[Senate Hearing 114-555]
[From the U.S. Government Publishing Office]








                                                        S. Hrg. 114-555

    EXAMINING TWO GAO REPORTS REGARDING THE RENEWABLE FUEL STANDARD

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
               REGULATORY AFFAIRS AND FEDERAL MANAGEMENT

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 1, 2016

                               __________

                   Available via http://www.fdsys.gov

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs




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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona                 THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio                    CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming             HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire          CORY A. BOOKER, New Jersey
JONI ERNST, Iowa                     GARY C. PETERS, Michigan
BEN SASSE, Nebraska

                  Christopher R. Hixon, Staff Director
              Gabrielle A. Batkin, Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
                     Laura W. Kilbride, Chief Clerk


       SUBCOMMITTEE ON REGULATORY AFFAIRS AND FEDERAL MANAGEMENT

                   JAMES LANKFORD, Oklahoma, Chairman
JOHN MCCAIN, Arizona                 HEIDI HEITKAMP, North Dakota
ROB PORTMAN, Ohio                    JON TESTER, Montana
MICHAEL B. ENZI, Wyoming             CORY A. BOOKER, New Jersey
JONI ERNST, Iowa                     GARY C. PETERS, Michigan
BEN SASSE, Nebraska
                     John Cuaderess, Staff Director
                  Eric Bursch, Minority Staff Director
                      Rachel Mairella, Chief Clerk
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator Lankford.............................................     1
    Senator Heitkamp.............................................     4
    Senator Ernst................................................     8
Prepared statement:
    Senator Lankford.............................................    25

                               WITNESSES
                       Thursday, December 1, 2016

Frank Rusco, Director, National Resources and Environment, U.S. 
  Government Accountability Office...............................     5
Janet McCabe, Acting Assistant Administrator for Air and 
  Radiation, U.S. Environmental Protection Agency................     6

                     Alphabetical List of Witnesses

McCabe, Janet:
    Testimony....................................................     6
    Prepared statement...........................................    41
Rusco, Frank:
    Testimony....................................................     5
    Prepared statement...........................................    27

                                APPENDIX

Letter submitted for the Record by Senator Heitkamp..............    45
Statement submitted by Anne Steckel, Vice President of Federal 
  Affairs, National Biodiesel Board..............................    46
Statement submitted by Biotechnology Innovation Organization.....    49
Responses to post-hearing questions for the Record:
    Mr. Rusco....................................................    71

 
    EXAMINING TWO GAO REPORTS REGARDING THE RENEWABLE FUEL STANDARD

                              ----------                              


                       THURSDAY, DECEMBER 1, 2016

                                 U.S. Senate,      
                        Subcommittee on Regulatory,        
                      Affairs and Federal Management,      
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:30 p.m., in 
room 342, Dirksen Senate Office Building, Hon. James Lankford, 
Chairman of the Subcommittee, presiding.
    Present: Senators Lankford, Ernst, Sasse, Heitkamp, and 
Tester.

             OPENING STATEMENT OF SENATOR LANKFORD

    Senator Lankford. Good afternoon, everyone.
    I want to welcome everyone to today's Subcommittee hearing 
titled Examining Two GAO Reports Regarding the Renewable Fuel 
Standards (RFS). Thanks for being here.
    Today is this Subcommittee's second hearing on the 
Renewable Fuel Standard and my fourth hearing total on this 
topic since being elected to Congress, committed to continuing 
the oversight of the RFS until we find a solution to what has 
become this deeply flawed program.
    In 2005, Congress established the RFS with the goals of 
reducing our Nation's dependence on foreign oil and lowering 
greenhouse gas emissions by mandating that biofuels be blended 
with domestic transportation fuel in increasing volumes until 
the year 2022. After that time, the Environmental Protection 
Agency (EPA) will have wide latitude to decide the volume of 
biofuels that must be blended into the gasoline supply.
    However, the situation has changed pretty dramatically 
since the RFS enactment in 2005, and in subsequent 2007 
revision. Demand for oil in the transportation sector is lower 
than originally predicted, in part due to heightened fuel 
economy standards and sluggish economic growth. Further, given 
the substantially increased domestic oil production resulting 
from the shale oil boom, the United States also imports much 
less oil than initially forecasted. For instance, in 2005 and 
2007, we were importing 60 percent of our oil; now it is 27 
percent.
    Through a series of hearings, I have worked to determine 
the structure and viability of the RFS to achieve its goals. 
Specifically, I have tried to understand the RFS through the 
eyes of the EPA and appreciate how difficult it is for the 
agency to administer the program. Congress created the 
unworkable RFS formula. The EPA is left trying to make it work 
anyway.
    The EPA is required to release the final volumes of 
biofuels to be blended with the gasoline supply by November 30 
of the preceding year, to allow industry participants and other 
stakeholders to comply and plan for the future. Between 2009 
and 2015, EPA failed to meet this November 30 deadline and only 
finally released final mandated volumes for 2014 through 2016, 
on November 30, 2015, one year late for the 2015 volumes and 
two years late for the 2014 final volumes.
    I would like to recognize the EPA has released its 2017 
volumes on November 23, meeting the statutory deadline, in 
fact, beating it by all of seven days. You are making up 
ground.
    Recognizing the difficulties the EPA faces with the RFS, on 
April 6, 2015, I asked the Government Accountability Office 
(GAO) to examine the viability of the RFS and determine whether 
the program will be able to meet its goals in the future. It 
has taken GAO approximately 19 months to conduct a thorough, 
independent analysis of the RFS and finalize its conclusions. 
In order to reach its conclusions, GAO, in coordination with 
the National Academy of Sciences, convened a group of 
stakeholder experts from industry, academia, and the nonprofit 
sector to produce two reports on the RFS, both of which were 
released Monday, November 28, 2016.
    GAO's first report determined that advanced biofuel 
production is unlikely to meet the RFS's increasing production 
targets. GAO noted that advanced biofuels are still too 
expensive for stakeholders to produce it at necessary levels to 
meet the RFS increasing targets through 2022, even with 
government-funded research and development (R&D) and mandated 
subsidies.
    Despite the Federal Government spending of $1.1 billion 
between fiscal years (FY) 2013 and 2015, for advanced biofuel 
research and development, GAO determined that advanced biofuel 
targets are unattainable.
    In its second report, GAO concluded that the RFS is 
unlikely to meet its goal of reducing greenhouse gas emissions. 
The production of advanced biofuels, which should reduce 
greenhouse gas emissions, will remain too limited to meet the 
program's greenhouse gas reduction targets. For example, in 
2015, cellulosic biofuel, an advanced biofuel category, was 
produced at a meager 140 million gallons, less than five 
percent of the statutory target of three billion gallons.
    This hearing will give GAO the opportunity to present its 
findings on the RFS from these two reports and the EPA to 
comment on the findings. With the release of the GAO reports, 
we have an independent government auditor's findings that 
confirm the stances many in Congress, including myself, have 
come to hold, that the RFS is not sustainable and will not meet 
its intended goals.
    This program yields few benefits but it inflicts 
substantial cost on consumers. Rather than continuing with an 
unwieldy program which consistently fails to meets its targets 
and goals, it is time for Congress, the next administration, 
and the American public to do away with the RFS.
    Here is my comparison. Last year, Congress looked again at 
education. Fifteen years ago, we created No Child Left Behind, 
in a very eager effort to do what is best for our kids in the 
future. There was a whole series of mandates that were put in 
place with No Child Left Behind. Fifteen years later, Congress 
looked at it again and said those mandates were the wrong way 
to go, and we fixed it. We came back in wide bipartisan 
majorities, after extensive research and examination, and said 
it is time that we do away with these mandates and do education 
a different way. It is not that we do not like education; we 
do. We just went a wrong direction with No Child Left Behind 
and we fixed it.
    It is not that any of us are opposed to ethanol. It is a 
good fuel source. It is a good octane booster. It is in the 
fuel supply right now. It is not that I meet anyone that is 
opposed to ethanol. It is the series of mandates that were put 
in place and volume requirements that are not sustainable.
    I am delighted to have the EPA's Janet McCabe and GAO's 
Frank Rusco here today as witnesses to engage in a productive 
conversation on the RFS.
    I look forward to continuing this Subcommittee's oversight 
of the RFS with my colleagues and our witnesses today.
    I will recognize the Ranking Member, Heidi Heitkamp, for 
her opening statement when she arrives. She is running a little 
bit behind, but as we always say, the lady is never late. So 
when she gets here I will allow her to be able to do her 
opening statements.
    With that, let me swear in our witnesses.
    If you would please stand.
    Do you swear the testimony that you are about to give 
before this Subcommittee will be the truth, the whole truth, 
and nothing but the truth, so help you, God?
    Ms. McCabe. I do.
    Mr. Rusco. I do.
    Senator Lankford. Thank you. Let the record reflect the 
witnesses answered in the affirmative. You may be seated.
    Let me do a quick introduction for both of you, and then 
when Senator Heitkamp arrives, even if it is after your 
testimony, I am going to have her do an opening statement as 
well.
    Frank Rusco is the Director of the Government 
Accountability Office's Natural Resources and Environment team, 
leading work on a broad spectrum of energy issues. Mr. Rusco 
holds both a master's degree and a Ph.D. in economics from the 
University of Washington in Seattle.
    Janet McCabe is the Acting Assistant Administrator for the 
Environmental Protection Agency's Office of Air and Radiation 
(OAR), having previously served in the OAR's Principal Deputy 
to the Assistant Administrator. Ms. McCabe was also the 
Executive Director of Improving Kids' Environment, Inc., in 
Indianapolis, Indiana, and from 1993 to 2005, held leadership 
positions in the Indiana Department of Environmental 
Management's Office of Air Quality. Ms. McCabe served as 
Assistant Attorney General for environmental protection in 
Massachusetts and graduated from Harvard College in 1980 and 
Harvard Law School in 1983.
    Thank you, both, for being here as well, and with that I 
would recognize the Ranking Member for opening statements.

