[Senate Hearing 114-71]
[From the U.S. Government Publishing Office]




                                                         S. Hrg. 114-71

  RE-EXAMINING EPA'S MANAGEMENT OF THE RENEWABLE FUEL STANDARD PROGRAM

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

                                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

                             FIRST SESSION

                               __________

                             JUNE 18, 2015

                               __________

                   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

                    Keith B. Ashdown, Staff Director
              Gabrielle A. Batkin, Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
                     Laura W. Kilbride, Chief Clerk
                     Lauren Corcoran, Hearing 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 Nitsche, Chief Clerk
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator Lankford.............................................     1
    Senator Heitkamp.............................................     2
    Senator Ernst................................................     6
    Senator Sasse................................................     9
    Senator Peters...............................................    11
Prepared statement:
    Senator Baldwin..............................................    35

                               WITNESSES
                        Thursday, June 18, 2015

Janet McCabe, Acting Assistant Administrator, Office of Air and 
  Radiation, U.S. Environmental Protection Agency
    Testimony....................................................     5
    Prepared statement...........................................    36

                                APPENDIX

Statements submitted for the Record from:
    Biotechnology Industry Organization..........................    42
    Growth Energy................................................    45
    Wisconsin Corn Growers Association...........................    48
Responses to post-hearing questions for the Record from Ms. 
  McCabe.........................................................    50

 
  RE-EXAMINING EPA'S MANAGEMENT OF THE RENEWABLE FUEL STANDARD PROGRAM

                              ----------                              


                        THURSDAY, JUNE 18, 2015

                                 U.S. Senate,      
                        Subcommittee on Regulatory,        
                      Affairs and Federal Management,      
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:01 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. James 
Lankford, Chairman of the Subcommittee, presiding.
    Present: Senators Lankford, Ernst, Sasse, Heitkamp, and 
Peters.

             OPENING STATEMENT OF SENATOR LANKFORD

    Senator Lankford. Good morning, everyone. I want to welcome 
everyone to today's Subcommittee hearing on the Renewable Fuel 
Standard (RFS).
    I was privileged in the U.S. House to chair two prior 
hearings on this topic. I look forward to another important 
discussion regarding the Renewable Fuel Standard and its 
management.
    The ideals of the RFS are laudable: to improve our Nation's 
energy security and preserve the environment. Since 2005, daily 
domestic oil production has nearly doubled. Meanwhile, other 
government regulations, such as Fuel Economy Standards, 
combined with the economic recession, have led to lower demand 
than anticipated. Additionally, the increased use of natural 
gas and improved energy efficiency have lowered our greenhouse 
gas emissions.
    For many years, the RFS has chased the annual mandates. 
Statutorily, the U.S. Environmental Protection Agency (EPA) is 
required to release the mandated volumes by November 30 of the 
preceding year to allow those covered by the mandate to plan 
for the future. The EPA has not met this deadline since 2009 
and we are still awaiting the EPA for the final version of the 
2014 volumes, even though the year in question has been over 
for 6 months.
    An announcement was made in November of last year that we 
would not see a final rule until the calendar year was over. 
The agency cited significant comment and controversy as the 
reason they could not finalize volumes, seemingly an admission 
that this program is unworkable in its current form. There is a 
tremendous amount of controversy around the RFS; there are a 
lot of opinions circling and a lot of emotions around this 
particular issue.
    In accordance with a court order, on June 1, 2015, the 
proposed mandates for 2014, 2015, and 2016 were all released 
together. Although some might say better late than never, we 
need to take a serious look at why these delays are unavoidable 
every year now under current law.
    As for the actual numbers, the EPA has proposed 2014, 2015, 
and 2016 requirements, including increased, unattainable at 
times, levels of renewables in those quotas for the gasoline 
supply over the next year and a half. The EPA has chosen to 
wisely work from the actual used volumes for 2014, but the 
future mandates called for by the proposed rule represent an 
aspirational goal of breaching the blend wall with very little 
time for increased consumer use of vehicles equipped to handle 
higher ethanol fuels.
    The likelihood that the volumes for cellulosic and advanced 
fuel required under the RFS will have to be reset by the EPA 
starting next year increases the regulatory uncertainty. This 
authority will likely be triggered due to the agency waiving 
significant percentages of the volume mandated by the law in 
face of production not being nearly as high as imagined by 
Congress in 2007, when the RFS was last modified. Let me 
reassert again, Congress is the one who set the rule in 2007, 
but the EPA is the one who has to figure out how to manage 
this, since the cellulosic production is not close to what was 
predicted in statute.
    After a decade of implementation, we must ask ourselves if 
the RFS goals of yesterday are worth the increased cost to our 
food, gas, and the environment. From the price of livestock 
feed, to the additional cost to restaurant owners, to the 
everyday Americans who live with more expensive grocery bills, 
the program has had a negative impact in many areas.
    Beyond real concerns over engine damage, there have also 
been additional costs to motorists at the pump. On the 
environmental front, new studies are highlighting the program's 
negative impact on our land, water, and air, specifically 
ozone.
    Today, we have the opportunity to review the EPA's 
management of the program and take stock of the current state 
of the RFS. I anticipate an insightful hearing and am pleased 
that our witness, Janet McCabe, could join us. Thank you for 
being here again. I look forward to re-examining these issues 
with my colleagues and our witness today.
    With that, I recognize the Ranking Member, Senator 
Heitkamp, for her opening statement.

             OPENING STATEMENT OF SENATOR HEITKAMP

    Senator Heitkamp. Thank you, Mr. Chairman.
    I want to start by first saying I wish we were not having 
this hearing today. I wish there was no question over the 
management of the RFS or the Environmental Protection Agency's 
ability to implement the RFS as Congress intended. But, 
unfortunately, we are in a place where EPA has created, I think 
in some ways unknowingly, uncertainty to our biofuels 
producers, from corn ethanol, to biodiesel, to cellulosic 
ethanol producers. And, this uncertainty and lack of 
predictability is costing us investments. It is costing us 
environmentally and it is costing us jobs.
    I am a strong supporter of truly ``all of the above'' 
energy policy security. Along with Senator Lankford, my State 
is one of the leading producers. I do not know where Oklahoma 
is on that rank, but North Dakota is No. 2 in the production of 
oil, and we have a lot of associated gas. We have a lot of wind 
resource. And, we certainly have a lot of bio-resource. And, 
so, this is a huge issue to my State. And I can tell you that I 
think the RFS is part of that ``all of the above'' policy.
    When we look at what RFS means to my State of North Dakota 
alone, the industry represents $2.5 billion in annual economic 
output, almost 9,000 jobs. In Oklahoma, the RFS helped create 
about 4,300 jobs. In Wisconsin, $4.2 million in economic output 
with over 19,000 jobs. And in Iowa, obviously a major ethanol 
and biofuels producer, $19.3 billion with almost 74,000 jobs in 
the mix. And, I think I could go on.
    I think these numbers are important to highlight because 
the RFS is critical to our economy, and that is why it is so 
important that it be administered correctly, as Congress 
intended.
    I am glad the EPA finally released the new proposed rules 
for 2014, obviously late. I do not think anyone can say 
releasing those numbers in 2015, where there is not finality to 
the rule and will not be until the end of 2015--2014 rules were 
not timely. I do not think there is any doubt about it, and 
that has created a great amount of disruption. But, I do want 
to take time and praise this important first step and I want to 
thank Ms. McCabe for her leadership in making that happen.
    Unfortunately, the proposal continues to ignore 
congressional intent and reduces congressionally mandated 
blended volumes, citing availability of distribution capacity. 
The statute only allows for an inadequate supply waiver for 
domestic biofuels supply and not a distribution capacity 
waiver. In fact, in 2005, the House included a waiver provision 
for distribution capacity, but the final bill was passed by the 
House and the Senate did not.
    So, I hope when the EPA puts out its final rule this 
November, they will toss out this flawed and disallowed 
reasoning and return the management of the program to the way 
Congress actually intended. If they do that, the program will 
work just fine, as it did in the first years of the RFS.
    I think certainty needs to be our top concern when it comes 
to Federal regulation, legislation, or anything else that we do 
here in Washington, and certainly on this Committee, we spend a 
lot of time talking about predictability and certainty as 
essential components to a proper business environment.
    Providing that certainty for our producers and businesses 
is absolutely critical so that they can plan long-term and grow 
their business. And, Congress provided that certainty, I 
believe, in 2005 and 2007 when it passed and amended the RFS by 
setting very clear volumes and guidance on when those volumes 
may be waived. The best way to get back on track and provide 
certainty, I think, is to follow these very clear congressional 
mandates.
    Because this uncertainty has real consequences, I mentioned 
earlier the contribution RFS has made to our States. When 
managed out of line with congressional intent, you can imagine 
there are negative consequences. In fact, the advanced and 
cellulosic biofuels sectors have already lost $13.7 billion in 
investments due to EPA's delay. For biofuels, 54 plants in 30 
States have closed or idled because of the lack of certainty 
from EPA. In 2014, nearly 80 percent of U.S. biofuel producers 
scaled back production, and almost 6 in 10 idled production 
altogether. I know this as a certainty because our Velva, North 
Dakota biodiesel plant stalled production in biodiesel for the 
first part of 2015.
    However, I must emphasize again that this is not a problem 
with the RFS, but, rather, a problem with the administration of 
the RFS. As one testimony for the record noted, EPA's failure 
to issue RFS rules in a timely manner that is consistent with 
the law should not be misconstrued as a sign that the program 
is broken. Up until 2013, the program worked as intended, to 
spur innovation and growth in the advanced and cellulosic 
biofuels space.
    So, I look forward to hearing from Ms. McCabe on EPA's past 
successes of administration of the program and how they can get 
back to those past successes. And, I would say, I am 
particularly interested in the process and how that process can 
be amended. This is not a hearing to talk about whether we 
should repeal or in any way adjust the RFS, but what we can do 
to make this program administered in a way that provides 
certainty.
    So, thank you, Ms. McCabe, for showing up, and thank you, 
Mr. Chairman, for the opportunity to offer a statement.
    Senator Lankford. That is great.
    At this time, we will proceed with testimony from our 
witness. Janet McCabe is the EPA's Acting Assistant 
Administrator at the Office of Air and Radiation. She 
previously served as the Office of Air and Radiation's 
Principal Deputy to the Assistant Administrator.
    I would like to thank Ms. McCabe for appearing before us 
today. It is good to be able to see you again.
    In the tradition of this Subcommittee, we swear in all 
witnesses that appear before us. If you do not mind, I would 
like to ask you to stand and raise your right hand.
    Do you swear the testimony that you are about to give 
before the Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Ms. McCabe. I do.
    Senator Lankford. Thank you. You may be seated. Let the 
record reflect that the witness answered in the affirmative.
    We will be using a timing system today, but you are the 
only witness in our conversation. We would like you to stay as 
close as you can to the 5-minute time period. We have obviously 
received your excellent statement for the record. You are 
welcome to build on that or to be able to reinforce that or to 
be able to talk about a totally different thing, if you would 
like to, as well, and then we will have some question time.
    As we have done in the past in this Subcommittee, and you 
and I have done before in the House, the first round will be 
set questions at 5 minutes each. After that, it will be open 
dialogue here among the dais. We will have both interchange 
here on the dais as well as with you, and it will be a more 
open conversation.
    So, I would be glad to be able to receive your testimony 
now.

