The U.S. renewable energy landscape is undergoing a significant transformation, with policy shifts increasingly prioritizing domestic production and energy independence. A pivotal development in this evolving environment is the U.S. Environmental Protection Agency's (EPA) proposed "Set 2" Renewable Fuel Standard (RFS) rule for 2026-2027. This proposed rule, announced on June 13, 2025, introduces changes that will fundamentally reshape the market for Renewable Identification Numbers (RINs) and the broader biofuel supply chain. For stakeholders in the renewable energy sector, understanding these proposed changes and their implications is crucial for strategic planning and market navigation.  

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Understanding Renewable Identification Numbers (RINs) and the RFS Program

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

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

Initially, RINs are attached to the physical gallon of renewable fuel. They are subsequently "separated" from the fuel once it is blended with conventional fuel, allowing them to be independently traded on a market, offering crucial flexibility for obligated parties to meet their RFS requirements. The EPA Moderated Transaction System (EMTS) functions as the official database for all RIN generation and transaction data, ensuring accurate accounting and preventing double counting. The market value of RINs is determined by typical supply and demand dynamics, reflecting the interplay of renewable fuel production and compliance needs.  

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

On June 13, 2025, the EPA unveiled its proposed "Set 2" rule, establishing the required RFS volumes and associated percentage standards for 2026 and 2027. This proposal represents a significant policy statement, aligning the RFS program more closely with the current administration's "American First" philosophy.

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 figures 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 experience substantial increases, rising 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, thereby preserving a critical source of demand for U.S. corn.  

The 50% RIN Value Reduction for Imported Biofuels/Feedstocks

A significant and potentially transformative regulatory change embedded within this proposal is the reduction in the number of RINs generated for imported renewable fuel and renewable fuel produced from foreign feedstocks. Under this proposed framework, starting in 2026, a gallon of imported renewable fuel or fuel produced domestically but utilizing foreign feedstocks would generate only 50% of the RINs that the same gallon of purely domestic renewable fuel generates.  

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 the statutory goals of bolstering national energy independence, strengthening domestic markets for U.S.-grown crops such as corn and soybeans, promoting U.S. production, and enhancing American energy security. This measure is a clear manifestation of the administration's "American First" philosophy in energy policy. It is specifically intended to redirect the economic benefits of the RFS program towards American farmers and rural communities, and to reduce the nation's exposure to volatile global fuel and commodity trade dynamics.  

This policy represents a strategic re-shoring of biofuel supply chains, carrying significant geopolitical and economic implications. By devaluing RINs from foreign sources, the EPA aims to increase the competitiveness of U.S.-grown crops, thereby boosting demand for domestic feedstocks like corn and soybeans, which in turn supports prices and strengthens rural economies. This move inherently disincentivizes foreign biofuel imports, potentially leading to shifts in global biofuel supply chains and, in some cases, trade tensions as other nations react to what could be perceived as protectionist measures. The policy directly contributes to energy security by reducing reliance on foreign energy sources, particularly relevant given that approximately 45% of biomass-based diesel (BBD) feedstock and finished fuel came from foreign sources in 2024. While the policy aims to create greater certainty and stability for domestic producers, it could introduce new layers of volatility for international market participants or those within the U.S. who have historically relied on foreign feedstocks. This specific RIN policy is consistent with the broader "American First" philosophy evident in other administration actions, signaling a concerted effort to prioritize domestic economic prosperity and energy self-sufficiency over globalized supply chains.  

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Market Response and Outlook for RINs

The proposed RFS rule has garnered 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 emphasized 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 within the industry. The EPA has indicated that 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 stating its intention to finalize the rule by October 31, 2025.  

The outlook for RINs suggests that the increased RVOs, coupled with the 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:

• Prioritize Domestic Sourcing: The 50% RIN value reduction for imported biofuels and foreign feedstocks makes domestic sourcing significantly more attractive. 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 the potential for 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.