[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
UP AGAINST THE BLEND WALL: EXAMINING EPA's ROLE IN THE RENEWABLE FUEL
STANDARD
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY POLICY,
HEALTH CARE AND ENTITLEMENTS
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JUNE 5, 2013
__________
Serial No. 113-40
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
82-138 WASHINGTON : 2013
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas MARK POCAN, Wisconsin
DOC HASTINGS, Washington TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky PETER WELCH, Vermont
DOUG COLLINS, Georgia TONY CARDENAS, California
MARK MEADOWS, North Carolina STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Stephen Castor, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Energy Policy, Health Care and Entitlements
JAMES LANKFORD, Oklahoma, Chairman
PATRICK T. McHENRY, North Carolina JACKIE SPEIER, California, Ranking
PAUL GOSAR, Arizona Minority Member
JIM JORDAN, Ohio ELEANOR HOLMES NORTON, District of
JASON CHAFFETZ, Utah Columbia
TIM WALBERG, Michigan JIM COOPER, Tennessee
PATRICK MEEHAN, Pennsylvania MATTHEW CARTWRIGHT, Pennsylvania
SCOTT DesJARLAIS, Tennessee TAMMY DUCKWORTH, Illinois
BLAKE FARENTHOLD, Texas DANNY K. DAVIS, Illinois
DOC HASTINGS, Washington TONY CARDENAS, California
ROB WOODALL, Georgia STEVEN A. HORSFORD, Nevada
THOMAS MASSIE, Kentucky MICHELLE LUJAN GRISHAM, New Mexico
C O N T E N T S
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Page
Hearing held on June 5, 2013..................................... 1
WITNESSES
Mr. Jack Gerard, President, American Petroleum Institute
Oral Statement............................................... 5
Written Statement............................................ 8
Mr. Joel Brandenberger, President, National Turkey Federation
Oral Statement............................................... 11
Written Statement............................................ 13
Mr. Jeremy I. Martin, Ph.D., Union of Concerned Scientists
Oral Statement............................................... 18
Written Statement............................................ 20
Mr. Lucian Puliaresi, President, Energy Policy Research
Foundation Inc.
Oral Statement............................................... 26
Written Statement............................................ 28
Mr. Christopher Grundler, Director, Office of Transportation and
Air Quality, U.S. Environmental Protection Agency
Oral Statement............................................... 72
Written Statement............................................ 75
APPENDIX
Letter for the Record from The Honorable Bruce Braley, a Member
of Congress from the State of Iowa Submitted by The Honorable
Jackie Speier, a Member of Congress from the State of
California..................................................... 94
Letters for the Record from the Biotechnology Industry
Organization and the Advanced Biofuels Association Submitted by
Representive Speier............................................ 95
``Economic Impacts Resulting from Implementation of RFS 2
Program'' Report Submitted by Mr. Jack Gerard, American
Petroleum Institute............................................ 100
A National Renewable Energy Laboratory Study Submitted by The
Honorable James Lankford, a Member of Congress from the State
of Oklahoma.................................................... 163
Written Testimony by Ms. Margaret Podlich, President Boat U.S.,
Submitted by Chairman Lankford................................. 218
A Letter for the Record from American Petroleum Institute (API)
Energy and Submitted by Representative Speier.................. 222
An Article for the Record ``The Navy's Great Green Fleet Strikes
Back'', Submitted by Representative Speier..................... 244
UP AGAINST THE BLEND WALL: EXAMINING EPA's ROLE IN THE RENEWABLE FUEL
STANDARD
----------
Wednesday, June 5, 2013,
House of Representatives,
Subcommittee on Energy Policy, Health Care &
Entitlements,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:05 a.m., in
Room 2154, Rayburn House Office Building, Hon. James Lankford
[chairman of the subcommittee] presiding.
Present: Representatives Lankford, Gosar, Jordan, Chaffetz,
Meehan, DesJarlais, Farenthold, Woodall, Issa, Speier, Norton,
Duckworth, Davis, Cardenas, and Horsford.
Staff Present: Kurt Bardella, Majority Senior Policy
Advisor; Richard A. Beutel, Majority Senior Counsel; Joseph A.
Brazauskas, Majority Counsel; Daniel Bucheli, Majority
Assistant Clerk; Caitlin Carroll, Majority Deputy Press
Secretary; John Cuaderes, Majority Deputy Staff Director; Brian
Daner, Majority Counsel; Linda Good, Majority Chief Clerk;
Tyler Grimm, Majority Professional Staff Member; Ryan M.
Hambleton, Majority Professional Staff Member; Scott Schmidt,
Majority Deputy Director of Digital Strategy; Jaron Bourke,
Minority Director of Administration; Nicholas Kamau, Minority
Counsel; Adam Koshkin, Minority Research Assistant; and Rory
Sheehan, Minority New Media Press Secretary.
Mr. Lankford. The committee will come to order.
I would like to begin this hearing by stating the Oversight
and Government Reform mission statement.
We exist to secure two fundamental principles: first,
Americans have the right to know that the money Washington
takes from them is well spent and, second, Americans deserve an
efficient, effective Government that works for them. Our duty
on the Oversight and Government Reform Committee is to protect
these rights. Our solemn responsibility is to hold Government
accountable to taxpayers, because taxpayers do have a right to
know what they get from their Government. We will work
tirelessly in partnership with citizen watchdogs to deliver the
facts to the American people and bring genuine reform to the
Federal bureaucracy. This is the mission of the Oversight and
Government Reform Committee.
Drivers across America today are going to fill up their gas
tanks and they are going to complain about the price of energy.
We are Americans; that is what we do. We love to travel, but we
hate to pay high gas prices.
But there is also a new complaint: the frustration of
filling up your car with ethanol, which is made from food and
doesn't burn as efficiently as gasoline; also, the variety of
different options of what engine can take what fuel.
I didn't bring it with me today, but I have a 2011 vehicle
that, when you open up the gas cap, on the door itself, on my
vehicle, it has a big circle and a slash through it that says
E15, telling me don't you dare put that fuel in this vehicle,
even though it is a 2011 version.
Renewable Fuel Standard, the RFS, requires that 35 billion
gallons of ethanol equivalent biofuels and 1 billion gallons of
biomass-based diesel be refined by 2022. To get there, refiners
must have increasing amounts of renewable fuels, like corn
ethanol into gasoline, each year.
However, when this law was written, in 2005, and expanded
in 2007, we were living in a different time, and the drafters
assumed that gas demand would continue to increase. Since then,
the recession and the increased CAFE standards have pushed down
the demand for gasoline.
There is increasing evidence that RFS is not meeting the
original bifold purpose to move the United States towards
greater energy independence and security, and to increase the
production of clean renewable fuels.
Another market change since 2005 and 2007 is the current
domestic energy boom, leading us to greater energy independence
and security by leveraging our domestic petroleum supplies.
Second, corn-based ethanol may not be any cleaner than gasoline
and has other negative environmental consequences, such as
using more water for reducing corn-based energy than refining
gasoline.
To account for these future uncertainties, Congress gave
the EPA waiver authority to suspend RFS requirements for
various reasons. EPA may waive requirements if there is an
inadequate domestic fuel supply or if implementation of a
requirement would severely harm the economy or environment of a
State region of the United States. Last year, for example, in
response to catastrophic drought conditions, several governors
petitioned for a waiver. Although EPA found that the drought
had created significant hardships, particularly for livestock
producers, EPA did not grant the waiver.
Now we have a new challenge; it is called the blend wall.
Because the law requires increasing amounts of renewable fuels
be blended into gasoline each year, if demand for gasoline goes
down, the only way to meet the standard is by blending a higher
percentage of ethanol.
Currently, it is not uncommon to see E10 or 10 percent
ethanol fuel. This year, however, refiners predict they will
have to blend into E15. This presents two problems: it may be a
defective product. Many automakers will void warranties if
motorists use anything higher than E10 in their cars because of
the engine damage it can cause, especially to older cars,
boats, engines, and non-vehicle motors. As I have already
mentioned, for my truck, at home as well, even though it is a
newer vehicle.
Consumers don't want it at times. In my home State of
Oklahoma, you will frequently find gas stations advertising
pure gasoline containing no ethanol in response to consumer
demand. It is not uncommon for a gas station in Oklahoma City
with a giant banner out front of it that says we sell real gas.
By requiring refiners to produce a product that consumers
can't use and don't want, it is only logical that this
constriction of the market will increase fuel prices, causing
economic damage as well. According to a study done by the
economic consulting firm NERA, mandating E15 could increase the
cost of gasoline by as much as 30 percent by 2015 and increase
the cost of diesel by as much as 300 percent by 2015.
In addition to refiners and consumers, other stakeholders
are affected by this market distortion. Because of the over-
reliance on food-based ethanol as a renewable fuel, the RFS has
a negative impact on our food supply and security.
The goal of this hearing is to see how we can alleviate the
pressure on consumers. One way to do this is to change the law.
That is the job of the Energy and Commerce Committee, not this
committee. This committee oversees how the Executive Branch is
implementing the current law.
Today we will seek to learn what EPA can do, has done, or
maybe has not done to ease the burden on consumers.
I thank the witnesses, all of them, for their participation
today and I look forward to hearing their testimony.
I now recognize the distinguished ranking member, the
gentlelady from California, Ms. Speier, for her opening
statement.
Ms. Speier. Mr. Chairman, thank you. I have a solution for
you with your 2011 car. I just drove half way across the
Country in my 2008 Prius that takes any amount of fuel from any
of those gas stations and got me 45 miles to the gallon. So I
highly recommend Priuses as potential cars for the future.
Mr. Lankford. I could actually, with my Ford truck, put
that Prius in the back of it.
[Laughter.]
Ms. Speier. It is very roomy inside. I am going to take you
for a ride in it.
Mr. Chairman, thank you. Let me start off by reading this
quotation: Our prediction, if things go very, very well, is
that renewables could supply somewhere in the order of 30
percent of the world's energy demands by the middle of this
century.
Now, as you think about who might have said that, I am sure
lots of ideas come to mind that they may indeed be biofuel
producers. But, as it turns out, the person who made this
statement was the president of Shell Oil Company, Marvin Odum,
in Qatar, at a recent conference that took place there. This is
Shell Oil Company talking about the benefits of renewables.
The majority has chosen today to focus this hearing on only
one aspect of the Renewable Fuel Standard: our Nation's
signature law promoting the transition to cleaner fuel futures
that Shell Oil and others say is on the rise. The so-called
blend wall is an important and pressing issue for agriculture,
refiners, and consumers. However, as we address the blend wall,
we must not lose sight of the forest for the trees.
The RFS, on the whole, is about national security, clean
energy innovation, and job creation. As a matter of fact,
domestic biofuels have created 400,000 jobs and $50 billion in
new activity.
Mr. Chairman, I have a letter here from Congressman Bruce
Braley that I would like to submit for the record, that
references the fact that our hearing today does not have one
renewable fuels producer testifying and, in his State, there
are some 39 ethanol plants with over 3 billion gallons of
annual fuel production offering jobs to 63,000 people, and
about two of the first cellulosic ethanol plants in the entire
Nation are under construction in his home State. Those two
plants coming on line will generate 6 million tons of biomass
available to convert to cellulosic ethanol. So I would like to
submit this for the record.
Mr. Lankford. Without objection.
Ms. Speier. In light of calls from some quarters to repeal
the RFS, I would remind my colleagues that the RFS originated
as bipartisan legislation designed to achieve these critical
goals. The RFS was first included in the 2005 Energy Policy Act
under a Republican Congress and was signed into law by
President Bush. In 2007, the law was expanded with passage of
the Energy Independence and Security Act, also signed into law
by President Bush.
To be sure, I have my own concerns over the impacts of the
Renewable Fuel Standard on our vehicle fleet, on the food
versus fuel problem, and on our environment. The law's
implementation has been far from perfect, but make no mistake,
the EPA is charged with administering the RFS according to the
law that Congress passed, and the RFS is still a relatively new
policy. The EPA must use the flexible authority Congress
granted it to ensure the RFS stays on track to meet our
national clean energy goals.
I look forward to hearing from the EPA today on how the
agency intends to weed out any waste or inefficiencies in the
programs and protect the integrity of its program moving
forward.
Moreover, as business works to scale up the production of
cellulosic and other advanced biofuels, now is not the time to
throw the baby out with the bath water by undermining the law
before it has a chance to succeed. We are only one-third of the
way into the RFS program; yet, renewable fuels remain capable
of creating 52 billion gallons of biofuels annually, decreasing
dependence on foreign oil, reducing trade deficits, creating
jobs, and reducing air pollution.
The path forward demands continued support for those
innovative technologies to produce alternative fuels such as
biobutenol, cellulosic ethanol, green diesel, and green
gasoline in order to provide clean energy now and for future
generations.
Thanks to the RFS, the first two commercial-scale second
generation biofuel plants to be built in the U.S. are coming
online this year, employing hundreds of Americans and injecting
millions of dollars into local economies. Companies in Florida,
Iowa, Kansas, Michigan, Nevada, Oregon, Texas, and Wyoming are
leveraging the RFS to build the next wave of biorefineries in
the years ahead, and not with one taxpayer dollar.
In short, keeping the Renewable Fuel Standard on track is
critical if America is to succeed in the clean energy race of
the 21st century. These are not Democratic goals or Republican
goals; these are American goals. Our Nation's top scientists
and military commanders have repeatedly and urgently signaled
the need to move forward on alternative fuels.
At the end of the day, the question we need to ask is
whether we want to produce real alternatives to oil in our fuel
supply or not. American families who continue to suffer the
consequences of a transportation system that is more than 95
percent dependent on oil know the answer to the question is
yes.
Mr. Chairman, I also have a couple other documents to
submit for the record. One is from the Biotechnology Industry
Organization and the other from the Advanced Biofuels
Association.
Mr. Lankford. Without objection.
Ms. Speier. Thank you.
Mr. Chairman, one more point. We also are in the middle of
the mark on the National Defense Authorization Act, of which I
am a member of, so I am going to have to move between
committees for the next two hours, and I apologize in advance
for my inability to be here for the whole hearing.
Mr. Lankford. We will make sure that when we are talking
about you is when you are gone, then. How about that?
Ms. Speier. Thank you.
Mr. Lankford. Okay.
Members will have seven days to submit opening statements,
as well, for the record.
We will now recognize our first panel.
Mr. Jack Gerard is the President and CEO of the American
Petroleum Institute; Mr. Joel Brandenberger is the President of
the National Turkey Federation; Dr. Jeremy Martin is the Senior
Scientist of the Clean Vehicles Program of the Union of
Concerned Scientists; and Mr. Lucian Pugliaresi is the
President of the Energy Policy Research Foundation.
Gentlemen, thank you all for being here. Pursuant to
committee rules, all witnesses are sworn in before they
testify. If you would please rise and raise your right hand.
Do you solemnly swear or affirm the testimony you are about
to give will be the truth, the whole truth, and nothing but the
truth, so help you, God?
[Witnesses respond in the affirmative.]
Mr. Lankford. Thank you. You may be seated.
Let the record reflect that the witnesses have all answered
in the affirmative.
In order to allow time for discussion, please limit your
testimony to five minutes. Your entire written statement, of
course, will be made part of the permanent record for this
hearing.
Mr. Gerard, you are up first, it looks like. We will be
honored to receive your testimony.
WITNESS STATEMENTS
STATEMENT OF JACK GERARD
Mr. Gerard. Great. Thank you, Mr. Chairman and Ranking
Member Speier and members of the subcommittee. It is a
privilege to be with you today. I appreciate the opportunity to
share with you API's concerns regarding the renewable fuels
standard.
API, as you are probably aware, represents all aspects of
the Nation's oil and natural gas industry. We support
employment for over 9.2 million Americans, constitute over 7.7
percent of our gross domestic product, and deliver more than
$85 million a day to the Federal Government in the form of
taxation, royalty, and other sorts of revenue.
With the limited time we have today, I would just like to
move right to the point: The Renewable Fuel Standard is
irreparably broken and poised to do significant harm to
consumers, the economy, and the Nation's fuel supply. The
impact of the mandate has been made worse by EPA's
unwillingness to let science, court decisions, and common sense
guide its implementation.
Now EPA is currently facing the biggest test of all that
has been mentioned already this morning, the E10 blend wall.
The renewable fuel mandates in the Renewable Fuel Standard
increase yearly, while demand for fuel in the United States is
dropping, creating a situation known as the E10 blend wall.
When this happens, refiners will be forced to blend a fuel with
more than 10 percent ethanol or reduce production to meet the
mandate, thus creating a crisis for consumers, whose
automobiles are built and warranted for E10. In fact, most
consumer engines are designed for an E10 blend, including small
engines, such as motorcycles, boats, and lawnmowers.
EPA's actions to approve E15 despite scientific evidence
showing millions of automobiles could face engine and fuel
system damage is an unnecessary risk to consumers, to
automobiles, and to small engines.
