What's Happening?
The EPA has announced revised Renewable Fuel Standard (RFS) decisions that will significantly impact biomass-based diesel production and feedstock use by 2027. The new regulations include higher Renewable Volume
Obligations (RVOs), more restrictive small refinery exemptions, and mandatory reallocation policies. These changes are expected to drive a substantial increase in biomass-based diesel production, with feedstock demand projected to rise by 19% in 2026 and 48% in 2027. The impact is heavily backloaded to 2027, with domestic feedstock demand reaching 48.8 billion pounds, representing 61% of estimated U.S. feedstock supply.
Why It's Important?
The EPA's decisions are poised to reshape the biomass-based diesel market, potentially leading to increased production capacity and higher feedstock prices. The backloading effect to 2027 suggests significant adjustment pressures for feedstock markets, particularly for animal fats and used cooking oil. The soybean oil market may also experience increased demand, affecting vegetable oil prices. The large D4 RIN bank provides a buffer for 2026, but as it is drawn down, the market will face the full impact of higher RVOs in 2027, leading to potential volatility in RIN prices and feedstock markets.
What's Next?
Market participants should prepare for a two-stage adjustment, with moderate feedstock price increases in 2026 and more severe pressures in 2027. The EPA's half RIN proposal has not been finalized, and potential delays in implementation could affect market dynamics. Stakeholders should consider strategic planning to address the anticipated feedstock demand and production bottlenecks. The Trump administration's consideration of delaying the policy implementation adds uncertainty to the timeline, requiring careful monitoring of regulatory developments.
