[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





 RIN FRAUD: EPA'S EFFORTS TO ENSURE MARKET INTEGRITY IN THE RENEWABLE 
                             FUELS PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 11, 2012

                               __________

                           Serial No. 112-161





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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   GENE GREEN, Texas
  Vice Chairman                      DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma              LOIS CAPPS, California
TIM MURPHY, Pennsylvania             MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire       MIKE ROSS, Arkansas
PHIL GINGREY, Georgia                JIM MATHESON, Utah
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington   DORIS O. MATSUI, California
GREGG HARPER, Mississippi            DONNA M. CHRISTENSEN, Virgin 
LEONARD LANCE, New Jersey            Islands
BILL CASSIDY, Louisiana              KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 _____

              Subcommittee on Oversight and Investigations

                         CLIFF STEARNS, Florida
                                 Chairman
LEE TERRY, Nebraska                  DIANA DeGETTE, Colorado
SUE WILKINS MYRICK, North Carolina     Ranking Member
JOHN SULLIVAN, Oklahoma              JANICE D. SCHAKOWSKY, Illinois
TIM MURPHY, Pennsylvania             MIKE ROSS, Arkansas
MICHAEL C. BURGESS, Texas            KATHY CASTOR, Florida
MARSHA BLACKBURN, Tennessee          EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California         GENE GREEN, Texas
PHIL GINGREY, Georgia                CHARLES A. GONZALEZ, Texas
STEVE SCALISE, Louisiana             DONNA M. CHRISTENSEN, Virgin 
CORY GARDNER, Colorado                   Islands
H. MORGAN GRIFFITH, Virginia         JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California (ex 
FRED UPTON, Michigan (ex officio)        officio)

                                  (ii)



















                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     1
    Prepared statement...........................................     4
Hon. Diana DeGette, a Representative in Congress from the State 
  of Colorado, opening statement.................................     6
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     7
Hon. Lee Terry, a Representative in Congress from the State of 
  Nebraska, opening statement....................................     8
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     9
    Prepared statement...........................................    11
Hon. Brian P. Bilbray, a Representative in Congress from the 
  State of California, opening statement.........................    13
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   138

                               Witnesses

Jennifer Case, Chief Executive Officer, New Leaf Biofuel.........    15
    Prepared statement...........................................    17
    Additional responses for the record..........................    88
    Answers to submitted questions...............................   139
George Andrew Sprague, Owner, Union County Biodiesel Corporation, 
  LLC............................................................    21
    Prepared statement...........................................    23
    Answers to submitted questions...............................   142
Thomas Paquin, President, VicNRG, LLC............................    30
    Prepared statement...........................................    32
    Additional responses for the record..........................   105
    Answers to submitted questions...............................   144
J.P. Fjeld-Hansen, Managing Director, Musket Corporation.........    54
    Prepared statement...........................................    56
    Answers to submitted questions...............................   148
Joe Jobe, Chief Executive Officer, National Biodiesel Board......    62
    Prepared statement...........................................    64
    Additional responses for the record..........................   110
    Answers to submitted questions...............................   150
Charles Drevna, President, American Fuel and Petrochemical 
  Manufacturers..................................................    73
    Prepared statement...........................................    75
    Answers to submitted questions...............................   152
Byron Bunker, Acting Director, Compliance Division, Office of 
  Transportation and Air Quality, Office of Air Radiation, 
  Environmental Protection Agency................................   115
    Prepared statement...........................................   118
    Answers to submitted questions...............................   155
Phillip Brooks, Director, Air Enforcement Division, Office of 
  Enforcement and Compliance Assurance, Environmental Protection 
  Agency \1\.....................................................

                           Submitted Material

Subcommittee exhibit binder......................................   159

----------
\1\ Mr. Brooks did not present a statement for the record.

 
 RIN FRAUD: EPA'S EFFORTS TO ENSURE MARKET INTEGRITY IN THE RENEWABLE 
                             FUELS PROGRAM

                              ----------                              


                        WEDNESDAY, JULY 11, 2012

                  House of Representatives,
      Subcommittee on Oversight and Investigations,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
room 2123, Rayburn House Office Building, Hon. Cliff Stearns 
(chairman of the subcommittee) presiding.
    Members present: Representatives Stearns, Terry, Myrick, 
Sullivan, Burgess, Blackburn, Bilbray, Gingrey, Gardner, 
Griffith, Barton, Whitfield, Degette, Castor, Markey, Green and 
Waxman (ex officio).
    Staff present: Nick Abraham, Legislative Clerk; Charlotte 
Baker, Press Secretary; Andy Duberstein, Deputy Press 
Secretary; Todd Harrison, Chief Counsel, Oversight and 
Investigations; Cory Hicks, Policy Coordinator, Energy and 
Power; Heidi King, Chief Economist; Ben Lieberman, Counsel, 
Energy and Power; Monica Popp, Professional Staff Member, 
Health; Krista Rosenthall, Counsel to Chairman Emeritus; Alan 
Slobodin, Deputy Chief Counsel, Oversight; Sam Spector, 
Counsel, Oversight; Peter Spencer, Professional Staff Member, 
Oversight; Alvin Banks, Democratic Investigator; Alison 
Cassady, Democratic Senior Professional Staff Member; Brian 
Cohen, Democratic Investigations Staff Director and Senior 
Policy Advisor; and Alexandra Teitz, Democratic Senior Counsel, 
Environment and Energy.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Good morning, everybody, and welcome to the 
Subcommittee on Oversight and Investigations of the Energy and 
Commerce full committee.
    My colleagues, today we will examine the Environmental 
Protection Agency's handling of fraud in its program to 
implement the Renewable Fuel Standard. Specifically, we will 
look at the impacts on the biodiesel marketplace from the 
fraudulent production and trade in renewable fuel credits, or 
Renewable Identification Numbers, RINs, and the impact from 
EPA's efforts to address this serious problem.
    This hearing is part of the subcommittee's ongoing 
investigation into RIN fraud and should spotlight potential 
solutions to the most urgent problems confronting the biodiesel 
market. This hearing should also serve to identify additional 
challenges from fraud within the Renewable Fuels Program in 
general.
    EPA is responsible for developing and implementing 
regulations to ensure that the United States national 
transportation fuel supply during a given year contains certain 
mandated volumes of renewable fuel. The RIN credit trading 
program is designed to add flexibility to the system and 
facilitate compliance by petroleum refiners and importers, 
known as, quote, ``obligated parties,'' end quote, with 
renewable fuel standards that were created under the Energy 
Policy Act of 2005 and expanded under the Energy Independence 
and Security Act of 2007 to cover gasoline and diesel 
transportation fuels.
    Now, in recent years a sizeable market for biomass-based 
diesel has developed. This market is second only to corn 
ethanol in size, producing more than 1 billion gallons of 
biodiesel fuel last year.
    As we will hear in testimony this morning, unlike ethanol 
fuels, the price for RINs is critical to making ends meet for 
small biodiesel producers, the marketers who collect and 
distribute the fuel, and small blenders of the fuel, especially 
travel centers and truck stops. RIN prices have ranged from $1 
to $1.50 per gallon of biodiesel, compared to about 2 pennies 
per gallon for ethanol.
    Unfortunately, my colleagues, when the price for RINs is 
relatively high, so is the incentive to game the system. Since 
November 2011, EPA has identified some 140 million invalid or 
fraudulently created biodiesel RINs generated by three 
producers. Additionally, EPA investigations could amount to 
tens of millions of more invalid RINs identified.
    Just last month, a Federal jury in Maryland found Rodney 
Hailey of Clean Green Fuel guilty of selling $9 million worth 
of fraudulent RINs to brokers, oil companies, and producers, 
and then using the money to go on a spending spree that 
included the purchase of luxury cars and high-end jewelry. Mr. 
Hailey had generated 32 million credits for fuel that never 
existed.
    Meanwhile, EPA does not certify or validate the fuel 
produced and registered in its systems that track RINs. The 
Agency maintains that obligated parties are responsible for 
conducting their own due diligence when conducting RINs 
transactions. This approach makes sense, to a point; however, 
to date EPA has not indicated what is acceptable for due 
diligence investigations by the companies.
    On top of this uncertainty, EPA effectively penalized 
companies that were, quote, ``victims of fraud'' by requiring 
them to replace invalid RINs for compliance purposes. As we 
will hear from witnesses on our first panel this morning, this 
current approach to fraud has thrown the biodiesel marketplace 
into turmoil, creating significant uncertainty for small 
players, locking some innocent companies out of the markets 
altogether.
    Clearly there is a problem with the current situation. 
Today we will discuss how to fix the problem and how to do so 
with appropriate urgency. As we do so, we must recognize the 
range of fraud that may occur in the Renewable Fuels Program. 
Testimony today will indicate other types of fraud and abuse, 
such as with exports, which we should be sure EPA seeks to 
address effectively and quickly.
    We will hear from two panels of witnesses this morning. On 
the first panel we will hear from stakeholders with important 
perspectives across the life cycle of a RIN, two small biofuel 
producers, a marketer of biofuel, and a blender of the fuel for 
a major truck stop chain, all of whom have firsthand experience 
with the impact of fraud. We will also hear from respective 
representatives of the obligated parties and the biofuel 
production industry overall about industry efforts to respond 
to fraud risk.
    On the second panel we'll hear testimony from two EPA 
officials who have been involved in devising compliance 
requirements and ensuring those requirements are met.
    So I am pleased to learn that EPA appears to recognize the 
legitimate concerns of stakeholders and may be amenable to 
implementing some of their suggestions. That's a positive sign, 
but much, much remains to be worked out, and uncertainty 
continues to reign in this market, putting many small operators 
at risk.
    [The prepared statement of Mr. Stearns follows:]


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    Mr. Stearns. With that, I recognize the distinguished 
ranking member from Colorado Ms. DeGette.

 OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF COLORADO

    Ms. DeGette. Thank you, Mr. Chairman, for holding this 
hearing today.
    The EPA's Renewable Fuel Standards Program was created and 
amended under President Bush, first by the Energy Policy Act in 
2005 and then by the Energy Independence and Security Act of 
2007. I support this program, and I want it to be a productive 
hearing today that results in real improvements to that 
program, but all too often, as we have found in the last year 
and a half, these hearings have turned into excuses to make 
political points and beat up on regulatory agencies, in this 
case a little bit blaming the victim, the EPA, for fraud by 
some of the other outside private businesses. I hope it doesn't 
happen today as we go along, because this hearing in particular 
should not be used just to bash the EPA.
    Again and again, when we consider environmental protection, 
we hear about the need for market-based programs. Industry 
wants government out of the way so the magic of the market can 
clear up our air and water.
    Well, Mr. Chairman, here is a program right here today that 
uses a market-based approach. Congress established specific 
goals for adding renewable fuels to the fuel supply. The EPA 
worked closely with the petroleum sector to develop a flexible 
credit-trading program that allows refiners and other obligated 
parties to comply with the renewable fuel standard. Under the 
program, as the chairman said, they can buy credits on the open 
market, which sets prices on the basic laws of supply and 
demand.
    Now, as in any market, there are bad actors. That's what 
happened here. Three companies, Clean Green, LLC; Absolute 
Fuels, LLC; and Green Diesel, LLC, sold fraudulent renewable 
fuel credits via EPA's trading system. Many big-name oil 
companies bought these credits, and EPA did what it was 
supposed to do: It uncovered and investigated this fraud and, 
as the chairman said, in one case so far filed criminal 
charges.
    Today we are going to hear from the trade association 
representing the petroleum refiners that bought these 
fraudulent credits. They want relief from the EPA for the fact 
that they were duped. Well, Mr. Chairman, I would submit this 
proposition: You can't have it both ways. You can't ask the 
government for a market-based compliance program and then blame 
the government or ask the government to not fully enforce the 
law because you were fooled by the free market.
    I want to specifically talk about Mr. Drevna's testimony. 
He's the president of the American Fuel and Petroleum 
Manufacturers. And I read your submitted testimony. It paints 
the petroleum refiners as the real victims. It claims that they 
shouldn't be held responsible for the fraud they didn't commit. 
Of course, that makes sense without any context. Nobody should 
be blamed for fraud that they didn't commit. But while these 
refiners didn't commit the fraud, they weren't helpless victims 
either.
    These are some of the most sophisticated petrochemical 
companies in the United States, and, to be honest, if they're 
going to participate in a market-based system from which they 
benefit, they have a duty to investigate the people who they're 
doing business with. That would happen in any private market.
    Now, the EPA set clear rules for this market. The 
regulations clearly state that fraudulent renewable fuel 
credits can't be used for compliance, and they clearly state 
that the system is a buyer beware system. This buyer beware 
approach was not a secret, but yet the refiners failed to do 
basic research on the renewable fuel credits they were buying.
    Two of the companies accused of the fraud, I am sorry to 
say, Mr. Green and Mr. Barton, they are based in Texas. Now, 
presumably many of the Texas-based refiners could have 
inspected the facility, knocked on the doors of the companies 
that falsely claimed to be producing large quantities of 
biodiesel, and concluded pretty quickly that things looked 
fishy. An article in The New York Times described one of the 
facilities as, quote, ``a few plastic tubes'' in, quote, ``a 
tiny ramshackle building.''
    So it wouldn't have been hard for these big, sophisticated 
refiners to do their due diligence, but they didn't do their 
part, and now they are here today saying the EPA is punishing 
them unjustly, even though they were in clear violation of the 
Clean Air Act standards. Mr. Chairman, these companies should 
not be let off the hook for their failure to do their own due 
diligence.
    I do think, though, that we have a lot to learn from this 
hearing. We do need to hear from the affected refiners about 
why they did not identify this fraud as apparently they could 
have easily done; we need to hear from other sellers of 
renewable fuel credits to learn how they are affected; and we 
need to hear from the EPA about how the Agency uncovered this 
fraud and how to prevent it in the future.
    The EPA continues to work with affected stakeholders to 
ensure compliance and identify solutions to problems that have 
arisen in the wake of the fraud. I hope the witnesses today can 
give us a full picture of the challenges they faced in the wake 
of these fraud cases and constructive ideas for how the EPA can 
help the market recover as quickly as possible.
    Thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentlelady.
    And I recognize Dr. Burgess for roughly about a minute. 
We're waiting for the full chairman Mr. Upton.
    Mr. Burgess. I can filibuster until he gets here.
    Mr. Stearns. You can filibuster. We have two others, Mrs. 
Blackburn and----
    Mr. Burgess. I will be brief.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    You know, the renewable fuel standards law, we had a big 
hearing about it yesterday in the energy hearing. Whether we 
agree with the merits or not, and many of us do not agree with 
the merits, still if it's there, it should be administered 
fairly to all concerned.
    In my district in north Texas, a number of small businesses 
are participants in the RIN program. One company, VicNRG, is 
testifying with us here today, and thank you for your 
participation, sir.
    As a result of the Environmental Protection Agency's poor 
enforcement and their lack of due diligence in vetting 
fraudulent companies participating in the program, legitimate 
businesses are put in a position where they face staggering 
economic losses due to a system that--I mean, Lisa Jackson was 
here. She was here in this very committee, sitting at this very 
witness table, and she said, no, this is a buyer beware 
program.
    Now, look, this is the same EPA that in the last Congress 
assured us that they could properly manage a carbon-based 
trading scheme called cap and trade. This program is 
infinitesimally smaller, and yet the EPA seems to have fallen 
flat on its face.
    They have successfully taken everything that was bad--the 
EPA has successfully taken everything that was bad about 
mortgage-backed securities and brought it to the energy sector. 
To place the burden of this poorly administered program on the 
backs of honest businesses is unconscionable. I hope our 
hearing today will shed light on the problems that the 
companies have faced with the trading program and that real 
reforms are achieved with what we're going to do today.
    I'll yield to whoever is next.
    Mr. Stearns. Mr. Terry, the gentleman from Nebraska.

   OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEBRASKA

    Mr. Terry. Thank you, Mr. Chairman, for holding, I think, 
this important hearing.
    I am a believer that if we are going to eliminate our 
addiction to OPEC oil, that we need to diversify our fuel 
portfolio, and that has to include biofuels. Now, of course, I 
could be accused, since I come from a Cornhusker State, of 
having a bias, of which I do, but the bias is that we need 
diversity, and we need biofuels to be part of that portfolio.
    There are many that I serve with on both sides of the aisle 
that disagree with that statement, and, unfortunately, because 
of unquestionable RIN fraud, RINs have become one of the 
discussion points on eliminating biofuels altogether. So this 
is an important hearing so we can figure out how to fix the RIN 
fraud problem that we all know on both sides of the aisle 
exists. We are here today to find solutions to this fraud 
problem, and I want to thank our panel for being part of a 
solution here today.
    I yield my time back to the chairman.
    Mr. Stearns. We have roughly 2 minutes. Does anyone else on 
the subcommittee seek recognition?
    Mr. Waxman. Mr. Chairman, I ask unanimous consent that when 
the full committee chair comes in, that he be given 2-1/2 
minutes.
    Mr. Stearns. Sure. All right. We'll reserve that balance, 
and, by unanimous consent, so ordered.
    I recognize the ranking full chairman, the gentleman from 
California, Mr. Waxman.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you, Mr. Chairman. I'll take a full 5.
    Congress established the Renewable Fuels Program to reduce 
the country's dependence on petroleum-based fuels and cut 
greenhouse gas emissions from the transportation sector. These 
are laudable goals. Unfortunately, a few bad actors selling 
fraudulent biodiesel fuel credits have created a crisis of 
confidence in the biodiesel fuels market that risks undermining 
the whole program.
    The reported cases of fraud have left petroleum refiners 
understandably skittish about purchasing biodiesel credits from 
small and unfamiliar biodiesel producers. As a result, through 
no fault of their own, many small legitimate biodiesel 
producers are struggling to sell their products and make a 
profit. Others along the fuel chain, such as the distributors 
of biodiesel and credit brokers, are feeling the pinch as well. 
We will receive testimony from a few of these affected parties 
today, and I look forward to hearing their suggestions for how 
to restore certainty and integrity to the market.
    We'll also hear from the American fuel and petrochemical 
manufacturers. To hear them tell it, they were helpless victims 
of this fraud. This is revisionist history. The statutory 
renewable fuels provisions allow petroleum refiners to meet 
their renewable fuel obligations by purchasing renewable fuel 
credits.
    In 2007, the Bush EPA set up the required Credit Trading 
Program. EPA had two basic options when designing this program. 
EPA could have required that each credit be verified by EPA 
prior to its sale. This approach is more burdensome, but would 
make the government, not industry, responsible if a credit 
turned out to be fraudulent. Or EPA could allow the industry 
itself to generate and verify the credits, which is how most 
markets operate.
    EPA consulted extensively with industry stakeholders and 
chose the approach with the least amount of government 
involvement. The Petroleum Refiners Trade Association endorsed 
this approach. But that flexibility for industry carried with 
it an important and clear responsibility. The oil refiners and 
other obligated parties had to ensure that they were using 
valid credits to comply with the law. They didn't.
    As we now know, several of the country's largest oil 
companies purchased millions of fraudulent renewable energy 
credits. This happened because they didn't do the basic due 
diligence they would do in purchasing any other product. With 
any due diligence they would have quickly discovered that the 
accused biofuel producers weren't producing any biofuel at all.
    I find it ironic to hear my Republican colleagues criticize 
a program that is run by the industry and, more importantly, 
criticize EPA for not doing what the program did not intend 
them to do.
    EPA plays a crucial role in establishing clear rules and 
obligations for the credit-trading system, and EPA carried out 
this responsibility. But recent events show that the system, as 
currently operated by industry and EPA, needs to be improved.
    EPA has been meeting extensively with stakeholders to 
identify solutions for problems in the renewable fuels credit 
market. But it is not just up to EPA. Buyers and sellers must 
be active and vigilant participants in the marketplace, and if 
things go wrong, the industry can't demand that the government 
bail them out by waiving the law.
    Market-based approaches to meeting environmental 
requirements are often preferable because they are less costly 
and less burdensome than traditional regulation, but market-
based approaches are only acceptable if they produce at least 
equivalent environmental results. Waiving the requirement for 
industry to replace fraudulent credits basically says that if 
something goes wrong, the public, not industry, must pay the 
price. That kind of response gives market-based approaches a 
bad name and is not acceptable.
    I hope that today's hearing helps all the affected parties 
continue their work toward real solutions that protect the 
functioning and integrity of the Renewable Fuels Program. We 
can't criticize EPA for a market-based approach, which I 
usually hear people on the Republican side of the aisle 
support, and now they want to criticize EPA for not running it 
the way they would have liked EPA to run it. But EPA followed 
the advice of so many, and the Bush EPA turned it over to the 
industry itself to monitor the program.
    I yield back my time.
    [The prepared statement of Mr. Waxman follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Stearns. The gentleman yields back.
    Anyone else seek recognition? We have roughly a little over 
2 minutes.
    The gentleman from California, Mr. Bilbray.

OPENING STATEMENT OF HON. BRIAN P. BILBRAY, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Bilbray. Mr. Chairman, I think it's only fair to point 
out that there is so much that the industry can work with that 
we give them the infrastructure for the practical application 
of the theory of how this is approached.
    I think both sides of the aisle should remember that after 
9/11 there was a bipartisan effort that saw a need for the 
Federal Government and State governments to cooperate at 
changing the way we operated so that this country could be 
safe. The product of that was REAL ID legislation. We upgraded 
the identification to reduce fraud, reduce the risk to this 
country, and both sides worked on that.
    Something comparable that we may want to talk about here, 
and Ms. Case and I were talking about the fact that just as 
much as REAL ID helped with national security, maybe the fact 
of upgrading the way to be able to identify true renewables as 
opposed to those fraudulent ones is to improve the 
documentation so that fraud can be detected better in the 
process.
    In fact, I would ask my colleagues to consider the fact 
that maybe what we need here is an E-Verify for environmentally 
friendly fuels and the use of technology and computerization as 
a way of allowing those who want to play by the rules set by 
this Congress and stay within those boundaries to be able to 
verify that they are actually within the boundaries.
    Just as much as REAL ID brought security to the country, 
and just as much as everyone knows that if we want to enforce, 
you know, our employment laws, E-Verify is going to be the 
vehicle, maybe with this crisis we should look at changing our 
procedures and giving the private sector a secure way of 
knowing what is truly an environmental fuel and what isn't. And 
I'd ask both sides of the aisle to cooperate on this, like we 
have done in the past, so that the private sector can play 
within the rules that we have set.
    I yield back.
    Mr. Stearns. Anyone else wishes to speak on this side? If 
not, Mr. Green is recognized for 5 minutes. Do you have an 
opening statement?
    Mr. Green. No, Mr. Chairman, I don't have an opening 
statement.
    Mr. Stearns. OK. All right. We'll go to our witnesses now. 
I say to Mr. Bilbray, I am glad that the subcommittee chair, 
Mr. Whitfield from Kentucky, is here to hear your eloquent 
presentation. That would be legislation in his purview. We, and 
you particularly, would like to lead the charge for this E-
Verify in the RIN program. I think it's an excellent idea, and 
I think many of us would support that idea. So----
    Ms. DeGette. Mr. Chairman, would that be a new government-
run program?
    Mr. Stearns. This is in the early stages.
    I ask the gentlelady unanimous consent to let Mr. 
Whitfield, who's from Kentucky, introduce Mr. Sprague.
    With no objection, Mr. Whitfield, you are welcome to 
introduce your distinguished witness.
    Mr. Whitfield. Mr. Chairman, thanks very much. And I am 
delighted to be here this morning, and I appreciate the 
opportunity to introduce a constituent of mine, Mr. Andy 
Sprague, who is a farmer, who is an engineer, who is a 
biodiesel entrepreneur.
    It has been interesting listening to the discussion this 
morning, because I'm so delighted that you all asked Mr. 
Sprague to testify, because he is not a major oil company, he 
is not a gigantic refiner, but he is producing a significant 
amount of biodiesel, and the lack of confidence in EPA's RIN 
program is particularly troublesome for those smaller people 
involved in this business.
    So he'll be a spectacular witness. He's quite knowledgeable 
in every aspect of this subject matter, and I'm delighted that 
he's here with us today to provide his expertise.
    Thank you very much.
    Mr. Stearns. And I thank the gentleman.
    So, Mr. Sprague, you're a spectacular witness, not to put 
any pressure on you.
    We also have Ms. Case, who is cofounder and CEO of New Leaf 
Biofuel located in San Diego, California.
    We have Mr. Thomas Paquin, the president of VicNRG, LLC, 
which markets and trades commodities in the diesel industry as 
well as RINs.
    Mr. J.P. Fjeld-Hansen is the managing director of the 
Musket Corporation, affiliate company of Love's Travel Stop and 
Country Stores, Incorporated. They purchase biodiesel fuel from 
a variety of producers and transport it to the Love's Travel 
Centers.
    Mr. Joe Jobe is the chief executive officer of the National 
Biodiesel Board. The National Biodiesel Board is a national 
trade association representing the biodiesel industry.
    We have Mr. Charles Drevna, president of American Fuel and 
Petrochemical Manufacturers. Its members are the obligated 
parties responsible for meeting the requirements of the 
Renewable Fuel Standard.
    So thank you all for your time. I know coming here to 
Washington takes you away from your work, so you're very much 
appreciated.
    We'll start out with you, Ms. Case, for your opening 
statement, but I have to swear you in first. So if you'll 
please stand.
    Before you stand, as you know, the testimony you're about 
to give is subject to Title XVIII, Section 1001, of the United 
States Code. When holding an investigative hearing, this 
committee has a practice of taking testimony under oath. Do you 
have any objection to testifying under oath?
    It appears none.
    The chair would advise you that under the rules of the 
House and the rules of the committee, you are entitled to be 
advised by counsel. Do any of you wish to be advised by 
counsel?
    In that case, please rise and raise your right hand.
    [Witnesses sworn.]
    Mr. Stearns. With that, Ms. Case, we'll welcome you with 
your opening statement.

STATEMENTS OF JENNIFER CASE, CHIEF EXECUTIVE OFFICER, NEW LEAF 
 BIOFUEL; GEORGE ANDREW SPRAGUE, OWNER, UNION COUNTY BIODIESEL 
 CORPORATION, LLC; THOMAS PAQUIN, PRESIDENT, VICNRG, LLC; J.P. 
FJELD-HANSEN, MANAGING DIRECTOR, MUSKET CORPORATION; JOE JOBE, 
CHIEF EXECUTIVE OFFICER, NATIONAL BIODIESEL BOARD; AND CHARLES 
      DREVNA, PRESIDENT, AMERICAN FUEL AND PETROCHEMICAL 
                         MANUFACTURERS

                   STATEMENT OF JENNIFER CASE

    Ms. Case. Good morning. Chairman Stearns, Ranking Member 
DeGette and members of the committee, thank you for having me 
here to testify today. My name is Jennifer Case. I am the CEO 
and one of the owners of New Leaf Biofuel in San Diego.
    We began our company in 2006 with the mission to utilize a 
former waste stream, used cooking oil, and convert it into an 
energy source that would displace some of the petroleum used in 
our area and improve local air quality. Since selling our first 
batch of biodiesel in 2008, we have experienced some drastic 
ups and downs. As with any commodity business, we are at the 
mercy of ever-changing markets, which makes planning for the 
future challenging. The past few years have been even more 
unpredictable with the expiration of the biodiesel tax 
incentive, followed by its reinstatement, followed by its 
expiration once again.
    With each policy change, our ability to price biodiesel 
competitively with petroleum diesel is affected. Fuel customers 
are eager to use renewable fuels, but not if it means they have 
to pay more per gallon.
    The saving grace for the biodiesel industry was the 
Renewable Fuel Standard. Finally we had a long-term policy put 
in place by the Federal Government to ensure that biodiesel 
would be part of our energy future. The producers and importers 
of fossil fuels would be forced to blend renewable fuels made 
in the USA into the fuel supply, and over time the mandate 
would increase, which would encourage investment in our 
previously uncertain business.
    2011 was a banner year for New Leaf Biofuel. We were able 
to produce and sell biodiesel with Renewable Identification 
Numbers, RINs, for a profit, and we were able to pass savings 
downstream to our distributors and the end users of our fuel. 
Finally biodiesel was cheaper than diesel. At New Leaf, we 
nearly tripled our workforce and finally obtained low-interest 
financing to increase production at our local plant.
    Things took a devastating turn for our small business 
around November of 2011 when the EPA announced that there were 
individuals perpetrating fraud in the RIN market. Prior to the 
fraud announcement, New Leaf produced biofuel, generated RINs, 
and then transferred both the fuel and the RIN to our fuel 
distributors, who blended the biodiesel with petroleum diesel 
and delivered the blended fuel to customers such as the cities 
of San Diego and Chula Vista and the local military bases. The 
distributors would then separate or monetize the RIN and sell 
them up the chain to the obligated parties.
    Once the fraud was announced, my customers were no longer 
able to sell New Leaf RINs. Obligated parties now only buy from 
top-tier producers, producers who are financially capable of 
replacing RINs should they be deemed invalid. Despite the fact 
that New Leaf's RINs were generated at a legitimate plant that 
had been producing quality fuel for 4 years using approved 
feedstocks and technologies, our RINs were suddenly worthless, 
as if New Leaf was in the same category as the criminals who 
never produced a drop of biodiesel.
    The months immediately following the fraud were very 
difficult. We had to adjust once again to a market without a 
tax incentive, and then we were stripped of the RIN value. Once 
again, petroleum diesel was cheaper than biodiesel, and many of 
New Leaf's customers switched back to fossil fuels.
    2012 was supposed to be a year of growth for New Leaf, but 
unless our industry can come together to find a solution that 
will get New Leaf's RINs marketable again, our days and the 
days of the small biodiesel producers across the country are 
numbered.
    The Renewable Fuel Standard is a good policy for businesses 
large and small. It creates jobs, it encourages the use of 
homegrown energy, and it reduces greenhouse gases from the 
transportation sector. As with any new policy, especially a 
policy this comprehensive, there are going to be issues to iron 
out. Clearly we need to figure out a way to avoid more 
fraudulent RINs entering the marketplace, and, most 
importantly, we need a system that will restore the confidence 
in the RIN market so that obligated parties will once again be 
willing to buy RINs generated at small plants like mine.
    The private sector is already working on solutions that 
will likely resolve most of these issues. We have seen a plan 
introduced that would provide obligated parties with a 
subscription to a service that would allow them access to RINs 
produced at plants that have been audited by a third party, and 
they will have realtime data available as to the capacity of a 
given plant to produce quality biodiesel and RINs.
    I believe the various industry representatives on this 
panel have the ability and the wherewithal to improve this 
system. What doesn't kill us makes us stronger, and with more 
due diligence and transparency in the market, biodiesel will be 
stronger in the end.
    Thank you.
    Mr. Stearns. I thank you.
    [The prepared statement of Ms. Case follows:]


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    Mr. Stearns. Mr. Sprague.

               STATEMENT OF GEORGE ANDREW SPRAGUE

    Mr. Sprague. Thank you, Chairman Stearns, Ranking Member 
DeGette and other committee members. My name is George Andrew 
Sprague. I am the owner of Union County Biodiesel along with my 
partner, Terry Zintel, who is here with me today. We represent 
three biodiesel plants, one that is currently located in 
Newburgh, Indiana; one in South Roxana, Illinois; and we have 
begun to work with a biodiesel plant that is owned by 300 
farmers in Moberly, Missouri. So we employ about 30 people in 
our small biodiesel company.
    For the purpose of this testimony, I am here, as 
Congressman Whitfield said, as a farmer, an engineer and now a 
biodiesel entrepreneur. I hate to say it, that part is not 
working out real good right now, and that's why we're obviously 
here before you.
    As small producers and private business owners, we do not 
have corporate war chests to weather business and governmental 
calamities that occur. When these issues happen, we go to the 
bank. And many of you have reviewed issues with the banking 
industry, so you know how well that works right now, going to 
banks for loans. We have to liquidate personal assets. My 
children's college fund is invested in my biodiesel plant. 
While that is meant to tug on your heartstrings, and hopefully 
it does, it does bring light to the fact that this is a very, 
very serious issue, one that can't be taken lightly.
    A little bit of history about the RIN fraud program. In 
2011, we, like New Leaf, had a banner year. All of our 
facilities did well. We were selling our RINs to our customers 
via transfer of a wet gallon, and those RINs were being 
disposed of to the obligated parties either via brokers or 
through direct contracts with the obligated parties.
    We had heard the rumblings of problems, of fraud, and that 
started to make everyone nervous. Literally January 2nd of this 
year, I had customers on the phone calling me saying, we can't 
sell your RINs. If we can't sell your RINs, we can't buy your 
biodiesel. So literally on January 2nd, we were out of 
business.
    We did begin a process of our own due diligence with 
obligated parties, and were able to make contacts with 
obligated parties, and were able to get some obligated parties 
receiving our RINs again, and to date we are in business, but 
it's not as good as it should be.
    As an example of how this problem is very serious, we had 1 
customer who sold--or purchased 60 million gallons of biodiesel 
from many producers, obviously not from us specifically, who 
has yet to buy a gallon of biodiesel this year. That's a large 
quantity that's just taken out the markets.
    In January, I spoke with my Congressman Mr. Whitfield to 
try to get an audience with EPA to discuss this problem, and he 
helped me get that audience with several members of EPA who are 
on the panel in the second panel. First I would like to say 
that my experience with them was very positive. They were very 
cooperative, they explained why things were the way they were, 
but they also said they're bound by certain rules and 
restrictions that they have to operate under as well.
    Cutting to the chase, we have a problem. We can point 
fingers. We can say who did what, and why we did it, and why we 
didn't do it. But ultimately we've got to fix the problem. The 
program is not broke. Many people may want to use this as a 
reason to abandon the program. This program is not broke.
    In late 2011, most of us were quite surprised that it was 
working as well as it did. I hate to say this, but from the 
private sector, when something in government works really well, 
you kind of scratch your head a little bit and go, well, they 
did do a good job. So most of us in the industry felt like we 
had a good program. Industry-based, it was meeting the needs 
that it needed to, but we did have a problem. So hopefully here 
today through our testimonies, both written and oral, we can 
talk about those.
    I think one thing we must admit is that nobody really saw 
this coming, and because nobody saw it coming, we really don't 
need to be pointing fingers. But the industry is coming up with 
an independent third-party verification program that is going 
to fix the problem if left to its own accord.
    What we hope for is an even playing field, though. EPA 
needs to be involved in what the rules of this program are 
going to be. The private sector will solve this problem. The 
obligated parties, they did not do their due diligence as they 
should. We did not get calls from due diligence providers until 
late in 2011. That water is under the bridge. But obviously 
this independent third-party methodology will fix the program.
    So we ask that you consider our testimonies and allow 
industry to step forth and fix this problem. Thank you.
    Mr. Stearns. I thank you.
    [The prepared statement of Mr. Sprague follows:]


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    Mr. Stearns. Mr. Paquin.

