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Biomass-based diesel (BBD), encompassing biodiesel (BD) and renewable diesel (RD), has become a crucial element of the US strategy to enhance domestic energy supply within the transportation sector. Alongside BBD, sustainable aviation fuel (SAF) continues its emergence, planned as a key part of the decarbonization of transportation fuels. The federal policy landscape shapes the BBD and SAF markets, including key programs such as the Renewable Fuel Standard (RFS) and the Clean Fuel Producers Credit (45Z).
New legislation and rule changes will add complexity to BBD profitability adoption, specifically regarding SAF. SAF producers currently face fragmented guidance on these intertwined policies, complicating investment decisions. However, these combined federal measures will largely determine the trajectory of the US SAF market through 2030.
Federal incentives have spurred significant growth in renewable transportation fuel production. Yet, these gains come with rising competition for limited feedstocks, such as soybean oil, used cooking oil (UCO), and tallow, specifically considering the expanding SAF industry. This competition intensifies supply chain challenges and raises concerns about feedstock sustainability, energy security, and market stability.
International trade plays a critical role in this dynamic, with the US importing substantial volumes of finished renewable fuels and feedstock to meet demand. Cross-border flows influence incentive availability, feedstock accessibility, and biofuel price volatility, all driven by the pursuit of profitability.
The passage of the One Big Beautiful Bill (OBBB) legislation and the EPA RFS rule changes collide, complicating SAF adoption in the US. BBD and SAF producers navigate overlapping incentives and regulatory shifts impacting production economics and market access. Viewed separately, SAF and BBD producers receive only partial guidance needed for informed investment decisions. However, Fastmarkets believes the combination of these policies will collectively shape the US market for both SAF and BBD through the end of the decade.
For those trading in the biofuels and feedstocks market, we capture pricing across the complex marketplace, including biodiesel, glycerin, renewable identification numbers (RINs), California’s Low-Carbon Fuel Standard (LCFS) credits and related certificate markets in Europe. Discover more.
Biomass-based diesel (BBD) along with sustainable aviation fuel (SAF), have emerged as viable, low-carbon alternatives to traditional fossil fuels. However, ongoing policy uncertainty combined with evolving feedstock constraints pose significant challenges to the long-term sustainability and scalability of these fuels. Additionally, rising domestic and global demand for biofuels intersects with volatile international trade markets, complicating supply chains and pricing stability.
The 45Z tax credit incentivizes BBD and SAF production and consumption within the US., However, the implementation of the 45Z credit in 2025 excluded imported BBD and SAF and domestic production from imported feedstocks, with exceptions for Canadian canola oil, Brazilian sugarcane ethanol, and tallow. These eligible feedstocks and their pathways are detailed in the 45ZCF-GREET model released in January 2025. The OBBB changes the 45Z tax credit beginning in 2026, with three key changes to investment and production.
The first key change requires feedstocks to be sourced from the US, Canada, or Mexico in order to qualify for the 45Z credit. Limiting the feedstock to be domestic-based, producers will struggle to acquire the needed amount of low-cost and low-carbon intensity (CI) feedstock to meet profitability levels. As a result, Brazilian sugarcane ethanol has been excluded from SAF, even though announced alcohol-to-jet (AtJ) capacity is expected to reach nearly one billion gallons by 2030, with many companies indicating plans to use this feedstock. Currently, no large-scale sugarcane ethanol plants operate in the US, requiring the feedstock to be imported. Unless the policy is adjusted, feedstock for the 45Z tax credit will be limited, placing specifically planned renewable diesel (RD) and SAF at risk.
The second key change is the reduction of the maximum 45Z tax credit for SAF production from $1.75 per gallon to $1.00 per gallon. While the CI score already limits the credit producers can claim, lowering the maximum cap further decreases the available incentive. This adjustment aligns the SAF tax credit with those for biodiesel (BD) and RD. As a result, hydroprocessed esters and fatty acids (HEFA) producers now have little financial incentive to prioritize SAF production over RD. Reduced incentives typically lead to increased caution among investors when evaluating projects, suggesting a slower pace of SAF adoption in the US.
One bright spot in the OBBB changes is the removal of the indirect land-use change (ILUC) penalty from CI calculations under the 45Z credit. Previously used to account for the environmental impact of land conversion, ILUC penalizes crop-based feedstocks like soybean oil (SBO) and canola oil. Eliminating this factor increases the credit value for fuels made from these domestic oils. This supports US farmers and allows these feedstocks to compete more directly with lower-CI feedstocks, such as used cooking oil (UCO). The updated policy makes crop-based oils financially viable, expanding the feedstock pool, reducing supply risk, and strengthening domestic supply chains, ultimately encouraging scaled production and long-term investment.
The EPA proposed new rules in June regarding the Renewable Fuel Obligation (RVO) and RIN generation. The proposed increase in volume requirements is expected to drive up D4 RIN prices due to the interplay of supply and demand dynamics within the RIN market. As the EPA raises the RVOs for BBD, obligated parties such as refiners must acquire more D4 RINs to comply with federal mandates. This heightened demand for D4 RINs creates upward pressure on prices. Higher D4 RIN prices improve the economics for producers of D4-qualifying fuels.
However, the new rules also introduce significant changes in how RINs are generated, specifically for imported fuels and feedstocks. Under the proposed regulations, the EPA aims to tighten the criteria and reduce the number of RINs awarded for renewable fuels produced from foreign-sourced feedstocks or imported fuels. This shift is intended to prioritize and incentivize domestic production of renewable fuels, by limiting the RIN benefits available to imports.
