Today, Explained - Biofuel duel

Episode Date: August 27, 2019

An EPA decision has left Iowan corn growers feeling betrayed by President Trump. Democrats are watching. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this particular podcast comes from KiwiCo. They make projects that are designed to spark creativity, tinkering, and learning in kids of all ages. They'll send them right to your door or the door of a kid that you want to get a KiwiCo crate for. Right now, KiwiCo is offering today's Explained listeners the chance to try them out for free at KiwiCo.com slash Explained. Friday, August 9th, 2019. And it's a fairly quiet-ish August D.C. afternoon. And I get a phone call from one of my sources saying I should be expecting something on small refinery waivers. And it's around 2.30, 3.

And I'm like, when? The day is about to end. The week is about to end. And he's like, stay put. Don't go to that happy hour. I'm like, great. Fantastic. Humeyra Pamuk covers energy for Reuters, and she'll be the first to tell you that it's not the most breakneck beat in journalism, which made this call all the more out of the ordinary. So I start making calls, and then the decision comes, and all hell breaks loose. Statements from corn states, lawmakers, trade groups, industry groups start raining on me, criticizing, slamming this decision.

Mind you, some of these groups are like completely pro-president. They're mostly Republican, and these statements are fuming. A few weeks ago, the Environmental Protection Agency decided it would allow 31 oil refineries to bypass a requirement to mix a certain amount of ethanol into their fuel. As you might know, ethanol is a biofuel mostly made from corn. The more ethanol refiners add into their oil, the more farmers get to move their product. I remember hearing the president say that he's the best thing to ever happen to farmers. As a matter of fact, that's a joke.

He's creating problems that are hurting our farming community. They screwed us when they issued 31 waivers compared to less than 10 waivers during all the Obama years. And we thought that was bad. But guess who's not crazy about ethanol? Our message to our investors was it's a good time to be Chevron. Our portfolio is stronger than it's ever been, and you don't have to look any further than the Permian to see that. ExxonMobil shares are trading higher right now, following the company's quarterly report.

Earnings of 73 cents a share beat expectations of 66. It's oil versus ag. And whoever wins, it's going to be a big drag for the president. Corn farmers and oil industry have been in a dispute for quite some time now over the nation's biofuel policy. It's fair to say that the battleground has gotten extremely intensified over the past couple of months over what we call renewable fuel standard, which is the federal policy which requires oil refiners to blend biofuels like biodiesel or corn-based ethanol into their fuel pool. Within this policy, there is a

program called Small Refinery Waiver Program. So if an oil refiner says, complying with the Renewable Fuel Standard, RFS, is causing me a lot of financial burden, and if they can prove to Environmental Protection Agency that it's causing them financial trouble, they could be given a waiver. What President Trump has done recently is he has gave the green light to EPA to issue 31 oil waivers to refiners. And this has really, really upset corn farmers because what they're saying is like, the more you give waivers, the more you're cutting demand for our product. And our product is corn-based ethanol. Okay, so we've got these fuel standards that require oil companies to use biofuels, better for the environment, good for farmers. But the government hands out waivers.

And under Trump and the EPA, they just handed out a bunch of them. And now a bunch of corn farmers are mad. They've already been suffering from trade wars. They've already seen their export markets disappear because of the trade war with China. They've already been struggling with an extremely low-priced environment. So renewable fuel standards, like the nation's biofuel policy, is one of the key things that still gives them some sort of a market. So President Trump trying to take that away from them has really, really upset American farmers.

How many of these waivers is the federal government usually handing out? It's important to remember that during Obama times, you could say maybe the total was less than 10, or within a calendar year, you would be looking at half a dozen. However, since Trump administration came to power, they have significantly expanded this waiver program and pretty much granted a waiver to whoever applied. You've got like ExxonMobil plans, Chevron plans, or facilities and refineries by Carl Icahn applying for these small refinery waivers and actually getting them. And obviously, this has caused a backlash. So what happened was President Trump did not know about this in this detail up until June. In June, he went to Iowa to counsel Bluffs

to actually unveil this policy called E15. E15 is a higher blend ethanol gasoline. By fully embracing E15, we will reduce dependence on foreign oil by up to 250 million additional barrels every single year. I mean, quite simply, it means more energy. And what can be wrong with that? And it's very good energy. He's meeting and speaking with farmers and he's expecting nothing but gratitude. However, their gratefulness comes with

a caveat. He speaks to the farmers and they keep complaining about this small refinery program. And he's confused and he calls USDA Secretary Sonny Perdue and EPA Administrator Andrew Wheeler and he says, what is this? And he finds out that these small refinery waivers are given to the likes of Exxon and Chevron, and he tells them to fix this. And how are they supposed to do that? Now, he does not really specify how. So these two agencies, along with Department of Energy, start meeting and brainstorming among each other while corn lobby and oil lobby start their own work to push for their own argument as well. And this decision to grant 31 small refinery waivers to refineries, including ones owned by ExxonMobil, I can't imagine anyone considering them small.

