    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

    ADVANCED BIOFUELS UNDER THE RENEWABLE FUEL STANDARD: CURRENT STATUS AND

                                FUTURE PROSPECTS

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

                                    HEARING

                                   BEFORE THE

                          SUBCOMMITTEE ON ENVIRONMENT

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 JUNE 22, 2018

                                   __________

                               Serial No. 115-144

                    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

                                   __________

                        U.S GOVERNMENT PUBLISHING OFFICE

    35-142	                  WASHINGTON : 2019

                        COMMITTEE ON ENERGY AND COMMERCE

                              GREG WALDEN, Oregon
                                     Chairman
    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Vice Chairman                        Ranking Member
    FRED UPTON, Michigan                 BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    MICHAEL C. BURGESS, Texas            ELIOT L. ENGEL, New York
    MARSHA BLACKBURN, Tennessee          GENE GREEN, Texas
    STEVE SCALISE, Louisiana             DIANA DeGETTE, Colorado
    ROBERT E. LATTA, Ohio                MICHAEL F. DOYLE, Pennsylvania
    CATHY McMORRIS RODGERS, Washington   JANICE D. SCHAKOWSKY, Illinois
    GREGG HARPER, Mississippi            G.K. BUTTERFIELD, North Carolina
    LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
    BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
    PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
    DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
    ADAM KINZINGER, Illinois             PETER WELCH, Vermont
    H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
    GUS M. BILIRAKIS, Florida            PAUL TONKO, New York
    BILL JOHNSON, Ohio                   YVETTE D. CLARKE, New York
    BILLY LONG, Missouri                 DAVID LOEBSACK, Iowa
    LARRY BUCSHON, Indiana               KURT SCHRADER, Oregon
    BILL FLORES, Texas                   JOSEPH P. KENNEDY, III,
    SUSAN W. BROOKS, Indiana                 Massachusetts
    MARKWAYNE MULLIN, Oklahoma           TONY CARDENAS, CaliforniaL RUIZ,
    RICHARD HUDSON, North Carolina           California
    CHRIS COLLINS, New York              SCOTT H. PETERS, California
    KEVIN CRAMER, North Dakota           DEBBIE DINGELL, Michigan
    TIM WALBERG, Michigan
    MIMI WALTERS, California
    RYAN A. COSTELLO, Pennsylvania
    EARL L. ``BUDDY'' CARTER, Georgia
    JEFF DUNCAN, South Carolina

                          Subcommittee on Environment

                             JOHN SHIMKUS, Illinois
                                     Chairman
    DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
      Vice Chairman                        Ranking Member
    JOE BARTON, Texas                    RAUL RUIZ, California
    TIM MURPHY, Pennsylvania             SCOTT H. PETERS, California
    MARSHA BLACKBURN, Tennessee          GENE GREEN, Texas
    GREGG HARPER, Mississippi            DIANA DeGETTE, Colorado
    PETE OLSON, Texas                    JERRY McNERNEY, California
    BILL JOHNSON, Ohio                   TONY CARDENAS, California
    BILL FLORES, Texas                   DEBBIE DINGELL, Michigan
    RICHARD HUDSON, North Carolina       DORIS O. MATSUI, California
    KEVIN CRAMER, North Dakota           FRANK PALLONE, Jr., New Jersey (ex
    TIM WALBERG, Michigan                    officio)
    EARL L. ``BUDDY'' CARTER, Georgia
    JEFF DUNCAN, South Carolina
    GREG WALDEN, Oregon (ex officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. John Shimkus, a Representative in Congress from the State of
      Illinois, opening statement....................................     1
        Prepared statement...........................................     2
    Hon. Jerry McNerney, a Representative in Congress from the State
      of California, opening statement...............................     3
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, opening statement.......................................     5
    Hon. Greg Walden, a Representative in Congress from the State of
      Oregon, prepared statement.....................................   109

                                   Witnesses

    Mike McAdams, President, Advanced Biofuels Association...........     6
        Prepared statement \1\.......................................     8
        Answers to submitted questions...............................   112
    Derrick Morgan, Senior Vice President, American Fuel &
      Petrochemical Manufacturers....................................    15
        Prepared statement...........................................    17
        Answers to submitted questions...............................   117
    Robin Puthusseril, Vice President, Greater Chicago Truck Plaza,
      On Behalf of the National Association of Truck Stop Operators..    27
        Prepared statement...........................................    29
        Answers to submitted questions...............................   142
    Randy Howard, CEO, Renewable Energy Group, On Behalf of the
      National Biodiesel Board.......................................    50
        Prepared statement...........................................    52
        Answers to submitted questions...............................   147
    Brooke Coleman, Executive Director, Advanced Biofuels Business
      Council........................................................    55
        Prepared statement...........................................    57
        Answers to submitted questions...............................   149
    Collin Omara, President, National Wildlife Federation............    73
        Prepared statement...........................................    76
        Answers to submitted questions...............................   157
    Luke Morrow, Managing Director, Morrow Energy, On Behalf of the
      Coalition for Renewable Natural Gas............................    85
        Prepared statement...........................................    87
        Answers to submitted questions...............................   165

                               Submitted Material

    Letter of June 19, 2018, from Representative Bruce Poliquin to
      the subcommittee...............................................   111

    ----------
    \1\ The attachments to Mr. McAdams' statement can be found at:
      https://docs.house.gov/meetings/IF/IF18/20180622/108464/HHRG-
      115-IF18-Wstate-McAdamsM-20180622.pdf.

    ADVANCED BIOFUELS UNDER THE RENEWABLE FUEL STANDARD: CURRENT STATUS AND
                                FUTURE PROSPECTS

                                  ----------

                             FRIDAY, JUNE 22, 2018

                      House of Representatives,
                           Subcommittee on Environment,
                               Committee on Energy and Commerce
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 9:17 a.m., in
    room 2322, Rayburn House Office Building, Hon. John Shimkus,
    (chairman of the subcommittee) presiding.
        Present: Representatives Shimkus, Harper, Olson, Johnson,
    Flores, Cramer, Walberg, Duncan, Ruiz, Peters, Green, McNerney,
    Cardenas, and Matsui.
        Staff Present: Samantha Bopp, Staff Assistant; Kelly
    Collins, Legislative Clerk, Energy/Environment; Wyatt
    Ellertson, Professional Staff, Energy/Environment; Margaret
    Tucker Fogarty, Staff Assistant; Theresa Gambo, Human
    Resources/Office Administrator; Mary Martin, Chief Counsel,
    Energy/Environment; Sarah Matthews, Press Secretary; Austin
    Stonebraker, Press Assistant; Jean Fruci, Energy and
    Environment Policy Advisor; Caitlin Haberman, Professional
    Staff Member; Rick Kessler, Senior Advisor and Staff Director,
    Energy and Environment; Alexander Ratner, Policy Analyst; and
    Catherine Zander, Environment Fellow.

      OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF ILLINOIS

        Mr. Shimkus. The Subcommittee on Environment will now come
    to order. And the chair recognizes himself for 5 minutes for an
    opening statement.
        This is our fourth hearing this year specifically aimed at
    addressing issues related to fuels and vehicles. The first
    provided an overview of the future of fuels and vehicles. The
    second took a detailed look at the high octane concept. The
    third focused on electric vehicles as a small but growing part
    of the vehicle mix.
        In each of these hearings, the renewable fuel standard was
    a part of the discussion, which is not surprising because this
    program continues to have a significant impact on the fuels
    market. But most of the RFS focus thus far has been on corn
    ethanol and related issues, like blend wall, and not the
    advanced biofuels part of the program.
        Today, we address the imbalance by having a discussion
    focused entirely on advanced biofuel issues. And I welcome our
    witnesses who represent those operating in that space.
        Biodiesel is every bit as important to my soybean growers
    as ethanol is to my corn growers. And both biodiesel and
    cellulosic production facilities are significant job creators
    in the local communities where they are located, including in
    my district in southern Illinois.
        So the economic impact of advanced biofuels cannot be
    ignored. The 2007 changes to the RFS envisioned a transition
    from first-generation biofuels to more advanced biofuels. In
    fact, the RFS statutory targets for 2022 call for 21 billion
    gallons of advanced biofuels while corn ethanol and other first
    generation would top out at no more than 15 billion gallons.
    The future is going to include a great deal more advanced
    biofuels.
        The reality has been somewhat mixed. For biodiesel, the
    production capacity has grown significantly, and billions of
    gallons are now added to the Nation's diesel supply each year.
    In that regard, the RFS provisions for biodiesel have been a
    success. But biodiesel remains expensive compared to petroleum-
    based diesel fuel, and there has been little progress, making
    it more cost competitive.
        Unfortunately, cellulosic biofuels have not progressed as
    well as hoped. Congress was convinced in 2007 that cellulosic
    biofuels were just around the corner. But more than a decade
    later, we are still waiting for liquid cellulosic biofuels to
    make a significant contribution.
        Biogas from landfills has been a main source of cellulosic
    biofuels. Investors in cellulosic facilities point to the need
    for certainty and that the policy surprises coming from EPA and
    the White House undercut that certainty. Critics say that
    including cellulosic biofuels in the RFS was a flat out
    mistake, especially now that the fracking revolution has
    reduced dependence on foreign oil.
        So some want to double down on incentivizing cellulosic
    biofuels while others want to pull the plug on the idea.
    Interesting times. It is important to note that, as we consider
    various RFS reform ideas, including the transition to high-
    octane fuels, we need to be mindful that biodiesel and
    cellulosic provisions need to be part of the conversation and
    addressed as well. All of these parts are interrelated. Thus,
    the future of advanced biofuels is tied up with the future of
    the RFS.
        I look forward to the hearing from today's witnesses and
    the members in order to engage in a meaningful dialogue on this
    topic. And looking to my side, anyone wishing my remaining
    minute and a half.
        Seeing none, I will yield back my time and yield to the
    ranking member right now of the subcommittee, Mr. McNerney, of
    California.
        [The prepared statement of Mr. Shimkus follows:]

                         Statement of Hon. John Shimkus

        This is our fourth hearing this year specifically aimed at
    addressing issues related to fuels and vehicles. The first
    provided an overview of the future of fuels and vehicles, the
    second took a detailed look at the high-octane concept, and the
    third focused on electric vehicles as a small but growing part
    of the vehicles mix. In each of these hearings, the Renewable
    Fuel Standard was a part of the discussion--which is not
    surprising because this program continues to have a significant
    impact on the fuels market. But most of the RFS focus thus far
    has been on corn ethanol and related issues like the blendwall,
    and not on the advanced biofuels part of the program. Today, we
    address this imbalance by having a discussion focused entirely
    on advanced biofuels issues, and I welcome our witnesses who
    represent those operating in that space.
        Biodiesel is every bit as important to my soybean growers
    as ethanol is to my corn growers, and both biodiesel and
    cellulosic production facilities are significant job creators
    in the local communities where they are located, including in
    my district in Illinois. So, the economic impact of advanced
    biofuels cannot be ignored.
        The 2007 changes to the RFS envisioned a transition from
    first generation biofuels to more advanced biofuels. In fact,
    the RFS statutory targets for 2022 called for 21 billion
    gallons of advanced biofuels while corn ethanol and other first
    generation would top out at no more than 15 billion gallons.
    The future was going to include a great deal more advanced
    biofuels.
        The reality has been somewhat mixed. For biodiesel, the
    production capacity has grown significantly and billions of
    gallons are now added to the nation's diesel supply each year.
    In that regard, the RFS provisions for biodiesel have been a
    success. But biodiesel remains expensive compared to petroleum-
    based diesel fuel, and there has been little progress making it
    more cost competitive.
        Unfortunately, cellulosic biofuels have not progressed as
    well as hoped. Congress was convinced in 2007 that cellulosic
    biofuels were ``just around the corner'' but more than a decade
    later we are still waiting for liquid cellulosic biofuels to
    make a significant contribution. Biogas from landfills has been
    the main source of cellulosic biofuels.
        Investors in cellulosic facilities point to the need for
    certainty and that the policy surprises coming from EPA and the
    White House undercut that certainty. Critics say that including
    cellulosic biofuels in the RFS was a flat-out mistake,
    especially now that the fracking revolution has reduced
    dependence on foreign oil. So, some want to double down on
    incentivizing cellulosic biofuels, while others want to pull
    the plug on the idea.
        It is important to note that as we consider various RFS
    reform ideas, including a transition to high-octane fuels, we
    need to be mindful that the biodiesel and cellulosic provisions
    need to be part of the conversation and addressed as well. All
    of the parts are interrelated; thus, the future of advanced
    biofuels is tied up with the future of the RFS.
        I look forward to hearing from today's witnesses and the
    members, in order to engage in a meaningful dialogue on this
    important topic.
        Thank you.
        I yield back the balance of my time.

