April 14, 2026
March is often described as coming in like a lion and going out like a lamb, but this year, the opposite played out with respect to Small Refinery Exemptions (SREs) under the Renewable Fuel Standard.
On March 13, the D.C. Circuit Court of Appeals quietly stepped aside on one of the closely watched issues in the RFS: SRE reallocations. The court ruled the case moot, declining to weigh in and leaving the question unresolved in Clean Fuels Alliance v. EPA.
By the end of March, that quiet moment gave way to a much louder, roaring development. EPA finalized its Set 2 rule – taking a segmented, but clear position on SRE reallocation.
The Core Conflict of SRE Reallocation
SREs and the reallocation debate refuses to go away. SRE reallocation pits the petroleum refining industry against the biofuels and agricultural sectors over how to handle billions of gallons of blending obligations waived when EPA grants SREs.
Demand Destruction vs. Hardship
Biofuels & Agricultural: Industry advocates, such as Growth Energy and the Renewable Fuels Association, argue that when the EPA grants retroactive SREs, it guts the RFS by removing renewable fuel demand from the market. They want the waived gallons reallocated into future RVOs to protect feedstock producers (soybean and corn farmers).
Refineries & Importers: Refiners argue that reallocation is unfair and economically damaging. They contend that reallocating previously exempted volumes penalizes them twice, especially since many RINs associated with those past years have expired. They also raise concerns about the legality of reallocation and the cost of compliance.
The Role of Carryover RINs
A key technical point in this debate involves carryover RINs, which provide liquidity and compliance flexibility to the market. RINs can be used for current-year compliance and the following year. To understand all aspects of a RIN, read Anatomy of a RIN: What Every RFS Participant Should Know.
Court & EPA: Never-ending Ping Pong Match
For context, we have to go back to the first Trump Administration when EPA granted a significant number of SREs. Legal challenges followed. Under the Biden Administration and due to a court decree, EPA’s Set 1 rule did account for 250 million of improperly waived gallons in a supplemental standard. Since then, several lawsuits pertaining to SREs have arisen.
By the time this lawsuit reached the D.C. Circuit Court of Appeals, the original 2020 standards had been replaced to accommodate for the impacts of COVID. Petitioners shifted their argument to focus on future policy direction, not past compliance. That shift is what ultimately led the court to its recent mid-March ruling: The issue was no longer tied to a live rule – it was about how EPA should act going forward.
So, the court declined to rule. It didn’t decide that the EPA must reallocate or even if they are allowed to reallocate them. It simply determined that this case was not the right vehicle to answer the question.
EPA’s Announcement of SRE Partial Reallocation
In its Set 2 final rule, EPA implemented a 70% reallocation of SREs from 2023-2025 into the 2026 and 2027 obligations. Their goal was to avoid “negatively impacting biofuel demand” in 2026 and 2027, while also recognizing the importance of the availability of “carryover RINs” for the RIN market.
These reallocated volumes are intended to be met using advanced biofuels, biomassed-based diesel, and renewable fuel carryover RINs that were freed up by the granting exemptions in 2023-2025. EPA did not include reallocation volumes for cellulosic biofuel as it determined there were “very few 2024 RINs available.”
April Reminder: Another Legal Challenge
Shortly after EPA set a direction for SRE reallocations, the court popped its head back up to keep everyone on their toes. In an April 7 decision, the D.C. Circuit found EPA’s methodology for denying certain SRE petitions to be legally flawed. Specifically, the court rejected EPA’s requirement that refineries demonstrate eligibility across consecutive years. Unlike the reallocation debate (should they or shouldn’t they), this case is about how EPA grants or denies waivers.
The court stated that by requiring HF Sinclair and Delek refineries to meet eligibility requirements for two consecutive years to receive relief for a single year contradicts existing EPA regulations regarding how crude oil throughput thresholds are applied.
EPA must now revisit those petitions and determine whether exemptions should be granted. While the ruling is narrow, it reinforces a broader reality: SRE policy remains legally fluid, even after rules are finalized.
The decision may not materially impact other cases, but it highlights the ongoing volatility of the SRE program, where courts can force adjustments even after RVOs are set.
What’s Next
March started quietly, with the court stepping aside. It ended decisively, with EPA setting policy for SRE reallocations. Last month also reinforced a familiar pattern in the RFS: policy moves forward, and litigation follows. More challenges are likely, and the implications for compliance and RIN markets will continue to evolve.