             OPENING STATEMENT OF SENATOR HEITKAMP

    Senator Heitkamp. Thank you, Mr. Chairman, and again my 
great apologies for being a little late. It has been a crazy 
day.
    First off, I want to thank both of our witnesses for 
attending this hearing. This actually follows on our hearing 
last June on the RFS. In that hearing, we discussed, at length, 
issues we saw with the EPA's management of the program and the 
statute, and I am glad EPA took our words to heart, and that 
just last week the RFS is back on track and hit the levels 
required by law for calendar year 2017, for most fuels, and 
they even increased the volumes for biofuels and advanced 
biofuels. So thank you, Ms. McCabe, for your good work on that. 
We were grateful. Wish it would have come a little earlier, but 
we will take it when we can get it.
    Of course, EPA did not meet the statutory levels for some 
advanced biofuels, allegedly because of the lack of production, 
and we want to hear more about that, and that really is what 
generated this discussion today.
    Senator Ernst and I noted last June that such delays in 
setting up the program and in setting annual volume obligations 
really did lead to stalled investments in advanced biofuels, 
and so had we had more certainty in the marketplace we could 
have actually, I think, seen the kind of investment that it 
would have taken to get that product into the market.
    So the reports that we are reviewing today do not 
necessarily come as a surprise. GAO found that we will not meet 
some of the statutory targets for advanced biofuels or 
greenhouse gas reductions, two measures which, arguably and do, 
go hand in hand. Again, this is not a surprise or even new, as 
we acknowledged at last year's hearing. It was part of the 
disruption that we saw in the marketplace as a result of 
uncertainty from earlier decisions.
    Fortunately, the authors of the RFS made contingency plans 
if EPA ever found the industry was not ready to meet these 
targets, and the law allows EPA to reduce those annual 
obligations. This is why having annual rule-setting is helpful, 
though it also brings a level of uncertainty. We can adjust 
course when it is absolutely necessary. The authors put in 
place authorities for EPA to rewrite the statutory levels 
through the reset authority, and I look forward to discussing 
that here today with both of our witnesses.
    So I look forward to hearing from the witnesses and 
discussing how we can work together with the industry and the 
administration, and we certainly note that President-Elect 
Trump supports the RFS, and we all know how important that is 
to markets and to certainty for our farmers.
    So we are grateful that you are both here. This is will be 
an ongoing and continuing subject of discussion. But if you are 
going to be for all of the above, this is a key component to an 
energy policy that helps us diversify our energy sources, 
moving into the future. Congress was wise when they first 
enacted it, providing these incentives. I want to see that 
these incentives work.
    And so thank you, Ms. McCabe, thank you, Mr. Rusco, for 
being here. I look forward to your testimony.
    Thank you, Mr. Chairman.
    Senator Lankford. Thank you as well.
    Mr. Rusco, you are recognized for your opening statement.

 TESTIMONY OF FRANK RUSCO,\1\ DIRECTOR, NATURAL RESOURCES AND 
       ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Rusco. Thank you, Chairman Lankford, Ranking Member 
Heitkamp, and Members of the Subcommittee. I am pleased to be 
here today to discuss GAO's two Reports on the Renewable Fuel 
Standard program.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rusco appears in the Appendix on 
page 27.
---------------------------------------------------------------------------
    In response to a request from Chairman Lankford, we 
undertook two studies on the RFS. One study reported on Federal 
efforts to support R&D for advanced biofuels and the current 
state of technology as well as prospects for meeting the RFS 
statutory targets for advanced biofuels production. The second 
study reported on EPA's administration of the program and how 
that administration could be improved as well as the prospects 
for meeting the RFS goals for reducing greenhouse gas 
emissions, among other things.
    To do these studies, we entered into a contract with the 
National Academy of Sciences to identify a broad and 
comprehensive group of experts who could assist us in answering 
our questions. Last spring, we held a group meeting at the 
Academy with 20 of these experts and explored the state of 
technology and prospects for meeting production targets for 
advanced biofuels. We also met individually with 24 experts 
identified by the Academy, to evaluate EPA's administration of 
the program. In addition, we spoke with officials from the 
Department of Energy (DOE), Department of Agriculture (USDA), 
EPA, the National Science Foundation (NSF), and the Department 
of Defense (DOD). We also visited research laboratories in 
Iowa, Illinois, and Wisconsin, and interviewed representatives 
of 11 advanced biofuels producers that use a wide variety of 
feed stocks and conversion technologies. Finally, we reviewed 
numerous studies and reports pertinent to our questions.
    The most salient finding of our reports is that it is 
unlikely that advanced biofuels can meet statutory targets for 
the RFS in the near to mid term. Specifically, production of 
advanced biofuels fell below statutory targets by well over one 
billion gallons in 2014, and is expected to be almost five 
billion gallons short by 2017. While there is some room for 
growth of advanced biofuels, particularly for the fuels that 
have already been commercialized, we found broad expert 
consensus that this growth potential in the near to mid term 
falls far short of RFS statutory targets.
    The second major finding is that changes to law or EPA's 
administration could marginally improve the program and the 
investment climate for advanced biofuels. For example, experts 
said that changing obligated parties to blenders as opposed to 
oil refiners would improve the functioning of the Renewable 
Identification Number (RIN) market, reduce RIN fraud, and 
eliminate an asymmetric burden on small, independent refiners 
who are not also blenders of biofuels. In addition, providing 
Federal tax credits that do not expire periodically would 
reduce uncertainty.
    However, there remained significant barriers to adding more 
biofuels to the transportation fuel network. These include the 
need to install costly infrastructure at retail stations, to 
educate consumers about how to value different blends of 
biofuels, and addressing the risk that increased advanced 
biofuels use, if mandated, will lead to higher consumer fuel 
prices. These barriers, if not overcome, will constrain growth 
in biofuel use and also dampen investors' appetite for risk.
    The third major finding is that because advanced biofuels 
production targets are unlikely to be met, so too are the goals 
set out for the RFS, including greenhouse gas reductions. 
Specifically, experts questioned the extent to which the RFS is 
achieving its goal of reducing greenhouse gas emissions, 
considering that most of the biofuels produced today come from 
cornstarch conversion technologies which do not yield large 
reductions in greenhouse gases.
    With regard to reducing reliance on imported fuels, the 
United States has made great progress in recent years in 
reducing net imports of petroleum, in large part because 
domestic oil production has increased dramatically. Domestic 
biofuel production, net of imported biofuels, have also helped, 
but to a much smaller degree, and further progress would 
require breakthroughs in development of cost-competitive 
advanced biofuels.
    Last, experts generally agreed that meeting goals of the 
RFS could be done more efficiently using other policies. In 
particular, a carbon tax or low carbon fuel standard (LCFS) 
would more directly incentivize greenhouse gas reductions than 
does the RFS, and would do so at lower cost.
    GAO does not make any recommendations in these two reports 
because we feel there is no consensus among experts on how best 
to proceed with the policy, in general.
    This ends my prepared statement. I will be happy to answer 
any questions you may have.
    Senator Lankford. Thank you. Ms. McCabe.

