Extension of 45z Lifts RD Outlook, D4 Rins Tank as Policy Leans on PTC

A major shift unfolded this week as the House Ways and Means Committee passed a bill modifying and extending the 45Z clean fuel production credit through 2031. Crucially, the bill removes ILUC (indirect land use change) from CI calculations and restricts feedstock eligibility to U.S., Canadian, and Mexican origin. These changes create a more favorable framework for domestic renewable diesel and biodiesel producers—especially those using vegetable oils like canola and soybean oil—and signal a long-term policy commitment to North American fuels.

Markets reacted swiftly. D4 RINs fell to 1.14 today, down from 1.226 at their May 14 peak, underscoring the powerful effect of expanded production-based subsidies on RFS compliance costs. With 45Z replacing the blender credit and offering generous per-gallon incentives, producers can reduce their dependence on high RIN prices. This shift mirrors 2018, when RIN prices over $1 created political pressure and led to a wave of small refinery exemption (SRE) petitions. The current strategy is clearly designed to keep RINs subdued, smoothing compliance and reducing volatility.

Although foreign feedstock limitations in the House bill are still under discussion, the momentum for increased U.S. RD blending is strong. Even EPA Administrator Lee Zeldin—previously critical of the RFS—walked back his May 26 deadline for new RVOs, citing the need for full rulemaking. If RVOs are raised substantially, it would allow for greater domestic HVO usage and alleviate surplus buildup. But this may also serve a larger trade strategy: with Europe maintaining countervailing duties on U.S. RD imports, the administration may be preparing to prioritize higher blending at home while shifting more refined diesel exports into European markets.

European trading remained calm. BOGO firmed to +530, with ARAG barge trades showing FAME at $1304/mt and UCOME at $1404/mt, narrowing the UCOME/FAME spread to just $100/mt. RME and FAME traded at parity—reflecting not rising FAME demand but expectations of new crop rapeseed arriving in July, which is softening rapeseed oil premiums and compressing margins. Feedstock fundamentals remain tight but appear to be adjusting for the upcoming seasonal shift. In the meantime Bean oil is trading at 1.85X Gasoil perhaps heading to our last peak of 2.02X on 30Jun2023.

Soybean Oil futures price coefficient over Gasoil

One strategic tension looms: under current RFS rules, all biofuel exports require the retirement of RINs. If this administration wants to push exports—especially to capture margins in Europe or Latin America—RIN prices must be kept low. High RINs suppress export competitiveness. The pivot toward 45Z and a producer tax credit may be intentional—supporting output without inflating RIN values. But this also links directly to the surging domestic Capex in soybean and canola crush facilities. Unless RVOs are lifted significantly, all that new capacity risks oversupply and margin compression. The clearest path to match crushing expansion with stable oil demand is a higher domestic blending mandate—and that decision now sits squarely with the EPA.