The U.S. Environmental Protection Agency Tuesday proposed a new alternative-fuel standard that will likely prohibit some corn-ethanol production processes based on their greenhouse-gas emissions and encourage other advanced biofuels.

The EPA proposal walks a fine political line that attempts to placate a very large ethanol voter base, especially in the Midwest where corn for ethanol is an economic staple, and carves out a pathway to biofuels that emit fewer greenhouse gases over the production life-cycle.

The proposed rule, required under the Energy Independence and Security Act to set a standard for greenhouse-gas reductions compared to conventional gasoline, outlines two different emission scenarios for a range of biofuels and production methods. One scenario largely favors the ethanol industry, and the other would prohibit all but one corn-ethanol production process, but would accelerate alternatives such as cellusic ethanols.

EPA Administrator Lisa Jackson said investors "can look towards the future and realize that we are moving toward next-generation fuel stocks, but you can also make the current generation...energy and greenhouse-gas competitive as well."

By not favoring one scenario over another, analysts say the EPA has bought the administration time for a special inter-agency panel to triage the issue with the ethanol industry and an influential environmental base, as well as opening the door for more heavy lobbying efforts. The panel will review and make recommendations on the proposed scenarios.

"They're leaving their options open and booting the fundamental question: Is corn-based ethanol good for global warming?" said Frank O'Donnell, president of the environmental advocacy group Clean Air Watch. "Any reasonable analysis would say it's not."

Although existing corn-ethanol facilities will be grandfathered in, accounting for the majority of the early renewable-fuel mandate schedule to be met, the EPA has proposed a rule that would prohibit some corn-ethanol production processes such as the "dry gas mill" and "coal dry mill" methods.

But by restricting some ethanol-production processes, it provides a greater market incentive for advanced biofuel technologies such as sugarcane and corn-stover ethanols.

Of the 36 billion gallons of renewable fuels that Congress ordered to be blended into the fuel supply by 2022, 21 billion gallons of the total must be advanced biofuels. In the early years up to 2015, up to 15 billion can be met through corn ethanol.

To qualify as an advanced biofuel, each type must have greenhouse-gas emissions that are at least 50% lower than the emissions associated with ordinary gasoline. New biofuel plants must produce fuels with emissions that are at least 20% lower.

The corn-based ethanol industry was concerned about how the EPA would consider the entire production process, including the use of fossil-fuel-based tractors to cultivate and harvest crops, the use of energy-intensive fertilizer, the energy used to distill ethanol, the loss of emissions from the soil and land-use changes. Pastures and rainforests tend to absorb relatively high levels of greenhouse gases.

Businesses such as ethanol maker POET LLC, Archer Daniel Midlands Co. (ADM) and seed-corn seller DuPont Co. (DD) have been complaining that regulators may be improperly focusing on the worst-case scenarios. They have said that some models that deal with the effects of land conversion are flawed and that forecasters have failed to account for idled cropland or look at the chances of making more productive use of existing land.

The Renewable Fuels Association, which largely represents the corn-ethanol industry, said it would be pressing the EPA against using the scenarios that take into account the entire life-cycle. RFA President Bob Dineen said there was too much uncertainty about how the EPA made the indirect land-use calculations and questioned the validity of the data the government used in those calculations.

"The science of market-mediated, secondary impacts is very young and needs more reliance on verifiable data, and less reliance on unproven assumptions. Done correctly, such an analysis will demonstrate a significant carbon benefit is achieved through the use of ethanol from all sources," Dineen said. The RFA calculates that, not including indirect impacts, all the ethanol processes would meet both scenarios.

But Dineen said he believes EPA will be willing to make changes once it better understands how to calculate indirect land use.

Advanced biofuel companies such as Verenium Corp. (VRNM) and Blue Fire Ethanol Fuels Inc. (BFRE), whose fuels have much lower greenhouse-gas emission profiles compared to corn ethanol, will likely get a boost from the proposal, especially if the more stringent scenario is used.

To help encourage the ethanol industry, which has hit a major slump as both demand and financing has hit the sector hard in the recession, U.S. Agriculture Secretary Tom Vilsack said his agency would be accelerating credit programs for restructuring some firms in dire need. U.S. Energy Secretary Steven Chu also said his agency would be moving ahead with nearly $800 million in stimulus funding for the sector.

On The Web: http://http://www.epa.gov/otaq/renewablefuels/index.htm#regulations

-By Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com;

(Siobhan Hughes and Bill Tomson contributed to this report.)