Use of Biofuels in the US: Current Dynamics

A battle is brewing between America's biofuels and oil industries over proposed EPA mandates that could fundamentally reshape fuel markets, commodity prices, and refinery economics. At stake: billions of gallons of petroleum diesel displacement, higher soybean prices, and the future of small refineries. 

The Environmental Protection Agency's June 2025 proposal under the Renewable Fuel Standard (RFS) would sharply increase mandatory blending of renewable fuels, particularly biomass-based diesel. Final rules are expected imminently in early 2026, though implementation details remain contested. 

The Proposed Mandate: A 67% Jump in Biomass-Based Diesel 

he EPA proposal outlined higher total blending volumes for 2026 (24.02 billion gallons) and 2027 (24.46 billion gallons) versus 22.33 billion gallons implied for 2025. The most dramatic shift: biomass-based diesel rising from 3.35 billion gallons in 2025 to 5.61 billion gallons in 2026—a 67% increase if finalized. 

This would displace approximately 150,000 barrels per day of conventional petroleum diesel, roughly 2% of total US diesel consumption. For context, that's equivalent to the output of a mid-sized refinery. 

Role of Mandates in Biofuel Growth 

Federal mandates under the RFS require refineries and importers to blend minimum biofuel volumes or purchase Renewable Identification Numbers (RINs) credits from compliant parties. Biomass-based diesel requirements, using soybean oil as a key feedstock, drive much of the growth. 

The proposal's jump implies about 250 million additional gallons of feedstock demand annually, equivalent to roughly 5 million metric tons of soybean crush (around 4% of current US production), assuming standard yields. This added demand would likely lift soybean prices, with ripple effects through food costs as soy is a key ingredient in animal feed and processed foods. 

The proposal also favors domestic feedstocks by crediting foreign imports at half value, further boosting US soybean demand. 

Conflicts Between Biofuels and Oil Sectors 

Tensions between biofuels and oil lobbies are intensifying in Washington. The EPA proposal—one of the Trump administration's early RFS moves—backs biofuels growth over oil industry preferences, setting up a high-stakes regulatory fight. 

A key flashpoint: small refinery exemptions (SREs), where refiners can prove economic hardship to avoid blending obligations. 

The EPA cleared a backlog of 170+ SRE requests from 2016 onward, totaling 1.1 billion gallons waived for 2023–24. Rather than fully reallocating these waived volumes to larger refineries (which would have increased their blending burden), the EPA proposed reallocating only about 50% or less. 

This partial approach increases RIN supply modestly, putting mild downward pressure on credit prices, but stops short of the full reallocation that biofuel groups favored and refiners strongly opposed as economically crushing. 

Industry Positions: A House Divided 

In May 2025 comments, a coalition including biofuel groups and some oil sector voices urged a 5.25 billion-gallon biomass-based diesel mandate for 2026 to match industry capacity growth—below the EPA's eventual 5.61 billion-gallon proposal. 

The Fueling American Jobs Coalition, representing refiners, critiqued the higher 5.61 billion-gallon target as exceeding realistic demand and blending infrastructure. They warned of refinery closures, reduced domestic fuel production, and higher costs for consumers, particularly in regions dependent on small refineries. 

These competing visions reflect deeper questions about America's energy transition: how fast to shift from petroleum to renewables, and who bears the economic cost. 

Global Economic Ripple Effects 

US mandate growth is reshaping the soy complex globally. Higher soybean oil demand for biofuels lifts bean prices, incentivizing farmers to plant more soybeans. As US crushing capacity expands from 69.4 to 74.5 million tons by 2026, soybean meal output surges. 

Excess meal production may pressure prices unless US exports accelerate, intensifying competition with Brazil in global feed markets. This dynamic reinforces US biofuels policy as a major driver of international agricultural commodity pricing. 

Outlook: Expansion Likely, Details Still Contested 

With final rules expected in early 2026, the proposal signals clear biofuel expansion, with biomass-based diesel volumes climbing steadily through 2027. The 45Z Clean Fuel Production Credit (running to 2029) further incentivizes domestic feedstocks like soy and corn, potentially reshaping the 2025/26 soy season if final rules track the draft closely. 

The most likely outcome: mandates increase substantially but land somewhere between the biofuel coalition's 5.25 billion gallons and the EPA's proposed 5.61 billion gallons, as the administration balances agricultural state support against refining sector concerns. However, legal challenges from either industry could delay implementation. 

For petroleum refiners, especially smaller operations, the economics are challenging: either invest in blending infrastructure, purchase expensive RINs, or face potential closure. For biofuel producers and soybean farmers, the mandates represent a major growth opportunity underwritten by federal policy. 

Managing Biofuels Volatility 

Amid energy transition dynamics and shifting regulatory landscapes, proactive risk management is essential. Hedgepoint's market intelligence helps clients anticipate mandate shifts and biofuel market trends for strategic positioning. Contact us to explore hedging tools tailored to your operations. 

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