Biofuel Policy Brief - July 2025

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Dear reader,

Welcome to this first edition of the Biofuel Policy Brief. The aim of this monthly newsletter is to provide a high-level update of key regulatory developments in the global biofuels sphere.

Key policy trends: 

- Biofuel uptake incentives are strengthening. Mandate increases were proposed in EU countries. Renewable fuel production tax credits in the US are locked in until after Trump’s presidency. An upwards revised California LCFS is in force, and Turkey is the latest country with SAF mandate plans. 

- Crop biofuels are having policy momentum. A scrapping of indirect land use change (ILUC) in the final US production tax credit methodology and a shift away from double-counting waste feedstocks in the EU could both indirectly incentivize feed and food crops in biofuels.

- Protectionist biofuel policies are on the rise. The US is the main instigator of the protectionist trend. Not only is the country raising import tariffs, it also disqualified imported biofuels and feedstocks towards production tax credits and will likely slash their RIN value by 50%. Other regions are protecting domestic producers in more subtle ways.

Europe 

A picture of how EU countries are implementing RED III is finally starting to emerge. While all major countries missed the 21 May transposition deadline, detailed proposals are now available for most of the continent’s largest biofuel markets. Overall the planned legislation looks promising for boosting biofuel demand - albeit with notable shifts, significant differences between countries and too many devilish details to fully cover here. 

Four key trends compared with the previous country mandates: 

1.) Shift to GHG mandates in the road sector. Up until recently, all EU countries except Germany, Sweden and Denmark had mandates based on energy content (sometimes converted to volumetric %). Spain and the Netherlands in their recent transposition proposals, opted to switch to a GHG system. In France, a dual system is proposed, but especially in the later years of the decade the GHG mandate becomes the real driver. Electric vehicles can typically also contribute to the GHG mandates, becoming a force to reckon with especially where it also includes home charging. 

2.) Scrapping of double counted waste feedstocks. The vast majority of countries have allowed certain Annex IX feedstocks to generate twice the tickets towards mandates. In the recent proposals, this is no longer allowed in Germany (for excess Annex IX-A biofuels), the Netherlands, or France. This shift indirectly benefits biofuels from rapeseed oil and uncategorized feedstocks (e.g. animal fats cat 3 and PFAD), because their emission savings are typically more than half those of Annex IX feedstocks. 

3.) Shipping gets separate country-level mandates. Shipping has been exempt from any country mandates in the past. Fuel EU now directly imposes GHG based shipping mandates on the EU-wide level, but the verdict was out whether or how countries would translate this into national mandates. It is now clear that most major countries do plan to have dedicated shipping mandates - a notable difference with aviation, where no country mandates above RefuelEU levels are allowed. There are however significant differences between countries around whether the shipping mandates are GHG or energy content based and in the overall level of ambition. Some countries have separate mandates for international bunkers and inland shipping. 

4.) Europe remains no less a patchwork of regulatory frameworks. Not just the mandates themselves, but also feedstock caps, bans, multipliers and subquota differ significantly between countries. This was already the case under the previous framework, but because now more sectors (e.g. marine, aviation) and more pathways (e.g. RFNBOs) have interdependent mandates, compliance in each country will be even more of a puzzle. What is more, countries are truly overhauling their systems without much correlation between the old and new approach. The complexities all this brings can be expected to make for some significant shifts in trade flows, investment decisions and price movements.

Although RED III only stipulates the transport targets countries need to comply with until 2030, several countries have now proposed mandates until 2035 (e.g. France) or even 2040 (e.g. Germany). This is driven by the desire to create a stable investment environment, but it also anticipates a successor to RED III. Indeed, the EU Commission in July proposed a 90% emission reduction target by 2040 (vs 1990), by amending the EU Climate Law. It is too early to speculate around what that target may imply for the successor to RED III - first the Parliament and Council need to agree on the general targets before more detailed updates to directives like the RED. A key question will also be how firm the planned 2035 ICE ban will be, and whether exemptions for e-fuels and/or biofuels will be included. On the same day as announcing its 2040 emission target, the Commission also published a ‘Communication on delivering the first proposals on the Clean Industrial Deal’. The document shines some further light on how more relaxed state aid rules are meant to protect EU clean industries, specifically mentioning tax credits and accelerated depreciation as instruments in member states’ toolkits.

