EPA's SRE Decision: Bullish for RINs, Limited Returns

US biofuel and feedstock markets were volatile ahead of the Trump administration’s decision on small refinery exemptions (SREs), which allow refiners processing under 75,000 b/d to avoid tens of millions in compliance costs by demonstrating economic hardship related to compliance with the US Renewable Fuel Standard (RFS). Earlier this week, the US EPA announced it has developed a new approach for reviewing small refinery exemptions (SREs) under the RFS. The announcement, filed 19 August. with the US Court of Appeals for the Tenth Circuit, came as part of a lawsuit over EPA’s past denial of Sinclair Wyoming Refining’s request for a 2018 exemption.

Later on 21 August, the EPA released an updated snapshot of its SRE petition data, confirming that nine new petitions were filed over the past month under the Renewable Fuel Standard. This brought the total number of pending SRE petitions to 204, spanning compliance years from 2016 through 2025. Of the newly submitted petitions, three are for 2025 compliance, two each for 2024 and 2023, and two for 2021. The largest backlog of petitions remains concentrated in the 2018, 2019, 2020, 2023, and 2024 compliance years, with 38, 29, 30, 22, and 30 pending requests, respectively. 

Finally on 22 August, the EPA finalized decisions on 175 SRE petitions covering 2016–2024. 

• The agency granted 63 full exemptions, 77 partial exemptions, denied 28 petitions, and deemed 7 ineligible, affecting 5.34 billion RINs tied to exempted Renewable Volume Obligations (RVOs). 
• EPA also confirmed that 17 small refineries remain on an alternative 2020 RIN retirement schedule, with 340 million RINs outstanding out of 880 million. Currently, 13 SRE petitions remain pending, 11 from 2025 and 2 from 2021.
• Separately, 34 SRE petitions for 2016–2018 are considered approved: 31 for 2018 and 3 for 2016–2017. While legal challenges temporarily affected these grants, subsequent rulings restored them.

The finalized decisions reflect a shift in EPA’s SRE policy. The agency reaffirmed the Department of Energy’s matrix as a reasonable basis for assessing disproportionate economic hardship and clarified that returning retired RINs is the only method to implement exemptions when refineries have already met their obligations, minimizing market disruption and preserving the integrity of the RFS program.

In a press release also published August 22, EPA stated it will not reallocate exempted volumes for SREs granted from 2016 through 2022 but plans to propose a reallocation rule for 2023 and later exemptions, expected ahead of the 2026–2027 RFS blending mandate finalization, tied to an end-October target for release - but this could slip. Legal challenges are anticipated, with petitions for judicial review of the August 2025 SRE decisions due in the D.C. Circuit within 60 days of publication in the Federal Register.

According to the release, RINs retired due to exempted obligations from 2016 to 2022 are considered expired and hence have little market value. This implies that about 1.39 billion RINs for the years 2023 and 2024 could be returned to meet the 2024 compliance RFS obligation. In other words, according to the EPA decision, pre-2023 RINs to be returned are expired and carry little compliance value, while 2023 RINs remain unexpired and can be used toward 2024 blending obligations, giving them potential market value. EPA stated these RINs retain residual value to the extent they can be used to satisfy outstanding, non-exempted pre-2023 obligations by the small refineries. We expect very few small refineries, if any, will have a compliance use for these pre-2023 vintage RINs. However, 2023 RINs returned to small refineries will be available for trading or compliance with open 2024 RFS obligations.

Table 1 - Exempted RINs and Volumes of Gasoline and Diesel

Overall, the developments are bullish for RIN prices, with decisions implying little disruption to RIN demand for 2024, 2025, and beyond. While unlikely, unresolved 2023 obligations–due to reasons such as court-ordered stays– could give added value to returned 2022 vintages, easing 2023 compliance and freeing more 2023 RINs for 2024. That in turn could cascade into surplus 2024 RINs available for 2025, tempering some of the bullish tone. However, we view the impact of returned 2022 vintages as negligible given current RIN rules on deferred obligations and the fact that the 2023 compliance deadline has already passed.

That said, if exempted 2023 and 2024 RVOs are fully reallocated to larger refineries, the market could face a shortfall of roughly 762 million RINs to meet 2025 compliance if bio-based diesel refineries hold at current utilization rates near 69%. Without reallocation, the market would instead see a modest bank build RINs. Given steep proposed RVOs for 2026, such a bank build would fall well short of the allowable 20% carryover of 2025 vintages needed to meet the estimated 2026 obligation of 24.76 billion RINs. In the near term, renewable diesel utilization would likely need to rise toward 80% to cover the 2025 RVO, assuming reallocation proceeds. 

The news is directionally bearish for California LCFS and other US LCFS programs, but bullish for Canada’s CFR and BC-LCFS given the induced rise in feedstock and biofuel costs and heightened competition for clean fuels with the US. That said, the proposed 2026 RFS rules on discounted RIN value for imported clean fuels and fuels made with imported feedstocks are expected to moderate the impact of the 2025 ramp beyond 2025, easing pressure on California and other US state LCFS balances.

Markets reacted sharply to the development, with soybean oil futures jumping to 55.20 cents per pound, up from 51.95 on August 20, the day before the initial leak, amid heightened volatility. RIN values are expected to strengthen in the near term, with advanced categories leading the gains and conventional credits following at a narrower spread.

Legal battles over the treatment of returned 2016–2022 vintages are anticipated, particularly if the proposed high 2026 and 2027 RVOs are finalized, since those vintages hold no compliance value for those years. Anticipated elevated RIN prices in 2026–2027 could place some independent refiners at significant financial risk, particularly those with the majority of their facilities unlikely to qualify for exemptions beyond 2026, making any potential rejuvenation of 2016–2022 vintages a potential lifeline.

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