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Apr 09, 2026
By Scott Gerlt, PhD
Agricultural and biofuel markets received a shot in the arm at the end of March with the final biofuel blending rules for 2026 and 2027. The blending levels were set at the highest level in history. EPA’s release repeatedly mentioned agriculture, farmers, and rural economies. The rule sends a strong signal to biofuel markets to produce from agricultural feedstocks.
The final 2026 Renewable Volume Obligations (RVOs) were mandated by the Renewable Fuel Standard (RFS) to be released in November 2024. A proposal was published in June 2025. The final rule was released on March 27, which set the RVOs for 2026 and 2027. The rule in practice contained many provisions that affect biofuel use beyond just the blending levels.
New Changes to the Old RVO Rule
To understand the RVOs, it is important to understand the structure of the RFS. Biodiesel and renewable diesel are types of biomass-based diesel (BBD). BBD has its own blending level in the RFS. BBD also qualifies as an advanced biofuel, which also has its own blending level. Advanced biofuels must reduce greenhouse gas emissions (GHG) by at least 50%. Advanced biofuels can also be used to meet the overall (conventional) blending requirement. The conventional requirement has a GHG emission reduction of at least 20%. Under the RFS, corn ethanol only qualifies for the conventional category. In essence, biomass-based diesel can be used to meet the BBD (D4), advanced (D5) or conventional (D6) requirements.
Source: EPA
Each gallon of biofuel that is produced for the domestic market or imported receives Renewable Identification Numbers (RIN), the amount dependent on the energy content of the biofuel and portion of biomass used to produce it. The RVOs establish a ratio of RINs for each D code that must be turned into EPA for each gallon of motor fossil fuel produced for domestic consumption or imported. When biofuel is blended with petroleum, the RIN is detached from the biofuel and can be used by fossil fuel producers to show compliance with the RVO. It can also be sold to another party that has a deficit of RINs for compliance. For more background on how RINs work, see this previous Economist’s Angle.
Before diving into the volumes of the RVO numbers, several new program changes included in the rule must be explained. The draft RVO proposal released in 2025 included a provision that would reduce RIN generation on imported biofuel or biofuel produced from imported feedstocks by half. The proposed change targeted imported feedstocks that had displaced soybean oil in domestic biofuel production. California’s Low Carbon Fuel Standard provides higher crediting to many of these imported feedstocks, and most renewable diesel is consumed in California. The half-RIN proposal sought to provide preference for domestic supplies in the domestic biofuel supply chain. The final rule did not include the half RIN reduction for imports but stated that EPA intends to pursue the policy change in the next RVO or “Set 3” rule for 2028 and beyond.
The final RVO rule changed the quantity of RINs generated per gallon of renewable diesel produced. Formerly, most renewable diesel generated 1.7 D4 RINs per gallon of biofuel. EPA acknowledged an error in the calculation that led to the 1.7 RINs per gallon. For 2026, the factor will not change. However, in 2027 renewable diesel will receive 1.5 RINs per gallon matching the biodiesel factor. Individual renewable diesel facilities can receive higher factors if they can provide documentation supporting the value. EPA assumes most facilities will be able to obtain 1.6 RINs per gallon through the process.
Part of the reason for the delay of the final rule was the necessity of EPA to deal with small refinery exemptions (SREs). The RFS allows refineries with production of less than 75,000 to be exempted from blending requirements for economic hardship. EPA had a backlog of over 180 SRE petitions involving over 12 billion RINs, about half of the annual blending requirements, heading into the release of the final rule.
If EPA returns RINs after granting an SRE that have not reached their two-year expiration, those RINs can be used towards current compliance. This creates an influx of new RINs into the system, effectively reducing the number of biofuel gallons necessary to meet the RVO. EPA has the option of reallocating the returned RINs by increasing the blending obligations of all other parties to offset the new RINs.
EPA decided to grant between 900 to 1,000 million RINs-worth of SREs in 2023 to 2025, which are years with non-expired RIN vintage. The agency estimated this would result in 1,410 million total new RINs in 2026 and 1,480 million in 2027 across the D codes. EPA decided to reallocate 70% of the RINs, leaving 30% as uncovered RINs entering the market. The agency estimates this to amount to 420 million RINs in 2026 and 440 million in 2027.
Additionally, EPA decided to proactively reallocate future SREs. They assume that the average motor fuel volumes exempted through SREs for the last three years of complete data (2022 to 2024) will be the same amount exempted in 2026 and 2027. The corresponding RINs for these exemptions are built into the blending levels as reallocation when calculating the percent standards for compliance. In essence, EPA is building an SRE pool to use in the future. Past RVOs had an effective SRE pool of zero RINs. The new approach will provide a buffer to biofuels from SREs as long as the SREs do not exceed the historical average.
