* Icahn was regulatory adviser to Trump until August 2017
* Republican Senator Grassley criticizes EPA chief Pruitt (Adds comments by from Senator Grassley, paragraph 5, the Small Refiners Coalition, paragraph 3)
By Jarrett Renshaw and Chris Prentice
NEW YORK, April 30 (Reuters) - The U.S. Environmental Protection Agency has granted a financial hardship waiver to an oil refinery owned by billionaire Carl Icahn, a former adviser to President Donald Trump, exempting the Oklahoma facility from requirements under a federal biofuels law, according to two industry sources briefed on the matter.
The waiver enables Icahn's CVR Energy Inc to avoid tens of millions of dollars in costs related to the U.S. Renewable Fuel Standard (RFS) program. The regulation is meant to cut air pollution, reduce petroleum imports and support corn farmers by requiring refiners to mix billions of gallons of biofuels into the nation's gasoline and diesel each year.
The Small Refiners Coalition, which represents companies that operate small refining facilities, said the EPA is required by law to help small refineries struggling with these regulations and that such exemptions are crucial to their financial well-being. It applauded EPA Administrator Scott Pruitt for protecting small refineries, regardless of ownership, from the RFS requirements.
But the exemption for CVR's Wynnewood, Oklahoma plant prompted criticism from a corn state lawmaker and the powerful corn lobby, which has already accused Trump's EPA of overusing the hardship waiver program in a way that hurts demand for ethanol.
"Hundreds of millions - and in some cases billions - of dollars in profits isn't my definition of 'hardship,'" Iowa Republican Senator Chuck Grassley said in statement condemning the CVR waiver. "President Trump promised to support home-grown biofuels, and Administrator Pruitt is breaking that promise."
"This one's going to be hard for Pruitt to explain," Brooke Coleman, head of the Advanced Biofuels Business Council industry group, said in an email.
EPA spokeswoman Liz Bowman said that the agency does not comment on specific refineries. "But, what I can tell you is that the criteria used to grant waivers has not changed since previous administrations," Bowman added.
CVR spokeswoman Brandee Stephens declined to comment regarding the waiver. Efforts to reach Icahn and his attorney for comment were not successful.
An early supporter of Trump's 2016 presidential run and a key supporter on Wall Street, Icahn had met with Pruitt when Pruitt was being vetted in late 2016 for the EPA administrator job, according to news reports at the time.
Icahn stepped down from his position as special regulatory adviser to the Republican president last August after lawmakers cited potential ethical problems in his dual role as an adviser and an investor.
Icahn is currently under investigation by the U.S. Justice Department for his role in influencing biofuels policy while serving as Trump's adviser. Some U.S. lawmakers have expressed concern that Icahn may have used his presidential access to benefit his investments, a charge Icahn has rejected.
The EPA has said it has granted more than two dozen waivers for 2017 but has declined to name the recipients.
Under Trump's Democratic predecessor Barack Obama, the EPA granted about eight waivers annually.
Records show CVR had been denied on at least one occasion. The Small Refiners Coalition said the Obama administration had wrongly denied waivers to firms like CVR.
Reuters has reported that Andeavor, one of America's biggest refining companies, which reported about $1.5 billion in net profit last year, was among the other companies that have received hardship waivers from Trump's EPA for its small refineries.
To prove RFS compliance, refiners must earn or purchase tradable blending credits - awarded by the government for each blended gallon of fuel - and hand them in to the EPA yearly.
The EPA has the authority to exempt small refineries of under 75,000 barrels per day from the requirement under the hardship waiver program if they can prove that compliance would cause them "disproportionate financial hardship."
With the exemption, CVR would not have to turn over the credits related to the Wynnewood facility for 2017, according to the two sources, who spoke on condition of anonymity. The waiver was granted in recent months but the sources did not say precisely when.
The Trump administration has encouraged small refiners to apply for the hardship waivers. A surge of applications has come to the EPA since a 2017 court ruling that the agency had used too narrow a definition of "financial hardship" under Obama.
The waivers have the potential to save companies tens of millions of dollars, by allowing them to avoid blending or paying for credits on the open market and by permitting them to sell any credits they have on hand to others.
CVR has reported a $23 million profit in the biofuels credit market in the first quarter of 2018 due to what it called a lower RFS obligation, an unusual return for a refiner that has no biofuel blending facilities.
The company also said it expects its cost of complying with the RFS requirements to fall to $80 million for the entirety of 2018 from a previous estimate of $200 million, and from roughly $249 million in 2017.
(Reporting by Jarrett Renshaw and Chris Prentice; Editing by Richard Valdmanis, Will Dunham and Jonathan Oatis)
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