President Barack Obama's administration will face a big test on fighting climate change when it seeks to determine if ethanol, the top U.S. alternative motor fuel, cuts greenhouse gas emissions.

The Environmental Protection Agency is expected to release a draft rule as early as this week that measures carbon dioxide emissions from biofuels like ethanol and biodiesel after the White House's Office of Management and Budget finished its review last week.

The rule, known as the updated Renewable Fuels Standard, or RFS-2, will measure direct biofuel emissions -- those given off from production of the fuels and their burning in engines.

It is also expected to measure indirect land use change emissions which include any global warming pollution given off when U.S. production of crops like corn for biofuels displaces other crops, pushing farmers around the world to burn down forests to grow them.

If the rule gives poor marks to corn ethanol for indirect emissions, it will be hotly contested by the industry and powerful politicians across the agricultural hub of the Midwest. Already 12 U.S. Senators, both Democrats and Republicans, have written EPA Administrator Lisa Jackson saying that erroneous indirect land use assumptions could hinder biofuels development.

Despite recent setbacks due to high corn prices and the credit crunch, U.S. capacity to make ethanol from grains like corn jumped 60 percent last year. The growth was pushed by the 2007 Renewable Fuels Standard that set mandates for annual increases in the amount of biofuels to be blended into gasoline through 2022 in a Bush administration effort to begin to wean the country off foreign oil.

Critics of indirect emissions measurements says the science has not been adequately developed.

And Matt Hartwig, a spokesman for the ethanol industry group the Renewable Fuels Association, said the indirect emissions of gasoline should also be measured, especially because production of some of the remaining sources of oil, like the Canadian tar sands, can emit more carbon than conventional sources of petroleum.

After the EPA issues the draft rule it will have a period for public comments before the agency issues final rules. Environmentalists and many scientists, on the other hand, say the EPA rule will open up a public discussion that will eventually result in the best way to measure indirect emissions and control them.

To ignore it is going to really tilt the playing field in a direction that is going to send the industry off in a direction that will have to be reversed later and will be counterproductive, Jeremy Martin, a senior scientist at the Union of Concerned Scientists' clean vehicles program said by telephone.

He said the EPA could help steer the industry away from grain-based fuels to cellulosic ethanol. That industry holds promise to make ethanol out of non-food crops like agricultural waste and fast growing trees and grasses. Production of cellulosic has so far been slow and the industry risks failing to meet the federal mandate to 100 million gallons of fuel into gasoline by the end of next year.

(Editing by Christian Wiessner)