[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
OVERVIEW OF THE RENEWABLE FUEL STANDARD: STAKEHOLDER PERSPECTIVES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND POWER
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JULY 23 & 24, 2013
__________
Serial No. 113-73
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
U.S. GOVERNMENT PRINTING OFFICE
86-397 WASHINGTON : 2014
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois FRANK PALLONE, Jr., New Jersey
JOSEPH R. PITTS, Pennsylvania BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon ANNA G. ESHOO, California
LEE TERRY, Nebraska ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan GENE GREEN, Texas
TIM MURPHY, Pennsylvania DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee MICHAEL F. DOYLE, Pennsylvania
Vice Chairman JANICE D. SCHAKOWSKY, Illinois
PHIL GINGREY, Georgia JIM MATHESON, Utah
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington DORIS O. MATSUI, California
GREGG HARPER, Mississippi DONNA M. CHRISTENSEN, Virgin
LEONARD LANCE, New Jersey Islands
BILL CASSIDY, Louisiana KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky JOHN P. SARBANES, Maryland
PETE OLSON, Texas JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia BRUCE L. BRALEY, Iowa
CORY GARDNER, Colorado PETER WELCH, Vermont
MIKE POMPEO, Kansas BEN RAY LUJAN, New Mexico
ADAM KINZINGER, Illinois PAUL TONKO, New York
H. MORGAN GRIFFITH, Virginia
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
Subcommittee on Energy and Power
ED WHITFIELD, Kentucky
Chairman
STEVE SCALISE, Louisiana BOBBY L. RUSH, Illinois
Vice Chairman Ranking Member
RALPH M. HALL, Texas JERRY McNERNEY, California
JOHN SHIMKUS, Illinois PAUL TONKO, New York
JOSEPH R. PITTS, Pennsylvania ELIOT L. ENGEL, New York
LEE TERRY, Nebraska GENE GREEN, Texas
MICHAEL C. BURGESS, Texas LOIS CAPPS, California
ROBERT E. LATTA, Ohio MICHAEL F. DOYLE, Pennsylvania
BILL CASSIDY, Louisiana JOHN BARROW, Georgia
PETE OLSON, Texas DORIS O. MATSUI, California
DAVID B. McKINLEY, West Virginia DONNA M. CHRISTENSEN, Virgin
CORY GARDNER, Colorado Islands
MIKE POMPEO, Kansas KATHY CASTOR, Florida
ADAM KINZINGER, Illinois JOHN D. DINGELL, Michigan
H. MORGAN GRIFFITH, Virginia HENRY A. WAXMAN, California (ex
JOE BARTON, Texas officio)
FRED UPTON, Michigan (ex officio)
C O N T E N T S
----------
JULY 23, 2013
Page
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 1
Prepared statement........................................... 2
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 3
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 4
Prepared statement........................................... 5
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 6
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, prepared statement................................ 205
Witnesses
Jack N. Gerard, President and CEO, American Petroleum Institute.. 8
Prepared statement........................................... 10
Bob Dinneen, President and CEO, Renewable Fuels Association...... 13
Prepared statement........................................... 15
Charles T. Drevna, President, American Fuel & Petrochemical
Manufacturers.................................................. 29
Prepared statement........................................... 31
Michael McAdams, President, Advanced Biofuels Association........ 59
Prepared statement........................................... 61
Answers to submitted questions............................... 206
Jeremy I. Martin, Senior Scientist, Clean Vehicles Program, Union
of Concerned Scientists........................................ 67
Prepared statement........................................... 69
Answers to submitted questions............................... 209
Tom Buis, CEO, Growth Energy..................................... 120
Prepared statement........................................... 123
Joseph H. Petrowski, CEO, The Cumberland Gulf Group, On Behalf of
Society of Independent Gasoline Marketers of America and
National Association of Convenience Stores..................... 143
Prepared statement........................................... 145
Shane Karr, Vice President, Federal Government Affairs, The
Alliance of Automobile Manufacturers........................... 154
Prepared statement........................................... 156
Todd J. Teske, Chairman and CEO, Briggs & Stratton Corporation... 164
Prepared statement........................................... 166
Robert Darbelnet, President and CEO, AAA......................... 174
Prepared statement........................................... 176
Joe Jobe, CEO, National Biodiesel Board.......................... 184
Prepared statement........................................... 186
JULY 24, 2013
Witnesses
Pam Johnson, President, National Corn Growers Association........ 218
Prepared statement........................................... 220
Bill Roenigk, Senior Vice President, National Chicken Council.... 233
Prepared statement........................................... 235
Ed Anderson, CEO, Wen-Gap, LLC, On Behalf of National Council of
Chain Restaurants.............................................. 239
Prepared statement........................................... 241
Chris Hurt, Professor, Department of Agricultural Economics,
Purdue University.............................................. 245
Prepared statement........................................... 247
Scott Faber, Vice President of Government Affairs, Environmental
Working Group.................................................. 262
Prepared statement........................................... 264
Submitted Material
Article entitled, ``Ethanol Fails to Lower Gas Prices, Study
Finds,'' in Scientific American, dated July 18, 2012, submitted
by Mr. Matheson................................................ 289
Letter of July 22, 2013, from the American Motorcycle Association
to the subcommittee, submitted by Mr. Whitfield................ 294
Letters of support from various Oregon organizations, submitted
by Mr. Whitfield............................................... 298
Letter of July 23, 2013, from the American Cleaning Institute to
the subcommittee, submitted by Mr. Whitfield................... 311
Statement of Biotechnology Industry Organization, submitted by
Mr. Whitfield.................................................. 312
Statement of the Iowa Cattlemen's Association, submitted by Mr.
