Biofuels in 2026: Compliance, SAF hype versus reality, and what lies ahead

The biofuels market, at its core, is a compliance-driven landscape. Regulations, whether in the form of greenhouse gas (GHG) reduction targets, blending mandates or tax incentives, are the primary force shaping both demand and supply. While the specifics vary by region and fuel segment, nearly every major market now has ongoing initiatives to decarbonize transport fuels. 

Road fuel applications pioneered biofuel adoption, but aviation and marine sectors have rapidly caught up, with robust regulatory frameworks or proposals now in place. Yet, predictability and certainty remain elusive. Only recently, for example, the International Maritime Organization’s (IMO) Net Zero framework suffered a setback, highlighting the volatility and political complexity that still characterizes the global regulatory environment.

At a high level, regulatory approaches can be grouped into three categories. In Europe, the “stick” approach dominates, with strict blending mandates and penalties for non-compliance. The US, by contrast, leans on the “carrot,” exemplified by the Inflation Reduction Act’s (IRA), but has yet to move the needle in a significant way outside a handful of first movers. The UK employs a hybrid model, while voluntary markets, though innovative, have yet to move the needle in a significant way outside a handful of first movers.

SAF takes center stage on the demand side

Within this compliance-driven context, sustainable aviation fuel (SAF) has emerged as the hottest topic in biofuels and will remain so in 2026. At Topsoe, we see overwhelming interest in technology and catalysts for SAF projects, reflecting both regulatory pressure and the aviation sector’s urgent need for credible decarbonization pathways. Our solutions span the full range of SAF production technologies: HydroFlex™ for hydroprocessing fats, oils, and greases (FOGs); G2L™ synfuels via the Fischer-Tropsch (FT) route in partnership with Sasol; ATJet™ via ethanol; and e-SAF pathways from captured CO₂ and hydrogen. 

Despite this technological diversity, HEFA (Hydroprocessed Esters and Fatty Acids) remains the dominant commercial pathway for SAF. Projects based on other routes are largely awaiting final investment decisions (FIDs), with HEFA’s relatively low levelized cost of production and established technology base making it the go-to solution for early movers. Feedstock costs, especially for FOGs, are the largest component of SAF production costs, and the scramble for suitable feedstocks is intensifying as mandates rise.

Project development trends and regional dynamics

Looking at our customer dialogues for synfuel projects, we see continued progress, but most projects advancing to construction are still at demonstration scale. One example from 2025 was Sasol and Topsoe's cooperation agreement with the German Aerospace Center (DLR) and Griesemann (acting as EPC-contractor) to enable the construction, operation and R&D activities of DLR’s e-SAF production demonstration plant at the Leuna Chemical Complex, Germany. The demonstration plant is currently under construction and expects to produce 2500 tons of e-fuels per year via G2L™, starting in Q4 2027.

Biogas as a feedstock is gaining traction, particularly in Europe and the US, as it allows for gasification to be bypassed, reducing perceived technological risk. Interest in e-fuels is growing in the US, despite limited policy drivers for Power-to-X (P2X) solutions. The UK is prioritizing waste-derived fuels, and countries like India are joining the conversation with increasing enthusiasm.

Within renewable diesel and SAF, Topsoe’s HydroFlex™ technology holds a dominant market share, with over one-third of operating capacity globally. The market is truly international: in 2025, we sold our first project in Australia, two in India, and continue to see strong activity in China. Over the past 18 months, we have sold six projects in China, all similar in size and feedstock model, and being built at remarkable speed. This demonstrates the value of operational experience and rapid deployment. South America is moving beyond FID on their first projects, and new business models are emerging, such as decoupling carbon credits from physical product sales, which can make sense depending on SAF pricing. In the US, we see a stronger business case for existing producers to diversify into renewables and SAF.

A fluctuating European market

Zooming in on Europe, we observe a trend of large projects by refining and energy majors being cancelled or re-scoped. While economies of scale benefit the HEFA pathway, the challenges of securing feedstock and the lower capital expenditure required for smaller projects are driving a resurgence in revamps and co-processing. Co-processing, in particular, is difficult to predict and account for in market supply forecasts, as it requires minimal investment and can be rapidly implemented by many refiners. Biofuels have also become entwined with political rhetoric and energy security agendas, further complicating the landscape.

