In a blow to the U.S. biofuels industry, the EPA has cut the mandated amount of cellulosic biofuel that must be blended in the nation’s fuel supply to 810,185 gallons. That figure is down from the six million gallon mandate issued by the agency just last fall.

The announcement is a victory for oil interests, which have fought against the mandate -- designed to help establish the fledgling biofuel refining sector -- for years. A major point of contention is the fact that oil refiners are required to pay for biofuel “credits” even if the fuel is unavailable. Those credits can cost the refiners millions of dollars.

Read more about the federal biofuel regulatory set-up.

In a second punch to the gut, a government report recently found that cellulosic ethanol is actually more environmentally unfriendly than gasoline. Biofuel backers strongly rejected the study’s conclusion that, in the short-term, ethanol has a larger carbon dioxide footprint.

On April 8, a Senate Agriculture Committee hearing tackled the expected EPA action. “We’ve heard for years that advanced biofuels are just around the corner,” said Michigan. Sen. Debbie Stabenow, chairwoman of the committee. “Well, we’re here. We’re at the point where it’s actually happening. American companies are creating jobs and growing rural economies while producing advanced biofuels, which ultimately help us become more energy independent and lower our gas prices at the pumps.”

A study by Iowa State University backs Stebanow’s contentions saying ethanol use reduced the cost of gas by 89 cents across the country, and by as much as $1.37 in the Midwest.

“These are enormous savings for American families,” continued Stabenow. “In the U.S., we consumed about 138 billion gallons of gasoline in 2010. That comes out to about 446 gallons per person, or 892 gallons for a family of four. That family would have saved $794 in 2010 because of biofuels. According to USDA figures, that $794 comes out to be the cost of two to five weeks’ worth of groceries.”