    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

     UP AGAINST THE BLEND WALL: EXAMINING EPA's ROLE IN THE RENEWABLE FUEL

                                    STANDARD
    =======================================================================

                                    HEARING

                                   before the

                         SUBCOMMITTEE ON ENERGY POLICY,

                          HEALTH CARE AND ENTITLEMENTS

                                     of the

                             COMMITTEE ON OVERSIGHT

                             AND GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  JUNE 5, 2013

                                   __________

                               Serial No. 113-40

                                   __________

    Printed for the use of the Committee on Oversight and Government Reform

             Available via the World Wide Web: http://www.fdsys.gov
                          http://www.house.gov/reform

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    20402-0001

                  COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     DARRELL E. ISSA, California, Chairman
    JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland,
    MICHAEL R. TURNER, Ohio                  Ranking Minority Member
    JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
    PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of
    JIM JORDAN, Ohio                         Columbia
    JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
    TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
    JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
    JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
    PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
    PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
    SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT,
    TREY GOWDY, South Carolina               Pennsylvania
    BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
    DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
    CYNTHIA M. LUMMIS, Wyoming           ROBIN L. KELLY, Illinois
    ROB WOODALL, Georgia                 DANNY K. DAVIS, Illinois
    THOMAS MASSIE, Kentucky              PETER WELCH, Vermont
    DOUG COLLINS, Georgia                TONY CARDENAS, California
    MARK MEADOWS, North Carolina         STEVEN A. HORSFORD, Nevada
    KERRY L. BENTIVOLIO, Michigan        MICHELLE LUJAN GRISHAM, New Mexico
    RON DeSANTIS, Florida

                       Lawrence J. Brady, Staff Director
                    John D. Cuaderes, Deputy Staff Director
                        Stephen Castor, General Counsel
                           Linda A. Good, Chief Clerk
                     David Rapallo, Minority Staff Director

          Subcommittee on Energy Policy, Health Care and Entitlements

                       JAMES LANKFORD, Oklahoma, Chairman
    PATRICK T. McHENRY, North Carolina   JACKIE SPEIER, California, Ranking
    PAUL GOSAR, Arizona                      Minority Member
    JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of
    JASON CHAFFETZ, Utah                     Columbia
    TIM WALBERG, Michigan                JIM COOPER, Tennessee
    PATRICK MEEHAN, Pennsylvania         MATTHEW CARTWRIGHT, Pennsylvania
    SCOTT DesJARLAIS, Tennessee          TAMMY DUCKWORTH, Illinois
    BLAKE FARENTHOLD, Texas              DANNY K. DAVIS, Illinois
    DOC HASTINGS, Washington             TONY CARDENAS, California
    ROB WOODALL, Georgia                 STEVEN A. HORSFORD, Nevada
    THOMAS MASSIE, Kentucky              MICHELLE LUJAN GRISHAM, New Mexico

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on June 5, 2013.....................................     1

                                   WITNESSES

    Mr. Jack Gerard, President, American Petroleum Institute
        Oral Statement...............................................     5
        Written Statement............................................     8
    Mr. Joel Brandenberger, President, National Turkey Federation
        Oral Statement...............................................    11
        Written Statement............................................    13
    Mr. Jeremy I. Martin, Ph.D., Union of Concerned Scientists
        Oral Statement...............................................    18
        Written Statement............................................    20
    Mr. Lucian Puliaresi, President, Energy Policy Research
      Foundation Inc.
        Oral Statement...............................................    26
        Written Statement............................................    28
    Mr. Christopher Grundler, Director, Office of Transportation and
      Air Quality, U.S. Environmental Protection Agency
        Oral Statement...............................................    72
        Written Statement............................................    75

                                    APPENDIX

    Letter for the Record from The Honorable Bruce Braley, a Member
      of Congress from the State of Iowa Submitted by The Honorable
      Jackie Speier, a Member of Congress from the State of
      California.....................................................    94
    Letters for the Record from the Biotechnology Industry
      Organization and the Advanced Biofuels Association Submitted by
      Representive Speier............................................    95
    ``Economic Impacts Resulting from Implementation of RFS 2
      Program'' Report Submitted by Mr. Jack Gerard, American
      Petroleum Institute............................................   100
    A National Renewable Energy Laboratory Study Submitted by The
      Honorable James Lankford, a Member of Congress from the State
      of Oklahoma....................................................   163
    Written Testimony by Ms. Margaret Podlich, President Boat U.S.,
      Submitted by Chairman Lankford.................................   218
    A Letter for the Record from American Petroleum Institute (API)
      Energy and Submitted by Representative Speier..................   222
    An Article for the Record ``The Navy's Great Green Fleet Strikes
      Back'', Submitted by Representative Speier.....................   244

     UP AGAINST THE BLEND WALL: EXAMINING EPA's ROLE IN THE RENEWABLE FUEL
                                    STANDARD

                                  ----------

                            Wednesday, June 5, 2013,

                      House of Representatives,
          Subcommittee on Energy Policy, Health Care &
                                          Entitlements,
                  Committee on Oversight and Government Reform,
                                                       Washington, D.C.
        The subcommittee met, pursuant to call, at 10:05 a.m., in
    Room 2154, Rayburn House Office Building, Hon. James Lankford
    [chairman of the subcommittee] presiding.
        Present: Representatives Lankford, Gosar, Jordan, Chaffetz,
    Meehan, DesJarlais, Farenthold, Woodall, Issa, Speier, Norton,
    Duckworth, Davis, Cardenas, and Horsford.
        Staff Present: Kurt Bardella, Majority Senior Policy
    Advisor; Richard A. Beutel, Majority Senior Counsel; Joseph A.
    Brazauskas, Majority Counsel; Daniel Bucheli, Majority
    Assistant Clerk; Caitlin Carroll, Majority Deputy Press
    Secretary; John Cuaderes, Majority Deputy Staff Director; Brian
    Daner, Majority Counsel; Linda Good, Majority Chief Clerk;
    Tyler Grimm, Majority Professional Staff Member; Ryan M.
    Hambleton, Majority Professional Staff Member; Scott Schmidt,
    Majority Deputy Director of Digital Strategy; Jaron Bourke,
    Minority Director of Administration; Nicholas Kamau, Minority
    Counsel; Adam Koshkin, Minority Research Assistant; and Rory
    Sheehan, Minority New Media Press Secretary.
        Mr. Lankford. The committee will come to order.
        I would like to begin this hearing by stating the Oversight
    and Government Reform mission statement.
        We exist to secure two fundamental principles: first,
    Americans have the right to know that the money Washington
    takes from them is well spent and, second, Americans deserve an
    efficient, effective Government that works for them. Our duty
    on the Oversight and Government Reform Committee is to protect
    these rights. Our solemn responsibility is to hold Government
    accountable to taxpayers, because taxpayers do have a right to
    know what they get from their Government. We will work
    tirelessly in partnership with citizen watchdogs to deliver the
    facts to the American people and bring genuine reform to the
    Federal bureaucracy. This is the mission of the Oversight and
    Government Reform Committee.
        Drivers across America today are going to fill up their gas
    tanks and they are going to complain about the price of energy.
    We are Americans; that is what we do. We love to travel, but we
    hate to pay high gas prices.
        But there is also a new complaint: the frustration of
    filling up your car with ethanol, which is made from food and
    doesn't burn as efficiently as gasoline; also, the variety of
    different options of what engine can take what fuel.
        I didn't bring it with me today, but I have a 2011 vehicle
    that, when you open up the gas cap, on the door itself, on my
    vehicle, it has a big circle and a slash through it that says
    E15, telling me don't you dare put that fuel in this vehicle,
    even though it is a 2011 version.
        Renewable Fuel Standard, the RFS, requires that 35 billion
    gallons of ethanol equivalent biofuels and 1 billion gallons of
    biomass-based diesel be refined by 2022. To get there, refiners
    must have increasing amounts of renewable fuels, like corn
    ethanol into gasoline, each year.
        However, when this law was written, in 2005, and expanded
    in 2007, we were living in a different time, and the drafters
    assumed that gas demand would continue to increase. Since then,
    the recession and the increased CAFE standards have pushed down
    the demand for gasoline.
        There is increasing evidence that RFS is not meeting the
    original bifold purpose to move the United States towards
    greater energy independence and security, and to increase the
    production of clean renewable fuels.
        Another market change since 2005 and 2007 is the current
    domestic energy boom, leading us to greater energy independence
    and security by leveraging our domestic petroleum supplies.
    Second, corn-based ethanol may not be any cleaner than gasoline
    and has other negative environmental consequences, such as
    using more water for reducing corn-based energy than refining
    gasoline.
        To account for these future uncertainties, Congress gave
    the EPA waiver authority to suspend RFS requirements for
    various reasons. EPA may waive requirements if there is an
    inadequate domestic fuel supply or if implementation of a
    requirement would severely harm the economy or environment of a
    State region of the United States. Last year, for example, in
    response to catastrophic drought conditions, several governors
    petitioned for a waiver. Although EPA found that the drought
    had created significant hardships, particularly for livestock
    producers, EPA did not grant the waiver.
        Now we have a new challenge; it is called the blend wall.
    Because the law requires increasing amounts of renewable fuels
    be blended into gasoline each year, if demand for gasoline goes
    down, the only way to meet the standard is by blending a higher
    percentage of ethanol.
        Currently, it is not uncommon to see E10 or 10 percent
    ethanol fuel. This year, however, refiners predict they will
    have to blend into E15. This presents two problems: it may be a
    defective product. Many automakers will void warranties if
    motorists use anything higher than E10 in their cars because of
    the engine damage it can cause, especially to older cars,
    boats, engines, and non-vehicle motors. As I have already
    mentioned, for my truck, at home as well, even though it is a
    newer vehicle.
        Consumers don't want it at times. In my home State of
    Oklahoma, you will frequently find gas stations advertising
    pure gasoline containing no ethanol in response to consumer
    demand. It is not uncommon for a gas station in Oklahoma City
    with a giant banner out front of it that says we sell real gas.
        By requiring refiners to produce a product that consumers
    can't use and don't want, it is only logical that this
    constriction of the market will increase fuel prices, causing
    economic damage as well. According to a study done by the
    economic consulting firm NERA, mandating E15 could increase the
    cost of gasoline by as much as 30 percent by 2015 and increase
    the cost of diesel by as much as 300 percent by 2015.
        In addition to refiners and consumers, other stakeholders
    are affected by this market distortion. Because of the over-
    reliance on food-based ethanol as a renewable fuel, the RFS has
    a negative impact on our food supply and security.
        The goal of this hearing is to see how we can alleviate the
    pressure on consumers. One way to do this is to change the law.
    That is the job of the Energy and Commerce Committee, not this
    committee. This committee oversees how the Executive Branch is
    implementing the current law.
        Today we will seek to learn what EPA can do, has done, or
    maybe has not done to ease the burden on consumers.
        I thank the witnesses, all of them, for their participation
    today and I look forward to hearing their testimony.
        I now recognize the distinguished ranking member, the
    gentlelady from California, Ms. Speier, for her opening
    statement.
        Ms. Speier. Mr. Chairman, thank you. I have a solution for
    you with your 2011 car. I just drove half way across the
    Country in my 2008 Prius that takes any amount of fuel from any
    of those gas stations and got me 45 miles to the gallon. So I
    highly recommend Priuses as potential cars for the future.
        Mr. Lankford. I could actually, with my Ford truck, put
    that Prius in the back of it.
        [Laughter.]
        Ms. Speier. It is very roomy inside. I am going to take you
    for a ride in it.
        Mr. Chairman, thank you. Let me start off by reading this
    quotation: Our prediction, if things go very, very well, is
    that renewables could supply somewhere in the order of 30
    percent of the world's energy demands by the middle of this
    century.
        Now, as you think about who might have said that, I am sure
    lots of ideas come to mind that they may indeed be biofuel
    producers. But, as it turns out, the person who made this
    statement was the president of Shell Oil Company, Marvin Odum,
    in Qatar, at a recent conference that took place there. This is
    Shell Oil Company talking about the benefits of renewables.
        The majority has chosen today to focus this hearing on only
    one aspect of the Renewable Fuel Standard: our Nation's
    signature law promoting the transition to cleaner fuel futures
    that Shell Oil and others say is on the rise. The so-called
    blend wall is an important and pressing issue for agriculture,
    refiners, and consumers. However, as we address the blend wall,
    we must not lose sight of the forest for the trees.
        The RFS, on the whole, is about national security, clean
    energy innovation, and job creation. As a matter of fact,
    domestic biofuels have created 400,000 jobs and $50 billion in
    new activity.
        Mr. Chairman, I have a letter here from Congressman Bruce
    Braley that I would like to submit for the record, that
    references the fact that our hearing today does not have one
    renewable fuels producer testifying and, in his State, there
    are some 39 ethanol plants with over 3 billion gallons of
    annual fuel production offering jobs to 63,000 people, and
    about two of the first cellulosic ethanol plants in the entire
    Nation are under construction in his home State. Those two
    plants coming on line will generate 6 million tons of biomass
    available to convert to cellulosic ethanol. So I would like to
    submit this for the record.
        Mr. Lankford. Without objection.
        Ms. Speier. In light of calls from some quarters to repeal
    the RFS, I would remind my colleagues that the RFS originated
    as bipartisan legislation designed to achieve these critical
    goals. The RFS was first included in the 2005 Energy Policy Act
    under a Republican Congress and was signed into law by
    President Bush. In 2007, the law was expanded with passage of
    the Energy Independence and Security Act, also signed into law
    by President Bush.
        To be sure, I have my own concerns over the impacts of the
    Renewable Fuel Standard on our vehicle fleet, on the food
    versus fuel problem, and on our environment. The law's
    implementation has been far from perfect, but make no mistake,
    the EPA is charged with administering the RFS according to the
    law that Congress passed, and the RFS is still a relatively new
    policy. The EPA must use the flexible authority Congress
    granted it to ensure the RFS stays on track to meet our
    national clean energy goals.
        I look forward to hearing from the EPA today on how the
    agency intends to weed out any waste or inefficiencies in the
    programs and protect the integrity of its program moving
    forward.
        Moreover, as business works to scale up the production of
    cellulosic and other advanced biofuels, now is not the time to
    throw the baby out with the bath water by undermining the law
    before it has a chance to succeed. We are only one-third of the
    way into the RFS program; yet, renewable fuels remain capable
    of creating 52 billion gallons of biofuels annually, decreasing
    dependence on foreign oil, reducing trade deficits, creating
    jobs, and reducing air pollution.
        The path forward demands continued support for those
    innovative technologies to produce alternative fuels such as
    biobutenol, cellulosic ethanol, green diesel, and green
    gasoline in order to provide clean energy now and for future
    generations.
        Thanks to the RFS, the first two commercial-scale second
    generation biofuel plants to be built in the U.S. are coming
    online this year, employing hundreds of Americans and injecting
    millions of dollars into local economies. Companies in Florida,
    Iowa, Kansas, Michigan, Nevada, Oregon, Texas, and Wyoming are
    leveraging the RFS to build the next wave of biorefineries in
    the years ahead, and not with one taxpayer dollar.
        In short, keeping the Renewable Fuel Standard on track is
    critical if America is to succeed in the clean energy race of
    the 21st century. These are not Democratic goals or Republican
    goals; these are American goals. Our Nation's top scientists
    and military commanders have repeatedly and urgently signaled
    the need to move forward on alternative fuels.
        At the end of the day, the question we need to ask is
    whether we want to produce real alternatives to oil in our fuel
    supply or not. American families who continue to suffer the
    consequences of a transportation system that is more than 95
    percent dependent on oil know the answer to the question is
    yes.
        Mr. Chairman, I also have a couple other documents to
    submit for the record. One is from the Biotechnology Industry
    Organization and the other from the Advanced Biofuels
    Association.
        Mr. Lankford. Without objection.
        Ms. Speier. Thank you.
        Mr. Chairman, one more point. We also are in the middle of
    the mark on the National Defense Authorization Act, of which I
    am a member of, so I am going to have to move between
    committees for the next two hours, and I apologize in advance
    for my inability to be here for the whole hearing.
        Mr. Lankford. We will make sure that when we are talking
    about you is when you are gone, then. How about that?
        Ms. Speier. Thank you.
        Mr. Lankford. Okay.
        Members will have seven days to submit opening statements,
    as well, for the record.
        We will now recognize our first panel.
        Mr. Jack Gerard is the President and CEO of the American
    Petroleum Institute; Mr. Joel Brandenberger is the President of
    the National Turkey Federation; Dr. Jeremy Martin is the Senior
    Scientist of the Clean Vehicles Program of the Union of
    Concerned Scientists; and Mr. Lucian Pugliaresi is the
    President of the Energy Policy Research Foundation.
        Gentlemen, thank you all for being here. Pursuant to
    committee rules, all witnesses are sworn in before they
    testify. If you would please rise and raise your right hand.
        Do you solemnly swear or affirm the testimony you are about
    to give will be the truth, the whole truth, and nothing but the
    truth, so help you, God?
        [Witnesses respond in the affirmative.]
        Mr. Lankford. Thank you. You may be seated.
        Let the record reflect that the witnesses have all answered
    in the affirmative.
        In order to allow time for discussion, please limit your
    testimony to five minutes. Your entire written statement, of
    course, will be made part of the permanent record for this
    hearing.
        Mr. Gerard, you are up first, it looks like. We will be
    honored to receive your testimony.

