NEW YORK (Reuters) - An upcoming U.S. government funding bill is expected to include a plan that would allow year-round sales of gasoline with a higher ethanol blend, a major win for the corn and ethanol lobbies, according to two sources familiar with the matter.

The inclusion would mark a hard-fought victory for the ethanol industry, which has wanted year-round E15 sales as a way to boost demand for its products.

The plan would also provide credits to some refiners that prove compliance with the U.S. Renewable Fuel Standard (RFS), which mandates that refiners blend billions of gallons of biofuels into the nation's fuel mix or buy credits from those that do, the sources said.

Those credits would be given to small refiners who had petitioned the U.S. Environmental Protection Agency, which administers the RFS, for an exemption from the mandates during compliance years 2016-2018 but either had been denied or had an outstanding petition as of Dec. 1, 2022, one of the sources said.

The language in the provision follows a bill sponsored by U.S. Senator Deb Fischer from Nebraska, the third biggest corn-producing state, the same source said.

Currently, sales of E15 are effectively blocked from June to September. Adding ethanol to gasoline is known to increase smog pollution in hot weather, but research has shown little difference between E15 and the more-widely available E10 blends.

The provision would likely nullify a controversial decision by the U.S. government in February to approve a request from Midwestern governors to allow year-round E15 sales only in their states, starting in 2025.

Some oil refiners had argued that allowing E15 in select states as opposed to nationwide could prompt localized fuel price spikes and supply issues.