Production of US domestic renewable diesel – mainly hydrotreated vegetable oil (HVO) – declined sharply in January to around 167,000 bpd. Preliminary February 2025 data show it was even weaker at 130,000 bpd. We note that the final number can end up around 20% higher after the reporting is complete, but it is already quite clear that HVO supply is on track for a very significant drop in the first quarter of this year. A prolonged period of weak biomass-based diesel renewable identification number (D4 RIN) margins coupled with the persistent uncertainty around 45Z clean fuel tax credit rules under the new US administration have pushed HVO operators towards temporary shut-ins and reduced utilization rates of existing capacity.

When it comes to sustainable aviation fuel (SAF) supply, last year this acted as a temporary solution as HVO operators were able to increase the share of SAF in the end-product mix to partially hedge against HVO oversupply. Some hope for SAF supply prospects was triggered by relatively robust January 2025 RIN generation numbers as some additional SAF deliveries from P66’s Rodeo Renewed facility in California pushed the three-month moving average SAF supply in the US up after a very weak fourth quarter of last year. Having said that, February 2025 supply numbers once again came in weak, with zero generation coming from foreign producers supplying the US market, such as Neste. 

In the case of both SAF and HVO, continuous weakness in D4 RIN and low-carbon fuel standards (LCFS) prices accompanied by uncertainty surrounding 45Z tax credits after the expiration of the interim blender tax credit (BTC) does not allow project operators to understand their real revenue potential. The RFS and LCFS credit stack was providing around $1,000 per tonne of revenue support to SAF producers between the second half of 2022 and first half of 2023. This support has been down to less than $500 per tonne since that time. This dual-credit stack has never been sufficient on a standalone basis to offset the price differential between SAF and traditional jet fuel (JetA) on a delivered price basis – which is one of the main reasons behind limited SAF supply in the US prior to 2023. When 45Z and interim BTC came into the picture in 2023, SAF supply experienced a boom. With the proposed 45Z guidelines, SAF project developers should be eligible for between $400 and $570 per tonne of 45Z credit amount depending on the lifecycle emission intensity of the production pathway. Without these credits, the economics of SAF supply is currently hard to justify amid the lack of obligation targets on the demand side. If 45Z rules are finalized, we expect robust short-term economics for SAF producers with the lowest carbon intensity (CI) score and gradual upward pressure on SAF prices to eliminate arbitrate opportunities.

We note that, looking beyond SAF and HVO, 45Z or general RFS policy uncertainty creates anxiety among project developers of nearly all other biofuel products. The only exception is conventional corn-based ethanol supply with production following E10 domestic industry needs (i.e., following underlying gasoline demand). Biodiesel imports are already down by around 40% on a 12-month average basis since August 2024 as European volumes are redirected to the domestic market and an ongoing tariff war creates significant uncertainty for Canadian volumes. We note that imports have not yet been replaced by increased domestic production, with the US fatty acid methyl ester (FAME) supply being weak in this year’s first quarter amid the same 45Z uncertainty.

Renewable natural gas (RNG) and cellulosic ethanol are among the very few bioenergy products in the US that continue to grow, but significant uncertainty around the D3 cellulosic waiver credit for 2024 (which remains unfinalized) as well as D3 obligation targets for 2026 under governance of EPA administrator Lee Zeldin have already delayed a number of new investment decisions in the sector.

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