The Environmental Protection Agency (EPA) has submitted a proposal to the White House that would require large refiners to reallocate only half or less of the 1.1 billion gallons of waived biofuel blending obligations cleared for small refiners in August. That translates to roughly 550 million gallons of lost renewable fuel demand, according to sources familiar with the matter.

The move is expected to increase the supply of renewable fuel credits (RINs) in the market and apply downward pressure on their value-a concern for biofuel producers who depend on RIN prices to support blending economics. The proposal, still under review, is designed to balance compliance costs for refiners with the integrity of the Renewable Fuel Standard (RFS).

The RFS mandates annual biofuel blending quotas for U.S. fuel refiners or the purchase of RINs from other blenders. But it also provides hardship exemptions for small refineries. In August, the EPA approved over 170 backlogged small refinery exemption (SRE) requests dating back to 2016. The agency is now focused on gallons waived from 2023 onward, as older RINs have expired.

Farm groups and biofuel advocates have pushed for the full reallocation of all waived gallons, arguing that partial restoration undermines the goals of the RFS and weakens rural economies tied to ethanol and biodiesel production. The oil industry, however, opposes additional blending mandates for large refiners, warning of higher compliance costs and market disruptions.

"The EPA is evaluating a range of options that strike an appropriate balance between obligations, reallocation, and other factors," a White House official said, framing the plan as a way to support both farmers and American energy dominance.

If adopted, the plan could leave the biofuels sector with more than half a billion gallons of demand unrecovered, potentially dampening growth for corn-based ethanol and soy-based biodiesel. The compromise also highlights ongoing political tensions between Big Oil and the farm lobby, especially as President Trump seeks to unify GOP factions amid critical budget negotiations.

The EPA's final rule is expected before the October 30 deadline for setting the 2026-2027 biofuel quotas. But with new exemption applications pending for 2025, the total impact on renewable fuel demand could grow.