The U.S. Environmental Protection Agency has announced its final Renewable Volume Obligation (RVO) blending rule for biomass-based diesel.

The EPA set the blending mandate for biodiesel and renewable diesel to 5.4 billion gallons in 2026 and 5.5 billion gallons in 2027.

That is a 61 to 64 per cent increase over the 2025 level of 3.35 billion gallons.

“We’re very pleased to see those updates, and Canadian canola can make a meaningful contribution there,” said Canola Council of Canada president Chris Davison.

WHY IT MATTERS: The U.S. is the biggest buyer of Canadian canola oil.

He has not yet seen the EPA’s official regulatory text, but based on the agency’s announcement, there does not appear to be anything preventing Canadian canola oil from helping to meet the feedstock demand for the new RVOs.

“Canola is a modest but important feedstock in U.S. biomass-based diesel production,” said Davis.

The new RVOs should create an “appreciable opportunity” for Canada’s canola crushers who have greatly increased production capacity in recent years.

U.S. oilseed groups were thrilled with the EPA’s announcement.

The American Soybean Association said soybean farmers needed a win to boost domestic markets, and U.S. president Donald Trump’s administration delivered “in a big way.”

“The 2026-27 RVOs will increase soybean oil use, boost U.S. soybean processing and grow domestic biofuel markets for our crop,” ASA president Scott Metzger stated in a press release.

The final rule also reallocates 70 per cent of retroactive small refinery exemption volumes dating back to 2016 back into the blending pool to support additional biofuel production and soybean demand.

The only letdown for U.S. soybean growers was that they did not get their wish for the rule to prioritize domestically sourced biofuel feedstocks in 2026 and 2027.

EPA to reduce credits for imported biofuel, feedstocks

However, the EPA announced that it will reduce credit generation for imported biofuels and biofuel feedstocks by half, beginning in 2028.

If the EPA lives up to that promise, it would serve as a significant additional economic driver for the U.S. soybean sector, according to the association.

Davison is not sure what the EPA means by imported biofuel and feedstocks. At one point, the agency was considering a proposal to create a ring fence covering all of North America, and anything outside that zone would be considered imported.

He needs to see the details of the regulation to figure out what the EPA is considering for 2028.

The U.S. biofuel industry accounts for more than half of all U.S. domestic soybean oil consumption.

Clean Fuels Alliance America noted that biodiesel and renewable diesel facilities were forced to shut down or run far below previous year levels in 2025 due to market uncertainty.

U.S. biodiesel production declined by one-third compared to 2024 levels.

“The robust biomass-based diesel volumes set in this rule support America’s farmers and consumers,” Kurt Kovarik, Clean Fuel’s vice-president of federal affairs, stated in a press release.

Demand from the biodiesel and renewable diesel sector accounts for 10 per cent of the value of every bushel of U.S. grown soybeans.

The National Oilseed Processors Association called it a “landmark rule” that provides certainty and confidence for American farmers and processors.

“The historic volumes for biomass-based diesel, the 70 per cent reallocation of waived gallons, and the commitment to account for SREs (small refinery exemptions) on a go-forward basis, restores program integrity and puts the RFS (renewable fuel standard) back on a growth trajectory,” association president Devin Mogler said in a press release.

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Chris Davison, president of the Canola Council of Canada, hasn’t had a chance to do a deep dive into the proposed regulation, but he likes what he has seen on the surface.

“On first blush, there are a number of provisions that can certainly help support Canadian canola’s access to the U.S. biofuel market,” he said.

It took one year for the U.S. Department of the Treasury and the Internal Revenue Service to clarify how the credit will work.

The credit has been available since January 2025, but producers and farmers have struggled to capitalize on it because there was minimal guidance to accompany the credit.

The newly published guidance helps biofuel producers determine their eligibility for and to calculate the credit made available under the One, Big, Beautiful Bill.

