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Biofuel Policy Brief - February 2026
Dear reader,
The shortest month of the year brought fresh perspectives on US biofuel regulations, both regarding the country’s production tax credits, federal mandates and trade policy. Germany dominated European biofuel headlines with its impactful RED III transposition and a unique new heating biofuel mandate. Indonesian waste feedstock export policy meanwhile could have ripple effects on EU biofuel prices, while India and Guatemala elevate their ethanol blending mandates. Key policy developments in February:
New US production tax credit methodology favors domestic crop feedstocks for road biofuels. Meanwhile signs emerge that at least 50% of small refinery exemptions towards RIN obligations will be reallocated to larger refiners
US import tariffs are lowered following Supreme Court judgment. Geopolitical Iran escalation holds new risks for global trade and fuel price inflation
German Bundesrat’s RED III recommendations further support biofuel demand and constrain supply. Qualifying biofuel import origins into Germany for now excludes China and Brazil. The country will also introduce a biofuel mandate for the heating sector
Indonesia will maintain its ban on POME and UCO exports, with questions outstanding on the scope. India’s E20 target will officially become an obligation from April 2026
Guatemala will roll out its national E10 mandate from June 2026, while committing to 200 million liters/year of US ethanol imports as part of a trade agreement
North America
The US Department of the Treasury and the IRS have released their proposal on the 45Z credit methodology. These production tax credits replaced the former blender tax credits already since January 2025, yet from the get-go it has been unclear which feedstocks qualify and what the actual methodology is for calculating the monetary value. In February’s proposal, only biofuels produced in the US from feedstocks sourced in the US, Canada or Mexico will qualify. This makes the new system two grades more protectionist than the former blenders tax credit (for which any biofuel blended in the US qualified) and one grade more protectionist than the Biden-era 45Z credit (where the feedstock origin did not matter as long as the biofuel was US-produced). It is also proposed that SAF will no longer get any supplementary credits as had been the case until recently. Last but not least, indirect land use change (ILUC) emissions will not be taken into account, favoring soy and corn feedstocks. All these changes would apply retroactively from 1 January 2026. In summary, the new 45Z rules incentivize road biofuels from domestic crops more than has been the case until last year. Sources within the US EPA (quoted by Reuters) indicate that at least half of the waived small refinery exemptions (SREs) under the country’s federal biofuel mandates will be reallocated to larger oil refineries. The proposed levels for these 2026-2027 RIN mandates have been known for over half a year now, and are generally considered quite ambitious. Although the proposed levels themselves are yet to be approved by the White House as well, market analysts have largely focused on the impact of SREs. These waivers for small refineries could de facto lower the mandates if not compensated elsewhere, especially considering that the Trump administration has a track record of granting many such SREs. Late last year, the EPA therefore sought public feedback on several reallocation options ranging from 0% to 100%. The fact that this now appears to have been narrowed to 50% or higher, is a bullish sign for physical biofuel blending. Upon the news, RIN prices already reacted by reaching fresh highs. Within the coming months, clarity is expected both on the final RIN mandates, the status of imported feedstocks and the SRE reallocation.
Still in the US, the Supreme Court made a decision that significantly curtails President Trump’s power to impose broad unilateral tariffs - by declaring them unlawful. The ruling effectively invalidated the administration’s ‘reciprocal’ tariffs announced in 2025, as well as the tariff deals later agreed with targeted countries in their attempts to de-escalate. Shortly after the Supreme Court’s ruling, Trump announced a 10% universal tariff to replace the previous tariffs, using a different legal basis that can be applied for a maximum of 150 days. This new tariff is significantly lower for several key biofuel or feedstock exporters such as Brazil - which was subject to some of the highest tariffs under last year’s escalation. That said, it is hard to imagine major biofuel or feedstock trade shifts as non-tarriff protectionist measures are now embedded in the 45Z credit and likely the new RIN mandates, while US tariff policy has proven an unreliable basis for businesses’ medium to long term export decisions. Meanwhile the world’s attention has shifted to the escalation in the Middle East after the US/Israeli attack on Iran. If the Strait of Hormuz stays closed for a sustained period, it will lead to higher oil price inflation and most likely higher biofuel prices.
Europe
German policymakers have kept busy in February. The month began with the Bundesrat giving its opinion on the ongoing RED III transposition. This institution's proposed changes would further support biofuel demand, while (indirectly) constraining supply. For example, demand-supporting measures include an increase in the 2027 mandate, higher RFNBO quotas post-2030, and an extension of the emission reduction obligations from 2040 to 2045. The recommendations constrain supply in that the POME ban and audit requirements would be brought forward from 2027 to 2026, while SAF and maritime fuels would not be able to opt into the mandates. By the end of the month, the Bundestag had also done a first reading of the draft legislation, with more readings continuing into March. Meanwhile German authorities have circulated a list of countries considered compliant with the onsite audit requirements, meaning that only biofuels from countries on this (tentative) list would qualify towards the German mandates. Most European countries, the US, Canada, Indonesia, Malaysia and several other Asian and Latin American countries feature on the list. Notably absent countries however, are major biofuel producers China and Brazil. If these countries remain off the list, it would indirectly be quite a protectionist measure, although trade patterns may simply adjust somewhat then for biofuel volumes from these non-included export countries to end up in other EU markets instead. In parallel to all this, the ruling government parties in Germany agreed on a biofuel mandate for the heating sector. Although some details are yet to be announced, the obligation would likely start in 2028 and new heaters should run on 10% bio-share from 2029.
Asia Indonesia will maintain its export ban of palm oil mill effluent (POME) as well as used cooking oil (UCO). The country’s president Subianto confirmed this last week after signs had already emerged in the beginning of February that this was being considered. The goal is to keep waste oils in the country with the aim of supporting the domestic SAF industry towards the 1% SAF blending mandate set to kick off next year, as well as securing a maximum amount of feedstocks for the B50 road mandate. Seeing as Indonesia represents more than half of global crude POME supply, and this is currently the most scaled advanced (Annex IX-A) feedstock in European liquid biofuels, the impact of a broad ban on prices could be considerable. The main question now however, is whether the ban will continue to apply only on crude POME and UCO, or if refined versions of these products will also be added. If refined products remain exempt, the impact on waste feedstock availability would be manageable. Feedstock supply chains would then just adapt so that refining is done within Indonesia yet still targeting export markets.
In India, the E20 (20% ethanol) mandate is now official government policy, with the Ministry of Petroleum and Natural Gas obliging all fuel suppliers to switch to the grade latest from 1 April 2026. The country has long had a target of reaching 20% ethanol content in gasoline, and actually reached this level somewhat early already in January this year. The question now becomes what the next step will be, given that domestic ethanol capacity in the country is still expanding and additional volumes could also come in from the US as a result of the trade agreement being finalized between the two countries. The government could either keep raising the road ethanol blend mandates, create stronger incentives for ATJ-SAF, or somewhat scale down production incentives to balance supply and demand.
Latin America
Guatemala has announced an E10 (10% ethanol) mandate which is set to come into effect from June 2026. As part of a trade agreement with the US, the country committed to purchasing around 200 million liter/year of US ethanol. This volume would be enough to meet roughly half of the country’s new mandate. Some of the rest may come from Brazil as the other giant ethanol producer in the world and region. Brazil has already helped Guatemala in updating its infrastructure and technical standards to allow for higher ethanol blend-shares. Guatemala itself also has significant production capacity of about 250 million liters ethanol per year. The lion’s share of this has traditionally been exported seeing as local demand depended on pilot programmes and voluntary initiatives, without any mandate in place.