                           WITNESS STATEMENTS

                        STATEMENT OF JACK GERARD

        Mr. Gerard. Great. Thank you, Mr. Chairman and Ranking
    Member Speier and members of the subcommittee. It is a
    privilege to be with you today. I appreciate the opportunity to
    share with you API's concerns regarding the renewable fuels
    standard.
        API, as you are probably aware, represents all aspects of
    the Nation's oil and natural gas industry. We support
    employment for over 9.2 million Americans, constitute over 7.7
    percent of our gross domestic product, and deliver more than
    $85 million a day to the Federal Government in the form of
    taxation, royalty, and other sorts of revenue.
        With the limited time we have today, I would just like to
    move right to the point: The Renewable Fuel Standard is
    irreparably broken and poised to do significant harm to
    consumers, the economy, and the Nation's fuel supply. The
    impact of the mandate has been made worse by EPA's
    unwillingness to let science, court decisions, and common sense
    guide its implementation.
        Now EPA is currently facing the biggest test of all that
    has been mentioned already this morning, the E10 blend wall.
    The renewable fuel mandates in the Renewable Fuel Standard
    increase yearly, while demand for fuel in the United States is
    dropping, creating a situation known as the E10 blend wall.
    When this happens, refiners will be forced to blend a fuel with
    more than 10 percent ethanol or reduce production to meet the
    mandate, thus creating a crisis for consumers, whose
    automobiles are built and warranted for E10. In fact, most
    consumer engines are designed for an E10 blend, including small
    engines, such as motorcycles, boats, and lawnmowers.
        EPA's actions to approve E15 despite scientific evidence
    showing millions of automobiles could face engine and fuel
    system damage is an unnecessary risk to consumers, to
    automobiles, and to small engines.
        Quite frankly, EPA's implementation of the RFS is galling.
    The agency has continued to set unrealistic cellulosic
    standards since 2010, resulting in refineries having to pay the
    Government a fee for a fuel that doesn't exist. Further, even
    after the industry successfully sued the Government for the
    return of our phantom fuel fees, EPA doubled down on its
    indefensible action by setting the 2013 target volume even
    higher, flouting a U.S. Court of Appeals decision issued just
    days earlier striking down their 2012 mandate.
        To give you a big-picture view of the problem, let me
    summarize the study conducted by NERA Economic Consulting that
    Chairman Lankford mentioned earlier. The study found that once
    the blend wall is breached, the cost associated with diesel
    fuel would increase by 300 percent by 2015. Cost associated
    with gasoline would increase by 30 percent by 2015. In broad
    economic terms, the RFS could cause a $770 billion decrease in
    U.S. GDP by 2015 and reduce take-home pay for American workers
    by $580 billion. Staggering numbers.
        Keep in mind all of this stems from EPA's dogged
    enforcement of an obsolete law, which was written at a time of
    assumed energy scarcity for our Nation and heavy dependence on
    foreign-sourced energy. That is not our reality today.
        These impacts are unnecessary. The fact is the blend wall
    and its harmful impact on consumers could be prevented today if
    EPA would simply use the waiver authority, mentioned earlier,
    contained in the law to waive the RFS completely or to at least
    waive down the volumes below the 10 percent.
        Bottom line, EPA must act now to avoid the impending blend
    wall crisis. Longer-term, in our view, the best solution is for
    Congress to repeal the RFS once and for all.
        The stakes are simply too high for inaction, which could
    cost consumers millions of dollars, place at risk small engines
    and automobiles, and unnecessarily burden an already shaky
    economy.
        Thank you very much for your time and attention. I look
    forward to your questions.
        [Prepared statement of Mr. Gerard follows:]
        [GRAPHIC] [TIFF OMITTED] 82138.001

        [GRAPHIC] [TIFF OMITTED] 82138.002

        [GRAPHIC] [TIFF OMITTED] 82138.003

        Mr. Lankford. Thank you.
        Mr. Brandenberger.

                    STATEMENT OF JOEL BRANDENBERGER

        Mr. Brandenberger. Chairman Lankford, Ranking Member
    Speier, members of the subcommittee, my name is Joel
    Brandenberger. I am president of the National Turkey
    Federation, which represents 98 percent of the commercial
    turkey industry in this Country. I am testifying today on
    behalf of 148,000 growers and employees nationwide working at
    more than two dozen processors and 300 allied companies that
    comprise the $29 billion U.S. turkey industry.
        Our members and I thank you for this opportunity to discuss
    the impact of the Renewable Fuel Standard and to examine the
    role EPA plays in managing this exceedingly rigid Government
    mandate. We will look at the way the RFS has distorted feed
    costs and how that has increased the prices consumers pay at
    restaurants and in grocery stores. We will also show you how
    EPA has ignored or certainly underutilized the significant
    power Congress gave it to prevent this very situation.
        Everyone involved in the ethanol debate loves to cite facts
    and figures to support their case about what the RFS has or has
    not done, but the truth can be done in just a few key
    statistics.
        When the RFS was created in the 2005 energy bill, livestock
    and poultry consumed about 55 percent of the corn crop and
    ethanol about 14 percent.
        Today, by gobbling up 43 percent of a larger corn crop,
    compared to livestock's 41 percent, ethanol has become the
    Nation's top corn consumer. Ethanol consumption of corn has
    jumped by 3 billion bushels in that time and feed usage has
    dropped by 1.5 billion bushels.
        Turkey production, which was on the rise in 2006, began
    plummeting in 2008 and remains today almost 10 percent below
    its 10-year high. Most others in livestock and poultry would
    tell similar stories.
        The RFS is to blame, period. Corn is the major ingredient
    in turkey feed, as it is for almost all livestock and poultry.
    Higher corn prices led a North Carolina company earlier this
    year to announce it is ceasing turkey production after more
    than a half century in business. Last year, a California
    company declared bankruptcy, citing the RFS as the major factor
    in its decision. Under similar circumstances, in 2008, two
    turkey companies went out of business; a grower and cooperative
    in Iowa cut production by 50 percent and another cooperative in
    Mr. Chaffetz's district closed its doors for three months.
        The turkey industry already has lost 750 jobs this year.
    You would have to build quite a few ethanol plants to replace
    those lost jobs. If the feed supply does not become more secure
    and feed costs do not stabilize, other companies could find
    themselves at risk.
        Many economists and meat and poultry producers predicted
    this outcome. The only ray of hope at the time the RFS was
    created was Congress's decision to allow EPA to waive all or
    part of the mandate if economic circumstances warranted. Twice
    now States have petitioned the EPA for such a waiver and both
    times EPA has denied the request. The impact of the most recent
    waiver denial is still being felt today.
        The failed waiver process is the biggest indicator of just
    how flawed and rigid the RFS really is. I am sure no one
    intended to craft a policy that picked winners and losers among
    the Nation's corn consumers and that hurt hardworking
    Americans, but that is what happened because the waiver
    process, as written, is not quick, is not efficient, and is
    highly politicized.
        Though it anticipated the potential need for RFS
    flexibility, Congress did not anticipate the RFS, after nearly
    a decade, would remain the primary force behind ethanol
    production. The ethanol industry's extreme dependence on the
    RFS results in EPA facing enormous political pressure when a
    waiver request is submitted.
        In 2008, EPA denied a waiver request from Texas, despite
    circumstances that would have led anyone to believe that the
    corn crop was going to be short. In the end, EPA's gamble paid
    off that year and the market adjusted. But last year, when
    several States, led by Arkansas and North Carolina, submitted
    waiver petitions, EPA went double or nothing on its bet and
    again denied the petitions, stating an RFS waiver would not
    impact ethanol production and thus ``will have no impact on
    corn, food, or fuel prices.'' The agency claimed to have
    extensive analysis to support that decision, but it didn't
    actually release that analysis at the time it rendered its
    decision.
        EPA also failed to follow the statutory requirement that it
    consider regional impacts of the RFS, stating it was required
    only to determine the mandate's national impact. With such a
    generalization, EPA effectively rendered the waiver mechanism
    meaningless.
        Unlike 2008, the outcome of EPA's gamble is far from clear.
    The weather refuses to cooperate. In place of drought you have
    extreme rains in the heartland that are slowing corn and
    soybean plantings. Corn contracts for the month of May closed
    at more than $7 a bushel, more than two and a half times the
    price of corn pre-RFS.
        The Government can't control the weather, or most factors
    that affect the corn supply, but it does have the power to take
    pressure off the corn markets. The consequences of not using
    that power are becoming more severe. Turkey companies and
    others that produce animal proteins are cutting production;
    income on livestock and poultry farms is declining; workers in
    meat and poultry plants face cutbacks; and every American is
    feeling the bite at the dinner table and at the gas pump.
        It is time to repeal a significant portion of, or
    drastically reform, the RFS, and we thank you for the
    opportunity to be part of that process today. I would be happy
    to answer any questions.
        [Prepared statement of Mr. Brandenberger follows:]
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        Mr. Lankford. Thank you.
        Dr. Martin.

                  STATEMENT OF JEREMY I. MARTIN, PH.D.

        Mr. Martin. Chairman Lankford, Ranking Member Speier, and
    members of the subcommittee, thank you for the opportunity to
    testify about the opportunities and challenges facing biofuel
    policy today. My name is Jeremy Martin. I am a senior scientist
    at the Union of Concerned Scientists. UCS is the Nation's
    leading science-based nonprofit putting rigorous, independent
    science to work to solve our most pressing problems.
        The goals of the Renewable Fuel Standard are smart goals;
    not just more biofuels, but better biofuels that go beyond
    fuel-based fuels. The RFS is a practical policy to cut oil use
    and increase domestic production of clean, low carbon biofuels.
    It will provide rural economic development and ensure that the
    U.S. converts its leadership in science and technology into
    good jobs in the growing clean energy industry.
        But there are certainly real problems posed by today's
    fuels, both oil and corn ethanol. The solution is not to lock
    in the status quo. We need to move forward with the next
    generation of advanced biofuels.
        To get there, we need a stable Renewable Fuel Standard to
    serve as a foundation for investments in biofuels made from
    waste products, agricultural residues, and environmentally
    friendly energy crops. For this reason, we do not support
    legislative changes to the RFS.
        According to our analysis, ample domestic biomass resources
    are available to support RFS targets, and developing these
    biomass resources will provide economic opportunities, rural
    developments, and good jobs not just in the corn belt, but all
    over the Country. What is needed is to scale up the industry
    that will convert this biomass into clean fuel.
        The first commercial scale cellulosic biofuel facilities
    are now starting up in Florida and Mississippi, and several
    more are under construction in Iowa and Kansas. But while this
    progress is encouraging, it will take time to scale up a new
    industry, as it did for the oil and corn ethanol industries. In
    the meantime, the gap between the schedule laid out in 2007 and
    the actual scale-up means that EPA needs to adapt their
    implementation of the RFS to today's circumstances.
        We have done extensive analysis, informed by the work of
    agricultural economists across the Country and around the
    world, on the options EPA has to administer the RFS consistent
    with the law that Congress passed in 2007. The smart approach
    is to limit the mandates for food-based fuels to 20 billion
    gallons in 2022. Under this approach, biofuels continue to
    grow, but at a slower rate than we have seen over the last few
    years, which will reduce pressure on food markets and slow
    agricultural expansion. Growth beyond this limit should come
    from non-food-based cellulosic biofuels.
        Realizing the full 36 billion gallon ambition of the RFS is
    critical to delivering on the economic and environmental
    benefits of the RFS, but our analysis and experience over the
    last few years shows that expanding food-based biofuels is not
    the smart path to get there. Biofuels are now a major factor in
    U.S. and global agricultural markets, so the implementation of
    the RFS must be informed by, and responsive to, agricultural
    market factors. Failure to do so doesn't just raise food
    prices, it undermines the goals of the RFS itself.
        We also need to acknowledge the challenges of adapting our
    vehicles and infrastructure to a changing set of fuels. What is
    called the blend wall is, in reality, more like a set of speed
    bumps. There is no reason we need to fuel up with at least 90
    percent gasoline forever. But we do need to proceed with
    caution.
        Today's RIN prices provide the economic driver to support
    expansion of drop-in biofuels and higher ethanol blends, but if
    we try to change our fuel mix faster than our vehicles and
    fueling infrastructure can accommodate, we may set back the
    transition we need to make.
        Under the RFS implementation strategy, we advocate the
    scale-up of advanced biofuels will be more gradual than is
    presently anticipated. This means we have time to get it right,
    coordinating the transition of our fuel mix, our vehicles, and
    our fueling infrastructure.
        Congress gave EPA the tools and flexibility it needs to
    administer the RFS in a smart way, adapting to changes that
    were unforeseen in 2007. Opening the RFS now will create
    regulatory uncertainty, delaying investment in the real
    solutions that the RFS is delivering.
        Instead, EPA needs to work with DOE, USDA, and all the
    stakeholders to set ambitious, but realistic, goals for the
    next phase of the RFS, from 2016 to 2022, consisting with the
    constraints in agricultural markets and vehicle and fueling
    infrastructure, but moving forward on the oil saving and
    climate solutions we need. The infrastructure for gasoline and
    corn ethanol is already built out, and they will be around with
    or without the RFS. What is at stake is the next generation of
    biofuels, fuels that do not compete with food and offer
    dramatically lower carbon emissions.
        We are not moving forward on these as fast as we hoped to
    be in 2007, but the RFS is pointing us in the right direction.
    We need to deal with today's challenges and keep moving forward
    towards better biofuels tomorrow.
        Thank you again for the opportunity to be here today. I
    have provided additional details in my written testimony, and I
    would look forward to answering any questions.
        [Prepared statement of Mr. Martin follows:]
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        Mr. Lankford. Thank you, Dr. Martin.
        Mr. Pugliaresi.

