The U.S. Environmental Protection Agency has announced its final Renewable Volume Obligation (RVO) blending rule for biomass-based diesel.

The EPA set the blending mandate for biodiesel and renewable diesel to 5.4 billion gallons in 2026 and 5.5 billion gallons in 2027.

That is a 61 to 64 per cent increase over the 2025 level of 3.35 billion gallons.

“We’re very pleased to see those updates, and Canadian canola can make a meaningful contribution there,” said Canola Council of Canada president Chris Davison.

WHY IT MATTERS: The U.S. is the biggest buyer of Canadian canola oil.

He has not yet seen the EPA’s official regulatory text, but based on the agency’s announcement, there does not appear to be anything preventing Canadian canola oil from helping to meet the feedstock demand for the new RVOs.

“Canola is a modest but important feedstock in U.S. biomass-based diesel production,” said Davis.

The new RVOs should create an “appreciable opportunity” for Canada’s canola crushers who have greatly increased production capacity in recent years.

U.S. oilseed groups were thrilled with the EPA’s announcement.

The American Soybean Association said soybean farmers needed a win to boost domestic markets, and U.S. president Donald Trump’s administration delivered “in a big way.”

“The 2026-27 RVOs will increase soybean oil use, boost U.S. soybean processing and grow domestic biofuel markets for our crop,” ASA president Scott Metzger stated in a press release.

The final rule also reallocates 70 per cent of retroactive small refinery exemption volumes dating back to 2016 back into the blending pool to support additional biofuel production and soybean demand.

The only letdown for U.S. soybean growers was that they did not get their wish for the rule to prioritize domestically sourced biofuel feedstocks in 2026 and 2027.

EPA to reduce credits for imported biofuel, feedstocks

However, the EPA announced that it will reduce credit generation for imported biofuels and biofuel feedstocks by half, beginning in 2028.

If the EPA lives up to that promise, it would serve as a significant additional economic driver for the U.S. soybean sector, according to the association.

Davison is not sure what the EPA means by imported biofuel and feedstocks. At one point, the agency was considering a proposal to create a ring fence covering all of North America, and anything outside that zone would be considered imported.

He needs to see the details of the regulation to figure out what the EPA is considering for 2028.

The U.S. biofuel industry accounts for more than half of all U.S. domestic soybean oil consumption.

Clean Fuels Alliance America noted that biodiesel and renewable diesel facilities were forced to shut down or run far below previous year levels in 2025 due to market uncertainty.

U.S. biodiesel production declined by one-third compared to 2024 levels.

“The robust biomass-based diesel volumes set in this rule support America’s farmers and consumers,” Kurt Kovarik, Clean Fuel’s vice-president of federal affairs, stated in a press release.

Demand from the biodiesel and renewable diesel sector accounts for 10 per cent of the value of every bushel of U.S. grown soybeans.

The National Oilseed Processors Association called it a “landmark rule” that provides certainty and confidence for American farmers and processors.

“The historic volumes for biomass-based diesel, the 70 per cent reallocation of waived gallons, and the commitment to account for SREs (small refinery exemptions) on a go-forward basis, restores program integrity and puts the RFS (renewable fuel standard) back on a growth trajectory,” association president Devin Mogler said in a press release.

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The Environmental Protection Agency set total 2026 biofuel obligations at 26.81 billion RINs and the 2027 obligation at 27.02 billion RINs.

WHY IT MATTERS: While U.S. biofuel mandates set higher demand for oilseeds, the rules could disincentivize American buyers from choosing Canadian canola in the future.

The total mandates include 70 per cent of the blending obligations that were waived under the Small Refinery Exemptions program during the 2023-2025 compliance years, the EPA said.

The EPA in June 2025 had proposed total biofuel blending volumes at 24.02 billion RINs in 2026 and 24.46 billion RINs in 2027.

EPA added on Friday that, starting in 2028, foreign fuels and feedstocks will receive only half of the RINs of American-made products.

The rule ends a period of uncertainty for both the agriculture and refining industry, whose fortunes can be significantly impacted by the country’s biofuels policies.

