October 15, 2025
EPA has moved to address how to account for billions of gallons of renewable fuel blending obligations that were waived by Small Refinery Exemptions (SREs). The Agency’s supplemental proposal would either fully or partially (50%) reallocate those waived volumes into future Renewable Volume Obligations (RVOs)—a move that would directly increase demand for biofuels (and RINs) if added to the increases for biofuels in the proposed 2026–2027 RVOs. This proposal has once again pitted importers and refiners against the agricultural and biofuels sectors.
Background — How We Got Here
SRE authority was created within the Renewable Fuel Standard (RFS) framework to allow very small refineries to petition EPA for relief from their blending obligations if they can show disproportionate economic hardship. The SRE provision was initially a blanket exemption through the 2010 compliance year, and the requirement to petition for an extension of the exemption began with the 2013 compliance year.
In August 2025, EPA completed a long-backlog review and issued decisions on 175 SRE petitions (covering compliance years 2016–2024), granting a mix of full and partial exemptions. Those decisions created a pool of RINs/volumes that were not retired to satisfy waived obligations—effectively meaning some gallons that were expected to be blended in the marketplace were not required to be. EPA then announced it would address how to treat that “exempted” volume when setting future RVOs.
Industry estimates put the exempted volume for 2023–2025 at roughly 2.18 billion gallons[1] of renewable-fuel equivalence, and EPA’s supplemental rulemaking proposes options to account for those waived volumes when setting the 2026 and 2027 standards.
Precedent — What’s Been Done Before, Legally and Administratively
- EPA practice: Historically, EPA has had to reconcile SREs against the RFS program within the confines of the authority given through the codified law. The agency has discretion in how to treat previously waived volumes when setting future RVOs, but it must do so within the Clean Air Act framework and through its formal rulemaking process. The recent batch of decisions (August 2025) and the Supplemental Notice of Proposed Rulemaking (SNPRM) are the latest administrative steps in a long chain of EPA actions and litigation over SREs.
- Litigation dynamics: SREs have been the subject of repeated litigation and political controversy for over a decade. Agricultural and biofuel advocates argue that large, retroactive SREs undermine the RFS’s demand signal, while refiners contend that exemptions are legally required for disproportionate hardship. This precedent means any final EPA approach will continue to face scrutiny in both the courts and Congress.
What EPA Is Proposing Now
In its Supplemental Notice of Proposed Rulemaking, EPA is co-proposing two specific options and requesting comments on others:
- 100% reallocation: Add the full amount of the 2023–2025 exempted volumes (roughly 2.18 billion gallons) into the 2026–2027 RVOs, restoring those waived gallons to future compliance obligations.
- 50% reallocation: Add half of those exempted volumes (about 1.09 billion gallons) into the 2026–2027 RVOs.
A 100% reallocation would raise the statutory RVOs for 2026–2027 by the reallocated gallons, increasing obligated blending and therefore near-term demand for ethanol, biodiesel, advanced biofuels, and RINs. A 50% scenario would raise demand materially but to a lesser degree.
The partial reallocation approach is a new approach for reallocation. While EPA has reallocated exemptions in the past, it was an all-or-nothing approach. This is the first time EPA has ever proposed a partial reallocation, which adds another layer of scrutiny in the eyes of some stakeholders.
EPA is explicitly soliciting public comment on other splits (25%, 75%, or none), as well as technical approaches to timing and accounting. The SNPRM also reflects EPA’s view that some RINs from earlier years have expired and therefore cannot practically be used for reallocation—hence the agency’s focus on 2023–2025 and forward-looking RVO adjustments.
EPA held a public hearing on October 1, 2025, in which individuals and groups testified as to their positions. The agency also is accepting written comments through October 31, 2025, meaning it is unlikely that any final decision will be announced soon.
Where Stakeholders Stand
The divide between refiners and the agricultural community over EPA’s reallocation proposal is no surprise. Crop and biofuel producers argue that any exempted gallons should be fully reallocated to maintain the blending volumes originally set under the RFS. They view full (100%) reallocation as essential to preserve demand for ethanol and biodiesel, protect rural economies, and uphold the integrity of the RFS program. Groups such as Growth Energy and the Renewable Fuels Association have voiced strong support for EPA ensuring that total renewable-fuel volumes remain “whole,” even when exemptions are granted.
Refiners, however, contend that reallocation is unfair and economically damaging. They argue that forcing refiners to make up previously exempted volumes would effectively penalize them twice—especially since many of the RINs tied to past exemptions have expired or were already used. Refiners also raise concerns about the legality of retroactive reallocation and the increased compliance costs it could impose. EPA’s co-proposal, which seeks input on whether to reallocate anywhere from 0% to 100% of the exempted gallons, has become the central point of contention in the upcoming final rule.
EPA will continue to weigh options as it works to finalize the 2026-2027 RVOs and the SRE reallocations, politically balancing the interests of affected parties. While EPA had hoped to have final decisions before the start of the next compliance year, the lateness of this proposal coupled with the current government shutdown likely means no clear guidance until the first part of next year.
By Tori Reese, Compliance Advisor
[1] Clean Fuels Alliance America. (2025, September 16). Clean Fuels welcomes EPA proposal to reallocate exempted RFS gallons. https://cleanfuels.org/clean-fuels-welcomes-epa-proposal-to-reallocate-exempted-rfs-gallons; American Coalition for Ethanol. (2025, October 1). ACE urges EPA to finalize full reallocation of small refinery exemptions in RFS Set 2 rulemaking. https://ethanol.org/ace-news/ace-urges-epa-to-finalize-full-reallocation-of-small-refinery-exemptions-in-rfs-set-2-rulemaking