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

    Ms. McCabe. Thank you, Chairman Lankford, Ranking Member 
Heitkamp, and other Members of the Subcommittee. Good morning. 
I appreciate the opportunity to testify on the Renewable Fuel 
Standard program and EPA's recent volumes proposal.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. McCabe appears in the Appendix on 
page 36.
---------------------------------------------------------------------------
    The Clean Air Act requires EPA to publish annual standards 
for four different categories of renewable fuels: Total, 
advanced, biomass-based diesel, and cellulosic. These standards 
apply to producers and importers of gasoline and diesel fuel.
    On May 29, EPA issued a proposal that would establish the 
standards that apply for years 2014 through 2016 and the volume 
of biomass-based diesel for 2017. We will finalize these 
standards by November 30, at which point we will have returned 
to the statutory time line for issuing the Renewable Fuel 
Standards.
    EPA recognizes that the delay in issuing the standards for 
2014 and 2015 has led to uncertainty in the marketplace. This 
proposal establishes a path for ambitious, responsible growth 
in biofuels and helps provide the certainty that the 
marketplace needs to allow these low-carbon fuels to further 
develop.
    Congress set annual standards for biofuel use that increase 
every year. It also included in the law tools known as the 
waiver provisions for EPA to use in the event that it 
determined the statutorily prescribed volumes could not be met. 
Our recently issued proposal seeks to ensure that the growth of 
renewable fuel production and use continues consistent with 
congressional intent. It uses our waiver authority in a 
judicious manner to establish ambitious, but responsible and 
achievable standards.
    The proposal addresses 3 years' worth of standards and 
would set the volume requirement for biomass-based diesel for a 
fourth year. For 2014, we are proposing standards at levels 
that reflect the actual amount of biofuel used domestically in 
2014. For 2015 and 2016, and for 2017 for biomass-based diesel, 
the proposed standards would provide for steady increase over 
time.
    The proposed volumes 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 amount of volumes that can be supplied to 
consumers.
    The steadily increasing volumes that we have proposed mean 
that biofuels will remain an important part of the overall 
strategy to enhance energy security and address climate change. 
We are optimistic about the future of biofuels and think our 
proposal will put us on a pathway for steady growth in the 
years to come, as Congress intended.
    Many stakeholders rightly want to know why 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 proposal 
includes a discussion of this last constraint, known as the E10 
blend wall.
    If gasoline demand continues, on average, to trend downward 
or remain flat, increasing the amount of ethanol used in the 
fuel pool will require significantly greater use of gasoline 
blends with higher ethanol content. EPA has taken steps to pave 
the way for increased 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. At the same time, EPA recognizes that there are real 
limitations in the market to increase use of these fuels, 
including current near-term limits on fueling infrastructure.
    Our proposal aims to balance two dynamics, Congress' clear 
intent to increase use of renewable fuels over time to address 
climate change and increase energy security, and real world 
circumstances, such as the E10 blend wall, that have slowed 
progress toward such goals. Thus, we are proposing standards 
that will still drive growth in renewable fuels at an 
ambitious, but responsible, rate.
    For 2016, we are proposing numbers to incentivize real 
growth. For example, we propose to set total renewable fuel 
volumes about 9 percent higher, advanced biofuel about 27 
percent higher, and biodiesel standards in 2017 about 17 
percent higher than the actual 2014 volumes. We believe that 
these proposed volumes are achievable and consistent with 
Congress' clear intent to drive renewable fuel use up, even as 
we use the authorities that Congress provided EPA to manage the 
program responsibly.
    EPA has taken other steps to improve the administration of 
the RFS program. We have improved the quality, transparency, 
and efficiency of our petition review process for new biofuel 
pathways that can count under the RFS program. And it is 
important to remember that the RFS program is only one part of 
the overall picture for biofuels. Both the U.S. Department of 
Agriculture (USDA) and the Department of Energy (DOE) have 
programs looking at ways to support biofuels and biofuel 
infrastructure, and we work closely with them as we implement 
this statute.
    We will be holding a public hearing on June 25 in Kansas 
City, Kansas, and we look forward to hearing from all 
stakeholders during the public comment period, which ends on 
July 27. And, as I said, we intend to finalize the rule by 
November 30 of this year.
    Again, I thank you for the opportunity to serve as a 
witness at this hearing and I look forward to your questions 
and to the discussion.
    Senator Lankford. Thank you.
    The Ranking Member and I, we are going to defer our 
questions to the end of this round, which means I would 
recognize Senator Ernst for the first questions.

               OPENING STATEMENT OF SENATOR ERNST

    Senator Ernst. Thank you, Mr. Chairman, thank you, Ranking 
Member Heitkamp, for this wonderful discussion that we will be 
having this morning. I appreciate the opportunity. And, thank 
you, Ms. McCabe, for joining us today.
    I would like to start off by saying thanks so much. We do 
know that you are working very hard in this area, so I 
appreciate that. I appreciate your testimony, and I believe 
personally that this is not only an economic issue, but, of 
course, a national security issue, as well.
    This Committee does have a history of working together 
across the aisle on security and good governance matters and I 
look forward to working with my colleagues on this important 
topic.
    Clean and renewable energy is a topic that everyone in the 
United States can get behind, and over the years, the RFS has 
proved successful at driving innovation and effective options 
for consumers at the pump. And, as many of you may know, Iowa 
leads the Nation in biofuels creation, producing 3.8 billion 
gallons of clean burning ethanol and 230 million gallons of 
biodiesel, and that is from our 2013 numbers. We are also home 
to two state-of-the-art cellulosic ethanol facilities with 
another coming into production later this year. Additionally, 
we boast retailers across the State that offer affordable 
ethanol and biodiesel blends to consumers.
    When passed by Congress, the original intent of the RFS was 
to create consumer choice for clean fuel by spurring investment 
in research, production, and infrastructure. Unfortunately, the 
EPA is now using the lack of infrastructure as an excuse for 
setting biofuels levels lower than originally mandated, which 
flies in the face of the law.
    This issue is of critical importance to the State of Iowa 
as well as the Nation. Ensuring our domestic energy security 
and promoting innovation in the next generation of biofuels is 
crucial as we move forward.
    As you may know, Ms. McCabe, in February, I invited EPA 
Administrator Gina McCarthy to visit Iowa and to see the impact 
of the delayed release of the RFS volumes. Additionally, last 
week, the entire Iowa delegation--Republican, Democrat, the 
entire delegation--sent another letter to the Administrator, 
urging her to hold a hearing on the RFS levels in our State. 
Can we expect either of these to happen?
    Ms. McCabe. Thank you, Senator. I cannot speak for the 
Administrator's schedule, but I can certainly take back to her 
that you raised this this morning and her office can respond.
    Senator Ernst. Thank you.
    Ms. McCabe. Yes. In terms of the hearing, as I mentioned, 
we are holding a public hearing in Kansas City, Kansas. We have 
a regional office there. There is great interest in this issue 
across the country and it is always a challenge for us to 
choose the location of the limited number of hearings that we 
are able to have. And, in this case, we felt that having a 
hearing in Kansas City was well located for many States that 
are very interested in this issue and we have the support of 
our local office there. As of yesterday, I think we had about 
250 people signed up, including a number of people from Iowa. 
So, we will look forward to a very good and robust attendance 
there.
    Senator Ernst. Thank you. And, if you would, just please 
emphasize to her that that is an open invitation, because we do 
want to see the EPA Administrator in Iowa to just experience 
some of the difficulties we have had with the lack of action on 
part of the EPA.
    If we can move on to infrastructure and congressional 
intent, in your testimony, you cite lack of available refueling 
infrastructure as justification for not setting the Renewable 
Volume Obligations (RVOs) higher. However, when Congress passed 
the RFS in 2005, only two types of waiver authorities were 
included, and that was lack of supply and severe economic harm. 
That Conference Committee rejected available refueling 
infrastructure, which would have severely limited consumer 
choice and the ability to get more of those biofuels into the 
marketplace.
    Despite the clear direction from Congress, EPA has now 
decided to use available refueling infrastructure as a 
condition to waive the standard, even though Congress expressly 
rejected that when they set the law. Can you explain why the 
EPA is blatantly overlooking the law?
    Ms. McCabe. Sure. I would be happy to discuss this. And, of 
course, this is an issue on which there are many views, as 
well, and happy to explain ours.
    The language in the statute, as you observe, gives two 
reasons for EPA to waive the standards, and the one that we are 
looking at here is the one that says inadequate domestic 
supply. And, I understand that there was activity in finalizing 
those words, but, in fact, those words are very simple in the 
statute and do not explicitly say exactly what that means. And, 
as is often the case, it is EPA's job to reasonably interpret 
congressional language in implementing the statute.
    We lay this out at some length in our proposal, and I would 
be happy to share that with you if you have not seen it, but 
the bottom line, Senator, is that our interpretation of that 
term is that Congress intended for these fuels not only to be 
produced, but to be used. That is where the value in greenhouse 
gas reduction and diverse energy supply and, as you say, 
consumer choice comes. And, so, when you have a situation where 
the fuels cannot, in fact, be delivered to consumers on the 
timeframe that was set out in the statute and Congress provided 
this waiver authority, we believe it is a reasonable 
interpretation for us to reduce the volumes to a level that 
still will comply with Congress' intent to drive the fuels.
    This was a big thing that Congress did in the RFS. It was 
calling for big and significant change. And, the program 
stretches out over a number of years, and in order to change a 
system in this dramatic a way, it is taking time. And, we 
believe that looking over the history of this program in the 
last few years and what we can project forward, to set the 
standards at the statutory volumes would simply not be 
appropriate. There is too far a way to go. And, so, the waiver 
provision is there for EPA to use in its considered judgment to 
set ambitious, but responsible, levels.
    Senator Ernst. I thank you. I know my time has expired. I 
would argue that we are caught in a very vicious cycle with the 
producers not knowing what that volume will be, so we have 
actually delayed production and research and the furthering of 
those types of fuels. So, without the standards being set, we 
do not know where to go. So, I just continue to state, we need 
reliable energy sources for all of our consumers. We would like 
them to make that choice.
    But, thank you very much, Mr. Chairman.
    Senator Lankford. Thank you. Senator Sasse.

