by Jennifer A. Dlouhy
Farm-state interests just conquered Big Oil in a fight over biofuels, proving that in Donald Trump’s Washington, King Corn still reigns.
The clash erupted over the future of the Renewable Fuel Standard, a 12-year-old law that compels the use of fuels such as corn-based ethanol and soy-based biodiesel. Although the president had repeatedly promised Midwest voters he would "protect" ethanol and support the program, his Environmental Protection Agency was considering steps to dilute the mandate.
Farm-state governors and senators revolted -- setting off a behind-the-scenes struggle between two special-interest heavyweights. Lobbyists for oil refiners warned of higher gasoline prices if the administration backed down. Iowa leaders countered that Trump could face political retribution in 2020 during the state’s first-in-the-nation caucuses. Republican senators threatened to delay confirmation of the president’s nominees.
"I wasn’t afraid to put the squeeze on," Senator Joni Ernst, an Iowa Republican, said in an interview. "This was really important. We’ve got 88,500 family farms here in Iowa, and they rely on this."
After three weeks of frenzied lobbying by both sides, the president ordered his EPA administrator to back off -- handing an unalloyed victory to the farm belt. EPA chief Scott Pruitt’s formal capitulation came days later in the form of a letter that detailed concessions to biofuel producers and underscored corn’s continued clout in the nation’s capital.
The issue is politically perilous for any president, but especially Trump, who visited ethanol factories while campaigning in Iowa and promised the state’s voters he would stand by the home-grown biofuel if they elected him to the White House.
But biofuel industry leaders grew worried after Trump began staffing his administration with allies of the oil industry, which views the biofuel requirements as costly and burdensome. Chief among them: Pruitt, a former attorney general from Oklahoma who criticized the RFS before he became EPA administrator and is expected to run for political office from the state, where ethanol-free gasoline flows at many filling stations and the oil industry dominates.
Then came a formal EPA request for public comment on possibly reducing biodiesel quotas. The Sept. 26 "notice of data availability" that outlined potential changes posed some 20 questions about ways to lower quotas, but none related to increasing the requirements. It also explicitly invoked oil industry arguments about the danger of relying on imported biodiesel.
A day later, Bloomberg reported the EPA was weighing a plan that would allow exported biofuel to count toward domestic quotas -- a move that would drive down costs for refiners but could disadvantage some ethanol makers that profit from selling tradable credits that are used to show compliance with the mandates.
The threat was obvious. "It galvanized our industry," said Brooke Coleman, executive director of the Advanced Biofuels Business Council.
The oil industry, by contrast, remained fractured over the best prescription for what they argue are rising costs of complying with the law. Oil industry lobbyists urged Trump administration officials not to give in to an "extortion" attempt by senators, nor back down from changes they described as modest fixes needed to keep refineries running and prevent gasoline prices from spiking. Some stressed that the interests of farmers and ethanol producers are not always neatly aligned as they argued that increased exports could boost corn and soy demand.
"Many big corn state senators care about preserving windfall profits resulting from the dysfunctional RFS implementation -- much to the detriment of the American gasoline consumer," said Bill Douglass, head of the Small Retailers Coalition that represents independent petroleum sellers and convenience stores.
But the oil lobbyists were outmatched. In the Midwest, the news of a possible reduction in biofuels quotas arrived as cash-strapped farmers, who were sidelined from harvests because of rain, were growing more concerned about Trump’s trade policy. Taking the teeth out of a program that helps to put a floor under corn and soybean prices would only add to their current woes, they worried. Some 38% of the corn crop is destined for ethanol plants, according to the U.S. Department of Agriculture.
The response was immediate. Ethanol supporters who had battled biodiesel backers on other policy matters linked arm in arm.
"With that one-two punch, there was not a segment of the industry that was not facing a severe threat to its future," said Monte Shaw, head of the Iowa Renewable Fuels Association. "The only alternative was to try to get this on the president’s radar screen and hope that he in fact was going to stick by his promises -- and he did."
