Washington Insider -- Thursday

New Ethanol Rules are Both Supported and Opposed

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

USDA's Perdue to Reuters: Farmer Aid May be Smaller Than Announced

The U.S.-Mexico-Canada Agreement (USMCA) may end up making the farmer aid plan drawn up by the administration smaller than originally estimated, USDA Secretary Sonny Perdue told Reuters in an interview.

As the agency takes into account the USMCA, that could affect the total, he noted, adding that talks with Mexico and Canada on removing the steel and aluminum import duties – and presumably their retaliatory actions against US products including ag goods – were just getting started.

Further, Perdue also indicated he expected the rule to allow year-round sales of E15 would be ready before the 2019 driving season begins. "Year-round sale of E15 will increase demand for corn, which is obviously good for growers," Purdue said in a statement.

Senate Sends Water Bill to Trump

The Senate voted 99-1 to approve the America's Water Infrastructure Act of 2018 (S 3021) to President Donald Trump. The measure, also referred to as the Water Resources Development Act, was cleared by the House.

The bill would authorize $6.1 billion of federal spending on 12 Army Corps of Engineers projects, authorize $4.4 billion for the state drinking water revolving loan fund program and make changes to the Water Infrastructure Finance and Innovation Act program designed to ease the application process. It provides states and water utilities with highly subsidized financing to construct mega-projects such as water treatment plants or to replace lead pipes.

The bill also would have the National Academies study whether the Army Corps of Engineers should continue to be a part of the Department of Defense.

Washington Insider: New Ethanol Rules Supported, Opposed

Earlier this week, President Donald Trump directed EPA to develop a regulation that would allow sales of E15 all year. It is currently prohibited during the summer months due to pollution concerns, The Hill says this week.

The report says the new policy is “creating strange bedfellows” because some environmental groups and the oil industry oppose it. The groups both call the plan “bad policy” and are contemplating suing the Environmental Protection Agency if it is finalized.

“Ethanol blended in gasoline does produce more pollutants that lead to smog than gasoline alone,” David DeGennaro, agricultural policy specialist with the National Wildlife Federation, told The Hill. He thinks the blending increase “breaks those limits that are in the Clean Air Act and could potentially lead to more ozone formation.”

The oil industry, however, has a different concern. They’re worried that the change would reduce the incentive for the ethanol and corn industries to negotiate major reforms to the Renewable Fuel Standard—and the companies also stand to sell less traditional gasoline, while their costs could go up, if the plan is implemented.

“I can’t overstate how disappointed we are with this decision by the president,” said Chet Thompson, president of American Fuel and Petrochemical Manufacturers, which represents fuel refiners.

“We have been working with the administration for a long time trying to find a path forward that can work for everybody,” he said. “The president certainly has indicated he wanted to find a solution that works for both sides of this issue. But unfortunately, what he has now instructed EPA to do doesn’t come close to that.”

To move forward with Trump’s request, the EPA is developing a regulatory proposal that would have to be made available for public comment. The EPA would then have to review the comments before finalizing the rule, possibly in time for next summer.

The president told reporters aboard Air Force One this week that the process of changing the ethanol policy at the EPA would move fast. “It’s all going to go very quickly,” he said.

Environmental advocates and the oil industry both say the new policy would violate a Clean Air Act provision that limits the volatility of fuels. The EPA has concluded several times, most recently in 2011, that allowing E15 in the summer, when ozone pollution levels are highest, would violate the law.

Trump argues that the policy is “a win-win” and follows through on his pledge to Iowans in 2016 to strongly support ethanol. He claims the new policy is “great for our farmers, and it was a promise I made during the campaign,” He also rejected arguments that using the ethanol blend year-round would compromise air quality.

“It has no impact, 12 months,” he said. “In fact, there are those who say, ‘You do this and the air is cleaner. You go 12 months instead of eight and the air is actually cleaner.'"

A senior administration official on Monday pointed to changes that the president is directing the EPA to make to the trading market for Renewable Identification Numbers (RINs), the credits that some refiners have to buy in order to demonstrate compliance with the ethanol mandate. The administration is asking EPA to put new restrictions on who can buy and sell credits and how long they can hold them, among other policies intended to keep prices low.

But the oil industry says that wouldn’t help them.

If E15 were to become the standard gasoline, that “implies a 50 percent increase in ethanol production,” Jonathan Lewis, senior counsel at the Clean Air Task Force said. “Corn ethanol has pretty big impacts on water quality, on soil preservation, on habitat preservation and on climate,” he said.

On the oil side, objections include the impact on engines. The American Petroleum Institute (API) says most cars on the road can’t handle E15, not to mention smaller engines in vehicles like motorcycles and boats.

“Putting a fuel into the marketplace that the vast majority of cars on the road were not designed to use is not in the best interest of consumers,” the API says. “Vehicle compatibility tests have shown that high ethanol levels in gasoline can damage engines and fuel systems.”

Yet, the fuel would be viable to every car and pickup built since 2001, which accounts for more than 90% of the autos on the road, according to biofuel groups.

Corn ethanol groups are cheering the proposal. “He answered the call from American farmers by removing the single most important barrier to growth in higher biofuel blends,” said Emily Skor, CEO of Growth Energy. “This announcement is great news for farmers, biofuel workers, retailers and consumers everywhere who want to enjoy cleaner, more affordable options at the fuel pump.

“This is the right signal to the marketplace at just the right time, as both farmers and renewable fuel producers desperately need new market opportunities and sources of demand,” said Geoff Cooper, president of the Renewable Fuels Association.

So, we will see. Clearly, there is strong political pressure to bolster corn markets now being hammered by weak export market prospects. However, political pressures against ethanol have grown in recent years so the move toward higher ethanol blend limits likely will be bitter and contentious, as it has in the past. It should be closely watched by producers as it proceeds, Washington Insider believes.

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