Quite frankly, EPA's implementation of the RFS is galling.
The agency has continued to set unrealistic cellulosic
standards since 2010, resulting in refineries having to pay the
Government a fee for a fuel that doesn't exist. Further, even
after the industry successfully sued the Government for the
return of our phantom fuel fees, EPA doubled down on its
indefensible action by setting the 2013 target volume even
higher, flouting a U.S. Court of Appeals decision issued just
days earlier striking down their 2012 mandate.
To give you a big-picture view of the problem, let me
summarize the study conducted by NERA Economic Consulting that
Chairman Lankford mentioned earlier. The study found that once
the blend wall is breached, the cost associated with diesel
fuel would increase by 300 percent by 2015. Cost associated
with gasoline would increase by 30 percent by 2015. In broad
economic terms, the RFS could cause a $770 billion decrease in
U.S. GDP by 2015 and reduce take-home pay for American workers
by $580 billion. Staggering numbers.
Keep in mind all of this stems from EPA's dogged
enforcement of an obsolete law, which was written at a time of
assumed energy scarcity for our Nation and heavy dependence on
foreign-sourced energy. That is not our reality today.
These impacts are unnecessary. The fact is the blend wall
and its harmful impact on consumers could be prevented today if
EPA would simply use the waiver authority, mentioned earlier,
contained in the law to waive the RFS completely or to at least
waive down the volumes below the 10 percent.
Bottom line, EPA must act now to avoid the impending blend
wall crisis. Longer-term, in our view, the best solution is for
Congress to repeal the RFS once and for all.
The stakes are simply too high for inaction, which could
cost consumers millions of dollars, place at risk small engines
and automobiles, and unnecessarily burden an already shaky
economy.
Thank you very much for your time and attention. I look
forward to your questions.
[Prepared statement of Mr. Gerard follows:]
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Mr. Lankford. Thank you.
Mr. Brandenberger.
STATEMENT OF JOEL BRANDENBERGER
Mr. Brandenberger. Chairman Lankford, Ranking Member
Speier, members of the subcommittee, my name is Joel
Brandenberger. I am president of the National Turkey
Federation, which represents 98 percent of the commercial
turkey industry in this Country. I am testifying today on
behalf of 148,000 growers and employees nationwide working at
more than two dozen processors and 300 allied companies that
comprise the $29 billion U.S. turkey industry.
Our members and I thank you for this opportunity to discuss
the impact of the Renewable Fuel Standard and to examine the
role EPA plays in managing this exceedingly rigid Government
mandate. We will look at the way the RFS has distorted feed
costs and how that has increased the prices consumers pay at
restaurants and in grocery stores. We will also show you how
EPA has ignored or certainly underutilized the significant
power Congress gave it to prevent this very situation.
Everyone involved in the ethanol debate loves to cite facts
and figures to support their case about what the RFS has or has
not done, but the truth can be done in just a few key
statistics.
When the RFS was created in the 2005 energy bill, livestock
and poultry consumed about 55 percent of the corn crop and
ethanol about 14 percent.
Today, by gobbling up 43 percent of a larger corn crop,
compared to livestock's 41 percent, ethanol has become the
Nation's top corn consumer. Ethanol consumption of corn has
jumped by 3 billion bushels in that time and feed usage has
dropped by 1.5 billion bushels.
Turkey production, which was on the rise in 2006, began
plummeting in 2008 and remains today almost 10 percent below
its 10-year high. Most others in livestock and poultry would
tell similar stories.
The RFS is to blame, period. Corn is the major ingredient
in turkey feed, as it is for almost all livestock and poultry.
Higher corn prices led a North Carolina company earlier this
year to announce it is ceasing turkey production after more
than a half century in business. Last year, a California
company declared bankruptcy, citing the RFS as the major factor
in its decision. Under similar circumstances, in 2008, two
turkey companies went out of business; a grower and cooperative
in Iowa cut production by 50 percent and another cooperative in
Mr. Chaffetz's district closed its doors for three months.
The turkey industry already has lost 750 jobs this year.
You would have to build quite a few ethanol plants to replace
those lost jobs. If the feed supply does not become more secure
and feed costs do not stabilize, other companies could find
themselves at risk.
Many economists and meat and poultry producers predicted
this outcome. The only ray of hope at the time the RFS was
created was Congress's decision to allow EPA to waive all or
part of the mandate if economic circumstances warranted. Twice
now States have petitioned the EPA for such a waiver and both
times EPA has denied the request. The impact of the most recent
waiver denial is still being felt today.
The failed waiver process is the biggest indicator of just
how flawed and rigid the RFS really is. I am sure no one
intended to craft a policy that picked winners and losers among
the Nation's corn consumers and that hurt hardworking
Americans, but that is what happened because the waiver
process, as written, is not quick, is not efficient, and is
highly politicized.
Though it anticipated the potential need for RFS
flexibility, Congress did not anticipate the RFS, after nearly
a decade, would remain the primary force behind ethanol
production. The ethanol industry's extreme dependence on the
RFS results in EPA facing enormous political pressure when a
waiver request is submitted.
In 2008, EPA denied a waiver request from Texas, despite
circumstances that would have led anyone to believe that the
corn crop was going to be short. In the end, EPA's gamble paid
off that year and the market adjusted. But last year, when
several States, led by Arkansas and North Carolina, submitted
waiver petitions, EPA went double or nothing on its bet and
again denied the petitions, stating an RFS waiver would not
impact ethanol production and thus ``will have no impact on
corn, food, or fuel prices.'' The agency claimed to have
extensive analysis to support that decision, but it didn't
actually release that analysis at the time it rendered its
decision.
EPA also failed to follow the statutory requirement that it
consider regional impacts of the RFS, stating it was required
only to determine the mandate's national impact. With such a
generalization, EPA effectively rendered the waiver mechanism
meaningless.
Unlike 2008, the outcome of EPA's gamble is far from clear.
The weather refuses to cooperate. In place of drought you have
extreme rains in the heartland that are slowing corn and
soybean plantings. Corn contracts for the month of May closed
at more than $7 a bushel, more than two and a half times the
price of corn pre-RFS.
The Government can't control the weather, or most factors
that affect the corn supply, but it does have the power to take
pressure off the corn markets. The consequences of not using
that power are becoming more severe. Turkey companies and
others that produce animal proteins are cutting production;
income on livestock and poultry farms is declining; workers in
meat and poultry plants face cutbacks; and every American is
feeling the bite at the dinner table and at the gas pump.
It is time to repeal a significant portion of, or
drastically reform, the RFS, and we thank you for the
opportunity to be part of that process today. I would be happy
to answer any questions.
[Prepared statement of Mr. Brandenberger follows:]
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Mr. Lankford. Thank you.
Dr. Martin.
STATEMENT OF JEREMY I. MARTIN, PH.D.
Mr. Martin. Chairman Lankford, Ranking Member Speier, and
members of the subcommittee, thank you for the opportunity to
testify about the opportunities and challenges facing biofuel
policy today. My name is Jeremy Martin. I am a senior scientist
at the Union of Concerned Scientists. UCS is the Nation's
leading science-based nonprofit putting rigorous, independent
science to work to solve our most pressing problems.
The goals of the Renewable Fuel Standard are smart goals;
not just more biofuels, but better biofuels that go beyond
fuel-based fuels. The RFS is a practical policy to cut oil use
and increase domestic production of clean, low carbon biofuels.
It will provide rural economic development and ensure that the
U.S. converts its leadership in science and technology into
good jobs in the growing clean energy industry.
But there are certainly real problems posed by today's
fuels, both oil and corn ethanol. The solution is not to lock
in the status quo. We need to move forward with the next
generation of advanced biofuels.
To get there, we need a stable Renewable Fuel Standard to
serve as a foundation for investments in biofuels made from
waste products, agricultural residues, and environmentally
friendly energy crops. For this reason, we do not support
legislative changes to the RFS.
According to our analysis, ample domestic biomass resources
are available to support RFS targets, and developing these
biomass resources will provide economic opportunities, rural
developments, and good jobs not just in the corn belt, but all
over the Country. What is needed is to scale up the industry
that will convert this biomass into clean fuel.
The first commercial scale cellulosic biofuel facilities
are now starting up in Florida and Mississippi, and several
more are under construction in Iowa and Kansas. But while this
progress is encouraging, it will take time to scale up a new
industry, as it did for the oil and corn ethanol industries. In
the meantime, the gap between the schedule laid out in 2007 and
the actual scale-up means that EPA needs to adapt their
implementation of the RFS to today's circumstances.
We have done extensive analysis, informed by the work of
agricultural economists across the Country and around the
world, on the options EPA has to administer the RFS consistent
with the law that Congress passed in 2007. The smart approach
is to limit the mandates for food-based fuels to 20 billion
gallons in 2022. Under this approach, biofuels continue to
grow, but at a slower rate than we have seen over the last few
years, which will reduce pressure on food markets and slow
agricultural expansion. Growth beyond this limit should come
from non-food-based cellulosic biofuels.
Realizing the full 36 billion gallon ambition of the RFS is
critical to delivering on the economic and environmental
benefits of the RFS, but our analysis and experience over the
last few years shows that expanding food-based biofuels is not
the smart path to get there. Biofuels are now a major factor in
U.S. and global agricultural markets, so the implementation of
the RFS must be informed by, and responsive to, agricultural
market factors. Failure to do so doesn't just raise food
prices, it undermines the goals of the RFS itself.
We also need to acknowledge the challenges of adapting our
vehicles and infrastructure to a changing set of fuels. What is
called the blend wall is, in reality, more like a set of speed
bumps. There is no reason we need to fuel up with at least 90
percent gasoline forever. But we do need to proceed with
caution.
Today's RIN prices provide the economic driver to support
expansion of drop-in biofuels and higher ethanol blends, but if
we try to change our fuel mix faster than our vehicles and
fueling infrastructure can accommodate, we may set back the
transition we need to make.
Under the RFS implementation strategy, we advocate the
scale-up of advanced biofuels will be more gradual than is
presently anticipated. This means we have time to get it right,
coordinating the transition of our fuel mix, our vehicles, and
our fueling infrastructure.
Congress gave EPA the tools and flexibility it needs to
administer the RFS in a smart way, adapting to changes that
were unforeseen in 2007. Opening the RFS now will create
regulatory uncertainty, delaying investment in the real
solutions that the RFS is delivering.
Instead, EPA needs to work with DOE, USDA, and all the
stakeholders to set ambitious, but realistic, goals for the
next phase of the RFS, from 2016 to 2022, consisting with the
constraints in agricultural markets and vehicle and fueling
infrastructure, but moving forward on the oil saving and
climate solutions we need. The infrastructure for gasoline and
corn ethanol is already built out, and they will be around with
or without the RFS. What is at stake is the next generation of
biofuels, fuels that do not compete with food and offer
dramatically lower carbon emissions.
We are not moving forward on these as fast as we hoped to
be in 2007, but the RFS is pointing us in the right direction.
We need to deal with today's challenges and keep moving forward
towards better biofuels tomorrow.
Thank you again for the opportunity to be here today. I
have provided additional details in my written testimony, and I
would look forward to answering any questions.
[Prepared statement of Mr. Martin follows:]
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Mr. Lankford. Thank you, Dr. Martin.
Mr. Pugliaresi.
STATEMENT OF LUCIAN PUGLIARESI
Mr. Pugliaresi. Chairman Lankford, Ranking Member Speier,
and members of the subcommittee, I want to thank you for this
opportunity to testify on the Renewable Fuel Standard and EPA's
management of this program. Of particular importance is EPA's
use of its waiver authority, which will shortly become the most
important policy instrument in determining the path of gasoline
and diesel prices over the next two to three years. My
testimony today includes an assessment of EPA's waiver
authority under the RFS and why it will be the main determinant
in driving up gasoline prices in the near future.
Go to the first slide.
[Slide.]
This is official data from the Energy Information
Administration. This is really what is driving the high numbers
in the NERA assessment, and, as you can see, the EIA shows that
we just will not have these advanced biofuels until after 2020
do we start to see some real development. When you don't have
the fuels, you have only one choice: to cut production or to
raise prices, and this is what is driving the NERA analysis.
So we tried to look at an analysis in which we thought we
could relax some of these real physical constraints.
Next slide.
[Slide.]
We said what happens if we have all the gas stations we
needed for E85 and we could actually have access to it by the
whole driving public? Even under this case, in which we waive
all cellulosic requirements, all advanced requirements, and we
only rely on E85 and, through some almost magic, we have enough
marketing channels for it, the price of E10 goes up. The RFS
causes a cost-shifting; it requires obligated parties to pay
down the price of E85 and to put that cost on E10. This is why
NERA gets such devastating consequences on the national
economy. Rising gasoline prices are like an excise tax. A $0.50
increase in gasoline prices takes $70 billion out of consumers'
wallets.
Next slide.
The fundamental problem with E85 is it is too costly. At no
time since 2000 have we seen E85 be more cost-effective to E10.
This is the fundamental problem. You can't get consumers to buy
it for performance reasons, but you can't also get them to buy
it because it is too expensive.
Next slide.
This is Minnesota, a place not unfamiliar to E85, a place
in which ethanol is embraced. But, as you can see, even as the
number of fueling stations and outlets for E85 continue to
grow, consumer demand, consumption of E85 fell.
Next slide.
[Slide.]
One issue that some of the proponents of the mandate, by
the way, we are not against ethanol. We think ethanol is a very
valuable and important blending component for the production of
gasoline. We need it. It helps us to meet our oxygenate and our
fuel specification standards. But, as you can see, there is no
real constraint in adding additional fueling options at
American service stations. There has been enormous growth in
electric outlets, enormous growth in CNG. E85 is not showing up
at gasoline stations because the consumers don't want to buy
it.
Next slide.
[Slide.]
I think we have spoken about this a bit, but, as you can
see, the forecast of long-run demand for gasoline and for
diesel fuel have fallen dramatically from when we first put
this program in place. This is why we are running up against
the blend wall so quickly.
Finally, the last slide.
[Slide.]
You know, all three conditions that were prevalent when the
Renewable Fuel Standard was passed, which was rising imports,
falling production, and rising demand, every one of those
conditions are no longer with us today.
So where we are now is we have this enormous strategic
opportunity. The developments we have seen in shale gas are now
moving to liquids and our production path from now to 2022 is
an enormous shift, it is a paradigm shift, and basically we are
now at the position where we have a large number of regulatory
programs which are running head-on against this renaissance. We
can't figure out how to build out the midstream in a cost-
effective way and have processing technologies that are cost-
effective. We will push some of this crude back in the ground.
With that, I will conclude my testimony.
[Prepared statement of Mr. Pugliaresi follows:]
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Mr. Lankford. Thank you all for your testimony. We will
work our way through questions here five minutes at a time, as
we get a chance to pass these questions around. If we have a
moment, we will get a chance to follow through on some of those
as well, depending on our time period.
Mr. Gerard, let me just tell you a quick story, and this is
for all of you, as well. You spoke specifically of fuel prices,
several of you did, of the price of fuel as it goes. I spoke to
an 8th grade class two weeks ago in Roosevelt Middle School,
which is one of the poorest areas of Oklahoma City, and they
submitted their questions to me in advance. And as I flipped
through those questions, I was stunned at the number of them
that asked the question about gas prices, and for their
particular family to say what can be done because our family is
having a tough time getting to work now and getting back and
forth to school, and writing statements of I may have to walk
in the days ahead because we cannot afford the gasoline.
The statements that were made about what is really coming
on the consumer, both in the price, as Mr. Brandenberger
mentioned, of food and of fuel, that is a real issue that we
are facing right now for people that are the poorest and most
vulnerable in our communities.
What can be done right now for EPA to provide some
certainty in what is going to happen in energy prices for the
next year?
Mr. Gerard. Well, there are probably a number of things EPA
could do. The first and foremost, back to the Renewable Fuel
Standard, though, send a signal to the marketplace that we are
not going to put undue pressure, use the waiver authority to
not put undue pressure on the prices that exist today.
Just very quickly, Mr. Chairman, I know that you understand
this. The key drivers behind the price of gasoline are, first,
crude oil trading on the global marketplace and second is
taxation. Every State imposes somewhere between $0.35 and $0.70
a gallon on what it is that is produced. But what we are coming
against under the Renewable Fuel Standard is the blend wall,
where Government mandate is going to force us to make a
decision as refiners. If we break through that blend wall and
get forced to produce a fuel that the auto manufacturers have
said don't put that in our cars, back to your car situation,
because it is going to hurt the engine and they are not going
to function well, or do we get compelled in the marketplace to
begin to move back on our production? That is changing the
fundamental supply and demand equation, putting upward pressure
on the price.
So EPA needs to move quickly, with their waiver authority,
to send a signal to the marketplace we are going to take this
one variable out of play and not put upward pressure on the
price of our fuels.
