* Debate over ethanol content in U.S. gasoline heats up
* EPA, responding to reported proposal, says nothing final
* Documents show EPA suggests surprise cut-back in 2014 blend
* Ethanol group criticizes leak of 'unverified' document
WASHINGTON/NEW YORK, Oct 11 (Reuters) - The Environmental Protection Agency on Friday sought to calm a furor over its apparent proposal to reduce ethanol use in gasoline next year, saying that no final decisions had been made about the contentious mandate.
On Thursday, Reuters and other news outlets reported on EPA documents that showed the agency proposing an unexpected drop in the amount of corn-based ethanol that would be required for blending next year, a historic retreat from the 2007 biofuel law and a major victory for the oil industry.
"At this point, EPA is only developing a draft proposal," EPA Administrator Gina McCarthy said in a statement in the agency's first public response to the reports.
She said the Obama administration remained "firmly committed" to developing biofuels as a part of the plan to reduce U.S. dependence on imported oil.
Coming after months of an intensifying lobbying and political battle between oil refiners and ethanol groups, the reports were met with immediate skepticism from many in the biofuel industry, some questioning the documents' authenticity.
Growth Energy, a leading ethanol group, called for U.S. agencies to investigate the leak of what it called "unverified 'draft' documents" that were still under review, a process stalled by the government shutdown.
The EPA statement made no specific mention of the draft documents, but acknowledged some of the challenges in increasing use of biofuel. Under the reported proposal, the EPA appears to back the oil industry argument that it is not feasible to inject more than 10 percent ethanol into gasoline at the moment due to concerns over engine damage and liability.
"No decisions will be made on the final standards without a full opportunity for all stakeholders to comment on the EPA's proposed 2014 renewable fuel standards and be heard on how to best foster a growing biofuels industry that takes into account infrastructure- and market-related factors," McCarthy said.
The EPA documents seen by Reuters could not be independently verified. They were dated Aug. 26 and Sept. 6, around the same time that the agency submitted its proposal to the White House Office of Management and Budget.
After the OMB reviews the proposal it will be sent back to the EPA, which will release it for public comment. Only after that does the EPA finalize the rule. The process has been slowed by the partial government shutdown.
The EPA proposal would reduce the overall renewable fuel requirements for 2014 to 15.21 billion gallons, far less than the 18.15 billion-gallon 2014 target established by law.
That would reduce the volume of corn-based ethanol to about 800 million gallons less than this year's 13.8 billion gallons, a much larger cut than many industry observers had been expecting. The law had required 14.4 billion gallons for 2014.
"Because of the dramatic economic impact on commodity markets there should be an immediate investigation by the Justice Department, and the Commodity Futures Trading Commission to determine if this was an attempt to manipulate markets such as corn futures, ethanol futures and/or RINS markets," Tom Buis, CEO of Growth Energy, said in a release.
The Department of Justice could not be reached for comment, and DOJ representatives are less available than usual because of the partial government shutdown. In general, the Department of Justice does not confirm investigations that have yet to be confirmed by the targets. The CFTC has said it is unlikely to be able to respond to media requests during the shutdown.
The ethanol group's strong response illustrates the highly charged nature of the debate between two industries fighting over the future of the U.S. fuel supply.
Ethanol groups fear any wavering on use of corn-based ethanol could undermine their future. Oil refiners say the law is forcing them to spend billions of dollars to buy ethanol credits, driving up gasoline prices.
"I believe we are competing head-to-head with Big Oil," Todd Becker, chief executive officer of No. 4 U.S. ethanol company Green Plains Renewable Energy Inc, told Reuters.
The oil industry argues that it cannot sell gasoline with more than 10 percent ethanol, and so is unable to blend more biofuel. Corn-ethanol producers argue that they should be able to sell gasoline that is 15 percent biofuel, the maximum allowed by the EPA for newer model cars.
"In our opinion, they are going to be very defensive to give up any gas tank share - they are going to defend their share at all costs," Becker said.
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