 TESTIMONY OF JANET MCCABE,\1\ ACTING ASSISTANT ADMINISTRATOR 
  FOR AIR AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY

    Ms. McCabe. Thank you, Chairman Lankford, Ranking Member 
Heitkamp, and other Members of the Subcommittee. I also 
appreciate the opportunity to be here and testify on the 
Renewable Fuel Standard program and on EPA's recent final rule, 
setting the annual volume standards for 2017 and the biomass-
based diesel volume requirement for 2018.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. McCabe appears in the Appendix on 
page 41.
---------------------------------------------------------------------------
    The RFS program began in 2006, under the Energy Policy Act 
of 2005, and was subsequently modified by the Energy 
Independence and Security Act of 2007. That law's stated goals 
include moving the United States toward greater energy 
independence and security and increasing production of clean 
renewable fuels. The law established new annual volume targets 
for renewable fuel that increase every year, to reach a total 
of 36 billion gallons by 2022, including 21 billion gallons of 
advanced biofuels. Congress also included tools, known as 
waiver provisions, for EPA to use to adjust the statutory 
targets in specified circumstances, including where the 
statutorily prescribed volumes could not be met.
    The Clean Air Act requires EPA to issue annual standards 
for four different categories of renewable fuels: total, 
advanced, biomass-based diesel, and cellulosic. These standards 
designate the percentage of each biofuel category that 
producers and importers of gasoline and diesel must blend into 
transportation fuel, and must be issued by November 30 of each 
year for the following year, and 14 months in advance for 
biomass-based diesel category.
    EPA is committed to successful implementation of the RFS 
program, and the past year has been an active and productive 
one for the program.
    One of our chief priorities, if not the chief priority, has 
been timely issuance of the annual volume rules, and we have 
stayed on schedule for the 2017 rule, as the Chairman 
acknowledged, and we just finalized that last week. The final 
rule incorporates the most up-to-date data available to us, and 
is informed by written stakeholder comments, by input provided 
during a public hearing we held this year in Kansas City, 
Missouri, and by our consultation with the Departments of 
Energy and Agriculture.
    The 2017 volume final rule established requirements for 
cellulosic, advanced, and total renewable fuel for 2017, and 
includes a biomass-based diesel volume requirement for 2018. 
The 2017 final rule once again establishes ambitious but 
achievable targets for the RFS program, and becomes part of 
what is not a multi-year track record of growth. As finalized, 
total renewable fuel volumes would grow by nearly 1.2 billion 
gallons between 2016 and 2017. Advanced renewable fuel, which 
requires a minimum 50 percent lifecycle greenhouse gas 
emissions reductions, would grow by nearly 700 million gallons 
from 2016 to 2017. And while Congress did not establish 
specific goals for non-advanced or conventional biofuels, the 
established targets for total and advanced fuel means that 
conventional biofuels would read 15 billion gallons. The 2017 
final rule achieves that level.
    Biomass-based diesel, which must achieve at least 50 
percent lifecycle emissions reductions, would grow by at least 
100 million gallons from 2017 to 2018, and the final 2018 
standard is more than double the congressionally mandated 
minimum level of one billion gallons. Finally, cellulosic 
biofuels, which requires 60 percent lifecycle carbon emissions 
reductions, would grow by 81 million gallons, or 35 percent, 
between 2016 and 2017.
    Beyond the volume rule, the Agency remains active in 
multiple other areas of the program, and I would like to 
briefly mention two. On November 16, we published the 
``Renewables Enhancement and Growth Support'' (REGS) proposed 
rule, a collection of proposed revisions to the fuel 
regulations that will support market growth of advanced and 
other biofuels in the United States. That proposal, among other 
things, would establish an updated regulatory structure that 
would allow biofuel producers to partially process renewable 
feedstocks at one facility and further process them into 
renewable fuels at another facility under existing pathways. 
This would improve the economics and efficiency for the 
production of biofuels, particularly advanced and cellulosic 
fuels. The proposal strongly reflects input we have received 
from many stakeholders in recent years, and we are looking 
forward to people's comments in January.
    The second thing to mention is that over the past year, EPA 
has received several petitions from RFS stakeholders asking us 
to change the point of obligation under the program. That has 
already been mentioned. Currently, refiners and importers of 
gasoline and diesel are the regulated parties under the RFS 
program, and certain stakeholders have asked us to initiate a 
rulemaking to change that point of regulation to a point 
further downstream, such as blenders. There has been a huge 
amount of input from a wide range of stakeholders with widely 
divergent views, and on November 10 of this year we issued a 
proposed denial of these positions that examines the issue in 
depth and, importantly, provides an opportunity for the public 
to provide comment to the Agency, which was a strong request as 
well. So we are, again, looking forward to people's input on 
that.
    And just recently, the GAO issued these two reports. We 
provided responses to drafts of both reports and appreciate 
that opportunity, and those comments are included as part of 
the final report. Broadly speaking, the reports examine the 
same challenges that we have recognized and that we have talked 
about before, associated with reaching greater levels of 
advanced biofuel production, especially cellulosic fuels, and 
we welcome the discussion in the reports and certainly the 
discussion today.
    So we recognize that there are opportunities and challenges 
ahead. We are committed to implementing Congress's statute the 
best way we can, to achieve Congress's goal, and look forward 
to the conversation today and appreciate the opportunity to be 
here.
    Senator Lankford. All right. Thank you.
    The Ranking Member and I are deferring our questions to the 
end.
    We recognize Senator Ernst.