As NERA reports, and I would like to submit that for the
record, if it is appropriate, Mr. Chairman, the potential here
is staggering.
Mr. Lankford. Without objection.
Mr. Gerard. The reason those numbers only go to 2015 is
because it is so staggering and so infeasible the model doesn't
work after that. When you drive the price of diesel, the cost
associated with diesel upwards of 300 percent, there is no
place else to go in 2016; you have broken the system. That is
how serious this is. epa's announcement to the marketplace we
are going to relieve the Government pressure and get us back to
a pure free market would go a long way.
Mr. Lankford. Okay.
Mr. Brandenberger, you mentioned some of the same things
dealing with food, as well, and the price of food, but you
also, in your testimony, a little earlier referenced the shift
in jobs that is occurring; as we are seeing an increase in jobs
in corn-based ethanol and cellulosic and some of the renewable
fuels, we see a dramatic decrease in job in the agricultural
industry as well. Can you go into greater detail on that?
Mr. Brandenberger. Sure. Absolutely, Mr. Chairman. Even a
small-to medium-sized turkey plant will provide several hundred
jobs. A very large ethanol plant won't come close to providing
the same number of jobs. So there has been a real shift in
rural America.
As I mentioned, our production is still around 10 percent
below its 10-year high; it is still about 6 to 7 percent below
where it was in 2008. And those are real jobs that are lost. We
have a lot of people about to be out of work in North Carolina,
when the last turkeys run through the plant I mentioned there.
There are a number of workers in California whose future is
uncertain when the second largest turkey company there had to
move to Chapter 11 protection. And this is going to continue.
And the problem comes, as well, just very briefly, is in
both instances, when the RFS has had a real impact on corn
prices, it has come at an exact moment when the meat and
poultry industry already had other problems that affected it.
So there comes a limit as to how much cost can be absorbed. You
have to start passing it along to your customer. If the economy
is not strong, the customer quits buying the product and then
you get into a vicious cycle where supplies grow and plummet.
It is a vicious, vicious cycle.
Mr. Lankford. We have faced this before. In 1979, the
Government, at that point, Jimmy Carter was president, in the
famous malaise speech made a speech to say that by the year
2000, because the Federal Government was going to coordinate
all these efforts, 20 percent of the energy used in the United
States would be done by solar power. And they were going to put
a process in place to make sure 20 percent of the energy used
in the United States was going to be solar by the year 2000.
Obviously, that goal was not achieved. Not even close at that
point.
You can make the plan and make the proposal and say this is
what is going to happen, but if the technology is actually not
there to do it, you can't actually get it there. As has been
mentioned before, we can make this statement to say we are
going to burn this much fuel, but if that fuel is not
economically viable, if it is not really there, if the
cellulosic fuel doesn't exist, as you mentioned before, the
phantom fuel that is out there demanding to be used, we can
make all the federal demands we want to make; that doesn't mean
it actually exists in the real world. That is the challenge
that we are facing currently right now.
As much as we would love, as Dr. Martin mentions, as much
as we would love to get away from food-based fuel, it doesn't
exist in the quantities that is needed to actually achieve
that, and we have to find some solutions to this in the days
ahead.
With that, I yield to the ranking member, Ms. Speier, for
her questions.
Ms. Speier. Thank you, Mr. Chairman. You know, I am
somewhat baffled by our discussion so far. It is almost like we
are going to say we really can't move forward, we have to move
backwards.
I think that Dr. Martin made an excellent suggestion about
how we can fix your problem, Mr. Brandenberger, when he said
you could cap the amount of corn ethanol that can be produced.
That would then kind of up the opportunity for cellulosic. What
do you think about Dr. Martin's proposal?
Mr. Brandenberger. Well, the amount of corn-based ethanol
is about two, three years away from being capped at 15 billion
gallons, anyway, under the law. It is already approaching 14
billion gallons. We are already having enormous problems. If
you are talking about capping it where it is today, or even
capping it slightly below where it is today, there could
potentially be some benefit. But if you are talking about
following the cap already in law, I don't think that will give
us or any of our brethren in the livestock and poultry world a
whole lot of relief.
Ms. Speier. Okay, so there is some opportunity here for
both to flourish, for corn ethanol and cellulosic ethanol, and
for turkeys to be properly fed, and we just need to find a way
to get to a happy medium here, because here is the problem: the
oil production is going to cap, even with fracking, in very
short order. So we have to be prepared with alternatives. We
have oil companies saying they are moving in that direction.
BP, for a while there, was saying beyond petroleum, although
they have kind of abandoned that particular moniker today.
The military, the Navy wants to have 50 percent of its
fuels coming from biofuel by 2020. So we cannot just dig our
heads in the sand here.
Dr. Martin, can you comment on what Mr. Brandenberger has
just said?
Mr. Martin. Sure. I would be happy to. I think the point
here is to address some of the near-term challenges that people
have raised, and there certainly are challenges with food-based
biofuels, but to recognize that locking in place a status quo
doesn't advance the oil savings and climate solutions that we
really need to move our Country forward.
So I think my testimony pertained to a slightly longer view
of this policy, but a longer view is necessary. You didn't
build the oil industry overnight. You didn't build the corn
ethanol industry overnight. So between now and 2015 we are not
going to build a cellulosic biofuel industry that is the scale
of the oil industry. So we need a steady path forward that
allows investors the confidence to build this next industry and
to create the jobs and opportunities that will come with it.
Ms. Speier. The reference that Mr. Brandenberger made to
jobs I think doesn't square with some of the realities that we
are seeing, so I would like to point out that the Ineos plant
in Vero Beach, Florida, a cellulosic biofuel plant, will
produce 8 million gallons of ethanol from municipal solid
waste, create more than 400 jobs, and contribute more than $25
million into the Florida economy.
KiOR, in Columbus, Mississippi, will produce ethanol from
woody biomass, yielding over 13 million gallons of gasoline,
diesel, and other fuel oil blend stocks. The $220 million
facility is expected to create several hundred jobs during
operation and over 500 jobs onsite during peak construction.
Additionally, there are new plants either in the planning
stages or under construction in as many as 20 States and
Canadian provinces, including BlueFire Renewables in Anaheim,
California, POET-DSM Advanced Biofuels in Scotland, South
Dakota, and Fiberright in Lawrenceville, Virginia, to just name
a few.
So here we have a real jobs engine being produced, real
hopeful technology, an opportunity to reduce our dependence on
foreign oil, and we are somehow suggesting we just have to cut
this off and repeal the RFS.
Mr. Martin, can you describe the new technology that is
allowing these facilities to produce these volumes of
cellulosic biofuel?
Mr. Martin. Not in a few seconds, but one of the really
exciting things is that there is not just one technology, there
is quite a different variety of technologies. Some of them are
biological, some of them are thermochemical, and they would
take some time to get into, but different technologies are
suitable to different feedstocks. So we have a lot of
opportunities that can create different types of fuel using
different types of resources all over the Country, so I think
that is the opportunity that is in front of us and that is why
it is so important to move forward.
Ms. Speier. Thank you, doctor.
I yield back.
Mr. Lankford. Thank you.
Mr. Chaffetz.
Mr. Chaffetz. Thank you, Mr. Chairman, and thanks for
calling this hearing. This is something that actually affects
every single American. It affects them at the table where they
eat; it affects them in their pocketbook at a time when we are
struggling with jobs and the economy. This is not something the
American economy can continue to sustain.
Mr. Gerard, I would like to ask you a couple questions
about the economic impact and the blend wall specifically. I
know there was this NERA report. Could you talk to that? I
believe it said it would result in a $770 billion decline in
the GDP. Explain the economics behind that.
Mr. Gerard. Yes. What NERA did is they went back and they
looked at the situation on the Renewable Fuel Standard, and I
wish Ranking Member Speier were here because there is a key
connection, I think, with some of her comments earlier, and
that is that we can all hope for the new fuels, the cellulosics
and other things Dr. Martin has talked about.
The reality is the statute mandates and it is forcing as if
somehow it is going to compel technology to produce a fuel that
doesn't currently exist. Cellulosic is a perfect example. I
think everyone would help we have cellulosic fuel today. The
oil and natural gas industry happen to be some of the largest
investors in some of these renewable alternative forms of
energy. The problem is it doesn't exist today in the quantities
necessary, but the statute mandates the blending of them. We
paid millions of dollars to the EPA under the statute, finally
got a court to compel them to give our money back, paying for a
fuel that doesn't exist.
So when you look at the NERA study, what they did is took
the assumptions under the statute, what the law required us to
do, and said what does this result in. And we have four
fundamental options: we can either cut back production because
we can't meet the statute, therefore, the volumes we are
producing are limited and our requirement to certify we are
using, called RIN, or Renewable Identification Number is met;
or we can try to go to the E85 that Lu talked about, which the
public has already said we are not going to buy that fuel, it
is less efficient, essentially costs us more; we can go to E15,
which is the approach the EPA has taken. Incidentally, all the
research shows, and every automobile manufacturer asked by
Congressman Sensenbrenner last year said we will not warranty
our cars if you put E15 in them. And the last option is we can
export the gasoline. Why? Because we don't have to blend the
piece we export.
So you are driving us in a position in the United States
where we have no alternative, no place to go. The NERA analysis
says that greatly escalates price and, therefore, could add to
the cost of producing diesel upwards of 300 percent, gasoline
30, taking $770 billion out of our economy as a result of the
ripple effect.
Mr. Chaffetz. So what has happened to the ethanol RINs? My
understanding is that this traded as a commodity. In early 2013
it was about $0.05 per gallon. It moved at one point north of
$1.00 per gallon. It is now, at least on May 30th it was $0.89.
What is the economic impact of that? What does it mean for a
regular family who has a regular job and just trying to get by?
Mr. Gerard. Well, experts predict different things, but the
bottom line is this: the price of the RIN, Renewable
Identification Number, that we have to buy to certify we
blended the fuel has increased over 1400 percent in the last
few months, over the last four or five months; and that is
being driven by the expectations of the market. The market can
see the blend wall. The market understands the blend wall is
upon us. And just like the EPA action, thinking they were going
to take pressure out of the blend wall by forcing us to create
a fuel that we understand will damage automobiles, that is
where we stand as an industry. It is a hard thing to answer.
The bottom line is it adds to cost. Clearly, everything this
Government mandate will do prospectively, just like NERA
concluded, significantly adds to cost and impacts the consumer.
Mr. Chaffetz. The cost of running an automobile, to running
that tractor, to the airline tickets that you are going to buy,
it is all going to be affected.
In my last few seconds here, Mr. Brandenberger, explain
bigger and broader than just turkeys how feed is affected and
what that does to the price. Turkey is one of the most
consumable products we have out there, such a staple in the
American diet. Go a little deeper in the economics on what this
does to this industry.
Mr. Brandenberger. Absolutely. Thank you for the
opportunity. To sort of lay the foundation for that, two things
to what we have been discussing here today. We are going to try
to play it very straight with the subcommittee when we talk
about jobs. We are talking about permanent, ongoing jobs in the
plants themselves; not construction jobs that are created, not
the many other jobs that are created in the support industry.
We are talking about permanent jobs in the plants. And to give
it a broader case, in all livestock and poultry, corn is the
top feed ingredient. It is true for chickens, true for hogs,
true for cattle in the feed lots.
We have created a situation where, when we have a year like
last year, when there was such a severe drought, we have corn
stocks down near historic lows, we have to compete in the
market for that corn. But the Federal Government has said one
person gets to go to the head of the line because their
customers have basically a regulatory gun to their head; their
customers, the ethanol industry's customers have to take their
product. We don't have a turkey consumption standard or a
chicken consumption standard or a beef consumption standard.
Our customers don't have to buy our products; the ethanol
industry's customers have to. That gives them an incredible
advantage when competing for corn in a short market.
So I hope that maybe clarifies a little bit just exactly
what the ripple effect is. We don't have an ability always to
pass our costs along.
Mr. Chaffetz. I thank the chairman. Yield back.
Mr. Lankford. Thank you.
Mr. Cardenas.
Mr. Cardenas. Thank you very much.
Well, lucky for the turkey industry, I have to buy your
product because I don't eat pork or beef. So that is my main
source of protein. So you have one big consumer here.
Mr. Brandenberger. Thank you.
Mr. Cardenas. You are welcome.
Dr. Martin, I would like to ask you a question. People
might be thinking I am being facetious, but I am being serious.
What scientists are concerned, why are they concerned, and what
are they concerned about when you talk about concerned
scientists?
Mr. Martin. Thank you. We are concerned about a variety of
problems. Probably at the top of the list is climate change.
But we are also concerned about other impacts that oil causes
to our economy, to our security, and, as I already mentioned,
to the climate. We have other programs working on issues
related to food, to agriculture, to tropic deforestation, to
global security. So we work on a variety of issues and we are
concerned about all of them.
Mr. Cardenas. Okay. Well, thank you for your concerns and
the effort you are putting into that.
I have a question to Mr. Gerard. You mentioned earlier
something about costs increasing by 300 percent. What were you
referring to, under what time frame, and what is the potential
cause of that?
Mr. Gerard. That is the NERA analysis I just mentioned to
Congressman Chaffetz who was here. We are happy to provide that
for the record. But what it does, congressman, is we come to
this E10 blend wall where we are forced to make decisions
because they are pushing us into creating fuels, if you will,
that the market cannot accept for technological reasons. We
then get put in the position where we have to find ways to
justify or document that we are doing what the law requires.
Therefore, the options to us are limited, but some of those
options include to take fuel, for example, and to reduce the
amount that we produce. The study itself, I believe, references
this as rationing. So when you begin to impact the market by
Government mandate like that, of course, others seeing this
coming react to it and this particular economic group concluded
that that would drive costs associated with diesel as high as
300 percent higher and gasoline 30 percent higher, in addition
to the impacts on take-home pay and decrease in GDP activity.
Mr. Cardenas. So basically those are potential increases,
they are not charted actual increases; they are potential
increases based on cause and effect, correct?
Mr. Gerard. Correct. Predicted to occur within the next two
years.
Mr. Cardenas. And you represent the American Petroleum
Institute, so if they had to write a letter right now and say
either they are going to put in their letter to Congress about
RFS, would that letter be talking about eliminate RFS or modify
RFS?
Mr. Gerard. Well, we take two approaches, congressman.
First thing we do is we would suggest EPA act immediately under
their waiver authority to send a signal to the marketplace,
take the pressure out of it. The second approach we would take
right now is a repeal request. The reason we pursue repeal, we
believe the statute has become so complex and convoluted that
we ought to step back and start over and look at the new
reality we are faced with in the United States today, where we
produce a lot of our own fuel right here at home and we are
able to produce even more here at home in the forms of oil and
natural gas. We should look at those realities to secure our
own energy future.
Right now, part of the mandates required under the
Renewable Fuel Standard require significant imports from Brazil
of sugar cane ethanol. Well, if the statute was originally
enacted to get us off foreign imports, all we have done is
shift it from one commodity to the other.
So we would ask for repeal and then step back and say,
okay, what is the vision of the Country as it relates to
renewable fuel, cellulosic and others? We are big investors in
those. If we had answers to that today, they would already be
in the marketplace.
Mr. Cardenas. I have one more question to you guys. My time
is limited. I have been dying to ask this question all my life,
well, since I was 15 years old and I got my driver's license
and paid for my own gas. I always wonder that no matter what is
going on in the world, whether there is a war going on, gas
prices seem to jump up; whether the war ends, gas prices seem
to stay stagnant or jump up; whether or not there is disasters
or what have you going on affecting oil-producing countries,
gas prices seem to either go up or stay stagnant, regardless.
So in my personal experience, and many of my constituents, that
seems to be the case. They go up a lot easier than they go
down. So the question I have for you or your industry is do you
document the spikes and let the public know the whys of those
spikes as they occur, or is that too proprietary?
Mr. Gerard. Those movements in the price of gasoline,
diesel fuel, whatever they might be, are all a matter of record
by a number of agencies, particularly Government. But let me
respond more generally, if I can, congressman. As you look at
the price of gasoline and fuels generally, it is driven, as I
mentioned earlier, primarily by the cost of crude oil. Now,
what is significant about the new reality in U.S. production
today? We are having a significant impact on the potential
supply equation on a global scale. In the past two years, the
United States is now the number one natural gas producer in the
world. IEA, the International Energy Agency, has predicted that
if we stay on this course of production increase, we will
surpass Saudi Arabia as the number one world's oil producer in
seven short years.
There was an article just as week or so ago talking about
OPEC. OPEC is very concerned about what is going on in the
United States today. This has geopolitical ramifications to it
that will change the world as we know it. That is why we think
we need to get back and refocus on reality, look at things like
RFS that were put in place at a very different time, under very
different assumptions, and deal with the reality today to
maximize our potential as a Nation to become energy secure.
Mr. Cardenas. Thank you, Mr. Chairman. I yield back.
Mr. Lankford. Mr. Jordan.
