White House stalls ethanol expansion in Midwest amid price concerns

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – The White House is stalling action on requests by Farm Belt states to allow regional sales of gasoline blended with higher volumes of ethanol after oil industry warnings that the move could cause regional supply disruptions and price spikes, according to two sources familiar with the matter.

The decision underscores concerns within President Joe Biden’s administration over fuel prices, as opinion polls show inflation and the economy as key vulnerabilities for his 2024 re-election bid. In an NBC News poll released on Sunday, just 38% of respondents approved of Biden’s handling of the economy.

Governors from eight Midwestern states – Illinois, Iowa, Kansas, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin – petitioned the Environmental Protection Agency last year to let them sell gasoline blended with 15% ethanol, or E15, all year, arguing it would help them lower pump prices that soared following Russia’s invasion of Ukraine in February 2022.

The EPA last March issued a proposal that would approve the request by the governors. The agency subsequently missed deadlines to finalize the proposal after oil refiners including HF Sinclair Corp and Phillips 66 warned that a patchwork approach to approving E15 sales would complicate fuel supply logistics and raise the risk of spot shortages.

U.S. gasoline typically contains 10% ethanol.

The two sources familiar with the administration’s thinking, speaking on condition of anonymity, said the White House decided to delay action on the matter following the oil industry’s warnings in part because of concern that higher pump prices in certain states could hurt Biden’s re-election chances.

White House and EPA officials declined to comment on the matter.

Ethanol, a domestically produced alternative fuel most commonly made from corn, is cheaper by volume than gasoline. Adding more of it to the fuel mix can lower prices by increasing overall supply. But the U.S. government restricts sales of E15 gasoline in summer months due to environmental concerns over smog.

The ethanol industry for years has pushed to lift the restrictions on E15 sales nationwide, arguing the environmental impacts have been overstated.

Nebraska and Iowa sued the EPA in August for missing its statutory deadlines on the request by the governors. In its October response, the EPA did not deny it that missed the deadlines and did not offer an explanation.

The oil and ethanol lobbies have produced dueling studies that show how allowing E15 in some states would impact prices, with predictable results. Oil industry-backed studies showed price increases, while ethanol industry-backed studies showed any price increases offset by utilizing lower-cost ethanol.

University of Houston energy economist Ed Hirs said the average U.S. consumer does not understand oil markets, leaving the White House and Biden’s re-election campaign vulnerable to accusations that approving the requests by the governors caused fuel prices to spike, even if something else was to blame.

“There is an unwritten rule that high gas prices mean the incumbent won’t get re-elected,” Hirs said.

(Reporting by Jarrett Renshaw and Stephanie Kelly; Editing by Will Dunham)