Abundant Oils, Restrained Waste: A Pivotal Moment for Biofuels Policy

Vegetable oil production is set to hit a new record in 2025/26, with global output forecast at 234.5 million tonnes—enough to fully meet anticipated demand. According to USDA and Agrarmarkt data, this surge is driven by higher output across palm, soybean, rapeseed, and sunflower oils. However, even as global volumes rise, European policy is reshaping the conversation. UFOP has renewed its call to cap and eventually abolish the double counting of biofuels derived from waste oils, highlighting that the RED Annex IX framework increasingly limits blending of such feedstocks to promote crop-based oils. This is favorable for EU farmers who have responded with strong planting activity.

In the U.S., the White House’s decision to approve 163 Small Refinery Exemptions (SREs)—amounting to 1.36 billion gallons of waived RVOs—was a surprise. The waivers will be redistributed to larger refiners over time, but the short-term market read was bearish. D4 RINs fell to $1.09 today, with the screen biodiesel gross crush margin still deep in the red at -44 cents per gallon. Meanwhile, the House-approved bill included a notable change: the 45Z and 45Q credits will no longer be transferable, a structural shift that complicates monetization for smaller producers. Everyone is still expecting the EPA's promise of issuing new RVOs soon that start in 2026, while SREs will impact immediately.

European barge trading in ARAG was largely muted, with UCOME leading the day at $1,393/mt. Flat price spreads are becoming more pronounced: HVO CL2 (UCO) and HVO 4 (POME) traded at $1,900/mt, creating a remarkable premium of $507/mt over UCOME. Meanwhile, FAME was unchanged at $1,284/mt, reflecting a weak gross replacement margin of just $74/mt—insufficient to justify processing, especially in light of rising input costs.

This divergence in premiums underscores the challenge facing waste-oil-based fuels. With RED policy tightening and scrutiny over feedstock eligibility intensifying, markets are favoring traceable, crop-based alternatives. The debate over what qualifies as “advanced” is no longer academic—it’s driving price spreads and investment flows.

With the EPA’s proposed 2026 RFS volumes soon to be released and RED revisions underway in Europe, the policy frameworks on both sides of the Atlantic are shifting. The next few weeks could define the direction of biofuels growth—whether toward technology-agnostic GHG reductions or stricter limits on eligible feedstocks.