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Ethanol could use a friend in WashingtonEthanol could use a friend in Washington

Iowa Sen. Charles Grassley says 'Big Oil' being placed ahead of biofuel supporters.


October 2, 2017

5 Min Read

by Jennifer A. Dlouhy and Mario Parker 

As he sought votes during last year’s Iowa caucuses, candidate Donald Trump courted farmers with praise for ethanol and promises that he would boost the home-grown fuel. 

Now those farmers and other biofuel supporters say the people President Trump has put in charge of the issue in Washington are instead boosting their fossil-fuel rivals.

"This seems like a bait-and-switch," Iowa’s senior Republican senator, Chuck Grassley, said on the Senate floor this week. "Big Oil and oil refineries are prevailing, despite assurances to the contrary."

The issue is politically precarious for Trump, as it pits the oil industry against Midwest voters who helped elect him. Trump repeatedly vowed to "protect" ethanol. But he loaded his cabinet with allies of the oil industry, which views the Renewable Fuel Standard that mandates biofuel use as costly and burdensome. 

Ethanol producers are most vexed by Scott Pruitt, the head of the Environmental Protection Agency. His agency has pursued a series of changes that would help the oil industry at the expense of ethanol.

"The White House needs to rein in the EPA before the agency tramples the president’s rural base – and his promises to voters," said Brooke Coleman, executive director of the Advanced Biofuels Business Council. "I would be surprised if those in the White House realize the depth of his attacks on the Renewable Fuel Standard."

Pruitt hails from oil-rich Oklahoma. Backing refiners and oil producers could aid any future political campaign in his home state, including a possible bid for the Senate seat that would open up if Republican Jim Inhofe retires in 2020. Pruitt has not announced plans to seek that seat or any other political office. While serving as Oklahoma’s attorney general, Pruitt dubbed the quotas "unworkable" and a "flawed program." 

Now at the EPA, Pruitt has gone "rogue," said Michael McAdams, president of the Advanced Biofuels Association. 

"His job is to implement the vision of the president who says he supports biofuels," he said. Pruitt’s actions don’t "support biofuels in any shape or form."

Representatives of Pruitt declined to respond to questions about his ties to the oil industry. “EPA is currently seeking input from all stakeholders involved. Nothing has been finalized at this time,” the agency said in a statement.

Despite the president’s high-profile pledges of support, the intricate details of biofuel policy are being decided by administration officials with no allegiance to the sector, said Monte Shaw, executive director of the Iowa Renewable Fuels Association.

For instance, Trump’s Energy Secretary is Rick Perry, who as Texas governor asked the EPA to waive half of the conventional renewable fuel quota in 2008. And Trump’s Agriculture Department is led by Sonny Perdue, who previously was governor of Georgia, the nation’s top poultry producer. Livestock producers have linked arms with the oil industry to fight the biofuel mandate, arguing it drives up feed costs.

Trump also tapped billionaire refinery owner Carl Icahn, a critic of the biofuel mandate, as special adviser on regulations. Icahn has since left that role. 

In the latest policy move, the EPA this week issued a notice opening the door to potential reductions in annual quotas for biodiesel and ethanol. The action followed heavy lobbying by oil industry leaders seeking lower biofuel targets.

The 14-page "notice of data availability" that set those potential changes in motion explicitly invokes arguments by refiner Valero Energy Corp. or top oil trade groups nine times, with the EPA echoing the industry’s assertions that imported biofuels jeopardize U.S. energy independence.

What’s missing? Any reference to the counter arguments from the other side -- biodiesel producers or corn farmers. 

"This guy’s taking his marching orders from the oil industry and not the president of the United States,” said Gene Gebolys, founder and chief executive officer of World Energy Alternatives LLC, one of the biggest biodiesel producers.

The EPA had already proposed lowering the amount of advanced biofuel that would be required next year, after Pruitt forced a last-minute rewrite of the agency’s initial slate of renewable fuel quotas. EPA officials initially wanted to require 384 million gallons of cellulosic ethanol to be used next year -- up 19% from this year’s 311 million gallon quota -- according to documents released by the Office of Management and Budget.

But after lobbyists for refiners raised concerns about relying on imported biofuel to meet the targets, Pruitt directed EPA staff to recalculate the figures. The resulting proposal aims to lower the cellulosic ethanol requirement for the first time -- to 238 million gallons next year.

Separately, the agency is mulling a change to allow exported biofuel to count toward compliance with the annual quotas -- a move that would lower compliance costs for refiners while decreasing the premium some ethanol producers collect for selling the fuel domestically.

Corn Belt

Oil industry leaders say Pruitt is making good on his pledge to get the RFS back on track, by establishing biofuel quotas ahead of legal deadlines.

The EPA is advancing "Congress’s stated purpose of bolstering America’s energy independence," the American Fuel and Petrochemical Manufacturers said in an emailed statement. "American drivers shouldn’t have to shoulder more costs to help foreign biofuel producers." 

Changes to the biofuel program could ripple across the Midwest, said Green Plains Inc. Chief Executive Officer Todd Becker.

"The Midwest farm economy would be severely damaged” if there were changes to the mandate, Becker said in an interview. "Ethanol is the modern-day farm policy."

Biofuel boosters are reminding Trump of his promises now.

"It is my hope that your EPA has not forgotten about the pledges that were made to my constituents and to farmers across the country," Senator Joni Ernst, a Republican from Iowa, told the president in a letter this week.

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]

Mark Drajem

© 2017 Bloomberg L.P

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