EPA Finalizes Record RFS Volumes for 2026-2027: What "Set 2" Means for Biodiesel Producers and Markets

On March 27, 2026, the U.S. Environmental Protection Agency delivered the most consequential Renewable Fuel Standard rulemaking in years. Announced by President Trump at the White House Great American Agriculture Celebration, the "Set 2" final rule establishes renewable fuel volume requirements for 2026 and 2027 at the highest levels in the program's 20-year history. For biodiesel and renewable diesel producers, the numbers are transformational — and the structural policy shifts embedded in this rule will reshape feedstock economics, trade flows, and RIN markets for years to come.

Note: All volumes in this article are expressed in U.S. gallons with litre equivalents in parentheses for international readers (1 U.S. gallon = 3.785 litres). Weights are converted to metric tonnes where applicable.

The Numbers: A Sharp Step-Up from Proposal to Final

EPA finalized volumes significantly above its June 2025 proposal across nearly every category. The biomass-based diesel (BBD) mandate saw the most dramatic increase — up 24.4% for 2026 and 19.3% for 2027 relative to the proposed rule. The advanced biofuel category jumped 20.0% and 16.0% for the respective years, while cellulosic volumes rose by 4.6% and 5.1%. Conventional ethanol remained flat at 15 billion gallons (56,775 million litres).

The final volume table, expressed in billion RINs, tells the story:

RFS Category	2025	2026 Volume	2026 + SRE Reallocation	2027 Volume	2027 + SRE Reallocation
Cellulosic biofuel	1.21	1.36	1.36	1.43	1.43
Biomass-based diesel	n/a	8.86	9.07	8.95	9.20
Advanced biofuel	n/a	10.82	11.10	10.98	11.32
Total renewable fuel	n/a	25.82	26.81	25.98	27.02

Source: EPA Final Renewable Fuel Standards for 2026 and 2027

Understanding the Nested Structure

For international readers unfamiliar with RFS mechanics, a critical point: these volume categories are nested, not additive. Biomass-based diesel (D4) sits inside the advanced biofuel category (D4 + D5), which in turn sits inside the total renewable fuel obligation. Cellulosic biofuel (D3) is nested within advanced. Meanwhile, conventional ethanol (D6) fills the gap between the advanced mandate and the total renewable fuel mandate. This means that a D4 biomass-based diesel RIN can satisfy not only the BBD obligation but also count toward the advanced and total renewable fuel requirements — and critically, excess D4 RINs can "cascade up" to fill the conventional mandate when ethanol supply falls short of the D6 target. This nested architecture is what makes the conventional gap (discussed below) so important for biodiesel demand.

To put these BBD numbers in physical-gallon terms: the updated requirements translate to approximately 5.4-5.5 billion gallons (20,440-20,820 million litres) of biomass-based diesel for both compliance years — an over 60% increase from 2025 volumes under the Biden-era "Set 1" rule. This exceeds even the Clean Fuels Alliance request of at least 5.25 billion gallons (19,870 million litres) (equivalent to 8.4 billion RINs) for 2026, which itself was considered ambitious when filed.

For context, EPA's June 2025 proposal had targeted 7.12 billion D4 RINs for 2026 and 7.50 billion for 2027. The final figures of 9.07 and 9.20 billion RINs (inclusive of SRE reallocation) represent a step-change that few market participants had fully priced in.

The 70% SRE Reallocation: Tightening the System

One of the most closely watched elements of this rule was how EPA would handle the backlog of small refinery exemptions (SREs) granted during 2023-2025. The agency settled on a 70% partial reallocation of those exempted volumes into the 2026 and 2027 compliance years — landing near the upper end of market expectations, though below the 75% level some reports had signaled and well below the 100% reallocation that the biofuel industry had pushed for.

The reallocation adds approximately 1 billion RINs across all categories (excluding cellulosic) for both 2026 and 2027. Crucially, EPA changed its percentage standard calculation methodology: rather than removing exempted volumes from the denominator, the agency added exempted gallons to the numerator — a technical but meaningful shift that increases the effective blending obligation for all obligated parties.

