The Biofuels Report: RFS Reset - US Biofuel Mandates Evolve

Hi there and welcome to our latest podcast episode here from Argus Media. My name is Matthew Cope. I'm a senior reporter here on the America's Biofuels team here in Houston, Texas. Today, we're going to talk about some policy updates across the biofuel landscape here in the US. There's a lot going on in the world right now, especially from an international trade standpoint.

Conflict in the Middle East has had a substantial impact on commodity markets all around the world. But here in the US, the biofuel industry and the adjacent fundamentals are also seeing some changes that are playing a role in the prices you see at the pump. On Friday, March 27th, the EPA published its finalized policy updates to the renewable fuel standard. This is the compliance mechanism for blending biofuels like ethanol and biodiesel into the stuff we pump into our tanks on a regular basis.

These include new mandates for 2026 and 2027, along with some other provisions that also play a role in reshaping what we'll see across the next two years and beyond. I'm joined by my colleague on the America's Biofuels team, Cole Martin, to discuss these changes and their effects. Glad to have you with me today, Cole. Um, I'm gonna lead right into question one here. So can you talk about uh the backdrop of these mandates coming out a little more? How did the proposal land last year?

What are some of the other biofuel policy incentives driving these fuels, uh driving demand for feedstocks like bean oil, used cooking oil, and beef towels? Right. Thanks Matt for the intro. Complicated web of biofuel incentives in the US that all kind of interact with each other. So I'll give you some background. Um so I guess

The industry started Trump's second term last year with some like pretty deep uncertainty around a lot of these where where a lot of these biofuel incentives would land. And in general, um, there was a lot of headwinds last year. So The prior Biden administration had set new biofuel mandates under the RFS through twenty twenty five.

Um, but these mandates, particularly in the biomass-based diesel category, uh, it disappointed the industry. It was well below the industry's production capacity. There's been a lot of new plants that have come online in recent years. In addition, 2025 started with a

complicated new tax credit system that it took the industry a good amount of time to get used to. They went from a long running dollar per gallon credit for blending biodiesel and renewable diesel. And that's an addition to the separate mandate. Um and then starting last year that incentive moved to a less generous and more complicated incentive for producers. Um and the consequence of that is that like a gallon of soybean oil renewable diesel might only have got

like twenty cents per gallon last year after getting a dollar per gallon years before. Um also a lot of big changes in trade, like Matt mentioned, you know, there's tariffs on common removal diesel feedstocks. Um you know, trade wars with China, also that affected the soybean market, um, put a lot and then it sort of in general put a lot of attention on

Trump administration biofuel policy as one way to support farmers that have been struggling last year with a lot of these trade wars, instead of the US relying on trading partners like China to be buying a lot of these crops. So then In June last year, the Trump administration proposed new RFS mandates for twenty twenty six and twenty twenty seven that came in well above what industry was asking for, about at the time was a pretty big surprise.

um, you know, in general well received by crop growers and biofuel producers because it's a signal you might have to idle your biodiesel facility in twenty twenty five, but starting in next year, you're gonna be running at close to full capacity because the mandates are gonna be significantly stronger. The one hiccup was that the administration also proposed.

cutting in half the number of program credits, known as RINs, that foreign biofuels and also US biofuels made from foreign feedstocks get per gallon of fuel. So it was a creative reimagining of the program that was mostly designed towards steering these big renewable diesel plants that have started up in recent years. to stop importing so much feedstock from abroad, things like Chinese use coking oil, Brazilian beef towel, and instead to use more domestic products.

Um so the industry sort of took the proposal last year as, okay, this will be supportive for biomass-based diesel, but some of these changes to like the feedstock rules, that was a big threat to a good amount of import reliant renewable diesel plants.

