Trump's biofuel goals are becoming a reality, but US plants lag behind
The market is not keeping pace with President Donald Trump’s efforts to increase production of bio-based diesel and to deliver on his promises to farmers and rural areas.
The production gap is a political and economic risk.
A persistent shortfall may force renewable fuel credit prices to rise sharply and the Trump administration could be forced to use a rarely-used provision that allows it to lower its mandates to reflect the market. This unusual retreat could upset biofuel producers and farmers who have fought for higher quotas, and are an important constituency in the midterm elections. The Environmental Protection Agency (EPA), which oversees U.S. policy on biofuels, has set record-breaking biofuel blending goals for 2026. This is under the Renewable Fuel Standard.
OUTPUT LAGS BEHIND EPA MANDATES
Oil refiners will need to generate or buy 8.86 billion RINs by 2026. This is the equivalent of mixing a record-breaking 5.4 billion gallons biodiesel/renewable diesel. The target for 2026 is 60% higher than that of 2025. Trump has touted these moves as an indication of his support for the farmers. The EPA mandate assumes that producers can operate at 90% capacity for the duration of the year. According to Zander Capozzola of Argus Media, the operating rate at U.S. Biodiesel Plants was just below 77% in May. Renewable diesel plants were at 78%. Export contracts are also in place for some production, and prices are higher due to supply disruptions caused by the Iran War. These gallons don't generate credits towards EPA mandates. According to EPA, refiners generated 736 million RINs during May. This is well below the 915 million required each month in order to keep pace with the EPA mandates, said Scott Irwin an agricultural economist from the University of Illinois.
He estimated that production levels through the first four month of 2026 were 1.41 billion?RINs below required levels. To close this gap, the output would have to be higher than the highest monthly production of the industry by more 20% for the rest of the year.
Irwin stated that the mandates require biodiesel and renewable diesel plants operate at their highest sustained speed?ever achieved.
Paul Niznik is the director of energy for Capstone LLC in Washington D.C., which provides advice to refineries, fuel marketers, and hedge funds. The shortfall in fuel production is causing concern throughout the industry, and it's unclear what policy will be taken.
He said that the market participants did not expect the EPA, despite its authority to grant a wavier, to step in. Instead, they could look at measures like lowering obligations for 2028 by changing the way import volumes are counted towards obligations.
Uncertainty about policy has slowed production
The production of biodiesel, renewable diesel and other clean fuels was delayed for several months while producers waited on the Trump administration's final guidance regarding the 45Z federal tax credit for clean fuel production.
In recent weeks, the guidance was released, which removed some restrictions on land use and increased incentives for soy-based biodiesel, a change that had been sought by the industry for over a year.
Jeramie Welker, the general manager of Minnesota Soybean Processors - a biodiesel manufacturer - said that these changes will provide more certainty for farmers to sign contracts and expand production. Although the changes are likely to increase output, it is unclear if they arrived soon enough in order to offset production losses.
The Iran conflict triggered a surge in oil prices, which also dampened biodiesel growth. Supply disruptions increased margins on conventional fuels and gave refiners more incentive to maximize their petroleum-based output, rather than increasing renewable fuel production.
SHINY CREDIT?MARKET
A cushion that has historically been used to absorb market shortfalls is being depleted by lower-than-expected output.
As production has fallen short, and demand is high, the so-called RIN Bank -- a store of credits that refiners may use to meet their mandates -- continues to be depleted. Analysts warn that if the current trend continues, the buffer will be depleted by 2026. This would lead to a rise in the price of the credits. The RIN price has already risen to new records, increasing compliance costs for refineries that buy credits instead of blending fuel themselves. Washington has been under increased pressure due to the tightening of the outlook. The American Fuel and Petrochemical Manufacturers (AFPM), the nation's largest trade group for refining, met with legislators on Capitol Hill in order to pressure the administration to reconsider its 2026 biofuel mandates. The group has also filed a suit against the EPA.
In materials provided to legislators, AFPM stated that high credit costs increase pump prices for 'consumers.
In an email, the EPA stated that it evaluates compliance using a full year's worth of data and takes into account normal fluctuations from month to month. This includes the use existing credits for temporary gaps.
Bloomberg Intelligence analyst Brett Gibbs stated that the EPA may have underestimated exports of biodiesel, renewable diesel and the restrictions on importing feedstocks due to the conflict in Iran.
The EPA could very well be in trouble by midterms. Gibbs stated that the EPA would be a problem until at least 2027. (Reporting from Siddharth Cavale in New York, and Jarrett Renshaw at Washington; editing by Christian Schmollinger & Matthew Lewis).
(source: Reuters)