     OPENING STATEMENT OF HON. JERRY MCNERNEY, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. McNerney. Well, I thank the chairman. Good morning.
        And I thank the witnesses for coming here this morning.
        An important goal of the renewable fuel standard program is
    to promote fuel diversity and lower consumer and environmental
    costs of transportation fuels. Until Congress created the RFS
    program, the transportation sector relied exclusively on fossil
    fuels. Our overdependence on these fuels has made consumers and
    our economy vulnerable to price spikes and supply disruptions
    at various times in the past. Decades of fossil fuel use have
    unleashed massive volumes of harmful air pollutants and carbon
    emissions. Developing cleaner fuels must be part of the
    solution to these ongoing challenges.
        Growth in the use of advanced biofuels fuels far short of
    what Congress anticipated when this program was expanded in
    2007. The industry has made progress, but technical and
    economic challenges are still holding back greater use of these
    fuels. I believe the witnesses here today will all be offering
    some suggestions on how we can improve the investments and
    marketing climate for advanced renewable fuels.
        The advanced biofuel program is very important to my home
    State of California. This Federal program helps California to
    meet its goal for low carbon fuels. Regulatory programs, like
    California's low-carbon fuel standard and Federal RFS program,
    help the early market incentives needed to spur investments in
    cleaner fuels. Biodiesel, biogas, and cellulosic ethanol are
    needed to reduce carbon emissions and other harmful air
    pollutions from the transportation sector. Reducing carbon
    emissions from the transportation sector is a big challenge,
    but it is one that we must take since emissions in this sector
    do continue to grow.
        The good news is that, despite these challenges,
    investments in alternate fuels are being made. And these
    investments are creating jobs and increasing the supply of
    alternative fuels in California.
        There are several facilities in my district, and a new
    biogas facility is under construction. If we want to see these
    investments continue, investors must be convinced that there
    will be a market for these fuels. The uncertainty created
    through the EPA's delays in rulemaking and in approval of new
    biofuel pathways are among the challenges with the RFS program
    that affect advanced biofuel investments.
        Clearly, the management of the program is an important
    factor in ensuring steady progress for new fuel technologies.
    Unfortunately, it appears that Administrator Pruitt has used
    his waiver authority to create additional uncertainty in the
    renewable fuels market. The Administrator's decision to grant
    unprecedented numbers of waivers to some refiners through a
    process with no transparency calls into question the target
    amount of biofuel that the market and its participants will be
    using. Conventional ethanol still makes up the bulk of the
    renewable fuel markets.
        But I suspect that reducing the number of refineries
    obligated to blend biofuel will affect the market for all
    biofuels, including biodiesel and advanced biofuels. Whatever
    the faults of the RFS program, manipulating markets through a
    secret waiver process that calls the program into question is
    not the way to address those faults. Our committee should be
    looking into this and ensuring that the Administrator is
    managing the program accordance with the law.
        Again, I want to thank the participants and the witnesses,
    and I yield back.
        Mr. Shimkus. The gentleman yields back his time.
        Let me apologize to the folks here for the heat of this
    room. And I think the air has kicked on. So maybe we are going
    to feel a little bit cooler. And this is a note to committee
    staff to make sure that it stays cool.
        Mr. McNerney. Mr. Chairman, this room is either too hot or
    too cold.
        Mr. Shimkus. And this issue might be a little too hot or
    too cold for a lot of people.
        So, looking on the majority side, anyone seeking time to
    make a statement?
        Seeing none, looking on the minority.
        The chair recognizes the gentleman from Texas, Mr. Green,
    for 5 minutes.

       OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Green. Thank you, Mr. Chairman. I want to thank you and
    both the ranking member for holding the hearing today. Most
    people here know that I am not really a big a big fan of the
    renewable fuel standard, the RFS.
        The RFS has led to artificially inflated costs thrust upon
    both refiners and our consumers for a product that hasn't had
    the environmental impact reduction that was promised when the
    RFS was created.
        A few years ago, our district had three small biofuel
    refineries, but the market cratered, and I think I have one
    left. Although in our area, I don't have small refiners. They
    are 100,000 barrels, 250,000 barrels. And so that is one of my
    concerns.
        I look forward to hearing from our witnesses today,
    specifically about the RFS interaction with advanced biofuels
    market. While I think the RFS program is inherently flawed, I
    do not believe waivers given out in secret without established
    processes is a good use of Administrator Pruitt's authority. I
    am afraid that, while many of these smaller refineries have
    received waivers, the larger ones who do not will still have to
    meet the overall blend requirements which satisfy the RFS
    program.
        Thank you again for calling this hearing.
        Mr. Shimkus. The gentleman yields back his time.
        We now conclude with members' opening statements. The chair
    would like to remind members that, pursuant to committee rules,
    all members' opening statements will be made part of the
    record.
        We want to thank all our witnesses for being here today and
    taking the time to testify before the subcommittee. Today's
    witnesses will have an opportunity to give opening statements
    followed by a round of questions from the members present.
        Our witness panel is before us, and I would personally also
    like to thank you all for coming. I have some folks from
    Illinois and actually my congressional district. And we will
    recognize them appropriately when we get a chance to do that.
        I would like to start with Mr. Mike McAdams, President of
    Advanced Biofuel Association. Sir, your full statement is in
    the record. You have 5 minutes. Welcome.

       STATEMENTS OF MIKE MCADAMS, PRESIDENT, ADVANCED BIOFUELS
     ASSOCIATION; DERRICK MORGAN, SENIOR VICE PRESIDENT, AMERICAN
      FUEL & PETROCHEMICAL MANUFACTURERS; ROBIN PUTHUSSERIL, VICE
       PRESIDENT, GREATER CHICAGO TRUCK PLAZA, ON BEHALF OF THE
      NATIONAL ASSOCIATION OF TRUCK STOP OPERATORS; RANDY HOWARD,
        CEO, RENEWABLE ENERGY GROUP, ON BEHALF OF THE NATIONAL
     BIODIESEL BOARD; BROOKE COLEMAN, EXECUTIVE DIRECTOR, ADVANCED
     BIOFUELS BUSINESS COUNCIL; COLLIN OMARA, PRESIDENT, NATIONAL
    WILDLIFE FEDERATION; AND LUKE MORROW, MANAGING DIRECTOR, MORROW
     ENERGY, ON BEHALF OF THE COALITION FOR RENEWABLE NATURAL GAS.

                       STATEMENT OF MIKE MCADAMS

        Mr. McAdams. Thank you, Mr. Chairman, Ranking Member,
    members of the committee. It is nice to be with you this
    morning.
        My name is Mike McAdams. I am the President of the Advanced
    Biofuels Association. I welcome the opportunity to testify this
    morning on the current status and the future prospects of the
    RFS program. I want to thank Chairman Shimkus and members of
    the committee for your efforts over the last year to reform the
    RFS.
        ABF members strongly support RFS reform. ABFA represents 35
    companies across the entire biofuels distribution chain who
    produce the fuels, distribute the fuels, and market advanced
    biofuels under the RFS program. Our combined production is over
    4 billion gallons per year currently. The RFS has resulted in
    both great successes as well as shortfalls. We believe
    comprehensive reform will maximize future volumes of advanced
    and cellulosic fuels for the future.
        On the success front, the production and use of biodiesel
    and renewable diesel is three times greater than what was
    originally anticipated and is now approaching 3 billion gallons
    per year. The environmental performance of these gallons
    achieve GHG reductions of up to 80 percent off of baseline
    fuel. This sector also continues to hold great potential as the
    United States diesel market is over 50 billion gallons a year
    and growing.
        In this space, we can deliver not only biodiesel, but we
    can also deliver drop-in diesel and jet fuel for a growing
    airline industry.
        As for advanced and cellulosic fuels, I urge the committee
    to address numerous barriers of entry in the RFS program that
    specifically disadvantages the innovative fuels of the future.
    I have provided the committee with ABFA's list of 21 RFS reform
    proposals for you to review. These proposals fall into three
    broad categories: one, address definitional and technical
    issues; two, clarify statutory ambiguities; and, three, tweak
    certain overly burdensome regulatory frameworks which are
    currently in place. As much as possible, we urge the Congress
    in making these changes to the statute, to take the politics
    out of the equations and make the RFS a rules-based system as
    much as possible. An example of this is Congressman Welch's
    legislation to amend the annual RVO process. His bill would
    base the RVO on the previous year's actual production, queuing
    up at midyear and end-year adjustments to account for increases
    or decreases in production. This approach would remove the
    uncertainty and therefore reduce voluntarily in the RIN market.
    It also diminishes the need for using waivers when you set the
    RVO, especially the use of cellulosic waivers. Additionally,
    the cellulosic waiver system must be reformed so that RINs
    attached to actual cellulosic gallons are purchased before we
    use the waiver credits in their place.
        Finally, in order to finance the production of new and
    advanced biofuels of the future, investors must have certainty
    over time that there will be the value of the RIN standing
    behind them. A 20-year guarantee would provide that certainty
    and encourage much more investment in this space as it is tied
    to the average debt frame for a capital loan.
        Among ABFA's 21 proposals are suggestions to permit the use
    of a broader range of technologies and feedstocks via pathway
    approval reform. For instance, Chairman Walden has been working
    on a number of fixes for the wood-based fuels that would allow
    the growth for pyrolysis, one of the promising technologies in
    the cellulosic space. Currently, three of ABFA's members are
    building cellulosic plants in the United States with this
    technology.
        In conclusion, I urge the committee to review EPA's recent
    actions regarding the small refinery exemptions which have had
    significant impacts on the RIN market. Administrator Pruitt has
    recently chosen to lower the thresholds that EPA utilizes to
    grant RFS compliance exemptions to small refineries. Press
    reports state that EPA has granted up to 30 exemptions for
    years 2016 and 2017, three times what we have ever previously
    seen. These actions have undermined the program and rendered
    the RVO mandates meaningless. ABF urges the committee to review
    EPA's applications of these thresholds and the lack of
    transparency surrounding these decisions.
        Thank you again for the opportunity to testify. And I look
    forward to your questions.
        [The prepared statement of Mr. McAdams follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        [The attachments to Mr. McAdams' statement can be found at:
    https://docs.house.gov/meetings/IF/IF18/20180622/108464/HHRG-
    115-IF18-Wstate-McAdamsM-20180622.pdf.]
        Mr. Shimkus. Thank you. The gentleman yields back his time.
        The chair now recognizes Mr. Derrick Morgan, Senior Vice
    President of American Fuel and Petrochemical Manufacturers.
        You are recognized for 5 minutes.

