    [Senate Hearing 114-305]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-305

                    OVERSIGHT OF THE RENEWABLE FUEL STANDARD

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                          ENVIRONMENT AND PUBLIC WORKS
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               FEBRUARY 24, 2016

                                   __________

      Printed for the use of the Committee on Environment and Public Works

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                   COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                        ONE HUNDRED FOURTEENTH CONGRESS
                                 SECOND SESSION

                      JAMES M. INHOFE, Oklahoma, Chairman
    DAVID VITTER, Louisiana              BARBARA BOXER, California
    JOHN BARRASSO, Wyoming               THOMAS R. CARPER, Delaware
    SHELLEY MOORE CAPITO, West Virginia  BENJAMIN L. CARDIN, Maryland
    MIKE CRAPO, Idaho                    BERNARD SANDERS, Vermont
    JOHN BOOZMAN, Arkansas               SHELDON WHITEHOUSE, Rhode Island
    JEFF SESSIONS, Alabama               JEFF MERKLEY, Oregon
    ROGER WICKER, Mississippi            KIRSTEN GILLIBRAND, New York
    DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
    MIKE ROUNDS, South Dakota            EDWARD J. MARKEY, Massachusetts
    DAN SULLIVAN, Alaska

                     Ryan Jackson, Majority Staff Director
                   Bettina Poirier, Democratic Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page

                               FEBRUARY 24, 2016
                               OPENING STATEMENTS

    Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
    Boxer, Hon. Barbara, U.S. Senator from the State of California...     2

                                   WITNESSES

    McCabe, Janet, Acting Assistant Administrator for Air and
      Radiation, Environmental Protection Agency.....................     4
        Prepared statement...........................................     7
    Gruenspecht, Howard, Deputy Administrator, U.S. Energy
      Information Administration.....................................    12
        Prepared statement...........................................    14
    Minsk, Ronald E.,................................................    46
        Prepared statement...........................................    49
    Pugliaresi, Lucian, President, Energy Policy Research Foundation,
      Inc............................................................    80
        Prepared statement...........................................    82
    Coleman, Brooke, Executive Director, Advanced Biofuels Business
      Council........................................................    97
        Prepared statement...........................................    99

                              ADDITIONAL MATERIAL

    Statements:
        American Cleaning Institute..................................   128
        Americans for Tax Reform.....................................   131
        Growth Energy................................................   132
        Environmental Protection Agency..............................   134
        Office of Transportation and Air Quality.....................   135
        National Biodiesel Board.....................................   150
        The George Washington University.............................   153

                    OVERSIGHT OF THE RENEWABLE FUEL STANDARD

                                  ----------

                          WEDNESDAY, FEBRUARY 24, 2016

                                           U.S. Senate,
                     Committee on Environment and Public Works,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 10 a.m. in room
    406, Dirksen Senate Office Building, Hon. James Inhofe
    (chairman of the committee) presiding.
        Present: Senators Inhofe, Boxer, Vitter, Barrasso, Crapo,
    Wicker, Fischer, Rounds, Carper, Whitehouse, Merkley,
    Gillibrand, and Markey.

              OPENING STATEMENT OF HON. JAMES M. INHOFE,
                U.S. SENATOR FROM THE STATE OF OKLAHOMA

        Senator Inhofe. Our meeting will come to order.
        The Renewable Fuel Standard is not necessarily a partisan
    issue; it is often a geographic issue, supported and opposed by
    Republicans and supported and opposed by Democrats all for
    different reasons. The Senate is currently considering energy
    legislation on the floor and, like we do at every opportunity,
    Senators on both sides of the aisle have proposed changes to
    the RFS, expanding ethanol use, eliminating ethanol use, and
    eliminating the mandate altogether. That is where I fall.
        Since Congress enacted the RFS in 2005 and expanded it in
    2007, the world has changed. America now produces more oil at
    home, imports less from abroad, consumes less gasoline, and
    emits less carbon from oil-based fuels. Most of the rationale
    originally justifying the RFS has disappeared. All we have left
    is an unstable program rooted in the EPA's waiving entire
    portions of annual requirements, allowing imported soybeans and
    ethanol from South America to count toward the RFS and
    regularly missing implementation deadlines.
        This year, the EPA was so far behind schedule that they
    were forced to propose 3 years of volume requirements in a
    single package. The 2014 volumes were 730 days late, the 2015
    were 365 days late, and the EPA's mismanagement of the RFS has
    been rife with frequent delays, litigation, and even fraud from
    imaginary biodiesel production. EPA has hurt every party
    involved, from corn producers to refiners.
        Now, at the heart of today's discussion is the fact that it
    is time for Congress to revisit the RFS. In fact, Congress must
    revisit the RFS by 2022, when the tables in the Clean Air Act
    end, or U.S. fuels policy will be left in the hands of the EPA,
    and I think we agree that is not good.
        EPA mismanagement is compounded by concerns that the
    compliance market is not working properly. Biofuel production
    has not reached the levels that were expected when the program
    was created. In recent years, gasoline demand has leveled
    partially as a result of EPA's vehicle efficiency requirements,
    while the RFS has increased. Biofuels are more expensive than
    gasoline.
        Oklahoma is full of gas stations advertising. Where is my
    sign here? You see this on almost every corner in Oklahoma as
    you go through, a sign saying that it is very clear what the
    people want in the State of Oklahoma. Yet, regardless of
    consumer demand, EPA is pushing increased ethanol brands like
    15 percent and higher to levels that can corrode engines and
    void vehicle warranties. These are just a few of the reasons
    why I continue to oppose RFS, which I have done since it was
    expanded in 2007.
        I am pleased to have both the EPA and the EIA here today,
    as they are uniquely positioned to provide us valuable insight
    into the implementation and future of the RFS. Our other
    witnesses will discuss the impact EPA's management has on
    program participants and the economy, and they will raise some
    potential ideas to fix this broken mandate.
        Today's hearing is an opportunity to reassess the longevity
    of RFS, the achievability in the statute volumes, EPA's
    administration of the program, and the potential of
    ramifications to America's energy security and the environment.
    I look forward to this.
        What time did we decide the vote was this morning?
        Senator Boxer. Noon.
        Senator Inhofe. Noon. OK. I was right?
        Senator Boxer. I was wrong.
        Senator Inhofe. Well, you have every right to be wrong.
        Senator Boxer. I hate to say those words, I was wrong.
        Senator Inhofe. All right. Well, we will recognize you
    since you are wrong.
        Senator Boxer. Thanks a lot. Not on this subject.

               OPENING STATEMENT OF HON. BARBARA BOXER,
               U.S. SENATOR FROM THE STATE OF CALIFORNIA

        Senator Boxer. Congress created the Renewable Fuel Standard
    to promote a strong domestic renewable energy industry, reduce
    our dependence on foreign oil, and cut dangerous emissions of
    carbon pollution that cause climate change. These are exactly
    the types of goals our Country should be focused on, and the
    RFS is designed to accomplish these while also creating jobs.
        A central focus of the program is to encourage the
    development of fuels such as cellulosic ethanol and advanced
    biofuels which can turn waste into fuel. By this measure, the
    program is on track to be successful. By 2022, the RFS program
    will reduce carbon pollution by 138 million metric tons, which
    is nearly the annual emissions of 27 million cars.
        Now, some of my colleagues and others testifying today are
    going to criticize the RFS, as is their right. To those who
    claim that the RFS will raise gasoline and food prices, it is
    best to start with the facts.
        First, the EPA has shown that complying with the RFS does
    not increase gas prices. Second, the price of corn today is
    roughly the same as it was in 2007, when the RFS was
    established. The critics making these claims want to repeal or
    undermine the RFS. Frankly, that will benefit the oil companies
    and I believe will hurt the American people.
        The implementation of the RFS has not been perfect, I admit
    that, but the law is sound. Congress designed the RFS to be
    managed in a flexible common sense way. We gave EPA the
    authority to make certain adjustments when necessary.
        As I have said before, legislative changes to the RFS are
    not needed, and I will do everything in my power to stop any
    legislation to modify or undermine this landmark law. We should
    first focus on making sure the law we have on the books works.
    That is why I am pleased that we are having this oversight
    hearing which gives us the opportunity to examine the program.
    I do believe in greater energy security, giving consumers a
    choice, and reducing carbon pollution.
        Yesterday, in the lead story of The New York Times, it was
    reported that sea level rise is the highest it has been in 28
    centuries. That is 2,800 years. So climate change is upon us
    and the RFS plays an important role in addressing the cause of
    that climate change, and that is why I believe we need to
    continue it and we need more biofuels in the marketplace. The
    U.S. should be a leader and should not fall behind other parts
    of the world like Brazil, China, Europe, which continue to
    invest heavily in production of biofuels.
        Now, I do disagree with the EPA on this. I think that the
    biofuel targets EPA included in its final rule last year were
    low, were unnecessarily low. EPA should be setting stronger
    biofuels volume targets that drive investments and innovation
    and make progress toward cleaner advanced biofuels.
        We now have a much better sense of what sustained support
    of renewable biofuels can do. For example, there are now
    multiple advanced cellulosic ethanol refineries in the United
    States that are producing fuel. One of these plants in Iowa is
    the largest cellulosic ethanol plant in the world and will
    produce fuel that has 90 percent less carbon emissions than
    gasoline. This is important progress, but much more could be
    done. So, moving forward, I urge EPA to set robust targets that
    result in increased investments in both biofuels production and
    the infrastructure necessary to bring these fuels to market.
        Mr. Chairman, this is another glaring case where you and I
    come at it differently, but it is with great respect that I
    thank you for holding these hearings, and I look forward to
    hearing from our witnesses.
        Senator Inhofe. Very good.
        We will start with you, Ms. McCabe, and we will move on to
    Mr. Gruenspecht.

