2 GOP Govs defy Trump’s regulatory expand-o-grab

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Above: Iowa Governor Kim Reynolds and Nebraska Governor Pete Ricketts

Two GOP state governors hitting the phones and airwaves hard to restrain federal government over-reach is a common sight, but not when the Administration in question is the Trump Administration.

Iowa Governor Kim Reynolds and Nebraska Governor Pete Ricketts are the headliners in a battle in and about Washington DC this week. You can call it what you want: it’s Gettysburg.

On the surface, it’s about renewable fuels’ access to energy markets: As Reynolds stated, “I urge the EPA to raise the advanced biofuel, biodiesel and cellulosic volumes. The RFS is a bold policy, and Iowans and the industry as a whole have always risen to the challenge.” Meanwhile, Ricketts pointed urgently to “the President’s statements of support for the corn ethanol industry and EPA Administrator Scott Pruitt’s commitment to implement the program in a way that honors Congressional intent.”

Like the celebrated battle of 1863 — at a more fundamental level we are seeing a clash between two powerful sectional forces over the fate of two competing economic systems — one based in digging stuff out of the ground, and one based in planting and cultivating in the ground.  After the years of Farm Aid, agriculture pivoted to energy to find a new market — and now it’s Oil Patch vs Farm Patch, with boatloads of state revenue, landowner income and private-sector jobs to the winner. The outcome could be a downward spiral point for farm states that are seeing state tax revenues under severe pressure — just when taxpayers in these states had been hoping for some tax relief.

So, the stakes are high. The Administration is aiming for the power to reset Renewable Fuel Volumes without deference to Congressional targets — that’s the Trump “expand-o-grab”— and farm states, facing painful recessions, are ready for battle over the biggest available value-add they have, the energy markets.

Why the crisis atmosphere?

The Omaha World-Herald put it best:

“Nebraska’s economic output in the first quarter this year was 4 percent less than the same period a year ago. This was the worst first-quarter figure of any U.S. state…Households, businesses and governments all need to be prepared for possible belt-tightening beyond what’s already been done…With a statewide ballot measure on property tax relief possible for November 2018, Nebraskans need to consider carefully how to balance practical tax relief with adequate funding for schools and other needs.”

Yes, the US farm sector is spiraling dow, fast — falling crop prices are driving down land values — which affects everything from farm credit to state tax revenues.

Why is land value important? With a value of $2.40 trillion in 2015, the value of farm real estate (land and structures) accounted for over four-fifths of the total value of U.S. farm sector total assets, according to USDA.

Why should everyone, everywhere watch this battle?

Agricultural production accounts “for around 51 percent of the U.S. land base”, says USDA. “Land use and land-use changes have important economic and environmental implications for commodity production and trade, open space, soil and water conservation, air quality and atmospheric greenhouse gas concentrations, and other areas of interest.”

Here’s the hard data on land values, and farm income.

What’s the fix to falling farm-state revenues?

Without a rise in farm commodity prices no one is expecting and no-one outside of farm states is desiring — you’re going to hear “exports” from the Administration.

However, agricultural exports are in decline, and with the strong dollar, that’s not likely to change. Here’s USDA chart on that.

The fix? They see it in US transportation fuel markets — where demand is up, renewables have a strong value proposition, and US farm sector energy production capacity is over 21 billion (ethanol-equivalent) gallons.

However, distribution is controlled by the petroleum industry — hence the market-forcing mechanism of the Renewable Fuel Standard as set by Congress in 2005 and revised in 2007. The EPA oversees the annual volumes and is holding hearings this week on a controversial reverse on renewable fuel volumes — and that’s why the battle for the future of the farm sector is in DC, why EPA is at the heart of it, and why GOP farm-sector governors are on the hustings to protect their economies and tax bases.

As Rob Walther, Vice President of Federal Advocacy, POET, puts it:

“At a time that the agricultural crisis, noted by the Wall Street Journal, is picking up momentum and rural America is in serious jeopardy of mass farm bankruptcies, we can ill afford regressions in the federal government’s commitment to the heartland. … The cellulosic and advanced numbers do not take into account significant gains being realized by both hemi-cellulose and corn fiber technologies not just at POET, but around the industry.”

