EPA’s 770 million RIN reallocation lands on biomass-based diesel

On 13 October EPA proposed to reallocate 770 million RINs to the 2026 and 2027 Renewable Fuel Standard obligations. The figure is the gap between the 1.76 billion RINs EPA exempted for 2025 on 31 August and the 990 million it had estimated, and built into the 2026-27 standards, in March. EPA proposes two ways to add the volume back and takes comments until 4 December.

In our analysis the extra demand falls almost entirely on biomass-based diesel. The E10 blend wall has held corn-ethanol (D6) RINs between 14.3 and 14.9 billion a year since 2021, cellulosic (D3) supply is short of its own 2026 requirement, and other advanced (D5) RINs total about 0.3 billion a year. The 770 million RINs therefore have to come from biodiesel and renewable diesel (D4), about 490 million gallons if EPA splits the volume and 510 million if it puts it all into 2027.

The choice of option is mainly about timing. Splitting the volume adds 385 million RINs to a 2026 compliance year whose RINs are mostly already generated. Putting it all into 2027 doubles the 2027 addition in the year renewable diesel’s RIN value falls from 1.7 to 1.5 a gallon. For Canada, a higher D4 price raises what a US gallon of renewable diesel gives up when it is exported, which supports CFR and BC credit prices.

EPA, 2025 small refinery exemption decisions (31 August 2026) and reallocation proposal (13 October 2026); EPA Set 2 final rule; EPA EMTS RIN data; Climate Decode RFS model.

Refiners and importers of gasoline and diesel meet the Renewable Fuel Standard by retiring RINs in proportion to the fuel they sell. A refinery that processes no more than 75,000 barrels of crude a day can petition EPA to be excused from a year’s obligation if compliance would cause it disproportionate economic hardship, under section 211(o)(9) of the Clean Air Act. EPA decides each petition after consulting the Department of Energy.

An exempted refinery retires no RINs for that year, so national RIN demand falls by its obligation unless EPA raises everyone else’s standard to compensate. That adjustment is reallocation. Before 2020 every exemption simply reduced demand. Since a 2020 rule, EPA projects exemptions from a three-year average and builds the projection into the percentage standards in advance.

Exempted obligations ranged from 0.82 billion to 1.82 billion RINs a year between 2017 and 2024, so a three-year average can miss by a wide margin. The 2025 total of 1.76 billion is the largest since 2017.

The Set 2 rule, announced on 27 March, set record volumes for 2026 and 2027 and reallocated 70% of the volumes exempted for 2023-2025, using an estimate of 990 million RINs for 2025. On 31 August EPA ruled on the 34 petitions for 2025. It granted 18 in full and 11 at 50%, denied three and found two refineries ineligible, exempting 1.76 billion RINs in total. EPA attributed the overshoot to more small refineries requesting exemptions and to changes in their financial circumstances, and moved the 2025 compliance deadline back 30 days to 1 October.

Table 1 · From the Set 2 rule to the reallocation proposal

EPA final rule for 2026 and 2027 and detailed fact sheet (EPA-420-F-26-007); EPA release and decision document on 2025 small refinery exemptions (31 August 2026); EPA release (13 October 2026).

Option one splits the 770 million RINs equally, adding about 385 million to each of the 2026 and 2027 obligations. Option two adds all 770 million to 2027. EPA says the revision to the 2026 standards may extend the 31 March 2027 deadline for 2026 compliance reports, because option one raises the requirement for a year that will be almost over by the time a final rule can follow the comment period.

Exhibit 1 · Extra RIN obligations under EPA’s two options

Gallons of biomass-based diesel at 1.63 RINs a gallon in 2026 and 1.5 in 2027. EPA (13 October 2026); Climate Decode analysis.

Table 2 · The two options compared

Climate Decode RFS model. D4 demand is about 10.6bn RINs in 2026 and 10.8bn in 2027 before the reallocation.

Option one bites sooner, because by the time a final rule is out, 2026 production is over. The extra 2026 obligation can then only be met from RINs already in the market, RINs banked from 2025, or a deficit carried into 2027, and 2025 compliance already drew heavily on the bank. Option two gives producers a year to respond but puts the whole volume into 2027, the year a gallon of renewable diesel starts earning 1.5 RINs instead of 1.7. It is the more bullish option for 2027 D4 prices.

RFS obligations nest. Every RIN counts toward the total renewable fuel standard, the advanced types (D3, D4 and D5) also count toward the advanced standard, and D4 counts toward biomass-based diesel as well. A larger total obligation can therefore be met with any RIN type, and the question is which supply can grow.

Table 3 · Which RINs can cover the extra 770 million

EPA EMTS RIN generation by D-code; 2026 requirement from the Set 2 final rule.

Most US gasoline carries no more than 10% ethanol, so D6 generation has barely moved in five years while the total obligation rose. Cellulosic supply cannot meet its own slice, so its shortfall adds to D4’s load, and Set 2 removed electricity as a qualifying fuel. D5 output is small, and the naphtha and propane in it are co-products of renewable diesel plants that grow only when D4 output grows.