     STATEMENT OF JANET MCCABE, ACTING ASSISTANT ADMINISTRATOR FOR
           AIR AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY

        Ms. McCabe. Thank you very much, Chairman Inhofe, Ranking
    Member Boxer, and other members of the Committee. I am very
    pleased to be here this morning and have the opportunity to
    testify on the Renewable Fuel Standard program and on EPA's
    recent final rule setting the annual volume standards for 2014,
    2015, and 2016, and the biomass-based diesel volume requirement
    for 2017.
        The RFS program began in 2006 under the Energy Policy Act
    of 2005. The program's requirements were then modified by the
    Energy Independence and Security Act of 2007, EISA. The stated
    goals of that law include moving the United States toward
    ``greater energy independence and security,'' and increasing
    ``production of clean renewable fuels.'' The law established
    new volume targets for renewable fuels, reaching a total of 36
    billion gallons by 2022, including 21 billion gallons of
    advanced biofuels.
        The amended statute also included a number of new
    provisions, including greenhouse gas emission thresholds for
    qualifying biofuels. After an extensive notice and comment
    process, including working closely with our Federal partners at
    the USDA, the Department of Energy, and others, EPA finalized
    regulations to implement these requirements, and those
    regulations went into effect in July 2010.
        The law requires EPA to issue annual standards for four
    different categories of renewable fuels: total fuel, advanced
    fuel, biomass-based diesel, and cellulosic fuel. These
    standards designate the percent of each biofuel category that
    producers and importers of gasoline and diesel must blend into
    transportation fuel, heating oil, and/or jet fuel. On November
    30, 2015, we issued a final rule to establish the annual volume
    standards for cellulosic biofuel, biomass-based diesel,
    advanced biofuel, and total renewable fuel that apply for the
    years 2014, 2015, and 2016, and we also established the
    applicable volume of biomass-based diesel, which is also
    referred to as biodiesel, that will be required in 2017 in
    accordance with the requirements of the rule and the law. The
    Clean Air Act requires EPA to issue renewable fuel standards by
    November 30 of each year for the following year and 14 months
    in advance for biomass based diesel category.
        With this final rule, EPA established volume requirements
    that will increase the amount of biofuel in the market over
    time, going beyond historic levels. The final standards provide
    for ambitious yet achievable growth, and strongly incentivize
    growth in advanced fuels that achieve substantial greenhouse
    gas reductions compared to the transportation fuels that they
    replace. When Congress passed the RFS provisions, it set annual
    targets for renewable fuel that increase every year through
    2022. It also included tools, known as the waiver provisions,
    for EPA to use to adjust those statutory targets in specified
    circumstances, including where the statutorily prescribed
    volumes could not be met.
        Biofuel use over the past decade has increased
    significantly, especially for ethanol and biodiesel, and
    recently we have seen important developments in the production
    of advanced renewable fuels, including cellulosic biofuels.
    This is encouraging because cellulosic biofuels are the
    biofuels that have the lowest lifecycle greenhouse gas
    emissions. Most of the growth in the law's renewable fuel
    targets for 2015 and beyond comes from these advanced
    cellulosic biofuels. We are committing to doing what we can to
    encourage and support production and blending of such fuels to
    maximize reductions in greenhouse gases.
        Our recently issued final rule seeks to ensure that the
    growth of renewable fuel production and use continues,
    consistent with congressional intent. It uses the waiver
    authorities in a judicious way to establish ambitious but
    responsible and achievable standards. The final rule addresses
    3 years' worth of standards, and sets the volume requirement
    for biodiesel for a fourth year. For 2014 and 2015, we
    finalized standards at levels intended to reflect the actual
    amount of biofuel used domestically. For 2016, and for 2017 for
    biodiesel, the standards we have finalized through use of the
    waiver authorities provides for significant increases over past
    levels. Those final volumes for total and advanced fuels
    reflect our consideration of two essential factors: first, that
    the market can respond to ambitious volume targets; and second,
    that there are limits today to the volumes that can be supplied
    to consumers.
        Many of our stakeholders, and indeed many in Congress,
    rightly want to know why some of the volume targets established
    in the statute cannot be reached. There are several reasons:
    slower than expected development of the cellulosic biofuel
    industry and the resulting shortfall in cellulosic biofuel
    supply, a decline in gasoline consumption rather than the
    growth projected in 2007, and constraints in supplying certain
    biofuels to consumers, ethanol at greater than 10 percent of
    gasoline, in particular.
        Our final rulemaking includes a discussion of this last
    constraint, known as the ``E10 blend wall.'' If gasoline demand
    is flat or trends downward, increasing the amount of ethanol
    used in the fuel pool will require significantly greater use of
    fuels with higher ethanol content, such as 15 percent ethanol,
    or E15, or blends of up to 85 percent ethanol, or E85, which
    can be used in flexible fuel vehicles.
        EPA has taken steps to enable the use of higher-level
    ethanol blends, including granting partial waivers for the use
    of E15 in certain light-duty cars and trucks beginning with
    model year 2001. USDA has also put resources into expanding
    ethanol fueling infrastructure. At the same time, EPA
    recognizes that there are currently real limitations in the
    market to the increased use of these higher ethanol content
    fuels, including current near term limits on fueling
    infrastructure.
        So our final rule balances those two dynamics. Our final
    volumes reflect substantial growth over past historic volumes
    and we believe these volumes are achievable and necessary and
    consistent with Congress's clear intent to drive renewable fuel
    up. We are also taking other steps within our administration of
    the RFS program to improve the quality, transparency, and
    efficiency of our petition review for new biofuels pathways
    that can count under the RFS program, and I can talk about
    those more in response to comments.
        So we recognize that this is a challenging statute, that we
    have a particular job that Congress gave us to implement it,
    and intend to continue doing that in the best way we can,
    working with all interested stakeholders.
        So thank you. I am sorry I went on a little bit too long.
    It is a complicated subject matter, but I thank you for being
    here today.
        [The prepared statement of Ms. McCabe follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Inhofe. Thank you, Ms. McCabe.
        Mr. Gruenspecht, you are recognized.

      STATEMENT OF HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, U.S.
                   ENERGY INFORMATION ADMINISTRATION

