Global Biofuel Shake-Up: RVOs’ New Rules Hit Foreign Players Hard

The EPA’s newly proposed Renewable Volume Obligations (RVOs) for 2026 and 2027 mark a seismic shift in U.S. biofuels policy, not just by raising the overall blending target to 24.02 billion gallons in 2026, but more consequentially by introducing a 50% haircut on RINs generated from foreign feedstocks or imported fuels. While the headline increase is grabbing attention, the real disruption lies in how this penalizes non-U.S. producers—signaling a return to protectionism in support of American agriculture and biofuel processors.

This policy pivot sent D4 RINs soaring to $1.165 on Friday, with some traders openly speculating about a potential move to $2.00. The logic is straightforward: if the marginal gallon now yields only half a RIN due to foreign feedstock penalties, then either the volume must collapse or prices must rise. Soybean oil markets reacted instantly—spiking domestically while FOB Paranagua premiums in Brazil collapsed, with August bids retreating from -400 to -600 under CBOT. The basis move in South America reflects a growing realization that these RVOs are structurally bearish not only for vegetable oils, but also for any feedstocks produced outside the U.S., whose economic viability under the Renewable Fuel Standard has now been fundamentally undermined.

Particularly notable is the advanced biofuel category, which saw a marked increase in proposed volumes. This is less a nod to biodiesel expansion as it simply actualized current production capacity and more a reflection of the surging contribution from Renewable Natural Gas (RNG). The EPA appears to be capitalizing on RNG’s momentum, but the agency’s treatment of Small Refinery Exemptions (SREs) remains vague. However, traders are interpreting the silence as bullish, with Reuters suggesting that any waived gallons may be reallocated via a supplemental 2026 rule—adding further upward pressure to RIN markets.

Proposal

The EPA will host a virtual public hearing on July 8, with the comment window open through August 8 and final mandates expected by October 31. This provides ample time for stakeholders to debate the implications of the foreign RIN discount, the inclusion of RNG in advanced buckets, and whether e-RINs should continue at all. The agency also authorized Cellulosic Waiver Credits (CWCs) for 2024 and indicated these may be extended to 2025, reflecting continued flexibility where compliance is still maturing.

Ultimately, while the proposed headline volumes are historic, the structural shift toward favoring domestic feedstocks is the real takeaway. It not only reshapes trade flows but also redefines who qualifies as a competitive producer in the RFS program. Independent refiners, already strained by volatile compliance costs, may have been counting on 45Z tax credits to mitigate rising RIN prices—but that relief may fall short. Foreign producers like Neste, who were heavily reliant on full RIN generation and state-level LCFS incentives, now face a significant handicap starting in 2026. The market is already pricing in this shift, with feedstock sourcing likely to adjust as early as Q4 2025 to align with the new penalty structure. With foreign volumes effectively devalued, the role of the marginal producer tightens, potentially setting the stage for a volatile and expensive RIN environment going into the second half of next year.