A year ago, I wrote this column about the need for EPA to propose much higher RFS blending volumes for 2026 and 2027 (the so-called “Set 2” RFS) to help offset any damage done to our export market potential through tariff retaliation.
Fortunately, no damage has been done, not yet anyway, to ethanol exports. To the contrary, export demand continues to set new records because other countries want and need more U.S. ethanol.
Unfortunately, domestic demand has remained flat, primarily because Congress has failed to get E15 year-round legislation over the finish line. What’s more, RFS blending levels for implied conventional biofuel, which corn starch ethanol satisfies, have also remained flat because EPA blending obligations have not fulfilled congressional intent.
But that should soon change thanks to EPA recently setting the highest-ever volume obligations with the recent “Set 2” final rule, requiring more than 25 billion gallons of total renewable fuel use in 2026 and 2027. In fact, EPA’s final rule is perhaps the first to actually restore the RFS to Congress’ original intent to increase year-to-year renewable fuel blending. Advanced biofuel blending will dramatically increase this year and next, and USDA believes the increased demand will boost farm income by at least $3 billion.
We are in a phase of the 20-year-old RFS program whereby EPA has significantly more authority to determine blending volumes because the congressionally specified levels ran through calendar year 2022. What’s more, given this additional flexibility, EPA has the authority to set volumes much more than the 15 billion gallons of conventional biofuel that must be used annually. ACE has routinely reminded the Agency of this possibility, and we are encouraged that for the first time ever EPA has acknowledged it indeed is a fact: the RFS can exceed 15 billion gallons for conventional biofuel.
Of course, the overall integrity of the RFS depends on ensuring volume obligations translate into real-world demand. Any gap between required volumes and actual blending undermines the program and creates uncertainty. This uncertainty is created if small refinery exemptions (SREs) erode physical demand for renewable fuels. That’s why it’s critical for EPA to set blending volumes that fully account for any SREs granted. Failing to do so risks undermining the intent of the RFS by allowing obligated parties to rely on surplus Renewable Identification Numbers (RINs) rather than driving actual blending and use of renewable fuels.
In the Set 2 rule, 7 out of every 10 gallons that were exempt from blending during the 2023 to 2025 RFS compliance years will be reallocated to the final 2026 and 2027 volumes. While this is better than what refiners wanted, it’s still not 100% so we must remain vigilant on the issue of SRE reallocation.