                     STATEMENT OF LUCIAN PUGLIARESI

        Mr. Pugliaresi. Chairman Lankford, Ranking Member Speier,
    and members of the subcommittee, I want to thank you for this
    opportunity to testify on the Renewable Fuel Standard and EPA's
    management of this program. Of particular importance is EPA's
    use of its waiver authority, which will shortly become the most
    important policy instrument in determining the path of gasoline
    and diesel prices over the next two to three years. My
    testimony today includes an assessment of EPA's waiver
    authority under the RFS and why it will be the main determinant
    in driving up gasoline prices in the near future.
        Go to the first slide.
        [Slide.]
        This is official data from the Energy Information
    Administration. This is really what is driving the high numbers
    in the NERA assessment, and, as you can see, the EIA shows that
    we just will not have these advanced biofuels until after 2020
    do we start to see some real development. When you don't have
    the fuels, you have only one choice: to cut production or to
    raise prices, and this is what is driving the NERA analysis.
        So we tried to look at an analysis in which we thought we
    could relax some of these real physical constraints.
        Next slide.
        [Slide.]
        We said what happens if we have all the gas stations we
    needed for E85 and we could actually have access to it by the
    whole driving public? Even under this case, in which we waive
    all cellulosic requirements, all advanced requirements, and we
    only rely on E85 and, through some almost magic, we have enough
    marketing channels for it, the price of E10 goes up. The RFS
    causes a cost-shifting; it requires obligated parties to pay
    down the price of E85 and to put that cost on E10. This is why
    NERA gets such devastating consequences on the national
    economy. Rising gasoline prices are like an excise tax. A $0.50
    increase in gasoline prices takes $70 billion out of consumers'
    wallets.
        Next slide.
        The fundamental problem with E85 is it is too costly. At no
    time since 2000 have we seen E85 be more cost-effective to E10.
    This is the fundamental problem. You can't get consumers to buy
    it for performance reasons, but you can't also get them to buy
    it because it is too expensive.
        Next slide.
        This is Minnesota, a place not unfamiliar to E85, a place
    in which ethanol is embraced. But, as you can see, even as the
    number of fueling stations and outlets for E85 continue to
    grow, consumer demand, consumption of E85 fell.
        Next slide.
        [Slide.]
        One issue that some of the proponents of the mandate, by
    the way, we are not against ethanol. We think ethanol is a very
    valuable and important blending component for the production of
    gasoline. We need it. It helps us to meet our oxygenate and our
    fuel specification standards. But, as you can see, there is no
    real constraint in adding additional fueling options at
    American service stations. There has been enormous growth in
    electric outlets, enormous growth in CNG. E85 is not showing up
    at gasoline stations because the consumers don't want to buy
    it.
        Next slide.
        [Slide.]
        I think we have spoken about this a bit, but, as you can
    see, the forecast of long-run demand for gasoline and for
    diesel fuel have fallen dramatically from when we first put
    this program in place. This is why we are running up against
    the blend wall so quickly.
        Finally, the last slide.
        [Slide.]
        You know, all three conditions that were prevalent when the
    Renewable Fuel Standard was passed, which was rising imports,
    falling production, and rising demand, every one of those
    conditions are no longer with us today.
        So where we are now is we have this enormous strategic
    opportunity. The developments we have seen in shale gas are now
    moving to liquids and our production path from now to 2022 is
    an enormous shift, it is a paradigm shift, and basically we are
    now at the position where we have a large number of regulatory
    programs which are running head-on against this renaissance. We
    can't figure out how to build out the midstream in a cost-
    effective way and have processing technologies that are cost-
    effective. We will push some of this crude back in the ground.
        With that, I will conclude my testimony.
        [Prepared statement of Mr. Pugliaresi follows:]
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        Mr. Lankford. Thank you all for your testimony. We will
    work our way through questions here five minutes at a time, as
    we get a chance to pass these questions around. If we have a
    moment, we will get a chance to follow through on some of those
    as well, depending on our time period.
        Mr. Gerard, let me just tell you a quick story, and this is
    for all of you, as well. You spoke specifically of fuel prices,
    several of you did, of the price of fuel as it goes. I spoke to
    an 8th grade class two weeks ago in Roosevelt Middle School,
    which is one of the poorest areas of Oklahoma City, and they
    submitted their questions to me in advance. And as I flipped
    through those questions, I was stunned at the number of them
    that asked the question about gas prices, and for their
    particular family to say what can be done because our family is
    having a tough time getting to work now and getting back and
    forth to school, and writing statements of I may have to walk
    in the days ahead because we cannot afford the gasoline.
        The statements that were made about what is really coming
    on the consumer, both in the price, as Mr. Brandenberger
    mentioned, of food and of fuel, that is a real issue that we
    are facing right now for people that are the poorest and most
    vulnerable in our communities.
        What can be done right now for EPA to provide some
    certainty in what is going to happen in energy prices for the
    next year?
        Mr. Gerard. Well, there are probably a number of things EPA
    could do. The first and foremost, back to the Renewable Fuel
    Standard, though, send a signal to the marketplace that we are
    not going to put undue pressure, use the waiver authority to
    not put undue pressure on the prices that exist today.
        Just very quickly, Mr. Chairman, I know that you understand
    this. The key drivers behind the price of gasoline are, first,
    crude oil trading on the global marketplace and second is
    taxation. Every State imposes somewhere between $0.35 and $0.70
    a gallon on what it is that is produced. But what we are coming
    against under the Renewable Fuel Standard is the blend wall,
    where Government mandate is going to force us to make a
    decision as refiners. If we break through that blend wall and
    get forced to produce a fuel that the auto manufacturers have
    said don't put that in our cars, back to your car situation,
    because it is going to hurt the engine and they are not going
    to function well, or do we get compelled in the marketplace to
    begin to move back on our production? That is changing the
    fundamental supply and demand equation, putting upward pressure
    on the price.
        So EPA needs to move quickly, with their waiver authority,
    to send a signal to the marketplace we are going to take this
    one variable out of play and not put upward pressure on the
    price of our fuels.
        As NERA reports, and I would like to submit that for the
    record, if it is appropriate, Mr. Chairman, the potential here
    is staggering.
        Mr. Lankford. Without objection.
        Mr. Gerard. The reason those numbers only go to 2015 is
    because it is so staggering and so infeasible the model doesn't
    work after that. When you drive the price of diesel, the cost
    associated with diesel upwards of 300 percent, there is no
    place else to go in 2016; you have broken the system. That is
    how serious this is. epa's announcement to the marketplace we
    are going to relieve the Government pressure and get us back to
    a pure free market would go a long way.
        Mr. Lankford. Okay.
        Mr. Brandenberger, you mentioned some of the same things
    dealing with food, as well, and the price of food, but you
    also, in your testimony, a little earlier referenced the shift
    in jobs that is occurring; as we are seeing an increase in jobs
    in corn-based ethanol and cellulosic and some of the renewable
    fuels, we see a dramatic decrease in job in the agricultural
    industry as well. Can you go into greater detail on that?
        Mr. Brandenberger. Sure. Absolutely, Mr. Chairman. Even a
    small-to medium-sized turkey plant will provide several hundred
    jobs. A very large ethanol plant won't come close to providing
    the same number of jobs. So there has been a real shift in
    rural America.
        As I mentioned, our production is still around 10 percent
    below its 10-year high; it is still about 6 to 7 percent below
    where it was in 2008. And those are real jobs that are lost. We
    have a lot of people about to be out of work in North Carolina,
    when the last turkeys run through the plant I mentioned there.
    There are a number of workers in California whose future is
    uncertain when the second largest turkey company there had to
    move to Chapter 11 protection. And this is going to continue.
        And the problem comes, as well, just very briefly, is in
    both instances, when the RFS has had a real impact on corn
    prices, it has come at an exact moment when the meat and
    poultry industry already had other problems that affected it.
    So there comes a limit as to how much cost can be absorbed. You
    have to start passing it along to your customer. If the economy
    is not strong, the customer quits buying the product and then
    you get into a vicious cycle where supplies grow and plummet.
    It is a vicious, vicious cycle.
        Mr. Lankford. We have faced this before. In 1979, the
    Government, at that point, Jimmy Carter was president, in the
    famous malaise speech made a speech to say that by the year
    2000, because the Federal Government was going to coordinate
    all these efforts, 20 percent of the energy used in the United
    States would be done by solar power. And they were going to put
    a process in place to make sure 20 percent of the energy used
    in the United States was going to be solar by the year 2000.
    Obviously, that goal was not achieved. Not even close at that
    point.
        You can make the plan and make the proposal and say this is
    what is going to happen, but if the technology is actually not
    there to do it, you can't actually get it there. As has been
    mentioned before, we can make this statement to say we are
    going to burn this much fuel, but if that fuel is not
    economically viable, if it is not really there, if the
    cellulosic fuel doesn't exist, as you mentioned before, the
    phantom fuel that is out there demanding to be used, we can
    make all the federal demands we want to make; that doesn't mean
    it actually exists in the real world. That is the challenge
    that we are facing currently right now.
        As much as we would love, as Dr. Martin mentions, as much
    as we would love to get away from food-based fuel, it doesn't
    exist in the quantities that is needed to actually achieve
    that, and we have to find some solutions to this in the days
    ahead.
        With that, I yield to the ranking member, Ms. Speier, for
    her questions.
        Ms. Speier. Thank you, Mr. Chairman. You know, I am
    somewhat baffled by our discussion so far. It is almost like we
    are going to say we really can't move forward, we have to move
    backwards.
        I think that Dr. Martin made an excellent suggestion about
    how we can fix your problem, Mr. Brandenberger, when he said
    you could cap the amount of corn ethanol that can be produced.
    That would then kind of up the opportunity for cellulosic. What
    do you think about Dr. Martin's proposal?
        Mr. Brandenberger. Well, the amount of corn-based ethanol
    is about two, three years away from being capped at 15 billion
    gallons, anyway, under the law. It is already approaching 14
    billion gallons. We are already having enormous problems. If
    you are talking about capping it where it is today, or even
    capping it slightly below where it is today, there could
    potentially be some benefit. But if you are talking about
    following the cap already in law, I don't think that will give
    us or any of our brethren in the livestock and poultry world a
    whole lot of relief.
        Ms. Speier. Okay, so there is some opportunity here for
    both to flourish, for corn ethanol and cellulosic ethanol, and
    for turkeys to be properly fed, and we just need to find a way
    to get to a happy medium here, because here is the problem: the
    oil production is going to cap, even with fracking, in very
    short order. So we have to be prepared with alternatives. We
    have oil companies saying they are moving in that direction.
    BP, for a while there, was saying beyond petroleum, although
    they have kind of abandoned that particular moniker today.
        The military, the Navy wants to have 50 percent of its
    fuels coming from biofuel by 2020. So we cannot just dig our
    heads in the sand here.
        Dr. Martin, can you comment on what Mr. Brandenberger has
    just said?
        Mr. Martin. Sure. I would be happy to. I think the point
    here is to address some of the near-term challenges that people
    have raised, and there certainly are challenges with food-based
    biofuels, but to recognize that locking in place a status quo
    doesn't advance the oil savings and climate solutions that we
    really need to move our Country forward.
        So I think my testimony pertained to a slightly longer view
    of this policy, but a longer view is necessary. You didn't
    build the oil industry overnight. You didn't build the corn
    ethanol industry overnight. So between now and 2015 we are not
    going to build a cellulosic biofuel industry that is the scale
    of the oil industry. So we need a steady path forward that
    allows investors the confidence to build this next industry and
    to create the jobs and opportunities that will come with it.
        Ms. Speier. The reference that Mr. Brandenberger made to
    jobs I think doesn't square with some of the realities that we
    are seeing, so I would like to point out that the Ineos plant
    in Vero Beach, Florida, a cellulosic biofuel plant, will
    produce 8 million gallons of ethanol from municipal solid
    waste, create more than 400 jobs, and contribute more than $25
    million into the Florida economy.
        KiOR, in Columbus, Mississippi, will produce ethanol from
    woody biomass, yielding over 13 million gallons of gasoline,
    diesel, and other fuel oil blend stocks. The $220 million
    facility is expected to create several hundred jobs during
    operation and over 500 jobs onsite during peak construction.
        Additionally, there are new plants either in the planning
    stages or under construction in as many as 20 States and
    Canadian provinces, including BlueFire Renewables in Anaheim,
    California, POET-DSM Advanced Biofuels in Scotland, South
    Dakota, and Fiberright in Lawrenceville, Virginia, to just name
    a few.
        So here we have a real jobs engine being produced, real
    hopeful technology, an opportunity to reduce our dependence on
    foreign oil, and we are somehow suggesting we just have to cut
    this off and repeal the RFS.
        Mr. Martin, can you describe the new technology that is
    allowing these facilities to produce these volumes of
    cellulosic biofuel?
        Mr. Martin. Not in a few seconds, but one of the really
    exciting things is that there is not just one technology, there
    is quite a different variety of technologies. Some of them are
    biological, some of them are thermochemical, and they would
    take some time to get into, but different technologies are
    suitable to different feedstocks. So we have a lot of
    opportunities that can create different types of fuel using
    different types of resources all over the Country, so I think
    that is the opportunity that is in front of us and that is why
    it is so important to move forward.
        Ms. Speier. Thank you, doctor.
        I yield back.
        Mr. Lankford. Thank you.
        Mr. Chaffetz.
        Mr. Chaffetz. Thank you, Mr. Chairman, and thanks for
    calling this hearing. This is something that actually affects
    every single American. It affects them at the table where they
    eat; it affects them in their pocketbook at a time when we are
    struggling with jobs and the economy. This is not something the
    American economy can continue to sustain.
        Mr. Gerard, I would like to ask you a couple questions
    about the economic impact and the blend wall specifically. I
    know there was this NERA report. Could you talk to that? I
    believe it said it would result in a $770 billion decline in
    the GDP. Explain the economics behind that.
        Mr. Gerard. Yes. What NERA did is they went back and they
    looked at the situation on the Renewable Fuel Standard, and I
    wish Ranking Member Speier were here because there is a key
    connection, I think, with some of her comments earlier, and
    that is that we can all hope for the new fuels, the cellulosics
    and other things Dr. Martin has talked about.
        The reality is the statute mandates and it is forcing as if
    somehow it is going to compel technology to produce a fuel that
    doesn't currently exist. Cellulosic is a perfect example. I
    think everyone would help we have cellulosic fuel today. The
    oil and natural gas industry happen to be some of the largest
    investors in some of these renewable alternative forms of
    energy. The problem is it doesn't exist today in the quantities
    necessary, but the statute mandates the blending of them. We
    paid millions of dollars to the EPA under the statute, finally
    got a court to compel them to give our money back, paying for a
    fuel that doesn't exist.
        So when you look at the NERA study, what they did is took
    the assumptions under the statute, what the law required us to
    do, and said what does this result in. And we have four
    fundamental options: we can either cut back production because
    we can't meet the statute, therefore, the volumes we are
    producing are limited and our requirement to certify we are
    using, called RIN, or Renewable Identification Number is met;
    or we can try to go to the E85 that Lu talked about, which the
    public has already said we are not going to buy that fuel, it
    is less efficient, essentially costs us more; we can go to E15,
    which is the approach the EPA has taken. Incidentally, all the
    research shows, and every automobile manufacturer asked by
    Congressman Sensenbrenner last year said we will not warranty
    our cars if you put E15 in them. And the last option is we can
    export the gasoline. Why? Because we don't have to blend the
    piece we export.
        So you are driving us in a position in the United States
    where we have no alternative, no place to go. The NERA analysis
    says that greatly escalates price and, therefore, could add to
    the cost of producing diesel upwards of 300 percent, gasoline
    30, taking $770 billion out of our economy as a result of the
    ripple effect.
        Mr. Chaffetz. So what has happened to the ethanol RINs? My
    understanding is that this traded as a commodity. In early 2013
    it was about $0.05 per gallon. It moved at one point north of
    $1.00 per gallon. It is now, at least on May 30th it was $0.89.
    What is the economic impact of that? What does it mean for a
    regular family who has a regular job and just trying to get by?
        Mr. Gerard. Well, experts predict different things, but the
    bottom line is this: the price of the RIN, Renewable
    Identification Number, that we have to buy to certify we
    blended the fuel has increased over 1400 percent in the last
    few months, over the last four or five months; and that is
    being driven by the expectations of the market. The market can
    see the blend wall. The market understands the blend wall is
    upon us. And just like the EPA action, thinking they were going
    to take pressure out of the blend wall by forcing us to create
    a fuel that we understand will damage automobiles, that is
    where we stand as an industry. It is a hard thing to answer.
    The bottom line is it adds to cost. Clearly, everything this
    Government mandate will do prospectively, just like NERA
    concluded, significantly adds to cost and impacts the consumer.
        Mr. Chaffetz. The cost of running an automobile, to running
    that tractor, to the airline tickets that you are going to buy,
    it is all going to be affected.
        In my last few seconds here, Mr. Brandenberger, explain
    bigger and broader than just turkeys how feed is affected and
    what that does to the price. Turkey is one of the most
    consumable products we have out there, such a staple in the
    American diet. Go a little deeper in the economics on what this
    does to this industry.
        Mr. Brandenberger. Absolutely. Thank you for the
    opportunity. To sort of lay the foundation for that, two things
    to what we have been discussing here today. We are going to try
    to play it very straight with the subcommittee when we talk
    about jobs. We are talking about permanent, ongoing jobs in the
    plants themselves; not construction jobs that are created, not
    the many other jobs that are created in the support industry.
    We are talking about permanent jobs in the plants. And to give
    it a broader case, in all livestock and poultry, corn is the
    top feed ingredient. It is true for chickens, true for hogs,
    true for cattle in the feed lots.
        We have created a situation where, when we have a year like
    last year, when there was such a severe drought, we have corn
    stocks down near historic lows, we have to compete in the
    market for that corn. But the Federal Government has said one
    person gets to go to the head of the line because their
    customers have basically a regulatory gun to their head; their
