Crude Tall Oil Is Gaining Value in Low-Carbon Fuel Markets

For decades, crude tall oil (CTO) was viewed primarily as a byproduct of the kraft pulping process. While valuable, it still served a secondary purpose to a mill's core business.

Today, that perspective is changing.

As renewable diesel, sustainable aviation fuel (SAF), and other low-carbon fuel markets expand, crude tall oil is increasingly being recognized as a strategic feedstock. What was once considered a niche byproduct is becoming an important component of the broader energy transition, creating new opportunities for pulp mills and forest products companies.

The shift illustrates a broader trend across the bioeconomy: low-carbon markets are creating new value streams for materials that have traditionally been viewed as industrial byproducts.

Why Crude Tall Oil Matters

Crude tall oil is generated during the kraft pulping process and contains a mixture of fatty acids, rosin acids, and other organic compounds. These components have long been used in products ranging from adhesives and coatings to surfactants, inks, and asphalt additives.

Today, growing demand for renewable fuels is creating an additional source of value.

Tall oil fatty acids (TOFA) are particularly used as feedstocks for renewable diesel production. Because CTO is considered a waste- or residue-based feedstock in many markets, it can help fuel producers meet increasingly stringent carbon-reduction requirements while supporting compliance with renewable fuel policies.

As governments raise decarbonization targets and fuel producers seek lower-carbon inputs, interest in forest-derived feedstocks continues to grow.

The Connection Between Tall Oil and Renewable Diesel

One of the most important developments in recent years has been the growing linkage between tall oil markets and renewable diesel economics.

Renewable diesel producers rely on a variety of feedstocks, including used cooking oil (UCO), animal fats, and other waste-based materials. Among these, UCO has emerged as one of the most widely traded and closely watched feedstocks.

As a result, UCO pricing increasingly serves as a benchmark for other low-carbon feedstocks, including crude tall oil.

When renewable diesel demand rises, competition for waste-based feedstocks intensifies. This can lift prices across the feedstock complex and improve the economics for suppliers of alternative materials such as CTO.

For pulp mills, this means that the value of tall oil is increasingly influenced by developments occurring far beyond traditional forest products markets.

Policy Is Driving New Sources of Demand

Regulation is also playing a major role in elevating the importance of CTO.

In Europe, renewable energy policies continue to encourage the use of advanced and waste-based feedstocks. Materials that qualify under these frameworks are increasingly sought after because they help fuel producers meet compliance obligations while improving carbon performance.

As implementation of RED III progresses across Europe, demand for qualifying feedstocks is expected to remain strong. At the same time, renewable fuel producers continue to seek additional low-carbon feedstock sources to support future growth.

This combination of policy support and commercial demand is helping transform waste-based materials from operational byproducts into strategic assets.

A New Revenue Opportunity for Pulp Mills

For many pulp mills, the growing value of tall oil represents more than a pricing story. It highlights an opportunity to diversify revenue streams.

Historically, mill profitability has been closely tied to pulp markets and fiber economics. Today, many producers are exploring how byproducts such as tall oil, lignin, methanol, and biogenic carbon can contribute additional value.

As low-carbon markets mature, these secondary revenue streams may become increasingly important.

The ability to capture that value will depend on several factors, including market access, feedstock quality, traceability, and the ability to understand rapidly evolving fuel and carbon markets.

Companies that view crude tall oil as a strategic asset rather than a byproduct may be better positioned to capitalize on these opportunities.

The Growing Link Between Forest Products and Renewables

The growing importance of crude tall oil reflects a larger transformation underway across the forest products sector.

Pulp mills are increasingly integrating renewable fuels, carbon markets, and bio-based chemicals. As these industries continue to evolve, forest-derived feedstocks are likely to play an increasingly important role in supporting decarbonization efforts.

For market participants, the key takeaway is clear. Understanding CTO today requires understanding renewable fuel markets, policy developments, and global feedstock dynamics.

What was once considered a byproduct is increasingly becoming a strategic feedstock.

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