Op-Ed: An Ethanol Sop to Farmers

Source: By The Editorial Board, Wall Street Journal • Posted: Wednesday, June 5, 2019

The EPA allows E15 blends in the summer to offset tariff damage.

The EPA has long restricted E15 sales in the summer. The concern is—or at least was—that the combination of sun, heat and the organic compounds released by ethanol blends would result in much more smog. The Clean Air Act allows the EPA to issue a waiver and allow sales of 10% ethanol blends between June 1 and Sept. 15, but the law includes no such carve-out for E15.

Despite dubious legal authority, the Trump Administration has now granted E15 this pass to pollute during peak smog season. And it might not stop there. Geoff Cooper, ethanol lobbyist at the Renewable Fuels Association, praised the decision as “a key that finally unlocks the door to greater demand opportunities in the long term.”

He means steeper government mandates for ethanol use, a major goal of the ethanol lobby. Today only about 1% of gas stations offer E15. Compared to pure gasoline, ethanol has about 33% less energy content, so drivers get fewer miles per gallon. Unless an engine is specially built to accommodate high-ethanol blends, anything over 10% is corrosive.

So why foist more of this unwanted fuel on consumers? It’s a sop to Midwest corn farmers hurt by retaliatory tariffs in Mr. Trump’s trade tiffs. Nebraska farmers lost between $700 million and $1 billion in 2018 because of tariffs, according to the Nebraska Farm Bureau. Iowa’s economy will take a $1 billion hit from tariffs between September 2018 and September 2019, says Iowa State University’s Center for Agricultural and Rural Development. “All I know is you’ve got a lot of farmers” in Nebraska and Iowa, Mr. Trump said in Council Bluffs, Iowa, last October. “And my administration is protecting ethanol, all right? That’s what you want to hear.”

It’s not what Mr. Trump’s other constituents want to hear. In addition to the E15 concession, the EPA has mandated a 630-million-gallon increase in the volume of advanced biofuels blended into the fuel supply nationwide. That includes biofuels made from soybeans and sorghum—crops also hurt by tariffs.

The EPA uses credits called “renewable identification numbers,” or RINs, to enforce these ethanol quotas. The credits are created when ethanol and gasoline are mixed, but independent refiners usually aren’t blenders. They can’t create RINs, so they’re forced to buy them.

Big oil and corn producers and speculators have cornered the market for the credits, driving up prices. When the East Coast’s biggest refinery, Philadelphia Energy Solutions, filed for Chapter 11 bankruptcy in 2018, it blamed RINs. By 2017 the credits had cost twice as much as the company’s payroll.

The new regulations do little to prevent manipulation of the RINs market. Gone are earlier proposals that would have barred hoarding the credits and required speculators to sell promptly. The new rule does mandate more transparency, but that doesn’t change the basic incentives in this artificial market. Mark it down as another example that one bad economic policy leads to many more.