The US Environmental Protection Agency (EPA) will hold a public hearing next week to determine how it should reallocate exempted 2025 renewable fuel volumes in 2026-27.
The EPA will hear public testimony on 4 November regarding its proposal released earlier this month to reallocate exempted 2025 biofuel blending obligations equal to 770mn renewable identification credits (RINs), either entirely into the 2027 obligation, split equally between 2026 and 2027, or through another approach.
EPA indicated that following the 2027-only reallocation is consistent with the approach it took under the Set 2 rules, ensuring all 2025 reallocated volumes would remain in the same compliance year, in its notice in the Federal Register.
The agency has estimated 2027 obligations at 27bn RINs before the reallocation. 2027 obligations would rise to roughly 27.7bn RINs after reallocation. This does not factor in the impact of any future agency small refinery exemptions (SRE) decisions for 2026 or 2027 obligations.
The Renewable Fuel Standard requires that US fuel producers blend increasing amounts of biofuels annually or buy RINs credits from those that do for compliance.
Refineries with a nameplate capacity of no more than 75,000 b/d may petition EPA for an annual exemption if they can demonstrate that compliance would cause disproportionate economic hardship, referred to as SREs.
EPA estimated under its Set 2 rule that SRE reallocation for these two years would be 990mn and 1.04bn RINs, respectively.
The agency indicated that following this 2027-only approach would allow entities to adjust their compliance strategies and recover compliance costs through gasoline and diesel sales, rather than having to purchase RINs for their 2026 needs after that compliance year ends under the 50-50 proposal.
But EPA is also seeking stakeholder input on whether, if it chooses to split the compliance over two years, the redistribution should be in other proportions than a 50-50 division.
If split equally, the 2026 and 2027 percentage standards for biomass-based diesel would rise to about 5.3pc and 5.4pc, respectively, and advanced biofuels would increase to nearly 6.5pc and 6.7pc.
The RFS Set 2 rule has the 2026-27 percentage standards for biomass-based diesel and advanced biofuels in 2026 at 5.2pc and 6.4pc, respectively, and in 2027 at 5.4pc and 6.6pc.
Reallocating to only 2027 would raise the standards to nearly 5.5pc and 6.8pc for biomass-based diesel and advanced biofuels.
The EPA expects the gap between the current and adjusted program obligations to be met by entities purchasing 2025 carryover RINs from the SREs from other entities, and does not anticipate increased renewable fuel production or use beyond previously established volumes.
The cost of purchasing additional RINs may be passed on to consumers, potentially raising gasoline and diesel prices, EPA said.
The revisions to both program years come well after EPA's statutory deadline of 31 October 2024 and 2025, respectively, for setting them.
"The EPA believes this event has created an unusual situation in which retroactive reconsideration and revision of the 2026 and 2027 SRE reallocation volumes are warranted" given the higher than anticipated 2025 exemptions, according to the EPA's notice.
If the agency finalizes its rule next year it would be fully retroactive for 2026 and partially retroactive for 2027.
EPA does not intend to adjust the 2027 program compliance deadline, but it would delay compliance for 2026 obligations if volumes are reallocated to that year under the final rule.
EPA is taking stakeholder comment on its reallocation proposal through 4 December.
The EPA's Set 2 rule, finalized earlier this year, established record-high RFS blending mandates for 2026-27. Market participants anticipate a credit shortfall to meet compliance obligations for 2027, with expectations that 2026 program compliance will draw down most of the private RIN bank in the market.