The National Oilseed Processors Association (NOPA) praised the approach, noting that the "70 percent reallocation of waived gallons and the commitment to account for SREs on a go-forward basis restores program integrity and puts the RFS back on a growth trajectory." For biodiesel producers who endured years of demand uncertainty as SRE petitions accumulated, this provides a structurally firmer demand floor. The expectation, per Crux Climate's analysis, is that EPA will fold projected SREs directly into percentage standards prospectively going forward — absent litigation, a paradigm shift for program administration.

The Half-RIN Shadow: Foreign Feedstocks and the 2028 Question

Perhaps the most strategically consequential element of the Set 2 rulemaking is what EPA chose not to finalize. The June 2025 proposal had included an "Imported Renewable Reduction" (IRR) provision that would have cut RIN generation by 50% for imported renewable fuel and fuel produced from foreign feedstocks, effective 2026. The final rule explicitly drops this provision. On page 9 of the 351-page rule text, EPA states plainly: "We are not finalizing the proposed IRR provisions as part of this final rule." The agency concluded that "more time would be needed to successfully establish and implement IRR provisions."

This is not merely a delay — it is a deferral with no binding commitment. EPA signals intent to "establish IRR provisions that will take effect beginning in the 2028 compliance year or shortly thereafter," but this would require a separate, future rulemaking. No regulatory text establishing the half-RIN for imports was codified. No amendments to RIN generation rules for foreign feedstocks appear in the final rule.

Critically, the decision to drop the IRR directly shaped the final volumes. As EPA notes, "much of the increase in the volume requirements in this final rule are attributable to the EPA's decision not to finalize the proposed IRR provisions." In other words, the higher BBD mandates — the jump from 7.12 to 8.86 billion D4 RINs in 2026 — are in part a compensating mechanism: without the half-RIN restricting import supply, EPA raised the demand-side mandate to achieve equivalent market tightening.

This means that through 2027, imported UCO, foreign tallow, and finished biodiesel and renewable diesel continue to generate full RIN value — maintaining a supply channel that competes directly with domestic soybean oil. The surge in imported feedstocks has been well documented: Chinese UCO imports reached 2.8 billion pounds in 2024 before falling 55% under IEEPA tariff pressure in 2025, though overall import dependence remained as alternative suppliers filled the gap. Fraud concerns around UCO origin documentation persist.

The American Soybean Association expressed support for the credit reduction concept, noting that if maintained in future RVO rulemaking, it would "act as a major economic driver for the domestic biomass-based diesel value chain." But its absence from the current rule means the feedstock import question remains open through at least the end of 2027 — and potentially longer if the 2028 rulemaking is delayed or challenged.

For market participants, the key questions are whether the IRR survives the next rulemaking cycle, and whether USMCA partners (Canada and Mexico) receive an exemption — a scenario that would have outsized implications for canola oil, tallow, and soybean oil pricing dynamics.

Equivalency Value Overhaul: RD and SAF at 1.5

Buried in the technical details is another significant shift. EPA's final rule lowers the equivalency values for renewable diesel and sustainable aviation fuel from the proposed 1.6 to 1.5 RINs per gallon, effective January 1, 2027. Renewable naphtha remains at 1.4. The agency cited the use of fossil-derived hydrogen in most hydrotreating processes as justification for the reduction.

This narrowing of the RIN-generation advantage has real competitive implications. At 1.5 rather than 1.6 RINs per gallon, the economic premium that renewable diesel has held over traditional FAME biodiesel and corn ethanol shrinks. The change modestly improves the competitive economics of corn-based fuels relative to HEFA-derived products — a subtle rebalancing that could slow the shift toward hydrotreated vegetable oil (HVO) pathways and preserve market share for conventional biodiesel producers operating at lower capital cost.

For SAF specifically, the reduction from the proposed 1.6 to 1.5 brings jet fuel to exact parity with renewable diesel — removing what would have been a modest incentive to direct HEFA barrel yields toward the aviation cut. The delayed implementation to 2027 gives producers one year to plan, but the directional signal is clear: EPA is recalibrating RIN economics to better reflect actual lifecycle emissions.

