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Bi
ofuels Bulletin
By Ron Kotrba, Biobased Diesel Daily
Turning Point
Two major policy developments unfolded in June and July that together are expected to lift the U.S. biobased diesel sector out of its prolonged slump. The industry has been struggling since late last year due to federal policy uncertainty. Specifically, in 2023, the Biden administration set severely low renewable volume obligations (RVOs) for biobased diesel three years in a row (2023-2025), putting the brakes on a rapidly growing sector fueled by petroleum company investments in renewable diesel and sustainable aviation fuel (SAF) production. The U.S. Environmental Protection Agency has also been long overdue on issuing its next RVO proposal, exacerbating uncertainty and further chilling demand.
In addition, the $1-per-gallon blenders tax credit expired Dec. 31. The incentive had lapsed on numerous occasions over its 20-year history, but Congress always retroactively reinstated it. This time, however, was presumed to be the blender credit’s final sunset as its replacement waited in the wings — the clean fuel production credit known as section 45Z, which was originally passed in the Inflation Reduction Act of 2022.
The problem with this is there are no implementing regulations in place for 45Z from the U.S. Department of the Treasury. The incentive’s rules are “half baked” as Pete Moss with Frazier, Barnes & Associates described it — the credit favors SAF over on-road fuels like biodiesel, it punishes biofuels made from domestic crop-based fuels and, for many biodiesel
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producers, the value of 45Z will be just a fraction of what the blenders tax credit provided.
As federal policy held its foot on the throat of biobased diesel producers, California Air Resources Board passed revisions to its Low Carbon Fuel Standard that, among other changes, put a 20% companywide cap on biofuels from soybeans, canola and sunflowers, further disincentivizing the once-thriving ramp up in capacity buildout. While California’s LCFS modifications, which went into effect July 1, are viewed as restrictive for conventional biobased diesel producers, recent policy developments at the federal level are expected to reinvigorate the U.S.’s languishing biobased diesel manufacturing sector.
EPA Proposes 2026-2027 RVOs
EPA issued June 13 its overdue and much-anticipated RFS proposal for 2026 and 2027, including several important changes to the program. Unlike all previous proposals, which provided biobased diesel RVOs in gallons while other biofuel RVOs were issued in renewable identification number (RIN) credits, EPA is now issuing all RVOs in RIN equivalents. One RIN is equal to one ethanol-equivalent gallon of renewable fuel.
For 2026 and 2027, EPA is proposing to set the biobased diesel RVOs at 7.12 billion RINs and 7.50 billion RINs, respectively. The agency projects the volume equivalent of its RIN-based biobased diesel RVO to be approximately 5.61 billion gallons for 2026 and
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