By Jarrett Renshaw and Chris Prentice

NEW YORK (Reuters) – The Trump administration is considering allowing the sale of a higher ethanol fuel blend in the summer, a source familiar with the issue said, a move that would placate corn growers worried about the future of U.S. biofuels policy.

President Donald Trump recently met with the heads of the Environmental Protection Agency and the U.S. Department of Agriculture to discuss ways to make the Renewable Fuel Standard less expensive to the oil industry without undercutting demand for ethanol.

The RFS requires refiners to add increasing volumes of biofuels like corn-based ethanol into the nation’s fuel supply each year. That is a boon to farmers but a headache for refining companies, which must either blend the fuels themselves or purchase credits from those who do.

Over the past several months, Trump has unsuccessfully tried to broker a deal between “Big Oil” and “Big Corn” over the issue, and has faced mounting pressure from lawmakers in the Midwest, who are concerned that he will weaken domestic demand for ethanol at a time farmers are potentially facing a trade war with China that could hurt export demand for corn and soybeans.

Sources had told Reuters this week that Trump was temporarily suspending his consideration of a refining industry-backed proposal to cap prices for blending credits, an idea that the biofuels industry has opposed as damaging to farmers.

But in the meantime, the administration is considering moving forward with plans to allow for the ethanol industry’s long sought waiver to sell gasoline containing 15 percent ethanol in the summer, instead of the usual 10 percent blend, the source familiar with the issue told Reuters on Wednesday.

The higher ethanol blend, called E15, is currently banned by the Environmental Protection Agency because of concerns it contributes to smog on hot days, a worry that biofuels advocates say is baseless.

“EPA has been assessing the legal validity of granting an E15 waiver since last summer,” said EPA spokeswoman Liz Bowman in an emailed statement, noting the agency is awaiting an outcome from discussions with the White House, the USDA and Congress before making any final decisions or preparing regulatory actions.

White House spokeswoman Kelly Love did not comment on the E15 waiver but said that during Trump’s meeting Monday he “instructed his cabinet to continue to explore options that protect American farmers and America’s refinery workers.”

Biofuels proponents have heaped pressure on the White House after reports that the EPA was granting dozens of small refineries exemptions from the RFS to help them avoid the costs of compliance, something the ethanol industry says will weaken demand for their product.

On Monday, Trump acknowledged farmers may bear the brunt of the economic harm if China retaliates against Washington’s threat of tariffs, adding that “we’ll make it up to them.” Many U.S. farmers are battling debt after years of excess global supplies and depressed prices.

“We need some good news out here,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association.

“The best news (Trump) could give us right now is year-round sales of E15,” he said.

(Reporting by Chris Prentice and Jarrett Renshaw; Editing by Steve Orlofsky)