WASHINGTON — President Donald Trump presided over a lengthy Oval Office meeting in which he urged officials to soften the impact of recent policy moves that angered the Midwestern farm states that are critical to his re-election.
The Trump administration was stung by criticism over the Environmental Protection Agency's Aug. 9 decision to give 31 refineries exemptions from annual biofuel-blending requirements — including Iowa Sen. Chuck Grassley's assertion that the Trump administration had "screwed" farmers.
Trump suggested rescinding some of the newly granted waivers during the Aug. 19 meeting, according to four people familiar with the discussions who asked not to be named. Trump was told the waivers may not be reversible, but officials offered other ideas to mitigate the political impact in Iowa, a state he carried in 2016 and needs again in 2020 to win.
Administration officials suggested expanding environmental credits that encourage production of "flex-fuel" vehicles that can run on high-ethanol gasoline and requiring government agencies to use more of them, both steps that could increase the use of corn in fuels.
The Aug. 19 back-and-forth illustrates an intensifying clash over U.S. biofuel policy that pits two of Trump's top political constituencies — farmers and oil interests — against each other. The administration is divided, with the U.S. Department of Agriculture favoring farmers and the EPA insisting the law compels them to waive the requirement for refineries facing economic harm.
The Oval Office meeting was ostensibly to discuss trade with China but quickly turned into a fuels discussion because the U.S. ambassador to China, former Iowa Gov. Terry Branstad, had just spent a few days in the state and was concerned about the harm he believed the waivers will cause rural America.
The meeting, described as lively and spanning about two hours, included Branstad, Deputy Agriculture Secretary Stephen Censky, White House trade adviser Peter Navarro, White House economic adviser Larry Kudlow and National Security Council official Matthew Pottinger. Agriculture Secretary Sonny Perdue and EPA Administrator Andrew Wheeler joined by phone.
Administration officials discussed broad policy changes designed to mollify farm-state critics and expand the market for corn-based ethanol.
At one point, Branstad questioned whether the U.S. could mandate auto companies make all vehicles capable of running on a variety of fuels, so consumers can choose what to use. The idea was rebuffed, with one person warning it would provoke a big fight with automakers.
Among the other options: fuel policy changes designed to make E15 gasoline that contains 15% ethanol a new nationwide standard, replacing the 10% variety that is now commonplace.
The EPA in May lifted restrictions on E15 gasoline that blocked widespread summertime sales, but fewer than 2,000 stations offer that blend, much less E85 gasoline containing 85% ethanol. Flex-fuel vehicles are capable of using both, but consumer interest seems to be limited.
It is not clear that any of the ideas will materialize.
Since 2017, Trump has tried to broker a compromise on biofuel policy between warring ethanol and oil industry interests, but the design of the U.S. Renewable Fuel Standard makes it nearly impossible to satisfy both stakeholders simultaneously.
Moreover, some of the proposals would benefit ethanol but do little to address concerns by U.S. biodiesel makers that use soybean oil as a feedstock and whose footprint extends beyond the Corn Belt.
Another idea under consideration is boosting the amount of biodiesel and conventional renewable fuel the EPA will require refiners to use over the next two years to compensate for expected waivers — effectively forcing non-exempted refineries to make up for the lost quotas. Perdue has pushed the idea for months, against opposition from EPA officials and oil companies.
Hurting one group or the other
The White House discussions center around a 14-year-old federal law that dictates oil refineries use biofuel to satisfy annual quotas set by the EPA. The statute authorizes the EPA to issue exemptions for small refineries facing a "disproportionate economic hardship," but biofuel proponents argue the administration has handed out the waivers too freely and is undermining domestic demand for the products.
The EPA decided to grant 31 exemptions from 2018 biofuel-blending quotas — and deny six other applications — following months of internal deliberations and after Trump intervened to authorize the move.
The exemptions have caused anger throughout the Midwest, where biofuel producers, their political allies and farmers view the waivers as curbing demand for their products, amid a trade war with China that has already diminished sales.
The EPA said its decisions take into account direction from Congress, recommendations from the Department of Energy and recent court decisions that rapped the agency for denying some refinery waivers.
Still, people in the meeting with Trump highlighted the backlash in Iowa and other Midwest states, illustrating the political concern about Trump alienating crucial swing voters. Oil industry allies, including Senator Ted Cruz, a Republican from Texas, have made the opposite pitch during earlier administration discussions on the issue, arguing that support from refinery workers in Pennsylvania and other battleground states is also at risk if the president strengthens U.S. biofuel mandates.