Biofuels in the States: Trends in Policy and Production

Policy and Market Context

State and federal governments have advanced biofuels through a mix of tax incentives, blending standards and infrastructure grants aimed at expanding fuel options and supporting agricultural producers. States such as Minnesota have long-standing ethanol blend requirements for gasoline, while others like Connecticut and New York have adopted phased-in biodiesel blending standards for heating oil. Iowa supports retail and terminal infrastructure upgrades through its Renewable Fuel Infrastructure Program, which helps expand access to higher ethanol and biodiesel blends.

Recent legislative activity shows states building on existing biofuel programs by integrating them into clean energy and workforce development frameworks. For example, Virginia expanded its Green Job Creation Tax Credit to include employment related to biofuel production and use, recognizing the sector's growing economic role. States are also considering policies that encourage the use of bio-based fuels in home heating, aviation and fleet operations as markets mature and low-carbon technologies advance.

Recent data from the U.S. Department of Energy show that both domestic production and consumption of renewable diesel have surged since 2020, reflecting significant new refinery capacity and market demand. By 2023, consumption had nearly tripled from 2020 levels, with production closely following.

U.S. biofuel production has expanded dramatically over the past two decades, driven by state and federal policies promoting renewable fuel use. Ethanol production rose sharply through the 2000s and now accounts for roughly 10% of the nation's gasoline supply, reflecting how agricultural commodities have become central to U.S. energy markets. Biodiesel and renewable diesel production have also grown steadily, surpassing 4 billion gallons annually and creating strong demand for soybean oil. The share of domestic soybean oil used for biofuel has increased from less than 1% in 2001 to nearly 45% in 2022. Together, these trends demonstrate how biofuels have linked the nation's farm sector and fuel supply, shaping both rural economies and renewable energy policy.

Legislative examples:

Connecticut SB 6412 (2021): Requires all heating oil sold in the state to be mixed with biodiesel. The rule started in 2022, when the mix had to be at least 5% biodiesel. That percentage will gradually increase over time-10% by 2025, 15% by 2030, 20% by 2034, and 50% by 2035.

Iowa Code § 159A.14: Renewable Fuel Infrastructure Program: Authorizes the Iowa Renewable Fuel Infrastructure Program, administered by the Department of Agriculture and Land Stewardship, to provide grants for retail motor fuel sites and terminals installing or upgrading infrastructure for E15+, E85, or B20+ biofuel blends.

Louisiana Revised Statutes §3:4674: Once in-state production of biodiesel reaches 10 million gallons annually, all diesel fuel sold in the state must contain at least 2% biodiesel (B2) by volume.

Minnesota Stat. § 239.791: Requires that all gasoline sold or offered for sale in the state contain at least 10% ethanol (E10) by volume. The law authorizes the commissioner of commerce to approve alternative formulations (like E15) that meet air-quality and engine-performance standards.

New York - S.3321-A / A.7290-A (2021): This law amends the New York Energy Law to establish a statewide biodiesel blending standard for heating oil. Beginning July 1, 2022, all heating oil sold for use in any building must contain at least 5 % biodiesel (B5), increasing to 10 % by July 1, 2025, and 20 % by July 1, 2030. The law applies to both on-road and off-road heating oil and authorizes the Department of Environmental Conservation to issue temporary waivers if biodiesel is unavailable or cannot be supplied without interruption.

Virginia HB 2178 (2023): Expands eligibility for the state's Green Job Creation Tax Credit by defining a "green job" to include employment in renewable and alternative energy industries, including those related to the production and use of biofuels. The law specifies qualifying sectors such as hydrogen and fuel cell technology, geothermal, solar, wind, hydropower and biomass systems, as well as related manufacturing and operational activities that generate energy from these sources.