The changes are aimed at easing tensions between the oil and corn industries, rivals that have been clashing for months over the future of the U.S. Renewable Fuel Standard — a law that requires refiners to add increasing amounts of biofuels into the nation's gasoline and diesel.
While the RFS has helped farmers by creating a 15 billion gallon a year market for corn-based ethanol, oil refiners have increasingly complained that complying with the law costs them a fortune and threatens the very blue-collar jobs President Donald Trump has promised to protect.
After hosting several meetings between representatives of the corn and refining industries, the administration is in the "last stages" of formally proposing changes to the biofuels law intended to appease both sides, the source said on Friday.
A White House announcement is imminent, the source said, but did not have a timetable. The changes would be subject to the federal rule-making process, added the source, who was not authorized to speak publicly.
The White House did not immediately respond to requests for comment.
The biofuels changes include cutting back on the number of waivers that the Environmental Protection Agency can provide to small refiners to free them from the regulation, and to ensure that any waived obligations are redistributed to other refiners.
The EPA is required by the RFS to provide such waivers to refineries of less than 75,000 barrels per day in capacity that can prove that complying with the RFS would cause them "disproportionate economic hardship," but the agency has broad discretion over assessing the applications.
In recent months, the EPA has granted more than two dozen such waivers in an effort to help the refining industry cope with the RFS - about triple the typical level under past administrations - angering the corn lobby, which argued the exemptions are reducing overall demand for ethanol.
Reuters has reported that the recent EPA waivers have gone to refineries belonging to companies like the large and highly-profitable Andeavor and to CVR Energy, owned by billionaire Trump ally Carl Icahn.
The source did not say by how much the waiver program would be reduced, but said that the administration was committed to ensuring that any waivers provided do not have the effect of reducing the amount of biofuels blended in a given year - something that would be accomplished by redistributing waived blending obligations to other refineries.
Republican Senator Tom Barraso, who represents Wyoming, home to several smaller refineries, said he would "oppose any agreement that would make it more difficult for small refineries to obtain hardship relief in the future."
Another change will be to allow exports of biofuels like ethanol to count toward the annual biofuels volume mandates under the RFS - which could ease the burden on domestic refiners by reducing the amounts they would have to blend domestically.
Biofuels groups have strongly opposed the idea, saying it could spark trade tensions and goes against the RFS' intent to increase domestic use of biofuels.
Counting exports toward the annual volumes mandates would be achieved by allowing such shipments to qualify for tradable government-issued biofuels credits that must be turned in to EPA each year to prove compliance with the RFS.
The Trump administration's tweaks to the RFS would also include temporarily lifting restrictions on selling a certain kind of higher-ethanol blend gasoline in the summer, called E15, according to the source.
Trump has already publicly stated his support for such a move, which has been long sought by the corn lobby because it would theoretically expand the market for biofuels.
Sales of E15 are currently banned in the summer over worries that it could increase smog - but the biofuels industry, and numerous scientific studies, show that E15 is little different from the currently approved blends in that regard.
The White House and EPA did not immediately respond to request for comment about the proposed changes to the RFS.
Reporting by Jarrett Renshaw and Chris Prentice.