Farmers and biofuel producers typically want high quotas to spur demand for their products, while refiners view the blending obligations as a costly burden.

On Friday, Canola Council of Canada president Chris Davison said he was pleased with what he’s seen of the EPA’s decision, particularly the increased blending mandate.

“We’re very pleased to see those updates, and Canadian canola can make a meaningful contribution there,” Davison said.

“Canola is a modest but important feedstock in U.S. biomass-based diesel production,” said Davis.

The new RVOs should create an “appreciable opportunity” for Canada’s canola crushers who have greatly increased production capacity in recent years.

Davison said he was not sure what ‘foreign feedstocks’ would mean as at one point the agency was considering a proposal to create a ring fence covering all of North America.

— Reporting by Richard Valdmanis and Daphne Psaledakis

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Wilton said the U.S. Environmental Protections Agency sent its recommendations and a decision on them has yet to come from the White House. He said it’s unclear at the moment how Canadian canola could play into that biodiesel mandate. If it’s included, then it’s a matter of volume and how much its tax credit will be.

The EPA proposed biomass-based diesel at 5.61 billion gallons, a jump of 67.5 per cent from 2025 levels.

“It’s a pile of demand that’s coming down the line,” Wilton said, noting that Chicago soyoil has already been on the rise for some time.

Still an upside

Even if the Trump administration excluded Canadian canola, Wilton stressed there will still be an upside for it.

“Burning beanoil in the fuel tank, canola is going to pick up demand on the food side,” he said.

Wilton said the impact from the White House on U.S. soybeans could mirror that of corn when ethanol production was increased.

“You’re ramping up biodiesel production, so you will need the feedstocks to do that,” he said.

StatCan planting projections

As for the Statistics Canada forecast on planted area in 2026/27, Wilton suggested the report likely won’t have much of an impact on the canola market the day it’s released.

The trade widely expects planted canola acres to increase from 21.62 million seeded in 2025/26. Some in the market pegged the number at 22.50 million acres, cautioning yields are likely to drop to normal levels in 2026/27.

“We’ll need every stitch of canola we can produce,” Wilton said.

Looking for stronger exports

He added, the Canadian Grain Commission should be soon showing increases in canola exports in its weekly reports. The destinations will be confirmed in the CGC’s monthly reports, with the trade looking for a major increase of canola to China.

In the meantime, with the latest Middle East war, Wilton said it’s difficult to see where the commodities will go “from minute to minute and hour by hour.”

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Chris Davison, president of the Canola Council of Canada, hasn’t had a chance to do a deep dive into the proposed regulation, but he likes what he has seen on the surface.

“On first blush, there are a number of provisions that can certainly help support Canadian canola’s access to the U.S. biofuel market,” he said.

It took one year for the U.S. Department of the Treasury and the Internal Revenue Service to clarify how the credit will work.

The credit has been available since January 2025, but producers and farmers have struggled to capitalize on it because there was minimal guidance to accompany the credit.

The newly published guidance helps biofuel producers determine their eligibility for and to calculate the credit made available under the One, Big, Beautiful Bill.

WHY IT MATTERS: The U.S. biofuel sector could be a huge customer for Canadian canola oil.

Davison is pleased to see that the credit limits feedstocks to those grown or produced in the U.S., Mexico and Canada.

“That’s a critical provision in terms of helping ensure that the economic benefits of biofuel accrue back to farmers domestically from the (Canada-U.S.-Mexico Agreement) countries,” he said.

It means biofuel made from used cooking oil and tallow from overseas markets does not qualify for the credit.

Canada’s canola industry is advocating for similar measures to be included in Canada’s Clean Fuel Regulations amendments.

The updated 45Z guidance also confirms that fuel made from Canadian canola is an approved pathway and that the indirect land use change penalties associated with agricultural feedstocks have been removed.

Biofuel is a policy-driven market, and there is one big remaining piece of that puzzle, which is when the U.S. Environmental Protection Agency establishes its Renewable Volume Obligations (RVOs) for 2026 and 2027.

