Icahn Lobbying Trump Sparks Civil War in U.S. Ethanol Sector

(Bloomberg) -- Billionaire Carl Icahn's relationship with President Donald Trump has helped spark a round of recriminations within the $24 billion American ethanol industry just as it navigates one of the most crucial points in its history.

The discord has emerged in the past three days as ethanol companies react to a proposal from Icahn and a lobby group that would shake up how the industry is regulated.

At the heart of the dispute lies the question of who exactly should be responsible for complying with a 12-year-old law mandating the blending of ethanol in gasoline. Icahn, a renowned corporate raider, controls one of the largest independent U.S. refiners. He argued loudly and repeatedly during the general election that the burden shouldn't fall on companies like his but on fuel blenders instead.

Icahn's position is anathema to most of the biofuels industry. That made it all the more surprising when it emerged Feb. 27 that the 81-year-old billionaire -- now a special regulatory adviser to President -- had won the backing of the Renewable Fuels Association. The Washington-based lobbying group's president, Bob Dinneen, had long opposed the kind of change Icahn advocates, yet his group is now backing the proposal, which is being discussed in the White House. The news roiled the gasoline and corn markets -- and triggered an unprecedented display of public disunity from ethanol producers.

‘Back-Room Deal'

“We believe the Renewable Fuels Association has been bought, sold and delivered on a platter," Todd Becker, chief executive officer of Green Plains Inc., which isn't a member of the lobby group.

In November, the renewable fuels unit of Valero Energy Corp., the largest independent U.S. refiner, joined the Renewable Fuels Association. The company endorses the move championed by Icahn, and Becker said that may have helped to sway the deal. “Bob Dinneen sold his soul to the devil,” Becker said of Valero joining the group.

Also under fire is how the proposed deal was presented to the Trump administration without wider consultation. Poet LLC, the largest U.S. ethanol producer and a founder of Growth Energy, a separate trade group vehemently opposed to the Icahn move, called the agreement "a back-room deal" made while "leading voices" were absent.

White House officials have spent the past two days in deliberations with Icahn and with ethanol producers who oppose his proposal, according to people familiar with the talks. The flurry of meetings and phone calls came after Bloomberg News reported Monday that Icahn had helped broker a compromise with Dinneen's group. The report led to a surge of more than $100 million in the value of Icahn's stake in refiner CVR Energy Inc.

White House spokeswoman Kelly Love said Wednesday there's no executive order in the works dealing with ethanol. She didn't directly respond to questions about the status of discussions.

Compliance Costs

While ethanol regulation can be esoteric at the best of times, the industry has considerable political clout in Washington. It's a major part of the economy in the U.S. Corn Belt, where voters helped Trump to the White House. Many in the region are waiting to see what Trump will do to support the farming sector.

Until this week, the biofuels industry had been united in fighting against changes to the mandate, arguing that to do so would undermine the intent of the program -- to increase use of ethanol and biodiesel.

CVR and other gasoline refiners countered that the current costs of complying with the mandate are excessive. Refineries that can't add ethanol to gasoline are currently forced to buy credits to meet the requirements. Icahn has warned of bankruptcies.

Just last week, the Renewable Fuels Association filed comments with the Environmental Protection Agency asking that the agency block Icahn's demands. But everything changed, Dinneen said, after he was contacted by the White House and told in “no uncertain terms” that Icahn's request would be granted. Dinneen said he then tried to get support from within the industry to get the best deal available.

Unprecedented ‘Brouhaha'

Now there's disarray in the biofuels world. Fuels America, a lobby group with members throughout the agricultural supply chain, said Tuesday it had severed ties with the Renewable Fuels Association. Both the Iowa Renewable Fuels Association and the Illinois Renewable Fuels Association said they oppose any efforts to change the law.

Dinneen declined to comment, other than to say he continues to “have great respect for the Fuels America coalition and its members.”

Growth Energy said Dinneen's organization doesn't speak for the majority of the biofuels industry. Emily Skor, the group's CEO, said she was caught off guard by the Icahn pact and has spent the past few days talking to policymakers, lawmakers and journalists to explain the distinction between her organization, whose members are still opposed to the deal, and the Renewable Fuels Association. Skor, who started her job in May, says she's been told that the current industry "brouhaha" is unprecedented.

--With assistance from Jennifer A Dlouhy

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.