               OPENING STATEMENT OF SENATOR SASSE

    Senator Sasse. Thank you, Mr. Chairman.
    Ms. McCabe, thank you for being here. I actually have a 
series of questions that will followup on Senator Ernst's 
questions, as well, because it feels to me like what you hear 
from the EPA about corn production volumes and the Department 
of Agriculture are quite different, and there is a lot of 
discussion in your Quadrennial Review about coordination. So, I 
will come back to some of that in a minute, but I just want to 
associate myself with Senator Ernst's questions, as well.
    As the EPA considered the proposed rule for the RVO 
standards, did you use any studies or metrics to model how the 
proposed rule would affect transportation fuel prices?
    Ms. McCabe. The way that the rule, or the program, affects 
transportation prices is very complicated and we did not 
attempt to estimate the impacts on transportation fuel prices.
    Senator Sasse. OK. So, no studies or models on 
transportation fuel prices that you have used?
    Ms. McCabe. We certainly look at all of those, but we 
ourselves did not try to estimate what the impacts would be.
    Senator Sasse. So, would it be possible for us to get a 
list of the studies and the models that you consulted?
    Ms. McCabe. Sure.
    Senator Sasse. OK, great. We will follow-up. Thank you.
    And, in your proposed rule, did you conduct any studies to 
model how the proposed rule would affect international trade, 
and in particular, I wonder if you evaluated changes in trade 
flows in biofuels between the United States and Brazil.
    Ms. McCabe. We did not do any of that work ourselves. 
Again, those are issues that many people look into, and we 
certainly pay attention to work that others do, but we did not 
do that ourselves.
    Senator Sasse. So, when you are evaluating the proposed 
rule, when you are deciding what you are going to promulgate, 
are those studies and what you consulted that we could have 
access to----
    Ms. McCabe. Sure.
    Senator Sasse [continuing]. We could have a sense of what 
you consulted?
    Ms. McCabe. Sure. Anything that we looked at, you certainly 
can----
    Senator Sasse. Great.
    Ms. McCabe [continuing]. Look at yourself.
    Senator Sasse. OK. Thank you.
    In your testimony, and this is, again, picking up on some 
of what Senator Ernst was arguing----
    You say that the EPA will continue to engage stakeholders 
and be working in consultation with USDA and the DOE.
    Ms. McCabe. Yes.
    Senator Sasse. In April, the Department of Energy released 
its Quadrennial Review and it stressed that DOE and the 
Department of Defense (DOD) would be continuing research and 
demonstration activities to develop drop-in biofuels, 
particularly for use in aviation and large vehicles.
    In addition, the report states that the Department of 
Energy would be providing technical support to the States, 
communities, and private entities wishing to invest in 
infrastructure to dispense higher-level ethanol blends. The 
USDA, for its part, has crop projection reports on corn that 
state that the amount of corn used in calendar year 2014 is 
estimated to be 14.2 billion bushels, up well from the 2013 
estimate, and average yields for the United States are 
estimated to be at a record high 171 bushels an acre. I think 
what this means is that the USDA is saying that there is plenty 
of corn and the Department of Energy is saying that we need 
more infrastructure and more research.
    I think when you listen to corn growers in my State, they 
are skeptical about your promises of the close consultation 
across the Department and also with different geographies, and 
they actually just wonder if you all are skeptical of corn. 
And, so, I wonder if you see their skepticism and if you can 
explain to them how it is believable that you are actually 
listening to these other agencies.
    Ms. McCabe. Well, indeed, we do. I can assure you that we 
work closely with the USDA and DOE. I, myself, have been 
involved in many conversations with staff and leaders from 
those agencies as we worked on this and other issues, and there 
is very much a commitment across the Administration to work to 
implement the RFS and promote the development and use of 
renewable fuels. So, it is hard to convince people who might 
have a different view, but I think that our proposal reflects 
the fact that we consult with those agencies. And, we are not 
agricultural economists. We do not try to be. That is their job 
to do. So, we certainly must work with them, and we do.
    Senator Sasse. It just feels to a lot of people who are 
trying to make production decisions that it is hard to 
reconcile the different agencies' views of the future of the 
corn crop.
    I am a cosponsor of S. 1239, which is a bill introduced by 
Senators Donnelly, Grassley, and Fischer that expands waivers 
of the vapor pressure limitations that otherwise make it harder 
for E15 to be used in the summer driving season. I have some 
questions for you related to the problem that that tries to 
solve. Some of these may end up being technical enough that we 
will need to do it for the record.
    But, the State of Nebraska is able to provide us with a 
breakdown of the number of registered vehicles by fuel source, 
including automobiles that are capable of using flex fuel and 
E10 in our State of Nebraska. In light of your concerns over 
the refueling and vehicle infrastructure issues in the United 
States, would you be able to provide an EPA estimate of how 
many vehicles in the total U.S. fleet are capable of supporting 
fuel above E15, and in particular, how many can use flex fuel, 
and would you be able to elaborate more on the breakdown by 
fleet in the amount of vehicles that could support each 
category of fuel.
    Ms. McCabe. We do have numbers to answer those questions. I 
do not have them with me, but we would be glad to provide them.
    Senator Sasse. Great. We will followup today with a letter.
    Ms. McCabe. OK.
    Senator Sasse. Thank you.
    Ms. McCabe. Great.
    Senator Lankford. Senator Peters.