The 2017 volumes, EPA’s 2018 proposal at a glance

Corn ethanol

In 2017: 15 billion gallons.
EPA proposes for 2018: 15 billion gallons.
Industry says: Thank you!
Spotlight comment – Bob Dinneen, CEO, RFA: “We believe EPA is well-justified in that decision, given the overwhelming evidence that more than sufficient D6 RINs [conventional ethanol renewable identification numbers] will be available for compliance this year and next.”

Biomass-based diesel

In 2017:  2.1 billion gallons.
EPA proposes for 2018 and 2019: 2.1 billion gallons.
Industry says: Too low!
Spotlight commentDoug Whitehead, chief operating officer at the National Biodiesel Board: “Domestic production capacity is significantly underutilized, with 4.2 billion gallons of registered capacity according to EPA’s own assessment. This doesn’t even include non-registered plants or foreign production we expect will continue to reach our shores.

Advanced biofuel

In 2017: 4.28 billion gallons.
EPA proposes for 2018: 4.24 billion gallons.
Industry says: Too low!
Spotlight commentGrant Kimberley, executive director of the Iowa Biodiesel Board and director of market development for the Iowa Soybean Association: “EPA’s current proposed volumes would stall biodiesel, an important Iowa manufacturing sector, at a time when it is already operating below its capacity. The U.S. can meet production demand, and has substantial room for growth, which EPA’s proposal does not acknowledge.”

Cellulosic ethanol

In 2017:  301 million gallons.
EPA proposes for 2018: 238 million gallons.
Industry says: Too low!
Spotlight comment – Jan Koninckx, Global Business Director for Advanced Biofuels at DuPont Industrial Biosciences: “For cellulosic ethanol, there is no question that the task for forecasting volumes for the next calendar year is difficult. However, in 2016 and 2017, EPA did a much better job of forecasting the cellulosic volume than for any of the prior years AND this past Friday, the D.C. Circuit Court of Appeals agreed upholding EPA’s process and the outcome. Given this result, there should be no question that EPA must revisit the process used in the current proposal for cellulosic ethanol and follow its own guidance and process used for the 2016 and 2017 cellulosic RVOs.”

‘Huskers vs Sooners: The Bottom Line

Forget Russia, this Administration is so pro-Oklahoma that we’re surprised the national anthem hasn’t been changed to “The Surrey with the Fringe on Top”. This latest episode, featuring the Renewable Fuel Standard, is described by some as a regulatory battle, or a skirmish that will end up as a battle in the courts. By others, as the best Nebraska-Oklahoma showdown since 1971’s Game of the Century.

But it’s none of those. This is a sectional political battle, this is a weighing of democratic might and will. Oil Patch vs Farm Patch — and both sides vying for the support of the Border States. The former with a Copperhead appeal to lower prices and less regulation, the latter with a Whig appeal to the broad national benefits of expanded domestic production through national investment.

Why does the bioeconomy base care so much? They fear a market lock-out without the RFS, and they fear the loss of financing without policy stability.

But there’s one thing the industry can work harder on, and that’s technology risk.

Policy can be technology-forcing, but nothing is market-forcing like technology, and the industry needs to get behind the technologies that are working, and get the technologies that aren’t working over the line. Policymakers, financiers, the public — everyone likes a winner.  The era of “build, commission, and pray” has got to end. Gettysburg wasn’t won with rifles that wouldn’t shoot.

We’re The Digest, we get it — the complexity of advanced fuels, $45 oil, the problems, the smart people working real hard. But the hour for delivery is now. The brave legions now making the rounds of Washington DC in the cause of defending the RFS are lining up just about the same way that General James Longstreet laid out the forces who made the 1863’s Pickett’s Charge.

Now, now and now. The forces are on the field. The battle is about to be joined. As they say in the business of war: make ready.