By Daniel Okafor

The Environmental Protection Agency has proposed redistributing 100% of the biofuel volumes lost to small refinery exemptions under the Renewable Fuel Standard, Transport Topics reported.

The move would reverse the partial reallocation policy EPA has applied in recent annual rules, restoring the full blending obligation that exempt refineries were originally required to cover.

What does 100% reallocation actually change?

The RFS sets annual blending obligations for refiners and importers of gasoline and diesel. Companies meet those obligations by blending renewable fuel or by buying Renewable Identification Numbers, the program's tradeable compliance credit.

Small refineries—generally those processing under 75,000 barrels per day—can petition EPA for hardship waivers when compliance costs are deemed disproportionate. When an exemption is granted, the obligated volume tied to that refinery disappears from the program. Reallocation decides whether it comes back.

• Full reallocation (100%): waived gallons return to the program and must be covered by other obligated parties.
• Partial reallocation: the waived volume is removed from the total obligation, weakening RIN demand and easing the compliance load on non-exempt refiners.

The policy choice moves RIN prices and, with them, biofuel producer margins.

Why biofuel producers are watching closely

For merchant biofuel producers, partial reallocation has been the larger commercial complaint. Lost volumes translate directly into weaker RIN demand and softer secondary-market prices across both the biomass-based diesel (D4) and conventional renewable fuel (D6) categories.

Industry groups have litigated the partial approach in successive annual rules. The current proposal signals EPA intends to align its exemption accounting with the program's original statutory construct, in which waived gallons remain obligated volume.

For small refineries, the practical effect is narrower. The exemption still removes the refinery's individual blending burden; the reallocation question only affects how the freed-up volume is handled after the fact.

Where small refineries sit in this

The exemption mechanism itself has been a regulatory fight for nearly a decade. EPA's expanded use of hardship waivers in the late 2010s triggered repeated legal challenges, and federal courts have pushed back on how the agency extends relief to refineries with prior or contiguous exemptions.

A 100% reallocation rule does not address those standing eligibility disputes. It only ensures that any volume EPA does waive still shows up as someone else's compliance obligation, leaving exemption criteria unchanged.

What the RIN market does with this

RINs trade in a secondary market where obligated parties balance their books. Prices reflect both the volume of obligations set in the annual rule and the volume of exemptions actually granted. A 100% reallocation policy lifts the obligation ceiling and supports RIN values; partial reallocation softens both.

The market will price the proposal before the final rule lands. Obligated refiners face higher RIN procurement costs; merchant biofuel producers and feedstock suppliers see stronger offtake support.

What happens next

The proposal heads to a public comment period. EPA will publish a Federal Register notice with the comment deadline and any public hearing dates; obligated refiners, merchant biofuel producers, and small refinery trade groups are all expected to file.

The next decision point is EPA's response to comment and the final rule, which will lock in the reallocation policy for the relevant compliance year. RIN markets will trade the shift in advance of the final rule, and the comment window is where obligated parties and biofuel producers press for adjustments.