EPA and Small Refinery Exemptions: 2, 4, 6, 8 — Reallocate!

Making Farmers Whole — or Making Another Hole for Farmers to Fall Into?

Down around Braddyville, on the south side of Page County, Iowa, the cornfields roll toward the Nodaway River and the Missouri line.

For a hundred years, farmers here have been getting extraordinarily good at one thing. Growing corn.

The seed got better. The fertilizer got better. The machinery got bigger, faster and astonishingly precise. Hybrids arrived, then biotechnology, GPS, variable-rate application and a century’s accumulation of knowledge about how to coax more corn out of the same Iowa dirt.

Today, Iowa corn yields can run north of 200 bushels an acre. American agriculture solved the problem of abundance. It never solved the problem that comes next.

Who buys the next bushel?

That’s a particularly uncomfortable question in 2026.

Tariff wars can close export markets faster than farmers can change what they planted last spring. Input costs don’t disappear because overseas buyers do. Interest still comes due. Machinery still has to be paid for.And when everybody becomes exceptionally good at producing something, abundance has an inconvenient habit of becoming surplus.

Which is why renewable fuels matter out here in a way that can be difficult to appreciate from Washington.

Corn ethanol created something farmers had spent generations searching for: an enormous new customer that didn’t have to cross an ocean.

Then came the promise of more.

The Trump Administration set some of the largest Renewable Fuel Standard volumes in the program’s history. Year-round E15 offered the prospect of opening still more of America’s gasoline market to ethanol. For a farmer wondering where the next increment of corn demand might come from, Washington appeared, for once, to be pointing in a promising direction.

Except permanent year-round E15 still isn’t settled.

And now come the small-refinery exemptions.

On Monday, EPA ruled on 34 petitions covering the 2025 Renewable Fuel Standard.

Eighteen refineries received full exemptions.

Eleven received half.

Three were denied.

Two were found ineligible.

Add it together and 1.76 billion RINs of renewable-fuel obligations were excused.

Which raises an interesting question down by the Nodaway.

If Washington promises you a market on Monday and exempts somebody from it on Tuesday, exactly how much market do you have on Wednesday?

EPA has an answer.

And it has a certain cheerleader quality to it.

Two, four, six, eight!

Reallocate!

The Receipt

The Renewable Fuel Standard can become incomprehensible remarkably quickly, so here’s the farm-country version.

Think of a Renewable Identification Number, or RIN, as essentially the receipt attached to renewable fuel.

Make qualifying renewable fuel and RINs are generated. Refiners and importers have annual obligations requiring them to acquire and retire enough of those receipts. Blend renewable fuel and you can acquire them that way. Don’t have enough and you can buy RINs on the market.

Congress also provided an escape hatch for small refineries suffering “disproportionate economic hardship.”

Fair enough.

If a genuinely struggling refinery is being pushed toward the wall by a federal mandate, nobody gains much by pushing it through the wall.

The difficulty is what happens to renewable-fuel demand when the refinery gets out.

An SRE says, in effect:

You don’t have to collect these receipts.

Reallocation says:

Fine. Put the volume back into the system and spread the requirement across the obligated parties.

Translated into Page County English:

The small refinery gets out. The gallons don’t.

At least that’s the idea.

How Big Is the Hole?

Here’s where the arithmetic gets interesting.

When EPA established its renewable-fuel requirements, it wasn’t naïve enough to assume that no small refinery would receive an exemption.

EPA had already projected 990 million RINs worth of 2025 small-refinery exemptions and accounted for them in setting the volumes.

Call that the hole Washington knew about.

Then Monday arrived.

The exemptions EPA actually granted totaled 1.76 billion RINs.

Call that the hole Washington actually dug.

Subtract one from the other and you get roughly 770 million RINs of unexpected exemptions.

And that distinction matters.

Suppose a farmer expects 200 bushels from an acre and has already budgeted for losing 20.

Losing those 20 doesn’t create a new hole.

