President Donald Trump's administration today proposed requiring record biofuel blending into the US fuel supply over the next two years, including unexpectedly strong quotas for biomass-based diesel.
The US Environmental Protection Agency (EPA) proposal, which still must be finalized, projects that oil refiners will need to blend 5.61bn USG of biomass-based diesel to comply with requirements in 2026 and 5.86bn USG in 2027. That's a 67pc increase in 2026 and a 75pc increase in 2027 from this year's 3.35bn USG requirement, above what most industry groups had sought.
The proposal alone is likely to boost biofuel production, which has been down to start the year as biorefineries have struggled to grapple with uncertainty about future blend mandates, the halting rollout of a new clean fuel tax credit, and higher import tariffs.
The EPA proposal also would halve Renewable Identification Number (RIN) credits generated for foreign biofuels and biofuels produced from foreign feedstocks, a major change that could increase US crop demand and hurt renewable diesel plants that source many of their inputs from abroad. US farm groups have lamented refiners' rising use of Chinese used cooking oil and Brazilian tallow to make renewable diesel, and EPA's proposal if finalized would sharply reduce the incentive to do so.
The Renewable Fuel Standard program requires US oil refiners and importers to blend biofuels into the conventional fuel supply or buy credits from those who do. One USG of corn ethanol generates one RIN, but more energy-dense fuels like renewable diesel can earn more.
In total, the rule would require 24.02bn RINs to be retired next year and 24.46bn RINs in 2027. That includes a specific 7.12bn RIN mandate for biomass-based diesel in 2026 and 7.5bn in 2027, and an implied mandate for corn ethanol of 15bn RINs, similar to prior years. EPA currently sets biomass-based diesel mandates in physical gallons but is proposing a change to align with how targets for other program categories work.
US soybean oil futures surged following the release of the EPA proposal, and RIN credits rallied similarly. Current year D6 credits, typically generated from conventional ethanol production, traded at 92¢/RIN near the opening of the session before peaking at 110¢/RIN and then retreating slightly. Current year biomass-based diesel D4 RINs followed a similar trajectory, trading up to 116¢/RIN and widening the gap with conventional D6 RINs.
Proposed targets are less aspirational for the cellulosic biofuel category, where biogas generates most credits. EPA proposes lowering the 2025 mandate to 1.19bn RINs, down from from 1.38bn RINs previously required, with 2026 and 2027 targets proposed at 1.30bn RINs and 1.36bn RINs, respectively. In a separate final rule today, EPA cut the 2024 cellulosic mandate to 1.01bn RINs from 1.09bn previously required, a smaller cut than initially proposed, and made available special "waiver" credits refiners can purchase at a fixed price to comply.
Small refinery exemptions
The proposal includes little clarity on EPA's future policy around program exemptions, which small refiners can request if they claim blend mandates will cause them disproportionate economic hardship. EPA predicted Friday that exemptions for the 2026 and 2027 compliance years could total anywhere from zero to 18bn USG of gasoline and diesel.
EPA plans to continue a policy from past administrations of estimating future exempted volumes when calculating the percentage of biofuels individual refiners must blend, effectively requiring those with obligations to shoulder more of the burden to meet high-level volume targets. EPA in the proposal said it plans to "communicate our policy regarding [exemption] petitions going forward before finalization of this rule".
Industry groups expect the agency will try to conclude the rule-making before November.
Notably though, the proposal says little about how EPA is weighing a backlog of more than a hundred requests for exemptions stretching back to 2016. Many of these refiners had already submitted RINs to comply and could push for some type of compensation if granted retroactive waivers, making this part of the program especially hard to implement. An industry official briefed on Thursday ahead of the rule's release said Trump administration officials were "coy" about their plans for the backlog.
The proposed mandates for 2026-2027 will have to go through the typical public comment process and could be changed as regulators weigh new data on biofuel production and food and fuel prices. Once the program updates are finalized, lawsuits are inevitable. A federal court is still weighing the legality of past mandates, and the Supreme Court is set to rule this month on the proper court venue for litigating small refinery exemption disputes.
