Facing possible impeachment, President Trump is trying to patch up his badly damaged relationship with American farmers.
On Friday, the Trump administration announced its latest proposal that comes as a sort of apology to ethanol groups for an earlier decision to favor refineries. The EPA has exempted dozens of refineries from mandates on purchasing ethanol, decisions that have not gone down well in rural America.
Farmers have been loyal to Trump, and were one of his strongest constituencies in the 2016 election. Over the past 18 months, farmers have largely stuck by the president, despite getting repeatedly hammered by successive waves of tariffs that have all but eliminated China as an export market for soybeans, corn and other agricultural products.
Their patience has been tested, but many farmers stuck by him. That remained true even as the EPA under former administrator Scott Pruitt stepped up waivers to oil refiners, allowing them to get out of their blending requirements for federal ethanol mandates. Trump threw farmers year-round E15 in response, a move meant to offset the damage from the refinery waivers.
But in August, his EPA once again favored refiners, issuing 31 waivers to various refineries, reducing their mandatory ethanol blending requirements. That was the last straw for many farmers.
The waivers go beyond a sop to oil refiners. The market for ethanol has seen significant disruption, with the prices for renewable identification numbers (RINs) – the credits that are bought and sold in lieu of direct ethanol purchases – crashing after each round of waivers.
The on-the-ground impacts are all too real for those in the corn and ethanol industries. On September 24, an Iowa biodiesel plant shut down operations, just a month and a half after the batch of EPA waivers. A few others have also shut down. Related: How Satellites Revolutionize Oil Trading
“The Trump administration said they support ethanol. And yet they suddenly let another 500 million gallons of ethanol demand evaporate by granting these waivers,” Iowa corn grower Vic Miller told Wallaces Farmer.
The Trump administration seemed to be taken aback that farmers were so irate. In the days after the August waiver decision, Iowa politicians scrambled to lobby Trump to somehow make up for the damage, lest he lose political support from Midwestern rural areas. Farmers felt betrayed, especially as news surfaced that Trump personally approved the latest round of refinery waivers.
Two weeks later, Trump tweeted that farmers would have “a giant package” coming their way and that they should “get ready!” The administration didn’t have a plan, but scrambled to come up with one, and negotiated back and forth with biofuels groups and the oil industry.
Trump seemed to approve of a proposal from ethanol advocates that would essentially offset the ethanol demand destruction from waivers by requiring higher blending requirements in 2020. But then a few days later he met with oil industry groups who warned him that any effort to favor ethanol risked refinery profits. Several U.S. senators from oil and gas states, such as Ted Cruz (R-TX) and Pat Toomey (R-PA), told Trump that he risked the elimination of refining jobs if he favored ethanol. Trump reportedly said that trying to reach an agreement between the two sides was more difficult than negotiating a peace plan with the Taliban.
As the impeachment inquiry erupted in late September, industry groups and analysts thought that the potential ethanol package would slip off the radar. “It seems his interest has waned,” one industry source familiar with the White House deliberations told Reuters.
But with his presidency in jeopardy and approval ratings underwater, the Trump administration seemingly realized that it can ill-afford to lose any more political support. Related: It’s All Or Nothing For Oil As Trade Talks Restart
On Friday, the EPA announced a change to its biofuels mandates. The agency will continue to issue so-called “hardship” waivers to small oil refineries, and instead will make up the difference by requiring larger refineries to purchase even more ethanol. Corn and ethanol groups, as well as Iowa politicians, praised the decision.
Prices for RINs jumped by 13 percent to 26 cents. That’s the highest price since June.
But, as is the case with this issue, it is zero sum. “We are deeply concerned about the Administration’s decision to, once again, play politics with our fuel system by increasing an already onerous biofuel mandate,“ Mike Sommers, CEO of the American Petroleum Institute, and Chet Thompson, CEO of the American Fuel and Petrochemical Manufacturers, said in a joint statement. “If this arbitrary policy was conceived to help farmers, it provides no immediate relief — instead it only further distorts the fuels market. It is by no means a win-win. We will vigorously challenge this new policy in the weeks to come and continue advocating for Congress to reform the RFS.”
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“This proposal risks mass layoffs and higher gasoline and diesel prices,” Senator John Barrasso (R-WY) said.
The issue is not over. The EPA still needs to go through the formal rulemaking process, and the oil industry is expected to take legal action to stop it. “Substantial litigation is likely,” Scott Segal, a lobbyist at Bracewell LLP told Bloomberg.
By Nick Cunningham of Oilprice.com
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