White House Weighs Biofuel Quota Boost Amid Appeals From Iowa

Biofuel Update 091019
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(Bloomberg) -- Top administration officials have developed plans to give a 5% boost to U.S. renewable fuel-blending quotas in 2020, as President Donald Trump seeks to temper farm-state criticism he has undermined U.S. mandates compelling the use of corn-based ethanol and soybean-based biodiesel.

Representatives of the White House, Agriculture Department and Environmental Protection Agency have been honing final details of an initiative to encourage U.S. biofuel demand for weeks, since developing a broad framework for action on Aug. 22. Details of the drafted initiative were described in a document obtained by Bloomberg News and people familiar with the deliberations who asked not to be named before a formal announcement.

Trump hasn’t signed off on the final details but promised in tweets on Aug. 29 “a giant package” of changes would be submitted and approved within two weeks.

Biofuel company shares surged on the news. Pacific Ethanol Inc. climbed as much as 13% to 75 cents, while Green Plains Inc. jumped as much as 4.7% to $8.94, the highest intraday price since Aug. 8.

Nevertheless, the tentative plan falls short of some biofuel advocates’ push for immediate action to offset waivers exempting some oil refineries from the mandates.

“We’re not asking for the moon and stars,” Renewable Fuels Association President Geoff Cooper said Thursday. “We just want EPA to enforce the standards that Congress gave them, which means redistributing projected exemptions in the 2020 rule to ensure the statutory volumes for conventional renewable fuels remain whole. That’s hardly a big gift to ethanol and corn; it’s just following the law.”

The efforts respond to an outcry in Iowa and other politically important farm states over the oil refinery exemptions. Although federal law authorizes the exemptions for small refineries facing an economic hardship, biofuel advocates say the Trump administration has handed out the waivers too freely, even as farmers bear the brunt of the president’s trade war with China and retaliatory tariffs on U.S.-grown soybeans.

Lawmakers from Iowa, including the state’s Republican governor, Kim Reynolds, have personally pressed Trump to increase biofuel quotas to offset the waivers -- with the additional burden effectively shifted to non-exempted refineries. Trump won the state in 2016 after promising to protect ethanol in office. Iowa is the nation’s leading producer of ethanol and corn.

Under the latest drafted plan, a 2020 quota for advanced biofuel would see a 500 million gallon boost, above the 5.04 billion gallons proposed earlier this year. A de-facto quota for conventional renewable fuel, such as corn-based ethanol, would also get a 500 million gallon boost, to 15.5 billion gallons. And the U.S. Department of Agriculture has asked EPA to increase the proposed 2021 biomass-based diesel requirement by 250 million gallons, to 2.68 billion gallons.

Administration officials previously rebuffed biofuel advocates’ pleas to rescind some recently issued refinery waivers but agreed to begin reallocating exempted quotas in 2021 -- at least a year later than renewable fuel advocates want. Trump administration officials also have made plans to encourage greater adoption of E15 gasoline containing 15% ethanol, by allowing it to be dispensed at filling stations alongside conventional gasoline, expanding incentives for automakers to produce flex-fuel vehicles that use it and encouraging new fueling infrastructure.

Although oil industry and EPA officials say there is no evidence waivers have affected domestic ethanol demand, the same cannot be said for biodiesel. “Biodiesel is taking the hit,” said University of Illinois agricultural economist Scott Irwin. “Demand destruction is real -- it’s just on biodiesel rather than ethanol.”

Organized labor officials and oil refiners are pushing the administration to back off the plan, warning that jobs in Pennsylvania and other Rust Belt states hang in the balance.

“Pursuing this plan jeopardizes the refining industry’s support of the president and would undoubtedly raise fuel prices for consumers, neither of which would be good for the president going into next year’s election,” said Chet Thompson, president of the American Fuel and Petrochemical Manufacturers Association on Thursday. “Ironically, this deal won’t actually help farmers, but instead incentivizes foreign biofuels producers whose imports will be necessary to meet these unrealistic mandates. This flies in the face of the president’s ‘America First’ energy plan.”

Biofuel exemptions help keep refineries running, said Roy Houseman, legislative director at the United Steelworkers of America.

“Reallocation is problematic, at best, and likely will also lead to an increase in foreign biodiesel,” Houseman said by phone. “We just want some policy certainty for the 30,000 oil workers we represent.”

 

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