WHY IT MATTERS: The U.S. biofuel sector could be a huge customer for Canadian canola oil.

Davison is pleased to see that the credit limits feedstocks to those grown or produced in the U.S., Mexico and Canada.

“That’s a critical provision in terms of helping ensure that the economic benefits of biofuel accrue back to farmers domestically from the (Canada-U.S.-Mexico Agreement) countries,” he said.

It means biofuel made from used cooking oil and tallow from overseas markets does not qualify for the credit.

Canada’s canola industry is advocating for similar measures to be included in Canada’s Clean Fuel Regulations amendments.

The updated 45Z guidance also confirms that fuel made from Canadian canola is an approved pathway and that the indirect land use change penalties associated with agricultural feedstocks have been removed.

Biofuel is a policy-driven market, and there is one big remaining piece of that puzzle, which is when the U.S. Environmental Protection Agency establishes its Renewable Volume Obligations (RVOs) for 2026 and 2027.

The EPA has floated a proposal that imported biofuel and biofuel made with imported feedstock would be assigned half as many Renewable Identification Number (RIN) credits as fuel made with domestic feedstocks.

That idea has been embraced by groups such as the American Soybean Association but strongly opposed by Canada’s canola sector.

The EPA recently said it expects to issue its final RVO rule during the first quarter of 2026.

Davison said the 45Z credit and the RVO ruling will strongly influence Canada’s canola oil sales to the U.S. market.

He is pleased to see that the first domino appears to have fallen in the right direction.

“This is a positive development and we should recognize that,” he said.

“It recognizes that Canadian canola is an important feedstock for biofuel producers in the U.S. as well as Canada.”

Crux, a capital markets platform for the clean economy, estimates that US$1 billion in 45Z credits were transacted in 2025.

It anticipates the new guidance will unlock an additional $1 to $1.5 billion in credits by the end of the third quarter of 2026.

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The credit has been available since January 2025, but producers and farmers have struggled to capitalize on it because there was minimal guidance to accompany the credit.

WHY IT MATTERS: The U.S. biofuel sector is a potentially huge market for Canadian canola oil.

The newly published guidance helps biofuel producers determine their eligibility for and to calculate the credit made available under the One, Big, Beautiful Bill.

The big news for Canada’s canola producers is that the credit limits feedstocks to those grown or produced in the United States, Mexico and Canada.

That is something that Canada’s canola industry had been hoping for.

The credit has also been extended to Dec. 31, 2029.

Clean Fuels America welcomed the proposed 45Z rules.

“The agency responded to many taxpayer concerns and resolved some uncertainties from the guidance issued a year ago. We anticipate this proposal will provide additional market certainty for biodiesel and renewable diesel producers,” Kurt Kovarik, Clean Fuels’ vice-president of federal affairs, said in a press release.

“The delay in rule-making led to market uncertainty that took a heavy toll on our industry, undercutting fuel production and the value added to agriculture.”

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Dennis Voznesenski, agricultural economist with the Commonwealth Bank of Australia, said global production of biodiesel and renewable diesel is forecast to decline 2.4 million tonnes, which will weigh on feedstock demand and prices.

European Union production is forecast to fall to 14.8 million tonnes from 15.5 million tonnes last year.

“Not only is European biodiesel production forecast down this year, but European canola production itself is up due to favourable weather,” he said in a recent Agri Commodity Weekly Alert report.

The European Commission is forecasting 19.92 million tonnes of rapeseed production, which would be 12 percent above the five-year average.

U.S. production of biodiesel/renewable diesel is forecast at 14.2 million tonnes, down from 16 million tonnes last year.

“Poor profit margins for biofuel producers have curbed production,” said Voznesenski.

RIN values are down 47 per cent from last year. They are government credits that biofuel producers receive for producing a unit of biofuel.

Western Producer Markets Desk analyst Bruce Burnett thinks it might be premature to be forecasting a drop in U.S. biofuel production.

