[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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              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:]
    [GRAPHIC] [TIFF OMITTED] 82138.004
    
    [GRAPHIC] [TIFF OMITTED] 82138.005
    
    [GRAPHIC] [TIFF OMITTED] 82138.006
    
    [GRAPHIC] [TIFF OMITTED] 82138.007
    
    [GRAPHIC] [TIFF OMITTED] 82138.008
    
    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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