Trump Caught Between Corn, Oil Interests on Renewable Fuels

Source: By Jennifer A Dlouhy and Mario Parker • Posted: Monday, September 19, 2016

Donald Trump is trying to walk a fine line between Iowa corn interests and the oil industry.

The Republican presidential candidate’s struggle to appease the antagonistic industries was in the spotlight Thursday when his campaign published a fact sheet calling for the elimination of a slew of regulations, including a scandal-marred system of buying and selling biofuel blending credits that some oil refiners hate.

“The EPA’s renewable identification number program penalizes refineries if they do not meet certain blending requirements,” Trump’s campaign said in the fact sheet. “These requirements have turned out to be impossible to meet and are bankrupting many of the small and midsize refineries in this country. These regulations will give Big Oil an oligopoly by destroying the small to mid-size refineries.”

If Iowa growers — who back the mandated use of ethanol and the credits created to make that system work — were worried Trump was backing off his support of the corn-based fuel, they needn’t be. Hours later the campaign re-issued the fact sheet with that language deleted and no explanation.

In the initial fact sheet released along with his speech to the Economic Club of New York, Trump said the climbing cost of those credits, known as renewable identification numbers, or RINs, threatens to bankrupt merchant refiners who must buy them because they don’t have infrastructure to blend required amounts of ethanol into their gasoline.

Tuesday in Iowa

Trump endorsed the underlying biofuel quotas as recently as Tuesday, when he vowedto protect the government’s Renewable Fuel Standard and the corn-based ethanol that satisfies much of the program today. Especially given that commitment, the Trump campaign’s assertion “shouldn’t be interpreted as a reversal of support for the RFS,” said Bob Dinneen, president of the Renewable Fuels Association.

The position wins support in the Corn Belt, though it is a rare point of division between Trump and the oil industry, which is pushing Congress to spike the biofuel mandates. On other energy issues, Trump is closely aligned with the interests of the oil industry. Trump advocates more drilling on public land and has promised to rescind environmental regulations, including the Clean Power Plan that restricts greenhouse gas emissions.

Divided Industry

Still, Trump’s decision to inject himself to one side of the biofuel debate two days after pledging full support of the program in Iowa shows that scrutiny is intensifying as the price of biofuel credits climbs, said Timothy Cheung, vice president of research at the Washington-based consultancy ClearView Energy Partners LLC.

“According to some people it isn’t working and according to some people it’s just fine,” Cheung said by phone. “This is a political issue.”

The oil industry is deeply divided over who should comply with the program as long as it lasts. Some independent refiners, such as Valero Energy Corp. and investor Carl Icahn’s CVR Energy Inc., want the burden shifted away from refiners and importers to the blenders who mix ethanol into fuel. Others, such as Marathon Petroleum Corp. and Tesoro Corp., have argued against such a change, which could be made by the Environmental Protection Agency or forced by Congress.

Click here to read more about the debate over renewable identification numbers

It is not clear what, exactly, Trump would do about renewable identification numbers if elected. Bloomberg Intelligence analyst Rob Barnett noted that the Trump campaign’s original statement doesn’t do much to clarify “his vision for the program,” but shows “he’s kind of taken the side of the independent refiners here.”

Trump campaign spokespeople didn’t return requests to comment on the fact sheet change or clarify his position.

Ron Minsk, a former Obama administration official who has advised companies that must comply with the Renewable Fuel Standard on the program, said changes to the RINs could drive more biofuels into the marketplace.

“I agree that the current structure of the RFS has made it difficult for many refiners to meet their obligations and that thoughtful regulatory changes to the program could improve its operation, lower compliance costs and increase the incentives to blend more renewable fuel,” Minsk said by phone.

Trump ‘Misinformed’

The American Petroleum Institute casts the debate over who should bear the compliance burden as a distraction from deeper problems with the biofuel mandates.

“Altering the RINs rule does not fix the overall program, which continues to push consumers to use higher ethanol blends that they don’t want and don’t need,” Frank Macchiarola, API downstream group director, said by e-mail.

Stephen Brown, vice president and counsel of federal government affairs at Tesoro, said Trump was “misinformed on the role that RIN costs are playing within certain refiners.”

“It is not RIN costs that are harming these companies, but rather the fact that margins are weak in today’s market, and that dynamic is impacting the entire sector,” Brown said by e-mail. The impact is not spread equally among refiners because of their different business structures and investment decisions, he noted.

Companies with fuel blending infrastructure — including truck stop owners and other businesses that don’t actually refine fuel — can sell excess renewable identification numbers they generate from mixing in ethanol and don’t need to comply with the mandates. Supporters of the current approach say refiners that don’t want to be on the hook for buying biofuel credits can buy blending facilities instead.RINs tracking ethanol compliance have more or less doubled since Sept. 29, 2015, according to Progressive Fuels Ltd., a Naples, Florida-based brokerage, and data compiled by Bloomberg.

Complaints about compliance costs really have more to do with investment decisions and the impact of the crude oil rout, said Andrew Clyde, chief executive officer of Murphy USA Inc.

“We’ve just got sort of this classic issue of maybe buyer’s remorse on one end and low refining margins,” Clyde said. “It would be nice to point the finger at the RIN,” but even absent those costs, refiners that are complaining would still be generating poor returns.