LINCOLN, Neb. (DTN) -- Historically high biodiesel volumes in the Renewable Fuel Standard took effect in March 2026, and already, the industry has seen the beginning of a bounce back after years of struggle.

The question remains: How does an industry go from zero to 100 miles per hour on a shortened track in 2026 and in the years to come?

Kurt Kovarik, vice president of federal affairs for Clean Fuels Alliance America, said that as soon as the volumes were finalized, the industry started to respond to what were the highest biomass-based diesel volumes in the history of the RFS for 2026 and 2027.

But there's still a long way to go.

"So, in my view, the biggest challenge is just simply going to be the quick ramp-up time that's going to be necessary to get the feedstock produced, get it to the fuel producers, get the fuel producers back online," Kovarik said during an industry webinar on Thursday.

"If you look back at 2025, our industry was operating at 50% or 60% capacity simply because of the low RVOs, the uncertainty in tax policy. So, flipping those plants back on, it doesn't happen overnight. You've got to have contracts in place for fuel. You've got to have contracts in place for feedstock. I think we're going to see as this RVO came out that we're going to be operating 75% or higher. EPA indicated we need to be operating at close to 90% for the remainder of the year. I'm confident we'll be able to do that."

For context, the 2025 RVO was set at 3.35 billion gallons, Kovarik said. Yet, the industry was already above that volume in 2023 and well above 5 billion gallons in 2024. The new volumes for 2026 came in at 5.4 billion gallons, which was above the 5.25 billion gallons the industry sought.

Kovarik said that for the longer term, however, the EPA needs to start work on the RVOs for 2028 and beyond. The additional years are needed to provide the certainty for investments beyond 18 months to two years, he said.

"We need to ensure that we've finally put the nail in the coffin of the abuse of the small-refiner exemptions that, for the last eight or 10 years, have been undermining our industry with the granting of small-refiner exemptions that eroded the volume obligations in the dead of night, unknown to the biodiesel industry, that really did an economic damage to our biodiesel producers," Kovarik said.

E15 BILL BIODIESEL CONCERNS

During the recent debate and vote on the year-round E15 bill in the U.S. House of Representatives, most ag and biofuels groups were behind the push to get the measure passed.

The American Soybean Association was one of few groups that expressed concern that biofuels such as biomass-based diesel could be nudged out in the RFS for more ethanol to meet the E15 demand.

Kovarik said E15 could displace some biomass-based diesel gallons. In addition, he said there is some concern about how the bill includes reforms to small-refinery exemptions, including the automatic granting of some exemptions.

If the measure passes the U.S. Senate and becomes law, however, the biomass-based diesel industry will have a chance to make their case, Kovarik said.

"The key component of that is it doesn't take effect until 2028," he noted.

"So, we have an opportunity as advocates for the biomass-based diesel industry to go to EPA. And if this were to become law, I think we would essentially know exactly how many refiners would receive an SRE. We know exactly how many gallons of petroleum would be exempted. So, we can do the math and figure out exactly how many gallons it is that the biomass-based diesel industry would lose from this deal."

LACK OF CERTAINTY

Lack of certainty has been a thorn in the side of the biodiesel industry dating back to the early days of the RFS.

Northeast Nebraska farmer Greg Anderson said that uncertainty has always found its way to the farm.

The latest RVOs, however, have made at least the near-term outlook better for his operation, he said.

"Long-term demand growth is so vital to our success," Anderson said.

"I think of that as a strategic plan that every farmer has. We're not looking just at this year's crop, we're looking at plans for fertilizing, for maybe acquiring more land, for transitioning years ahead. And for example, yesterday I just bought a tractor that I needed here for quite some time. Probably wouldn't have made that decision a couple years ago when some of these uncertainties were there."

With the recent expansion of soybean crush capacity in the U.S. to support biofuels, there is expected to be a glut of soybean meal on the market -- about 10 million additional tons annually compared to just a few years ago.

Chris Schaffer, the CEO and general manager of Ag Processing Inc. based in Omaha, said he's keeping an eye on trade relations between the U.S. and China.

In the past three years, AGP has invested north of $1 billion in expanding soybean crush capacity. That includes building a new crushing plant in David City, Nebraska, and expanding the crushing capacity at the company's plant in Seargeant Bluff, Iowa, as well as nearing the completion of a second bulk export terminal in Port of Grays Harbor, Washington.

"The lack of a Chinese market this year -- I mean, short term -- that's beneficial to a company like AGP who competes with China for beans," Schaffer said.

"Long term, it's negative because we'll probably grow less beans if we don't have a market for the soybeans that we can't absorb all at our crushing plants in the U.S. So that's kind of a double-edged sword. The reason that we're producing so much beans right now in the U.S. is because of the Chinese; the Westernized diet increased their usage back in the 2000s to 2015. Obviously, they competed with us, gave us more liquidity in the market as we planted more acres domestically."

45Z GUIDANCE

Although the biomass-based diesel industry has made progress with the new RFS volumes, still-unresolved guidance on the 45Z Clean Fuels Production tax credit is a drag on industry confidence.

This week, the industry has been taking part in a public hearing on the 45Z guidance with the IRS.

"We still have a little bit of unknown that we'd like cleared up on regards to the 45Z that's out there," Anderson said. "We'd like to see that cleared up sooner than later. We don't want it to drag onto the fourth quarter this year."

Schaffer said the improved RFS, along with the 45Z tax credit, has created a more favorable environment for the industry.

"Today, the outlook for soybean processing has improved considerably," he said.

"AGP was actively engaged with government officials and agencies throughout the development of these policies. With greater clarity now around volume obligations and tax credit guidance, the industry can begin operating with a stronger sense of stability and long-term certainty."

IMPORTED FEEDSTOCKS

Questions have been raised about whether RFS volumes can be met without the use of imported feedstocks.

Anderson said the industry will need "every feedstock" to make it happen.

"So, all feedstocks, including distillers corn oil, used cooking oil, animal fats, soybean oil, are very important to the total industry success," he said. "And certainly, every farmer probably grows more than one feedstock."

Kovarik said the higher RFS volumes and more policy certainty will make it easier to continue to develop new feedstocks.

"The great opportunity with this RVO and this market right now is to continue that innovation in feedstock development, whether that's cover crops that (Nebraska farmer) Greg (Anderson) might be able to utilize to increase sustainability and soil conservation that also produce an energy feedstock or winter canola," Kovarik said.

"It's hard to predict right now where the next new entrant to feedstock is going to come from. But if you look at the last 20 years, you know it's going to come," he said.

With the ongoing conflict with Iran and the recent uncertainty surrounding the Strait of Hormuz, Kovarik said it illustrates the importance of continuing to expand the production of biofuels in the U.S.

"I think it's never been more evident as you see the Strait of Hormuz closed, the somewhat desperation in Europe and the UK for diesel fuel and sustainable aviation fuel," he said.

"I think there's no better justification for what our country did through the creation of the RFS 20 years ago to diversify our energy supply," Kovarik said. "And as a result of that, 10% of our distillate supply in the United States is biomass-based diesel. Imagine where prices would be today if we had 10% less volume of diesel available to consumers."

Todd Neeley can be reached at todd.neeley@dtn.com

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