               OPENING STATEMENT OF SENATOR ERNST

    Senator Ernst. Great. Thank you, Mr. Chair, and thank you 
to both of you for appearing today.
    This is an interesting topic for a number of us, and 
especially for me, coming from the Midwest, where this is a 
great part of our economy. So, again, I always appreciate the 
opportunity that we have to discuss the RFS, and it really has 
spurred investment in domestic energy production. It has helped 
grow our economy throughout the Midwest, especially in those 
rural areas. And it has brought a lot of competition, needed 
competition, to the gas pump, saves American consumers money, 
and reduces reliance on foreign oil sources.
    So while some of the aggressive production targets for 
advanced biofuels originally envisioned by Congress have not 
been achieved--and I think we all recognize that--it is 
certainly not time to hit the panic button and pull the rug out 
from under this burgeoning industry. We are really just getting 
started, is how I feel about this.
    And so, Mr. Rusco, one of the reports that GAO had, states 
that bolt-on cellulosic technology at existing plants is the 
most cost-effective means for generating those advanced 
biofuels, and I did visit one of those facilities, one of the 
bolt-on facilities, in Galva, Iowa, earlier this year, and they 
are using corn fiber, which is a byproduct of the ethanol 
process, to create cellulosic ethanol. And this is a great 
example of what this was originally intended to do. It was to 
support the expansion of conventional biofuels as a springboard 
for those advanced biofuels. And if we create further 
uncertainty about the future of the RFS and our commitment to 
biofuels, it will only serve to slow our research and 
investment down toward attaining these goals originally set by 
Congress.
    So my question to you would be, what are the most effective 
things that we can do, as a Federal Government, to provide 
certainty so that these companies want to invest in the 
advanced biofuel production process? What can we do to provide 
certainty?
    Mr. Rusco. So we did hear from a number of people that--
certainly, certainty about the availability of Federal tax 
credits, the $1 per gallon tax credits. We also heard from a 
lot of the producers that they really relied on Federal funding 
for R&D because there really is not available investment 
funding from the private sector that is sufficient to do a lot 
of the research that they need. But we also heard that even 
with those changes, they are many years away from bringing even 
the technologies that they understand very well, like 
cellulosic ethanol, and for which there are currently a couple 
of commercial plants, they are many years away from bringing 
costs down to where they would be competitive in a market 
sense.
    Senator Ernst. OK. Thank you.
    And Ms. McCabe, I want to first applaud, just as the Vice 
Chair did, for the EPA getting RFS back on track last week. We 
appreciate that, and the issuance of the final 2017 Renewable 
Volume Obligation (RVOs). And can you highlight the factors 
that led to the Agency increasing the blending targets from the 
proposed levels to the final rule?
    Ms. McCabe. Yes. So the major factor that we look at, and 
we update it throughout the year, is expected gasoline usage, 
and so there were--we rely on Energy Information Administration 
(EIA) for their estimates of that. And so it was predicted that 
there would be additional gasoline usage in 2017, which allowed 
us to grow those volumes. And we just continually update our 
expectations about the ability of the industry to produce 
volumes, and so when we put all that together, that is the way 
the numbers fell out, that we were able to increase those 
volumes.
    Senator Ernst. OK. Very good. Well, I appreciate that very 
much.
    We do have some challenges in the industry, but again, I 
think providing certainty, going back, is an important part of 
ensuring that we can stay on target with the production of 
ethanol and biofuels, advanced biofuels. And we have seen other 
concessions made within the Federal Government, other tax 
credits for other petroleum-based products. We see it with 
fracking. I do not see why we should not continue with research 
and development in this area, especially when it has done a 
great deal to support the economy, especially when we have 
downturns in the agricultural economy, like we have seen in the 
last number of years.
    So I encourage you to continue supporting the RFS. Let us 
look at ways we can further research and development in this 
industry. I think it is a valuable part of our American 
economy.
    But I want to thank you both for being here today and 
answering our questions. Thank you.
    Thank you, Mr. Chair.
    Senator Lankford. All right. Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman. Before I begin 
my questions, I just want to ask that the letter that I am 
going to hand to you is, in fact, introduced into the 
record.\1\ It is signed by a number of groups who frequently 
you will not find their names on the same letter. They are 
suggesting and expressing their unified position in opposition 
of efforts by petitioners to move the point of obligation on 
compliance. You have API and the RFA on the same letter. That 
is pretty remarkable.
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    \1\ The letter submitted by Senator Heitkamp appears in the 
Appendix on page 45.
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    Senator Lankford. Without objection.
    Senator Heitkamp [continuing]. That might speak some 
volumes in terms of answering the petition, and obviously we 
hope that you give full consideration, but these interest 
groups have been long involved in this, and for them to share a 
common opinion might put a little more weight on what they are 
doing, or what they are suggesting.
    So I think we are all trying to get a handle on how we do 
not have this happen again, where the market is unresponsive, 
or is in a position of uncertainty given the lack of certainty 
on where we are headed, in terms of numbers. And so in order to 
prevent that from happening again, I think we have to better 
understand why the market did not respond and come to numbers 
that were adequate to meet the quotas or meet the levels.
    So I guess my first question would be for you, Mr. Rusco. 
In your opinion, what was the most significant contributor to 
the delay in advanced biofuels production? Was it delays in 
setting up the RFS program, initially, uncertainty related to 
the RVOs' timing from the litigation and flawed--what I believe 
was flawed--reading of the statutory waivers, or was it really 
more about tax uncertainty, or was it something all together? 
And in your opinion, in the work that you did, do you believe 
that had we had maintained a level of statutory certainty, or 
certainty in meeting those statutory requirements, we would 
have seen the level of investment that would have been able to 
meet the standards?
    Mr. Rusco. I think that it is pretty clear from most of the 
people that we spoke with, including producers of advanced 
biofuels and researchers in that area, that, sort of, the 
biggest issue is the price of oil. So if the price of oil is 
very high, then there is going to be more investment in 
alternatives to that, and when the price was high a number of 
years ago, even some oil companies were diversifying and 
investing in biofuel technology. But when the bottom fell out 
of the market for oil, and also with reductions and slower 
growth since then of motor fuel demand in the United States, 
investors just looked at biofuels as not as viable an 
investment as other things, so money flowed elsewhere.
    I do think that in the margin, things like--regulatory 
uncertainty and uncertainty about tax credits, do play a role, 
but what we have found is that, for example, cellulosic 
ethanol, which is probably the most likely advanced biofuel to 
be technologically and commercially ready in the near to mid 
term, it will require multiple generations of plants to achieve 
the kinds of efficiencies that might bring it down to where it 
is commercially viable. But that also, then, depends on, again, 
on the underlying price of motor fuels. And so that, I think, 
is the biggest.
    Senator Heitkamp. I mean, I understand what you are saying, 
that a lower-price competitor can drive investment someplace 
else and cause people a lot of concern, but so can regulatory 
uncertainty. And I think when we look at advanced--not to put a 
fine point on it, but this is a building block industry, as you 
look at other potential available growth in advanced 
manufacturing for ag products. I used to say, well, we want to 
move beyond food, fiber, and fuel, and the pushback I always 
got is that this technology that can be developed, and the 
plants that can be developed, really provide the building block 
for other opportunities, whether it is Styrofoam or whether it 
is seat covers or all of that begins at this level of 
innovation.
    And so I think there is, beyond an all-of-the-above energy 
policy that really works for the United States and gives us the 
diversity in our fuel choices, we have to realize that this is 
also technology that is very transferrable to other kinds of 
renewable manufacturing, and it is critical, as we look into 
the future, of how we utilize natural resources, especially the 
natural resource of the soils and the stuff that we grow in our 
country. So we are hopeful that we will have consistency now 
going forward which will lead to predictability.
    But I want to get to the reset authority. I only have so 
much time and I think it is important that we remember that the 
reset authority, when we have this discussion around reports 
and not meeting advanced fuel mandates, just because, for a 
variety of reasons, we do not meet the targets does not mean 
the law is either a failure or needs amendment.
    We have a process in place to, I think, correct, if 
necessary. I think, Ms. McCabe, the 2007 law that Congress 
passed included the reset provision to allow EPA to adjust the 
RFS mandates after 2016, if the volume totals in the table had 
gone below the law by 20 percent in two consecutive years, or 