                      STATEMENT OF DERRICK MORGAN

        Mr. Morgan. Thank you, Mr. Chairman, Mr. Ranking Member,
    members of the committee. Thank you for inviting me to testify
    today on advanced biofuels under the renewable fuel standard.
    AFPM members account more than 95 percent of the refining
    capacity in the United States and are the obligated parties
    under the RFS. As a result, we are acutely aware of the costs
    and the challenges associated with advanced biofuel mandates.
        The RFS was intended to grow a market for first-generation
    biofuel while spurring commercialization of advanced and
    cellulosic biofuels. Although reasons for these goals are
    understandable--energy security, rural development,
    environmental benefits--our experience with the RFS has made
    clear that the law is failing to deliver upon many of its
    goals.
        The corn ethanol industry has been the prime beneficiary of
    the RFS. E-10 is a competitive fuel and does not require a
    mandate, as evidenced by more than a billion gallons of ethanol
    exports last year. The advanced biofuel and cellulosic mandates
    are a different story, though.
        The vision of cellulosic biofuels capturing 16 billion
    gallons of market share by 2022 is illusory, has proven
    illusory. The U.S. will produce only about 10 million gallons
    of liquid cellulosic fuels in 2018, a mere fraction of the
    nearly 200 billion gallons of transportation fuel we will
    consume this year.
        Despite this reality, EPA has routinely set mandates hiring
    than actual production, leaving refiners to buy phantom fuel
    credits for gallons of products that just don't exist. The lack
    of cellulosic production is not for a lack of trying, including
    by a number of our member companies. Someday, someone could
    make a breakthrough. And when they do, it very likely won't
    need a mandate.
        Biodiesel is the primary advanced biofuel on the market
    today. Unfortunately, it is also tremendously expensive. Last
    year, biodiesel cost approximately $1.50 more per gallon than
    the petroleum diesel it was blended into, even before taking
    into account its lower energy density. For this reason and
    despite advanced biofuel mandates approaching 3 billion
    gallons, U.S. producers never made more than 2 billion gallons
    of biomass-based diesel in a given year.
        As a result, imported biofuels are displacing U.S.-produced
    petroleum and diesel. This simply does not make sense for a law
    entitled the Energy Dependence and Security Act. AFPM strongly
    supports a transition to a more competitive fuels market and
    away from the RFS. We have gone from the world's largest
    importer of crude oil and refined products to the largest
    exporter of refined products in the world. Our net imports of
    petroleum are way down, the lowest percentage since 1967.
    Domestic production of crude oil and finished products
    continues to increase. Of what we do import, more is coming
    from our immediate neighbors with 40 percent from Canada.
        North American energy security has never been stronger. But
    as long as the RFS is the law of the land, we ask policymakers
    to place a stronger nexus between mandated volumes and
    demonstrated domestic production. This will ensure we can
    comply with the law and would be better for consumers who
    should not have to pay more for fuel to subsidize foreign
    biofuel manufacturers.
        We also support rural communities and biofuel production.
    Many of our members, our large biofuel producers themselves,
    will have investments or joint ventures with biofuel producers.
    Many of our refineries are located in rural areas. And we
    produce the diesel that powers tractors and school buses. We
    simply believe there must be better ways to support rural
    America than by creating expensive and inefficient Federal
    mandates.
        We remain open to good-faith discussions about the future
    of the RFS and ways to create better opportunities for all
    stakeholders, especially consumers. The committee's work on the
    issue is greatly appreciated by our members. We look forward to
    the dialogue in the coming weeks and months, and I look forward
    to answering your questions today.
        Thank you very much.
        [The prepared statement of Mr. Morgan follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Shimkus. Thank you.
        Now, next for my colleagues, we are going to recognize
    Robin Puthusseril. So that is probably the most difficult name
    to pronounce and read here. So we are glad she is here. Vice
    President of Greater Chicago Truck Plaza. Now, I am a down-
    stater. So we will claim her today. Greater Chicago Truck
    Plaza, on behalf of the National Association of Truck Stop
    Operators.
        And you are recognized for 5 minutes.

                     STATEMENT OF ROBIN PUTHUSSERIL

        Ms. Puthusseril. Chairman Shimkus, Ranking Member, and
    members of the subcommittee, thank you for the opportunity to
    testify this morning. My name is Robin Puthusseril, and I am
    the Vice President and part owner of the Greater Chicago I-55
    Truck Stop in Bolingbrook, Illinois. Along with my father, John
    Puthusseril, and my brother.
        I am testifying today on behalf of NATSO, the national
    association representing travel centers and truck stops. NATSO
    represents not only small, single-store operators, such as
    myself, but also large, nationwide travel center and
    convenience store chains. My testimony today will focus on my
    company's experience with biodiesel and provide my perspective
    as to how Congress can continue to incentivize fuel retailers
    like myself to incorporate biodiesel into our diesel fuel
    supply.
        First and foremost, it is important to understand that, as
    a diesel retailer, I operate in the most transparent,
    competitive commodities market in the United States. Truck
    drivers are, by and large, more savvy and price-conscious than
    typical American motorists. Truck drivers are often aware of
    retail diesel prices when they are hundreds of miles away from
    potential refueling sites. Fleet managers use this information
    to direct drivers to specific retail locations in order to
    purchase the lowest priced fuel available.
        I say this to illustrate the competitive nature of my
    market, which compels me to pass through cost savings on to my
    customers.
        The RFS is sound Federal policy because it recognizes this
    reality. Specifically, it creates a structure where, when it is
    implemented properly, I am able to offer lower fuel prices the
    more biodiesel I sell. This is generally good for retailers
    because, as buyers, we like long markets with a diverse array
    of supply options at our disposal.
        Absent government incentives, biodiesel costs more money to
    sell than diesel fuel. So, absent government incentives, I
    would have absolutely no reason to blend biodiesel into my
    diesel fuel because it would make the end product more
    expensive rather than less expensive.
        The RFS makes the end product less expensive. Under the
    RFS, when I blend biodiesel into diesel fuel, I am able to
    separate and sell compliance credits, known as RINs. When I
    sell RINs, I can lower the cost of my diesel fuel. This allows
    me to better compete for market share.
        My travel center has been selling biodiesel blends for 12
    years. After the RFS and similar State incentives were enacted,
    it was clear to me that I had to invest in biodiesel in order
    to remain competitive. In addition to spending more than
    $500,000 to update my fuel infrastructure, I spend
    approximately 70 percent of my time today managing this line of
    supply. This includes analyzing pricing proposals, testing our
    fuel supply, coordinating deliveries, managing inventory, and
    ongoing administrative and regulatory compliance work, which is
    significant. This is all on top of managing our staff of more
    than 50 employees and overseeing all aspects of our truck stop,
    from fuel sales and truck parking lot maintenance to our sit-
    down restaurant and convenience store.
        I didn't ask for the RFS. But now that it is the law of the
    land, I view it as my responsibility to my family's business
    and our employees to adjust our practices accordingly. The
    growth prospects for advanced biofuels are in Congress' hands.
    Because biodiesel is more expensive than diesel fuel, it must
    continue to be subject to robust Federal incentives if it is to
    continue to gain market share. I firmly believe that the
    advanced biofuels market has a potential to be a part of
    American's long-term all-of-the-above energy future.
        I am concerned, however, that the EPA in recent months has
    granted small refinery hardship waivers to an unprecedented
    number of refineries. These waivers have lowered demand for
    advanced biofuels. They have substantially diminished the value
    of the biodiesel investments that Congress encouraged me to
    make when it established the RFS.
        Going forward, I would hope that EPA act in a manner that
    is more consistent with the RFS by requiring all waiver
    requests be received and assessed prior to finalizing biofuel
    mandates for a given compliance year. That way, when RVOs are
    finalized, the market can be confident that those numbers will
    not be adjusted downward after the fact.
        When the RFS was enacted, if I didn't invest in biofuel
    infrastructure and adjust my business practices, I would be at
    a serious disadvantage today. That is why I made the
    investments. If Congress can continue to provide a roadmap that
    leads to robust advanced biofuels markets, the travel center
    industry will be better able to offer affordable fuel for
    motorist as we serve as the home away from home for America's
    truck drivers.
        Thank you for the opportunity to testify today. I am happy
    to answer any questions that you may have.
        [The prepared statement of Ms. Puthusseril follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Shimkus. Thank you very much.
        Now I would like to turn to Mr. Randy Howard. For full
    transparency, REG operates national biodiesel refinery in
    Danville, Illinois, which is in the northern part of my
    congressional district. And he is the CEO of our renewable
    energy group.
        You are recognized for 5 minutes. Welcome.

