Biofuel Policy Brief - December 2025

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Dear reader,

If regulatory certainty was on your wish list for the final weeks of 2025, hopefully you enjoyed some good food instead. Policymakers missed self-imposed deadlines, with finalization of key files like the US RVOs, the EU-Mercosur trade deal and national EU RED III transposition going into the new year. On both sides of the Atlantic, what had looked like final carmaker emission and fuel efficiency standards were watered down in newly tabled EU and US legislative proposals last month. That said, the proposed level of ambition for mandatory biofuel uptake around the world is high - higher than many would have anticipated at the start of 2025. This is true for mature biofuel markets like the US, Germany or Brazil, but equally for new markets across Asia that seem to skip the road biofuel stage and go straight for SAF obligations.

Key policy developments in December:

• Lawmakers in EU and US proposed rollbacks on carmaker standards, likely slowing down electric-vehicle uptake and potentially increasing long term road biofuel demand

• German federal cabinet signed off on ambitious RED III transposition, whilst in the Netherlands some last minute changes were proposed

• US EPA specified it aims to finalize the 2026-2027 federal biofuel mandates in Q1, making it the most widely anticipated piece of biofuel legislation in the coming months

• Canadian government mulls introducing multipliers or minimum requirements to domestically produced biofuels, to counter US production tax credits

• SAF mandate plans continue to emerge across Asia, though it remains to be seen whether truly backed up by policies

European road biofuels

Europe remains the most complex and regulated market in the world when it comes to biofuels. Much of this starts on the EU level, where about a dozen of directives, regulations and delegated acts together make up the legislative architecture. That includes specific obligations for transport subsectors, detailed feedstock categorizations, taxes on emissions, and methodological stipulations on how to account for it all. In 2025, the core EU architecture for biofuels remained relatively unchanged, albeit that the implementation of some policies with indirect biofuels impact were delayed or watered down. This includes ETS 2, the deforestation regulation and most recently the 2035 internal combustion engine (ICE) ban.

As part of its Green Deal, the EU Commission in 2021 proposed to ban the sale of ICE cars and vans by 2035. This decision was considered final when the Parliament and Council confirmed their backing in 2023. Throughout 2024-2025 however, pressure from car-manufacturing countries kept mounting to reverse the ban. In the final weeks of December 2025, the Commission confirmed it will do exactly that. More specifically, a 90% emission reduction (compared to 2021) by 2035 is proposed instead, as well as introducing more leniency towards the 2030 sub-obligation to carmakers, and introducing a multiplier for small EVs. The proposals still need to be approved by the other EU institutions, and some tweaks are likely, but directionally the EU parliament and council are expected to agree, given the changed political momentum since the ban was announced. The reversal will likely support road biofuel demand. Both RED III and its national implementation were accounting for rapid growth in electric vehicles when setting road transport emission reduction obligations. Biofuels and electric vehicles can both contribute to those same obligations. Given how heavy the regulatory process behind these files has been, it seems unlikely that the EU Commission and member countries will fully revise total road obligations, despite the now slower expected uptake of electric vehicles. What is lost on electrification, will to some degree need to be compensated by biofuels instead. Moreover, a specific obligation to carmakers is mentioned in the Commission proposal to compensate for the 10% pt leniency, by using alternative fuels and green steel. It remains to be seen to what extent the latter requirement will actually create additional demand. The EU-Mercosur free trade agreement was meant to be signed right before Christmas, but opposition from a number of large EU agricultural countries caused this to be delayed to at least January. The trade deal with Brazil, Argentina, Uruguay and Paraguay includes duty free import of 450 kt/a chemical ethanol and 200 kt/a fuel ethanol into the EU as well as lower tariffs for soy and animal products. Following 25 years of negotiations, it now appears the final sprint towards finalization has started. That said, the delay does showcase that nothing is final until it is final. It is yet another example of how the EU Commission is having to reinvent its historical role as a trade superpower in the new world of protectionism and domestic industries under pressure. More specific to biofuels trade, it is a prime example of how ethanol tariffs are being lowered between key hubs even as biomass-based diesel tariffs are being increased.

