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

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.

Several factors are at play in the market:

• Recent Developments on the Renewable Fuel Standard (RFS)

• Evolving Tax Incentives Like Section 45Z

• Shifting Feedstock Economics

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.

Read More: Biofuels Are No Longer the Future… They’re the Present

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

One of the most consequential market shifts centers on feedstocks.

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.

Read More: Feedstock Fundamentals: What Are Biofuels Made From?

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

Section 45Z is not only reshaping margins. It’s reshaping feedstock strategy.

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.

Vegetable oils tend to generate more heat during hydrotreating, increasing hydrogen demand and accelerating catalyst wear. This can raise costs and shorten catalyst life in systems optimized for grease-based feedstocks. As a result, producers are still balancing improved carbon economics against the practical realities of existing refinery configurations.

In response, many producers are turning to climate-smart agricultural practices to improve carbon intensity, reduce reliance on imported greases, and unlock additional revenue under 45Z. This mirrors emerging industry trends where traceability and sustainability credentials increasingly dictate market value (not just volume). Industry players are investing in traceability technologies to validate carbon reductions and secure higher 45Z benefits.

Looking Ahead: Infrastructure, Economics, and Competitive Positioning

Despite headwinds, there’s a broader sense of cautious optimism:

• RFS growth and expanded 45Z credits could spur renewed investment and facility expansions.
• Economic impact studies show the biomass-based diesel industry supports tens of billions in economic activity and over 100,000 jobs, reinforcing its role in rural economies.
• Renewable diesel’s competitive position continues to strengthen as its ability to serve as a drop-in fuel grows demand relative to traditional biodiesel.

However, near-term growth hinges on final federal action. Industry voices are urging rapid issuance of 2026 RVOs and 45Z guidance to avert further plant idling and restore confidence in investment decisions. Accordingly, policymakers’ next moves will be pivotal.

Growth on the Horizon as Uncertainty Lingers

The US biomass-based diesel industry in 2026 stands at a crossroads. Strong expected mandate increases and evolving incentives like 45Z promise a ramp-up in domestic production and a rebalancing toward US feedstocks. But without final regulatory certainty and a framework that rewards low-carbon innovation, the sector risks stalling the very investment it's trying to jumpstart.

In a policy market like biomass-based diesel, clarity equals confidence. As final rules near, the industry watches closely, hopeful that the promise of near-term growth turns into real market movement.

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