Rewriting the RFS Playbook: The Impact of Recent EPA Decisions on 2023-2027 RVOs for Biomass-Based Diesel

October 30, 2025

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by Todd Hubbs and Scott Irwin (Oklahoma State University and Iowa State Unversity/farmdoc daily) The U.S. Environmental Protection Agency (EPA) has been extraordinarily active on the Renewable Fuel Standard (RFS) front over the summer and early fall of 2025. Since June, the agency has released three pivotal decisions that collectively are likely to alter the trajectory of the biomass-based diesel industry in the U.S. The vast majority of biomass-based diesel produced in the U.S. is made up of FAME biodiesel and renewable diesel (farmdoc daily, February 8, 2023). The timing and magnitude of these policy shifts represent one of the most significant regulatory developments for the RFS program in the last decade.

The three key EPA actions in recent months are: i) proposed renewable volume obligations (RVOs) for 2026 and 2027 released in June 2025; ii) a comprehensive rulemaking on small refinery exemptions over 2018-2024 that was released in July 2025; and iii) a reallocation policy framework for small refinery exemptions published in September 2025. When examined individually, each decision represents a meaningful policy development. However, when analyzed collectively through the lens of biomass-based diesel RVOs, their combined impact appears to create conditions for a dramatic increase in domestic biomass-based diesel production. The purpose of this article is to analyze the combined implications of recent EPA actions for biomass-based diesel RVOs over 2023 through 2027. The article builds upon the analysis of the renewable diesel boom found in a series of previous farmdoc daily articles.

Analysis

To understand the significance of EPA’s recent actions, it is essential to first review the RFS policy environment that existed through the first half of 2025.

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The small refinery exemption (SRE) program had been a persistent source of uncertainty regarding implementation of the RFS since its inception (farmdoc daily, December 6, 2017).

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Whether SREs reduce biomass-based diesel demand depends on “reallocation.” Specifically, when EPA grants exemptions, it must decide whether to reallocate exempted volumes to other obligated parties or to effectively reduce the total RFS obligation. Under the first Trump Administration, the EPA did not reallocate SREs until the 2020 compliance year and this had a devastating impact on the biomass-based diesel industry (farmdoc daily, July 12, 2018; February 12, 2025). The question of reallocation created substantial uncertainty about the effective demand for biomass-based diesel in 2026 and 2027 even after the proposed RVOs and volumes of SREs were known. The September 2025 reallocation document provided a range of reallocation options. Which one the EPA ultimately adopts will have implications for market demand and, consequently, for RIN pricing dynamics.

With this background, we begin our analysis with a review of EPA’s June 2025 proposal for 2026 and 2027 RVOs.

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The June proposal from the EPA did not resolve the small refinery exemption backlog or the establishment of a clear reallocation policy. As a result, the RVOs presented in Table 1 for 2023 through 2027 represented only a partial picture of the ultimate RFS obligations that would emerge following the EPA’s subsequent policy actions.

In what was likely the most surprising part of the June rulemaking, the EPA proposed lowering the RIN value by 50 percent for biofuel produced domestically with foreign feedstock or imported biofuel. The so called “half RIN” dramatically changes the status of imported products under the RFS. Additionally, the EPA proposed lowering the D4 RIN equivalence value for non-ester renewable diesel from 1.7 to 1.6 RIN’s per gallon. The vast majority of renewable diesel and SAF are derived from the HEFA process. This change of policy places FAME biodiesel, which receives 1.5 RIN’s per physical gallon produced, on a more equal basis with renewable diesel. These proposals have major implications for the type of biomass-based diesel produced to meet the expanded RVO’s and the sourcing of feedstocks to meet the mandate.

The EPA’s July 2025 release of comprehensive decisions on small refinery exemptions for 2016-2024 represents one of the most significant developments in the history of the exemption program. The agency acted on a backlog of 175 SRE petitions from 38 small refineries covering the 2016-2024 compliance years. The scale of this action and its implications for RFS market dynamics cannot be overstated.

The decision document revealed that the EPA took a considerably more restrictive approach to granting exemptions compared to the first Trump Administration.

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The cumulative impact of the SRE decisions was to significantly reduce the volume of exemptions granted relative to industry expectations and to reduce the potential supply of D4 RINs. This outcome effectively increased the total RFS obligation by maintaining higher levels of compliance requirements across the refining sector.

