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Trump Backs Oil Over Agriculture

Corn

The Trump administration seems to be leaning towards allying with the oil refining industry in its fight against Big Corn and federal rules requiring the use of corn ethanol.

Reuters reports that the U.S. EPA apparently granted an exemption to Andeavor, a large oil refiner, from having to comply with blending requirements as part of the Renewable Fuels Standard (RFS) last month. The RFS requires refiners to blend biofuels, such as corn ethanol, into their refined fuels. If they can’t or find it too costly, they are required to purchase credits.

The law dates back to 2007 under the George W. Bush administration, and is intended to cut crude oil demand and improve U.S. energy security. It has brought a windfall to corn country, although the environmental benefits have always been suspect.

The oil refining industry hates the law, because it forces them to pay for biofuels or pay for credits in lieu of blending ethanol into their fuel.

The latest waiver is notable because Andeavor is not in financial trouble, and could easily comply with the rules. The EPA gave the refiner an exemption at three of its smallest refineries, and as Reuters notes, it “marks the first evidence of the EPA freeing a highly profitable multi-billion dollar company from the costly mandates of the U.S. Renewable Fuel Standard.” Related: Can Spotify Live Up To Its $30B Valuation?

Typically, waivers are granted only in cases of financial hardship, and the move comes after a recent EPA decision to absolve Philadelphia Energy Solutions (PES), the largest refiner on the east coast, from some of its biofuels liabilities, which the company said helped force it into bankruptcy.

That move was significant, and it cracked open the door to potential changes in biofuels policy that the oil industry had long sought. The bankruptcy filing from PES sparked a heated battle between refiners and the ethanol industry. But the more recent exemption to a refiner that isn’t in a financial predicament is a whole different matter.

Politically, it is a tricky situation for the Trump administration. President Trump has counted both the oil industry and Big Corn as allies. He has hosted representatives from both industries at the White House to hash out a compromise, but has repeatedly kicked the can down the road. However, if the waivers are anything to go by, it now appears that the EPA is siding with refiners.

A 2017 lawsuit opened the door to a more lenient process to obtain a waiver from the EPA, Reuters reported. Since then, applications for waivers have spiked – more than 30 refiners have sought exemptions from biofuels requirements this year, compared to 12 to 15 in a typical year, Reuters says.

The biofuels industry is crying foul, arguing that the exemptions come with no legal justification, and that the exemptions themselves undermine the biofuels industry by significantly devaluing the market for biofuels credits. After Reuters reported on the Andeavor waiver, which seems to be the first report on the secretive exemption, the prices for biofuels credits fell by 6 cents, or more than 10 percent. Related: The Inevitable Collapse Of China's Economy

Industrial agriculture is now getting hit on two fronts by the Trump administration – the EPA is undermining the biofuels market, and Trump’s rapidly escalating trade war has resulted in Chinese tariffs on U.S. soybeans, a major U.S. export commodity.

It is no surprise that Iowa’s powerful Republican Senator Chuck Grassley is incensed. Granting Andeavor “a free pass when other companies are required to follow the law of the land isn’t just unfair, it may be illegal,” Grassley said in a statement to Reuters. “It would also amount to a massive government handout to a big corporation that made billions in profits just last year.”

It is unclear if Iowa and the ethanol industry can mount a defense. EPA Administrator Scott Pruitt has a long record of favoring the oil and gas industry, and the recent decisions in favor of refiners is consistent with that pattern. With President Trump unlikely to personally involve himself in this battle that has political costs either way, Pruitt’s EPA seems likely to set the tone.

By Nick Cunningham of Oilprice.com

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