In a bid to foster US energy independence and reduce harmful carbon emissions, Congress in 2007 passed the Renewable Fuel Standard which requires refiners to blend renewable fuels such as ethanol into gasoline. Each year, the amount of renewable fuel blended into gasoline is supposed to step up with an eye towards eventually weaning the country off a growing volume of oil.

Currently, almost all gasoline sold in the US is “E10,” meaning that it is up to 10 percent ethanol.

Under the 2007 mandate, refiners are required to blend 18.15 billion gallons of ethanol into the nation’s gasoline supply next year. But thanks to the lingering effects of the recession, Americans are driving less, even as the growing number of fuel efficient vehicles applies downward pressure on annual US gasoline demand.

As a result, if refiners met the renewable mandate for 2014, the blend mixture would approach 15 percent ethanol—a level known as the blend wall. At that concentration, auto makers say that older vehicles and those that don’t include “Flex Fuel” technology would likely be damaged because ethanol burns hotter than regular gasoline and could have a corrosive effect on the engines.

So for the first time in the history of the government’s efforts to include more renewable fuel in the nation’s fuel mix, the Environmental Protection Agency (EPA) has proposed reducing the amount of ethanol to be blended into gasoline in 2014. In what would be a 6 percent reduction, the EPA has proposed setting the requirement at between 15 billion and 15.52 billion gallons.

That will bring a sigh of relief for many opponents to the ethanol mandate, such as oil companies. They have opposed the renewable fuel mandate because it results in higher costs to the industry.

In addition to purchasing the ethanol itself, refiners must also purchase credits to show how much ethanol they have used. When an ethanol maker produces a gallon, it receives a credit for that much ethanol. Those credits are then purchased by refineries to show how much ethanol they have blended into the fuel. If a refinery doesn’t have sufficient credits, it faces hefty fines.

The cost of those credits has skyrocketed from just 1.5 cents in mid-2013 to as high as $1.43 earlier this year, as ethanol producers and refiners alike worry that it would be difficult to meet next year’s target.

A number of refiners were contemplating selling their distillates on the export market due to those higher costs, a move that would ultimately push gasoline prices higher. That forced the administration’s hand, prompting it to propose cutting the renewable mandate level.

That would be a double-edged sword, though, because it could reduce farm incomes even as it reduces refiners’ blending costs.

Even as grain demand has steadily grown in recent years, a little more than a third of America’s annual corn crop is used in ethanol production. That has essentially created a floor under the price of corn, boosting farm incomes and prompting greater investment in fertilizer and agricultural equipment. If the government backs off its renewable mandate, growth in an important source of corn demand will slow and dent farm incomes in the next few years.

Agrium (NYSE:AGU) and PowerShares DB Agriculture (NYSE: DBA) have hit a wall since the announcement was made last week, struggling to gain traction while the markets digest the news.

Agrium operates a chain of more than 1,200 farm centers, selling everything from fertilizers to irrigation equipment and tractors. Reduced corn demand, one of the largest crops in the United States, would likely result in lower realized selling prices for farmers and reduce their spending.

Similarly, falling corn prices would ultimately impact PowerShares DB Agriculture, which allocates about 12.5 percent of its assets to corn contracts.

That said, reduced ethanol demand is probably just a short-term blimp in terms of corn prices.

Thanks a number of secular trends, global corn and grain demand will continue to grow. In emerging markets such as China and India, increased protein consumption is driving demand for corn as feed. Population growth around the world and a declining amount of arable land is also pressuring supplies of corn for human consumption. So any corn not sold into the US domestic ethanol market can easily be sold into the export markets, taking up slack in demand.

And because of a growing number of adverse weather events around the world, annual global corn production has become increasingly unpredictable, helping to boost global market prices.

Agrium and PowerShares DB Agricultural remain buys up to 100 and 30, respectively.