US Biomass-Based Diesel 2026: A Tipping Point for Growth

(ResourceWise) In the aftermath of this year's Clean Fuels Conference in Orlando, sentiment across the US biomass-based diesel industry is unmistakably bullish. But that confidence is underpinned by a mix of opportunity and uncertainty that will shape the sector through 2026 and beyond.

As these elements come together, they will redefine how producers, traders, and feedstock suppliers approach biomass-based diesel markets today.

Bullish Mandates and the Importance of Policy Clarity

For 2026, most industry players now expect a significant increase in mandated biomass-based diesel volumes under RFS2. Estimates point to roughly 2 billion additional gallons baked into the mandate.

The increase shows the largest year-over-year jump in the program’s history. It underscores the EPA’s intention to drive robust growth in domestic biofuel production.

Despite this optimism, finalization of the RFS 2 rule and accompanying policies are not yet set in stone. Decisions on the precise volume obligations and methodologies governing Section 45Z’s carbon-adjusted tax credit are expected by the end of Q1 2026. But these have already been delayed, raising operational concerns among biodiesel producers.

This lack of clarity has real effects. Many biodiesel plants idled in 2025 due to tax-credit uncertainty and thin margins. Some also rest on the brink of closing as producers wait for final guidance that could be worth up to ~$1 per gallon under 45Z.

How Policy Will Drive Production

The biomass-based diesel segment is, by design, a policy-driven market. Without RFS volume mandates and tax incentives, commercial production and consumption would be financially unfeasible.

Over the last two years, federal and state policies have pushed biomass-based diesel production to historic levels. Renewable diesel in particular expanded from niche volumes to billions of gallons annually.

But the pace and sustainability of this growth remain tightly tethered to future regulatory certainty. This holds especially true for 45Z and RFS volume decisions.

Expanded mandates for biomass-based diesel and advanced biofuels are expected to reach record highs in 2026 and 2027. The shift means producers will have a clearer forward-demand signal, if and when final rules are issued.

Feedstock Challenges: Domestic Pressure, Import Retracement

Historically, US processors balanced demand between domestic oils and imports such as used cooking oil and animal fats. However, the new carbon-centric 45Z framework and RFS priorities are tilting the advantage toward domestic production for both feedstock sourcing and fuel output.

As a result, imports of biodiesel and renewable diesel have sharply declined. Current projections suggest net import volumes have fallen to near zero in 2025. This cutback amplifies pressure on domestic feedstock supplies and highlights the urgency of developing scalable, lower-carbon inputs.

At the same time, US trade policy trends are increasingly defensive. This has complicated access to foreign feedstocks that previously helped to balance tight domestic markets.

The industry will need to plug these feedstock gaps without resorting to bulk imports. The ramifications reflect a broader change in how the market operates. Even just a few years ago, such a shift was not even on the radar.

Carbon Intensity, 45Z, and Evolving Feedstock Economics

The new carbon-adjusted tax credit places a premium on lower-carbon-intensity pathways. This has already lifted US soy’s value proposition by eliminating the indirect land-use change (ILUC) penalty and bringing soybean oil returns within striking distance of UCO on both biodiesel and renewable diesel pathways.

Recent changes to carbon scoring have improved the economics of vegetable oils. Yet renewable diesel producers continue to face operational challenges when processing them.