                   STATEMENT OF THOMAS PAQUIN

    Mr. Paquin. Good morning, Chairman Stearns, Ranking Member 
DeGette and members of the subcommittee. My name is Tom Paquin, 
president of VicNRG, LLC, headquartered in Keller, Texas. Thank 
you for allowing me the opportunity to discuss the current 
status of the renewable fuel industry, RIN fraud, and ensure 
that there are efforts to ensure RIN integrity.
    VicNRG is a marketer and distributor of biofuels and other 
commodities. The company provides infrastructure and logistics 
solutions that are critical to the distribution of biofuels. We 
are a small business that has been expanding our national 
footprint by adding transit facilities, rail cars and other 
infrastructure assets. Each of our terminals offer high-
quality, full-time employment, and economic benefit extends 
well beyond the fence of each of those facilities.
    We are also an active participant in the RIN market. Our 
leadership in this market has been critical to identifying 
fraud and communicating our findings to the EPA. We consider 
ourselves a partner with the EPA, and I offer continued 
service.
    To date, the fraud in the RIN market has resulted in 
serious hardship for many in the biofuel sector, including the 
ultimate fate of bankruptcy for numerous law-abiding 
businesses. Fraudulent RINs created a liability in the industry 
in excess of $200 million. Approximately 85 percent of the 
biodiesel producers are struggling to keep their doors open. 
Some, like R-3 Energy and Green Light Biofuels, have shut down 
operations completely. Biodiesel distributors and blenders are 
equally threatened with liabilities which they cannot meet.
    Unfortunately, the fraud that has currently been discovered 
only addresses the low-hanging fruit. The EPA created an 
interim enforcement and response policy to restore faith in 
what was a dysfunctional RIN-trading system. However, this 
policy fails to restore the confidence required. Since the 
policy's release, the RIN market has actually become more 
dysfunctional. The obligated parties and, by default, marketing 
companies like ours cannot purchase fuel from small producers, 
just like the ones on the panel today. We cannot do this 
because the risk of being held liable to replace RINs is too 
great.
    Because of these issues, VicNRG proposes the EPA broaden 
its interim policy. We feel the EPA has the flexibility and can 
use several regulatory approaches to restore confidence. To 
improve the situation, we offer the following proposal. First, 
we propose that the EPA revise its interim policy as it relates 
to invalid RINs so that no further RIN substitution would be 
required.
    The congressional intent of the RFS is clear, and one of 
the key tenets is to build an alternative fuel industry and its 
related infrastructure. In fact, it is stated in the U.S. Code 
that many factors should be taken into consideration when 
setting volumetric goals, to include job creation.
    Additionally, the EPA has the ability to average annual 
compliance, and according to the National Biodiesel Board's 
written testimony, the biodiesel industry exceeded last year's 
volumetric targets. One could argue that RFS goals have been 
met, and there is no reason to require RIN replacement. RIN 
replacement is destroying jobs today, which is 180 degrees out 
from the congressional intent. We also feel the EPA must 
continue to aggressively pursue and prosecute fraudulent 
activity.
    Secondly, the EPA should undertake a 2013 rulemaking to 
establish a permanent due diligence process and an affirmative 
defense. Diligent and innocent companies should not be 
penalized for the acts of others. This affirmative defense may 
be structured by the EPA to impose reasonable compliance 
burdens on industry participants.
    Clean Air Act case law establishes limits on EPA's 
authority to impose sweeping systems of presumptive liability. 
While Congress has delegated expansive powers to EPA to 
regulate, it is a fundamental tenet of American law that there 
must be at the very least the right to prove oneself innocent 
of an offense.
    Finally, if EPA is willing to facilitate any of these 
remedies, the Agency should consider whether a petition to 
waive the RFS would be appropriate in these circumstances. The 
economic cost to U.S. businesses resulting from enforcement 
policy will force many legitimate companies that are currently 
operating out of business and eliminate countless jobs, at 
which point a severe harm threshold may have been met.
    In summary, to immediately restore confidence in the RIN 
market and save tens of thousands of jobs, the EPA must 
consider immediate changes in the enforcement of the RFS 
program. Specifically, the EPA needs to expand its interim 
policy, to define due diligence, provide for affirmative 
defense, and eliminate the requirement to replace RINs for 
those who are good-faith participants. This is the foundation 
necessary to save the system, its associated investment and 
ultimately jobs in a struggling U.S. economy.
    Thank you.
    Mr. Stearns. Thank you.
    [The prepared statement of Mr. Paquin follows:]


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    Mr. Stearns. Mr. Fjeld-Hansen, you are recognized.

                 STATEMENT OF J.P. FJELD-HANSEN

    Mr. Fjeld-Hansen. Thank you very much. Chairman Stearns, 
Ranking Member DeGette, thank you for the opportunity to appear 
before the subcommittee today. My name is Jon Peter Fjeld-
Hansen, and I am the managing director of Musket Corporation. 
Musket is an affiliate company of Love's Travel Stop & Country 
Stores, Inc. Love's today owns and operates a nationwide chain 
of 300 travel centers and convenience stores in 39 States. 
Love's sells diesel fuel to the Nation's trucking fleets that 
deliver goods and services to businesses across the United 
States. We are committed to meeting, then exceeding the needs 
of our many customers by providing the highest-quality fuel at 
competitive prices. Biodiesel blends are an important part of 
that commitment.
    One of the primary functions of Musket is to manage the 
fuel supply, including biodiesel, for Love's. Musket purchases 
biodiesel from a wide variety of producers and transports the 
product directly to the Love's Travel Centers or to various 
bulk facilities for blending into the diesel. In order to 
create blending capacity, Musket has completed 76 construction 
projects in 25 States since the inception of the Renewable Fuel 
Standard. Many of these projects have brought jobs to the 
constituents of the members of this committee.
    Under RFS2, every properly produced gallon of biodiesel 
comes with 1.5 RINs. The value of the RIN is what creates 
sufficient value to make biodiesel cheaper than diesel. Upon 
blending biodiesel with clear diesel, Musket separates the RIN 
from the associated physical gallon of biodiesel and sells 
those RINs to obligated parties, which are typically large 
petroleum refiners. In short, the RINs create for Musket and 
discretionary blenders an economic incentive to provide 
biodiesel at a competitive price to our Nation's transportation 
system.
    Musket believes the value and integrity of RINs are 
essential to the implementation of EISA; however, RIN fraud in 
its various forms frustrates the purpose of the law and 
perpetrates a theft upon those businesses who have invested 
jobs and capital in our Nation's biodiesel infrastructure, and 
reduces the economic incentive for Musket to make further 
investments.
    We believe that fraud in the RIN market is damaging to the 
legitimate market participants, such as the participants on 
this panel, who have invested substantially to bring biodiesel 
into on-road diesel within the spirit and letter of RFS2.
    To date, EPA has brought enforcement actions alleging the 
generation and sale of 130 million fraudulent RINs. As a 
participant in the market, Musket has been directly impacted by 
fraud. Having bought RINs from Clean Green, Absolute Fuels and 
Green Diesel, Musket has incurred significant expenses with 
respect to RINs deemed invalid by the EPA. However, Musket has 
responded aggressively to the EPA's buyer beware policy by 
scrutinizing every producer of biodiesel it transacts with, 
every RIN that it separates, and every counterparty with whom 
it transacts downstream.
    Fraud in the RIN markets takes many forms, though, and 
Musket believes there's a problem that is considerably larger 
than the above-mentioned cases, namely biodiesel exports. 
Musket believes there are many who are exporting biodiesel, 
either blended as diesel blend, blended into heating oil or 
bunker fuel, or as straight D100 biodiesel, and that they are 
not declaring their obligation to retire RINs pursuant to the 
rules. Internally we refer to this practice as ``strip and 
ship'' to extend to the ``splash and dash'' which we dealt with 
a few years back.
    Musket believes the magnitude of this exporting activity 
far overshadows the fraud cases brought forth today. Although 
the statute mentions only gasoline and diesel blend exports 
specifically, we believe many people have exploited the lack of 
clarity in regard to heating oil and bunker fuel exports 
blended--having exported significant volumes of biodiesel 
without declaring an obligation to retire the RINs, in blatant 
contravention of the spirit and purpose of the RFS.
    Since these exporters are not buying the RINs back from the 
market, an excess of RINs are left, depressing the RINs, and 
this is further threatening the existence of the small 
biodiesel producer and undermining the entire purpose of the 
EISA.
    While some may have ignored the impact of the biodiesel 
exports on the market--I'll jump forward a little to the 
conclusion since I am running out of time.
    To address this policy flaw, we recommend three commonsense 
changes for Congress to consider immediately. Require RINs to 
be retired immediately upon export of biodiesel and renewable 
diesel; require the EPA to coordinate monitoring and 
enforcement actions with U.S. Customs and Border Protection and 
the Department of Energy; and require all sellers of diesel 
sold in the U.S. to disclose the biodiesel content.
    Under the current ASTM standard, wholesalers are not 
required to disclose biodiesel content up to 5 percent. This 
frustrates upstream buyers, blenders and ultimately truck 
owners. Accordingly, exporters of ASTM diesel may not know that 
they are exporting biodiesel and thereby creating an obligation 
to retire RINs.
    We believe that if these changes are made, the true intent 
of the EISA will be upheld, and the U.S. biodiesel industry 
will remain vibrant.
    Again, Chairman Stearns and Ranking Member DeGette, thank 
you for the opportunity to appear before the committee today.
    Mr. Stearns. Thank you.
    [The prepared statement of Mr. Fjeld-Hansen follows:]


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    Mr. Stearns. Mr. Jobe, you are welcome for your opening 
statement. And just pull the mic a little closer, if you don't 
mind.

                     STATEMENT OF JOE JOBE

    Mr. Jobe. Chairman Stearns, Ranking Member DeGette and 
members of the committee, thank you for the opportunity to 
testify today regarding the Renewable Fuel Standard and our 
efforts to ensure RIN integrity in the fuel marketplace. I am 
Joe Jobe, CEO of the National Biodiesel Board. I represent the 
U.S. trade association for the biodiesel industry.
    We are pleased to see that Congress is interested in the 
success of the Renewable Fuel Standard, which, as you know, was 
created just 7 years ago under the Bush administration with 
overwhelming bipartisan support here in Congress.
    We are here to address a problem today, but the policy 
really has been an unquestioned success for the biodiesel 
sector. It is stimulating production. Last year, we exceeded 
over 1 billion gallons at plants across the country. We have 
plants in virtually every State.
    Today you would like us to focus our discussion on 
improving the EPA's enforcement of the RIN trading. Make no 
mistake about it, we take this issue very seriously. As we've 
already heard, RIN fraud has caused significant disruptions in 
the distribution and marketing of biofuels, and we are 
committed to preventing it in the future.
    Biodiesel is a renewable diesel replacement fuel made from 
an increasingly diverse mix of agricultural byproducts, 
including vegetable oils, recycled cooking oils and animal 
fats. It is the first and currently the only EPA-designated 
advanced biofuel that is produced on a commercial scale all 
across the county, meaning that it reduces greenhouse gas 
emissions by at least 50 percent. It meets strict fuel 
specifications and is used in any existing diesel engine 
without modification. It's primarily used in blends up to 20 
percent where it actually exhibits premium diesel 
characteristics. In fact, the current diesel land speed record 
was set just last year using B-20.
    Nobody is more interested in eliminating bad actors from 
the RFS program than we are, and we have gone to exceptional 
lengths in recent months to develop practical private-sector 
solutions. We believe the EPA has a difficult job ensuring RIN 
compliance, and overall we believe they have done a good job in 
cracking down on fraud, as was demonstrated with the recent 
conviction of Rodney Hailey in Maryland. We have strongly 
encouraged the EPA and other authorities to continue 
enforcement action so that the handful of bad actors who have 
disrupted the biodiesel marketplace are removed from the system 
and punished.
    Additionally, we are not interested in seeing obligated 
parties being overly fined and penalized for unwittingly using 
RINs that they thought were valid. By the same token, however, 
we believe obligated parties should be required to exercise an 
appropriate level of due diligence before they submit RINs for 
compliance, and we're committed to ensuring that actual volumes 
of biofuels are produced and sold in the U.S. as envisioned by 
Congress. Last year the biodiesel industry exceeded those 
targets, and we hope to continue that success in the coming 
years.
    Perspective is important, and we have to remember that the 
biomass-based diesel category in the RFS2 is effectively only 1 
year old. Effectively, 2011 was really the first year that the 
program was implemented and came online. And the cases of fraud 
are isolated cases involving past activity. The vast majority 
of biofuel producers are honest companies producing quality 
fuels for the U.S. marketplace. What we have seen is no 
different from fraud in other financial markets where criminals 
have come in and found a way to take advantage of the system.
    Looking forward, we believe the EPA's strong enforcement, 
along with increased due diligence and the private sector's RIN 
integrity efforts, will ensure that this kind of fraud doesn't 
happen in the future. Specifically, in the first case to be 
prosecuted, Mr. Hailey was quickly convicted last month in 
Baltimore and faces up to 32 years in prison. This conviction 
should send a strong signal to would-be fraudsters that this 
kind of criminal activity will be punished severely.
    Separately, NBB responded quickly to allegations of fraud 
last year by forming a RIN Integrity Task Force, which includes 
a broad cross-section of stakeholders. The task force has been 
advising on, among other things, the development of a 
comprehensive auditing and realtime monitoring program.
    Through the work of the task force, the private sector has 
launched the Genscape RIN Integrity Network Dashboard. We are 
confident that this third-party verification program that 
offers verification in real time electronically will be 
effective in protecting the system from bad actors and giving 
the market confidence. And I would say that we're hopeful that 
this program will respond in sort of an E-Verify way that Mr. 
Bilbray referred to.
    We're also working closely with both the EPA and obligated 
parties to look at whether additional regulatory modifications 
can better focus enforcement efforts on bad actors while 
ensuring that the goals of the program are met.
    To conclude, I want to repeat that we take RIN fraud very 
seriously and are committed to eradicating it. As we move 
forward, we anticipate continuing to work with our colleagues 
from the petroleum sector and the EPA to develop practical 
solutions.
    We appreciate this opportunity and welcome any questions 
you have.
    Mr. Stearns. Thank you.
    [The prepared statement of Mr. Jobe follows:]


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    Mr. Stearns. Mr. Drevna, you are welcome with your opening 
statement.

                  STATEMENT OF CHARLES DREVNA

    Mr. Drevna. Chairman Stearns, thank you, Ranking Member 
DeGette, thank you, and members of the committee, for allowing 
me to testify here today. I am Charlie Drevna, president of 
AFPM, the American Fuel and Petrochemical Manufacturers. We are 
the obligated parties, my members, under the Renewable Fuel 
Standard. As such, we are required to blend ever-increasing 
volumes of biofuels into the transportation supply. There are 
several nested mandates within the RFS, including this--why we 
are here today, the 1 billion gallons of biomass-based diesel.
    Each year obligated parties must submit a number of 
Renewable Identification Numbers, or RINs, as the Chairman 
stated, to EPA to demonstrate compliance with the program. RINs 
are created theoretically by biofuel producers and correspond 
to gallons, theoretically gallons, of biofuels. RINs can be 
separated from the biofuels and act as credits and are bought 
and sold, as was mentioned earlier, in a free and open market.
    In order to facilitate RIN trading, EPA established the EPA 
Moderated Transaction System, EMTS, through which all RINs must 
be generated and traded. Only EPA-registered--that is, EPA-
registered--biofuels producers that have submitted third-party 
engineering reports are eligible to generate RINs on the EMTS, 
although other EPA-registered parties are then able to trade 
the RINs, as has been mentioned earlier in the testimony.
    Unfortunately, as we now know, some biodiesel producers 
have taken advantage of the weak oversight and have generated 
RINs without producing any biofuels. While EPA properly issued 
Notices of Violation to these so-called bad actors, the Agency 
went a step further and actually fined the obligated parties 
who unknowingly used these invalid RINs to comply with their 
2010 biomass diesel obligations.
    In one case, EPA responded to a tip and conducted a site 
visit of a registered biodiesel producer. During its visit EPA 
found the company did not even have biodiesel production 
machinery on site. It then took EPA about a year to issue a 
Notice of Violation to that company of 32 million invalid RINs. 
However, during its investigation of Clean Green Fuels, EPA 
provided no indication to obligated parties that they may be 
inadvertently--that they may be buying invalid RINs.
    Now, I could give you any number of both criminal and 
jurisprudence kinds of analogies here, but I won't bore the 
committee with all of them.
    In fact, EPA stood by while obligated parties accessed EMTS 
data and continued to purchase Clean Green RINs that EPA knew 
were invalid. Then to add insult to injury--I may more clearly 
say injury to injury--EPA issued NOVs not just to Clean Green, 
but also to the obligated parties that purchased these RINs.
    Now, the obligated parties go through a wide spectrum; the 
biggest of the big companies, the household names, all the way 
down to the small refiners and everything in between.
    And the free market today is working. It's working so well 
that we have a panel here of people saying that they can't get 
into the marketplace because the members, my members, are doing 
due diligence. They're out there looking at who they can trust 
and who they know can get validated RINs.
    That's how the free market system is working today, ladies 
and gentlemen. We need to fix it. If you want this program to 
go on, as many of the Members said, stop pointing fingers. As 
you all know, we all have problems. My industry has problems 
with the total RFS, but right now this thing is the law of the 
land. And to categorize the refiners who were victims as either 
lazy or criminal is totally, in my opinion, our opinion, 
unfair.
    Again, the free market is working because my members are 
being very careful who they buy the RINs from. And they are 
doing their due diligence. They are assuring each other that 
they're complying with the law so we don't get slapped with 
going backwards and buying RINs again and paying six-figure 
fines.
    One hundred forty million gallons of this stuff just 
discovered this year, so if the system is working, I'd hate to 
see when it is not working, as some of the panelists have said.
    Now, we have been discussing with the EPA and the obligated 
parties a way to go on this thing, how are we going to get out 
of this mess, how are we going to be assured that the program 
continues as long as Congress says it should continue. And the 
program protects not only small producers of biofuels, 
biodiesel, but everyone, everyone along the food chain.
    In particular we appreciate the efforts of the next panel, 
Mr. Bunker and Mr. Brooks and their staff. We have been working 
diligently with them, with others on the panel trying to get a 
way out of this thing. But as mentioned previously, we need an 
affirmative defense. Now, the affirmative defense can either be 
let's work together and go through this system, or the 
affirmative defense is going to be the marketplace is going to 
say who's going to buy RINs from whom. That's the choice we 
have right now.
    So, you know, we can get the RINs from somewhere. It 
depends upon how we are going to work with Congress, work with 
the EPA and work with the other folks.
    So the promise of these talks have been no resolution. 
We're going into 2013 very quickly. So we have to get this 
solved, work together, figure out a way to do it.
    Thank you, Mr. Chairman.
    Mr. Stearns. I thank the gentleman.
    [The prepared statement of Mr. Drevna follows:]