Braley......................................................... 315
OVERVIEW OF THE RENEWABLE FUEL STANDARD: STAKEHOLDER PERSPECTIVES, DAY
1
----------
TUESDAY, JULY 23, 2013
House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:45 a.m., in
room 2123, Rayburn House Office Building, Hon. Ed Whitfield
(chairman of the subcommittee) presiding.
Present: Representatives Whitfield, Scalise, Hall, Shimkus,
Pitts, Terry, Burgess, Latta, Cassidy, Olson, McKinley,
Gardner, Pompeo, Kinzinger, Griffith, Barton, Upton (ex
officio), Rush, McNerney, Tonko, Engel, Green, Capps, Barrow,
Christensen, Castor, and Waxman (ex officio).
Staff Present: Nick Abraham, Legislative Clerk; Charlotte
Baker, Press Secretary; Sean Bonyun, Communications Director;
Matt, Bravo, Professional Staff Member; Allison Busbee, Policy
Coordinator, Energy and Power; Tom Hassenboehler, Chief
Counsel, Energy and Power; Ben Lieberman, Counsel, Energy and
Power; Brandon Mooney, Professional Staff Member; Andrew
Powaleny, Deputy Press Secretary; Chris Sarley, Policy
Coordinator, Environment and Economy; Phil Barnett, Minority
Staff Director; Patrick Donovan, Minority FCC Detailee;
Kristina Friedman, Minority EPA Detailee; Bruce Ho, Minority
Counsel; Ryan Skukowski, Minority Staff Assistant; and
Alexandra Teitz, Minority Senior Counsel, Environment and
Energy.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. The hearing will come to order. I will
recognize myself for a 5-minute opening statement.
Today we have our second hearing entitled, ``Overview of
the Renewable Fuel Standard: Stakeholder Perspectives,'' and we
continue our assessment of the Renewable Fuel Standard. Over
the course of this year, we have taken a comprehensive and
deliberate approach working with both staffs on both sides of
the aisle and members on both sides of the aisle to review the
RFS, beginning with a series of bipartisan white papers that
solicited input from interested stakeholders on major aspects
of the program. The response has really been overwhelmingly
helpful to the process, and I certainly want to thank everyone
for participating and helping us deal with this issue.
Our first hearing on the subject was on June 26. We focused
at that time on the government agencies chiefly responsible for
implementing the RFS. EPA, EIA, and USDA all agree that many
things have changed since the RFS was last revised in 2007. For
example, as you all know, we are using a lot less gasoline
today than we did then, yet the RFS is still based on the
assumptions of 2007 and not the realities of 2013. We know that
the RIN prices are going up. We know that cellulosic ethanol
production is simply not there at this time. And all three
agencies at that hearing on the 26th of June agreed that there
were RFS implementation issues that warranted attention,
especially as we look to 2014. And we certainly need to pay
attention to those issues.
Today and tomorrow, we take another important step in the
review process by hearing from 16 stakeholder witnesses
offering a wide range of perspectives on the RFS. Refiners,
renewable fuel producers, environmentalists, automakers, small
engine makers, fuel retailers, corn growers, poultry raisers,
restaurant owners, consumers, and others will all explain where
we are today with the RFS. And we expect that after the hearing
today, everyone will be on the same page.