The U.S. Environmental Protection Agency was poised to make its final rule on biomass-based renewable volume obligations sometime around the end of October.

However, the decision could be delayed by the partial government shutdown that began Oct. 1, which furloughed nearly 90 per cent of EPA staff, according to a Biodiesel Magazine article.

The EPA released its proposed rule in June, which set a biomass-based diesel mandate of 5.61 billion gallons for 2026 and 5.86 billion gallons for 2027.

That is a massive increase from the 3.35-billion-gallon mandate for 2025 and exceeded the 5.25 billion gallons for which a coalition of oil and biofuel groups had been lobbying .

The bad news for Canadian canola growers is that the EPA also proposed that foreign biofuels and feedstocks would only generate 50 per cent of the RIN credit value relative to U.S. biofuels and feedstocks.

Burnett said U.S. demand for Canadian canola oil will greatly depend on what the EPA decides to do in its final rule because nobody is making any blending decisions based on the proposed rule that came out in June.

“The demand doesn’t appear until the regulation is finalized,” he said.

He agrees with Voznesenski that the forecast for slumping biodiesel/renewable diesel demand in the EU and the region’s large rapeseed crop is troubling.

That was supposed to be a market that could buy more Canadian canola seed, helping offset the recent loss of the Chinese market due to its imposition of a 75.8 per cent anti-dumping duty on Canadian canola seed imports.

The good news is that the U.S. Department of Agriculture is forecasting 229.28 million tonnes of global vegetable oil demand in 2025-26, a 6.78 million tonne increase over last year.

“That’s a substantial amount of vegetable oil,” said Burnett.

That seems to indicate that demand from the food sector is strong, even if biofuel demand might be waning, but it remains to be seen which vegetable oil will benefit the most from that increased demand, he said.

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Continued wrangling on biofuel policy

U.S. industry groups continue to spar with the Trump administration over a proposal to slash incentives for biofuel imports. The Environmental Protection Agency (EPA) proposal, which could be finalized before the end of the year, would allocate half as many renewable fuel credits to imported biofuels and biofuel feedstocks as to domestic ones.

Effectively, U.S. biofuel plants using Canadian canola would earn 12 cents less per pound from fuel credits than if they used U.S. soybean oil, wrote FCC senior economist Justin Shepherd in an Aug. 13 report.

The American Petroleum Institute said in a letter to the EPA that the country lacks enough feedstock to meet federal quotas without imports.

“As proposed it is unworkable and would have significant harmful effects on the overall (Renewable Fuel Standard) program and could place upward pressure on fuel costs,” the institute said.

The institute also challenged the legality of the proposal.

U.S. producers, specifically soybean farmers, hailed the proposed shift as a victory, arguing the Renewable Fuel Standard was always intended to boost domestic production and that countries like China were flooding the market with cheap supply.

Canadian impacts

“Canada exports more vegetable oil – mainly canola – to the U.S. for biofuel production than it uses domestically,” Shepherd wrote.

Canada used a bit more than 1 million tonnes of vegetable oil for domestic biodiesel and renewable diesel, but exported 2.8 million tonnes to the U.S, he said.

The U.S. tax credit for biofuels has also shifted from being granted at the point of blending to a producer-based model. This changed excludes imported Canadian biodiesel and renewable diesel.

“This adjustment may reduce opportunities for Canadian exports of these biofuels, leading domestically produced biodiesel and renewable diesel to seek alternative markets,” Shepherd said.

Canadian biodiesel and renewable diesel output ramped up in 2024 as two new facilities came online, however the FCC report shows production dropped off as the new year began. It attributes this to uncertainty around the U.S. blender tax credit.

The EPA also announced higher-than-expected blending targets for 2026 and 2027, which boosted North American oilseed markets.

Hopeful signs?

“These considerations indicate that biodiesel and renewable diesel produced in Canada may face demand constraints,” wrote Shepherd.

