The Bush administration will not exempt California from a rule requiring that gasoline contain clean-burning additives such as corn-based ethanol. The decision has far-reaching consequences for the oil industry and Midwestern farmers.

The Environmental Protection Agency concluded the requirement was vital to clean-air efforts in the largest state, and was expected to issue the decision as early as Tuesday, three administration officials said Saturday.

Bush gave strong hints about the decision during a trip Friday to Iowa, his third to the state since taking office.

"I still strongly believe that ethanol is important, not only to reduce dependency upon foreign sources of energy, but also as a source and a way to clean the air," said Bush, who was spending the weekend at his Texas ranch.

The request came from Democratic Gov. Gray Davis of California. Bush, who lost the state in the presidential election, also has rejected Davis' request for federal price caps to ease California's power crisis.

Davis spokesman Roger Salazar said he could not comment directly on the decision because the governor had not been notified of it officially. But he said rejection of the waiver request could increase the cost of producing gasoline with enthanol and drive pump prices up. "In the short term, oxygenates do nothing to improve air quality," Salazar added.

Two years ago, Davis banned the use of MTBE, which adds oxygen to help fuel burn more cleanly but has tainted water supplies. He ordered that the additive be phased out after 2002. That would leave gasoline refiners to meet the federal requirement with the other widely available oxygenate, ethanol.

Davis asked the Clinton administration to waive the federal oxygenate requirement entirely, arguing that California no longer needed an additive because refiners had other ways to make gasoline blends cheaper and cleaner.

Rep. Henry Waxman, D-Calif., who chaired a House subcommittee that helped draft the Clean Air Act in 1990, said Saturday he was stunned by the decision since requiring an oxygenate in the fuel could harm consumers and the environment.

"It really is an unbelievable decision. It's incomprehensible to me, because if the waiver had been granted it wouldn't have any environmental consequences because the Clean Air (Act) requirements would still have to be met," he said.

"President Bush's actions can lead to higher prices for gasoline and possible shortages in California," he said. "At some point, the president is going to have to decide whether he's president for the entire country or just for those states that voted for him."

Chevron already makes such a gasoline blend but cannot sell it in the 70 percent of California that falls under the oxygenate rule because of air pollution.

California officials also argued that the current requirement could raise gas pump prices as much as a nickel a gallon, once MTBE was phased out.

But the EPA, after consultations with the White House, rejected Davis's plea, concluding the environmental benefits of the oxygenate rule were too important, said an administration official, speaking on condition of anonymity.

Davis's fuel waiver request had languished until now, complicated by political factors and the change of administrations.

Bush is assiduously courting Iowa, a major supplier of corn, looking ahead to the 2002 congressional elections and to his own potential re-election contest in 2004. He lost the state to Democrat Al Gore by fewer than 5,000 votes last November.

Farm groups and their ethanol-producing partners have lobbied intensely against the waiver, reminding administration officials that corn-producing states in the Midwest were generally behind Bush in the election.

One of the biggest ethanol producers, Archer Daniels Midland, contributed more than $500,000 to Republicans during the past two years, including $100,000 to Bush's inauguration.

The stakes are immense for corn-producing states: An estimated 580 million gallons of ethanol a year will be needed to supply California alone under the oxygenate rule.

Sen. Charles Grassley, R-Iowa, is among those who has been seeking a decision from Bush.

In an interview aboard Air Force One on Friday, Grassley said Bush had told him recently: "I don't know how I'm going to do it, or when I'm going to do it, but I think you'll like what we're going to say."

Petroleum companies, also historical allies of Bush, a Texas oil man himself, have pushed for the waiver. They contended the oxygenate requirement has contributed to difficulties that come with making "boutique" fuels for different regions, adding to supply and distribution problems.

In its national energy strategy issued last month, the administration echoed that call for a simplification of the patchwork of fuel requirements around the nation.

If California, with the country's toughest air pollution requirements, were exempted from having to use an oxygenate in gas, other states, led by a group in the Northeast, almost certainly would have sought similar help.

Because of concern about MTBE water contamination, 11 states have banned the additive, although most of the prohibitions will be phased in.

Environmentalists said the administration was preventing California from deciding for itself how best to protect the public health and clean air and drinking water supplies.

"Granting the waiver would help consumers and help air quality, yet the Bush administration seems to be making a decision based on the MTBE manufacturers and the oil industry," Alys Campaigne, legislative director for the Natural Resources Defense Council, said Saturday. "It's imposing an unnecessary federal mandate which seems out of keeping with Bush's tendency to give states a prominent role in decision-making."