In the search for more sustainable solutions to rising energy demands and environmental concerns, biofuels and other alternative energy sources are gaining traction as alternatives to traditional fossil fuels. Driven by shifting federal policies, ongoing regulatory adjustments, and dynamic market forces, the biofuel market is facing growth opportunities as well as obstacles ahead.
By understanding the key developments impacting the biofuel market—including production trends, regulatory changes, and the vital role that oilseed processing plays in biofuel expansion—processors can better position themselves to capitalize on growth potential and navigate the uncertainties of the biofuel market.
Biofuel market overview
U.S. biofuel demand is fundamentally shaped by federal and state policies designed to promote renewable energy use. The cornerstone regulation is the Renewable Fuel Standard (RFS), a federal program requiring transportation fuels sold in the U.S. to contain a minimum volume of renewable fuels—including conventional corn-based ethanol as well as advanced biofuels derived from soybean oil, camelina sativa oil, or canola/rapeseed oil.
Developed as part of the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007, the RFS originally required that 36 billion gallons of renewable fuel be blended into domestic transportation fuel by 2022. However, in 2022, less than 19 billion gallons of biofuels were produced in the U.S., and less than 18 billion gallons were consumed—falling short of the RFS goals.
Global demand for biofuels was forecast to increase by 56% between 2022 and 2027. Amid these high expectations for growth, however, the U.S. biofuel market struggled to keep pace as capacity additions slowed with only a modest 3% increase from 2024 to 2025, largely due to weak margins and regulatory uncertainty.
Specifically, biodiesel production capacity decreased slightly from 2024 to 2025, with several plants closing due to poor margins, resulting in a loss of about 100 million gallons per year. Renewable diesel production also slowed to less than one-third of the growth observed in 2022 and 2023. As a result, the U.S. Energy Information Administration trimmed its outlook for domestic biofuel production in 2025, while raising its forecast for next year.
Meanwhile, ethanol production capacity increased more than in previous years, accounting for 73% of all biofuel production with a capacity of about 18.5 billion gallons per year. As domestic consumption of ethanol remains relatively flat, most of this increased production capacity is expected to contribute to increased ethanol exports, which are projected to reach $4.2 billion in 2025, tying the record set in 2023.
Regulatory uncertainty
In 2023, the U.S. Environmental Protection Agency (EPA) began setting annual volume requirements of the RFS—frequently lowering the target due to underproduction and other biofuel market challenges. Although the EPA released a proposed rule for the 2026 and 2027 RFS requirements in June 2025, asserting that the proposed volumes “reflect the significant growth potential for renewable fuel production in the United States using domestic feedstocks,” these updates still have not been approved.
Throughout 2025, the EPA issued decisions on numerous small refinery exemptions, aiming to address compliance flexibility and ensure that producers meet renewable fuel volume obligations. The agency also introduced regulatory changes, such as adjustments to compliance reporting, designed to reduce the burden on domestic biofuel producers.
Despite these efforts, regulatory uncertainty persists. The Trump administration is not expected to finalize the 2026 biofuel quotas by the end of 2025, which will stall a critical policy decision that stakeholders rely on for planning and investment. This delay hinders supply contracts, hedging strategies, and justification for increased production capacity—leaving oilseed processors and biofuel producers in a holding pattern as they await regulatory clarity.
Opportunities for oilseed
As processors navigate shifting compliance requirements and policy decisions, the oilseed industry’s role in the biofuel market becomes even more pivotal. Oilseeds—particularly soybean and rapeseed/canola—are essential ingredients in U.S. biodiesel production. More than 80% of U.S. biofuel feedstock originates from edible oilseeds, with nearly half of all domestic soybean oil being used for biofuel production.
The rising demand for biofuels has a direct impact on crop production and pricing. As biofuel mandates and incentives drive the need for oilseed supplies, farmers are increasingly shifting acreage from corn to soy, contributing to ongoing corn shortages and influencing the broader agricultural supply chain. This shift also affects livestock feed mills, as the price of oil for biofuel production can make fat less affordable for animal diets, while soybean meal—the protein-rich byproduct of oil processing—may become more accessible as oil supplies increase.
At the forefront of this evolving biofuel market, processors can drive growth by investing in expanded crush facilities and exploring new oilseed varieties such as camelina to diversify biofuel supply. Through technological advancements and innovations in oilseed processing, operators are unlocking new strategies to bolster oilseed supplies, control input costs, and meet rising demand for biofuel feedstocks.
Poised for biofuel market growth
Although fluctuating demands and regulatory uncertainties have created a complex environment for biofuel production, the oilseed processors that innovate, adapt, and respond to evolving needs with agility will be positioned for growth as the biofuel market matures. For example, investing in top-quality processing systems that can efficiently crush a wide range of oilseed varieties can give operators the flexibility to explore new materials, mitigating risks like price volatility and supply disruptions.
By leveraging federal and state incentive programs to offset costs and support growth, while optimizing their own operations for efficiency, producers can strengthen their competitive stance in the biofuel market, which is expected to grow from $64 billion in 2024 to around $106 billion by 2034. Through strategic investments in innovation, processors can navigate biofuel market fluctuations to drive the transition toward a more sustainable energy future—capitalizing on new growth opportunities along the way.
Ready to fuel your growth by processing oilseeds for the biofuel market? Contact Anderson International to get started.