China, Exxon Mobil, and Chevron are opposing a proposed EPA rule that would cut incentives for renewable diesel made from imported feedstocks, citing potential disruption to trade, harm to US fuelmakers, and reduced carbon emission efforts.

Biofuel Policy Shift Draws Opposition from China, Major Oil Refiners

U.S. equities closed with notable attention on the energy sector as a proposed Environmental Protection Agency (EPA) rule sparked significant debate and an unusual alignment of opposition from China and major U.S. oil refiners, including Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX).

The Event in Detail: Incentivizing Domestic Biofuel Production

The controversy centers on the EPA's June proposal, which aims to reduce the Renewable Identification Numbers (RINs) granted to renewable diesel made from imported ingredients by 50% compared to those from domestic feedstocks. RINs are crucial compliance credits for oil refineries under the Renewable Fuel Standard (RFS). This measure seeks to bolster domestic biofuel production by incentivizing the use of U.S.-sourced raw materials such as soybean oil, used cooking oil (UCO), and distillers corn oil (DCO). The EPA is expected to finalize its decision on blending obligations and biofuel credit policy for 2026 and 2027 by the end of October.

Analysis of Market Reaction: Profit Margins and Supply Chain Concerns

Major oil refiners, including Exxon Mobil Corp., Chevron Corp., and independent green diesel producers like Diamond Green Diesel LLC, have voiced strong opposition to the proposed change. Their concerns stem from fears of compressed profit margins and a competitive disadvantage for facilities specifically designed to process imported feedstocks. Many of these U.S. refiners have invested heavily in plants optimized for waterborne imports of waste oil and beef tallow. Halving the RIN value for imported fuels directly impacts the profitability of these operations, as shifting to domestic alternatives often entails higher transportation costs via truck and rail.

Adding a geopolitical dimension, China, a primary supplier of waste oil and used cooking oil to the U.S. renewable diesel market, has officially warned the EPA that these new regulations could damage trade relations, reduce U.S. refining efficiency, and impede carbon emission reduction goals by creating barriers in cross-border supply chains. The unusual alignment of these diverse entities underscores the globalized nature of the renewable diesel market and the potential for significant disruption from policy shifts.

Broader Context and Implications: A Structural Shift in Feedstock Sourcing

The proposed EPA rule, alongside a complementary House-passed bill (expected to reach the Senate this fall) that blocks tax credits for biofuels using imported feedstocks, signals a concerted effort to create a structural tailwind for domestic biofuel suppliers. According to EPA estimates, these combined measures could result in a $1.5 billion annual market shift toward U.S. feedstocks by 2027. This shift has already manifested in the market; domestic UCO prices have surged by 30% year-to-date as refiners actively seek local supplies.

To meet the anticipated demand, the USDA forecasts U.S. soybean crush capacity to expand by 20% by 2026. Companies with significant domestic feedstock assets, such as those involved in waste management, are poised to benefit. However, the move is not without its critics. Michael McAdams, President of the Advanced Biofuels Association (ABFA), highlighted potential negative consequences:

"This rule, as currently drafted, could threaten continued investment, limit consumer access to innovative American-made fuels, and artificially drive up prices."

Studies by the ABFA suggest that while domestic feedstock supply might be sufficient for projected EPA volumes, meeting broader market demand (estimated at 7 billion gallons by 2027) will necessitate continued access to global markets. The proposed RIN reduction for imports could introduce significant cost pressures, potentially creating a $250 to $400 per metric ton premium for domestic feedstocks, and potentially driving up D4 RIN prices by $0.42 for every $200/metric ton rise in U.S. soybean oil prices.

Looking Ahead: Regulatory Decisions and Market Volatility

Investors should monitor several key catalysts in the coming months. The EPA's final decision on blending obligations and biofuel credit policy for 2026 and 2027, anticipated by the end of October, will be a critical determinant. Furthermore, the Senate's vote on the House-passed bill regarding tax credit exclusivity for domestic feedstocks will significantly shape the market. These regulatory milestones are expected to induce 20-30% swings in feedstock prices, as demonstrated by the 15% jump in soybean oil futures in a single week following the leak of the EPA's proposal in June. Companies like Bunge (BG), which control soybean crushing facilities, and those pivoting to U.S. feedstocks, such as Neste (NEVT), warrant close observation for their adaptability to these evolving market dynamics.