I am pleased to welcome as a part of our second panel today
Todd Teske of Briggs & Stratton. That plant manufactures small
engines, not only in my district in Kentucky but throughout the
country.
Today's first panel is going to focus on the impact of the
RFS on fuel production, while the second will focus on fuel
sales and use. And then we are having another hearing tomorrow
and that panel will address the impacts on the agricultural
sector and the food supply.
Despite the differing points of views from which
stakeholders come to this issue, it is my hope that with
today's hearing, we can at least start the process of consensus
building on a path forward for the RFS. This includes potential
adjustments to the RFS that align the program with current
energy realities. Many businesses and many jobs are at stake
from corn farmer to refinery worker to gas station employee to
lawnmower maker to ethanol plant worker. And just as important,
the interests of consumers are directly impacted by the RFS.
The end goal of this process is an RFS that works effectively
and does not distort the market. And with that, at this time, I
would like to recognize the gentleman from Illinois Mr. Rush
for a 5-minute opening statement.
[The prepared statement of Mr. Whitfield follows:]
Prepared statement of Hon. Ed Whitfield
This morning's hearing is entitled ``Overview of the
Renewable Fuel Standard: Stakeholder Perspectives,'' and
continues our committee's assessment of the RFS. Over the
course of this year, we have taken a comprehensive and
deliberate approach to reviewing the RFS, which began with a
series of bipartisan white papers that solicited input from
interested stakeholders on major aspects of the program. The
response has been overwhelming and very helpful to the process,
and I would like to thank everyone who participated.
We conducted our initial hearing on June 26, which focused
on the government agencies chiefly responsible for implementing
the RFS. The EPA, EIA, and USDA all agreed that many things
have changed since the RFS was last revised in 2007. For
example, we are using considerably less gasoline today than we
did then. Yet the RFS is still based on the assumptions of 2007
and not the realities of 2013.
And all three agencies agreed that there are RFS
implementation issues that warrant serious attention,
especially as we look to 2014. We need to pay attention to
these warnings.
Today and tomorrow, we take another important step in the
review process by hearing from 16 stakeholder witnesses
offering a wide range of perspectives on the RFS. Refiners,
renewable fuel producers, environmentalists, automakers, small
engine makers, fuel retailers, corn growers, poultry raisers,
restaurant owners, consumers, and others will all explain where
we are today with the RFS and what the future may hold.
And I am pleased to welcome, as part of the second panel,
Todd Teske of Briggs & Stratton which manufactures small
engines back in my district.
Today's first panel will focus on the impact of the RFS on
fuel production, while the second will focus on fuel sales and
use. And tomorrow's panel will address the impact on the
agricultural sector and the food supply.
Despite the differing points of view from which
stakeholders come to this issue, it is my hope that with
today's hearing we can start a process of consensus building on
a path forward for the RFS. This includes potential adjustments
to the RFS that align the program with current energy
realities.
Many businesses and many jobs are at stake--from corn
farmer to refinery worker to gas station employee to lawnmower
maker to ethanol plant worker. And, just as important, the
interests of consumers are directly impacted by the RFS. The
end goal of this process is an RFS that works as best as
possible for everyone.
# # #
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. I want to thank you, Mr. Chairman, for holding
this timely and important hearing on the overview of the
Renewable Fuel Standard, where we will have the opportunity to
hear from various stakeholders representing many different
sectors of the economy. Over the course of the past year, my
office has attended dozens of meetings on this critical topic.
And for stakeholders from my home State of Illinois, there are
few energy issues as important as the matter of the RFS.
Mr. Chairman, I have always been very supportive of this
policy because I believe since its inception, it has achieved
many of the goals that it was first enacted to do, including
helping to reduce U.S. dependency on foreign oil, enhancing
energy security, bolstering the agriculture economy, and
addressing the challenges of climate change by reducing
greenhouse gas emissions from the transportation sector. Today
I believe the RFS has been successful in meeting each of these
standards while also helping to drive job creation and economic
investment.
For instance, Mr. Chairman, the RFS has played a key role
in helping America's ethanol industry support 400,000 jobs
nationwide, including 64,000 jobs in Illinois alone. And it has
also resulted in over $40 billion in economic activity.
Additionally, as the summer driving season reaches its peak and
gas prices skyrocket at the pump, Chicagoans are paying among
the highest prices in the country, averaging $4.11 for regular
gas last week, which is up from $3.84 just a week before that.
