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NEW YORK, June 14 (Reuters) - President Donald Trump's advisers presented him with a plan last year to curtail the administration's use of small refinery waivers under the nation's biofuel law - a key demand of the powerful U.S. corn lobby, according to documents made public by the Environmental Protection Agency.
While the June 2018 plan was ultimately rejected, the fact it reached the president's desk shows that Trump's advisers believed at the time he had the ability to adjust the controversial waiver program, even as his EPA defended the expanded use of the exemptions by citing legal requirement.
Under the U.S. Renewable Fuel Standard, refiners are required to blend increasing volumes of biofuels like ethanol into their fuel each year or buy credits from those who do. But small facilities can apply for an exemption if they prove complying with the RFS would cause them financial hardship.
Since Trump took office, the administration has vastly expanded its use of the waivers, citing court rulings in 2017 that concluded that the EPA under former President Barack Obama had been too stingy with them. The EPA granted 35 exemptions for 2017, up from seven in the last year of the Obama administration, according to agency data.
The EPA has not yet announced decisions for 2018.
That shift saved the oil industry tens of millions of dollars but angered the corn lobby, which argued the expansion of the program undermines ethanol demand and was designed mainly to help the administration's allies in the energy industry. Whether the moves have resulted in decreased demand is a matter of intense debate.
Last year, corn-state senators Chuck Grassley and Joni Ernst, both Republicans from Iowa, met several times with U.S. Senator Ted Cruz, a Texas Republican, to hammer out a deal to reform the RFS in a way that worked for both sides - which they would then present to Trump.
The result was a three-point compromise that Trump's special assistant Francis Brooke delivered to the president in a June 1, 2018 decision memo, EPA records show.
The plan would have lifted the summer-time ban on sales of higher ethanol blends of gasoline called E15 to boost corn demand and tightened restrictions on the small refinery exemption program, according to the memo.
"EPA will grant future small refinery exemptions based only on true disproportionate economic hardship," according to the proposal, which added that the deal would also call for stricter deadlines for refiners applying for the waivers.
To help the oil industry, exporters of ethanol would have been able to generate blending credits, reducing prices for the credits some refiners must buy to prove compliance.
EPA spokesman Michael Abboud said on Friday that the proposal was one of many considered by the government.
"The administration has considered a wide variety of improvements to the RFS program," he said.
The deal was ultimately rejected, though the proposal on E15 has since been adopted - providing a boost to farmers.
A year earlier, Trump's EPA had loosened its approach to granting small refinery waivers by allowing facilities to secure exemptions even if their operations were "not significantly impaired" by compliance, according to court documents previously reported by Reuters.
The EPA has routinely defended the move to expand its use of exemptions by saying it was legally required.
"The courts have clearly told us we have to follow the law, and that's what we are going to do," EPA Administrator Andrew Wheeler said an April interview, referring to the 2017 court cases.
But biofuel advocates said the proposal presented to Trump was worrying because it suggested some recipients of the waivers had not proven "true" economic need.
"I think it's a clear acknowledgment from this administration that these waivers are being handed out to refineries where there is no true economic hardship," said Geoff Cooper, head of the Renewable Fuels Association, who forced the EPA to make the documents public through a legal challenge.
Reuters has previously reported that the small U.S. refineries of profitable majors like Exxon Mobil and Chevron have received the waivers.
The expansion of the hardship waiver program remains a lightning rod issue of contention between the rival oil and corn industries, and has become an unlikely talking point for a slew of Democratic candidates on the campaign trail looking to turn Midwestern farmers away from Trump. (Reporting by Jarrett Renshaw, Editing by Rosalba O'Brien)