Ted Cruz Says Imperiled Biofuel Overhaul Plan Is Not Dead

(Bloomberg) -- A day after a tentative agreement to overhaul U.S. biofuel policy appeared to collapse amid farm-state concerns, EPA chief Scott Pruitt met to discuss the issue with the lead senator pushing for the changes: Ted Cruz.

Pruitt had dinner with Cruz, a Texas Republican, at a Washington steakhouse blocks from the U.S. Capitol on Wednesday night.

Pruitt, the Environmental Protection Agency administrator, declined to comment on the meeting as he left the restaurant, but Cruz said the dinner included discussion about the Renewable Fuel Standard and had been planned well before Monday’s reports that a White House-brokered accord was unraveling. Cruz stressed that a deal to overhaul the biofuel policy could be revived.

“The conversations are ongoing,” Cruz said. “And I continue to believe that there is a positive win-win solution for everyone.”

Despite months of negotiations, the Trump administration has struggled to find a balance on a contentious issue that divides two of the president’s key constituencies: Midwest farmers and oil interests. On the campaign trail in 2016, Donald Trump promised to support ethanol, a pledge embraced by farmers who grow the corn used to produce it.

Corn and Oil

Refiners complain about the cost of complying with the biofuel mandate, while farm-state lawmakers say the program provides a crucial safety net for their rural constituents.

On Tuesday, the White House indefinitely delayed an announcement of the planned biofuel changes, a development praised by both of Iowa’s Republican senators. Chuck Grassley said on Twitter that the president had rejected a “bad ethanol deal.” And Joni Ernst said Wednesday that “there is no deal,” because Trump said “he’s not going to sign anything that will harm the farmers.”

Trump said he “did the farmers a big favor last night,” during a meeting on Wednesday with his Cabinet. “I did a big, big favor for the farmers. We love the farmers and they were happy. I know that Senator Grassley and Senator Ernst were very happy with what we did.”

Pruitt faces intense criticism from biofuel advocates, including Grassley and Ernst, who say he has undermined Trump’s ethanol campaign pledge. But he is also under fire for allegations of ethical misconduct and questionable decisions.

Nevertheless, refining advocates have strongly supported Pruitt. Cruz said on Wednesday night that it was premature to write off the deal.

Refiners that are pushing for changes argue they pay too much for renewable identification numbers, or RINs, the tradable compliance credits used to prove they have satisfied annual biofuel quotas. The value of RINs tracking ethanol blending have plummeted this year, despite a slight uptick Wednesday to 23 cents apiece.

In the meantime, while the value of those compliance credits has declined, ethanol production has been at near record levels for most of the year on a seasonal basis. And corn prices are up about 8 percent on the year, driven in part by the possibility of grain production disruptions from bad weather in South America.

Advocates for a biofuel overhaul have argued to Trump that the data show farmers’ fortunes aren’t tied to RIN prices and a deal could be in their interest too.

Ethanol blending hit a seasonal record during the first quarter, according to government data. Still, ethanol’s share of total gasoline demand for two out of the three months trailed year-ago levels.

On an adjusted basis, blending is tracking 2016 levels, said Geoff Cooper, vice president of the Renewable Fuels Association. And consumption should be more robust, he said, given that government-mandated targets are higher than they were two years ago.

Record exports are driving higher production rates, Cooper said. “Exports are literally saving the day for ethanol right now.”

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