VALERO ENERGY CORP/TX

We strive to manage our business to responsibly meet the world’s growing demand for reliable and affordable energy. We believe that liquid transportation fuels—both petroleum-based and low-carbon—help meet that demand, and we expect that they will continue to be an essential source of transportation fuels well into the future. Our strategic actions have enabled us to be a low-cost, efficient, and reliable supplier of these liquid transportation fuels to much of the world.

1 DGD is a joint venture with Darling Ingredients Inc. (Darling) and we consolidate DGD’s financial statements. See Note 12 of Notes to Consolidated Financial Statements regarding our accounting for DGD.

Most of our petroleum refineries are located in areas that offer favorable operating costs and other strategic advantages, as described below under “OUR OPERATIONS—Refining,” and we believe our refineries are positioned to meet the strong global demand for petroleum-based products. Through our refining business, we believe that we have developed expertise in liquid fuels manufacturing and a platform for the marketing and distribution of liquid fuels, and we seek to leverage this expertise and platform to optimize our low-carbon fuels businesses. We expect that low-carbon liquid fuels will continue to be a part of the energy mix, and we have made multibillion-dollar investments to develop and grow our low-carbon fuels businesses, as described below under “OUR OPERATIONS—Renewable Diesel” and “—Ethanol.” These businesses have made us the leading producer of low-carbon transportation fuels and have helped governments across the world in achieving their greenhouse gas (GHG) emissions reduction targets.

Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand

Governments across the world have implemented, or are considering implementing, regulations to address GHG emissions from transportation fuels by mandating or incentivizing inclusion of renewable and low-carbon fuels in the transportation fuel mix. The regulations, policies, and standards of greatest significance for our businesses are defined and discussed below under “U.S. Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS) Program,” “California Low Carbon Fuel Standard (LCFS),” “Canada Low-Carbon Fuel Programs,” and “U.K. Renewable Transport Fuel Obligation (RTFO) Program” (along with similar programs in other jurisdictions in which we operate, collectively, the Renewable and Low-Carbon Fuel Programs).

Additionally, other municipal, state, and national governments across the world, including many of the jurisdictions in which we operate, have issued or are considering similar low-carbon fuel regulations, policies, and standards. While many of the Renewable and Low-Carbon Fuel Programs result in additional costs to our refining business, they have created opportunities for us to develop our low-carbon fuel businesses, and they should continue to help drive the demand for our low-carbon fuels such as renewable diesel, ethanol, and neat sustainable aviation fuel (SAF)2.

See “ITEM 1A. RISK FACTORS—LEGAL, GOVERNMENT, AND REGULATORY RISKS—We are subject to risks arising from the Renewable and Low-Carbon Fuel Programs, and other regulations, policies, international certifications, and standards impacting low-carbon fuels” for more information. In addition, see Note 1 of Notes to Consolidated Financial Statements regarding our accounting for the costs of the blending programs under “Costs of Renewable and Low-Carbon Fuel Programs” and Note 20 for disclosure of the costs of the blending programs under “Renewable and Low-Carbon Fuel Programs Price Risk.”

U.S. Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS) Program

The EPA created the RFS program pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. Under the RFS program, the EPA sets annual quotas for certain classes of renewable fuels that must be blended into petroleum-based transportation fuels consumed in the U.S., collectively referred to as the renewable volume obligation (RVO). Producers and importers of petroleum-based transportation fuels consumed in the U.S. must demonstrate compliance annually byretiring the appropriate number of compliance credits known as renewable identification numbers (RINs)

2 DGD produces synthetic paraffinic kerosene (SPK), a renewable blending component, using the Hydrotreated Esters and Fatty Acids (HEFA) process. SPK is also commonly referred to as “neat SAF.” Current aviation regulations allow SPK to be blended up to 50 percent with conventional jet fuel for use in an aircraft. This blend is commonly referred to as “blended SAF” or “SAF.”

associated with each class of renewable fuel to satisfy their RVO. RINs are generated through the production of qualifying renewable fuels. Obligated parties may obtain RINs by blending those renewable fuels into petroleum-based transportation fuels or by purchasing RINs in the open market.

