* Debate over ethanol content in U.S. gasoline heats up
* EPA, responding to reported proposal, says nothing final
* Documents show EPA suggests surprise cut-back in 2014blend
* Ethanol group criticizes leak of 'unverified' document
WASHINGTON/NEW YORK, Oct 11 (Reuters) - The EnvironmentalProtection Agency on Friday sought to calm a furor over itsapparent proposal to reduce ethanol use in gasoline next year,saying that no final decisions had been made about thecontentious mandate.
On Thursday, Reuters and other news outlets reported on EPAdocuments that showed the agency proposing an unexpected drop inthe amount of corn-based ethanol that would be required forblending next year, a historic retreat from the 2007 biofuel lawand a major victory for the oil industry.
"At this point, EPA is only developing a draft proposal,"EPA Administrator Gina McCarthy said in a statement in theagency's first public response to the reports.
She said the Obama administration remained "firmlycommitted" to developing biofuels as a part of the plan toreduce U.S. dependence on imported oil.
Coming after months of an intensifying lobbying andpolitical battle between oil refiners and ethanol groups, thereports were met with immediate skepticism from many in thebiofuel industry, some questioning the documents' authenticity.
Growth Energy, a leading ethanol group, called for U.S.agencies to investigate the leak of what it called "unverified'draft' documents" that were still under review, a processstalled by the government shutdown.
The EPA statement made no specific mention of the draftdocuments, but acknowledged some of the challenges in increasinguse of biofuel. Under the reported proposal, the EPA appears toback the oil industry argument that it is not feasible to injectmore than 10 percent ethanol into gasoline at the moment due toconcerns over engine damage and liability.
"No decisions will be made on the final standards without afull opportunity for all stakeholders to comment on the EPA'sproposed 2014 renewable fuel standards and be heard on how tobest foster a growing biofuels industry that takes into accountinfrastructure- and market-related factors," McCarthy said.
The EPA documents seen by Reuters could not be independentlyverified. They were dated Aug. 26 and Sept. 6, around the sametime that the agency submitted its proposal to the White HouseOffice of Management and Budget.
After the OMB reviews the proposal it will be sent back tothe EPA, which will release it for public comment. Only afterthat does the EPA finalize the rule. The process has been slowedby the partial government shutdown.
The EPA proposal would reduce the overall renewable fuelrequirements for 2014 to 15.21 billion gallons, far less thanthe 18.15 billion-gallon 2014 target established by law.
That would reduce the volume of corn-based ethanol to about800 million gallons less than this year's 13.8 billion gallons,a much larger cut than many industry observers had beenexpecting. The law had required 14.4 billion gallons for 2014.
"Because of the dramatic economic impact on commoditymarkets there should be an immediate investigation by theJustice Department, and the Commodity Futures Trading Commissionto determine if this was an attempt to manipulate markets suchas corn futures, ethanol futures and/or RINS markets," Tom Buis,CEO of Growth Energy, said in a release.
The Department of Justice could not be reached for comment,and DOJ representatives are less available than usual because ofthe partial government shutdown. In general, the Department ofJustice does not confirm investigations that have yet to beconfirmed by the targets. The CFTC has said it is unlikely to beable to respond to media requests during the shutdown.
The ethanol group's strong response illustrates the highlycharged nature of the debate between two industries fightingover the future of the U.S. fuel supply.
Ethanol groups fear any wavering on use of corn-basedethanol could undermine their future. Oil refiners say the lawis forcing them to spend billions of dollars to buy ethanolcredits, driving up gasoline prices.
"I believe we are competing head-to-head with Big Oil," ToddBecker, chief executive officer of No. 4 U.S. ethanol companyGreen Plains Renewable Energy Inc, told Reuters.
The oil industry argues that it cannot sell gasoline withmore than 10 percent ethanol, and so is unable to blend morebiofuel. Corn-ethanol producers argue that they should be ableto sell gasoline that is 15 percent biofuel, the maximum allowedby the EPA for newer model cars.
"In our opinion, they are going to be very defensive to giveup any gas tank share - they are going to defend their share atall costs," Becker said.
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