The EPA has floated a proposal that imported biofuel and biofuel made with imported feedstock would be assigned half as many Renewable Identification Number (RIN) credits as fuel made with domestic feedstocks.

That idea has been embraced by groups such as the American Soybean Association but strongly opposed by Canada’s canola sector.

The EPA recently said it expects to issue its final RVO rule during the first quarter of 2026.

Davison said the 45Z credit and the RVO ruling will strongly influence Canada’s canola oil sales to the U.S. market.

He is pleased to see that the first domino appears to have fallen in the right direction.

“This is a positive development and we should recognize that,” he said.

“It recognizes that Canadian canola is an important feedstock for biofuel producers in the U.S. as well as Canada.”

Crux, a capital markets platform for the clean economy, estimates that US$1 billion in 45Z credits were transacted in 2025.

It anticipates the new guidance will unlock an additional $1 to $1.5 billion in credits by the end of the third quarter of 2026.

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The credit has been available since January 2025, but producers and farmers have struggled to capitalize on it because there was minimal guidance to accompany the credit.

WHY IT MATTERS: The U.S. biofuel sector is a potentially huge market for Canadian canola oil.

The newly published guidance helps biofuel producers determine their eligibility for and to calculate the credit made available under the One, Big, Beautiful Bill.

The big news for Canada’s canola producers is that the credit limits feedstocks to those grown or produced in the United States, Mexico and Canada.

That is something that Canada’s canola industry had been hoping for.

The credit has also been extended to Dec. 31, 2029.

Clean Fuels America welcomed the proposed 45Z rules.

“The agency responded to many taxpayer concerns and resolved some uncertainties from the guidance issued a year ago. We anticipate this proposal will provide additional market certainty for biodiesel and renewable diesel producers,” Kurt Kovarik, Clean Fuels’ vice-president of federal affairs, said in a press release.

“The delay in rule-making led to market uncertainty that took a heavy toll on our industry, undercutting fuel production and the value added to agriculture.”

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The delay now under discussion could please domestic oil refiners that have invested in the bio-based diesel sector but would risk frustrating U.S. farmers and biofuel producers.

WHY IT MATTERS: The Trump administration’s proposal to reduce incentives for imported biofuels raised concerns it would reduce demand for Canadian canola.

The proposal for the Environmental Protection Agency to slash the value of renewable fuel credits given by the U.S. government for imported biofuels was initially pitched this year as part of Trump’s “America First” energy agenda, aimed at boosting domestic production and reducing reliance on foreign supply, and was meant to take effect Jan. 1.

The Environmental Protection Agency is now weighing a plan to delay implementation of that proposal until 2027 or 2028, the sources told Reuters, speaking on condition of anonymity.

The EPA said it is reviewing public comments ahead of issuing final rules in the coming months. The agency declined to comment on whether it is considering a delay. The White House did not respond to requests for comment.

Affordability concerns

Big Oil, led by the influential American Petroleum Institute industry group, had argued that limiting credits for foreign supply could constrain availability and push fuel prices higher — an outcome the White House is eager to avoid as affordability remains a central political concern heading into next year’s congressional elections.

Under the proposed cuts in credits for imports, the EPA would allocate only half as many tradable renewable fuel credits to imported biofuels and biofuel feedstocks as to domestic ones. The shift has significant implications for bio-based diesel, which relies on imports to meet federal mandates.

The decision on a possible delay is one of several high-profile regulatory moves by the administration that the fuel industry is closely watching.

Others include finalizing 2026 biofuel blending mandates, determining whether to allow year-round sales of gasoline blended with 15 per cent ethanol, or E15, and deciding how or whether to require larger refiners to compensate for exempted gallons under the small refinery waiver program.

The protracted U.S. government shutdown and efforts to resolve a logjam of small refiner requests for exemptions from U.S. biofuel laws have also contributed to delays in resolving regulatory moves related to biofuels, the sources said.

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The proposal submitted by the Environmental Protection Agency and now under review by the White House would require large refiners to cover a range of about 50 per cent or less of the 1.1 billion gallons of the renewable fuel exemptedlast month for small plants, according to the sources.