Fraud concerns remain a major topic in EU biofuel policies. In July, the Commission concluded its fraud examination following allegations by the German government against Chinese biodiesel suppliers. It found some systemic weaknesses, but not enough evidence to confirm fraud. It also announced that new EU policies to combat biofuel fraud will be introduced early 2026, while the timeline for full mandatory deployment of the Union database is under discussion with the member states. In no other country's RED III transposition is the fraud topic as present as in Germany. Under the country’s proposal, only biofuels where onsite checks by German state authorities are allowed, will qualify towards the GHG mandates. POME is excluded altogether in Germany. Legitimate as the fraud concerns may be, the German example showcases that fraud mitigation measures can also put a lid on imports. POME is the most scaled Annex IX-A feedstock consumed in the EU, with none of it produced in Europe. China is the largest biofuel exporter to the EU, and seems unlikely to allow German authorities to perform onsite checks at its refineries.

North America

July brought long awaited clarity on the US clean fuel production credit guidance, now finalized and signed into law as part of Trump’s so-called Big Beautiful Bill. This 45Z tax credit has formally been available since January 2025, but a lack of guidance around the feedstock and pathway specific carbon intensity methodology made it impossible for producers to calculate its monetary value. While most other Biden-era IRA credits for renewables got significantly watered down or even phased out by the new administration, the low carbon fuel production tax credits survived relatively intact. 

Four notable novelties in the final 45Z guidance: 

1.) Biofuels or feedstocks from outside North America do not qualify. Only biofuels produced in the US using feedstocks from the US, Canada or Mexico qualify for production tax credits. This is significantly stricter than the tentative Biden guidance, where only imported UCO for biomass-based diesel was excluded. It is therefore a blow especially to SAF producers relying on Asian UCO or any producers relying on imported tallow. 

2.). ILUC emissions are not accounted for. Whereas in the tentative Biden guidance indirect land use change (ILUC) emissions were included, they are omitted in the final guidance. This raises the credit value of soybean or corn based biofuels by around 20 c/gal, whilst leaving the waste based biofuels unchanged. 

3.) SAF credits are capped at 1 USD/gallon. Until September 2025 SAF will still receive the old 1.75 USD/gallon, but after that SAF credits are capped at the same 1 USD/gallon as has always been the plan for renewable diesel. Now that the amounts are levelized for both fuel segments, it could somewhat soften growing SAF overcapacity in the US, where no dedicated SAF mandates exist. The credits will be adjusted for inflation (6% for 2025). 

4.) Extension until December 2029. The sunset clause of the production tax credit was originally set at 2027, but so now is extended by at least two years. With Trump’s second term scheduled to end in January 2029, the decision on potential 45Z extension into the 2030s will be up to the next administration.

Deals on import tariffs with several major US trading partners were announced in the final days of July. Detailed texts are often still lacking, but in general US import tariffs will be higher than before yet lower than threatened. Retaliatory measures from major trading partners remain very limited, with several countries even pledging to lower tariffs on US products and/or offer other concessions on trade and investments. The EU, Japan and South Korea will face a 15% import tariff, while making mind-boggling (albeit hard to enforce) monetary commitments to buy US energy products. For the EU, a short list of zero-for-zero goods will be tariff exempt. These will almost certainly not include any biofuels or feedstocks. Further clarification is needed on whether US ethanol is considered an energy product towards the offtake commitments. Indonesia will face a 19% tariff, with the potential for lower tariffs for products not naturally available in the US (to be determined if it includes palm products). Negotiations with Brazil escalated to the extent that the US slapped 50% tariffs on most goods from the country, though exemptions apply for energy products. The coming hours and days could bring further clarity on what deals may be reached with other major US trading partners, like Canada and India, while the deadline with Mexico was extended by another 90 days. Many eyes will be on the negotiations with China, yet these will probably take at least several more weeks.

