Biofuel and farm groups are generally hopeful that the Trump administration’s renewable fuel target proposal will support industry growth and prop up domestic feedstocks. But the lack of resolution on small refinery exemptions and the future of tax credits creates uncertainty.
On Friday the Environmental Protection Agency released its long-awaited proposed Renewable Volume Obligations for 2026 and 2027. These set blending targets for fuel producers under the Renewable Fuel Standard.
Parties have to demonstrate compliance with RVOs by submitting renewable identification numbers that are generated for each gallon of renewable fuel produced or imported.
The proposed 2026 RVO is 24.02 billion gallons. This includes 15 billion gallons for ethanol, 5.61 billion gallons for biomass-based diesel, 9.02 billion for advanced biofuel and 1.3 billion for cellulosic biofuel.
In 2027 the total RVO would grow to 24.46 billion gallons. Ethanol volumes would remain the same, but biomass-based diesel volumes would increase to 5.86 billion gallons.
“Any way you look at this, this proposal is a huge win for the soybean farmer or the livestock producer, anyone who is contributing fats and oils to the market is going to benefit from this,” said Kurt Kovarik, vice president of federal affairs at the Clean Fuels Alliance.
The biomass-based diesel RVOs go above a request sent to EPA by a coalition of biofuel, farm and oil groups. Groups like Clean Fuels argued that previous RVOs failed to account for the industry’s capacity, leading some biodiesel plants to slow or halt production.
The 2025 RVO for biomass-based diesel was set at 3.35 billion gallons, but the market exceeded 5 billion gallons in 2024, Kovarik said.
Alexa Combelic, executive director of government affairs at the American Soybean Association, said the Biden administration “missed the mark” on the direction of the industry and production capacity. As a result, she said a number of biofuel facilities were not running at full capacity.
A push to expand soybean crush capacity through new construction and expansion has slowed recently, Combelic said. She hopes the RVO proposal will help spur growth the industry was preparing in 2023 and could revitalize the sector.
“I think that this sends a very clear signal to the market that should help turn those facilities back on and get folks back to work in rural America,” said Combelic.
Alexa Combelic (ASA photo)The RVO proposal is likely enough that plants may consider restarting operations or increasing capacity. But they are unlikely to jump to this point immediately, said Kovarik. It’s unclear how much of the proposal will be finalized. Additionally, the administration did not definitively signal how it plans to handle small refinery exemptions.
The first Trump administration granted dozens of SRE petitions, which go to facilities that argue complying with the RFS would cause undue economic harm. Granting these SREs let the administration trim volume obligations.
There are 161 outstanding petitions, and EPA Administrator Lee Zeldin has said he hopes to work through these quickly.
In the RVO proposal, the agency said it was still evaluating how it will handle the backlog and future petitions. It provided an estimated range of exempt volumes from SREs for both years. It ranges from zero to 18 billion gallons, assuming EPA denies or approves all petitions.
Farm and biofuel groups largely want EPA to reallocate exempted volumes back into the RVO. They likely will focus on this issue during the public comment period ahead of the final rule.
In the proposal, Kovarik said the administration demonstrated its goal is to support domestic renewable fuels, American agriculture and domestic energy dominance.
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“I’m hopeful that they carry that forward in how they address small refinery exemptions,” Kovarik said.
Geoff Cooper, president and CEO of the Renewable Fuels Association, said it’s important for the biofuel industry to understand EPA’s intention with SREs, especially given the large backlog.
He said there are some “favorable signals” in the proposal that EPA intends to reallocate any future exempted volumes. But how the agency handles the backlog will be critical, considering those are from previous years where “the book is already closed” on compliance with the RFS.
“The piece of this puzzle that we’re missing is what is EPA going to do with all of those pending petitions,” Cooper said. “We got a great RVO proposal, we’re very pleased with what we see in the proposal, but that could easily be undermined if the floodgates are opened on SREs again.”
Geoff Cooper (RFA photo)The proposed RVOs do not include a major increase in gallons for conventional biofuel, but the entire proposal will likely still boost ethanol, Cooper said. The increases for biomass-based diesel could pull surplus volumes of biodiesel out of the conventional renewable fuel bucket, which leaves space for ethanol, he explained. Historically, Cooper said ethanol makes up about 14.3 billion or 14.4 billion gallons of the 15 billion included in the conventional renewable fuel category. He’s optimistic that under the latest proposal, ethanol can make up the entire 15-billion-gallon target.
Foreign feedstocks
Another major shift in the proposal in comparison to previous RVOs was incentives for domestic feedstock and fuels.
EPA proposed cutting in half the RINs generated for imported fuels and fuels produced from foreign feedstocks. This could boost competitiveness for domestic fuel or those made with domestic oilseed and corn feedstocks.
Biofuel and farm groups have raised alarm over the influx of used cooking oil and tallow from China. These feedstocks often have a lower carbon intensity score under current state fuel standards, which can make it more enticing for fuel producers over domestic farm feedstocks.
UCO imports from China tripled in 2023 and overall animal fat and vegetable oil imports doubled between 2020 and 2023. EPA wrote in the proposal that new RIN values respond to this influx.
Cooper said the incentive for domestic feedstocks provides important growth opportunities for the ethanol industry. He said a significant amount of biomass-based diesel going into the 15-billion-gallon RVO for conventional biofuels was coming from imports.
“By de-prioritizing imports and reprioritizing domestic production, we think that’s a really strong signal to the U.S. industry and should help boost demand for corn ethanol,” Cooper said.
Combelic said the proposal acknowledges that enough domestic feedstock is available to meet the RVOs. She said the RIN credit reduction for imported feedstocks is unprecedented and that the regulators believe it will make domestic feedstock producers more competitive.
But Combelic expressed disappointment with how the Senate Finance Committee’s budget reconciliation proposal would treat foreign feedstocks in the 45Z tax credit.
Both House and Senate proposals for reconciliation would extend 45Z through 2031 but vary on how to disincentivize foreign feedstocks.
Under the House reconciliation bill, the credit could only apply to fuels made with feedstocks from the United States, Canada or Mexico. The Senate Finance version would cut the value of the credit by 20% if the fuel uses feedstocks grown outside the United States, but Combelic said it’s unclear if domestic feedstocks would be the preferred feedstock under the Senate version.
ASA had previously accounted for what a 50% credit reduction for foreign feedstocks under 45Z would look like, and that would result in an 11-cent-per-gallon advantage for UCO over soy-based fuels, Combelic said. A smaller reduction would further that gap.
Sen. John Hoeven, R-N.D., said the feedstock text was based on input senators received, but it could get modified.
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