By Jeff Mason
WASHINGTON (Reuters) - U.S. President Donald Trump said on Thursday his administration may allow the sale of gasoline containing 15 percent ethanol year-round, which could help farmers by firing up corn demand but faces opposition from Big Oil.
The proposal marks the latest move by the Trump administration to navigate the rival oil and corn constituencies as they clash over the nation's biofuels policy. Oil refiners say the Renewable Fuel Standard requiring them to add biofuels into gasoline is costly and displaces petroleum, while the farm sector says the law provides critical support to growers.
The Environmental Protection Agency currently bans the higher ethanol blend, called E15, during summer because of concerns it contributes to smog on hot days - a worry biofuels advocates say is unfounded.
Gasoline typically contains just 10 percent ethanol.
"We're going to be going probably, probably to 15 and we're going to be going to a 12-month period," Trump told reporters during a White House meeting. "We're going to work out something during the transition period, which is not easy, very complicated."
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Earlier on Thursday, EPA spokeswoman Liz Bowman said the agency "has been assessing the legal validity of granting an E15 waiver since last summer" and is awaiting an outcome from discussions with the White House, the Department of Agriculture and Congress before making any final decisions.
Monte Shaw, executive director of the Iowa Renewable Fuels Association, said the proposed shift to year-round E15 sales would be "very exciting news."
"It would be a great morale boost for rural America, and more importantly a real demand boost if it can be moved forward quickly," he said in an interview.
Under the RFS, the EPA sets the volume of ethanol and other biofuels that must be mixed into the nation's fuel supply on a yearly basis - and a move to expand E15 sales could encourage the EPA to set those volumes higher in coming years.
Currently, refiners are required to blend around 15 billion gallons of ethanol into the nation's fuel annually.
Shares of major biofuels producers rose slightly after the announcement. Archer Daniels Midland Co shares gained 2.7 percent to close at $45.30.
It was unclear, however, whether the move would help the refining sector - which has been lobbying hard instead for a cap on the price of blending credits that refiners must acquire to prove compliance with the RFS.
Greater blending of ethanol through year-round E15 sales would theoretically increase supplies of the tradable credits, and thus reduce prices. But at the same time, more ethanol translates to a smaller share of petroleum-based fuel in American gas tanks, which would hurt refiner sales.
The American Petroleum Institute, which represents big oil companies, issued a statement opposing Trump's proposal to expand E15 sales, arguing that high-ethanol fuel can damage engines and is incompatible with certain boats, motorcycles and lawn mowers.
"The industry plans to consider all options to prevent such a waiver. The RFS is broken and we continue to believe the best solution is comprehensive legislation," API Downstream Group Director Frank Macchiarola said in the statement.
Refiners' shares were mixed after Trump's comments, with Andeavor closing down 2.6 percent at $110.13 and Valero Energy Corp up 0.2 percent at $100.53.
Bids for benchmark D6 blending credits slipped to 34 cents on Thursday afternoon, after deals were struck at 37.5 cents ahead of the announcement, a U.S. trader said.
(Additional reporting by Chris Prentice, Jarrett Renshaw and Jessica Resnick-Ault in New York; Writing by Richard Valdmanis; Editing by Steve Orlofsky and Matthew Lewis)
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