U.S. Renewable Diesel Production Capacity to Double by 2025 Fueled by Biodiesel Tax Credit (BTC)

According to the EIA, renewable diesel production capacity in the U.S. could more than double from current levels by the end of 2025. This projection is based on several projects that are either under construction or could start development soon. Although some projects may be delayed or canceled, U.S. renewable diesel production capacity could reach 384,000 barrels per day, or 5.9 billion gallons per year, by the end of 2025.

The biodiesel tax credit (BTC) has been instrumental in supporting the development of the U.S. renewable diesel industry. This federal incentive provides a $1.00 per gallon tax credit for both biodiesel and renewable diesel, which is also known as biomass-based diesel.

Renewable diesel has some significant advantages over biodiesel. One advantage is that producers can distribute renewable diesel in petroleum diesel pipelines. Additionally, traditional diesel engines can consume any blend level of renewable diesel, including pure renewable diesel, with no significant side effects. This is in contrast to biodiesel, which can only be blended into petroleum diesel between 2% and 20% of the diesel fuel by volume.

Renewable diesel also has some of the highest greenhouse gas (GHG) reduction scores among existing fuel pathways in federal and state programs. As a result, major energy companies such as BP, Chevron, Marathon, Phillips 66, and Shell have either announced or already added renewable diesel production to their line-up of carbon-cutting fuels.

Currently, Diamond Green Diesel dominates renewable diesel production in the U.S. with one plant in Texas and another in Louisiana. However, Marathon is rapidly closing in for the No. 2 spot with its conversion of a refinery in Martinez, California, which is slated to become the second-largest renewable diesel facility in the U.S. with an annual production capacity of 730 million gallons.

There were 16 renewable diesel plants in operation as of December 2022, with another 16 plants expected to be operating by the end of 2025. There is the potential for even larger capacity growth given the number of announcements, and the size of renewable diesel plants appears set to grow even larger as plant expansions and conversions push capacity at the largest plants to over 500 million gallons per year.

California is expected to continue to be the biggest consumer of renewable diesel due to its LCFS market, with RD making up 83% of all bio-based diesel consumed in transportation in the state, according to GNA's analysis of LCFS data from the first three quarters of 2022. Renewable diesel is likely to displace fossil-based diesel and become an even greater share of renewable fuel use in the state in the near term despite low LCFS credit prices. The future of renewable diesel production in the U.S. looks bright, with significant potential for continued growth and a positive impact on the environment.