The Trump administration has changed course on US biofuels policy to placate angry farmers ahead of the 2020 election.
Under the new plan, large oil refiners and fuel suppliers will be required to use more ethanol and biodiesel, to make up for exemptions to a federal mandate that the administration gives out to smaller refiners.
Ethanol made from corn and biodiesel from soyabeans are massive sources of demand for US agriculture, and the federal mandate is an important driver of sales. The move is a win for corn growers in their long-running feud with the oil industry over the Renewable Fuel Standard, as the mandate is known. The nation’s two largest oil lobby groups condemned the administration for distorting fuel markets and pledged to challenge the policy as it circulates for public comment. The Trump administration blew a hole in the mandate with dozens of exemptions for smaller oil refineries, biofuel and farm advocates claimed. The policy put President Donald Trump on the back foot in Midwestern states that overwhelmingly backed his 2016 campaign. On Friday, Mr Trump’s Environmental Protection Agency announced a new plan to allow exemptions without reducing the total size of the corn ethanol mandate, starting in 2020. The proposal would “result in sustained biofuel production to help American farmers”, said Andrew Wheeler, EPA administrator. The exemptions for oil refiners had begun to damage the goodwill Mr Trump established in the Corn Belt last spring when he allowed unfettered sales of petrol containing 15 per cent ethanol, an increase from the customary limit of 10 per cent. Since he took office, the average number of exemptions has trebled. Agriculture and biofuels interests said the waivers hit a sector already suffering from a collapse in ethanol exports to China as a result of the Sino-US trade war. Eighteen of the nation’s more than 200 ethanol plants have closed in the past year, according to the Renewable Fuels Association. US ethanol plant output has slumped to levels last reported in 2016. “This industry is bleeding red ink right now. I’ve been in the business for 35 years, and this is the worst year we have ever experienced,” Neil Koehler, chief executive of Pacific Ethanol, said before Friday’s policy announcement. The slowdown has affected grain markets, with the US Department of Agriculture recently paring its estimate of ethanol sector corn use to 5.45bn bushels, which still amounts to 39 per cent of the projected 2019 harvest. The initial rise in exemptions came under EPA administrator Scott Pruitt, an oil-friendly Oklahoman. But they have continued under his successor Mr Wheeler, with 31 more granted in August. “The perspective changed: this wasn’t an EPA administrator gone rogue. It was a president that made the decision to start destroying domestic biofuel policy during a timeframe when export markets had already been hit,” Nick Bowdish, chief executive of Elite Octane, an Iowa-based ethanol company, said earlier this week. The US biofuel industry took off after 2007, when Congress sharply increased the consumption mandate. In recent years the policy has required 15bn gallons of corn-based ethanol to be blended into the domestic motor fuel supply, plus billions more of “advanced biofuel” such as biodiesel. The exemptions have capped growth of the corn ethanol mandate by about 1bn gallons, according to an analysis by Scott Irwin of the University of Illinois. Under the new plan, the EPA will seek to ensure that more than 15bn gallons of corn ethanol will be blended starting in 2020 and that the biodiesel mandate would also be satisfied, even as eligible small refineries continued to receive waivers. The move threatens to shift market share in motor fuels markets from petroleum to ethanol and biodiesel, and earned a rebuke from the American Petroleum Institute and American Fuel & Petrochemical Manufacturers. “We are deeply concerned about the administration’s decision to, once again, play politics with our fuel system by increasing an already onerous biofuel mandate,” the oil lobbyists said in a joint statement, “placing greater strain on the US manufacturers [Mr Trump] promised to protect and threatening higher costs for consumers.”As he sought to mollify two powerful constituencies, Mr Trump in recent weeks has met with senators such as Chuck Grassley of Iowa, the top corn-producing state, and Ted Cruz of Texas, the leader in oil production and refining. “President Trump listened to the concerns of farmers and biofuels producers and delivered on their behalf,” said Mr Grassley, a farmer who like Mr Trump is a Republican party member. John Barrasso, a Republican senator from the oil and gas-rich state of Wyoming who chairs the Senate environment and public works committee, said the plan would harm the petroleum sector as small refineries’ blending obligations were transferred to larger ones. “No one should be surprised if it leads to closed refineries, lost jobs, and higher fuel prices,” Mr Barrasso said.