Biodiesel aims for a comeback as new rules boost demand hopes

After a bruising year, the biodiesel industry is looking to regain its swagger.

The Trump administration issued record-high blending quotas for biodiesel and similar fuels on Friday. It also made changes to the two-decade-old Renewable Fuel Standard program (RFS). Both were needed to help pull biodiesel out of a deep, multi-year slump, advocates for the soybean-heavy fuel say. 

Along with the historic biofuel mandates, known as renewable volume obligations (RVOs), the Environmental Protection Agency reduced the “equivalence value” for renewable diesel, a similar but chemically different fuel than biodiesel. EPA uses the EV as a multiplier to determine how many biofuel credits, known as RINs, are generated from a gallon of biofuel. A higher EV means a higher RIN value on a gallon of fuel.

Renewable diesel previously had a 1.7 EV compared to 1.5 for biodiesel, putting the latter at a steep disadvantage, Joe Jobe, chief executive officer of Sustainable Advanced Biofuel Refiners, tells Agri-Pulse. The EPA rules announced last week reduced renewable diesel’s EV to 1.5, lower than the agency proposed last year. It also reduced the EV for sustainable aviation fuel.

“That will help reduce the cannibalization of biodiesel by renewable diesel,” says Jobe, who for years urged EPA to make the EV change.

"The RVO is positive and consistent with rumors over the last few months," says Mike Reed, CEO of Renewable Biofuels, the largest U.S. biodiesel producer. "The EV is helpful for biodiesel producers in leveling the field and should have been done long ago because the science and math are clear."

Biodiesel plants are now starting to ramp up production after scaling back or going idle in the last year or so, according to Jobe. Producers of renewable diesel but especially biodiesel, have been hurt by Biden-era RVOs that were considered far too low, as well as tax credit uncertainty that has been a major drag on margins.

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That all combined to slash U.S. consumption of renewable diesel about 30% in the first half of last year versus the same period a year earlier, and a decline of about 40% for biodiesel, according to the most recent data available from the Energy Information AdminisJoe Jobe (SABR photo)tration.

Biodiesel plants are largely concentrated in the Midwest farm belt, versus renewable diesel facilities that are mostly near the U.S. Gulf and West coasts. The closure or slowdown of biodiesel facilities has been hard on soybean and other oilseed crop farmers as well as processors, better known as crushers.

“So many of these producers unfortunately idled, which is very difficult because that reduced the soybean demand, which then affected the farmers, so all down the line you saw this very negative pull,” Anne Steckel, principal and founder of Ardent Strategies, a consultant and advocacy group for the agriculture and energy sectors, said last week at the Agri-Pulse Ag & Food Policy Summit , before the EPA final rules were released.

“Something needs to happen,” she said. “Many of the farmers are invested in biodiesel too, and co-ops.”

The newly announced biomass-based diesel blending requirements of about 5.4 billion gallons this year, and 5.7 billion gallons in 2027, mark an increase of 61% and 70%, respectively, from 2025.

“The United States has 2 billion gallons of operating biodiesel capacity,” Paul Winters, director of public affairs and federal communications for Clean Fuels Alliance America, tells Agri-Pulse. “It will need to run full out to provide the volumes specified in this year’s RFS rule. It’s an incredible opportunity.”

Biodiesel roots

Biodiesel, as put by National Oilseed Processors Association CEO Devin Mogler at the Agri-Pulse summit, “is what this industry was built on.”

Biodiesel used to power heavy transportation like trucks and buses first began to catch on commercially as well as in popular culture in the 1990s and early to mid-2000s, as American soybean farmers needed new markets.

Farmers and other enthusiasts started to make home-made biodiesel from used cooking oil and powering up their trucks. Singer-songwriter Willie Nelson started a biodiesel company, selling fuel under the brand BioWillie and drawing massive attention to the developing industry.

In 2007, a congressional update of the 2005 Renewable Fuel Standard established a U.S. yearly mandate for biomass-based diesel, with biodiesel leading the way. Demand for soy and other vegetable oil soared, as did demand for used oil for making hamburgers and other food. Suddenly, cooking grease at restaurants and fast-food eateries was a valuable commodity.

'All ships rising' 

In January 2023, U.S. production capacity of renewable diesel exceeded biodiesel for the first time.

Both can be made from soybeans and other crops, as well as waste oils and fats. Yet renewable diesel is the near-chemical equivalent of petroleum diesel, making it easier for refiners to switch to as more fossil fuel companies seek to benefit from federal and state clean-fuel subsidies. Those incentives especially motivated traditional refiners to shift to biofuels as fuel demand initially dried up due to the global Covid-19 pandemic.

The market dynamics, along with the policy setbacks, have caused biodiesel plants to close and some companies to shut their doors completely.

In Iowa, the country’s biggest biodiesel producer, four plants have shuttered, leaving eight. Facilities in the state produced 25% less fuel last year than in 2024, according to the Iowa Renewable Fuels Association, which is pushing for an expansion of the Iowa biodiesel production tax credit.

Meanwhile, optimism is rising over new opportunities for biodiesel in sectors including home heating oil, railroads and marine vessels.

There’s also a potential future ripple effect in biodiesel’s favor with renewable jet fuel, Thomas Michels, director of government affairs at United Airlines, told the recent Agri-Pulse summit.  

Most sustainable aviation fuel (SAF) is made in the same facilities as renewable diesel, Michels noted.

“So, to the extent that you are producing SAF and not that renewable diesel, those renewable diesel volumes need to be backfilled by biodiesel,” he said. “I do see all ships rising together.”