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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Trump Sides With Farmers In Battle Against Refiners

Fuels

The Trump administration announced a major policy change in an effort to win back farm country, allowing the year-round sale of a higher concentration of ethanol.

Coinciding with a campaign stop in Iowa, President Trump announced the lifting of the ban of E15 during summer months, a significant win for the corn and ethanol industries. Up until now, E15 cannot be sold during the summer because of smog concerns. Ethanol producers saw their share prices skyrocket on the news.

The decision comes after roughly 18 months of damaging policies to the agricultural industry. Former EPA Administrator Scott Pruitt became public enemy number one for the ethanol industry last year, even as many people in agriculture-heavy states supported Trump, as Pruitt’s agency repeatedly undermined the market for ethanol.

The EPA increased the number of waivers it granted to oil refiners last year and this year, reducing their obligations to buy and blend in corn ethanol into their fuel mixes. Not only did the waivers reduce demand for ethanol, but the prices for credits that are bought and sold in lieu of blending requirements also suffered steep losses, undermining the whole market. The ethanol credits, known as renewable identification numbers (RINs), saw their prices plunge to a five-year low, down from over $1 last year to only 12 cents today.

There has been a long-term rivalry between ethanol producers and oil refiners, and the problem for Trump is that there is somewhat of a zero-sum game between them in terms of federal policy. Oil refiners are obligated to blend a certain volume of ethanol, but have repeatedly tried to undermine those requirements. The corn and ethanol industries have fought to maintain the federal blending requirements. Any movement in either direction comes at the expense of the other. Related: What’s Next For Oil Prices?

The simmering tension was more or less bottled up for many years because federal policy didn’t change much. The two industries still lobbied against each other, but the battle was confined to the specifics of the annual blending requirements, not a broader war for wholesale policy changes.

That changed when the EPA began stepping up the number of waivers it granted to refiners, which undermined the RIN market and sparked a much more contentious fight. After repeatedly siding with oil refiners, particularly when Pruitt was at the helm of the EPA, the Trump administration is now trying to patch up the rift it created with farmers.

This is an especially important political exigency since the Trump administration has also hit the Farm Belt in another arena. The trade war with China has led to Chinese tariffs on American soy, corn, wheat, cotton, rice, sorghum, beef, pork, poultry, fish, and dairy products.

China is such a huge market for American farmers, and the tariffs have led to painful declines in prices. Soybean prices have declined more than 20 percent and corn prices are down more than 10 percent since the trade war began earlier this year. Related: Goldman: The Oil Market Can Handle Iran Outages

Between the trade war and the plunging price for farmers have grown a little wary of the Trump administration.

Trump has tried to straddle both the corn and oil industries, and his top officials have tried to broker a compromise for much of the past year. Several times, they appeared on the verge of some policy reform that offered wins to both sides, but had to back down because one side or the other felt they received the short end of the stick.

The E15 announcement on Tuesday was well received in the Farm Belt, but oil refiners are not happy. The proposed reform by the Trump administration will seek to curtail hoarding of RIN credits, an attempt to mollify refiners who say speculative trading drives up the cost of compliance. However, it wasn’t enough to bring refiners on board. “The president has promised to broker a deal to reform the [Renewable Fuels Standard] that works for all stakeholders. This isn’t it,” Chet Thompson, chief executive of the American Fuel and Petrochemical Manufacturers, said in a statement.

The battle between corn and oil clearly isn’t over.

By Nick Cunningham of Oilprice.com

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  • Marc J Rauch on October 09 2018 said:
    Nic writes that Trump's decision to approve E15 year-round is "an effort to win back farm country."

    I say it's an effort to help the U.S. become energy independent.
    I say it's an effort to further reduce harmful emissions from gasoline.
    I say it's an effort to help the U.S. economy.
    I say it's an effort to hurt foreign terrorist regimes.
    I say it's an effort to cut back on the anti-alternative fuel lies spread by API, AFPM, and the entire oil industry.

    If anyone from API, AFPM, OPEC or any oil industry group would like to debate me in a live public forum to be televised over the Internet please contact me at The Auto Channel website.
  • MJ on October 09 2018 said:
    Wow, that's a really awful idea and this wasn't for the "Farmers". And it certainly wasn't for the people. Big Oil will just sell a whole lot more of diesel (the new higher priced diesel) to harvest this overpriced corn. Higher food prices and lower efficiency in cars. Win/Win for them. Lose/Lose for the American consumer-taxpayer and the environment.

    Yeah Progress!
  • Tom Blazek on October 09 2018 said:
    It is amazing to me that the Oil Industry and API somehow think they are “entitled” to a monopoly in the fuel market. They go berserk at the thought of having to compete in the marketplace with a Consumer Choice fuel like E-15, that they refuse to sell. E-15 is a cleaner fuel, with more octane, for a lower price. This is a really sad picture of what the mighty Oil Industry and API really represent. Allowing year-round access to E-15 is a Pro-Consumer, Pro-Environment, Pro-America thing to do. Maybe its time for the API and Oil Industry to stop whining, and actually become a Pro-Consumer Industry for a change. Cleaner Air and Lower Cancer rates, for my family, are far more important to me than my lawnmower or weed eater.
  • blackbag on October 10 2018 said:
    Why does US blending components require a subsidy?
  • Corvettekid on October 12 2018 said:
    Marc...maybe there is no reason for not allowing the year-round sale of the stuff, but at the same time the mandates are nothing but a forced subsidy which distorts energy policy.

    1/3rd of the corn crop is going to Ethanol.

    That is insanity.
  • More Tom on October 14 2018 said:
    The reason we have a Renewable Fuels “Mandate”, is because the Oil Industry Controls the Fuel Market, and would never allow renewable fuels into the market if they were not forced to do so, through a mandate.

    Want Proof?

    API and the Oil Industry vow to fight Year-Round “Consumer Choice” access to E-15 “with all available legal means.”

    Year-Round Access just increases E-15 availability by 3 ½ Months each year. But API is DEAD SET AGAINST IT. But E-15 Is NOT a Mandate, It’s strictly a Consumer Choice Fuel.

    So, if E-15 Is Consumer Choice, why is API fighting it? Why is the API against YOU having a choice at the pump, for a more renewable fuel? To me this is Proof Positive why the Renewable Fuels Mandate was required in the first place.

    Using the starch in 1/3 of the corn crop leaves all the corn protein in that 1/3 of the corn crop behind for animal feed. And if you care to accept it, ethanol corn actually LOWERS Feed Costs and Food Prices, because there is a lot more animal feed available, because of the corn grown for ethanol. So much so, that we ship the Distillers Grains, left over from the Ethanol Plants, all over the world! Dried Distillers Grains are a concentrated feed product with a higher value than the original corn on a volume basis.

    One Good Thing about President Trumps Year-Round E-15 Proposal is this, it smokes the Oil Industry and API out of the woods, and shows their Utter, Self-Serving, Blatant, Monopolistic, Hypocrisy. It’s there in full view, for all to see!

    If E-15 was, "a problem fuel," (as API contends), consumers would not have “chosen” to drive over 5 Billion Miles so far, using it. Do you suppose there are any repeat customers in 5 Billion Miles?

    Open your Eyes! And tell Big Oil / API we want cleaner fuels like E-15 at the pump, Year-Round, because all of us breathe, all year-round.

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