Mr. Jordan. Thank you, Mr. Chairman.
Mr. Brandenberger, let me first start here. I kind of want
to just cut to the chase, if I can. The law says the EPA can
waive the Renewable Fuel Standard if ``implementation of a
requirement would severely harm the economy of a State, region,
or the United States.''
Does the Renewable Fuel Standard increase the cost of
producing turkey, Mr. Brandenberger?
Mr. Brandenberger. Absolutely.
Mr. Jordan. Does the Renewable Fuel Standard increase the
cost, I know you are in the turkey business, but does it
increase the cost of producers in the pork industry?
Mr. Brandenberger. Absolutely. We have a lot of members who
produce both turkey and pork.
Mr. Jordan. Does it increase the cost of producing beef?
Mr. Brandenberger. Yes.
Mr. Jordan. And, therefore, would it be logical to assume
that because the cost of production is up, that the cost to the
consumer of those products, turkey, pork, and beef, is also
going to be increased?
Mr. Brandenberger. In most cases, yes.
Mr. Jordan. And, Mr. Gerard, does the Renewable Fuel
Standard increase the actual cost of fuel?
Mr. Gerard. Yes. Economists and experts say it does.
Mr. Jordan. Mr. Brandenberger, does the Renewable Fuel
Standard increase the cost of other non-protein, non-livestock
food products, the cost of production, corns used in all kinds
of food products, does it increase the cost of those other food
products?
Mr. Brandenberger. The people I talk to in those industries
assure me it does.
Mr. Jordan. They tell me the same thing.
Mr. Martin, I think you even said in your testimony you
don't want to expand the food-based fuels and the Renewable
Fuel Standard.
So I guess I go finally to Mr. Pugliaresi. So is all this
adding to the cost of the American consumer, the American
family, increasing the strain on their budget? Is it harmful to
the economy?
Mr. Pugliaresi. It is very harmful to the economy because
it acts like a massive excise tax. But, more importantly, we
are allocating resources to activities which have very low
value added, and often harming activity in high value added
activities which would help to foster high rates of economic
growth. We now have 10 years of very low economic growth, less
than 2 percent. We should take a very hard look at our entire
regulatory program on the fuel sector, because that is one of
the drags.
Mr. Jordan. Okay, so, if I could just quickly sum up, then,
every food product that uses corn is seeing an increased cost;
fuel itself is an increased cost, which, according to the
economists here, is going to make it difficult for every
family. Every family's budget is being hit by this.
So the simple question is, Mr. Chairman, for the second
panel, Mr. Grundler, from the EPA, or, frankly, the acting head
of the EPA, Mr. Perciasepe, or the nominee who is slated to be
the head of the EPA, the question is way haven't you waived the
standard. I mean, the law is real clear: if implementation of
the requirement would severely harm the economy of a State,
region, or the United States, you can waive the standard. So
these guys are all great and they are saying everything that I
think a lot of us already knew, and I think the American
consumer understands every time they go to the grocery store,
every time they pull into a gas station.
So the real question is, from the EPA, why in the heck
haven't you done what the law says you can do? And then we can
think about how we are going to change the law, if we need to,
but there is relief right now. I know we have to keep asking
questions of these fine gentlemen, but I want the EPA guy up
there to say what gives, what is the deal. This is as obvious
and as plain and as simple as it can be. You guys have the
authority to help every single family in this Country and you
won't do it. We want to know why.
So I look forward to the second panel and I yield back.
Mr. Lankford. Would the gentleman yield his final one
minute?
Mr. Jordan. Be happy to.
Mr. Lankford. Mr. Gerard, you made a comment earlier I
would like to follow up on. You made a comment about one of the
alternatives is to export more gasoline in this structure. What
did you mean by that?
Mr. Gerard. Well, what happens when we get forced into the
blend wall, we have to make decisions about what we do with the
product. Do we quit producing the product, thus leading to
rationing, as some of the economic analyses suggest? Or the
other out is you potentially export gasoline because you don't
have to attach a RIN to it.
Mr. Lankford. Has that already started occurring?
Mr. Gerard. Over time, we, as a Nation, have always
exported some refined product and gasoline.
Mr. Lankford. But that is being seriously considered to
solve this problem, we could export?
Mr. Gerard. It is difficult. Where we are today and what is
so difficult about where we stand, under the law, the EPA is
supposed to tell us on November 30th of the previous year what
the standard is going to be.
Mr. Lankford. Do we know that yet for this year?
Mr. Gerard. We don't know it yet.
Mr. Lankford. It is passed November 30, by the way.
Mr. Gerard. It is passed November 30 of 2012, when we were
supposed to learn what is going to happen for 2013, what is
required for us. So we hear, in January, what their proposal
is. It has not yet gone final. We don't know, today, half way
through 2013, what is expected of us in terms of where they are
ultimately going to land, because they have the waiver
authority that is being talked about on some of these
standards. So as an industry, I can't speak for the individual
companies, but let me tell you there is a lot of hand wringing
going on right now, trying to understand the Government mind-
set, trying to understand where EPA is, frankly, trying to
understand where the Congress goes next on this. EPA has that
authority year by year. Ultimately, this needs to be repealed.
It is creating great anxiety in the marketplace; it is forcing
decisions unrelated to market factors because of governmental
interference, if you will, or drivers. It is a serious problem.
I wish I could tell you with clarity what each other individual
company is going to do. I am merely laying out what the options
are, none of which are good until you fix the Renewable Fuel
Standard.
Mr. Lankford. Thank you.
Mr. Jordan?
Mr. Jordan. I thank the chairman for his indulgence.
Real quickly, if I could just run down the list. Why won't
the EPA do what seems obvious to all of us? What do you think
their motivation is for not doing what clearly needs to be
done?
Mr. Gerard. I can't tell you what is in their head. What I
can tell you, congressman, is if one believes that you can take
a Government mandate and force the creation of a technology,
which I believe is a silly notion, that is the only thing I can
come to. Or they are literally trying to reorganize or re-
craft, if you will, the entire fuel economy of the United
States.
We look at this from, for example, our situation under
cellulosic fuel. As I mentioned earlier in my comments, in
2010, when they came out with a mandate, the fuel didn't exist.
We asked them, we said, please waive that down because the fuel
doesn't exist. They said, no, we are not going to do that. We
got to the end of 2011; we actually had to petition them with a
waiver that says please, in a formal way, waive it down to
zero, because now we have gone through the year. We all know it
doesn't exist. Will you give us relief? And the response was
no.
So we paid over $5 million to the EPA. I might add that is
a new taxing authority, from our vantage point. Gave $5 million
to the EPA for a fuel that doesn't exist. We came to the next
year. What did they do? They raised the number on us, even
though it didn't exist in the previous year. So we had to go
back to the U.S. Court of Appeals here in D.C. and get a court
to instruct the EPA to waive the standard down to zero. The
fact is it is fascinating, I don't know if any of you would be
interested, but in the particular court decision, here is what
the court says: The EPA is not allowed ``to let its aspirations
for a self-fulfilling prophesy divert it from a neutral
methodology.''
Now, the court mandated that they say since there is no
fuel, give the money back to the refineries. Within days the
EPA issued their proposal for this year. They doubled down,
they increased the mandate for us on cellulosic over what it
was the previous year that the court had struck down literally
five or six days earlier. So I can't tell you what they are
thinking. That is a long answer. It is hard for us to predict.
I can tell you it is raising havoc in the marketplace. And you
have industries trying to provide consumers benefits and values
of fuel at affordable, reliable cost, and now we have
Government that is dictating that. It is a real problem.
Mr. Lankford. Thank you.
Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman. I, too, want
to thank you for calling this hearing because I think this
issue is one of the most important ones that we face. Trying to
strike the appropriate balance between protection of our
environment and the health of the American people, and at the
same time providing a reliable, safe product in terms of the
production of oil and gasoline really is no easy task. So it is
fraught with a tremendous amount of disagreement.
Mr. Gerard, let me ask you has the EPA approved E15 for use
in any car or light truck model year 2001 or later?
Mr. Gerard. Yes, they have, Mr. Davis. In fact, what they
did in two steps or in two processes, they granted two waivers.
So now they have approved it for 2001 and later vehicles. Yet,
going back to Mr. Lankford's comment, our research, the
Coordinated Research Council, which is a combination of
automakers and our industry and the EPA and DOE, I might add,
have come to the conclusion, based on research, that with E15
you put millions of cars at risk, not to mention what you
potentially do to small engines; chainsaws, lawnmowers,
motorcycles, etcetera. So, yes, they have used waiver authority
under the Clean Air Act to grant that opportunity, and it is a
real problem. And every automobile manufacturer that responded
to Congressman Sensenbrenner last year said they will not
warranty their cars if they use E15. But the EPA has granted
that.
Mr. Davis. Is it legal to use E15 in motorcycles?
Mr. Gerard. I don't think it is. I think they specifically
excluded some of the smaller piece of that, perhaps
motorcycles. Let me go back and find that specific detail. It
is not legal in motorcycles, in small engines.
Mr. Davis. Did the DOE find any increased risk of engine
damage from using E15?
Mr. Gerard. This is a great question I would encourage the
committee to look at closely, because in the process of
granting the E15 waiver, the EPA had underway an emission
standard for catalytic converters on cars. When they decided to
grant the waiver, they took that study that was unrelated to
E15 at the time and used it to justify their decision on E15.
The study that we were participating in, which originally had
EPA part of it to design the study, they wouldn't wait for that
study to come out. That study was concluded and shows that you
put millions of automobiles at risk.
So we need to look closely at the science. We believe the
science has not been done. In fact, California, the California
Air Resources Board has said we will not use E15 in California;
in fact, we believe it will take many years of study to
determine if it should be used.
Mr. Davis. Did they find if there were no significant
changes in vehicle tailpipe emissions, vehicle driveability, or
small non-road engine emissions as ethanol content is
increased?
Mr. Gerard. Well, their conclusions based on an emissions
test about catalytic converters was they attempted to suggest
that answered the fundamental question of auto durability and
fuel systems. The analysis done by the Coordinating Research
Council concluded it clearly showed impacts on fuel system and
clearly showed impacts on some model years on durability,
valves, etcetera. So while they attempted to extrapolate, in
our view, an unrelated study for these purposes, real research
that goes to the real question about the impacts of E15 shows
there are serious problems.
Mr. Davis. Thank you.
Let me ask Mr. Pugliaresi a question here. Most consumers
think that the numbers on the gasoline pumps, 85, 87, 89, are
just synonyms for paying a low, medium, or high price for gas.
What do these numbers actually represent?
Mr. Pugliaresi. If you are referring to the octane numbers,
they refer to the performance that this gasoline does for
specific engine types. So certain kinds of high-end cars
require much more compression, they require higher octane. But
most automobiles in America today can operate on 87 to 89
octane.
Mr. Davis. Thank you very much, Mr. Chairman. I yield back.
Mr. Lankford. Mr. DesJarlais.
Mr. DesJarlais. Thank you, Mr. Chairman, and I thank the
panel for being here today.
I wanted to talk about a couple different things. Mr.
Brandenberger, in Tennessee we have a lot of poultry; Hubbard
LLC in Pikeville, Tennessee. I don't know if you know Jay
Daniels, the director of operations. We have sat down and had
many discussions. I believe he said about 85 percent of the
cost for them is in feed. So this has a huge impact. We also
have Tyson in Shelbyville, Tennessee; and I know you are
turkey, these are chickens. But what is the amount of corn that
this needs compared to other livestock?
Mr. Brandenberger. Well, you are right, I can speak a
little more specifically to the amount of what feed costs in
turkey production. For turkey it is about 70 to 75 percent of
the cost of production, so pretty similar to the numbers you
are quoting for chicken.
I think the most telling thing is there isn't any real
substitute for the corn. Yes, there are some byproducts from
ethanol production that can be blended in a little bit, but it
is not a one-for-one substitution. When corn becomes less
available, prices go up. I think it is very telling the way
that the livestock and poultry industry have chosen to handle
it. We are buying 1.5 billion fewer bushels of corn now than we
were when the RFS was created.
Mr. DesJarlais. So that is your biggest competitor, really,
to bring in lower cost to the consumer in the stores, is your
competition with the ethanol program?
Mr. Brandenberger. That is the way it has turned out. I am
sure that is not what Congress intended.
Mr. DesJarlais. Okay. And you can't use the distilled dried
grain or the DDGs with turkey and they really can't with
chicken.
Mr. Brandenberger. That is the byproduct. We can use it in
a limited amount. Some would try to characterize this as, oh,
well, it is no problem, we put the distiller's grains back into
the market. That is not true. In turkeys, as a rule, 10 percent
of the feed ration is about the maximum a distiller's grain can
go. And distiller's grains are not of equal quality. In poorer
quality grains, you are lucky to get to 5 percent you can blend
in.
Mr. DesJarlais. Okay.
Mr. Gerard, I want to talk a little bit about small
engines. This is a little bit of a pet peeve of mine. I just
cleaned out my storage shed and I have a pressure washer, a
weed eater, and a lawnmower, about $1,000 worth of equipment
that were initially damaged by ethanol fuel, the 10 percent
ethanol. It damaged the fuel lines. I have had all these
repaired once. I try to buy pure gasoline for them, but I have
teenage boys who I think have put the wrong kind in, and it has
kind of worked on the weed eater because I have convinced my
wife that spraying Roundup along the fence line is better than
using the weed eater; it is certainly less labor intensive. But
I am not sure she is still with me on that.
But really, if you own a leaf blower, a weed eater, a
lawnmower, a pressure washer, I hail from Sturgis, South
Dakota. We have a lot of motorcyclists who have talked to me
about the ethanol in gasoline. Tennessee is a great hunting
State; we have people who use four-wheelers, we have fishing
boats. So can you talk to me a little bit about the impact on
small engines and why people should be forced to deal with
this?
Mr. Gerard. In that context, congressman, I am not an
expert on small engines, but let me just say when you look at
the breadth and scope of everybody that is very concerned and,
in many instances, opposed to what the mandates of the
Renewable Fuel Standard are, this is clearly a focus on many
people's minds. In preparation for today, I was reading some
material by some of the small engine manufacturers. For
example, one piece of testimony, a direct quote from one who
had a chainsaw that said these additional blends or these
higher blends of ethanol make the machine run too hot, and on
occasion his chainsaw would engage, whether he wanted it to or
not, in the course of doing his work.
So clearly an adverse impact, particularly on the smaller
engines, be they lawnmowers, weedwackers, whatever they might
be. And we find in the marketplace, obviously, much like
yourself, a lot of people come in and say I don't want any
blend in my fuel, I want the gasoline, because as the small
engine repairmen and others are telling them, it won't hurt
their product or the equipment they have paid so much money
for. So, generally speaking, yes, that whole group, the marine
group, the motorboat group, the motorcyclists groups, they are
all a part of a broader coalition seeking repeal and reform of
the statute.
Mr. DesJarlais. I think you mentioned earlier the actual
cost of producing a gallon of ethanol and blending it in is not
cheaper than just regular gasoline.
Mr. Gerard. That is correct. The thing to remember there,
when you look at it on an energy content, on a Btu basis,
gasoline is generally always cheaper than ethanol. When you
look at it on a volumetric basis, they will say, no, ethanol is
cheaper, but the reality is you don't get as much energy out of
it.
Mr. DesJarlais. Let me ask one thing. I was recently
traveling to South Dakota and I had not seen these in
Tennessee, but in Iowa, I saw my first pump that you could
choose 10, 20, or 30 percent ethanol, and the 30 percent was
the cheapest of the three. Does that make any sense at all to
you, then, from what we just talked about from a cost
standpoint?
Mr. Gerard. It is hard to predict, unless somebody has used
that as a marketing tool, etcetera. As Lu talked about a little
earlier, when you look at the heavier amounts of ethanol, like
in E85, the consumer is telling us with their buying practices
they don't want it. You look at Minnesota, you look at Iowa,
the number of service stations that will sell the higher
content fuels, the actual demand for the fuel is going down,
even though you are increasing the number of service stations.
There is about 4 percent of our fleet today that are flex
fuel vehicles that can burn it; only about 1 percent of that 4
percent actually use it on a day-to-day basis. So consumers are
deciding what they are going to buy, and regardless what the
statute mandate or the EPA regulatory mandate is, that is the
marketplace. We need to be thinking consumers, number one, two,
and three in this discussion.
Mr. DesJarlais. And that is what my consumers in Tennessee
are telling me, so thank you for your input.
I yield back.
Mr. Lankford. Thank you.
I would like to submit for the record a study that was
conducted by the National Renewable Energy Laboratory, done in
2011, specifically dealing with 4-stroke engines, small engines
and such, and to be able to get this into the record as well.
Without objection.
Mr. Lankford. Mr. Horsford, you are up to bat.
Mr. Horsford. Thank you. Good morning, Mr. Chairman.
