Biofuels standards put farm, oil state members on opposite sides

WASHINGTON — The perennial battle over EPA’s biofuels mandates is coming to a head soon as the agency works on finalizing updates to the Renewable Fuel Standard’s blending obligations.

So far, the EPA’s proposal for the 2026 and 2027 RFS mandates has drawn the support of farm-state lawmakers — who often find themselves at odds with the Trump administration over issues such as trade policy — and put some of the president’s oil industry allies on the defensive.

The proposed updates, released in June, would increase the program’s renewable volume obligations, which dictate how much biofuel — such as corn-based ethanol and biodiesel made from feedstocks like soybean oil and animal fats — is mixed into the nation’s transportation fuel supply.

The agency is now sifting through public comments, submitted during a period that ended Oct. 31, before sending a draft final rule to the White House Budget office for review.

Imports penalized

Under the proposed rule, the renewable fuel volume requirement would rise from the current standard by about 1.7 billion ethanol-equivalent gallons in 2026 and 2.1 billion EEGs in 2027.

And, in a departure from current policy, the proposal would cut in half the value of renewable identification numbers, or RINs — tradeable credits oil refiners can buy in lieu of meeting their biofuel blending targets — for imported biofuels and biofuel feedstocks.

These changes would provide a competitive advantage to U.S. farmers and biofuel producers, who would benefit from the larger renewable volume obligations, known as RVOs, combined with larger RIN values for their domestic products that make them more attractive.

But they could make meeting those obligations more costly for refiners. To keep expenses down while maintaining compliance with RFS requirements, refiners often rely on a global supply of feedstocks and biofuels. Industry sources say this is at least partly because domestic supplies are insufficient to meet RFS volume obligations.

“You can think of it this way — that biofuel producers end up getting a subsidy out of this program, but oil producers end up getting taxed because they have to comply with this and actually buy those tradeable credits,” said Nafisa Lohawala, a fellow at Resources for the Future whose research focuses on transportation issues. “The fact that the incentives are quite different on both sides means that their priorities are going to be quite different.”

Members representing farm states — including Iowa, Illinois, Michigan, Minnesota and Wisconsin, among others — have been outspoken in their support for the RFS update as proposed in June.

“I’m hoping to see a standard that gets finalized before the end of the year that gives our growers in Illinois and throughout the Midwest, especially our corn and soybean growers — who are growing for the ethanol and the biodiesel that we make right here — some certainty around the RFS,” Rep. Nikki Budzinski, D-Ill., said in an interview.

Budzinski was one of 48 farm state lawmakers who wrote to EPA Administrator Lee Zeldin last month urging his agency to stick with the higher standards, despite opposition from refining state members.

Oil state lawmakers, meanwhile, are concerned that the proposal would force U.S. refiners to raise costs, making their products less competitive.

“Domestic producers rely on global supply chains for cost-effective feedstocks and imports are critical to the viability of the domestic refinery industry,” a group of 40 House Republicans wrote to Zeldin in September. “If the RIN value for foreign feedstocks is reduced, domestic fuel manufacturers will be at a competitive disadvantage compared to foreign producers, hampering President Trump’s strategy to unleash American energy.”

Small-refinery exemptions

Also at issue is whether and to what degree larger refiners may have to take on the extra obligations that result from small-refinery exemptions, known as SREs, that are sometimes granted by EPA to small refiners that can demonstrate “disproportionate economic hardship.”

The EPA has historically taken differing approaches to handling the waived volumes, given their impact on the overall blending mandate. But whether those gallons should be reallocated or reduced under the new guidelines has been cause for debate. The September House GOP letter to Zeldin, which included the party’s full Texas delegation, urged him not to reallocate the waived volumes.

“SREs are essential to helping small refineries manage the regulatory costs of the RFS program, but it is critical these obligations are not transferred to other refineries,” they said. “Reallocating these obligations would place an undue burden on companies that have invested billions of dollars to legally comply with the program and create significant disruptions in the fuel market.”

Sen. Mike Lee, R-Utah, took the matter further, complaining about the influence of the “swampy corn lobby” and introducing a bill to block EPA from implementing reallocation.

“By jamming through more biofuels and environmental compliance costs, the corn lobby is stifling U.S. energy producers and jacking up the price of fuel,” Lee, who chairs the Energy and Natural Resources Committee, said in a September news release announcing his bill. “It’s bad for refineries, bad for American families, and bad for American energy independence.”

The following week, EPA issued a supplemental proposal that added the option of partial reallocations to the mix. But the farm state lawmakers told Zeldin 100% reallocation would be best for the heartland.

“Without full restoration the benefits of the original proposal won’t reach the farm gate or lower prices at the pump,” the bipartisan and bicameral group of farm state lawmakers said in their letter to Zeldin. “Farmers and rural businesses will ultimately bear the brunt of weakened demand and lower prices.”

‘Death by a thousand cuts’

Oil industry insiders say that, taken together, increased RVOs, reduced RIN values for foreign-produced feedstocks and potential SRE reallocations could increase the cost of compliance.

“It’s really kind of death by a thousand cuts,” an industry source said. “And what our fear is is that if all these things go forward, there essentially aren’t enough RINs to buy, and compliance becomes very difficult for refiners.”

Asked about those concerns, Budzinski said, “I don’t see it.”

“I think that this allows our ethanol and biodiesel industries to have competitive equal footing with the oil refineries,” she said, “especially during a time when our growers are going through a lot of uncertainty within the farm economy itself.”