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    Mr. Stearns. I will start with my opening questions. I just 
thought I'd put in perspective the question is how long has 
this been going on, and perhaps many of you might know better 
than I, but a Secret Service agent with Homeland Security 
testified under oath that on or about January 2010, and he 
names Absolute Fuels and Gunselman and others known and unknown 
at times fraudulently created and sold credits for renewable 
fuels that were never produced, thus violating the law. So it 
goes back to January 2010.
    And I guess the question I would have for Mr. Jobe, 
recently the Renewable Fuels Association testified before our 
Energy and Power Subcommittee, yesterday, in fact, that the RIN 
fraud problem is overblown. Do you think that's true or not, 
yes or no?
    Mr. Jobe. Um----
    Mr. Stearns. Yes or no?
    Mr. Jobe. Yes.
    Mr. Stearns. Do you want me to repeat the question?
    Mr. Jobe. Yes.
    Mr. Stearns. So you agree with the Renewable Fuel 
Association that this whole thing is overblown.
    Mr. Jobe. I wouldn't characterize it exactly that way.
    Mr. Stearns. No, I'm asking the questions. So your answer 
is yes, it is overblown?
    Mr. Jobe. Yes.
    Mr. Stearns. OK, I just want to--because your opening 
statement indicated that. Then as you moved to your closing, 
you sort of indicated differently, so I thought I'd put you on 
record.
    And I think in this case, and it is Mr. Fjeld-Hansen--pull 
the mic up a little bit closer to you--and Mr. Paquin can tell 
me do you think the problem of RIN is overblown, yes or no?
    Mr. Fjeld-Hansen. I think the problem has not fully 
surfaced until the export issues have been addressed as well.
    Mr. Stearns. So, is your answer yes or no, it's overblown?
    Mr. Fjeld-Hansen. I would say it's not overblown.
    Mr. Stearns. Not overblown.
    Mr. Paquin?
    Mr. Paquin. Sir, the situation is not overblown.
    Mr. Stearns. OK. And this case, Mr. Sprague, what do you 
think about this fraud problem? Do you think--Mr. Jobe thinks 
it's overblown. What's your opinion? It is overblown, yes or 
no?
    Mr. Sprague. Yes, I think it's overblown.
    Mr. Stearns. You think it's overblown.
    Ms. Case. I think it's a serious issue, but it reflects a 
very small amount of the market, so it is overblown.
    Mr. Stearns. Does anyone feel a strong compunction that it 
is unfair for me just to put you on yes or no, that you would 
like to have an opportunity? If so, who would like to say?
    OK, Mr. Jobe, can you make it in 30 seconds?
    Mr. Jobe. Yes.
    Mr. Stearns. Normally if you're the gentleman from 
Michigan, Mr. Dingell, who has been chairman of this committee 
many years, he gives no opportunity to talk after he asks a yes 
or no, but I'm going to give you 30 seconds.
    Mr. Jobe. It is a very, very serious issue, and we are 
committed to addressing it. I had to answer yes only to the 
extent that--only to the extent that it----
    Mr. Stearns. You said it is a serious issue. Who else? Mr. 
Paquin, did you want to say something? I have a lot of 
questions here, but keep moving.
    Mr. Paquin. Yes, sir. At this point, yes, it is a 
definitely a serious issue. The fraud that is committed up to 
this point is significant. And I----
    Mr. Stearns. OK. Let me ask Mr. Fjeld-Hansen. Musket 
Corporation, I guess, is the second largest truck stop chain in 
the United States. Is that true?
    Mr. Fjeld-Hansen. That's right.
    Mr. Stearns. They're a large player in the market for 
biodiesel fuel. Especially as compared in this case to Mr. 
Sprague's company, you're the big honcho here. But you say in 
your testimony that Musket is still, you are still greatly 
affected, just like Ms. Case talked about what has taken place. 
In what ways has Musket been impacted?
    Mr. Fjeld-Hansen. Well, as you were saying, due to our 
size, when we have been in transaction chains of fraudulent 
RINs, we tend to be the epicenter of it. We are the ones who 
are buying the fuel from the producer. We also are the ones 
selling the RIN to the obligated party. And we are also the one 
making the investments in the blending equipment. And we are 
also the ones selling the fuel to the consumer. So we carry the 
quota risk of the consumer, the credit risk of the producer.
    Mr. Stearns. So you're involved with all the transactions.
    Mr. Fjeld-Hansen. So we are where everything meets.
    So our impact from a damage perspective has been that we 
have had to replace fraudulent RINs that we had sold to 
obligated parties. So whatever damages they incurred, we 
replaced RINs at our cost.
    Mr. Stearns. OK. Mr. Sprague, in your testimony you state 
that the inception of the EMTS program, which, I guess, is a 
computer system that the EPA set up, many in the industry 
thought that the EPA would be providing oversight, and 
guidance, and validation for all RIN transactions, but as 
you've pointed out quickly after the fact that EPA--this is not 
the case, and that caveat emptor is really what you're facing 
when you're dealing with this EMTS program. Is that correct 
that you had the impression somebody was looking after this?
    Mr. Sprague. Exactly. The general perception in the 
industry was through the third-party engineering studies that 
were done for each facility to become registered, through the 
attestment, through all of the documentation that we provide, 
which is quite extensive, that the EPA, for lack of a better 
word, was the gatekeeper, and that somehow the system--maybe 
that was the flaw that many of us had--somehow, without 
actually figuring out how, that the system would remain pure.
    I think the obligated parties didn't take their due 
diligence job seriously. I don't think the EPA intentionally 
didn't provide the oversight that maybe we feel now that could 
have been more substantial, but I think we all kind of felt 
like the system was sound, and we found that it's not. It has a 
few holes that need to be plugged.
    Mr. Stearns. All right. My time has expired.
    The gentlelady is recognized for 5 minutes.
    Ms. DeGette. Mr. Sprague, following up on that, this Clean 
Green case was a wake-up call for everybody, correct?
    Mr. Sprague. I'm sorry, ma'am.
    Ms. DeGette. The Clean Green case was a wake-up call for 
everybody that due diligence needed to happen, and people need 
to pay attention, right?
    Mr. Sprague. That's correct.
    Ms. DeGette. OK. Mr. Drevna, I want to ask you a couple of 
questions. I understand that numerous companies like 
ExxonMobil, Marathon, Shell, Sunoco and Tesoro bought invalid 
diesel RINs from Clean Green, which has now been convicted, and 
submitted them to the EPA for compliance with their with 
renewable fuel obligations, correct?
    Mr. Drevna. Yes, ma'am.
    Ms. DeGette. And EPA's regulations clearly state, quote, 
``Invalid RINs cannot be used to achieve compliance with the 
renewable volume obligations of an obligated party or 
exporter.'' Is that correct?
    Mr. Drevna. The regulations say that, yes.
    Ms. DeGette. They say that, yes.
    Mr. Drevna. Yes, ma'am.
    Ms. DeGette. And, Mr. Drevna, EPA's regulations clearly 
say--or I just said that--that they can't be used to achieve 
compliance, and so here's my question: Do you know if those 
companies that I just talked about, ExxonMobil and the other 
ones, were aware of that EPA regulation, yes or no?
    Mr. Drevna. Yes, I'm assuming that they did, they do.
    Ms. DeGette. I would think so.
    And so here's my question: Yes or no, do you know think the 
companies have any responsibility to conduct due diligence and 
to investigate biofuel producers from whom they are buying 
RINs?
    Mr. Drevna. I believe that there has to be a system where--
--
    Ms. DeGette. Yes or no, do you think they should be 
conducting due diligence?
    Mr. Drevna. Depending upon what your definition of due 
diligence is.
    Ms. DeGette. Do you think they should be conducting due 
diligence, yes or no?
    Mr. Drevna. To a point.
    Ms. DeGette. To a point. Only to a point? Which point?
    Mr. Drevna. The point where it makes sense.
    Ms. DeGette. OK. Do you know whether those companies had 
due diligence processes in place before the Clean Green case?
    Mr. Drevna. I believe they must have looked at----
    Ms. DeGette. Do you know whether they had due diligence in 
place?
    Mr. Drevna. I cannot address individual companies.
    Ms. DeGette. You don't know.
    Mr. Drevna. No, I don't know.
    Ms. DeGette. OK. Thank you.
    Now, do you know if the company's attention to due 
diligence has increased since this Clean Green case came up?
    Mr. Drevna. As I said----
    Ms. DeGette. Yes or no?
    Mr. Drevna. Yes.
    Ms. DeGette. Thank you.
    Now, I want to say to you, Mr. Paquin, due diligence is 
important to you, and I think you said in your testimony 
improving due diligence is important in the wake of this Clean 
Green case, correct?
    Mr. Paquin. That is correct.
    Ms. DeGette. OK. Now, I think you believe that there are 
certain red flags that one can identify in this whole process 
to tell if there's fraud in these RINs, correct?
    Mr. Paquin. There are red flags and----
    Ms. DeGette. Would you be willing to supplement your 
testimony--excuse me--would you be willing to supplement your 
testimony, Mr. Paquin, to tell us what those red flags could be 
as we work along this process?
    Mr. Paquin. Actually there are many red flags and 
indicators that we can look at.
    Ms. DeGette. Can you submit that to this committee? That 
would be really helpful.
    Mr. Paquin. I can do that.
    Ms. DeGette. Thank you very much.
    [The information appears later in the hearing.]
    Ms. DeGette. Now, Ms. Case and Mr. Sprague, you know, I 
listened so sympathetically to your testimony because you're--
just like everybody else, you're victims in all of this because 
you're legitimate operators who are trying to operate under 
this law, and now your markets have fallen out because you're 
small producers, and people are worried, right? Ms. Case, yes 
or no?
    Ms. Case. Yes.
    Ms. DeGette. And Mr. Sprague?
    Mr. Sprague. Yes, ma'am.
    Ms. DeGette. Now, Ms. Case, you said that when the EPA 
announced this fraud, the market fell apart; is that right?
    Ms. Case. Yes.
    Ms. DeGette. And you also said that there are solutions in 
the private sector that had been proposed because everybody's 
awareness has gone up since this Clean Green case; is that 
right?
    Ms. Case. Yes, that's correct.
    Ms. DeGette. Would you be willing to supplement your 
testimony to talk about some of those private-market solutions 
that have been proposed?
    Ms. Case. Of course.
    Ms. DeGette. Thank you very much.
    [The information follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Ms. DeGette. Now, what can the EPA do to restore the 
confidence in the program so you can start selling your product 
again?
    Ms. Case. I think what we're doing right now, the National 
Biodiesel Board's obligated parties and the EPA working 
together, for example, on the RIN Integrity Task Force, is 
exactly what we need to do. We need to clarify what due 
diligence is absolutely. There needs to be more due diligence. 
And I think that the EPA just needs to make sure that all the 
information gets out there so that we can identify who the 
people are who are perpetrating the fraud and eliminate them 
from the system so we can move on. The more information we get, 
the better.
    Ms. DeGette. OK, great.
    Now, I'm sorry, Mr. Drevna, I forgot to ask you one 
question, and I don't know if you know the answer to this, but 
as I said, ExxonMobil, Marathon, Shell, Sunoco, and Tesoro and 
others bought these invalid RINs from Clean Green Fuels. And so 
my question is Clean Green was the one that was operating in 
Maryland with a few plastic tubes in a tiny ramshackle 
building. Do you know if those companies did the due diligence 
to find out about Clean Green before they bought the RINs?
    Mr. Drevna. I can't talk individual companies. I can't say.
    Ms. DeGette. Well, I just listed a whole bunch of them.
    Mr. Drevna. Well, EPA was there a year before they 
announced that there was a lot of fraud.
    Ms. DeGette. My question to you, sir, is do you know if 
those companies----
    Mr. Drevna. No, I don't. No, I don't know. No, I don't.
    Ms. DeGette. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Stearns. Mr. Terry is recognized for 5 minutes.
    Mr. Terry. Thank you, Mr. Chairman.
    I came here under a different impression. I thought we were 
all getting together so we could figure out solutions here. I'm 
kind of stunned actually.
    Anyway, a couple folks in a question, I think, by Mr. 
Stearns about whether the fraud was significant, just my little 
editorial before I ask questions. It may have been 
insignificant in the sense of the amount of fraud to the entire 
industry, but its consequences have been very, very 
significant, so therefore it is significant. And that's what 
we're trying to do here today, because as I mentioned in my 
opening, this is also then being used as the primary weapon 
against biofuels in general. Because there's fraud, eliminate 
biofuels. And so we need to have the discussion more about how 
do we correct the fraud, because any fraud should be dealt with 
swiftly and harshly.
    Anyway, now I'll get to a couple of my questions. Mr. 
Paquin, I understand, though, that in validation you did your 
work and discovered fraud. Could you be more specific in what 
remedies then you brought to the table?
    Mr. Paquin. Yes, sir, absolutely.
    First of all, I want to correct the record. The first RIN 
fraud case was not in 2010 for Clean Green. Actually when I was 
the president of Paquin Energy & Fuel in 2009, we actually saw 
the first fraud case. So in July of 2009, we discovered through 
our due diligence process that some of the numbers we were 
receiving for renewable credits did not make sense. They were 
rounded off, and those numbers just appeared to be inconsistent 
with any product we saw in the marketplace. In 2009, a local 
prosecutor actually immediately prosecuted an individual and 
limited the fraud to about 100,000 total dollars.
    Mr. Terry. This is a local prosecutor.
    Mr. Paquin. This was a local prosecutor.
    Mr. Terry. And someone informed the local prosecutor of 
what they discovered?
    Mr. Paquin. Yes, sir. At Paquin Energy & Fuel, when I was 
the president there, we immediately called the EPA as well as 
the local prosecutor to see if we can get some of the financial 
and some of the money back from the company. They responded 
immediately and, like I said, limited that case to about 
$100,000 total liability. He was convicted of a felony, so the 
case was successfully prosecuted.
    Fast forward to Clean Green in 2010. Our company once again 
went through an extreme due diligence process and identified 
the fact that Clean Green was not producing product. We 
actually sent someone on site. They looked at that facility and 
identified the fact that it was nonexistent. We reported that 
to the EPA in July of 2010 and again in a meeting in August of 
2010.
    I will also say that the due diligence process that we 
execute, we rely on other individuals just based on information 
from brokers, the total amount of fuel that's used, and we also 
pass on that information to obligated parties. So they--and, in 
fact, default will rely on us to tell them and give them what 
due diligence we've done as we purchase and resell RINs.
    So I think that's an important distinction to make that 
there is a significant due diligence process in the marketplace 
currently; however, it's nearly impossible to root out all the 
criminals who actually defraud other people and individuals in 
the system. That's why affirmative action or affirmative 
defense is extremely important as we move forward so an 
innocent, good-faith company has the ability, like ours who 
went out and did the due diligence, doesn't have that extreme 
liability.
    Mr. Terry. I appreciate that.
    Ms. Case, I appreciate your position in the market. You had 
mentioned in your testimony, and so did Mr. Sprague, that when 
there is something like this fraud controversy, it tends to 
impact the smaller producers more significantly. Tell us 
specifically how it affected you and why you think it affects 
the smaller producers, in 42 seconds.
    Ms. Case. Sure. We sell--prior to the fraud we sold our 
RINs with the fuel, so our distributors would be the one who 
would actually separate the RIN and sell it up the chain to the 
brokers or to the obligated parties.
    Once the fraud occurred, the ultimate owner of that RIN, an 
obligated party, doesn't know New Leaf. They've never been to 
my plant. They don't buy fuel directly from me. They would just 
get the RIN through some brokers. So once the fraud was 
discovered, they just put a stop to buying any RINs from any 
producers they didn't know about.
    When the due diligence kind of got more intense, there were 
auditors that were sent out to verify that a plant like ours is 
in existence, and the marketplace has allowed at this point to 
start getting RINs moving again. However, obligated parties are 
still focusing on the plants that have the financial backing to 
replace those RINs, or maybe an intermediary, a broker, who can 
put their balance sheet on the line to say if these RINs do 
turn out to be invalid, they can replace them.
    Nobody is going to look at my company and think I could 
replace $5 million worth of invalid RINs if they turn out to be 
invalid, so therefore obligated parties are still not buying 
directly from me. There are some market things that have been 
put together, verification purposes--for verification purposes, 
and I think eventually they will again.
    Mr. Terry. Thank you.
    Mr. Stearns. Mr. Green, you're recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    My colleagues, I appreciate your being here today. And 
unlike the chairman, I don't get to run over my 5 minutes, so 
I'm going to ask for a yes or no answer on my first question.
    Conception. Do each of you agree that there should be some 
sort of affirmative defense for obligated parties as warranted, 
recognize that may depend on some sort of agreed due diligence 
criteria? If you could just answer yes or no.
    Ms. Case, would that bring stability to your market.
    Ms. Case. I believe so, yes.
    Mr. Sprague. Yes, absolutely.
    Mr. Paquin. Yes. It has to extend to all participants.
    Mr. Green. Mr. Fjeld-Hansen?
    Mr. Fjeld-Hansen. I'm not certain about it. I think the 
buyer beware is actually working quite well, and proper 
prosecution is going to clean up a lot of this.
    Mr. Stearns. Mr. Jobe?
    Mr. Jobe. Yes.
    Mr. Drevna. Absolutely.
    Mr. Green. And I guess my concern is that we've heard the 
questioning, and we'll get to the EPA panel in a few minutes, 
but for almost a year the EPA knew there was a fraudulent 
access out there, and didn't ring the bell, and said it is 
buyer beware. I'm just shocked that we're saying, wait a 
minute, Congress created this program, and yet we don't want 
some follow-up by someone other than a private sector to do it. 
It should be also verified. And I think due diligence with some 
kind of affirmative defense may be what we are looking for.
    Mr. Drevna, do you think that the risk for invalid RINs 
could be significantly minimized if the EPA approved a third-
party independent auditor that visited the facilities 
unannounced?
    Mr. Drevna. Well, that's the question, Congressman Green, 
about what due diligence is and what it isn't. We can't go out 
and look at 50,000 or how many different producers are out 
there. We need something that says, OK, we're in this together, 
we have to have an affirmative defense, we have to define what 
that due diligence is.
    Now, we have been going back and forth with EPA, and 
actually we've been going forth with EPA, we haven't gotten a 
lot anything back--I mean, good conversation, but we haven't 
gotten anything back from the good folks at EPA about what they 
believe would be a due diligence, you know, how many boxes do 
you have to check in order for you to qualify for that 
affirmative defense? That's where we are right now.
    Mr. Green. And I know and my ranking member is a good 
friend. Obviously your members are big boys. They can take 
care--and big ladies, too, I guess. They can take care of 
themselves. But the problem with these RINs is that you may not 
know from that purchaser you're buying from where it actually 
came from because these are traded. You know, it's almost like 
if I buy stock, no telling who else has had that stock. And 
that's my concern.
    Does anyone else on the panel want to answer on do you 
think that the risk for invalid RINs would be significantly 
minimized if the EPA approved a third-party independent auditor 
that visited the facilities? Anybody else have a response?
    Mr. Sprague. I would like to make a comment on that, sir. 
