Washington Insider -- Thursday

Ethanol and Methane Fight

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USDA Secretary Perdue Enters The US-Mexico Trade Spat

USDA Secretary Sonny Perdue suggested this week that import duties being threatened by the US Commerce Department against Mexico will not help U.S. refiners. “We’re not asking our sugarbeet producers, nor our cane producers in Louisiana and Florida, to do things that are not in their long-term best interest,” Perdue told the National Association of Farm Broadcasting (NAFB) on Tuesday, according to Brownfield Ag News. “I’m not going to ask anybody to sign a deal that’s going to put them out of business, but we do want them to think long and hard about the consequences.”

Late Monday, the Commerce Department set a June 5 deadline for renegotiating a deal that has suspended steep antidumping and countervailing duties on Mexican sugar imports since 2014. If an agreement is not reached, Commerce Secretary Wilbur Ross said he will resume collection of hefty duties. The June 5 represents the statutory deadline for the Commerce Department to reach a decision on the reviews of the suspension agreements.

Mexico, in a response to the Commerce deadline, issued a statement that blamed U.S. refiners for making “excessive demands.”

While the agreements allow no more than 53% of sugar imports to be refined, Mexican exporters are sending a higher grade of sugar that meets the definition of raw sugar but can bypass sugar refiners and be used directly by melt houses, according to some U.S. refiners. The suspension agreements call for at least 47% of Mexican sugar exports to be raw sugar for further refining, Under the current suspension deals, refined sugar is defined as having a polarity of 99.5% or above. Polarity refers to the level at which sucrose dissolves in water.

U.S. producers want the definition of refined sugar to move to a lower polarity level, which would have made it more difficult for Mexico to ship standard sugar. The current agreements do not define whether polarity is to be measured on a dry or wet basis. Another problem is that there is no enforcement for violations.

Commerce Secretary Ross Outlines NAFTA Priorities

Updates to the “ancient” North American Free Trade Agreement (NAFTA) are needed in the areas of digital trade, services, dispute resolution and rules of origin, Commerce Secretary Wilbur Ross told CNBC, adding that NAFTA also contains weak enforcement provisions.

Reworking or exiting the decades-old NAFTA was one of President Donald Trump's signature campaign issues, but official negotiations with Mexico and Canada have yet to start. Ross blamed Congress for the delay, saying that the administration is working on the technicalities of the notification to Congress required under Trade Promotion Authority (TPA/fast-track) procedures. Action on NAFTA was a promised early agenda item, and April 29 marked the 100th day of Trump's presidency.

Trump should not be blamed for “something outside of his control,” Ross argued. TPA procedures require the administration to formally notify Congress of its intention to start trade negotiations 90 days before talks can be launched. The official notification has not been sent to Congress yet, although the administration submitted a draft in late March. Under the timeline, the earliest NAFTA talks could now start would be in August.

The administration is waiting for Senate confirmation of Robert Lighthizer, Trump's pick for U.S. Trade Representative (USTR), before moving forward with the notice. Trump was mulling a draft executive order to pull the U.S. out of NAFTA, but never signed the order, saying he was convinced to try renegotiation instead based on conversations with the leaders of Canada and Mexico.

Washington Insider: Ethanol and Methane Fight

Bloomberg is reporting this week that an Interior Department rule requiring energy companies to curb emissions of methane from wells and pipelines on public land is a problem for them and they want it overturned.

Now, although Senate Republican leaders say they are close to getting the 51 votes they need to overturn that regulation under expedited repeal procedures under the Congressional Review Act, time is running out and the deadline is only about a week away—and the campaign is on the verge of capsizing.

Four Midwest Republicans, including Senators Chuck Grassley, R-Iowa, and John Thune, R-S.D., told Senate leaders the price for their votes for the methane measure is a change in ethanol policy that allows higher blends of ethanol. That proposal was pushed for inclusion in the $1.1 trillion omnibus spending bill set to advance this week, but ended up being eliminated, Bloomberg says.

Ethanol advocates are still pushing for EPA or Congress to waive rules that restrict gasoline blends containing more than 10% ethanol from sales in summer months. Such a waiver already applies to gasoline containing 10% ethanol, but not higher ethanol blends -- effectively barring the sale of 15% ethanol from June 1 until September 15 in some areas when smog is a problem.

The issue is a high priority for biofuel producers such as POET LLC and industry trade groups, including the Renewable Fuels Association and the Growth Energy coalition of supporters. Advocates of the change have asked EPA Administrator Scott Pruitt to unilaterally issue a waiver and advanced legislation to make the shift. Including it in the must-pass government spending bill would ensure it makes it through Congress and is signed into law.

Still, the regulatory repeal of the methane regulation may not be dead yet in spite of its exclusion from the FY 2017 omnibus spending bill. Ethanol supporters are now asking Republican leaders for a commitment to put the ethanol provision on a must-pass bill later, Bloomberg says, although it is not clear Republican leaders will accept this offer because some oil companies oppose the change because it could translate to greater demand for ethanol, a competitor.

"Refiners are unlikely willing to trade the waiver for repealing the methane regulation" said Stephen Brown, vice president and counsel at refiner Tesoro Corp. "This last-minute attempt at hostage-taking by a collection of corn-state senators is an unfortunate gambit that jeopardizes months of work by Senate Republican leadership to change the methane rule."

Republican leaders had been working for weeks to gather the votes for a separate resolution voiding the methane rule using the Congressional Review Act. The deadline for using the act to repeal rules issued under Obama is projected to be May 11. Senator John Barrasso, a Republican from Wyoming who sponsored the measure, vowed to pass it next week, telling Bloomberg that the underlying methane regulation is "unnecessary" and "expensive."

Although the House easily passed the methane rule repeal in February, Senate Republican leaders have struggled to piece together a 51-vote majority for the measure, amid expected opposition votes from Republicans Susan Collins of Maine and Lindsey Graham of South Carolina. Two potential Democratic supporters -- Heidi Heitkamp of North Dakota and Joe Manchin of West Virginia -- also are undecided, according to their representatives.

Senator Cory Gardner, R-Colo., told Bloomberg that his vote remains in play as he hears from environmental supporters of the methane limits and industry supporters of rolling them back. He is reluctant to do anything that might jeopardize Colorado’s own methane limits, he said.

Senator Rob Portman, R-Ohio, has also been skeptical of the effort. "I’m still working with the Department of Interior, and we are going to come up with a solution that helps reduce methane flaring and venting," Portman said in an interview. "I want to be sure there is the ability to put together something reasonable."

The Interior Department methane rule, which applies only on public land, aims to discourage the practice of venting and flaring natural gas at oil wells. The regulation blocks companies from venting gas except in emergencies, phases down the amount of flaring that is allowed, and forces the businesses to detect and repair gas leaks.

So, we will see how this fight works out. The issue is important to environmental groups who are working hard to maintain their visibility and it is seen as important to long-time ethanol advocates like Senator Grassley who has seen opposition to renewable fuel mandates grow both within and outside agriculture. Thus, it is a fight producers should watch closely as it develops, Washington Insider says.

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