U.S. EPA’s RFS Set 2 Rule Aims to Spur Domestic Renewable Fuel Growth and Announces Future Impact on International Feedstock Sourcing and Fuel Production

Effective June 15, 2026, the U.S. Environmental Protection Agency (“EPA”) has published its Final Set 2 Rule under the Renewable Fuel Standard (“RFS”) program.¹ 91 Fed. R. 16388 (Apr. 1, 2026). The Rule is EPA’s attempt to spur renewable fuel growth in the U.S. by increasing renewable volume obligations.  Moreover, the Rule indicates EPA’s continued intention to target and curb reliance on foreign feedstock sourcing and fuel production, which it views as a “destabiliz[ing]” force on domestic investments and the agricultural industry, through future rulemaking.

This Client Alert summarizes key elements of the Final Set 2 Rule, points out departures from the June 17, 2025 Proposed Rule,²90 Fed. R. 25784 (Jun. 17, 2025). and highlights possible implications for the renewable fuel industry both at home and abroad. 

The Final Rule Significantly Expands Renewable Volume Obligations in Anticipation of Increased Domestic Production

The Final Set 2 Rule accelerates the trend of EPA’s prior Set 1 Rule³88 Fed. R. 44468 (Jul. 12, 2023). by more steeply increasing renewable fuel volume requirements by over 15% for years 2026 and 2027 compared to the requirements established for years 2023–2025.⁴EPA also clarified that the volume requirements used to calculate the percentage standards are appropriately based on gallon-RINs, not gallons.  Further, as shown in the chart below, the volume requirement for biomass-based diesel is now articulated in gallon-RINs rather than gallons, consistent with the methodology used for the other renewable fuel volume requirements. To address the approval of a significant number of 2023‒2025 Small Refinery Exemptions (“SREs”),  EPA also reallocated 70% of these volume obligations through the Final Set 2 Rule, further enlarging the 2026 and 2027 volume requirements.

Notably, in comparison to the June 17, 2025 Proposed Rule, EPA has lowered the volume requirement for cellulosic biofuel while raising the requirements for biomass-based diesel and advanced biofuel. 

The change, in part, seems to reflect EPA’s optimism concerning domestic production of biodiesel and renewable diesel.  In the Final Set 2 Rule, EPA notes that the Section 45Z Clean Fuel Production Tax Credit (“45Z Credit”), which no longer applies for renewable fuel produced outside of the U.S. nor for fuel produced from feedstock sourced outside of North America, “will continue to provide strong support for biodiesel and renewable diesel produced in the U.S.”  EPA further pointed to data suggesting there is significant unused biodiesel production capacity in the U.S., strong state market incentives for production, and a continued demand for renewable jet fuel.

EPA Reduces Equivalence Values Starting in 2027

The Final Set 2 Rule established lower-than-expected equivalence values for renewable diesel and jet fuel to account for the non-renewable portion of these fuels, which are generally produced using a hydrotreating process.⁵EPA also established an equivalence value of 1.4 for renewable Naphtha.

Interestingly, by setting the same equivalence value for both fuels, EPA is reducing the economic advantage of producing renewable diesel over renewable jet fuel, where renewable diesel had previously benefited from a higher equivalence value.  However, the effective date for these new equivalence values was delayed until January 1, 2027.   EPA acknowledges, in particular, that an equivalence value of 1.5 for renewable diesel is “slightly conservative,” but that—in conjunction with EPA’s delayed effective date—renewable diesel producers may apply for a higher equivalence value under 40 CFR § 80.1415.

EPA Prepares for Its Proposed Import RIN Reduction to Be Introduced in 2028

Finally, EPA has decided the Import RIN Reduction (“IRR”), which would have reduced the RINs generated for imported renewable fuel and domestic renewable fuel produced from foreign feedstocks by 50%, will not take immediate effect and will rather be reconsidered for 2028.  EPA has not changed its stance on the IRR, stating that a “surge” of imported renewable fuel has “destabilized domestic biofuel investments and U.S. agricultural production” to the benefit of foreign producers.  EPA recognizes, though, that—if the industry is not given proper lead time—the IRR may disrupt the renewable fuels market and lead to a further increase in gasoline and diesel prices.

In the meantime, the Final Set 2 Rule paves the way for future provisions tailored to favor domestic over foreign production.  Though not finalized with the remainder of the Set 2 Rule, the final rule does state EPA’s intent to specify that each person meeting the definition of an importer of renewable fuel will be jointly and severally liable for any violations of the RFS requirements.  The Final Set 2 Rule further expands on the definition of “importer” to include “the importer of record or an authorized agent acting on their behalf, as well as the actual owner, the consignee, or the transferee, if the right to withdraw merchandise from a bonded warehouse has been transferred.”  Likewise, the Final Set 2 Rule announces that a “foreign renewable fuel producer” will be determined based on the geographic location of the production facility rather than the state of incorporation of the facility’s owner.

Outlook

The Final Set 2 Rule, published on April 1, can be challenged within 60 days of publication, until June 1, 2026.  For now, renewable fuel companies should expect to benefit from the Final Set 2 Rule’s increased volume requirements and other changes to the RFS program, including streamlined recordkeeping requirements.⁶The Final Set 2 Rule, for instance, simplifies Production Outlook Reports by doing away with the requirement that future production be projected on a monthly basis. At the same time, companies should consider the potential impact of future EPA actions on overseas operations, as well as the effect of a significantly lower equivalence value for renewable diesel, and weigh whether to apply for a higher value.

King & Spalding has significant expertise counseling clients on all facets of EPA’s RFS program, including representing clients in regulatory counseling, in enforcement investigations initiated by EPA, defending related actions by EPA and the Department of Justice, and in litigation on challenges to EPA’s rules.  King & Spalding also has one of the deepest energy teams among the AmLaw top tier firms.  Our energy team is fully integrated across jurisdictions, and our tax lawyers regularly advise on “first of their kind,” cutting-edge transactions throughout the emerging new energy value chain, including in the realm of sustainable aviation fuel.