WASHINGTON, Oct 9 (Reuters) - U.S. President Donald Trump on Tuesday plans to lift a ban on summer sales of higher-ethanol blend of gasoline, known as E15, delivering a long-sought win to the Farm Belt ahead of November's midterm elections and angering the refining industry.
The move will be coupled with restrictions, a senior administration official said on Monday, 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.
The announcement will cap a months-long effort by the White House to bring rival corn and oil industries together over reforms to boost ethanol demand while alleviating compliance costs for refiners. In the end, Trump is moving ahead without the support of the refining industry, who wanted more in return for agreeing to lift the summer E15 ban.
The U.S. Environmental Protection Agency currently prohibits summer sales of gasoline blended with 15 percent ethanol, or E15, due to smog concerns. The EPA must now draft a rule ahead and potentially fend off lawsuits from the refining industry who argue the agency lacks the power.
Biofuel advocates hope the lifting of the ban will lead to E15 replacing the year-round E10 grade that contains 10 percent of ethanol as the gasoline of choice for U.S. consumers, a move that could boost corn demand by some 2 billion bushels.
And as 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.
"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. So, it's some good news."
Farmers have been frustrated with weak corn and soybean prices hurt by the trade war between the United States and China; Trump has promised the trade war with China will eventually boost the U.S. economy.
Trump will celebrate the move at a rally in Council Bluffs, Iowa, later on Tuesday. Council Bluffs is in a moderate congressional district represented by incumbent Republican Dave Young, who is locked in a tight race in the mid-term Congressional elections on Nov. 6.
The American Petroleum Institute, the largest U.S. oil trade association, opposes lifting the ban, which would hurt their market share. They say E15 gasoline ruins older cars and potentially voids warranties, and have threatened to sue, arguing the EPA lacks the legal authority to strike the ban.
The refining industry came out against the proposal, arguing they should have gotten more than trade restrictions in exchange for lifting the summer ban.
"The president has promised to broker a deal to reform the RFS (Renewable Fuel Standard) that works for all stakeholders. This isn’t it," Chet Thompson, chief executive of the American Fuel and Petrochemical Manufacturers, said in an statement.
The Renewable Fuel Standard requires refiners 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, the White House official said. The agency may only allow obligated parties like refiners to buy credits, and may require greater public disclosure as well.
Biofuel credit prices were near five-year highs last year, hitting nearly $1 each, drawing the Trump administration into the debate as merchant refiners said plants may be forced to close without presidential action.
Credit prices dropped sharply in the past year, hitting a five-year low, due to EPA's expanded use of waivers freeing small refiners from their obligations.
The credits were trading at roughly 12 cents each on Tuesday morning, traders said. (Editing by Marguerita Choy)