        Mr. Gruenspecht. Chairman Inhofe, Ranking Member Boxer,
    members of the Committee, I appreciate the opportunity to be
    before you today. The Energy Information Administration is a
    statistical and analytical agency within the Department of
    Energy. By law, EIA's data analyses and projections are
    independent, so my views should not be construed as
    representing those of the Department or any other Federal
    agency.
        My testimony has eight main points. First, the RFS is not
    expected to come close to the legislated target of 36 billion
    gallons of renewable motor fuel use by 2022. All of EIA's
    referenced case projections since enactment of the present RFS
    targets in 2007 reflect a shortfall, which in 2022 reaches more
    than 18 billion credits in our current reference case.
    Virtually all of the shortfall involves cellulosic biofuels.
        Second, substantial increase in biofuels use would require
    moving beyond the present low percentage blends of ethanol and
    biodiesel that account for nearly all current biofuels
    consumption.
        Third, the hope that large volumes of liquid cellulosic
    biofuels would be available within a decade following adoption
    of the 2007 RFS targets has not been realized. The actual
    supply of liquid cellulosic biofuels was less than one-tenth of
    1 percent of the legislated RFS target for biofuels in 2015. In
    mid-2014, EPA began issuing cellulosic RFS credits for
    compressed natural gas and liquid natural gas derived from
    landfills and other biogas recovery facilities that exist
    independently of the RFS programs. Cellulosic biogas, which,
    unlike liquid cellulosic biofuels, does not displace petroleum
    use, provided more than 97 percent of total cellulosic biofuels
    credits in 2015.
        Fourth, ethanol faces demand, distribution, and regulatory
    challenges that make it difficult to increase its use as a
    motor fuel. Ethanol has three distinct roles in motor fuels
    markets: providing octane, adding to fuel volume, and providing
    energy content. Ethanol has achieved great success in the first
    two roles, where it is supported by factors independent of the
    RFS. While these two uses also provide some energy content,
    additional use of ethanol as an energy content source faces
    significantly higher economic hurdles, as illustrated in Figure
    1 of my written testimony, and therefore depends more directly
    on the RFS.
        Fifth, current EIA projections, shown in Figure 2, show a
    declining trend in motor gasoline use, as has already been
    touched on, a significant change from projections made prior to
    2010. The current projections do not reflect proposed fuel
    economy standards for heavy-duty trucks, which, if finalized,
    would significantly reduce projected diesel fuel use.
    Reductions in projected gasoline use since 2007 mainly reflect
    higher fuel economy standards, slower economic growth,
    certainly in the late ops, possible changes in consumer
    behavior, and, until recently, higher gasoline prices. Lower
    gasoline demand has likely affected the timing of some current
    RFS compliance challenges, but unlike other factors in this
    testimony it is not a major cause of past and projected
    shortfalls in biofuels use relative to legislated targets.
        Sixth, actual and projected reliance on oil imports is
    significantly lower than it was when the expanded RFS program
    was enacted in 2007, shown in Figure 3 of the testimony,
    reflecting the combined effects of more robust domestic
    petroleum production and lower petroleum demand. Biofuels added
    in response to the RFS program have played only a small part in
    reducing past and, in our case, projected net import
    dependence, given the likelihood that ethanol would continue to
    be used as an octane and volume source independent of the RFS.
        Seventh, the near and longer term costs of the RFS depend
    on the price of oil, the price of agricultural commodities used
    to produce biofuels, and future implementation decisions. All
    else equal, lower oil prices tend to raise the cost of RFS
    compliance. Again, ethanol is really used almost exclusively to
    provide octane and volume, and that is not really driven by the
    RFS. Biodiesel use is more directly driven by the RFS program
    and the availability of biodiesel tax credits, and there is
    some discussion of that in my written testimony.
        And I guess my final point is that EIA remains actively
    engaged in matters related to the RFS, obviously not in a
    policy way. We provide data on biodiesel and ethanol production
    and ethanol blending. We provide information to EPA with short-
    term forecasts for motor fuels use and cellulosic biofuels
    production, and we also develop longer term projections.
        So thank you again for the opportunity to testify.
        [The prepared statement of Mr. Gruenspecht follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Inhofe. Well, thank you very much, Mr. Gruenspecht.
        Senator Boxer and I are going to try to get this meeting
    over with before the vote that comes up, so we are going to go
    ahead, and I would ask my colleagues to try to hold your
    questions to 5 minutes.
        First of all, Ms. McCabe, you base your annual volume
    mandates on tables in the Clean Air Act that are listed out
    through 2022. Could you please explain what happens to the
    program after 2022? And isn't the RFS turned over completely to
    the EPA if it is not met at that time?
        Ms. McCabe. My understanding, Senator, is that Congress set
    those volumes through at least 2022 and did not provide for
    additional volumes afterwards.
        Senator Inhofe. Is that yes, then?
        Ms. McCabe. Yes, EPA would continue to administer the
    program, implement the program, as Congress set it out through
    that time.
        Senator Inhofe. OK. Now, the second question I am going to
    ask you to respond for the record. And I might add the last
    time we asked you to respond for the record was September 29th.
    That request was made by several of us, including Senators
    Boxer, Wicker, Fischer, and me, and we still haven't heard
    back. So I would like to have you make a note of that so we can
    hear back from you. And when I say we want to get the answer to
    the second question for the record, we would like to get that
    within 3 days, how is that?
        Corn ethanol was grandfathered into the RFS even though it
    does not meet the greenhouse gas requirements for the program.
    Given the tendencies of this Administration to favor products
    that emit few or no greenhouse gases to advance its climate
    change agenda, when the RFS is turned over to the EPA, what
    role will corn ethanol play in the RFS, and would it continue
    to receive a 15 billion gallon mandate or would its place in
    the RFS diminish? Again, that will be for the record.
        Third question, when you proposed the volume for 2014, you
    did it by the mandated deadline. Why did it take you 730 days
    to finalize those volumes?
        Ms. McCabe. You would like me to answer both questions?
        Senator Inhofe. No, just the third question.
        Ms. McCabe. To explain the timing?
        Senator Inhofe. Yes, why it took 730 days. Be very short.
        Ms. McCabe. So, as has been explained, this is a program
    that Congress intended to evolve over time. It is very complex
    because of the way ethanol feeds into the fuel system and the
    development of other fuels. I think Congress recognized, and we
    always knew, that there would come a time when there would come
    kind of a threshold moment in the program where the
    congressional mandates would require that increasing amounts of
    fuel beyond what is known as the E10 blend wall would come to
    pass, and the 2014-2015 has been the time when that milestone
    occurred. It provided significant challenges, as you know.
    There are very divergent views among the people who are
    affected by the RFS about how EPA should exercise the
    responsibility that Congress gave it, and that led to the 2014
    rule being delayed.
        Senator Inhofe. OK, that is fine, because I am running out
    of time here. So that is the reason for the 730 days delay.
        Mr. Gruenspecht, how has the increased domestic supplies of
    crude oil, which we all recognize is out there, since the
    expansion of the RFS in 2007, and in more recent years,
    impacted the goal of energy security and energy independence?
        Mr. Gruenspecht. Mr. Chairman, I think in 2005 one measure
    that is used is net import dependence on liquid fuels, and that
    was 60 percent. Now we are sort in the mid-20 percent range.
    That is a combination, again, of both the more domestic
    production and the increased fuel economy, lower demand.
        Senator Inhofe. All right. The second question I have for
    you is in the latest RFS rule EPA projected the demand volumes
    for gasoline without ethanol and with higher blends of ethanol
    15 to 85 percent. Now we are talking about the EPA at this
    time. They predict demand for ethanol-free gas would drop
    significantly in 2016, while demand for higher ethanol blends
    will increase. Now, do these projections align with the EIA
    projections of demand for these fuels? To what degree have
    EPA's past annual volume mandates aligned with the fuel demands
    projected submitted to them by the EIA? And I might add that I
    don't believe that is going to be very accurate in my State of
    Oklahoma.
        Go ahead.
        Mr. Gruenspecht. Well, that is a long and complex question.
    Projections of E85 and E15 are very difficult, I think. Looking
    at the data, we do know how much easier oil comes out of
    refineries, but the hard part is there can be blending further
    down the line. So it is hard to figure that out.
        Senator Inhofe. All right, it is hard to figure that out.
    Let's use that for the record, then, because my time has almost
    expired. I do have one short question, and that is based on
    your current projection, is it possible that the RFS will be
    able to achieve the final targets of 36 billion gallons
    contained in the Clean Air Act by 2022, or could it be easier?
        Mr. Gruenspecht. We certainly don't have that in our
    projections, as I noted in my testimony. We think the shortfall
    of about 18 billion gallons of credits in 2022.
        Senator Inhofe. All right, thank you.
        Senator Boxer.
        Senator Boxer. Thank you so much, Mr. Chairman.
        Ms. McCabe, the biofuels industry said it can produce more
    biofuels than EPA provided for in the final rule issued on
    November 30th, 2015, and this final rule undercuts investments
    in biofuels, particularly in cellulosic biofuels. How do you
    answer that criticism?
        Ms. McCabe. Well, thank you, Senator Boxer. We actually
    think that the rule does what it is supposed to, which is to
    support the increased development and use of these fuels. We
    did look very carefully at what was going on in the industry.
    We spent a lot of time reaching out to individual companies to
    make sure we know what is going on. And as has been recognized,
    in certain parts of the industry there has been real challenges
    in getting those fuels into the market. The levels that we set
    represent significant, substantial growth over historic levels.
        Senator Boxer. OK, so just because I have other questions,
    basically, you disagree with the industry. They tell you they
    can do more; you're saying no, you can't. Is that right?
        Ms. McCabe. Well, there are different parts of the industry
    and some are more robust than others, so we take all the
    information that we get and we try to do the best job----
        Senator Boxer. Wait a minute. I am just saying you disagree
    with them.
        Ms. McCabe. With certain----
        Senator Boxer. When they say that your final rule undercuts
    investments in biofuels, particularly cellulosic, you don't
    agree with it. That is all I am trying to establish.
        Ms. McCabe. That is right.
        Senator Boxer. OK.
        Ms. McCabe. Yes.
        Senator Boxer. Now, we have heard repeatedly that EPA and
    the Obama administration are interested in deploying low carbon
    technology, right? Cellulosic ethanol is the lowest carbon fuel
    in the world. Yet, companies that produce cellulosic ethanol
    have expressed concern that EPA's use of its waiver authority
    will limit, rather than expand, the use of this fuel in the
    future.
        Do you agree that production of cellulosic ethanol is
    important for meeting our Nation's commitment to reduce carbon
    pollution? And what is EPA doing to expand the production of
    cellulosic ethanol moving forward?
        Ms. McCabe. I do agree that development of cellulosic fuels
    is absolutely critical and the most central part of Congress's
    intent when they put this law into effect. The EPA is not the
    only actor in the field of developing and changing our
    transportation fuel system. We have very specific
    responsibilities under the statute and we are doing several
    things. One is issuing volumes. That is my most important job
    as head of the Air Office, is to get those volumes out so that
    signal is there, that clear signal.
        We also have the responsibility of approving new pathways.
    People come to us with innovative new fuels that are very
    carbon reducing, and we, in the recent year, have revamped our
    process for doing that so that we can move those applications
    through very expeditiously, including a category called
    efficient producer, so that we are able to push those pathways
    through. We work closely with the USDA and DOE on programs that
    they have to also help.
        Senator Boxer. OK, I think we are getting lost here because
    I am very specific about the waiver authority, so let me ask it
    a different way.
        Ms. McCabe. OK.
        Senator Boxer. How do you reconcile the statement that you
    made: ``This final rule represents EPA's commitment and
    continued support for the steady growth in renewable fuel
    use,'' that is your statement, with EPA's decision to use a
    waiver to reduce the overall volume? You said yourself that is
    the most important thing you do, but you have given yourself a
    waiver below the level Congress intended. You could go down. So
    how do you reconcile on the one hand saying we are committed
    and the other talk about this waiver?
        Ms. McCabe. Senator, our review of the information that we
    had about what could be reasonably but ambitiously achieved in
    the years that we are supposed to set standards led us to
    conclude that the statutory volumes simply were not achievable
    if we were doing our job in a responsible way. So we used the
    authority that Congress provided to waive those standards, but
    only to the degree that we thought was absolutely necessary in
    order to continue to provide that signal for growth.
        Senator Boxer. OK. I just think it is important to note
    that when you say something so unequivocally, and then the
    policy allows you to cut back the volumes, it is a mixed signal
    to folks out there who are making investments.
        Is EPA on track to release the 2017 biofuel volumes in time
    to comply with the deadline in the law?
        Ms. McCabe. Yes, we are.
        Senator Boxer. Good. And do you think that this loss of
    investor confidence that I talk about is a concern, and how do
    you plan to address it moving forward?
        Ms. McCabe. By meeting our deadlines, by continuing to send
    that strong clear signal that volumes should be growing as
    Congress intended, and by doing our job to keep approving new
    types of fuels to get into the system.
        Senator Boxer. Well, thank you. I just hope that when we
    make a commitment, we don't undermine it with waivers and other
    things. Thank you.
        Senator Inhofe. Thank you, Senator Boxer.
        Senator Rounds. Thank you, Mr. Chairman.
        Administrator McCabe, I have a copy of the Clean Air Act,
    and specifically the Renewable Fuel Standards post 2022, and I
    would like to focus on that. It says that the administrator
    shall promulgate rules establishing applicable volumes of
    advanced biofuel, cellulosic biofuel, and biomass-based diesel.
    I see no mention of corn ethanol.
        Being from an ag State, where we have spent considerable
    resources developing this industry, based in large part on this
    Federal mandate, and a large sector of our economy depend upon
    this industry today, this seems to be of real concern to me and
