Renewables Evolution: Part 3 - The Renewable Diesel Reality Check

By Bryan Kaus

Nearly 1 billion gallons per year of planned renewable diesel capacity has been shelved over the past 12 months. Here's what that reveals about the sector's evolution.

Why the Pull-Back?
The margin math changed brutally fast. Feedstock prices fell, but not nearly enough. Soybean oil is down roughly 50% from 2022 highs, while used cooking oil dropped from ~ $0.88/lb to ~$0.41/lb. These declines, though significant, have been completely outpaced by collapsing credit values.

The incentive erosion was particularly sharp: D4 RIN prices dropped around 45% from early 2025 levels—following a roughly 72% fall since 2023. California LCFS credits plummeted from approximately $180/tonne to $50–60/tonne as renewable diesel supply flooded the market. Lower feedstock costs plus collapsed credits equals margins squeezed to uneconomic levels.

This squeeze was severe enough that U.S. renewable diesel output fell 12% in Q1 2025 versus Q1 2024, as producers idled capacity or delayed new projects. Even industry leaders like Chevron closed biodiesel plants in the U.S. Midwest, and a PE-backed refinery was forced into warm-idle status amid tax-credit uncertainty.

Winners vs. Laggards
The companies navigating this downturn successfully share distinct characteristics:
1.) Feedstock diversity — reducing reliance on domestic soy oil by incorporating tallow, used cooking oil, or nonfood sources.
2.) Geographic optionality and logistics mastery — shifting focus from oversupplied U.S. and European markets toward Asia and Brazil while optimizing supply chains.
3.) Operational excellence — mastering complex hydrogenation and refinery processes, maintaining high uptime, and ensuring consistent product delivery.
4.) Conservative credit assumptions — modeling projects based on realistic LCFS pricing at $50–60/ton and RIN values at $0.70–0.80/gallon, rather than betting on policy upside.

Structural Limits
Renewable diesel is valuable, but it's not a complete substitute for conventional diesel. Feedstock constraints mean the sector will realistically capture 10–15% of mature-market diesel demand—meaningful but limited.

U.S. renewable diesel capacity expanded rapidly from 800 million gallons in 2020 to over 5 billion projected in 2025, though revised estimates have lowered forecasts to approximately 5.1 billion gallons. Much of that capacity remains unbuilt or unutilized, and without feedstock or credit recovery, growth will flatten.

The Bottom Line
The renewable diesel sector is maturing under pressure, creating a clear divide between those still chasing scale with aggressive assumptions and those de-risking through feedstock discipline, process control, and geographic strategy.

What we're witnessing is market realism separating strategic operators from opportunistic players.