Can Iowa farmers survive without ethanol? Can Trump survive without Iowa farmers?

Bill Couser says he's disappointed with politicians who fail to keep their promises to support ethanol production, an industry that was created in response to the nation's call to reduce U.S. reliance on foreign oil.

The farmer from the Story County town of Nevada recently watched as President Donald Trump met with U.S. Sen. Joni Ernst in Cedar Rapids. Trump promised the Iowa Republican he would personally talk with the Environmental Protection Agency about dozens of waiver requests that, if granted, would cut the amount of ethanol and biodiesel blended into the nation's fuel supply.

Iowa farmers, who send half their corn crops to biofuels refineries like the one Couser helped spearhead near his hometown, have heard for months that the administration would fully support renewable fuels — but their concern over the requested waivers remains.

"I've sat in front of the president, and he does look you in the eye, and he does listen to you," Couser said, adding, "It just makes you wonder what happens after that."

He holds out hope Trump will heed the requests of Ernst and other Iowa leaders. So far, though, he said, he's seen no evidence of it.

Ethanol and biodiesel have been a boon to Iowa and Midwest farmers, boosting corn and soybean prices for nearly two decades. But the renewable fuel industry faces mounting challenges that have experts questioning its future.

What the renewable fuel industry is up against

Trade wars have slashed exports. The coronavirus slammed the brakes on demand for ethanol, along with gasoline, as Americans cut travel to prevent the virus' spread. And the EPA is again considering the dozens of small refinery exemptions that the industry says last year cut by billions of gallons the amount of ethanol and biodiesel the oil industry is required by a 2005 law to blend into the nation's fuel supply.

Iowa farm and renewable fuel leaders say that instead of rejecting the exemptions and setting next year's blending requirements, the president is courting voters in Texas and other oil-producing states. They sent Trump a letter last week, telling him that without action on ethanol, he risks losing rural voters, a block vital to his reelection bid.

"Iowa may very well hang in the balance," farm leaders wrote the president.

"A lot of people are disgusted with what's going on in rural America and agriculture during this administration," said Kelly Nieuwenhuis, a northwest Iowa farmer who said he hasn't yet decided who he will vote for in November.

The Aug. 10 derecho has added to the misery, wiping out or greatly reducing yields for millions of acres of corn and soybeans — losses that resulted in only modest gains in prices.

The long-term outlook for renewable fuels is murky as well: Increasingly fuel-efficient cars and trucks, a shift to electric vehicles, and consumer reluctance to adopt higher ethanol blends will diminish demand, experts predict. 

Before the coronavirus hit, the ethanol industry lost about $375 million from January to March, said Scott Irwin, a University of Illinois economist. This is an "industry that has a significant overcapacity problem and overproduction problem," Irwin said.

Widespread consolidation within the industry and reduction of excess capacity is expected — a shift that's already beginning to happen, with a few plants that failed to reopen after being shuttered last year. And the door is closing on any hope the Trump administration will act on farm concerns.

"We’re tired of fighting the same fight same over and over," Nieuwenhuis said. "I don’t think they understand how important" renewable fuels are to farmers.

Couser said his son, also a farmer, recently questioned whether the ethanol industry, in which many farmers invested their own money, would continue to exist.

Couser, who was part of the team that raised $40 million to build Lincolnway Energy, a 50-million-gallon ethanol plant near Nevada, said he told his son: "I'm not going to give up and neither should you or any other farmer around here."

'We did this because the government asked us to'

The 2001 terrorist attacks on U.S. soil raised national concerns that the country had become too reliant on imported oil to power its homes, businesses and vehicles.

Couser said his father told him that the Sept. 11 attacks were his generation's Pearl Harbor. Farmers responded.

"We did this because the government asked us to," he said. "And to me, that's what's so disappointing today."

Congress established the Renewable Fuel Standard in 2005, and expanded it in 2007, requiring that a growing amount of ethanol and biodiesel be blended into the nation's fuel supply through 2022.

The renewable fuels industry grew to meet the RFS mandate. Iowa, a national leader in growing corn and soybean, makes the most ethanol and biodiesel in the country.

But in 2008, the Great Recession hit and travel decreased, reducing fuel demand, said David Swenson, an Iowa State University economist.

About the same time, the fracking boom sent U.S. oil and natural gas supplies soaring.

"The fracking revolution absolutely, totally eliminated the United States' energy anxiety and energy nationalism," Swenson said. "By 2015, it's all but gone."

"And we're now the world's largest producer of petroleum products," Swenson said.

The need for ethanol, biodiesel and other biofuels "does look quite different now than maybe it did 15 years ago," said Jeremy Martin, the Union of Concerned Scientists' director of fuel policy.

But ethanol and biodiesel, along with growing electric vehicle adoption, are still important to reducing the greenhouse gas emissions that contribute to climate change, Martin said.

"It's not about running out of oil," he said. It's about "avoiding the catastrophic harm from climate change."

'It's just a much more challenging economic proposition'

In Iowa, companies have shelved production of cellulosic ethanol, a greener biofuel made from corn stalks, husks and other crop residue. South Dakota-based producer Poet paused operations at its Emmetsburg plant last November, although research and development continue. And DowDuPont closed its cellulosic ethanol plant in Nevada in 2017, selling it a year later to a German company that plans to produce renewable natural gas.