Brazilian sugarcane ethanol does not change the result. It earns D5 RINs, but each gallon of cane ethanol takes the place of a gallon of corn ethanol inside the same 10%. With ethanol at the wall, D4 demand equals the total obligation minus the ethanol the wall allows, minus D3, minus non-ethanol D5, and the corn-cane split drops out. Only wider use of E15 and E85 would lift the wall, and that is slow. California adopted E15 rules on 24 September, and our base case reaches 6% of the state’s gasoline by 2030.

Exhibit 2 · How the 2026 obligation gets filled, in billion RINs

D3, D5 and D6 at 2025 generation; D4 is the remainder. EPA Set 2 final rule; EPA EMTS; Climate Decode RFS model.

We estimate 2026 already requires about 10.6 billion D4 RINs, 1.5 billion more than the 9.07 billion biomass-based diesel requirement, because D4 also fills the advanced gap left by D3 and D5 and the part of the conventional slot that ethanol cannot reach. The reallocation adds 3.6% to that load in each year under option one, or 7.1% to 2027 under option two.

A larger obligation for the one RIN whose supply can grow lifts D4, and the other categories follow D4 to different degrees.

Table 4 · Effect on each RIN type

EPA EMTS volume-weighted RIN prices, all vintages, January to August 2026.

D6 already trades as a D4 substitute. It averaged US$1.71 between January and August against US$1.78 for D4, and traded at or above D4 in every month from April to August. The reallocation therefore lifts D6 with D4, even though no extra ethanol gets blended. D3 is the exception. Set 2 reallocated no exempted volume to the cellulosic standard, and if EPA follows the same pattern, the D3 price moves with the cellulosic balance rather than with this decision.

Our September forecast for the 2027 D4 price rests mainly on the equivalence cut. We will add the reallocation once EPA picks an option, and option two carries more upside for 2027.

At August’s current-vintage D4 price of US$2.23, the 770 million RINs are worth about US$1.7 billion. That is the extra compliance cost for refiners and importers without exemptions before any price response, or roughly 1¢ a gallon across US gasoline and diesel. The small refineries that won exemptions keep their relief, and reallocation moves that cost onto everyone else.

RINs only count for fuel used in the United States. A US exporter of renewable fuel must acquire and retire RINs equal to the volume exported times its equivalence value (40 CFR 80.1430). A gallon of renewable diesel shipped to Canada therefore gives up the value of its D4 RINs, 1.7 this year and 1.5 from January. At August’s D4 price of US$2.23, that is about US$3.79 a gallon. Each 10¢ rise in the D4 price adds 17¢ a gallon to that cost in 2026 (1.7 × 10¢) and 15¢ in 2027 (1.5 × 10¢).

Canadian buyers have to match that through credit prices. In our renewable diesel economics exhibit for 19 October, a canola renewable diesel gallon earns US$9.40 in California, US$9.18 in British Columbia, where it collects both CFR and BC LCFS credits, and US$7.71 where only the CFR applies. For a buyer earning only CFR credits, the extra 17¢ has to come from the credit price. About 109 gallons of canola renewable diesel are worth one CFR credit, counting both the credits they earn and the obligation their supplier avoids by selling them instead of fossil diesel. At that rate, recovering 17¢ a gallon takes about US$18.60, or C$25, more per credit, and recovering 15¢ in 2027 takes about C$22.

Table 5 · What a canola renewable diesel gallon earns, US$ a gallon

Climate Decode renewable diesel economics exhibit in Clean Fuels Market Watch (19 October 2026), with diesel displaced at the four-week Gulf Coast mean of US$4.84 plus each market’s incentive stack.

The volumes are large next to Canada’s imports. Met entirely with renewable diesel, the reallocation is up to 1.9 billion litres of extra US demand, against about 1.3 billion litres of renewable diesel Canada imports in a year in our CFR model. US renewable diesel available for export is about 2.4 billion litres in 2026 on EIA export data and, in our model, about 5.8 billion in 2027 as US capacity grows. Even after the reallocation, the 2027 surplus stays near 3.9 billion litres, so Canada keeps its supply but pays more for it. Canada’s own renewable diesel exports, about 0.45-0.55 billion litres a year in our model, also become more attractive to sell into the US.

The net effect supports CFR and BC credit prices, mainly in 2027 and more so under option two. Its size depends on how fast US renewable diesel supply responds and on imports from Asia and Europe.

Five dates and decisions will set the size of the effect.

Climate Decode · Advisory

What does the reallocation add to your 2027 compliance cost?

We model the RFS obligation, the D4 balance and the CFR and BC credit markets together, by option and by year.

Sources

EPA reallocation proposal (13 October 2026); EPA action on 2025 small refinery exemptions (31 August 2026) and decision document; EPA final Renewable Fuel Standards for 2026 and 2027 and detailed fact sheet (EPA-420-F-26-007); EPA RIN generation data and RIN trades and price information; 40 CFR §80.1430 (exporters of renewable fuel) and §80.1415 (equivalence values); section 211(o)(9) of the Clean Air Act; CARB E15 rules (24 September 2026); Climate Decode RFS and CFR models.

This article is analytical research provided for information only and is not investment advice.