    to a lot of folks in South Dakota and the upper Midwest.
        I want to be very clear on something. In your opinion, does
    the Clean Air Act explicitly provide for corn ethanol to be a
    part of the RVO totals post 2022?
        Ms. McCabe. Well, Senator, you have noted a clear element
    of the law that Congress provided, which is it did not set a
    specific standard for corn ethanol. Corn ethanol is clearly a
    very important bio-based fuel that has been used and is
    increasingly used, and it helps, it is one of the fuels that
    helps fill up the standards and the targets that Congress set
    and that EPA then implements. I really cannot speak to what a
    future EPA would do in 2022 after the table that Congress put
    forth.
        Senator Rounds. But you have significant volumes right now
    that we are not meeting today, correct? There are volume
    requirements that are out there today that the EPA has looked
    at and said, look, we are not going to meet these.
        Ms. McCabe. That is correct.
        Senator Rounds. Even though the shortage has been running
    in terms of the bio products themselves, not necessarily in the
    corn ethanol portion of the mandate?
        Ms. McCabe. The concern and the reason that we felt that
    the waiver was appropriate was the ability to get those
    renewable fuels, whatever they are, into the transportation
    fleet and actually being used.
        Senator Rounds. So even though we couldn't meet the volume
    requirements because the other products, and the other products
    would include those items which are still identified as
    biofuel, cellulosic biofuel and biomass-based diesel, those
    were all falling short of the goals even though you did have
    access to larger proportions and there could have been more
    corn ethanol produced to meet those volumes. Is that a fair
    statement, we could have produced more corn-based ethanol to
    help meet those volume requirements, and yet the EPA had
    indicated at this stage of the game you simply couldn't meet
    the total volume requirements because those other three weren't
    meeting their end?
        Ms. McCabe. Well, corn ethanol cannot meet the nested
    requirements for cellulosic and advanced biofuel because it
    doesn't meet those requirements.
        Senator Rounds. Although it does a very good job in terms
    of meeting the volume guidelines and it does do a very good job
    of meeting and improving octane levels within a fuel.
        Ms. McCabe. But it has to be able to get into the vehicles
    and be used.
        Senator Rounds. Right. So let me just move on, then.
        Sir, just a question, Mr. Gruenspecht. Right now we have
    basically a time period from 2022 where there is no more
    mandate for the use of corn ethanol in the Federal programs,
    and yet at the same time, in your testimony, you identified
    that it is an excellent source for octane and it is an
    excellent source or it is a qualifying source for volume
    requirements. We have CAFE standards coming up in the year
    2025, where we are going to have I think the average is 54, 55
    miles per gallon that we are expecting. In order to reach that,
    there has been considerable discussion that I have been a party
    to that indicates that we are going to want higher octane
    ratings for fuel in order to meet those volumes.
        Could you share a little bit of any background you may have
    or any discussion that you have been involved with, any
    information that you have indicating the need for octane
    boosters in order to meet new CAFE requirements by the year
    2025, 3 years after the end of this mandated portion of the RFS
    for corn ethanol? I see a gap between 2022 and 2025.
        Mr. Gruenspecht. We have really not been looking closely at
    that, I would say.
        Senator Rounds. Do you think it maybe should be considered?
        Mr. Gruenspecht. It is a possibility that there is talk
    about looking to higher compression, different fuel engines as,
    I want to not say as opposed to, but in conjunction with this
    notion of using biofuels as blends for gasoline, but we have
    not looked at it.
        Senator Rounds. Sure. But in terms of higher compression
    engines, the need for a higher octane rating helps, doesn't it?
        Mr. Gruenspecht. I am not an expert in that area, but I
    would believe that to be the case.
        Senator Rounds. And I think in your opening testimony you
    indicated the need or at least the fact that corn ethanol was a
    very good source or a good source for octane improvement or an
    octane adder in the fuels that we use in vehicles today.
        Mr. Gruenspecht. That is correct. Like when we phased out
    MTBE, I guess following the Energy Policy Act of 2005, there
    was a very large demand for ethanol to play a role in gasoline
    and, in fact, the use of ethanol was far in advance of the RFS
    requirements at that time. That need has kind of been filled,
    at least with respect to gasoline used in current types of
    engines.
        Senator Rounds. And the next gap will be 2025 with new CAFE
    standards with higher mileage requirements.
        Mr. Gruenspecht. Well, the CAFE standards, I believe, but
    those are really more suited for my colleague, but I believe
    they go up not in a step, but go up gradually over between now
    and 2025.
        Senator Rounds. Thank you.
        Thank you, Mr. Chairman.
        Senator Inhofe. Thank you. Senator Carper.
        Senator Carper. Thanks.
        Mr. Gruenspecht, have you ever testified before Congress
    before? Is this your first hearing?
        Mr. Gruenspecht. No, no, no.
        Senator Carper. Do you remember your first hearing?
        Mr. Gruenspecht. I do.
        Senator Carper. Who chaired that one?
        Mr. Gruenspecht. Up on the fourth floor of a building on
    the other side of the dome.
        Senator Carper. Whose committee was it?
        Mr. Gruenspecht. It was in front of you.
        Senator Carper. And Tom Ridge. Committee on Economic
    Stabilization.
        Mr. Gruenspecht. Many miles.
        Senator Carper. It is great to see both of you again.
    Thanks for joining us.
        I think it was 2005 when Congress and President George W.
    Bush got together and enacted the RFS legislation for a couple
    of reasons: one, to diversify our Nation's energy portfolio;
    second, to strengthen the economy, particularly the economy of
    rural communities, by encouraging certain agricultural
    commodities that contribute to biofuel production; and maybe a
    third would be to bolster the U.S. standing in emerging
    segments of the energy technology market; and a fourth would be
    to protect our environment. There are other objectives as well,
    but those are four pretty big ones.
        How are we doing?
        Ms. McCabe. Well, I think the biofuel story has been a real
    success story in the United States. There has been tremendous
    growth in, as you say, rural America; lots of jobs created in
    economic opportunity there. We have seen American innovation
    come forward with interesting and innovative fuels, and they
    continue to do so. As we get increased amounts of these fuels
    into our transportation fleet, our emissions of greenhouse
    gases go down, and that is a very good thing.
        Senator Carper. Mr. Gruenspecht, how are we doing against
    those four? We like to use metrics around here, and we said the
    reason why we were enacting this legislation was to address at
    least these four issues. I just went through those. How are we
    doing in terms of meeting them?
        Mr. Gruenspecht. Clearly, the use of biofuels has increased
    quite a bit. I think in the case of ethanol, it probably
    doesn't have that much to do with the RFS program. In terms of
    biodiesel, I think, as I said in my testimony, it probably does
    have more. Really, those are the two main sources of biofuels
    that we are using. Again, I have been taught never to assume
    what other people were thinking, but I think that maybe in 2007
    people thought there would be a lot of cellulosic biofuels, and
    basically there aren't. Again, it turned out maybe to be more
    challenging than some people have thought.
        Senator Carper. That is probably an understatement. Thank
    you.
        Ms. McCabe, do you believe that somehow RINs could be used
    as a vehicle to incentivize consumers to purchase E85 fuel?
        Either of you could take a shot at it, but do you think we
    can somehow figure out how to use RINs as a way to help
    incentivize consumers to purchase E85 fuel? And, if so, could
    that result in real economic incentives to fuel retailers to
    install required infrastructure?
        Ms. McCabe. Look, consumers will buy fuel based on the
    things that they think about, which is price and fuel that
    works for their needs.
        Senator Carper. And convenience.
        Ms. McCabe. And convenience. That is right. So a lot of the
    work that we have done looking across the industry and what
    they are doing has been to examine how those fuels are getting
    into the marketplace and whether they are attracting people and
    whether they are buying them. The RINs are a device that
    Congress put in the law that EPA has implemented actually to
    make the system workable for the obligated parties so that
    everybody doesn't have to actually produce the liquid gallons
    themselves.
        But I think that the system needs to work so that those
    fuels become attractive to people and Congress, in setting up
    the RFS, I think recognized that those fuels needed a boost
    along the way, and that was why they set up the program the way
    they did.
        Senator Carper. All right, thank you.
        This could be a question for either of you. Later today I
    am going to be meeting with a lot of farmers from Delaware, and
    when you make your way, Mr. Gruenspecht, to Bethany Beach, one
    of the finest five star beaches in America, you drive through a
    place where we raise corn and soybeans and we raise a whole lot
    of chickens on DelMarVa Peninsula, as you know. I like to say
    we have, for every person in Delaware, 300 chickens. A lot of
    chickens. And they eat a lot of corn, and when the price for
    corn was going up, up, up, up, up, we heard a lot of pushback,
    a lot of pushback from our ag community, including some of the
    people I will be meeting with later today.
        From your perspectives, has the RFS had any significant
    effect on the price of corn since its inception?
        Ms. McCabe. Well, I am not an expert on commodity prices; I
    think there are folks who have looked at that and people have
    different views about it, so I don't want to offer an expert
    opinion on it.
        Senator Carper. How about an inexpert opinion?
        Ms. McCabe. I have heard from some sources that they
    believe that prices have gone up to a certain extent on these
    commodities as a result of the RFS, but there are many factors,
    of course, that go into any commodity prices.
        Senator Carper. OK.
        And a quick yes or no question, if I could, Mr. Chairman.
        Is EPA on track to proposing an RFS rule for 2017?
        Ms. McCabe. We are. Yes.
        Senator Carper. Thank you. End of questions.
        Senator Inhofe. Senator Wicker.
        Senator Wicker. Thank you, Mr. Chairman. I must say I share
    the Chair's skepticism about this whole idea.
        I appreciate the testimony of Mr. Howard Gruenspecht and
    would simply note what he said at the outset. He is here on
    behalf of an agency giving us data and analysis, and I think
    his testimony is very compelling about how wrong and mistaken
    Government can be over time. The testimony indicates that this
    RFS was based on an inaccurate premise, that the projections
    were wrong. RFS compliance is now going to cost a lot more than
    it was expected to be.
        On page 5 of Mr. Gruenspecht's testimony it said earlier
    projections of growth were inaccurate; actual and projected
    reliance on all imports was lower. So I would simply submit
    that it is pretty compelling testimony that we surely are
    capable of getting it wrong here in the United States.
        Ms. McCabe, let me just use my remaining 4 minutes to make
    this one point about small refiners and hardship exemptions. I
    have several small refiners in my State who are concerned about
    the impact of the Renewable Fuel Standard on their business and
    their ability to create jobs and support the families in their
    area. Small refiners are concerned that RFS, as it exists, has
    created an economically untenable situation for many companies.
        In the original RFS rule, EPA encouraged qualified small
    refiners to seek a hardship exemption. EPA said this would
    appropriately address the needs of affected parties. However,
    EPA has begun to phaseout hardship relief without receiving
    feedback from small refineries, without public notice and
    comment, and without revising the regulation that articulates
    the hardship standard.
        I ask unanimous consent, Mr. Chairman, that the following
    letter be submitted for the record. It refers to a company, the
    Hunt Southland Refining Company in Mississippi, that has twice
    petitioned for a hardship exemption but has heard nothing from
    EPA. If this company is unable to obtain such an exemption,
    many of its well-paying jobs will be put at risk.
        On page 2 of the letter the author says to me as a Senator
    they hope that I and my colleagues will consider the following
    actions: review with the EPA its rule and the disproportionate
    impact it has on small refineries; No. 2, insist EPA utilize
    appropriate standards as articulated by Congress for hardship
    waivers; and, three, review with EPA the correct parties who
    should be obligated for compliance under the Renewable Fuel
    Standard.
        [The referenced information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Wicker. So in the minute and a half we have left,
    Ms. McCabe, what about this? What about the seeming change in
    direction where the hardship exemption was encouraged at first
    and then we have had a hard time getting a follow-through?
        Ms. McCabe. Well, thank you for the question, Senator
    Wicker. Respectfully, I would describe it a little bit
    differently. When Congress passed the law, they exempted small
    refiners through 2011, and the law then sets up a process for
    EPA to consider hardship waivers in consultation with the
    Department of Energy, who has established, after an intensive
    study of this issue, a set of metrics that they evaluate for
    every hardship petition we receive.
        We take these incredibly seriously; these are very serious
    petitions that we get from people, and we need to make sure
    that we are consulting with DOE, we are looking at those
    metrics, we are being fair. This is a competitive issue, and in
    the last year for which we issued waivers, which was 2013, we
    got, I think, 13 waivers and we granted half of them and denied
    half of them. And those reflect a very serious, very fact-based
    inquiry into each petition.
        So I would not at all say that we have taken a position
    that we are phasing out those waivers; we take very one of them
    very, very seriously, and we will grant them if appropriate.
        Senator Wicker. Well, I hope that is correct, and I would
    simply point out that what I am hearing is that there are
    companies that have applied and received no answer at all. So I
    hope you will address that.
        Ms. McCabe. The reason for that is we need to know the
    final volumes before we can actually evaluate the petitions.
    Nobody's compliance obligations began until that rule was
    finalized, so as soon as that rule was finalized, we began
    reviewing those petitions that were pending.
        Senator Wicker. Thank you, ma'am.
        Senator Inhofe. Thank you. Senator Merkley.
        Senator Merkley. Thank you very much, Mr. Chair.
        I want to go back to the cellulosic side of things. When I
    first came to the Senate, we had a Senator from North Dakota
    who said that North Dakota is the Saudi Arabia of wind energy,
    and a senator from Nevada saying Nevada is the Saudi Arabia of
    solar energy, and a county commissioner of Douglas County, from
    where I was born, saying Douglas County could be the Saudi
    Arabia of cellulosic ethanol and, indeed, because there is so
    force mass there.
        But the cellulosic industry said the following: ``EPA's 2
    year delay in finalizing the rule created untenable uncertainty
