Another Payoff for Ethanol

Source: By Editorial Board, Wall Street Journal • Posted: Sunday, September 8, 2019

Trump hasn’t figured out that this lobby won’t stay bought.

Corn is loaded into a truck at a farm in Tiskilwa, Illinois, July 6, 2018. Photo: daniel acker/Reuters

President Trump on Twitter last week promised a “giant package” on ethanol. One issue is how much ethanol the government will make refiners blend into the nation’s fuel supply next year, known as the renewable fuel standard. The Environmental Protection Agency has proposed levels, but the ethanol crowd is demanding more corn be added.

The ethanol lobby is furious that the Trump Administration granted 31 exemptions to small refineries that struggled to comply with the standard for 2018. Such hardship exemptions are allowed under the Clean Air Act. Some refiners have been spending as much on compliance—buying credits known as “renewable identification numbers,” or RINs—as they shell out on payroll.

The corn lobby says exemptions have destroyed demand for ethanol, though this is overwrought. Ethanol consumption for the first five months of the year was 5.9 billion gallons, up from 5.82 in 2018, according to the Energy Information Administration. The blend rate for the same time frame was about 10.2%, up from 10.03% the previous year.

A tumble in ethanol prices is the result of a confluence of events, including bad weather and overproduction. Oh, and don’t forget trade: The Journal noted this week that China halted ethanol imports, a small share of the U.S. output but the fastest-growing foreign market.

Ethanol groups want the Administration to force other refiners to blend more gallons to make up for the waivers. But increasing costs for refiners who followed the law could mean more hardship waiver applications in the future. The lobby also wants higher requirements on biodiesel fuels. Irony alert: U.S. biodiesel is insufficient to meet the mandates, so more will be imported from abroad. Does Mr. Trump want to add to the U.S. trade deficit?

Then again, all of this is about the politics, not the merits. Earlier this year the Administration on dubious legal authority allowed the year-round sale of E15, a more concentrated ethanol blend. The ethanol crowd begged for this dispensation, and Iowa Senator Joni Ernst cheered that President Trump had “kept his promise” to Iowa farmers.

The ostensible compromise for this expansion was reform to the compliance credit system (RINs), which the EPA later walked back. Yet the President made a concession to reality by exempting some refineries from the fuel standard—and now the ethanol lobby is back for more political extortion. One Iowa farmer dashed off an op-ed about how President Trump “betrayed” farmers. A good political lobby is supposed to stay bought.

Yet the politics aren’t as straightforward as the President might think. Ethanol mandates increase the price of feed, so his overtures won’t be welcome news for hog or poultry farmers. As a political reality he needs the refinery workers in Ohio and Pennsylvania at least as much as he needs the high opinion of Iowa Senator Chuck Grassley.

Democratic presidential candidates are piling on the President for the exemptions, not that ethanol has delivered on any of its climate promises. The renewable fuel standard has had “a limited effect, if any, on greenhouse gas emissions,” the Government Accountability Office reported in May.

President Trump seems to think he can atone for his tariff mistakes with billions of dollars in farm handouts, but only a trade truce will start to mend the damage. At minimum he shouldn’t be fooled by another round of rent-seeking from one of the country’s most shameless farm interests.