By Jarrett Renshaw
Aug 27 (Reuters) - A coalition of U.S. farm and biofuel groups has urged President Donald Trump to reject a proposed expansion of exemptions from the nation's biofuel blending requirements, warning that a surge in waivers for small refineries would hurt rural America by undercutting demand for American crops and renewable fuels.
The White House is backing a plan to significantly expand the controversial small refinery exemption program, according to people familiar with the matter.
They said officials want to tame gasoline prices that have risen during the war with Iran, which could help Trump's fellow Republicans retain control of Congress in November's midterm elections.
The prospect of a large expansion of refinery waivers has already sent prices for renewable fuel credits, known as RINs, sharply lower as traders anticipate weaker demand for biofuels.
Oil refiners and farmers have long argued about whether consumers ultimately pay more when renewable fuel credit prices rise.
In a letter to Trump, the groups, which include the Renewable Fuels Association, Growth Energy and the National Farmers Union, said the administration should keep exemptions for the 2025 compliance year in line with the volumes the Environmental Protection Agency assumed when it set the nation's biofuel blending requirements for 2026 and 2027.
The administration is considering roughly doubling the size of the exemptions, from about 950 million credits to as many as 1.8 billion, sources have told Reuters. A decision is expected before the end of August.
The groups warned that granting exemptions well above the levels anticipated by the EPA would "decimate the demand signal" created by the agency's March rule setting the 2026 and 2027 renewable volume obligations, or RVOs.
"The consequences would be severe and immediate," the groups said, warning that excess exemptions could cause biofuel markets to collapse, reduce demand for corn and soybean oil and further weaken rural economies.
The White House deferred questions to EPA. The EPA did not immediately respond to requests for comment.
The Renewable Fuel Standard (RFS) requires refiners and fuel importers to blend specified amounts of renewable fuel, such as ethanol and biodiesel, into the U.S. fuel supply or buy renewable identification numbers (RINs) to demonstrate compliance.
Small-refinery exemptions allow certain smaller refineries to avoid some or all of those obligations if they can demonstrate disproportionate economic hardship. When the administration grants exemptions, the exempted gallons are effectively removed from the market unless the obligation is later reallocated.
Senator Joni Ernst, a Republican from Iowa, has criticized the potential expansion of SREs, telling Reuters in a statement that it is "a handout to Big Oil falsely marketed as relief at the pump."
"You don't lower gas prices by taking American-made biofuel off the market, and these exemptions will crush demand for corn and soybeans while padding the pockets of refiners already making record profits. Farmers lose, consumers get nothing, and oil companies rake in the cash," Ernst said.
(Reporting By Jarrett Renshaw; Editing by David Gregorio)
