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Energy Debate 101 Corn vs Oil

As the presidential election nears the energy debate continues and key constituencies are being heard. This week the EPA was busy. As noted previously oil producing states are at odds with the Corn Belt states. Back in 2007 President George W. Bush administration through the Renewable Fuel Standard (RFS) mandated all gasoline contain a percentage of ethanol. To support and force refiners to use the ethanol a program of credits known as RINs was established. If refiners did not use ethanol they would be forced to buy credits and the revenue went back to subsidize the cost of ethanol production. Refiners that did not invest the capital in blending systems then needed to buy the credits. Built into the law was a waiver called the small refiner exemption.

According to Reuters, the Trump administration previously had quadrupled the number of exemptions, causing outrage in farm states, such as Iowa. Chuck Grassley (R-IA) attacked the EPA, saying it had “screwed us” Lawsuits were filed to challenge the validity of the waivers. The courts stopped the liberal allowances of exemptions. The refiners using a possible loophole in the ruling filed an appeal with 67 exemptions.

“With COVID-19, wrote the governors of Texas, Oklahoma, Utah, Wyoming and Louisiana make requirements to purchase ethanol a clear threat to the industry. But this week President Trump instructed all the oil refiner requests for retroactive waivers be denied amid concerns the issue could cut into his support in the Farm Belt. The administration is looking to find political balance in to offset the financial burden felt by the Corn Belt and oil industry workers. The waivers have been a battleground for the influential oil and corn lobbies, both major constituencies for Trump.

The biofuel industry welcomed the news. “Now, more than ever, our nation’s farmers and ethanol producers are counting on the RINs credit program to provide market stability…” said the Renewable Fuels Association and the National Corn Growers Association.

However, the American Fuel and Petrochemical Manufacturers group pointed to the coronavirus pandemic’s effect on oil refiners’ profits. “Now is not the time to deny relief to small refineries who face disproportionate economic harm because of the Renewable Fuel Standard,” AFPM President Chet Thompson said.

At the same time the Administration has a new plan for oil refiners which have been denied waivers through a series of potential financial aid packages. COVID-relief funding allotted to the Agriculture Department could be distributed to small refineries denied waivers. The art of the deal and creative financing, in the end we the taxpayers, along with the farmers, pay.

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