NEW YORK (Reuters) -The Trump administration's push to discourage the use of foreign feedstocks in domestic biodiesel could lead to higher energy prices for U.S. consumers and restricted domestic production, according to some refining and biofuel trade groups.

The warning reflects ongoing friction between President Donald Trump's Environmental Protection Agency and the administration's traditional allies in the energy and agriculture industries over biofuels policy.

Trump has promised to slash consumer energy costs, but is also trying to advance his America First agenda to support domestic production through trade protectionism - which can often make costs go up instead. 

At issue is a proposal from the EPA in June that would for the first time allocate only half as many tradable renewable fuel credits to biodiesel that is either imported or made with foreign feedstocks.

Under the Renewable Fuel Standard, refiners must blend large volumes of biofuels into the U.S. fuel supply or purchase the credits, called RINs, from those that do.     

While meant to help domestic farmers and producers, the new proposal - set to be finalized this autumn - would place unprecedented demand on domestic raw materials needed to make biodiesel like soybean oil, used cooking oil, and animal fat, in a market that currently must look abroad to meet its needs.

Meanwhile, restricting the number of RINs that can be generated through such imports will raise credit prices, with a potential spillover impact on diesel and home heating oil, according to the industry groups. 

"This credit restriction ... will jeopardize the economic viability of renewable fuel production assets and raise overall compliance costs for all obligated parties, which ultimately harms U.S. consumers," Chet Thompson, head of the American Fuel and Petrochemical Manufacturers group representing refiners, said in a July 25 letter to top Republican lawmakers. 

The Advanced Biofuels Association also said the policy could mean ramped up consumer costs, by putting a $250 per metric ton premium on domestic versus imported feedstocks, according to a study it commissioned.

"Economic analysis shows this would impose significant costs on U.S. biorefineries, raise fuel prices for millions of Americans, and benefit only a narrow set of stakeholders," ABFA President Michael McAdams said in a statement.

The White House and EPA declined to comment directly on the price concerns, saying the administration is still seeking public comment on the proposal until August 8.

Others in the biofuel industry backed the proposal.

"American farmers need all the demand they can get. We should be developing our capacity here, rather than relying on imported used cooking oil from China, or giving Brazilian feedstocks preferential treatment at the expense of U.S. producers and their farm partners," said Emily Skor, CEO of Growth Energy.

However, U.S. companies such as ADM, Bunge and Cargill that have global assets and process U.S. soy, as well as foreign companies with significant U.S. operations, will likely see negative effects. That includes Australia's Nufarm ( NUFMF ), which contracts with farmers in South America to grow new oilseed crops.

UNCERTAIN NUMBERS

The biofuel industry had not been seeking the import shift in EPA's June proposal, according to multiple renewable fuel lobbyists and company officials. 

The White House has since held several meetings with industry officials to hear about potential unintended consequences of the changes, according to multiple sources. 

The EPA's proposal in June was meant to set out biofuel blending mandates for the next two years. 

It included a quota of 7.12 billion biomass-based diesel RINs for 2026 - a measurement of the number of tradable credits generated by blending the fuel - and projected that mandate would lead to the blending of 5.61 billion gallons.

The biofuels industry and the American Petroleum Institute, an oil trade group, had banded together to lobby the administration to set biomass-based diesel mandates to at least 5.25 billion gallons. The mandate was just 3.35 billion gallons in 2025.

Still, there are scenarios in the EPA's accounting that could lead to a lower volume outcome.

If all the biodiesel and renewable diesel used in the U.S. next year came from domestic feedstocks, for example, the RIN mandate would yield just 4.45 billion gallons, according to several industry analyses reviewed by Reuters. 

Ditching the penalty on imported feedstocks could help raise that number, according to the analyses.

"That probably aligns with what the administration was trying to do in terms of supporting the agricultural side and farmers," said one industry analyst, who asked to remain anonymous to speak candidly.