President Donald Trump’s push to expand production of biodiesel and renewable diesel - part of promises to farmers and rural constituencies - is meeting an operational constraint: U.S. plants are not producing at the levels assumed by regulators. That divergence between policy ambition and factory output carries both political and economic consequences, particularly for fuel markets and the agricultural supply chain.
The Environmental Protection Agency, which administers the Renewable Fuel Standard (RFS), set record blending requirements for 2026. Under the RFS, refiners must either blend prescribed volumes of ethanol and biodiesel into the fuel supply or purchase compliance credits known as renewable identification numbers, or RINs. For 2026, refiners must generate or buy 8.86 billion RINs - equivalent to blending a record 5.4 billion gallons of biodiesel and renewable diesel - a target the EPA said is more than 60% higher than 2025 levels.
Those mandates assume producers can run at about 90% of capacity across the year. In reality, plants are operating well below that level. According to Zander Capozzola, principal consultant at Argus Media, U.S. biodiesel plants were running at just under 77% capacity in May, while renewable diesel facilities were at 78% that month.
Part of the shortfall reflects that some production is already committed to export contracts. Those exported gallons - where prices have been stronger amid supply disruption tied to the Iran conflict - do not generate RINs that count toward U.S. mandates. The consequence: refiners generated 736 million RINs in May, according to EPA data, a pace well below the roughly 915 million RINs per month that would be needed to meet the annual target, agricultural economist Scott Irwin at the University of Illinois said.
Irwin estimated production through the first four months of 2026 lagged required levels by 1.41 billion RINs. Closing that gap, he noted, would require output to exceed the industry’s highest monthly production by more than 20% for the remainder of the year. As he put it:
"The mandates effectively require biodiesel plants to run at their highest sustained pace on record and renewable diesel plants to operate well beyond any pace they’ve ever achieved."
That assessment aligns with concern from industry advisers. Paul Niznik, director of energy at Capstone LLC, said:
He added that the shortfall is prompting widespread concern across the sector about what policy reaction might follow. Market participants do not expect the EPA to intervene immediately, despite the agency having authority to grant a waiver. Instead, the administration could consider policy adjustments such as lowering 2028 obligations by changing how imported volumes are counted toward obligations."There is no way the industry is going to meet its targets at the rate they are going."
Policy uncertainty had already held back production for months. Producers delayed investment and production decisions while waiting for the Trump administration to finalize guidance for the federal 45Z clean fuel production tax credit. The guidance, released in recent weeks, removed some land-use restrictions and increased incentives for soy-based renewable diesel - outcomes industry participants had been seeking for about a year.
Jeramie Weller, general manager of Minnesota Soybean Processors, said the policy clarifications provide greater certainty to expand production and sign feedstock contracts with farmers. Nevertheless, it is unclear whether the timing of the guidance comes soon enough to make up for earlier production losses.
Another factor has been the surge in petroleum prices tied to the Iran conflict. Those higher crude and fuel prices boosted margins for conventional petroleum products and reduced the incentive for refiners to maximize renewable fuel production.
Lower-than-expected renewable fuel output is also eroding a historic buffer in the compliance system. The so-called RIN bank - a stockpile of unused credits refiners can draw on to meet mandates when production falls short - has been depleted this year as production trails targets and demand for credits remains robust. If the trend persists, analysts warn the buffer could be exhausted by the end of 2026, which would further tighten compliance markets and send RIN prices even higher.
RIN prices have already surged to record highs, raising compliance costs particularly for smaller refiners that rely on purchasing credits rather than blending fuels themselves. That dynamic has intensified lobbying in Washington. The largest refining trade group, the American Fuel and Petrochemical Manufacturers (AFPM), has been meeting with lawmakers to urge reconsideration of the 2026 mandates and has filed a lawsuit against the EPA.
In materials distributed to lawmakers, AFPM argued that high credit costs raise pump prices for consumers and warned:
"Americans will pay billions of dollars more than they should if the RFS isn’t right-sized."
The EPA said in an email it evaluates compliance on a full-year basis and accounts for normal month-to-month fluctuations, including the use of existing credits to bridge temporary gaps. Bloomberg Intelligence analyst Brett Gibbs suggested one reason for the mismatch could be that the EPA underestimated short-term constraints. Gibbs said the agency may have undercounted the amount of biodiesel and renewable diesel exports, and underestimated constraints on importing feedstocks in the near term because of the Iran conflict. He warned:
"The EPA may very well have a problem on their hands by the midterms. Definitely into 2027."
The combination of binding mandates, lower-than-expected operating rates, export commitments that do not contribute to domestic compliance, delayed tax-credit guidance, and broader market drivers such as petroleum price swings has created a set of overlapping pressures. Those pressures affect multiple sectors: refiners face higher compliance costs and legal and regulatory risk; biofuel producers confront investment and operating planning uncertainty; and farmers and feedstock suppliers face an uncertain near-term demand outlook tied to contract timing and incentives.
How policymakers respond - whether through waivers, reinterpreting how imports count toward obligations, or leaving targets in place and letting market prices signal the adjustment - will determine how sharply the current frictions translate into higher costs for refiners and consumers and how they reverberate through agricultural markets and political constituencies heading into the midterm elections.
Summary
The EPA’s ambitious 2026 Renewable Fuel Standard targets require record RIN generation and assume high operating rates at biodiesel and renewable diesel plants. Actual U.S. operating rates in May were below the EPA’s assumed levels, production has been held back by delayed tax-credit guidance and stronger export demand, and the RIN bank is shrinking, pushing credit prices to record highs. Industry groups are pressing the administration and lawmakers to reconsider mandates, and the EPA says it evaluates compliance on a full-year basis while noting it accounts for normal fluctuations.
Key points
- EPA set record 2026 blending mandates requiring 8.86 billion RINs - equivalent to 5.4 billion gallons - more than 60% higher than 2025.
- U.S. biodiesel and renewable diesel plants ran at just under 77% and 78% capacity respectively in May, below the roughly 90% assumed by the EPA.
- Lower production, export commitments that do not count toward domestic mandates, and a shrinking RIN bank have driven RIN prices to record highs, raising compliance costs for refiners and intensifying lobbying and litigation.
Risks and uncertainties
- Political risk - A sustained shortfall could force use of a rarely used EPA provision to lower mandates, upsetting farmers and biofuel producers who supported higher quotas and are a political constituency ahead of midterm elections.
- Market risk - Continued depletion of the RIN bank and rising RIN prices could increase costs for refiners, potentially impacting fuel prices and the financial position of smaller refiners that buy credits.
- Operational uncertainty - It is unclear whether recently issued guidance for the 45Z clean fuel production tax credit will come soon enough to restore earlier production declines, and export commitments and feedstock import constraints tied to the Iran conflict may further limit near-term supply.