Resilience and Opportunity: Navigating Uncertainty in the Biobased Diesel Industry
Strategic planning and advocacy will help face the intersecting challenges of state-level regulatory changes and potential federal policy shifts.
In 2024, the biobased diesel industry showed resilience amid swings in feedstock and commodity prices, renewable identification number (RIN) values, and California Low Carbon Fuel Standard (CA-LCFS) credit prices that impacted plant economics nationwide. Maintaining this resilience will be essential as the industry aims to navigate an ever-changing regulatory landscape in 2025 and beyond.
On the state level, the California Air Resources Board in early November approved amendments to the CA-LCFS program, signaling major implications for biobased diesel producers, investors and stakeholders. A notable change involves the eligibility of certain feedstocks—namely soybean, canola and sunflower oils—for generating CA-LCFS credits. These feedstocks will be limited to contributing up to 20 percent of a company’s annual combined total biobased diesel production starting Jan. 1, 2028, provided the producer has submitted a pathway-certification application or obtained certification before the effective date.
The move will require many producers to shift feedstocks and look more closely at the sustainable aviation fuel (SAF) sector as CARB aims to promote diversification in feedstock sourcing and the development of new fuel types. It also underscores the state’s focus on regulating the scale and type of biobased diesel production to balance environmental and industry concerns.
CARB’s decision to approve the CA-LCFS amendments could inspire initiatives in other U.S. states or Canadian provinces that have LCFS-type programs with similar emissions-reduction goals. By introducing feedstock-specific limitations, California may set a precedent, prompting producers to innovate and optimize processes to meet regulatory demands.
Federal Policy Changes
The Inflation Reduction Act of 2022 represents a cornerstone of the federal renewable energy policy. A key provision relevant to biobased diesel producers is the section 45Z tax credit, expected to be released in 2025. When implemented, 45Z would replace the $1-per-gallon biodiesel blenders tax credit (BTC). As with any new incoming administration, however, policy priorities may shift, potentially altering the timeline or focus of implementation for these tax credits like 45Z or the BTC.
Impacts on RFS
Another area of consideration is how a new administration might approach setting future renewable volume obligations (RVOs) under the federal Renewable Fuel Standard. Uncertainty, as the biobased diesel industry has seen in the past, could exert downward pressure on RIN prices.
It remains to be seen if President-elect Trump’s nominee Lee Zeldin, a former four-term Republican congressman from New York, will be confirmed as the new U.S. EPA administrator by the Senate. During his time representing Long Island constituents in the House of Representatives from 2015 to 2023, Zeldin co-sponsored several bills that aimed to repeal or eliminate certain requirements of the RFS. If his appointment is approved, the industry will need to make concerted efforts to encourage the new administrator to support the RFS.
Strategic Industry Actions
Navigating the intersecting challenges of state-level regulatory changes and potential federal policy shifts requires strategic planning and advocacy. Industry players must take proactive steps to mitigate risks and leverage opportunities in 2025 and beyond.
Strengthen federal-level engagement: Industry stakeholders should prioritize and strengthen outreach, education and collaboration with federal agencies such as U.S. DOE, EPA, USDA and others to educate new congressional staff on the merits of the RFS and promote the proven message of how the biobased diesel industry supports farmers, increases energy independence and has a positive impact on job creation.
Diversify feedstock supply chains: Given new restrictions on feedstock eligibility in California’s LCFS and potentially for sourcing domestic feedstocks under 45Z, producers should explore alternative feedstocks and invest in research to optimize the carbon intensity (CI) of their products.
Invest in innovation and technology: Advancing technologies for more efficient production and feedstock processing can help meet evolving CA-LCFS criteria and eligibility for IRA tax credits while reducing costs. Partnerships with academic institutions and research organizations can expedite innovation.
Proactive efforts today, such as fostering innovation, advocating for stable policies and engaging with policymakers, will help ensure a thriving biobased diesel sector in the years to come. We intend to monitor and analyze the first 60 days of the new Trump administration to provide insights into its impact on the biobased diesel industry and will continue to help guide the industry through this uncertainty.
Author: Lisa Hanke
Director of Regulatory Engagement
EcoEngineers
613-857-2414