Trump surrenders on ethanol

Wall Street Editorial Board,

The bipartisan pull of corporate welfare—also known as the swamp—is powerful. Last week it swallowed up no less than Donald Trump and his fearless Environmental Protection Agency administrator, Scott Pruitt. They caved under pressure from the ethanol lobby and political extortion from Republican Senators Joni Ernst, Deb Fischer and Chuck Grassley.

Mr. Pruitt announced Thursday that EPA won’t reduce its proposed 19.24 billion gallon biofuels quota for 2018, and may even increase it. The EPA will further consider giving biofuels a pass to pollute that no other industry enjoys, via what’s known as a Reid Vapor Pressure waiver for high-ethanol blends.

As bad, the EPA announced it will keep intact a compliance credit scheme that benefits global and integrated oil companies and ethanol producers at the expense of smaller independent refiners and manufacturers. “Renewable identification numbers,” or RINs, are a credit created each time a gallon of ethanol is mixed with fuel. The EPA requires refiners to use RINs as proof of compliance with biofuel standards, and credits can be bought or sold.

Because only major global refiners have the capabilities to blend their own fuel, most small and midsize merchant refiners have no way of producing RINs in-house. Big Oil, the ethanol lobby and speculators have cornered the market for the credits, and RIN prices are soaring.

In 2012 Philadelphia Energy Solutions paid $10 million for RINs. This year, it will spend $300 million, twice the price of payroll. Only crude oil—the refinery’s main input—costs more annually. Because of that skyrocketing expense, Moody’s has dropped the refinery’s credit rating from a B+ to a CCC- in four years. Mr. Pruitt’s announcement means it will get no RIN relief.

These independent refiners provide the sort of blue-collar manufacturing jobs that President Trump promised to protect. Philadelphia Energy Solutions had to lay off 70 workers last year. Ryan O’Callaghan, the president of United Steelworkers Local 10-1, said the EPA announcement makes him fearful for the fate of his 692 members who remain at the refinery. Philadelphia Energy Solutions also uses hundreds of contractors from the building trades unions.

“I voted Donald Trump, I urged my members to vote for Donald Trump, and I urged them to ask their families and friends to vote for Donald Trump,” Mr. O’Callaghan said. “As a union president, to support a Republican candidate for president, there was some backlash. And now we’re left out in the cold. It’s very disappointing. It feels like the government has the chips stacked against us. We’re crushed in between Big Oil and Big Ethanol. I thought President Trump would be able to see through that. Hopefully he changes his mind and goes with workers.”

The Trump Administration betrayed these manufacturing workers after threats from a handful of Republican Senators who were willing to vote with Democrats to protect ethanol. The federal government has to compel consumers to use biofuels because the product doesn’t sell on its own merits. Thirty-three pro-ethanol Senators admitted as much in a letter to the EPA this month.

“The industry is poised for growth, in accordance with the intent of the law, if EPA sends the market signals with increased volumes,” this bipartisan group wrote. But any decrease in the mandate would be “disruptive, unprecedented and very troubling.”

Mr. Grassley said that if Mr. Pruitt failed to follow these Senatorial directives, he would “hold up EPA nominees. I think there’s plenty of senators [who] would do that.” Mr. Grassley doesn’t sit on the Environment and Public Works Committee, but Senators Ernst and Fischer do.

One of their hostages was Bill Wehrum, the nominee to run the Office of Air and Radiation. That office administers the all-powerful Clean Air Act, so the sudden bout of bipartisanship threatened Mr. Pruitt’s broader reform agenda at the EPA.

Mr. Trump rode to office promising to drain the swamp and win negotiations on behalf of the American people. But for all of that reform rhetoric, his EPA is now capitulating to one of Washington’s worst examples of welfare for big business. By showing weakness, the Trump Administration invites further special-interest shakedowns.

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