Securing feedstocks has become the main objective for compliance parties in the context of growing demand driven by different regulatory frameworks, such as RED III in Europe and the Renewable Fuel Standard (RVO) in the United States.
At the same time, each mandate shapes feedstock demand through different incentives. In some countries, compliance is measured on an energy basis, while in others, such as the Netherlands and Germany, it is based on greenhouse gas (GHG) emission reductions. This distinction is critical when determining which feedstocks to buy.
However, this perspective alone overlooks one important aspect: international trade. In open economies, domestic prices are also affected by developments in global markets, meaning that local compliance economics are not always the only factor determining prices.
This is exactly what has happened in the UCO and tallow market in the ARA region. Looking at the daily price trend since the beginning of 2025, the spread between UCO EXW ARA and tallow has been narrowing since February 2026, reaching a low of just $6/mt on March 23. On average, the spread between January and June stood at $75/mt in 2025, compared with only $46/mt over the same period in 2026.
Such a narrow spread does not make economic sense in Europe, where the main compliance markets reward fuels based on their GHG savings. Under these systems, the price difference between UCO and tallow should be wide enough to reflect the difference in carbon intensity between the two feedstocks. Since UCO delivers better GHG savings than tallow, it should trade at a higher price, as every tone of UCO contributes more efficiently toward compliance targets. In addition, countries such as the Netherlands and Germany have introduced restrictions on the use of animal fats, making tallow less competitive than other compliance options.
When the spread between the two feedstocks becomes too narrow, there is little economic incentive to consume tallow, as the discount is not sufficient to compensate for its weaker GHG performance relative to UCO.
Based on this logic, the first conclusion would be that tallow prices in Europe should decline. However, as mentioned earlier, Europe is part of an open economy where prices are influenced by international developments, particularly when they originate from large economies with significant influence on global trade flows. This is precisely what has happened in the tallow market. The current imbalance is largely the result of strong U.S. demand following the implementation of the new Renewable Fuel Standard.
Although U.S. producers do not receive production credits for feedstocks sourced outside North America (the U.S., Canada, and Mexico), and imported feedstocks are also subject to tariffs, imported material still plays an economic role. Since March, demand for European tallow has increased significantly, pushing prices up and compressing the spread between UCO and tallow.
U.S. demand is expected to remain strong at least through 2026. What happens afterwards will largely depend on the evolution of RIN generation from imported feedstocks, as well as the direction of soybean oil prices. The recently updated 45Z-GREET model now allows soybean oil to generate the same production credits as domestic UCO and tallow. As a result, soybean oil could become considerably more competitive, potentially reducing the premium that animal fats have historically maintained because of their superior carbon-intensity performance. Moreover, the current weaker energy market is also adding pressure to prices, while U.S. producers are long on feedstocks, further weighing on production margins.
Therefore, European tallow prices are already coming under pressure, not necessarily because of their lower competitiveness relative to UCO as European producers shift towards more efficient compliance options with a lower cost per tonne of CO₂ avoided, but because U.S. domestic prices have started to ease following the ceasefire between the U.S. and Iran, which has put pressure on crude oil prices and reduced renewable fuel production margins. At the same time, a more competitive soybean oil market could add further downward pressure, reducing the need for animal fats in the U.S. and, consequently, weakening support for European tallow prices.