Iowa proposes state ethanol mandate, drawing unusual political battle lines

Source: By Erin Murphy, Sioux City Journal • Posted: Monday, February 15, 2021

DES MOINES — Gov. Kim Reynolds is proposing Iowa’s very own ethanol mandate.

The proposal has drawn unusual lines in the lobbying sand, with renewable fuels groups pitted against gas stations and at least one conservative, free market-minded advocacy organization.

Reynolds’ proposal, which she introduced in legislation on Monday, is similar in spirit to the federal ethanol mandate, which requires a certain number of gallons of corn-based ethanol be blended into the nation’s fuel supply. Reynolds’ proposal would require all gasoline sold in Iowa to contain at least 10% ethanol, with an option for the governor to raise that to 15% in four years.

The proposal also shifts existing tax credits for ethanol and other biofuels to only those with blends higher than the new baseline. That move is expected to reduce state spending, and some of those savings would be dedicated to a fund that retailers could access to help pay for equipment upgrades they would need to accommodate the new, higher-blend ethanol fuels.

“This legislation would invest significantly into Iowa’s renewable fuel infrastructure program, boost farm income, reduce emissions, and put millions of dollars back into the state’s general fund,” Reynolds said in a statement. “It is time for Iowa to take charge of our renewable fuel economy and stand up against the inconsistency we continue to see from Washington, D.C., and the (federal Environmental Protection Agency).”

Renewable fuels groups offered praise for the sweeping proposal after it was introduced Monday. But the legislation also has drawn strong opposition, from gas stations and truck stops that say they would need expensive new storage equipment; and from organizations that claim the proposal eliminates consumer choice at the pump.

The legislation’s breadth and the myriad groups supporting and opposing it promise to make for an intense and prolonged legislative debate.

Reynolds’ proposed legislation would:

Require all gasoline in the state to include 10% ethanol, with exceptions for one pump per retailer for ethanol-free gasoline. In 2025, the governor would have the option to bump the baseline requirement to 15% ethanol.

Require all diesel fuel in the state to contain 5% biodiesel fuel from October through March and 11% from April through September. In 2024, the April through September blend requirement would increase to 20%.

Shift existing tax credits to only blends above the new minimum standards.

Require any new equipment installed in the state to be compliant with 15% ethanol or 20% biodiesel usage.

The Iowa Renewable Fuels Association projects the governor’s proposal would increase ethanol use by 117 million gallons and biodiesel by 203 million gallons, which the association says would boost demand for Iowa corn and soybeans.

The association also projects the shift in tax credits would produce a net reduction of $87.5 million in state spending over five years.

The state’s nonpartisan fiscal analysis agency has not yet analyzed the governor’s proposal to produce a projected impact on the state budget.

“When you take a step back and look at it from a broad view, this bill will boost our rural economy,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association. He said the legislation would help renewable fuel producers, be good for farmers and commodity prices, reduce carbon emissions, and be good for consumers. “(U.S. Sen.) Chuck Grassley would say it’s good, good, good.”

A coalition of retailers, wholesalers, fuel distributors, transportation groups and more have formed the Fuel Choice Coalition for the specific purpose of opposing the governor’s legislation. The coalition includes popular gas station chains Casey’s, Kum & Go, and Kwik Star, as well as the Iowa chapter Americans for Prosperity, which advocates for free-market policies.

The coalition issued a statement calling Reynolds’ proposal “a strict mandate on the fuel industry that eliminates choice, raises fuel prices on consumers, and harms rural Iowa businesses.”

Americans for Prosperity, Casey’s and Kum & Go, or their owners, spent tens of thousands of dollars working to get Reynolds elected in 2018, and rarely are they on the other side of the legislative lobbying table from the Republican governor.

This time is different. Perhaps in no small part due to the fact that the coalition believes the required equipment upgrades would cost Iowa retailers a collective $1 billion.

“FUELIowa agrees renewable fuels like ethanol and biodiesel are critical to our economy. We have long shared a goal to expand our infrastructure to move more biofuels across the state,” Ronald N. Langston, president and CEO of the organization that represents businesses across the spectrum of Iowa’s fuel industry, said in a statement. “However, approaching this issue by way of a government-imposed mandate is the wrong road for Iowa to take and harmful consequences will follow. We strongly urge the legislature to oppose this mandate which will force Iowans to pay more at the pump, eliminates choice in our fuels, and threaten hundreds of small businesses and the people they employ.”

Drew Klein, state director of Americans for Prosperity, said in a statement that the proposal moves away from consumer choice, “and into artificial market manipulation bordering on a fuel mandate.”

“This is new regulation, not for the sake of public safety, but as a means of picking winners and losers in the economy,” Klein said in the statement.

Legislative leaders expressed their support for the renewable fuels industry in Iowa, but were hesitant to say they are prepared to support the governor’s proposal.

Republicans hold majorities in both the Iowa House and Senate, but this proposal could be that rare legislation that divides legislators, but not along political party lines.

“The best answer I can give you at this point in time is I’ve had a lot of requests for meetings from several different groups that are at the table on this one,” said Pat Grassley, the Republican Iowa House Speaker from New Hartford. “We want to have those further conversations with them, get that input.”

Democratic Senate Minority Leader Zach Wahls of Coralville said his colleagues believe renewable fuels are a critical part of the state’s economy and are open to looking at the governor’s proposal.

Todd Prichard, leader of the House Democrats from Charles City, gave the most full-throated endorsement of the proposal. He said the legislation could help the state’s renewable fuel industry recover from the impacts of former President Donald Trump’s administration, which granted waivers that weakened the federal ethanol mandate.

“This is a vital industry to Iowa. … I think it’s important that we continue to push renewable fuels for Iowa and our economy,” Prichard said. “This is timely and we need to help this industry come back.”

The governor’s proposal will see its first legislative action this week, Wednesday in a House subcommittee hearing.