Thank you to the witnesses who are here. I do want to just
start. I know a previous colleague of mine, a couple questions
back, kind of implied what is in the mind of the EPA and the
regulators; why don't they just change their direction, I guess
at the behest of the industry. I would note that while people
may not agree, RFS is the law and it was a law that many
Republicans and former President George Bush implemented. So to
somehow suggest that the EPA should indiscriminately choose
which laws it should properly implement and which ones it
shouldn't I think is questionable.
Let me get to my question on ethanol production, which has
been around for a long time. In the years since passage of the
RFS, fuel blends of 10 percent ethanol to 90 percent gasoline
have become deeply entrenched in the transportation fuel
production apparatus.
Dr. Martin, if the RFS was repealed, is it likely that
ethanol would no longer be blended with gasoline?
Mr. Martin. No, it is not at all likely. In fact, that was
the substance of epa's analysis last year in considering this
request for a waiver, and, in theory, there is complicated
economic analysis behind that, but in practice these RIN prices
tell you a story, and last year RIN prices were very, very low,
only a few pennies, and that is evidence that people could have
avoided complying with the law by purchasing those RINs, and
there wasn't much interest in doing that. So I think that is
reasonably clear evidence backed up by much more detailed
analysis that, in fact, waiving the RFS would not reduce the
amount of ethanol use dramatically, and I think that was an
important part of their decision.
Mr. Horsford. So, as a follow-up, if the repeal of the RFS
would not likely have a large impact on core production for
ethanol, what would be its effects?
Mr. Martin. Well, it would certainly stop immediately
investment in next generation biofuels, so that is precisely
our concern. We are quite conscious of a lot of the problems
with the expansion of corn ethanol, but at this point stopping
the RFS, even trying to rewrite the RFS would stop investment
in next generation biofuels and sort of lock in 10 percent
ethanol, 90 percent gasoline. So we don't think that is the
smart solution to the challenges that oil causes our economy.
We think we need to move forward, but we do need to be
conscious of some of the challenges and make sure that the
policy is flexible to address those.
Mr. Horsford. Okay, so according to the EIA, total U.S. oil
production peaks in 2019 and oil production extracted from
tight formation through hydraulic fracturing will peak in 2020,
as the Ranking Member talked about earlier. Then U.S. oil
production begins a steady slide. In essence, the shale boom
just delayed the inevitable by a decade or so. The EIA projects
imports will continue to contribute roughly half of total U.S.
crude oil supply. That means Americans will continue to spend
roughly $300 billion per year on oil imports, a large share of
which comes from politically unstable and hostile regions.
Mr. Gerard, since the RFS was adopted in 2007, the private
sector has invested billions of dollars in the renewable fuel
space. What actions, and at what level of investment, has the
oil industry made in the past five years to ensure that our
Nation's distribution infrastructure is ready to distribute
higher blends and new fuels?
Mr. Gerard. That is a great question. We are the leaders in
investment and technology, particularly as it relates to fuels,
zero carbon, and many low carbon and many technologies. Let me
give you one quick fact. I can't tell you the last five year
number; I can tell you the last decade number. From 2000 to
2010, the Federal Government spent about $43 billion to develop
these new technologies. The oil and natural gas industry spent
about $71 billion over the same time frame, and the entire rest
of the industry outside the oil and gas industry spent about
what we did, and that is $74 billion. So when you look at those
investing in new cutting-edge, breaking technologies, the oil
and natural gas as a sector is the leader in making those
investments and making things happen.
Now, there may be a second part of your question that is an
important one, congressman, to answer, and it goes to the
infrastructure question, and this is a myth I would like to
dispel. Ninety-seven percent of all the service stations you
see out there today are not owned by the oil and natural gas
industry, they are small businesses, they are Ma and Pa
operations. In fact, 58 percent of those service stations that
are out there are single station owners, meaning they only have
one station in their portfolio.
So when you look at potential costs associated with
infrastructure attached to a Government mandate to distribute a
fuel, you need to look at the actual ownership. It is estimated
between $25,000 and $200,000 per retrofit of a service station
to be able to implement, to change the station.
Mr. Horsford. Can I ask specifically, then, what have the
oil companies, your members done to support those Ma and Pa
station owners?
Mr. Gerard. We have relationships with most of them to
produce the fuel that they request and ask for to make their
business strive. That is the business we are in.
Mr. Horsford. But specifically and monetarily what have you
done, what have your companies done?
Mr. Gerard. We have done everything that we should do to
promote the use of the product longer-term, from promoting the
product to producing the product to distributing the product.
Everything associated with that we do, we continue to do, and
we invest billions of dollars here in the U.S. doing it.
Mr. Horsford. Thank you. I know my time has expired. If you
could please provide the committee with those examples in how
the oil companies work with those small business owners.
Mr. Gerard. Happy to do so.
Mr. Horsford. Thank you.
Mr. Lankford. Dr. Gosar.
Mr. Gosar. Thank you.
Mr. Gerard, I am going to ask you kind of a general
question because you understand the dynamics of our economy. A
family is having harder time putting food on the table, true or
false?
Mr. Gerard. All economic indicators are true, they are
having a difficult time.
Mr. Gosar. More people are on food stamps, are they not,
true or false?
Mr. Gerard. That is my understanding. I am not an expert in
that area by any means.
Mr. Gosar. Mr. Brandenberger, could you answer the same
questions?
Mr. Brandenberger. That is my understanding as well, and
obviously, in the current budgetary times, snap is under a lot
of pressure right now.
Mr. Gosar. Gotcha.
Mr. Martin, true or false on both those questions?
Mr. Martin. I have no expertise in those.
Mr. Gosar. Oh, come on, now. You are a consumer. Do you go
to the store? Come on. You can't be a heartless scientist. Come
on.
Mr. Martin. I am not a heartless scientist, but I try hard
to stay within my area of expertise, and I don't have any
special expertise in this area.
Mr. Gosar. There is no need of expertise like this. Don't
hide.
Mr. Martin. What is that?
Mr. Gosar. Don't hide. You don't need expertise on this.
This is general economics 101. There are more people on food
stamps than five years ago.
Mr. Martin. I have read that in the newspaper.
Mr. Gosar. Okay. Food prices are going up.
Mr. Martin. Compared to when?
Mr. Gosar. Five years ago.
Mr. Martin. I really don't know off the top of my head.
Mr. Gosar. Have you bought turkey lately?
Mr. Martin. You would have to ask my wife.
Mr. Gosar. It has gone up. So it wasn't so hard.
Mr. Pugliaresi, can you answer those two questions?
Mr. Pugliaresi. Yes.
Mr. Gosar. Yes. Definitely gone up there.
The ranking member introduced this letter by Mr. Braley and
he quotes that it has supported over 63,000 jobs in the State
of Iowa with ethanol. I want to go back through this and just
show the implications to this economy, because I want to put
people to work under your numbers of $770 billion.
When converted to ethanol, a bushel of corn yields $1.80
per gallon for its energy content, which can produce up to 2.5
gallons of ethanol. Alternatively, a bushel of corn fed
livestock can produce 6 pounds of beef, 13 pounds of pork, 20
pounds of chicken, and 28 pounds of catfish.
In terms of job growth, critics argue that 1 million tons
of corn used to produce meat and poultry can produce 3600
direct jobs. However, 1 million tons of corn used to produce
ethanol only supports 145 jobs.
If Mr. Braley is correct that these ethanol jobs created
63,000 jobs in the State of Iowa, he just gave up 1,564,000
jobs. That is the same number, because of what it would be in
the industry. I am doing the calculation based upon what
everybody else has given me as numbers.
So do we have a jobs crisis in this Country, Mr. Gerard?
Mr. Gerard. Absolutely. And I will tell you from the only
gas perspective we are doing everything we can to create good
paying jobs to provide stability to help families.
Mr. Gosar. So I want to come back to this. So when we are
trucking, most of this is trucked to little towns here and
there, major fuels for trucks is what?
Mr. Gerard. Diesel fuel.
Mr. Gosar. That is the great answer. So technically, in the
next couple years, we may run, technically, out of being able
to produce any diesel fuel, true?
Mr. Gerard. Under the RFS, it has clearly brought us to the
brink of a crisis.
Mr. Gosar. So we are not really asking for not to use these
ethanol, it is expanding beyond that, right? So it is just
common sense. So let me ask you another question. When we are
talking about our economy, and I am from the State of Arizona,
so a lot of it is tourism and recreation, right? So a lot of
people take, just like my friend, Dr. DesJarlais was talking
about, they take their four-wheelers, they go on a boat ride,
all these things.
When you don't have access to that fuel, it causes a
problem, which means cars will break down, because that is what
it does. If I am not mistaken, alcohol lifts rust, right? It
causes problems and it jams up the engine. That is one of the
biggest problems that we have with ethanol. So when mom and pop
are driving across the Country, cars break down; can't find the
fuel, so they are on the boat, the boat breaks down; when they
are in the woods, the four-wheeler breaks down; when they are
on the road going to Sturgis, the bike breaks down. So we are
spending more time trying to fix things than in actually
enjoying the tourism industry, which is a huge impact.
So not only does this hit us at our food table, because
more and more people are having harder times putting cost-
effective food on the table, but when we try to have enjoyment
of tourism, which is a huge industry in Arizona, it is going to
make a major crimp into that. And I just want to make sure we
are asking the right question. It is not about that we believe
in the standard of the ethanol 10 rule, it is just to have some
common sense in its application, because, as the science is, we
are back-dropping ourselves into a catastrophic situation,
which everybody loses, and what we are asking is some common
sense. Isn't that true?
Mr. Gerard. That is our view. It just boils down to, in our
view, common sense.
Mr. Gosar. And do you think that Congress, when they gave,
and you alluded to this court case, when Congress gave the
rules to the EPA, did they intend to have common sense being
used?
Mr. Gerard. I do not believe for a minute it was the
intention of the Congress for this to get us to the point it is
today.
Mr. Gosar. I think that is one of the problems. We see this
over and over, big government saying that they know better than
the rest of us and common sense is being kicked out the window.
I yield back.
Mr. Lankford. I would like to submit for the record, as
well, a written statement from Boat U.S., just talking
specifically about the recreation engines and the effect of the
RFS on boating in America. Without objection.
Mr. Lankford. With that, I would like to recognize Ms.
Duckworth.
Ms. Duckworth. Thank you, Mr. Chairman.
Thank you, gentlemen, for being here today to share your
views about this very important issue.
Dr. Martin, I very much appreciate your thoughtful analysis
and forward-looking recommendations for the Renewal Fuel
Standard. I agree that while not perfect, the RFS is a
critically important and promising policy for our Nation's
energy future. The RFS is critical to U.S. energy security; it
is a national security imperative; it promotes price stability
at the pump and holds promise to significantly improve our
environmental footprint. It is also a major driver of
innovation and job creation. In fact, the biofuel industry
supports 54,000 jobs in my home State of Illinois.
Many of these jobs are in the Chicagoland area for things
like research and development, construction, engineering, grain
purchasing, transportation logistics, legal services, financial
services, and accounting; and we are at the forefront of
innovation for advanced biofuel production. In fact, when I
bought my F-150, I made sure there it was a flex fuel vehicle
and I burned E85 for the entire 120,000 miles I have on my
truck, and my engine runs very, very clean, and I happen to
know, Mr. Gerard, where every single E85 gas pump is within a
100-mile radius of my house. And you are right, some of those
are going away, but I am trying to drive up that demand as
quickly as possible. In fact, my husband and I are strong
supporters of aviation biofuel.
Dr. Martin, you state that the RFS has the right goals, and
I agree. Can you provide more details about why these goals are
so important and why it is worth sticking with a policy that
even you have acknowledged is not perfect?
Mr. Martin. Yes, I would be happy to. Thank you. So when I
look at the RFS, I see sort of three primary goals, more
biofuels, but not just the same biofuels that we have, but
moving on to better biofuels. And, really, when you look at the
scale of what we are trying to achieve with bringing clean,
low-carbon, domestically produced biofuels into the market, we
can't get there with just expanding the current biofuels for
some reasons that have been discussed today. So we really need
to bring the next generation that are made from agricultural
residues like corn stover and from perennial grasses; and there
is a lot of work going on in Illinois in the science and
agriculture of producing those fuels.
So that is where we are trying to get. That is what those
key goals are. And the technology is really the foundation for
the investments that are moving us in that direction and I
think that is what I hear from people in the industry, is their
ability to continue to raise money, to continue to innovate and
to make the U.S. a leader in this technology, and to convert
that technology and R&D leadership into actual fuel that we can
use. That really rests on a stable policy foundation like the
RFS.
Ms. Duckworth. Thank you. I would rather my dollars at the
gas pump go to American innovation and research, and supporting
American biofuels than to Middle Eastern oil any day.
Dr. Martin, in your testimony you acknowledge that the
cellulosic biofuels have not yet lived up to their potential.
Why is that and can you explain how you see these fuel markets
developing in the future and how your policy recommendations
will help move the industry forward so that we get to a better
place with them?
Mr. Martin. Sure. Well, if you look at the time it takes to
develop any large industry, and the fuel industries are
exceptionally large industries, it is clear that this is going
to take some time, and I think one of the things that sometimes
confuses people is you will hear somebody say we are five years
away, and then five years passes and people say, where are you?
But the guy that told you he was five years away brought that
pilot plant, brought this technology from a laboratory and
built a big factory, and is making, instead of gallons or tens
or hundreds of gallons, they are making millions of gallons of
fuel; and that is a huge step forward and that is where we are.
We have really moved into the early commercial phase of this
industry.
But millions of gallons of fuel doesn't get you to mandate
levels that are in billions, so it just takes time for the next
round of plants to expand capacity and to follow those
investments. So the ability to scale up to really provide those
opportunities really does rest on continuing to develop this
industry and to kind of providing the stable regulatory
framework that gives the investors the clarity about whether
there will be a market for this fuel when they have made their
investments.
Ms. Duckworth. Thank you, Dr. Martin.
I am out of time, Mr. Chairman.
Mr. Lankford. Thank you.
Mr. Meehan.
Mr. Meehan. Thank you, Mr. Chairman.
Dr. Martin, I think I tried to understand. Did you make a
point about the RINs, the cost being a couple cents, and there
was an opportunity to purchase them?
Mr. Martin. Yes. The way the RIN system works, you don't
need to blend ethanol; if you are an obligated party, you can
purchase RINs instead of blending ethanol.
Mr. Meehan. And how does that work? What is the market, you
said, it was a couple pennies per gallon?
Mr. Martin. The point I was making was that last year RIN
prices had been very low, almost nothing, and that was
indicative of a situation where the mandate wasn't binding.
Essentially, nobody was needing to buy fuel because of the
mandates, and if they didn't like to buy fuel, they could avoid
that by buying RINs. So the mandate hasn't been binding until
now.
Mr. Meehan. So has the market changed since the mandate has
been binding?
Mr. Martin. Yes, absolutely.
Mr. Meehan. How has it changed?
Mr. Martin. Well, now RIN prices have real value, they are
about $0.80.
Mr. Meehan. They are how much?
Mr. Martin. Eighty something cents, I think. Somebody said
$0.89 today, which actually is not a bug, it is a feature.
Mr. Meehan. What do you mean it is a feature?
Mr. Martin. I mean that provides the economic support that
makes drop-in fuels, that makes the higher blends more
attractive; that is the design of the policy.
Mr. Meehan. The design of the policy? Let me go through
this, because I am trying to understand when you are talking
about the design of the policy. The design of the policy was
that I have a refinery in my backyard that probably supports
about 10,000 jobs and is critical to the airline industry, so
critical to the support of, had they not been there, the
implications of what happened during the storms in New York and
New Jersey would have been significant. There are a lot of
implications.
But just the other year, when they were dealing with these
RINs, they were about $0.04 per gallon. They are now about
$1.00 per gallon. So the implication for this refinery is it is
now costing them $150 million more a year to operate because of
these RINs. They purchased the refinery for that price. So, in
effect, the regulatory policy is driving this refinery right
back into a point in which it is non-competitive and is going
to shut down. What do you tell the workers?
Mr. Martin. I don't have anything to say about the
specifics.
Mr. Meehan. Have you ever been unemployed?
Mr. Martin. Yes, I have.
Mr. Meehan. All right.
Mr. Martin. So I think what is important here is that there
are big opportunities in the next generation of fuels, and we
need to manage the challenges.
Mr. Meehan. How do we manage it? I know there are big
opportunities. And I share your goal of trying to get here, but
this is the unintended consequences of compelling something to
happen in a market when the market isn't able to do it. This
has real-life consequences on the workers in my district and
this is your quote. ``We didn't build it overnight,'' but you
can destroy it overnight.
You could destroy this industry. You could destroy the
refineries in my backyard overnight because all they need is a
couple years of losing $150 million or more and they shut down.
And then when you close a refinery, it doesn't come back. So
how do we work in this market, during this period of time, to
adjust for the realization that people are manipulating this,
this RIN market, to the disadvantage of people who are doing
their best to keep the planes flying in the sky?