The EPA’s September 2025 release of its reallocation policy framework completed the trilogy of major RFS decisions. Due to the backlog of SREs, reallocation decisions impacted RVOs for each year over 2023 through 2027. For 2023-2025, the EPA did not retroactively reallocate any SRE volumes. For 2026-2027, the EPA focused on two prospective scenarios: 100 percent and 50 percent reallocation. This suggests that the EPA has a clear preference moving forward for at least partially reallocating exempted volumes to other obligated parties rather than reducing the overall RFS obligation. This approach maximizes the total demand for biofuels by ensuring that exempted volumes are not fully lost to the system but rather redistributed among remaining obligated parties. The reallocation mechanism operates by calculating the total volume of exemptions granted and then proportionally increasing the obligations of non-exempted refineries and importers. This approach ensures that the statutory mandate volumes are maintained while accounting for the reduced volume of obligations due to exemptions.

With this information in hand, we can estimate the impact of the SRE and reallocation decisions on the 2023-2027 RVOs.

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The differences between Tables 1 and 2 reveal the magnitude of the impact on RVOs from the SRE and reallocation policy changes. To begin with, note that percentage RVOs for 2023-2025 are unaffected by the changes, but the gallon RVOs are impacted due to the SRE actions and higher (implied) projections of obligated gasoline and diesel use. The net result is that changes to the gallon RVOs over 2023-2025 are relatively modest, with the largest change a 590 million gallon increase in the total RVO for 2025. Naturally, the impact of the changes is larger for 2026 and 2027 because both the gallon and percentage RVOs change. It is interesting to note that the percentage RVOs for 2026 and 2027 decrease under both the 100 and 50 percent reallocation scenarios, but the gallon RVOs increase. This seemingly contradictory pattern is due to the large increase in projected gasoline and diesel usage for 2026 and 2027 decreasing percentage RVOs even after considering reallocation, demonstrating the important impact of the EPAs new methodology for projected petroleum gasoline and diesel volumes.

The net result is that the revised RVOs shown in Panel A of Table 2 are moderately higher under both 100 and 50 percent reallocation in 2026 and 2027 compared to the baseline June proposal in Table 1.

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Lastly, it is important to emphasize that the RVOs presented in Table 2 have not been finalized, but, rather, are projections based on the June preliminary rulemaking, the July SRE decisions, and the September reallocation framework.

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Implications

The EPA’s trilogy of recent RFS decisions represents one of the most significant regulatory developments for biomass-based diesel in the program’s history. The combined effect of higher RVOs, more restrictive small refinery exemptions, and mandatory reallocation creates substantially higher biomass-based diesel requirements for 2026 and 2027. Compared to 2023-2025, revised biomass-based diesel RVOs look to increase around 50 percent over 2026-2027. A policy shift of this magnitude should support higher D4 RIN prices and improved profitability for biomass-based diesel producers. The feedstock implications are especially significant, as meeting the expanded mandates will require large volumes of soybean oil and other feedstocks, with potentially important consequences for vegetable oil prices, soybean crush margins, and crop acreage decisions. In sum, the RFS policy landscape for 2026-2027 is now considerably clearer, and it points toward substantially higher demand for biomass-based diesel than most market participants anticipated just six months ago. We will examine the implications of the policy changes for biomass-based diesel and feedstock markets in more detail in an upcoming article.

References

Coppess, J., and S. Irwin. “Another Wrinkle in the RFS: The Small Refinery Exemption.” farmdoc daily 7(224), Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, December 6, 2017.

Coppess, J. and S. Irwin. "EPA 2019 RFS Proposed Rulemaking: What You See Is Not What You Get." farmdoc daily (8):128, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 12, 2018.

Coppess, J. and S. Irwin. "EPA and the Small Refinery Exemption Issue in the Renewable Fuel Standard Mandates." farmdoc daily (10):46, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, March 12, 2020.

Gerveni, M., T. Hubbs and S. Irwin. "Biodiesel and Renewable Diesel: What’s the Difference?" farmdoc daily (13):22, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, February 8, 2023.

Gerveni, M., T. Hubbs and S. Irwin. "Overview of the Production Capacity of U.S. Renewable Diesel Plants for 2023 and Beyond." farmdoc daily (13):57, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, March 29, 2023.

Gerveni, M., T. Hubbs and S. Irwin. "Is the U.S. Renewable Fuel Standard in Danger of Going Over a RIN Cliff?" farmdoc daily (13):99, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, May 31, 2023.

Irwin, S. “How Much Will the Cost of a RINs Bundle Decline if the Conventional Ethanol Gap Disappears?” farmdoc daily (8):32, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, February 23, 2018.

Irwin, S. "Biomass-Based Diesel Demand Destruction 2.0?" farmdoc daily (15):27, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, February 12, 2025.

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