Exclusive: Tests delay U.S. ruling on ethanol blends

WASHINGTON (Reuters) - U.S. environmental regulators said testing on higher ethanol blends in motor fuels will not be finished until September, a delay ethanol groups said would hurt jobs and worsen a supply glut.

The Environmental Protection Agency told Reuters that tests on boosting the blend rate of gasoline to 15 percent ethanol, or E15, on new vehicles built after 2007 would not be completed until the end of September.

Originally the EPA said testing on E15 on cars as old as 2001 models would be finished by mid-year.

The EPA said on Thursday the Energy Department is also testing some vehicles built before 2007, while testing tanks and other fuel handling equipment for E15 gasoline. The current legal limit in gasoline burned in traditional cars is 10 percent ethanol.

"Based on DOE's schedule, EPA believes it will be able to make a final determination on whether to approve the use of higher ethanol blends this fall," the EPA told Reuters.

The ethanol industry balked at the delays.

"While initial plans to approve the use of E15 for only 2001 and newer vehicles was bad, this plan borders on shameful," said Bob Dineen, the president of the Renewable Fuels Association.

"Confusing the market as EPA seems intent upon doing likely will lead to little if any additional ethanol being sold," he added.

Agriculture Secretary Tom Vilsack said even with the delays, the United States was eventually moving toward a more robust ethanol industry.

"EPA is taking a significant step forward by discussing their timeline to expand E15 to more vehicles. This provides a roadmap to build a stronger domestic biofuels industry by creating a market to expand the use of ethanol in America," Vilsack said in a statement.

"With this green light, USDA is surging ahead on our work to provide support to feedstock producers, biofuel refiners, and infrastructure installers, such as blender pumps, to ensure that all the pieces of the ethanol supply chain are ready to supply the market demand," Vilsack said.

Growth Energy, another ethanol group, wrote a letter to President Barack Obama on Thursday saying E15 could create 136,000 new jobs.

Ethanol makers, suffering from a glut of the fuel typically made from corn in the United States, want the government to boost the blend rate as Washington mandates the industry to use increasingly higher volumes.

U.S. mandates, which aim to aid U.S. farmers while helping to reduce crude oil imports, require ethanol volumes to reach a maximum of 15 billion gallons a year by 2015 from 10.5 billion gallons this year.

A delay could hurt the rebound of the industry after a difficult year in which many of its businesses went bankrupt.

Archer Daniels Midland, which makes agricultural products including ethanol, has said it wants EPA to consider blends of E12 saying it is practically the same as E10.

With one out of three bushels of corn produced in the United States going to ethanol, U.S. farmers depend on strong ethanol markets. The U.S. Department of Agriculture said last week that corn used for ethanol would hit record highs this year and next.

Some aid groups, however, have long opposed the alternative fuel, saying that using food to make fuel drives up world prices and is hard on the world's poor.

Automakers want thorough testing of the higher blends because they fear fuel hoses and other parts of engines in older cars could be damaged by fuels that contain more than 10 percent ethanol.

The Alliance of Automobile Manufacturers has lobbied against raising the ethanol blend rate, saying it would affect vehicle emissions, performance and durability. The trade group represents 11 car and light truck manufacturers including BMW Group, Chrysler, Ford, and General Motors.

The oil refining and fuel service station industries also want the DOE to do thorough testing on the higher blends. They fear consumers would sue them if the fuels they sell are unsafe.

(Additional reporting by Charles Abbott; Editing by Sofina Mirza-Reid, Gary Hill and Balazs Koranyi)