Why it matters: U.S. biofuel demand could have market implications for Canadian oilseed farmers.

That could mean roughly 550 million gallons of lost demand, potentially increasing the supply of renewable fuel credits and putting downward pressure on their price.

The plan, if adopted, would likely frustrate biofuel producers and farm-state lawmakers who want full restoration of lost demand caused by small refinery exemptions under the Renewable Fuel Standard, the nation’s biofuel law.

The RFS requires refiners to blend billions of gallons of biofuels into the country’s fuel pool each year or buy credits called RINs from those who do. But it also allows smaller refiners to apply for waivers if they can show the requirements would cause them financial hardship.

The EPAin August cleared a backlog of more than 170 small refinery exemption requests dating back to 2016 — a sweeping move that required it to come up with the plan to account for waived obligations.

Plan still under review

The EPA was only required to come up with a plan to reallocate exempted gallons dating back to 2023, however, because RINs generated for previous years have already expired.

The sources said that the review includes the years 2023 and beyond, and the percentages could be applied higher or lower in different years.

The plan remains under review and subject to change, the sources cautioned. It is expected to be released in the upcoming weeks, ahead of an October 30 deadline to finalize biofuel blending quotas for the 2026-2027 years.

“The EPA is in the process of evaluating a range of options that strike an appropriate balance between obligations, reallocation, and other factors that will deliver for farmers, consumers and American energy dominance,” a White House official told Reuters.

The EPA declined to provide details of the proposal.

“Big Oil” vs. the farm lobby

The biofuel industry and its legislative allies have been urging the administration to require refiners to offset 100 per cent of those exempted gallons, while the oil industry is resisting the obligations.

The EPA’s proposal is intended to be a compromise that would keep the market for RINs stable by avoiding a flood of new credits that could depress prices, while also not imposing additional burdens on refiners already facing compliance costs.

The middle ground proposal highlights the long-running clash between Big Oil and the farm lobby — two powerful constituencies that have battled for years over the future of the RFS. That divide threatens to complicate President Donald Trump’s efforts to unify Republicans ahead of a looming budget fight.

The 2023 and 2024 exempted gallons totaled some 1.4 billion credits, equaling some 1.1 billion gallons. The total number of exempted gallons will likely rise as the EPA deals with pending 2025 applications.

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Continued wrangling on biofuel policy

U.S. industry groups continue to spar with the Trump administration over a proposal to slash incentives for biofuel imports. The Environmental Protection Agency (EPA) proposal, which could be finalized before the end of the year, would allocate half as many renewable fuel credits to imported biofuels and biofuel feedstocks as to domestic ones.

Effectively, U.S. biofuel plants using Canadian canola would earn 12 cents less per pound from fuel credits than if they used U.S. soybean oil, wrote FCC senior economist Justin Shepherd in an Aug. 13 report.

The American Petroleum Institute said in a letter to the EPA that the country lacks enough feedstock to meet federal quotas without imports.

“As proposed it is unworkable and would have significant harmful effects on the overall (Renewable Fuel Standard) program and could place upward pressure on fuel costs,” the institute said.

The institute also challenged the legality of the proposal.

U.S. producers, specifically soybean farmers, hailed the proposed shift as a victory, arguing the Renewable Fuel Standard was always intended to boost domestic production and that countries like China were flooding the market with cheap supply.

Canadian impacts

“Canada exports more vegetable oil – mainly canola – to the U.S. for biofuel production than it uses domestically,” Shepherd wrote.

Canada used a bit more than 1 million tonnes of vegetable oil for domestic biodiesel and renewable diesel, but exported 2.8 million tonnes to the U.S, he said.

The U.S. tax credit for biofuels has also shifted from being granted at the point of blending to a producer-based model. This changed excludes imported Canadian biodiesel and renewable diesel.

“This adjustment may reduce opportunities for Canadian exports of these biofuels, leading domestically produced biodiesel and renewable diesel to seek alternative markets,” Shepherd said.