                       STATEMENT OF RANDY HOWARD

        Mr. Howard. Thank you.
        Chairman Shimkus, Congressman McNerney, and members of the
    subcommittee, it is my pleasure to be here with you this
    morning. I am Randy Howard, President and CEO of Renewable
    Energy Group, or REG. I am honored to speak to you today on
    behalf of the National Biodiesel Board and more than 60,000 men
    and women across the country that support the biodiesel
    industry.
        Established in 1992, NBB is the leading U.S. trade
    association representing biodiesel and renewable diesel,
    including producers, feedstock suppliers, and fuel
    distributors.
        Let me tell you a little about my company. REG is the
    largest domestic producer of advanced biofuel making biodiesel
    in 10 plants across the United States. We also own and operate
    a 75 million gallon renewable diesel refinery in Louisiana and
    two biodiesel plants in Germany. Combined, our plants have
    demonstrated the annual production capacity of 575 million
    gallons. We currently employ 840 people in our company in good-
    paying jobs and also support thousands of other jobs in
    agriculture, transportation, and energy sectors.
        I first joined REG as a member of their board of directors
    after a 33-year career in the petroleum industry. When I
    retired from Unocal 76 in 2005, the oil industry was embracing
    renewable fuels as part of the Nation's all-of-the-above
    strategy. I saw then and continue to see biomass-based diesel
    as the key to the future of liquid transportation fuels,
    transforming waste, fats, and oils into high-quality, low-
    emission renewable fuel that extends our precious petroleum
    reserves and contributes greatly to the energy security of
    America.
        The most important part I would like to make to you today
    is that biodiesel is truly a success story of the RFS, helping
    to realize the energy security and environmental benefits that
    are RFS was intended to achieve. Biodiesel is by far the most
    wildly used advanced biofuel, meeting more than 90 percent of
    the annual RFS advanced biofuel obligations. According to EPA,
    biodiesel reduces lifecycle greenhouse gas emissions by 57
    percent to 86 percent compared to petroleum diesel. The
    greenhouse gas reductions from 15.5 billion gallons of
    biodiesel used through 2017 equates to the removal of over 30
    million passenger vehicles from America's roadways.
        Biodiesel has consistently delivered more than the RFS
    currently requires, and we can do much more. Federal and
    industry data shows the U.S. biomass-based diesel plants
    operate at the start of this year have an aggregate capacity of
    more than 2.6 billion gallons. Since that time, companies have
    announced or completed another 238 million gallons of expanded
    capacity. REG just completed a 20 million gallon expansion of
    our first plant, and we are looking at a major expansion of
    renewable diesel in the future.
        Biodiesel can also help to boost U.S. exports and rebalance
    international trade. The EIA estimates growth of another 200
    billion gallons of distillate fuel demand worldwide by 2030.
    U.S. biodiesel is and should be a part of that growth.
        Second, in addition to these energy and environmental
    benefits, biodiesel supports rural American jobs. Biodiesel can
    help solve the current farm crisis. Farm income has declined
    steadily over the last 4 years, reaching lows not seen since
    2009. Last year, REG added value to nearly 4 billion pounds of
    agricultural waste.
        Feedstock diversity continues to be a strength of our
    industry. U.S. producers utilize a wide range of feedstocks,
    such as recycled cooking oil, vegetable oils, animal fats, and
    distillers corn oils. This diversity allows biodiesel and
    renewable diesel producers to alter feedstock use based on
    regional and global market dynamics. Supplies are ample and
    continue to grow. There is also a number of feedstock pathway
    applications which EPA has not acted on, in some cases for
    several years, which would provide even more feedstocks.
        Third, there are no infrastructure barriers to biodiesel's
    continued growth. While biomass-based diesel currently makes up
    less than 5 percent of the distillate pool, there are hundreds
    of fuel retailers across the U.S. selling biodiesel blends up
    to B20, or 20 percent. REG and other advanced biofuel companies
    are selling high biodiesel and renewable diesel blends to a
    growing list of corporate and municipal customers. We are proud
    to have customers such as FedEx, UPS, and the New York City
    sanitation department, just to name a few.
        In closing, biodiesel is a renewable industry success story
    and stands ready to deliver more gallons and more economic and
    environmental benefits to the market. The RFS provides a
    winning combination of benefits for Americans, greater energy
    security, substantial environmental benefits, and enhanced
    value-added agriculture. We would ask Congress to continue the
    support of the program and to use its oversight authority to
    ensure the EPA administers the program according to Congress'
    intent.
        I look forward to answering your questions, and thank you
    for this opportunity.
        [The prepared statement of Mr. Howard follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Shimkus. I thank the gentleman.
        The chair now recognizes Mr. Brooke Coleman, Executive
    Director at Advanced Biofuels Business Council. He has been
    here before. Welcome back.

                      STATEMENT OF BROOKE COLEMAN

        Mr. Coleman. Good morning, Chairman Shimkus, Congressman
    McNerney, members the committee. My name is Brooke Coleman. I
    am the Executive Director of the Advanced Biofuels Business
    Council. Thanks for the opportunity today to testify. We
    represent worldwide leaders in the effort to develop and
    commercialize the next generation of advanced and cellulosic
    biofuels.
        By any measure, the RFS is doing what it was designed to
    do. The ethanol industry alone has built 200 biorefineries in
    the last 30 years to the oil industry's roughly 10 and now
    displaces the rough equivalent of Saudi Arabia and foreign oil.
    And few, if any, of the companies producing first-generation
    biofuels are not somehow invested in advanced biofuels.
        It is politically expedient to cast the RFS as good for
    first-generation biofuels but less effective at promoting
    advanced biofuels. These claims are designed to divide and
    conquer the left-right coalition that made the RFS a reality
    and are wildly overblown. Already advanced biofuels make up
    about 20 percent of the volumes required under the RFS, and now
    the most technologically advanced biofuel, cellulosic biofuel,
    is on the precipice of large-scale commercial growth.
        Policy and financing uncertainty notwithstanding, we are
    producing commercial volumes of cellulosic ethanol from
    agricultural residues and municipal solid waste. Not everyone
    has succeeded in the timeframe anticipated, but delay should
    not be mistaken for failure.
        So let me address the elephant in the room. Why are we
    measuring cellulosic biofuels by the millions instead of the
    billions, as anticipated? Certainly, the global recession
    occurring shortly after the passage of the law slowed things
    down. When things started to get better in the 2012-2013
    timeframe, the previous administration succumbed to oil
    industry pressure and stopped enforcing the law altogether. The
    RFS was back on track in November 2016, but the current
    administration almost immediately proposed to cut RFS volumes,
    ultimately turning to refinery waivers to roll the program back
    and create the investment uncertainty that biofuel innovators
    are too familiar with.
        While it is certainly plausible to argue that these
    implementation issues could be cured by amending the statute,
    we disagree. Current law could not more clearly prohibit the
    type of waivers used by the Obama administration from 2013 to
    2016 as recently confirmed by, I believe, the 10th circuit. But
    they did it anyway. Current law could not more clearly prohibit
    giving small refinery waivers to some of the largest refiners
    in the world, but the current administration did it anyway.
    Current law could not more clearly make woody biomass and corn
    fiber eligible for the RFS. But a decade later, we still don't
    have answers about trees, and many corn fiber pathways are
    logjammed at EPA.
        These aren't statutory problems. They are political will
    problems, and not the political will in this room. We do not
    support trying to cure a political will problem by opening up
    an already strong Clean Air Act statute. It is unclear to me
    what political metric would suggest that the current political
    environment would produce a stronger statute for advanced
    biofuels than we have today. But either way, the process would
    not produce solutions to the problem at hand.
        Let me finish with a couple of thoughts. The RFS is
    essentially a contract designed to convince the private sector
    to spend billions of dollars to bring new fuels to market, and
    they have done that. Single companies in my council have spent
    $500 million alone. If you want to keep U.S. investment, keep
    and hold program administrators to this commitment.
        Two, proper enforcement of the law is extremely important
    for our fuel industry. Fuel markets are not free markets. Oil
    prices are manipulated at the top by OPEC often for the express
    purpose of weakening competition, including in the oil
    industry. At home, ethanol has been the cheapest form of octane
    for decades. But without policy, we struggle to find buyers
    because the oil industry would prefer to buy octane from
    themselves, even when it is cheaper.
        Number three, while it may not seem like it, the oil
    industry is running out of ways to avoid the law. The courts
    have struck down prior misuse of RFS general waiver authority
    already, and the absurdity of the current small refinery waiver
    scheme has and will continue to be exposed.
        Four, there are much easier ways to produce step change
    results for my industry and advanced biofuels in general. I
    will mention two. First, it is not easy work, and progress has
    certainly been made. But EPA must kick out eligibility pathways
    faster. For example, we can produce hundreds of millions of
    gallons of cellulosic ethanol from corn fiber in the near term
    if we can clear the pathway logjam at EPA. Clarity on municipal
    solid waste are two more that have already been mentioned.
        Second, and this is largely for cellulosic ethanol.
    Regulator parity for RVP, which we have discussed, Reid vapor
    pressure, would open new and immediate opportunities for growth
    in cellulosic ethanol. As you mentioned, 15 billion gallons is
    capped.
        I will close by saying that it may not be the sexiest
    answer to the question asked, but the best statutory path
    remains the path that we are on.
        Thank you.
        [The prepared statement of Mr. Coleman follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Shimkus. The chair thanks the gentleman.
        The chair recognizes Mr. Collin O'Mara, President of the
    National Wildlife Federation. You are recognized for 5 minutes.
        Welcome back.

                       STATEMENT OF COLLIN O'MARA

        Mr. O'Mara. Thank you, Mr. Chairman, and thank you, Mr.
    McNerney, for convening this session today.
        Is this on?
        OK. My name is Collin O'Mara, and I am head of the National
    Wildlife Federation. We are America's largest conservation
    organization with 6 million members, a couple million hunters
    and anglers and as well as birders and gardeners, completely
    bipartisan, representing every part of the country.
        And 2 years ago today, I was before this committee talking
    about this exact issue. And at the time, I said, we were
    supporters of the original RFS and the RFS2 because of the
    promise of getting to advance truly sustainable fuels and the
    promise that was made that there would not be adverse impacts
    to habitat and to wildlife, both of which have kind of proven
    not to be true.
        And so, at the time, I said, the road to hell is paved with
    good intentions. But at the end of the day, as my old boss Jack
    Markell used to say, he used to be Governor of Delaware, a
    vision without execution is nothing but a hallucination. And I
    do think that we have to have an honest conversation about the
    role of government in getting us to the point where we are
    today. We have distorted these markets to the point where we
    are basically reducing the amount of investment that we are
    seeing in the advanced, and we are basically creating a massive
    incumbent industry that is having adverse impacts on the
    landscape.
        And so I want to talk about three things today. The first
    one is to expand on the vision for what an advanced biofuel
    future could actually look like. The second is I want to offer
    a perspective for why we failed to achieve the vision so far.
    And I want to suggest some ways that Congress can actually
    right the ship and reach these elusive goals because I do
    think--and I do disagree with some of my panelists here. I do
    think that there is this fallacy that we all accepted 7 years
    ago, or 11 years ago now, that if we invest in first-generation
    biofuels, they will automatically lead to kind of the future
    that we want for the advanced biofuels. And we just simply
    haven't seen that happen.
        And if you look at the amount of venture capital money and
    equity money going into the advanced fuels, it is a fraction of
    the money going into traditional corn ethanol. And the reason
    is pretty simple. If you give a fairly guaranteed return from a
    fairly predictable program on the first-generation side and you
    have wildly unpredictable volumes on the next-generation side,
    of course you are going to put the smart on the last
    generation. It is just good economics.
        In my previous testimony, I talked a lot about the wildlife
    impacts, the loss of grasslands in the plains. Right now, 87
    million acres of land are in corn production. That is the most
    since World War II. Eighty-nine million acres are in soy
    production. If you look at those 176 million acres, the
    production on them, the productivity on them, is absolutely
    fantastic. We are getting better and better at being more
    efficient in the amount of crop that we are producing. This is
    because of biotechnology, because of the application of
    fertilizers and pesticides.
        The landscape is shifting, so we are losing acres in more
    arid places--we are basically taking acres that are more arid
    places out of production, and then we are putting more acres
    that were habitat in the grassland into production. And what
    has ended up happening, for folks that care about wildlife and
    sportsmen, folks who like to duck hunt and pheasant hunt, we
    are losing some of the best habitat in the country for ducks
    and for pheasants.
        And so kind of the point I wanted to make on the vision was
    that sustainably harvesting native grasses, native prairie,
    these could provide feedstock and provide revenues for ranchers
    and for folks across rural America while continuing to
    sequester additional carbon, providing homes and forage for
    wildlife species, and maintaining or enhancing water storage
    capacity, and offering diversified revenue streams.
        The same thing with cover crops. Instead of just paying
    folks for cover crops that are taking up nutrients, actually
    harvesting those cover crops, turning those into feedstock for
    biofuels creates another revenue stream for farmers that are
    already trying to do their part to improve water quality.
        Same thing in areas with more trees and grasses. They could
    benefit significantly from thinning and using other woodywaste
    to create a few feedstocks for advanced biofuels.
        And so the question is, why aren't we there? If there is
    all these potential food stocks that have good economics behind
    them at a micro level, why can't we get to the macro growth?
    And I would argue it is mainly for two reasons.
        The first reason is that EPA's having to lower the statute
    for their overly ambitious target has really strangled the
    industry in its infancy. And then, once these annual targets
    are set, they are consistently undermined by the issuance of
    these waiver credits. And I think you are hearing broad
    agreement on that point today.
        These moving targets are horrible for both the producers as
    well as the investors that are looking to make decisions. And
    so there isn't that incentive to make the big investments for
    the next generation of fuels.
        And so the two industries are in a very different place. If
    you think about where the corn ethanol industry was 11, 12
    years ago, it was in its infancy. We are at 10 percent now. I
    mean, soybeans right now, it is 2 billion gallons. We have made
    incredible progress in those areas to the chagrin, in some
    ways, of the wildlife impacts.
        But we haven't seen any of that on the other side. And I
    think what I would really encourage this committee to do is
    look at the GREENER Fuels Act that Congressman Welch has
    introduced. There are a lot of commonsense solutions,
    bipartisan solutions in that act that will create a lot more
    certainty in the industry, reduce the conservation and the
    wildlife impacts from the current RFS, and do it in a
    bipartisan way.
        The longer we wait for a solution, the harder it is going
    to be to get one. I do think that there is a bipartisan
    solution here that could have a huge benefit for wildlife and
    still achieve that incredible vision for a sustainable energy
    future at the same time.
        I look forward to your questions. Thank you, Mr. Chairman.
        [The prepared statement of Mr. O'Mara follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Shimkus. Thank you very much.
        And last but not least is Mr. Luke Morrow, managing
    director at Morrow Energy on behalf of the Coalition for
    Renewable Natural Gas.
        Sir, you are recognized for 5 minutes. Welcome.
        Mr. Morrow. Thank you. Are you able to hear this?
        Mr. Shimkus. You are good.

