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UPDATE 1-Trump lifts curbs on E15 gasoline, delivering on promise to U.S. farmers

Humeyra Pamuk and Jarrett Renshaw

farmers@ (Recasts with announcement)

WASHINGTON, May 31 (Reuters) - The Trump administration on Friday lifted restrictions on the sale of higher ethanol blends of gasoline, keeping a campaign promise to farmers suffering from the trade war with China but inviting a legal challenge from the oil industry.

The announcement allows gasoline stations to sell blends containing up to 15 percent corn-based ethanol, called E15, year-round, ending a summertime ban that President Barack Obama's Environmental Protection Agency imposed in 2011 to reduce smog pollution.

The action is a win for the U.S. farm lobby, which has argued that the Obama-era restrictions on E15 hurt growers by limiting demand for corn-based fuel, without providing tangible air quality benefits. Recent research has concluded there is little difference in smog risk between E15 and E10.

"We estimate this one change will generate over a billion new gallons of ethanol demand in the next five years," said Emily Skor, chief executive of biofuel trade group Growth Energy, adding it could also boost the market for American grain by some 2 billion bushels over time.

The decision marks a setback for the oil industry, which views biofuels as competition for its petroleum-based fuels and has threatened to sue.

The American Petroleum Institute, which represents the U.S. oil industry, has repeatedly said the administration lacks the authority to unilaterally lift the ban on E15 and that such a move should require an act of Congress.

U.S. President Donald Trump has struggled to please both Big Oil and Big Agriculture, two critical constituencies in his reelection effort that have frequently clashed over biofuels.

In a concession to the oil industry, the EPA also unveiled a plan to reduce market speculation for biofuel blending credits that some refiners must buy to comply with U.S. biofuels regulations - an effort to reduce their costs.

But the agency's plan omitted several elements that the oil industry had been seeking. (Reporting by Humeyra Pamuk; Editing by David Gregorio and Steve Orlofsky)