This paper develops a structural model of the U.S. transportation fuel market to examine how increasing Renewable Fuel Standard (RFS) mandates shape fuel prices, production, and welfare. Our analysis emphasizes the “blend wall,” which limits ethanol usage to about 10% in conventional vehicles, and the nested structure of RIN compliance, which enables overshooting biomass-based diesel (BBD) to fill shortfalls in conventional ethanol mandates. Results show that rising blend mandates prompt only modest ethanol growth beyond E10, given inadequate E85 infrastructure. Instead, BBD output surges, displacing petroleum diesel and generating high RIN prices. Diesel refiners bear large implicit “taxes”, while diesel consumers benefit from lower market price. In every scenario, increasing ethanol usage remains challenging without considerable E85 expansion. Policy simulations reveal that restricting BBD output, combined with strengthening E85 availability, best mitigates welfare costs, and encourages ethanol consumption. Overall, this study suggests that reconfiguring the RFS nested structure, investing in E85 infrastructure, and adjusting BBD subsidies would foster more cost-effective ethanol growth and reduce reliance on overshooting BBD targets.