Ethanol’s Crucial Role in Protecting the Farm Economy From China

President Trump says he supports ethanol, but his EPA seems to be favoring big oil. Rural America is hurting -- and watching.
July 3, 2018
Corn sticking out of a car's gas hole.
(Shutterstock)
By Jim Talent  |  Contributor
A former U.S. senator and currently co-chair of Americans for Energy Security and Innovation

President Trump is right to take on China on trade. Beijing's industrial policies lead not only to the theft of American intellectual property and defense secrets but also aim to tilt the playing field heavily in its favor and harm U.S. business. It's about time we fight back.

But China hopes to derail Trump's defensive measures by cutting imports of U.S. agricultural goods. In fact, China has already announced retaliatory tariffs on corn, soybeans and other farm products. The risk is serious enough that Agriculture Secretary Sonny Perdue responded recently that Trump "will not allow U.S. agriculture to bear the brunt of China's retaliatory tactics." The president can make good on this promise by stopping efforts within his own government to undercut his support for ethanol.

Thirteen years ago, Congress passed the Renewable Fuel Standard, and I was one of its chief sponsors. It requires that oil refineries open the fuel market to competition from renewable fuels -- including corn-based ethanol -- which are now blended into nearly all gasoline.

The idea was to guarantee a modest but certain market for renewables so that the industry could not be crushed by a foreign oil cartel. That remains a threat: Just three years ago, the Organization of the Petroleum Exporting Countries tried to snuff out the U.S. fracking industry.

Those tactics don't work against homegrown biofuels. If you drew a map of the world and sized the countries according to oil reserves, Saudi Arabia would be one of the biggest. If you size such a map according to agricultural production, the U.S. dwarfs the competition.

That's why ethanol is a clear winner. It bets America's energy future on American farmers, not on stability in the Middle East. And it gradually shifts energy reliance away from oil, which, no matter how much we produce, is subject to global manipulation and volatility.

Thanks to this progress, ethanol and other renewables now make up more than 10 percent of the nation's automobile fuel supply. The renewable fuel industry has more than 200 plants throughout small-town America, strengthening the manufacturing sector and supporting hundreds of thousands of jobs in parts of the country that globalization has left behind.

Moreover, the fuel standard operates at no cost to the taxpayer, and it has delivered lower prices to consumers at the pump. Subsidies for corn ethanol expired in 2011, unlike subsidies for petroleum. Meanwhile, the price of ethanol has been hovering around $1.50 per gallon -- less than the price of gasoline even when oil prices are low, and much less than drivers are paying now.

These considerations explain why President Trump strongly supported ethanol on his road to the White House. They also explain why rural leaders were baffled when the Environmental Protection Agency tried to dilute federal biofuel targets by counting exports against domestic requirements. That scheme, which the White House eventually blocked, would have boosted oil refiners -- whose profits are already soaring 00 by cutting more than a billion gallons annually from the domestic ethanol market. The EPA also is dragging its feet on lifting an outdated restriction against the sale of 15 percent ethanol fuel blends, known as E15, during the summer, despite explicit presidential support for a fix.

It's agricultural America -- not oil -- that is suffering today, primarily due to low commodity prices and a global surplus. Over the last five years, farm income has plunged 52 percent. Biofuels are a safety valve for rural America in times like these, because many farmers are also investors in ethanol plants. That way, when corn prices are low they can offset the loss by sharing in the profits from ethanol production.

Barring a change in leadership at the EPA, it's clear that President Trump's executive team will need to take a more active role in managing the agency when it comes to domestic energy. Trump can help farmers now by approving year-round sales of E15 and pressing the EPA to protect the benefits of the Renewable Fuel Standard against new cuts being proposed by the petroleum lobby.

Left alone, the EPA seems to be focusing on helping oil refiners, even if that means undermining ethanol, just as the Chinese government is working against American farmers. Rural voters are watching, waiting and hoping. President Trump and Republican leaders in Congress must not let them down.

Jim Talent | Contributor