WASHINGTON—The Environmental Protection Agency on Friday proposed for the first time to ease an annual requirement for ethanol in gasoline, saying that levels mandated in a 2007 law are difficult, if not impossible, to meet.

The move represents one of the biggest setbacks to date for ethanol, long seen as a promising way for the U.S. to reduce dependence on imported oil. Most U.S. ethanol comes from corn, and the move came despite a heavy lobbying push from corn-producing states.

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