Ethanol, Oil Groups Look Ahead

SAN DIEGO (DTN) -- At a time when politics in Washington, D.C., has never been as divided, leaders of the ethanol and oil industries talked a good game in San Diego Tuesday on how the future requires both industries to find common ground.

During a panel discussion at the National Ethanol Conference, a panel representing the liquid fuels industry -- both ethanol and oil -- pointed to Corporate Average Fuel Economy, or CAFE, standards as perhaps the single biggest threat to their future.

In short, the standards tightened in 2011 by the U.S. Environmental Protection Agency during the Barack Obama administration, are designed to force the auto industry to build new cars that go farther on less fuel. The CAFE target is to reduce liquid fuel consumption by about 80% by 2050. The idea is CAFE standards would be best met by widespread adoption of electric vehicle technology.

Opposition to the standard may be the one piece of common ground where petroleum and ethanol interests build a future coalition.

For a decade, the ethanol industry has fought to expand market access in the nation's fuel supply. E15 and E85 expansion are seen as obvious ways to do that, but the petroleum industry fought tooth and nail to stop ethanol expansion beyond E10.

Now, with a change in administration comes an expected change in how the EPA conducts its business. Additionally, Scott Pruitt, who was appointed to head that agency, is seen by oil and ethanol interests alike as a chance to take a fresh look at energy policies.

TRUMP'S LETTER OF SUPPORT

On Tuesday, Trump sent a letter of support to attendees of the National Ethanol Conference, reiterating his support for the renewable fuels industry.

"Rest assured that your president and this administration value the importance of renewable fuels to America's economy and to our energy independence," Trump said in the letter.

"As I emphasized throughout my campaign, renewable fuels are essential to America's energy strategy. As important as ethanol and the Renewable Fuel Standard are to rural economies, I also know that your industry has suffered from overzealous, job-killing regulation.

"I am committed to reducing the regulatory burden on all businesses, and my team is looking forward to working with the Renewable Fuels Association and many others, to identify and reform those regulations that impede growth, increase consumer costs, and eliminate good-paying jobs without providing sufficient environmental or public health benefit," Trump said.

During the panel discussion, one oil industry representative said the new administration is opening doors for his industry and renewable fuel interests to find common ground.

"I think we all have an opportunity to take a deep breath," said Marty Durbin, executive director for market development at the American Petroleum Institute, or API.

"We were all planning for a different outcome (to the presidential election). But the election result does provide some interesting opportunities for new coalitions."

Chet Thompson, president of the American Fuel and Petrochemical Manufacturers and former general counsel at EPA under the George W. Bush administration, said his group is encouraged by the Trump administration's pursuit of regulatory and tax reform.

In addition, Thompson said Trump's America-first approach is expected to open the door to expand energy production across the board.

"We're thrilled by what we're seeing in the first month," Thompson said. "If you look at the executive orders on regulatory reform and two-for-one policy, Congress getting in the game, there's lots of opportunities for us in manufacturing."

Trump signed an executive order calling for federal agencies to eliminate two regulations for every new regulation proposed. That order faces a court challenge from a number of environmental groups.

Thompson said he believes Pruitt will be a "champion" for the energy industry as a whole.

"For eight years, EPA has fought all of liquid fuels," Thompson said. "We think the opportunity is now to make lasting changes. In the last eight years, the EPA has issued nine rules that at least each come with $1 billion in compliance costs."

FAR APART ON RFS

When it comes to the future of the RFS, however, oil and ethanol groups couldn't be further apart.

Both Durbin and Thompson still advocate for, at a minimum, complete reform to include capping corn-ethanol by volume at 9.7% of the gasoline supply. Ethanol groups, on the other hand, want the RFS to remain in place as is to grow a nascent cellulosic-ethanol industry.

Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, said while it is good for oil and ethanol interests to have an open dialogue, he called on the oil industry to tone down its anti-ethanol rhetoric.

"When it comes to API, advertising efforts are more focused on the molecule (ethanol) rather than policy," Dinneen said "What's the point of disparaging ethanol the molecule? Can we begin today to message this constructively? I'm mystified at the messaging."

Durbin said even if the RFS was eliminated, the petroleum industry still would be using ethanol as a blend component.

"We're your biggest customer," Durbin said.

Thompson said, "As free-marketers, we don't appreciate the mandate."

With the Trump administration also benefitting from having a Republican-controlled Congress, Thompson said both industries should focus on getting things done in the next two years to benefit liquid fuels in general, ahead of the next Congressional elections.

The ethanol industry would like to see its markets grow through the expanded adoption of high-octane engine technology, and by eliminating a number of market barriers to more widespread availability of E15.

"We are under siege and we can work through some differences on market issues constructively," Dinneen said.

Following the panel discussion, Dinneen told reporters that continuing a dialogue with petroleum interests is a way to show both sides have a lot in common.

"They're our customers, and at the end of the day, we've got to be involved with them," he said.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(ES/AG)

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