The Trump administration was on the verge of releasing a major change in U.S. biofuels policy, but a last minute political assault from corn states might have shelved the proposal indefinitely.
The proposal was an effort to water down biofuels requirements while trying to prevent a full-blown outcry from corn country. Federal law requires oil refiners to blend ethanol into their fuel supply, an obligation refiners say is costly.
For years, the policy remained unchanged, but the Trump administration cracked open the door to undermining the ethanol requirements to the enormous benefit of oil refiners. But the biofuels industries and politicians from corn states have revolted, blasting the EPA and the Trump administration for doing severe damage to their industries.
The fight picked up pace earlier this year when Philadelphia Energy Solutions declared bankruptcy, citing burdensome costs for complying with ethanol purchases. Refiners either have to buy and blend ethanol into their fuel mixes, or if they are unable to do that, they have to purchase credits known as renewable identification numbers (RINs).
The bankruptcy of such a large refiner led to calls to reform biofuels policy. In the midst of this, the EPA stepped up the number of exemptions it offered to refiners, allowing them to get out of some of their ethanol purchasing requirements. Those exemptions alone are thought to be a big reason for the declining value of RINs, as it sowed doubt about the future of the ethanol market. RIN prices have plunged to their lowest levels in five years.
Late last month, for instance, the EPA awarded tens of millions of dollars’ worth of credits to HollyFrontier and Sinclair Oil, after deciding that the refiners had been wrongly denied waivers years ago. The spike in waivers issued by the EPA under the Trump administration has outraged the biofuels industry, provoking lawsuits. Related: Goldman: OPEC Must Raise Production
Adding insult to injury for the ethanol industry, China put an extra 15 percent tariff on ethanol imports from the U.S. in response to U.S steel and aluminum tariffs.
“There was strong support for the president,” Jon Doggett, executive vice president of the National Corn Growers Association, said in a Bloomberg interview. “There continues to be strong support for the president. However, some of that support is wavering because of the trade issue and ethanol.”
After months of haggling and trying to appease both sides, the Trump administration was set to unveil what it saw as a compromise. Part of the proposal included a provision that would count biofuels exports towards the mandates for refiners, ultimately allowing them to purchase less ethanol. To appease the corn and biofuels industries, the Trump administration wanted to allow year-round sales of E15, which is currently banned during the summer.
But, at the last minute, the Trump administration appears to have pulled the plug on the entire proposal. Bloomberg reported that the White House, which was set to release the idea on Monday, delayed the announcement indefinitely.
While it had hoped to thread the needle between corn states and the oil industry, there may not be enough common ground after all. Senator Chuck Grassley, a powerful Republican from Iowa, threatened to demand the resignation of EPA administrator Scott Pruitt if the Trump administration moved forward. He said on June 5 that he thought Pruitt had “betrayed the president.” He was pessimistic that the U.S. Congress would be able to do anything about the EPA proposal because the initiative is “being very much driven by Big Oil.” Related: China Deals Shocking Blow To Solar Industry
Also, Senator Joni Ernst, also a Republican from Iowa, accused Pruitt of “breaking our President’s promise to farmers” at a conference hosted by S&P Global Platts. Pruitt "is about as swampy as you get here in Washington, D.C. And if the president wants to drain the swamp, he needs to take a look at his own Cabinet," Ernst said.
Ernst added that Pruitt had promised her last year not to count ethanol exports by refiners as part of their quota – a promise that the Trump administration was just about to break. “Administrator Pruitt put in writing he intended to uphold the congressional intent of the RFS and he has not done that,” she said. “He also put into writing that the scheme to attach [Renewable Identification Numbers] for exported ethanol would stop and that’s a lie, because now that’s exactly what he proposed.”
The verbal attack by some powerful Republicans in a crucial swing state may have scared off the Trump administration. Sen. Ernst declared victory on Tuesday on Twitter.
By Nick Cunningham of Oilprice.com
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