by 50 percent in one year. Has this authority been triggered 
for any of the tables in the law today, and since the 
authority--I guess I would just like you to explain where you 
see the reset authority today and the likelihood of reset, and 
if--what role this disruption played in getting to the reset 
authority.
    Ms. McCabe. So just to explain what Congress laid out, you 
have it exactly right--20 percent in two years or 50 percent in 
one year. So those levels have been triggered for cellulosic 
and for advanced, but not for total. And so the Agency has 
not--and we have just finished--we are just finishing 2016--the 
Agency has not embarked upon a reset rule. We, of course, are 
paying close attention to it. A couple of things are going on 
that cause us to think really hard about how to proceed with 
that. One is the idea of moving forward with one or two, but 
not all of the volume standards, seems like it could be very 
disruptive to the market because of the careful balance that 
Congress established with the relationship of those nested 
standards. We also still have some ongoing uncertainty because 
of pending litigation about our authorities with respect to the 
waiver, in particular, but other things as well.
    So we have not hit even the first-year trigger for total, 
so it would be at least two more years before that--all three 
would be triggered, and that is kind of where we are with the 
reset.
    Senator Heitkamp. Yes, and we do not want a self-fulfilling 
prophecy, which is the reset happens because we have reset.
    So, Mr. Rusco, was this reset discussed by your panelists, 
and would the reset not make the report on not meeting 
increasing targets moot since the law already addresses this?
    Mr. Rusco. It did come up but our report just is focused on 
what is likely to be available in terms of how much volumes 
will be available, not necessarily whether or not the industry 
will be in compliance.
    Senator Heitkamp. We keep talking in circles, because one 
of the problems that we have, and that we have had from the 
beginning, is what is available depends on regulatory 
certainty, and I recognize the marketplace, and we were a big 
producer of oil so we understand what is happening with oil. 
But, the frustration for me is that we say, well, ``What is 
available? What is available?'' What is available is going to 
depend on what there is capital investment for and whether 
there is capital investment and innovation is going to depend 
on regulatory certainty.
    So we are in this kind of spiral that deeply concerns me, 
and I am wondering, when you discussed the reset, was this, 
the, well, what if we had not had regulatory uncertainty, what 
if these targets had remained available, we would then have the 
ability to amp up and meet the requirements under the law or 
the targets under the law?
    Mr. Rusco. So I do not think that we heard a lot of people 
say that if EPA had maintained the statutory targets that they 
would have been met. I do not think anybody said that. What 
they did say is that, going forward, reducing regulatory 
uncertainty improves marginally the investment climate. But I 
think that they also did not say that that would sort of fix 
the problem and that there would be adequate investment to get 
there.
    Senator Heitkamp. Where they would have been likely to say 
a $100 a barrel will fix the investment problem. They were not 
willing to say, $40 to $50 a barrel with regulatory uncertainty 
was not causation for the problem?
    Mr. Rusco. Well, in the report where we talked about R&D 
and the sort of state of science, they are just well up the 
curve on commercialization and bringing costs down. They are 
far above the market rate. They are many years from that under 
the most optimistic scenarios. So even if you threw money at 
it, a lot of money at it, which right now there is not a lot of 
money being thrown at this, you would be many generations of 
plants, even for the already sort of commercial scale 
operations, you are many generations away from achieving the 
efficiencies that are available, and the current cost at which 
they can produce is so high that you would need many 
generations in order to bring those costs down, if it is 
possible at all. And so----
    Senator Heitkamp. So the discussion really went to 
technological impossibility, at this point in time.
    Mr. Rusco. Not impossibility, but that it is just far away 
from--the cost, currently, given the state of technology, is 
very much higher than a market competitive price of motor 
fuels.
    Senator Heitkamp. Well, I think we are going to have an 
ongoing discussion, given that we have reached the trigger on 
the reset, and I know the Chairman has been discussing this 
quite a bit, and we need to live in reality. I get that. But we 
also need to understand that this was designed to create an 
environment, a regulatory environment, and a regulatory 
certainty that would grow investment and grow technology. And I 
think we have missed a couple of years here because of the 
uncertainty that has been in the market.
    So with that I will yield to the Chairman.
    Senator Lankford. Let me pose a few questions and then I 
would like to just open this up, as we typically do in our 
committee, to more open conversation from there.
    Ms. McCabe, the statute itself, the way that it was 
designed in 2007, had a high volume for corn-based ethanol at 
the beginning and then a decreasing amount. If I remember 
correctly, the number was around 44 percent by the time we get 
to the end of the window. That is the other part of the statute 
that is the battle for you, because while you are trying to 
follow a statute that was written in an unworkable way, and 
this put you in an untenable situation to be in waiver-land, to 
constantly have to work with every side of an argument to try 
to figure out how to be able to match this when there is 
really--the statute itself does not work with the gallons 
requirement, based on the gallons that we are using--so you are 
having to work through this process.
    How are you balancing this issue of the statute requires we 
use much less corn ethanol and much more cellulosic and 
advanced, when the technology does not exist yet for large-
scale production of the advanced and for cellulosic? So, 
literally, for you to be able to keep a total amount and not do 
a reset of total amount, you are having to violate a different 
part of the statute, which requires we use less of this one. 
How does that conversation go for you all?
    Ms. McCabe. Well, that is exactly the point I was making a 
minute ago about our concern about moving forward with reset on 
two of the categories and not the third, because of that 
balance. The goals of the statute, as I understand it, Senator, 
are really to focus, in the long term, on advanced biofuels, 
and in particular on cellulosic biofuels that provide the most 
opportunity for greenhouse gas reductions. And as has been 
discussed already here, that is an industry that is just 
starting, as compared to the petroleum institute--industry, or 
the ethanol industry, where those technologies have been around 
for quite a long time.
    So I think it was a tall order, and this is what Congress 
does, in establishing the aspirational legislation to move 
things in a certain direction--I do not mean aspirational in 
the sense that we are not supposed to do it, but it was a 
vision, and an ambitious one.
    So our focus, and the Administrator's focus, all along, in 
every rule, has been we need to be providing as much 
encouragement as possible to advanced biofuels, to cellulosic 
biofuels, as we can, and because we are just at the point now, 
with this rule, where we have gotten to that maximum 
conventional amount, we are now moving to the area where 
hopefully those volumes will continue to grow, continue to 
grow, and move toward that ultimate proportion that you 
mentioned.
    Senator Lankford. Some of this has been a redefinition of 
what is included in cellulosic and what is included in advanced 
fuels, as you have expanded more the biogas and some of those 
things. So give me a percentage for the advanced fuels, of what 
is--what was defined as an advanced fuel, let us say, four or 
five years ago, and then some of the changes that have been 
made to be able to add in some of the other types of fuels.
    Ms. McCabe. Well, it is not quite a redefinition because 
the statute says in order to count as cellulosic you have to 
get a 60 percent reduction, and advanced, a 50 percent 
reduction. So there are processes in the rule which we are 
implementing as expeditiously as we can to identify and 
approve, when people come to us with pathways. And so for each 
one of those we look at what the applicant comes to us with, 
and what does this mean in terms of the reduction, and does it 
qualify as a cellulosic fuel or does it qualify?
    So things that have been approved recently, one of the most 
promising is biogas, which qualifies as a cellulosic fuel and 
has allowed us to increase volumes of cellulosic quite 
significantly, and we continue to look for those technologies, 
and as they fit into different categories we will put them in 
the right category.
    Senator Lankford. In that particular area, and it is 
promising on the biogas to be able to see that, the feedstock 
for that and the ability, that has been some of the challenge 
with biodiesel, is that it has been very productive, it has 
exceeded its targets on it, but the amount that we actually 
produce of feedstock is the problem for that. You have to be 
able to literally kill more hogs or find more way to get grease 
or something else to be able to go after that, to be able to 
get more of it.
    Are we going to have the same issue with the biogas as 
well? Is there a cap in the amount of feedstock that is out 
there?
    Ms. McCabe. I do not know the answer to that. I would be 
happy to find out. I mean, certainly with any of these 
feedstocks, that is a part of the analysis, is how much is 
available--how much more can and should be encouraged and is 
cost-efficient to encourage, and that is where the market comes 
into play in a significant way, and people continue to innovate 