              OPENING STATEMENT OF SENATOR PETERS

    Senator Peters. Thank you, Mr. Chairman.
    Thank you, Ms. McCabe, for EPA's hard work and for your 
work in administering the RFS program, and I look forward to 
working with you in the months and years ahead as we continue 
to work on this.
    As a Senator from Michigan, I am always looking for ways to 
diversify the U.S. vehicle fuel supply and making our Nation 
more energy independent and improving our environment. And, the 
RFS, I believe, has been a proven program that is driving 
forward alternative fuels and economic development. It is 
creating new clean energy jobs. And, it is also, at the same 
time, strengthening our agricultural markets.
    And, while I appreciate the effort of the EPA to set 
ambitious domestic biofuel targets while also trying to balance 
achievable standards, I believe these targets that you have do 
not really reflect Congress' intended goals for the RFS.
    When Congress passed the RFS, the intent was to set 
ambitious and aggressive targets to spur innovation in biofuels 
production technology and invest in infrastructure to bring 
these biofuels to market. And, in order to accomplish these 
goals, I believe we have to stay the course and we have to keep 
the RFS intact.
    EPA's latest proposal is an improvement, certainly, over 
the 2013 proposal, but the proposed volume requirements for the 
next few years, I believe, do have consequences for our 
economy, for our energy security, and for the environment. In 
addition, EPA's delays in rulemaking over the past 2 years have 
chilled necessary investment in advanced and cellulosic 
biofuels just as they have reached commercial development.
    The latest proposal cites lack of supply as a reason to 
reduce volumes. It was not the congressional intent to allow 
the EPA to cite the availability of supply for blending and 
distribution as a condition to its waiver authority. I joined a 
letter that was signed by 37 Senators stating the condition 
being cited falls outside of what we think is clearly defined 
waiver authority.
    In relation to the infrastructure investment, I believe it 
is clear that the proposal will depress renewable fuel credit 
prices and will eliminate incentives that exist today for 
infrastructure investment, and this is troubling, given the 
fact that before the rule, infrastructure investment was rising 
very rapidly and now it has stalled as a result of some of 
these delays.
    What is your plan to get infrastructure investments made if 
this proposed rule is finalized without any changes?
    Ms. McCabe. Well, we think that there are a number of 
things that will happen. As you, yourself, have cited, and many 
others have, too, the certainty of having the volumes out there 
is absolutely critical for people to know what is coming, and I 
think that this proposal signals an intent of the 
Administration and the EPA to steadily grow volumes over time, 
and that certainty is very important.
    The USDA, which was mentioned a minute ago, is very 
committed to looking to enhance and improve infrastructure. It 
recently announced a program to help do that with grant funds 
to help build infrastructure. And, we think that the 
combination of those efforts, things that we are doing in order 
to streamline the pathway approval process so that we can get 
these new and innovative pathways approved and into the market, 
will also help, and that as you put those things together, 
certainty from the regulatory side, some support from USDA and 
others across the Administration, and people realizing that 
more fuel, more choice will attract consumers to want these 
fuels, those things will help us move in the right direction 
and continue to make real progress.
    Senator Peters. So, as you mentioned, why the importance of 
certainty and before we had certainty, the impact it has, I 
think the Biotechnology Industry Organization revealed that 
recent research has found that $13.7 billion in investment in 
advance biofuels was lost just during the one-year since the 
proposal. Does that sound accurate to you, and is that not a 
big concern?
    Ms. McCabe. I really could not speak to that number, 
Senator, but we absolutely are concerned about what the lack of 
certainty has created. That is why we are getting this program 
back on schedule.
    Senator Peters. Well, do you see the amount of renewable 
fuels blended into fuel supply increasing in future years 
beyond 2016, and if so, how do you see that playing out past 
2016?
    Ms. McCabe. Oh, I do see it continuing to grow. I think, as 
Senator Ernst acknowledged, before the RFS, there was very 
little of this fuel in the market. There is now much more than 
there was, and we see growth and we see pathways coming in. I 
have many conversations with stakeholders from across the 
biofuels industry who are very optimistic about their ability 
to supply fuel to the marketplace. And, as I noted before, this 
law is calling for something of a significant transformation in 
the way transportation fuel is provided, and these volumes, we 
believe, will continue to encourage and promote and drive those 
changes.
    Senator Peters. Were greenhouse gas emissions considered as 
the agency prepared your rule in 2014, and if so, what were the 
results?
    Ms. McCabe. Well, greenhouse gas emissions are fundamental 
to the purpose of the RFS. When we set up the program in our 
2010 rule, we did an evaluation of greenhouse gases. For the 
annual fuel volumes, we do not do an independent re-look at 
greenhouse gas emissions.
    Senator Peters. OK. Well, I look forward to continuing to 
work with you. This is a critical industry, industry in my 
State as well as the other States here, and it is a critical 
part of energy independence for our country, and with 
agriculture, in particular, and we have a special connection 
given the fact that I represent Michigan, which is the center--
we like to believe is the center of the auto industry, as well. 
So, I look forward to working with you.
    Ms. McCabe. Thank you.
    Senator Lankford. Ms. McCabe, I really appreciate you being 
here and this ongoing conversation. Let me walk through some 
history we walked through together because, again, we are 
looking at how we are going to resolve this in the future.
    In 2010, the final rule for the RFS was 4 months late. In 
2011, it was a good year. It was only 2 weeks late. In 2012, 
one and a half months late. In 2013, 9 months late. In 2014, 18 
months late and counting. In 2015, 6 months late and counting.
    The challenge is, once we get into 2016, 2017, 2018, and 
keep going, how does this get better and how does RFS get back 
on schedule to be ready by November, or has Congress put a 
requirement on EPA that it cannot fulfill? Is there something 
systemically in the structure that year after year they cannot 
meet this requirement?
    Ms. McCabe. Senator, I think that is a very fair question, 
and EPA does not like missing deadlines, either. I think that a 
couple of things have happened, as we talked about last time 
when I visited with you, that made 2014 particularly 
challenging and led to these significant delays. And, I am an 
optimistic person. My job is to implement this program and meet 
our statutory obligations in terms of timeframe, so I am 
confident that we will do that, and I am confident for a couple 
of reasons.
    One is through this rulemaking this year, we will get 
ourselves back on track. We have--2014 was something of--was a 
significant year because of the impacts of the ethanol--the E10 
blend wall, which was a significant issue that people engaged 
in very robustly. And, that time was going to come at some 
point in the implementation of the RFS, and last year was the 
year that it came.
    We learned a lot from that process and from all the 
conversations that we had with people, and our proposal, our 
current proposal, reflects a very different approach to 
implementing the required volumes in the statute, evaluating 
those in light of the fact that we are now at and beyond the 
E10 blend wall.
    And, the approach that we have taken now, which, as it lays 
out 3 years, can show the EPA's thinking over that 3-year 
period of time, is reflective of the fact that we have not 
finalized the rule and we want to make sure we understand 
everybody's views on it, but if we were to continue with that 
sort of approach, we would have an approach that we firmly 
believe would enable us to issue the annual volume standards in 
a timely way.
    Our staff of technical folks working on the RFS program are 
working on it all the time, so it is not that we----
    Senator Lankford. No, I do not think there is anyone that 
believes that you are not working on it.
    Ms. McCabe. Yes.
    Senator Lankford. It is just a matter of the method and the 
timing of it.
    Ms. McCabe. Yes.
    Senator Lankford. The concern is the--let us say 2014, 
2015, 2016 are all finalized November 30, so we have that out. 
Then, come November 2016, now we are in reset time. 
Cellulosic--I would assume you would agree, there is no chance 
we are going to hit the targets for 2017 based in statute, what 
is required. So, that will require a reset. We are not going to 
be 50 percent unless there is a tremendous amount of cellulosic 
that comes on board.
    With the assumption, as well, the way the statute is 
written, corn-based ethanol continues to decrease, as required 
in statute, and cellulosic continues to increase, required by 
statute. I mean, if there is a clear aspect of the law, that is 
clear in the law. That is also not possible based on 
production.
    So, you are in a very odd quandary come November 2016, 
trying to promulgate 2017. So, I guess where I am coming at is, 
great, it looks like we are going to announce 2016 on time. 
Twenty-seventeen is coming. How do we avoid that?
    Ms. McCabe. So, a couple things in response to that. You 
mentioned the reset requirements----
    Senator Lankford. Right.
    Ms. McCabe [continuing]. And the statute does lay out 
circumstances under which we consider a reset, which is a 
significant undertaking----
    Senator Lankford. Right.
    Ms. McCabe [continuing]. Because it is for multiple years 
into the future.
    Senator Lankford. But, would you agree on the cellulosic, 
we are going to decrease that number by at least 50 percent----
    Ms. McCabe. Yes.
    Senator Lankford [continuing]. Setting that.
    Ms. McCabe. Yes. I would agree.
    Senator Lankford. OK.
    Ms. McCabe. And, depending on how these volumes turn out, 
we may hit the reset trigger for the other volumes, as well. We 
actually think that it makes a lot of sense to focus a reset on 
all volumes at one time. It just will provide a lot more 
certainty to everybody to do that.
    We also recognize that we have an ongoing obligation to set 
the annual volumes. So, we will be looking to plan our work so 
that we can accommodate setting annual volumes while also 
proceeding to consider resetting if we trigger the reset for 
the volumes.
    Senator Lankford. So, let us talk about how you get comment 
and conversation going on a reset because setting the proposed 
volumes, that is one methodology that there is some 
conversation on right now, and then you will finalize that rule 
by November 30 of this year. Then, we have to do both the reset 
and volumes next year. Will that be two different processes? 
Will there be a comment period based on the reset and a comment 
period based on the annual? Will they be combined? Because I 
would assume you are creating a method, basically, on how to do 
reset in case that has to be done again in 2018 or 2019, to try 
to evaluate it from there. So, two different processes or one 
process?
    Ms. McCabe. I think it is likely that a reset process would 
take longer than the one-year required for the annual volumes. 
So, while this is not firmly decided, my expectation is that it 
would likely be two processes, and each would have comment 
opportunities and multiple opportunities for stakeholder input. 
We would do much information gathering as part of both of those 
processes.
    Senator Lankford. OK. So, would the reset process start 
before 2016 begins, if that is going to take more than a year, 
because, obviously, you have to promulgate that annual amount--
--
    Ms. McCabe. Right.
    Senator Lankford [continuing]. For 2017 by November 2016. 
If the reset, which I would agree, will take longer in the 
conversation, because it will be very contentious, to say the 
least--there are a lot of different players that are very 
interested in this--and again, I come back to there is a lot of 
conversation about corn-based ethanol, but the mandate in the 
statute is it decreases and cellulosic increases and we have to 
be able to figure out, how does that work when cellulosic does 
not exist in near the quantities that are needed.
    Ms. McCabe. Yes.
    Senator Lankford. So, as that reset comes through, when do 
you anticipate that is going to go out for comment and will 
start?
    Ms. McCabe. So, our highest priority right now is to make 
sure that we get the 2014, 2015, and 2016 volumes out. That 
does not mean that we do not have our staff already thinking 
about the kinds of things----
    Senator Lankford. Sure. I understand.
    Ms. McCabe [continuing]. They need to be thinking about for 
the reset. So, I do not have a schedule for you on that reset 
rulemaking, but I can assure you that the minute 2016 is done, 
we will be turning our full attention to the 2017 rule and to 
the reset if triggered.
    Senator Lankford. So, this is what I would like to do. 
There has to be some ``around the water cooler'' conversation 
about how the reset fits into this and the timing. You are very 
good at planning on some of these things and trying to back up. 
If we are going to have it ready by here, we have it to the 
Office of Management and Budget (OMB) by here, we have to have 
it here--I mean, you can plan all that stuff out. That means 
you have to have a draft proposal here and a proposed 
rulemaking here.
    Ms. McCabe. Yes.
    Senator Lankford. We need to know that agenda, and so if I 
give you a month and time period, can you come back to us with 
the reset timeframe, at least, on what the major calendar 
events will be on a reset? Is that a reasonable amount of time 
to give us, the calendar? You are not going to have to tell us 
what the reset is, but just when the major decision points will 
be made and when notice and comment will come out.
    Ms. McCabe. I will be happy to go back and talk with folks 
about how much clarity we can give you on that in a near 
timeframe, Senator.
    Senator Lankford. Yes. If we can do that in a month, where 
we can come back and say, let us at least get the schedule and 
so we will know where things are going and give you enough time 
to be able to lay that out, that would be very helpful to us to 
get some level of predictability. Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman.
    First off, I do not think we know what volumes of 
