To Tariff or Not to Tariff? Unstable Biofuels Market Brings Challenges

The past few days have created tremendous strain across several US commodity trade points. The Trump administration's threat of enormous tariffs on both Mexico and Canada led to a scramble from market players—biofuels and feedstocks included.

Despite the announced pause on the tariffs at the eleventh hour, the market is still reeling from such abrupt and severe changes that can still occur in a very short timeframe.  

The Challenge of Market Volatility

Sudden shifts in trade policy like these tariffs create significant challenges for businesses. This unpredictability complicates both short- and long-term planning and can lead to broader consequences such as stock market turbulence.

Similarly, China's added 10% tariff will add yet another layer of volatility to an already complex landscape.

Policy changes often have immediate ripple effects. According to the ResourceWise Green Diesel market report, Canadian canola and imported grease were quickly reassessed as less economically viable feedstocks for the US market under the revised RFS2 mandate. The shift adds to the already unfavorable outlook for canola’s qualification under 45Z.

Although Trump's about-face to pause Canadian tariffs briefly stabilized the market, the overall takeaway is clear. Imported feedstocks now come with much greater uncertainty and considerably higher risk.

US Feedstock Sourcing Looks to Domestic Producers in Wake of Tariffs, 45Z

This development reinforces the US's already growing reliance on domestic feedstocks. Only a very limited pool of imports still qualifies under 45Z to meet the current mandate.

Additionally, looming tariff-related pressures are expected to push up prices for alternatives like Brazilian tallow. The changes will likely tighten margins for producers even further.

The volatility isn't limited to feedstock markets, either.

The bean oil spread to heating oil increased by about 15 cents per gallon in just a week's time. This rapid increase worsened the already difficult production economics for biodiesel producers.

While ResourceWise analysts did see D4 RIN gains, they have been insufficient to offset this rise. Overall, this further deepens the financial strain stakeholders are already enduring.

Biodiesel Production Shutters in Midwest Until More Clarity is Provided

Economic and trade difficulties are perhaps the most substantial in the Midwest. Declining margins have already forced multiple biodiesel production facilities offline.

For instance, Future Fuel announced an extended maintenance shutdown at its 60-million-gallon-per-year biodiesel plant in Arkansas. The company cited ambiguity around the implementation of the 45Z tax credit as the driving force behind the decision. While announced to last through February, the shutdown could go longer due to the 90-day delay on 45Z for a public "comment period."

The plant's closure through February alone will remove an estimated 15 million D4 RINs from the 2025 supply side. Producers running feedstocks like degummed bean oil face especially difficult conditions. Facilities capable of using other inputs like grease are faring slightly better.

The renewable diesel segment paints a similarly strained picture. The extremely tight margins have some renewable diesel plants reconsidering their strategies. Pivoting away from biofuels altogether isn't out of the question for some organizations.

If US biomass-based diesel production holds steady at 2024 levels, the market will heavily rely on its approximately 1.7 billion banked RIN tickets to remain balanced this year. This assumes limited biofuel imports due to 45Z disqualifications and shifting obligations under the new rules.

Additionally, any production downturn would lead to an even greater dependence on these credits. All of these factors would add more pressure to an already unsteady market environment.

Consequences of Blender’s Tax Credit Removal

The removal of the $1 per gallon blender's tax credit further complicates the US biofuels landscape.

Unlike the D4 RIN price, which is tied to specific market spreads, the blender's credit provided a reliable cash flow buffer. Its absence means the industry will now require a big jump in biofuel prices or RIN values to sustain production capacity. For the market to find balance, input costs must drop or other revenue streams must grow significantly.

Data and Analysis: Your Solution for Strategic Decision-making

These policy-driven pressures highlight why access to accurate, current relevant pricing data and expert analysis is more critical than ever.

ResourceWise equips you with the tools you need to adapt to shifting regulations. That way, you can better anticipate trends and respond to sudden market shifts without any sort of knee-jerk reaction.

Our market intelligence platform, Prima CarbonZero, helps by delivering clarity in an unpredictable market. We help businesses weather the storm and position themselves for future success.

Access to timely and reliable market intelligence is crucial for those navigating these difficulties in the biofuels market. Learn more about how our solutions can keep your business moving forward—even in times of policy confusion and market instability.