The swamp’s tug-o-war over America’s ethanol mandate
A biofuels standard Congress passed more than a decade ago in the name of rural development, energy security and climate change has devolved into an arcane fight over market share that has nothing to do with those initial three goals.
Why it matters: The law — called the renewable fuel standard that requires refineries to blend biofuels into gasoline — is a textbook example of how regulations create winners, losers and unintended consequences.
The level of attention President Trump has given to this policy is remarkable given the chaos emanating from him in the West Wing. It reflects the important competing interests of corn farmers in Iowa and refiners in Pennsylvania.
“He’s taking a very personal involvement in it,” Republican Sen. Chuck Grassley of Iowa, the most influential congressional backer of the policy, told me in an interview last week. “When you have the president himself, you don’t need to worry about the chaotic conditions at the White House.”
Trump and his top advisers have been meeting in recent months with companies that refine oil and those that produce corn ethanol, as well as their allies in Congress to find elusive middle ground over the mandate’s compliance costs.
- Some refineries are facing high costs to comply because they don’t have the capacity to blend ethanol. So they have to buy credits called Renewable Identification Numbers (RINs) from others that do have blending capacity, including other oil companies.
- These refineries, which include Northeast-based firms PBF Energy and bankrupt Philadelphia Energy Solutions, want the mandate relaxed so their costs go down.
- One proposal by Republican Sen. Ted Cruz of Texas would cap the amount of RINs companies can trade.
- Ethanol companies want the policy expanded to allow more blending, which they argue would lower compliance costs.
“The last six months have been about RINs and most people have no idea what that is and why we are talking about RINs,” said Emily Skor, CEO of Growth Energy, a coalition of ethanol companies.
Grassley tweeted to Trump late last week: “I want to shake what u might be planning abt a RINS cap for a short period. It will be CATASTROPHIC to ethanol.”
That prompted responses on Twitter like “How many of you even know what RIN is ? Without goggle ? [sic] LOL” and “What is RINS cap?”
This arcane fight is a classic battle for market share. Corn ethanol’s share of the fuel market is growing and testing some refiners’ ability to comply with the mandate. Nearly every gallon of gasoline now has 10% ethanol blended into it.
When Congress created the mandate in 2005 and expanded it in 2007, lawmakers predicted increasing gasoline demand and decreasing oil production. On both fronts, the opposite occurred: Oil production skyrocketed and demand for gasoline leveled off. Companies are fighting for their piece of a stagnant transportation fuel mix.
“It is now a battle about winners and losers,” PBF Energy CEO Tom Nimbley told me at an energy conference in Houston earlier this month. “It’s a fight over money and market share.”
Other oil companies, ranging from giants Shell and BP to independent refiners like Andeavor, are better situated to comply with the mandate. That's either because they've had a long-standing ability to blend ethanol with gasoline or because they changed their strategy over the last decade to do so.
“Some people do long-range planning better than others,” said Jack Gerard, president of the American Petroleum Institute, whose members represent all parts of the oil and refining sectors. “That’s what we call free-market competition.”
Nimbley said his company hasn’t been able to change its operations to blend ethanol due to infrastructure and geographical constraints.
“It’s an expedient argument to say ‘you just don’t have the right business model,’ ” Nimbley said. “That’s just not factual. That’s just the hyperbole that gets into this situation.”
While refineries and ethanol companies battle it out over the mandate’s compliance costs, the third goal Congress had in mind of combating climate change is lost in the noise. Lawmakers envisioned biofuels made from plant material that's cleaner than corn ethanol to develop. That hasn't happened.
- The law had envisioned 5.5 billion gallons of biofuels made from cellulosic material like switchgrass to be produced last year.
- Instead, just 13 million gallons of this liquid type of biofuels came online in 2017, according to Michael McAdams, head of the Advanced Biofuels Association. This is due to several unforeseen factors, including the 2008 economic recession and regulatory uncertainty during the Obama administration.
