How the Farm Belt Pressured Trump and Beat the Oil Industry

(Bloomberg) -- Farm-state interests just conquered Big Oil in a fight over biofuels, proving that in Donald Trump’s Washington, King Corn still reigns. 

The clash erupted over the future of the Renewable Fuel Standard, a 12-year-old law that compels the use of fuels such as corn-based ethanol and soy-based biodiesel. Although the president had repeatedly promised Midwest voters he would "protect" ethanol and support the program, his Environmental Protection Agency was considering steps to dilute the mandate.

Farm-state governors and senators revolted -- setting off a behind-the-scenes struggle between two special-interest heavyweights. Lobbyists for oil refiners warned of higher gasoline prices if the administration backed down. Iowa leaders countered that Trump could face political retribution in 2020 during the state’s first-in-the-nation caucuses. Republican senators threatened to delay confirmation of the president’s nominees. 

"I wasn’t afraid to put the squeeze on," Senator Joni Ernst, an Iowa Republican, said in an interview. "This was really important. We’ve got 88,500 family farms here in Iowa, and they rely on this."

After three weeks of frenzied lobbying by both sides, the president ordered his EPA administrator to back off -- handing an unalloyed victory to the farm belt. EPA chief Scott Pruitt’s formal capitulation came days later in the form of a letter that detailed concessions to biofuel producers and underscored corn’s continued clout in the nation’s capital.

The issue is politically perilous for any president, but especially Trump, who visited ethanol factories while campaigning in Iowa and promised the state’s voters he would stand by the home-grown biofuel if they elected him to the White House.

Earlier: Trump Is Said to Tell EPA to Boost Biofuels After Iowa Uproar

But biofuel industry leaders grew worried after Trump began staffing his administration with allies of the oil industry, which views the biofuel requirements as costly and burdensome. Chief among them: Pruitt, a former attorney general from Oklahoma who criticized the RFS before he became EPA administrator and is expected to run for political office from the state, where ethanol-free gasoline flows at many filling stations and the oil industry dominates.

Then came a formal EPA request for public comment on possibly reducing biodiesel quotas. The Sept. 26 "notice of data availability" that outlined potential changes posed some 20 questions about ways to lower quotas, but none related to increasing the requirements. It also explicitly invoked oil industry arguments about the danger of relying on imported biodiesel.

A day later, Bloomberg reported the EPA was weighing a plan that would allow exported biofuel to count toward domestic quotas -- a move that would drive down costs for refiners but could disadvantage some ethanol makers that profit from selling tradable credits that are used to show compliance with the mandates.

Congress’ Biofuel Goal May Keep Agency on Track: Bloomberg Intelligence

The threat was obvious. "It galvanized our industry," said Brooke Coleman, executive director of the Advanced Biofuels Business Council. 

The oil industry, by contrast, remained fractured over the best prescription for what they argue are rising costs of complying with the law. Oil industry lobbyists urged Trump administration officials not to give in to an "extortion" attempt by senators, nor back down from changes they described as modest fixes needed to keep refineries running and prevent gasoline prices from spiking. Some stressed that the interests of farmers and ethanol producers are not always neatly aligned as they argued that increased exports could boost corn and soy demand.

"Many big corn state senators care about preserving windfall profits resulting from the dysfunctional RFS implementation -- much to the detriment of the American gasoline consumer," said Bill Douglass, head of the Small Retailers Coalition that represents independent petroleum sellers and convenience stores.


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