The search for new feedstocks continues apace. The industry is digging deeper, exploring alternatives such as solid biomass, rotational or low-ILUC crops, and even recycled carbon from used tires or plastic waste. One notable example is cashew shell nut liquid (CNSL), which, despite its unique phenolic composition, processes well via hydrodeoxygenation and dewaxing, and is already being co-processed for renewable diesel. Pending ASTM certification, CNSL could soon contribute to SAF production as well.

Co-processing is a low-risk way toward greater SAF volumes

Co-processing is gaining traction as a time- and cost-saving option for refiners with existing assets. By simply replacing or supplementing catalysts, refiners can begin producing SAF very quickly, provided they meet the necessary cold flow properties and selectivity requirements. ASTM currently allows up to 5 vol% co-processed SAF in jet fuel, and we see customers actively pursuing this route. Co-processing is not only a rapid way to boost SAF supply, but also a valuable platform for validating and introducing new renewable feedstocks. By diluting novel feedstocks with conventional crude, refiners can lower the risk of process upsets while building operational confidence, and this approach is particularly well-suited for emerging feedstocks that are only available in limited quantities. This is why co-processing's flexibility, low risk and low capital requirements make it an attractive bridge technology as the industry scales up dedicated SAF production.

Globally, co-processing is expected to contribute a modest but meaningful share of SAF output in 2026 – potentially even 10-20% – with the bulk still coming from dedicated HEFA plants and, increasingly, from emerging pathways like ethanol to jet. Policy and certification caps will limit co-processing’s long-term share, but in the near term, it is a critical enabler for meeting early-stage mandates and leveraging existing refinery infrastructure.

Feedstock evolution and constraints

The evolution of bio-based feedstocks is a defining trend. The industry has moved from virgin oils to waste oils, fats, and greases, and is now exploring solid biomass, advanced crops, and recycled carbon sources. Feedstock availability remains the single largest constraint on SAF and renewable diesel growth, with competition from road, aviation and maritime sectors intensifying. In 2026, the EU’s RED III will further tighten sustainability and traceability requirements, making the search for new, certifiable feedstocks even more urgent.

Beyond SAF: HVO, marine and the next frontier

While SAF dominates the headlines, renewable diesel (HVO) demand is set to surge in both the US and EU. In the US, rising renewable volume obligations and a preference for local feedstocks are driving growth, while in the EU, ambitious RED III targets, blending wall constraints for bioethanol and biodiesel, and the rollback of double counting are all converging to boost HVO demand. Marine fuels are also in the spotlight, with FuelEU Maritime providing a regulatory framework for early adoption and biodiesel gaining new momentum in shipping applications. Ethanol is joining the race as well; after years of use in gasoline blending for road applications and following its recent acknowledgment as a feedstock for SAF, it is now also entering the marine applications pool, raising questions about how supply will be distributed across these competing outlets.

Looking further ahead, the conversation is shifting to RFNBOs (Renewable Fuels of Non-Biological Origin) and recycled carbon fuels. The ongoing debate over whether HEFA produced with green hydrogen can count toward RFNBO mandates will have significant implications for the e-Fuels landscape. Recycled carbon fuels from pyrolysis oils and thermochemical depolymerization oils are gaining traction, especially outside Europe, and are relatively straightforward to upgrade to finished fuels.

The path ahead

As we look to the future, several imperatives stand out. The market needs more drivers, primarily legislative initiatives, to sustain momentum and unlock new projects. Global harmonization of standards and incentives will be crucial, as many projects are being developed with an eye toward export into Europe. Deploying new technologies will require a willingness to take calculated risks and learn from early deployments to drive costs down. For hydroprocessing, co-processing offers a controlled-risk option that can accelerate SAF deployment while new dedicated plants are built.

While the SAF hype is justified by the sector’s decarbonization needs and regulatory momentum, it is essential not to lose sight of other markets and the value of smart feedstock-product matching. The coming years will be defined by innovation, adaptability, and a relentless search for new solutions – ensuring that biofuels, in all their forms, remain at the heart of the global energy transition.

This article is reprinted with the kind permission of Biofuels International.