The U.S. energy landscape is undergoing a strategic reorientation, with a pronounced emphasis on domestic production and energy security. A cornerstone of this shift is the U.S. Environmental Protection Agency's (EPA) proposed "Set 2" Renewable Fuel Standard (RFS) rule for 2026-2027, unveiled on June 13, 2025. This landmark proposal introduces significant changes to the Renewable Identification Numbers (RINs) market, particularly a transformative 50% reduction in RIN value for imported biofuels and foreign-sourced feedstocks. This article delves into the specifics of this policy, its underlying "American First" philosophy, and its profound implications for the U.S. biofuel industry and agricultural sector.

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Understanding RINs and the RFS Program

Renewable Identification Numbers (RINs) are unique, 38-character serial numbers used by the EPA to track and monitor the production, use, and trading of renewable transportation fuels like ethanol and biodiesel. Each RIN represents one physical gallon of renewable fuel produced or imported.

RINs are the central compliance mechanism for the federal Renewable Fuel Standard (RFS) program, which mandates minimum volumes of renewable fuels to be blended into the nation's transportation fuel supply annually. "Obligated parties", primarily fuel refiners, blenders, and importers, are assigned a Renewable Volume Obligation (RVO) and must either blend the required renewable fuels or purchase and retire a corresponding number of RINs to demonstrate compliance.

RINs are initially attached to the physical fuel gallon and are "separated" once the fuel is blended with conventional fuel, allowing them to be traded independently. The EPA Moderated Transaction System (EMTS) serves as the official database for all RIN generation and transaction data, ensuring accurate accounting. RIN prices are determined by supply and demand, reflecting renewable fuel production and compliance needs.  

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Key Regulatory Updates: EPA's Proposed RFS Rule for 2026-2027

The EPA's proposed "Set 2" rule for 2026 and 2027 is a clear signal of the administration's intent to reshape the RFS program to align with its "American First" energy policy.

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Proposed Renewable Volume Obligations (RVOs)

The proposed total renewable fuel volumes are set at 24.02 billion RINs for 2026 and 24.46 billion RINs for 2027. These represent the highest proposed volume requirements ever under the RFS program, marking an overall increase of 9.5% from 2025 to 2027.  

Biomass-based diesel (BBD) RVOs are projected to increase substantially, from 5.36 billion RINs in 2025 to 7.12 billion in 2026 (a 32.8% increase) and further to 7.50 billion in 2027 (a 67% increase compared to 2025). Advanced biofuel obligations are also slated for increases, reaching 9.02 billion RINs in 2026 and 9.46 billion in 2027. The implied conventional renewable fuel mandate, primarily corn ethanol, is maintained at 15 billion gallons for both 2026 and 2027, preserving a critical source of demand for U.S. corn.  

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The 50% RIN Value Reduction for Imported Biofuels/Feedstocks

A pivotal and potentially transformative change in this proposal is the reduction in RINs generated for imported renewable fuel and renewable fuel produced from foreign feedstocks. Starting in 2026, a gallon of imported renewable fuel or fuel produced domestically using foreign feedstocks would generate only 50% of the RINs compared to the same gallon of purely domestic renewable fuel.

The EPA's explicit rationale for this modification is a direct response to the "dramatic increase in imported biofuels and feedstocks" observed in recent years. This policy adjustment is designed to align with statutory goals of bolstering national energy independence, strengthening domestic markets for U.S.-grown crops (like corn and soybeans), promoting U.S. production, and enhancing American energy security. It is a clear manifestation of the administration's "American First" philosophy, intended to redirect the RFS program's economic benefits towards American farmers and rural communities, and reduce exposure to volatile global fuel and commodity trade dynamics.

