EPA Paves the Way for Robust Renewable Fuels Production

On April 1, 2026, the U.S. Environmental Protection Agency (“EPA”) finalized its “Set 2” rule under the Renewable Fuel Standard (“RFS”) program (the “Set 2 Rule”). The Set 2 Rule sets ambitious renewable volume obligations (“RVO”) for each category of renewable fuel for 2026 and 2027, beyond the targets suggested in the proposed Set 2 rule issued last year. The Set 2 Rule retains some measures previewed in the proposal, including removing renewable electricity as a qualifying fuel, finalizing the proposed partial waiver of 2025 cellulosic biofuel volume requirements designed to address production shortfalls, and clarifications to renewable identification numbers (“RINs”) generated for renewable natural gas (“RNG”). However, EPA is walking back its proposal to slash the RINs generated for imported fuels, instead stating it may revisit this concept in 2028. The final rule goes into effect on June 15, 2026.

Bigger and Better 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. The RVOs finalized in the Set 2 Rule represent significant increases from those in both the Set 1 Rule and those set forth in the Set 2 proposal, reflecting the EPA’s efforts to support increased biofuels production by setting strong growth targets. In a statement alongside the final rule, EPA Administrator Lee Zeldin said that the new RVOs would create “larger, more stable, and more reliable” domestic markets for American crops, and the EPA estimates these increases will generate over $10 billion in value for rural economics. The shorter time frames included in the proposal—two years instead of three—also reflect an effort to create greater certainty for biofuels producers and reduce the risk that the EPA might need to step in and readjust RVO targets, as it has done in past years.

The Set 2 Rule also finalizes the partial waiver of the 2025 cellulosic biofuel requirement proposed last year. The EPA explains that updated data shows that only 1.21 billion RINs for the category will be available for compliance in 2025—far short from the 1.38 RVO set in the original Set 1 Rule. However, the final waiver amount sits slightly higher than the proposed waiver amount of 1.19 billion cellulosic RINs.

Proposed vs. Final RVOs, in billion RINs

While all fuels see an increased volume requirement, advanced biofuel and total renewable fuels reflect particularly strong projections in supply, despite the projected shortfall in cellulosic biofuel for 2025. The higher RVOs also reflect the Trump administration’s decision to finalize a 70 percent partial reallocation of the 2023–2025 exempted volumes into 2026 and 2027 RVOs, beyond the 50 percent proposed level. This is designed to account for the EPA’s consideration of the impacts of small refinery exemptions granted to certain obligated parties. The greater reallocation factor may temper the benefits of the increased RVOs felt by large biofuels producers. High reallocation rates can decrease RIN prices, thus lowering the demand for new RINs and renewable fuels.

The events in the Middle East may add to the challenges that these higher volumes would have already inevitably faced. The 25.82 billion RINs target is quite ambitious, given that EPA’s analysis in the Set 2 Rule predicts only 21.87 million gallons of renewable fuels being supplied in 2026.  Moreover, the higher costs for crude oil may also impact gasoline consumption, as higher prices at the pump generally correlate with lower consumption of fuels in short term, which could increase RIN scarcity in 2026.  Indeed, prices for Brent crude and West Texas Intermediate crude over the last several weeks have far exceeded the prices used in the EPA’s reference case. EPA’s Response to Comments¹ implies that these higher petroleum prices could lead to significant consequences:

“At relatively lower petroleum prices, the costs of the RFS program would be absorbed by the U.S. transportation market without triggering an economic, nor energy security, concern.”

The Clean Air Act in Section 211(o)(7) (42 U.S.C. § 7545(o)(7)) affords EPA a basis to issue waivers, and it remains to be seen whether the impacts on the transportation fuels sector from the events in the Middle East will necessitate its use. 

