Ethanol Industry In Free Fall Since President Trump’s Inauguration

Following Donald Trump’s election in 2016, ethanol producers rallied. Shares of ethanol suppliers Green Plains, REX American Resources and Pacific Ethanol all climbed by double digits in the weeks after the election.

I felt like this celebration was premature.

Two days after Donald Trump was inaugurated in 2017, I wrote Why The Ethanol Industry Should Fear President Trump. I warned that even though Trump frequently speaks in favor of the Renewable Fuel Standard (RFS) program, his pick for Environmental Protection Agency (EPA) Administrator had a history of opposing the program. Thus, I believed that EPA could take steps to undermine the RFS, and I advised investors to avoid the ethanol sector. 

Indeed the ethanol industry has been under siege during the Trump Administration. The biggest issue of contention has been hardship waivers that have been granted to some refiners.  

The RFS established quotas of renewable fuels that have to be blended into the fuel supply, and an enforcement mechanism to ensure those quotas were met. This enforcement mechanism essentially transfers money from oil refiners to the ethanol industry, and is loathed by the nation’s refiners.

However, there is a hardship clause that is meant to protect small refiners that process less than 75,000 barrels of oil per day from “disproportionate economic hardship” under the RFS. These waivers are issued by EPA, which has granted them liberally to refiners that requested them.

A waiver saves the refiner money, but it also lowers the value of the credits refiners must pay to comply with the mandate. That, in turn, weakens the ethanol mandate.

Iowa Senator Chuck Grassley has suggested that EPA may be breaking the law with these waivers:

“As chairman of the Senate Judiciary Committee, I also have concerns that EPA may be ignoring or abusing the Administrative Procedure Act as they continue to grant waivers in secret and refuse to respond to congressional oversight and public information requests regarding the practice. The public’s business ought to be public, and hiding behind bureaucracy and poor excuses isn’t going to work.”

The National Biodiesel Board recently launched an ad campaign criticizing the EPA’s use of small refinery exemptions. An ad airing in Washington, D.C. and in Iowa claimed:

“The president’s EPA is hurting farmers and eliminating jobs by giving special favors to big oil companies. The EPA’s big oil bailout is destroying demand for biodiesel.”

This is an especially sensitive topic for farmers who have seen export markets to China disappear as a result of the ongoing trade war.