Motorists are being warned they could pay up to 8¢ a litre more for petrol – or as much as $1.4 billion extra at the pump – if the state government proceeds with measures to boost the amount of ethanol sold in NSW.

Small retailers says they will be forced to introduce the price hike over three years to recoup the cost of upgrades if their current exemption from having to sell ethanol-blended fuel is scrapped without compensation of up to $326 million.

"The ethanol mandate in NSW led to less choice and higher spending," the report found. Credit:Fairfax Media

In NSW, major retailers must try to ensure ethanol accounts for 6 per cent of all petrol sold, via the E10 blend. Retailers with fewer than 20 sites are exempt.

But ethanol accounts for only about 2.7 per cent of all petrol sold in NSW.