Cruz taps Texas mistrust of ethanol

Source: By James Osborne, Houston Chronicle • Posted: Wednesday, January 3, 2018

Sen. Ted Cruz, R-Texas, speaks during a Senate Judiciary Committee hearing on Capitol Hill in Washington, Wednesday, Dec. 6, 2017. (AP Photo/Carolyn Kaster) Photo: Carolyn Kaster, STF / Copyright 2017 The Associated Press. All rights reserved.

Photo: Carolyn Kaster, STF Sen. Ted Cruz, R-Texas, speaks during a Senate Judiciary Committee hearing on Capitol Hill in Washington, Wednesday, Dec. 6, 2017. (AP Photo/Carolyn Kaster)

WASHINGTON – Ethanol. Oil states like Texas hate it. Corn states live and die by it. And politicians who try to take on ethanol often get buried in the issue’s complexities.

Nonetheless, Sen. Ted Cruz, R-Texas, continues to press ahead in the seemingly quixotic mission of lowering the cost for Texas oil refineries to comply with an increasingly pricey federal mandate requiring biofuels to be blended into the nation’s fuel supply.

To do so, Cruz will need win over a powerful block of Midwestern senators, something few in Washington give the sometimes divisive lawmaker a chance of pulling off. But for the junior senator, facing re-election this year as Democrats show new swagger in the age of Trump, ethanol provides the chance to appeal to his Tea Party base by bucking the Washington bureaucracy while protecting the powerful oil and gas interests so important to the Texas economy.

After years of stalemate on ethanol, Cruz threw a twist into the debate by forcing President Donald Trump into a meeting with oil-state senators on the ethanol mandate, known as the Renewable Fuel Standard. He did so by blocking confirmation of one of his nominees for the Department of Agriculture. Trump told Cruz and other senators to find a solution that benefited both the oil and ethanol industries.

“For too long, the biofuels industry voices were drowning everything out,” said Chet Thompson, president of the refining trade group American Fuel and Petrochemical Manufacturers. “It was Senator Cruz that was pushing the meeting with the president. We’ll remember that.”

Most analysts say that Cruz is unlikely to change national ethanol policy — the Trump administration recently sided with the ethanol lobby by slightly boosting fuel blending requirements. But the issue provides an opportunity for Cruz, facing a credible Democratic opponent in Rep. Beto O’Rourke of El Paso, to gain some local credibility after spending much of his first term focused on presidential ambitions.

Unlike many lawmakers, including his Texas colleague Sen. John Cornyn, Cruz largely steered clear of bringing home largesse from Washington during his first term as he championed smaller government and dramatically reduced federal spending — to the point of encouraging government shutdowns. As a result, ethanol has become a way for Cruz to demonstrate a Texas-first outlook for voters, said Mark Jones, a political scientist at Rice University’s Baker Institute of Public Policy.

“It’s a winning issue nationally that establishes his credentials as a solid fiscal conservative, but it also benefits the energy industry in Texas,” Jones said. “Generally, Sen. Cruz has not been a Kay Bailey Hutchison, Texas first-type senator. He focuses more on national issues.”

Cruz’s senate office did not respond to requests for comment.

From savior to threat

Refineries along the Gulf Coast were once happy to blend ethanol after MBTE, another fuel additive that boosts octane and eliminates engine knocks, was banned in many states over concern of its cancer risk. When former President George Bush signed the ethanol mandate into law in 2005, aimed at reducing the nation’s reliance on foreign oil, refiners welcomed a new way to increase octane in gasoline.

But the levels set by the Environmental Protection Agency each year have increased steadily since then. And as national gas station chains, such as Sheetz and Kum and Go, have begun selling fuel with higher and higher concentrations of ethanol, biofuels have become a legitimate threat to petroleum products.

The oil and gas industry, which is one of the biggest cash cows in U.S. politics, has lobbied intensely to eliminate or reduce the ethanol mandate. Companies in that sector handed out $104.8 million to candidates in 2016, according to the Center for Responsive Politics. And Cruz has been one of their favorite recipients.

During the 2016 campaign season, in which he ran for president before dropping out the primary in May, Cruz took in $1.5 million from oil and gas interests, more than any other candidate running for federal office.

Now he’s trying to sell Midwestern Republicans like Sen. Chuck Grassley, of Iowa, and Sen. Deb Fisher, of Nebraska, on a regulatory change to the Renewable Fuel Standard.

Direct sales

Under current law, refineries have an obligation to blend a specific amount of ethanol a year. They can avoid blending the fuel themselves by buying a financial instrument called a renewable identification number.

But the price of RINs, once only a few cents, has skyrocketed in recent years and are now trading for around 65 cents per gallon – cutting into the profits of many Texas refining companies like Valero of San Antonio and CVR Energy of Sugarland.

Instead, Cruz wants refineries to be able to buy RINs directly from the EPA instead of on financial markets, where they are subject to speculation. The details are still under discussion, but a price of 10 cents a gallon has been suggested.

But Cruz is facing universal opposition from the biofuels industry, which sees the maneuver as an attempt to force down high RIN prices, which in recent years have in part contributed to many gas station chains deciding to sell higher concentrations of ethanol.

“It’s all about market share and Cruz’s proposals are all about scuttling growth in our industry,” said Broooke Coleman, executive director of the trade group Advanced Biofuels Business Council. “Show us a proposal that’s not about cutting the throat of the Renewable Fuel Standard.”

Further complicating Cruz’s effort are divides within the refining sector. Some of the larger integrated oil companies, like Exxon Mobil, have profited by buying large quantities of ethanol and selling the excess RINs on the market. Cruz’s proposal could potentially take a cut into those profits and also complicate a longer-term legislative overhaul of the laws governing transportation fuels in this country, as Sen. John Cornyn, R-Texas, and other members of the Texas delegation have long sought.

“While we’d welcome a reduction in RIN prices, its like rearranging the deck chairs on the Titanic,” said Stephen Brown, a lobbyist with the San Antonio refining company Andeavor. “We’re more focused on a comprehensive approach.”

Danger zone

While campaigning in Iowa last year, Cruz raised some eyebrows when, unlike the rest of the Republican field, he said he did not support the Renewable Fuel Standard. When he won Iowa’s first-in-the-nation caucus, many political operatives proclaimed Cruz had dispelled the notion of the sway the ethanol lobby held with Midwestern voters.

But almost two years later, ethanol continues to be a treacherous zone for politicians. Both Scott Pruitt, the EPA administrator and former Oklahoma attorney general, and Carl Icahn, a former economic adviser to Trump and a majority shareholder in CVR Energy, have been forced to retreat from attempts to reduce the price of RINs after fierce opposition from Midwestern politicians.

“Actual reform would require the president making it an issue, and I don’t see the president doing that,” said Jones, the Rice politics professor. “But Cruz has fought the good fight. If you’re a lobbyist for the fossil fuel or livestock industries you’ll see him as fighting on your side.”