Ethanol future murky in Trump era

Source: By Patrick Anderson, Argus Leader • Posted: Wednesday, April 12, 2017

President Donald Trump’s White House is less predictable when it comes to the future of ethanol policy. Growers and producers in South Dakota are watching Washington D.C. to see what happens.

When he learned about the first ethanol pump opening up in Milbank, Orrie Swayze hopped off his tractor, drove his 1974 Ford to the station and filled its tank with fuel made mostly from corn.

“It ran as good or better on straight E85,” Swayze said.

Swayze, now 73 and retired, has been an advocate ever since for corn-based fuel. Ethanol came to the rescue of growers like Swayze, injecting a new value into crops, driving prices higher and boosting the state’s economy. Much of the industry’s expansion since the 1990s depended on federal policies, including new rules to ensure clean air, fuel economy and a marketplace for renewable fuels.

But like many of his peers in corn and ethanol, the next four years leave Swayze with questions.

A Donald Trump White House means a new, uncertain political landscape. Some of the Trump administration’s leaders have deep ties to the oil industry. The seismic political transition raises questions and concerns for the benefactors of a multi-billion dollar industry that also happens to drive South Dakota’s economy.

Ethanol was far from a major talking point for Trump on the campaign trail. Even after touring a Poet plant in Iowa, he uttered just a few sentences about renewable fuel and its impact on Midwestern jobs.

“I went out to see some of the folks on the ethanol,” Trump said at the 2015 rally in Fort Dodge. “And good stuff and great people. Put a lot of people to work out here too, I want to tell you. I just want to tell you that.”

The president never mentioned ethanol on Twitter. He has since expressed support for upholding the renewable fuel standards. But people on his team have allegiances elsewhere. Some have been outspoken critics of ethanol and federal biofuel regulations.

Appointments of naysayers doesn’t necessarily mean dark days ahead for ethanol policy, which is also shaped by Congress, said Jon Schaff, a political scientist at Northern State University in Aberdeen.

It just means the next four years will be less than predictable.

“It’s always difficult to make a definitive statements about, ‘this is what the Trump administration thinks,’” Schaff said. “There seems to be a lack of discipline.”

It didn’t take long for new players in seats of power to raise the hackles of corn growers and the ethanol industry.

Early signs of turbulence have since died down thanks to assurances from Trump that he supports federal biofuel standards as written, but those in the industry are making trips between South Dakota and Washington, D.C., just to make sure they’re heard.

Corn-based fuel depends on regulations such as the Congress-approved renewable fuel standards, which have historically driven demand and lifted commodity prices.

South Dakota’s economy depends on its corn crop. The corn crop depends on ethanol production, which depends on federal mandates.

It’s a confusing reliance on federal regulations  for a red state. But as much as most South Dakotans sniff at the idea of big government, the state’s economy rises and falls with the listed value of a bushel.

That value has been plummeting in recent years. Steady decreases have resonated across the state and in Sioux Falls as sales tax revenues fell short of expectations.

Ethanol producers and corn growers look to federal policymakers for answers. As Scott VanderWal, president of the right-leaning South Dakota Farm Bureau says, mandates supporting ethanol are fair because of the petroleum industry’s reluctance to accept biofuels.

“You have to take into account that the oil industry is subsidized,” VanderWal said. “Until that would go away, then it’s probably appropriate to keep doing things the way we have been.”

Ethanol plays a major role in the state’s economy in its own right. There are 15 ethanol plants in South Dakota, each employing dozens people. Plants in the state produce more than one billion gallons of ethanol and 2.4 million metric tons of byproduct, according to South Dakota State University.

The American Coalition for Ethanol, based in Sioux Falls, represents more than 500 members, including growers, producers and other industry stakeholders. Like some of its members, the group bases faith in the White House on comments made by the president during his campaign.

It’s the same faith rural voters placed in the president when they voted for him last November, said Brian Jennings, executive vice president of the nonprofit.

“Rural America is credited with helping lift him to victory,” Jennings said. “One of the key issues in rural America in terms of the economy is demand for crops to make biofuels.”

The coalition encouraged members to be politically active during the White House transition. Others in the state have joined in the activity since January, including South Dakota farmers, advocacy groups and ethanol producers. Leaders from the state’s biggest ethanol producer visited the White House last month.

“We met with several of President Trump’s key people,” said Jeff Broin, founder and CEO at Poet. “Poet is always involved in the politics surrounding biofuels, as are our competitors in the oil industry.”

South Dakota’s congressional delegation is also protective of the industry driving the state’s economy.

