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Corn-state senators reject biofuels overhaul, setting up fight between Trump's energy and big farm backers

Key Points
  • Republican Sens. Chuck Grassley and Joni Ernst on Tuesday rejected proposals to overhaul a federal biofuels program that benefits their home state of Iowa.
  • Sens. Ted Cruz of Texas and Pat Toomey of Pennsylvania, as well as Trump deputies Scott Pruitt and Sonny Purdue, back changes to the clean-fuel program.
  • The issue took on greater urgency after Philadelphia Energy Solutions blamed its recent bankruptcy on the cost of buying credits under the program.
An oil well sits in the middle of a corn field near Norris City, Illinois.
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Top corn-state senators have rejected proposals by the Trump administration and fellow Republicans to overhaul a federal biofuels program fiercely opposed by oil refiners.

The impasse signals that the long-burning battle will continue to divide two pillars of President Donald Trump's base: the fossil fuel industry and agricultural states. Ending the clean fuel program is also a top priority for a group of Trump supporters dedicated to rolling back environmental regulations.

Trump has so far rejected calls to alter or scrap the program, but the issue took on greater urgency after Pennsylvania-based refiner Philadelphia Energy Solutions blamed its recent bankruptcy on the burden of buying credits.

Iowa Republican Sens. Chuck Grassley and Joni Ernst told reporters no deal had been reached following a White House meeting on Tuesday. The gathering was convened to discuss proposed changes supported by energy state Sens. Ted Cruz of Texas and Pat Toomey of Pennsylvania, as well as Environmental Protection Agency Administrator Scott Pruitt and Agriculture Secretary Sonny Perdue.

While Ernst said Trump signaled his desire to meet with representatives of the ethanol industry, perhaps as soon as Thursday, she indicated the issue likely won't be resolved quickly.

"It's clear that this is going to be a very tough road ahead," Ernst said.

"We're going to be fighting this out."

Biofuels battle rages on

The program in question is the Renewable Fuel Standard, which requires the nation's refiners to blend an increasing amount of ethanol and other biofuels into transportation and heating fuels. The goal is to reduce dependence on foreign oil and cut harmful emissions from petroleum-based fuels.

The program has long been criticized by refiners, especially smaller companies that lack the ability to blend ethanol. These merchant refiners have to purchase credits called renewable identification numbers, or RINs, from their bigger competitors in order to meet their annual requirements.

Analysts have told CNBC that Philadelphia Energy Solutions' troubles are largely due to poor business decisions and a high debt load, accusations Grassley repeated on Tuesday.

Grassley and Ernst rejected two key parts of a reform plan previously reported by several news agencies.

Those include capping the price of RINs, which currently float based on demand. Cruz has suggested a ceiling of 10 cents, well below current levels and recent highs near $1 per credit.

They also said they could not support a plan Pruitt promoted last year that would allow refiners to count gasoline-ethanol blends they ship overseas toward their annual mandates.

A third proposal promoted by Cruz would cut Wall Street speculators out of the market. Refiners often blame these traders for bidding up the price of RINs. They say trading in the credits should be restricted to the companies that blend fuel.

A final measure, meant to appease the ethanol industry and corn states, would remove restrictions on gasoline made up of 15 percent ethanol, which can only be sold in the summer months.

Grassley and Ernst said allowing the biofuel to be sold year-round would not offset the damage from the pro-refinery proposals.

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