Is this the EPA's way of saying that it's just not that into this renewable fuel standard, RFS? So this is like a more than a decade old federal policy. What it basically does is at the time of inaction, they said, OK, let's put this policy in place to reduce U.S.'s dependence on foreign oil. And then at the time, the idea was to replace fossil fuels with more environmentally friendly fuels. And at the time, biofuels were just the ideal alternative to that, and also to create a market for American farmers. Within the past decade, over the past 12 years, there has been a lot of research emerging about maybe corn-based

ethanol is not, after all, that environmentally friendly because it takes up a lot of nutrients. It's extremely intense sort of production process, takes a lot out of the soil. There has been a lot of land conversion to cropland. There's just a lot of research out there now that says that this is not necessarily as environmentally friendly as we thought a decade ago. So there seems to be more question over whether RFS going forward should stay as it is right now. Does the president care whether this biofuel is as environmentally sound as previously thought? Is that his motivation here?

No, that wasn't his motivation. President Trump is facing a very, very difficult choice over the biofuels policy. Both oil and corn are super important constituencies because they are important for Iowa. Obviously, ethanol is one of the most important things for Iowa. But oil and refining industry has also been a supportive of president and it's an important constituency for him. He cannot just forget about them and be favorable to American farmers. So he has been sort of trying to strike a balancing act. But because of the nature of this policy, it is extremely difficult to make both sides happy at the same time. I mean, all the Democrats just descended on Iowa. They were mostly eating deep fried foods, as far as I can tell. Did this come up?

Several Democratic candidates sort of, when they're unveiling their agriculture policy, I was seeing that they have started dedicating a couple of paragraphs on small refinery waivers and the renewable fuel standard. Amy Klobuchar had an event and she said that at most there should be like just a few. It should not be handed out the way it is being right now by this administration. This means standing up to the big oil companies when it comes to climate change. And it also means standing up to the big oil companies so you don't grant them a bunch of waivers from the renewable fuel standard behind closed doors. Joe Biden tweeted our Reuters story and basically came in defense for the farmers. And he said in his tweet that he's not going to sell American farmers to the highest bidder. This is effectively a political story. It will come to more center stage because of the election and because of the Iowa primary. No politician can dare trash talk biofuels and ethanol in Iowa. So the tug of war between these two industries, which are two super important constituencies, is just going to intensify going forward.

In a minute, we head to the heartland to find out how all of this is sitting with farmers and the ethanol industry. Hello? Hello, is this Aria? Yeah. Hey, Aria, my name is Sean. I spoke with your mom last week, and she told me she had just got you hooked up with KiwiCo. Yes, that's what.

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You sound like a very satisfied customer. Do you know if your mom went to kiwico.com slash explained? Uh, yeah. Where you can try KiwiCo out for free. It's great for kids of all ages. Yeah. Okay, tell your friends for me, all right? Oh, yeah, right.

Great to talk to you, Aria. Great, nice to meet you, Sean. Nice to meet you, Gashon. Nice to meet you, Gashon. My name is Nick Bowdish. I'm the president and CEO of Elite Octane in Atlantic, Iowa, and Siouxland Ethanol in Jackson, Nebraska. I'm just outside of Sioux City, Iowa, 10 miles here today at our Jackson, Nebraska facility at Siouxland Ethanol. So I'm watching many of our area farmers pull into our plant today and deliver their corn to our facility as I'm visiting with you.

So it's fair to say that you were directly affected by this announcement that the EPA, the Trump administration, would be granting more waivers to oil refiners? Absolutely. You know, I live in a town of 10,000 people in west central Iowa, and our community is made up of a lot of different businesses that all have agriculture as their foundation. And so the president's decision on these 31 small refiners, it's more than just an impact on two ethanol plants. The impact extends down into all these rural communities that depend on a healthy agricultural sector to remain economically vibrant.

And I imagine you're in touch with these communities. What was your reaction? What're in touch with these communities. What was your reaction? What was the reaction from these communities that rely on ethanol and this industry? People are livid. I think what this really is, is destroying demand for agricultural products here at home while we're dealing with the loss of numerous ag export markets all over the world. Give me an idea directly how this affects your business, how this affects farmers. What's the actual pinch that they're going to feel? The United States consumes about 140 billion gallons of gasoline each year.