We in the private sector have lots of audits by lots of 
different agencies, IRS, State and local, so we get audited a 
lot. By no means are we fearful of having that auditor come in. 
The question is is it really needed, and is it going to 
accomplish anything?
    My greatest fear is that we create a bureaucracy to where--
--
    Mr. Green. We already got one at EPA.
    Mr. Sprague. Yes, I guess that's true--where we create even 
more bureaucracy inside a program that was meant to be a 
private-sector, market-based type of approach. So my comment to 
that is that's not necessarily, in my opinion, needed, and 
that's just an opinion.
    The one thing that----
    Mr. Green. If somebody else on the panel may want to 
respond, because I'm down to a minute 15. Anybody else?
    Mr. Fjeld-Hansen. Thank you.
    You know, when you look at a lot of these increase or some 
kind of a process like you're talking about, an audit, I don't 
think we want to put a system in place that relieves people of 
liability. Everyone who's entering into this industry are doing 
it because of some kind of business idea or plan and some kind 
of return metrics, and with those come certain risks. You're 
mentioning all the traders that are in this----
    Mr. Green. I only have a couple seconds. I need to ask Mr. 
Drevna, why is it critical for EPA to act by January 1st of 
2013?
    Mr. Drevna. We don't want to see a redux of 2000, what we 
saw in 2012, Congressman Green. We have to have certainty out 
there. And in order to--you know, just a couple weeks ago the 
FBI raided another place. We don't know how many more are out 
there right now. We need to have certainty that whatever we do 
is going to be satisfactory, or, as I mentioned earlier and 
then probably in opposition here, the free market is working 
right now because we're not buying RINs from people we don't 
trust.
    Mr. Green. Well, and that's the concern, because without 
that certainty you're hurting a lot of companies, and maybe we 
really need somebody that's a traffic cop saying this is OK so 
some of these companies could actually participate.
    Mr. Chairman, thank you for your patience.
    Mr. Stearns. Thank you.
    Dr. Burgess, you're recognized for 5 minutes.
    Mr. Burgess. I thank the chair for the recognition.
    Mr. Sprague, I was particularly taken with your testimony 
that--your observation that there were a lot of forms to fill 
out, there were a lot of people that you had to reply to. And 
it was your impression, whether it was rightly or wrongly, that 
someone really didn't have their hand on the tiller as far as 
all of this was concerned. Did I discern that correctly?
    Mr. Sprague. Yes.
    Mr. Burgess. And, Mr. Paquin, you have pointed out how as 
early as 2009 saw the numbers didn't add up. Were you the one 
that then alerted a local prosecutor?
    Mr. Paquin. Well, in 2009, Paquin Energy & Fuel alerted the 
local prosecutor as well as the EPA at that time.
    Mr. Burgess. So I guess what I'm having trouble with here 
is EPA gave the impression that they were in charge. They gave 
you the impression, Mr. Sprague, that you got to fill out all 
this stuff, you got to do all these things in order to be in 
compliance, so surely there is a penalty or there is a 
problem--if a problem is found, they are going to fix it in 
short order. Did you have that impression?
    Mr. Sprague. That was definitely the impression. And I will 
go back to a comment Mr. Jobe said that this program is 
effectively 1 to 2 years old, and with any--with any system 
there is going to be problems, corrections. If anything, it's 
my opinion that the problem that is occurring is there's not a 
mechanism to address problems that are unforeseen.
    Mr. Burgess. Well, that's your impression today, but when 
you were filling out all those forms, having to answer all 
those questions, it really looked like the heavy hand of Big 
Brother was on this program, didn't it?
    Mr. Sprague. That is a true statement.
    Mr. Burgess. And that would have been my impression coming 
at it from the same angle, that here you have the heavy hand of 
the Federal Government, you'll have the full weight of the 
Department of Justices, inspector generals, Federal 
prosecutors, who know else, if you come in and do this 
incorrectly, so you better cross all the Ts and dot all the Is. 
Wasn't that your impression?
    Mr. Sprague. Yes.
    Mr. Burgess. And so it was kind of a shock.
    I don't know, Ms. Case, did you have the similar impression 
when you applied for this program?
    Ms. Case. You know, on one hand yes. Obviously we had an 
engineering review. We had someone come out to the plant and 
make sure we had the technology in place. But on the other 
hand, you know, I'm sure in hindsight there could have been 
more. That's the benefit of hindsight.
    Mr. Burgess. Yes, but even at that level, could you have 
ever envisioned that someone could put a barrel in a church 
parking lot with a couple of hoses coming out of top and say, 
hey, I'm in the biodiesel business?
    Ms. Case. No, but I don't think like a criminal.
    Mr. Burgess. Yes, and that's a lot of our problems.
    But here is the problem: You guys entered into this. You 
risked your own capital, your own time. You could have been 
doing other productive pursuits. I don't know whether it was a 
desire to make money or a desire for social justice, but you 
did what the government asked in producing these, and then in 
turn--I mean, you're--honestly, you're the bottom of the food 
chain. Mr. Drevna, his big boys and girls. They will be taken 
care of, they'll handle it, they can absorb those losses. But I 
don't know if you are at liberty to tell us, how did that 
affect your balance sheet, Ms. Case? What personally has been 
put at risk in your world from this?
    Ms. Case. It's been difficult, I can tell you that. Like I 
said, we had a good year last year, and this year has not been 
so good.
    Mr. Burgess. Well, can you give a range; do you feel like 
on a personal level you lost $1,000 or $10,000 or 100,000?
    Ms. Case. I can't speak to the exact dollar amounts, I 
don't have that with me. I can say that if you look at the RIN 
values right now as to where they were last year, and then you 
take a pretty significant percentage off of that, you'll see 
about what I'm getting for a RIN right now, whereas last year 
at this time we were all on a level playing field, my RIN was 
worth the same as a large-producer RIN.
    Mr. Burgess. So you're the one having to provide the 
discount in order to salvage the program.
    Ms. Case. Absolutely.
    Mr. Burgess. Mr. Paquin, can you give us an idea of the 
range of the losses that your company--you're kind of midlevel 
in this range. There are very small guys and very big guys.
    Mr. Paquin. Yes, sir. After going through an extensive due 
diligence process, and without the opportunities and an 
affirmative defense to show our innocence. We are looking at a 
range of a 6- to $10 million loss of which we don't have. Our 
40 employees will probably go away if that occurs. However, I 
think we can come up with solutions in order to move forward.
    Mr. Burgess. So if you have solutions, you can save 40 jobs 
in your company.
    Mr. Paquin. I think the industry can save tens of thousands 
of jobs if we have an immediate solution and EPA actually 
adjusts its interim policies to allow for an immediate due 
diligence.
    Mr. Burgess. And, Mr. Drevna, just a quick follow-up. I'm 
not sure that I completely understood. And, now, has the EPA 
defined what due diligence is so going forward we all know?
    Mr. Drevna. No, sir, that's the problem right now. We've 
been trying to figure out what due diligence would be, having 
meetings with the assembled masses here going forward. But to 
date it's been, you know, tell us what you think due diligence 
is, and they'll look at it, and we don't hear anything back.
    Mr. Burgess. Well, we've defined the problem, and I hope we 
can apply a little pressure to get this done for you.
    Mr. Drevna. If I may, sir, there is a program out there 
that we've been living with since 1995 under the RFG program. 
It's a good template, why not look at it, the RFG survey.
    Mr. Burgess. OK, we'll look at that. Thank you.
    Mr. Sullivan [presiding]. Ms. Castor, you're recognized for 
5 minutes.
    Ms. Castor. Thanks very much.
    Well, thank you all very much for being here today. I think 
your testimony on the renewable fuels standard and the young 
biodiesel market has been very illuminating, and I really feel 
for what has happened with these crooks and bad actors that 
have entered into the market and caused so much damage to your 
companies.
    I wanted to focus on some of the big picture, though, on--
it's very interesting that almost everyone here said, Congress, 
continue on with renewable fuel standards; that the overarching 
goal there of creating jobs, of addressing--reducing greenhouse 
gas emissions, thereby addressing these extreme weather events, 
is important; and really reduce--decreasing our country's 
reliance on foreign sources of energy.
    Except Mr. Drevna. Yes, you're right, I read your testimony 
where it says the renewable fuel standard is a broken policy in 
need of dramatic reform. I think you're in the minority, from 
the research I've been doing and the testimony here today.
    Ms. Case, notwithstanding these crooks that entered into 
the market, would your company be profitable without the 
renewable fuel standard?
    Ms. Case. No.
    Ms. Castor. And, Mr. Fjeld-Hansen, how has the Musket 
Corporation--I wasn't familiar that you had such a--what is it, 
300 locations all across the country. We're doing 
transportation fuels. How has the Musket Corporation benefited 
from the renewable fuel standard?
    Mr. Fjeld-Hansen. Well, as a retailer we are there to 
provide the fuel that our customer wants, so I think our 
customers have benefited.
    Ms. Castor. You need to bring your microphone a little 
closer and turn it on.
    Mr. Fjeld-Hansen. And also turn it on.
    No, as a retailer the benefit of this is really coming to 
the customer more than anything where a lot of the value 
created from the renewable fuel and also whatever emissions 
benefits they have will be transferred to the customers. So we 
are kind of in the middle of the chain where it's additional 
fuel that we can offer to our customer.
    Ms. Castor. Well, I know you're not saying the RFS is 
perfect, because these fraud cases have raised very significant 
concerns about the market impact of this fraud, and we need to 
learn the lessons now in order to prevent this fraud from 
occurring again. And I'm very pleased that the National 
Biodiesel Board and the petroleum refiners have been working to 
set up a third-party certification system that will help buyers 
verify the validity of the RINs before they purchase them.
    Mr. Jobe, can you describe the auditing process that 
biofuels producers have to undergo to qualify as a certified 
producer under this program?
    Mr. Jobe. Yes, thank you.
    Prior to working in this job, I was actually a fraud 
investigator, I did training at the Federal Law Enforcement 
Training Center in Glencoe, Georgia, where some of the Secret 
Service agents also train.
    So we started working on this program back in October of 
last year in anticipation of EPA enforcement actions, and one 
of the conclusions that we came to fairly quickly was that we 
were going to need to address this problem in a very reasonable 
timeframe, in a very tight timeframe, because it was going to 
jeopardize, financially jeopardize, a whole lot of people, 
including my members, including Mr. Drevna's members, and 
everyone at this table.
    And so we decided that a legislative fix was not--would not 
work in the proper reasonable timeframe; that even a regulatory 
fix was not what was needed, because regulations move at 
glacial speed. We needed the private sector to step forward 
with a private-sector fix. That's why we got with Mr. Drevna's 
organization. We formed a task force that was cochaired by an 
obligated party and a biodiesel producer and had a cross-
section of all of the stakeholders, and advised and encouraged 
the development of the program.
    They even developed the audit plan for the initial audit. 
So it's a two-phase program. First is an initial audit where 
actual audit teams go on site and audit the RINs that have been 
existing. And then the second phase is installation of special 
software with special data-collection algorithms and monitoring 
equipment, tank monitors, flow meter monitors, infrared camera 
devices, all of these sending realtime data to the software 
reconciling the data, and all that data then made available to 
obligated parties to use that information to do their due 
diligence.
    We're confident that--and our members have taken--they're 
spending tens of thousands of dollars to do this and to put 
equipment on site.
    Ms. Castor. Then are you confident that the producers will 
continue legitimate and high-quality operations after they 
receive that certification because of that investment?
    Mr. Jobe. Absolutely.
    Ms. Castor. And you also testified along with others that 
the EPA, businesses and key stakeholders are in serious 
discussions about how third-party verification systems like 
this one would work and how it would fit into EPA's enforcement 
approach. Have you--how would you characterize EPA's response 
to stakeholder concerns, and have they been a willing 
participant in the discussion?
    Mr. Jobe. The EPA participated as guests on all of our--on 
many of our task force meetings. They reached out. They were 
very responsive to us when we reached out to them. They reached 
out to us separately, and they've been very responsive.
    I will also just share, as far as the enforcement action, 
having done fraud cases, of course everyone would have liked 
things to have happened faster, but having prosecuted fraud 
cases, you have to get all of your facts very, very straight 
before you allege something about someone because you can ruin 
their reputation. So we think that this first prosecution case 
has gone on a relatively reasonable timeframe.
    Ms. Castor. Thank you very much.
    Mr. Sullivan. Thank you.
    We recognize Mr. Bilbray for 5 minutes.
    Mr. Bilbray. Thank you, Mr. Chairman.
    First of all, I think--I was just sitting here realizing I 
think the ranking member and I were the only ones around back 
in the '90s when we fought to get biodiesel equity and able to 
get a blender's credit back in those old days. I remember the 
battle over that, and I----
    Ms. DeGette. We were in our teens then.
    Mr. Bilbray. Yes, yes.
    So we have come a long way on a lot of issues. I am just 
concerned that we don't recognize that what our intentions were 
with the renewable fuel standard may not have grown or evolved 
the way we wanted to. And I really wanted to say I do agree 
that there are changes need to be made, and reform is not a bad 
word in a lot of episodes. But I think here we need to learn 
from our successes and our failures.
    One of the places I think has been successful is the 
biofuel industry overall has provided a usable material with 
the BTUs, the energy that is needed, at the same time of 
avoiding environmental problems that some other aspects of the 
renewable mandate have applied. I mean, California, you 
actually have renewable fuels being outlawed for environmental 
reasons, and you've got renewables that are actually going to 
have to be imported because our domestic-produced renewables 
are not compatible with their greenhouse mandates. And so but I 
think there are the opportunity to learn from some of this.
    The question I have for those of you that--especially the 
little guys that have to work with us. Those of us in 
government, the big guys always can accommodate one way or the 
other. It is the little guy who gets squeezed out by mistakes 
by big government. So how can we help the little guy?
    Mr. Jobe, the issue of tracking who is a true credit--and 
this is really kind of near and dear to me, because when we 
were talking about so-called cap and trade, didn't have any 
cap, we were talking about international offsets. And I saw 
shysters going down to Latin America actually cutting deals 
with teak growers for stuff that wasn't going to reflect 
reality, but was going to make people money because they get 
shipped over.
    How do we do something like what we're trying to do with 
our drug tracking of a pedigree so that a consumer can know 
that they have--that what they are buying is actually going to 
be credited under the Federal program? Do you have any ideas or 
have been thinking about that?
    Mr. Jobe. Yes. And I appreciated your suggestion earlier 
about E-Verify and the analogies there, because I really think 
that the private-sector solution that we've developed in 
conjunction with the obligated parties, the blenders, the 
marketers, the retailers, and large, small and medium-sized 
biofuel producers, I think it is very similar and will work 
like that because it is going to initially audit the RINs that 
have been generated, and then it will be monitoring in real 
time so that an obligated party or other stakeholder can, 
through a subscription service--and the obligated parties on 
our task force actually believe that it's going to save the 
obligated parties money to pay for this subscription because 
they have auditors in--they have multiple--all of them have 
multiple auditors on the same site right now--but if they could 
just buy a subscription and look at data that's being monitored 
in real time, it would be very, very powerful. So I really 
think that's a form of an electronic realtime verification that 
you can look at a particular RIN and see that it's been 
monitored.
    Mr. Bilbray. From the consumer's point of view, the 
purchaser, right now when it comes to illegal employment, we 
put the burden on the employer to check with an old I-9 system 
that has been so fraudulent that everybody knows it's just a 
scam for basically people who want to break the employment 
laws. But with E-Verify we are trying provide, as the President 
has expanded it, a vehicle for a consumer, the employer, to be 
able to check to make sure they are legally performing an 
activity.
    Do you see an opportunity by using some kind of information 
that works to give the consumer the ability to know what they 
are actually buying and what they are getting for the dollar?
    Mr. Drevna. That's a great point, Congressman Bilbray. And 
to Mr. Jobe's thought, you know, the concept sounds really 
good, and always the devil's in those details, and we are 
working very closely.
    One of the concerns we have, it can't be just one company. 
There has to be an EPA-approved, registered--any number of 
people. Let the free market decide who you want to go to to 
make sure that you can check your boxes and get it done. And 
the more entities that are involved in that, the better 
because, again, you can't just have one company saying, we're 
doing all this.
    Mr. Bilbray. No, I think Ms. Case would be the first one to 
say if you pick one company, you're going to be the--you're 
going to be left out, and some big guy is going to be in line 
for all the business. So I guess the two things you can agree 
on from both ends of the aisle, I got a constituent down at the 
end, but I think that we don't want to have that government 
pick one player, because that player tends to be the big guy 
who's got the lobbyist in Washington or is able to play. And 
the essential part of this program is the little guys being 
able to participate because they're closest to the community.
    Ms. Case. The point I would make with the work that we've 
been doing on the task force is that if all of our RINs are 
looked at on an even playing field, and the obligated party can 
look at the subscription service and see that I'm actually 
producing fuel at my facility, they would be more likely to buy 
my RINs, and that's why it's important for that system to be 
put in place.
    Mr. Bilbray. Thank you. And thank you for taking that 10-
hour flight round-trip to come out to testify.
    I yield back.
    Mr. Sullivan. Mr. Markey, you are recognized for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Yesterday I asked Jack Gerard, the president of the 
American Petroleum Institute, whether he supported the policy 
we've had in place in the United States over the last 37 years 
to prohibit exports of American crude oil. He apparently 
doesn't support that policy anymore. Even as American soldiers 
are fighting and dying to protect oil supplies in the Middle 
East, he thinks that it's the American Petroleum Institute--or 
we should really now just call it the World Petroleum Institute 
because that's really who he is representing--thinks that we 
should seriously consider exporting American crude oil.
    Last week the Carlisle Group purchased the Philadelphia 
refinery that was for sale, the oldest and largest oil refinery 