Regulatory complexity in Europe does not end at the EU level. EU countries have a degree of liberty in how they comply with the EU framework. As a result, each country’s setup differs significantly. Some countries mandate transport emission reductions, others renewable energy content, others do both. The total obligations differ between countries, and so do the advanced biofuel subtargets, e-fuel subtargets, feedstock caps and bans, electric vehicle multipliers, certification requirements, blending limits, etc. Even the pathways that are allowed (e.g. bio co-processing, intermediate hydrogen) and the sectors in scope (e.g. road, rail, inland shipping, maritime shipping) are not the same between countries. Most EU countries missed the statutory May 2025 deadline for transposing RED III, though visibility into their plans increased significantly especially since summer. With the new national frameworks often kicking off from 1 January 2026, several countries rushed to get the legislation finalized before the end of the year. Most failed in doing this, yet in those cases the goal is typically for the legislation to still apply retroactively once final rubberstamping is done in the coming weeks. The German federal cabinet in December finally gave the green light on the proposed RED III transposition. It thereby cleared the last legislative hurdle towards updated road fuel emission reduction obligations for the coming 15 years in Europe’s largest fuel market. Overall, GHG reduction to fuel suppliers will increase substantially throughout this timeframe, while double counting in the country will end from 2026 (see previous newsletters for more details). Imported biomethane can henceforth be counted towards the mandates, while disqualification of POME and stricter auditing requirements will only kick off from 2027. The Bundesrat and Bundestag (together making up Germany’s parliament) are widely expected to give their approval to the draft legislation as well in the coming weeks, following which the new framework is formally adopted. Retroactive application means fuel suppliers should already take into account the new framework in the current period even if officially it has not been adopted yet.

December brought some twists and turns in the Dutch RED III transposition, which many had considered final with only some rubber-stamping needed. Early in the month, the State Secretary announced that maritime and inland shipping GHG reduction obligations for 2026 would be reduced from 3.6% to 2.9% - arguing that otherwise the Port of Antwerp would have an unfair advantage versus Rotterdam given delayed Belgian RED III implementation. A few days before Christmas, the Senate also decided to table additional questions, which included a request for higher 2028-2030 road obligations as well as a change to how biofuel credits from pure ethanol are booked (formerly from the point of delivery to now the point of purchase). On 13 January, discussions on these topics will continue, yet the goal remains for retroactive application from 1 January. The national framework in European countries outside of the EU is not necessarily much simpler. The UK for example, has its own set of sectoral mandates, submandates and feedstock stipulations. In December, the countries Trade Remedies Authority (TRA) recommended keeping AS duties on Indonesian FAME. Currently, 8-18% tariffs apply. Should these be lifted, it could open the door for cheap Indonesian UCOME flowing into the UK, just when protection against Chinese and US biomass-based diesel dumping has been strengthened recently. Norwegian policymakers in December signaled that they will comply with RefuelEU from 2026, albeit not from January as they had originally targeted.

North American road biofuels

Although North American biofuel policies have their own complexities, they do tend to be somewhat more transparent than in Europe. Part of this is due to the US and Canada being only 2 countries, whereas in Europe nearly 40 countries have relevant biofuel policies. Although US states and Canadian provinces do have relevant obligations and incentives of their own, something all North American levels have in common is that they are typically more directly linked to the markets and that government reporting is more comprehensive versus mainland Europe. Moreover, whereas in Europe all transport segments are in scope separately, the vast majority of North American jurisdictions still focus primarily on road biofuels. A last notable difference is that European policymakers focus more strongly on obligations, whereas in North America production subsidies are also part of the regulatory toolkit.

The Trump administration proposed a rollback of US vehicle economy (CAFE) standards in December. In 2024, Biden had introduced a target to reach 50.4 miles per gallon (mpg) by 2031 - equivalent to 2% average annual efficiency improvement. In Trump’s latest proposal, this would be slashed to 34.5 mpg. This translates to only 0.5% average fuel efficiency, which would be significantly below historical levels. Trump had already eliminated fines for automakers who fail to meet the federal fuel economy standards, essentially making the rules toothless even before these latest new targets were announced. The change can be expected to slow down the rollout of EVs and keep gasoline demand high for longer. Ethanol demand could be expected to directly benefit, as it is typically blended into gasoline at a fixed percentage of around 10% (potentially increasing towards 15%). Indirectly, FAME and HVO demand could benefit from the change as well, as some RIN mandates are embedded into each other, whilst in important states like California ethanol and other biofuels directly compete with each other towards LCFS credits. That said, regulatory backtracking on environmental legislation is never a good sign. Although biofuel markets remain largely spared for now and may even benefit from some of the changes, they heavily depend on such regulations too. If the floodgates of regulatory backtracking are opened, it comes with risks to biofuels as well.  