Under the biofuels mandate, ethanol's greenhouse gas emissions must be at least 20% lower than gasoline's, and the next generation of cellulosic ethanol must be at least 60% greener. The industry says corn-based ethanol emits 40%-45% less greenhouse gas than gasoline.

Martin said producing cellulosic ethanol was financially viable when the oil price was forecast to be $100 or more a barrel. Now, oil is trading around $40 a barrel after its value fell below zero at the beginning of the coronavirus shutdowns.

"It's just a much more challenging economic proposition," Martin said. "I think that's a fundamental piece that people overlook."

He points to a U.S. House committee studying the climate crisis, which recommends the nation adopt a low-carbon fuel standard that builds on the RFS. California already has a carbon standard and other states are considering them.

"Low-carbon standards are on the top of everyone's mind," said Nieuwenhuis, who is also board president of the Siouxland Energy Cooperative, which gets a premium for the ethanol it sells to the California market.

The low-carbon standard considers the direct greenhouse emissions from making, moving and using fuel, along with "indirect emissions" associated with growing the corn, perennial grass and other feedstock used in production, and changes in land use.

The renewable fuels industry has reduced the energy and water needed to make ethanol. But Martin said there are more opportunities, including new technology. "We don't need more ethanol gallons. We need cleaner gallons," Martin said.

'This could be done, taken care of'

Nieuwenhuis said the past four years have been the worst he's experienced financially. "A lot of it has to do with politics," he said.

Trade wars with China, Mexico and Canada, among other countries, have slashed demand for corn, soybeans and ethanol since 2018. The Trump administration provided $28 billion in farm aid over two years to offset the trade losses.

"It keeps you afloat, but it doesn't make you whole," Nieuwenhuis said. "We'd rather have export markets."

Irwin, the University of Illinois economist, calculates that the ethanol industry lost 2 cents on every gallon produced in 2019. "It was a very poor year that carried into 2020," he said.

Ethanol production remains down about 10%, Irwin said, with Americans still traveling less due to the coronavirus. If that production doesn't come back, it could cut 20 cents from the price for a bushel of corn. "It definitely hurts," he said. "There’s no way around that. It increases the misery that’s already there from a financial standpoint."

A report from the Chicago Federal Reserve, which includes Iowa in its district, shows the farm stress: 8.3% of the district's second-quarter farm loans had "major or severe" repayment problems, the highest proportion since 1988, near the end of the 1980s farm crisis.

Renewable fuels leaders blame the Trump administration in part for last year's dismal performance. Though Trump approved year-round use of gasoline with 15% ethanol, it's been overshadowed by the EPA's approval of 85 small refinery exemptions. The industry says the exemptions have cut an estimated 4 billion gallons of renewable fuel demand since 2016.

The EPA has almost 100 more requests this year, even after a federal appeals court ruled in January that the agency "exceeded its authority in granting" certain exemptions. And the Trump administration also has yet to set how much refiners must blend into the nation's fuel supply in the coming year. The lengthy process is supposed to be completed by Nov. 30.

Nieuwenhuis, Couser and others say the president could stop the EPA from approving more waivers, given the court decision. 

"A lot of things are out of our control right now," said Mike Naig, Iowa's agriculture secretary, pointing to lost trade, disruption from the coronavirus, devastation from the Aug. 10 derecho and growing drought. "But with renewables, this could be done, this could be taken care of, the uncertainty could be gone, if EPA would simply shut the door on these small refinery exemptions." 

"This issue definitely could impact the November elections," said Naig, a Republican.

'They may just leave the top of the ballot blank'

Irwin, however, said the blame for renewable fuels' financial losses lies more with ethanol's expansion from 2015 to 2018 than with the small refinery exemptions. The industry "was betting on continued expansion of domestic markets through higher blends and expansion of ethanol exports," primarily to China, Irwin said. "It didn't happen."

Irwin believes that renewable fuel producers should focus on serving the aviation and maritime markets, which could provide more certainty than the shrinking vehicle fuel industry.

That's not a solution, said Monte Shaw, the Iowa Renewable Fuels Association's executive director. "A lot of plants are looking for ways to diversify," Shaw said. But transportation fuel will remain their mainstay.

"The nation will need low-carbon liquid fuels for decades," he said.

Despite his disappointment with the Trump administration, Couser said he plans to vote for the president. The cattleman said he's worried about regulations that former Vice President Joe Biden would pursue.

And Couser said he doesn't hear the Democratic presidential nominee talking about ethanol.

Former Iowa Gov. Tom Vilsack said Biden or his representative talked about renewable fuel during each of about 50 visits to Iowa during the caucuses. And it's part of the Democratic platform.

"Every time this administration has a choice between big oil and corn and soybean farmers, they choose big oil," Vilsack said.

Biden, calling renewable fuels vital to jobs in rural America and the nation's response to climate change, has pledged to invest heavily in developing the next generation of biofuels and to "use every tool" at his disposal to boost demand, "including the federal fleet and the federal government’s purchasing power."

Vilsack, who served as the U.S. agriculture secretary under President Barack Obama, questioned why the EPA has failed to rule on the small refinery exemptions. "I've been on the receiving end of calls from the president of the United States ... and it usually results in immediate action."

As Nieuwenhuis tries to decide who he'll support, he said, he hears farmers say they don't like either presidential candidate.

"They may just leave the top of the ballot blank," he said.

Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at deller@registermedia.com or at 515-284-8457. 

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