cellulosic ethanol can be produced because we have not given 
the market certainty, and so we have stalled out investment. 
And, so, I do not accept that, somehow, there will not be 
enough supply to meet the standards. And, so, let us not pre-
suppose or prejudge that discussion in terms of what is going 
to happen in the marketplace.
    But, I would rather get back to the rule that we are 
talking about and debating. I think I mentioned it in my 
opening comments and Senator Ernst followed on that in kind of 
walking through EPA's legal authority to basically deviate from 
the statutory mandates. And, when you said the legal 
justification is inadequate domestic supply, I think most 
ethanol producers would tell you, to them, domestic supply 
means the supply of ethanol, and there is plenty, certainly of 
biodiesel, in the marketplace. In fact, we stalled biodiesel. 
We shut down biodiesel facilities because we did not have 
enough access to the market.
    So, to me, inadequate domestic supply means what it means 
to anybody who would read it, which is the supply of the 
product, the fuel.
    When you say you can use that language to basically justify 
a refueling infrastructure waiver, did you look at the 
legislative history from 2005 when the House language pretty 
clearly addressed this by saying, based on the determination 
that there is an inadequate--domestic waivers--based on the 
determination that there is an inadequate domestic supply or 
distribution capacity to meet the requirement. What does it 
tell you if amended out of that is distribution capacity and 
all you have is domestic supply? What would that inform you in 
terms of the legislative history?
    Ms. McCabe. Well, Senator, what I need to look at is the 
language in the statute. What it tells me is that there was----
    Senator Heitkamp. If you are going to, I think, broadly 
read the language, inadequate domestic supply, and read it in 
what I would consider a fairly twisted way, you should look to 
the legislative history. That is what lawyers do. That is what 
judges do. They look, what was the intent of Congress, and when 
Congress repealed the language or rejected the language in 
their final analysis, distribution capacity, what does that 
mean? What does that rejection mean?
    Ms. McCabe. Well, to me, it means that there was discussion 
and there was interest in this issue specifically from at least 
some members and that that language did not end up in the 
statute.
    Senator Heitkamp. And, what does it mean for lawyers when 
there is language that is proposed on one side, you go to 
conference and you eliminate or take out language?
    It means that is not the intent of Congress to use that for 
waiver. You cannot bootstrap the domestic supply language to 
deal with refueling infrastructure. Now, I am not unsympathetic 
to the challenges that you have in implementing this, but let 
us not pretend that you have a very good legal argument here 
for the waivers that you have done.
    I mean, that is the frustration, is that the statute was 
designed to give the marketplace certainty. The statute was 
designed to basically set standards with very limited waiver 
requirements. EPA took it on themselves to expand that language 
and create huge uncertainty, which now you are saying, see, 
there is not a supply. Well, there is not a supply because we 
did not have certainty for investment.
    And, I am not trying to beat up on you here, and, 
obviously, I have been a frequent flyer on this issue. You guys 
have numerous letters led by me and other members on this, and 
our frustration level has been extraordinarily high, because 
our producers come to us and say, what? What about this is 
confusing?
    And, let us for a minute, and not with any kind of 
concession, take corn-based ethanol and the blend wall. Explain 
to me why there was a necessity to reduce mandates on biofuels, 
biodiesel.
    Ms. McCabe. We are not reducing mandates on biodiesel. The 
statute takes biodiesel mandates up to one billion gallons, and 
then after that, it is up to EPA to increase the volumes, and 
we have, in fact, done that every year, and this proposal will 
again increase volumes for biodiesel above the minimum in the 
statute every year----
    Senator Heitkamp. But there is still room within the 
statute for increased volumes for biodiesel.
    I want to turn with the time I have left to talk a little 
bit about Argentinean biofuels, and I think Senator Sasse 
opened up this issue, as well. Earlier this year, EPA announced 
approval for Argentinean biodiesel as we have seen high volumes 
of imports of Brazilian sugarcane ethanol. Both of those have 
the potential to displace domestic production and especially 
undermine advanced biofuel volume mandates.
    I think it is really important that we understand a little 
bit better on how you consider imports in the equation when you 
are developing RVOs. This is enormously frustrating. At a time 
when we are shutting down domestic supply of biodiesel, we are 
importing from Argentina, and that makes no sense to us if, in 
fact, one of the reasons for this program is fuel energy 
sufficiency for America.
    Ms. McCabe. Yes. Well, Senator, the statute does not 
distinguish between domestic and imported fuel. It sets volumes 
of total fuel, and that is not limited to domestically supplied 
fuel. So, we pay attention to what is happening in the global 
markets. There are many things that affect the amount of 
biofuel that could be imported to the United States. The United 
States also exports biofuels. So, we do pay attention to that.
    The amounts of biofuel coming in from foreign countries is 
relatively small, and I know there is a lot of discussion and 
debate and disagreement about that and I have encouraged people 
to make sure that they give us information about this during 
the comment period so that we can understand what everybody is 
seeing.
    But, the bottom line is that the statute does not 
distinguish between imported and domestic fuels.
    Senator Heitkamp. When you look at the numbers, it is a 
third, but, I think, obviously, a market is North Dakota is 
into Canada, and then Canadian biofuels comes into the East and 
West Coast. So, I understand the movement of biofuels. But, I 
think that when we are trying to create a program that meets 
the goals established by Congress, whether people on this panel 
agree with the program or not, and you probably have a pretty 
good sense that there is some--yes, there is some dispute 
about--there are so few things we disagree on, but this happens 
to be one.
    But, the program that the agency who has the responsibility 
for administering the program, I think, has first and foremost 
always has to ask the question, what is the intent of Congress 
and what do we know about the intent of Congress, and I think 
that there has been a serious discussion not just among 
colleagues here, but certainly within the industry, and a 
serious concern that the intent of Congress has not been 
followed here.
    So, I look forward to seeing the schedule. I imagine that 
we are going to have ongoing discussions, whether it is in the 
Agriculture Committee or wherever we have these discussions. 
This is an issue that is not going away any time soon. As 
Senator Lankford said, we are on reset and, obviously, trying 
to finish these years. But, the worst thing that we can do is 
not get this done timely. And, I do not mean by just sending 
out a draft rule. I mean by finalizing a rule so the 
marketplace has a certainty. We will live to fight about 
whether that number is right, but we cannot see this delay. It 
is incredibly disruptive.
    Ms. McCabe. Yes.
    Senator Heitkamp. Thank you, Mr. Chairman.
    Senator Lankford. This is the second round, and we are 
going to go through and do some more open conversation, and we 
have been through this before in other settings. But, this is 
going to be a more open dialogue. We will have an opportunity 
to be able to talk here on the dais and include you.
    I would mention one thing to my colleagues on this as far 
as congressional intent of the law. I would remind everyone, 
especially when we are discussing corn-based ethanol, if there 
is anything that is clear in the law, it is clear that corn-
based ethanol is a decreasing percentage of what is used in the 
days ahead. By 2022, if I remember the number correctly, 44 
percent of the ethanol that is used in the United States is to 
be cellulosic based on the law. So, corn continues to decrease 
and cellulosic continues to increase. It is one of those very 
clear areas. And, you have a big challenge in that we are not 
producing near the amount necessary.
    I do want to ask you about the cellulosic, because EPA 
chose to do a shift in definition, somewhat. In 2013, if I 
recall correctly, adding in the compressed natural gas (CNG) 
and the liquefied natural gas (LNG) based fuels in the 
cellulosic category, as well, that bumped up the numbers for 
cellulosic and the capabilities. But, because the cellulosic 
technology has not come through completely with switchgrass and 
the wood products and everything else, the compressed natural 
gas has been included in that category.
    Was there a discussion of that shift? Does that continue? 
Is that some of the conversation that CNG bleeds over into that 
cellulosic category more? Where does that go from here as far 
as definitionally?
    Ms. McCabe. Well, Senator, I may need to get back to you on 
some of the specifics of that question, but the additional 
fuels that are coming into the market qualify as cellulosic 
fuels, and so as those come in, then we add those to----
    Senator Lankford. Talk us through those and those 
definitions, the new fuels that are in the cellulosic----
    Ms. McCabe. Well, the biggest one that has happened 
recently is biogas, which was recently approved and is being 
produced in encouraging amounts. So, that is one. We also have 
various ones that are in process. Pennycress is one, and there 
are several others. I would be glad to provide you with details 
about what we have in the pipeline and recently proposed and 
recently approved.
    Senator Lankford. The proposed volume that I see here, 
somewhere around 206 million gallons for 2017, I believe the 
mandate is somewhere around four billion gallons for that year. 
So, again, I do not see any way possible that we are not going 
to be into significant reset time period as we approach, 
especially that number on the cellulosic side of things and 
where that goes. Help me understand--we have talked a little 
bit about 2017 and reset--the methodology that you set for 
2017, I would assume, is going to bleed through to 2022, when 
this really is very open at that point, when the statute stops 
giving clarity and EPA has the ability to be able to help 
determine amounts in all these, as you do with biodiesel right 
now. Where does that go? Is the example of biodiesel a good 
example to be able to look at the path that EPA considers for 
2022? But, as we are looking on the horizon here, 2022 is not 
that far away anymore. What is the best model that we can see 
heading toward 2022?
    Ms. McCabe. Well, you are right. I mean, it is both near 
and far, and we have much to do in between here and there, in 
particular, assuming that all the triggers are met for reset, a 
relook at those volumes. So, I think that that will be an 
important place to think about that.
    I will say that it is our hope that the approach that we 
have laid out in this proposal is one that we can rely on and 
that people can look to as a way of thinking about how to 
predict the volumes in the future years no matter how the reset 
rule comes out in terms of changing the volumes in future 
years.
    Senator Lankford. So, that is what I am trying to get at. 
So, as everyone looks at it--and there is a tremendous amount 
of capital investment, whether it is in Iowa, doing capital 
investment on plants, or wherever it may be. Everyone is 
looking on a 10-year window in capital planning. What is going 
to happen in 2022 is incredibly significant right now, because 
a facility does not come up to speed in a year, a year and a 
half, 2 years.
    Ms. McCabe. Mm-hmm.
    Senator Lankford. So, that investment portfolio is 
incredibly important.
    Ms. McCabe. Mm-hmm.
    Senator Lankford. When could we expect any kind of clarity 
from EPA on how this path is going to lead to 2022 and what 
happens at that point? So, give us a picture of the kind of 
timeframe that you hope to accomplish, knowing that there are 
billions of dollars of investment that will be affected that 
have to have some advance planning.
    Ms. McCabe. Right. So, the standard itself set levels out 
to 2022----
    Senator Lankford. Correct, which we will not make any of.
    Ms. McCabe [continuing]. And in our view and in the view of 
many, those very standards are not ones that, at least in the 
near term here, we think are achievable. Our job, as given by 
Congress, is in the case that those volumes turned out to be 
problematic to achieve, to reset those volumes. That is the 
rulemaking in which we would have the public discussion, we 
would go through the information and reset those volumes into 
the future, which then would provide that certainty into the 
future. The idea would be that those would be the volumes that 
would be reasonable, responsible, achievable, meet the intent 
of Congress in terms of growing these volumes so that we would 
not need to be talking about waivers in the future.
    Senator Lankford. So, let me try to help provide some 
clarity here, and I want others on the dais to be able to join 
in this conversation.
    When you talk about the reset, are you talking about a 
reset of resetting a number or resetting a method of how you 
will get to the number each time?
    Ms. McCabe. My understanding is that our job is to reset 
the numbers.
    Senator Lankford. But that is the annual. I am talking 
about the process of the reset. We are talking about two 
different processes, the process toward setting the annual 
number, but then the process of how we will do reset. Will that 
process on how we do reset, a process of how we will set the 
new numbers or resetting what the new numbers will be?
    Ms. McCabe. So, the statute gives us a number of factors to 
consider.
    Senator Lankford. Right.
    Ms. McCabe. So, my understanding is that is what we will 
do. We will undertake a rulemaking looking at all of those 
factors to determine, then, what the numbers should be in that 
reset rulemaking for years out into the future.
    Senator Lankford. OK. So--
    Ms. McCabe. And then the annual--I am sorry to interrupt 
you----
    Senator Lankford. No, that is all right. I was just going 
to say, help us understand ``into the future,'' how far in the 
future you hope to go when you talk about the reset side of 
things.
    Ms. McCabe. Well, the statute goes through 2022----
    Senator Lankford. Correct.
    Ms. McCabe [continuing]. So, I am not prepared to discuss 
today, because we really have not thought about that issue, 
