By Siobhan Hughes    Of DOW JONES NEWSWIRES   WASHINGTON (Dow Jones)–The U.S. Environmental Protection Agency on Wednesday gave high marks to Brazilian ethanol and cellulosic ethanol, setting a new direction for the industry as it issued standards for the amount and kinds of biofuels that may be added to the nation’s motor-fuel supply.   The EPA said that some 12.95 billion gallons of biofuels will have to be added this year, as required by law. Some 6.5 million gallons must come from cellulosic ethanol. And 1.15 billion gallons must come from biomass-based diesel over the two years through 2010.   The decision reaches every aspect of the biofuels industry, determining winners and losers from among a host of crops and production processes.Currently, corn-based ethanol is the predominant biofuel, but a 2007 law limitsthe amount of biofuel that may be derived from corn starch. The EPA must write rules to steer the nation into new types of biofuels.   The winners included sugarcane-based ethanol and cellulosic ethanol, which the EPA said were cleaner than traditional gasoline and would qualify as the sort of advanced biofuels that the 2007 law mandates. The EPA also indicated some corn-based ethanol plants may be considered clean, provided that they operate using “new efficient technologies.” That will affect the  construction of new corn-based ethanol plants, which must generate fuel with 20% less greenhouse-gas emissions than gasoline.   The mandate to use 1.15 billion gallons of biodiesel in 2010 could inject new life into the ailing industry. U.S. biodiesel producers were crippled by the lack of implementation of legislative requirements to produce more biodiesel; by the end of 2009, the industry was operating at 15% of its capacity. Total industry capacity–mostly built during the pre-recession rushto produce renewable fuels–is about 2.7 billion gallons a year.   Imperium Renewables Chief Executive John Plaza said that the rules were “the best news we’ve had in a long, long time.”   “We’ve had a rough couple of years as an industry, now we’re back into the light as being a solution to the nation,” he said in a phone interview. Seattle-based Imperium owns one of the largest biodiesel facilities in the country.   The oil industry cemented its status as out of favor with the Obama administration. The new EPA guidelines did not increase the statutory requirement for the amount of ethanol to be used this year. But in the long term, the push for increased biofuel usage threatens the profitability of the already struggling U.S. refining industry, as vegetable-based fuels replace traditional fossil gasoline and diesel. Some refiners, like Valero Energy Corp.(VLO), Sunoco Inc. (SUN)  and Murphy Oil Corp. (MUR) have bought ethanol plants in order to meet blending requirements.   By law, the U.S. must use 36 billion gallons of biofuels a year by 2022,with 21 billion of those gallons in the form of “advanced biofuels.” As part ofan effort to decide which biofuels to promote and which ones to disqualify, the EPA had to set a standard for measuring greenhouse-gas emissions from biofuels.The result was a score card that gave various types of biofuels grades for cleanliness.   The EPA said ethanol from sugarcane–common in Brazil–produces at least 50%less greenhouse-gas emissions than gasoline, the threshold for qualifying as an advanced biofuel. In a boost to algae, the EPA said diesel from algal oils also qualifies as an advanced biofuel and could be used to satisfy biodiesel mandates. Cellulosic ethanol, which is derived from the non-edible part of crops, produces greenhouse-gas emissions that are more than 60% cleaner than gasoline, the agency said.   Verenium Corp. (VRNM) Chief Financial Officer Jamie Levine said that the biggest boost for the cellulosic industry may have come from the EPA’s decision to set a price for the amount of money that blenders would have to pay forcredits in the event that they couldn’t buy cellulosic ethanol. The price appears to be high enough to support demand for cellulosic and encourage investors, he said, though he is still studying the details. Cellulosic ethanol currently isn’t broadly available on a commercial basis.    The EPA picked winners and losers after taking another look at the effects around the world of relying more on biofuels. Environmentalists have warned about the ripple effects as pastures are cleared to make room for biofuels crops. In a worst-case scenario, forests must be cleared in order to create new pastures, leading to deforestation that harms the environment because old-growth forests absorb high levels of carbon dioxide. The ethanol industry has said those claims are overstated.   EPA Administrator Lisa Jackson sided with ethanol makers on that score,telling reporters such indirect effects “were different and lesser than we thought.” She said the EPA’s earlier analyses had focused too little on productivity gains on existing farmland. She also said the EPA had decided to look at effects in 160 countries, up from 40 in its original analysis.   “I don’t agree that we changed the science to fit any outcome,” Jackson said.   Soybean-based biodiesel companies were among the beneficiaries of the review, after the EPA said that soybean-based diesel counted as an advanced biofuel. The biodiesel industry had earlier feared the worst when EPA officials said they would include “indirect land use” considerations in their calculations of greenhouse gas reduction.   But corn-based ethanol companies expressed concern that the EPA had gone too far. “EPA still relied on the disproven theory when all of the data shows that ethanol production continues to improve and isn’t requiring new land,” Jeff Broin, the CEO of ethanol producer POET LLC, said in a statement.   Environmentalists calibrated their reaction. Jonathan Lewis, an attorney with the Clean Air Task Force, said the EPA’s analysis “refutes the common misconception that biofuels are uniformly beneficial by showing that corn ethanol can be even worse for the environment than gasoline.” But he also said the EPA “appears to have bent over backward to allow some highly problematic biofuels to meet the environmental criteria set by Congress.”