We are an obligated party under this program and our Refining segment incurs obligations as a result of being a producer and importer of petroleum-based transportation fuels consumed in the U.S., but we also generate RINs under this program as a result of being a producer of qualifying renewable fuels through our Renewable Diesel and Ethanol segments. Therefore, there is a cost to our refining business from this program because in order to comply with our RVO we must either purchase qualifying renewable fuels for blending or purchase RINs in the open market, but we also generate revenue through our Renewable Diesel and Ethanol segments from this program because we produce and sell qualifying renewable fuels.

California Low Carbon Fuel Standard (LCFS)

The California Air Resources Board (CARB) adopted the LCFS program to help achieve GHG emissions reductions required by California’s Global Warming Solutions Act by decreasing the carbon intensity (CI) of transportation fuels consumed in the state. Under this program, each fuel is assigned a CI value, which is intended to represent the lifecycle GHG emissions associated with the feedstocks from which the fuel was produced, the fuel production and distribution activities, and the use of the finished fuel. The certified CIs for both low-carbon and petroleum-based transportation fuels are compared to a declining annual benchmark. Fuels below the benchmark generate credits, while fuels above the benchmark generate deficits. The lower the fuel’s CI score compared to the benchmark, the greater number of credits generated. Each producer or importer of fuel must demonstrate that the overall mix of fuels it supplies for use in California meets the CI benchmarks for each compliance period. A producer or importer with a fuel mix that is above the CI benchmark must purchase LCFS credits sufficient to meet the CI benchmark.

Our Refining segment produces and imports petroleum-based transportation fuels in California and thus must blend low-CI fuels or purchase credits to meet the CI benchmark. However, fuels produced by our Renewable Diesel and Ethanol segments have CI scores that are lower than traditional petroleum-based transportation fuels, and we benefit from the demand from other regulated entities for these low-carbon products.

Canada Low-Carbon Fuel Programs

In July 2022, Canada’s federal environmental agency issued the Clean Fuel Regulations (CFR) program to require primary suppliers of gasoline or diesel that is produced in or imported into Canada to reduce the CI of those products. The obligation to achieve prescribed CI reduction requirements began on July 1, 2023. The CFR program is in addition to Canada’s provincial programs (such as in British Columbia, Ontario, and Quebec), which require the utilization of low-carbon fuels, and is similar to the California LCFS program.

As a primary supplier of gasoline and diesel in Canada, our Refining segment is subject to Canada’s low-carbon fuel programs described above and thus must blend low-CI fuels or purchase credits to meet the annual CI reduction requirements of the applicable program. As noted above under “California Low Carbon Fuel Standard (LCFS),” fuels produced by our Renewable Diesel and Ethanol segments have lower CI scores than traditional petroleum-based transportation fuels, and we benefit from the increased demand for these low-carbon products as a result of Canada’s low-carbon fuel programs.

U.K. Renewable Transport Fuel Obligation (RTFO) Program

The U.K. RTFO program was established to reduce GHG emissions from transportation fuels by promoting the use of low-carbon fuels. Under the RTFO program, suppliers of relevant transportation fuels that are produced or imported into the U.K. are obligated to blend a minimum specified percentage of qualifying low-carbon fuels into petroleum-based transportation fuels annually. Obligated suppliers can satisfy their obligation by redeeming Renewable Transport Fuel Certificates (RTFCs), either generated by the supplier (through blending low-carbon fuels) or purchased from low-carbon fuel suppliers, or by paying a predetermined amount for each RTFC they choose to buy-out of their obligation.

As a supplier of gasoline and diesel in the U.K., our Refining segment is subject to the U.K.’s RTFO program described above and thus must blend qualifying low-carbon fuels or purchase RTFCs to satisfy our annual obligation. As previously noted, fuels produced by our Renewable Diesel segment have lower CI scores than traditional petroleum-based transportation fuels, and we benefit from the increased demand for these low-carbon products as a result of the U.K.’s RTFO program.