                        STATEMENT OF LUKE MORROW

        Mr. Morrow. OK. Excellent.
        Thank you, Chairman Shimkus, Ranking Member, and members of
    the subcommittee. I am Luke Morrow, President and Founder of
    Morrow Renewables. I also serve on the board of directors of
    the Coalition for Renewable Natural Gas, which is the trade
    association for the renewable natural gas industry. I
    appreciate having the opportunity to testify today about
    renewable natural gas, or RNG, and the important role it plays
    in the RFS program.
        RNG is biogas-derived biofuel. Our industry takes untreated
    biogas captured from landfills, wastewater facilities, and
    anaerobic digesters and refines it to meet the fuel qualify
    standards of geologic natural gas. It is fully fungible in
    existing pipeline infrastructure.
        RNG qualifies as cellulosic biofuel under the RFS. It
    represents over 95 percent of the fuel used to meet the
    program's cellulosic biofuel requirement and reduces lifecycle
    greenhouse gas emissions by 80 percent or more compared to
    conventional diesel fuel.
        My company, Morrow Renewables, is based in Midland, Texas.
    We have been involved in the natural gas industry since 1986
    and have been active in the RNG industry for the last 18 years.
    We work collaboratively with landfill owners, operators, and
    waste management companies to bring RNG projects to fruition.
    Our company developed and utilizes patented technologies to
    refine biogas into high BTU RNG that can be readily used in
    natural gas vehicles. We employ over 180 people and have seven
    projects across the Texas, Louisiana, and Arkansas producing
    cellulosic biofuel.
        In fact, 2 days ago, I was the ribbon cutting for our
    latest project in Melissa, Texas, which is one of our biggest
    projects to date. This project will produce, at a minimum, 12
    million gallons of cellulosic biofuel annually. In total, our
    current projects produce about 35 million gallons of cellulosic
    biofuel every year, which we expect to almost double by the end
    of this year.
        Since 2011, the RNG industry has developed over 45
    facilities capable of producing high BTU RNG that can be used
    for transportation applications. There are currently an
    additional 48 projects under construction or consideration.
        Our industry has produced increasing volumes of cellulosic
    biofuel since RNG was incorporated into the RFS program. RNG
    production for transportation fuel grew from approximately 33
    million ethanol equivalent gallons in 2014 to over 240 million
    gallons in 2017. That is more than a 620-percent increase in
    the 3 years--620 percent.
        For 2018, the EPA estimated that RNG production would
    increase by approximately 21 percent over the previous year's
    levels. EPA actual data show that the industry has grown 29
    percent over the last 12 months. In other words, our industry
    is currently on track to exceed the EPA's estimate of 274
    million gallons of production for 2018.
        America's RNG industry has a great story to tell. We are
    converting waste into a transportation grade fuel that can be
    used in natural gas vehicles, such as the Metro buses here in
    Washington, D.C.
        In addition, we are providing the fuel needed to meet the
    RFS program's cellulosic biofuels target and doing it in an
    environmentally sustainable manner while adding high-paying
    engineering, manufacturing, construction, and operations jobs
    to our economy.
        As this subcommittee thinks about the future of the RFS
    program, I want to convey how important policy certainty is to
    the stability and growth of our nation's RNG industry. I can
    tell you from firsthand experience that bringing an RNG project
    to fruition requires significant capital investment and long-
    term contractual arrangements.
        There are things that the EPA can do to provide this
    stability. Keeping the annual rulemaking process that sets the
    program's volumes requirements on schedule is helpful. The use
    of a consistent methodology that recognizes historic growth
    while accounting for new investment when setting the cellulosic
    biofuel volume targets will help provide the certainty required
    to attract additional investment and expand cellulosic biofuel
    production.
        Lastly, I would note that reports of the small refinery
    exemptions being applied in new expanded ways have injected
    uncertainty and undermine the economic assumptions upon which
    capital investments were made and continue to be made in the
    RNG industry.
        We would encourage the subcommittee to take appropriate
    steps to ensure that the small refinery exemption is being
    applied in a manner consistent with the letter and intent of
    the law and in a way that does not undermine our industry's
    ability to produce additional volumes of cellulosic biofuel.
        Chairman Shimkus, ranking member, and subcommittee members,
    thank you again for the opportunity to testify. I would welcome
    any questions you may have, and may God bless America.
        [The prepared statement of Mr. Morrow follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Shimkus. May God bless America. Thank you very much.
        Especially after this testimony here, we need a lot of
    blessing going on here.
        So let me thank you for your testimony and move to the
    question-and-answer portion the hearing. I will recognize
    myself 5 minutes for the beginning.
        So we are here because, really, the policy certainty
    question, right? So anyone know who is going to be elected
    President in 2022? Anyone know who will be the next
    Administrator of the EPA? The answer is no, right? Does anyone
    know when it is perceived that the RFS program will be turned
    over to the next Administrator? 2022, right?
        So let me start with my question for McAdams, Howard,
    Puthusseril, Morrow, and Morgan. What are your main concerns
    with the RFS post-2022? And what, in your view, is the best way
    to address those concerns?
        Mr. McAdams. So I would answer by doing a reform bill so
    that we have clarity, not only before 2022 but after 2022,
    instead of waiting for a reset. And the reason I say that is
    because so many of the current provisions in the statute and in
    the current regs are so ambiguous that EPA doesn't have the
    ability to make the calls they need to make. And I have seen
    two major companies build plants, one in China and one in
    Sweden, because we couldn't make the calls on how to apply the
    policy in the first place.
        So I know I have disagreements with folks on this panel
    about that. But having represented those two companies who
    couldn't build a plant here because we couldn't make a decision
    on whether tall oil was a waste when it is 2 percent residue in
    a tree or whether a single-cell organism is an algae, but----
        Mr. Shimkus. OK. I have got other people to go. We got your
    point.
        Mr. Morgan.
        Mr. Morgan. I would say it is certainly a little bit of the
    uncertainty question post-2022. But the main point is that
    ultimately fuel should be standing on their own two feet and
    competing in a free and open marketplace where there is a
    willing seller and a willing buyer. Both people are better off
    after the transaction.
        So we need to move toward a free market. And doing that now
    would actually be good, because it would give you more of an
    opportunity, more of a runway to figure out how to do that
    post-2022. So now is the time for reform.
        Mr. Shimkus. Ms. Puthusseril.
        Ms. Puthusseril. I run a truck stop, and so we look at
    things on a day-to-day basis. And so for my customers, what
    they are looking for is the most affordable fuel prices. They
    are looking for a fuel that they can get that is good. And we
    have seen the RFS, as it is intended to work, is working.
    Whenever I can offer low price fuel for the drivers----
        Mr. Shimkus. Let me ask, you have you been briefed by the
    association of a concern on 2022?
        Ms. Puthusseril. No.
        Mr. Shimkus. OK. Let me move--I am running out of time, so
    let me go to Mr. Howard.
        Mr. Howard. Thank you, Mr. Chairman.
        Frankly, Mr. Chairman, I am not sure we see much difference
    post-2022 with the uncertainty that we have seen to date in the
    RFS and the implementation. Certainly we would like to see
    updates in transparency and consistent long-term growth that is
    clear for biodiesel and renewable diesel. Clearly, it has been
    a success story, but it has been in fits and starts, and we
    don't see much difference.
        Mr. Shimkus. OK. Let me go to Mr. Morrow.
        Mr. Morrow. Yes. Thank you, Mr. Chairman.
        So we have only been as cellulosic biofuel RNG in the
    market for 3 years, and 2022 is right around the corner. So our
    entry is making massive investments. So we would just like to
    see some certainty going forward and to know what that is to
    make investments to continue to do what we do.
        Mr. Shimkus. So does your industry feel that there is
    certainty right now?
        Mr. Morrow. Not at all.
        Mr. Shimkus. OK. And this is kind of outside. But one of
    the main drivers of us possibly moving forward is the octane
    debate. The basic debate is best fuel engineers and the best
    vehicle passenger engineers producing the best vehicles to meet
    CAFE and low carb and some of those other issues.
        I would like to go through the panel, but quickly. I know
    that is not in your segue, but since that drives about 75
    percent of this debate, what are your thoughts on that?
        McAdams, you want to----
        Mr. McAdams. Oh, I----
        Mr. Shimkus. Quickly though. Quickly.
        Mr. McAdams. OK. I am on the optimal task force with DOE,
    and they going through a range of different fuels. And you want
    to make sure that you leave enough flexibility that you can
    have a drop in fuel that is renewable. And it doesn't have to
    necessarily----
        Mr. Shimkus. OK. Let me go to Mr. Morgan because he is
    really the person I want to ask this of.
        Mr. Morgan. Yes. We definitely see potential in a 95 octane
    specification in exchange for a sunset of the RFS that could
    potentially work better for everybody, including for consumers.
    A 95 RON level would be a nationwide fuel on day one. That is
    important to the automakers. The automakers tell us and
    testified before this committee that that is the optimal level
    that would allow them to engineer the vehicles. And if the RFS
    goes away, it will free up enough investment for us to be able
    to compete in a free and open market.
        Mr. Shimkus. And I will end here. But I think, in
    observation of the other panels, you would probably be alone in
    the statement of sunsetting the entire RFS? Just instructional.
        So, with that, I will turn to the ranking member, Mr.
    McNerney, for 5 minutes.
        Mr. McNerney. I thank the chairman.
        Mr. O'Mara, how can Congress work to improve the RFS and
    ensure it includes other biofuels and biogasses?
        Mr. O'Mara. Thank you, Mr. McNerney.
        And I think, if you look at the legislation that
    Congressman Welch just put forth, the GREENER Fuels Act,
    looking at having more clear, kind of, definitions for the
    types of fuels that are allowed but then being a little
    technology agnostic. Like, we shouldn't be picking winners and
    losers from LG versus native grass versus, you know, different
    technologies. Set performance standards and let the market
    actually work. And I think, right now, we are overly
    prescriptive. And the process of having EPA allowing new next-
    generation fuels into the process has been absolutely abysmal.
        And so, again, I mean, I do think there are models in
    California and other places that have set standards, and then
    let American innovation work.
        Mr. McNerney. I have heard a couple of panelists refer to
    Mr. Welch's legislation.
        Is there anyone that is familiar with it that would oppose
    that legislation?
        Mr. Coleman. Yes. We oppose Mr. Welch's legislation. So
    there is a number of things in that bill that, quite frankly,
    are mind blowing, from my perspective. There is a whole bunch
    of asks from the American Petroleum Institute: a cap of ethanol
    use, a total exclusion for corn fiber, cellulosic ethanol,
    sunsetting where it shouldn't exist.
        We have a number of problems with that bill, and we would
    ask for opposition.
        Mr. McNerney. Thank you.
        Anyone else?
        Mr. McAdams, does your industry find the playing field for
    biofuels, gas, and diesel to be level?
        Mr. McAdams. No, sir, because they are at different
    economic places at the current time. And that is part of the
    problem with the program when you have had 40 years and $20
    billion, as the incumbent corn industry has, and you are trying
    to compete ethanol to ethanol, they are not on a level playing
    field.
        So you have to buoy up if you are going to have the
    advanced fuels compete with the incumbent fuels on both an
    octane basis and just on an entry to the market basis. And,
    frankly, the teeth in the RFS didn't do that for cellulosic.
        Mr. McNerney. Does anyone on the panel feel that the EPA's
    waiver for small refineries that is actually given to large
    refineries is a good idea? Does anyone think that is a good
    idea?
        Mr. Morgan. I will just say we don't take positions on any
    individual refinery waivers because it deals with confidential
    business information and all that. But we oppose the idea of
    doing a retroactive reallocation. We are not sure how they
    could do that legally and logistically under the statute. And
    it points to the need, really, for a comprehensive solution.
    That is why we are here. I would just say to my fellow
    panelists, if they are frustrated with how the RFS is run,
    welcome to the club. And if you think it is bad now, wait for
    2022 when there is even more uncertainty. So all of this to me
    points right back to the need for a comprehensive solution.
        Mr. McNerney. Mr. O'Mara, who do you think that that policy
    benefits, the policy that the Administrator is pushing forward?
        Mr. O'Mara. Yes. I think there are places where the
    uncertainty and the RIN cost and things like that have
    adversely impacted some manufacturers and some refiners. I do
    think that reduces some pressure on kind of habitat impacts,
    especially as prices get up higher and higher.
        But I think the challenge of this debate continues to be
    projected as just corn versus oil. And there are a whole series
    of constituencies that are badly influenced by the status quo.
    And I think the problem is that we keep trying to have these
    little quick fix kind of get through the press cycle and do
    something from either the administration where we need to have
    a bigger conversation because it is just more complicated than
    any individual action that the Administrator has taken.
        Mr. McNerney. Well, I certainly agree with the chairman on
    this. It is a good diverse panel, and so we get some different
    viewpoints on that.
        Mr. McAdams. Mr. McNerney, I just want to make the
    committee aware that I have actually sued the Environmental
    Protection Agency over the way they are issuing the small
    refinery waivers. And what they have done is they have
    purposely driven down the price the D6 RIN. And that is a
    direct benefit to the merchant refiners.
        Then what they did was they went from an average of 7 to 10
    to 30. And some of my largest distributors of diesel have lost
    millions and millions of dollars as a result because they were
    sitting there holding a hundred million RINs. So our guys have
    received economic harm and that some of the people they gave
    them to didn't pass the economic harm test.
