EPA Aims to Boost Biofuels Production in Proposed RFS Set 2 Rule

On June 17, 2025, the U.S. Environmental Protection Agency (“EPA”) published its proposed “Set 2” rule under the Renewable Fuel Standard (“RFS”) program (the “Set 2 Rule”). The Set 2 Rule proposes renewable volume obligations (“RVO”) for each category of renewable fuel for 2026 and 2027 that reflect the new administration’s desire to support biofuels production while recognizing practical constraints that exist with the current set rule. The Set 2 Rule also proposes changes to requirements for the generation of Renewable Identification Number (“RIN”) that furthers President Donald Trump’s policy priorities by proposing to limit the RINs that imported fuels can generate and removing renewable electricity (“e-RINs”) as a qualifying fuel. The proposal also includes a number of other changes designed to reduce burdens on biofuels producers, to adjust equivalency values for certain liquid fuels, and to make changes to certain registration, reporting and recordkeeping requirements, as well as fuel testing standards, amongst others. Comments to the proposed rule are due August 8, 2025.

Strong Fuel Targets

The RFS program requires U.S. transportation fuels to contain a minimum volume of designated renewable fuels. The EPA assigns a specified RVO to obligated parties—refiners or importers of gasoline or diesel—that are based on the percentage of the determined RFS volume requirement for an applicable compliance year and projections of fuel production for that year. Proposed biofuel targets for 2026 were originally due November 24, 2024. In the Set 2 Rule, the EPA has proposed advanced biofuel and biomass-based diesel volume requirements for 2026 and 2027 that generally demonstrate the administration’s desire to set strong, balanced growth targets. Notably, the Set 2 Rule proposal sets volume requirements for a shorter timeframe than the Set 1 Rule finalized under the Biden administration. By doing so, the EPA aims to reduce uncertainty in the RFS program by lowering the likelihood of needing to adjust volume requirements in the future. Proposed volume requirements for each fuel category are displayed below:

In a statement alongside the proposal, Secretary of Agriculture Brooke Rollins called the Set 2 Rule a “strong signal to the U.S. biofuels industry that President Trump has their backs.” Indeed, President Trump’s Unleashing American Energy executive order called on the EPA and other agencies to support domestic energy, including biofuels. The strong volume targets—particularly for biomass-based diesel—reflect an interest in continued growth in production of renewable fuels and, ultimately, and a desire to increase U.S. energy independence.

Biomass-based diesel is a clear winner under the proposal, supported by increasing year-over-year growth in production capacity and the increased share of renewable diesel production as compared to biodiesel (renewable diesel facilities tend to have greater production capacity). The only fuel category not seeing an increased volume requirement is cellulosic biofuel. As we highlighted previously, shortfalls in cellulosic biofuel production and continued uncertainty caused D-3 RIN prices to spike as high as $3.50. The EPA has proposed reduced targets for cellulosic biofuel based on a new proposed methodology that incorporates limitations in the quantity of compressed natural gas and liquified natural gas derived from biogas projected to be used as transportation fuel and on the number of vehicles capable of using natural gas as fuel. In conjunction with these targets, the EPA also proposed to use its waiver authority to reduce the 2025 volume requirement for cellulosic biofuel from 1.38 billion RINs to 1.19 billion RINs. In a separate rulemaking, the EPA also published a pre-publication version of a final rule that finalized a Biden-era partial waiver of the 2024 volume requirement.

Other technical changes to the RFS program are also reflected in the proposed Set 2 Rule. Namely, the Set 2 Rule proposed to measure the biomass-based diesel volume requirement in RINs rather than physical gallons to allow for easier comparison to prior RFS rules.

Changed Priorities

Beyond production goals, other provisions of the proposed Set 2 Rule reflect President Trump’s policy priorities to support domestic fuel production and energy security. For example, while RINs are currently generated indiscriminately per gallon of renewable fuel, the proposed Set 2 Rule would change the value of a RIN depending on the origin of the fuel’s feedstock. Under the proposed rule, a gallon of imported renewable fuel or fuel produced from foreign feedstocks would generate half the number of RINs that the same gallon of fuel would generate if produced in the U.S. from domestic feedstocks. The feedstock’s point of origin would generally be defined as the location where it is grown, produced, generated, extracted, collected, or harvested.

President Trump’s Unleashing American Energy executive order and EPA Administrator Lee Zeldin’s “Powering the Great American Comeback” initiative both aim to foster “American energy dominance” by reducing burdens on domestic energy production. The EPA explains that this measure is being proposed in response to a “dramatic increase in imported biofuels and feedstocks.” The move to devalue foreign RINs comes on the heels of other measures the EPA is pursuing to benefit the domestic biofuels industry. In March 2025, the EPA published a memorandum limiting enforcement and compliance actions that would shut down or significantly disrupt “any stage of energy production,” including biofuels, unless there is an “imminent and substantial threat to human health or an express statutory or regulatory requirement.” Then, in April 2025, as a means of implementing President Trump’s Declaring a National Energy Emergency Executive Order, the EPA announced it would allow the sale of E15 (gasoline blended with 10.5–15% ethanol) nationwide throughout the summer. The EPA most recently extended this waiver on June 5, 2025.

