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UPDATE 2-US approves E15 gasoline sales expansion in Midwest starting 2025

(Adds ethanol and oil industries comments)

By Stephanie Kelly

NEW YORK, Feb 22 (Reuters) - The U.S. government said on Thursday it approved a request from Midwestern governors allowing expanded sales of gasoline with higher blends of ethanol in their states, starting in 2025.

Reuters had exclusively reported the impending announcement earlier this week.

The government currently restricts sales of E15 gasoline, or gasoline with 15% ethanol, in summer months due to environmental concerns over smog, though the biofuel industry says those concerns are unfounded.

The corn-based ethanol industry has been fighting for years for year-round sales of E15 but was frustrated by the 2025 start date, one year later than proposed.

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In 2022, the governors of Illinois, Iowa, Minnesota, Missouri, Nebraska, Ohio, South Dakota, and Wisconsin made the request for year-round E15 sales, saying the move could help lower pump prices by boosting fuel volumes.

Some oil refiners have argued that allowing E15 in select states as opposed to nationwide could prompt localized fuel price spikes and supply issues.

The delay enables President Joe Biden's administration to put off potential price spikes stemming from the decision until after the 2024 U.S. presidential election in November. Two states the decision affects, Wisconsin and Minnesota, are battleground states in this year's contest.

Inflation and the economy are key vulnerabilities for Biden's re-election campaign.

The Environmental Protection Agency had sent a final rule on the proposal to the White House in December with an effective date of April 28, 2024. The new timeline would push the effective date to April 28, 2025.

"By extending the implementation date, this final action reduces the risk of gasoline supply issues this summer and the price impacts that could have come with 2024 implementation," an EPA official said on Thursday.

The EPA did not comment on whether it would issue a temporary waiver enabling E15 sales this summer.

"We cannot speculate about the 2024 summer driving season. We will continue to monitor the situation, consult closely with the Department of Energy, and be prepared to act should conditions warrant," the agency said.

After the news, the Renewable Fuels Association, a biofuels trade group, called on the administration to take action to ensure consumers have access to E15 this summer, and said it was disappointed over the new rule's 2025 start date.

The American Petroleum Institute, an oil industry group, meanwhile, said it supported a legislative solution that would allow year-round sales of E15 nationwide. (Reporting by Stephanie Kelly Editing by Chris Reese and David Gregorio)