No More Renewable Electricity . . . or Process Heat

The Set 2 Rule also puts the final nail in the coffin for e-RINS. Though the EPA has allowed renewable electricity to qualify as a renewable fuel since 2010, the EPA proposed, but never finalized, provisions in 2023 which would have allowed producers to generate RINs when biogas is used to make renewable electricity to charge electric vehicles. Following President Trump’s direction to “eliminate the [EV] mandate” in the Unleashing American Energy executive order and noting that “electricity” is not expressly mentioned in the text of the Clean Air Act’s RFS provisions, the Set 2 Rule would remove renewable electricity as a qualifying fuel under the RFS program.

Beyond renewable electricity, the EPA is also finalizing a prohibition on RIN generation for fuel used for process heat or electricity generation. The EPA previewed these changes to some extent in the proposed rule, proposing to disallow RIN generation from the use of biodiesel in process heat or electricity generation on the basis that biodiesel, when used in this matter, does not meet the regulatory definition of “heating oil.” The final rule goes further to prohibit this pathway for all fuel types, noting (as it does for e-RINs), that process heat and electricity generation are not expressly included in the statutory text of the RFS program. Once the Set 2 Rule comes into effect, any existing RINs generated from fuel used for process heat or electricity generation must be retired.

Hitting the Brakes on Import RIN Restrictions

Though the EPA is increasing RVOs beyond what was proposed, it is also pushing back its proposal to change how RINs are generated for imported fuels. While RINs are currently generated indiscriminately per gallon of renewable fuel, the EPA’s proposal sought to reduce the value of imported renewable fuel or fuel produced from foreign feedstocks by stating that such fuels would general half the number of RINs that the same gallon of fuel would generate if produced in the U.S. from domestic feedstocks. However, the EPA declined to finalize the proposal in the Set 2 Rule, stating that additional time is needed to determine how to best implement restrictions on imported fuels and referencing commenters who pointed out that the proposed restrictions could result in “significant changes in the supply of renewable fuels” that could ultimately lead to higher prices at the pump. The EPA instead stated that it intended to propose restrictions on imported fuels in a future rulemaking that would take effect in 2028. However, some limitations on imported fuel remain. President Trump’s One Big Beautiful Bill Act, enacted in July 2025, limits availability of the 45Z tax credit to renewable fuels produced in the U.S. from domestic feedstocks beginning in 2026. 

Key Takeaways

The Set 2 Rule reflects continued support from the Trump administration for domestic biofuels production, tempered by acknowledgement that more time is needed to finalize restrictions on foreign-sourced renewable fuels. The final rule has already been widely celebrated by biofuels industry groups, who applaud the clarity and strong production targets offered by the new RVOs. However, some groups, especially larger refiners, have raised concerns that the 70 percent reallocation of waived volumes undermines the purpose of the RFS program by allowing obligated parties to rely on surplus RINs rather than driving additional production and use of renewable fuels. The Set 2 Rule also follows the EPA’s temporary emergency fuel waiver on March 25, 2026, to allow nationwide sales of E15—gasoline blended with 15 percent ethanol—during this summer when it would otherwise be barred by federal fuels regulations. The E15 waiver and increased RVOs together aim to boost the domestic fuel supply and lower prices at the pump, though it remains to be seen the ultimate impact these measures will have on RIN prices. The exogenous risks posed by the events in the Middle East have the potential to exacerbate some of the risks that are intrinsic to EPA’s efforts to increase the biofuels mandate through this Set 2 Rule. These consequences could lead the EPA to take some actions to alleviate the impacts of higher fuel prices on consumers and bear watching. 

We will continue to monitor developments related to the RFS program. Please reach out to your Vinson & Elkins team to discuss these matters and their implications for your business.

¹EPA, Renewable Fuel Standard (RFS) Program: Standards for 2026 and 2027, Partial Waiver of 2025 Cellulosic Biofuel Volume Requirement, and Other Changes—Response to Comments, at 176 (Mar. 2026), https://www.epa.gov/system/files/documents/2026-03/420r26012.pdf.

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.