Material Insights · Understanding the Material World

Palm oil and Renewable diesel and SAF

Palm oil is the largest single feedstock for diesel-type biofuels worldwide, and its mill residues are prized as waste-based inputs for renewable diesel and SAF. EU rules are pushing virgin palm oil out of these fuels by 2030 while rewarding residues, which has created incentives to mislabel palm oil as waste.

Palm oil (commodity) and Renewable diesel and SAF (chemical): 4 relationships.

How they are linked

1. Feedstock

Physical flow · Strong · Palm oil to renewable diesel and SAF

Hydrotreating plants can run on most vegetable oils and fats, and palm oil is produced in very large volumes, so it is a natural input wherever rules allow it.

  • 32% palm oil share of feedstock for biodiesel and HVO worldwide, 2024
  • 63.7 Mt world biodiesel and HVO output, 2024
  • 14% used cooking oil share, 2024

The 32% figure covers both conventional biodiesel and hydrotreated fuels, so it does not show palm's share in renewable diesel and SAF alone. Rules in Europe and the US reward waste and residue feedstocks, which pushes hydrotreating plants there towards used cooking oil and animal fats, so palm's role depends heavily on where the fuel is made and sold.

Sources: UFOP (Union for the Promotion of Oil and Protein Plants)

2. Mill residues as waste feedstock

Joint production · Rising · Palm oil milling yields POME oil and PFAD

Palm oil mills and refineries leave by-products, such as oil recovered from mill effluent (POME) and fatty acid distillate (PFAD), which can be classed as residues and earn higher credits than virgin oil.

  • over 2 Mt POME oil reported as used in EU biofuels, 2023
  • about 1 Mt estimated POME oil available worldwide

Reported EU use of POME oil in 2023 was about twice the estimated global supply, which points to virgin palm oil being sold as waste. UFOP expects the share of these residues in world feedstock to keep rising. For SAF, the European Parliament's 2023 position on ReFuelEU Aviation excluded PFAD and all palm and soy derived materials.

Sources: UFOP (Union for the Promotion of Oil and Protein Plants); Transport & Environment; European Parliament Legislative Observatory

3. EU palm phase-out and deforestation rules

Policy · Strong · EU rules restrict palm-based fuels

The EU treats palm oil fuels as high risk for land-use change, so it caps and then removes their credit, and its deforestation rules add traceability duties for all palm oil imports.

  • 2030 end of EU support for palm oil biofuels
  • 30 December 2026 EUDR application date for medium and large operators, after the 2025 postponement

Under the recast Renewable Energy Directive, palm oil biofuels may not grow above each country's 2019 level, decline from 2023 and stop counting by 2030. In 2017, 51% of the palm oil used in Europe went into diesel. The deforestation regulation, now due from 30 December 2026 for medium and large operators and 30 June 2027 for micro and small ones, covers palm oil whatever its end use.

Sources: Transport & Environment; Lewis Silkin

4. Price link: feedstock

Cost and price · Medium · Both ways

Fuel mandates pull on vegetable oils, and the site measures the fuel side with a diesel proxy, so palm oil and diesel-linked prices move together over a year.

  • 0.33 monthly change correlation
  • 0.55 12-month change correlation
  • 0.87 fitted elasticity

Because the proxy is fossil diesel, the link partly reflects oil prices lifting both diesel and palm oil through biodiesel demand. Renewable diesel margins themselves depend on credits such as US LCFS and RIN prices, which the proxy does not capture. The two series move in the same month, with no lag.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

  1. Palm oil was the largest single feedstock for biodiesel and HVO in 2024, at 32%, so when waste oils are scarce or mandates rise, palm demand and prices rise with them.
  2. EU rules shift value from virgin palm oil to its residues, so POME and PFAD prices, and fraud scrutiny of them, matter more for European renewable diesel makers than palm oil itself.
  3. Biofuel mandates tie vegetable oil prices to diesel, so palm oil carries energy price risk as well as weather risk.

What to track

  • Palm oil price against gasoil (POGO spread): A narrow spread makes palm-based fuels cheaper to blend and lifts palm demand (Daily · Bursa Malaysia, ICE)
  • Feedstock mix of EU HVO and biodiesel: A rising residue share signals the palm phase-out and fraud risk (Annual · UFOP, EU member state reports)
  • Indonesia and Malaysia biodiesel mandates: Higher blends take palm oil off the export market (As announced · national energy ministries)

For policymakers

Key learnings

  1. Rules that reward wastes over crops create incentives to relabel crops as wastes, so traceability and audit are as important as the rules.
  2. The EU phase-out removes one outlet for palm-based fuels rather than palm's role in biofuels as a whole, so world palm demand from fuels need not fall one for one.
  3. India's SAF targets start small and lean on domestic feedstocks such as molasses, which limits a direct pull on imported palm oil.

What to track

  • EU deforestation regulation implementation: Traceability costs for palm exporters selling into Europe (As published · European Commission)
  • Reported POME and PFAD use in EU fuels: Volumes above plausible supply signal mislabelling (Annual · Union Database for Biofuels, NGO reports)
  • India SAF blending notifications: Show which feedstocks India will allow and how fast demand grows (As notified · Ministry of Petroleum and Natural Gas)

India

India has set SAF blending targets of 1% in 2027 and 2% in 2028, first for international flights, and has demonstrated SAF from sugarcane molasses. Its pull on palm oil for these fuels is therefore small so far.

Sources

  1. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  2. Supply Report 2026: what feedstocks are used in world biofuels production?, UFOP (Union for the Promotion of Oil and Protein Plants) (2026)
  3. Renewable diesel sold by oil majors most likely contains fraudulent palm oil: study, Transport & Environment (2025)
  4. EU ends target for food-based biofuels but will only halt palm oil support in 2030, Transport & Environment (2018)
  5. Sustainable aviation fuels (ReFuelEU Aviation Initiative): Parliament first-reading position summary, European Parliament Legislative Observatory (2023)
  6. Deforestation Regulation officially postponed again, Lewis Silkin (2025)
  7. India announces SAF targets, biogas blending mandates, S&P Global Commodity Insights (2023)