about what would be our authority or responsibility to go 
beyond that. But, we would be certainly looking at the 
statutory numbers.
    Senator Lankford. So, the hope is to get some sort of reset 
number that goes out multiple years with the annual rule coming 
out on time in November.
    Ms. McCabe. Mm-hmm.
    Senator Lankford. OK. Then I would just say to you again, 
it will be extremely important for all players involved that we 
start working toward certainty on 2022 on this, because there 
is a tremendous amount of capital planning that is going on 
right now----
    Ms. McCabe. Yes.
    Senator Lankford [continuing]. Either direction. Senator 
Ernst.
    Senator Ernst. Yes, and thank you, Senator.
    Yes, the cellulosic has been an important move in Iowa. We 
have biodiesel. We have the ethanol, and that is up and 
running. Innovation and technology is advancing so rapidly, and 
we have those investors that really do want to join in. But, I 
think, Senator Heitkamp alluded to earlier that the investors, 
when there is not a set volume out there, they are very 
hesitant to engage. So, we have the two cellulosic plants that 
are up and moving, and we have a third set to come online. But, 
for any State, any investors in any State to move forward, they 
want to know that there is going to be a set volume and a 
demand for those products.
    Ms. McCabe. Mm-hmm.
    Senator Ernst. So, first, we have to know what those 
volumes are in order to invest in this area. But, we also need 
the infrastructure that is available, and again, you have used 
that as an argument why we need to lower some of the volumes. 
But, I think one of the original intents of this was to 
incentivize getting some of that infrastructure into place, and 
you will see that high volumes of biodiesel, ethanol are used 
throughout the Midwest. We have the plants, but we also have 
the infrastructure in place to support it.
    So many of the flex vehicles are being purchased on our 
coasts and they do not have the type of infrastructure that we 
do in the Midwest. So, I would argue that we need to continue 
investing in this area and make sure that it is available. It 
is all about consumer choice, as well.
    So, Senator Peters had asked something, and I would like 
you to followup a little bit about the greenhouse gases, 
because I find it really ironic that this Administration's 
public focus has been very much on clean environment and 
reducing greenhouse emissions, and yet what you are proposing 
is actually a direction that will increase those carbon 
emissions by less utilization of these biofuels. So, maybe if 
you could comment a little bit about that and why you are not 
looking at greenhouse gas emissions.
    Ms. McCabe. Well, an underpinning of this program is 
reduction in greenhouse gas emissions, and as more and more 
biofuels get into the system, especially advanced and 
cellulosic advanced biofuels, that is where the real reductions 
can be. As you know, in order to qualify as an advanced 
biofuel, the greenhouse gas emissions need to be 50 percent 
less, and for cellulosic, 60 percent less, and that is where we 
want the growth to be.
    And, that has been happening. Of course, volumes have been 
increasing steadily over time, not to the level that the 
statute called for, but they have been steadily increasing over 
time. Our proposal here would take cellulosic biofuel from 33 
million gallons in 2014 to 206 million gallons in 2016. That is 
substantial increase, not as much as Congress anticipated or 
hoped for, but from where we are now, that represents 
substantial growth.
    And, so, my point to Senator Peters was that in each 
individual annual volume rule, we do not reanalyze greenhouse 
gas emissions, but we know the greenhouse gas reductions 
associated with these different categories, and by growing the 
volumes, by setting the targets to drive that growth in a 
responsible way, we will be seeing reductions in greenhouse 
gases, because every gallon of gasoline that is replaced by 
cellulosic advanced biofuel is greenhouse gas emissions saved.
    Senator Heitkamp. I would just like to make a point about 
this, you talk about the proposed 2016 standard for cellulosic 
biofuels, those fuels with the lowest greenhouse gas emissions, 
is more than 170 million gallons, which is six times higher 
than the actual 2014 volumes.
    I think it is worth noting that it is likely because three 
commercial scale refineries came online in 2014 and one more is 
slated for the end of this year. Those bio refineries were made 
possible by the investments that were created before the 
disruption with the rule. And, I think when you look at since 
then, guess how many proposals have been online. Zero, because 
we disrupted through this rule and through the lack of timely 
rulemaking, we have disrupted the investment.
    We need to get back, and I think no matter what our view of 
the wisdom of the RFS is, if it is a law, we expect it to be 
administered in a way that Congress intended, and I think 
Senator Lankford is on the right track when he says, tell us 
what the schedule is, tell us what the plan is, because if we 
can debate the wisdom of this law here in Congress. That is our 
job. But, it is your job to administer this the way Congress 
intended and that means doing it timely, because I think we can 
meet these standards if the investors out there know that they 
will have access to the market.
    And, so, it is just critically important that we not 
automatically assume that we are going to have a crisis on 
cellulosic biofuels or ethanol before we actually give the 
certainty to the market and let the market produce.
    Senator Ernst. I would agree, and with the cellulosic, as 
well, we have other advances coming with algae, and, of course, 
investors are not looking at that in a way that we had hoped 
they would if we would have had those set volumes. So, again, 
technology is advancing. It is a great renewable energy source. 
It is taking, basically, waste products and producing a fuel 
that is very low greenhouse gas emissions.
    So, I would agree. I think we have a law in place. We need 
to understand what those volumes are. But, we do need to move 
forward and follow the intent of Congress, and I am at a point 
where I do not believe that the EPA is doing that. But, I hope 
that we can work through these issues. Thank you.
    Senator Lankford. Let me do something that everyone at home 
is going to be shocked at. Let me take the side of the EPA---- 
[Laughter.]
    And say that the cellulosic was a great theory and there 
are a lot of people experimenting with it. No one has been able 
to make it in a quantity that is affordable yet, and that has 
been the challenge of it. The largest manufacturer of 
cellulosic products just went bankrupt this past year, and it 
was a major hit in the cellulosic market because they were the 
leading company. But, after a decade of trying to make this 
technology work, they could not make it work at a price that 
people could afford.
    Now, there is a lot of experimentation with this. It is not 
close to being market-ready, and the challenge that the EPA has 
is that they have a mandate by 2022 to get to 44 percent of the 
ethanol that is used in the United States to be cellulosic, and 
no one can seem to crack the code to be able to make this in a 
way that is actually affordable. While there are lots of folks 
experimenting with switchgrass and wood and with stalks and 
with algae and other great ideas, so far, that is actually not 
a technology that exists.
    In some ways, I feel like we are the mode of the 1970s when 
President Carter said that they were starting all this research 
on solar power, and by the year 2000, 20 percent of America's 
energy would be produced by solar power. It is now 2015 and we 
are not close to that number. A declaration and Congress even 
setting a number does not mean the technology is going to 
actually catch up.
    And, on the greenhouse gas side of things, the challenge 
that you have is that you are also working on a rule right now 
on ground-based ozone, and ethanol increases ozone. In fact, 
EPA's own study has come out and said, if we hit the RFS 
totals, the ozone levels go up across America, in many areas, 
even significantly. So, the challenge that we have right now is 
that we are dealing with a balance of how do we get RFS totals 
and use Corporate Average Fuel Economy (CAFE) standards, 
decreasing the amount of gas that we are using, and actually 
hit new ozone standards. One of the three of those, or two of 
the three of those are not going to work because they do not 
work together at this point.
    How far off am I on that?
    Ms. McCabe. Well, there is a lot in there, but I think I 
would agree that there are a number of factors that have 
affected the development of cellulosic fuels. We work very 
closely with the producers and the developers. We spend a lot 
of time with them so that we can understand the challenges that 
they are facing. And, we certainly hear, as you have described, 
a desire for clear certainty in the market and ambitious 
targets, which we think we are proposing here in this rule. 
But, we also hear about other challenges that those fuels have 
had in getting up and running. And, I think everybody wants 
those types of fuels to be successfully produced and marketed, 
and the more that that happens, the prices will come down and 
people will use them.
    But, I would agree with you, Senator Lankford, that there 
are many factors there.
    Senator Lankford. And, you asked about the E85, as well. 
You have this assumption that E85 is going to dramatically 
increase in usage, even 6 months from now. I am trying to 
figure out the assumptions that went into that, because my 
understanding is there are enough E85 vehicles on the road 
right now to meet the E85 requirements, but many of those 
individuals that have E85 vehicles choose to purchase E10. Now, 
that is a consumer preference there. So, I am just trying to 
figure out why EPA assumed that E85 would suddenly jump when 
there are E85 owners that choose not to use that product.
    Ms. McCabe. Well, you are correct that there are lots of 
flex fuel vehicles on the road today that could use E85. Our 
information is that there are about 3,000 stations in the 
country that provide E85. I live in Indiana. I see that at my 
gas station, but not everybody does.
    There are issues with the pricing of it, because the energy 
value of E85 is different than the energy value of gasoline. I 
think people do not fully understand that, and this is a long 
process to change people's understanding of their choices on 
transportation fuel, and prices need to move in directions that 
will encourage people to understand that that can be an 
economical choice for them. And, I think that that is a multi-
year process and we have seen progress there.
    Our proposal here is intended to be forward looking and 
optimistic because we understand that Congress wanted these 
fuels to be driven into the market.
    Senator Lankford. Right, but I am trying to get at the 
actual methodology of picking it. Is the assumption just we are 
going to try to push the issue here, but there is not a method 
to say, we anticipate on car purchases, or anything else, or 
availability, that people that have flex fuel vehicles will 
start using this product more.
    Ms. McCabe. So, we have looked at a variety of things. We 
know that there are flex fuel vehicles out there that could be 
using E85 that are not now. There is not a precise mathematical 
formula, Senator, that we have used.
    Senator Lankford. It is more of an aspirational goal rather 
than an actual, we see this and so we anticipate this use?
    Ms. McCabe. I would say it is an optimistic goal, but 
informed by our judgment, our understanding of the way the 
market has developed so far, what, in our judgment, it can do. 
EPA has regulated the fuel market for many years, and this is 
all laid out for people to agree or disagree with in the 
proposal and we welcome that. But, it was all those things that 
went into that with, however, respecting Congress' clear intent 
that volumes of these fuels increase and that it was going to 
take a push in order for that to happen. Our understanding is 
that Congress meant more renewable fuel to be used than would 
be used without the RFS.
    Senator Ernst. I would say, too, that, just going a little 
bit further, I mean, I have a diagram--you can pull this up on 
the Internet--where all of those E85 pumps are located, and you 
will see that most of them are in the Upper Midwest. And, 
again, a lot of flex fuel vehicles that are bought out there, 
they simply do not have access to E85 because those pumps and 
the infrastructure is not yet available. So, I think, if we had 
that infrastructure in place, we would see E85 use go up.
    So, again, I do want to go back. There are challenges to 
cellulosic and algae as we move forward. But, again, so many 
other types of fuels have seen this problem in the past, and 
fracking is a great example of that, and I support fracking. 
But, it took many years for that to become a cost effective way 
of extracting fuel.
    So, we have those challenges, but, again, we are moving 
forward in Iowa. Many States are moving forward with 
cellulosic. The greenhouse gas emissions go down tremendously 
with that product, and I think that is a goal that everybody 
would like to see. Thank you.
    Senator Heitkamp. As long as we are talking about cars, if 
you look at an analysis, and I think Senator Lankford alluded 
to engines, and we obviously have had a great deal of 
discussion in the Agriculture Committee, including the National 
Association for Stock Car Auto Racing (NASCAR) drivers who come 
in and swear by this as a fuel source, so I think the jury 
certainly is not back on that issue.
    Senator Lankford. For a $3 million NASCAR vehicle. 
[Laughter.]
    Senator Heitkamp. But, if you look at an analysis of model 
year 2015 warranty statements and owners' manuals, I think you 
would see that it reveals that auto manufacturers explicitly 
approve the use of E15, which we have not talked about yet, in 
approximately two-thirds of new vehicles, and E15 is approved 
by EPA for all 2001 and newer vehicles, which really accounts 
for 80 percent of the fleet of automobiles out there.
    Was this taken into consideration, or how did you take this 
into consideration when you developed the rule?
    Senator Lankford. And, I do not want to interrupt. I do 
want you to answer that question. I have an Appropriations 
hearing that I am going to have to run back and forth to a 
quick vote on, and so if you will excuse me, if Senator Ernst 
can take the chair here at this point, I will return. And, I do 
not want to sound like Douglas MacArthur all of a sudden, but, 
yes, to be able to come back and forth. But, I have a quick 
vote in Appropriations and I will be right back from there. So, 
if Senator Ernst would take the chair, as well. But, Senator 