And it also, while the final rule looks different, sort of made the Trump administration's intentions clear that they see the bioflaminate program as a way to help out farmers, you know, more so than reducing emissions, energy security, or lowering fuel costs. And I think Bio biofuels is like a complicated part of the energy market and it has big price impacts on number of feedstocks that can be used to make biofuels, but in general, higher mandates for biomass.

diesel, you would expect higher prices for soybean oil, also other renewable diesel feedstocks. Use cooking oil, um, distillers corn oil in the US and spills into other global markets. Um if veg oil is more expensive in the US, you might expect canola oil, maybe Asian palm oil. But sort of coming out of the proposal last year there was uncertainty of okay, there's expectation US prices might rise, but what's that gonna mean for some of the other global feedstocks if those are discouraged?

I guess sort of one other brief plague, you know, we're gonna be mostly talking about renewable diesel in this. It's the fastest growing biofuel in the US. RFS is really important for other biofuels like corn ethanol. But I would say the the demand picture for corn ethanol is a little more complicated. Higher mandates meaning higher wind prices, which is supportive for ethanol producers, for retailers that offer higher ethanol blends like E15, E85.

But in general, wider access to higher ethanol blends depends more on other policies like emergency summertime waivers or sort of a long stalled bill in Congress that would allow E15 blends nationwide year round. So the RFS program in particular is es especially, especially important for what's renewable diesel demand and what's demand for these feedstocks that go into renewable diesel.

Yeah, that's a lot of insight there. Uh th thanks for, you know, being so thorough with that question. So I want to move more into kind of some of the heavy legal side of everything that came out because there was so much buried in the documentation there that plays a role in shaping how the market will respond and

um you kind of how these volumes are going to be received. Notably, there's some changes in rent equivalence value for things like RD and SAF, as well as a change in REN generation for imports. When do these come into play and what's really the goal behind why they move the goalposts on these?

First, a lot of the stuff is buried in legal documentation. The final rule is hundreds of pages long. So there's a lot there's a lot of nuances in the footnotes, et cetera, et cetera. Um but I would say yeah, in general, I guess I'll start with. The Trump administration did not finalize with an instant effective date what they proposed last year of ha having rent credits for imported biofuels and feedstoff. buy what you owe it to.

They said in sort of their press release announcing it and then also with a little more detail in the actual text of the rule that they want to do either a program like that or some other type of import rent reduction starting in the twenty twenty eight year. So the idea is not currently in effect for twenty twenty six and twenty twenty seven, but the Trump administration's making clear

We like this idea. We wanna use this program to help out US farmers. We wanna steer biofuel plants toward US feedstocks like soybean oil. Um, we wanna discourage them from sourcing feedstocks from abroad.

that wasn't finalized, but the Trump administration's goals were very clear there in announcing that we want to do this at some point for the twenty twenty eight year, which will still be in Trump's second term. So they will have a lot of authority on designing the future of the programme, even if implementing it is up to another administration.

And then uh the other big change that we saw in the rule, the Front administration changed what's called the equivalence value for renewable diesel and similar fuels that are made through a similar hydro treating process. complicated an equivalence value is basically EPA saying how many REN credits a gallon of a certain biofuel gets. And it's a calculation based on renewable content and energy density. So more energy dense fuels get more RINs per gallon.

What happened is that EPA admitted basically to making a math error when setting random equivalence values in the past, which is pretty notable. Um but basically they said, you know, we accounted for fossil fuel derived methanol and deciding an equivalence value for biodiesel, so then a lower um equivalence value for biodiesel, but they have not done the same with fossil based hydrogen that goes into renewable diesel and other fuels. So

In effect this means that, you know, renewable diesel has been getting more rins per gallon than maybe it should be under EP's rules. For twenty twenty six, all the equivalence values stay the same, so these coming are staggered for the future. But starting next year, you know, removal diesel will go from getting up to 1.7 rins per gallon now to the baseline will be 1.5 rins per gallon. That's the same amount of rins per gallon as biodiesel gets.

