(Recasts lead, adds information on RIN prices, adds RIN price cap legislation)
By Stephanie Kelly
March 4 (Reuters) - The U.S. Environmental Protection Agency said on Wednesday it is mulling new measures to help oil refiners cope with the cost of complying with the nation's biofuel policy, as the agency faces a sweeping legal challenge to a waiver program worth a fortune to the industry.
The EPA expects to respond soon to a court decision questioning the legitimacy of its waiver program for small refineries, that exempts them from biofuel blending requirements, EPA Administrator Andrew Wheeler said during a congressional hearing.
The announcement would hopefully "quell" the market for biofuel blending credits, called RINs, he said.
"We’re looking for other avenues to provide stability in the program and make sure we don’t have fluctuations in the RIN market," Wheeler said.
The U.S. Renewable Fuel Standard requires refineries to blend billions of gallons of biofuels such as ethanol into the country's fuel pool, or buy credits from those that do. But the EPA can waive refiners' obligations if they prove compliance would cause them financial distress.
The Trump administration has angered the biofuels industry by roughly quadrupling the number of exemptions it grants to refiners. The biofuel industry says these exemptions hurt demand for corn-based ethanol, but the oil industry disputes that and says the waiver program is crucial to protecting blue collar jobs.
In late January, the U.S. Court of Appeals for the 10th Circuit cast doubt on the program, saying the EPA must reconsider some exemptions it has given to refineries.
The court said the EPA had overstepped its authority to grant waivers in the past for HollyFrontier's Woods Cross and Cheyenne refineries and CVR Energy's Wynnewood refinery because the refineries had not received exemptions the previous year. The court said the RFS requires that any exemption granted to a refinery after 2010 must take the form of an extension.
The bulk of waivers granted to oil refineries by the EPA in recent years do not meet that standard. According to EPA data, the agency granted seven biofuel waivers in 2015. That number rose to 35 in 2017 – meaning 28 waivers were given without having been given in a previous year.
The EPA's options now include complying with the court decision only in the states covered by the 10th Circuit, complying with the ruling nationally, or appealing the court decision.
Wheeler on Wednesday said the agency was still reviewing options and consulting the Department of Justice.
Since the court ruling in January, RIN prices have ballooned, with renewable-fuel credits for 2019 climbing nearly 250%. Credits traded at 31 cents each on Wednesday, traders said, up from 9 cents each just before the decision.
A group of U.S. senators, including Oklahoma's James Inhofe, Texas's Ted Cruz and Pennsylvania's Pat Toomey, has been lobbying the administration to appeal the court ruling - or failing that, to take other moves to reduce the regulatory burden on the refining industry.
A letter from the group to Wheeler, dated Tuesday, urges that any retrenchment in the waiver program should be balanced by a reduction in blending volume requirements for 2020, and measures to stabilize RIN credit prices.
Inhofe, Cruz, Toomey and West Virginia's Shelley Moore Capito, all Republican senators, also introduced an amendment on Tuesday to a Senate energy bill that would put a cap on the price of RIN credits at 10 cents per gallon, according to the amendment. (Reporting by Stephanie Kelly; Writing by Richard Valdmanis; Editing by Howard Goller and Bernadette Baum)