US EPA set to propose biomass-based diesel quotas below industry expectations, sources say

The EPA is expected to propose new biofuel blending requirements for 2026 and 2027, with biomass-based diesel mandates likely falling short of the 5.25 billion gallons requested by industry groups like the American Petroleum Institute; the 2025 mandate was set at 3.35 billion gallons. This decision, one of the first regarding biofuel policy from the Trump administration, is heavily anticipated by both the oil and biofuel industries and will impact billions in fuel and credit transactions, as evidenced by the drop in biomass-based (D4) and renewable fuel (D6) credit prices following the report. The proposal also addresses outstanding requests from small refineries for exemptions, with the White House considering a plan to clear a significant backlog.

Analysis

The U.S. Environmental Protection Agency (EPA) is poised to release its biofuel blending requirements for 2026 and 2027, with sources indicating that the biomass-based diesel mandate will likely be set below the 5.25 billion gallons advocated by a coalition including the American Petroleum Institute. This anticipated quota is a critical development, as the 2025 mandate was 3.35 billion gallons, and the industry had pushed for a significant increase. The decision carries substantial financial weight, influencing billions of dollars in fuel and tradable credit transactions under the Renewable Fuel Standard. Market reaction to this expectation has been evident, with biomass-based (D4) credits falling from 102 cents to 96-97 cents, and renewable fuel (D6) credits for 2025 declining from 94.5-95 cents to 92.5 cents. This proposal represents one of the Trump administration's initial significant moves on federal biofuel policy, keenly watched for its stance towards the biofuel industry versus oil companies. Senator Chuck Grassley has publicly linked the 5.25 billion gallon target for biodiesel to the reopening of five closed plants and job creation in rural America. Additionally, the EPA's plan is expected to address the substantial backlog of over 160 outstanding small refinery exemption requests, a factor that could further impact the renewable credits market.

Key Decisions for Investors

• Investors should anticipate potential downward pressure on entities heavily exposed to biomass-based diesel production or RIN credit generation if the final EPA mandates confirm lower-than-lobbied volumes.
• Monitor the EPA's final announcement closely for the specific blending quotas for 2026 and 2027, as well as any definitive policy on addressing the backlog of small refinery exemptions, as these will be key drivers for RIN prices and sector profitability.
• Consider re-evaluating positions in biofuel producers and oil refiners based on the finalized mandates, as lower quotas could benefit refiners by reducing compliance costs but negatively impact biofuel producers' revenues and expansion plans.