on the east coast. The previous owner, Sunoco, had planned to 
close the facility next month, leaving 850 workers unemployed. 
Instead the refinery will now be upgraded, and an additional 
200 jobs will be created.
    Now, why has that occurred? Well, in the past the 
Philadelphia refinery used high-priced imported Brent crude, 
which is more than $14 more expensive on the world market than 
domestic oil produced here in the United States. So the new 
strategy is to develop the infrastructure to bring in lower-
priced, domestically produced oil from North Dakota and 
elsewhere to make 50 percent of its refined product.
    Mr. Drevna, if we allowed unrestricted exports of crude 
oil, wouldn't that decrease the incentive to invest in domestic 
refineries here in the United States because it would be more 
dependent upon imported, higher-priced Brent crude at $14 a 
barrel higher?
    Mr. Drevna. Mr. Markey, I wasn't here yesterday to hear Mr. 
Gerard's testimony, but I can say that if we allow the access 
to all of our crude oil, and natural gas and natural gas 
liquids, if we open up--have the President open up the Keystone 
XL pipeline, not tomorrow or next week, within a few short 
years, we could have a serious discussion about what are we 
going to do with the excess crude oil that we have and the 
excess natural gas.
    Mr. Markey. Thank you, Mr. Drevna.
    The problem is that we already had that conversation here, 
and the head of the pipeline, the Canadian pipeline, the 
Keystone pipeline sat here, and I asked him just 3 months ago 
would he agree that the oil coming through the Keystone 
pipeline from Canada would stay in the United States.
    Mr. Drevna. Oh, and it will.
    Mr. Markey. No, he said he would not agree to that. The 
head of the Canadian pipeline said he would not agree to it. So 
my concern is that it will come through the pipeline, get 
refined, and then just sent off to China. So why would we 
have----
    Mr. Drevna. First, Mr. Markey, I thought this hearing was 
about invalid RINs, but if we are going to have this 
discussion, we're more than willing to talk to you and your 
staff going forward.
    Mr. Markey. I understand. Well, it is all part of kind of 
the same subject that, you know, is being opened up here in 
terms of the way in which we fuel our country.
    So what we have here for this hearing is essentially a sort 
of ethanol eBay or biodiesel bazaar. Buyers can register, 
sellers can register, but no one ever said the sellers were all 
going to be scrupulous, and clearly they weren't.
    When your companies buy real estate, whether it is 
refineries or factories or office space, do they make sure the 
seller actually owns the property and that there are no liens 
or other problems with it before closing in on the 
transactions? Meaning what about the companies--what about when 
companies buy actual biodiesel? Isn't it true that most 
companies have audit programs in place before fuels are 
purchased to ensure that the fuels being bought or sold meet 
environmental and other specifications? Whoever wants to take 
that question. Mr. Paquin.
    Mr. Paquin. Sir, when someone receives a wet gallon of 
biodiesel, they can actually look at the diesel and take a 
sample of it. In the current EPA system, moderated system, 
there is no way to look at that to see if it is valid or not, 
if it is a physical product. So if I were to buy a product from 
one of the producers to my right and blend that product, I 
would actually be able to see it. So I think that's a distinct 
difference between the two facts.
    Mr. Markey. Well, I have documents from several companies 
that indicate that they do have checklists to catalogue the 
type of fuel, the type of technology, the purity of the final 
product, and all sorts of other information that should be used 
to validate a purchase. And so I'm just wondering what the 
thoroughness is of the industry just in ensuring that frauds 
are not being perpetrated in the same way in real estate or 
anything else that those checks are in place.
    Mr. Paquin.
    Mr. Paquin. Yes, sir. And I would say that there's probably 
not another company in the entire industry that has a more 
thorough due diligence process currently than ours. We have 
recognized the majority of the fraud that has occurred in this 
industry.
    I will say, however, that it is extremely difficult to 
catch and find out who is trying to defraud you. They can make 
up fake documents. They can lie to you on the phone. You can 
show up to a facility that looks like it's operating. There are 
several ways in which one can be defrauded. I think that's why 
it is extremely important----
    Mr. Markey. Let me just ask this very quickly. Yes or no, 
do you all agree that EPA should have the funds it needs to 
crack down on any company that violates regulations or defrauds 
other companies?
    Ms. Case, do you think the EPA should have those revenues 
to crack down on fraud, yes or no?
    Ms. Case. I don't feel like I have enough information to 
answer that.
    Mr. Markey. Mr. Sprague, yes or no, should the EPA have 
those policemen on the beat?
    Mr. Sprague. The private sector will monitor itself, in my 
opinion. No. The answer is no.
    Mr. Markey. OK.
    Mr. Sullivan. Mr. Griffith, you're recognized for 5 
minutes.
    Mr. Griffith. Thank you, Mr. Chairman.
    Mr. Drevna, biofuels eBay is the way that this was 
described, but in reality wouldn't your companies have been 
better off if they had been purchasing over eBay because eBay, 
once it discovers an actual fraud, takes the sale off the 
market; is that not true?
    Mr. Drevna. I have never purchased anything on eBay, sir, 
but I understand that is correct.
    Mr. Griffith. And so in reality, if I understand it 
correctly, the EPA actually knew for over a year that the Clean 
Green was just a shack with barrel with tubes coming out of it. 
Is that--I'm listening to testimony.
    Mr. Drevna. That is correct. That is my understanding 
again. They saw nothing and reported nothing to us.
    Mr. Griffith. And so they didn't put up any kind of a 
warning this company is suspicious, or under investigation, or 
being looked at?
    Mr. Drevna. No, Mr. Griffith. The first time we heard about 
it is when we got issued an NOV and a potential fine.
    Mr. Griffith. And, Mr. Paquin, you indicated that there was 
a prosecution in 2009, and it was a felony that was reduced 
down to an amount of $100,000 to make it easier for local 
prosecutor, and your company at the time, the company you were 
with, notified both the EPA and the local prosecutor. The local 
prosecutor took action. Did the EPA take any action?
    Mr. Paquin. Sir, the EPA--the only action that I recall is 
to say that we were unable to use those RINs, and the rest of 
the facts I think are correct.
    Mr. Griffith. And did the EPA notify anybody else in the 
industry that this was a company that was under investigation 
before the conviction?
    Mr. Paquin. Sir, I don't recall any Notice of Violation for 
that case, nor do I think the EPA issued one for that case. 
That was handled by the local prosecutor.
    Mr. Griffith. And do you know was there any kind of an EPA 
notification postconviction of the fraudulent perpetrator?
    Mr. Paquin. I think the word got out through the industry 
itself, although apparently limited, because the other people 
who testified here claim Clean Green in 2010 was the first 
case. However, those of us that were close to that and lost 
money at that time were aware of it.
    Mr. Griffith. And what jurisdiction prosecuted, if you 
recall?
    Mr. Paquin. It was in Alabama, sir. And I want to clarify 
one other thing as well. It was in conjunction with other 
officers of that company that had reported the fraud to the 
local prosecutor. I don't want to show that we made that actual 
call itself, although we did have a lawyer who may have made a 
call as well, but it was a group of people working the case at 
the time.
    Mr. Griffith. Mr. Fjeld-Hansen, without--and I know you 
didn't say you were against it, but without an affirmative 
defense would you instruct your buyers to buy Ms. Case's RINs, 
or would you instruct them to not purchase from somebody that 
didn't have the necessary financial wherewithal to reimburse 
you should they later be disqualified by the EPA?
    Mr. Fjeld-Hansen. I think, again, philosophically if you 
believe in market forces and that things will find some kind of 
equilibrium, I think we are going down the right path now with 
prosecuting people. I think the next guy who is going to make a 
RIN out of his garage is going to think about it much more than 
Rodney Hailey did.
    Also, I think on the enforcement side----
    Mr. Griffith. You think that the right step is to prosecute 
the wrongdoers and not reinvent the system?
    Mr. Fjeld-Hansen. Yes. I think we want to--the resolution 
first is to keep the system intact as it is, but put more--and 
I didn't get to respond to the gentleman from Massachusetts, 
but put more money into enforcement and investigation. And I 
think those monies will be recouped easily in formal fines.
    Mr. Griffith. And I would be happy to ship money out of the 
anticoal programs into enforcement on this one.
    That being said, Mr. Drevna, back to you, is anybody 
looking at what happens if there is not enough renewables in 
order for American domestic supply to be used, because with the 
corn crop failing this year as a result of the weather 
conditions, is there a possibility or is anybody looking at the 
possibility that we may not have enough biofuels out there to 
meet the requirements, and thus some of the American production 
will actually have to be exported because it couldn't be sold 
in the United States?
    Mr. Drevna. A couple--if I may address a couple of things 
for that, Mr. Griffith. First of all, the panel here is 
focusing, rightfully so, on their particular business, their 
particular little one-fourth of the renewable fuel standard. 
The refining industry has obligated parties for four different 
we call them buckets, OK? This is one. This is a year or 2 old. 
Everything is going fine, but we've got 6, 7, 8 percent of the 
RINs fraud, but everything is OK.
    On the ethanol side you got an E-10 blend wall we're going 
to hit. The auto manufacturers, the engine manufactures, 
whether it's a handheld power equipment or chainsaw, or mower, 
are saying, we're not going to warranty anything over E-10. EPA 
said, OK, it's OK to use E-15. On the cellulosic side, where 
there is a whole story in itself, where we're supposed to buy 
fuel that doesn't exist, and we can't--so we can't buy it, and 
we're fined for it.
    So when I say--and, you know, I guess it was Ms. Castor or 
somebody said unanimous agreement minus one on the renewable 
fuel standard, and in my testimony when I said this thing has 
some serious problems, this program has serious problems. We're 
sitting here intertwining a free-market atmosphere with a 
mandate. They don't jive.
    Mr. Griffith. I have to yield back my time. Thank you, Mr. 
Chairman.
    Mr. Terry [presiding]. You don't have time.
    The chair recognizes the gentlelady from Tennessee for 5 
minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman, and I'm going to 
try to sum up quickly and not take 5 minutes.
    Mr. Drevna, I think that we would agree with you many times 
free markets and mandates don't mix. What becomes particularly 
problematic is when the Federal Government tries to have a 
controlled situation where they are going to emulate free-
market components, and then they slap these mandates on it, and 
it quickly becomes a mess. You all have certainly seen that in 
the RIN program, and we're here today reviewing it because we 
need to find some answer to this and figure out what did or 
didn't work.
    Mr. Drevna and Mr. Jobe, I know you all have been 
negotiating with the EPA on trying to work this out. How are 
those going?
    Mr. Drevna. They need to go faster. Where as I said 
earlier, we're looking at EPA is supposed to come out with a 
regulation--it was supposed to be out the end of June, still 
isn't out--volumes for 2013.
    Mrs. Blackburn. Are you going to have something in place 
that will help with the January 2013 season?
    Mr. Drevna. If EPA can bless it, we will try, but we have 
to have EPA blessing.
    Mrs. Blackburn. Do you feel like you are on track to hit 
that or not?
    Mr. Drevna. It's a slow track.
    Mrs. Blackburn. Mr. Jobe, do you want to add anything to 
that?
    Mr. Jobe. I agree. It's a slow track. We have been engaged. 
We're committed to trying to find common ground and solutions. 
We have some differences in position that we're trying to work 
through.
    Mrs. Blackburn. OK. Can you quantify those differences? Are 
they things where you're poles apart?
    Mr. Jobe. So we have--we were approached by the groups. We 
have discussed the groups. They've said, we would like a 
regulatory solution to transition from a strict-liability 
structure to an affirmative defense, meaning we can use our due 
diligence to defend ourselves to show that we----
    Mrs. Blackburn. OK. Let me talk about due diligence then 
for a moment, because, Mr. Paquin, you talked about that a 
little bit. I want you to list for me what would be the best 
practices in due diligence that you wanted to say this is the 
list of boxes that have to be checked with an affirmative 
answer in order for this transaction to proceed. Do you have 
that? Can you say, ``This is our list''?
    Mr. Paquin. Ma'am, I can submit a list in our opinion.
    [The information follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Paquin. I would also like to add, though, to that that 
even if you do go through that list, there still has to be the 
affirmative defense on the back side to show that in good faith 
you have moved forward in an attempt to do the right thing.
    Mrs. Blackburn. Right. And we understand that.
    Mr. Jobe, if you had such a list that was well-defined and 
industry best practice standards, would that help?
    Mr. Jobe. Yes. And our task force developed that list, and 
we're sharing that with the EPA, and they're working on that.
    Mrs. Blackburn. Would you share it with us?
    Mr. Jobe. Absolutely. And they're working on what's called 
the quality assurance plan. We're working all together to 
develop what that would be.
    So if I may, you asked about the differences. We said we 
agree that an affirmative defense, to be able to show your due 
diligence to defend yourself, that's a fair and reasonable 
request, and we want to be fair and reasonable and operating in 
good faith, so we agree with that.
    But we have some differences when we get into the details, 
because the petroleum folks are saying, well, we want the EPA 
to certify and preapprove third-party validation programs and 
multiple third-party validation programs, and anything that 
participates under that will be deemed valid even if it's 
invalid. So we have concerns about that.
    Mrs. Blackburn. OK. Anyone want to add any other comment? 
We have 52 seconds left.
    Mr. Paquin, go ahead.
    Mr. Paquin. Yes, ma'am, thank you.
    I think the National Biodiesel Board and the AFPM have done 
some great work for some of the due diligence process, and the 
process is moving forward. We can see the timing, however, has 
taken so long that we're not at a solution yet. That's why I 
think it's even more important and imperative that the EPA has 
an interim policy, or they modify their current interim policy, 
in order to solve issues today so we can save tens of thousands 
of jobs. If we don't do that now, and we wait for these two to 
talk and discuss and talk more and then discuss and talk more, 
we are going to have all of our small producers out of 
business, and the industry is going to crumble.
    Mrs. Blackburn. OK. Is the EPA a help or a hindrance in 
this process?
    Mr. Drevna. In my opinion, Mrs. Blackburn, they have been a 
referee. They haven't come back at us on anything. They've been 
working with us, but it's always thrown back at us.
    Mrs. Blackburn. The slow walk. OK.
    Mr. Paquin. Ma'am, we view the EPA as a partner. We think 
that the EPA has the ability to solve this immediately. We just 
need to use those regulatory measures that they have available.
    Mrs. Blackburn. Thank you. I yield back.
    Mr. Terry [presiding]. Thank you.
    First of all, the gentlelady from Colorado has a request.
    Ms. DeGette. I move to strike the last word.
    Mr. Terry. The gentlelady is recognized.
    Ms. DeGette. I just wanted the record to be clear. I 
thought this was an excellent panel and excellent testimony, 
kind of clarifying the issues, and I just want my position to 
be clear, which is I'm not opposed to an affirmative defense. I 
actually think it's a good idea, so long as we come up with 
clear requirements on the due diligence. And I think that's 
what Mr. Paquin and others on this committee are saying.
    So I want to thank everybody for their testimony, Mr. 
Chairman, and I thought it was a really excellent panel.
    Mr. Terry. Thank you.
    Does the gentleman from Texas have a request?
    Mr. Burgess. Yes. I have an a unanimous consent request to 
ask one additional follow-up question of Mr. Jobe.
    Mr. Terry. Is there any objection? Hearing none----
    Mr. Burgess. Mr. Jobe, is this something that could be done 
administratively at the EPA, or would this require legislative 
action on the part of the House and Senate and President, which 
takes a long time?
    Mr. Jobe. To answer your question, not a legislative fix, 
but a combination of what we've come up with in a private-
sector solution, and then looking at ways that we can--on a 
regulatory basis that we can make the program better.
    Mr. Burgess. So the EPA needs to quit slow walking, and you 
don't need legislative action.
    Ms. DeGette. I'm going to object to further questions.
    Mr. Terry. OK. Nice try, though.
    The gentleman from California, do you have----
    Mr. Bilbray. To strike the last word. One question.
    Mr. Terry. Without objection.
    Mr. Bilbray. Mr. Markey really sparked a concern I have, 
and I would ask, I guess, Mr. Jobe and the representative of 
the industry, if the corn crop fails, as some are worried now, 
and there is not enough ethanol to fulfill the renewable fuel 
mandate 10 percent, what happens to that domestically produced 
oil that may not be able to be sold in the United States?
    Mr. Drevna. Congressman, right now we're about at E10. I 
think there's enough capacity in the ethanol industry to keep 
it at E10. The question is how expensive is it going to be.
    Mr. Bilbray. OK. So you think we do have a----
    Mr. Drevna. Plus we get imports.
    Mr. Terry. I'm sorry, we're going to keep this to your 
promised one question.
    Mr. Jobe, the gentlelady from Tennessee, you answered that 
there are some documents regarding your standards, and she 
asked to you produce those. You have 30 days. We would 
appreciate that. That would be very helpful.
    [The information follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Terry. But that concludes the testimony from our first 
panel. I would agree with the gentlelady from Colorado, I 
thought each of you were excellent and provided us great 
insight. A very successful first panel. You leave with our 
gratitude and thanks for being here today. Thank you.
    We'll take a few seconds to let our first panel leave and 
gather their papers, and then we'll go to our second panel, 
which includes the main testifier, Mr. Byron Bunker, Acting 
Director of Compliance Division, Office of Transportation and 
Air Quality, Office of Air Radiation. He is accompanied by Mr. 
Phillip Brooks, Director, Air Enforcement Division, Office of 
Enforcement and Compliance Assurance, U.S. Environmental 
Protection Agency.
    As I understand, Mr. Bunker will be the primary person to 
testify, and Mr. Brooks will be there to assist if there's a 
dropped ball or something.
    But as you two understand how O&I works, you know that the 
testimony that you're about to give is subject to Title XVIII, 
section 1001 of the U.S. Code, so when holding an investigative 
hearing, this committee has the practice of taking testimony 
under oath.
    Do you have any objections--and since one will be providing 
assistance to the other, we need both of you to answer the 
question. Do you have any objections?
    Mr. Bunker. No objection.
    Mr. Brooks. No objection.
    Mr. Terry. All right. Then the chair advises you, if you 
will stand, that you are under House rules and the rules of the 
committee. You are entitled to be advised by counsel. Do you 
desire to be advised by counsel during your testimony here 
today?
    Mr. Bunker. No.
    Mr. Brooks. No.
    Mr. Terry. No. Both saying no.
    In that case, will you please raise your right hand and 
swear, and I will swear you in.
    [Witnesses sworn.]
    Mr. Terry. Both having affirmed.
    Chairman, you may sit down, Mr. Bunker. You can go ahead 
with your 5-minute testimony.

