By Ayesha Rascoe

WASHINGTON (Reuters) - The Environmental Protection Agency plans to announce targets for U.S. ethanol use in 2013 and 2014 this summer, an EPA official told lawmakers on Wednesday, even as critics of the program warned of a brewing fuel crisis.

The United States is nearing the point where the law will require use of more ethanol than can be physically blended into the fuel supply at the most prevalent level of 10 percent ethanol per gallon.

"When Congress wrote this law, Congress anticipated that the market would solve this problem," Christopher Grundler, the EPA's director of the office of transportation and air quality, told lawmakers at a House oversight committee hearing.

"Clearly, it has not been resolved," he said.

Grundler said EPA, which has the authority to lower ethanol use targets or waive them completely, will determine the best way to address the issue of the so-called "blend wall" and will release the targets by the end of summer.

Oil refiners and ethanol producers are waiting the EPA's decision on the targets and Wednesday's hearing took place as the fight over the Renewable Fuel Standard intensified.

The RFS requires rising volumes of biofuels to be blended into U.S. gasoline and diesel supplies. Oil companies warn that the mandate could lead to fuel shortages and raise energy prices for consumers.

Lawmakers have been divided mostly along regional lines on the biofuel mandate. Those from corn-growing states - the majority of U.S. ethanol is produced from corn - support renewable fuel targets, while lawmakers from major oil and gas producing or livestock producing states have urged repeal or reform of the program.

Ethanol producers have blamed the volatility of ethanol credit markets, known as RINS, on opposition to allowing ethanol blends higher than 10 percent at the gasoline pump.


Republicans on the panel pressed the EPA to use its authority waive the fuel targets, which they said were already raising food and fuel costs.

"Why in the heck haven't you done what the law says you can do?" said Congressman Jim Jordan, a Republican from Ohio. "This is as obvious and plain as can be. You have the ability to help every single family in this country and you won't do it."

The agency said it expects that refiners will still be able to meet this year's targets using RINS purchased from renewable fuel producers in 2013 or credits carried over from 2012.

But Grundler said 2014 could be more challenging.

Under guidelines subject to finalization, the biofuels mandate is set to rise next year to 18.15 billion gallons from 16.55 billion gallons in 2013. Of the total, 16 billion gallons or more may need to come from conventional corn ethanol.

The amount of unused 2013 biofuel credits left over for use next year will be "critical" in determining how refiners comply with the mandate in 2014, Grundler said.

Biofuel producers slammed the House hearing for shunning witnesses from the renewable fuel industry. Among those testifying were officials from the American Petroleum Institute and the National Turkey Federation.

"Today's hearing provided Congress with only one perspective: Big Oil's," said Fuels America, a coalition of organizations backing the biofuel mandate. "The oil industry does not deserve yet another platform to blame the renewable fuel industry for a bogus blend wall they themselves created."

The EPA has authorized the use of gasoline blends with up to 15 percent ethanol content for cars built since the 2001 model year, or about two-thirds of vehicles still on the road.

Refiners say the higher blend could damage older vehicles, and gasoline station operators and oil refiners have voiced concerns they could be held liable if engines are damaged.

(Reporting by Ayesha Rascoe; editing by Ros Krasny, Andrew Hay and Leslie Gevirtz)