Sustainable aviation fuel will go also go down to one point five runs per gallon. Renewable NAFTA will go down to one point five runs per gallon. So it puts biodiesel and renewable diesel on a little more level of a playing field. Um and they're also this is more complicated, and we're trying to get more info from the Trump administration on this, but there will be a process where renewable diesel producers.

can. If they can show that their specific production process has higher renewable content than EPA's current assumptions, they can apply to move from one point five rins per gallon to 1.6 rents per gallon. EPA buried in a footnote that they think most removal diesel will qualify ultimately for 1.6 instead of 1.5, but

It's unclear, you know, what's the application process going to look like? How quickly is EPA gonna weigh these applications? Delays are a really big part of the program that people have gotten used to. Are they gonna be able to weigh all those applications before 2027 kicks off?

And because all this is very technical, but with where D4 Rins have been trading, which Matt knows a lot more about than me, um but they're trading you know above a dollar seventy per gallon recently. So a 0.1 RIN bonus means with prices where that is. seventeen more cents per gallon of RIN value for blending the exact same fuel. So how that process works. you know, a really big deal.

Um so in general, like this new system of equivalence values less generous for renewable diesel. So those producers, they like the high level volume targets. They like the fact that import runs are not in effect for this year and next year. But They look at that and think, okay, I'm gonna get basically less written value for my fuel in the future than I'm getting right now.

Yeah, that's great. And we'll talk a little bit more about rent prices here in a few minutes, but I have one more question for you. So another big part of this policy was how they handled small refineries. Or SREs, as some people refer to them as. For the first time, we have reallocation of these exempted volumes and some petitions receiving a 50% SRE instead of, you know, the previous 100 or zero.

So how will this precedent affect the landscape going forward? And what should we expect to see on the legal side? Because the courts always get involved with this stuff. So what what are your thoughts there?

Yeah, I think you know, it's an understatement that the courts always get involved in RFS stuff. There's been so many lawsuits over the years and the SRE portion of the program has been especially controversial and especially litigated. So basically the RFS imposes these blend obligations on oil refiners. But if you are a facility that is considered small, so you process seventy five thousand barrels a day or less of crude a year, you can apply for a hardship exemption that

In effect, means you have to blend fewer biofuels, you have to surrender fewer RINs. That can save these refiners tens of millions of dollars, but it can mean lower biofuel demand if there's mass exemptions and it's not accounted for in future mandates. So the program's been very controversial over its history for brief history in Trump's first term. Um

sort of doled out small refinery exemptions pretty generously, but really frustrated biofuel producers at the time. And then move into the Biden administration took the exact opposite approach. They denied petitions in mass. And then... courts took issue with the Biden era approach. They said, you know, they didn't consider enough like refinery specific circumstances and they made some assumptions about

The cost of passing on RIMs through fuel prices, very complicated, basically struck down all those Biden era decisions on SREs. So we're starting the Trump. Last year, the EPA literally has dozens appending SRE requests, some going back years and years and years and years and years and years. Um it's a really difficult decision about what to do with them because it means a lot

demand. So last year EPA rolled out a new approach that is pretty generous to SRV applicants. So it gave out some full hardship waivers. It gave a good amount of partial hardship waivers, which is Totally new, um, where a refiner would have to only blend half as many biofuels as they would have had to otherwise. And EPA also returned ring credits to these refiners if they had previously met the mandates. A lot of them were expired, so a limited use.

Um, but like a lot of active 2023, active 2024 rents were returned to refiners last year. So there was like a near term supply. um from these SREs. So to make up for that in this final rule, Trump admin is doing something creative called reallocation, where they are effectively raising the mandates in 2026 and 2027 to partially offset the demand hit from exemptions in years past.