Losing 35 does.

The question is what happens to the extra 15.

EPA’s answer is reallocation.

The agency says it will propose putting 100 percent of the difference between projected and actual 2025 exemptionsinto the 2026 and 2027 Renewable Volume Obligations.

So the breakthrough isn’t that Washington has discovered a way to abolish refinery hardship.

It’s that refinery relief and renewable-fuel demand no longer necessarily have to be mortal enemies.

Give the qualifying small refinery relief.

Just don’t make the gallon disappear.

70 Becomes 100

There’s a precedent for this.

In March, EPA finalized its 2026 and 2027 RFS volumes with 70 percent reallocation of small-refinery exemptions granted for 2023 through 2025.

That added 990 million RINs to the 2026 total renewable-fuel requirement and 1.04 billion to 2027.

So reallocation isn’t a new rabbit EPA pulled out of its hat Monday.

The interesting development is the direction of travel.

Seventy percent was the precedent.

One hundred percent of the unexpected 2025 difference is now the promise.

That may sound like accounting.

Down by the Nodaway, it sounds more like whether somebody remains obliged to buy the next bushel.

One Hole? Not Quite.

There is another wrinkle.

The Renewable Fuel Standard isn’t one swimming pool of interchangeable gallons.

It’s more like a set of Russian dolls.

Corn ethanol generally produces D6 RINs, the workhorse credit of the conventional renewable-fuel market.

Biodiesel and renewable diesel generally produce D4 RINs. Those D4 credits can satisfy the biomass-based diesel requirement and also count upward into the broader advanced and total renewable-fuel requirements.

D6 doesn’t work the other way around.

Which matters because Washington sometimes talks about “renewable fuel” as though a gallon were a gallon were a gallon.

It isn’t.

Drive east from Page County into soybean country and the problem changes.

E15 can create a larger market for corn ethanol.

It cannot make a missing D4 requirement disappear.

You cannot repair a hole in the diesel market by pouring ethanol into it.

And today the implications run far beyond biodiesel.

Renewable diesel is pulling on oils and fats. Sustainable Aviation Fuel increasingly reaches into overlapping agricultural and low-carbon feedstock systems. Soybean oil, animal fats, used cooking oils and other feedstocks now participate in an interconnected industrial market.

So an exemption isn’t merely an argument between a little refinery and a corn ethanol plant.

Follow the signal.

Corn.

Soybeans.

Crushers.

Ethanol.

Biodiesel.

Renewable diesel.

SAF.

And eventually the investment committee deciding whether the next plant gets built.

That’s the larger importance of reallocation.

The RFS isn’t simply setting today’s fuel volumes anymore.

It is helping send tomorrow’s capital signals.

Hardship

Which brings us to the awkward word in all this.

Not “small.”

Hardship.

The statute provides exemptions for small refineries suffering disproportionate economic hardship.

Biofuel organizations understandably ask how widespread hardship can coexist with strong refining profitability.

They also question how much RIN compliance actually costs a refinery after costs are passed through in petroleum-product prices.

And government itself has wrestled for years with how hardship should be measured.

The Government Accountability Office took a hard look at the SRE machinery in 2022 and found something uncomfortable for everyone.

EPA and the Department of Energy lacked adequate policies and procedures for making exemption decisions. GAO questioned EPA’s assumption that refiners effectively pay and receive a uniform price for RINs — and found that small refineries had, on average, paid more for compliance credits than large ones.

That’s important.

Because it means the farmer’s complaint doesn’t automatically prove the refinery’s hardship is imaginary.

It means Washington hasn’t been particularly good at measuring the hardship in the first place.

That’s an extraordinary contrast.

Down in Page County, nobody needs an interagency methodology to establish what corn is worth.

Drive to the elevator.

They’ll tell you.

Washington has spent years arguing about what a RIN really costs a refinery.

And while the argument continues, farmers and renewable-fuel producers are left wondering how much of their supposedly mandated market really exists.