also.
    Senator Lankford. And the innovation we want to be able to 
maintain. Obviously that is part of where we are. We always 
want to be able to innovate in energy.
    Ms. McCabe. Right.
    Senator Lankford. Mr. Rusco, as I go through the two 
reports, the key takeaways that I get from the two reports, one 
is, based on where we are, what is happening, the production 
levels, we are not seeing a reduction in greenhouse gases and 
we will not see that in the foreseeable future unless there is 
a very significant change in the advanced fuel and cellulosic. 
Is that correct?
    Mr. Rusco. The reduction in greenhouse gas emissions is 
uncertain in terms of conventional biofuels, in large part 
because most of the conventional biofuel production was already 
in place before the requirement to have a 20 percent reduction. 
So we do not know how much reduction there is. It really just 
depends on what technologies they are using, and that has not 
been measured.
    For the small proportion that are subject to that 20 
percent reduction, then there is still a little bit of debate 
about how much of a reduction there is with conventional 
ethanol because some people think that EPA's model has not 
effectively taken into account indirect land use, the effects 
on carbon emissions. But that aside, if you assume that that 
part has 20 percent and then the advanced biofuels that are in 
the market are 50 or more percent, then there has been a modest 
reduction in greenhouse gas emissions, but it will only grow 
significantly with growth of advanced biofuels.
    Senator Lankford. OK. Ms. McCabe, let me follow up on one 
thing on that, because Mr. Rusco brings up one of the issues 
and that is about land use. The original design of this was to 
make sure that grasslands did not suddenly have corn planted on 
them as well, and have expansion. Are you confident that right 
now, we do not have things that used to be grasslands being now 
used for corn, based on the ethanol requirement, and if so, how 
are you monitoring and assuring that?
    Ms. McCabe. That is something that we look at every year, 
for every rule, and we work with our fellow Federal agencies to 
make sure that we have the best information possible on that, 
and that, indeed, was the expectation, and in each rule we 
provide our analysis and the background information of how we 
have come to our conclusion that that is not happening.
    Senator Lankford. So if I remember correctly, and again, it 
is off the top of my head, about eight million additional acres 
are now corn that used to not be corn. So your confidence is 
that those were acres that were planted with wheat or with 
soybean or something else that are now corn. They were not just 
originally grasslands. They have now been transferred into corn 
use?
    Ms. McCabe. Well, I think I would like to have the 
opportunity to get back to you with more specifics on exactly 
what our analysis showed and the reasons for our conclusions.
    Senator Lankford. OK. That would be terrific.
    The one thing that I heard over and over again was, one of 
the reasons that we are not seeing the gain in ethanol is 
because the price of gasoline is too cheap, that if gasoline 
was $5 a gallon there would be not necessarily more incentive 
but the cost of the ethanol and the cellulosic would be closer 
in price, meaning that the more that we put some of the ethanol 
into gasoline now, with the lower price of gasoline that we 
face now, we are actually paying more per gallon for a gallon 
of gas with the ethanol blend than we would if it was 100 
percent gasoline and was typical on it.
    Have you all been able to run any numbers on the cost--and 
again, that changes every day, with multiple features, based on 
the RINs prices, the price of crude oil, the price of the 
ethanol, where it is coming from. I get that. Have you all had 
any opportunity to be able to look at just snapshots of 
different days, what the differences in price are, based on 
ethanol or non-ethanol, and what that would be for the 
consumer?
    Mr. Rusco. We have not done that in the course of this 
work. In looking at past work, we did have an opportunity, 
years ago, to look at ethanol and gasoline prices and ethanol 
use. Most of this did not make it into a report, but we--and it 
was not really our objective--but just as we looked at it, you 
could see what looked like a strong correlation between the use 
of ethanol--when ethanol was below its--below the blend wall, 
significantly below the blend wall, and you would see that when 
ethanol prices were below gasoline prices there was more 
blending. So you would see that the market would work, that 
people were seeking the lowest cost fuel.
    But when you are at the blend wall and you have to blend 
that 10 percent, then that ability to blend less if the price 
of ethanol is higher than gasoline is gone, and so there you 
would see--if there are fluctuations you would see differences 
in the price of the final fuel that would reflect that.
    Senator Lankford. So the Congressional Budget Office (CBO) 
did a study in 2014. That is the most recent one that I could 
find and I have asked around, trying to be able to identify it, 
because this is a very complicated issue when you deal with the 
cost of fuel per day, and what that is and how that blends out. 
The most recent I could find was the CBO study in 2014. They 
looked at the RFS program and they tried to determine three 
alternative solutions or scenarios. One was compliance with 
total renewable fuel and advanced fuel mandates, corn ethanol 
cap as set by the RFS; the second one was hold future volume 
requirements at levels previously proposed, so the lower 
levels; and a third options was just repeal the RFS.
    This is the statement: ``The study evaluated the impacts of 
these three options on ethanol production and motor fuel 
prices. According to CBO, if the RFS was repealed or if its 
future mandates were kept at previously proposed 2014 levels, 
corn-based ethanol production would remain at 13 billion 
gallons''--it would still stay high--``and American consumers 
would have lower gas prices.''
    The numbers that they ran behind that was that with a 
mandate--and then pulling the mandate away, if they removed the 
mandate it could reduce the price by up to 26 cents a gallon. 
Now this was, again, a study that was done in 2014, and then, 
for diesel, it could reduce it as much as 51 cents a gallon. 
Now that was a snapshot that they did at that point.
    The challenge that we have is trying to determine where we 
are with greenhouse gas emissions, and where we are with price 
to consumers. If they even dropped that down to a dime, if we 
have a dime a gallon more in cost right now, per gallon, for 
every gallon, with the mandate, and the study that they did, 
they said even if you repealed the RFS, at that time they were 
estimating that we would still use 13 billion gallons, tells me 
it is in the market, it is still out there, it is going to be 
used. It is not as if the mandate, if it is pulled away, 
suddenly no one will use ethanol. It seems to me that a lot of 
people like using ethanol, and it is a good fuel source, and it 
is an especially good source for octane boost, and it is 
plentiful, especially in the easier-to-produce areas like corn-
based ethanol.
    So my question still comes back to, it seems to be raising 
the prices and not hitting the totals that we need for the 
greenhouse gas emissions, and if we remove the mandate we will 
still use it anyway. What am I missing here? Why is the mandate 
so important?
    Mr. Rusco. I cannot answer that, but you will definitely 
still use a lot of ethanol, as an oxygenative, an octane boost, 
if for no other reason. There is another thing that might 
happen but it will take a lot of other changes, and that is 
that auto makers could make high-compression fuels that would 
burn 30 percent ethanol and get great fuel economy, but that--
again, there is no current market for that. But there is a lot 
of possibility to use ethanol. It is just not clear to us 
exactly how much would be used.
    Senator Lankford. If that would the primary fuel out there, 
then my folks in Oklahoma could not drive their 1978 Silverado 
Chevy pickup, because they would not have a good fuel option 
for that as well, and that is the other challenge that is in 
this.
    Ms. McCabe, why the mandate? Why is the mandate essential? 
If it is a good fuel, it is in the system, and it is out there, 
and we know it raises costs, why maintain the mandate?
    Ms. McCabe. Well, Senator, I also cannot answer on behalf 
of Congress, but I will reflect that my understanding of what 
Congress was also trying to do was to bring advanced and 
cellulosic fuels into the marketplace, and they were not 
already there, like ethanol, and those were new industries. 
They needed the push. They needed the mandate. They needed the 
subsidy, essentially, that the RFS provided in comparison to 
readily available petroleum fuels, and that that fit the goals 
of energy security and lower greenhouse gases, and Congress 
chose to use a mandate approach in order to achieve those 
goals.
    Senator Lankford. I would tell you, looking back on it, 10 
years later, we obviously have seen great progress in corn-
based ethanol. We have seen some progress in cellulosic and 
some progress in the advanced, and obviously progress in the 
biodiesel programs. But if the tax for that is 10 cents a 
gallon for every gallon of gasoline to be able to accomplish 
that, I am not sure most consumers would say so far that has 
been worth the cost, because that is a pretty high cost to pay, 
especially for those that are in poverty and on very limited 
incomes.
    So I would just challenge us, as Congress, to look again at 
ethanol and the mandate, and to be able to evaluate, is there a 
better way to accomplish the same thing, to incentivize fuel, 
without actually punishing the consumer so much every single 
gallon of gas, and a different alternative.
    I do not want to hog the time. I know we have several 
things to talk about still.
    Senator Heitkamp. Mr. Chairman, I think that we should 
always have a willingness to think about and reopen and explore 
new ideas on how we can do things better.
