Trump raises ethanol use in gasoline, appeases farmers ahead of elections

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WASHINGTON (Reuters) – U.S. President Donald Trump launched an effort on Tuesday to increase ethanol use in the nation’s gasoline pool, delivering a long-sought political victory to the nation’s Farm Belt and angering refiners ahead of November’s Congressional elections.

Trump raises ethanol use in gasoline, appeases farmers ahead of elections

FILE PHOTO: A gas pump selling E15, a gasoline with 15 percent of ethanol, is seen in Mason City, Iowa, United States, May 18, 2015. REUTERS/Jim effects.com/" target="_blank" rel="noopener">young/File Photo

Trump announced the lifting of a ban on summer sales of gasoline blended with 15 percent ethanol, known as E15, at a closed-door meeting at the White House, Republican senators told reporters after the meeting.

The announcement caps a months-long effort by the White House to thread the needle between rival corn and oil industry interests, in an attempt to boost ethanol demand while cutting compliance costs for refiners. In the end, Trump is moving ahead without the support of the Refining industry, who wanted more in return for agreeing to lift the summer ban.

The move is also aimed at helping the political fortunes of Republican candidates in the Midwest saddled with a rough farm economy and Trump’s trade wars.

Farmers have been frustrated with falling corn and soybean prices hurt by the trade war between the United States and China.

“It’s about time,” Warren Bachman, a 72-year-old corn and soybean farmer in Iowa. “With all the trade wars, tariffs and low crop prices, it seems like we are taking it in the shorts and bearing all the burden.”

Trump will be in Council Bluffs, Iowa, later in the day for a rally where he will talk up the changes, though the move requires the Environmental Protection Agency to draft a rule on the removal of the ban.

The EPA prohibits summer sales of E15 in certain areas due to smog concerns. It must now draft and finalize a rule in the spring to see the benefits by next summer.

Biofuel advocates hope the lifting of the ban will boost ethanol sales; estimates suggest corn demand could increase by some 2 billion bushels annually. The industry called the move a great first step, but note it faces significant political and legal opposition.

“We are happy, but we know there’s still a long road ahead,” Geoff Cooper, head of the Renewable Fuels Association, said.

Since ethanol is cheaper than gasoline, the administration hopes to lower pump prices, which currently average $2.91 a gallon, more than 40 cents higher than this time a year ago, according to the American Automobile Association.

‘CERTAİNTY FOR A LAWSUIT’

The rule would be coupled with restrictions on the multibillion-dollar biofuel credit trading industry sought by merchant refiners like Valero Energy Corp and PBF Energy Inc. Those rules will seek stop parties from hoarding the credits and driving up the cost of complying with biofuels blending laws.

Refiners are required to blend increasing amounts of biofuels like ethanol into the fuel pool annually, or buy credits from competitors who do. Refining companies that buy the credits have complained about volatile prices.

The EPA will consider forcing blenders, retailers and trading houses to sell credits more quickly to reduce market volatility, a White House official said.

But this is not enough for the refiners. The American Petroleum Institute, the largest U.S. oil trade association, opposes lifting the ban, saying E15 gasoline ruins older cars and potentially voids warranties.

“The only certainty from today’s actions is a lawsuit,” Chet Thompson, head of American Fuel and Petrochemical Manufacturers, said in a phone interview on Tuesday. He said the industry would challenge the finalized rule in court, saying the EPA has acknowledged it lacks the authority to change this rule.

Last year, biofuel credit prices rose to nearly $1 each, near a five year high, as merchant refiners warned plants may be forced to close without federal action. Prices dropped after the EPA expanded its use of waivers freeing small refiners from their obligations.

The credits were trading at roughly 12 cents each on Tuesday, traders said.

Editing by Marguerita Choy