Heitkamp is tough to work with, so hold your own. [Laughter.]
    Senator Heitkamp. Thank you.
    Ms. McCabe. So, E15 is very promising as a way to get more 
ethanol into the system, and there has been a lot of discussion 
about vehicles using it and not using it. There is relatively 
little getting into the system now. I think there are fewer 
than 100 stations across the country that are offering E15.
    Again, I think that this is an issue that we all need to be 
focused on, how we can increase people's use of this fuel. And, 
as more and more new cars come into the system and people 
understand and are comfortable that this is a fuel that they 
can use in their vehicle, that those attitudes will change and 
prices will change and the infrastructure will come. It is a 
challenge, Senator, I grant you.
    Senator Heitkamp. I think if you looked at the chart that 
Senator Ernst just showed you, you would see is a partnership 
with State Governments, basically providing incentives to build 
out the infrastructure doing the things that we need to do on a 
State-based level.
    I am curious about how much you have heard from actual 
jobbers or people who have filling stations, as we used to call 
them in the old days, not the major distribution centers but 
those guys who now are concerned about the quality of their 
tanks, concerned about the regulation of E15. What is the 
conversation back and forth between EPA and the actual 
convenience stores and filling stations?
    Ms. McCabe. They convey to us challenges, and, of course, 
wanting to meet the needs of their customers, looking at the 
cost to install new infrastructure and uncertainties that they 
might have about new technology and just being able to cover 
the cost of putting that infrastructure in by being able to 
sell that product.
    Senator Heitkamp. Do you think you have clear rules on what 
EPA's requirements are for that infrastructure?
    Ms. McCabe. I believe so.
    Senator Heitkamp. A lot of them do not think so. A lot of 
them think there is a level of uncertainty----
    Ms. McCabe. OK.
    Senator Heitkamp [continuing]. And as a result, I think 
that they tend to be concerned about maybe over-building 
infrastructure, over-building their tanks so that there is no 
concern at all later on.
    Ms. McCabe. That is something I would be happy to take back 
and look into, Senator.
    Senator Heitkamp. Great. So, we are not just talking about 
blender pumps and all of those issues, the infrastructure 
issues and what that means. We are also talking about long-term 
concerns about moving to E15. And, so, it would be good to 
figure out what role EPA plays in providing the certainty to 
our filling stations as it relates to converting and moving 
into E15, which most vehicles now basically are approved for.
    Ms. McCabe. Yes. Glad to look into that.
    Senator Heitkamp. OK.
    Senator Ernst. All right. And, with the E15, too, the 
impact to our U.S. consumers, if they do have that choice and 
are using E15, it is typically anywhere from a nickel to a dime 
lower, even, than the E10. So, across the United States, then, 
the impact to our consumers is that there is a savings of about 
$5 to $7 billion per year in their own pockets. So, it is 
something that I think we need to take a look at and continue 
to refine.
    Did you have any further questions, Senator?
    Senator Heitkamp. As long as we have some time here, and 
the Chairman-- when the cat is away---- [Laughter.]
    When we look at, I think, the Renewable Identification 
Numbers (RIN) prices, and it is so complicated for a lot of 
people to understand, but your latest proposal talks about the 
lack of correlation between RIN prices and gas prices as well 
as the need to have higher RIN prices to drive investment and 
infrastructure. However, your proposal had the opposite effect 
in the RIN market, and even DOE has said we will not hit 10 
percent blends by 2016.
    When you guys were plotting this out and fretting, did you 
consider the disruption that that would have to the RIN market 
and what that would mean kind of long-term, and does that 
inform how you want to deal with this in the future?
    Ms. McCabe. So, I think that one statement you said, 
Senator, that everybody can heartily agree with is that this is 
incredibly complicated----
    Senator Heitkamp. Yes.
    Ms. McCabe [continuing]. Very complex. I have been working 
on this now for 2 years and I feel like I am beginning to 
understand it. But, I am not an economist and so I--there is 
much discussion about this issue that goes on with people with 
that kind of training and understanding.
    What we tried to do was to provide some more information 
for the public record about what we had seen in the RIN market. 
But, we would certainly not purport to say that RIN prices 
are--the relationship between RIN prices and what we set in the 
volumes is very complex and is affected by many things, not 
just the volumes that we set.
    Senator Heitkamp. Do you not think you were a major driver, 
volumes were a major driver?
    Ms. McCabe. I would not say it is not a factor, but the 
prices of feedstocks and the many things that go into producing 
fuel have a lot to do with this, as well. So, it is not simple. 
It is complex.
    We pay attention to RIN prices, but we do not formally 
factor them into our decisionmaking because it is so complex. 
And, it is clear, Congress established the credit system as a 
way for this program to work and for obligated parties to show 
compliance. So, it is a fact of how the program works and as 
long as biofuels are more expensive to produce than gasoline, 
you need the system that Congress set up in order to drive 
those volumes up, make the fuels more affordable for people so 
that it gets into the system and it builds and then people use 
it.
    Senator Heitkamp. I guess we will have to agree to 
disagree. I think it was a major factor in what happened in the 
RIN market and I think we want to avoid that, at least avoid 
people like me coming back to you and saying this disruption 
has created an additional disruption in the marketplace.
    I want to ask the Chairman, to have Senator Baldwin's 
statement introduced into the record.\1\
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    \1\ The prepared statement of Senator Baldwin appears in the 
Appendix on page 35.
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    Senator Ernst. Yes, without objection.
    Senator Heitkamp. Thank you.
    Senator Ernst. Yes, and I could go on all day, I think, 
about the value in having renewables. It has been exciting to 
see the development over the course of time, and we do have to 
remember that this is an energy area that is fairly young 
compared to other types of energy sources that we have had here 
in the United States, and we have seen support of those 
industries for over 100 years.
    So, again, relatively young, developing source of energy, 
and, again, clean burning, I would say, and very supportive of 
our economy here in Iowa, which is why, even though it was not 
expressly written in the law that we use domestic sources of 
fuel, I would encourage that in the future as something that we 
take into consideration rather than utilizing some of these 
biofuels from other countries, as well, so that might be 
something that we need to look at in the future. I think that 
would help increase our production, obviously, here in the 
United States, but promote the infrastructure, promote the 
development and further technology advancements.
    Senator Heitkamp, are you----
    Senator Heitkamp. I just have a final comment, and it is 
probably not exactly on target here, but we have been talking a 
lot about advanced agricultural manufacturing, meaning let us 
use products that are renewable. Let us use green products. If 
you look at the fuels industry, the fuels industry has been a 
building block. It has been a foundational piece. The 
technology that was developed in fuels later leads to a lot of 
great advanced manufacturing using renewables.
    And, so, this has an environmental effect beyond just the 
fuels market. This has an environmental effect on all kinds of 
building supply issues, all kinds of issues as we build out 
more and more renewable sources for building supplies, and as 
Senator Stabenow would say, you can eat your car seat because 
it is made out of soybeans.
    And, so, I think this has been an industry that has been 
very beneficial to the United States of America, and I think 
beneficial to consumers. And, we want to make sure that when 
Congress has a policy and it pretty clearly states these are 
the reasons for waivers, that the agency who is responsible 
follows that policy.
    Now, like I said, I am not unsympathetic, but, in part, 
this was to drive the infrastructure. And, when you retreat 
from the number, it has the opposite effect and it just creates 
a spiral to a place where we do not want to be, because that 
would not be a place that would be consistent with 
congressional intent.
    And, so, I look forward to working with you, Ms. McCabe, 
and talking more about kind of what the future holds. I look 
forward to hearing the outcome of the hearing that you are 
going to have in Kansas City. I know it will be very robust. I 
know you are probably getting tons of comments already. And, 
hopefully, a relook at some of the issues that we think are 
possible that will, in fact, be more consistent--adjusting the 
rule. And, I would particularly ask you to look at that in the 
biodiesel area.
    Ms. McCabe. Yes.
    Senator Ernst. Yes, and just on a final--is the Senator on 
his way back?
    And, just, kind of in some of my conclusions, I think we 
need to get these volumes set, but I think we need to take a 
very close look at what we are doing and how we want to 
encourage the market to develop, and again, that vicious cycle 
in place. Right now, commodity prices are extremely low, so 
when you see $3 corn, now is a good time to be developing that 
area and working with ethanol or cellulosic. So, I would 
encourage a good, hard look at that, and again, look forward to 
working with you.
    Again, if you would, please, emphasize to the EPA 
Administrator Gina McCarthy that we would absolutely love to 
have her in Iowa and be able to show her the process from the 
time that seed goes into the ground to the time we are 
producing it and sending it out to consumers.
    So, we will at this point just recess for just a few 
minutes and we will wait for Senator Lankford to conclude the 
meeting. Thank you.
    Ms. McCabe. Thank you, Senator.
    [Recess.]
    Senator Lankford [presiding]. I will return us back from 
recess. I apologize for the delay. You will be glad to know we 
are voting and working through the Interior appropriations, 
which EPA has a little bit of connection to, as well. So, I 
apologize for that back and forth.
    When I stepped out, the ongoing conversation was on E15 and 
I would have appreciated being in that dialogue, as well, so I 
want to get a chance to followup with you on that, as well.
    Ms. McCabe. Yes.
    Senator Lankford. You and I have had this conversation 
already about E15. EPA believes vehicles from 2001 forward can 
handle E15.
    Ms. McCabe. Yes.
    Senator Lankford. Manufacturers on the whole do not. If you 
actually go to the manufacturers, in the last year, year and a 
half, more manufacturers are allowing E15 to be within their 
warranty. Would you agree the vast majority of the 
manufacturers do not believe E15 fulfills their warranty from 
2001 until about 2013?
    Ms. McCabe. I would not want to characterize the number. I 
know that that is an issue for some manufacturers.
    Senator Lankford. All right. I would tell you, I have a 
chart that walks through that and actually details each and 
every manufacturer and if they have any models at all that 
allow E15 to be within their warranty. It has only been within 
the past year, year and a half, that even the majority, even 
above 50 percent of the manufacturers, have any vehicle model 
at all that would say E15 would be tolerable in their engines.
    The challenge we have is increasing the E15 really means 
you are increasing the E15 on new vehicles. So, it is a fairly 
limited amount, since most vehicles are older. My truck is 12 
years old that I drive. That is common for most Americans, to 
have an older vehicle.
    Ms. McCabe. Yes.
    Senator Lankford. So, the challenge is increasing numbers 
of the E85, and the assumption there that we are going to have 
this large increase in E85 and that there will be a jump on E15 
use, and when there is a limited number of locations even to 
get it at this point--I am still going back to the assumptions 
and the pattern here----
    Ms. McCabe. Yes.
    Senator Lankford. Now, again, we can talk about viability 
and energy usage and all that stuff, but it is a pattern of how 
do we discern what is coming in EPA and have the method of 
making their decision.
    Ms. McCabe. We did not actually assume hardly any E15 in 
these proposals for the reasons that you cite, and the quite 
few number of stations that offer it currently.
    Senator Lankford. Right. OK. When we talk about the 
biodiesel, the same thing with the biodiesel, which that 
product has consistently exceeded the expectations of amount 
that is manufactured.
    Ms. McCabe. Yes.
    Senator Lankford. What I want to try to get is a percentage 
or the method of your counting on the small percentage of 
biodiesel that cannot handle lower temperatures. We have a 
certain percentage that is out there, that I believe it is 56 
degrees and down, it starts turning into a solid. So, that does 
not work for part of the biodiesel. So, the question is, how 
did you do that estimate, and the method of that, and the 
expectations, because biodiesel is now in open amounts. 
Obviously, EPA can set the amount from year to year based on 
what they feel like is best information.
    Ms. McCabe. Yes.
    Senator Lankford. How are you trying to split the two 
there, to say that this part can basically be used in El Paso, 
Texas, and Southern Arizona year round but everywhere else, it 
is not going to be used year round, versus what is used year 
round?
    Ms. McCabe. Right. So, as you know, we look at these things 
from a national perspective and we look at the increases in the 
amount of biodiesel that has been used. I think I would say, 
Senator, and we would be glad to followup and confirm this for 
you with more details, is that with the volumes that we are 
proposing here, we are not in danger of exceeding the amount 
that the system can absorb without getting into any sort of 
performance problems.
    Senator Lankford. So, what I am trying to get at is the 
assumption for the growth of the specific line of product is 
not the line of biodiesel that has a difficult time with lower 
temperatures. You are assuming the growth, and the information 
is leading you to say the growth is in the area that is not the 
part that has a difficult time with the lower temperatures.
