Barack Obama on Friday backed away from the notion of corn ethanol representing a cure for climate change, as he proposed to cut the amount of ethanol that is blended into the US gasoline supply.

The Environmental Protection Agency said it would for the first time seek to lower quotas for ethanol that have diverted close to 40% of America's corn crop from the global food chain and into the country's gas tanks. The EPA said it would seek to reduce the quotas under the Renewable Fuel Standard, from 16.55bn gallons this year to 15.21bn gallons in 2014. The proposal would peg the ethanol mandate to around 10% of the country's fuel supply.

The quota reduction will apply to all biofuels, including advanced biofuels which do not rely on food stocks but are made from plants like switch grass or corn stalks. It will also affect imports of Brazilian ethanol, which is made from sugarcane.

Officials said the president remains committed to ethanol. “Biofuels are a key part of the Obama administration's 'all of the above' energy strategy, helping to reduce our dependence on foreign oil, cut carbon pollution and create jobs,” Gina McCarthy, the EPA administrator, said in a statement.

McCarthy said the EPA would continue to work to increase biofuel production and use.

But the move was widely seen as recognition that America's gasoline supply has hit a “blend wall”, and cannot absorb ever-increasing amounts of ethanol.

America's gasoline consumption has fallen as more fuel-efficient and hybrid cars come on to the market. But the absolute numbers of the ethanol quotas kept rising. Motorists were also leery of higher blends of ethanol, such as the 15% and 85% blends on offer. There is also now less concern about developing alternatives to oil, given the boom in America's domestic oil production.

The hoped-for development of next generation biofuels, which do not use food stocks, has failed to materialise, and the oil industry has been fighting for some time to reduce the biofuels quota. Corn ethanol has also lost support from environmentalists, in light of a growing body of evidence that it offers little or no benefit in terms of reducing greenhouse gas emissions and that producing fuel from food was driving up global food prices.

On Friday, both sides of the debate offered support for the administration's decision.

The main oil industry lobby group has been pushing Obama to scrap all of the biofuels quotas, but it said this was a step in the right direction.

“For the first time EPA has acknowledged that the blend wall is a dangerous reality,” Jack Gerard, the president of the American Petroleum Institute, told reporters. “While the agency took a step in the right direction, more must be done to ensure more Americans have a choice of fuels they want.”

The Renewable Fuels Association, which represents ethanol producers, accused Obama of surrendering to the oil industry. “EPA is proposing to place the nation’s renewable energy policy in the hands of the oil companies,” said the RFA president Bob Dinneen.