    customers, the ethanol industry's customers have to take their
    product. We don't have a turkey consumption standard or a
    chicken consumption standard or a beef consumption standard.
    Our customers don't have to buy our products; the ethanol
    industry's customers have to. That gives them an incredible
    advantage when competing for corn in a short market.
        So I hope that maybe clarifies a little bit just exactly
    what the ripple effect is. We don't have an ability always to
    pass our costs along.
        Mr. Chaffetz. I thank the chairman. Yield back.
        Mr. Lankford. Thank you.
        Mr. Cardenas.
        Mr. Cardenas. Thank you very much.
        Well, lucky for the turkey industry, I have to buy your
    product because I don't eat pork or beef. So that is my main
    source of protein. So you have one big consumer here.
        Mr. Brandenberger. Thank you.
        Mr. Cardenas. You are welcome.
        Dr. Martin, I would like to ask you a question. People
    might be thinking I am being facetious, but I am being serious.
    What scientists are concerned, why are they concerned, and what
    are they concerned about when you talk about concerned
    scientists?
        Mr. Martin. Thank you. We are concerned about a variety of
    problems. Probably at the top of the list is climate change.
    But we are also concerned about other impacts that oil causes
    to our economy, to our security, and, as I already mentioned,
    to the climate. We have other programs working on issues
    related to food, to agriculture, to tropic deforestation, to
    global security. So we work on a variety of issues and we are
    concerned about all of them.
        Mr. Cardenas. Okay. Well, thank you for your concerns and
    the effort you are putting into that.
        I have a question to Mr. Gerard. You mentioned earlier
    something about costs increasing by 300 percent. What were you
    referring to, under what time frame, and what is the potential
    cause of that?
        Mr. Gerard. That is the NERA analysis I just mentioned to
    Congressman Chaffetz who was here. We are happy to provide that
    for the record. But what it does, congressman, is we come to
    this E10 blend wall where we are forced to make decisions
    because they are pushing us into creating fuels, if you will,
    that the market cannot accept for technological reasons. We
    then get put in the position where we have to find ways to
    justify or document that we are doing what the law requires.
    Therefore, the options to us are limited, but some of those
    options include to take fuel, for example, and to reduce the
    amount that we produce. The study itself, I believe, references
    this as rationing. So when you begin to impact the market by
    Government mandate like that, of course, others seeing this
    coming react to it and this particular economic group concluded
    that that would drive costs associated with diesel as high as
    300 percent higher and gasoline 30 percent higher, in addition
    to the impacts on take-home pay and decrease in GDP activity.
        Mr. Cardenas. So basically those are potential increases,
    they are not charted actual increases; they are potential
    increases based on cause and effect, correct?
        Mr. Gerard. Correct. Predicted to occur within the next two
    years.
        Mr. Cardenas. And you represent the American Petroleum
    Institute, so if they had to write a letter right now and say
    either they are going to put in their letter to Congress about
    RFS, would that letter be talking about eliminate RFS or modify
    RFS?
        Mr. Gerard. Well, we take two approaches, congressman.
    First thing we do is we would suggest EPA act immediately under
    their waiver authority to send a signal to the marketplace,
    take the pressure out of it. The second approach we would take
    right now is a repeal request. The reason we pursue repeal, we
    believe the statute has become so complex and convoluted that
    we ought to step back and start over and look at the new
    reality we are faced with in the United States today, where we
    produce a lot of our own fuel right here at home and we are
    able to produce even more here at home in the forms of oil and
    natural gas. We should look at those realities to secure our
    own energy future.
        Right now, part of the mandates required under the
    Renewable Fuel Standard require significant imports from Brazil
    of sugar cane ethanol. Well, if the statute was originally
    enacted to get us off foreign imports, all we have done is
    shift it from one commodity to the other.
        So we would ask for repeal and then step back and say,
    okay, what is the vision of the Country as it relates to
    renewable fuel, cellulosic and others? We are big investors in
    those. If we had answers to that today, they would already be
    in the marketplace.
        Mr. Cardenas. I have one more question to you guys. My time
    is limited. I have been dying to ask this question all my life,
    well, since I was 15 years old and I got my driver's license
    and paid for my own gas. I always wonder that no matter what is
    going on in the world, whether there is a war going on, gas
    prices seem to jump up; whether the war ends, gas prices seem
    to stay stagnant or jump up; whether or not there is disasters
    or what have you going on affecting oil-producing countries,
    gas prices seem to either go up or stay stagnant, regardless.
    So in my personal experience, and many of my constituents, that
    seems to be the case. They go up a lot easier than they go
    down. So the question I have for you or your industry is do you
    document the spikes and let the public know the whys of those
    spikes as they occur, or is that too proprietary?
        Mr. Gerard. Those movements in the price of gasoline,
    diesel fuel, whatever they might be, are all a matter of record
    by a number of agencies, particularly Government. But let me
    respond more generally, if I can, congressman. As you look at
    the price of gasoline and fuels generally, it is driven, as I
    mentioned earlier, primarily by the cost of crude oil. Now,
    what is significant about the new reality in U.S. production
    today? We are having a significant impact on the potential
    supply equation on a global scale. In the past two years, the
    United States is now the number one natural gas producer in the
    world. IEA, the International Energy Agency, has predicted that
    if we stay on this course of production increase, we will
    surpass Saudi Arabia as the number one world's oil producer in
    seven short years.
        There was an article just as week or so ago talking about
    OPEC. OPEC is very concerned about what is going on in the
    United States today. This has geopolitical ramifications to it
    that will change the world as we know it. That is why we think
    we need to get back and refocus on reality, look at things like
    RFS that were put in place at a very different time, under very
    different assumptions, and deal with the reality today to
    maximize our potential as a Nation to become energy secure.
        Mr. Cardenas. Thank you, Mr. Chairman. I yield back.
        Mr. Lankford. Mr. Jordan.
        Mr. Jordan. Thank you, Mr. Chairman.
        Mr. Brandenberger, let me first start here. I kind of want
    to just cut to the chase, if I can. The law says the EPA can
    waive the Renewable Fuel Standard if ``implementation of a
    requirement would severely harm the economy of a State, region,
    or the United States.''
        Does the Renewable Fuel Standard increase the cost of
    producing turkey, Mr. Brandenberger?
        Mr. Brandenberger. Absolutely.
        Mr. Jordan. Does the Renewable Fuel Standard increase the
    cost, I know you are in the turkey business, but does it
    increase the cost of producers in the pork industry?
        Mr. Brandenberger. Absolutely. We have a lot of members who
    produce both turkey and pork.
        Mr. Jordan. Does it increase the cost of producing beef?
        Mr. Brandenberger. Yes.
        Mr. Jordan. And, therefore, would it be logical to assume
    that because the cost of production is up, that the cost to the
    consumer of those products, turkey, pork, and beef, is also
    going to be increased?
        Mr. Brandenberger. In most cases, yes.
        Mr. Jordan. And, Mr. Gerard, does the Renewable Fuel
    Standard increase the actual cost of fuel?
        Mr. Gerard. Yes. Economists and experts say it does.
        Mr. Jordan. Mr. Brandenberger, does the Renewable Fuel
    Standard increase the cost of other non-protein, non-livestock
    food products, the cost of production, corns used in all kinds
    of food products, does it increase the cost of those other food
    products?
        Mr. Brandenberger. The people I talk to in those industries
    assure me it does.
        Mr. Jordan. They tell me the same thing.
        Mr. Martin, I think you even said in your testimony you
    don't want to expand the food-based fuels and the Renewable
    Fuel Standard.
        So I guess I go finally to Mr. Pugliaresi. So is all this
    adding to the cost of the American consumer, the American
    family, increasing the strain on their budget? Is it harmful to
    the economy?
        Mr. Pugliaresi. It is very harmful to the economy because
    it acts like a massive excise tax. But, more importantly, we
    are allocating resources to activities which have very low
    value added, and often harming activity in high value added
    activities which would help to foster high rates of economic
    growth. We now have 10 years of very low economic growth, less
    than 2 percent. We should take a very hard look at our entire
    regulatory program on the fuel sector, because that is one of
    the drags.
        Mr. Jordan. Okay, so, if I could just quickly sum up, then,
    every food product that uses corn is seeing an increased cost;
    fuel itself is an increased cost, which, according to the
    economists here, is going to make it difficult for every
    family. Every family's budget is being hit by this.
        So the simple question is, Mr. Chairman, for the second
    panel, Mr. Grundler, from the EPA, or, frankly, the acting head
    of the EPA, Mr. Perciasepe, or the nominee who is slated to be
    the head of the EPA, the question is way haven't you waived the
    standard. I mean, the law is real clear: if implementation of
    the requirement would severely harm the economy of a State,
    region, or the United States, you can waive the standard. So
    these guys are all great and they are saying everything that I
    think a lot of us already knew, and I think the American
    consumer understands every time they go to the grocery store,
    every time they pull into a gas station.
        So the real question is, from the EPA, why in the heck
    haven't you done what the law says you can do? And then we can
    think about how we are going to change the law, if we need to,
    but there is relief right now. I know we have to keep asking
    questions of these fine gentlemen, but I want the EPA guy up
    there to say what gives, what is the deal. This is as obvious
    and as plain and as simple as it can be. You guys have the
    authority to help every single family in this Country and you
    won't do it. We want to know why.
        So I look forward to the second panel and I yield back.
        Mr. Lankford. Would the gentleman yield his final one
    minute?
        Mr. Jordan. Be happy to.
        Mr. Lankford. Mr. Gerard, you made a comment earlier I
    would like to follow up on. You made a comment about one of the
    alternatives is to export more gasoline in this structure. What
    did you mean by that?
        Mr. Gerard. Well, what happens when we get forced into the
    blend wall, we have to make decisions about what we do with the
    product. Do we quit producing the product, thus leading to
    rationing, as some of the economic analyses suggest? Or the
    other out is you potentially export gasoline because you don't
    have to attach a RIN to it.
        Mr. Lankford. Has that already started occurring?
        Mr. Gerard. Over time, we, as a Nation, have always
    exported some refined product and gasoline.
        Mr. Lankford. But that is being seriously considered to
    solve this problem, we could export?
        Mr. Gerard. It is difficult. Where we are today and what is
    so difficult about where we stand, under the law, the EPA is
    supposed to tell us on November 30th of the previous year what
    the standard is going to be.
        Mr. Lankford. Do we know that yet for this year?
        Mr. Gerard. We don't know it yet.
        Mr. Lankford. It is passed November 30, by the way.
        Mr. Gerard. It is passed November 30 of 2012, when we were
    supposed to learn what is going to happen for 2013, what is
    required for us. So we hear, in January, what their proposal
    is. It has not yet gone final. We don't know, today, half way
    through 2013, what is expected of us in terms of where they are
    ultimately going to land, because they have the waiver
    authority that is being talked about on some of these
    standards. So as an industry, I can't speak for the individual
    companies, but let me tell you there is a lot of hand wringing
    going on right now, trying to understand the Government mind-
    set, trying to understand where EPA is, frankly, trying to
    understand where the Congress goes next on this. EPA has that
    authority year by year. Ultimately, this needs to be repealed.
    It is creating great anxiety in the marketplace; it is forcing
    decisions unrelated to market factors because of governmental
    interference, if you will, or drivers. It is a serious problem.
    I wish I could tell you with clarity what each other individual
    company is going to do. I am merely laying out what the options
    are, none of which are good until you fix the Renewable Fuel
    Standard.
        Mr. Lankford. Thank you.
        Mr. Jordan?
        Mr. Jordan. I thank the chairman for his indulgence.
        Real quickly, if I could just run down the list. Why won't
    the EPA do what seems obvious to all of us? What do you think
    their motivation is for not doing what clearly needs to be
    done?
        Mr. Gerard. I can't tell you what is in their head. What I
    can tell you, congressman, is if one believes that you can take
    a Government mandate and force the creation of a technology,
    which I believe is a silly notion, that is the only thing I can
    come to. Or they are literally trying to reorganize or re-
    craft, if you will, the entire fuel economy of the United
    States.
        We look at this from, for example, our situation under
    cellulosic fuel. As I mentioned earlier in my comments, in
    2010, when they came out with a mandate, the fuel didn't exist.
    We asked them, we said, please waive that down because the fuel
    doesn't exist. They said, no, we are not going to do that. We
    got to the end of 2011; we actually had to petition them with a
    waiver that says please, in a formal way, waive it down to
    zero, because now we have gone through the year. We all know it
    doesn't exist. Will you give us relief? And the response was
    no.
        So we paid over $5 million to the EPA. I might add that is
    a new taxing authority, from our vantage point. Gave $5 million
    to the EPA for a fuel that doesn't exist. We came to the next
    year. What did they do? They raised the number on us, even
    though it didn't exist in the previous year. So we had to go
    back to the U.S. Court of Appeals here in D.C. and get a court
    to instruct the EPA to waive the standard down to zero. The
    fact is it is fascinating, I don't know if any of you would be
    interested, but in the particular court decision, here is what
    the court says: The EPA is not allowed ``to let its aspirations
    for a self-fulfilling prophesy divert it from a neutral
    methodology.''
        Now, the court mandated that they say since there is no
    fuel, give the money back to the refineries. Within days the
    EPA issued their proposal for this year. They doubled down,
    they increased the mandate for us on cellulosic over what it
    was the previous year that the court had struck down literally
    five or six days earlier. So I can't tell you what they are
    thinking. That is a long answer. It is hard for us to predict.
    I can tell you it is raising havoc in the marketplace. And you
    have industries trying to provide consumers benefits and values
    of fuel at affordable, reliable cost, and now we have
    Government that is dictating that. It is a real problem.
        Mr. Lankford. Thank you.
        Mr. Davis.
        Mr. Davis. Thank you very much, Mr. Chairman. I, too, want
    to thank you for calling this hearing because I think this
    issue is one of the most important ones that we face. Trying to
    strike the appropriate balance between protection of our
    environment and the health of the American people, and at the
    same time providing a reliable, safe product in terms of the
    production of oil and gasoline really is no easy task. So it is
    fraught with a tremendous amount of disagreement.
        Mr. Gerard, let me ask you has the EPA approved E15 for use
    in any car or light truck model year 2001 or later?
        Mr. Gerard. Yes, they have, Mr. Davis. In fact, what they
    did in two steps or in two processes, they granted two waivers.
    So now they have approved it for 2001 and later vehicles. Yet,
    going back to Mr. Lankford's comment, our research, the
    Coordinated Research Council, which is a combination of
    automakers and our industry and the EPA and DOE, I might add,
    have come to the conclusion, based on research, that with E15
    you put millions of cars at risk, not to mention what you
    potentially do to small engines; chainsaws, lawnmowers,
    motorcycles, etcetera. So, yes, they have used waiver authority
    under the Clean Air Act to grant that opportunity, and it is a
    real problem. And every automobile manufacturer that responded
    to Congressman Sensenbrenner last year said they will not
    warranty their cars if they use E15. But the EPA has granted
    that.
        Mr. Davis. Is it legal to use E15 in motorcycles?
        Mr. Gerard. I don't think it is. I think they specifically
    excluded some of the smaller piece of that, perhaps
    motorcycles. Let me go back and find that specific detail. It
    is not legal in motorcycles, in small engines.
        Mr. Davis. Did the DOE find any increased risk of engine
    damage from using E15?
        Mr. Gerard. This is a great question I would encourage the
    committee to look at closely, because in the process of
    granting the E15 waiver, the EPA had underway an emission
    standard for catalytic converters on cars. When they decided to
    grant the waiver, they took that study that was unrelated to
    E15 at the time and used it to justify their decision on E15.
    The study that we were participating in, which originally had
    EPA part of it to design the study, they wouldn't wait for that
    study to come out. That study was concluded and shows that you
    put millions of automobiles at risk.
        So we need to look closely at the science. We believe the
    science has not been done. In fact, California, the California
    Air Resources Board has said we will not use E15 in California;
    in fact, we believe it will take many years of study to
    determine if it should be used.
        Mr. Davis. Did they find if there were no significant
    changes in vehicle tailpipe emissions, vehicle driveability, or
    small non-road engine emissions as ethanol content is
    increased?
        Mr. Gerard. Well, their conclusions based on an emissions
    test about catalytic converters was they attempted to suggest
    that answered the fundamental question of auto durability and
    fuel systems. The analysis done by the Coordinating Research
    Council concluded it clearly showed impacts on fuel system and
    clearly showed impacts on some model years on durability,
    valves, etcetera. So while they attempted to extrapolate, in
    our view, an unrelated study for these purposes, real research
    that goes to the real question about the impacts of E15 shows
    there are serious problems.
        Mr. Davis. Thank you.
        Let me ask Mr. Pugliaresi a question here. Most consumers
    think that the numbers on the gasoline pumps, 85, 87, 89, are
    just synonyms for paying a low, medium, or high price for gas.
    What do these numbers actually represent?
        Mr. Pugliaresi. If you are referring to the octane numbers,
    they refer to the performance that this gasoline does for
    specific engine types. So certain kinds of high-end cars
    require much more compression, they require higher octane. But
    most automobiles in America today can operate on 87 to 89
    octane.
        Mr. Davis. Thank you very much, Mr. Chairman. I yield back.
        Mr. Lankford. Mr. DesJarlais.
        Mr. DesJarlais. Thank you, Mr. Chairman, and I thank the
    panel for being here today.
        I wanted to talk about a couple different things. Mr.
    Brandenberger, in Tennessee we have a lot of poultry; Hubbard
    LLC in Pikeville, Tennessee. I don't know if you know Jay
    Daniels, the director of operations. We have sat down and had
    many discussions. I believe he said about 85 percent of the
    cost for them is in feed. So this has a huge impact. We also
    have Tyson in Shelbyville, Tennessee; and I know you are
    turkey, these are chickens. But what is the amount of corn that
    this needs compared to other livestock?
        Mr. Brandenberger. Well, you are right, I can speak a
    little more specifically to the amount of what feed costs in
    turkey production. For turkey it is about 70 to 75 percent of
    the cost of production, so pretty similar to the numbers you
    are quoting for chicken.
        I think the most telling thing is there isn't any real
    substitute for the corn. Yes, there are some byproducts from
    ethanol production that can be blended in a little bit, but it
    is not a one-for-one substitution. When corn becomes less
    available, prices go up. I think it is very telling the way
    that the livestock and poultry industry have chosen to handle
    it. We are buying 1.5 billion fewer bushels of corn now than we
