October 9, 2018 / 8:35 PM / 2 months ago

REFILE-UPDATE 3-Trump raises ethanol use in gasoline, appeases farmers ahead of elections

(Fixes spelling of Perdue in paragraph 10)

By Jarrett Renshaw and Humeyra Pamuk

WASHINGTON, Oct 9 (Reuters) - U.S. President Donald Trump launched an effort on Tuesday to increase ethanol use in the nation's gasoline pool, delivering a long-sought political victory to the nation's Farm Belt and angering oil refiners ahead of November's Congressional elections.

Trump announced the lifting of a ban on summer sales of gasoline blended with 15 percent ethanol, known as E15, at a closed-door meeting at the White House, Republican senators told reporters after the meeting. He plans to comment positively on the move at an Iowa rally on Tuesday evening.

The announcement caps a months-long effort by the White House to thread the needle between rival corn and oil industry interests, by boosting ethanol demand while also cutting costs for refiners. In the end, Trump is moving ahead without the support of the oil refining industry, who wanted more in return for agreeing to lift the summer ban.

The move is also aimed at helping the political fortunes of Republican candidates in the Midwest saddled with a tough farm economy and the imposition of import tariffs by President Trump and by China. Polls show close election races in Iowa for the governor's seat and two congressional seats.

Iowa is the nation's biggest producer of corn, and farmers there have been frustrated with falling corn and soybean prices hurt by the trade war between the United States and China.

"It's about time," Warren Bachman, a 72-year-old corn and soybean farmer in Iowa. "With all the trade wars, tariffs and low crop prices, it seems like we are taking it in the shorts and bearing all the burden."

Since ethanol is cheaper than gasoline, the administration hopes to lower pump prices, which currently average $2.91 a gallon, more than 40 cents higher than this time a year ago, according to the American Automobile Association.

Trump will be in Council Bluffs, Iowa, later in the day for a rally where he will talk up the changes, though the move requires the Environmental Protection Agency to draft a rule on the removal of the ban.

The EPA prohibits summer sales of E15 in certain areas due to smog concerns. It must now draft and finalize a rule in the spring.

"I feel certain this rule can be accomplished before the driving season next year," U.S. Secretary of Agriculture Sonny Perdue told Reuters in an interview.

Biofuel advocates hope the lifting of the ban will boost ethanol sales. Geoff Cooper, CEO of the Renewable Fuels Association trade group, said allowing E15 sales year-round could double sales of the higher-ethanol blend from roughly 400 million gallons currently.

“It depends on how quickly new pumps would be added … the greatest impact will be longer-term,” Cooper said. He said the move was a great first step, but note it faces significant political and legal opposition.

"We are happy, but we know there's still a long road ahead," Cooper said.

'CERTAİNTY FOR A LAWSUIT'

The rule would be coupled with restrictions on the multibillion-dollar biofuel credit trading industry sought by merchant refiners like Valero Energy Corp and PBF Energy Inc. Those rules will seek stop parties from hoarding the credits and driving up the cost of complying with biofuels blending laws.

Refiners are required to blend increasing amounts of biofuels like ethanol into the fuel pool annually, or buy credits from competitors who do. Refining companies that buy the credits have complained about volatile prices.

The EPA will consider forcing blenders, retailers and trading houses to sell credits more quickly to reduce market volatility, a White House official said.

But this is not enough for the refiners. The American Petroleum Institute, the largest U.S. oil trade association, opposes lifting the ban, saying E15 gasoline ruins older cars and potentially voids warranties.

"The only certainty from today's actions is a lawsuit," Chet Thompson, head of American Fuel and Petrochemical Manufacturers, said on Tuesday. He said the industry would challenge the finalized rule in court, saying the EPA has acknowledged it lacks the authority to change this rule.

Last year, biofuel credit prices rose to nearly $1 each, near a five year high, as merchant refiners warned plants may be forced to close without federal action. Prices dropped after the EPA expanded its use of waivers freeing small refiners from their obligations.

The credits were trading at roughly 12 cents each on Tuesday, traders said. (Editing by Marguerita Choy)

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