The Vanishing Gallon

That’s the particularly nasty part of retroactive exemptions.

Markets don’t wait for Washington.

Farmers plant.

Ethanol plants buy corn.

Soy processors crush beans.

Biodiesel producers contract for feedstocks.

Renewable diesel projects arrange supply.

Developers try to finance SAF plants.

Then an exemption can arrive after the market has already organized itself around the mandate.

The industry’s phrase for what follows is demand destruction.

It sounds abstract.

It isn’t.

It means somebody invested, planted, produced or financed something expecting a customer that government policy said would exist — and government policy subsequently made some of that customer disappear.

Which brings us to the simplest rule in the entire RFS.

The Rule

Exempt the refinery if the law says you must. Never exempt the gallon.

That’s the compromise hiding inside reallocation.

A small refinery can face legitimate hardship.

Congress provided relief for exactly that reason.

But the Renewable Fuel Standard was created to establish renewable-fuel demand, not merely to distribute paperwork among refiners.

If one party is exempted, account for the volume elsewhere.

Don’t erase it.

Because the consequences no longer stop at the ethanol plant.

They run from a cornfield by the Nodaway to a soybean crusher, a biodiesel reactor, a renewable-diesel hydrotreater, a future SAF plant and ultimately the investment committee deciding whether the next billion dollars gets deployed at all.

That’s a much bigger thing than a RIN.

The Iowa Shield

EPA didn’t arrive here in a political vacuum.

In the days before Monday’s announcement, farm-state lawmakers and biofuel organizations pushed hard against reports that the administration was considering a much larger waiver package without corresponding protection for renewable-fuel demand.

Senators Chuck Grassley and Joni Ernst were prominent in that fight.

Afterward, Grassley called the final package a “significant improvement” over what had been rumored and said the White House had worked closely with him and other ag-state leaders.

That tells us something important about reallocation.

It isn’t an accounting footnote.

It’s the political price of the exemptions.

Refiners got relief.

Farm country got a promise that the unexpected gallons wouldn’t disappear.

And now everybody gets to find out what the promise is worth.

Meanwhile, Washington is simultaneously arguing over how much ethanol demand to create, how much refinery demand to exempt, how much exempted demand to restore — and whether to permanently allow Americans to buy E15 all year.

You begin to understand why farmers prefer tractors.

Downhill

And so we return to Page County.

A century ago, the farmer’s great challenge was producing more.

He did.

Seed, machinery, chemistry, genetics and accumulated human ingenuity accomplished something extraordinary.

But every improvement recreated the ancient problem.

Who buys the next bushel?

Exports bought some.

Livestock bought some.

Then ethanol came along and became one of the largest new customers American corn had ever found.

That’s why an argument over 770 million RINs isn’t really an argument over regulatory bookkeeping.

It’s an argument over whether a market promised in Washington still exists when the crop reaches the elevator.

EPA may have found an elegant compromise.

If a small refinery genuinely faces disproportionate economic hardship, give it relief.

But don’t finance that relief by quietly eliminating somebody else’s customer.

Exempt the refinery.

Move the obligation.

Preserve the gallon.

Two, four, six, eight — reallocate!

There is only one difficulty.

EPA still has to finish the job.

It says it will propose the additional reallocation before the end of October.

Until that becomes enforceable arithmetic, the unexpected missing demand remains principally a promise that Washington intends to restore it.

The farmer down by the Nodaway has heard promises before.

His fertilizer bill isn’t a promise.

His machinery payment isn’t a promise.

His operating loan isn’t a promise.

And the corn coming out of the field certainly isn’t a promise.

It’s real.

It needs a buyer.

So the measure of this policy isn’t whether Washington can move numbers from one compliance year to another.

It’s whether the customer remains standing at the farm gate.

Exempt the refinery.

Preserve the gallon.

Otherwise, gravity takes care of the rest.

And holes roll downhill.

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