Fixes needed to grow liquid, low carbon fuels industry

January 23, 2025 | Aaron Putze, APR

With devasting wildfires burning 120 miles to the north, leaders of the U.S. biofuels industry gathering this week in San Diego for Clean Fuels Alliance America’s annual conference often cited the leadership qualities of resiliency, commitment and perseverance.

Having given rise to the biobased fuels industry, these same attributes will also define the restoration of communities and almost 40,000 acres near Los Angeles scorched by ongoing wildfires.

“The fires provide a stark reminder of the resilience and strength of community,” said Clean Fuels’  Donnell Rehagen in opening remarks to conference attendees. “Let’s carry that same spirit of perseverance, community, and support forward into everything we do.”

While the L.A. fires are unprecedented natural disasters, the call to action on the biofuels front accompanies trying circumstances for many in the biodiesel, renewable diesel (RD) and sustainable aviation fuel (SAF) industries, including soybean farmers.

Downward drift

Burgeoning global production and acquisition of competing feedstocks suitable for biofuels production (including used cooking oil, or UCO, distillers corn oil, and animal fats) accompanied by a lack of volume obligations and critical tax guidance incentivizing feedstock production and use are causing economic burdens within the industry and a continued downward drift in soybean prices.

“The theme of the conference is ‘Accelerate,’ but it feels right now like the biofuels industry is driving home late at night without headlights,” said Iowa Soybean Association (ISA) President Brent Swart, one of nearly 700 conference attendees. “Without guidance or direction, we’re driving blind, and that’s not a good feeling.”

The lack of certainty and direction coincides with explosive growth for bio-based fuels. In 2007, the U.S. produced 300 million gallons of biodiesel. In 2024, a record 5 billion gallons of low carbon liquid fuel was produced, up from 4.6 billion in 2023. This production consumed 1 billion pounds of soybean oil, adding value to every bushel of soybeans grown by Iowa and U.S. farmers.

Clean fuels now account for nearly 10% of diesel fuel supply in the U.S., with the conference host state of California serving as the most important markets for our industry, according to Rehagen, Clean Fuels’ CEO.

“Biodiesel and renewable diesel have now displaced 75% of all diesel sold in the state. In fact, it’s now harder to find diesel fuel in California than our fuels, with the industry responsible for 45% of California’s progress under the Low Carbon Fuel Standard so far,” he said.

Global production of liquid, low carbon fuel totaled 15 billion gallons in 2024.

These inventories are a drop in the bucket when compared to the total global fuel market. This includes a 100-billion-gallon aviation fuel market, 100-billion-gallon global marine fuel market, and more than 45 billion gallon North America over-the-road truck fleet fuel market.

The 15 billion gallons of global renewable fuels production also exists under the backdrop of aggressive corporate sustainability goals by many of the world’s largest companies, including those in transportation, manufacturing, retail, construction, and agriculture.

Proven option

Access to low-carbon fuel options is essential to meeting sustainability targets.

“Using biobased fuels provides Fortune 500 companies with an immediate and proven option for reducing carbon emissions, thus achieving much-publicized sustainability goals,” said Jon Scharingson, executive director of business development for Chevron Renewable Energy Group.

However, several high-profile companies, including WalMart, have announced they’ll miss 2025 and 2030 emission reduction targets. A lack of access to liquid, low carbon fuel is a limiting factor, driven by uncertainty in the market due to a lack of regulatory guidance.

“There are no viable, low carbon options in the short term aside from biodiesel, renewable diesel and sustainable aviation fuel,” Scharingson says.  “That’s exciting, provided we get the regulatory structure in place. We’re at a bit of a pause but I don’t think it will be a long pause due to the burgeoning demand.”

The biofuels industry has been awaiting critical guidance on the new federal tax incentive system, known as 45Z, since the Inflation Reduction Act (IRA) was passed in 2022. The delays are now causing hardships for the industry.

Recently, the U.S. Treasury released guidance. But it has generated more questions than answers, further delaying meaningful clarity for an industry that requires its direction.

“Now, more than ever, we need to stand united to ensure the new administration prioritizes addressing those gaps and finalizing the rule,” Rehagen said. “Our feedstock producers and fuel producers deserve clarity on how the tax credit will impact them. Patience will still be necessary, but persistence will be key.”

Push and pull

Rehagen said the industry finds itself trying to balance the push and pull of domestic and imported feedstock – products like soybean oil, canola oil, animal fats and used cooking oil.

The industry’s rapid growth – a more than doubling of production capacity in the last four years – has outpaced domestic feedstock availability, at least for now. By Clean Fuels’ calculations, current volumes of domestic feedstocks would support about 3.3 billion gallons of fuel production. Current production stands at 5 billion gallons.

Rehagen acknowledged that the growing amount of imported feedstocks coming in to fill the demand for biofuels has generated angst with domestic feedstock growers and processors.

“This is not ideal,” he said.

“While it may be hard to square this current dynamic with our original vision, imported feedstock has become necessary to meet the demand.”

At the heart of the contention among U.S. biofuels stakeholders is the recent and significant surge of used cooking oil (UCO) imports.

