Oil-state Sen. Ted Cruz captured President Trump’s attention two weeks ago with his dramatic proposal to ease the cost of the ethanol mandate on refiners: A price cap on RINs, the credits that refiners buy if they don’t blend enough biofuel into gasoline. Farm groups and ethanol makers say Cruz’s idea would be a disaster for them, and now some alternative ideas are getting a hearing.
Discussions have receded to the departmental level after two meetings chaired by Trump at the White House. At the second meeting, Trump suggested the RINs cap could be part of an oil-and-ethanol package. Iowa Sen. Chuck Grassley told reporters the focus no longer was a RINs cap as the only solution. “I think there are people dealing with alternatives to capping that are getting serious consideration,” said the senator, who did not describe the options. “I don’t know how far they’ve gone.”
The RINs dispute pits two groups that supported Trump. The rural vote was pivotal to Trump’s election but he also carried Pennsylvania. Philadelphia Energy Solutions, a refiner, says it went broke because of the cost of RINs. The ethanol industry says Cruz would cap RINs at such a low price — 10 cents each — that there would be no incentive to blend ethanol if credits were so cheap. More than a third of the U.S. corn crop is used to make ethanol. The Renewable Fuel Standard guarantees biofuels including corn ethanol a share of the gasoline market.
Farmers regard ethanol as the economic spark that boosted grain prices after years in the doldrums, said National Farmers Union president Roger Johnson. “Ethanol provided that in spades,” so a weakening of the RFS would damage the rural economy.
EPA administrator Scott Pruitt told reporters that the government might limit speculation in RINs as a way to address volatlity in the market. He also said he would explore year-round sale of E15, now banned during the summer. The traditional blend is 10 percent ethanol into a gallon of gasoline. E15 is a 15-percent blend. The Houston Chronicle quoted Pruitt as saying, “The market challenges we have are real. The president has a commitment to the [ethanol mandate] and ranching and farming communities in this country. But he doesn’t want refineries to shut down either.”
The EPA has decided that Philadelphia Energy Solutions will have to pay only half of its roughly $350 million in RFS compliance costs. The decision ignited complaints that EPA set a bad precedent and questions whether the agency had the power to grant the break to the refinery, said Reuters. The news agency said there were other factors than RINs costs involved in the refinery’s cash shortfall. “The EPA will now require PES to buy credits semi-annually, rather than annually. That makes it more difficult for the refinery, the largest on the U.S. East Coast, to build up a large short position or defer its obligations and risk getting into a hole, as it did in 2017.”
While Cruz advocated a price cap on RINs, an ethanol industry leader, Jeff Broin, drew up a different approach — a two-year period when a larger than usual number of RINs would be available and refiners would get extra credit for ethanol blends that exceed 10 percent, said DTN/Progressive Farmer. Broin also backed year-round E15 sales.
Agriculture Secretary Sonny Perdue told a farm news network that the ethanol industry and corn farmers ought “to engage” rather than stonewall over RFS, according to The Hagstrom Report. It quoted Perdue’s comments to the Red River Farm Network: “The president has an obligation to listen to all (sides), and people have told him they are losing jobs in the merchant refineries because of this. Whether it is true or not, we have to engage.”