Significant changes to the 45Z tax credit and the RFS have the highest impact on SAF. In 2025, the maximum SAF credit stands at $1.75/gallon, with imported Canadian canola and Brazilian sugarcane ethanol qualifying. By 2026, the credit drops to $1.00/gallon, with imports only from Canada and Mexico eligible. The removal of the ILUC penalty improves CI scores for domestic feedstocks, all requiring recalibration of investment decisions. Lower SAF credits and restricted eligibility for imported feedstocks place expansion plans at risk, particularly for AtJ producers reliant on high-CI ethanol. The Foreign Entity of Concern rules may further deter foreign investment, narrowing the field for joint ventures and global partnerships.
The expiration of the Blender’s Tax Credit (BTC) has had a significant impact on biofuel markets, particularly for imported fuels. Until 2025, the BTC provided a $1.00 per gallon tax credit for blended BD and RD, which served as a major financial incentive for both domestic producers and foreign exporters to the US market. Under the previous framework, imports were eligible to claim this credit, making the US a highly attractive destination.
However, with the transition to the 45Z, effective January 1, 2025, eligibility criteria have shifted to prioritize domestically produced fuels. Imported fuels are no longer able to claim the 45Z credit, removing a key economic advantage for foreign suppliers. According to data from the Environmental Protection Agency (EPA), this policy change has already manifested in a sharp decline in BBD import volumes, with 2025 figures showing a significant drop compared to the previous five-year average.
This reduction underscores how tax policy changes can rapidly alter market dynamics, reshaping trade flows and affecting price competitiveness. Without the support of the BTC, many foreign producers find the US market less viable, leading to tighter domestic supply and upward pressure on prices. While domestic production will eventually scale to meet demand, an increased reliance on imported feedstocks is expected, creating additional supply chain and cost challenges.
Under the International Emergency Economic Powers Act (IEEPA), signed into law in 1977, the President can declare a national emergency and impose import tariffs without requiring congressional approval. The approach bypasses traditional trade statutes (like Section 301/232) and relies entirely on emergency executive authority. However, the courts rejected the sweeping tariff authority, with the US Court of International Trade ruling that IEEPA does not authorize broad tariffs. The court issued a permanent injunction, legally prohibiting enforcement of those tariffs nationwide, although an appeal suspended the order while the case proceeds.
In the meantime, beginning August 1, 2025, many countries will be subject to an increase in tariffs under the IEEPA. For example, BBD feedstocks imported from China are subject to a flat 20 percent IEEPA tariff, applied in addition to any existing duties, creating a steep surcharge intended to discourage Chinese energy-related imports. For Brazil, feedstocks face a much higher penalty, country-specific “reciprocal” tariffs announced at 50 percent, with no energy carve-out exceptions.
In the case of North American-origin feedstocks, Canada and Mexico face a layered import structure. All energy feedstocks must meet USMCA rules of origin to qualify for zero percent tariff treatment. When origin-compliant, these feedstocks continue to enter duty-free. However, if the imports do not meet origin requirements, they are subject to additional duties under IEEPA: Canadian-origin non-originating energy feedstocks incur a reduced ten percent tariff, while non-origin feedstocks from Mexico are assessed at 25 percent. Importers must closely document origin to benefit from preferential treatment; otherwise, they face the full surcharge.
Challenges
BBD and SAF producers face significant uncertainty due to the absence of clear regulatory guidance. As legislation and policy proposals are developed, the critical question remains how these measures will be effectively implemented.
The 45Z and RFS restrict eligibility primarily to domestically produced fuels. This shift complicates the economic incentives for foreign producers, which in turn narrows supply sources. As a result, domestic producers face increased pressure to expand capacity quickly, straining feedstock availability and infrastructure. Global feedstock providers and foreign investors encounter new barriers, potentially stalling joint ventures and cross-border collaborations.
Trade policies further compound these challenges. Tariffs, import restrictions, and evolving international agreements disrupt established trade flows, limiting access to competitively priced feedstocks and biofuels from global markets.
Opportunities
Despite the challenges posed by recent policy shifts, several positive developments offer promising opportunities for the BBD sector.
By focusing incentives on domestically produced fuels, the US encourages significant investment in biofuel production infrastructure. The local emphasis on production is expected to stimulate economic growth, create jobs, and strengthen domestic energy security by reducing dependence on imported fuels.
In parallel, evolving trade policies offer the change to reinforce and optimize supply chains, promoting market stability and encouraging investment. By prioritizing domestic production and strategic international partnerships, the industry can support long-term investment in renewable fuels.
The renewable transportation fuels transition has moved beyond its domestic focus. Trade plays a vital role in supplying the US with supply of both fuels and feedstocks to meet policy obligations. US policy approach requires a balance of domestic production with domestic and imported feedstock development, while maintaining decarbonization targets.
The evolving US policy environment demands foresight from SAF stakeholders. As RFS and OBBB reshape the incentive structure, producers must reassess feedstock strategies, investment plans, and technology pathways.
In this dynamic landscape, thought leadership and strategic clarity are more critical than ever. By understanding the nuances of policy changes and aligning operations accordingly, BBD and SAF stakeholders can not only navigate the headwinds but also harness the upsides to drive sustainable growth.
Speak with our analysts to understand what this policy change means for your operations.