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UPDATE 1-U.S. agency finds smaller oil refiners pay more for biofuel blending credits -document

(Adds detail, background)

By Stephanie Kelly

NEW YORK, Nov 2 (Reuters) - Smaller oil refiners pay more for credits to comply with U.S. biofuel blending requirements compared with larger refiners, according to a government report seen by Reuters.

The report refers to a decision from the Biden administration's Environmental Protection Agency (EPA) that denied smaller refiners exemptions to the blending obligations.

Under the U.S. Renewable Fuel Standard, refiners must blend billions of gallons of biofuels into the nation's fuel mix, or buy tradeable credits, known as RINs, from those that do.

The EPA can exempt smaller refiners from the requirements if the refiners prove the obligations cause them financial harm.

The EPA in 2022, however, denied all pending petitions for 2019 through 2021. The EPA said it had concluded small refineries recover the cost of RINs in the price of the gasoline and diesel they sell, known as RIN pass-through.

"EPA's conclusion that there is RIN pass-through relied on two assumptions that the agency has not fully assessed," said a report from the U.S. Government Accountability Office seen by Reuters and dated Nov. 3.

From 2013 to 2021, companies that tended to trade lower quantities of RINs, often smaller refiners, were either paying more to buy RINs or receiving less when selling RINs, relative to larger companies, the report said.

Though the report said the difference was statistically significant, it added that it was unclear the extent to which it affected individual small refiners.

For exemption petitions, the EPA is required to consult with the Department of Energy, which scores the petitions using an approach developed in a 2011 study. However, the GAO's report found that the methodology used by the DOE was critically flawed, saying it has not been updated to reflect industry changes.

It added: "The (DOE's) study collected information to assess various metrics related to economic hardship facing small refineries but did not similarly assess a control group of larger refineries. Without a control group, it is impossible to know whether small refineries are experiencing disproportionate hardship." (Reporting by Stephanie Kelly; Editing by Muralikumar Anantharaman and Gerry Doyle)

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