Canadian biodiesel and renewable diesel output ramped up in 2024 as two new facilities came online, however the FCC report shows production dropped off as the new year began. It attributes this to uncertainty around the U.S. blender tax credit.

The EPA also announced higher-than-expected blending targets for 2026 and 2027, which boosted North American oilseed markets.

Hopeful signs?

“These considerations indicate that biodiesel and renewable diesel produced in Canada may face demand constraints,” wrote Shepherd.

However, the USDA projects that more than half of U.S.-produced soybean oil will be used for biofuels. This could send domestic and international buyers to Canadian vegetable oil as an alternative. Since canola oil is closely linked in price to soybean oil, it could see some market support.

Canadian oilseed producers could also see some opportunity down the line in sustainable aviation fuel (SAF) production. Sustainable aviation fuel production is produced via similar methods to renewable diesel and also typically uses vegetable oils as feedstocks.

“Canada does not have operational plants, though future development is anticipated,” Shepherd said.

—With files from Reuters

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The move, which also included measures to discourage biofuel imports, was welcomed by the biofuels industry, which had been lobbying on the issue for months.

Why it matters: The American market for biofuel feedstocks could affect prices Canadian farmers see for oilseeds.

The U.S. Environmental Protection Agency proposed on Friday total biofuel blending volumes at 24.02 billion gallons in 2026 and 24.46 billion gallons in 2027. That compares with blending requirements of 22.33 billion gallons in 2025.

Under the Renewable Fuel Standard, refiners are required to blend large volumes of biofuels into the nation’s fuel supply or purchase credits, called RINs, from those that do.

The proposal is driven in part by an increase in biomass-based diesel requirements. EPA set a quota of 7.12 billion biomass-based diesel RINs for 2026 – a measurement of the number of tradable credits generated by blending the fuel.

It said it projected that mandate would lead to the blending of 5.61 billion gallons. The EPA expressed the biomass-based diesel requirement in billion RINs in accordance with the agency’s proposal to reduce the number of RINs that could be generated from imported biofuels.

After accounting for the reduction for imported biofuels, the EPA said it projected the number of RINs generated for biomass-based diesel would be 1.27 and 1.28 RINs per gallon in 2026 and 2027, respectively. Previously, the EPA projected the average gallon of biomass-based diesel generated 1.6 RINs.

The volume mandate for 2025 for biomass-based diesel was 3.35 billion gallons, a figure the industry had complained was too low.

The oil and biofuel industries, both major lobbying powers in Washington, have highly anticipated the release of the proposal, which, if finalized, determines the fate of billions of dollars in fuel and tradable credit transactions.

As one of the first decisions made by the current Trump administration regarding federal biofuel policy, the proposal signaled the administration’s support for the biofuels industry, which has at times been at odds with oil companies.

A coalition of oil and biofuel groups banded together in a historically unusual move earlier this year to request biomass diesel blending for 2026 at 5.25 billion gallons, compared with 3.35 billion gallons in 2025.

The coalition, led by the American Petroleum Institute, argued that the EPA’s previous mandates failed to support the growth of the advanced biofuel industry and undercut the market.

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The day before, it was the weather that pushed canola higher as dry conditions further set in across much of the Canadian Prairies.

“Maybe a wetter June seems to be setting up,” said Jamie Wilton, trader with RJ O’Brien in Winnipeg, Man.

He explained that if that rain falls on the region during the first week of June, that could push canola prices lower.

However, any continued dryness might drive prices higher.

45Z

Another issue overhanging the canola and oilseeds in general is the ongoing uncertainty over the United States 45Z biofuel tax credit. Wilton said there have been rumours in the market that the U.S. Environmental Protection Agency will soon announce what’s to happen with the tax credit.

There are some in the trade who think the Trump administration will end 45Z, having it caught up in the massive spending cuts. On the flip side, there are those to believe the administration will keep the tax credit, as it greatly benefits Republican-voting farmers.

Should 45Z survive, it could help push up canola values. If it’s eliminated, then a drop is quite likely.

In the meantime, over half of the Prairie canola crop has been planted. Farmers will now look to the sky to see what does or does not fall.

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