    and shook investor confidence in the RFS program. Bio estimates
    that investment in the biofuel sector has experienced a $13.7
    billion shortfall due to EPA's delays in proposed changes.
    Unfortunately, this final rule exacerbates the problem as EPA
    has acknowledged this delay allowed obligated parties to act as
    if the law did not exist. The delay increased carbon emissions
    by millions of tons over the past 2 years compared to what
    could have been achieved with required use of biofuel.''
        I have heard this ongoing frustration about the rulemaking
    process and the Senator from California, Barbara Boxer, was
    noting that the level was set at a level that the industry said
    was below what they could meet, but that added to investors
    being very reluctant to get in; that the Administration wasn't
    ready to be aggressive in this area.
        So I guess it is more of a comment. You have already
    answered the question from your perspective, but I will just
    add my concerns that this is a tool that has been underutilized
    and inconsistently applied in a way that has damaged the
    development of this industry.
        You are welcome to comment if you would like, but not for
    too long, because I have something else I want to talk about.
        Ms. McCabe. No, just very quickly, Senator. I appreciate
    all the comments that you made. We don't like missing deadlines
    at all, and we are committed to having this program be back on
    track and keep it there so that those signals will be sent as
    they are intended to be.
        Senator Merkley. So I want to thank you very much.
        I want to switch subjects to the challenge we had in
    Portland, Oregon. The U.S. Forest Service decided to do an
    innovative study looking at samples of moss in the city because
    the moss draw all of their sustenance from the air; therefore,
    they are kind of like a little air monitor. And when they
    started analyzing the moss samples taken throughout the city,
    they found these hotspots for cadmium and arsenic.
        It looks there is going to be a little hotspot on lead,
    though I am not sure that is as well-developed yet; they are
    still working on the data. But the graph on the cadmium was
    dramatic and it turns out these two hotspots correspond to two
    glass factories.
        My understanding is that the EPA said they were exempt from
    regulation for arsenic and cadmium because they only produce
    their glass in batches, rather than having a continuous
    furnace. I must say citizens thought that seemed like a pretty
    arbitrary thing. You have a plant producing substantial
    quantities of pretty toxic substances for human health.
        So one of the requests that Congressman Blumenauer, Senator
    Wyden and I have made is for the EPA to look at this very
    carefully and see if this is an oversight that needs to be
    remedied.
        Ms. McCabe. Yes, Senator. I am quite familiar with this
    situation. I have been in close contact with Regional
    Administrator McLerran over the last couple of weeks and really
    want to commend the agencies in Oregon for being so proactive
    on this issue. I hope you know that Oregon is a real leader in
    evaluating and taking action on toxic chemicals.
        We are looking very closely at the rules that were last
    adopted in 2008, I think. We are also looking across the
    Country to see what other facilities are like this, and we will
    take appropriate actions.
        Senator Merkley. I do appreciate Dennis McLerran's prompt
    response to the letter that Senator Wyden and I sent in which
    we are asking for full extensive cooperation. Can we count on
    the EPA to be a full partner in evaluating the health of the
    citizens impacted by this cadmium and this arsenic?
        Ms. McCabe. Well, there are other agencies in the Federal
    Government who are more expert in evaluating health impacts,
    including the ASTDR, who is working with the Health Department
    in Oregon, so we want to make sure we are offering support in
    the areas where we have clear expertise, and right now that is
    in air monitoring, in looking at these facilities,
    understanding their emissions better, understanding what
    control technologies might be available, looking at how these
    facilities are regulated. And we will work fully with the
    health agencies on the Federal level and with the environmental
    and health agencies in Oregon.
        Senator Merkley. Thank you. I appreciate that commitment. I
    can't overState how much concern there is among the citizens
    who live in these zones of contamination that have been just
    recently identified, so in every possible way you can help,
    including encouraging other parts of the Federal Government to
    lend their expertise would be much appreciated.
        But the other point, and I will just close with this, is
    that this is kind of a landmark event of utilizing moss as a
    cheap, inexpensive way to monitor the quality of air, so I
    would like to see the EPA look at this very closely because the
    tests that cost many hundreds of dollars with a monitor, or
    thousands of dollars, can be done for just a fraction of that
    by testing the moss, and I think this has just not been
    recognized before. I think this is something of a breakthrough.
    And if it turned up these two hotspots in Portland, then maybe
    this use of moss study should be something that we should
    undertake. I think the entire study was $20,000. It would be
    utilized in other urban zones. And I am imaging you are looking
    at that, but I want to encourage that.
        Ms. McCabe. Yes, sir, we really are. I have had exactly the
    same thought pattern as you have. Not all cities are as blessed
    with moss as Portland, but I definitely think it is something
    that we need to be looking into.
        Senator Merkley. The Portland rain does well once again.
    Thank you.
        Senator Inhofe. Thank you, Senator Merkley.
        We are going to try to hold on to our 5 minute rule because
    we would like to get this over with before the vote takes place
    at noon.
        Senator Vitter.
        Senator Vitter. Thank you, Mr. Chair.
        And thanks to both of you for your work and for being here
    today.
        Ms. McCabe, traditionally, ethanol has cost less than
    unfinished gasoline, so that has been a significant market
    incentive to maximize ethanol in a blend. Recently, that has
    reversed. That is a big change and a lot of folks say ethanol
    costing more than unfinished gasoline is perhaps a new normal.
    How does that affect your assumptions that were used when
    writing the 2014-2016 rule, and will you be doing a new
    economic analysis for the 2017 rule that takes this into
    account?
        Ms. McCabe. Well, each time we do the volume standards, of
    course, our main goal is to satisfy Congress's intent to meet
    or come as close as we can meet responsibly to the statutory
    volumes that Congress put in place, and I think everybody
    understands that prices fluctuate over time, but Congress's
    mandate was pretty clear that we needed to do the best job we
    could to meet those mandates. So in 2010, when we did the
    initial rule, we did an exhaustive analysis and cost-benefit
    regulatory impact analysis, and when we set the annual volumes
    those rulemakings are following that initial analysis. So it is
    very difficult for us to do an individual and exhaustive
    analysis looking at all those factors in setting the annual
    volumes rule and meet those statutory requirements and
    schedule.
        Senator Vitter. So that means you wouldn't do a new
    analysis regarding this for the 2017 rule?
        Ms. McCabe. We wouldn't, but we will be looking at and
    getting information from Howard and his staff on projections
    about fuel use and fuel availability and all those sorts of
    things.
        Senator Vitter. OK. This program has been plagued by a lot
    of difficulties, and the one I hear about the most is enormous
    uncertainty because of EPA's inability to issue RVOs on time.
    And you have been asked if you are on track for 2017; you said
    yes. Let me just ask it a slightly different way. Can you
    commit to issuing a final rule for 2017 RVOs on time?
        Ms. McCabe. It is my intent to issue that rule on time.
        Senator Vitter. So you will commit to us that is going to
    happen on time, as opposed to the last several years?
        Ms. McCabe. I am making a personal commitment. I don't
    control the world. I can't predict unforeseen circumstances,
    but it is EPA's intent to meet that deadline.
        Senator Vitter. OK. The 2016 rulemaking included some
    really aggressive assumptions about how much ethanol can be
    used in the fuel supply, so compared to that how much E0 was
    used in the U.S. last year and how much does the rule assume
    will be used this year?
        Ms. McCabe. We get differing views from different
    stakeholders about the way you characterize the volumes. Our
    understanding of the amount of E0 used is that it is a very,
    very small percentage of the fuel pool.
        Senator Vitter. And what is assumed for E0 for the current
    rule?
        Ms. McCabe. I don't remember the exact number off the top
    of my head, Senator, but we will get it for you.
        Senator Vitter. OK. EPA also assumed that at least 200
    million gallons of E85 will be used this year; yet in previous
    years way, way less than that was used. Why do you believe that
    is going to change really overnight?
        Ms. McCabe. Well, we believe that there are a lot of
    efforts, including those supported by the USDA, to encourage
    and enhance the availability of E85 in the system, and we think
    our job under the statute is to set standards that encourage
    the development and increased use of these fuels, so that is
    the analysis that we use to get to that level.
        Senator Vitter. You agree, though, that the forecast is way
    above anything historical?
        Ms. McCabe. We can all pick our own adjectives. I would
    agree that it is an increase, and that is what we understand
    our job to be under the statute.
        Senator Vitter. What percentage increase are we talking
    about?
        Ms. McCabe. Let's see, for total renewable fuel it is----
        Senator Vitter. I am talking about E85.
        Ms. McCabe. I will have to get you that.
        Senator Vitter. OK, you can submit it to the record.
        Ms. McCabe. Yes.
        Senator Vitter. I think that will bear out it is an
    enormous increase. And then in the rule EPA assumes more than
    300 million gallons of E15 can be sold, yet I understand only a
    little more than 100 stations carry that. How do you expect
    that to happen?
        Ms. McCabe. Well, again, I think that the signals that are
    sent through the volumes that we establish in the rule are
    intended to push the market. I will say, too, that there is no
    formula, there is no exact delivery of precise numbers of
    volumes in any particular category that need to be produced and
    used in order to satisfy. The market will decide how to meet
    those mandates.
        Senator Vitter. OK, thank you.
        Senator Inhofe. Thank you, Senator Vitter. Senator Markey?
        Senator Markey. Thank you, Mr. Chairman, very much.
        There is no question that climate change is real, it is
    happening. We have to find alternative ways of providing for
    the transportation system in our Country. That is what the
    Renewable Fuel Standard was intended to accomplish. We still
    import 4.3 million barrels of oil a day; Saudi Arabia, Iraq,
    other countries in the Middle East. Very dangerous. This helps
    to contribute to the lowering of that standard. The beauty of
    the biofuels revolution is that it can happen anywhere. Back in
    the 19th century, Massachusetts was the energy capital of the
    United States when Herman Melville was writing by whale oil
    lamps about Captain Ahab in his pursuit of Moby Dick. But right
    now, in Massachusetts, we have scores of smaller companies all
    trying to find ways of inventing the new biofuels of the future
    because it is a technological revolution that is absolutely
    potentially revolutionary.
        Under the RFS, EPA is tasked with reviewing and improving
    new pathways for feedstocks, technologies, and types of fuel.
    It is an important part of the program to ensure the carbon
    benefits of renewable fuels. It is not an easy task. If
    Congress increased the resources for the EPA, would it speed up
    the approval process and get more U.S. companies producing
    biofuels?
        Ms. McCabe. Well, actually, Senator, we undertook an effort
    in the Office of Transportation and Air Quality to relook at
    our process for reviewing those applications and greatly
    streamlined it. We are getting better at it. We were able to
    provide more clarity to applicants so that we could move the
    applications through very quickly and we are really doing that
    so we have this efficient producer category. So I think we are
    adequately resourced to keep these applications moving through.
        Senator Markey. OK, great. With lower oil prices globally
    and in the marketplace here in the United States, American
    consumers are now moving toward larger vehicles, and they are
    actually driving more as well. So are you factoring that into
    your 2017 rulemaking?
        Ms. McCabe. Well, as I have said, our main job is to do the
    best we can to meet Congress's intent in terms of growing these
    volumes.
        Senator Markey. I guess what I am asking you is that is
    going to drive the price of gasoline up again, the larger
    vehicles being purchased, the additional gasoline needed for
    those large vehicles, and the fact that people are driving
    more. So it is likely to drive up the prices, so are you
    factoring in higher gasoline prices as a likelihood in terms of
    the equation which you create on the relative efficacy of
    producing biofuels?
        Ms. McCabe. Well, we look to sources like EIA to provide us
    with information about predicted gasoline use and different
    fuel use, so to the extent that those considerations come in to
    those projections of fuel use they would be folded into our
    consideration and the information we consider.
        Senator Markey. So you don't make your own independent
    evaluation, it is an EIA determination as to whether or not the
    price of gasoline is likely to go up because of this increase
    in consumption?
        Ms. McCabe. Well, our job is to look at all the information
    that we can get and to consider what will happen in the fuel
    pool to make our best judgment about what fuels are available
    and what fuels will be used.
        Senator Markey. And in terms of the relative benefits of
    the RFS compared to continued consumption of gasoline, gasoline
    is a mix of chemicals, including toxic aromatic hydrocarbons
    like benzene and toluene and silane, and once these compounds
    come out of a car's tailpipe they can cause serious heart and
    other diseases that impact the American people. Under the 1990
    Clean Air Act amendments, the EPA has to take action to control
    the use of aromatic hydrocarbons in fuel. What has the EPA done
    about these toxic compounds?
        Ms. McCabe. This is a very serious issue, as you
    recognized, and gasoline is incredibly complicated chemically,
    so we pay a lot of attention to this. EPA rules have regulated
    benzene and particulate emissions from diesel fuel. These are
    major rules that help bring toxic emissions down. And we are
    continuing to look at other ways to reduce toxics emissions
    from transportation fuel.
        Senator Markey. I would recommend that to you. These are
    very toxic chemicals that are mixed in with the gasoline. They
    are not mixed in with other renewable fuels alternatives, and I
    just think that is a factor that the Committee should
    understand in terms of the overall public health benefits for
    our Country, and I would ask you to take an additional look at
    that in terms of looking at the cost-benefit analysis, and I
    would ask the Committee, as well, to look at what the price is
    that our public health pays by having these very toxic
    chemicals be built into our gasoline formulas.
        I thank you, Mr. Chairman.
        Senator Inhofe. Thank you, Senator Markey. Senator
    Barrasso.
        Senator Barrasso. Thank you, Mr. Chairman.
        Ms. McCabe, before I read my question on the Renewable Fuel
    Standard, I would just like to turn briefly to the EPA's so-