This is totally new. EPA in the past has estimated future exemptions when setting future quotas and they factor that in, but they've never before made up for past exemptions. And ultimately they decide as a route to reallocate. seventy percent of the lost biofuel volumes from past exemptions, higher than some other options they considered after some um lobbying from some of the farm groups for a r higher reallocation number. And all in all, it's complicated, but this means

more than two billion additional rins have to be surrendered over this year and next year. It's really important for demand, especially with the mandates already high enough as they are. Um but obviously So much of the RFS ends up being litigated in court. This part of the plan is especially controversial among oral refiners. They say it'll lead them to pass on higher RIN costs.

Um that'll impact gas and diesel prices that are already very high right now in the US because of conflict in the Middle East. Um so a lot about these RFS updates are gonna be challenged in court. I think the reallocation piece is gonna be a big part of that. EPA is saying, hey, if you even if you strike down the reallocation piece, say that's illegal, don't strike down the other

parts of the program. So it'll be a very complicated legal battle that will play out over the coming months and years, but that's something to watch. Um another thing to watch. Trump admin still hasn't decided any petitions for SREs from last year's mandates, which at the time were the highest ever. Um so last month's rule reallocated, did did a complicated.

calculation of actual exemptions from twenty twenty three and twenty twenty four, but then estimated exemptions from twenty twenty five. So this is very in the weeds, but that'd be meaningful d for demand if the actual exemption decisions for last year's mandates come in higher or lower than what E

estimated. Um so we're expecting those in like the coming weeks and months ahead of the compliance deadline for last year's mandates. And we'll also note SRE program, big topic of debate right now in Congress. There's you know, lawmakers for weeks and months and also kinda like the last ten years have been weighing legislation that would authorize E fifteen gasoline year round. Um, part of the debate this year has focused on

pairing that with changes, limits to the small refinery exemption program. Um so we'll see how this all plays out, reallocation sort created new frustrations for the oil majors who already didn't like SREs to begin with. So this will be decided a lot of it in the courtroom, but it also Congress is currently engaged on this in a way that they often aren't with biofuel issues.

Um okay, so now I guess I will switch things around. Um, I'm gonna ask Matt, uh our intrepid rent reporter, some questions about what's been going on in the very complicated Rin markets that are often very volatile. Um so I guess first. We saw rin prices get down to some of the Their lowest values in many years after the first set rule back in 2023 that the Biden administration issued. So I guess.

after the proposed volumes from the Trump administration came out last year through now, I guess like talk talk me through what the markets looked like, why are rent prices so high now when they were so low after the prior Biden era rule. Yeah. Yeah. Thanks for that question, Cole. And I'm gonna start with just like a very, very brief overview here because the RIN, which stands for renewable identification number.

It's essentially the separate commodity from the physical biofuel that represents those individual gallons. This is the compliance mechanism for how the RFS. is doled out to all these obligated parties. And you have different types of RINs. There's a D6, which represents the ethanol, D4, which is your biodiesel, your renewable diesel and SAF, advanced biofuel, which is usually kind of more niche. It's like a

imported sugarcane ethanol most of the time. And then there's D three, which is your cell cellulosic. These are things like RNG that gets blended into compressed natural gas and things like that. But as you kind of alluded to in your description uh before, you know, the volumes that the EPA sets in rules like this really sets the tone for the fundamentals here.

And in twenty twenty three through twenty twenty five, which you know, that was the Biden set rule. That was kind of the first time they really did that. We're gonna bake in some volumes for the next. Three years. Um it those volumes were much lower than what we're seeing now that what got proposed this week. Um in a lot of ways they underestimated how much new renewable diesel capacity was gonna come online and you know the economic took over there. Um

you know, when when you have more credit generation than what's obligated, we wind up with that oversupply. And that kind of put that weight on top of prices and and brought them down that D four in, which this week was trading at

A dollar seventy-five was trading at 45 cents a little more than a year ago, right now. So again, all these things kind of play into it and and we have that crossover between what what's in the policy documents and then what happens like actually with market So that cyclical pattern of lower D4 generation, it sent that message that a lot of those

biodiesel plants, they needed to turn off because the margin wasn't there. If they're only getting a fraction of the margin coming from the RIN that they expected, that's just gonna hurt the industry as a whole. And and so prices went down and we had more uh ring credits on the open market, especially in that D4 category. Um so when this proposal came out in June, This was a reversal in a lot of ways. You know, this spurred demand across the supply chain. You know, feedstocks, grain crushing.