This policy represents a strategic re-shoring of biofuel supply chains, with significant geopolitical and economic implications. By devaluing RINs from foreign sources, the EPA aims to increase the competitiveness of U.S.-grown crops, boosting demand for domestic feedstocks and strengthening rural economies. This disincentivizes foreign biofuel imports, potentially shifting global biofuel supply chains. The policy directly contributes to energy security by reducing reliance on foreign energy sources, especially given that approximately 45% of biomass-based diesel (BBD) feedstock and finished fuel came from foreign sources in 2024.  

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Elimination of eRINs

Another notable regulatory change proposed within the "Set 2" rule is the removal of renewable electricity (eRINs) as a qualifying renewable fuel under the RFS program. If finalized, this action would ensure that no RINs are generated in the future for electricity used in motor vehicles.  

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Market Response and Outlook for RINs

The proposed RFS rule has been met with significant attention from the biofuel industry. Major industry groups, including the Renewable Fuels Association (RFA), the American Coalition for Ethanol (ACE), and Growth Energy, have largely expressed strong support for the proposed RVOs and the focus on domestically produced fuels. These organizations view the proposal as a crucial step towards strengthening U.S. energy dominance and fostering rural prosperity. Initial market reactions following the proposal's release have been reported as positive.  

Despite the generally favorable reception, the issue of small refinery exemptions (SREs) continues to be a point of uncertainty. The EPA has indicated it is still determining its approach to SREs, which could influence the final percentage standards and compliance obligations. The public comment period for the proposed rule is open until August 8, 2025, with the EPA intending to finalize the rule by October 31, 2025.  

The outlook for RINs suggests that the increased RVOs, coupled with preferential treatment for domestically sourced RINs, are expected to significantly strengthen demand for U.S.-produced biofuels and their feedstocks. This will likely support prices for agricultural commodities like corn and soybeans and encourage continued investment in domestic biofuel production capacity. The policy is designed to ensure that the RFS program's benefits are primarily directed towards its originally intended domestic recipients, fostering a more self-reliant and robust U.S. biofuel sector.  

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Strategic Implications for AFS Commodities and Clients

For AFS Commodities and its clients, these proposed changes to the RFS program present both challenges and opportunities:

• Optimize Domestic RIN Strategies: The 50% RIN value reduction for imported biofuels and foreign feedstocks creates a strong incentive to prioritize domestic sourcing. Clients should re-evaluate their supply chains to maximize the use of U.S.-produced biofuels and feedstocks to optimize RIN generation and compliance costs.  
• Re-assess Biofuel Blending Strategies: With higher RVOs for biomass-based diesel and advanced biofuels, obligated parties will need to adjust their blending strategies to meet these increased mandates. AFS Commodities can provide expert guidance on navigating these new volume requirements.  
• Monitor Policy Finalization and SRE Decisions: The proposed rule is still subject to public comment and finalization. Clients should stay informed about the EPA's final decisions, particularly regarding small refinery exemptions, as these could impact the ultimate compliance landscape.  
• Leverage Market Intelligence: The evolving RFS landscape, with its emphasis on domestic production and potential shifts in global trade dynamics, necessitates robust market intelligence. AFS Commodities' expertise in this area will be crucial for clients to make informed decisions and manage risk effectively.  
• Explore Synergies with Agricultural Markets: The policy's intent to strengthen demand for U.S.-grown crops like corn and soybeans creates closer ties between the biofuel and agricultural sectors. Clients may find new opportunities for collaboration or investment in these interconnected markets.  

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The EPA's proposed "Set 2" RFS rule for 2026-2027 marks a significant pivot in U.S. renewable fuel policy, firmly embedding an "American First" approach. By prioritizing domestic production through increased RVOs and a substantial devaluation of RINs from foreign sources, the rule aims to bolster energy security and support rural economies. While this creates a more complex environment for some, it also presents clear opportunities for those positioned to leverage domestic supply chains. AFS Commodities remains committed to providing the strategic guidance and market intelligence necessary to help clients navigate these changes, optimize their RIN strategies, and capitalize on the evolving dynamics of the U.S. biofuel market.