In what would be a pretty historical retreat, leaked draft documents last week revealed that the Environmental Protection Agency might actually considering reducing their ethanol-blending requirements for the country’s refiners through the Renewable Fuel Standard as the industry has grown increasingly vocal about the inherent problems of hitting the “blend wall.” The news spread like wildfire through markets and the concerned industries/lobbies, and the EPA was careful on Friday to assure everyone that they have yet to come to a final decision on the matter, via 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.

I seriously doubt that the call for everyone to calm the heck down, however, will do any good. As I said, the afflicted lobbies and companies went berserk when the news dropped, and Big Ethanol is already readying their defenses to fight for what they are very well aware is their government-sponsored market share.

“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 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. …

“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.

Oh, you are most definitely competing head-to-head with Big Oil — but the difference is, consumers voluntarily want to buy and use their product while Big Ethanol’s only competitive advantage comes from a top-down federal mandate.

The alarm bells have already started ringing all across corn country:

Ethanol advocates want to solve the problem by placing greater emphasis on the 85 percent ethanol products used by flex-fuel vehicles and on the 15 percent ethanol blends approved by the EPA last year for vehicles no older than the 2001 model year.

Todd Sneller of the Nebraska Ethanol Board said the circumstances behind EPA deliberations were no surprise.

“When the law was passed, it was clear that we would have to go beyond 10 percent (blends),” Sneller said Friday.

He and others in ethanol ranks see a potential mandate rollback from 13.8 billion gallons to 13 billion gallons of corn-based product as the wrong response for several reasons.

Among the negative effects on the ethanol industry and the agricultural economy would be “backing off a federal law that provides clear and consistent signals to investors and farmers.”

Yes, I have no doubt that farmers would prefer “clear and consistent” economic signals — which is precisely why scrapping this particularly insidious piece of politically-subjected central planning, and instead allowing the agribusiness industry to operate based on unmanipulated free-market signals like the everyone else, is such a splendid idea.