The rapid expansion of renewable diesel (RD) and sustainable aviation fuel (SAF) production in North America has transformed the economics of biofuels, with California becoming the single largest RD market globally in a short period of time. Looking at the market from the perspective of pricing and value stacks, biofuel margins provide visibility into the underlying dynamics of the market.
Stillwater Associates’ new HEFA[1] margin model for the San Francisco Bay Area provides an integrated view of these drivers and highlights how profitability has evolved across four production pathways.
The model compares:
- RD from soybean oil (SBO)
- RD from a 45Z-eligible FOG[2] blend of used cooking oil (UCO), tallow, and distillers corn oil (DCO)
- SAF from SBO
- SAF from a blend of 45Z-eligible UCO/tallow/DCO
Figure 1 shows the net margin for these four pathways since 2020.
Figure 1: San Francisco/Bay Area HEFA Net Margins (cts/lb lipid feedstock)
Source: Stillwater Analysis
Feedstock choice remains the dominant driver
Perhaps the clearest conclusion to be drawn from the margin analysis displayed above is that feedstock selection has become the single largest determinant of profitability.
Waste-derived feedstocks generally outperform soybean oil because they combine similar or lower acquisition costs with significantly lower carbon intensity. This creates a double advantage: lower production costs and greater value from carbon-based incentives.
SBO pathways remain commercially viable but are considerably more exposed to volatility in vegetable oil markets. During periods of strong SBO prices, margins compress rapidly, whereas waste-based pathways retain greater resilience.
Stillwater’s model therefore reinforces a trend already evident across the industry: competition is increasingly centered on securing advantaged waste feedstocks rather than maximizing plant efficiency alone.
Policy increasingly shapes margins
Our analysis also demonstrates how government incentives have become an essential component of HEFA economics. Historically, the blenders or producers tax credits materially supported margins. The transition to the technology-neutral Section 45Z Clean Fuel Production Credit fundamentally changes the competitive landscape.
Unlike the previous incentives, 45Z directly rewards lower lifecycle carbon intensity. Consequently, carbon intensity becomes an economic variable rather than simply an environmental metric. Under 45Z, waste-based HEFA pathways benefit disproportionately, and lower-CI SAF pathways become increasingly attractive (although, since the end of 2024, SAF has lost its specific $1.27-1.75/gal 40B tax credit).
Stillwater’s model clearly illustrates that future profitability will depend not only on commodity markets but also on the ability to continuously reduce lifecycle emissions.
Markets respond quickly to global events
One of the strengths of Stillwater’s biofuel margins model is its ability to place margin movements within the context of major geopolitical events.
During the COVID-19 pandemic, transportation fuel demand collapsed, depressing refinery margins while simultaneously disrupting agricultural supply chains. The recovery period then saw a rapid rebound in fuel demand alongside tightening feedstock availability.
Russia’s invasion of Ukraine in 2022 created another structural shift. Vegetable oil markets tightened dramatically following the disruption to global sunflower oil exports, driving SBO prices sharply higher. Energy prices also increased, raising hydrogen and utility costs for HEFA producers. These effects compressed margins, particularly for SBO pathways.
More recently, the conflict with Iran has reinforced concerns over crude oil supply and refined product prices. While higher petroleum prices can improve renewable fuel pricing, they also introduce additional volatility into energy and feedstock markets. Our model highlights how rapidly geopolitical developments can alter the balance between feedstock costs, product values, and policy support.
RD versus SAF
The comparison between RD and SAF demonstrates another important structural trend. RD has historically offered the more mature commercial opportunity, supported by established LCFS and RIN markets. However, SAF increasingly benefits from expanding policy support and aviation decarbonization targets. When combined with lower-carbon waste feedstocks and emerging tax credits such as 45Z, SAF margins have become increasingly competitive relative to RD, despite the expiry of the 40B tax credit. Rather than competing products, RD and SAF should increasingly be viewed as complementary outputs within an optimized HEFA refinery.
Looking beyond California
While our current model focuses on the San Francisco hub, its architecture is readily transferable to other U.S. markets. Regional feedstock availability, logistics, state incentives and product pricing vary substantially between California, the Gulf Coast, the Midwest and the East Coast. Applying the same analytical framework across these hubs would allow producers, traders and investors to benchmark regional competitiveness using a consistent methodology. The framework can also be extended beyond HEFA to include ethanol, biodiesel (BD), and other renewable fuel pathways, providing an integrated view of U.S. biofuels profitability.
The next stage
As carbon markets evolve and policy becomes increasingly technology-neutral, understanding biofuel margins requires far more than tracking feedstock prices. Stillwater’s margin framework demonstrates how commodity markets, carbon intensity, tax policy and geopolitical developments combine to determine producer profitability. Expanding this platform across additional U.S. hubs and biofuel sectors would create a powerful decision-support tool for producers, investors and policymakers seeking to navigate an increasingly complex renewable fuels market. Such an expansion would provide clients with a consistent, transparent and forward-looking framework for evaluating opportunities across the rapidly evolving U.S. biofuels landscape.
To learn more about Stillwater’s capabilities and how building out such a robust biofuel margins outlook would benefit your business, contact us!