        Mr. McNerney. Thank you.
        Mr. Coleman. One additional point. When it all comes down
    to it, what those waivers do is they transfer wealth from rural
    America into the pockets of refinery owners. That is what they
    do in the short-term. And rural America is hurting and
    refineries are not.
        Mr. McNerney. I just want to end by saying, Mr. Morrow, I
    was pretty excited hearing your testimony. Let's see how we can
    continue that success story.
        Mr. Morrow. Thank you, sir.
        Mr. McNerney. Mr. Chairman, I yield back.
        Mr. Shimkus. The gentleman yields back his time.
        The chair recognizes my friend and colleague from Texas who
    has been laboring with me on this issue, Mr. Flores, for 5
    minutes.
        Mr. Flores. Thank you, Mr. Chairman. I apologize to the
    audience for being late today. My mother experienced a
    significant medical condition earlier this week, so I had to
    deal with some of those things this morning.
        Mr. Morgan, your organization has been supportive of the
    high octane concept. What, if any, changes need to be made to
    the advanced biofuels provisions in the RFS in order for a high
    octane program to move forward?
        Mr. Morgan. Thanks for the question.
        Yes, I think the key thing is there that we need to be
    moving toward a free market. We are open to all ideas about how
    to do that in the advanced space. We feel like the octane idea
    has the potential to do that in the conventional ethanol space.
        We don't have a specific solution, to be honest, on the
    advanced space, but we are open to ideas and looking for an
    off-ramp toward all the fuels competing on an equal basis.
        Mr. Flores. OK. Would your constituents accept a sunset
    date for advanced biofuels that is later than a sunset date for
    the remainder of RFS?
        Mr. Morgan. We feel so strongly that the program needs to
    be sunset over time that we are open to all ideas. The
    timetable needs to be reasonable of course. But we are open to
    hearing what the colleagues on this table and others need to
    have the certainty that they need and the timeframe that they
    need. We will take a look at that, take it back to our
    membership, and we are open to ideas.
        Mr. Flores. OK.
        Mr. McAdams, do you envision a sunset date for RFS that
    includes advanced biofuels? And if so, what would that sunset
    look like?
        Mr. McAdams. Well, I think you have to base it on how you
    would get your financing. And so 20 years is what most people
    have in terms of the debt that they take when they have a loan.
    And if you gave the plants, when the plants came on, like you
    do in the Tax Code, you flip the switch on and you get 20 years
    of a RIN, then people are going to have the confidence to
    finance those plants.
        Twenty is not the only answer you could have, but I think
    you have got to have some longevity where they can repay the
    loan just like you have a 30-year loan on your house because it
    is easier to pay for.
        So that is the game that has to be worked on in terms of
    how long you would go forward in order allow these plants to be
    financed and built.
        Mr. Flores. OK. Thanks for the answer. Just to clarify, you
    are saying most of the capital investments have about a 20-year
    financing----
        Mr. McAdams. Yes. When you look at the electric side, you
    usually see a 20-year agreement between the purchaser of the
    power and a purchase power agreement, right? That is generally
    what the electric industry does, so I just borrowed that from
    the electric----
        Mr. Flores. Oh, OK, I see what you are saying.
        Mr. Morgan. And I would just point out that would be 17
    plus 20, which is 37 years, is a long time to wait.
        Mr. McAdams. Well, you wouldn't have to do it that way. You
    could do it in some other constructions is what I am saying.
    You have to work that out. Because you guys had to have 30
    years to pay for the $6 billion refineries. It is the same
    issue.
        Mr. Flores. OK. Well, this is helpful.
        Mr. Morgan, there are recent reports that the EPA is
    considering reallocating waived volumes from exempted small
    refineries in the 2019 RVO. What is your perspective on these
    reports?
        Mr. Morgan. I would just say that----
        Mr. Flores. Just to be clear there, reallocating from small
    refineries to everybody else.
        Mr. Morgan. Yes. We have very grave concerns about that,
    particularly trying to retroactively put in waived volumes into
    a new rule. I am not sure how they could do that. We have very
    strong concerns for that legally.
        Also, I think, to my point just a minute ago, I think this
    points out why we need to have a comprehensive solution,
    clarity in the statute, rather than relying on administrative
    action. And in 2022, the statutory guidelines fall off and
    there is more administrative discretion.
        So for those of us who are concerned about how the program
    is being operated now, it is much more so in the future, which
    is why we all need to figure out a path forward.
        Mr. Flores. OK. Mr. McAdams, am I interpreting correctly
    that that is one of the catalysts for your litigation?
        Mr. McAdams. Yes, sir. Absolutely. I mean, who is going to
    finance a $200 million plant in 5 years?
        Mr. Flores. OK. I thank the panel. It has been great.
        And, Mr. Chairman, I yield back the balance of my time.
        Mr. Shimkus. Wow, the gentleman yields back his time.
        The chair recognizes, I think, the gentleman from Texas--
    maybe not--for 5 minutes.
        Mr. Green. The chair and I have some little competition.
        I want to thank all of the panel for being here today.
        One of the frustrations--and I think the chair and I were
    on the committee when this system we have now was created from
    a number of energy legislation over the last decade or so--the
    frustrating thing I have is that, not only coming from an oil
    and gas community, but biofuels hasn't taken on, and what is
    picked up is the corn ethanol.
        And I know from the environmental perspective, biofuels
    really have a plus for the environment, whereas corn ethanol
    doesn't, and that is the frustration.
        So, Mr. Morgan, has the RFS had help to commercialize and
    develop cellulosic biofuels and advanced biofuels other than
    biodiesel?
        Mr. Morgan. Not really. I think you have heard the numbers
    today, that it is overwhelming, that biodiesel has been in the
    advanced pool with only 10 million gallons of liquid cellulosic
    fuels at this point, setting aside the biogas, the compressed
    natural gas.
        Mr. Green. Have we seen domestic production rise
    dramatically? Has the mandate kept pace with the domestic
    production capabilities?
        Mr. Morgan. No, it has not.
        Mr. Green. And how do existing mandates prioritize imports
    over domestic production?
        Mr. Morgan. Yes, I think you see that in a couple of
    different ways. So if the mandate is placed higher than
    demonstrated domestic production, then you are either going to
    have some increased domestic production, which we have seen a
    little bit of that, but you also have a lot of increased
    foreign imports. And that is kind of against the whole purpose
    of the Energy Independence and Security Act.
        Mr. Green. And I agree that one of the concerns is that we
    should be producing it. If you don't like bringing in foreign
    oil, you surely wouldn't want to bring in biofuels.
        Mr. Morgan. Yes, that is right, and especially because we
    produce the diesel here in the United States, our members. So
    we are actually, in terms of refined products, we are a net
    exporter, the largest net exporter in the world of refined
    products.
        So when you bring in the biofuels from overseas, you are
    actually displacing American fuels. Again, some of that is
    derived from foreign crude oil, but it is domestically
    produced.
        Mr. Green. Speaking for AFPM, what effect has Mr. Pruitt's
    RFS waivers had on the industry? Are some of the refineries
    concerned that they will be left holding the short end of the
    stick when the burden of compliance only applies to remaining
    refiners who do not receive those waivers?
        Mr. Morgan. I would say it certainly splits our members. It
    is between those who have received waivers and those who have
    not.
        And as to how they are reallocated, we have very strong
    concerns about that. That would actually hurt everyone,
    including, for example, like PES, for example. It would be
    reallocated to them when they are in financial distress at the
    moment. That is just one example.
        Mr. Green. And the chair and I have been wrestling with RFS
    for a number of years. And a lot of it is just--the RIN system
    is just broken and somewhere along the way Congress needs to
    fix it. And I think everybody at the table ought to be there to
    help, because I like domestic production, but I also see that a
    lot of folks making money out of the energy sector, it is not
    putting one drop of gas in our vehicles.
        Mr. Chairman, that is all the questions. I yield back.
        Can I save it for next week?
        Mr. Shimkus. I think you already owe us numerous minutes.
        Mr. Flores. Will the gentleman yield the balance of his?
        Mr. Shimkus. Mr. Flores would like to----
        Mr. Flores. Thank you.
        Mr. Green brought up an issue that I think is important to
    consider. Do any of you think the EPA can fix this on its own
    administratively or do you think that it is going to require a
    statutory initiative? As quickly as you can.
        Mr. Morrow. That sounds like a loaded question.
        Mr. Flores. It is not intended to be a trick question.
        Mr. Morrow. I think, from our industry's standpoint, as we
    are new in the RFS, I think maybe any type of legislative post-
    2022 would be good for us in knowing that there would be some
    certainty and potentially something that would transcend the
    next election. So that would probably be helpful for us.
        Mr. Flores. Mr. O'Mara?
        Mr. O'Mara. Yes. I think if there was absolute certainty
    and multiple year out and actually saying the volumes are going
    to be consistent and not having all these the workarounds, I
    think there are some abuses that could be a avoided.
        I also think if the Triennial report on the environmental
    impacts, which is now 7 years overdue, because there are things
    that they can do to reduce filings based on impacts and that
    work isn't being done. But the only way to make sure it is
    right, to the chairman's point, long term, regardless of
    administration, regardless of administrators, have Congress
    take action.
        Mr. Coleman. EPA has the administrative authority to fix
    everything that I have heard mentioned. And so I think if there
    is disagreement, it is how to get those things fixed.
        Mr. Howard. Yes, I would agree. I think a long-term
    consistent plan is easily implemented if the guidelines are
    there.
        Mr. Flores. Do you agree with the statutory approach or the
    administrative approach?
        Mr. Howard. I think there needs to be changes and updates
    to the RFS. I think it can be fixed to give more clarity, to
    give more transparency. A lot of the issues I have heard
    articulated here are due to the lack of transparency in the
    policy.
        Mr. Flores. I need to move on. I am running short on time.
    Sorry.
        Mr. McAdams. We did this program 10 years ago and a lot has
    changed in the industry on the innovative technology side and
    the original statute didn't take that into consideration.
        So a lot of projects now are multifaced projects with two
    elements to them instead of one. The statute was written for
    one element, not two. There are all kinds of problems with
    respect to how they put the programs together. For the use of
    wood, they just box these facilities.
        Mr. Flores. Just to summarize, you are saying statutory,
    right?
        Mr. McAdams. It needs to be reformed.
        Mr. Flores. OK.
        Mr. Morgan.
        Mr. McAdams. And I have given you a list of 21 things that
    directly need to be statutorily reformed.
        Mr. Flores. OK.
        Mr. Morgan. We believe the statutory reform is the best
    path going forward.
        Ms. Puthusseril. I agree with that.
        Mr. Flores. OK. Thank you. I yield back my negative time.
        Mr. Shimkus. The gentleman from Texas yields back his time.
        The chair now recognizes the gentleman from South Carolina,
    Mr. Duncan, for 5 minutes.
        Mr. Duncan. Way over here on the far right.
        Thank you, Mr. Chairman.
        Thanks to the panel for being here.
        I want to examine the future of advanced biofuels under the
    RFS. We need to set demands and mandates that the market can
    actually meet. I think Mr. Morgan addressed in his testimony
    that nearly a third of all the RFS advanced biofuel mandates
    were met in the last 2 years with imported fuels. So it seems
    to me that the demands and mandates are exceeding what the
    market here in America can provide.
        It seems counterproductive, especially since RFS was set to
    mitigate the dependence on foreign sources. We have, in fact,
    decreased dependence on foreign oil, but I am not so sure that
    much of that can be attributed to RFS standards. Most of it is
    due to aggressive exploration and production here at home of
    fossil fuels. And so just because the government set up
    biofuels demand doesn't mean we are able to domestically meet
    it.
        So, Mr. Morgan, your testimony directs EPA to set a
    reasonable advanced biofuel mandate tied to domestic
    production. In your opinion, what is a reasonable advanced
    biofuel mandate?
        Mr. Morgan. Yes, I think you would look at the previous
    year's production domestically here and set it at it that level
    so you have a track record there. And then as it grows, then
    you can increase the number the next year.
        But you are exactly right, that if a third of this is being
    met by foreign imports--and again, as I just mentioned, some of
    that is displacing American-produced fuel, or it all is--some
    of which is derived from feedstocks from overseas certainly,
    but it is all American-derived fuel, it is kind of at
    counterpurposes.
        Mr. Duncan. Mr. Howard, do you want to comment on that?
        Mr. McAdams. Isn't a third of the fuel you use in the U.S.
    refineries from overseas?
        Mr. Morgan. In terms of feedstock, now our percentage of
    imports is the lowest it has been since 1967.
        Mr. McAdams. But it is still a third.
        Mr. Shimkus. OK. I love this banter. This is a throwback to
    Billy Tauzin. We will let Mr. Duncan control his time.
        Mr. Howard. Yes, Mr. Duncan, I think you----
        Mr. Duncan. Let's go to Mr. Howard.
        Mr. Howard. Yes. So let me say, Mr. Morgan, some of these
    numbers are very misleading. As of through last year, through
    August of last year, 600 million gallons of Argentine biodiesel
    were dumped into this market and that preceded the prior 3
    years. Countervailing duties were put in place last August that
    restricted that volume.
        The biodiesel industry has stepped up. We were running at
    two-thirds capacity because of that. Now that those
    countervailing duties are in place and we have fair trade, the
    biodiesel industry is meeting the RVO requirements. And we have
    continued growth and plans to continue to meet that from
    domestic production.
        Mr. Duncan. Let me just ask you this. Because, look, I
    drive a Chevy Duramax diesel pickup truck. That is my truck
    when I am at home in the district. I like biodiesel. I think
    the viscosity actually helps my engine probably more than
    anything. So I am not a novice on this.
