WASHINGTON, Aug 22 (Reuters) - The U.S. Environmental

Protection Agency on Friday approved most of its backlog of

requests by small oil refineries for biofuel law exemptions,

raising concerns among biofuels advocates over a potential hit

to demand.

The approvals are also a mixed blessing for the cohort of

small U.S. refiners who have argued for years they are hurt

financially by the federal mandate to blend biofuels like

ethanol into the country's fuel supply. Many of their requests

have now become so old that the waivers they have secured are

worthless.

The EPA said in its announcement that it granted 63

small refiner requests in full, 77 in part, and denied just 28,

clearing nearly all of the 204 that had accumulated since 2016

amid a decade of legal and political wrangling.

The approved exemptions amounted to about 5.34 billion

RINS, the tradable compliance credits generated by blending

biofuels into the nation's fuel pool, according to data posted

to the EPA's website.

But because RINS have just a two-year lifespan, only 1.39

billion can still be used for compliance and retain any value,

according to the EPA announcement.

The American Fuel and Petrochemical Manufacturers trade

group, which represents oil refiners, did not immediately

comment on the EPA announcement.

Growth Energy, a biofuel trade group, said it was

calling on the EPA to ensure that all exempted blending

obligations are balanced out by increased obligations for other

refiners - a concept called reallocation.

"It is imperative that EPA reallocates each and every

exempt gallon in a forthcoming rule to mitigate the potentially

devastating impact on biofuel demand," said Growth Energy CEO

Emily Skor.

The EPA said it would issue a proposal soon on how to

reallocate the exempted volumes.

The supplemental rule is expected late next week, sources

familiar with the planning told Reuters.

The EPA did not comment on timing.

Renewable fuel credits tied to ethanol blending jumped above

$1.16 each in afternoon trade following the announcement, up

from about $1.07 on Thursday.

Under the Renewable Fuel Standard, U.S. refiners must

blend billions of gallons of biofuels such as ethanol into the

nation's fuel or buy RINS generated by those that do - a policy

designed to help farmers and increase the U.S. energy supply.

Small refiners, however, can ask for waivers if they can

prove the obligation would cause them financial hardship.

There are now just 13 pending waiver requests, according

to the EPA data.