Mr. Martin. Clearly, as far as transparency and making sure
the RIN market is working effectively, that is an important
part of the policy working, because it is key to the policy.
Mr. Meehan. Mr. Pugliaresi, what do you say about this?
Mr. Pugliaresi. Look, the RIN prices are rising because
they reflect the high cost of crossing the blend wall, and this
is the fundamental flaw in the program. So we are going to
impose very large costs on the production of E10 jet fuel. We
will raise the cost of producing petroleum products in the
United States. So it is a very high cost program with very
little yield. It is not a cost-effective way to advance our
programs to bring on the fuels of the future.
Mr. Meehan. I am curious, are foreign airlines having to
live by these same standards where they are?
Mr. Pugliaresi. Absolutely not.
Mr. Meehan. So, in other words, what we are doing is we are
subsidizing a situation in which it now becomes more
competitive for foreign airlines to fly into our Country than
it does for ours to operate globally.
Mr. Pugliaresi. Absolutely. What is going to happen is we
are going to raise the cost of all the petroleum products in
the United States. By the way, when we export these products
out of the U.S., our foreign purchasers are not asking for them
to be blended with ethanol or cellulosic or anything. So you
are going to impose a very large cost on the national economy
and foreign operators and producers will not face that cost.
Mr. Meehan. So we are creating the proverbial sending jobs
overseas.
Mr. Pugliaresi. Absolutely.
Mr. Meehan. With the unintended consequences of policies
that aren't doing anything to clear the air, because the bottom
line is you will move some of that product overseas and it will
be used over there at higher emission standards and won't
really change anything in the overall atmosphere.
Mr. Pugliaresi. Absolutely. It is actually more serious
than that.
Mr. Meehan. So there needs to be some recognition, a
workout in the meantime. And I share your goal, but this is
where we are talking about the variance or the stop or the
something, instead of this dead-ahead objective that the EPA is
going to do it, regardless of the implications that are
happening to real people, working in real communities, with
real American jobs here at home, which this Administration and
others pretend to stand up and want to fight for.
And I can't see another person who finally got back to work
looking at the idea of that gate closing because somebody has a
policy that might work somewhere 15 years down the road, while
we are also, simultaneously, exporting the very same products
that are impacting the air just as bad because they are being
done in China or someplace else at an economic competitive
disadvantage to us. Frustration with the fact that people
aren't using common sense in the implication of where we need
to go together.
Mr. Gerard, my time is up, but I don't know if you have a
thought on that as a closing point.
Mr. Gerard. No, Congressman, I can't articulate as well as
you did, but let me just thank you for your leadership. You
have made a bit difference in those refineries up there. But
you have hit the nail right on the head. We have a Government
policy now that is bringing us to the brink of a crisis. EPA
has the authority that you, the Congress, granted them to waive
this and to take this pressure, in the short-term, off of the
crisis, but ultimately the Congress needs to deal with that.
We don't disagree with all the noble goals that have been
talked about in terms of energy production in the United States
and, as I mentioned earlier, we are the leaders in trying to
find the next breakthrough, but the reality is, getting back to
people and jobs and what it is going to take to fuel this
economy, we better get smart quick, or we are going to have a
self-inflicted wound that is going to be very difficult to
recover from in a lot of different ways.
Mr. Meehan. Thank you, Mr. Chairman. I thank you for your
indulgence and I yield back.
Mr. Lankford. Thank you.
Ms. Norton.
Ms. Norton. Thank you very much, Mr. Chairman.
Dr. Martin, like every red-blooded American, I am always
looking for science to rescue us from the last dilemma, and I
am afraid that when we embraced ethanol that was, for many,
such a quick and ready, much too quick and ready an answer.
Now, as far as I can understand, one of the reasons that
environmentalists me wanted to do it was to save energy. I
understand it costs, by the time we get to the finished
product, it costs more in energy, or certainly as much as
fossil fuels. So we are not meeting that goal.
So instead of just jumping to the next generation, that was
the first generation of biofuels, let me ask you about the
second generation, which looks so hopeful to me, but I have to
ask somebody, and there you sit. And I am talking about the
cellulosic biomass that apparently we have in plentiful supply.
That is what we thought about ethanol, too, because we didn't
think about the effects on the cost of corn and sugar, and
especially not only here, where we can absorb it more easily,
but has had a terrible effect in other parts of the world which
are very dependent on such food stuffs now.
So when I look at this 1.3 billion in harvestable
cellulosic biomass that we have ``identified'' in the United
States, before I get my hopes up and grow too rosy in my
expectations, since there are some estimations that that could
more than meet a third of the domestic transportation fuel
demand, before I go there, I need to know more about what I
understand is happening.
You seem, in your testimony, not to believe that we have
yet found an answer to the blend wall dilemma, and you speak
very specifically about the effect of food-based fuels on food,
to be blunt about it, and that is a major concern, that we
don't jump from the frying pan into the fire itself. And you
seem to call for rulemaking that would reset expectations. I
need to know what that means, but specifically I need to know
what it means in light of the fact that it looks like the
private sector is finally getting into this new second
generation energy supply, that there may be as many as 20 in 20
States maybe plants under construction, also in Canada. When
you get private investment taking the risk, does that mean we
are on our way to very significant use of second generation
biofuels, and what could EPA do to adjust to that if it is a
real answer? I am most interested in whether it is a real
answer.
Mr. Martin. I think there is a big opportunity and, as you
mentioned, there are facilities that are starting up all over
the Country. But because the energy industry is so large, it is
sort of important to kind of keep the time line and the
expectations sensible.
Ms. Norton. Look what natural gas has done.
Mr. Martin. What is that?
Ms. Norton. Look what natural gas has done. Once it became
true and viable, it shot up and has affected the supply here
and across the world. That is why I don't want my expectations
to be raised again.
Mr. Martin. Well, so if we look at where we are and what
can be achieved when there is a stable investment environment,
I think we see, over the next 20 years, that these next
generation biofuels, together with more efficient vehicles and
other technologies, can really help us to cut projected oil use
in half in that time frame. So in that 20-year time frame we
can make a very dramatic impact on the impact that consumers,
because, of course, the biggest way to address the impact to
consumers of fuel is to use less of it. And biofuels are a
significant part of a comprehensive solution.
Ms. Norton. What would be the effect on energy, on climate
issues, any difference?
Mr. Martin. Absolutely. I mean, the next generation
cellulosic biofuels have dramatically lower carbon emissions
than the conventional biofuels, and even lower compared to the
fossil fuels that we are relying on now. So that is why they
are an important part of the strategy going forward.
Ms. Norton. You say it could grow rapidly from 2013
forward. What do you envision?
Mr. Martin. I mean, well, obviously, it takes several years
to build one of these facilities, and you don't build 100 of
them at once.
Ms. Norton. So if we already have 20 States, when do you
think some of this could get to market?
Mr. Martin. Oh, it is going to get to market this year. I
mean, the first facilities are commercial facilities that are
completely built; that are starting up now. So the gallons will
start coming in, but there is a difference between millions and
billions and tens of billions, and it takes time to move up
that scale.
Ms. Norton. Well, thank you, Dr. Martin, and I will keep my
expectations high for the moment.
Thank you, Mr. Chairman.
Mr. Lankford. Thank you.
Mr. Farenthold.
Mr. Farenthold. Thank you very much, Mr. Chairman. I do
want to thank the panel and do have a couple questions.
Dr. Martin, in your testimony you say that the goals of the
RFS, Renewable Fuel Standard, are more biofuels, better
biofuels, and beyond biofuels. If you take a step back, you
want to talk about what some of the broader policy goals are
besides just biofuel?
Mr. Martin. Sure. Absolutely. And it was beyond food-based
biofuels, not beyond biofuels.
So the overall goal is to cut our oil use. As I was just
alluding, the challenges that our oil use causes to our
economy, to our security, and to our climate are substantial,
and the best way to address those are to take practical steps
to cut our oil use.
Mr. Farenthold. So you are basically saying cleaner air,
more domestic production, and doing away with the need for
importing foreign oil, would that be fair?
Mr. Martin. We can cut our oil use dramatically, yes.
Mr. Farenthold. So let me go to Mr. Pugliaresi. You are
talking about coming up on the blend wall. So as we have less
use of fossil fuels, we are coming up on the blend wall, which
means we have to use more ethanol than we can blend at a
reasonable percentage, is that correct?
Mr. Pugliaresi. Yes.
Mr. Farenthold. I guess what I am getting at is aren't we
kind of on a collision course with ourselves as we promote more
fuel-efficient vehicles and as we move to alternative electric
cars or as we move to natural gas powered vehicles? It is going
to get worse and worse over time, isn't it?
Mr. Pugliaresi. I think we sort of get stuck on these
volumetric or these mandates, instead of looking at how do we
want the economy to function most efficiently to get the most
economic growth. And if we try to wrench the economy too fast
to very high cost, and often infeasible fuels, we are going to
impose a very large cost.
Mr. Farenthold. All right, let's talk a little bit about
natural gas. I can go out and buy a natural gas powered pickup
truck for about $6,000 to $9,000 more than a normal pickup
truck; much more clean burning than oil-based and economical
for me. Once I hit 90,000 miles on that truck, I will have paid
for it and will be saving money every time. So why shouldn't we
be focusing some of the efforts there?
Mr. Pugliaresi. You are asking a very good question,
because is this mandate really a cost-competitive or a low-cost
strategy compared to the other things that are out there? And
the answer to that is probably not.
Mr. Farenthold. All right, Mr. Gerard, you represent the
oil and gas industry. We have great technological breakthroughs
in hydraulic fracking and we are all but giving away natural
gas. What is gas today, in the $4.00 range?
Mr. Gerard. Yes, give or take.
Mr. Farenthold. And do you see any substantial increase in
that over the next few years?
Mr. Gerard. Well, if you look at the quick history of this,
which has literally occurred in the past few years in the
United States, once again, calling into question the
assumptions under the Renewable Fuel Standard, which is a very
different day, but when you look at natural gas today, going
back to this broader objective, if we talk about climate issues
and carbon, today we are at 1994 level for our carbon
emissions. Why is that? Because of natural gas. That was driven
by the marketplace, not by a Government mandate.
Mr. Farenthold. Cleaner and domestic. We are within Kyoto
standards now, right? Didn't we get there, even though we are
not a signatory?
Mr. Gerard. We are getting very close to that as the leader
in the world in terms of reducing our carbon emissions. But the
market brought it about, and that is why we have to take away
some of these efforts to compel technology. The movement to
natural gas in vehicles is occurring.
Mr. Farenthold. With no Government involvement.
Mr. Gerard. Precisely. And that will happen. That is what
we need to inject back into this conversation.
Mr. Farenthold. And just as far as projected reserves of
natural gas, are we in trouble in five years?
Mr. Gerard. It depends on whose estimates you look at,
anywhere from 100 to 250 years.
Mr. Farenthold. All right, so we are talking a couple
hundred years.
Mr. Gerard. At least.
Mr. Farenthold. So it kind of takes the heat off
developing.
Mr. Gerard. That number keeps growing every year.
Mr. Farenthold. So it kind of takes the heat off of some of
these numbers.
Let me go with one question with respect to food prices,
these renewable food standards. They are affecting meat,
poultry, your turkeys, chickens, you name it. It is also
affecting just corn for people, isn't it, worldwide?
Mr. Brandenberger. It certainly is. I think Ms. Norton made
a very good point about the impact, and we would agree. We have
talked a lot about the impact on our energy here, and we ought
to talk about the impact on people who are facing food
insecurity as well.
Mr. Farenthold. And in other countries, particularly not as
wealthy as we are, substantial increase in corn prices. Corn is
a part of the staples in many countries. I think in Mexico
there was one study that said since the Renewable Fuel Standard
took effect, tortilla prices are up 69 percent.
Mr. Brandenberger. There is actual civil unrest at times in
Mexico over the corn prices; there have been demonstrations
there. But it is other countries, but it is also the food
insecure in this Country, as well, that are affected by this.
Mr. Farenthold. I see I am out of time. I just want to
conclude by saying we really do need to take a step back and
see if we can solve some of our energy problems and our
environmental problems in the marketplace with technology that
is there today, rather than trying to force something.
I yield back.
Mr. Lankford. Thank you.
Gentlemen, thank you for being a part of this panel. We are
going to shift to the second panel. All of you, great
contributions in this. Lu, I think I counted mispronunciation
of your name probably eight times through the course of this,
so I appreciate all of you being here and for what you are
contributing, both your prepared statements and your oral.
Thank you.
We will take a short shift into the second panel.
[Pause.]
Mr. Lankford. We will have several other members that will
come and join us as we get started here.
So we welcome our second panel in the continuation of this
hearing. Mr. Christopher Grundler is the Director of the Office
of Transportation and Air Quality, U.S. Environmental
Protection Agency.
Pursuant to committee rules, all witnesses are sworn in
before they testify. Mr. Grundler, thanks for being here. If
you don't mind standing and raising your right hand so you can
take the oath.
Do you solemnly swear or affirm the testimony you are about
to give will be the truth, the whole truth, and nothing but the
truth, so help you, God?
[Witness responds in the affirmative.]
Mr. Lankford. Thank you. You may be seated.
Let the record reflect that the witness has answered in the
affirmative.
Glad that you are here. Obviously, you had the opportunity
to be able to listen in on the first panel, as well, and we are
looking forward to your testimony and getting a chance to
dialogue a little bit back and forth on that. We will be
honored to receive that testimony now.
STATEMENT OF CHRISTOPHER GRUNDLER, DIRECTOR, OFFICE OF
TRANSPORTATION AND AIR QUALITY, U.S. ENVIRONMENTAL PROTECTION
AGENCY
Mr. Grundler. Thank you, Mr. Chairman, Ranking Member
Speier, and other members of the committee. I appreciate the
opportunity to testify on the Renewable Fuel Program today. I
am the Director of epa's Office of Transportation and Air
Quality, and I have been a career official at EPA since 1980.
The RFS program began in 2006 under the Energy Policy Act
of 2005. The statutory requirements for the RFS program were
then modified by the Energy Independence and Security Act of
2007, or EISA, which established new volume standards for
renewable fuel, reaching a total of 36 billion gallons by 2022,
including 21 billion gallons of advanced biofuels. The revised
statutory requirements also include new greenhouse gas emission
thresholds and a number of other provisions. After an extensive
notice and comment process, EPA finalized regulations to
implement EISA requirements, which went into effect on July
1st, 2010.
EISA requires EPA to publish annual standards for total
advanced biomass-based diesel and cellulosic renewable fuels.
These standards apply to obligated parties, typically refiners
and fuel importers. The statute directs EPA to determine the
projected volume of cellulosic biofuel production for the
following year, and if that number if less than the statutory
volume, EPA must lower the standard accordingly. EPA also has
the discretion to lower the advanced biofuel and total
renewable mandate up to the same amount. Before proposing
annual volume standards, EPA conducts a thorough review of the
cellulosic industry to determine the total production capacity.
EPA also consults with our colleagues at the Department of
Agriculture, the Energy Information Administration, and the
Department of Energy's Bioenergy Technologies Office. We
propose the annual standards through a transparent process,
allowing for public comment and review.
The 2013 RFS volume standards were proposed in February of
this year and would maintain a statutory level for total
renewable fuel of 16.55 billion gallons. A public hearing on
the proposed hearing was conducted on March 8th, 2013, and we
are currently in the process of reviewing the public comments
in preparing to develop the final rule.
Congress also tasked EPA with evaluating and qualifying new
biofuels for use in the RFS program. We have already approved a
significant list of advanced and cellulosic biofuels. We have a
number of additional evaluations underway for new pathways. We
continue to expand the number of approved fuel pathways,
including the recent finalization of a rule that includes
certain renewable fuels from camelina, ethanol from energy
cane, and renewable gasoline from various feedstocks. We also
just proposed a rule that included additional new advanced
biofuels, including cellulosic fuels from landfill biogas and
advanced biobutanol from corn.
Although both ethanol and non-ethanol biofuels can be used
to meet the RFS, ethanol has and will likely continue to be the
predominant renewable fuel in the market for the foreseeable
future. As the volume requirements of the RFS program increase,
it becomes more likely that the volume of ethanol projected to
meet those requirements will exceed the volume that can be
consumed in the common blend ratio of 10 percent ethanol and 90
percent gasoline, referring to as E10. Additional volumes of
ethanol would then need to be used at higher blend levels, such
as E15 or E85. As a result, to the extent that ethanol is
likely to be used to meet RFS volume requirements, the volume
of ethanol that can legally and practically be consumed is a
limiting factor in meeting the statutory volumes. This is
commonly known as the E10 blend wall and was discussed at
length during the first panel.