    were when the RFS was created.
        Mr. DesJarlais. So that is your biggest competitor, really,
    to bring in lower cost to the consumer in the stores, is your
    competition with the ethanol program?
        Mr. Brandenberger. That is the way it has turned out. I am
    sure that is not what Congress intended.
        Mr. DesJarlais. Okay. And you can't use the distilled dried
    grain or the DDGs with turkey and they really can't with
    chicken.
        Mr. Brandenberger. That is the byproduct. We can use it in
    a limited amount. Some would try to characterize this as, oh,
    well, it is no problem, we put the distiller's grains back into
    the market. That is not true. In turkeys, as a rule, 10 percent
    of the feed ration is about the maximum a distiller's grain can
    go. And distiller's grains are not of equal quality. In poorer
    quality grains, you are lucky to get to 5 percent you can blend
    in.
        Mr. DesJarlais. Okay.
        Mr. Gerard, I want to talk a little bit about small
    engines. This is a little bit of a pet peeve of mine. I just
    cleaned out my storage shed and I have a pressure washer, a
    weed eater, and a lawnmower, about $1,000 worth of equipment
    that were initially damaged by ethanol fuel, the 10 percent
    ethanol. It damaged the fuel lines. I have had all these
    repaired once. I try to buy pure gasoline for them, but I have
    teenage boys who I think have put the wrong kind in, and it has
    kind of worked on the weed eater because I have convinced my
    wife that spraying Roundup along the fence line is better than
    using the weed eater; it is certainly less labor intensive. But
    I am not sure she is still with me on that.
        But really, if you own a leaf blower, a weed eater, a
    lawnmower, a pressure washer, I hail from Sturgis, South
    Dakota. We have a lot of motorcyclists who have talked to me
    about the ethanol in gasoline. Tennessee is a great hunting
    State; we have people who use four-wheelers, we have fishing
    boats. So can you talk to me a little bit about the impact on
    small engines and why people should be forced to deal with
    this?
        Mr. Gerard. In that context, congressman, I am not an
    expert on small engines, but let me just say when you look at
    the breadth and scope of everybody that is very concerned and,
    in many instances, opposed to what the mandates of the
    Renewable Fuel Standard are, this is clearly a focus on many
    people's minds. In preparation for today, I was reading some
    material by some of the small engine manufacturers. For
    example, one piece of testimony, a direct quote from one who
    had a chainsaw that said these additional blends or these
    higher blends of ethanol make the machine run too hot, and on
    occasion his chainsaw would engage, whether he wanted it to or
    not, in the course of doing his work.
        So clearly an adverse impact, particularly on the smaller
    engines, be they lawnmowers, weedwackers, whatever they might
    be. And we find in the marketplace, obviously, much like
    yourself, a lot of people come in and say I don't want any
    blend in my fuel, I want the gasoline, because as the small
    engine repairmen and others are telling them, it won't hurt
    their product or the equipment they have paid so much money
    for. So, generally speaking, yes, that whole group, the marine
    group, the motorboat group, the motorcyclists groups, they are
    all a part of a broader coalition seeking repeal and reform of
    the statute.
        Mr. DesJarlais. I think you mentioned earlier the actual
    cost of producing a gallon of ethanol and blending it in is not
    cheaper than just regular gasoline.
        Mr. Gerard. That is correct. The thing to remember there,
    when you look at it on an energy content, on a Btu basis,
    gasoline is generally always cheaper than ethanol. When you
    look at it on a volumetric basis, they will say, no, ethanol is
    cheaper, but the reality is you don't get as much energy out of
    it.
        Mr. DesJarlais. Let me ask one thing. I was recently
    traveling to South Dakota and I had not seen these in
    Tennessee, but in Iowa, I saw my first pump that you could
    choose 10, 20, or 30 percent ethanol, and the 30 percent was
    the cheapest of the three. Does that make any sense at all to
    you, then, from what we just talked about from a cost
    standpoint?
        Mr. Gerard. It is hard to predict, unless somebody has used
    that as a marketing tool, etcetera. As Lu talked about a little
    earlier, when you look at the heavier amounts of ethanol, like
    in E85, the consumer is telling us with their buying practices
    they don't want it. You look at Minnesota, you look at Iowa,
    the number of service stations that will sell the higher
    content fuels, the actual demand for the fuel is going down,
    even though you are increasing the number of service stations.
        There is about 4 percent of our fleet today that are flex
    fuel vehicles that can burn it; only about 1 percent of that 4
    percent actually use it on a day-to-day basis. So consumers are
    deciding what they are going to buy, and regardless what the
    statute mandate or the EPA regulatory mandate is, that is the
    marketplace. We need to be thinking consumers, number one, two,
    and three in this discussion.
        Mr. DesJarlais. And that is what my consumers in Tennessee
    are telling me, so thank you for your input.
        I yield back.
        Mr. Lankford. Thank you.
        I would like to submit for the record a study that was
    conducted by the National Renewable Energy Laboratory, done in
    2011, specifically dealing with 4-stroke engines, small engines
    and such, and to be able to get this into the record as well.
    Without objection.
        Mr. Lankford. Mr. Horsford, you are up to bat.
        Mr. Horsford. Thank you. Good morning, Mr. Chairman.
        Thank you to the witnesses who are here. I do want to just
    start. I know a previous colleague of mine, a couple questions
    back, kind of implied what is in the mind of the EPA and the
    regulators; why don't they just change their direction, I guess
    at the behest of the industry. I would note that while people
    may not agree, RFS is the law and it was a law that many
    Republicans and former President George Bush implemented. So to
    somehow suggest that the EPA should indiscriminately choose
    which laws it should properly implement and which ones it
    shouldn't I think is questionable.
        Let me get to my question on ethanol production, which has
    been around for a long time. In the years since passage of the
    RFS, fuel blends of 10 percent ethanol to 90 percent gasoline
    have become deeply entrenched in the transportation fuel
    production apparatus.
        Dr. Martin, if the RFS was repealed, is it likely that
    ethanol would no longer be blended with gasoline?
        Mr. Martin. No, it is not at all likely. In fact, that was
    the substance of epa's analysis last year in considering this
    request for a waiver, and, in theory, there is complicated
    economic analysis behind that, but in practice these RIN prices
    tell you a story, and last year RIN prices were very, very low,
    only a few pennies, and that is evidence that people could have
    avoided complying with the law by purchasing those RINs, and
    there wasn't much interest in doing that. So I think that is
    reasonably clear evidence backed up by much more detailed
    analysis that, in fact, waiving the RFS would not reduce the
    amount of ethanol use dramatically, and I think that was an
    important part of their decision.
        Mr. Horsford. So, as a follow-up, if the repeal of the RFS
    would not likely have a large impact on core production for
    ethanol, what would be its effects?
        Mr. Martin. Well, it would certainly stop immediately
    investment in next generation biofuels, so that is precisely
    our concern. We are quite conscious of a lot of the problems
    with the expansion of corn ethanol, but at this point stopping
    the RFS, even trying to rewrite the RFS would stop investment
    in next generation biofuels and sort of lock in 10 percent
    ethanol, 90 percent gasoline. So we don't think that is the
    smart solution to the challenges that oil causes our economy.
    We think we need to move forward, but we do need to be
    conscious of some of the challenges and make sure that the
    policy is flexible to address those.
        Mr. Horsford. Okay, so according to the EIA, total U.S. oil
    production peaks in 2019 and oil production extracted from
    tight formation through hydraulic fracturing will peak in 2020,
    as the Ranking Member talked about earlier. Then U.S. oil
    production begins a steady slide. In essence, the shale boom
    just delayed the inevitable by a decade or so. The EIA projects
    imports will continue to contribute roughly half of total U.S.
    crude oil supply. That means Americans will continue to spend
    roughly $300 billion per year on oil imports, a large share of
    which comes from politically unstable and hostile regions.
        Mr. Gerard, since the RFS was adopted in 2007, the private
    sector has invested billions of dollars in the renewable fuel
    space. What actions, and at what level of investment, has the
    oil industry made in the past five years to ensure that our
    Nation's distribution infrastructure is ready to distribute
    higher blends and new fuels?
        Mr. Gerard. That is a great question. We are the leaders in
    investment and technology, particularly as it relates to fuels,
    zero carbon, and many low carbon and many technologies. Let me
    give you one quick fact. I can't tell you the last five year
    number; I can tell you the last decade number. From 2000 to
    2010, the Federal Government spent about $43 billion to develop
    these new technologies. The oil and natural gas industry spent
    about $71 billion over the same time frame, and the entire rest
    of the industry outside the oil and gas industry spent about
    what we did, and that is $74 billion. So when you look at those
    investing in new cutting-edge, breaking technologies, the oil
    and natural gas as a sector is the leader in making those
    investments and making things happen.
        Now, there may be a second part of your question that is an
    important one, congressman, to answer, and it goes to the
    infrastructure question, and this is a myth I would like to
    dispel. Ninety-seven percent of all the service stations you
    see out there today are not owned by the oil and natural gas
    industry, they are small businesses, they are Ma and Pa
    operations. In fact, 58 percent of those service stations that
    are out there are single station owners, meaning they only have
    one station in their portfolio.
        So when you look at potential costs associated with
    infrastructure attached to a Government mandate to distribute a
    fuel, you need to look at the actual ownership. It is estimated
    between $25,000 and $200,000 per retrofit of a service station
    to be able to implement, to change the station.
        Mr. Horsford. Can I ask specifically, then, what have the
    oil companies, your members done to support those Ma and Pa
    station owners?
        Mr. Gerard. We have relationships with most of them to
    produce the fuel that they request and ask for to make their
    business strive. That is the business we are in.
        Mr. Horsford. But specifically and monetarily what have you
    done, what have your companies done?
        Mr. Gerard. We have done everything that we should do to
    promote the use of the product longer-term, from promoting the
    product to producing the product to distributing the product.
    Everything associated with that we do, we continue to do, and
    we invest billions of dollars here in the U.S. doing it.
        Mr. Horsford. Thank you. I know my time has expired. If you
    could please provide the committee with those examples in how
    the oil companies work with those small business owners.
        Mr. Gerard. Happy to do so.
        Mr. Horsford. Thank you.
        Mr. Lankford. Dr. Gosar.
        Mr. Gosar. Thank you.
        Mr. Gerard, I am going to ask you kind of a general
    question because you understand the dynamics of our economy. A
    family is having harder time putting food on the table, true or
    false?
        Mr. Gerard. All economic indicators are true, they are
    having a difficult time.
        Mr. Gosar. More people are on food stamps, are they not,
    true or false?
        Mr. Gerard. That is my understanding. I am not an expert in
    that area by any means.
        Mr. Gosar. Mr. Brandenberger, could you answer the same
    questions?
        Mr. Brandenberger. That is my understanding as well, and
    obviously, in the current budgetary times, snap is under a lot
    of pressure right now.
        Mr. Gosar. Gotcha.
        Mr. Martin, true or false on both those questions?
        Mr. Martin. I have no expertise in those.
        Mr. Gosar. Oh, come on, now. You are a consumer. Do you go
    to the store? Come on. You can't be a heartless scientist. Come
    on.
        Mr. Martin. I am not a heartless scientist, but I try hard
    to stay within my area of expertise, and I don't have any
    special expertise in this area.
        Mr. Gosar. There is no need of expertise like this. Don't
    hide.
        Mr. Martin. What is that?
        Mr. Gosar. Don't hide. You don't need expertise on this.
    This is general economics 101. There are more people on food
    stamps than five years ago.
        Mr. Martin. I have read that in the newspaper.
        Mr. Gosar. Okay. Food prices are going up.
        Mr. Martin. Compared to when?
        Mr. Gosar. Five years ago.
        Mr. Martin. I really don't know off the top of my head.
        Mr. Gosar. Have you bought turkey lately?
        Mr. Martin. You would have to ask my wife.
        Mr. Gosar. It has gone up. So it wasn't so hard.
        Mr. Pugliaresi, can you answer those two questions?
        Mr. Pugliaresi. Yes.
        Mr. Gosar. Yes. Definitely gone up there.
        The ranking member introduced this letter by Mr. Braley and
    he quotes that it has supported over 63,000 jobs in the State
    of Iowa with ethanol. I want to go back through this and just
    show the implications to this economy, because I want to put
    people to work under your numbers of $770 billion.
        When converted to ethanol, a bushel of corn yields $1.80
    per gallon for its energy content, which can produce up to 2.5
    gallons of ethanol. Alternatively, a bushel of corn fed
    livestock can produce 6 pounds of beef, 13 pounds of pork, 20
    pounds of chicken, and 28 pounds of catfish.
        In terms of job growth, critics argue that 1 million tons
    of corn used to produce meat and poultry can produce 3600
    direct jobs. However, 1 million tons of corn used to produce
    ethanol only supports 145 jobs.
        If Mr. Braley is correct that these ethanol jobs created
    63,000 jobs in the State of Iowa, he just gave up 1,564,000
    jobs. That is the same number, because of what it would be in
    the industry. I am doing the calculation based upon what
    everybody else has given me as numbers.
        So do we have a jobs crisis in this Country, Mr. Gerard?
        Mr. Gerard. Absolutely. And I will tell you from the only
    gas perspective we are doing everything we can to create good
    paying jobs to provide stability to help families.
        Mr. Gosar. So I want to come back to this. So when we are
    trucking, most of this is trucked to little towns here and
    there, major fuels for trucks is what?
        Mr. Gerard. Diesel fuel.
        Mr. Gosar. That is the great answer. So technically, in the
    next couple years, we may run, technically, out of being able
    to produce any diesel fuel, true?
        Mr. Gerard. Under the RFS, it has clearly brought us to the
    brink of a crisis.
        Mr. Gosar. So we are not really asking for not to use these
    ethanol, it is expanding beyond that, right? So it is just
    common sense. So let me ask you another question. When we are
    talking about our economy, and I am from the State of Arizona,
    so a lot of it is tourism and recreation, right? So a lot of
    people take, just like my friend, Dr. DesJarlais was talking
    about, they take their four-wheelers, they go on a boat ride,
    all these things.
        When you don't have access to that fuel, it causes a
    problem, which means cars will break down, because that is what
    it does. If I am not mistaken, alcohol lifts rust, right? It
    causes problems and it jams up the engine. That is one of the
    biggest problems that we have with ethanol. So when mom and pop
    are driving across the Country, cars break down; can't find the
    fuel, so they are on the boat, the boat breaks down; when they
    are in the woods, the four-wheeler breaks down; when they are
    on the road going to Sturgis, the bike breaks down. So we are
    spending more time trying to fix things than in actually
    enjoying the tourism industry, which is a huge impact.
        So not only does this hit us at our food table, because
    more and more people are having harder times putting cost-
    effective food on the table, but when we try to have enjoyment
    of tourism, which is a huge industry in Arizona, it is going to
    make a major crimp into that. And I just want to make sure we
    are asking the right question. It is not about that we believe
    in the standard of the ethanol 10 rule, it is just to have some
    common sense in its application, because, as the science is, we
    are back-dropping ourselves into a catastrophic situation,
    which everybody loses, and what we are asking is some common
    sense. Isn't that true?
        Mr. Gerard. That is our view. It just boils down to, in our
    view, common sense.
        Mr. Gosar. And do you think that Congress, when they gave,
    and you alluded to this court case, when Congress gave the
    rules to the EPA, did they intend to have common sense being
    used?
        Mr. Gerard. I do not believe for a minute it was the
    intention of the Congress for this to get us to the point it is
    today.
        Mr. Gosar. I think that is one of the problems. We see this
    over and over, big government saying that they know better than
    the rest of us and common sense is being kicked out the window.
        I yield back.
        Mr. Lankford. I would like to submit for the record, as
    well, a written statement from Boat U.S., just talking
    specifically about the recreation engines and the effect of the
    RFS on boating in America. Without objection.
        Mr. Lankford. With that, I would like to recognize Ms.
    Duckworth.
        Ms. Duckworth. Thank you, Mr. Chairman.
        Thank you, gentlemen, for being here today to share your
    views about this very important issue.
        Dr. Martin, I very much appreciate your thoughtful analysis
    and forward-looking recommendations for the Renewal Fuel
    Standard. I agree that while not perfect, the RFS is a
    critically important and promising policy for our Nation's
    energy future. The RFS is critical to U.S. energy security; it
    is a national security imperative; it promotes price stability
    at the pump and holds promise to significantly improve our
    environmental footprint. It is also a major driver of
    innovation and job creation. In fact, the biofuel industry
    supports 54,000 jobs in my home State of Illinois.
        Many of these jobs are in the Chicagoland area for things
    like research and development, construction, engineering, grain
    purchasing, transportation logistics, legal services, financial
    services, and accounting; and we are at the forefront of
    innovation for advanced biofuel production. In fact, when I
    bought my F-150, I made sure there it was a flex fuel vehicle
    and I burned E85 for the entire 120,000 miles I have on my
    truck, and my engine runs very, very clean, and I happen to
    know, Mr. Gerard, where every single E85 gas pump is within a
    100-mile radius of my house. And you are right, some of those
    are going away, but I am trying to drive up that demand as
    quickly as possible. In fact, my husband and I are strong
    supporters of aviation biofuel.
        Dr. Martin, you state that the RFS has the right goals, and
    I agree. Can you provide more details about why these goals are
    so important and why it is worth sticking with a policy that
    even you have acknowledged is not perfect?
        Mr. Martin. Yes, I would be happy to. Thank you. So when I
    look at the RFS, I see sort of three primary goals, more
    biofuels, but not just the same biofuels that we have, but
    moving on to better biofuels. And, really, when you look at the
    scale of what we are trying to achieve with bringing clean,
    low-carbon, domestically produced biofuels into the market, we
    can't get there with just expanding the current biofuels for
    some reasons that have been discussed today. So we really need
    to bring the next generation that are made from agricultural
    residues like corn stover and from perennial grasses; and there
    is a lot of work going on in Illinois in the science and
    agriculture of producing those fuels.
        So that is where we are trying to get. That is what those
    key goals are. And the technology is really the foundation for
    the investments that are moving us in that direction and I
    think that is what I hear from people in the industry, is their
    ability to continue to raise money, to continue to innovate and
    to make the U.S. a leader in this technology, and to convert
    that technology and R&D leadership into actual fuel that we can
    use. That really rests on a stable policy foundation like the
    RFS.
        Ms. Duckworth. Thank you. I would rather my dollars at the
    gas pump go to American innovation and research, and supporting
    American biofuels than to Middle Eastern oil any day.
        Dr. Martin, in your testimony you acknowledge that the
    cellulosic biofuels have not yet lived up to their potential.
    Why is that and can you explain how you see these fuel markets
    developing in the future and how your policy recommendations
    will help move the industry forward so that we get to a better
    place with them?
        Mr. Martin. Sure. Well, if you look at the time it takes to