    called Clean Power Plan. Earlier this month, the U.S. Supreme
    Court granted what the Solicitor General described as an
    extraordinary and unprecedented request to stay the EPA's
    regulations. The Court's stay is in effect until the litigation
    over the EPA's regulation is resolved. So a week later Todd
    Stern, who is the Administration's Special Envoy for Climate
    Change, was asked whether the United States would still go
    ahead and sign the Paris climate agreement. Mr. Stern responded
    by saying, we're sticking to our plan to sign.
        I find the Administration's decision on signing this Paris
    climate deal to be nothing short of reckless. It is like
    signing a loan for a luxury car after you have already been
    laid off, lost your job. Sure, it is possible you will be
    rehired, but there is a strong likelihood that you will be out
    of work when the bills come due.
        So my question to you is, if the Court does strike down the
    EPA's so-called Clean Power Plan, how does the EPA intend to
    meet the United States' obligation under the Paris agreement?
        Ms. McCabe. Well, Senator, there are a number of programs
    that the United States had in mind in developing our commitment
    under the Paris agreement; the Clean Power Plan is not the only
    one. EPA is not the only actor in the space to reduce emissions
    of harmful greenhouse gases, and we are committed to continuing
    to work with all stakeholders to develop and implement those
    programs.
        I would also point out that the evidence of the increasing
    use of renewable fuels and energy efficiency is very robust.
    Those types of energy are growing even without the extra push
    of the Clean Power Plan. So we see those trends going in the
    right direction.
        Senator Barrasso. So you are saying today to this Committee
    that you can meet, or the United States can meet the
    obligations without the Clean Power Plan?
        Ms. McCabe. I am saying that there are a number of programs
    already contemplated, and 2025 is many years away. I think
    everybody expected that there would continue to be efforts made
    to reduce carbon emissions across the wide range of
    opportunities.
        Senator Barrasso. So to meet the U.S. obligations, you do
    not need the Clean Power Plan. That is what you are saying?
    That is your testimony?
        Ms. McCabe. I am saying that there are many opportunities.
    I am also confident that the Clean Power Plan will ultimately
    be upheld and go into effect. But these are important goals and
    the United States is committed to meeting them.
        Senator Barrasso. Well, the EPA's own lawyer said this was
    an extraordinary and unprecedented stay request, so I am having
    trouble understanding your confidence that the Court will
    uphold the Clean Power Plan. There has been a change in the
    Court with the death of Justice Scalia. It just seems that the
    Administration is acting recklessly on the hope that who is
    elected president and what happens with a Supreme Court
    nominee, rather than just realizing and admitting that you
    can't keep the promises that you made in Paris, that the
    Administration has made in Paris, if the Court rules against
    the Clean Power Plan.
        Ms. McCabe. Well, the stay issued by the Court had no
    explanation; it was not a statement on the merits of the rule
    at all. Courts sometimes issue stays while litigation is going
    forward, and that is how we see this one.
        Senator Barrasso. That is not how you see it. The EPA's own
    lawyer, the U.S. solicitor general, called it extraordinary and
    unprecedented, so it is not a routine sort of a thing.
        Ms. McCabe. For the Supreme Court to step in, that was
    unprecedented. But there is no expression of any consideration
    of the merits of the Clean Power Plan; it is a procedural step.
        Senator Barrasso. Last September, over 50 organizations
    called on Congress to act and fix the Renewable Fuel Standard.
    These groups included many humanitarian organizations,
    government watchdog groups, environmental groups, food
    producers. I read your testimony. I noted that you didn't call
    on Congress to fix the Renewable Fuel Standard, even though the
    humanitarian groups did it, the government watchdog groups did
    it, environmental groups did it, food producers did it.
        Is the Administration's position that Congress should
    ignore these groups and doesn't really need to fix the
    Renewable Fuel Standard?
        Ms. McCabe. Well, sir, our job is to implement the laws
    that Congress passes, and we live in a democracy where
    everybody can come forward and ask Congress to make various
    changes. We are doing what we are supposed to do, which is to
    implement the laws that you gave us.
        Senator Barrasso. So is it the EPA's position that the
    concerns from these humanitarian organizations like Oxfam,
    ActionAid have with the RFS are misplaced?
        Ms. McCabe. No, we recognize legitimate concerns raised by
    a variety of groups and we are happy to provide technical
    assistance as Congress might request on whether there are
    things that could be done to improve or change the RFS, and we
    would be happy to do that if Congress decides to go forward
    that way.
        Senator Barrasso. So, Mr. Gruenspecht, with regard to this
    specific issue, these humanitarian groups have argued that the
    RFS hurts millions of people in poverty in the United States
    and across the world by driving up food prices. You said that
    EIA remains actively engaged in matters related to this
    program. Would you be willing to examine the impact of the
    Renewable Fuel Standard has had on wholesale food prices,
    specifically prices of corn, soybeans, wheat, dairy, beef,
    pork, poultry?
        Mr. Gruenspecht. I think that is a bit outside of our role,
    but we could certainly work with others in the U.S. Government
    on that. Department of Agriculture would have a role. It is
    really a function of both demand and supply, and there is
    clearly a supply side of this as well as a demand side. But
    there are definitely agricultural products being used for fuel
    that affects the demand for agricultural products. That, in
    part, is why some people like the thing and why other people
    don't like it.
        Senator Barrasso. Well, thank you. I would like to followup
    with you and work with you, because I think it would benefit
    all of us.
        Thank you, Mr. Chairman.
        Senator Inhofe. Thank you, Senator Barrasso. Senator
    Whitehouse.
        Senator Whitehouse. Thank you very much, Chairman.
        A lot of the attention to the Renewable Fuel Standard
    involves the struggle between, as your colleague just said, the
    agricultural interests, for whom this is a new market and who
    are very positive about it, and the fossil fuel interests, for
    whom this is a competitor and who are not happy about it. Both
    big agriculture and big oil are extremely capable, really
    almost to a fault, of making their voices heard in Congress;
    they are two of the more enormous sumo wrestlers in our
    political struggles, and my concern is that EPA look out for
    and protect some of the smaller interests that are involved
    with the Renewable Fuel Standard, one being biodiesel
    companies.
        Until we have a proper price on carbon, they are not going
    to get a fair shot in the marketplace, so the Renewable Fuel
    Standard needs to support them. I think a true economy would
    show that was a valuable proposition, but under the present
    market failure they are stuck and it takes the Renewable Fuel
    Standard to help them.
        The prospect for algae-derived fuels is, I think, a really
    interesting possibility. The Navy is already working its way
    into jet fuel contracts, and helping that industry to protect
    itself I think is one of the goals of the Renewable Fuel
    Standard. Advanced cellulosic, not just turning corn into
    ethanol, but looking at new things, is something that I think
    has a lot of potential. All of these are industries that big
    interests would like to see strangled in the crib, and yet they
    have enormous potential if they can get through their early
    stages.
        So I hope that in the future (a) you will be punctual about
    getting these rules out on time, and (b) that you will take
    into consideration the period of innovation in those industries
    where we can potentially earn extraordinary social returns if
    they can move through their early stages and into a more robust
    economic picture, maybe even 1 day be able to stand up against
    the mighty sumos of fossil and ag.
        The other thing I would like to ask you to be sure to pay
    attention to is the ocean State and offshore engine in a marine
    environment is at considerable greater risk of water
    contamination when ethanol levels in the fuel get up too high.
    Again, the big interests like agriculture and fossil fuels I
    don't think give a red hot damn about a fisherman and his motor
    offshore, but I do think it is important that there continue to
    be a supply chain that is available to the fishing community
    and people who are boaters to make sure that they are not put
    at risk by the harm that too much ethanol can do in a marine
    environment. It is a different environment than terrestrial
    engines, and I hope you would be aware of that as well as you
    proceed. Keep those things in mind.
        Ms. McCabe. Yes, we certainly do. And we definitely hear
    from that community expressing those concerns.
        Senator Whitehouse. Yes. If your engine goes out on the
    side of the road, you call AAA. If your engine goes out four
    miles out, you have a whole different set of problems.
        Ms. McCabe. Right. Right.
        Senator Whitehouse. OK, as long as you are paying attention
    to that, I appreciate it. And as long as you are keeping your
    eye on the little interests that could 1 day be big interests
    and not allow them to be overlooked and/or strangled in the
    crib by the big interests, that would be all I would ask of
    you.
        Ms. McCabe. I think our recent standard showed a very
    steady trajectory for biodiesel in particular, which is exactly
    the point that you are making.
        Senator Whitehouse. And for what it is worth, it is my
    understanding that under a four to four Supreme Court decision,
    the challenged regulation stands.
        Ms. McCabe. That is my understanding as well.
        Senator Whitehouse. So I think if the Court's membership
    doesn't change, that improves the standing of the Clean Power
    Plan considerably. And the one thing that I think would be
    reckless would be to undue the Clean Power Plan or fail to take
    alternative steps that can help reduce our dependence on carbon
    and the carbon pollution that is having such dire effects on so
    many lives right now. Thank you.
        Senator Inhofe. Thank you, Senator Whitehouse. Senator
    Fischer.
        Senator Fischer. Thank you, Mr. Chairman. I appreciate your
    holding this hearing today.
        Nebraskans, of course, certainly understand the importance
    of the Renewable Fuel Standard. Our State has answered the call
    to invest in the domestic renewable fuel production since the
    policy's inception. Nebraska is the largest ethanol producing
    State west of the Missouri River. We have 25 active ethanol
    plants, with an annual production capacity of over 2 billion
    gallons. These plants represent more than a $5 billion
    investment in the State and they provide direct employment for
    about 1,300 Nebraskans.
        So at a time when we are seeing such innovation, we are
    seeing such growth potential for biofuels, I think it is
    extremely concerning that the EPA completely disregarded the
    law and congressional intent by issuing a final rule that
    lowers the mandated RVOs for 2014, 2015, and 2016. These RVOs
    are below the levels required by statute and it jeopardizes
    years of progress and investment in the biofuels industry.
        It is important to provide certainty for all the parties
    concerned, and that is from producer to consumer. So the EPA's
    final rule puts at risk major investments and production
    capabilities. Ensuring the successful operation of the RFS is
    an important part of realizing greater domestic energy
    security.
        Ms. McCabe, yesterday the University of Nebraska informed
    me that the Department of Energy awarded the University a $13
    million grant to fund research focused on the benefits of using
    grain sorghum as a renewable fuel source and, additionally,
    last year the USDA announced the Biofuels Infrastructure
    Partnership, which will offer up to $100 million in competitive
    grants to State-led efforts to test and evaluate innovative
    approaches to marketing higher biofuels blends such as the E15s
    and the E85s.
        In your testimony you discuss working closely with both the
    USDA and the DOE when you finalized the regulations that
    implement the RFS requirements, and earlier today you said that
    the Agency actions you felt provide a signal for growth.
    However, I don't think they do. I think when you set volumes
    below the statute, that does not encourage growth.
        So could you please expand on this partnership that we are
    looking at, that you are looking at, on how lowering those
    mandated RVOs is going to signal to other Federal agencies, let
    alone the private industry and the producers out there, your
    commitment, the Agency's commitment to that research and
    development? And you can talk about the big guys in the room,
    whether it is oil or ag, but I am trying to represent
    Nebraskans. I am trying to represent family farms who have seen
    growth because of this. I am trying to represent rural
    communities who are being affected by what I view as your
    arbitrary rulings here.
        Ms. McCabe. Thank you, Senator. Well, I certainly hope they
    are not arbitrary. We certainly lay out a lot of our thinking
    that led to those final numbers.
        I hadn't heard about the University of Nebraska grant. That
    is great. I will just let you know that EPA has approved grain
    sorghum as an advanced biofuel, so we are doing our job to help
    move that along, so that is great.
        Senator Fischer. Good.
        Ms. McCabe. The way I would answer your question, Senator,
    and I appreciate that there are many people who believe that we
    should not have granted the waiver and we should have set the
    volumes at the statutory, but let me just tell you how much
    growth our volumes require.
        So between 2014 and 2016 those volumes need to grow, of
    total renewable fuel, by 1.8 billion gallons, or 11 percent.
    That is significant growth. And our job, we believe, is to
    evaluate and make sure that the levels we set will be
    ambitious, but will not be impossible to achieve. And people
    certainly can disagree with us, and they have, but our
    evaluation was that going as high as the statutory volumes was
    just not achievable in a 1-year timeframe, which is the time
    period that Congress gave us to set these volumes.
        Senator Fischer. But isn't that sending the wrong message?
    I could name a number of instances where goals set by agencies
    are not met, and we don't see agencies going in and saying,
    where they are not going to be met, let's lower them. This is a
    case where that happened.
        Ms. McCabe. Well, Congress gave us that tool and told us
    set it at the statutory volume or, if you believe that certain
    conditions are met, use your waiver authority.
        Senator Fischer. Which projects, I think, a message of
    uncertainty.
        Ms. McCabe. Well, I hope not. We are clearly putting the
    numbers out there. We are back on track to do these in a timely
    way, and the industry, wherever they are in the industry, can
    see in our volumes continued and steady growth. It is not as
    much as Congress anticipated, but it is continued and steady
    growth, and I would say not insignificant given the challenges
    in the marketplace.
        Senator Fischer. Thank you.
        Senator Inhofe. Thank you, Senator, and thank you for your
    patience.
        We will now dismiss this panel and we would ask panel two
    to please come to the table.
        We will now start with opening statements. I would ask each
    of our panelists to confine your opening remarks to the 5-
    minutes. We are trying to get all of this completed before the
    vote that is going to take place at noon.
        Mr. Minsk, would you start?

