Editorial: E15 gives agriculture a boost, but tariffs undercut the benefit

Source: By Omaha World Herald Editorial Board • Posted: Monday, October 15, 2018

Our region’s agricultural section, with weak commodity prices and export challenges, could use a boost. President Donald Trump tried to provide one this week with his announcement in Council Bluffs that his administration will allow year-round sales of higher-ethanol blends.

If E15 reaches its full potential, the president’s announcement can be positive news for ethanol producers and corn growers. For the short term, however, significant obstacles stand in the way. Plus, the president’s announcement came only days after ag economists at Iowa State University released a detailed report on another difficulty facing Midwest agricultural producers: income losses due to the U.S. tariff wars with China and other countries.

No question, the ethanol industry is now a significant economic sector for Iowa (the nation’s No. 1 producer) and Nebraska (No. 2). Nebraska is home to 25 ethanol plants employing more than 1,300 people. Many of those facilities are vital economic players in the state’s rural communities.

More than 700 million bushels of corn, about 40 percent of Nebraska’s corn production, go into ethanol production at those facilities.

Despite the president’s announcement, no changes will take place immediately on the ethanol front. On the contrary, the federal Environmental Protection Agency has to begin a formal rule-making process that could take months. Further delays are possible if the oil industry files suit, arguing that the EPA fails to have legal authority under the Clean Air Act to carry out the president’s directive.

Scott Irwin, an agricultural economist at the University of Illinois and an expert on the ethanol sector, cites additional factors that stand in the way of significant short-term gains:

» About 1,500 gas stations out of about 120,000 nationwide have pumps to offer E15, so “in the short run, this offers constraints on how much of a jump of E15 usage and corn usage we can see through year-round E15.”

» State laws in several large-population states such as California and New York prohibit gasoline with an ethanol content above 10 percent. As a result, Irwin says, “some of the biggest gasoline markets are a no-go unless the president has some way legally to supersede state laws, which I’d be very surprised if that can happen.”

» Refiners of higher-blend ethanol use compliance credits known as Renewable Identification Numbers, or RINs, to prove that they have satisfied annual biofuel quotas. It will be difficult to boost E15 production significantly unless RIN prices increase considerably, which at present seems uncertain.

The current U.S. tariffs wars, as spelled out in the new report from Iowa State, pose a particular problem for Midwest agricultural producers. Disruptions in agricultural trade due to the tariffs will cost the Iowa economy alone between $1 billion and $2 billion over the next year, the report says. The projected loss for Iowa’s corn sector is about $333 million.

Resolving trade disputes and ending the tariff fights would go far to providing much-needed stability in agricultural markets. Such action also would allow ag producers to enjoy the full benefits from whatever production increases lie ahead for higher-ethanol blends.