    develop any large industry, and the fuel industries are
    exceptionally large industries, it is clear that this is going
    to take some time, and I think one of the things that sometimes
    confuses people is you will hear somebody say we are five years
    away, and then five years passes and people say, where are you?
    But the guy that told you he was five years away brought that
    pilot plant, brought this technology from a laboratory and
    built a big factory, and is making, instead of gallons or tens
    or hundreds of gallons, they are making millions of gallons of
    fuel; and that is a huge step forward and that is where we are.
    We have really moved into the early commercial phase of this
    industry.
        But millions of gallons of fuel doesn't get you to mandate
    levels that are in billions, so it just takes time for the next
    round of plants to expand capacity and to follow those
    investments. So the ability to scale up to really provide those
    opportunities really does rest on continuing to develop this
    industry and to kind of providing the stable regulatory
    framework that gives the investors the clarity about whether
    there will be a market for this fuel when they have made their
    investments.
        Ms. Duckworth. Thank you, Dr. Martin.
        I am out of time, Mr. Chairman.
        Mr. Lankford. Thank you.
        Mr. Meehan.
        Mr. Meehan. Thank you, Mr. Chairman.
        Dr. Martin, I think I tried to understand. Did you make a
    point about the RINs, the cost being a couple cents, and there
    was an opportunity to purchase them?
        Mr. Martin. Yes. The way the RIN system works, you don't
    need to blend ethanol; if you are an obligated party, you can
    purchase RINs instead of blending ethanol.
        Mr. Meehan. And how does that work? What is the market, you
    said, it was a couple pennies per gallon?
        Mr. Martin. The point I was making was that last year RIN
    prices had been very low, almost nothing, and that was
    indicative of a situation where the mandate wasn't binding.
    Essentially, nobody was needing to buy fuel because of the
    mandates, and if they didn't like to buy fuel, they could avoid
    that by buying RINs. So the mandate hasn't been binding until
    now.
        Mr. Meehan. So has the market changed since the mandate has
    been binding?
        Mr. Martin. Yes, absolutely.
        Mr. Meehan. How has it changed?
        Mr. Martin. Well, now RIN prices have real value, they are
    about $0.80.
        Mr. Meehan. They are how much?
        Mr. Martin. Eighty something cents, I think. Somebody said
    $0.89 today, which actually is not a bug, it is a feature.
        Mr. Meehan. What do you mean it is a feature?
        Mr. Martin. I mean that provides the economic support that
    makes drop-in fuels, that makes the higher blends more
    attractive; that is the design of the policy.
        Mr. Meehan. The design of the policy? Let me go through
    this, because I am trying to understand when you are talking
    about the design of the policy. The design of the policy was
    that I have a refinery in my backyard that probably supports
    about 10,000 jobs and is critical to the airline industry, so
    critical to the support of, had they not been there, the
    implications of what happened during the storms in New York and
    New Jersey would have been significant. There are a lot of
    implications.
        But just the other year, when they were dealing with these
    RINs, they were about $0.04 per gallon. They are now about
    $1.00 per gallon. So the implication for this refinery is it is
    now costing them $150 million more a year to operate because of
    these RINs. They purchased the refinery for that price. So, in
    effect, the regulatory policy is driving this refinery right
    back into a point in which it is non-competitive and is going
    to shut down. What do you tell the workers?
        Mr. Martin. I don't have anything to say about the
    specifics.
        Mr. Meehan. Have you ever been unemployed?
        Mr. Martin. Yes, I have.
        Mr. Meehan. All right.
        Mr. Martin. So I think what is important here is that there
    are big opportunities in the next generation of fuels, and we
    need to manage the challenges.
        Mr. Meehan. How do we manage it? I know there are big
    opportunities. And I share your goal of trying to get here, but
    this is the unintended consequences of compelling something to
    happen in a market when the market isn't able to do it. This
    has real-life consequences on the workers in my district and
    this is your quote. ``We didn't build it overnight,'' but you
    can destroy it overnight.
        You could destroy this industry. You could destroy the
    refineries in my backyard overnight because all they need is a
    couple years of losing $150 million or more and they shut down.
    And then when you close a refinery, it doesn't come back. So
    how do we work in this market, during this period of time, to
    adjust for the realization that people are manipulating this,
    this RIN market, to the disadvantage of people who are doing
    their best to keep the planes flying in the sky?
        Mr. Martin. Clearly, as far as transparency and making sure
    the RIN market is working effectively, that is an important
    part of the policy working, because it is key to the policy.
        Mr. Meehan. Mr. Pugliaresi, what do you say about this?
        Mr. Pugliaresi. Look, the RIN prices are rising because
    they reflect the high cost of crossing the blend wall, and this
    is the fundamental flaw in the program. So we are going to
    impose very large costs on the production of E10 jet fuel. We
    will raise the cost of producing petroleum products in the
    United States. So it is a very high cost program with very
    little yield. It is not a cost-effective way to advance our
    programs to bring on the fuels of the future.
        Mr. Meehan. I am curious, are foreign airlines having to
    live by these same standards where they are?
        Mr. Pugliaresi. Absolutely not.
        Mr. Meehan. So, in other words, what we are doing is we are
    subsidizing a situation in which it now becomes more
    competitive for foreign airlines to fly into our Country than
    it does for ours to operate globally.
        Mr. Pugliaresi. Absolutely. What is going to happen is we
    are going to raise the cost of all the petroleum products in
    the United States. By the way, when we export these products
    out of the U.S., our foreign purchasers are not asking for them
    to be blended with ethanol or cellulosic or anything. So you
    are going to impose a very large cost on the national economy
    and foreign operators and producers will not face that cost.
        Mr. Meehan. So we are creating the proverbial sending jobs
    overseas.
        Mr. Pugliaresi. Absolutely.
        Mr. Meehan. With the unintended consequences of policies
    that aren't doing anything to clear the air, because the bottom
    line is you will move some of that product overseas and it will
    be used over there at higher emission standards and won't
    really change anything in the overall atmosphere.
        Mr. Pugliaresi. Absolutely. It is actually more serious
    than that.
        Mr. Meehan. So there needs to be some recognition, a
    workout in the meantime. And I share your goal, but this is
    where we are talking about the variance or the stop or the
    something, instead of this dead-ahead objective that the EPA is
    going to do it, regardless of the implications that are
    happening to real people, working in real communities, with
    real American jobs here at home, which this Administration and
    others pretend to stand up and want to fight for.
        And I can't see another person who finally got back to work
    looking at the idea of that gate closing because somebody has a
    policy that might work somewhere 15 years down the road, while
    we are also, simultaneously, exporting the very same products
    that are impacting the air just as bad because they are being
    done in China or someplace else at an economic competitive
    disadvantage to us. Frustration with the fact that people
    aren't using common sense in the implication of where we need
    to go together.
        Mr. Gerard, my time is up, but I don't know if you have a
    thought on that as a closing point.
        Mr. Gerard. No, Congressman, I can't articulate as well as
    you did, but let me just thank you for your leadership. You
    have made a bit difference in those refineries up there. But
    you have hit the nail right on the head. We have a Government
    policy now that is bringing us to the brink of a crisis. EPA
    has the authority that you, the Congress, granted them to waive
    this and to take this pressure, in the short-term, off of the
    crisis, but ultimately the Congress needs to deal with that.
        We don't disagree with all the noble goals that have been
    talked about in terms of energy production in the United States
    and, as I mentioned earlier, we are the leaders in trying to
    find the next breakthrough, but the reality is, getting back to
    people and jobs and what it is going to take to fuel this
    economy, we better get smart quick, or we are going to have a
    self-inflicted wound that is going to be very difficult to
    recover from in a lot of different ways.
        Mr. Meehan. Thank you, Mr. Chairman. I thank you for your
    indulgence and I yield back.
        Mr. Lankford. Thank you.
        Ms. Norton.
        Ms. Norton. Thank you very much, Mr. Chairman.
        Dr. Martin, like every red-blooded American, I am always
    looking for science to rescue us from the last dilemma, and I
    am afraid that when we embraced ethanol that was, for many,
    such a quick and ready, much too quick and ready an answer.
    Now, as far as I can understand, one of the reasons that
    environmentalists me wanted to do it was to save energy. I
    understand it costs, by the time we get to the finished
    product, it costs more in energy, or certainly as much as
    fossil fuels. So we are not meeting that goal.
        So instead of just jumping to the next generation, that was
    the first generation of biofuels, let me ask you about the
    second generation, which looks so hopeful to me, but I have to
    ask somebody, and there you sit. And I am talking about the
    cellulosic biomass that apparently we have in plentiful supply.
    That is what we thought about ethanol, too, because we didn't
    think about the effects on the cost of corn and sugar, and
    especially not only here, where we can absorb it more easily,
    but has had a terrible effect in other parts of the world which
    are very dependent on such food stuffs now.
        So when I look at this 1.3 billion in harvestable
    cellulosic biomass that we have ``identified'' in the United
    States, before I get my hopes up and grow too rosy in my
    expectations, since there are some estimations that that could
    more than meet a third of the domestic transportation fuel
    demand, before I go there, I need to know more about what I
    understand is happening.
        You seem, in your testimony, not to believe that we have
    yet found an answer to the blend wall dilemma, and you speak
    very specifically about the effect of food-based fuels on food,
    to be blunt about it, and that is a major concern, that we
    don't jump from the frying pan into the fire itself. And you
    seem to call for rulemaking that would reset expectations. I
    need to know what that means, but specifically I need to know
    what it means in light of the fact that it looks like the
    private sector is finally getting into this new second
    generation energy supply, that there may be as many as 20 in 20
    States maybe plants under construction, also in Canada. When
    you get private investment taking the risk, does that mean we
    are on our way to very significant use of second generation
    biofuels, and what could EPA do to adjust to that if it is a
    real answer? I am most interested in whether it is a real
    answer.
        Mr. Martin. I think there is a big opportunity and, as you
    mentioned, there are facilities that are starting up all over
    the Country. But because the energy industry is so large, it is
    sort of important to kind of keep the time line and the
    expectations sensible.
        Ms. Norton. Look what natural gas has done.
        Mr. Martin. What is that?
        Ms. Norton. Look what natural gas has done. Once it became
    true and viable, it shot up and has affected the supply here
    and across the world. That is why I don't want my expectations
    to be raised again.
        Mr. Martin. Well, so if we look at where we are and what
    can be achieved when there is a stable investment environment,
    I think we see, over the next 20 years, that these next
    generation biofuels, together with more efficient vehicles and
    other technologies, can really help us to cut projected oil use
    in half in that time frame. So in that 20-year time frame we
    can make a very dramatic impact on the impact that consumers,
    because, of course, the biggest way to address the impact to
    consumers of fuel is to use less of it. And biofuels are a
    significant part of a comprehensive solution.
        Ms. Norton. What would be the effect on energy, on climate
    issues, any difference?
        Mr. Martin. Absolutely. I mean, the next generation
    cellulosic biofuels have dramatically lower carbon emissions
    than the conventional biofuels, and even lower compared to the
    fossil fuels that we are relying on now. So that is why they
    are an important part of the strategy going forward.
        Ms. Norton. You say it could grow rapidly from 2013
    forward. What do you envision?
        Mr. Martin. I mean, well, obviously, it takes several years
    to build one of these facilities, and you don't build 100 of
    them at once.
        Ms. Norton. So if we already have 20 States, when do you
    think some of this could get to market?
        Mr. Martin. Oh, it is going to get to market this year. I
    mean, the first facilities are commercial facilities that are
    completely built; that are starting up now. So the gallons will
    start coming in, but there is a difference between millions and
    billions and tens of billions, and it takes time to move up
    that scale.
        Ms. Norton. Well, thank you, Dr. Martin, and I will keep my
    expectations high for the moment.
        Thank you, Mr. Chairman.
        Mr. Lankford. Thank you.
        Mr. Farenthold.
        Mr. Farenthold. Thank you very much, Mr. Chairman. I do
    want to thank the panel and do have a couple questions.
        Dr. Martin, in your testimony you say that the goals of the
    RFS, Renewable Fuel Standard, are more biofuels, better
    biofuels, and beyond biofuels. If you take a step back, you
    want to talk about what some of the broader policy goals are
    besides just biofuel?
        Mr. Martin. Sure. Absolutely. And it was beyond food-based
    biofuels, not beyond biofuels.
        So the overall goal is to cut our oil use. As I was just
    alluding, the challenges that our oil use causes to our
    economy, to our security, and to our climate are substantial,
    and the best way to address those are to take practical steps
    to cut our oil use.
        Mr. Farenthold. So you are basically saying cleaner air,
    more domestic production, and doing away with the need for
    importing foreign oil, would that be fair?
        Mr. Martin. We can cut our oil use dramatically, yes.
        Mr. Farenthold. So let me go to Mr. Pugliaresi. You are
    talking about coming up on the blend wall. So as we have less
    use of fossil fuels, we are coming up on the blend wall, which
    means we have to use more ethanol than we can blend at a
    reasonable percentage, is that correct?
        Mr. Pugliaresi. Yes.
        Mr. Farenthold. I guess what I am getting at is aren't we
    kind of on a collision course with ourselves as we promote more
    fuel-efficient vehicles and as we move to alternative electric
    cars or as we move to natural gas powered vehicles? It is going
    to get worse and worse over time, isn't it?
        Mr. Pugliaresi. I think we sort of get stuck on these
    volumetric or these mandates, instead of looking at how do we
    want the economy to function most efficiently to get the most
    economic growth. And if we try to wrench the economy too fast
    to very high cost, and often infeasible fuels, we are going to
    impose a very large cost.
        Mr. Farenthold. All right, let's talk a little bit about
    natural gas. I can go out and buy a natural gas powered pickup
    truck for about $6,000 to $9,000 more than a normal pickup
    truck; much more clean burning than oil-based and economical
    for me. Once I hit 90,000 miles on that truck, I will have paid
    for it and will be saving money every time. So why shouldn't we
    be focusing some of the efforts there?
        Mr. Pugliaresi. You are asking a very good question,
    because is this mandate really a cost-competitive or a low-cost
    strategy compared to the other things that are out there? And
    the answer to that is probably not.
        Mr. Farenthold. All right, Mr. Gerard, you represent the
    oil and gas industry. We have great technological breakthroughs
    in hydraulic fracking and we are all but giving away natural
    gas. What is gas today, in the $4.00 range?
        Mr. Gerard. Yes, give or take.
        Mr. Farenthold. And do you see any substantial increase in
    that over the next few years?
        Mr. Gerard. Well, if you look at the quick history of this,
    which has literally occurred in the past few years in the
    United States, once again, calling into question the
    assumptions under the Renewable Fuel Standard, which is a very
    different day, but when you look at natural gas today, going
    back to this broader objective, if we talk about climate issues
    and carbon, today we are at 1994 level for our carbon
    emissions. Why is that? Because of natural gas. That was driven
    by the marketplace, not by a Government mandate.
        Mr. Farenthold. Cleaner and domestic. We are within Kyoto
    standards now, right? Didn't we get there, even though we are
    not a signatory?
        Mr. Gerard. We are getting very close to that as the leader
    in the world in terms of reducing our carbon emissions. But the
    market brought it about, and that is why we have to take away
    some of these efforts to compel technology. The movement to
    natural gas in vehicles is occurring.
        Mr. Farenthold. With no Government involvement.
        Mr. Gerard. Precisely. And that will happen. That is what
    we need to inject back into this conversation.
        Mr. Farenthold. And just as far as projected reserves of
    natural gas, are we in trouble in five years?
        Mr. Gerard. It depends on whose estimates you look at,
    anywhere from 100 to 250 years.
        Mr. Farenthold. All right, so we are talking a couple
    hundred years.
        Mr. Gerard. At least.
        Mr. Farenthold. So it kind of takes the heat off
    developing.
        Mr. Gerard. That number keeps growing every year.
        Mr. Farenthold. So it kind of takes the heat off of some of
    these numbers.
        Let me go with one question with respect to food prices,
    these renewable food standards. They are affecting meat,
    poultry, your turkeys, chickens, you name it. It is also
    affecting just corn for people, isn't it, worldwide?
        Mr. Brandenberger. It certainly is. I think Ms. Norton made
    a very good point about the impact, and we would agree. We have
    talked a lot about the impact on our energy here, and we ought
    to talk about the impact on people who are facing food
    insecurity as well.
        Mr. Farenthold. And in other countries, particularly not as
    wealthy as we are, substantial increase in corn prices. Corn is
    a part of the staples in many countries. I think in Mexico
    there was one study that said since the Renewable Fuel Standard
    took effect, tortilla prices are up 69 percent.
        Mr. Brandenberger. There is actual civil unrest at times in
    Mexico over the corn prices; there have been demonstrations
    there. But it is other countries, but it is also the food
    insecure in this Country, as well, that are affected by this.
        Mr. Farenthold. I see I am out of time. I just want to
    conclude by saying we really do need to take a step back and
    see if we can solve some of our energy problems and our
    environmental problems in the marketplace with technology that
    is there today, rather than trying to force something.
        I yield back.
        Mr. Lankford. Thank you.
        Gentlemen, thank you for being a part of this panel. We are
    going to shift to the second panel. All of you, great
    contributions in this. Lu, I think I counted mispronunciation
    of your name probably eight times through the course of this,
    so I appreciate all of you being here and for what you are
    contributing, both your prepared statements and your oral.
    Thank you.
        We will take a short shift into the second panel.
        [Pause.]
        Mr. Lankford. We will have several other members that will
    come and join us as we get started here.
        So we welcome our second panel in the continuation of this
    hearing. Mr. Christopher Grundler is the Director of the Office
    of Transportation and Air Quality, U.S. Environmental
    Protection Agency.
        Pursuant to committee rules, all witnesses are sworn in
    before they testify. Mr. Grundler, thanks for being here. If
    you don't mind standing and raising your right hand so you can
    take the oath.
        Do you solemnly swear or affirm the testimony you are about
    to give will be the truth, the whole truth, and nothing but the
    truth, so help you, God?
        [Witness responds in the affirmative.]
        Mr. Lankford. Thank you. You may be seated.
        Let the record reflect that the witness has answered in the
    affirmative.
        Glad that you are here. Obviously, you had the opportunity
    to be able to listen in on the first panel, as well, and we are
    looking forward to your testimony and getting a chance to
    dialogue a little bit back and forth on that. We will be
    honored to receive that testimony now.

