WASHINGTON, 4th June, 2025 (WAM) – US production of renewable diesel and biodiesel fell sharply in the first quarter of 2025 (1Q25) because of uncertainty related to federal biofuel tax credits and negative profit margins. US Energy Information Administration, Petroleum Supply Monthly and Short-Term Energy Outlook, May 2025, forecasts production of both fuels to increase as the year progresses but biodiesel production to remain less than in 2024.
US renewable diesel production averaged about 170,000 b/d in 1Q25, down 12% from 1Q24. 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% increase in renewable diesel production capacity since 1Q24. However, compared with 4Q24, when renewable diesel production capacity was comparable to current levels, 1Q25 production was down almost 25%.
Poor profitability in 1Q25 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.
Another reason US production of biomass-based diesels declined in 1Q25 was uncertainty about federal biofuel tax credits. Before 2025, producers and importers of biomass-based diesel received a $1 per gallon (gal) blender’s 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/gal tax credit to a value based on the carbon intensity of the feedstocks used. However, delays in releasing final guidance for the tax credit has left biofuel producers unsure about their profitability, causing some producers to idle operations.
‘’In our May Short-Term Energy Outlook, we forecast 2025 annual renewable diesel production to increase about 5% from 2024 because of increased capacity. We forecast 2025 annual biodiesel production to be 15% lower than in 2024 because of low production early in the year and an assumption that some biodiesel plants with less favourable economics may close,'' said the U.S. Energy Information Administration.