“We had high expectations,” said Henry Waxman, a former California Democratic congressman who helped pass the 2007 bill. “But we are very much disappointed by the way this law has worked out.”
What’s next: More tug-o-war. Grassley and other Republicans representing corn-producing states sent a letter to Trump Thursday requesting another meeting to talk about Cruz’s proposal to cap RINs. Lawmakers are also working on legislation. That remains a long-shot because ethanol policy divides the Republican Party controlling Congress.
“RINS and repeat,” as a Twitter user told Grassley.
GOP: Fixing the tax law is nothing like fixing the ACA
Republicans have discovered their tax law contains a mistake and are hoping Democrats will help them fix it. But if the narrative of "one party passed a giant law and now wants to change it" sounds familiar, Republicans are insisting this is different from when they wouldn't help fix the Democrats' Affordable Care Act.
Between the lines: This is a great indicator of why Congress struggles to get anything done — because now the precedent has been set for one party to refuse to fix problems with the other party's laws. And for what it's worth, some Democrats are also denying the parallel — because, of course, they say their ACA process was much more inclusive than the GOP's tax one.
Setting the scene: The tax law has a provision that's being referred to as the "grain glitch" that hurts some farmers. That's got some Republicans in a panic, and as they rightly point out, Democrats represent farmers too. (Reminder: Every state has a Medicaid program and people who get insurance on the individual market.)
- The bottom line here is that to fix their mistake, Republicans need at least some Democrats to vote with them to do so.
I asked a lot of Republicans what Democrats seem likely to do and whether this was reminiscent at all of Republicans not wanting to improve the ACA. Their answers were all over the map — everything from "that was different" to "we should fix both" to memory loss.
On whether Republicans should have fixed the ACA:
- Sen. Jeff Flake: "I don’t know, I don’t remember what we didn’t want to fix. It’s been too long I guess.”
- Sen. John Kennedy: “I wasn’t here then. I can tell you, if somebody pointed out something in legislation that I opposed that was going to hurt somebody unfairly, I would cooperate with them."
- Sen. Jerry Moran: "I think in both instances, it’s wrong not to fix legislation that has flaws, and Republicans should cooperate on legislation that is supported largely broadly by Democrats and Democrats should help us fix problems. This is about our constituents."
On what's the difference:
- Sen. Joni Ernst: "Republicans acknowledge [the tax law is] not working the way it was originally intended. Democrats have never acknowledged that Obamacare failed.”
- Sen. John Thune: "Most of the ACA stuff, we kind of wanted to undo the whole thing. This is a technical, unintended consequence that has broad ramifications for both Democrats and Republicans."
- Sen. Thom Tillis: "Health care, in my opinion, there’s a universal problem. When you’re talking about ag policy, there’s a number of states that are going to be disproportionately hit."
- Sen. Rob Portman: "There’s no ideology here. It’s an inadvertent problem that needs to be fixed. So I would think people will want to do that.”
On why Democrats should help fix the "grain glitch":
- Sen. Pat Roberts: "That should be a bipartisan concern about what’s going on. I don’t know why they would want to hold it up other than politics.”
- Thune: "This is not a Republican or Democrat problem, it’s a problem that affects farm country, and if we don’t fix it, it’s going to create a lot of disruption.”
- Sen. Rob Portman: "A lot of Democrats from rural states will want to fix it because it’s going to hurt their constituents."
- Sen. Chuck Grassley: "Surely Democrats have to understand that when you make a mistake like that, it ought to be fixed without bargaining with them on something else."
To be fair, some Democrats also disagreed with the comparison, albeit for totally different reasons:
- Sen. Tim Kaine: "The difference is, their thumbprints were all over the ACA. They got 160 amendments to it. They made a strategic decision on the floor to vote against it, but they didn’t have process arguments ... So no, I don’t think it’s an analogous argument at all.”
- Sen. Joe Manchin: “I’m willing to fix anything that needs to be fixed. I was here when everyone stonewalled everything. I watched what happened to the Affordable Care Act ... It’s not like it’s payback time. I didn’t come here for that."