        STATEMENT OF CHRISTOPHER GRUNDLER, DIRECTOR, OFFICE OF
     TRANSPORTATION AND AIR QUALITY, U.S. ENVIRONMENTAL PROTECTION
                                 AGENCY

        Mr. Grundler. Thank you, Mr. Chairman, Ranking Member
    Speier, and other members of the committee. I appreciate the
    opportunity to testify on the Renewable Fuel Program today. I
    am the Director of epa's Office of Transportation and Air
    Quality, and I have been a career official at EPA since 1980.
        The RFS program began in 2006 under the Energy Policy Act
    of 2005. The statutory requirements for the RFS program were
    then modified by the Energy Independence and Security Act of
    2007, or EISA, which established new volume standards for
    renewable fuel, reaching a total of 36 billion gallons by 2022,
    including 21 billion gallons of advanced biofuels. The revised
    statutory requirements also include new greenhouse gas emission
    thresholds and a number of other provisions. After an extensive
    notice and comment process, EPA finalized regulations to
    implement EISA requirements, which went into effect on July
    1st, 2010.
        EISA requires EPA to publish annual standards for total
    advanced biomass-based diesel and cellulosic renewable fuels.
    These standards apply to obligated parties, typically refiners
    and fuel importers. The statute directs EPA to determine the
    projected volume of cellulosic biofuel production for the
    following year, and if that number if less than the statutory
    volume, EPA must lower the standard accordingly. EPA also has
    the discretion to lower the advanced biofuel and total
    renewable mandate up to the same amount. Before proposing
    annual volume standards, EPA conducts a thorough review of the
    cellulosic industry to determine the total production capacity.
    EPA also consults with our colleagues at the Department of
    Agriculture, the Energy Information Administration, and the
    Department of Energy's Bioenergy Technologies Office. We
    propose the annual standards through a transparent process,
    allowing for public comment and review.
        The 2013 RFS volume standards were proposed in February of
    this year and would maintain a statutory level for total
    renewable fuel of 16.55 billion gallons. A public hearing on
    the proposed hearing was conducted on March 8th, 2013, and we
    are currently in the process of reviewing the public comments
    in preparing to develop the final rule.
        Congress also tasked EPA with evaluating and qualifying new
    biofuels for use in the RFS program. We have already approved a
    significant list of advanced and cellulosic biofuels. We have a
    number of additional evaluations underway for new pathways. We
    continue to expand the number of approved fuel pathways,
    including the recent finalization of a rule that includes
    certain renewable fuels from camelina, ethanol from energy
    cane, and renewable gasoline from various feedstocks. We also
    just proposed a rule that included additional new advanced
    biofuels, including cellulosic fuels from landfill biogas and
    advanced biobutanol from corn.
        Although both ethanol and non-ethanol biofuels can be used
    to meet the RFS, ethanol has and will likely continue to be the
    predominant renewable fuel in the market for the foreseeable
    future. As the volume requirements of the RFS program increase,
    it becomes more likely that the volume of ethanol projected to
    meet those requirements will exceed the volume that can be
    consumed in the common blend ratio of 10 percent ethanol and 90
    percent gasoline, referring to as E10. Additional volumes of
    ethanol would then need to be used at higher blend levels, such
    as E15 or E85. As a result, to the extent that ethanol is
    likely to be used to meet RFS volume requirements, the volume
    of ethanol that can legally and practically be consumed is a
    limiting factor in meeting the statutory volumes. This is
    commonly known as the E10 blend wall and was discussed at
    length during the first panel.
        Compliance under the RFS program is demonstrated through
    the use of Renewable Identification Numbers, or RINs, which
    document the production and distribution of the fuel. For 2013,
    we expect compliance for the RFS standards through the use of
    RINs generated in 2013, as well as the substantial number of
    RINs generated in 2012 that are available for compliance this
    year as carryover RINs.
        In 2014, the situation could be different. First, the
    advanced biofuel and total renewable fuel requirements rise
    substantially under the law, to 3.75 billion gallons and 18.5
    billion gallons, respectively. While non-ethanol biofuels are
    anticipated to continue to grow, an estimated 16 billion
    gallons or more of ethanol might still be needed to comply with
    the 2014 statutory target for the RFS program. Second, the
    number of carryover RINs from 2013 will also be a critical
    factor.
        Given these facts, we will continue to look at the
    potential impacts of the E10 blend wall both now and in the
    longer term. We are currently reviewing comments submitted in
    response to our proposal for the 2013 RFS volume standards, and
    we will carefully consider and are carefully considering this
    input.
        EPA is intensively engaged with all the stakeholders in
    this policy matter, and we are going to continue to further
    engage these stakeholders as we move to propose the RFS volume
    requirements for 2014. EPA will continue to work with our
    partners, stakeholders, and the public to implement the RFS
    program as directed by the Congress. EPA will also further
    evaluate and consider whether any further action under the
    authorities established by Congress is appropriate to help
    ensure orderly implementation of the program.
        I thank you for the opportunity to serve as a witness and
    look forward to your questions.
        [Prepared statement of Mr. Grundler follows:]
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        Mr. Lankford. Thank you for your testimony and thanks for
    your testimony as well.
        Do you agree we are facing a blend wall in the coming
    months here?
        Mr. Grundler. Congressman, it is quite clear from the
    dynamics in the RIN market that the market is anticipating the
    blend wall. It is not clear exactly when we will face that
    blend wall. We know that some refiners, because each is in a
    slightly different situation, are likely to hit that blend wall
    this year; whereas, others are likely to face it in 2014. But
    the market clearly is anticipating its approach, which is why
    we see the increase in the value in these RINs.
        Mr. Lankford. Once Goldman Sachs jumps in and starts
    actually trading in RINs, you know this has become a valuable
    commodity and it is spreading at that point. So the questions
    come up for us, and you heard all the testimony, as well, and
    some of the issues, and you are very aware of this, not that
    you are blind to all these issues. A couple of questions. One
    is is it good for our vehicles to continue to increase the
    amount of ethanol and require that, and to be able to push that
    out? Multiple vehicle manufacturers said that is going to void
    our warranty. So we have that one question. With the amount of
    gasoline decreasing and the amount that is required increasing,
    is that good for our vehicles?
        And the second part of this is is it good for us to
    continue pushing food-based fuel when the hope was, at some
    point, non-food-based ethanol would rise up and we would have
    other products that would substitute for that? We are not
    seeing the rise as fast as we had hoped, so is it good to be
    able to press on both those?
        Would you address both of those for me?
        Mr. Grundler. So with respect to your first question,
    congressman, is it good for our vehicles, the answer depends on
    what you are driving, of course.
        Mr. Lankford. Correct. The majority of vehicles in America
    right now. We are talking 70 percent of the vehicles that are
    not tagged or that have a problem with using a higher amount of
    ethanol.
        Mr. Grundler. Yes. So with respect to E15, as you are
    aware, EPA did an extensive study, along with the Department of
    Energy, of the question of will E15 cause or contribute to a
    violation of the emission standards of those vehicles. We
    looked at something like 30 different studies. DOE did an
    extensive testing program and our determination was that E15
    would be safe to use in 2001 and later vehicles. We did not
    allow it to be used in small engines or boats or off-road
    vehicles.
        Mr. Lankford. I am aware the EPA allows that, but my
    warranty expires if I use E15. So in my 2011 vehicle I already
    have a notification and a sticker on my gasoline lid as it
    opens that reminds me, if I use E15 in this, my warranty is
    void, because the manufacturers tell me this is not safe for
    this vehicle. So while EPA says go ahead and use it, I take it
    at my own risk. If my vehicle breaks down, I am on my own. I
    don't anticipate EPA is going to fix my vehicle at that point.
        Do you anticipate that?
        Mr. Grundler. No, we will not fix your vehicle.
        Mr. Lankford. Okay, well, I am assuming that. So I am in a
    tough spot as a consumer on that.
        Mr. Grundler. Mr. Chairman, I appreciate that, but EPA is
    not requiring you to use E15. We are not requiring anyone to
    sell E15. We simply looked at our responsibilities under the
    law, did an extensive amount of science and data development,
    and reached the determination based on that data and based on
    the law that there was no evidence to suggest, after millions
    of miles of accumulated miles by the Department of Energy's
    test program, that E15 would harm engines or create a violation
    of emission standards.
        Mr. Lankford. How many manufacturers out there disagree
    with you?
        Mr. Grundler. Most of them.
        Mr. Lankford. And that is the spot that consumers are in.
    The Government says go ahead; the manufacturers say at your own
    risk, because this does not work in all of their testing. So
    now we are stuck between a Government mandate that is sitting
    out there and the consumer trying to determine where do I go at
    this point.
        Mr. Grundler. The Government is not saying go ahead. The
    Government is simply saying that this is a legal fuel to sell
    if the market demands it and if there are people who wish to
    sell it.
        Mr. Lankford. But if the market is not demanding it, there
    is still a requirement we have to get more out there, is that
    correct? So let's say, for instance, in my State, in Oklahoma,
    you were not here earlier, but are lots of stations that
    promote that they sell all-gas gasoline. I mean, that is their
    selling feature. And they sell all the time on that. There are
    stations that sell both side-by-side; there is gasoline, there
    is gasoline blended with ethanol on it; and the consumers have
    the opportunity to choose. But at some point it gets tougher to
    give consumers the option to choose, because if they choose the
    all-gasoline, we can't meet the standards that have been set to
    sell out there, and we have to find some way to get that
    product to market. That is kind of where we are now. So what do
    we do?
        Mr. Grundler. You are exactly right. And I think when
    Congress wrote this statute, back in 2005 and particularly in
    2007, it created a dramatic change in the transportation fuels
    market and anticipated these increasing volumes. It is clear
    Congress anticipated that the market would solve this problem.
    The blend wall is not a new issue. Clearly, the market has not
    solved this problem yet; there are market realities that we are
    very much aware of and need to address.
        Mr. Lankford. So when does this get resolved from the EPA?
    I know you all are dealing with this all the time. This is not
    critical of that. You all have to live in this all the time. We
    have decisions for 2013 and decisions for 2014 coming down
    during the summer, I hope, but to be able to determine what are
    we going to do, is there going to be a waiver, are the numbers
    for 2014 going to be implemented? A lot of folks have to
    prepare for that and the market is trying to determine, as the
    price goes up, they are gambling you are not, you are going to
    keep the same number and these prices continue to rise, and
    manufacturers and individuals and suppliers of fuel are hoping
    that there is going to be some kind of gap. How does this get
    determined and when?
        Mr. Grundler. We are talking to all of these folks
    regularly. We raised this issue in our 2013 proposal as an
    issue; we sought comment, we got an enormous amount of comment.
    As you can appreciate, those comments span a diverse
    perspective based on where they sit and what they make, and it
    will be our job to sort through those and to look at the law
    and look at the data, and the administrator will need to make a
    determination. We feel a very strong sense of urgency to sort
    through this. We are doing a lot of analytical work and we hope
    to make a decision this summer on both 2013 and a proposal for
    2014.
        Mr. Lankford. Welcome to America. Okay, so let me come back
    to that again, because I want to be able to pass on to Ms.
    Speier, honoring her time as well.
        We are talking about this summer, so we are talking about
    the end of August, we are talking about the end of July?
    Because this is important to us, to be able to determine when
    the decision is going to be made. The decision is important,
    obviously, what is made, but the when is also very important.
    So when will we know?
        Mr. Grundler. I appreciate that and I also understand why
    the market needs to know. I don't have a target date for you
    other than we are working as hard as we can.
        Mr. Lankford. But all the comments are in.
        Mr. Grundler. Yes.
        Mr. Lankford. Everything from outside is done; it is now
    sitting on your all's desk, and at this point there is nothing
    else pending out there to say we can't decide until we get
    this.
        Mr. Grundler. That is exactly right.
        Mr. Lankford. So everything is in now; it is just time to
    make the decision.
        Mr. Grundler. That is right.
        Mr. Lankford. Is there anything that we can do as Congress
    to help in this process?
        Mr. Grundler. I think you are doing it, sir.
        Mr. Lankford. Well, there is a need for a decision. The
    certainty is very important to the consumer, to the producers,
    to the manufacturers. The certainty is very key to us, so
    getting the when will help us significantly; then there will be
    the large national debate on the what at that point, once you
    settle it. But the when cannot come fast enough if all the
    information is gathered in.
        With that, I would like to recognize Ms. Speier.
        Ms. Speier. Thank you, Mr. Chairman.
        Mr. Grundler, thank you for the service you have provided
    to our Country for some how many years? Thirty-two years.
    Almost a lifetime. Certainly a generation. Anyway, thank you.
        The first law that was passed and signed by President Bush,
    in 2005, was really a bipartisan bill; it was sponsored by
    Representative Barton of Texas, Representative Pombo of
    California, and Representative Thomas of California. And when
    President Bush signed it, he said it will strengthen our
    economy and it will improve our environment, and it is going to
    make the Country more secure. The Energy Policy Act of 2005 is
    going to help every American who drives to work, every family
    that pays a power bill, and every small business owner hoping
    to expand.
        So, from your perspective, what has been the impact of that
    2005 Act, and have President Bush's statements been seen to
    come to fruition?
        Mr. Grundler. Congresswoman, certainly the impact we have
    seen is a significant increase in the production of renewable
    biofuels in America. We have seen an enormous amount of private
    investment in advanced biofuel research and development and
    production; I would say in the billions of dollars of private
    investment in discovery and new innovation in this area and I
    think, as well, a new recognition about what the promise could
    be of having a more diverse fuel supply for America.
        Ms. Speier. Okay. So for all the concern here, there are
    still a lot of positives, right? Dr. Martin had mentioned in
    the earlier panel, I don't know if you were present to hear him
    or not.
        Mr. Grundler. I was.
        Ms. Speier. That there are some solutions that are pretty
    simple and could protect the turkey farmers and also still
    allow for continued exploration in terms of cellulosic ethanol
    and the developing of that and plants, and venture capital
    coming in, and the like. Do you have any comments on that? Do
    you see that as a pathway to resolving this issue?
        Mr. Grundler. I have not had an opportunity to talk to Dr.
    Martin about his recommendations in terms of his thinking with
    respect to the longer term strategy. I probably would disagree
    with that it is going to be simple in this policy debate
    comment.
        Ms. Speier. That was my comment, not his.
        Mr. Grundler. But clearly we have heard through this public
    notice and comment period we are getting a lot of advice about
    how EPA can address this situation, address this blend wall
    situation; and some have suggested how we can do it in a way
    that could still preserve this advanced biofuel innovation
    promise. Others have come at it from a different point of view.
    We, right now, are doing the hard work analyzing those
    comments, looking at the law, looking at the data and giving
    recommendations to the administrator.
        Ms. Speier. So last August Chairman Issa and Subcommittee
    Chairman Lankford had sent a letter expressing the concerns
    about RFS to EPA Administrator Lisa Jackson, and subsequently,
    in the review that EPA did, it found that there was not severe
    harm to the economy, of a State, a region, or the United States
    in waiting. Could you explain to us the analysis that EPA uses
    to arrive at that conclusion? From what I understand, it is not
    something where you just kind of see what way the wind is
    blowing, that there is a lot of data collection and expert
    testimony and review that takes place. Could you share that
    with us?
        Mr. Grundler. Yes. You are talking about the petitions we
    receive from a number of States in 2012 in response to the
    severe drought that America experienced and asked the
    administrator to waive the standard in whole or in part. First,
    in deliberating over that, we all recognize, and the
    administrator certainly said in her decision, recognized the
    devastating impact of the drought across all of America in many
    different sectors, in many different families that were
    impacted by that drought.
        The question before the agency and the administrator at
    that time actually was a pretty narrow question, though, which
    is would waiving the RFS change any of that situation, would
    waiving the RFS change the supply-demand question. And after
    extensive analysis and modeling, we looked at 500 different
    scenarios using a satastic model and consulting with experts at
    the Agriculture Department and at the Energy Department, we
    found that it was highly unlikely that, if we waived the
    standard, it would have made any difference to the people
    suffering and the prices of corn, so the law required us to
    deny that waiver.
        We were careful to say that this is a fact-specific
    question, a case-by-case situation, and it was based on the
    market conditions at the time; it was based on our estimate of
    how many so-called rollover RINs were available to refiners to
    meet their obligations, as well as how quickly a refinery
    within this waiver time period, this one-year period, could
    change their operation. The fact of the matter is that the U.S.
    refining industry and fuel distribution has optimized around
    the use of ethanol as a blending agent, and we found that the
    evidence suggested that there is a strong demand by the
    refining industry to use this product to blend their gasoline
    products and that, if EPA had waived that standard, that that
    practice would continue, certainly over the near term, and
    therefore would not have made any difference in feed prices or
    corn prices. So we were required to deny the waiver based on
    how the law asked us to exercise that authority.
        Ms. Speier. Thank you. My time has expired.
        Mr. Chairman, thank you.
        Mr. Jordan. [Presiding] The lady can have additional time
    if she would like here.
        I ask unanimous consent to enter a couple reports and
    letters into the record. We have the API Energy letter and NERA
    economic impacts resulting from implementation from RFS2
    program.
        Without objection, those will be entered into the record.
        Mr. Grundler, I apologize for missing your testimony. I
    have been trying to read it. Let me go back to where I was with
    the first panel. I went through and asked them and we sort of
    established the fact that the cost to produce turkey is up
    because of RFS and the impact on corn prices; the price to
    produce pork is up; the price to produce cattle is up; and,
    therefore, the cost to consumers who consume those products is
    certainly up. Other food products not in the protein or
    livestock area are up as well. The price of fuel is up,
    according to the witnesses on the first panel. According to the
    witnesses on the first panel, it is difficult for many cars to,
    as the chairman has pointed out, Mr. Lankford pointed out,
    can't use this type of fuel burned at levels that it is; and,
    therefore, every single family, according to the economist who
    was part of the first panel, every single family in the Country
    is going to have to pay more for food, fuel, and that obviously
    impacts their family budget and our overall economy.
        As I said, we were looking forward to hear what you say,
    and I missed some of what took place here earlier, but are you
    going to waive it, and what is the time frame? Walk me through
    it again. Are you going to waive the standard as we move
    forward?
        Mr. Grundler. Thank you, congressman, for those questions.
    I can't tell you what the administrator is going to decide.
        Mr. Jordan. When are you going to decide?
        Mr. Grundler. This summer.
        Mr. Jordan. This summer. Next month?
        Mr. Grundler. Summer goes until September 21st.
        Mr. Jordan. So are we going to get a decision on September
    20th or 21st, or are we going to get something sooner? People
    are driving; people are buying burgers for the grill and brats
    for the grill and everything else.
        Mr. Grundler. Sir, I want you to know that we are taking
    this very, very seriously. We have sought public comment. We
    are meeting with all the stakeholders who you have heard this
    morning and more. This is a very serious question. We are
    hearing them loud and clear. We are doing the analysis right
    now. We have a lot of advice on how EPA should proceed and
    address this blend wall both now and in the future, and we are
    going to be making a decision as soon as we can.
        Mr. Jordan. Okay, there were four witnesses on the first
    panel; the economist, the turkey, and the petroleum gentleman.
        Ms. Speier. He doesn't like being called a turkey.
        [Laughter.]
        Mr. Jordan. Well said. The gentleman representing the
    turkey industry. All agreed that there are real problems. Even
    the Democrat witness said the Renewable Fuel Standard for
    cellulosic fuel shouldn't be increased. So everyone understands
    this is a problem, so it seems to me you have the data. Even
    the witness on the other side. I mean, this is Congress; if you
    get four people, different sides inviting folks in and they all
    say there is a problem here, it seems to me that is pretty
