[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:]
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    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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