Compliance under the RFS program is demonstrated through
the use of Renewable Identification Numbers, or RINs, which
document the production and distribution of the fuel. For 2013,
we expect compliance for the RFS standards through the use of
RINs generated in 2013, as well as the substantial number of
RINs generated in 2012 that are available for compliance this
year as carryover RINs.
In 2014, the situation could be different. First, the
advanced biofuel and total renewable fuel requirements rise
substantially under the law, to 3.75 billion gallons and 18.5
billion gallons, respectively. While non-ethanol biofuels are
anticipated to continue to grow, an estimated 16 billion
gallons or more of ethanol might still be needed to comply with
the 2014 statutory target for the RFS program. Second, the
number of carryover RINs from 2013 will also be a critical
factor.
Given these facts, we will continue to look at the
potential impacts of the E10 blend wall both now and in the
longer term. We are currently reviewing comments submitted in
response to our proposal for the 2013 RFS volume standards, and
we will carefully consider and are carefully considering this
input.
EPA is intensively engaged with all the stakeholders in
this policy matter, and we are going to continue to further
engage these stakeholders as we move to propose the RFS volume
requirements for 2014. EPA will continue to work with our
partners, stakeholders, and the public to implement the RFS
program as directed by the Congress. EPA will also further
evaluate and consider whether any further action under the
authorities established by Congress is appropriate to help
ensure orderly implementation of the program.
I thank you for the opportunity to serve as a witness and
look forward to your questions.
[Prepared statement of Mr. Grundler follows:]
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Mr. Lankford. Thank you for your testimony and thanks for
your testimony as well.
Do you agree we are facing a blend wall in the coming
months here?
Mr. Grundler. Congressman, it is quite clear from the
dynamics in the RIN market that the market is anticipating the
blend wall. It is not clear exactly when we will face that
blend wall. We know that some refiners, because each is in a
slightly different situation, are likely to hit that blend wall
this year; whereas, others are likely to face it in 2014. But
the market clearly is anticipating its approach, which is why
we see the increase in the value in these RINs.
Mr. Lankford. Once Goldman Sachs jumps in and starts
actually trading in RINs, you know this has become a valuable
commodity and it is spreading at that point. So the questions
come up for us, and you heard all the testimony, as well, and
some of the issues, and you are very aware of this, not that
you are blind to all these issues. A couple of questions. One
is is it good for our vehicles to continue to increase the
amount of ethanol and require that, and to be able to push that
out? Multiple vehicle manufacturers said that is going to void
our warranty. So we have that one question. With the amount of
gasoline decreasing and the amount that is required increasing,
is that good for our vehicles?
And the second part of this is is it good for us to
continue pushing food-based fuel when the hope was, at some
point, non-food-based ethanol would rise up and we would have
other products that would substitute for that? We are not
seeing the rise as fast as we had hoped, so is it good to be
able to press on both those?
Would you address both of those for me?
Mr. Grundler. So with respect to your first question,
congressman, is it good for our vehicles, the answer depends on
what you are driving, of course.
Mr. Lankford. Correct. The majority of vehicles in America
right now. We are talking 70 percent of the vehicles that are
not tagged or that have a problem with using a higher amount of
ethanol.
Mr. Grundler. Yes. So with respect to E15, as you are
aware, EPA did an extensive study, along with the Department of
Energy, of the question of will E15 cause or contribute to a
violation of the emission standards of those vehicles. We
looked at something like 30 different studies. DOE did an
extensive testing program and our determination was that E15
would be safe to use in 2001 and later vehicles. We did not
allow it to be used in small engines or boats or off-road
vehicles.
Mr. Lankford. I am aware the EPA allows that, but my
warranty expires if I use E15. So in my 2011 vehicle I already
have a notification and a sticker on my gasoline lid as it
opens that reminds me, if I use E15 in this, my warranty is
void, because the manufacturers tell me this is not safe for
this vehicle. So while EPA says go ahead and use it, I take it
at my own risk. If my vehicle breaks down, I am on my own. I
don't anticipate EPA is going to fix my vehicle at that point.
Do you anticipate that?
Mr. Grundler. No, we will not fix your vehicle.
Mr. Lankford. Okay, well, I am assuming that. So I am in a
tough spot as a consumer on that.
Mr. Grundler. Mr. Chairman, I appreciate that, but EPA is
not requiring you to use E15. We are not requiring anyone to
sell E15. We simply looked at our responsibilities under the
law, did an extensive amount of science and data development,
and reached the determination based on that data and based on
the law that there was no evidence to suggest, after millions
of miles of accumulated miles by the Department of Energy's
test program, that E15 would harm engines or create a violation
of emission standards.
Mr. Lankford. How many manufacturers out there disagree
with you?
Mr. Grundler. Most of them.
Mr. Lankford. And that is the spot that consumers are in.
The Government says go ahead; the manufacturers say at your own
risk, because this does not work in all of their testing. So
now we are stuck between a Government mandate that is sitting
out there and the consumer trying to determine where do I go at
this point.
Mr. Grundler. The Government is not saying go ahead. The
Government is simply saying that this is a legal fuel to sell
if the market demands it and if there are people who wish to
sell it.
Mr. Lankford. But if the market is not demanding it, there
is still a requirement we have to get more out there, is that
correct? So let's say, for instance, in my State, in Oklahoma,
you were not here earlier, but are lots of stations that
promote that they sell all-gas gasoline. I mean, that is their
selling feature. And they sell all the time on that. There are
stations that sell both side-by-side; there is gasoline, there
is gasoline blended with ethanol on it; and the consumers have
the opportunity to choose. But at some point it gets tougher to
give consumers the option to choose, because if they choose the
all-gasoline, we can't meet the standards that have been set to
sell out there, and we have to find some way to get that
product to market. That is kind of where we are now. So what do
we do?
Mr. Grundler. You are exactly right. And I think when
Congress wrote this statute, back in 2005 and particularly in
2007, it created a dramatic change in the transportation fuels
market and anticipated these increasing volumes. It is clear
Congress anticipated that the market would solve this problem.
The blend wall is not a new issue. Clearly, the market has not
solved this problem yet; there are market realities that we are
very much aware of and need to address.
Mr. Lankford. So when does this get resolved from the EPA?
I know you all are dealing with this all the time. This is not
critical of that. You all have to live in this all the time. We
have decisions for 2013 and decisions for 2014 coming down
during the summer, I hope, but to be able to determine what are
we going to do, is there going to be a waiver, are the numbers
for 2014 going to be implemented? A lot of folks have to
prepare for that and the market is trying to determine, as the
price goes up, they are gambling you are not, you are going to
keep the same number and these prices continue to rise, and
manufacturers and individuals and suppliers of fuel are hoping
that there is going to be some kind of gap. How does this get
determined and when?
Mr. Grundler. We are talking to all of these folks
regularly. We raised this issue in our 2013 proposal as an
issue; we sought comment, we got an enormous amount of comment.
As you can appreciate, those comments span a diverse
perspective based on where they sit and what they make, and it
will be our job to sort through those and to look at the law
and look at the data, and the administrator will need to make a
determination. We feel a very strong sense of urgency to sort
through this. We are doing a lot of analytical work and we hope
to make a decision this summer on both 2013 and a proposal for
2014.
Mr. Lankford. Welcome to America. Okay, so let me come back
to that again, because I want to be able to pass on to Ms.
Speier, honoring her time as well.
We are talking about this summer, so we are talking about
the end of August, we are talking about the end of July?
Because this is important to us, to be able to determine when
the decision is going to be made. The decision is important,
obviously, what is made, but the when is also very important.
So when will we know?
Mr. Grundler. I appreciate that and I also understand why
the market needs to know. I don't have a target date for you
other than we are working as hard as we can.
Mr. Lankford. But all the comments are in.
Mr. Grundler. Yes.
Mr. Lankford. Everything from outside is done; it is now
sitting on your all's desk, and at this point there is nothing
else pending out there to say we can't decide until we get
this.
Mr. Grundler. That is exactly right.
Mr. Lankford. So everything is in now; it is just time to
make the decision.
Mr. Grundler. That is right.
Mr. Lankford. Is there anything that we can do as Congress
to help in this process?
Mr. Grundler. I think you are doing it, sir.
Mr. Lankford. Well, there is a need for a decision. The
certainty is very important to the consumer, to the producers,
to the manufacturers. The certainty is very key to us, so
getting the when will help us significantly; then there will be
the large national debate on the what at that point, once you
settle it. But the when cannot come fast enough if all the
information is gathered in.
With that, I would like to recognize Ms. Speier.
Ms. Speier. Thank you, Mr. Chairman.
Mr. Grundler, thank you for the service you have provided
to our Country for some how many years? Thirty-two years.
Almost a lifetime. Certainly a generation. Anyway, thank you.
The first law that was passed and signed by President Bush,
in 2005, was really a bipartisan bill; it was sponsored by
Representative Barton of Texas, Representative Pombo of
California, and Representative Thomas of California. And when
President Bush signed it, he said it will strengthen our
economy and it will improve our environment, and it is going to
make the Country more secure. The Energy Policy Act of 2005 is
going to help every American who drives to work, every family
that pays a power bill, and every small business owner hoping
to expand.
So, from your perspective, what has been the impact of that
2005 Act, and have President Bush's statements been seen to
come to fruition?
Mr. Grundler. Congresswoman, certainly the impact we have
seen is a significant increase in the production of renewable
biofuels in America. We have seen an enormous amount of private
investment in advanced biofuel research and development and
production; I would say in the billions of dollars of private
investment in discovery and new innovation in this area and I
think, as well, a new recognition about what the promise could
be of having a more diverse fuel supply for America.
Ms. Speier. Okay. So for all the concern here, there are
still a lot of positives, right? Dr. Martin had mentioned in
the earlier panel, I don't know if you were present to hear him
or not.
Mr. Grundler. I was.
Ms. Speier. That there are some solutions that are pretty
simple and could protect the turkey farmers and also still
allow for continued exploration in terms of cellulosic ethanol
and the developing of that and plants, and venture capital
coming in, and the like. Do you have any comments on that? Do
you see that as a pathway to resolving this issue?
Mr. Grundler. I have not had an opportunity to talk to Dr.
Martin about his recommendations in terms of his thinking with
respect to the longer term strategy. I probably would disagree
with that it is going to be simple in this policy debate
comment.
Ms. Speier. That was my comment, not his.
Mr. Grundler. But clearly we have heard through this public
notice and comment period we are getting a lot of advice about
how EPA can address this situation, address this blend wall
situation; and some have suggested how we can do it in a way
that could still preserve this advanced biofuel innovation
promise. Others have come at it from a different point of view.
We, right now, are doing the hard work analyzing those
comments, looking at the law, looking at the data and giving
recommendations to the administrator.
Ms. Speier. So last August Chairman Issa and Subcommittee
Chairman Lankford had sent a letter expressing the concerns
about RFS to EPA Administrator Lisa Jackson, and subsequently,
in the review that EPA did, it found that there was not severe
harm to the economy, of a State, a region, or the United States
in waiting. Could you explain to us the analysis that EPA uses
to arrive at that conclusion? From what I understand, it is not
something where you just kind of see what way the wind is
blowing, that there is a lot of data collection and expert
testimony and review that takes place. Could you share that
with us?
Mr. Grundler. Yes. You are talking about the petitions we
receive from a number of States in 2012 in response to the
severe drought that America experienced and asked the
administrator to waive the standard in whole or in part. First,
in deliberating over that, we all recognize, and the
administrator certainly said in her decision, recognized the
devastating impact of the drought across all of America in many
different sectors, in many different families that were
impacted by that drought.
The question before the agency and the administrator at
that time actually was a pretty narrow question, though, which
is would waiving the RFS change any of that situation, would
waiving the RFS change the supply-demand question. And after
extensive analysis and modeling, we looked at 500 different
scenarios using a satastic model and consulting with experts at
the Agriculture Department and at the Energy Department, we
found that it was highly unlikely that, if we waived the
standard, it would have made any difference to the people
suffering and the prices of corn, so the law required us to
deny that waiver.
We were careful to say that this is a fact-specific
question, a case-by-case situation, and it was based on the
market conditions at the time; it was based on our estimate of
how many so-called rollover RINs were available to refiners to
meet their obligations, as well as how quickly a refinery
within this waiver time period, this one-year period, could
change their operation. The fact of the matter is that the U.S.
refining industry and fuel distribution has optimized around
the use of ethanol as a blending agent, and we found that the
evidence suggested that there is a strong demand by the
refining industry to use this product to blend their gasoline
products and that, if EPA had waived that standard, that that
practice would continue, certainly over the near term, and
therefore would not have made any difference in feed prices or
corn prices. So we were required to deny the waiver based on
how the law asked us to exercise that authority.
Ms. Speier. Thank you. My time has expired.
Mr. Chairman, thank you.
Mr. Jordan. [Presiding] The lady can have additional time
if she would like here.
I ask unanimous consent to enter a couple reports and
letters into the record. We have the API Energy letter and NERA
economic impacts resulting from implementation from RFS2
program.
Without objection, those will be entered into the record.
Mr. Grundler, I apologize for missing your testimony. I
have been trying to read it. Let me go back to where I was with
the first panel. I went through and asked them and we sort of
established the fact that the cost to produce turkey is up
because of RFS and the impact on corn prices; the price to
produce pork is up; the price to produce cattle is up; and,
therefore, the cost to consumers who consume those products is
certainly up. Other food products not in the protein or
livestock area are up as well. The price of fuel is up,
according to the witnesses on the first panel. According to the
witnesses on the first panel, it is difficult for many cars to,
as the chairman has pointed out, Mr. Lankford pointed out,
can't use this type of fuel burned at levels that it is; and,
therefore, every single family, according to the economist who
was part of the first panel, every single family in the Country
is going to have to pay more for food, fuel, and that obviously
impacts their family budget and our overall economy.
As I said, we were looking forward to hear what you say,
and I missed some of what took place here earlier, but are you
going to waive it, and what is the time frame? Walk me through
it again. Are you going to waive the standard as we move
forward?
Mr. Grundler. Thank you, congressman, for those questions.
I can't tell you what the administrator is going to decide.
Mr. Jordan. When are you going to decide?
Mr. Grundler. This summer.
Mr. Jordan. This summer. Next month?
Mr. Grundler. Summer goes until September 21st.
Mr. Jordan. So are we going to get a decision on September
20th or 21st, or are we going to get something sooner? People
are driving; people are buying burgers for the grill and brats
for the grill and everything else.
Mr. Grundler. Sir, I want you to know that we are taking
this very, very seriously. We have sought public comment. We
are meeting with all the stakeholders who you have heard this
morning and more. This is a very serious question. We are
hearing them loud and clear. We are doing the analysis right
now. We have a lot of advice on how EPA should proceed and
address this blend wall both now and in the future, and we are
going to be making a decision as soon as we can.
Mr. Jordan. Okay, there were four witnesses on the first
panel; the economist, the turkey, and the petroleum gentleman.
Ms. Speier. He doesn't like being called a turkey.
[Laughter.]
Mr. Jordan. Well said. The gentleman representing the
turkey industry. All agreed that there are real problems. Even
the Democrat witness said the Renewable Fuel Standard for
cellulosic fuel shouldn't be increased. So everyone understands
this is a problem, so it seems to me you have the data. Even
the witness on the other side. I mean, this is Congress; if you
get four people, different sides inviting folks in and they all
say there is a problem here, it seems to me that is pretty
clear. So, again, any chance you can get this done sooner?
Mr. Grundler. We are going to be working very hard to make
that happen, sir, but this is a consequential decision. There
are consequences on all sides of this question, which I am sure
you can appreciate. There are consequences for the people who
have invested millions of dollars in research and development
costs and innovation to produce more advanced fuels. They have
a particular point of view. We have heard very clearly from the
oil industry what their perspective is. People who have
invested in corn-based ethanol have a view.
Mr. Jordan. Do you have the definition of what level of
harm, severe harm? Do you have a definition, increase in cost
to consumers of X percent? Do you have something that is
tangible, measurable, or is it you are looking at it and
bureaucrats and employees in the Environmental Protection
Agency are going to make a decision? Is it based on objective
criteria or is it just sort of what the experts in Government
think it is?
Mr. Grundler. Well, the Congress was quite specific and
used the word severe. We don't have a definition of what severe
means, but we read it as pretty significant.
Mr. Jordan. Well, then how can you decide? Well, is it not
severe harm when the price of food is up significantly, the
price of fuel is up significantly, cars can't use the fuel
that, as we get to the blend wall, some cars can't use it, the
price is going to go up and the economist who was here said
this is, in effect, a tax on families and overall harms our
economy, not to mention some of the data we have been living
with for the last several years, the high unemployment rate and
everything else? Is that not severe?
Mr. Grundler. All the things you mentioned, congressman, go
into this consideration, go into this analysis, and it will be
the administrator's judgment.
Mr. Jordan. Let me ask it this way. If that is not severe,
what is?
Mr. Grundler. I can't answer that question, Mr.
Congressman.
