US EPA approves biofuel waivers for small refiners, stirring concerns over demand

By Jarrett Renshaw

WASHINGTON, Aug 22 (Reuters) - The U.S. Environmental Protection Agency on Friday approved most of its backlog of requests by small oil refineries for biofuel law exemptions, raising concerns among biofuels advocates over a potential hit to demand.

The approvals are also a mixed blessing for the cohort of small U.S. refiners who have argued for years they are hurt financially by the federal mandate to blend biofuels like ethanol into the country's fuel supply. Many of their requests have now become so old that the waivers they have secured are worthless.

The EPA said in its announcement that it granted 63 small refiner requests in full, 77 in part, and denied just 28, clearing nearly all of the 204 that had accumulated since 2016 amid a decade of legal and political wrangling.

The approved exemptions amounted to about 5.34 billion RINS, the tradable compliance credits generated by blending biofuels into the nation's fuel pool, according to data posted to the EPA's website.

But because RINS have just a two-year lifespan, only 1.39 billion can still be used for compliance and retain any value, according to the EPA announcement.

The American Fuel and Petrochemical Manufacturers trade group, which represents oil refiners, did not immediately comment on the EPA announcement.

Growth Energy, a biofuel trade group, said it was calling on the EPA to ensure that all exempted blending obligations are balanced out by increased obligations for other refiners - a concept called reallocation.

"It is imperative that EPA reallocates each and every exempt gallon in a forthcoming rule to mitigate the potentially devastating impact on biofuel demand," said Growth Energy CEO Emily Skor.

The EPA said it would issue a proposal soon on how to reallocate the exempted volumes.

The supplemental rule is expected late next week, sources familiar with the planning told Reuters.

The EPA did not comment on timing.

Renewable fuel credits tied to ethanol blending jumped above $1.16 each in afternoon trade following the announcement, up from about $1.07 on Thursday.

Under the Renewable Fuel Standard, U.S. refiners must blend billions of gallons of biofuels such as ethanol into the nation's fuel or buy RINS generated by those that do - a policy designed to help farmers and increase the U.S. energy supply.

Small refiners, however, can ask for waivers if they can prove the obligation would cause them financial hardship.

There are now just 13 pending waiver requests, according to the EPA data.