Exclusive: US biofuel plan would reallocate half or less of waived blending quotas, sources say

The White House is reviewing an EPA proposal that would require large oil refineries to cover approximately 50% or less of the 1.1 billion gallons in biofuel blending requirements recently waived for small facilities. This reallocation, stemming from a backlog of small refinery exemptions under the Renewable Fuel Standard, could result in roughly 550 million gallons of lost demand, potentially increasing the supply of Renewable Identification Numbers (RINs) and exerting downward pressure on their prices. The compromise plan, which applies to 2023 and beyond and is expected before the October 30 deadline for 2026-2027 quotas, aims to stabilize the RIN market amidst the ongoing conflict between the biofuel and oil industries.

Analysis

The White House is reviewing an Environmental Protection Agency (EPA) proposal that would require large oil refineries to cover only about 50% or less of the 1.1 billion gallons in biofuel blending obligations recently waived for smaller facilities. This partial reallocation, intended as a compromise, creates a significant risk of lost demand, potentially amounting to 550 million gallons or more. A demand shortfall of this magnitude would likely increase the net supply of Renewable Identification Numbers (RINs), the compliance credits used in the Renewable Fuel Standard (RFS), exerting downward pressure on their prices. While the proposal is seen as a setback for biofuel producers and farm-state interests who pushed for a 100% reallocation, it represents a partial cost imposition on large refiners. The decision, which applies to obligations from 2023 onward and is subject to change, introduces considerable regulatory uncertainty ahead of the October 30 deadline for setting 2026-2027 quotas and will directly influence the profitability dynamics between the refining and biofuel industries.

Key Decisions for Investors

• Investors should anticipate sustained downward pressure on RIN credit prices due to the potential 550 million gallon demand shortfall, which negatively affects the outlook for biofuel producers whose profitability is tied to these credits.
• For large refiners, the proposal introduces new compliance costs, but at a level significantly below the full reallocation scenario, potentially making it a manageable headwind; the impact on individual refiners will depend on their specific compliance position as net buyers or sellers of RINs.
• Monitor regulatory announcements closely ahead of the October 30 deadline, as the final reallocation percentage is a critical variable that will dictate market impact, and the ongoing processing of 2025 exemption applications could further increase the total volume of waived gallons.