The proposal comes in response to a request from the governors of corn-producing Midwestern states including Iowa, Nebraska and Illinois, that the agency lifts an effective ban on E15, or fuel containing 15% ethanol, to lower pump prices and help farmers.
The EPA's proposal would take effect in the summer of 2024, a year later than the governors had requested.
The EPA enforces summertime regulations preventing E15 sales because of concerns it contributes to smog in hot weather. Research has shown, however, that E15 may not increase smog more than E10, which is sold year-round and contains 10% ethanol.
Proponents of the EPA's proposal say that increased E15 supply would lower pump prices by expanding the volume of available fuel, and help farmers in the meantime.
However, critics of the idea - including those in the refining industry - have voiced concerns that a piecemeal approach to augmenting E15 sales could lead to distribution challenges.
Both the biofuel and oil industries have said they would prefer a nationwide policy allowing E15.
The EPA will hold a public hearing for the proposed rule in late March or early April 2023, it said.
The American Petroleum Institute, an oil group, said major changes to the fuel infrastructure system will be needed to accomplish the governors' request, because high ethanol fuel grades require different equipment.
The API expects an additional one or two years beyond 2024 will be needed to minimize impacts to consumers, said Will Hupman, API's vice president of downstream policy.
The oil refining industry has traditionally balked at efforts to expand the ethanol market because it competes with gasoline at the pump and can be costly to blend.
The American Fuel and Petrochemical Manufacturers, an oil trade group, said late on Tuesday that implementing a new fuel blend in select states in 2024 would create issues, including leaving the Midwest region with tighter fuel supplies during the peak summer driving season.
"Not every refinery, pipeline and terminal serving the Midwest has the ability to seamlessly produce, transport and store a new blend of gasoline, and it could take years to permit and complete infrastructure projects to resolve this," said Patrick Kelly, AFPM's senior director of fuels and vehicle policy.
The rule could cost the Midwest's fuel supply chain and consumers up to US$800 million per year, Kelly added.
The biofuel industry gave a mixed response to the announcement.
The Renewable Fuels Association said it was glad to see the EPA taking action, but disappointed that it was a year later than the governors had requested.
"By law, EPA should have finalized approval of the governors' petition more than seven months ago, which would have given the marketplace more than enough time to adjust and prepare for implementation this summer," said Geoff Cooper, the RFA's chief executive.
Members of the biofuel industry say E15 saves consumers money. Drivers saved an average of 16 cents per gallon this past summer because of E15, said Growth Energy Chief Executive Emily Skor.
US President Joe Biden lifted the ban last summer to try to lower historically-high gasoline prices.
Some in the oil industry are so opposed to a piecemeal approach to E15, that in November they supported for the first time a bill to expand nationwide sales of E15.
The legislation was introduced by Senator Deb Fischer from Nebraska and Senator Amy Klobuchar from Minnesota and supported by the American Petroleum Institute.
Both oil and biofuel groups this week reiterated that a nationwide, legislative fix would be the best solution.
"A legislative approach that addresses the needs of all stakeholders would provide a more durable and less disruptive solution than creating requirements for costly new fuel blends," AFPM's Kelly said.