What This Means for Biodiesel Producers

The combined effect of these provisions creates the most demanding — and potentially rewarding — operating environment for U.S. biodiesel and renewable diesel producers in the program's history. EPA itself estimates that biodiesel and renewable diesel production will need to increase by over 60% compared to 2025 volumes to meet the new mandates.

Several dynamics converge:

·       Demand certainty. The two-year mandate window (2026-2027) with SRE reallocation baked into percentage standards gives producers and financiers a firmer baseline for investment decisions. Plants that idled across the Midwest awaiting finalized RVOs now have regulatory clarity to resume operations.

·       Soybean oil as the anchor feedstock. Domestic biofuel production already accounts for more than half of all U.S. soybean oil consumption, with the industry consuming over 1 billion pounds (454,000 metric tonnes) of soybean oil monthly. USDA projects soybean oil use in biofuel for 2026-27 will rise to 17.3 billion pounds (7.85 million metric tonnes), up 2.5 billion pounds (1.13 million metric tonnes) from the prior marketing year — a 17% increase that will tighten oil-share spreads and support crush margins but there are CI constraints here that should not be underestimated.

·       The conventional gap persists. With EPA projecting ethanol consumption at approximately 14.4 billion gallons (54,504 million litres) against a 15 billion-gallon (56,775 million-litre) D6 mandate, the 600 million-gallon (2,271 million-litre) conventional gap must be filled by other D6-qualifying fuels — primarily renewable diesel. Because of the nested RFS structure, excess D4 biomass-based diesel RINs cascade upward to fill this shortfall, creating incremental demand for biodiesel and renewable diesel above and beyond the BBD mandate floor.

·       Economic multiplier. The EPA projects Set 2 will generate over $10 billion for rural economies and create over 100,000 new jobs. Secretary of Agriculture Rollins cited an expected $3 to $4 billion increase in net farm income and a $31 billion value for American corn and soybean oil in biofuel production for 2026.

RIN Market and D4 Pricing Outlook

The final rule is structurally bullish for D4 biomass-based diesel RINs. The combination of volumes exceeding the proposed rule, the 70% SRE reallocation, and the conventional gap maintaining incremental demand for D4s creates upward pressure on RIN prices. However, two factors temper the immediate price impact.

First, according to analysis by Farmdoc Daily at the University of Illinois, an estimated 860-million-gallon (3,255 million-litre) D4 RIN bank available at the beginning of 2026 provides a historically large buffer that dampens the immediate need for increased RIN generation. This explains why 2026 RIN generation requirements are projected at 8.77 billion gallons (33,193 million litres) compared to 10.29 billion (38,948 million litres) in 2027 — a 1.5-billion-gallon (5,678 million-litre) differential driven in part by the cushion of carryover credits.

Second, as detailed above, EPA's decision not to finalize the IRR means that imported UCO and tallow continue to generate full RIN value through at least 2027 — and potentially beyond, since the 2028 implementation requires a separate rulemaking that has not yet begun. This preserves a significant supply channel that partially offsets the tighter mandate.

Net of these crosscurrents, D4 RINs are positioned for a tighter but stable market — one where the floor is higher and the ceiling depends heavily on actual production ramp-up rates and feedstock availability.

Program Cleanup: eRINs Eliminated, SAF Pathway Still Pending

EPA retained two other significant provisions from its proposal. The elimination of renewable electricity (eRINs) from the RFS program, citing the Clean Air Act's emphasis on liquid and gaseous fuels, narrows the program's scope and refocuses compliance squarely on traditional biofuels. While eRINs — drafted in 2022 for electricity generated from biogas — were never implemented, their formal removal eliminates a regulatory wildcard that had introduced uncertainty about future RIN supply dilution.

On the SAF front, while the rule brought jet fuel to equivalency-value parity with renewable diesel, EPA did not finalize a standard pathway for ethanol-to-jet fuel — a provision that the corn ethanol industry had been seeking. This leaves the alcohol-to-jet conversion route without a streamlined regulatory pathway under the RFS, even as 45Z credit structures increasingly favor SAF production. Expect this to be a focal point in subsequent rulemaking.

