Biodiesel hasn’t disappeared, but it’s being rapidly overtaken by a newer, chemically different fuel called renewable diesel. The shift has been driven by better fuel properties, massive new refinery investments, and a restructured federal tax credit that now favors producers over blenders. For an industry that spent two decades building infrastructure around traditional biodiesel, the change has been swift and disorienting.
Renewable Diesel Changed the Game
Traditional biodiesel (known technically as FAME, or fatty acid methyl ester) and renewable diesel (called HVO, or hydrotreated vegetable oil) both start from the same raw materials: soybean oil, animal fats, used cooking oil. But the chemistry that turns those fats into fuel is fundamentally different, and that difference matters.
Biodiesel is produced through a relatively simple chemical reaction that leaves the fuel with about 11% oxygen content. That oxygen affects how the fuel burns, how long it lasts in storage, and how it behaves in cold weather. Most diesel engines can only handle biodiesel blended at 5% to 20% of the tank without modifications. Go higher, and you risk clogged filters, degraded seals, and poor cold-weather performance.
Renewable diesel, by contrast, is a pure hydrocarbon with no oxygen. It has a higher cetane number (meaning it ignites more easily), lower viscosity, better oxidation stability, and superior cold-weather properties. Most importantly, it’s chemically identical to petroleum diesel. You can run it at 100% in any diesel engine with zero modifications, blend it at any ratio, and ship it through existing pipelines. For fleet operators and fuel distributors, that’s a massive practical advantage.
A Wave of Refinery Conversions
Starting around 2020, a string of petroleum refineries began converting their operations to produce renewable diesel instead of gasoline or jet fuel. The economics were compelling: generous tax credits, strong regulatory mandates, and a product that could slot directly into existing fuel infrastructure.
By 2026, the U.S. is projected to have 22 renewable diesel plants in operation with a combined capacity of roughly 5.2 billion gallons per year. That’s an enormous amount of fuel competing for the same feedstocks and the same regulatory credits that traditional biodiesel producers depend on. Many of these new plants are operated by major oil companies with deep pockets, making it difficult for smaller, independent biodiesel producers to compete on price or scale.
The Tax Credit Shift
For years, the federal government supported biodiesel through a $1-per-gallon blenders tax credit. This credit went to whoever blended biodiesel into the fuel supply, which meant biodiesel producers and distributors could capture that dollar and use it to stay price-competitive with petroleum diesel. The credit was a lifeline for the industry, and its periodic lapses and renewals created boom-and-bust cycles that biodiesel producers learned to navigate.
That credit expired at the end of 2024. In its place, the Inflation Reduction Act created a new incentive called the 45Z Clean Fuel Production Credit, which consolidates and replaces a long list of expired fuel credits, including those for biodiesel, renewable diesel, second-generation biofuels, and sustainable aviation fuel. The new credit runs from 2025 through 2027.
Two changes in the 45Z credit hit traditional biodiesel producers hard. First, the credit now goes to fuel producers, not blenders. That restructuring benefits large-scale renewable diesel refineries that produce and sell their own fuel, while squeezing out the network of smaller biodiesel blenders who previously captured the credit. Second, the credit is tied to the carbon intensity of the fuel, meaning producers using lower-carbon feedstocks get a bigger incentive. For producers meeting prevailing wage and apprenticeship requirements, the maximum credit reaches $1 per gallon for ground transportation fuel and $1.75 per gallon for aviation fuel.
The Feedstock Squeeze
Both biodiesel and renewable diesel compete for the same raw materials, and the explosive growth of renewable diesel capacity has tightened that market considerably. Soybean oil, the traditional backbone of U.S. biodiesel production, has seen prices fluctuate as renewable diesel plants absorb larger shares of the supply.
At the same time, renewable fuel producers have been importing millions of metric tons of used cooking oil from Asian countries. Used cooking oil scores well on carbon intensity metrics, which translates to higher credit values under programs like California’s Low Carbon Fuel Standard and the new 45Z credit. That import wave has created its own controversy: questions about traceability, whether the oil is genuinely “used” or fraudulently labeled, and whether relying on overseas waste streams undermines the domestic agricultural benefits that biofuel policy was designed to create. For U.S. soybean farmers who expected biodiesel growth to support demand for their crop, imported cooking oil represents direct competition.
Regulatory Mandates Still Support Biodiesel
The EPA’s Renewable Fuel Standard continues to require increasing volumes of biomass-based diesel in the U.S. fuel supply. The mandated volumes have been rising steadily: 2.82 billion gallons in 2023, 3.04 billion in 2024, and 3.35 billion in 2025. Those numbers include both traditional biodiesel and renewable diesel, so the mandate doesn’t specifically protect biodiesel’s market share. As renewable diesel capacity grows, it can absorb a larger portion of the obligation on its own.
This is the core of what happened to biodiesel. The policy framework that once sustained it now increasingly rewards its competitor. The fuel mandates are still there, but renewable diesel can satisfy them more easily, with a product that’s simpler for the supply chain to handle.
Where Biodiesel Stands Now
Biodiesel production hasn’t gone to zero, and existing plants continue to operate where regional economics make sense. Some producers have found niches in local markets, heating oil blends, or states with their own biodiesel mandates. But the trajectory is clear: renewable diesel is capturing the growth, the investment, and increasingly the policy support.
For consumers, the shift is largely invisible. Both fuels reduce lifecycle carbon emissions compared to petroleum diesel, and renewable diesel does so without requiring any changes at the pump or in the engine. The practical difference is mostly felt upstream, in farming communities that built economies around biodiesel plants, in the small producers who can’t afford to retrofit their facilities for hydrotreating, and in the policy debates about what counts as a sustainable feedstock. Biodiesel isn’t dead, but it’s no longer the default answer to the question of how to decarbonize diesel fuel.