vegetable-oil cap and other LCFS changes, including sustainability requirements, need clarifications from CARB, Nathalie Hoffman, managing director of energy compliance services at Weaver, told Agri-Pulse. 

"A lot of things remain to be explained by CARB, like how do you calculate the 20%? We need guidance," she said.  

Nathalie Hoffman LinkedIn photo.jpegNathalie Hoffman (LinkedIn photo)

The California restrictions on fresh vegetable oil are set to overlap with similar federal actions, including the so-called 45Z clean fuel production tax credit, for which the Trump administration issued proposed guidance on Tuesday.  

The 45Z incentive limits credit eligibility to fuels made with North American feedstocks, a response to a flood of used cooking oil from China and tallow from Brazil that had been flooding the U.S. market, causing an outcry from soybean farmers who said they had been undercut.  

Meanwhile, proposed renewable volume obligations, which refer to national biofuel-blending rules overseen by the Environmental Protection Agency, calls to disincentivize biofuel feedstocks from anywhere outside the U.S. by halving the value of credits under the Renewable Fuel Standard, dubbed in the industry as "half RINs," which refers to Renewable Identification Numbers used to track RFS compliance.   

“The interplay between what’s going to happen at the federal level and what’s happening in California is going to be interesting because if you don’t have these foreign feedstocks, particularly these foreign waste feedstocks, then the biodiesel and renewable diesel producers are going to be in a really tough spot," Hoffman said.  

Martin's view is that the EPA's proposed limit on foreign biofuel feedstocks isn't realistic.  

"When you have a biomass-based diesel consumption that accounted for more than 20 million metric tons of feedstock in 2024, more than 40% of which was imported, it’s not plausible to source all that domestically without taking away all the vegetable oil people are using for food and other purposes," he said. "EPA has proposed to penalize imports while making the overall mandate larger and larger, that makes no sense."