In a significant policy shift, the Environmental Protection Agency (EPA) has unveiled a loawaited proposal to reallocate biofuel blending volumes previously exempted under the Small Refinery Exemption (SRE) program. The decision marks a new chapter in the battle over the Renewable Fuel Standard (RFS) and has sparked sharp reactions from both the agriculture and petroleum sectors.

The EPA is considering two main options for reallocation:

100% reallocation of waived volumes

50% reallocation for SREs granted in 2023, 2024, and projected for 2025

The agency will also accept public input on alternative reallocation percentages during the upcoming comment period.

Clean Fuels Alliance America, representing biodiesel and renewable diesel producers, welcomed the move. "This is a victory for farmers and renewable fuel producers," said Paul Winters, the group's Director of Public Affairs. He emphasized that the proposal would help ensure that biofuel volume mandates are truly met, protecting demand and market stability.

The biofuel industry has long argued that SREs undermine the RFS, by reducing overall blending volumes, thereby cutting into production incentives and revenue for farmers and biofuel producers. The EPA's new proposal seeks to correct that by redistributing the waived gallons across remaining obligated parties.

The American Petroleum Institute (API) strongly opposes the reallocation. "Exempted volumes should not be reallocated because doing so would further distort the market," said Will Hupman, API's Vice President of Downstream Policy. He warned the move could raise consumer fuel prices and harm smaller refiners unfairly.

The EPA's reallocation plan is also politically charged. The issue of SREs created deep divisions during the Trump administration, as oil and ag groups battled over waivers at high-stakes White House meetings. Trump, who has historically courted both industries, may face renewed scrutiny on the issue in the lead-up to 2026.

Meanwhile, the EPA also plans to update its estimates for waived gallons for 2026 and 2027, aiming to increase predictability and transparency in the RFS program.

EPA will hold a virtual public hearing on October 1, opening the door for stakeholders across the energy and agriculture sectors to weigh in before the rule is finalized.

"It will take farmers and renewable fuel producers fighting to secure the win," Winters added. "But the EPA is issuing a solid proposal."

As the public comment period begins, this rule could significantly influence input costs, demand forecasts, and compliance strategies across the agriculture and fuel industries.