Iowa renewable fuel plant closes without government mandated market

Some more news out of Iowa on the King Corn front reached us this week and it spells yet another headache for President Trump who remains caught in a tug-of-war between the ethanol lobby and the oil and gas industry. The CEO of W2 Fuel, a biofuel company, announced that he is closing his plant in Crawfordsville and laying off the fifty employees who work there. The reason he is giving for the closure is that the Renewable Fuel Standard waivers given to more than thirty small refineries by Trump’s EPA this year (85 total since taking office) have reduced demand for ethanol and the market won’t sustain his operations. (Des Moines Register)

An Iowa biodiesel plant announced Tuesday it’s shutting down as Gov. Kim Reynolds warned that federal waivers exempting oil companies from using renewable fuels are hurting the state’s rural economy.

“We continue to see farmers that are impacted,” Reynolds said at a weekly meeting with reporters. “We continue to see ethanol plants that are being idled…

Roy Strom, CEO of W2 Fuel, said Tuesday he is closing the company’s 10-million gallon biodiesel plant in Crawfordsville in southeast Iowa, along with a plant in Michigan, given growing losses.

Ray Strom is a businessman in the private sector so I’m happy to take him at his word. If he has calculated that there isn’t enough demand for his ethanol to keep his business profitable, then shutting down (at least temporarily) was no doubt his only option.

He’s blaming the EPA (and President Trump’s policies) for the closure of his plant. And in at least one regard, he has a valid complaint, but he’s looking at the wrong president. If Strom wants to blame someone, he should take it up with George W. Bush, because that’s the guy who put the RFS into place originally and created this situation.

Strom is angry about the reduction in market demand for his ethanol. But what he’s failing to admit is that there was never a real demand for the amount of ethanol that’s being produced in the midwest to begin with. There’s certainly a market for some ethanol, but nowhere near the amounts that are currently being pumped out. W2 Fuel and its competitors have been growing wealthy by selling a product to oil refineries that they neither want nor need.

The RFS created an artificial market demand for ethanol that wouldn’t exist without the government holding a gun to the heads of the refineries and forcing them to blend this poor quality fuel into the nation’s gasoline supply. Failing to do that means they either have to buy ruinously expensive Renewable Identification Number (RIN) credits or face massive government fines.

The government offering waivers to older, smaller refineries that aren’t set up to blend ethanol in the mandated quantities was a charitable act intended to save them from bankruptcy. But that same benefit should be offered to all refineries by doing away with the RFS entirely. Will that hurt the ethanol plants like Mr. Stroms? Yes, it will. But they were never operating on a fair playing field to begin with. The RFS distorted the free market in obscene ways, and now that meddling is coming back to haunt any number of people.