However, the USDA projects that more than half of U.S.-produced soybean oil will be used for biofuels. This could send domestic and international buyers to Canadian vegetable oil as an alternative. Since canola oil is closely linked in price to soybean oil, it could see some market support.

Canadian oilseed producers could also see some opportunity down the line in sustainable aviation fuel (SAF) production. Sustainable aviation fuel production is produced via similar methods to renewable diesel and also typically uses vegetable oils as feedstocks.

“Canada does not have operational plants, though future development is anticipated,” Shepherd said.

—With files from Reuters

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The Canadian International Trade Tribunal published its decision on Monday and said in a news release that it had terminated its inquiry into the matter.

The investigation was launched in early March after British Columbia-based Tidewater Renewables Ltd. filed a complaint with the Canadian Border Services Agency.

Tidewater alleged that due to an increase in the volume of dumped and subsidized U.S. imports, it lost market share and sales, and saw depressed prices and profitability.

The complaint was not related to ongoing trade disputes with the U.S., the company said.

The tribunal is an independent, quasi-judicial body that reports to Parliament through the Minister of Finance.

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The coalition also recommended total federal biofuel blending mandates for 2026 at 25 billion gallons, the sources said. The coalition, led by the American Petroleum Institute, a top U.S. oil trade group, presented the figures to the EPA in a meeting last week.

Why it matters: The trajectory of the U.S. biofuel market has implication for Canadian oilseed producers

While the recommendations were for one year of mandates, the EPA is expected to release a proposal that covers both 2026 and 2027, Reuters previously reported.

API declined to comment on specific numbers, while the EPA did not respond to a request for comment.

The coalition’s suggestion of 5.25 billion gallons for biomass-based diesel mandates was slightly lower than the range of 5.5 billion to 5.75 billion gallons considered ahead of the meeting and previously reported by Reuters.

Big Oil and the Farm Belt’s biofuel makers are traditional competitors in the multibillion-dollar U.S. gasoline market, but have come together to form a consensus at the request of the White House in recent months in hopes of avoiding the type of clashes that defined the first Trump administration.

The new 5.25 billion-gallon figure from the API-led coalition is in line with a number recommended to the EPA by Clean Fuels Alliance America – a U.S. biodiesel trade group – along with farm and feedstock groups.

In a mid-March letter to EPA Administrator Lee Zeldin, that coalition said EPA’s previous mandates failed to support the growth of the advanced biofuel industry and undercut the market.

The EPA set biomass-based diesel mandates for the 2025 compliance year at 3.35 billion gallons.

Under the U.S. Renewable Fuel Standard, oil refiners must blend billions of gallons of biofuels into the nation’s fuel mix, or buy tradable credits from those that do.

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Why it matters: The rise and fall of the biofuel sector has major implications for Canadian canola, already beleaguered by tariffs and trade tensions

The splintering relationship between the North American neighbors could upend a multi-year biofuel industry boom that has provided farmers growing demand for their crops as fuel makers have soaked up record volumes of vegetable oils.

Trump’s wavering approach to tariffs is rippling down to processors on both sides of the border, who crush oilseeds into meal and oil, and to farmers, who are finalizing their spring planting plans.

Processing capacity threatened

While new U.S. tariffs are threatening to make imported feedstocks unaffordable, uncertainty over U.S. biofuel subsidy programs, including a Biden-era tax credit that determines how much producers pay for the oils and fats they make into biofuel, is further hobbling the industry.

The contraction of the green fuels sector could also hurt rural communities and efforts to decarbonize the economy, experts said.

“If this uncertainty drags on, which is what we expect, the biodiesel and renewable diesel industry will contract but not disappear. It will shrink, painfully at times,” said Paul Niznik, director of energy at Capstone LLC in Houston.

Citing uncertainty and rising costs, Federated Co-operatives Limited has shelved a renewable diesel and canola processing plant project in Saskatchewan, one of five projects slated to expand Canada’s canola crush by 60 per cent over five years.

