Ted Cruz's ethanol policy - a work in progress

WASHINGTON, Jan. 19, 2016 -- With the Iowa caucuses at stake and fast approaching on Feb. 1, Texas Sen. Ted Cruz is quickly reworking his once rock-solid opposition to federal biofuels policy after intensive discussions with U.S. Rep. Steve King and a leading entrepreneur in the ethanol industry. 

 King, an Iowan and a national co-chair of Cruz’s presidential campaign, tells Agri-Pulse that Cruz began to refine his ethanol views over a restaurant meal with King and a few others. To move from ethanol questions to answers, they decided to check with Dave VanderGriend. He’s CEO of Kansas-based ICM Inc., a biofuels technology company that has provided equipment and process engineering for the majority of U.S. ethanol plants.

The choice was a good fit because VanderGriend grew up on an Iowa farm and, Cruz explains, “designed and built” most of Iowa’s more than 40 ethanol plants.

VanderGriend acknowledges that “in the past, Sen. Cruz has tried to repeal the RFS,” the federal Renewable Fuel Standard that requires the petroleum industry to add ethanol to gasoline to reduce tailpipe emissions. But after his numerous meetings with Cruz on ethanol issues, VanderGriend says, “I personally think Sen. Cruz is quite possibly the most forward-looking, and genuine ethanol supporter of all the candidates.”

Ethanol advocate Eric Branstad, Iowa director of America’s Renewable Future and the son of Iowa Gov. Terry Branstad, rejects the idea that ethanol use would climb post-RFS once EPA regulatory barriers to ethanol growth are removed. After tailing Cruz’s campaign bus in Iowa to challenge Cruz on ethanol, Branstad said that “Until Cruz pledges to uphold the RFS as the law dictates – not his position to phase it down by 2022 – we will continue to educate Iowa voters about his bad position.”

One sign of Cruz’s ethanol evolution – and a broader GOP evolution – is in support for efforts to repeal the RFS. In June 2013, Cruz and 17 fellow Republican senators along with one Democrat co-sponsored Wyoming Republican John Barrasso’s repeal bill. But in June 2015, a similar bill, S.1584, attracted just five GOP senators as sponsors and Cruz wasn’t among them.

King says he told Cruz that he needed to drop his resistance to the RFS. “Iowa matters,” he told the candidate, “and the RFS needs to be protected and preserved” because the ethanol industry “invested capital based upon the RFS.”

As part of his pledge to grow the market for ethanol, rather than an immediate repeal, Cruz now is committed to phasing out the RFS over five years, to end any ethanol volume requirements by 2022. The broad energy bill he introduced March 2015, the American Energy Renaissance Act of 2015 (S. 719), states that “the mandates under the Renewable Fuel Standard . . . impose significant costs on American citizens and the American economy, without offering any benefit; and should be repealed” after a five-year phase-out.

Cruz is due to release an ethanol policy paper soon. That policy very likely will reflect VanderGriend’s contention that EPA’s computer modeling and testing procedures are biased and as a result “lead to incorrect conclusions that devalue ethanol and result in artificial barriers to the market.” Cruz is also likely to appeal to Corn/Ethanol Belt voters by echoing VanderGriend’s warning that “Without the regulatory relief that would allow ethanol true market access, the result could be a continuing decline in corn prices and a huge hit to the rural economy.”

Cruz laid out his broad approach in a Jan. 6 Des Moines Register Op-Ed headlined, “I'm fighting for farmers against Washington.” The senator wrote “Iowa farmers are profoundly frustrated with Washington and deserve a champion who will stand with Iowa against the bipartisan corruption of our nation’s Capitol.” He warned caucus-goers against believing critics “trying to convince Iowans that I oppose ethanol.” Cruz insisted instead that his tax plan would end “all energy subsidies and mandates,” eliminating “Washington favoritism for oil and gas, for wind, for solar, or for anyone else.”

To ensure market access for ethanol, Cruz promises that his administration would “vigorously enforce our antitrust laws to ensure that the oil-and-gas industry cannot block access to the market for ethanol producers.” Echoing VanderGriend, Cruz charges that it is EPA that has created “a hard wall against mid-level ethanol blends” such as E25 (25 percent ethanol). “As president,” he said, “I will rescind the EPA’s blend wall, allowing ethanol to command a much larger share of the energy market.”

Crediting VanderGriend’s analysis, Cruz contends that “Simply by getting Washington out of the way . . . annual demand could reach 24 billion gallons of corn-based ethanol by 2030, which would require over 8.5 billion bushels of corn. That represents a 60 percent increase over the current (14.5 billion gallon) RFS cap for corn-based ethanol.” 

America’s Renewable Future isn’t alone in questioning Cruz’s ethanol position.

Another GOP presidential candidate, Sen. Marco Rubio of Florida, told Cruz in the Jan. 14 debate, “We all saw you flip your vote on ethanol” to win more support in the Iowa caucuses.

And Gov. Terry Brandstad, speaking on Tuesday at the Iowa Renewable Fuels Summit, said for the first time that he wants Cruz defeated.

“I believe it would be very damaging for our state” if Cruz were to win, he said. “I believe it would be a big mistake for Iowa to support him. I know he’s ahead in the polls, but the only poll that counts is the one they take on caucus night.”

Bruce Babcock, director of the Biobased Industry Center at Iowa State University, rejects Cruz’s claim that EPA regulations prevent the use of ethanol blends like E25. Instead, he says, “All vehicles on the road are optimized to run on E10 or E0. Most are now certified to run on E15. This has nothing to do with EPA’s rule.”

Babcock asserts that “The ‘EPA wall’ does not exist” and that instead the current E10 blend wall results from “oil company intransigence against installing/financing blender pumps” that could increase ethanol use by the country’s 20 million flex fuel vehicles. He charges that Cruz’s ethanol position “is a clear and blatant attempt to appear to be pro-ethanol when in fact he is anti-ethanol.”

Patrick Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, tells Agri-Pulse that even if higher blends like E25 were available, “most drivers would only adopt them if they increased the number of miles one could drive per dollar of fuel.” He adds that ending the RFS would have an impact since the RFS reduces “the effective cost of ethanol” and that “if the RFS were not in place, this effective discount for ethanol would not be available.”

Addressing Cruz’s pledge to use antitrust laws to increase ethanol use, Darren Bush, a professor at the University of Houston Law Center, says Cruz could launch antitrust actions “but he would have to show that there is an agreement between members of the oil and gas industry to block ethanol producers from providing competitive product.” He considers it unlikely that Cruz as president would challenge “the huge corporations we have today that have arisen due to the utter abdication of antitrust enforcement we’ve experienced the past 16 years.”

Another antitrust expert, Herbert Hovenkamp at the University of Iowa College of Law, says the burden would be on a Cruz administration to find an antitrust violation.

Hovenkamp points out that simply lobbying Congress “for less favorable ethanol rules won’t work, for that is protected activity.” He concludes that “a concerted agreement among oil producers to boycott ethanol could be an antitrust violation, but no one has ever suggested to me that such an agreement exists.”

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