Visibility on 45Z methodology and import tariffs, combined with the 2026-2027 federal biofuel mandates (RVOs) that were proposed in June, and the California LCFS mandates recently approved by the OAL in force since 1 July, means the US biofuel policy direction has gotten much clearer recently. This brings some relief to the market, following a period of record high regulatory uncertainty not yet seen in the 21st century, which weighed heavily on margins. Some of the new policies are more favorable towards biofuels than analysts initially expected, but they are also clearly more protectionist. If imported products only generate 50% the RINs as currently proposed in the RVOs, then no other major biofuel market goes as far as the US in disincentivizing biofuel imports. 

Up until 2024, the US was a significant net importer of biomass-based diesel and waste feedstocks, but the scrapping of the Blenders Tax Credits in January 2025 already led to a heavy drop in imports this year. The new US protectionist measures in trade policies and biofuel incentives have the potential to almost fully close arbitrage from outside North America for an extended period. At the same time, the federal and state level mandates would likely require higher volumes of feedstocks than domestic producers can supply in the near to medium term. This leaves open questions about where the correction will come from. If the policies hold firm, the premium of domestic feedstocks will need to increase to a major degree to make imports economical. Another avenue to somewhat balance the short domestic feedstock market would be through granting Small Refinery Exemptions (SREs), which could de facto lower the 2025 RVO obligations, though the EPA has stated that for 2026-27 any SREs granted would need to be offset towards the RVOs by the remaining obligated parties. Another option is to introduce some exemptions or other workarounds to the credit disadvantage for imported feedstocks. Either way, the US market will remain somewhat paralyzed as long as there is no clarity on the final RVOs and SRE status.

Around the world: Turkish policymakers announced plans to introduce a SAF mandate. The obligation would apply to airlines as well as jet fuel suppliers, with the goal of reducing GHG emissions 5% by 2030. The country’s civil aviation authority will set and publish annual emission reduction obligations in the third quarter of each compliance year - with the first mandates potentially kicking off in 2027, yet this is still to be confirmed. A Turkish SAF mandate would be impactful not just because Istanbul Airport is likely to overtake London Heathrow as the busiest airport in Europe, but it would also lower the risk of long-distance Europe-Asia flights tankering in Turkey to avoid EU mandates. It remains to be seen what pathways or feedstocks qualify and whether domestic SAF is somehow favored towards the potential Turkish mandate. 

Indonesia’s Ministry of Energy and Mineral Resources has signaled that its fund for financing biodiesel production will be increased. The main reason that the fund was no longer deemed sufficient is the relatively high palm oil prices compared to low diesel prices. Partly to finance the fund and to keep more feedstocks available for domestic production, the country has recently hiked export levy rates on crude palm oil as well as POME and UCO. Indonesia is one of the largest biodiesel markets in the world, with a B40 mandate in place and ambitions to further increase it to B50. 

Brazil’s National Petroleum Agency released a list with fuel distributors that have been in breach with the country’s RenovaBio program. More than 30 fuel suppliers are included on the list, potentially facing penalties up to USD 90 mn. Many of the cases are expected to be settled in court. Already the second largest biofuel market in the world in terms of volumes, Brazil’s mandates will further increase in the coming years through the Fuels of the Future program, while E30 and B15 are mandated from 1 August. Penalties and compliance enforcement is therefore worth monitoring.

Uruguay will reinstate a biodiesel mandate in the coming months after its B5 mandate was scrapped in 2021. The new mandate will start at B2 and increase annually to reach B5 again, while the country’s E10 mandate remains unchanged. The Philippines is delaying a planned increase of the current B3 mandate, which was set to increase to B4 in October and B5 in 2026, quoting high coconut oil prices and the impact on diesel prices. Vietnam’s Ministry of Industry is drafting a roadmap for the nationwide adoption of E10, scheduled to take effect nationwide on 1 January 2026 and already offered in the country’s three largest cities from August. Uganda plans to mandate E5 starting in 2026, with a plan to gradually increase this to E20.