The proposed Set 2 Rule also addresses e-RINs—tradeable credits generated when biogas is used to make renewable electricity to charge electric vehicles (“EVs”). Though the EPA’s 2023 Set Rule never finalized e-RIN provisions, renewable electricity remained a qualifying renewable fuel under the RFS regulations. The proposed Set 2 Rule would make renewable electricity ineligible to generate RINs. EPA bases this decision on 1) increased risks of double counting of e-RINs because of the number of parties involved in the value chain and 2) concerns about a lack of statutory authority given that renewable electricity does not clearly fit within the statute’s definition of a “renewable fuel.” The EPA stated that this change “[f]urthers the President’s goal of eliminating the [EV] mandate.” That said, renewable electricity remains a credit-generating fuel under California’s Low Carbon Fuel Standards program.

Other Changes

The Set 2 Rule also proposes a number of changes aimed at clarifying regulations, reducing risk of overcounting or double counting RINs, and reducing burdens on renewable fuel producers. For instance, RIN-owning entities would be spared from submitting quarterly reports of the volume of renewable fuel owned, but not the annual reports. This proposal would revise pathways for certain renewable fuels based on EPA’s updated analysis of lifecycle greenhouse gas emission reductions, which could further trigger the need for producers to update registrations with EPA. Also proposed are revisions to the equivalence values for renewable diesel, naphtha, and jet fuel to lower the amount of RINs in relation to the fossil-derived hydrogen content, given that these fuels are generally produced through a hydrotreating process. However, producers are still free to request an alternative equivalence value from EPA. The EPA is also taking comments regarding establishing a new fuel pathway for the production of sustainable aviation fuel from corn ethanol, including accounting for reductions in lifecycle greenhouse gas emissions resulting from the use of carbon capture and sequestration CCS or renewable natural gas (“RNG”) in the production process or low carbon agricultural practices.

Additionally, the proposal clarifies when a RIN can be generated. RINs are generated for domestic producers at the point of production or sale; for foreign producers at the point of production or loading onto transport to the covered location; and for importers at the point of import. EPA made other changes to RFS registration requirements, including proposing that third-party engineering studies required to be submitted to EPA must not be older than six months at the time of submittal to EPA. In addition, the proposed changes for generating RINS from RNG would be substantial and would push out the timetable for generation of a RIN to “five business days after all applicable requirements for RIN generation” have been met. The Set 2 Rule also proposed to disallow RIN generation from the use of biodiesel in process heat or power generation activities given that when used in this manner, the biodiesel does not meet the regulatory definition of “heating oil,” and makes a number of technical changes to existing pathways.

Key Takeaways

If finalized as proposed, these changes will potentially require updates to EPA RFS registrations. The proposed RFS Set 2 Rule reflects continued support from the Trump administration for domestic biofuels production, tempered by an acknowledgement of production shortfalls and lingering uncertainty. The proposed rule aims to further the policy goals set out by President Trump in the first weeks of his administration and has been widely celebrated by biofuels industry groups. The increase in the volumes relative to the blendwall raise a concern that these proposals may increase the price of transportation fuels beyond the relatively modest increases foreseen. The EPA seeks comments on the implications of these proposals on the costs of transportation fuels.

It remains to be seen how the administration will address other challenges the RFS program poses to the energy industry. While President Trump’s first term was characterized by its generous approach to granting small refinery exemptions (“SRE”) that allow certain small refineries to be exempt from renewable fuel requirements, 169 SRE petitions remain pending, and the EPA has not yet taken any action on these pending petitions or announced its current policy towards SREs. The Supreme Court held on June 18, 2025 that any future challenges to SRE petitions will be heard in the D.C. Circuit, rather than regional courts. The proposed Set 2 Rule incorporated SRE estimates for future compliance years in EPA’s calculation of volume requirements based on scenarios ranging from zero SRE petitions granted to all operational and qualifying small refineries receiving SREs for years 2026 and 2027. In the preamble, EPA acknowledged a commitment to re-allocating exempted volumes from successful SRE petitions to their larger counterparts. However, in the absence of a policy on SREs, the ultimate amount of re-allocated volumes remains uncertain.  Moreover, aggressive reallocation of renewable volume obligations to reflect any SREs granted will almost certainly increase litigation risks around SRE petitions.

We will continue to monitor developments related to the RFS program. The EPA will hold a public hearing on July 8, 2025, and comments on the proposed rule are due August 8, 2025. Please reach out to your Vinson & Elkins team to discuss these matters and their implications for your business.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.