Washington: 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 Emirates News Agency, US Energy Information Administration's Petroleum Supply Monthly and Short-Term Energy Outlook for May 2025 predicts an increase in production for both fuels as the year progresses, though biodiesel production is expected to remain lower than in 2024.
US renewable diesel production averaged about 170,000 barrels per day in the first quarter of 2025, marking a 12% decrease from the same period in 2024. The decline in renewable diesel production was not as significant on a percentage basis as the decline in biodiesel production, primarily because renewable diesel production had previously increased at a greater rate than biodiesel production in 2024. The output reduction at renewable diesel plants was partially mitigated by a nearly 20% increase in renewable diesel production capacity since the first quarter of 2024. However, compared with the fourth quarter of 2024, when renewable diesel production capacity was similar to current levels, production in the first quarter of 2025 was down almost 25%.
Poor profitability in the first quarter of 2025 contributed to production declines, with companies like Diamond Green Diesel, Phillips 66, and Marathon reporting operating losses from renewable diesel during this period. Additionally, trade press reports indicated negative margins for biodiesel.
Another factor contributing to the decline in US production of biomass-based diesels in the first quarter of 2025 was uncertainty regarding federal biofuel tax credits. Prior to 2025, producers and importers of biomass-based diesel received a $1 per gallon blender's tax credit for each gallon blended with petroleum diesel. Under the Inflation Reduction Act, this credit was set to be replaced by the Section 45Z Clean Fuel Production Credit in 2025, which would alter the flat $1 per gallon tax credit to a value based on the carbon intensity of the feedstocks used. However, delays in releasing final guidance for the tax credit have left biofuel producers uncertain about their profitability, prompting some 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.