by Jennifer A. Dlouhy and Mario Parker

President Donald Trump is poised to tell Iowa voters next week he’ll allow year-round sales of high-ethanol gasoline -- a move that could bolster Midwest Republicans in tough election contests.

Trump is tentatively scheduled to commit to the policy change on E15 fuel that would expand the market for corn-based ethanol during a campaign event near Council Bluffs, Iowa, next Tuesday, according to people familiar with the planning who asked not to be named while negotiations are under way. 

At the same time, the administration may announce reforms of the market for biofuel compliance credits that are traded by Wall Street banks as a financial commodity. 

Administration officials are still working out details on the E15 move and seeking to ensure the announcement gets an enthusiastic response from biofuel producers, Midwestern politicians and corn farmers who have long clamored for the change, the people said. White House officials are seeking assurances that biofuel advocates won’t use the occasion to seek other policy changes.

Trump vowed to support ethanol while campaigning for president in Iowa and has hinted at plans to lift summertime fueling restrictions on gasoline containing 15% ethanol. But a formal commitment to unleash E15 is an important victory for Iowa, said Senator Joni Ernst, a Republican from the state.

“If you look at where he’s making the announcement -- in Iowa, the largest ethanol-producing state in the United States -- it sends a very clear message that he is behind the American farmer, he is behind our renewable fuels and he is ready to make it happen,” Ernst said in an interview. “He’s fulfilling his promise, and I appreciate him for doing that.”

The move could calm corn and soybean farmers fretting about low commodity prices and Chinese tariffs on crop shipments. It also could help two Iowa Republicans locked in competitive races to keep their seats: Governor Kim Reynolds and Representative David Young. Both have pressed Trump on E15.

Trump’s announcement is set to come during a campaign event for Young, according to one person familiar with the plans. Later Tuesday, the president is scheduled to hold a rally at the Mid-America Center in Council Bluffs, Iowa. 

White House representatives declined to comment.

The shift would effectively waive E15 from federal vapor-pressure requirements that block its sale from June 1 to Sept. 15 in areas where smog is a problem. At the same time, the Trump administration would pursue reforms in an opaque $2.5 billion market in biofuel compliance credits that are used by refiners to satisfy U.S. blending quotas. 

Among the reforms being considered: position limits capping the number of so-called renewable identification numbers that can be held by traders, a shift that could push some of them out of the market.

Legal Challenge 

Both the E15 sales and market reforms would require formal rulemaking by the Environmental Protection Agency, which could take another six months or more. Even then, there could be years of additional uncertainty, as foes in the oil industry sue over the E15 shift, which threatens to chip away at their share of America’s 143 billion gallon gasoline market.

That legal challenge could yet overturn the change in policy. Some EPA officials have warned they don’t believe the agency can waive E15 from vapor-pressure requirements without action from Congress, according to people familiar with deliberations over the issue.

About 1,430 of the nation’s 122,000 filling stations sell E15 now. That’s just a sliver of the potential, according to ethanol advocates, who say station owners have been reluctant to offer E15 because of the cost of changing pumps. 

Oil companies battling the change also warn about potential engine damage from motorists inadvertently pumping E15 into vehicles not approved to use it. The federal government has authorized E15 use in 2001 and newer light-duty passenger vehicles, but some automakers explicitly warn that car warranties would be voided if motorists use the fuel.

Some environmental activists argue expanding the availability of E15 will drive the production of more corn, resulting in more prairies being plowed and waterways polluted by agricultural runoff. 

The issue boils down to a contest between ethanol and petroleum over market share, said Scott Irwin, an agricultural economist at the University of Illinois Urbana-Champaign.

It’s a “barroom brawl fight” between two of Trump’s key constituencies, Irwin said in an interview. Agricultural interests want more demand, he said, and petroleum proponents have to cut E15 off at the pass to prevent further market share erosion. 

--With assistance from Justin Sink.

To contact the reporters on this story: Jennifer A. Dlouhy in Washington at [email protected] ;Mario Parker in Chicago at [email protected]

To contact the editors responsible for this story: Jon Morgan at [email protected] John Harney

© 2018 Bloomberg L.P