US biobased diesel production declines sharply in 1st quarter

Data source: U.S. Energy Information Administration, Petroleum Supply Monthly and Short-Term Energy Outlook, May 2025

U.S. production of renewable diesel and biodiesel fell sharply in the first quarter of this year because of uncertainty related to federal biofuel tax credits and negative profit margins.

The U.S. Energy Information Administration forecasts production of both fuels to increase as the year progresses but biodiesel production to remain less than in 2024.

Renewable diesel and biodiesel are biobased diesel fuels that can replace petroleum-based distillate and be used to comply with renewable volume obligations (RVOs) in the Renewable Fuel Standard administered by the U.S. EPA.

Renewable diesel can be used in diesel engines in any concentration because it is chemically equivalent to petroleum-based distillate fuel, and biodiesel is typically blended with petroleum distillate at concentrations of 20 percent or less for vehicle consumption because of some chemical differences.

This January, U.S. production of biodiesel fell to 60,000 barrels per day (b/d), the least since January 2015, and about 40 percent less than in January 2024.

U.S. biodiesel producers only partially ramped up production in February and March, bringing the quarterly production to about 70,000 b/d, a decrease of more than 30 percent from the first quarter of 2024.

U.S. renewable diesel production averaged about 170,000 b/d in the first quarter of this year, down 12 percent from the first quarter of 2024.

The decrease in renewable diesel production was not as large on a percentage basis as the decrease in biodiesel production, mostly because renewable diesel production increased at a greater rate than biodiesel production in 2024.

Reduced output at renewable diesel plants was partially offset by the nearly 20 percent increase in renewable diesel production capacity since the first quarter of 2024.

Compared with the fourth quarter of last year, when renewable diesel production capacity was comparable to current levels, however, first-quarter production this year was down almost 25 percent.

Poor profitability in the first quarter of this year contributed to production declines.

Diamond Green Diesel, Phillips 66 and Marathon all reported operating losses from renewable diesel in the quarter.

In addition, trade press has suggested negative margins for biodiesel, EIA noted.

Another reason U.S. production of biobased diesels declined in the first quarter was uncertainty about federal biofuel tax credits.

Before 2025, producers and importers of biomass-based diesel received a $1 per gallon blenders tax credit (BTC) for each gallon blended with petroleum diesel.

Under the Inflation Reduction Act, the BTC was slated to be replaced with the section 45Z clean fuel production credit in 2025.

This new credit would change the flat $1-per-gallon tax credit to a value based on the carbon intensity of the feedstocks used.

Delays in releasing final guidance for the tax credit, however, has left biofuel producers unsure about their profitability, causing some producers to idle operations.

EIA forecasts production of renewable diesel and biodiesel to increase as the year progresses to meet existing RFS mandates.

In its May Short-Term Energy Outlook, EIA forecasts 2025 annual renewable diesel production to increase about 5 percent from 2024 because of increased capacity.

EIA forecasts 2025 annual biodiesel production to be 15 percent lower than in 2024 because of low production early in the year and an assumption that some biodiesel plants with less favorable economics may close.