    I do dispute somewhat the notion that the only value that 
the mandate has had is, those expressed in the statute itself, 
which is greenhouse gas, which is looking at energy 
independence. I think that a variety of fuel sources, 
especially in transportation fuel, that up to this point there 
has not been the diversity that we have seen. We are seeing 
more electric cars. We are seeing more compressed natural gas 
as natural gas prices stay low, especially in fleet vehicles, 
especially in locomotives. Burlington Northern had a big 
project converting to compressed natural gas, when we saw that 
differential between natural gas prices and oil prices, diesel 
prices.
    So I think that one of the problems that we always have in 
this country is that we make decisions based on too short of a 
frame of our history, and I think that it was Congress's 
judgment that incentivizing and providing a market for biofuels 
was essential for our long-term economic well-being, both in 
terms of transportation fuels but, as I said in the past, in 
terms of developing technology which really can be 
extraordinary as we go to the next generation of advanced 
manufacturing as it relates to agricultural products. We move 
beyond fuel, fiber, and food, and we go into using this as a 
base for growth long-term, growth in advanced manufacturing and 
value-added manufacturing in agriculture.
    So I get what you are saying and I get that we need to have 
a broader discussion, but I also think that we have not had the 
time, given the disruption that we have had in looking at this, 
and the marketplace, and fluctuations in oil prices, to really 
see this experiment and to really see this whole system from a 
big picture, mile-high, beneficial value.
    I do not disagree with you, Mr. Chairman, that at 10-cent, 
if, in fact, you and I could agree on that number, a 10-cent 
cost to consumers is something we need to take very seriously, 
because it is, in aggregate, very high. But then what is the 
benefit to the economy long term, and not just in a five-or 
six-year window but in a 20-, 30-, 40-year window?
    And, not to get on my high horse here, but I am well 
familiar with a facility called Great Plains Natural Gas. I 
have served on their board of directors. It is a syngas. It was 
a 1970s project that was done in response to the oil embargo, 
where we looked at what is our fuel that is abundant in this 
country? And we saw a lot of coal. We said, well, how about we 
gasify coal because we think we are going to be in a natural 
gas shortage?
    So we went about that and eventually the consortium that 
made the investment bowed out because we deregulated natural 
gas. Natural gas prices literally went below a dollar an MCF. 
We found that we had too much natural gas on the market, again, 
a market manipulation that really was not reflecting true 
market conditions.
    But that facility chugged away, looking at byproducts, 
looking at how we could be part of the CO2 discussion, with CO2 
injection. And, as a result, now we have a facility that has 
created huge economies in gasification of coal which could, in 
fact, lead to CO2 reductions overall as it relates to kind of 
the global economy. So how long did that take? The facility 
went online in 1984, and here we are, 30 years later, really 
having a meaningful discussion about the value of that 
facility.
    And so I just think that there is a real impulse in this 
country to look so short-sighted in terms of the time period, 
and these technologies can be extraordinarily important, and 
there is an incentive beyond just simply transportation fuels 
that I think need to be considered. Now, obviously, we have to 
go with the statute we have, which identifies what those goals 
are.
    And so, we will continue to have that discussion, but we 
also have to have the statute be enforced the way the statute 
was intended, to really evaluate the economic success. And, it 
is certainly not the first time the Chairman and I have 
disagreed about this subject, and it will not be the last. But 
I think that the issues that have been raised here are ongoing, 
and the issues that have been raised by the Chairman are issues 
that we need to stand ready to defend the statute going into 
the future.
    I am concerned about the reset. I am concerned that that 
creates more uncertainty in the market, and that because we 
have had this earlier market disruption that, as we look for 
investment, that is the sweet spot in all of this and we do not 
want to hinder and encumber the development of those 
technologies too quickly.
    So, Mr. Chairman, that is my----
    Senator Lankford. That is your story and you are sticking 
to it.
    Senator Heitkamp. Yes. You have it.
    Senator Lankford. Yes. I just want to remind you that the 
Department of Energy gave a $500 million-dollar grant to do a 
cellulosic facility in Kansas, that Shell just bought for $28 
million recently, because it just did not prove to be viable 
long-term, and they may very well use that $28 million and 
convert that into something else in the future that may be very 
viable, and I hope they do.
    Senator Heitkamp. Yes. And I would suggest that if you 
looked at the history of Great Plains, it is exactly that--
Federal loan guarantees that through negotiations, pennies on 
the dollar back to the Federal Government. But I would maintain 
that that facility on the prairie has enormous R&D benefit to 
our country.
    Senator Lankford. Mr. Rusco, give us a guess. For the 
cellulosic, you talk about the multiple generations to be able 
to move. All of this as you talk to people in the industry and 
you talked to the experts and the science folks, give us a 
guess of how many years it would take for a viability for 
cellulosic, and do you feel like it could reach any of the 
target numbers by 2022?
    Mr. Rusco. So I cannot guess how many years. So what we 
heard is----
    Senator Lankford. Come on. That is what we do. We are in 
Congress. We guess. [Laughter.]
    Mr. Rusco. I will do my best. So it would take three to 
four, even five years to build a second-generation plant, and 
they think they might be able to achieve--some of the crews 
think they might be able to achieve, with a second-generation 
plant, maybe 25 percent efficiencies, but they are going to 
need to achieve well over 100 percent efficiencies to get close 
to that, and each generation they have to be able to achieve 
that.
    So if you figure they have to go four or five generations, 
even if they can get that low, right now they can see that the 
next generation might get them 25 percent lower in cost, but 
they need to be a lot--they need to cut costs by a lot more 
than that. If they can see this one and it is going to be 
three, four, five years out, if they can get the money to build 
it, then they have to figure out how to operate that and get 
that up and running, and then they have to build another 
generation and another one after that, so not by 2022.
    Senator Lankford. OK. Ms. McCabe, let us talk about the 
authorities the administration would have, any future 
administration, whatever it may be, between now and 2022, and 
then 2022 and beyond, for the reset. How broad are the 
authorities to be able to reset the numbers for the EPA?
    Ms. McCabe. So the statute gives some guidance to the 
Agency. I brought it right here, because I thought you might 
ask. But it is broad. It says that if those triggers are set 
that the Agency needs to look at recalculating the numbers all 
the way through 2022 for whatever category is being reset, and 
it gives a series of factors that the agency is supposed to 
consider.
    Senator Lankford. Did they reconsider all three categories?
    Ms. McCabe. I am sorry?
    Senator Lankford. You talked about if they could reset the 
total amount, or any of the individual categories, or do all of 
the above?
    Ms. McCabe. Right. I mean, whatever categories that have 
been triggered that the Agency is moving forward with. Our 
thought is it is better to do them all at once, because of the 
interconnecting relationships. So we would undertake a notice 
and comment rulemaking and background work to look at all of 
those factors, to put forward a proposal based on the 
experience of the program to date and the expectations going 
forward, and as Mr. Rusco has said, there are just so many 
factors, and we do not know what is going to happen with oil 
prices in the future, and just a variety of other things. But 
we would have a public process to do that so everybody could 
weigh in.
    Senator Lankford. A couple of quick questions. We are going 
to run out of time but I want to be able to honor everyone's 
time. One of the main goals of the RFS was to get us off any 
imported energy sources. What percentage right now of RFS 
volume uses any imported source, whether that be Brazilian 
sugar cane, or any other outside of the United States feedstock 
source?
    Ms. McCabe. Yes. I do not have a precise number for you but 
we can get you a number. It is small.
    Senator Lankford. But there are some things that are 
foreign sources, that are actually being permitted right now?
    Ms. McCabe. Yes. The statute does not distinguish between 
imported and domestic, and it really varies a lot, depending on 
all kinds of different factors that have nothing to do with RFS 
or domestic policy. But it is small.
    Senator Lankford. You had mentioned as well, Ms. McCabe, 
about the obligated parties, and I am not going to try to work 
you into a corner--I am really not--on this. Help us understand 
the decision for the denial at this point, and to just say no, 
we are going to deny this, and help us understand what brought 
you to that point. As you know, both sides of the argument have 
expressed this to you very clearly, obviously. Some of the 
independent refiners that I know of have told me, point blank, 
the second most expensive part of their operation are RINs. It 
is crude oil and RINs. After that it is the energy for their 
facility and personnel and health care. But the second most 
expensive thing they have is something that is paper, that does 
not really exist anywhere except in the world of government, 
and that is the RINs purchase.
