The ethanol industry hasn’t fared well under President Trump. Shares of ethanol producers like Green Plains, REX American Resources and Pacific Ethanol have all fallen by double digits since his inauguration.
A big reason for the ethanol industry’s woes under President Trump was Environmental Protection Agency (EPA) administrator Scott Pruitt. Thus, the industry surely cheered when Pruitt stepped down from his post last week.
Erasing President Obama’s Legacy
Pruitt’s tenure was mired in constant scandals, but he nevertheless had a big impact on environmental policies.
Pruitt rolled back one of President Obama’s signature environmental accomplishments, the Clean Power Plan. This plan was designed to restrict greenhouse gas emissions from the electricity sector, and was one of the factors that helped devastate the coal industry. Pruitt was also reportedly influential in getting President Trump to withdraw the U.S. from the global Paris Agreement on climate change.
Pruitt also proposed a freeze on fuel economy standards, and weakened a number of environmental regulations. His policies were extremely favorable toward the fossil fuel industry. The Wall Street Journal editorial page once noted about him “if there has been a more consequential Cabinet official, we haven’t seen him.”
Many are cheering his resignation, particularly environmentalists concerned with the direction he was taking the EPA. Andrew Wheeler, who was Pruitt’s second-in-command, will take over as the agency’s acting administrator. His successor isn’t expected to make a huge shift in direction, but he may not be as driven as Pruitt was in rolling back environmental protections.
The Ethanol’s Industry’s Worst Enemy
Pruitt has long been a thorn in the side of the ethanol industry. He had opposed the country’s Renewable Fuel Standard (RFS) as Oklahoma’s Attorney General, and he seemed focused on weakening the program as EPA Administrator.
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. Under Pruitt these waivers were liberally granted to refiners that requested them.
A waiver saves the refiner money, but it also lowered the value of the credits refiners must pay to comply with the mandate. That, in turn, weakens the ethanol mandate.
Pruitt’s usage of these waivers was a particular irritant for the ethanol industry and its supporters (like Iowa Senators Chuck Grassley and Joni Ernst). Grassley had recently suggested that Pruitt may be breaking the law in granting 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 ethanol industry complained that waivers were being granted to refineries with multi-billion dollar owners. They argued that these waivers were only meant to apply to small refiners, and not to large corporations that typically would not have qualified for a waiver. They accused Pruitt of undermining the RFS, and they sued the EPA as a result.
Pruitt accumulated a long list of powerful enemies during his time as EPA administrator. Some of those enemies were powerful farm state politicians and lobbyists who were anxious to see him replaced. Last week they got their wish.
Regardless of the direction his successor takes, few believe he will be as hostile to the ethanol industry as Pruitt. Shares of most ethanol producers rose following the news of his resignation.