Biofuels Markets in the U.S. and Canada at the Midpoint of 2025
As we pass the halfway mark of 2025, the biofuels markets in the U.S. and Canada are undergoing dynamic transformations. A wave of regulatory shifts, evolving trade relationships, and new technological frontiers
are reshaping the landscape, building a narrative of resilience, innovation, and opportunity.
Trade Tensions and Regional Realignment
In the U.S., recently imposed tariffs on imported biofuels—particularly ethanol from South America and biodiesel from Southeast Asia—have strengthened domestic competitiveness. Local production is on the rise, and investor interest is growing. Still, these gains come with trade-offs: disrupted supply chains and increased feedstock costs are driving pricing volatility downstream.
North of the border, Canadian provinces are leaning more heavily on U.S. ethanol and biodiesel. Canada now stands as the leading export market for U.S. ethanol, accounting for a commanding 37% share in 2023–2024.
Yet, uncertainty looms. Tariff volatility, evolving tax credit frameworks, and a complex regulatory environment challenge both U.S. and Canadian producers. Retaliatory tariffs, changes to the U.S. Renewable Fuels Standard (RFS), and feedstock constraints—especially for SAF and renewable diesel—pose significant risks, even as they open the door to innovation in feedstock sourcing.
India’s Pivot: An Emerging Growth Channel
In a surprising twist to global trade flows, India has shifted from exporting ethanol to importing it. U.S. producers are poised to benefit, with forecasts projecting a 30% increase in industrial ethanol imports to India in 2025. The demand surge across beverage, medical, and industrial sectors underscores a growing interconnectivity in global biofuels trade.
Feedstock Innovation Gains Ground
Corn and soybeans continue to anchor biofuel production, but the market is diversifying. Producers are turning to agricultural and forestry residues, dedicated energy crops, and even municipal solid waste. Algae is also gaining traction as a promising feedstock, valued for its high yield and efficiency. In Canada, demand for canola oil in renewable diesel production is shifting agricultural priorities.
Policy Transitions and Financial Incentives
In the U.S., the Inflation Reduction Act has been a game changer for producers. The transition from legacy credits (40A and 40B) to the new Clean Fuels Production Credit (45Z) marks a significant shift in policy. Though 45Z offers a carbon-intensity-based framework that may initially reduce benefits, its extension through 2029 presents long-term investment stability.
Regulatory Realities: RFS and CFR in Focus
The RFS in the U.S. and Canada’s Clean Fuels Regulation (CFR) remain central to market direction. RFS updates—particularly proposed reductions in RINs for imported fuels—could limit Canadian exports of canola oil, adding a layer of competitive tension. Meanwhile, renewable volume targets for 2026 and 2027 show a federal push toward bolstering domestic biofuel production.
Canada’s CFR, in contrast, continues to drive demand for low-carbon fuels, promoting ecosystem-wide collaboration and compliance.
State and Provincial Leadership
British Columbia is leading with robust low-carbon fuel standards (LCFS), increasing local biofuel content in transportation fuels. California’s recent amendments to its LCFS have been approved by the Office of Administrative Law and are now in effect as of July 1. Meanwhile, Oregon and Washington are stepping up with aggressive GHG reduction programs and mandates for cleaner fuels. Additionally, New Mexico is set to consider the adoption of its Clean Transportation Fuel Standard starting late September to early October.
The Road Ahead
As the second half of 2025 approaches, the biofuels market sits at a pivotal junction. Policy changes, global demand shifts, and sustainability goals all point to a sector on the rise. Navigating these challenges will require proactive strategies, collaborative innovation, and a steadfast focus on decarbonization.
The journey is far from over—but the direction is clear: forward.