    So help us understand just the process that you went 
through to make this decision.
    Ms. McCabe. Yes. So let me talk about the process first. So 
when we get petitions, it is up to the Agency to grant or deny 
them, and we not required to go through a proposal process to 
do that. In this case, we felt it was important, for one 
reason, because people across the board asked for a public 
forum to be able to put information forward and have that 
conversation, but also because we felt that it was an 
opportunity for us to put forward our best thinking, at this 
moment, of the information that we have received. And as you 
have acknowledged, people are in very different places, and 
they are not only clear, they are vehement, and I have sat in 
many meetings, my staff have gone to some of these facilities, 
we have had many conversations where people will come in with 
the same exact data and say one thing to us one day, and then 
another group will look at the same data and say exactly the 
opposite to us.
    And so we are trying to sort all this through, and one of 
the questions that I was getting from people, as I was having 
these meetings, was, ``Well, tell us what you think about what 
you are seeing.'' So we thought it was fair to do that, and to 
put our thinking out in a proposal. So rather than just say--to 
open it up for, ``We do not know whether we are going to grant 
or deny it, but give us your thoughts''--we thought it would be 
a more meaningful opportunity for input if people could 
understand our thinking currently.
    We tried to lay it out very clearly, our analysis of the 
objections and the points that people were making to us. Nobody 
is denying that RINs are a significant cost for businesses that 
buy them, but there is a complicated interplay between whether 
the value of that RIN is recovered through the products that 
they sell--and again, there is a wide range----
    Senator Lankford. Which is then passed on to the consumer.
    Ms. McCabe. Well, or maybe not. That is complicated too, 
and I think it bears a lot of discussion by people who are much 
smarter on the economics of this than I am. I would not presume 
to be an expert on that. But I think there is a range of views 
on whether the consumer does see those costs or whether they 
are passed back and forth among the regulated industry.
    So people have different views on this and we wanted to try 
to lay that out as best we could. I know we will get lots and 
lots of input.
    Senator Lankford. I am all for an open process on it. It is 
a complicated, difficult issue. I am exceptionally skeptical 
that any industry could have a $200 million cost, for instance, 
for a small manufacturer, or for a small refiner, and that that 
would not be then passed on to the consumer in some ways. If 
your second-highest cost of your business is an item, you do 
not swallow that and the other folks do not swallow that. The 
consumer does at the end. That is part of that 10-cent increase 
that we see just in cost that is sitting out there, if we can 
agree on a simple number, because that ongoing cost has to go 
somewhere.
    So that will be part of--by the way, I do not think that 
goes away if you shift the obligation. I am not saying that it 
does. So I am not arguing one way or the other. What I hear 
from people is, just tell us how the process is going, and the 
more open the process can be, or not, is better. I had 
integrated retail folks that have, as a part of their business 
model, the RINs that they produce and then sell, and it is part 
of their business model now, and it is exceptionally helpful to 
them as a company. And I have other groups that are refiners, 
that struggle exceptionally under this.
    So I get that part of the business. The hard part is just 
the consistency, and trying to guess how to predict a RINs 
price, and it is, as you know, very hard to predict a RINs 
price, and when it is such a large part of your business, 
everyone wants to know how to plan for the next year, and it is 
tough to do that when the RINs move so much.
    Ms. McCabe. Yes. I will add, Senator, too, that we made a 
clear point that if we are looking for certainty in the system, 
changing the point of obligation now will completely undermine 
that. It would take multiple years to get that fixed. People 
will be arguing about how we should do it. So that is a 
consideration----
    Senator Lankford. It is so much simpler if we just do away 
with the mandate entirely. That just fixes that entirely on 
both sides. [Laughter.]
    Senator Heitkamp. I want to make a point about transparency 
in the RIN market. I think EPA has long recognized the 
potential for fraud and the concern about lack of transparency 
and volatility. You have implemented the quality assurance 
program, and I do not think we should leave this subject 
without acknowledging that and at least getting some feedback 
from you on whether that quality assurance project has worked.
    But you have also been working with Commodity Futures 
Trading Commission (CFTC) on a memorandum of understanding 
related to transparency and oversight. And so I do not know 
that we need to comment, given our short period of time, but I 
did want to acknowledge the work that you are doing outside of 
this debate, about, who has the obligation to try and make the 
program more transparent, to try and work cooperatively with 
the CFTC, to guarantee minimization of speculation and fraud.
    Ms. McCabe. Yes. Thank you, Senator. We are looking at 
those opportunities every day, to try to provide more 
transparency.
    Senator Lankford. The only thing worse than a RIN is fake 
RIN, and that is what takes it away. [Laughter.]
    Senator Heitkamp. Yes. Buy a fake RIN, that is pretty 
miserable.
    Senator Lankford. The last question that I have, unless you 
all had other comments, as well, Ms. McCabe, you and I, when we 
spoke last, you were in the process of dealing with the 
requirements for ozone in the ambient air quality, at the same 
time that you are dealing with the RFS, and we talked about the 
conflict between the two. Help me catch up on where that 
conversation is going right now, because, as you produce more 
ethanol it produces more ozone in those areas in the production 
part of it, at the same time we are dealing with reducing ozone 
nationwide as well.
    Ms. McCabe. Yes. So back in 2010, when we did our analysis, 
when we put the rule in place, we did note that there were 
places and times where ozone air quality could be increased. It 
is not uniform, it is not across the board, it is not 
necessarily in places where the ozone standard is not met 
already, so those are all complicating factors.
    And, Senator, I think we are about where we were last time, 
which is that States and cities are working to meet the ozone 
standard. Most of those areas that are ozone non-attainment 
areas are large metropolitan areas, and so the contributors to 
ozone are overwhelmingly motor vehicles, generally, industry 
power plants, and large emitters. But I am certainly not 
denying that we have found that there could be some increases 
in ozone as a result of ethanol.
    Senator Lankford. I did notice, as well, that you and 
others had very different--the EIA had a number for what is E-
0, at quite a bit higher, while you all have estimated what the 
E-0 number is as well. I think we are around 200 million and 
they were somewhere around five billion or something.
    Ms. McCabe. Yes. It was order of magnitude. So that is the 
kind of discrepancy that gets people sitting down and talking 
to one another, which we did, and worked out that we were 
looking at different points in the process. So we were looking 
at the retail level. Their numbers were reflecting a point 
higher up in the supply chain.
    So we feel we have resolved that discrepancy between the 
two agencies.
    Senator Lankford. I would assume, then, the higher number 
still is used in the United States, or the lower number is what 
is used in the United States?
    Ms. McCabe. We were looking at what is used at retail, what 
is expected to be needed at retail----
    Senator Lankford. Right.
    Ms. McCabe [continuing]. In terms of people buying E-0, as 
opposed to E-0 somewhere else in the supply chain then being 
blended later.
    Senator Lankford. OK.
    Ms. McCabe. If that makes sense.
    Senator Lankford. It does make sense then.
    Any other final comments that the two of you need to make, 
that we did not cover?
    Ms. McCabe. Nope.
    Senator Lankford. Mr. Rusco, your report is very thorough. 
I appreciate that. And hopefully in the days ahead we can get 
some good consistency on numbers and costs, because that is one 
of 
the areas that is missing, still, is to try to figure out this 
number--what does it really cost the consumer? We have some 
estimates but industry has not been able to do an estimate, we 
have not been able to get an independent estimate, and we are 
all kind of guessing what that would be at this point, based on 
some numbers that are several years old.
    And so it would be extremely helpful for us to be able to 
get a good snapshot, even if it was literally grabbing one day 
a month for a year, and then just snapshotting those days, this 
is what the estimated cost would be with or without the 
mandate, or with or without ethanol, because I would assume 
some days that it is less expensive, and it depends on the 
price of oil at that time. But I would also assume many days it 
is more expensive, especially with a lower oil price right now, 
with what we have.
    So hopefully in the days ahead we can get that kind of 
number.
    Any final comments?
    Senator Heitkamp. No. Thank you.
    Senator Lankford. Thank you, both. Let me see if I have got 
a very formal closing statement for you to be able to make.
    That concludes today's hearing. There is my formal 
statement. I would like to thank the witnesses for their 
testimony. The hearing record will remain open for 15 days 
until the close of business on December 16, for submission of 
statements and questions for the record.
    What that, this hearing is adjourned.
    [Whereupon, at 3:50 p.m., the Subcommittee was adjourned.]

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