biofuel production here as well as even internationally. They pay attention to what's going on with the RFS. and we're now seeing those plants start to turn back online. And in looking at things like soybean oil, which is a huge driver of the Rin complex, We've seen rent prices just shoot straight back up starting in January of this year. We went from things were trading at about a dollar in December and then across one quarter that that came through March. We're now in early April.

We're seeing prices, like I said, back in close to$1.75, which are in a lot of ways the highest we've seen in in quite some time for these credits. Okay, so you mention um rent generation as one of those things that rent traders are keeping a close eye on that that's helping drive these prices to um really high levels that we've seen in recent weeks.

So I guess I guess talk more about trends you've seen over the last year in REN generation, I guess what what what's the market expecting through this year and next year. There's been some speculation that the quote unquote RIN bank will run dry. Um so you know, what would that look like? And, you know, what are some ways that refiners under this program can work around REN shortages?

Yeah, this is a major point market participants are looking at. This is something I talk about on a daily basis with folks out there trading these things around. So The provision to pay attention to is that twenty percent of a yearly obligation can be deferred to the next year. This has been a part of the RFS going back

several iterations. This isn't something that's new like what what you had just talked about, but this kind of acts as a lifeline in situations like this. It's important to denote here that it's not always easy to get an accurate view of the Rin Bank. Um, it's something that everybody kind of has their own calculation and own estimation on. The closest thing we have to really monitoring that is we keep track of monthly ring generation, which is published.

via the EPA. It usually comes out every third Thursday, um, usually around lunchtime here central time. And what we see is we're we're looking for the gallons of biofuel. When they're created, this system tracks all of that. And this is a super important window because it allows us to see kind of how these fundamentals are changing in real time. Um and the prices that that people will pay on the open market are affected uh on that as well. So, you know, trends on this stuff.

D6 is the largest proportion of that year after year, month after month. We see between like 1.1 billion and 1.3 billion D6 rins every month. Uh ethanol as you can extrapolate here. It's the most prevalent type of biofuel based on that. You know, our gasoline, we're we're more gasoline heavy here in the US compared to Europe, which uses more diesel um on a proportional basis. So gasoline is king here.

in the US and and you know from that ethanol uh has remained you know the lion share of credits that are generated. But the D four side, which like I said before, that represents your renewable diesel and your biodiesel that these get blended into Trucks, if you have a diesel truck, the the shipping industry, agriculture, you know, running tractors, that kind of stuff. Diesel's still very, very prevalent here.

And the volatility in terms of D four credit generation has kind of been the thing that has been the bigger eye opener. Um, peak production of D4. That was, you know, 2023 and 2024. You know, all that renewable diesel came online. You know, we were producing over 700 million credits in a lot of those months. But in twenty twenty-five, as those policies took into effect and as we started to have that oversupply.

that vicious cycle in a way took over and we had, okay, well, lower D four prices means that the producers need to turn off because they're not making margin and When they turn off, then that means okay, less ring credits are being generated. And then it can spiral back around in a lot of ways. So in January and February twenty twenty six.

We we're we're kind of seeing still those low volumes there. You know, those were two of the lowest months since around 2022. But indications that we've heard from, you know, talking to our contact

across the landscape here is we'll see some of that production come back online on the D4 side. So that's the equation that that you know we need to monitor here as the economics take over uh and we see those cause and effect. Are we going to look at that Rin Bank equation a as a way of do we have enough credits left on the open market?

from years before of years oversupply and new generation coming online. Like is that going to help us get over or will that production ramp back up and and fill that? So it all ties back to those margins that we've talked about across the supply chain, going from, you know, soybean oil, used cooking oil, tallow, into the handle on the pump that you put into your tank.