    clear. So, again, any chance you can get this done sooner?
        Mr. Grundler. We are going to be working very hard to make
    that happen, sir, but this is a consequential decision. There
    are consequences on all sides of this question, which I am sure
    you can appreciate. There are consequences for the people who
    have invested millions of dollars in research and development
    costs and innovation to produce more advanced fuels. They have
    a particular point of view. We have heard very clearly from the
    oil industry what their perspective is. People who have
    invested in corn-based ethanol have a view.
        Mr. Jordan. Do you have the definition of what level of
    harm, severe harm? Do you have a definition, increase in cost
    to consumers of X percent? Do you have something that is
    tangible, measurable, or is it you are looking at it and
    bureaucrats and employees in the Environmental Protection
    Agency are going to make a decision? Is it based on objective
    criteria or is it just sort of what the experts in Government
    think it is?
        Mr. Grundler. Well, the Congress was quite specific and
    used the word severe. We don't have a definition of what severe
    means, but we read it as pretty significant.
        Mr. Jordan. Well, then how can you decide? Well, is it not
    severe harm when the price of food is up significantly, the
    price of fuel is up significantly, cars can't use the fuel
    that, as we get to the blend wall, some cars can't use it, the
    price is going to go up and the economist who was here said
    this is, in effect, a tax on families and overall harms our
    economy, not to mention some of the data we have been living
    with for the last several years, the high unemployment rate and
    everything else? Is that not severe?
        Mr. Grundler. All the things you mentioned, congressman, go
    into this consideration, go into this analysis, and it will be
    the administrator's judgment.
        Mr. Jordan. Let me ask it this way. If that is not severe,
    what is?
        Mr. Grundler. I can't answer that question, Mr.
    Congressman.
        Mr. Jordan. Well, that is the problem. That is our concern,
    because if there is no objective definition, if you can't tell
    me what severe is, if you can't tell me what I just described
    and what the four witnesses just described, you can't tell me
    if that is severe or not, then how in the heck are you going to
    make a decision?
        Mr. Grundler. We are going to do the best we can based on
    what the law states.
        Mr. Jordan. Are you developing a criteria? Are you
    developing some objective standards, some definition for what
    severe harm means?
        Mr. Grundler. Right now what we are doing, sir, is looking
    at all the information that the public has provided on those
    very questions.
        Mr. Jordan. But that is not what I asked. Is the EPA
    developing a definition, some kind of criteria, objective
    standards that would say you reach this, that is severe, we
    raise the standards; you don't reach this, it is not severe, we
    don't waive the standards? Then we can decide if you have a
    good standard or not. But if it is just we are going to tell
    you what we think and we don't think it is severe, well, how do
    we know? We don't know what info, what data, all the
    information you are using to make that decision. It would be
    nice if we had something objective. It would be nice if you had
    something objective so we could examine and see whether it
    makes sense or not.
        Mr. Grundler. Sir, first of all, I would say that this will
    all be based on, again, on a case-by-case basis, based on what
    the market conditions are telling us at the time this decision
    is made, and then there will be an extensive record that will
    be supporting that decision. I also want to point out that that
    is only one of our waiver authorities. We also have the
    authority to adjust the standard based on the total amount that
    we adjust for the cellulosic standard. So there are a couple of
    ways for the agency, a couple of tools.
        Mr. Jordan. Do you have standards for how you do that? Do
    you have criteria on when you are going to adjust the standard,
    not just waive it?
        Mr. Grundler. Yes, for the cellulosic standard, what we do
    is we go every year and we look at actual production estimates
    from people producing this fuel. That is why we have adjusted
    or waived the cellulosic standard.
        Mr. Jordan. No, what I am asking is do you have something
    that says if it reaches X level, we are going to make this
    change? Do you have some objective criteria?
        Mr. Grundler. There is no objective criteria that we have
    stated with respect to how Congress determines severe economic
    harm. We have this other authority where it is just a math
    problem, where we subtract from the statutory-based standard
    for cellulosic fuel how much is available.
        Mr. Jordan. Well, if you have no objective standard, how
    can you make a decision? One day you decide this is bad enough,
    we are going to change it; maybe it is not bad enough, we are
    not going to waive it. This law has been around a while, I
    think since 2005, 2006, and was revised in 2007. You don't have
    a standard?
        Mr. Grundler. So we have, with respect to this general
    waiver authority that you have mentioned, we have considered
    that twice, once in 2008 and once in 2012, and in those cases
    we went through an extensive set of economic analysis, working
    with the Department of Agriculture on impacts, working with the
    Department of Energy on impacts, using an economic model to
    estimate what these impacts would be, and based on that record
    and that evidence and the data that produced, we determined
    that it was not severe economic harm, based on the numbers that
    that showed, in relationship to the total economy or the total
    economy of that State. It is a judgment call.
        Mr. Jordan. I get what you are saying. I just don't know
    how you can say it is not severe if you don't have a definition
    for severe. I mean, don't you think that is a logical question
    for the American consumer, for families to ask? How do you
    decide whether it is severe or not? Because, well, in 2008, we
    said it wasn't, but we didn't develop any criteria; in 2012 we
    said it wasn't, but we didn't have any criteria, even though it
    was four years later, we just did some analysis. I mean, it can
    be some subjective analysis you throw together every year that
    you get faced with this question. Unless you have some
    objective standard, I don't know how anyone can determine what,
    if you don't know what severe is, how are we going to know, and
    how are you going to reach that level? To me, that is the
    $64,000 question.
        Ms. Speier. Mr. Chairman?
        Mr. Jordan. The gentlelady is recognized.
        Ms. Speier. Mr. Chairman, you have now extended another
    four minutes. Can we give Mr. Grundler an opportunity to just
    try to explain?
        Mr. Jordan. I have given him several, but I would be happy
    to give him another one.
        Mr. Grundler. It is a difficult question, sir. The Congress
    wrote this law and gave the administrator the ability to waive
    standards if he or she determined that implementation of the
    standard would create severe economic harm. We have used that
    in terms of the continuum of insignificant to extreme, at the
    far end of that continuum, but there is no hard and fast
    definition for it, and it has to be a judgment call that the
    administrator exercises.
        Mr. Jordan. Okay. And I went way over time, but I will just
    say this: Any other time there is a standard, there is some
    definition to it in the law. If there is a standard of proof,
    there are certain elements you have to meet to satisfy that
    standard in law, and anything else there is some objective
    measure, some number. When we write laws, typically, the
    agencies write rules to implement the law. What you are saying
    is you don't even have a rule or definition to define severe
    harm; it is whatever you think it is at that particular time.
    That is how we operate. Well, if that is the case, we will
    never know if this is ever going to get waived. No matter how
    close we get to the blend wall, what happens, we will never
    know; and that is a problem as we move forward.
        The gentlelady is recognized.
        Ms. Speier. Mr. Chairman, thank you. Let's be clear, we
    pass laws every day. Well, actually not, but occasionally.
        [Laughter.]
        Ms. Speier. Three hundred a year.
        Mr. Issa. You know, we can go back to naming post offices,
    then we can do them every day. But we are trying to stay off of
    that.
        Ms. Speier. And I appreciate that, Mr. Chairman. But, in
    any case, we do pass laws that do not define certain terms. I
    am reminded that we passed a law that said that 501(c)(4)
    should be operated exclusively for social welfare purposes, and
    then the agency itself came up with a regulation that termed it
    primarily; and, frankly, we don't have a definition for either
    of those.
        So I think Mr. Grundler has made the point that it is done
    on a case-by-case basis; and the term severe harm is one that
    is assessed at the time and that it is a judgment call. There
    are judgment calls that people within the bureaucracy make
    every single day. We hope that there will be good judgment used
    here, as there is often, and I think I will leave it at that
    time.
        I yield back.
        Mr. Jordan. Well, if I could just respond. The gentlelady
    makes, I think, an excellent point. She cited the Internal
    Revenue Service and the lack of a clear definition. One thing
    we do know is when you have that situation people aren't given
    equal treatment. We found out that the only groups who were in
    fact targeted were conservative groups applying for 501(c)(4)
    status; no one else was targeted. So it would make sense to
    have a standard so it is not so subjective. That is exactly the
    point I am making here. What is the definition of severe harm?
    Without a definition, how in the world are we going to make a
    determination?
        With that, I recognize the chairman of the full committee.
        Mr. Issa. I thank you, chairman.
        Ms. Speier, you and I represent the same State, but not at
    the same time in the beginning. When I first arrived here, it
    was 52 and then 53 members of the California delegation, every
    single one, including Henry Waxman, who tried to get a waiver
    on the 10 percent ethanol, because at the time we were using
    MTBE because that was the oxygenate that we could get our hands
    on, and it was destroying our ground water. EPA never saw fit
    to consider the destruction of our watershed as sufficient, and
    the lack of availability of ethanol, and, of course, the fact
    that we didn't produce it in California.
        Mr. Grundler, the fact is you don't have to have a perfect
    definition, but if you don't have anecdotal examples of what
    is, then you fail the most important test, and I think the
    chairman was making that very clear. You have to say this is
    out of bounds and this is inbounds. Even the IRS at least had
    some examples of things which would be excessive; they said you
    had to have at least 51 percent of something for it to be
    primary, because there is a noun.
        We are in a situation right now in which the Stanford study
    still says that the cost in fuel of producing ethanol, for
    example, still rises to effectively the same amount of fuel as
    it generates in Btus, meaning there is not really a renewable
    fuel because it consumes mostly non-renewable fuels making the
    renewable fuel. So the idea that we are not going to grant a
    waiver simply because any damage it causes isn't offset by any
    benefit to speak of, that is not a new item; those studies have
    been around for a while. And I understand that the ethanol
    lobby is very effective at sort of demanding that we keep a
    subsidy going.
        My question to you is isn't it true that if the goal of
    clean air, which is your mandate, your primary mandate, if the
    goal of clean air can be achieved with a different blend, don't
    you essentially have a fundamental obligation to grant the
    waiver, regardless?
        And, by the way, if you say no, you won't be the first
    person from EPA to walk in saying no. It has always been kind
    of interesting. Before we ever talked about renewables or CO2
    as a pollutant, EPA seemed to always want to have its ability
    not to grant waivers. But please answer.
        Mr. Grundler. Sir, I am not familiar with the specifics of
    the example you are relating to in terms of the MTBE question.
    I am not really prepared to address that.
        Mr. Issa. Perhaps you are not as old as I am. But we were
    trying to get rid of MTBE; we knew that it had damaged, in huge
    amounts, our watersheds. We knew it was a dangerous pollutant.
    There actually had to be waivers granted as they tried to get
    enough ethanol into California to replace it. Ultimately, it is
    a good piece of history for you to become familiar with because
    there was egregious harm being done to the drinking water of
    the people of California, and the years 2001, 2002, 2003 went
    by while we saw no willingness to say that even a small amount
    of damage to California's watershed should have been a
    sufficient danger to cause a waiver to be granted.
        Mr. Grundler. If I could, sir, I would like to address the
    rest of your question with respect to what situation we are
    dealing with today. You weren't here earlier, but we very much
    appreciate the seriousness of the situation. We have heard loud
    and clear from a number of different stakeholders in this
    policy question; advice in terms of how they think we ought to
    approach the science and the law and this decision, and we are
    going to be considering those very, very carefully as we make a
    decision and the administrator makes his or her judgment later
    this summer.
        Mr. Issa. But let me rephrase my fundamental question,
    though. Going from 10 percent to 0, that is a big decision; and
    I think the law assumes that it is going to take a big
    threshold. But going from 10 to 9, 10 to 8, 10 to 7, 10 to 6,
    aren't those incrementally decisions that could be made where
    the balance of harm, including economic harm, versus the
    benefit can be measured? In other words, why wouldn't you be
    considering blends that were not zero, but were significantly
    lower, with a lower standard for it, so that it will not be an
    all or nothing?
        Mr. Grundler. That is precisely the process we are going
    through right now; what are those considerations, what are
    those options before the administrator, and what is the best
    decision to be made. We have that discretion.
        Mr. Issa. Mr. Chairman, just one other piece of history. I
    was also here when we dealt with arsenic in States like your
    own, in the southwest, where incredibly small amounts in wells
    that had been around for decades and decades, in which there
    was no known science to actually come up with why the number
    that they came up with as an arbitrary number was necessary,
    but we knew the economic cost. And I think that Chairman Jordan
    said it very well: if you don't have a number, then the number
    is arbitrary. We have seen arbitrary numbers in the past in
    arsenic, where they didn't have science; they picked a
    hypothetical number. That hypothetical number cost hundreds of
    millions of dollars to people of New Mexico and other States.
    This is another situation in which the number that is currently
    there is costing a large fortune without having a known
    benefit, if in fact blends can be as clean with a different
    number.
        I yield back.
        Mr. Gosar. [Presiding.] I am going to recognize myself for
    five minutes.
        The EPA asserts that more E15 gasoline must be blended in
    order for producers to meet the RFS, true?
        Mr. Grundler. No.
        Mr. Gosar. Does EPA believe that the E15 is safe for all
    automobiles?
        Mr. Grundler. No.
        Mr. Gosar. Let me ask you, do you think we are headed for a
    train wreck, as currently defined by Congress?
        Mr. Grundler. I am not aware of the definition of train
    wreck by the Congress.
        Mr. Gosar. Well, let's look at the train wreck in regards
    to what we are coming here within this mandate. It is a train
    wreck left as is, right? If you are going to hold up the letter
    of the law, it is a train wreck.
        Mr. Grundler. Again, I am not sure of your definition of
    train wreck, but we realize that the blend wall is a
    significant issue.
        Mr. Gosar. Well, let me ask you a question. So if we
    continue on this standard, we will have a huge problem within
    diesel fuel production, true or false?
        Mr. Grundler. I would like to answer it this way, Mr.
    Chairman. We clearly see, particularly in 14 and 15, and the
    pace by which Congress anticipated the growth of this mandate,
    is confronting very real market barriers right now, and we are
    looking at all kinds of comments today in terms of what the
    best way to address that.
        Mr. Gosar. And how would you weight those comments?
        Mr. Grundler. How would I weight them?
        Mr. Gosar. How do you weight those comments? I am asking
    you because what I want to do is I want to see from the agency
    how you rationally start to look at those. You know, the
    consumer, food prices, transportation costs, because this has a
    staggering effect in which our economy could come to almost a
    deadlock.
        Mr. Grundler. That is certainly the conclusions of the NERA
    study, which was, I would note, a worst case scenario. There
    are other studies that we are looking at in terms of what is
    the actual impact on the consumers, and we are looking at those
    very, very carefully. All of these will go into this decision
    and what is the best thing to do for the Country, and the
    administrator will make that judgment. As I noted, there are
    consequences on all sides of this equation, and people are
    sharing with us directly and often what their views are, and
    they are not always the same.
        Mr. Gosar. I would agree. Let me ask you this. What science
    are you going to use? Because it seems like we are in absence,
    if we are looking at the E15, there is no science that really
    backs it. We have the automotive industry that says we are
    taking away warranties on cars. So it doesn't seem like we can
    go that way. So it looks like we are back-treading ourselves
    into a different position, true or false?
        Mr. Grundler. You asked the question what science will we
    use. It is really a matter of a judgment call in terms of what
    are the market conditions; how much complying fuel can be moved
    through this system and at what cost.
        Mr. Gosar. But it is more than that. It is just not an
    arbitrary aspect. You are talking about realistic, real world
    values, and it is based on science. So you have to point to
    science. Science helps set you free here. And in the absence of
    a study, you have to err in that aspect, because I think any
    time you are looking at the value of what scientists have given
    us, we actually used a methodology that has got us into a
    cleaner fuel. So with absence of science you are in no-man's
    land and you don't know if you can actually support a
    hypothesis.
        Mr. Grundler. Well, there is science as well as market
    reality. If the science told us, a couple years ago, that E15
    would not harm certain kinds of vehicles, and yet we also need
    to consider, as we make this decision, what the likelihood is
    of increases in E15 fuel being produced and sold and bought by
    consumers. So we need to look at both, sir.
        Mr. Gosar. And when you look at the average consumer, do
    they have lots of dispendable money sitting around?
        Mr. Grundler. No, they do not.
        Mr. Gosar. I mean, I have an E15 vehicle, I have a flex
    fuel vehicle, so it makes it easy for me, but that is a little
    different than the average American. We can't just go around
    looking at the troubleshooting that will happen with 70 percent
    of the cars on the marketplace. The American economy, the
    American households just can't go buy another vehicle to
    surmount this. And I think that is my biggest key is, is that I
    see a lack of common sense here.
        I am a dentist, by the way, impersonating a politician, so
    things have, to me, have to have a science base to me that I
    have to understand where am I going, what is my investment, and
    what is it going to have as results; and I don't think that
    that is what we are actually seeing, because I think if we saw
    a detrimental aspect to our economy when we look at return on
    investment, when you look at ethanol subsidies, which so many
    of the members talked about here, you don't have a true open
    market here. And number two is based on corn ethanol, you are
    taking an awful lot off the table in feeding your population
    and you are artificially raising everything on the table; not
    just beef, pork, turkey, chicken, you name it, and diesel fuel,
    all those aspects.
        But I guess what my offer is is there is an un-clarity, if
    there is uncertainty by the EPA, why wouldn't you reach back up
    to this body to say could you help us in that clarification?
        Mr. Grundler. Sir, the way we are going to approach this
    decision, and I hope we will use common sense, we will ask
    ourselves three questions: What is the law saying? What does
    the science tell us? And what is the right thing to do here?
        Mr. Gosar. Let me ask you a question. If you were uncertain
    about what the law said, there was a gray area, so many times
    we pass a law that there is lots of gray areas, why wouldn't
    you entertain coming back to Congress and asking can you
    clarify?
        Mr. Grundler. That wouldn't be my judgment to make, sir,
    but I think the law is quite clear in terms of the levels of
    renewable fuels that the Congress mandated over the next few
    years.
        Mr. Gosar. But that was a different subset of an equation.
    They looked in the future and looking at there were going to be
    people utilizing more fuel. But when you use a finite and
    dwindling more supplies, it becomes an antiquated equation. So
    the rational mind says, listen, this wasn't anticipated; how do
    we review this? And I think that brings a better set of ideals
    and opportunity as a working relationship between a legislative
    body and an administrative body. Wouldn't you agree?
        Mr. Grundler. Sir, my job is to administer the law with as
    much common sense as we can muster, as the law is today. I have
    no position, EPA has no position today in terms of future
    legislation.
        Mr. Gosar. Well, that shows you the lack of what is
    happening in administrative law, that it has to be an
    enigmatic, dynamic type of interface. You want to strive for
    ideals, but you always sometimes have to come back to common
    sense applications. And I see a very big lack of that,
    particularly from your agency; not just in this aspect, but in
    numerous other aspects. I think sometimes we go a lot further
    when we start to work with other bodies like the executive
    branch, along with the legislative branch, to try to define how
    do we solve problems, instead of saying, listen, this is what
    we entertained, this is all we are going to do, and that is it.
        Ms. Speier. Mr. Chairman?
        Mr. Gosar. Yes.
        Ms. Speier. I have one last submission that I would like to
    ask unanimous consent be added to the record.
        Mr. Gosar. So ordered.
        Mr. Gosar. With that, we will adjourn the meeting.
        Thank you very much, Mr. Grundler.
        Mr. Grundler. Thank you.
        [Whereupon, at 12:55 p.m., the subcommittee was adjourned.]

                                    APPENDIX

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                   Material Submitted for the Hearing Record

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