        But I will say this, that biodiesel is much more expensive
    than regular diesel fuel. So how can we overcome that? Because
    if I as a consumer--and trust me, I am--if I can find biodiesel
    in South Carolina now, I think there is one distributor that
    has got it.
        So if I want to buy biodiesel and I find a station that has
    it, why am I paying 30, 40 cents more a gallon for biodiesel?
    Because I can tell you, even though I want to do that, because
    think it will help my engine, and I like the whole idea of
    biodiesel, I am not going to buy it, I am not, not with 30 or
    40 percent price difference.
        So until you can overcome that, you are not going to have
    the consumer buying your product. So how do you overcome that?
        Mr. Howard. Well, I think you have heard from one of my
    customers sitting next to me that she is able to lower her
    price by blending biodiesel.
        Part of the industry's need for continued growth is to be
    able to have the distribution network to get to everywhere in
    the country. Right now we have great distribution in the
    Chicago area, where her truck stop is. We do not have great
    distribution in your area.
        We need to continue to invest in infrastructure. Last year
    REG, we opened 10 new distribution terminals.
        Mr. Duncan. What is the price point difference in the areas
    where you have great distribution?
        Mr. Howard. Right now, typically biodiesel with incentives
    is sold less than diesel price and passed on to the consumer.
        Mr. McAdams. Congressman, I represent Pilot Flying J and
    Love's, which are the two largest distributors of diesel in the
    United States, 15 billion out of 50, and they generally pay 25
    percent less for the diesel and blend it because they get
    margin. And when the marginality isn't there, they don't blend.
        And because of the small refinery waivers, the RIN
    collapsed on the floor pool and now we are 15 percent lower
    blending. So all the truckers supported us on the tax credit
    because we provided cheaper fuel over the long haul in the
    entire United States.
        Mr. Duncan. Let me just say this in the 5 seconds that I am
    actually over.
        Mr. Shimkus. Ms. Matsui.
        Mr. Duncan. The market will dictate what is purchased. And
    if we as an American government want to see more of these
    products on the market, they need to be cost competitive, cost
    effective, right? They need to be almost equal to or less than
    the competitive fossil fuel brand.
        With that, I will yield back.
        Mr. Shimkus. The gentleman yields back.
        At this time the chair recognizes the gentlelady from
    California, Ms. Matsui, for 5 minutes.
        Ms. Matsui. Thank you, Mr. Chairman. I do appreciate the
    testimony we have heard today.
        Advanced biofuels can have a substantially lower climate
    impact than traditional gasoline and even corn ethanol. The
    California Air Resources Board last year reported that about
    one-third of all biofuels in the state's fuel mix were
    categorized as advanced. That is a significantly higher percent
    than the rest of the country as a whole.
        The key to California's success has been the State's
    biofuels program, known as the Low Carbon Fuel Standard, which
    sets goals based on the carbon content of the fuel rather than
    the feedstock. Under the program the state measures the carbon
    intensity of the fuel over its full lifecycle. Low carbon
    intensity fuels generate credits that can be traded.
        This performance-based standard clearly has greater climate
    benefits, but it seems to me that its flexibility is also
    better for the advanced biofuels industry.
        Mr. McAdams and Mr. Coleman, would you say it is more
    beneficial to have standards that are performance-based, like
    the Low Carbon Fuel Standard, or technology-based, like the
    RFS? What are the benefits of each?
        Mr. McAdams. Go ahead.
        Mr. Coleman. Thank you, Congresswoman Matsui, for the
    question.
        So I worked on that program for a while out there. And you
    are right to point out that not just advanced biofuels have
    carbon benefits. So we are playing this game right now where we
    draw a line between advancing corn ethanol even though corn
    ethanol is the largest investment in cellulosic ethanol. So you
    have gains with corn ethanol and then you have bigger gains
    with advanced biofuels.
        In terms of the answer to your question, we like both
    policies. The RFS is prescriptive. It is very clear for
    investors when it is properly implemented. And the Low Carbon
    Fuel Standard has more flexibility.
        If there was an opportunity to talk about performance
    standards, we are more than willing to have that conversation.
    Right now those policies are perfect complements to each other.
        And if you go to California and talk to the California Air
    Resources Board, they will tell you the RFS drives gallons
    towards California and makes compliance with that program
    helpful and possible. So it is a tremendously important. We
    would be happy to have further conversation with you.
        Ms. Matsui. Well, another difference between the two
    standards is that California standards are structured to
    incentivize the lowest-carbon fuels possible. So under the RFS,
    once the fuel has achieved the requisite 50 or 60 percent
    greenhouse gas reduction, it is eligible to compete in the
    market, but there is no benefit for fuels that go beyond the
    standard.
        So on the other hand, the California standard rewards lower
    carbon-intensity fuels by allowing them to generate more
    credits than fuels that barely meet the standard. This creates
    an incentive to develop fuels that can reduce carbon emissions
    to the greatest extent possible.
        Once again, Mr. McAdams or Mr. Coleman, what do you think
    about the different market signals created by the two
    standards? Are there benefits to using a sliding scale of
    rewards based on carbon intensity?
        Mr. McAdams. So I think it is a great program they have. I
    think the political situation in the Congress makes it hard to
    take the California standard and put it into Federal law, to be
    candid with you.
        But I think you could address the same impact by simply
    saying any fuel that delivers more than the baseline of 50
    percent or 60 percent of the statute will receive an extra one-
    tenth of a RIN would give an incentive.
        So, for instance, if my colleague down here with the
    Biodiesel Board uses a tallow, he gets an 80 percent reduction
    fuel, he would get three-tenths of a RIN.
        Well, three-tenths of a RIN on a 40 cent RIN value is quite
    a bit of incentive for the margin for him and that would help
    bring the fuels into the market in the same way that
    California's standard does, but using the existing format of
    the RFS.
        Ms. Matsui. OK. In 2014 the EPA finalized regulations
    permitting biogas to count as cellulosic biofuel under the RFS
    when converted to electricity to power electric vehicles or
    used directly in natural gas vehicles.
        Applications to generate RINs using electricity from biogas
    to fuel EVs are currently pending before the EPA, but the
    Agency has yet to approve an application.
        The potential impact of the electric pathway under the RFS
    is great for both biogas producers and EV manufacturers. DOE
    estimates that a proved electric RIN pathway could reduce the
    cost of electric vehicles and potentially put an additional 3.5
    million battery electric vehicles on the road by 2025. The
    demand for biogas would also rise dramatically.
        Let me ask probably Mr. Morrow first. Are you familiar with
    electric RINs and what type of benefits do they have and the
    potential to provide for the environment and biofuels industry?
        Mr. Morrow. Thank you for the question.
        The electric pathway there, it is just like anything, I
    think the devil is in the details. We are not really sure how
    many RINs would be generated on a per MMBTU or per kilowatt
    basis, so it is hard for me to comment on what that might look
    like if it becomes a proved pathway. So really all we know
    right now at this time is what an MMBTU of treated RNG going to
    the pipeline looks like. I am familiar with the pathway.
        Ms. Matsui. OK. Well, it seems I am going to run out of
    time. I think this is an area we ought to explore further.
        Thank you very much. I yield back.
        Mr. Shimkus. The gentlelady yields back her time. Shows you
    that there is interesting opportunities in future, good or bad,
    for those at the panel.
        So we want to now turn to another Californian, Mr. Peters,
    and you are recognized for 5 minutes.
        Mr. Peters. Thank you, Mr. Chairman.
        And I apologize, I was on floor so I didn't get to hear
    some of the testimony from the beginning. So if you answered it
    I hope you will bear with me.
        I also want to wish the best to my colleague Mr. Flores'
    mother, hope she is all right.
        I wanted to ask Mr. O'Mara, in general, given the timeframe
    and what has happened since this was first adopted, how does
    the dramatic price collapse in natural gas affect all the
    incentives? And is that part of your thinking as you suggest we
    take another look at how to incentivize next-generation
    biofuels?
        Mr. O'Mara. Yes. I appreciate the question.
        We feel strongly that we should be looking at actual
    reductions, right, where are the performance based, where do we
    actually achieve the greatest kind of environmental outcome,
    and don't pick winners and losers on the technology side.
    Because I do think that there was a price--like, any time a
    fuel has a dramatic decrease in the price, it does drive
    greater competition and forces other people to try to meet that
    price in the marketplace. And so we have seen it in the
    electrical sector and we are seeing it a little bit here.
        And I just think the less Congress is being prescriptive on
    technology and the more they are focused on outcomes and
    performance, the better off for everybody, particularly better
    off for the environment.
        And David De Janeiro from my team is over here who has been
    working with your staff and others on this. There are a lot of
    these kind of safeguards you can put in place and also
    performance standards. And I would encourage folks to look at
    Congressman Welch's bill, the GREENER Fuels Act, because it
    actually gets in that direction.
        Mr. Peters. In terms of technological, in terms of
    performance standards, how would you define those?
        Mr. O'Mara. So there are the examples that Congresswoman
    Matsui talked around actual performance. Let's talk about
    emission reductions based on some kind of full lifecycle
    analysis that we can all agree upon.
        I do think that there are lessons that could be learned
    there fairly easily. I think the easiest one is the carbon
    content, because it is one that has--there is more
    standardization of the methodology and it is a way to basically
    compare apples to apples across the entire fuel portfolio.
        Mr. Peters. Mr. McAdams, did you have a comment on that
    kind of approach? Is that what you were talking to Ms. Matsui
    about?
        Mr. McAdams. I was just saying you could solve a lot of
    these problems in different ways. So if you wanted to reward
    from a behavioral standpoint, just like the Tax Code that
    sometimes scales things at percentage bases, you could amend
    the RIN, give away portions. They are done on energy density
    now and you could change that section of the law.
        Mr. Peters. And that is another way of tracking the subsidy
    with the need for the subsidy I suppose, right?
        Mr. McAdams. And so that gives guys more headroom, right,
    to sell their fuel against incumbent fuels that are going to be
    cheaper. So it lets them play in the market.
        Mr. Peters. I would just say it strikes me--and I haven't
    really looked that deeply at the Welch bill yet, it strikes me
    there must be a difference today in the market from what would
    happen when this was enacted. And it seems to me that I am
    skeptical that staying with this program has got to be the best
    we can do.
        But I am going to take you at your word, Mr. Coleman, and
    sometimes the best is not to do anything. But it does strike me
    that given the dramatic change in the whole price structure in
    the energy market and the fact that we have 100 years of energy
    here domestically now, the way you incentivize alternatives
    must have been affected by that.
        Mr. Howard, did you want to say something?
        Mr. Howard. Yes. Thank you, Mr. Peters.
        Let me just make sure that it is clear that the industry
    has transformed, REG specifically. Ten years ago we made 50
    million gallons; last year over 500 million gallons.
        The foundation of our business is a waste collection
    business, used cooking oil, agricultural byproducts. And so
    when you think about how we have transformed, 80 percent of our
    feedstock now is a waste fat and oil, not a refined vegetable
    oil.
        So, yes, the market has changed, and we have responded to
    the California incentives that the Congresswoman mentioned. So,
    yes, there is a transformation of our industry much more
    towards that foundation of waste-based conversion. In that, you
    also get the tremendous environmental benefits.
        So however you think about this program going forward and
    giving us a long-term kind of consistent pathway, you need to
    make sure that both those functions are valued, the
    environmental benefits as well as this kind of waste-based
    environmental collection process. And that is never mentioned
    as something that is really foundational to our business and
    must be valued.
        Mr. Peters. Yes. That is a very fair point. And I think it
    is useful going forward.
        I would just observe in closing that it is very clear to me
    that the states as laboratories is very constructive in terms
    of giving each state a little bit of leeway to do that. And I
    would forward that message on to Administrator Pruitt who seems
    to not want California to be able to do these kinds of
    experiments. I think it is very useful.
        I yield back.
        Mr. Shimkus. The gentleman yields back his time.
        And I, again, appreciate the panel. You all are great. And
    I think it illustrates the challenge that we have.
        I would just note for my colleagues one of the concerns I
    deal with is we have incentivized based upon current law and so
    we have to be careful about taking away from folks that we have
    already got into the market and the investments that have been
    made. And not just current production levels, but as I tell
    people stay, still in the ground and things moving based upon
    the law as written.
        So it is a very challenging exercise, as we continue to
    find out.
        Seeing that there are no other members wishing to ask
    questions for this panel, I would like to thank you all for
    being here.
        Before we conclude, I would like to ask unanimous consent
    to submit the following document for the record: a letter from
    Representative Bruce Poliquin, which has a question for the
    record. The Democrat majority has agreed with that.
        [The information appears at the conclusion of the hearing.]
        Mr. Shimkus. And pursuant to committee rules, I remind
    members that they have 10 business days to submit additional
    questions for the record. And I ask that witnesses submit their
    response within 10 business days upon receipt of the question.
        Without objection, the subcommittee is adjourned.
        [Whereupon, at 10:44 a.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                     Prepared statement of Hon. Greg Walden