                      STATEMENT OF RONALD E. MINSK

        Mr. Minsk. Thank you. Good morning, Chairman Inhofe,
    Ranking Member Boxer, and members of the Committee. My name is
    Ron Minsk, and I thank you for inviting me for the chance to
    talk about the Renewable Fuel Standard.
        From 2013 to 2015 I was privileged to serve as a Special
    Assistant to the President for Energy and Environment at the
    White House, where I participated in the interagency review
    process for the Renewable Fuel Standard. Since leaving the
    White House, I have had the chance to reflect further on the
    difficult challenges confronting policymakers faced with the
    task of implementing RFS in a world and energy sector that has
    radically changed since the program was last amended, in 2007.
        Managing the RFS program over the past 3 years has
    presented EPA with particularly difficult policy decisions. It
    is important for me to note that I believe the RFS has an
    important role to play in promoting the use of second
    generation biofuels, an important policy objective, especially
    when oil prices are low and there may be a natural tendency to
    pay less attention to our long-term energy future.
        Additionally, given the constraints of the statute and the
    current rules, I believe that EPA found a reasonable middle
    ground in establishing the volumetric obligations for 2014,
    2015, and 2016. There is no doubt that the program faces
    challenges stemming from the evolution of the crude oil markets
    that we have heard about, but I believe there are opportunities
    within the statute or by making modest changes to it that can
    substantially improve upon the operation of the program and
    help it to better achieve its goals of getting more renewable
    fuel into our fuel supply in the most efficient manner
    possible.
        Between 2002 and 2015, ethanol consumption grew from 2
    billion to 14 billion gallons due in part to the RFS and the
    United States consumed almost 2.1 billion gallons of biodiesel
    last year. These levels of consumption represent a measure of
    success for the RFS, but its success has not been uniform. It
    has largely failed to give advanced fuels and cellulosic
    ethanol into the market. It has also failed at getting
    meaningful volumes of blends of ethanol in excess of 10 percent
    into the market.
        As a result, our main concern that we can continue to see
    high and volatile RIN prices as a consequence of trying to
    force the market through the blend wall and because of
    tightness in the RIN market that is resulting from high
    volumetric obligations and long-term uncertainty with the
    program.
        While I am skeptical that as currently structured the
    program will substantially increase the volume of cellulosic or
    higher blends of ethanol in the fuel supply, I see three paths
    to reducing the cost of the RFS while still promoting the use
    of second generation fuels. First, EPA could set lower
    volumetric obligations for conventional renewable fuels below
    the blend wall, but EPA is unlikely to do so because it views
    that as inconsistent with the purpose of the statute.
        Second, Congress could either lower volumetric mandates for
    conventional fuel or replace the volumetric mandate for
    conventional renewable fuel with a mandate that fuel be blended
    to a specified percentage of conventional renewable fuel that
    is below the blend wall. That approach can guaranty
    conventional ethanol producers of a substantial portion of the
    annual volume of 15 billion gallons that the RFS established,
    but would eliminate most of the compliance costs associated
    with the current conventional fuel mandate.
        A third alternative would be for EPA to change the point of
    obligation by rulemaking from importers and refiners to the
    terminal rack, a point in the supply chain to withdraw fuel
    gases before being distributed to retail outlets. Changing the
    point of obligation is clearly within EPA's existing legal
    authority and it can boast a mildly incentive to blend
    renewable fuel within the obligation to do so, substantially
    reducing the compliance cost of the program while preserving
    its goals of promoting renewable fuels.
        EPA considered placing the obligation to blend at this
    point when setting up the program back in 2009 and 2010. It
    chose, however, to place the obligation on the relatively small
    number of refiners and importers, rather than what was thought
    was a large number of downstream blenders and terminals to
    simplify the program. EPA recognized the risks of this approach
    and indicated it would monitor the program over time and
    revisit this issue if necessary. Since then it has become clear
    that this approach has created poor incentives and undermined
    the purpose of the program. Moreover, it appears that moving
    the point of obligation might reduce the number of obligated
    parties and is not likely to increase it meaningfully.
        EPA could lower the cost to improve the operation of the
    program by moving the obligation to blend from the refiner or
    the importer to the terminal rack. I believe that this
    represents the best opportunity for policymakers to address
    some of the difficult problems presented by the blend wall and
    move toward achieving the fundamental first order goal of the
    RFS, which is getting more renewable fuels into the market.
        Thank you for the invitation to speak today and I am happy
    to answer any questions.
        [The prepared statement of Mr. Minsk follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Inhofe. Thank you, Mr. Minsk.
        Mr. Pugliaresi.

       STATEMENT OF LUCIAN PUGLIARESI, PRESIDENT, ENERGY POLICY
                       RESEARCH FOUNDATION, INC.

        Mr. Pugliaresi. Chairman Inhofe, Ranking Member Boxer,
    thank you so much for the opportunity to talk about our
    research on this very important issue.
        Energy Policy Research Foundation, of which I am the
    President, has been around since 1944. We do independent
    research on a large number of issues affecting petroleum
    markets and energy.
        I think we have really nailed the issue of the shift in our
    energy security. In fact, our net imports are now down to 4
    million barrels a day, about four and a half, and three-
    quarters of those actually come from Canada. So what I would
    like to do is go to the basic problem of the blend wall and
    what happens to gasoline prices as we cross the blend wall.
        If you model a range of likely compliance cost
    alternatives, which become quite narrow, from 2017 to 2022, and
    we adopt the RFS mandate as mandated by statute, our
    calculations show that our real obligations would increase
    gasoline prices from 30 to 50 cents a gallon. By the way, this
    is right off the CBO numbers. They have gone up substantially
    because the gasoline prices, I would point out, came down.
        So the fundamental problem with the program is not ethanol,
    it is not the use of biofuels; it is the mandate. Gasoline
    blenders for years have needed ethanol for octane and all the
    things we have talked about today.
        The uncertainties and cost price risk include not only
    operational impediments such as minimal and consumer resistant
    adoption of more flexible fuel vehicles, but a range of binding
    constraints that restrict routine adjustments to market
    signals; changes in corn prices, biodiesel costs, technical
    limitations on volumes of advanced biofuels consumer demand. So
    the real issue here is the availability of lower cost
    compliance options become very narrow after we cross 10 percent
    biofuels into the gasoline pool.
        So how can we reform the program? I think if you think
    about the RFS program, it is really two programs. We have blend
    stock produced from ethanol, which is working, well integrated
    into our U.S. fuel system and everything else. In fact, E10
    today is sold in every State, and more than 90 percent of U.S.
    gasoline contains up to 10 percent ethanol.
        Corn ethanol is now a mature industry. Actually, in 2015
    the Country exported over 850 million gallons of corn ethanol.
    By 2020, 2022, renewable fuel associations think they can get
    up to 2 billion gallons. So many of the remaining technologies
    in the biofuel industry are uneconomic either because they are
    too costly to produce or technically constrained by blending
    volumes below 10 percent.
        So this leads me to think about how we proceed. As we look
    back on the U.S. energy legislation policies, even going back
    to the 1970's, we cannot be stunned by this sort of
    disappointment. In an attempt to either promote the development
    of alternatives to petroleum or to insulate consumers from
    price volatility, we often lost a lot of productive responses.
    Price controls created enormous problem with smaller refiners
    and took us years to reform the program. If you remember the
    policies implemented under the Power Plant Industry Fuel Use
    Act, for years we prohibited the use of natural gas in the
    utility sector; we were only permitted to use coal.
        So I think that one of the issues we want to sort of
    confront here is how do we deal with these kind of conflicting
    concerns over more biofuels and the potential to increase the
    price of gasoline. So there is a much larger concern for the
    Congress I think to address here, and that is the risk to
    economic recovery. Lower gasoline prices are yielding annual
    savings to the U.S. economy of $129 billion, about $1,000 per
    household. These savings to consumers are essential to
    expanding economic growth.
        Chairman Inhofe and Senator Boxer, both your States are
    getting a lot of pain in the petroleum sector. We have had
    enormous reductions in the capital expenditures in the
    petroleum sector, and historically how we sort of recover from
    these areas is that the benefit to consumers of these savings
    from lower oil prices help to generate economic growth in the
    economy. So the concern we have going forward is we have the
    pain. Let's make sure, as we implement this program, that we
    also give the consumers the opportunity to get the gain.
        [The prepared statement of Mr. Pugliaresi follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Inhofe. Thank you, Mr. Pugliaresi.
        Mr. Coleman.