    STATEMENTS OF BYRON BUNKER, ACTING DIRECTOR, COMPLIANCE 
 DIVISION, OFFICE OF TRANSPORTATION AND AIR QUALITY, OFFICE OF 
AIR RADIATION, ENVIRONMENTAL PROTECTION AGENCY, ACCOMPANIED BY 
 PHILLIP BROOKS, DIRECTOR, AIR ENFORCEMENT DIVISION, OFFICE OF 
ENFORCEMENT AND COMPLIANCE ASSURANCE, ENVIRONMENTAL PROTECTION 
                             AGENCY

                   STATEMENT OF BYRON BUNKER

    Mr. Bunker. Committee members, Ranking Member DeGette----
    Mr. Terry. Is your microphone on?
    Mr. Bunker. Thank you.
    Members of the subcommittee, we appreciate the opportunity 
to appear before you today. I am Byron Bunker from EPA's Office 
of Transportation and Air Quality, and I will deliver the 
statement on behalf of EPA, and both I and Phil Brooks, my 
colleague from EPA's Office of Enforcement and Compliance 
Assurance, will be happy to answer your questions.
    Biofuels play an important role in reducing our dependence 
on foreign oil, decreasing greenhouse gas emissions, and 
improving rural economies. In July 2010, in compliance with the 
Energy Independence and Security Act, EPA began implementing 
revisions to the Renewable Fuel Standard Program, commonly 
called the RFS.
    The Energy Independence and Security Act established new 
annual volume standards for renewable fuel, reaching a total of 
36 billion gallons in 2022, including volume standards for new 
categories of renewable fuel. If EISA's mandate is fully 
implemented, the RFS program would displace about 7 percent of 
projected annual gasoline and diesel fuel consumption in 2022. 
This would decease oil imports by $41.5 billion and provide 
additional energy security benefits of $2.6 billion. The 
program is also expected to reduce transportation greenhouse 
gas emissions equivalent to the emissions from 27 million 
vehicles per year.
    EPA developed the implementing regulations for the RFS 
program through extensive collaboration with renewable-fuel 
producers, fuel distributors, petroleum refiners and other 
parties to ensure that the program would be compatible with the 
existing fuels market and business practices in that market.
    The RFS regulations allow petroleum producers and importers 
subject to the program known as obligated parties to 
demonstrate compliance with renewable fuel volume requirements 
in one of two ways. They can do so either by acquiring the 
required volumes of renewable fuels together with the renewable 
fuel credits known as Renewable Identification Numbers, or 
RINs, or by acquiring the RINs without fuel. EPA instituted 
these options in response to requests from refiners for 
flexibility and to implement the statutory provisions for a 
credit program.
    As the committee is aware, EPA is pursuing criminal 
investigations and civil enforcement proceedings against 
companies suspected of fraud and of violating the Clean Air Act 
in connection with the RIN market.
    While the focus of EPA's enforcement has been on fraudulent 
RIN generators, the RFS regulations do not allow invalid RINs 
to be used for compliance with the renewable volume obligations 
mandated by the program. Obligated parties are the parties 
ultimately responsible for ensuring the program's volume 
requirements are met, even if they comply solely by acquiring 
RINs. If an obligated party acquires invalid RINs, those RINs 
cannot be used to demonstrate compliance with the program as 
this would undermine the requirements established by Congress.
    EPA has also instituted an interim enforcement policy to 
provide a clear message that obligated parties who unknowingly 
use invalid RINs to meet their compliance obligations, and who 
timely remove those invalid RINs from their compliance reports, 
will be offered an opportunity to resolve violations at a very 
modest and capped amount.
    Since the enforcement actions became public, the regulated 
community has begun to improve its due diligence and 
acquisition of RINs. In addition, a number of private 
companies, as you heard in the first panel, are now offering 
services designed to verify the validity of RINs for potential 
purchasers.
    EPA has also reached out to the oil industry and biofuel 
producers to discuss ways to improve the RFS program and RIN 
validity in particular. All parties in our discussion share a 
common goal to improve the RFS program in a way that's fair to 
all parties, and that meets the renewable fuel volume targets 
envisioned by Congress. EPA believes the discussions so far 
have resulted in a number of promising options for 
consideration, including a proposal to establish a third-party 
verification system to help ensure that RINs are valid.
    In closing, EPA understands the seriousness and urgency of 
the fraudulent RIN issue and has been diligently working with 
industry to alleviate uncertainties in the renewable fuels 
market for obligated parties and producers alike. EPA's goal 
now is the same as it has always been: successful 
implementation of the RFS established by Congress. We are 
working closely with affected and interested stakeholders to 
explore potential options for improving the RFS. We are 
committed to taking action to make necessary adjustments to the 
program in a timely manner.
    We appreciate the opportunity to testify today. Thank you.
    Mr. Terry. Thank you. We appreciate your testimony here 
today.
    [The prepared statement of Mr. Bunker follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Terry. And at this time the chair recognizes the 
gentleman from Texas, Mr. Burgess, for 5 minutes.
    Mr. Burgess. I thank the chair for the recognition and 
thank Mr. Bunker for being here.
    You heard the testimony of the first panel, and we really 
appreciate you sitting in and hearing that, because I think 
this is an important part of today's activities. I heard you 
use the words ``serious'' and ``urgent'' in your summation, and 
I will take you at your word that you meant the two words that 
you spoke.
    I guess really the question now that remains after hearing 
the testimony, and hearing your testimony and the questions and 
answers from the previous panel, what is it going to take to 
get the EPA to do what's necessary to make sure this program 
has integrity, to bless the program, and give an affirmative 
defense to those people we had at the table today?
    Mr. Bunker. So as I said in the testimony, and as you heard 
from the panelists in the first panel, we are actively working 
with all the parties. I think you heard both there is 
considerable agreement among the parties that and some issues 
remain to be seen, I think.
    Mr. Burgess. With all due respect, because I know time is 
limited, their phrase ``referee'' was used in conjunction with 
the EPA's activity. Someone else used the term ``slow walk.'' 
You know, honestly, serious and urgent mean serious and urgent. 
You got people who are hurting here. The poor lady from San 
Diego at the end of the table, I mean, she's basically in 
possession of a nonperforming asset right now. As a small 
businessman I know what that means. It means you are going 
broke, and you put your own money on the line, and now you 
can't sell the product. So that's like having a see-through 
office building. It is a bad deal, and your cash flow is in 
serious jeopardy, and you are probably not going to survive for 
long if that's not fixed.
    So serious and urgent, we got to get past the slow walking 
part. I can't emphasize enough, you got to help these guys now, 
and it is serious, and it is urgent.
    This isn't the biggest program administered by the EPA, 
it's not the biggest program in the Federal Government, but 
it's important. And we got real people out there. Mr. Paquin 
testified that there are 10,000 jobs on the line. I mean, look, 
wouldn't the President have liked to have another 10,000 jobs a 
week ago Friday? That's a yes or no question. I'll answer for 
you: Yes, he would.
    How do we get to the point--well, you're right now what? 
You're operating under what, an interim rule, an interim 
policy?
    Mr. Bunker. I think we're mixing two pieces. The interim 
policy is an enforcement policy, but what everyone is talking 
about is changing the regulations that we put in place in 2007 
and 2010. So this would be a new regulatory program. We would 
make amendments to that proposal.
    Mr. Burgess. How quickly can that be done?
    Mr. Bunker. The goal the industry has is to be ready for 
the start in January 2013, and I think that's a reasonable 
goal. But how we accomplish that, all the pieces that have to 
be done between now and then are great. As you heard from the 
panel, there's a lot of work to be done, and I think that's a 
goal we should work towards.
    Mr. Burgess. Well, with all due respect to the Agency, and 
I do want you to--I mean, I take that serious and urgent, and I 
take seriously the fact that you say that this is going to 
happen. But would the committee be out of line for asking you 
to--I don't want to take the pedal off the metal on this one. 
We got to work on this for these guys. So I'm going to suggest 
you report back to the committee within 90 days on the progress 
that you're making concerning resolving the problems in the 
industry.
    Mr. Bunker. I understand the request. Yes.
    Mr. Burgess. Could we have the Office of the Director and 
the Administrator confirm this action within 14 days' time to 
the committee?
    Mr. Bunker. I will follow back and ask, yes.
    Mr. Burgess. Will you transmit that request?
    Mr. Bunker. Yes, I will.
    Mr. Burgess. All right.
    Mr. Chairman, thank you for your indulgence. I am going to 
yield back my time.
    Mr. Terry. The gentleman yields back his time.
    The gentlewoman from Colorado, Ranking Member DeGette, is 
recognized for 5 minutes.
    Ms. DeGette. Thank you, Mr. Chairman.
    Mr. Bunker, I think you heard from Mr. Burgess that we're 
all concerned about these small producers, and I guess in the 
way that the program has been--the RIN program has been 
structured, can the EPA require people to buy RINs from the 
small producers?
    Mr. Bunker. No. There is no mechanism----
    Ms. DeGette. And that's because it's a market-based system; 
is that correct?
    Mr. Bunker. That's exactly the case.
    Ms. DeGette. And so I think what people are saying to us is 
we need some certainty that these RINs are going to be valid, 
correct?
    Mr. Bunker. I think it's basically they want to have the 
same standing as all the producers.
    Ms. DeGette. Right. But having the same standing as all the 
producers would mean there's some certain level of certainty 
that the RINs are OK, right?
    Mr. Bunker. That's exactly correct.
    Ms. DeGette. And the EPA's credit-trading program has been 
a buyer beware program from the beginning. Everybody that 
participated knew that that was the construction of it, 
correct?
    Mr. Bunker. It was clear from the start, yes.
    Ms. DeGette. Now, has the EPA ever certified and validated 
the credits bought and sold in the RIN market?
    Mr. Bunker. The Agency has not.
    Ms. DeGette. The program's not set up that way; is that 
right?
    Mr. Bunker. That is correct.
    Ms. DeGette. So if we wanted to set it up so that the EPA 
was certifying certain RIN providers, that would require a 
whole 'nother program to be established within the EPA; is that 
correct?
    Mr. Bunker. And different oversight and a number of other 
aspects would be different.
    Ms. DeGette. Different oversight. And it would really be 
going away from the market-based solution that we're trying to 
achieve; is that right?
    Mr. Bunker. We would be picking the winners and losers, I 
think.
    Ms. DeGette. You'd be picking which people did it, and it 
would be a whole new program. And it would give certainty, but 
it would be taking that more into a government program and away 
from a market-based program; is that right?
    Mr. Bunker. I think that's an accurate characterization.
    Ms. DeGette. OK. Now, I want to know if the EPA has ever 
represented to people that they intended to certify or validate 
any credits that were bought and sold in the RIN market?
    Mr. Bunker. Not to my knowledge.
    Ms. DeGette. OK. Now, here's a really valid question that I 
thought was raised, though, in the last panel, which is even 
though it's a buyer beware system, people are upset that after 
this fraud was discovered, the EPA waited a year to let people 
know. Why did the EPA wait a year to let people know?
    Mr. Bunker. Maybe I should have explained before. The 
reason we have the two panelists is Mr. Brooks is from our 
enforcement office.
    Ms. DeGette. Oh, good. Maybe Mr. Brooks can tell us why the 
EPA waited a year.
    Mr. Brooks. Yes, Congresswoman.
    The time lapse from the initial discovery, we got a tip, we 
sent inspectors out, we had to follow up on some information. 
And what we did was we brought in the criminal prosecutors, 
because it was obvious to us that we weren't dealing with the 
run-of-the-mill kind of civil enforcement issue that my shop 
handles.
    So we brought in the criminal specialists. They brought in 
the Department of Justice. And at that point Criminal takes the 
lead when there are concerns about flight risk, destruction of 
evidence and seizure of assets. So in this case all of those 
things were at play, and the Criminal Division took the lead.
    Ms. DeGette. So there was a criminal investigation going 
on, and it's your testimony that it took a year to secure the 
evidence they needed so that they could then do their 
prosecution; is that correct?
    Mr. Brooks. Well, what I understand from this is, of 
course, what the Criminal Division tells us, and they asked us 
to hold off. And we acted as soon as they said----
    Ms. DeGette. So you held off because the Criminal Division 
told you to hold off; is that correct?
    Mr. Brooks. Yes.
    Ms. DeGette. OK. So I'm trying to ask simple questions 
here, because I think it's a valid concern that people have.
    Mr. Brooks. Yes.
    Ms. DeGette. Now, there's been a lot of discussion about 
this affirmative defense, and my first question is, Mr. Bunker, 
what do you think of the idea if there was a--if you and the 
industry agreed on a due diligence process, if they checked all 
those boxes, would your Agency object to an affirmative defense 
then?
    Mr. Bunker. I don't want to prejudge any outcome, but it's 
plainly one of the pieces that's fully in front of everyone and 
being robustly discussed. So I don't want to imply I know the 
outcome from that, but it seems clear----
    Ms. DeGette. But it's on the table, it's one of the things 
on the table?
    Mr. Bunker. Very much so, yes.
    Ms. DeGette. And that's my next question is does the Agency 
have the legal authority through rulemaking to establish an 
affirmative defense, or do you need congressional legislative 
action to do that?
    Mr. Bunker. No. We think the existing authority we have 
under the act allows us to do so.
    Ms. DeGette. That's good to hear. Thank you very much.
    Mr. Terry. Thank you. Good questions.
    We'll go to--next on the list would be the gentleman from 
California Mr. Bilbray.
    Mr. Bilbray. Mr. Bunker, I think you and everybody else 
that's required to enforce either a law or regulation 
understands that when the Legislature passes a law, there's 
always the assumption of discretionary enforcement. There's 
always the assumption that an intelligent way of applying the 
regulation or law will be the mode used. Maybe that's a big 
mistake we make. But my concern here is talking about one of 
the victims in the process, and that is the person who has 
purchased with good faith a bogus product.
    My concern is that, and let's be very frank about that, the 
Agency has a burden to bear here because of recent history. I'd 
like to think that you're not going--you're not addressing the 
concerns of the people who were purchasing bogus products and 
actually victimizing them again with an attitude of we can't 
let anybody slip through because somebody might take advantage 
of the system.
    To be blunt with you, I'm concerned that there might be a 
mindset of let's crucify one guy on the front gate, and anybody 
who would try to buy these bogus things purposely will be 
scared to death.
    My question really is how can you not reflect to these 
victims that we knew a year ago that you were probably 
purchasing bogus, but because our prosecution system needed to 
work through 12 months, we see you as somebody that should not 
have enforcement or should not be denied what you legally with 
good intention purchased?
    Do you follow what I am saying is that you knew these 
certain consumers probably were doing this in good faith. 
You've got an investigation, and that's totally understandable 
that you've got to hold off a year until everything wraps. But 
doesn't that give you an obligation to go back and cut some 
slack for the people that you knew were purchasing at the time 
you were doing the investigation?
    Mr. Brooks. Should I answer that question?
    Mr. Bilbray. Yes.
    Mr. Brooks. I think you're absolutely right, and that's 
what we did. When we sent out the Notice of Violation, we sent 
it out and said, you----
    Mr. Terry. Can you pull your mike closer to you?
    Mr. Brooks. When we sent out the Notice of Violation, what 
we told folks was you need to correct your accounts, you need 
to remove the invalid RINs because they're invalid, you can't 
use them for compliance. We didn't make a penalty demand. 
Instead what we did was we met with everybody. We met with 
every single one of these guys, and we talked about the 
circumstances. And what we learned was is that the vast 
majority had not done any due diligence.
    Now, I'm not pointing fingers at them, but they didn't. 
They had a different business plan, they thought that was good 
enough, but they didn't do what was required.
    Mr. Bilbray. Mr. Brooks, let me just say this. If you're 
investigating a counterfeiter, and you know he's producing it 
for a year, but because for the good of the general public you 
allow the $100 bills to continue to go out, and people in good 
faith invest their life savings in money that's not worth a 
cent, don't you think there's a little bit of obligation of the 
general public that is getting the general good of that year 
delay to go back and say, ``We'll hold you harmless for this 
because we knew about it, and this was a sacrifice all of us 
should bear, not just you''?
    Do you follow what I am saying is that you're actually 
sitting there telling somebody that you're just a victim of not 
only the bogus operation, but you're a victim of our process, 
and we're not going to make you whole or not even going to 
mitigate it.
    Mr. Brooks. Congressman, I think that what you're saying 
makes sense. I think it's what we did. The feedback that we got 
from the obligated parties was that they thought that we were 
being reasonable. We came up with a penalty structure that 
instead of $37,500 per day per violation was 10 cents a RIN. So 
we had some guys that paid 440 bucks.
    Mr. Bilbray. But that is like saying that the people that 
are a victim of counterfeit isn't going to be prosecuted as 
counterfeiters when the fact is they're losing value down the 
line. So I appreciate the fact that you've gone there, but I am 
worried. And let's be really frank about it. The Agency has a 
responsibility that you do not have the mentality of crucifying 
people that may not be too guilty, but you've got to make your 
point. And I think you have a greater obligation than a lot of 
other agencies right now to show you're trying to be 
cooperative and understanding.
    And for the record, I hope my wife was watching this 
hearing, because it's the one time she'll ever hear somebody 
say that I had a good point. So thank you very much.
    I yield back.
    Mr. Terry. That's probably a true statement.
    The gentleman from Texas Mr. Green is recognized for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman, and I don't know how to 
follow my friend from San Diego. But I appreciate you being 
here.
    Mr. Bunker, it is my understanding a series of meetings has 
been taking place with representatives of the biodiesel 
producers, refinery sector, blenders, advanced biofuel 
producers and potential RIN validators. I've also heard these 
negotiations yielded to an agreement on several points: One, a 
solution to the RIN fraud issue in the form of a rulemaking is 
appropriate; two, a more robust certification and validation 
program for biodiesel RIN producers is called for; and, three, 
a participation in such a program that would allow the EPA to 
shift from a strict liability to an affirmative defense that 
could be asserted by an obligated party.
    I'm glad to hear EPA is working with the stakeholders to 
expeditiously fix the problem, and I've been monitoring the 
issue. You know, Congress can pass a law. It would be much 
better if everybody sat down and worked on it, because I don't 
know if we can do something by the end of December of this 
year.
    I just want to update--get an update on where the process 
is. Do you think the negotiations can be finished by the end of 
this year and something in place from the EPA?
    Mr. Bunker. So I think you're very well informed on where 
we are and kind of the context of those. I think that's a fair 
and accurate condition that we're in. And we certainly are 