The biofuel industry was able to count on a host of Midwest politicians to advance their cause, from statehouses to the U.S. Capitol. Thirty-eight senators sent a letter to Pruitt backing the RFS on Oct. 5, and four governors sent their own missive to Trump on Oct. 16.
Among the industry’s fiercest advocates: Chuck Grassley, the Republican senior senator from Iowa, who immediately decried a "bait and switch" by the Trump administration. He took to Twitter and the Senate floor to voice his displeasure. Grassley’s complaints prompted a call from Trump, who told Pruitt to meet with senator. "That woke everybody up," Grassley said.
"My point in talking to the president was to make the point that he had some people in his administration that weren’t helping him keep his campaign promises," Grassley said in an interview. "He needed to know he was being undercut."
Trump subsequently directed his EPA administrator to resolve the senator’s concerns, according to people familiar with the discussions. The message: Keep Grassley happy.
Grassley had unique leverage. He heads the Senate Judiciary Committee, which plays a gatekeeper role vetting judicial nominations and has the power to probe numerous issues, including Russia’s meddling in the 2016 election.
"It is clear that the political novice -- the president -- knows how powerful the head of the Judiciary Committee is," said Jeff Stein, a political analyst who hosts an afternoon talk radio program on KXEL in Cedar Rapids, Iowa. "To have Iowa’s leading senators make very public stands sent a message to the White House that this was different."
Grassley and Pruitt met for lunch on Monday, Oct. 16, followed by a closed-door meeting with four other senators a day later. According to multiple accounts, Grassley did most of the talking in that session -- occasionally with a raised voice.
Pruitt and his staff members may have thought the RFS program "could be modified a little bit without doing any harm," Grassley said in an interview. "Our job was to point out great harm could be done, and we made our point."
An EPA spokesman declined to comment on this story. A top EPA official said last week that the agency’s goal was to make the program work better -- and to encourage domestic biofuel use, not undermine the initiative.
Even beyond politics, biofuel backers had additional leverage. Ernst, the other Iowa senator, is one of 11 Republicans on the Environment and Public Works Committee, which was considering the nomination of lawyer Bill Wehrum to lead the EPA office that administers the biofuel program. With 10 panel Democrats expected to vote no, her position would be decisive.
Although Pruitt told senators he would support the RFS, Ernst insisted she needed Pruitt’s assurances in writing before she could support Wehrum.
Back in Iowa, Governor Kim Reynolds pressed the issue in a phone call with the president, following it up with a Wednesday news conference with ethanol producers.
"They are feeling the pressure, and that’s why we need to keep it up, we can’t let down," Reynolds said then.
The following evening, Pruitt sent a letter to Ernst and other senators promising the EPA would not cut biodiesel quotas and would drop consideration of the ethanol exports idea. Ernst said she would back Wehrum for the EPA job, and the Senate committee rescheduled its vote on his nomination for Wednesday.
But not everyone was pleased.
The Wall Street Journal editorial board termed the episode a "special-interest shakedown." Chet Thompson, head of the American Fuel and Petrochemical Manufacturers, said it was "astonishing" to see Pruitt making concessions "to appease a few senators at the expense of American families and workers."
Valero Energy Corp., an independent refiner seeking some of the changes, blasted the senators’ opposition as "bullying" rooted in "a desire to maintain the status quo" and "protect windfall profits associated with unregulated trading" of biofuel compliance credits.
Coleman, with the biofuels council, says this wasn’t a case of the administration bowing to special interests, but rather it was an example of Trump keeping his promise to the mid-American voters who got him elected.
"We’re not the swamp; we’re the anti-swamp," Coleman said. "He bucked special interests to return to and in favor of rural America."
--With assistance from Mario Parker and Jennifer Jacobs.To contact the reporter on this story: Jennifer A. Dlouhy in Washington at [email protected]
To contact the editors responsible for this story: Jon Morgan at [email protected]
© 2017 Bloomberg L.P