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UPDATE 1-Biofuel credits drop in wake of refiner settlement - traders

(New throughout, updates prices and market activity, adds
background on PES)

NEW YORK, March 13 (Reuters) - Renewable fuel credits for
2018 slipped on Tuesday after the U.S. Environmental Protection
Agency granted a bankrupt Philadelphia refiner significant
relief from its biofuel obligations.

Prices for renewable fuel (D6) credits for 2018 traded at 35
cents on Tuesday morning, traders said, down from 38.5 cents on
Monday and roughly 40 percent lower than just two weeks ago.

The EPA and the Carlyle Group-backed Philadelphia Energy
Solutions refinery agreed on Monday that the refiner would have
to satisfy only roughly half of its $350 million worth of
outstanding compliance obligations under the U.S. Renewable Fuel
Standard. The RFS requires refiners to blend biofuels like
ethanol into their fuel or buy credits from those that do.

The settlement, which must be approved by a federal judge
and faces a public comment period, says PES does not have to go
into market and buy some 250 million compliance credits covering
2016, 2017 and portions of 2018. That has raised concerns among
biofuels producers that other independent refiners may also seek

The EPA has also signaled that it is willing to exempt a
larger number of small refineries from the program, limiting the
number of potential buyers and putting even more credits into
the market.

PES, which lacks blending facilities, entered into
bankruptcy owing 467 million credits from 2016 and 2017, with
only 210 million credits in hand, the filing showed.

The EPA said PES could comply with the program by turning
over its available credits and would be excused from any
shortfall, a huge win for the refiner. It said the deal would
cover the company up until the point it exits bankruptcy.
(Reporting By Jarrett Renshaw
Editing by Chizu Nomiyama)

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