Trump Invokes Taliban in Latest Negotiations on Biofuel Plan

Jennifer Jacobs, Jennifer A. Dlouhy and Mario Parker

(Bloomberg) -- President Donald Trump on Thursday expressed his rising frustration over trying to reach an accord between warring oil and biofuel interests by saying the negotiations were more difficult than dealing with the Taliban.

Trump made the observation during a White House meeting with oil-state senators who were trying to discourage the president from advancing a slate of changes meant to bolster corn-based ethanol and soybean-based biodiesel, according to people familiar with the matter who asked not be named describing a private conversation.

Thursday’s meeting came amid a flurry of negotiations over a plan for boosting biofuel -- and quelling an intense backlash in politically important farm states over the administration’s decision to exempt more small oil refineries from requirements to use renewable fuels.

Trump already tentatively agreed to ethanol advocates’ plan for offsetting those exemptions, beginning when the Environmental Protection Agency sets biofuel-blending quotas for 2020.

In Thursday’s meeting, Trump pressed senators from states with significant refining assets about a wave of ethanol plant closures the biofuel industry has blamed on the waivers. Trump highlighted the Sept. 16 decision to idle production at the Siouxland Energy Cooperative in Northwest Iowa -- the subject of a front-page article in the Des Moines Register -- during the wide-ranging discussion on biofuel and foreign policy.

Trump repeatedly told the senators “I’m getting killed” over the refinery waivers, two of the people said, as agricultural interests elevate the issue and Democratic candidates vying for the White House highlight the exemptions while stumping in Iowa. The president also stressed he wanted to make sure farmers were being taken care of, according to people familiar with the discussion.

Oil-state senators countered that refining jobs in other swing states are at stake, as they urged the president to continue granting exemptions for small facilities that make gasoline and diesel -- and take separate action to rein in the costs of complying with the U.S. biofuel mandate.

They warned Trump that bolstering biofuel quotas too far could cause a spike in the prices of renewable identification numbers, or RINs, the tradable credits refiners use to prove they have fulfilled blending quotas. Those credits have already climbed on speculation Trump will take action.

The senators offered up an “insurance policy” against skyrocketing RIN prices: allowing the EPA to sell its own compliance credits if costs jump too far, with revenue used to install blender pumps and other infrastructure to get more ethanol to consumers.

Agriculture Secretary Sonny Perdue cast that as a non-starter with the ethanol industry, but Trump did not close the door on the idea, people familiar with the matter said. And while Trump was sympathetic to biofuel industry concerns, he left open the option of continuing work on a final package that would satisfy ethanol and biodiesel producers as well as oil refiners.

Larry Kudlow, Trump’s top economic adviser, has been charged with working to develop a final biofuel plan. There is no hard deadline, though the EPA has limited time to issue a supplemental proposal of 2020 biofuel quotas.

Republican Senator Ted Cruz of Texas called the meeting “positive and productive.”

“There are tens of thousands of hardworking men and women all along the East Coast, across the country and in my home state of Texas whose jobs depend on fixing this broken RINs system,” Cruz said in an emailed statement. “With President Trump’s leadership, I look forward to working together to find a win-win solution for both blue-collar workers and farmers.”

Other senators in the room Thursday included Bill Cassidy and John Kennedy of Louisiana, Pat Toomey of Pennsylvania, Shelley Moore Capito of West Virginia, James Risch of Idaho and Mike Lee of Utah.

On Twitter later, Cassidy called the president “very engaged on the issue,” adding that Trump “feels as if we can work towards a solution which protects jobs.”

That could cut both ways, as both ethanol and refining advocates assert that jobs hang in the balance.

Kelly Nieuwenhuis, president of the board of Siouxland Energy Cooperative, the plant that announced it was idling production earlier this week, blamed the Trump administration for taking actions that “unfairly benefit the oil industry at the expense of our local farmers.”

“We look forward to the administration properly addressing these issues, so that Siouxland Energy can resume ethanol production and its purchase of corn from local farmers, and generally contribute to the local and global economy,” Nieuwenhuis said in a statement.

Poet LLC, one of the world’s largest ethanol companies, previously said it would halt production at its Cloverdale, Indiana, mill and that it had reduced output at half of its 28 refineries. In July, Plymouth Energy LLC said it shut a plant in Merrill, Iowa.

EPA officials and oil industry allies insist refinery waivers aren’t to blame. “We’ve seen an uptick in ethanol over the last two years,” EPA Administrator Andrew Wheeler told lawmakers on Thursday, adding that the refinery exemptions have not eroded domestic demand for ethanol.

But a number of factors are affecting the domestic ethanol market -- including Trump’s trade war with China. In recent years, the industry expanded production with an eye toward satisfying burgeoning demand in China, which has outlined a plan to expand biofuel use in an effort to reduce smog. However, ethanol, like U.S.-grown soybeans, has faced retaliatory tariffs from the country.

Meanwhile, inclement weather in the U.S. Midwest during the spring prevented farmers from planting crops which raised ethanol production costs. Earlier this month, AOT Holding AG, a Swiss trading company with a Houston subsidiary, filed a lawsuit against Archer-Daniels-Midland Co., accusing the ethanol giant of manipulating U.S. benchmark prices.

(Updates with comment from Cruz and meeting participants, from 12th paragraph.)

--With assistance from Josh Wingrove.

To contact the reporters on this story: Jennifer Jacobs in Washington at jjacobs68@bloomberg.net;Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net;Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Elizabeth Wasserman, Kathleen Hunter

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