US production of renewable diesel and biodiesel fell sharply in the first quarter of 2025 due to uncertainty related to federal biofuel tax credits and negative profit margins, according to forecasts by the US Energy Information Administration (EIA).
Although production of both fuels was expected to increase as the year progressed, biodiesel production was forecast to remain below last year’s level, the EIA said on 4 June.
In January 2025, US production of biodiesel fell to 60,000 barrels per day (bpd), the lowest level since January 2015 and about 40% less than last January.
Biodiesel producers in the USA only partially ramped up production in February and March, bringing the quarterly production to about 70,000bpd, a decrease of more than 30% compared to the first quarter of last year.
US renewable diesel production averaged about 170,000bpd in the first quarter of this year, down 12% compared to the same quarter in 2024.
The decrease in renewable diesel production was not as large on a percentage basis as the decrease in biodiesel production, mainly due to renewable diesel production increasing at a greater rate than biodiesel production in 2024. Reduced output at renewable diesel plants was partially offset by an almost 20% increase in renewable diesel production capacity since the first quarter of 2024.
Poor profitability in the first quarter of this year contributed to production declines, the EIA said, with Diamond Green, Phillips 66 and Marathon all reporting operating losses from renewable diesel in the period. In addition, negative margins for biodiesel had been reported by the trade press.
Uncertainty about federal biofuel tax credits was another factor in the decline in US production of biomass-based diesels in the first quarter of 2025.
Before 2025, producers and importers of biomass-based diesel received a US$/gallon blender’s tax credit blender’s tax credit (BTC) for each gallon blended with petroleum diesel.
Under the Inflation Reduction Act (IRA), the BTC was scheduled to be replaced with the Section 45Z Clean Fuel Production Credit this year. This new credit would change the flat US$1/gallon tax credit to a value based on the carbon intensity of the feedstocks used.
However, delays in publishing final guidance for the tax credit had left biofuel producers unsure about their profitability, leading some producers to idle operations, the EIA said.
The agency said it forecast production of renewable diesel and biodiesel to increase as the year progressed to meet existing RFS mandates.
In the EIA’s May Short-Term Energy Outlook, the agency forecast 2025 annual renewable diesel production to increase about 5% from 2024 due to increased capacity while biodiesel production in 2025 was expected to be 15% lower than last year due to low production early in the year and an assumption that some less profitable biodiesel plants could close.
