US biodiesel blenders will continue to shift toward domestic supplies next year because importers are ineligible for federal incentives and domestic production credits are set to double.
US blenders of biodiesel, who have historically relied on imports, particularly in the US northeast, began shifting away from non-US volumes in 2025 following a change in federal incentives. The 45Z clean fuel production credit created by the Inflation Reduction Act offers domestic biofuel producers a sliding scale of credit of up to $1/USG based on the carbon intensity of their fuels, replacing in 2025 the more lucrative blenders' tax credit that offered all fuels a flat $1/USG. Under 45Z, soybean-based biodiesel, which accounts for the bulk of domestic production, is eligible for just 32¢/USG in 2025, according to Argus estimates.
The credit change also shut out imports almost completely, leaving large domestic producers to fill the gap. That trend will likely strengthen into 2026 when only domestic fuels produced from North American feedstocks will be eligible for the 45Z credit, further incentivizing domestic biodiesel production.
Biodiesel imports through the first 11 months of 2025 averaged just 2,660 b/d, compared with nearly 26,200 b/d in the same period of 2024, according to the latest renewable identification number (RIN) generation data from the US Environmental Protection Agency (EPA). Meanwhile, the US northeast that had previously relied on imports to satisfy state heating oil blend mandates railed in 35pc more US midcontinent biodiesel in January-September than a year earlier at 4,500 b/d, according to US Energy Information Administration (EIA) data.
In 2026, soybean-based biodiesel will be eligible for around twice the 45Z credit at 64¢/USG, Argus estimates, as the incentive is set to remove the indirect land-use change (ILUC) penalty for crop-based biofuels.
Next year's more lucrative incentives could boost producer confidence that was lacking for much of 2025 and forced many plants to either scale back production or close entirely. US biodiesel output in January-November averaged 73,000 b/d, down by 31pc on the year, according to EPA data, as US producers scaled back due to the lack of immediate clarity on the new credit that cut biodiesel incentives by around two-thirds.
California-based producer Crimson Renewables announced in early December that it would cease biodiesel production through at least the first half of next year, but would restart if margins improve and the company receives clarity surrounding biofuels policy.
Weaker domestic output and a sharp decline in imports have weighed on domestic supply and sent B99 differentials to historic highs, which has reduced consumption. US biodiesel consumption in the first half of the 2024 marketing year, which spanned from October 2024–March 2025, averaged 98,000 b/d, down by 24pc from the average in the full 2023 marketing year, according to the latest data from the Department of Agriculture. Data for the 2024 marketing year notably included the fourth quarter of 2024, when imports and available supply for consumption rose, before those flows stopped at the start of 2025.
In 2026, EPA's finalization of blend mandates and reallocation of exempted mandated volumes remain critical to industry confidence and investment. In June, the EPA proposed blending a record 5.61bn USG of biomass-based diesel in the 2026 fuel supply, but the agency said it doesn't plan to finalize those volumes until early next year, leaving producers and blenders unsure of future compliance and demand for their fuels.
Participants are also eyeing an EPA proposal that would halve RIN credits for fuels produced from foreign feedstocks, which would cut another key credit for importers and further promote domestic fuels.
This lack of regulatory clarity has stalled biodiesel trade past January that would have typically already occurred, participants have said, and which could potentially bottleneck high trade activity in the first quarter.
Larger vertically integrated biodiesel producers will remain more competitive in the new landscape of biofuels policy that promotes domestic feedstocks and fuel production, while smaller plants could rely more heavily on regulatory clarity to help inform future operations and production.
