WASHINGTON—The Environmental Protection Agency proposed Friday to ease annual requirements for ethanol in gasoline, a contentious regulatory step required by a 2007 law that the Obama administration has struggled to enforce in recent years.

Refineries are required by that law to blend an increasingly large amount of biofuels into the U.S. gasoline supply each year. With delays in issuing quotas for 2014 and 2015, the EPA, which administers the mandate, proposed an unprecedented set of three years' worth of ethanol quotas, all of which were far lower than what the law requires.

The agency says that two primary obstacles—the constraints on the gasoline market being able to absorb more biofuels, and the lower-than-anticipated development of biofuels made from non-corn products like plant waste—restrict its ability to set quotas at the levels Congress envisioned. The agency is citing its waiver authority under the law to do this, a move it made in its 2013 proposal. Most of the mandate is currently met by corn ethanol, which is a more established industry than biofuels made from other products.

The agency is nearly two years late in setting the quotas for 2014 and has set the levels to be blended that year at 15.93 billion total gallons, close to what was produced last year and slightly higher than what it had set in an earlier proposal in November 2013. Biofuels represent about 10% of total gasoline consumption in the U.S.

For 2015, the EPA proposes to increase that number to 16.3 billion gallons, about four billion less than what the law requires. The EPA is proposing a level of 17.4 billion gallons for 2016, compared with the statute level of 22.25 billion gallons.

Write to Amy Harder at amy.harder@wsj.com

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