Okay, and then I guess I'll close it on a on a more philosophical question. But you know the RFS is one of those policies that It's always being questioned. It's always controversial. There's always like a bill in Congress to repeal it. Um and I get the in for like the initial biofuel goals of Congress when they established the program. Um looks a lot different than the market today, for instance, there's been a pretty limited uptake of cellulosic biofuels. But

Here we are, 20 years later. The program has not just survived across administrations, um, you know, but it's changed in some pretty significant ways and we're now at record high quotas, which People had tuned out from the biofuel market a few years ago, I think that would be a big surprise to them that this program that they thought was have you know failed in a lot of its goals.

is really become more ambitious under the Trump administration. Um I guess it's been embraced by Trump in a way that a lot of people didn't really expect. So I guess Matt, you know, talk me more through how you see The politics of this, how did the RFF? become a big part of Trump's energy policy in his second term, despite conventional wisdom saying that he is opposed to alternative forms of energy.

All right. We get to finish with politics. You know it's a good podcast and we're doing that. And and you know, really like like you said, you know, there's a lot of conventional wisdom that you we kind of scratch our heads on, especially like in the landscape of today. I mean we don't see bipartisan support on anything.

We turn on uh, you know, our our major political news channels and and we see that things are just so jaded and so strung out on party lines that you know, something like the renewable fuel standard I don't want to say it's refreshing, but it's it's it's a change of pace in a lot of ways when we see things like this because, you know, the conventional wisdom here is that the Republican side, it's anti-renewable, it's anti-carbon abatement.

There's some truth there. Like we know President Trump has made some statements on this stuff in the past of being critical of the Green New Deal, which was kind of one of those champion policies of of the Biden administration, as well as the Inflation Reduction Act, which, as you know, played so much into what we cover here at Argus. But We look back at at kind of the initial goals of the RFS because we've got to remember like this program has been around for twenty years.

had the 20th anniversary of it um less than a year ago. So it wears a lot of different hats. And that's like the the important, the key concept here. is that of course there's a CO2 reduction side of it. You know, that's why those different ring categories exist. You know, they're different levels of of carbon reduction that comes out of blending and burning these fuels here.

So biofuels originally like back in 2005, there was a more of a heavy emphasis on, hey, this is gonna stretch the nation's fuel supply. Like what if we hit kind of the peak oil boogeyman? Um we need to make sure that those volumes that we buy as consumers, you know, they're standardized across off the pumps because As many of you may or may not know at home, ethanol has been produced here in the US going back almost 40 years and it had been blended in different ways in different amounts.

over time and what the renewable fuel standard does was it standardized the percentages to where now we can expect that if I go to the pump and it's 10% ethanol by volume or it's 15% ethanol by volume, like this program is what kind of ensures that. That was one of the main goals of it. But now like The attention here is that the renewable fuel standard is an agriculture subsidy.

This has been talked about for a long time and there's a reason that those announcements last Friday, they came out at an agriculture appreciation event at the White House. And we had the president up there speaking at the podium about the RFS to farmers and some people across the country, this may have been the first time they really heard about the RFS in this way, but that Midwestern voting block has become a core part of of Trump's base.

Hire RVOs, you know, that drives the economic activity in those regions. It's an indirect job creator. It can be used as, you know, one of those tools that politicians can stand on the stage and champion and say, I'm supporting you. We're going to do this. And that's the identity of the RFS at this moment in time. Uh that's a good place to end it. Thanks, Matt, for your insights on the Rin Market, and thanks our listeners for joining us for another Arcus podcast.

Uh if you liked what you heard, consider subscribing to Argus America's Biofuels. It's our daily newsletter with breaking news, scoops, analysis, uh and crucially prices in key biofuel and credit markets, including Ren Market. Um, so if you're interested, you can reach out to oil-products at argusmedia.com.