In what is considered to be a blow to U.S. corn growers, the EPA today sent a letter to the Gen. Wesley Clark chaired trade association “Growth Energy” indicating that the EPA needed more time to complete tests on how an increase by 5% (from 10% ethanol to 15% ethanol) in ethanol content may damage engines and fuel lines.

The good news for Growth Energy, which formally petitioned for the increase, was that the EPA reported that two tests showed that engines in newer cars can handle the higher blend. “The announcement is a strong signal that we are preparing to move to E15,” Growth Energy said in a statement, asserting that the switch would mean 136,000 new jobs.

However, the Renewable Fuels Association saw it as a major blow to the growth of biofuels in the U.S. “The delay threatens to paralyze the continued evolution of America’s ethanol industry,” RFA president Bob Dinneen said. “Moreover, this delay will chill investment in advanced biofuel technologies at a critical time in their development and commercialization.”

As it stands, the U.S. ethanol industry benefits from a tax credit, a tariff on imported ethanol and from the nation’s Renewable Fuel Standard, which will require fuel distributors to blend 15 billion gallons of ethanol with gasoline in coming years. But the industry is fast reaching that point and will exceed 11 billion in 2009.

The E15 blend has been controversial in part because of the damage that ethanol, a corrosive, already has caused in fuel lines and other components of boat engines and some small motors.

The EPA is involved because of air pollution implications and was required under the Clean Air Act to act by today on Growth Energy’s waiver request. The federal agency said that is has been working with the Energy Department to conduct tests “as quickly as possible given the available testing facilities.”

The Environmental Working Group, a Washington-based advocacy organization, praised the EPA’s deliberate process. The group’s Craig Cox said that sound science had trumped “efforts by well-funded and politically well-connected ethanol lobby to short circuit” the testing process.