FILE PHOTO: Ethanol fuel is shown being pumped into a vehicle at a gas station selling alternative fuels in the town of Nevada, Iowa, December 6, 2007. REUTERS/Jason Reed/File Photo

By Jarrett Renshaw

(Reuters) -The White House is considering a plan that would require large oil refineries to cover around half or less of the biofuel blending requirements recently waived for smaller facilities, according to three sources familiar with the matter.

The proposal submitted by the Environmental Protection Agency and now under review by the White House would require large refiners to cover a range of about 50% or less of the 1.1 billion gallons of the renewable fuel exempted last month for small plants, according to the sources.

That could mean roughly 550 million gallons of lost demand, potentially increasing the supply of renewable fuel credits and putting downward pressure on their price.

The plan, if adopted, would likely frustrate biofuel producers and farm-state lawmakers who want full restoration of lost demand caused by small refinery exemptions under the Renewable Fuel Standard, the nation's biofuel law.

The RFS requires refiners to blend billions of gallons of biofuels into the country's fuel pool each year or buy credits called RINs from those who do. But it also allows smaller refiners to apply for waivers if they can show the requirements would cause them financial hardship.

The EPA in August cleared a backlog of more than 170 small refinery exemption requests dating back to 2016 — a sweeping move that required it to come up with the plan to account for waived obligations.

The EPA was only required to come up with a plan to reallocate exempted gallons dating back to 2023, however, because RINs generated for previous years have already expired.

The sources said that the review includes the years 2023 and beyond, and the percentages could be applied higher or lower in different years.

The plan remains under review and subject to change, the sources cautioned. It is expected to be released in the upcoming weeks, ahead of an October 30 deadline to finalize biofuel blending quotas for the 2026-2027 years.

"The EPA is in the process of evaluating a range of options that strike an appropriate balance between obligations, reallocation, and other factors that will deliver for farmers, consumers and American energy dominance," a White House official told Reuters.

The EPA declined to provide details of the proposal.

The biofuel industry and its legislative allies have been urging the administration to require refiners to offset 100% of those exempted gallons, while the oil industry is resisting the obligations.

The EPA's proposal is intended to be a compromise that would keep the market for RINs stable by avoiding a flood of new credits that could depress prices, while also not imposing additional burdens on refiners already facing compliance costs.

The middle ground proposal highlights the long-running clash between Big Oil and the farm lobby — two powerful constituencies that have battled for years over the future of the RFS. That divide threatens to complicate President Donald Trump’s efforts to unify Republicans ahead of a looming budget fight.

The 2023 and 2024 exempted gallons totaled some 1.4 billion credits, equaling some 1.1 billion gallons. The total number of exempted gallons will likely rise as the EPA deals with pending 2025 applications.

(Reporting by Jarrett RenshawEditing by Marguerita Choy)