U.S. Federal Tax Incentives

The U.S. federal government has recently made significant changes to tax incentives enacted to encourage the production of low-carbon fuels and/or reduce GHG emissions. Until recently, renewable diesel that was produced, blended, and sold by us qualified for a refundable tax credit (generally referred to as the blender’s tax credit) of $1.00 per gallon under Section 6426 of the U.S. Internal Revenue Code of 1986, as amended (the Code). In addition, cellulosic ethanol produced and sold by our Ethanol segment qualified for an income tax credit of $1.01 per gallon for second-generation biofuels under Section 40(b) of the Code. The tax credits provided under Sections 6426 and 40(b) expired on December 31, 2024.

Effective January 1, 2025, the Inflation Reduction Act of 2022 replaced Section 6426 and Section 40(b) with Section 45Z of the Code, which instead allowed for a clean fuel production credit for years 2025 through 2027. On July 4, 2025, legislation commonly known as the One Big Beautiful Bill Act (OBBB) was enacted, which resulted in a broad range of changes to the Code, including the extension of the clean fuel production credit through December 31, 2029.

Clean fuel production credits may be claimed for the qualifying sale of certain low-carbon transportation fuels (such as biodiesel, renewable diesel, and alternative fuels, including neat SAF) that were produced in the U.S. through December 31, 2025. Under the OBBB, fuel produced on or after January 1, 2026 must be exclusively derived from feedstocks produced or grown in the U.S., Mexico, or Canada in order to be eligible for this credit. The amount of the credit allowable varies based on the emissions rate for the specific fuel pathway and production process and on whether the facility at which the fuel is produced meets prevailing wage and/or apprenticeship requirements for certain activities. Also, for fuel produced on or after January 1, 2026, this credit generally is limited to $1.00 per gallon for all eligible fuels under the OBBB. Finally, the OBBB provides for GHG emissions attributed to indirect land use change to be excluded in determining the GHG emissions rate for transportation fuel produced after December 31, 2025. We expect this will allow much of our corn ethanol to meet the emissions reduction threshold to qualify for the clean fuel production credit. Also, Section 45Q of the Code provides tax credits for carbon oxide sequestration to certain taxpayers who capture and sequester, store, or use qualified carbon oxides (e.g., carbon dioxide).

See Notes 1, 15, and 17 of Notes to Consolidated Financial Statements for additional information about these U.S. federal tax incentives.

Our Low-Carbon Projects

As of December 31, 2025, we have invested $6.0 billion 3 in our low-carbon fuels businesses. Our large-scale SAF production project at the DGD Port Arthur Plant (as defined below under “OUR OPERATIONS—Renewable Diesel”) was successfully completed in the fourth quarter of 2024. The project provides the DGD Port Arthur Plant the optionality to upgrade approximately 50 percent of its current 470 million gallon renewable diesel annual production capacity to neat SAF. Qualifying sales of this low-carbon jet fuel have generated, and should continue to generate, clean fuel production credits.

We continually evaluate federal tax and other incentives and may strategically pursue certain opportunities to optimize the potential benefits therefrom. We also continue to consider investments in economic, low-carbon projects, including carbon sequestration and carbon capture and storage, which are intended to lower the CI of our products. For example, the carbon sequestration and carbon capture and storage projects under evaluation at certain of our ethanol plants would be expected to increase the value of the ethanol product produced at those plants by helping to decrease its CI score and through the expected generation of tax credits for carbon oxide sequestration, when applicable. Several of our ethanol plants are located near geology believed to be suitable for sequestering carbon dioxide, and in 2025 we entered into a stand-alone agreement with respect to our ethanol plant in Linden, Indiana to capture, transport, and store carbon dioxide that results from the ethanol manufacturing process. We continue to evaluate additional carbon sequestration and carbon capture and storage projects.