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U.S. regulators cut annual requirements for how much ethanol must be mixed into the nation's fuel supply. But the reductions were smaller than originally proposed, softening the blow to ethanol companies and their Farm Belt supporters.

The Environmental Protection Agency on Monday said fuel companies will have to blend 18.11 billion gallons of corn-based ethanol and other biofuels into gasoline next year, up from the 17.4 billion it proposed in May, but well below targets laid out in a 2007 law. The EPA also eased rules retroactively for 2014 and 2015.

Ethanol-company shares jumped Monday because the EPA's reductions were less severe than investors had feared. Shares of Green Plains Inc., one of the biggest U.S. ethanol processors, rose 5%, while shares of smaller Pacific Ethanol Inc. surged 21%. Stock in Archer Daniels Midland Co., the biggest U.S. ethanol producer by capacity, edged up 0.1%, shedding earlier losses after the EPA numbers were released.

The agency moved to ease the annual biofuels-blending requirements because of market constraints and other challenges that it said have kept it from meeting the goals of a federal law first passed a decade ago.

The renewable-fuel standard, first established by Congress as part of a 2005 energy law and significantly expanded in 2007, was designed to help reduce carbon emissions and wean the U.S. off foreign oil.

But today the U.S. imports much less oil than it did in the mid-2000s, thanks to a domestic oil-production boom and higher fuel-economy standards. Americans also are consuming less gasoline than the 2005 and 2007 laws envisioned. Energy-industry groups have been harshly critical of the law and the government's implementation of it, saying the standard burdens companies and raises fuel prices for consumers.

The law includes a "waiver" provision, which the EPA used to issue lower amounts than what the law requires, based on multiple factors, including what the agency described as a lack of infrastructure to blend biofuels into gasoline.

The EPA on Monday retroactively set the total amount of ethanol to be blended in 2014 at 16.28 billion gallons, roughly what was actually produced. For 2015, EPA set the total level at 16.93 billion gallons, close to the estimated production for this year.

Reaction in the U.S. Farm Belt was mixed. Some leaders in the ethanol and corn industries applauded the upward revisions to the EPA's earlier proposal, but expressed disappointment that the requirements are below those laid out in 2007. For 2016, for example, the statute level was 22.25 billion gallons.

"The EPA volumes announced today are a move in the right direction," said Jeff Broin, chief executive of South Dakota-based Poet LLC, a large ethanol producer. "However, these numbers fall well short of our capability to provide clean, domestic ethanol to America's drivers."

Bob Stallman, president of the American Farm Bureau Federation, a trade group for farmers, said it was disappointed to see the EPA "move forward with a decision that will stall growth and progress in renewable fuels."

The Illinois Corn Growers Association, which represents farmers in the nation's No. 2 corn-producing state after Iowa, said the EPA's move amounted to a victory for the oil industry and a blow to farmers. The agency's action comes at a time when net farm income in the state already is expected to decline 68% from its high in 2013, because of depressed crop prices.

The American Fuel & Petrochemical Manufacturers, an industry group that represents refiners, applauded the EPA for reducing blending requirements. But it accused the EPA of bowing to pressure from the biofuels lobby in making its final decision and said it believes the RFS program is dysfunctional and should be repealed.

"Today's rule is further proof that the RFS program is irreparably broken and that the only solution is for Congress to repeal it outright," said AFPM President Chet Thompson. "The simple truth is that 10 years after promulgation of the program, the advanced biofuels industry still has not delivered on its promise of commercially viable fuels, and only the corn ethanol and biodiesel industries benefit from the RFS."

Biofuels have represented about 10% of total gasoline consumption in the U.S. since 2011, with nearly all of that coming from corn-based ethanol.

The EPA faced a court-ordered deadline to issue the 2014 and 2015 levels by Monday.

The overall quotas for 2016 go slightly beyond what the oil industry has coined the "blend wall"—when the amount of ethanol mandated by EPA exceeds the amount that can be realistically blended into the gasoline supply.

That limit is pegged by the industry at about 10%. It stems from factors such as resistance from refineries that would rather blend their own product of crude oil and car makers' reluctance to issue warranties for cars that can take more than 10% ethanol blended into gasoline because of concerns about damage to engines.

"Over time more and more renewable fuels are available to consumers and that means more available than what people refer to as the blend wall," said Janet McCabe, the acting assistant administrator for EPA's Office of Air and Radiation, on a conference call with reporters.

Alison Sider

Write to Amy Harder at amy.harder@wsj.com and Jesse Newman at jesse.newman@wsj.com

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(END) Dow Jones Newswires

November 30, 2015 20:15 ET (01:15 GMT)

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