Tax incentives from federal and state governments fueled demand for alternative feedstocks to soy. Domestic imports of UCO, a biofuels ingredient with a lower carbon intensity score than soy, totaled more than 610 million gallons last year. That’s 100 million gallons more than 2023 and more than double from 2021.

Nearly 60% of 2024’s total UCO imports – or roughly 340 million gallons – was sourced from China.

Since December 2023, soybeans priced on the Chicago Board of Trade have fallen nearly $3 per bushel, partly due to a displacement of domestic soybean oil in biofuels production.

“There’s a pause in the marketplace right now as the margin environment for biodiesel and renewable diesel is extremely difficult due to the regulatory uncertainty,” says Scharingson.

Nate Burk of StoneX’s commodity solutions division, says soybean oil and canola crush volumes will flatten in 2025, followed by a small pullback in soybean crush in 2026.

“The market is trying to work its way out of where we’re going to price feedstocks while also deciphering all of the events of the past couple of months,” Burk says.

One complicating factor, Burk adds, is the Trump administration’s threat of tariffs on key trading partners.

“If we start trade wars, you probably speed up some kind of financial assistance to farmers as the administration seems a bit more favorable to row crops as part of the 45Z model than was the previous administration.

“But Big Oil still has a very big pull on many of these policies,” says Burk. “And while agriculture has made strides, the oil and petroleum industries will get a lot of what they lobby for, so slowing imports will be tricky as many of these petroleum companies are heavily invested in the biofuels industry.”

Industry hesitates

ISA Director Amanda Tupper grows soybeans and corn and raises cattle on hogs on the family farm in Chickasaw County.

Attending her first Clean Fuels conference, Tupper acknowledges the opportunity for biofuels made from soy. But she also senses hesitation across the value chain – from the feedstock producer and processor to end user – at a time when new markets and increased demand for soy is needed.

“The pause due to uncertainty and not having soy on a level playing field compared to other feedstocks is troubling,” says Tupper who was elected to the ISA board last summer. “It would be nice to have one set of standards than a multitude of competing models.

“If soy was on the same level, imagine how much more demand the soybean industry could capture and what would that mean for market prices for soybean farmers.”

Lagging volume obligations for biofuels are also a drag on the soybean market.

Rehagen took the stage at Clean Fuels’ annual conference in 2019 during the second year of a completely lapsed biofuels tax credit.

“That was a tough time for all of us,” he said. “But together, we fought hard and secured a five-year tax credit, the longest and most stable period we’ve ever had. And a period of record growth for the industry.”

Now, history is repeating itself as 2025 brings another major priority with announcements on renewable volume obligations, or RVOs.

These volumetric biofuels targets for obligated parties such as refineries and importers of petroleum-based fuels are critical for the renewable energy industry’s viability. RVOs dictate the amount of renewable fuel that must be blended into the transportation fuel supply in a given year.

Rehagen says work has already begun to demonstrate the biofuel industry’s potential to the Environmental Protection Agency.

“What we call ‘Set 2.0’ will shape the next several years of fuel production,” he says.

The volumes were due last November, but EPA missed the deadline … again.

Rehagen says the delay makes it all the more critical for biofuels stakeholders to advocate for significant growth in volumes and push the Trump administration to finalize them soon.

“We don’t want to find ourselves this time next year without RVO levels for 2026,” Rehagen says.

$6 billion expansion

A lack of guidance and certainty pertaining to tax incentives and volume obligations comes at a time when growing volumes of domestic vegetable oils are just around the corner.

The soybean crush industry has invested more than $6 billion dollars in the largest expansion of soybean crush in over 50 years. Rehagen says this growth is critical for the clean fuels industry as it brings significantly more domestic and imported feedstock to the table.

“Historically, U.S. farmers have exported about 50 percent of our nation’s whole beans, which sent a lot of our soybean oil away as well.

“So now with this additional crush capacity—a 30% expansion—we can export fewer beans and keep more oil,” says Rehagen.

He also cited an analysis by the National Oilseed Processing Association which showed that extra crush between 2024 to 2030 could provide 900 million gallons of additional soybean oil annually while U.S. soybean yields and production continue to increase.

“It’s going to be an active and challenging year for the biofuels industry,” Rehagen says. “We must remain unified. It’s the main reason for our success – we’ve always managed to speak with one voice … even when getting to the right words was difficult.”

While he acknowledges recent setbacks for the industry, Carroll County farmer and ISA Director Marty Danzer says the long term outlook for soybeans and renewable fuels is bright.

“We’ve got a lot of opportunities as the demand is there from big players in transportation, including rail and aviation,” says Danzer. “But we’ve got a lot of hurdles to cross. We’ll get there, it’s just a matter of time.

“The short term is complicated, but the long term is very positive.”

Lee Brooke, an ISA director from Clarinda and Clean Fuels conference attendee, agrees.

“No matter what industry I listen to – from trucking and airline to rail and maritime, renewable fuels are here to stay,” he says. “They all want it. We just need a level playing field for soy and the rules and regulations to give us direction and align with that demand.”

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