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Larry Kudlow Honing Latest Plan to Buttress Biofuel Mandates

Jennifer Jacobs, Jennifer A. Dlouhy and Mario Parker

(Bloomberg) -- White House economic adviser Larry Kudlow is working to hone the Trump administration’s plan for bolstering biofuel-blending requirements after ethanol allies in politically important farm states complained the current proposal doesn’t do enough to compensate for waivers exempting some small refineries from the mandates.

Kudlow’s involvement was described by five people familiar with the matter who asked not to be named discussing the administration’s private deliberations. The effort comes after biofuel producers, corn farmers and Midwest politicians blasted the Environmental Protection Agency’s current approach as inadequate, saying it flouted the terms of an Oct. 1 agreement to raise biofuel-blending requirements enough to fully offset refinery exemptions.

Biofuel allies say there’s no guarantee the EPA’s formal proposal will completely offset those exemptions because adjustments would be based on recent Energy Department recommendations for waivers, not the higher amount that the EPA has actually granted.

Even if EPA officials have the best intentions, “farmers don’t believe it” because of the agency’s track record, Senator Chuck Grassley, a Republican from Iowa, said Tuesday. “Even if your heart is in the right place, your regulation has to show that.”

Oil industry leaders have portrayed the EPA’s existing proposal as illegal, arguing it would unfairly force large refineries to bear a disproportionately higher burden of biofuel-blending requirements.

A public comment period just ended on that proposal, and the EPA is now reviewing feedback as it prepares a final rule setting 2020 biofuel quotas. Before that can happen, the EPA measure would be scrutinized in a White House-led interagency review.

Kudlow’s effort, which could lead to changes to the final EPA rule, is aimed at ensuring that the final measure is aligned with the earlier plan to offset refinery exemptions blessed in negotiations with President Donald Trump. One possibility under consideration is incorporating a safety valve mechanism to ensure adjustments in the future if the EPA grants more refinery exemptions than anticipated, according to three of the people.

The news gave a brief boost to ethanol producers. Green Plains Inc. rose as much as 2.78% and Pacific Ethanol Inc. increased as much as 2.14% after Bloomberg News reported the development.

The Trump administration has struggled to find a balance between competing oil and biofuel industry interests on the issue. Administration officials have embraced some previous ideas, only to discard them after criticism from the sectors.

As director of the National Economic Council, Kudlow has been spearheading White House work on the issue for months. The latest effort is a continuation of Kudlow’s ongoing work on the biofuel rule, one person familiar said. According to one of the people familiar with the discussions, Kudlow is working with EPA officials on the final rule’s methodology.

Kudlow also participated in a Nov. 19 Oval Office meeting at which Grassley has said Trump directed EPA Administrator Andrew Wheeler to ensure a 15 billion-gallon target for conventional biofuel isn’t undermined by exemptions.

(Updates with details on Kudlow’s efforts from sixth paragraph)

To contact the reporters on this story: Jennifer Jacobs in Washington at jjacobs68@bloomberg.net;Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net;Mario Parker in Washington at mparker22@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, John Harney, Larry Liebert

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