Cruz Win Hits Corn's Clout and Emboldens Ethanol Foes in Senate

Updated on
  • Refiners see opening to overhaul renewable fuel mandates
  • Ted Cruz criticized the biofuel quotas on campaign trail

Senator Ted Cruz delivers remarks during his campaign's caucus night celebration in Des Moines, Iowa, on Feb. 1, 2016.

Photographer: Luke Sharrett/Bloomberg

Senator Ted Cruz’s victory in the Iowa Republican caucuses emboldens other critics of federal biofuel mandates just as the U.S. Senate is poised to consider a measure that would gut the decade-old program.

The Senate could vote on proposals to spike the program’s ethanol mandate or sunset the entire renewable fuel standard in 2022 as part of a broad energy bill now being debated in the chamber.

Refiners, restaurant owners and other critics of federal biofuel mandates seized on Cruz’s caucus win Monday in the face of fierce opposition from ethanol backers, including Iowa Governor Terry Branstad. The pro-ethanol group America’s Renewable Future ran ads against Cruz and trailed him in buses during campaign stops in the state.

"The verdict from the cornfields of Iowa last night was that the RFS is no longer a third rail that GOP leadership should be afraid to touch," said Stephen Brown, vice president of federal government affairs for refiner Tesoro Corp., in an e-mail. "They can man-up and do something constructive here to confront this fatally flawed program. They key is finding the right approach to help set that stage."

Cruz, while professing his support for growing the biofuels market, called for an end to subsidies for all forms of energy and said he wanted to see the renewable fuel standard phased out.

‘Clear Message’

"A clear message coming out of Iowa is that whatever political influence ethanol used to have in the state, those days are now over," George David Banks, executive vice President of the American Council for Capital Formation said in a statement. "Very few Iowans are going to their caucus in support of continuing to prop-up our failed federal corn-ethanol mandate regime, and that’s not something likely to escape the notice of politicians and policy makers in Washington."

Bob Shrum, a Democratic campaign adviser, said the Cruz win proves that declaring fealty to ethanol is "no longer necessary politics in Iowa."

"Ted Cruz, who I don’t agree with on much of anything, proved that this is no longer the third rail of Iowa politics," Shrum said on a conference call organized by groups opposed to the RFS.

No Setback

Ethanol backers pushed back against the idea the caucus results were a setback. “The narrative coming out after last night’s Iowa caucus that the domestic ethanol industry is somehow on the ropes is false,” Bob Dinneen, president of the Renewable Fuels Association trade group, said in an e-mail.

Although the ethanol industry’s political clout in Iowa may have shifted, the legislative landscape hasn’t, said Bloomberg Intelligence analyst Rob Barnett.

"Cruz’s victory disrupts the narrative that you have to sing ethanol’s praise in order to win Iowa, but I wouldn’t expect any immediate shift in biofuel policy as a result," Barnett said in an e-mail.

For one thing, Cruz’s win was far from a landslide; renewable fuel standard supporters Donald Trump and Marco Rubio captured a greater combined share of the caucus vote. And, in an election year, it’s hard to advance any major policy changes in Congress, particularly those that have staunch, influential defenders on Capitol Hill.

One of those ethanol boosters, Iowa Senator Chuck Grassley, cautioned against misreading the caucus results as a referendum on biofuel mandates.

Ethanol Vote

"You look at one person that made a big deal out of doing away with the RFS. He came in tops, but you got to remember that other people supporting ethanol got 72 percent of the vote if you add them all up separately," Grassley, a Republican, told reporters in a conference call Tuesday. "And then you have to wait until who’s going to be the next president of the United States, and we’re only through one state, so at this point I wouldn’t draw too many conclusions about ethanol."

America’s Renewable Future said "Big Oil" was claiming "a false victory" in the wake of the Iowa results.

"Their No. 1 candidate has moved closer to ethanol and further from oil," the group said in an e-mailed statement. "He has even committed to repealing subsidies for the oil industry. Those are unmistakable signs that the relevancy and importance of ethanol are dominant."

The renewable fuel standard requires steadily escalating volumes of biofuels to be blended into the country’s gasoline and diesel supplies. Designed to shrink the nation’s dependence on foreign crude and curb greenhouse-gas emissions, the law pits oil companies and refiners such as Exxon Mobil Corp., Valero Energy Corp. and Tesoro Corp. against farmers in the corn-rich Midwest who are fighting to preserve the mandates.

15 Billion

Since 2005, when Congress passed the RFS, ethanol’s share of gasoline consumption has jumped to 10 percent from about 3 percent, data from the Energy Information Administration show. Production of the fuel increased to a record 14.9 billion gallons in 2015 from 3.9 billion gallons in 2005, government data show.

Oil companies and trade groups that put their muscle into lifting the crude export ban last year now will dedicate that attention to repealing or revising the renewable fuel standard. Both the American Petroleum Institute and the nation’s top refining trade group, the American Fuel and Petrochemical Manufacturers, have singled out the issue as a top priority.

Diverse Coalition

They will be working with a diverse coalition of stakeholders, including livestock producers, environmentalists, motorcycle enthusiasts and boat owners.

"We’re going to continue to press for reform or repeal, so when the opportunities present themselves, we are going to pursue them," said American Fuel and Petrochemical Manufacturers President Chet Thompson by phone. "And if nothing else, we’re going to find out where folks stand on the issue."

The first major opportunity may come this week, as the Senate considers sweeping energy legislation. Senator Pat Toomey, a Republican from Pennsylvania, has proposed an amendment that would do away with RFS mandates for traditional renewable fuels while preserving existing requirements for advanced, next-generation alternatives.

Toomey’s ethanol-only amendment is viewed as unlikely to achieve 50 votes for adoption, much less the 60 that would probably be necessary under a Senate agreement.

Sunset RFS?

Another possible amendment being discussed by Senate Republicans would sunset the renewable fuel standard in 2022. Current law sets annual biofuel targets through 2022; after then, it is up to the Environmental Protection Agency to decide how and whether to continue quotas.

"Ending the RFS in 2022 sure makes sense post-Iowa as a starting point," Tesoro’s Brown said.

Although an amendment to kill the RFS in 2022 falls short of the immediate, full repeal that oil interests are seeking, it would represent a political win for the sector -- and could be a stepping stone to broader changes. Thompson, with the refiners group, said it also would help dispel a myth that the program is already set to expire without intervention from Congress. 

"We believe full repeal is the way to go, but we’re also open to having discussions on other types of meaningful reform, including a phaseout," Thompson said.

If passed, the Senate energy bill would be negotiated with a separate House-passed measure. It is unclear whether any biofuel provisions, if added, would be retained as part of that process.