In the U.S., a biodiesel plant in Iowa was idled in late December and others have slowed production, resulting in the lowest output of the fuel in five years. In January, renewable diesel production fell 17 per cent from the 2024 monthly average, according to Environmental Protection Agency data.

Glut of renewable fuel

U.S. capacity to produce biodiesel and renewable diesel, two chemically unique fuels made from animal fats and vegetable oils like canola and soy, has grown around 60 per cent since 2022, government data shows, spurred by federal policy to lower greenhouse gas emissions and reduce reliance on foreign oil. The United States is the world’s largest producer and consumer of biofuels.

U.S. soybean crush capacity increased 10 per cent in that time as grain giants like Archer-Daniels-Midland and Bunge raced to meet growing demand.

Record oilseed processing margins helped the two companies, which operate half of Canada’s canola plants and represent nearly 40 per cent of U.S. soy crush capacity, turn in their best ever profits in 2022 and 2023.

Now, there is a glut of diesel made from non-fossil sources and both ADM and Bunge have warned that 2025 earnings could sink to the lowest in six years due to the uncertainty.

U.S. turmoil

Canada dodged a February tariffs deadline only to see Trump impose 25 per cent duties on imports on March 4. Two days later, levies on some products were paused until April 2.

“Just how do you set a price when you don’t know if you’re going to be wrong a day later, a month later, six months later?” said Capstone’s Niznik.

Meanwhile, Trump’s administration has yet to provide clarity on clean fuel tax credits.

Former U.S. President Joe Biden transformed U.S. biofuels policy in his signature Inflation Reduction Act, moving from a flat $1 per gallon blenders credit for biomass-based diesel to a variable producers credit based on the carbon intensity of feedstocks.

Biden, however, left office without finalizing guidance about how the policy, known as 45Z, would be implemented. Now, it is unclear whether those rules will take effect at all, industry sources said.

That uncertainty is the main reason Western Dubuque Biodiesel, a million-gallon-per-year biodiesel plant in Farley, Iowa, has been idled since late December, its lengthiest downtime since 2010, according to General Manager Tom Brooks.

“If I were to run today, I lose 46 cents a gallon under 45Z. Under that previous credit, I would have made 15 to 20 cents a gallon,” Brooks said.

The industry is also urging the Trump administration to increase biofuel volumes under the Renewable Fuel Standard, another crucial source of government support for producers.

Under existing RFS volume mandates set to expire this year, the amount of biodiesel and renewable diesel production backed by the RFS is only 3.35 billion gallons annually, well below the industry’s capacity of around 5 billion.

The EPA, which administers the RFS, did not respond to a request for comment.

Risks on the farm

Canada shipped $6.02 billion in canola and canola products to the U.S. in 2023, including $4.37 billion in oil. Those products, and any Canadian-produced biofuel, face 25 per cent tariffs starting April 2.

“Given the risk, prices are going to drop. Shipments are going to slow. Long-term contracts are going to get very, very tenuous,” said Rick White, president and CEO of the Canadian Canola Growers Association.

Analysts say the uncertain future has already depressed canola prices by up to $100 per metric ton.

U.S. soybean growers are also expected to slash plantings this spring amid a supply glut and tepid demand, with crush margins down almost 60 per cent from a year ago.

Kody Blois, Canada’s new agriculture minister, said on Monday that he was working with Prime Minister Mark Carney to create more demand in Canada.

Meanwhile, Alberta farmer Andre Harpe still has canola from the 2024 harvest.

“Right now we don’t know if we should be selling or holding or dumping,” Harpe said.

Farmers can alter what they plant this spring, but for a giant crushing plant built to feed what had been a growing market for vegetable oils, adaptation is no easy thing.