working towards that goal of having something that can work for 
the 2013 year. Whether it's totally finished by then or we have 
a process that accommodates that, I don't know how we 
accomplish that goal, but I think that's a reasonable goal that 
we can work toward.
    Mr. Green. OK. Can EPA actually decide now to provide an 
affirmative defense for a purchaser? Do you have the authority 
to do that?
    Mr. Bunker. Sir, we have the authority. I think it will 
take a rulemaking process to change our regulations. I don't 
think we can do that with another administrative process, but I 
think we can do it through rulemaking.
    Mr. Green. OK. Believe me, if Congress tells EPA to do it, 
it would be much quicker if you did it on your own instead of 
us passing legislation.
    Conceptually the EPA would commit to providing a legal 
defense that companies that unknowingly purchased RINs and 
submit compliance, fraudulent RINs. I recognize you feel that 
depends on due diligence. Would the EPA commit to approving 
some form of criteria that would constitute due diligence for 
obligated parties?
    Mr. Bunker. That's very, very much on the table, and I 
think it's in front of everyone to figure out what role each 
party plays in this process. I think the first panel really did 
a good job of characterizing the breadth of interests here, and 
I think we have to find a way for each party to play their role 
in that. And that's what we're working through.
    Mr. Green. And again, we know we have a timeline, the end 
of this year, before we get into 2013. EPA considered 
increasing verification requirements for biofuels RIN 
generators to ensure the integrity of the marketplace. Have you 
done that?
    Mr. Bunker. I think largely that's been done through third 
parties that are into the market now and providing that service 
to make a more frequent process than the EPA process.
    Mr. Green. OK. Does that include a physical independent 
audit to verify that RIN generators produced the biofuels they 
claim?
    Mr. Bunker. Most of them are doing it by some kind of 
monitoring or by visiting facilities and an audit function, as 
you described.
    Mr. Green. I know my colleagues already talked about the 
Clean Green Fuels, visiting Clean Green Fuels in July of 2010, 
and it took a good amount of time. And I appreciate your 
response on why the investigation and action didn't go forward 
because of the criminal prosecution. But weren't the companies 
that purchased those false RINs fined and also told they had to 
go buy more, you know, RINs?
    Mr. Brooks. Yes, Congressman. Do you want me to answer 
that?
    Mr. Green. Yes.
    Mr. Brooks. Yes. Thank you.
    There are two aspects to that. Did they have to replace the 
RINs? Yes, because they were invalid, so they couldn't use 
them, and that's what the regs say.
    And the second aspect is did they pay a penalty. And, yes, 
the regulations placed an affirmative obligation. Unlike, say, 
counterfeit currency where you're just out the value of the 
money, this system has an affirmative obligation on the 
obligated parties so that we can meet the congressional 
mandate. It's basically the ``skin in the game'' kind of aspect 
that says they're going to be careful with what they do and use 
only valid RINs.
    But in light of all the circumstances, as have been pointed 
out here, we talked to them, and we came up with what we 
thought was a fair penalty, and obviously they thought so, too, 
because we resolved the issue.
    Mr. Green. Well, I would encourage you to work on getting 
those negotiations and the rulemaking started before we get 
into the fall, knowing the problems we'll have, because it's 
really important. Some of us would not have voted for this 
legislation if it hadn't have been for the first time in 30 
years we could vote to increase CAFE standards. And it seemed 
like some of those compromises we have to make here may be 
coming back and biting us, particularly in this situation.
    Mr. Chairman, thank you.
    Mr. Terry. Thank you, Mr. Green.
    The gentlelady from Tennessee is recognized for 5 minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman, and thank you for 
staying with us for the hearing.
    Mr. Brooks, I got to tell you, when I hear you talk about 
the penalty, I think about these individuals that were on that 
first panel. You know, when they hear you say this, basically 
what they're hearing is you can tell people what you're going 
to do to them; it's just you can't tell them what they need to 
do. And I think you've got things backwards. And you focused on 
the penalty, but getting the due diligence piece right and 
letting them know exactly what to do, what compliance looks 
like, is where you guys are dropping the ball.
    Now, from the first panel we heard Mr. Jobe and Mr. Drevna 
and Mr. Paquin talk about they can define due diligence. 
They've got a list of what would be industry best practice 
standards and review. They're waiting on you to sign off on 
this, to take an action. They defined your participation 
basically as being a referee. You've heard frustrations with 
slow walking.
    So, how long is it going to take you to sign off on an 
accepted industry standard of best practices; how long is it 
going to take you to do that to provide some guidance?
    Mr. Bunker. Thank you. If you don't mind, I'll answer that. 
That's sort of my responsibility for delivering that piece. 
There's a couple of pieces I would like to speak to.
    I think there is a broad understanding in industry for how 
the due diligence could be done. As you said, several parties 
have brought forward ideas. I think they've shared them with 
this committee. They've certainly shared them with the Agency.
    The part that we are in, I am not going to say it is 
inaccurate to say we are a referee at this point. Many of the 
parties have different views of how each of them fit into that 
due diligence work. They agree what work needs to be done, but 
what role each party in the chain plays in that is an important 
question for all of those parties, and, of course, for the 
Agency. So we're working to understand the pros and cons, the 
trade-offs that come from----
    Mrs. Blackburn. Mr. Bunker, please. You know, how long? I 
mean, they've talked about your slow walking. We're talking 
about a deadline coming up. How long is it going to take? Do 
you need 2 weeks? Do you need 30 days? How long is this going 
to take to make a decision? Somebody's got to bring some 
leadership to bear at some point.
    Mr. Bunker. That's a very fair question, and I appreciate 
that.
    This group, the stakeholders, basically the parties that 
you heard from, they came to the Agency and proposed some kind 
of concept to start this work in June '12. That was the first 
time they came in with this kind of proposal. So in less than a 
month, it's mushroomed into a very productive, very useful 
dialogue to move this forward. So I don't think it's accurate 
to call it slow walking.
    I do think the goal of having something for the 2013 year 
is a good goal and one we can work towards.
    Mrs. Blackburn. Are you going to meet the deadline?
    Mr. Bunker. I think there's too many variables for me to 
give it a firm deadline.
    Mrs. Blackburn. Let me ask you this. I am going to run out 
of time, and I'm trying to be sensitive to that. The interim 
enforcement policy that you have, why don't you adjust that so 
that the actions of the bad actors are not going to negatively 
impact your small businesses and smaller participants in the 
marketplace? As you're focused on the long term, and Dr. 
Burgess talked with you about that, why don't you go in here 
and make an adjustment to your interim enforcement policy?
    Mr. Brooks. Thank you.
    We're engaged in a conversation right now that I think 
informs how we think about enforcement, but there are--some of 
the requests are not as transparent as they might seem. A lot 
of the requests are for forgiveness of what the law required, 
say, for 2010, 2011 RINs that were invalid.
    The concern that we're trying to focus on right now is what 
can we do to help the system so that the folks who are actually 
producing the fuel out there have an opportunity to sell this 
stuff? And it apparently depends on confidence. And that's why 
I've spent a lot of time talking with the National Biodiesel 
Board and producers and a lot of these other folks about what 
is it that can be done so that there is enough comfort out 
there. It's really the comfort of the obligated parties that's 
the focus of this.
    Now, they know that if they went through these kind of 
processes, they don't have to worry about whether they get hit 
for penalties, because they know that--you know, they talk to 
their best lawyers in the country, right, and the best lawyers 
in the country will tell them, look, if you've gone through a 
system like this, EPA is not going to bother with you about 
whether you have done due diligence. You clearly have. So they 
can solve that problem.
    But really, I think, the focus is on the future here, on 
how it is that we can make sure that we've got a level playing 
field so that the small producers have the same opportunity to 
sell as the big guys.
    Mrs. Blackburn. Well, what you're going to see happen is 
that your small guys are out of business, and you only have a 
few producers. Maybe that's what your goal is, I don't know.
    I yield back.
    Mr. Terry. All right. Thank you.
    At this point the gentleman from West Virginia.
    Mr. Griffith. Western Virginia.
    Mr. Terry. Southern Virginia--western Virginia.
    Mr. Griffith. Thank you, sir. Thank you, Mr. Chairman.
    There may be different shades to what you're hearing here 
today, but I think both Democrats and Republicans want to get 
this problem solved. I'm a little frustrated, and I will always 
be frustrated with Washington, at least I hope I will be, 
because having come out of the Virginia Legislature, we could 
deal with all kinds of problems in 60 days and go home. Dr. 
Burgess asked you all to deal with this problem, see if you 
could deal with it in 90 days and go home.
    This first panel indicated by and large they need an 
answer. They're willing to work with you, you know. And you may 
be missing it a little bit when you say that, you know, they 
seemed to be happy. One, you're dealing with the end product 
users and not the people who are trying to sell the RINs. Two, 
you know, if you have the right to cut off both their right and 
their left hand, and you only cut off their right hand, they 
may be happy you didn't take the left hand, or vice versa, but 
they're still not real happy about it.
    You know, you all need to come up with a fix for this. 
There's a problem. Nobody wants to scrap this program. I 
haven't heard that from at least any of the folks up here. 
That's not the issue. The issue is how do we make it fair for 
everybody. And, unfortunately, based on what I've heard from 
the testimony today and yesterday, I'm not sure some of these 
companies will make it to January of next year.
    And I got to tell you, you know, things like what is due 
diligence and that kind of stuff, you know, come by the office 
this afternoon, and we'll figure that out. I mean, we ought to 
be able to put that definition down in a few hours. I don't 
understand why it takes the Federal Government so long to come 
up with simple things when you have a couple hundred years of 
case law out there. And I understand the EPA is different and 
doesn't have that length of history, but, you know, you can 
borrow from other people.
    So I ask you to do that, and I ask you to get back to Dr. 
Burgess and let him know within 14 days or let this committee 
know within 14 days if you can do that in 90 days, because I 
just don't know that these folks can make it.
    It's interesting, and I've only been doing this--I'm one of 
the freshmen, and I've only been doing this a little while 
compared to some of the other folks, but when you see people 
from the panel before stay and the panel from yesterday show up 
to hear what's going on, this is a big issue to them. And some 
of these companies won't survive if you all don't fix it.
    You have the power to fix it. If you need our help, I think 
I speak for everybody on this committee, we're happy to help 
you. If you think you need a change in the code, bring it to 
us, we'll make that change. And we can get it done, I hope--I 
don't know about the Senate, but we can get it done in a 
relatively reasonable period of time.
    So I ask you to do that, because I think you are just 
glossing over when the companies that bought the end product 
are happy, clearly the companies that are making it aren't, 
when they are doing the legitimate thing, and it really does 
strike against the American sense of fairness when you know 
that there's a bad actor out there, and you let people go get 
harmed and let their businesses be put in jeopardy.
    So I don't really have any questions. I do appreciate you 
all being here. And I do appreciate, very much so, that you all 
came to hear the first panel. But they seemed like reasonable 
people to me that you all ought to be able to get this thing 
worked out on. And I think everybody would agree that if you 
make a little mistake to correct the big problems that we've 
had, we can fix that easier if we have to do that next year.
    Sometimes you just have to act. You can't always be 100 
percent certain that that act is going to be perfect. But if 
you fix 95 percent of the problem, I think these folks would be 
happy.
    Mr. Chairman, if anybody wants the rest of my time?
    Ms. DeGette. I do.
    Mr. Terry. Yes, the gentlelady from Colorado.
    Mr. Griffith. I yield to the gentlelady from Colorado.
    Ms. DeGette. Thank you so much, Mr. Griffith.
    I just have a quick question for you, Mr. Brooks, because 
the law says that it's a strict liability standard if there's 
fraudulent RINs, correct?
    Mr. Brooks. Yes, Congresswoman.
    Ms. DeGette. But yet I think I heard you say the EPA has 
enforcement discretion--if someone is using these invalid or 
fraudulent RINs unknowingly, or knowingly, they have discretion 
about what the enforcement is; is that right?
    Mr. Brooks. We have inherent discretion.
    Ms. DeGette. You have discretion, so you can throw the book 
at them, or you cannot take an action at all; is that right?
    Mr. Brooks. I think there are parameters. Obviously there 
are congressional goals that we have to adhere to. There are 
some hard edges on the regulations. But essentially you're 
right.
    Ms. DeGette. All right. So you had said that the Agency 
decided with the people who were using the invalid RINs that to 
go ahead with a penalty, but not as strict a penalty as you 
could have, right?
    Mr. Brooks. That is correct.
    Ms. DeGette. And something piqued my interest. You said 
that was because they hadn't done due diligence.
    Mr. Brooks. That's correct.
    Ms. DeGette. Can you explain what you found in terms of the 
due diligence by the companies?
    Mr. Brooks. I could sum it up this way: The vast majority 
of the players had simply relied on their contract of purchase, 
and so they had an indemnity agreement, right? And so rather 
than ask, ``Are these good RINs?,'' they were satisfied with 
the purchase document that said, ``If they're not good RINs, 
I'm coming back to you.''
    Ms. DeGette. And they're not doing that anymore, are they?
    Mr. Brooks. They are not to my knowledge.
    Ms. DeGette. Thank you.
    Mr. Terry. Thank you.
    The gentleman's time from western Virginia has ceased, and 
I recognize myself for 5 minutes.
    So in that regard, carrying on Diana's questions, what is 
the current definition of due diligence, and is that part of 
what is going to be worked on in the next few months?
    Mr. Bunker?
    Mr. Bunker. Yes. I think broadly it's understood it's a 
process to both look at the facility and look at both the 
feedstock that goes into a facility and the production that 
goes out, and if you do effectively a mass balance, an energy 
balance, a waste products balance, that you can have high 
confidence those volumes exist.
    And I think actually to the question that was asked before, 
I think getting that resolved among the parties, what are good 
parameters, that's actually the easy part. It's each party's 
role then in fulfilling those that where there is differences 
of opinion among the industry partners.
    Mr. Terry. And that will be part of the process that you 
engage in in the next few months to make sure that that is more 
clearly set out in the language, and they know their 
obligations.
    Mr. Bunker. Exactly. That's the most important piece.
    Mr. Terry. In that respect I think it was Mr. Jobe from the 
biodiesel board or biofuels board--biodiesel board--that 
mentioned that they have already drafted their industry 
standards in this respect. Have you seen those yet?
    Mr. Bunker. Yes. We both participated in this RIN Integrity 
Task Force that was described, and they've shared both their 
phase 1 and phase 2 programs. We think those are good programs, 
and there are several others in the industry that are similarly 
structured, different approaches in some cases. All seem very 
good, frankly.
    Mr. Terry. Well, will those type of industry standards then 
be adopted at the completion of your efforts, or at least the 
negotiated language changes?
    Mr. Bunker. Yes, I think that's the big question. I think 
it's generally assumed that we should leverage those third-
party systems; don't create a new government system that is one 
size fits all, but let the market choose the participants 
that--basically mitigate risk in a way that satisfies people 
that are at risk. That seems to be everyone's goal.
    So you heard there were some people that think that should 
be fully in the private sector and not be part of the 
government at all, and some people that frankly think it needs 
to be basically leveraged in the regulations. And that's what 
we're working through quickly is to figure out the how.
    Mr. Terry. Well, we appreciate you working quickly. I think 
one of the messages that you've heard from this panel here 
today or the Members sitting up here is that this is a time-
sensitive matter. And we go do agree with the January 1st, 
2013, goal.
    So in that regard could you walk us through what 
procedures, what work really has to be done between now and 
January 1st so that we've got that document of here's the rules 
or whatever technical language you want to use?
    Mr. Bunker. Yes. So we will have to go through a notice and 
a proposal process, a public comment, and then a final action. 
I think what's still open----
    Mr. Terry. What's the timeline in between each one of 
those. Don't those have 30- and 60-day requirements?
    Mr. Bunker. So the minimum requirement, I think, after it's 
in the Federal Register is at least 30 days. I can check the 
numbers. And we usually have to give a 30-day period for 
comments. And when you add all those pieces up, it may not be 
possible to have a final action in advance of January 1. I 
don't know if that can happen. But it may well be that we can 
have the system in place.
    One thing we should think about is the actual compliance 
for 2013 will be February of 2014. So the Agency has a very 
clear message of what you need to do, what the process is. And 
everyone starts doing that process maybe January 1, maybe in 
December, and then we have a final action that decides what's 
the outcome of having done that process. They will have already 
fulfilled the elements of the work that is done up front.
    So it's my belief we could have a process that both follows 
our regulatory process in the fullness of a notice and comment, 
but also gives some path to people to implement early by being 
transparent about where it's going.
    Mr. Terry. And I think you've stated it, but I want it more 
clearly as your final comment here, and we close, but you 
understand, the Division understands, that inaction right now 
is hurting the small producers. Would you agree with that?
    Mr. Bunker. We absolutely do. We said that's a big issue 
for us, absolutely.
    Mr. Terry. Very good. Then not a question, but a comment. 
Mr. Burgess, Dr. Burgess, mentioned 90 days to have something 
ready for us, kind of, I would assume, just at least the 
skeleton. But Diana, the ranking member, and our side are 
discussing having a second hearing about that 90-day period, 
because we want to make sure this stays on track. So it is 
important to us.
    Mr. Bunker. I understand.
    Mr. Terry. She said 120 days. We'll figure that out. That's 
part of our negotiations.
    So at this time I ask unanimous consent to enter into the 
record our subcommittee binder.
    [The information appears at the conclusion of the hearing.]
    Mr. Terry. In conclusion, I would like to thank our two 
witnesses here today. Both of you were very helpful. I remind 
Members that they have 10 business days to submit questions for 
the record, and I ask that the witnesses agree to respond 
promptly to those questions, if submitted.
    All right. Thank you. The subcommittee is now adjourned.
    [Whereupon, at 12:51 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]


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