        Thank you, Mr. Chairman, for recognizing me for this
    opening statement.
        As you mentioned in your remarks, today's hearing is the
    first time in this subcommittee's hearing series on the future
    of fuels and vehicles where we have directly tackled advanced
    biofuels. Before I get to more general remarks on that subject,
    I want to observe how today's subject highlights a problem
    facing my constituents and a solution that could help the
    nation in several ways. Mr. Chairman, I know you are very proud
    of the corn and soybean growers in Illinois that you represent.
    In Oregon, we're equally proud of the generations of foresters
    and millworkers who have been helping manage our forests since
    the days of the Oregon Trail.
        As we learned in our hearing last October on air quality
    impacts from wildfires, federal forests in Oregon and across
    the West face the threat of catastrophic wildfires pumping
    harmful particulates and carbon into the atmosphere. Our
    witnesses that day made clear the importance of thinning our
    forests and removing the fuel that's out there. A key component
    of this preventative management is addressing chips and slash
    material that are volatile in a fire and help carry the fire up
    into the tree canopy. With limited economic value for this wood
    product, much of it is burned in piles in the winter. While
    this is much better than a wildfire, an even better alternative
    is to utilize this wood as a carbon neutral energy source to
    power our vehicles.
        We used to think the main barrier to garnering sustainable
    and economic wood-based biofuels was technical in nature--such
    as developing ways to economically remove lignin from forest
    materials. That in turn would allow us to access and utilize
    the valuable cellulosic material for productive, value-added
    purposes.
        However, it turns out that beyond the technical barriers,
    another significant barrier to growing the use of sustainable
    wood-based biofuels is the arbitrary limits established within
    the Renewable Fuel Standard (RFS). Specifically, the RFS
    renders biofuels sourced from woody biomass off federal land
    ineligible for RIN credits. As a result of these RFS limits, we
    are missing another opportunity to clean up and improve the
    management of our federal lands. Going forward, I hope we can
    address this matter.
        As for the broader topic of advanced biofuels, the 2007
    amendments to the Renewable Fuel Standard were passed with the
    expectation of a fully mature advanced biofuels marketplace--
    one that, four years from now, was supposed to be 28 percent
    larger than that of corn-based ethanol and other first-
    generation biofuels. While some people think it was a mistake
    then to include cellulosic biofuels in the RFS, the fact is
    they are not going away and should be part of any discussion on
    this complex and interdependent program. For this reason, it is
    important that when discussing the RFS program we keep these
    fuels in mind.
        I want to thank our witnesses for joining us to share their
    experiences and expertise on this subject. We appreciate them
    taking time out of their busy schedules to help us better
    understand intricacies of advanced biofuels.
        Thank you, again, Mr. Chairman for the time. With that, I
    yield back.

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