       STATEMENT OF BROOKE COLEMAN, EXECUTIVE DIRECTOR, ADVANCED
                       BIOFUELS BUSINESS COUNCIL

        Mr. Coleman. Good morning, Chairman Inhofe, Ranking Member
    Boxer, and members of the Committee. My name is Brooke Coleman.
    I am the Executive Director of the Advanced Biofuels Business
    Council. The Council represents worldwide leaders in the effort
    to develop and commercialize the next generation of advanced
    and cellulosic biofuels. I have submitted lengthy written
    testimony and you will be thrilled to know that I am not going
    to rehash it here, but I want to start with a general
    observation about the Renewable Fuel Standard.
        I think it is safe to say that the RFS is a political
    lightning rod. The question is why. There are those who say the
    RFS doesn't work. But I think if you look at the trajectory of
    the biofuels industry and who is being forced to change, you
    will have your answer.
        In just 10 years, the biofuel industry has emerged to
    create hundreds of thousands of jobs and displaced the need for
    billions of gallons of petroleum imports annually. If you look
    at perhaps the most criticized biofuel, ethanol, you will find
    that it also happens to be the most disruptive to the status
    quo. The ethanol industry now supports hundreds of thousands of
    U.S. jobs in more than two dozen States and now threatens to
    bring consumer choice to the pump. The ethanol industry is a
    target for a reason.
        And now we are innovating. The United States is now home to
    the largest cellulosic ethanol plant in the world, DuPont's
    facility in Nevada, Iowa, as Senator Boxer pointed out. DSM's
    facility in Emmetsburg, Iowa will produce enough renewable
    electricity as a co-product to power itself and the grain
    ethanol facility next door. Quad County's first generation
    ethanol plant in Galva, Iowa now produces cellulosic ethanol
    from corn fiber using a technology that also reduces energy
    inputs. Quad County's fuel is 126 percent better than gasoline
    from a carbon perspective, a carbon sink.
        But disrupting monopolies does not come easily. Our
    adversaries have enough money to buy voices and fill the
    airwaves with allegations about the RFS. But is anything they
    are saying actually true? There are allegations about corn
    ethanol and food prices, but corn prices are lower today than
    when the RFS was passed and food industry profits are soaring.
    Higher ethanol blends like E15 will ruin cars, they say, except
    that the Department of Energy found no problems with E15 or E20
    in 86 cars tested for 120,000 miles each.
        Oil ran a commercial during the World Series claiming that
    ethanol is worse for climate than gasoline, except the USEPA,
    the California Resources Board, and the national labs all agree
    that they are wrong.
        On the issue of pump prices, don't take my word for it.
    Former Shell Oil President John Hofmeister recently stated,
    ``We need a competitor for oil. We need to open the market to
    replacement fuels. Competition will drive transportation fuel
    prices down structurally and sustainably.'' This is exactly
    what is happening with the RFS.
        Energy economist Phil Verleger, who advised oil, Presidents
    Ford and Carter, recently said the U.S. renewable fuels program
    translates to consumers paying between 50 cents and $1.50 less
    for a gallon of gasoline by adding the equivalent of Ecuador to
    an extremely tight world liquid fuel markets.
        If there is one thing we should all agree on, it is this:
    Having one option to power cars and trucks runs contrary to the
    fundamental premise of competition that underpins our economic
    system, and if we do not control that resource it leaves us
    vulnerable to foreign cartels often working against us. And
    that is where I would like to close, by putting the RFS into
    context of recent trends in global oil markets.
        There are those who want policymakers to believe that times
    have changed, that we don't need the RFS anymore because of the
    U.S. oil boom and low gas prices. But really nothing has
    changed. When we got hit with record high oil prices in 2008,
    Americans transferred nearly $1 trillion to OPEC countries in
    just six to 8 months paying for motor fuel, a predicament that
    threw the Country into recession. Now Saudi Arabia and certain
    OPEC countries are hitting us with the other end of the stick
    by openly colluding to make oil so cheap that U.S. shale and
    deep water drillers cannot compete. And I know the effects of
    what the Saudis are doing are hitting home in Oklahoma as well,
    and it is working.
        U.S. oil rig counts have fallen off a cliff; U.S. tight oil
    and deep water drilling operations are going belly up, putting
    Americans out of work. It is nice to pay $1.50 for gas, but
    what is actually happening is foreign oil cartels are using
    their market position to snuff out competition and repossess
    the U.S. fuel energy sector. Ironically, that is exactly what
    the oil industry hates about the RFS, that it threatens their
    choke hold over the American consumer at the pump.
        If I could leave you with one thought, it is this: Congress
    made a commitment and investors have spent billions in private
    capital to answer the call to create these fuels. The RFS
    corrects a noncompetitive marketplace and is on the cusp of
    giving Americans a choice at the pump. It also happens to be
    the best advanced biofuels policy in the world.
        What we do not need is for Congress to change a good law.
    What we do need is help convincing the Obama administration to
    block out the noise and administer the program as designed and
    on schedule.
        We appreciate and believe Ms. McCabe when she says that EPA
    is committed to deploying advanced biofuels, but there are
    things we must do in the next RFS rule to make this vision a
    reality.
        Thank you for the privilege of speaking before you today. I
    look forward to your questions.
        [The prepared statement of Mr. Coleman follows:]
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        Senator Inhofe. Wow.
        All right, Mr. Pugliaresi, if the RFS were to go away,
    which I would like to see happen, how much corn-based ethanol
    do you expect refiners would use, if they didn't have the
    mandate?
        Mr. Pugliaresi. Parts of the petroleum industry have used
    ethanol for 35 years. It is a very important integrated blend
    stock.
        Senator Inhofe. I said how much, though.
        Mr. Pugliaresi. I think we would say close to 10 percent.
        Senator Inhofe. All right. And what role in the domestic
    and international market do you see for corn ethanol without
    mandates or subsidies?
        Mr. Pugliaresi. As I said, the U.S. corn ethanol is a
    mature industry, it is cost effective, and I believe they will
    continue to be a force of exports for the U.S. as well.
        Senator Inhofe. OK, exports. Very good.
        Mr. Minsk, you worked on this issue in the Obama
    administration and have been very clear that the program is
    dysfunctional. Am I correct in that?
        Mr. Minsk. I wouldn't say that the program is
    dysfunctional. I think that there are certainly opportunities
    to improve it.
        Senator Inhofe. I misread your statement, then. I
    understand that. But still it is not working the way you would
    like to see it work. How is that?
        Mr. Minsk. I think that there are certainly opportunities
    to improve its operation, yes.
        Senator Inhofe. Right. OK. One of your ideas to fix the RFS
    is to make blenders obligated parties. If we did this, there
    would be thousands of obligated parties. Does it make sense to
    give the EPA additional enforcement responsibilities when they
    can't currently manage the program?
        Mr. Minsk. So the idea is not to make thousands of blenders
    obligated parties. The idea is to move the point of obligation
    to the terminal rack, the distribution point from which trucks
    pick up the fuel and deliver it to retail stations; not the
    retailers themselves.
        And Valero, which is an obligated party, submitted
    documentation to EPA that is in the docket this past fall,
    analysis which I put as an appendix to my testimony, that
    showed that there they identified I think about 107 companies
    that would be obligated parties. And while that is not a
    complete list, it is probably a pretty good list. You can see
    it is attached to the testimony.
        So, again, it is not the individual stations that may blend
    if they have a blender pump, but it is the distribution
    facility, which is where much of the blending happens, which is
    what I have identified as a better point of obligation.
        Senator Inhofe. Well, thank you. Senator Boxer.
        Senator Boxer. Thanks, Senator.
        Mr. Coleman, Mr. Pugliaresi says that now that U.S. oil
    production has increased it is time to change the RFS, and my
    chairman believes that as well. What is your response to this
    view?
        Mr. Coleman. Well, unfortunately, the increase in oil
    production is going to prove to be a temporary achievement
    because essentially what is going on is the Saudis
    collaborating with Russia, to a degree Iran, Iraq are slamming
    down the price of oil to destroy this progress.
        Senator Boxer. So you are saying it is a short-term
    phenomenon?
        Mr. Coleman. It is a short-term phenomenon.
        Senator Boxer. We shouldn't act hastily when just a few
    years ago or a couple years ago we were saying, oh, my God, we
    have to become more self-sufficient.
        Mr. Coleman. And I think putting it in the context of EIA
    forecasts, there are EIA forecasts we all pay attention to. One
    of them is not what is going to happen in oil markets because
    they don't have a mind-reader. So when Russia and the Saudis
    decide that they are done pounding on these U.S. enterprises,
    they are going to shut the spigots down, increase price, double
    or triple the price of gasoline, and there is not a thing we
    can do about it if we don't have alternatives.
        Senator Boxer. Well, we have lived through that before,
    haven't we?
        Mr. Coleman. We have.
        Senator Boxer. Mr. Coleman, since its start, has the RFS
    program led to any increase in the price consumers pay for
    gasoline at the pump? Will the RFS increase gas prices if we
    continue to increase renewable fuel production as called for by
    Congress?
        Mr. Coleman. No. There has been no gas price increase. With
    all due respect to the modeler next to me, what they did is
    they modeled a scenario that would never happen. They modeled a
    scenario where EPA basically acted completely irresponsibility
    and hammered statutory volumes into the marketplace as if the
    statute is rigid and not adjustable. So from our perspective,
    that is not a model worth listening to.
        EPA has come out and said it does not increase gas prices.
    The White House has gas prices do not increase gas prices. So
    we are adding supply to a tight marketplace, and that brings
    down gas prices and creates competition.
        Senator Boxer. Good point.
        Mr. Pugliaresi, my sense is you represent the oil companies
    basically, is that accurate?
        Mr. Pugliaresi. I absolutely don't.
        Senator Boxer. OK.
        Mr. Pugliaresi. Actually, our largest sponsors in the last
    couple years were the Defense Department.
        Senator Boxer. But isn't it true that your organization
    originally was called the Petroleum Industry Research
    Foundation?
        Mr. Pugliaresi. It was. Oddly enough, the board thought
    that all the interesting petroleum issues had been solved and
    wanted to do a broader----
        Senator Boxer. But I think it is important that people
    understand this because Media Matters points out the various
    huge grants you have received from big oil.
        Mr. Pugliaresi. That is incorrect.
        Senator Boxer. You didn't receive $168,000?
        Mr. Pugliaresi. We receive independent funding from the
    petroleum industry, even foundation money, but the largest
    support in the last few years came from the Department of
    Defense.
        Senator Boxer. OK. Well, I want the record to show that
    there is a Media Matters article. I would ask unanimous consent
    to place it in the record.
        Senator Inhofe. Without objection.
        [The referenced information was not received at time of
    print.]
        Senator Boxer. Thank you.
        Mr. Minsk, my final question is to you. Do you think it is
    important that we do what we can to get that carbon out of the
    air so we can try our best to reduce the ravages of climate
    change?
        Mr. Minsk. Absolutely I do, and I think that the RFS has an
    opportunity to do that. Part of what I think is important about
    my proposal is I think that if we implement this, it actually
    has a better chance of getting higher blends into the market at
    a lower cost, and that creates room for the fuels that are
    going to be created by the RFS. So I am not sitting here trying
    to disassemble it; I am trying to figure out how to make it
    better.
        Senator Boxer. I appreciate that completely.
        Mr. Minsk. So that is the whole purpose behind this
    proposal.
        Senator Boxer. I appreciate that very much.
        Thank you, Mr. Chairman.
        Senator Inhofe. Thank you, Senator.
        I thank our witnesses for appearing. I thank you for your
    patience.
        We are dismissed to go vote.
        [Whereupon, at 11:53 a.m. the committee was adjourned.]
        [Additional material submitted for the record follows.]
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