The US Environmental Protection Agency (EPA) shone some light on the finalization of its much anticipated 2026-2027 RVOs in December. After having released an ambitious draft proposal over summer 2025, progress stalled in the last months of the year. Partly due to the government shutdown and the wide spectrum of stakeholders involved in consultations, the 30 November deadline for finalization was missed. Recently, the agency stated it aims to finalize the rule setting during Q1 2026, although also cautioning that part of the timeline is out of its control because the White House also needs to provide its inputs. The existing proposal significantly increases biofuel obligations, notably for D4 RINs (biomass-based diesel), whilst also introducing restrictions on imported biofuels and feedstocks (only qualifying for 50%). Key questions the market will therefore be watching, include whether the original levels of mandates are kept, if the imported biofuel restrictions remain, and to what extent small refinery exemptions are compensated by higher obligations to non-exempt parties. Although not the goal, it is common for RVOs to only be finalized in the year the compliance year itself and then apply retroactively.

The Canadian department responsible for coordinating environmental policies and programs, presented two potential ways in which the country could counter US 45Z credits to protect Canada’s domestic biofuel industry. Canada’s Clean Fuel Regulation (an emission reduction obligation to fuel suppliers), has become a powerful driver for biofuel demand in recent years. However, tax credits to US biofuel producers granted by Biden under the IRA and largely kept by the Trump administration, risk US biofuels flooding the Canadian market. A first way in which this could be countered according to the released paper, would be to introduce a domestic credit multiplier for Canadian low carbon fuels, which could be set at 1.4 for biomass-based diesel and 1.14 for ethanol. An alternative approach would be to introduce a minimum requirement for domestic content towards Canada’s biofuel mandates. This second approach is in line with a similar requirement that Canada’s most relevant biofuels province (British Columbia) has already introduced in 2025. With a consultation period on the topic ending 15 January, the above could serve as an important input for any concrete policy changes later in the year.

Global SAF and biomarine fuels

In 2025, SAF mandates kicked off in the EU and UK. From 2026, Singapore and British Columbia (Canada) follow suit with the first active SAF mandates outside of Europe. From 2027, Brazil and South Korea are meant to be next, with their own biofuel blending obligations to jet fuel suppliers kicking off. Policymakers in several other countries have made SAF pledges as well, but Japan is the only other significant one that can be considered confirmed - and only starting from 2030. A core topic to monitor in 2026, will therefore be to what extent other countries follow through on their pledges by confirming concrete SAF blending obligations. India’s Minister for Civil Aviation in December indicated an ambition for international flights departing from India to be obliged to blend 1% SAF from 2027, going up to 5% by 2030. China’s next 5-year plan (expected in March 2026) could include similar targets. Indonesia, Malaysia, Thailand, Turkey, the UAE, Hong Kong and Taiwan all have expressed SAF mandate ambitions as well, yet without concrete policy backing for now. In North America, SAF opt-in into road mandates rather than dedicated aviation obligations can be expected to remain the norm. 

Last year was a disappointing one for those who anticipated global low carbon marine fuel mandates, after the IMO failed to reach an agreement on this front. The most tangible driver for marine biofuels for the time being therefore remains the Fuel EU Maritime framework, which obliges shipowners to reduce average GHG emissions by using low carbon alternatives. In December, Yokohama (Japan’s second largest port) announced it is scrapping port fees for methanol and B24 fueled vessels. It thereby follows the example of the ports of Singapore, Rotterdam, Gothenburg, as well as the Panama Canal Authority in offering (indirect) financial incentives for low carbon shipping fuels. Although these initiatives in themselves will not be the key differentiator, the fact that they can be stacked with mandates and other national or regional incentives makes them worth monitoring.Wishing you all the very best for 2026! Thank you for subscribing to this newsletter. Key topics the coming period will include regulatory developments around biofuel mandates, certification requirements, trade tariffs, consumption tax incentives, production subsidies, fuel specifications and whatever else the ever-evolving policy environment throws at us. CleanMotion Advisory will keep tracking it all. Please never hesitate to reach out should you need more dedicated biofuels market intelligence support.