U.S. Sen. John Thune said he asked Trump’s environmental and agricultural appointees whether they were committed to the federal government’s renewable fuel standards, which, among other rules, mandate a minimum usage each year for ethanol. Both assured him and others they would uphold the rules as written.

“We will be holding them to that,” Thune said. “We’ll be paying close attention.”

The head of the state’s biggest ethanol producer said his industry has a history of helping to drive demand in times when prices are low and there is more corn than demand.

The history of the U.S. agriculture industry is dotted with periods of high supply and low land values.

Ethanol has long been an answer to flagging grain prices, going back to the emergence of the industry in the late 1980s.

“Ethanol was really born at a time when ag commodities were in major oversupply in this country,” Broin said. “We entered the industry literally at the bottom of the land value era.”

Ethanol created new demand for corn. The number of bushels going to livestock feed or for international trade has remained mostly flat, while demand for ethanol and ethanol byproducts such as feed supplements grew after the first few years after the current renewable fuel standards were passed, but flattened out in 2010. The easing of demand, along with increased activity from corn growers, led to what Broin calls an “ag crisis.”

Keith Alverson, a 37-year-old farmer in Chester, said ethanol is vital to growers. He grows corn and soybeans on about 2,500 acres.

“That is the most important thing that we’ve seen in South Dakota as far as a driver of our state’s ag economy,” Alverson said.

Billionaire investor Carl Icahn was involved in an effort shift the burden of meeting federal biofuel minimums from oil refineries to blenders. Moving the so-called “point of obligation” would free oil producers and importers from the requirements, shifting it to a larger number of smaller entities, including some gas retailers.

Icahn is majority owner of a Texas-based oil company, CVR Energy Inc. A New York native like Trump, Icahn was an active supporter of the president during the campaign. He was named the president’s special adviser on regulation in December, even as members of the outgoing administration pointed to potential conflicts of interest because of his ties to oil.

He ducked conflict-of-interest claims last month by saying he wasn’t a paid government employee.

His office regularly corresponded with the American Fuel and Petrochemical Manufacturers, including emails about the “obvious shortcomings” of the renewable fuel standards.

The group sent Pruitt’s office a template for a waiver petition against the “economic harm (caused) by the ethanol blendwall.” Pruitt later filed a legal brief as part of a lawsuit against federal ethanol mandates, saying ethanol is harmful to cars and diverts corn from the U.S. food supply. Icahn celebrated the president’s decision to nominate Pruitt as EPA chief in December.

The ethanol battlefield

POINT OF OBLIGATION: Evidence of the administration’s unpredictability is clear in a letter Sen. John Thune, R-S.D., and others sent the president last month in response to billionaire investor and President Donald Trump special adviser Carl Icahn’s efforts to change the biofuel standards.

The White House has since indicated it wasn’t considering the deal proposed by Icahn. Word of the agreement was enough to prompt stern language from Thune and 22 other U.S. senators in a letter to Trump.

The bipartisan group said moving the responsibility of meeting biofuel requirements to smaller vendors would eliminate incentives for oil refineries for making ethanol blends and put more of a regulatory burden on small businesses in rural areas.

VOLUME OBLIGATION: Another federal rule on the radar of South Dakota’s corn growers and ethanol producers is the required volume of renewable fuel produced annually.

Congress set the target at 15 billion gallons annually in 2007 with the approval of the renewable fuel standards. The Environmental Protection Agency pulled back the obligation in November, prompting concern in the industry, and the White House placed a regulatory freeze on the requirement in January, lifting the freeze last month.

WAIVER FOR E15: Jeff Broin at Poet would like to see the federal government remove some of the red tape around a higher blend of ethanol. Some parts of the U.S. block certain blends during the summer months based on vapor pressure, but lower percentage blends such as E10, or 10 percent ethanol, have a waiver from the EPA.

The federal agency has not granted such a waiver to 15 percent blends, which creates extra work for station owners who pump it year-round, Broin said. Stations selling E15 to all drivers during the cooler months must swap to a flex fuel rig during the summer, then back to a standard rig in the winter.

FUEL ECONOMY AND CLEAN AIR: Ethanol has traditionally benefited from clean air regulations because of its reduced emissions, said Keith Alverson, a corn grower near Chester. The same goes for recent efforts to improve how much cars get out of each gallon of gas.

Ethanol has more octane, allowing it to improve mileage for appropriately designed engines. President Barack Obama set a goal of 54.5 miles per gallon by 2025 as part of his federal fuel economy standards, which would penalize American car manufacturers for fleets that fall short of targeted averages.

The president announced plans last month to review the so-called Corporate Average Fuel Economy Standards, which have been around since the 1970s.