UPDATE 2-USDA chief backs ethanol blend boost in gasoline

Mon Mar 9, 2009 2:45pm EDT

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(Adds quote from ethanol group in paragraph 11)

By Christopher Doering

WASHINGTON, March 9 (Reuters) - An increase in the ethanol-gasoline blend rate to 12 or 13 percent could be accomplished quickly and with minimal scientific review, giving a needed boost to the future of the industry, U.S. Agriculture Secretary Tom Vilsack said on Monday.

A formal request to boost the ethanol blend rate to as high as 15 percent from the current cap of 10 percent was submitted to the U.S. Environmental Protection Agency last week by Growth Energy, an ethanol trade group. The EPA has 270 days to review, collect public comment and make a decision.

"We'd love to see 15 percent. Right now my focus is on 12, 13 percent because I think it is doable more quickly," Vilsack told reporters.

"Our hope is that EPA can come to the same conclusion we have, which is that this is something that can be done within existing regulations without a great deal of time spent reviewing the science," he added.

During the review, the EPA will examine whether a higher blend would harm emission control systems, including catalytic converters, in vehicles. For now, many believe the EPA has the authority to allow a temporary jump to 12 or 13 percent before a final decision is reached on the 15 percent request.

Vilsack said he has had several conversations with EPA head Lisa Jackson and her team to encourage the agency "to take aggressive action on the blend rate." An increase to 12 or 13 percent would be a good "first step" and would help expand market opportunities and improve the stability of the ethanol industry, he noted.

Ethanol, once the cornerstone of the U.S. plan to wean itself from foreign energy, has drawn fire from the food industry and aid groups for diverting corn from livestock and foodmakers and pushing world food prices up.

Food manufacturers and livestock and environmental groups have lined up against a higher blend rate for ethanol made from corn. They say the EPA should wait until ethanol made from crop waste and grasses is commercially available.

Some analysts and the Renewable Fuels Association, an ethanol trade group, forecast consolidation among ethanol companies this year due to tighter margins and slow demand due to a drop in gasoline use.

The industry suffered a large casualty when VeraSun Energy Corp VSUNQ.OB, the No. 2 U.S. ethanol producer, filed for bankruptcy in October.

An increase to a 12 or 13 percent blend rate "is a fundamentally sound and scientifically supported intermediate step that would provide some more immediate relief to a constrained US ethanol market," said Matt Hartwig, a spokesman for the Washington-based Renewable Fuels Association.

Ultimately, EPA must decide whether to change the blend rate. The USDA and other federal departments can offer advice and information.

A preliminary study released last October and updated last month by the Energy Department found emissions and exhaust temperatures in cars running on higher blends of ethanol did not change significantly from those using traditional fuels.

The DOE has been working on other studies of how the blends affect engines and emissions. (Reporting by Christopher Doering; editing by Jim Marshall)

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