Mr. Jordan. Well, that is the problem. That is our concern,
because if there is no objective definition, if you can't tell
me what severe is, if you can't tell me what I just described
and what the four witnesses just described, you can't tell me
if that is severe or not, then how in the heck are you going to
make a decision?
Mr. Grundler. We are going to do the best we can based on
what the law states.
Mr. Jordan. Are you developing a criteria? Are you
developing some objective standards, some definition for what
severe harm means?
Mr. Grundler. Right now what we are doing, sir, is looking
at all the information that the public has provided on those
very questions.
Mr. Jordan. But that is not what I asked. Is the EPA
developing a definition, some kind of criteria, objective
standards that would say you reach this, that is severe, we
raise the standards; you don't reach this, it is not severe, we
don't waive the standards? Then we can decide if you have a
good standard or not. But if it is just we are going to tell
you what we think and we don't think it is severe, well, how do
we know? We don't know what info, what data, all the
information you are using to make that decision. It would be
nice if we had something objective. It would be nice if you had
something objective so we could examine and see whether it
makes sense or not.
Mr. Grundler. Sir, first of all, I would say that this will
all be based on, again, on a case-by-case basis, based on what
the market conditions are telling us at the time this decision
is made, and then there will be an extensive record that will
be supporting that decision. I also want to point out that that
is only one of our waiver authorities. We also have the
authority to adjust the standard based on the total amount that
we adjust for the cellulosic standard. So there are a couple of
ways for the agency, a couple of tools.
Mr. Jordan. Do you have standards for how you do that? Do
you have criteria on when you are going to adjust the standard,
not just waive it?
Mr. Grundler. Yes, for the cellulosic standard, what we do
is we go every year and we look at actual production estimates
from people producing this fuel. That is why we have adjusted
or waived the cellulosic standard.
Mr. Jordan. No, what I am asking is do you have something
that says if it reaches X level, we are going to make this
change? Do you have some objective criteria?
Mr. Grundler. There is no objective criteria that we have
stated with respect to how Congress determines severe economic
harm. We have this other authority where it is just a math
problem, where we subtract from the statutory-based standard
for cellulosic fuel how much is available.
Mr. Jordan. Well, if you have no objective standard, how
can you make a decision? One day you decide this is bad enough,
we are going to change it; maybe it is not bad enough, we are
not going to waive it. This law has been around a while, I
think since 2005, 2006, and was revised in 2007. You don't have
a standard?
Mr. Grundler. So we have, with respect to this general
waiver authority that you have mentioned, we have considered
that twice, once in 2008 and once in 2012, and in those cases
we went through an extensive set of economic analysis, working
with the Department of Agriculture on impacts, working with the
Department of Energy on impacts, using an economic model to
estimate what these impacts would be, and based on that record
and that evidence and the data that produced, we determined
that it was not severe economic harm, based on the numbers that
that showed, in relationship to the total economy or the total
economy of that State. It is a judgment call.
Mr. Jordan. I get what you are saying. I just don't know
how you can say it is not severe if you don't have a definition
for severe. I mean, don't you think that is a logical question
for the American consumer, for families to ask? How do you
decide whether it is severe or not? Because, well, in 2008, we
said it wasn't, but we didn't develop any criteria; in 2012 we
said it wasn't, but we didn't have any criteria, even though it
was four years later, we just did some analysis. I mean, it can
be some subjective analysis you throw together every year that
you get faced with this question. Unless you have some
objective standard, I don't know how anyone can determine what,
if you don't know what severe is, how are we going to know, and
how are you going to reach that level? To me, that is the
$64,000 question.
Ms. Speier. Mr. Chairman?
Mr. Jordan. The gentlelady is recognized.
Ms. Speier. Mr. Chairman, you have now extended another
four minutes. Can we give Mr. Grundler an opportunity to just
try to explain?
Mr. Jordan. I have given him several, but I would be happy
to give him another one.
Mr. Grundler. It is a difficult question, sir. The Congress
wrote this law and gave the administrator the ability to waive
standards if he or she determined that implementation of the
standard would create severe economic harm. We have used that
in terms of the continuum of insignificant to extreme, at the
far end of that continuum, but there is no hard and fast
definition for it, and it has to be a judgment call that the
administrator exercises.
Mr. Jordan. Okay. And I went way over time, but I will just
say this: Any other time there is a standard, there is some
definition to it in the law. If there is a standard of proof,
there are certain elements you have to meet to satisfy that
standard in law, and anything else there is some objective
measure, some number. When we write laws, typically, the
agencies write rules to implement the law. What you are saying
is you don't even have a rule or definition to define severe
harm; it is whatever you think it is at that particular time.
That is how we operate. Well, if that is the case, we will
never know if this is ever going to get waived. No matter how
close we get to the blend wall, what happens, we will never
know; and that is a problem as we move forward.
The gentlelady is recognized.
Ms. Speier. Mr. Chairman, thank you. Let's be clear, we
pass laws every day. Well, actually not, but occasionally.
[Laughter.]
Ms. Speier. Three hundred a year.
Mr. Issa. You know, we can go back to naming post offices,
then we can do them every day. But we are trying to stay off of
that.
Ms. Speier. And I appreciate that, Mr. Chairman. But, in
any case, we do pass laws that do not define certain terms. I
am reminded that we passed a law that said that 501(c)(4)
should be operated exclusively for social welfare purposes, and
then the agency itself came up with a regulation that termed it
primarily; and, frankly, we don't have a definition for either
of those.
So I think Mr. Grundler has made the point that it is done
on a case-by-case basis; and the term severe harm is one that
is assessed at the time and that it is a judgment call. There
are judgment calls that people within the bureaucracy make
every single day. We hope that there will be good judgment used
here, as there is often, and I think I will leave it at that
time.
I yield back.
Mr. Jordan. Well, if I could just respond. The gentlelady
makes, I think, an excellent point. She cited the Internal
Revenue Service and the lack of a clear definition. One thing
we do know is when you have that situation people aren't given
equal treatment. We found out that the only groups who were in
fact targeted were conservative groups applying for 501(c)(4)
status; no one else was targeted. So it would make sense to
have a standard so it is not so subjective. That is exactly the
point I am making here. What is the definition of severe harm?
Without a definition, how in the world are we going to make a
determination?
With that, I recognize the chairman of the full committee.
Mr. Issa. I thank you, chairman.
Ms. Speier, you and I represent the same State, but not at
the same time in the beginning. When I first arrived here, it
was 52 and then 53 members of the California delegation, every
single one, including Henry Waxman, who tried to get a waiver
on the 10 percent ethanol, because at the time we were using
MTBE because that was the oxygenate that we could get our hands
on, and it was destroying our ground water. EPA never saw fit
to consider the destruction of our watershed as sufficient, and
the lack of availability of ethanol, and, of course, the fact
that we didn't produce it in California.
Mr. Grundler, the fact is you don't have to have a perfect
definition, but if you don't have anecdotal examples of what
is, then you fail the most important test, and I think the
chairman was making that very clear. You have to say this is
out of bounds and this is inbounds. Even the IRS at least had
some examples of things which would be excessive; they said you
had to have at least 51 percent of something for it to be
primary, because there is a noun.
We are in a situation right now in which the Stanford study
still says that the cost in fuel of producing ethanol, for
example, still rises to effectively the same amount of fuel as
it generates in Btus, meaning there is not really a renewable
fuel because it consumes mostly non-renewable fuels making the
renewable fuel. So the idea that we are not going to grant a
waiver simply because any damage it causes isn't offset by any
benefit to speak of, that is not a new item; those studies have
been around for a while. And I understand that the ethanol
lobby is very effective at sort of demanding that we keep a
subsidy going.
My question to you is isn't it true that if the goal of
clean air, which is your mandate, your primary mandate, if the
goal of clean air can be achieved with a different blend, don't
you essentially have a fundamental obligation to grant the
waiver, regardless?
And, by the way, if you say no, you won't be the first
person from EPA to walk in saying no. It has always been kind
of interesting. Before we ever talked about renewables or CO2
as a pollutant, EPA seemed to always want to have its ability
not to grant waivers. But please answer.
Mr. Grundler. Sir, I am not familiar with the specifics of
the example you are relating to in terms of the MTBE question.
I am not really prepared to address that.
Mr. Issa. Perhaps you are not as old as I am. But we were
trying to get rid of MTBE; we knew that it had damaged, in huge
amounts, our watersheds. We knew it was a dangerous pollutant.
There actually had to be waivers granted as they tried to get
enough ethanol into California to replace it. Ultimately, it is
a good piece of history for you to become familiar with because
there was egregious harm being done to the drinking water of
the people of California, and the years 2001, 2002, 2003 went
by while we saw no willingness to say that even a small amount
of damage to California's watershed should have been a
sufficient danger to cause a waiver to be granted.
Mr. Grundler. If I could, sir, I would like to address the
rest of your question with respect to what situation we are
dealing with today. You weren't here earlier, but we very much
appreciate the seriousness of the situation. We have heard loud
and clear from a number of different stakeholders in this
policy question; advice in terms of how they think we ought to
approach the science and the law and this decision, and we are
going to be considering those very, very carefully as we make a
decision and the administrator makes his or her judgment later
this summer.
Mr. Issa. But let me rephrase my fundamental question,
though. Going from 10 percent to 0, that is a big decision; and
I think the law assumes that it is going to take a big
threshold. But going from 10 to 9, 10 to 8, 10 to 7, 10 to 6,
aren't those incrementally decisions that could be made where
the balance of harm, including economic harm, versus the
benefit can be measured? In other words, why wouldn't you be
considering blends that were not zero, but were significantly
lower, with a lower standard for it, so that it will not be an
all or nothing?
Mr. Grundler. That is precisely the process we are going
through right now; what are those considerations, what are
those options before the administrator, and what is the best
decision to be made. We have that discretion.
Mr. Issa. Mr. Chairman, just one other piece of history. I
was also here when we dealt with arsenic in States like your
own, in the southwest, where incredibly small amounts in wells
that had been around for decades and decades, in which there
was no known science to actually come up with why the number
that they came up with as an arbitrary number was necessary,
but we knew the economic cost. And I think that Chairman Jordan
said it very well: if you don't have a number, then the number
is arbitrary. We have seen arbitrary numbers in the past in
arsenic, where they didn't have science; they picked a
hypothetical number. That hypothetical number cost hundreds of
millions of dollars to people of New Mexico and other States.
This is another situation in which the number that is currently
there is costing a large fortune without having a known
benefit, if in fact blends can be as clean with a different
number.
I yield back.
Mr. Gosar. [Presiding.] I am going to recognize myself for
five minutes.
The EPA asserts that more E15 gasoline must be blended in
order for producers to meet the RFS, true?
Mr. Grundler. No.
Mr. Gosar. Does EPA believe that the E15 is safe for all
automobiles?
Mr. Grundler. No.
Mr. Gosar. Let me ask you, do you think we are headed for a
train wreck, as currently defined by Congress?
Mr. Grundler. I am not aware of the definition of train
wreck by the Congress.
Mr. Gosar. Well, let's look at the train wreck in regards
to what we are coming here within this mandate. It is a train
wreck left as is, right? If you are going to hold up the letter
of the law, it is a train wreck.
Mr. Grundler. Again, I am not sure of your definition of
train wreck, but we realize that the blend wall is a
significant issue.
Mr. Gosar. Well, let me ask you a question. So if we
continue on this standard, we will have a huge problem within
diesel fuel production, true or false?
Mr. Grundler. I would like to answer it this way, Mr.
Chairman. We clearly see, particularly in 14 and 15, and the
pace by which Congress anticipated the growth of this mandate,
is confronting very real market barriers right now, and we are
looking at all kinds of comments today in terms of what the
best way to address that.
Mr. Gosar. And how would you weight those comments?
Mr. Grundler. How would I weight them?
Mr. Gosar. How do you weight those comments? I am asking
you because what I want to do is I want to see from the agency
how you rationally start to look at those. You know, the
consumer, food prices, transportation costs, because this has a
staggering effect in which our economy could come to almost a
deadlock.
Mr. Grundler. That is certainly the conclusions of the NERA
study, which was, I would note, a worst case scenario. There
are other studies that we are looking at in terms of what is
the actual impact on the consumers, and we are looking at those
very, very carefully. All of these will go into this decision
and what is the best thing to do for the Country, and the
administrator will make that judgment. As I noted, there are
consequences on all sides of this equation, and people are
sharing with us directly and often what their views are, and
they are not always the same.
Mr. Gosar. I would agree. Let me ask you this. What science
are you going to use? Because it seems like we are in absence,
if we are looking at the E15, there is no science that really
backs it. We have the automotive industry that says we are
taking away warranties on cars. So it doesn't seem like we can
go that way. So it looks like we are back-treading ourselves
into a different position, true or false?
Mr. Grundler. You asked the question what science will we
use. It is really a matter of a judgment call in terms of what
are the market conditions; how much complying fuel can be moved
through this system and at what cost.
Mr. Gosar. But it is more than that. It is just not an
arbitrary aspect. You are talking about realistic, real world
values, and it is based on science. So you have to point to
science. Science helps set you free here. And in the absence of
a study, you have to err in that aspect, because I think any
time you are looking at the value of what scientists have given
us, we actually used a methodology that has got us into a
cleaner fuel. So with absence of science you are in no-man's
land and you don't know if you can actually support a
hypothesis.
Mr. Grundler. Well, there is science as well as market
reality. If the science told us, a couple years ago, that E15
would not harm certain kinds of vehicles, and yet we also need
to consider, as we make this decision, what the likelihood is
of increases in E15 fuel being produced and sold and bought by
consumers. So we need to look at both, sir.
Mr. Gosar. And when you look at the average consumer, do
they have lots of dispendable money sitting around?
Mr. Grundler. No, they do not.
Mr. Gosar. I mean, I have an E15 vehicle, I have a flex
fuel vehicle, so it makes it easy for me, but that is a little
different than the average American. We can't just go around
looking at the troubleshooting that will happen with 70 percent
of the cars on the marketplace. The American economy, the
American households just can't go buy another vehicle to
surmount this. And I think that is my biggest key is, is that I
see a lack of common sense here.
I am a dentist, by the way, impersonating a politician, so
things have, to me, have to have a science base to me that I
have to understand where am I going, what is my investment, and
what is it going to have as results; and I don't think that
that is what we are actually seeing, because I think if we saw
a detrimental aspect to our economy when we look at return on
investment, when you look at ethanol subsidies, which so many
of the members talked about here, you don't have a true open
market here. And number two is based on corn ethanol, you are
taking an awful lot off the table in feeding your population
and you are artificially raising everything on the table; not
just beef, pork, turkey, chicken, you name it, and diesel fuel,
all those aspects.
But I guess what my offer is is there is an un-clarity, if
there is uncertainty by the EPA, why wouldn't you reach back up
to this body to say could you help us in that clarification?
Mr. Grundler. Sir, the way we are going to approach this
decision, and I hope we will use common sense, we will ask
ourselves three questions: What is the law saying? What does
the science tell us? And what is the right thing to do here?
Mr. Gosar. Let me ask you a question. If you were uncertain
about what the law said, there was a gray area, so many times
we pass a law that there is lots of gray areas, why wouldn't
you entertain coming back to Congress and asking can you
clarify?
Mr. Grundler. That wouldn't be my judgment to make, sir,
but I think the law is quite clear in terms of the levels of
renewable fuels that the Congress mandated over the next few
years.
Mr. Gosar. But that was a different subset of an equation.
They looked in the future and looking at there were going to be
people utilizing more fuel. But when you use a finite and
dwindling more supplies, it becomes an antiquated equation. So
the rational mind says, listen, this wasn't anticipated; how do
we review this? And I think that brings a better set of ideals
and opportunity as a working relationship between a legislative
body and an administrative body. Wouldn't you agree?
Mr. Grundler. Sir, my job is to administer the law with as
much common sense as we can muster, as the law is today. I have
no position, EPA has no position today in terms of future
legislation.
Mr. Gosar. Well, that shows you the lack of what is
happening in administrative law, that it has to be an
enigmatic, dynamic type of interface. You want to strive for
ideals, but you always sometimes have to come back to common
sense applications. And I see a very big lack of that,
particularly from your agency; not just in this aspect, but in
numerous other aspects. I think sometimes we go a lot further
when we start to work with other bodies like the executive
branch, along with the legislative branch, to try to define how
do we solve problems, instead of saying, listen, this is what
we entertained, this is all we are going to do, and that is it.
Ms. Speier. Mr. Chairman?
Mr. Gosar. Yes.
Ms. Speier. I have one last submission that I would like to
ask unanimous consent be added to the record.
Mr. Gosar. So ordered.
Mr. Gosar. With that, we will adjourn the meeting.
Thank you very much, Mr. Grundler.
Mr. Grundler. Thank you.
[Whereupon, at 12:55 p.m., the subcommittee was adjourned.]
APPENDIX
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Material Submitted for the Hearing Record
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