Looking Ahead: The Watchlist

The Set 2 rule provides the demand signal that the biodiesel and renewable diesel industry has been waiting for. But several unresolved variables will determine whether the bullish mandate translates into sustained margin improvement:

·       45Z guidance. Treasury's final rule on the Clean Fuel Production Credit, including feedstock qualification and carbon intensity scoring under the GREET model, will interact directly with RFS economics. The interplay between RIN values and 45Z credits defines the effective per-gallon subsidy stack.

·       E15 and the summer waiver wildcard. Just two days before releasing Set 2, EPA issued an emergency fuel waiver on March 25 to allow nationwide E15 sales through the summer 2026 driving season — the fifth consecutive year of such waivers. E15 has historically been restricted during the summer ozone season (June 1 through September 15) because blending 15% ethanol raises a fuel's Reid Vapor Pressure (RVP), a measure of how readily gasoline evaporates in warm weather. Under Clean Air Act Section 211(h), summer gasoline is capped at 9.0 psi RVP; while E10 received a statutory 1-psi waiver in 1992, E15 never did — a legal technicality rather than a scientific distinction, since NREL research has shown E15 volatility is "indistinguishable" from E10. With ethanol currently trading at $0.84/gallon below wholesale gasoline — a 31% discount — and available at over 3,000 stations nationwide, widespread E15 adoption would narrow the conventional gap by absorbing more D6 ethanol gallons. This is a double-edged dynamic for biodiesel: it reduces the need for D4 RINs to cascade up and fill the conventional shortfall, but it strengthens the overall biofuel demand signal and political constituency for higher mandates. Permanent year-round E15 legislation remains stalled in Congress after a 2021 federal appeals court ruling determined only lawmakers — not executive action — can authorize it nationwide.

·       The USMCA feedstock question: Canada and Mexico. The unfinalised IRR provision and 45Z credit both hinge on the definition of "domestic" versus "foreign" — and both USMCA partners stand to play pivotal roles. The 45Z Clean Fuel Production Credit now requires feedstocks to originate from the U.S., Canada, or Mexico for fuels produced after December 31, 2025. This

North American sourcing requirement creates a two-tier feedstock market: USMCA-origin feedstocks retain full 45Z eligibility while non-USMCA sources (notably Chinese UCO and Brazilian tallow) are locked out entirely. Canada's role is well understood — it supplies roughly 80% of U.S. canola oil consumption and is a significant source of tallow and UCO. But Mexico's potential contribution is underappreciated. As a USMCA partner, Mexican-origin UCO, tallow, and animal fats would qualify for both full RIN generation (if exempted from the 2028 half-RIN) and full 45Z credit eligibility. Mexico's large food service sector generates substantial UCO volumes with underdeveloped collection infrastructure — a gap that purpose-built collection networks could exploit as Chinese UCO is tariffed out and the half-RIN looms. Mexican tallow from its sizable cattle industry similarly represents an untapped pipeline. Whether EPA grants USMCA partners a blanket exemption from the half-RIN in its 2028 rulemaking will determine whether Canada and Mexico become the preferred near-shore feedstock corridors — or whether the provision applies universally to all non-U.S. sources. The IEEPA tariff regime in 2025 already demonstrated how quickly trade flows can redirect: when Chinese UCO imports fell 55% under tariff pressure, alternative suppliers including USMCA partners absorbed much of the volume. The stakes for canola oil, tallow, and soybean oil pricing dynamics are enormous.

·       Production capacity. The 60% production increase required by 2026-2027 mandates assumes that idled capacity comes back online and that new renewable diesel units (Diamond Green, Marathon, CVR Partners, and others) reach nameplate utilization. With imports comprising roughly one-third of U.S. BBD feedstock supply and EPA projecting that imported feedstocks will form over 45% of total BBD supply under the new RVOs, any supply-side underperformance — or feedstock policy disruption — would further tighten RIN markets.

The bottom line: EPA has engineered a "tight but stable" RFS that tilts decisively toward domestic demand creation without breaking the system. For biodiesel and renewable diesel producers, the message from Washington is unambiguous — grow, invest, and source American. The market now has to deliver.

Published for globalbiodiesel.com. Analysis based on EPA final rule documents, industry stakeholder responses, and market data as of March 29, 2026.