Actual Biomass-Based Diesel Use
EPA set the volume obligations in RINs, not gallons, which is a change that is necessary for reducing the crediting of imported feedstocks. Biomass-based diesel (D4) requires 8.86 billion RINs in 2026 and 8.95 billion in 2027. Using EPA’s assumed mix of biodiesel and renewable diesel, along with assumptions about RINs per gallon for renewable diesel in 2027, results in 5.40 billion gallons in 2026 and 5.70 billion gallons in 2027. Yet, these numbers only tell part of the story.
EPA set the advanced and conventional gap larger than what is likely to be filled by other biofuels. For instance, since corn ethanol generates one D6 RIN per gallon, it would take 15 billion gallons of ethanol consumption to meet the D6 requirement. However, EPA projects that domestic ethanol consumption will only be 14.3 billion gallons in 2026 and 14.2 billion gallons in 2027.
Ethanol currently faces blending restrictions that in practice limit it to about a 10% blending in the national fuel supply. EPA is projecting limited growth in E15 and E85 over the RVO horizon. As a result, BBD must backfill the rest of the 15 billion RINs in the conventional gap (D6) as well as a portion of the advanced gap. This results in higher BBD use than the headline 5.4 to 5.7 billion gallons.
One other factor that works in the opposite direction is the unreallocated 30% of RINs from 2023 to 2025 SREs. As aforementioned, this additional supply of RINs reduces the amount of biofuels that must be blended to meet the RVOs. The effect disproportionately falls on BBD due to the backfill. For instance, only 100 million of the 420 million RINs of SREs in 2026 fall in the BBD (D4) category.
However, BBD is the residual supplier in the D5 and D6 as it is generally more expensive to produce than the alternatives to fill those categories. Therefore, when the blending requirements in those categories shrink, BBD will be pushed out before use of the alternative fuels is reduced. As a result, BBD faces a reduction of 420 million RINs in 2026 as opposed to just the 100 million in the D4. The same is true for the effects in 2027.
Table 2 and Table 3 show the expected use of biofuel types across the different blending categories. The tables uses EPA’s estimates as starting points before adjusting for the unreallocated SREs, but rests on many assumptions. These included the same mix of biodiesel versus renewable diesel that EPA originally assumed in their estimates, all renewable diesel plants obtain 1.6 RINs per gallon in 2027, future SRE grants are equal to the estimates that EPA built in, actual motor fuel consumption is equal to forecasted amounts, and many more.
Given the caveats, the tables provide interesting insights. Accounting for backfill and SREs results in actual BBD use of 5.86 billion gallons in 2026 and 6.22 billion gallons in 2027- over 400 to 500 million gallons above the advertised 5.40 to 5.70 billion gallons. In 2026, the 5.40 billion gallon BBD (D4) requirement falls to 5.34 billion gallons after accounting for the SREs. However, BBD fuels gain backfill of 250 million gallons in the advanced category and another 270 million gallons in the conventional category. A similar pattern occurs in 2027. These numbers represent record use of BBD.
Note that gallons in the previous tables do not equal production as imported biofuels qualify to meet the RVOs. EPA assumes that net imports continue at about 200 million gallons per year. This equates to 5.66 billion gallons of domestic production in 2026 and 6.02 in 2027.
The previous record for domestic production was 4.86 billion gallons in 2024. While this jump may at first seem quite large, it is well within the production capacity of the domestic industry (Figure 2). EPA had historically set RVOs based on domestic feedstock use by biofuels along with expected growth in domestic feedstocks. This resulted in underutilization of the capacity.
In the current RVO, EPA changed their approach to focus on the domestic capacity of the biofuel industry. They recognized that markets will react by supplying the feedstocks to the facilities. After accounting for backfill and SREs, the RVOs are projected to increase domestic BBD capacity utilization to 84% annually.
While this outlook is very bright, several caveats bear mentioning. First, it is not known how many RINs may be brought into 2026. Since RINs have a two-year life span (and a company can use up to 20% prior year RINs to meet current obligations), a large (small) number of carryover RINs from prior years could reduce (increase) the effective RVOs for 2026 and 2027. The carryout for 2025 is not known, but 2024 had a historically high level. Given low BBD production in 2025, much of this may have been absorbed last year.
Second, further granting of SREs will have an impact if they don’t match the historical levels built in for reallocation by EPA. Changes in SRE granting or any statutory granting of SREs will impact BBD demand. Third, the Iranian conflict may have spillover effects. High oil prices affect fuel demand and biofuel returns. All of this flows back to biofuel plants, soybean oil prices and farmers.
Despite these caveats, biofuel demand for the next two years looks very bright. There is a very high likelihood of record BBD production through increased utilization of domestic assets. This creates more demand for soybeans putting money directly into farmers’ pockets. The half RIN implementation in 2028 will help lift demand for domestic soybeans even further. A small change in assumptions by EPA of turning their focus from domestic feedstock growth to biofuel capacity will
