Key Points:
- Large refineries may absorb only part of waived biofuel quotas.
- Plan targets 1.1B gallons from 2023; older credits expired.
- Farm groups seek full restoration; refiners push back via legislation.
Federal regulators are considering an (Environmental Protection Agency) EPA proposal that would require large oil refineries to absorb only half, or less, of the biofuel blending obligations waived for smaller facilities. According to sources familiar with the process, the plan would address around 1.1 billion gallons exempted in August but would not fully restore the demand loss.
If implemented, the plan could reduce overall renewable fuel use by about 550 million gallons, while influencing credit markets and compliance costs across the refining sector.
Partial Reallocation Under Renewable Fuel Standard
The Renewable Fuel Standard (RFS) mandates that refiners either blend a set volume of renewable fuels, such as ethanol and biodiesel, into the national fuel supply or purchase compliance credits known as Renewable Identification Numbers (RINs). Smaller refineries may apply for waivers if they can demonstrate that meeting the requirements would cause economic hardship.
In August, the EPA cleared more than 170 small refinery exemption requests dating back to 2016. Under the current EPA proposal, only exemptions from 2023 onward are subject to reallocation, since credits tied to earlier years have already expired.
The draft plan under review would apply varying percentages of reallocation starting with 2023, with large refiners expected to cover about half of the waived gallons. This approach is intended to maintain balance in the RIN market by avoiding a sharp increase in credit supply, which could drive down prices.
An EPA representative said regulators are evaluating options under the EPA proposal to ensure compliance obligations remain manageable while supporting renewable fuel growth. Final decisions are expected before October 30, the deadline to set blending quotas for 2026 and 2027.
Economic and Industry Impacts
For the agricultural sector, partial reallocation raises concerns about reduced demand for corn and soybeans, which are key feedstocks for ethanol and biodiesel. Industry groups argue that every unreallocated gallon represents lost market opportunity for crop producers and rural economies tied to biofuel production.
The refining industry, meanwhile, has expressed concern that full reallocation would impose steep costs at a time when compliance expenses are already high. By limiting the scope of reallocation, the proposal could ease financial pressure on refiners while maintaining credit market stability.
Market analysts note that the decision could place downward pressure on RIN prices, benefiting some refiners but limiting the revenue streams available to renewable fuel producers. Pending waiver applications for 2025 may further influence the scale of obligations in future years.
Outlook for Energy and Agriculture Markets
The debate over the EPA proposal to reallocation underscores broader differences between sectors reliant on the RFS. Agricultural representatives emphasize the importance of consistent demand for renewable fuels in sustaining farm incomes and rural investments. Refining companies, on the other hand, focus on compliance costs and the effect of additional obligations on fuel market stability.
Federal regulators are expected to release the final reallocation plan within weeks. The decision will help set the trajectory for renewable fuel demand, credit market pricing, and compliance strategies leading into the 2026–2027 quota cycle.
For both agriculture and refining, the outcome will shape not only short-term market conditions but also the longer-term role of renewable fuels in the U.S. energy mix.
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Source: https://www.reuters.com/sustainability/climate-energy/us-biofuel-plan-would-reallocate-half-or-less-waived-blending-quotas-sources-say-2025-09-10/https://www.bloomberg.com/news/articles/2025-09-10/us-biofuel-shares-hit-as-policy-speculation-spurs-demand-fears?srnd=phx-markets
