US EPA proposes adding either 100% or 50% of waived biofuel gallons to 2026-’27 RFS volumes

U.S. EPA released a proposal Sept. 16 on how it may deal with reallocating waived biofuel gallons from 2023 and 2024 under Renewable Fuel Standard small-refinery exemptions (SREs) granted by the agency Aug. 22, and for 2025 SREs not yet decided on.

SREs allow a refinery out of their blending obligation under RFS. EPA sets an RFS blending level for each year and, as a result, any SRE effectively reduces the RFS blending level. To avoid this, RFS law calls on EPA to estimate the amount of SREs likely to be granted, and to factor this into the RFS blending level formula each year—a process known as reallocation because it upholds the blending level but shifts obligations from those who received exemptions to those who didn’t. 

The August SRE decisions exempted 11.4 billion gallons of gasoline and diesel produced by certain small refineries from incurring RFS obligations for the 2023 and 2024 compliance years, resulting in 1.4 billion renewable identification number (RIN) credits no longer needing to be retired for compliance for these years, EPA stated.

“We anticipate that in the coming months we will also issue decisions on SRE petitions for the 2025 compliance year,” the agency said. “While we have not yet taken action on SRE petitions for the 2025 compliance year, we project based on the information currently available to the agency that obligations equal to 780 million RINs will be exempted for this year. Therefore, we project that a total of 2.18 billion RINs will not need to be retired as a result of SREs for 2023-’25. Considering this additional information, and to give all stakeholders an opportunity to comment on potential changes to the proposed standards to account for SREs, we are issuing this supplemental proposal.”

Specifically, EPA is proposing to add a new “SRE reallocation volume” term in the percentage-standard equations for 2026 and 2027 RFS volumes that, taken together, would account for the 2023-’25 exempted volumes.

The agency published its RFS volume proposal for 2026-’27 in June.

In addition, EPA is revising its proposed percentage standards for 2026 and 2027 to include both the proposed SRE-reallocation volumes and a better-informed projection of exempted gasoline and diesel for 2026-’27.

EPA has co-proposed two approaches:

• Additional volume accounting for 100 percent of the 2023-’25 exempted renewable volume obligations (RVOs), or 2.18 billion RINs.

• Additional volume accounting for 50 percent of the of the 2023-’25 exempted RVOs (1.09 billion RINs).

Additionally, the agency is taking comment on SRE reallocation volumes equal to other amounts—for example 25 percent, 75 percent or even none.

EPA is also providing updated estimates of the volumes of gasoline and diesel that it projects will be exempted from RFS obligations in 2026-’27 “to better inform stakeholders in providing comments on this supplemental proposal.”

Based on the percentage-standards equations in the existing RFS regulations, these volumes are taken into account when establishing the annual percentage standards, the agency stated.

“We project that exempted volumes of gasoline and diesel in 2026 and 2027 will be 5.95 billion gallons each year,” EPA said.

In its June proposal on RFS volumes for 2026-’27, EPA estimated a range between zero and 18 billion gallons.

Biofuel groups are, for the most part, content with the SRE reallocation proposal issued Sept. 16.

Clean Fuels Alliance America commended EPA for proposing to add a supplemental SRE reallocation volume to the 2026-’27 RFS volumes, and for updating its estimate of 2026-’27 exempted volumes of gasoline and diesel, which will be included in calculating the RFS percentage obligations for those years.

“Clean Fuels commends EPA for proposing to ensure that the RFS volumes it finalizes for upcoming years are not eroded by small-refinery exemptions,” said Kurt Kovarik, Clean Fuels’ vice president of federal affairs. “U.S. biodiesel and renewable diesel production supports 10 percent of the value of every bushel of soybeans grown here. It is one bright spot in the agricultural economy this year. Clean Fuels and its members will work to ensure that the final RFS volumes for 2026 and 2027 fully support continued growth in biomass-based diesel production and provide real value for farmers.”

The Renewable Fuels Association said it is “cautiously optimistic” and “encouraged” by the proposal.

Monte Shaw, executive director for the Iowa Renewable Fuels Association, said, “Just a few weeks ago, IRFA praised EPA for committing to full reallocation in the 2026-’27 RFS rule, but that commitment should start now with 2023-’25 exemptions—not in 2026. IRFA strongly supports the EPA proposal for full reallocation. The co-proposal that would reallocate only 50 percent of the SREs would be bad news for farmers. Make no mistake, not reallocating any RFS exemption is a direct cut to renewable fuels demand. With farmers already struggling due to low RFS levels set by the previous administration, the last thing we want to see is more cuts. We also cannot ignore that the draft rule asks for comments on doing absolutely no reallocation. That approach would be a gut punch to farmers.” 

Shaw said IRFA believes most of the RFS exemptions granted for 2023-’24 were not justified under sound economic analysis.

“But if EPA grants them, it must reallocate them,” he said. “IRFA has loudly applauded the Trump administration and EPA for proposing record-high RFS blend levels for 2026 and 2027. We would hate to see these volumes effectively cut by 2 billion gallons of un-reallocated SREs. The penalty for the failure of previous RFS rules to include SRE forecasts should not be paid by farmers and renewable fuels producers.”

EPA will hold a virtual public hearing Oct. 1 for the proposed rule. There will be no in-person hearing.

Those who wish to attend must register by sending an email to RFS-Hearing@epa.gov and a separate registration form must be submitted for each person attending the hearing.

Registration is required by Sept. 24.

EPA said it is limiting verbal testimony to three minutes per person.

Written comments to the Sept. 16 reallocation proposal must be submitted to the agency no later than Oct. 31.

Comments, identified by Docket ID No. EPA-HQ-OAR2024-0505, may be submitted at regulations.gov.