And the Renewable Fuel Standard, the law that has been on the book since 2005 and was amended by Congress in 2007, what that law does is it sets each year the amount of renewable fuels that this nation is supposed to blend. And the law is very specific that the obligated parties who are responsible for doing that blending are what many people would recognize as this country's large oil companies. And the president's EPA has been coming in after the fact and handing out these exemptions to oil companies so at the end of the day, the country is not being held to blend 15 billion gallons of renewable fuel. And you add up over the last three years with the addition of these 31 exemptions two weeks ago, we're at 4 billion gallons of renewable fuel that's been given a

free pass. And what that represents to the farmer is over 1 billion bushels of corn. Nick, help me picture a billion bushels of corn. Let me think about that, Sean. You might have to ask me another question and I'll come back to that. No, it's cool. Take a second. I think it sounds crazy, but I don't think there's any way most people can even visualize that. 100 times 100 would be 10,000 square miles times 640 acres in a square mile is 6.4 million acres. Okay. Times, you know, the corn that we were talking about, that 1.1 billion bushels of corn. So 1,100 divided by 6.4. Yeah, that would be a national yield of 172 bushels

an acre. I mean, that's spot on. Wow. So you're talking about like enough corn to like cover the state of Massachusetts. I don't know how big Massachusetts is, but if it's 100 miles by 100 miles, then that would be. I looked it up. It's 10,000 square miles. Is it really? Yeah. And that's just a decision two weeks ago for one third of the destruction that's happened over the last three years. So what do you think the EPA and President Trump should have done here instead of letting all this corn pile up? Well, it's really not even my opinion, Sean. What they should have done is followed the law. And what the law says is that if any of those small refineries experience disproportionate economic harm, then the EPA has the authority to grant

this waiver. But let's say that exemption amounts to 500 million gallons. The EPA should take those 500 million gallons and reallocate the exempted gallons over all the remaining refineries in this country so that at the end of the year, the country still blends 15 billion gallons of renewable fuel. So what the president and administrator Wheeler absolutely should have done and what there's still time for them to do is to simply take these exempted gallons and reallocate them to the remaining refineries in this country. That's what they should have done and should do. There's still time to fix this.

How do you think it'll go over for him if he doesn't fix it? Well, if he doesn't fix it, I think this has become what I would consider the latest piece that's causing many of his supporters in Iowa and all over the agricultural states of the United States to step back and say, you know, we've been great patriots, as he calls us, but to watch this president and this administration choose these largest refinery companies the world knows at the expense of our nation's farmers,

it's a step too far, and it's a step that many out here in rural America aren't going to stand for. And so for the first time, and I think a lot of people's lifetimes that have always voted toward the Republican way, many of them are seriously considering, are the Democrats intelligent enough to pick a candidate that on rural issues, that makes it very simple for those people to decide to go a different direction for the first time in their life. Do you see a candidate like that yet? I see elements that are certainly sticking out.

One person that definitely comes to mind is Senator Amy Klobuchar from Minnesota. Senator Klobuchar has been a closely tied advocate to the agricultural industry. And I think she sees the direction that ag policy recently is headed. I hear snippets from several other candidates that have a very different vision of what agriculture would be. And I think we'll just have to see how that process plays out. How do you think the president got this so wrong? I mean, you can tell from any number of stump speeches how much he likes that farmers support him,

how much he wants to support farmers back, and yet this decision on these waivers just flies in the face of what farmers in places like Iowa want. What do you think was going through his head? Well, I'd like to give him the benefit of what farmers in places like Iowa want, what do you think was going through his head? Well, I'd like to give him the benefit of the doubt when he said a week or 10 days ago that he feels misled by his EPA. But it's very clear in my mind, he had plenty of time to consider the issue, to surround himself with people that could talk about the details of the issue. And I suppose at the end of the day, two weeks ago, he had to make a decision on were those factors strong enough to override a decision to continue these exemptions.

And at the end of the day, he picked up the phone and directed EPA to hand out these exemptions. And at the end of the day, he picked up the phone and directed EPA to hand out these exemptions. So I think that was a very, very, very poor decision. Absolutely, that could have huge political ramifications for him. And the one key message that if I were sitting across from him today, what I would tell him is that, Mr. President, you got this wrong. You should acknowledge that you got it wrong, and you should fix the problem because you have the authority and the time to reallocate these gallons. And so that's the good thing here. He can fix this problem if he wants to. ¶¶ ¶¶ Nick Bowdich is the president and CEO of Elite Octane in Atlantic, Iowa,

and Suland Ethanol in Jackson, Nebraska. I'm Sean Ramos-Firm, and I'm the president of Today Explained. Irene Noguchi is the show's executive producer. Afim Shapiro is the engineer. Halima Shah, Noam Hassenfeld, Amina Alsadi, and Bridget McCarthy produce the show. Will Reeds on vacation, and the mysterious Breakmaster Cylinder is behind the beats. Today Explained is produced in association with Stitcher and we are part of the Vox Media Podcast Network. The moment we've all been waiting for, KiwiCo is on a mission. They'd like me to tell you about it.

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