Trump Boosts High-Ethanol Gasoline as He Courts Iowa Farm Voters

Source: By Jennifer A Dlouhy, Bloomberg • Posted: Wednesday, October 10, 2018

President Donald Trump moved on Tuesday to make it easier to sell more ethanol in vehicle fuel, delivering a victory to corn farmers and biofuel producers that could translate to long-term market gains.

Trump said he had signed a memo telling the Environmental Protection Agency to lift summertime fueling restrictions on E15 gasoline containing as much as 15 percent ethanol. On Tuesday night, Trump underscored the policy change at a rally in Iowa, the nation’s top producer of both ethanol and the corn used to make it.

“Today we are unleashing the power of E15 to fuel our country all year long,” Trump told the crowd in Council Bluffs. “Promises made, promises kept.” He suggested Democrats would take the victory away, arguing that that was a reason for Iowa voters to head to the polls.

The shift is seen as helping bolster Midwest Republicans in tough election contests and appeasing corn farmers battered by agricultural tariffs.

Trump had to do “damage control” with his agricultural, Republican base as they bear the brunt of the U.S. trade war with China, said Mack Shelley, chair of the political science department at Iowa State University. The move is “designed to shore up support for Republican voters,” Shelley added.

The action also provides Iowa Governor Kim Reynolds and Republican Representative David Young with evidence they helped get the new policy across the finish line. Both are locked in tight election contests, and both have pressed Trump to authorize year-round E15 sales. Young flew to Iowa with Trump on Air Force One.

Reynolds praised the president at the rally. “Thank you for year-round E15,” she said. “Our farmers thank you.” She added that with Trump,“the Midwest has a partner in the White House.”

As he left the White House earlier on Tuesday, Trump linked his E15 change to high oil prices, saying he was “helping our farmers” at the same time “we’re taking care of our refineries and our refiners.”

“I want low prices,” Trump told reporters on the White House lawn. Ethanol is “an amazing substance,” he said. “The farmers have been so terrific and they produce great product, so I think it’s going to be great.”

U.S. Agriculture Secretary Sonny Perdue hailed Trump’s directive, calling it “an excellent way” to take advantage of high corn productivity that will increase demand for the commodity. “This has been a years-long fight,” Perdue said in an emailed statement, “and is another victory for our farm and rural economies.

Trump’s action may deliver a psychological boost to rural voters leading up to the November elections, but it won’t yield immediate dividends for E15.

The EPA will now spend months using a formal rulemaking process to finalize the shift on E15, which contains 15 percent ethanol and 85 percent gasoline. Even then, there may be years of additional uncertainty, as opponents vow to sue, arguing that the EPA doesn’t have legal authority to waive E15 from air pollution requirements without further action from Congress.

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The administration’s plan is “a backdoor ‘fix’ to artificially boost sales and justify future government-imposed increases to the ethanol mandate,” said Nan Swift, director of federal affairs at the National Taxpayers Union. “Consumers have repeatedly made it clear that they do not want more ethanol in their fuel. We need a truly free market, not more government manipulation.”

Most gasoline contains 10 percent ethanol, which is permitted year-round. Only about 1 percent of filling stations sell E15 — a figure that could climb significantly with Trump’s change, since some retailers have been discouraged by the need to change pumps and labels seasonally.

Analysts expect relatively modest gains in the short term but say there’s greater potential down the road, if the EPA rulemaking survives legal challenges.

“In theory, the new rule would allow ethanol’s share of the gasoline pool to increase as much as 5 percentage points as E15 supplants E10, but in fact any such change is far off and rests on dubious legal grounds,” James Lucier, of Capital Alpha Partners, said in a research note.

Ethanol’s gain comes at the expense of the oil industry, which has lobbied against the move.

American Petroleum Institute President Mike Sommers said the E15 shift “is not in the best interest of consumers” because using it risks engine damage in older cars on the road today.

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“EPA has previously stated that it does not have the legal authority to grant the E15 waiver, and we agree with that assessment,” Sommers said in an emailed statement. “The industry plans to aggressively pursue all available legal remedies against this waiver.”

Because ethanol is corrosive, critics say E15 can cause damage to cars, especially older ones. For years, some auto manufacturers explicitly threatened that warranties would be voided if motorists use the fuel, but major automakers have backed off from that opposition.

Ford Motor Co., which was one of several manufacturers to warn in 2011 of potential damage to engines and fuel-supply systems, is no longer against E15 and has built its vehicles to be capable of running on the fuel since the 2013 model year, said John Cangany, a company spokesman.

The Alliance of Automobile Manufacturers, a major automaker trade group, also softened opposition as cars engineered to run on E15 have become more common. “The EPA should ensure the E15 pumps are adequately labeled so consumers can correctly fuel their vehicles since not all cars on the road can use E15,” Alliance spokesman Wade Newton said in an email.

Trump was paring his ethanol announcement with a call for the EPA to impose new restrictions on the trading of Renewable Identification Numbers, the credits refiners use to prove they have satisfied biofuel blending quotas.

— With assistance by Ryan Beene, Keith Naughton, Craig Trudell, Jennifer Jacobs, and Toluse Olorunnipa

(Updates with quotes from Trump, Reynolds, starting in third paragraph.)