The oil and ethanol sectors are at war in the United States, and a government proposal meant to appease both parties would have disastrous consequences for Canada’s ethanol sector.

U.S. President Donald Trump is considering a plan by the U.S. Department of Agriculture and U.S. Environmental Protection Agency to allow biofuel credits on ethanol exports.

The credits, which are called RINs, can be purchased by oil refiners that did not invest in ethanol-blending equipment from those who did in order to comply with the U.S. Renewable Fuel Standard.

Refiners complain that the credits have become so expensive it is putting them out of business.

Proponents of the plan such as U.S. Senator Ted Cruz say that allowing RINs to be earned on export sales will dramatically increase the amount of RINs in the system and drive down the price of the credits, which would be good for the oil industry.

And it would increase exports, which would be good for the ethanol and corn sectors.

But the proposal has angered farm groups and ethanol associations.

“Attaching a RIN to ethanol exports would have a crippling impact on American agriculture, significantly reducing demand for ethanol and corn,” Growth Energy chief executive officer Emily Skor said in a news release.

The organization commissioned a study showing that the export subsidy would result in corn losses of US$27.9 billion over four years due to trade ramifications from angry importers.

The proposal isn’t sitting well with Canadian ethanol manufacturers.

Jim Grey, chair of Renewable Industries Canada, said the proposal amounts to an export subsidy equal to whatever the value of the RIN is at that time. Recently, it has been around 30 cents per gallon.

“We would very likely immediately launch a trade action against the United States,” he said.

The U.S. shipped out a record 5.19 billion litres of ethanol in 2017. Canada was the second biggest importer behind Brazil, taking 1.24 billion litres of the fuel.

Grey said if the U.S. were to subsidize its exports Canada would retaliate with duties that would block U.S. ethanol from entering the country but that would create a void and make it difficult for Canada to meet its national mandate.

“That’s obviously going to be very problematic,” he said.

Grey doesn’t think the proposal will come to fruition because it faces intense opposition in the U.S. and abroad. If it did go through, he doesn’t think the policy would stay in place very long.

“Should this happen in the United States, I would very much suspect they would reverse that decision once countries have started to put barriers in place,” he said.