In a letter sent today to Growth Energy - a bio fuels industry association that had asked EPA to grant a waiver that would allow for the use of up to 15 percent of ethanol in gasoline - the agency said that while not all tests have been completed, the results of two tests indicate that engines in newer cars likely can handle an ethanol blend higher than the current 10-percent limit.

The agency will decide whether to raise the blending limit when more testing data is available. EPA also announced that it has begun the process to craft the labeling requirements that will be necessary if the blending limit is raised.

In March 2009, Growth Energy requested a waiver to allow for the use of up to 15 percent ethanol in gasoline, an increase of five percent points.

EPA and the Department of Energy also undertook a number of studies to determine whether cars could handle higher ethanol blends. Testing has been proceeding as quickly as possible given the available testing facilities.

Despite the EPA decision, many industry observers believe the regulatory body is on track to grant the request to raise the allowable percentage of ethanol in automotive fuels.

The Environmental Protection Agency said Tuesday that cars built since 2001 will 'likely' be able to burn fuel blends of up to 15 percent ethanol. The current allowed level of ethanol in regular gasoline for all cars is 10 percent.

If government tests on burning high blends in cars 'remain supportive' the EPA could approve by the middle of 2010 a requirement for gasoline containing up to 15 percent ethanol -- known in the industry as E15 -- for cars built since 2001.

'It sounds like an implicit promise to go to E15,' said analyst Mark McMinimy, at the consulting firm Washington Research Group.

Ethanol was once widely touted as a green fuel, but the industry is now under criticism for diverting a third of the U.S. corn crop away from the food supply. Critics say this will worsen food shortages, raise prices and hurt the poor.

Under the Clean Air Act, EPA was required to respond to the waiver request by December 1, 2009. EPA has been evaluating the group’s request and has received a broad range of public comments as part of the administrative rulemaking process.