    Ms. McCabe. Well, I am not sure it is different fuel, is 
it? We will followup with more specifics.
    Senator Lankford. Yes. There is one that uses animal 
products, basically and that part, that type of biodiesel, if 
you get below 56 degrees, it does not work well, and so you 
have to use it in warmer climates where you are never going to 
get below that, which there are lots of parts of the country 
that do. But, if you start heading north very far, you are 
going to run into problems on that.
    OK. Let me ask a little bit about the Congressional Budget 
Office (CBO) reporting, when they start talking about prices. 
According to CBO, the RFS, if it was repealed, or if its future 
mandates were kept at previously proposed 2014 numbers, corn-
based ethanol production would remain at about 13 billion 
gallons was their assumption, that, basically, corn-based 
ethanol is already in the fuel system, it is a viable fuel, the 
price is where consumers want to be able to purchase it.
    Ms. McCabe. Yes.
    Senator Lankford. CBO estimated, if the mandate went away, 
we would still stay at about 13 billion gallons of corn-based 
ethanol, even without the mandate. So, when you are looking for 
the push there, you are actually trying to push some of the 
products into other places that the market is not requesting, I 
guess, at that point, but since the congressional mandate is to 
be able to push this out into other areas.
    Ms. McCabe. Yes.
    Senator Lankford. The challenge is, of that 13 billion that 
CBO has estimated that the market really requests and wants, do 
you use that just as a baseline? Is that a number that you all 
use in your estimations? Do you consider consistent what CBO 
estimated there? If the mandate went away totally, that 13 
billion would still be there? So, is that some sort of baseline 
number, or how is that number used in your own reasoning?
    Ms. McCabe. So, that number, I believe, is reflective of 
the 10-percent amount that ethanol now fills----
    Senator Lankford. Correct.
    Ms. McCabe [continuing]. In gasoline.
    Senator Lankford. Our blend wall location.
    Ms. McCabe. The blend wall location. I think, Senator, that 
we do not actually set a standard for ethanol in the rule. 
Ethanol fills in, because it is considered conventional 
biofuel. So, we know where the blend wall is likely to be, of 
course, depending on how much fuel is actually used, and so we 
take that into account. And then, as you reflected, we 
understand that the intent of Congress was to push more into 
the system than what E10 accommodates on its own. So, we build 
from that.
    Senator Lankford. OK. So, the issue that is interesting, 
and again, this is not your study, but in 2014, CBO, when they 
studied it, said if the mandate went away on corn-based 
ethanol, their study said 13 billion gallons would continue to 
be used. It is in the system. It is built in. People like to 
use it.
    Ms. McCabe. Yes.
    Senator Lankford. But, it also said those 13 billion 
gallons will continue to be used and the price that consumers 
would pay for gasoline would go down, which I thought was an 
interesting study to be able to look at. There is a lot of push 
and pull right now, and again, that is not what this hearing is 
about, is to talk about what happens in the long term to the 
RFS. But, I wanted to be able to remind folks that the people 
that do the scorekeeping around here have reminded us corn-
based ethanol works in the market regardless, without the 
mandate, and the prices would actually decrease for consumers 
if we would remove this mandate and pull it away from us.
    I am going to go back to something we started talking about 
earlier, and that is the ozone issue.
    Ms. McCabe. Yes.
    Senator Lankford. So, I know you have to balance both of 
these, as well as many other things. How are we doing balancing 
this in the internal conversations on what happens to ozone 
levels and how ethanol does increase ozone levels, and then the 
standard that is coming.
    Ms. McCabe. Yes. So, the setting of the ozone standard is a 
health evidence-based decision that the Administrator needs to 
make. What the ozone standard is about is the Administrator's 
determination about what represents a safe and healthy level of 
ozone in the air for people all across the country to breathe. 
We are not permitted by statute, and this has been confirmed by 
the Supreme Court--that decision, that health-based decision, 
is not to be influenced by implementation issues. That is dealt 
with in other parts of the Clean Air Act and that has been the 
work of States and industry and the EPA for many years.
    So, we do our job under the part of the Clean Air Act that 
says we set the standard so that the American people know what 
is the right level of ozone to have in the air. We then work 
with the States and others on assessing where across the 
country those levels, monitored ambient ozone levels, exceed 
that standard, and that is not everywhere in the country, not 
by a long shot. So, once you identify those areas, then you 
look to see what are the emissions that are contributing to 
those high ozone levels.
    The way ethanol can impact ozone is not uniform across the 
country. It relates not just to the use of ethanol, but the 
production of ethanol. So, that could be a very localized 
situation, and those may be areas where ozone levels are 
healthy already and meet the standard. So, it will be a 
situation that we will look at place by place to determine what 
needs to be done in order to make sure that Americans have 
healthy air to breathe.
    Senator Lankford. We are still on the same challenge on 
that, Ms. McCabe, and that is we have a mandate to use more 
ethanol and a coming mandate to decrease the ozone, even if it 
has some effects on it. Those two are going to be in 
competition. We are literally going to have cities and 
communities that have an increasing mandate for ethanol, but 
then they are going to have to find ways to use more public 
transportation or to decrease their lawnmower usage or major 
industrial complexes will have to relocate or to be able to 
retrofit based on one mandate competing with another one.
    I know this has to be an ongoing conversation, when, 
literally, communities are going to have to say, you are 
telling us to do this, but then telling us we have to change 
our stuff when this rule is actually part of the issue.
    Ms. McCabe. Yes, but it is really a question about in any 
given area what is contributing to those high ozone levels, and 
I do not think it is fair to conclude, Senator, right now, that 
there are areas that will be significantly affected by 
increased NOx associated exclusively with ethanol use as we 
look at areas that might not need a future ozone standard, if 
there is one.
    Senator Lankford. Correct, but we will have locations that 
will be 0.2 outside the range and that 0.2 could very well be 
ethanol-based, could be part of it. So, the numbers are so 
close in this. If it was a big gap, I would understand that. 
But, they are not in many of these locations. It is very close, 
and ethanol will be one of those contributing factors to it.
    So, this is just going to be a large cost issue for a lot 
of communities and I am trying to figure out how EPA is going 
to address that. And, again, we will not have to solve it, the 
two of us. There is going to be a different piece of 
legislation. A different Committee is going to do that. I am 
trying to figure out the process for how that decision is going 
to be made, because that 0.2 differential will be very 
significant in quite a few communities.
    Ms. McCabe. I do understand, and I very much appreciate 
your point. The history of States and EPA working together to 
reduce ozone levels has been to find the most cost effective 
ways to reduce the precursors to ozone in areas where ozone 
levels are high, and that is the process that would ensue if 
the standard is changed. So, there are lots of things that 
contribute to ozone non-attainment in areas that have that 
problem.
    Senator Lankford. But, would there be the possibility that 
in that portfolio of options, that a community could say if 
they are 0.2 outside of the ozone level, one of the options 
that would be on the table is that they do not have to use as 
much ethanol in that region?
    Ms. McCabe. I think that would be a very complicated 
situation, given the competing mandates that we have.
    Senator Lankford. And that is why I bring it up, is because 
you have competing mandates, and that is why I am trying to 
figure out the process of how to make this decision, because if 
they are going to have 10 things on the table but ethanol, a 
decreased use of ethanol in their area is not an option when we 
know that is a contributing factor, why could at least that be 
on the table, as well, because now you have two competing 
mandates.
    Ms. McCabe. I think that is a good question, Senator.
    Senator Lankford. OK. We will have to resolve that in the 
days ahead, and I would like that to be in the set of options 
that a community could have to make a decision, rather than 
have a hit on several different industrial areas when we know, 
also, the ethanol use is one of the contributing factors, at 
least to allow them the flexibility to be able to make that 
decision.
    Ms. McCabe. Yes. Fuel use has always been an issue in 
considering how to meet ozone standards, and the agency and the 
States have balanced the various requirements that the Congress 
has laid out on fuel use against other options that they have. 
So, it will be an ongoing conversation and I take your point.
    Senator Lankford. All right. I appreciate that.
    The other issue deals with the foreign importation of some 
of the fuels that are coming in. Senator Heitkamp brought it up 
before. Senator Ernst brought it up before.
    Ms. McCabe. Yes.
    Senator Lankford. It is a question that several folks have 
in the biodiesel and other areas, to ask the question, if this 
was about protecting the environment and American energy 
options, was the intent--and that was clear in the statute, as 
well--the more that we allow foreign importation of some of the 
fuels, how that affects the actual amounts and the targets. If 
a target is going to be set but a third of it is going to be 
fulfilled by foreign, should that be included? Again, there is 
a different conversation whether we allow foreign to come in.
    Ms. McCabe. Yes.
    Senator Lankford. But, is the target number for 
domestically produced or all that is used?
    Ms. McCabe. We understand that the target is for all that 
is used.
    Senator Lankford. So, could that be fulfilled, basically, 
with entirely foreign-based fuels? If at some point we had 
difficulty or we had a competitive group that was able to 
produce it much cheaper overseas and be able to bring it in, 
could the entire requirement be produced overseas?
    Ms. McCabe. I think it is highly unlikely, but----
    Senator Lankford. It is probably unlikely, but----
    Ms. McCabe. Yes.
    Senator Lankford. But, you are still targeted. Just, 
basically, it does not matter whether it is the foreign or 
domestic on that, either one. It is just setting the number of 
what we are going to use----
    Ms. McCabe. Of what we are going to use in this country.
    Senator Lankford. That will be an ongoing issue. It is 
something that we are going to have to deal with in the days 
ahead, because, again, the clear mandate of this is really--it 
is focused on American energy efficiency, I guess, and the way 
we are able to provide our own energy independence. If we are 
not doing that, but instead we are importing it, what is the 
difference between importing oil or importing sugarcane or 
importing biodiesel products?
    Ms. McCabe. Mm-hmm.
    Senator Lankford. Importing is importing. At that point, we 
are still not energy independent, of working in that direction.
    What other comments would you have for me in the days 
ahead, for this planning and your timeframe that you have not 
had the opportunity to be able to talk about yet?
    Ms. McCabe. Well, Senator, I really appreciate the 
opportunity to come and speak with you today, and you were true 
to your word that you provided an opportunity for all of us to 
have a conversation. I know that there will be a lot of 
discussion in the months ahead as people are getting their 
comments in to us. I just want to assure you again how focused 
we are on this program, how much we understand and appreciate 
and agree with so many of the things that have been urged by 
the Senators today in terms of administering this program the 
way Congress intended.
    I will reflect again that there are a variety of views, 
even about what the statute requires and what Congress 
intended, and I assure you that we are doing our very best job, 
as we should as the executive agency charged with administering 
this, to do our best to interpret the statute in the way that 
we think is appropriate, is best for the American people, and 
to make sure that we have both ambitious and responsible 
efforts to implement the Renewable Fuel Standard, and that is 
my commitment to you.
    Senator Lankford. OK. Thank you for that. In the days 
ahead, you know full well we will have an ongoing conversation 
about the reset and that process, the time period and some 
predictability there, even to know when it is going to start, 
when people can start to give comments, what the assumptions 
are going to be in that conversation, because the reset is 
coming and it is coming extremely quickly. So, 2022 is both 
near and far, as you mentioned before. Twenty-seventeen is not 
very far away at all----
    Ms. McCabe. That is right.
    Senator Lankford [continuing]. And the parameters for that 
will be set by November 2016, so we are very close and we will 
be in the middle of the ongoing conversation for that. So, that 
is the one piece of this that I know we have to maintain a very 
public conversation on, but a very clear conversation on when 
the rules will be set and how we actually get back on schedule. 
And, because while we are back on schedule as of November of 
this year, all the rules change suddenly again for November 
2016 and I am concerned that that is going to roll over, as 
well, in the days ahead.
    Before we adjourn, I would like to announce that on July 
16, the Subcommittee will hold a hearing on regulatory issues 
where we hope to have the Administrator of the Office of 
Information and Regulatory Affairs (OIRA) will testify here.
    This does conclude today's hearing. I would like to thank 
Ms. McCabe for your testimony, both written and your oral 
testimony, and for the brief recess that we had to endure.
    The hearing record will remain open for 15 days, until July 
6 at 5 p.m. for the submission of statements and other 
questions for the record.
    This hearing is adjourned.
    Ms. McCabe. Thank you.
    [Whereupon, at 11:05 a.m., the Subcommittee was adjourned.]

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