“Not knowing what your biggest market is going to do tomorrow is frustrating, to say the least,” Canadian Oilseed Processors Association Executive Director Chris Vervaet said.

—Additional reporting by Stephanie Kelly and Jarrett Renshaw

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“These practices can harm Canadian industries by undercutting Canadian prices, which undermines fair competition,” it said in a news release.

The investigation was launched after Tidewater Renewables Ltd. filed a complaint with the CBSA. Tidewater Renewables is a British Columbia-based renewable energy company.

Tidewater alleges that due to an increase in the volume of dumped and subsidized imports from the U.S., they lost market share and sales and saw price depression and reduced profitability, the CBSA said.

“We believe the investigation is an important step in levelling the unfair trade environment and offsetting unfair trade practices that have caused a flood of subsidized and dumped renewable diesel into Canada, significantly undermining the Canadian industry”, said Tidewater CEO Jeremy Baines.

The complaint and investigation are not related to the ongoing trade dispute with the U.S., the company said.

The Canadian International Trade Tribunal will investigate if imports are harming Canadian producers, and will issue a decision in early May. The CBSA will look into whether imports are being sold at unfair prices or are being subsidized. That preliminary decision will come in early June.

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Section 45Z of the Clean Fuels Production Credit provides a tax credit for the production of transportation fuels with lifecycle greenhouse gas emissions below certain levels. The credits of up to US$1.75 per gallon for sustainable aviation fuel (SAF) and US$1.00 per gallon for non-SAF transportation fuels is in effect as of Dec. 31, 2024, and run through 2027.

“This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers,” said Deputy Secretary of the Treasury Wally Adeyemo in a news release, adding “decarbonizing transportation and lowering costs is a win-win for America.”

Section 45Z provides a per-gallon (or gallon-equivalent) tax credit for producers of clean transportation fuels based on the carbon intensity of production. It consolidates and replaces pre-Inflation Reduction Act (IRA) credits for biodiesel, renewable diesel, and alternative fuels, and an IRA credit for sustainable aviation fuel. Like several other IRA credits, 45Z requires Treasury to establish rules for measuring carbon intensity of production, based on the Clean Air Act’s definition of “lifecycle greenhouse gas emissions.”

“We appreciate the critical role that America’s farmers play in building a clean energy economy, including by providing feedstocks for advanced biofuels grown with climate-smart practices that help farmers earn more for what they grow,” said John Podesta, White House Senior Advisor for International Climate Policy in the release. “Today’s announcement reinforces the important role climate-smart agriculture plays in clean transportation as well as the importance of providing pathways for unbundled accounting of climate smart practices that producers can count on.”

“This tax credit is essential to U.S. competitiveness and to reduce emissions in the transportation sector with more affordable, cleaner fuel,” said U.S. Deputy Energy Secretary David M. Turk in the release.

The guidance provides clarity on issues including which entities and fuels are eligible for the credit, and how taxpayers determine lifecycle emissions. Specifically, the guidance outlines Treasury and the IRS’ intent to define key concepts and provide certain rules in a future rulemaking, including clarifying who’s eligible for a credit and what fuels are eligible. Under section 45Z, a fuel must be “suitable for use” as a transportation fuel.

The notice begins a 90-day comment period that leaves major decisions on the future of the 45Z credit to the incoming Trump administration.

“While we are pleased to see Treasury has finally released its long overdue guidance on 45Z, today’s package falls short of expectations and remains incomplete,” said Geoff Cooper, President and CEO of the Renewable Fuels Association (RFA) in a separate release. “The guidance is a potential step in the right direction, but much work remains to be done before clean fuel producers, farmers, and consumers can fully benefit from the 45Z program.”

Cooper said important information from the emissions rate table remains unavailable in the guidance, making it impossible for producers to know whether their fuel is eligible for the credit or not. While that information, along with a new 45Z GREET model, is expected to be released soon, Friday’s guidance leaves biofuel producers in limbo, according to the RFA.

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