EPA Targets CARB as Renewable Diesel Capacity Runs Ahead of Margins

The most consequential shift in U.S. regulatory posture came today with the Trump administration’s proposal to repeal the 2009 “Endangerment Finding,” effectively removing the EPA’s legal mandate to regulate vehicle greenhouse gas emissions. The move, announced in Indianapolis by EPA head Zeldin and Energy Secretary Wright, sets the stage for a legal confrontation with California and other LCFS-aligned states. More importantly for the biofuels complex, the EPA appears ready to assert the federal GREET model as the national standard for life-cycle emissions—directly challenging CARB’s methodology and potentially reshaping CI scoring for RD and SAF compliance across state and federal programs. The Washington Post covered the repeal announcement in detail here: https://www.washingtonpost.com/business/2025/07/29/trump-climate-epa-endangerment-zeldin/d7709718-6c8b-11f0-aab6-8141d7095676_story.html

Amid this regulatory recalibration, RIN markets remained largely flat. DEC25 D4 RINs settled at 1.255 (+0.4%) on subdued volume. Meanwhile, refining margins are beginning to deteriorate: diesel heat cracks have softened steadily from their July 21 peak near $39/Bbl to just $33.75 today. This sudden decline in cracks will impact profitability—even for major RD producers. Phillips 66's Rodeo Renewable Energy Complex, for instance, is a case study in 2025’s overcapacity dilemma. Despite boasting a nameplate capacity of 50,000 bpd, Q2 throughput reportedly averaged just 40,000 bpd—an 80% utilization rate. While technical or logistical issues may play a role, it’s clear that softening RINs and LCFS credits, coupled with feedstock tightness, are capping plant economics. With 2025 RVOs already locked, producers are left playing a margin game, not a mandate chase.

D4 RINs

Across the Atlantic, European biodiesel markets continue to split between strong paper flows and muted physical trading. FAME 0 paper volumes exceeded 556kt last week, a five-week high, while physical barge trades totaled only 14. RME and UCOME also saw decent screen volumes just over 300kt each. UCOME continues to command a flat price of $1,452.60/mt, with RME at $1,360.10/mt, leaving a hefty 113/mt UCOME/FAME spread that reinforces the premium attached to waste-based options. With secondary sanctions on Russian crude transformers looming, diesel supply risks for Europe remain high, but the hedging behavior shows traders are more concerned with managing structure than chasing prompt barrels.

In South America, Argentina’s grain market liberalization grabbed headlines, but the key soyoil and biodiesel taxes remain unchanged for now. Traders expect a decree later this week to reinstate the reduced 24.5% soyoil export tax (down from 31%), while biodiesel holds at 29%. Spot basis in Paranagua remains weak, with Sep offers seen at -530 to -580 vs futures. Palm oil also started the week lower, with Malaysian futures slipping 0.80%. Yet the strategic pivot may lie in Europe, where the EU is preparing to let Indonesian palm oil enter at a 0% tariff. This could restore competitiveness for Southeast Asian feedstock in European biodiesel pools, especially given ongoing RED III constraints on crop-based fuels.

Finally, macroeconomic tension continues to build. A slightly stronger U.S. dollar is putting pressure on Europe’s commodity import bill, while the recent $750 billion energy commitment to the U.S. has triggered political backlash across the EU. With Germany representing 37% of the trade surplus that underpins this deal, and no budgetary space allocated for these purchases in the latest €2 trillion EU framework budget, resistance is inevitable. As regulatory battles play out in Washington and Brussels, the RD industry faces a paradox: massive installed capacity and limited demand uplift in 2025. Until 2026 RVOs come into force, this is a test of balance sheets, not policy ambition.