EPA Walks the Tightrope with Proposal to Reallocate Exempted Renewable Fuel Volumes

The EPA’s September announcement proposes reallocating the volumes of fuel that were waived in the August 2025 SRE decisions (the “SRE Volumes”) as additional volumes in the Set 2 volumetric standards.¹ How the EPA proposes to allocate these SRE volumes is a bellwether for the future of the program, as this approach will likely serve as a template moving forward. Moreover, the stakes for this decision are significant for the RFS program and the biofuels industry it supports, as well as for the refining industry and the pivotal economic factor of gas prices. The EPA must navigate important, yet conflicting, objectives with this policy, maintaining incentives for renewable fuels production to further the goals of energy security and sustainability on one hand while avoiding costly burdens on obligated refineries that could ultimately be passed down to impact fuel prices at the pump on the other. As a sign of the EPA’s interest in obtaining feedback on its proposal from the various stakeholders, the agency is scheduling a public hearing for October 1, 2025, and is currently accepting written comments until October 31, 2025.

Why Is the Allocation of the SRE Volumes So Important for the RFS Program?

The RFS program requires that a certain volume of renewable fuel be blended into transportation fuel, and the EPA sets these volumetric standards on an annual basis. The EPA tracks compliance with this obligation using RINs, which are generated when renewable fuel is produced or imported. Obligated parties, such as refiners and importers, must acquire and retire enough RINs each year to meet their Renewable Volume Obligations (“RVOs”).

The SRE Volumes, which the EPA estimates to number in the billions of gallon equivalents of renewable fuels, will result in significant portion of RINs not being retired, thereby creating a surplus of carryover RINs that could be used in future years. While an obligated party can only satisfy up to 20 percent of its RVO with carryover RINs, the concern is that the use of, for example, 2023 carryover RINs for compliance year 2024 will lead to a glut of 2024 RINs being carried over into 2025. Thus, a RIN surplus could lower demand for new RINs in several subsequent years, thereby lessening the need to blend new renewable fuel. Ultimately, biofuels producers fear that the impacts of the SRE Volumes, diminished RIN prices and lower demand for renewable fuel, could cause lasting damage to the biofuels industry and undermine the purpose and objectives of the RFS program.

How Is the EPA Proposing to Allocate the SRE Volumes?

The EPA is proposing to adjust the 2026 and 2027 Set 2 volumetric requirements to account for the surplus RINs created by the SRE Volumes. The EPA proposes that a new “SRE reallocation volume” factor will be added to the annual percentage standard equations used to calculate RFS volume standards. Two main approaches are proposed: a 100% reallocation that would fully incorporate all exempted volumes in 2023–2025, and a 50% reallocation that would offset half of the exempted volumes. In implementing this proposal for 2026, the EPA would reallocate all of the RINs exempted in 2023 plus half of the RINs exempted in 2024. For 2027, the EPA would reallocate the other half of the RINs exempted in 2024 plus all of the RINs projected to be exempted in 2025. The EPA is also seeking comment on other percentages (e.g., 25 percent or 75 percent) or not reallocating at all.

The additional SRE reallocation volumes would be phased in across 2026 and 2027 to avoid market disruption. This reallocation would apply across all four RFS categories: cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel. The EPA’s objectives in managing this process are to (1) maintain the intended renewable fuel use in 2026 and 2027, thus preventing the surplus RINs from reducing demand for new renewable fuel; and (2) avoid increasing actual renewable fuel production above previously proposed levels, but instead to keep production at the intended targets.

On What Questions is the EPA Seeking Comment?

The EPA is chiefly seeking input on its proposals for reallocation of SRE-exempted renewable fuels volumes, both the co-proposed 100 percent and 50 percent reallocation plans and the other reallocation possibilities: 25 percent, 75 percent or 0 percent reallocation. The EPA is also seeking comment on whether cellulosic biofuel volumes specifically should be incorporated into the SRE reallocation volumes or, if not, whether the advanced biofuel and total renewable fuel reallocation volumes should be otherwise reduced “given the nested nature of the standards.” The EPA has set a date for a virtual public hearing for stakeholder engagement of October 1, 2025. The agency is also accepting written comments until October 31, 2025, providing stakeholders with an opportunity to improve the rule by providing additional data or raising concerns that were not considered in the rule proposal. Submitting comments can also preserve issues for future legal challenges. As we have previously reported, participation in these comment processes is vital for ensuring that the regulator has a balanced perspective as it finalizes its actions.

Conclusion

The EPA has proposed to adjust its 2026 and 2027 RFS standards to account for volumes exempted through the small refinery exemption and to manage the impacts to the renewable fuels market from the RINs carried over due to recently issued SREs. In some sense, the EPA’s SRE reallocation proposal is a necessary product of the interaction between the agency’s Set 2 volume standards and its August SRE decisions. But it is also the product of the competing interests between the refining and biofuels industries. By seeking public input on a range of reallocation options, the agency is attempting to balance the program’s core objectives — supporting renewable fuel production, ensuring energy security, and protecting consumers from undue cost increases.

We will continue monitoring developments regarding the RFS program. If your business has a stake in the EPA’s reallocation plan, reach out to your Vinson & Elkins team to discuss options for developing comments on this significant policy proposal.

¹ 90 Fed. Reg. 45007 (Sept. 18, 2025).