So, one of the questions I would like to learn today more
about, Mr. Chairman, is, how does diversifying the Nation's
fuel sources, as the RFS does, impact gasoline prices for
consumers? I also look forward to having the various
stakeholders discuss some of the important issues surrounding
the RFS in a public and transparent setting where they will
have the opportunity to respond and rebut other witnesses so
that the members of this subcommittee may gain a better idea of
what is, indeed, fact and what is just mere fiction in regards
to this debate.
Mr. Chairman, in meeting after meeting, my office has
received a host of competing and, in many instances,
contrasting information on the RFS, especially in the areas of
the gasoline ethanol blend wall, the rate of advanced biofuels
development, issues associated with the renewable
identification numbers, and the impact of the RFS on
agriculture and food prices.
So I am pleased, Mr. Chairman, with the diversity of the
panelists and the different industry sectors they represent
because I believe this will help lead them to a robust and
comprehensive debate. And hopefully, it will help members on
both sides of the aisle come to a sensible resolution of this
very, very important issue.
Mr. Chairman, I look forward to the public hearing today,
the one tomorrow where we can lay out all of the facts,
including both the opportunity and the challenges to
implementing the RFS as currently drafted. And it is my hope
that we can work to find bipartisan common ground on this issue
as it moves forward. I want to thank you, and I yield back the
balance of my time.
Mr. Whitfield. Thank you Mr. Rush.
At this time, I recognize the gentleman from Michigan, Mr.
Upton, chairman of the full committee for a 5-minute opening
statement.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Thank you, Mr. Chairman. As authorizers, it is
our job to review the policies that we establish overseas. And
it is a job that certainly I take very seriously as chairman of
this committee, as do our members on both sides of the aisle.
And since this is the committee where the RFS originated, we
have the responsibility to assess how it is working and if it
can be improved. And today's hearing continues our bipartisan
review of the RFS. And I want to thank Ranking Member Waxman
for his collaboration in this process.
Much has changed since the RFS was last revised in 2007,
including the exciting new developments that have led to
unexpected increases in domestic oil and natural gas
production. And while I believe this committee should do all it
can to facilitate the domestic gas and natural oil revolution,
I also see a continued role for renewable fuels and other
alternatives. Reviewing the RFS and how it fits into the
changing energy mix is what we are doing today.
We began our assessment with a series of bipartisan white
papers that explored key RFS topics, including the
compatibility of fuels with the existing infrastructure and
vehicle fleet and the impacts on the agriculture sector and the
environment. The stakeholder response has been as extensive as
it has been substantive. And the range of viewpoints expressed
demonstrates the far-reaching effects of the RFS. On June 26,
this subcommittee held its first RFS hearing and invited the
Federal agencies most directly responsible for implementing the
RFS. The Energy Information Administration, the EPA, and the
Department of Ag all made similar diagnoses, that there are
real issues with RFS that may come to the surface in 2014. In
other words, our review is very timely.
Today we invite stakeholders to continue that discussion. I
welcome all of it. And of course, I am particularly interested
in hearing from the automakers, knowing its importance to the
Midwest and my State of Michigan. Fuels and vehicles operate as
a system, and we need an RFS that works well within that
system, given the changing dynamics of the current CAFE
compliance obligations.
But let me cut to the chase. In my view, the current system
cannot stand. I hope that we can start a discussion that
considers a host of potential modification and updates to the
RFS with the end goal being a system that works best for the
American people. And to do that, we need everyone, everyone to
come to the table with a commitment to listen and be
constructive. I welcome every proposal, all proposals to
improve this system and look forward to hearing those ideas
from today's witnesses.
I am especially looking forward to hearing what each
stakeholder is willing to bring to the table to fix and improve
the current system. I am absolutely committed to ensuring that
we deliver workable reforms.
I yield back to the chairman.
[The prepared statement of Mr. Upton follows:]
Prepared statement of Hon. Fred Upton
As authorizers, it is our job to review the policies we
establish and oversee. It's a job I take very seriously as
chairman of this committee, as do our members on both sides of
the aisle. And since this is the committee where the Renewable
Fuel Standard originated, we have the responsibility to assess
how it is working and if it can be improved. Today's hearing
continues our bipartisan review of the RFS, and I would like to
thank ranking member Waxman for his collaboration in this
process.
Much has changed since the RFS was last revised in 2007,
including the exciting new developments that have led to
unexpected increases in domestic oil and natural gas
production. And while I believe this committee should do all it
can to facilitate this domestic oil and natural gas revolution,
I also see a continued role for renewable fuels and other
alternatives. Reviewing the RFS and how it fits into the
changing energy mix is what we are doing today.
We began our assessment with a series of bipartisan white
papers that explored key RFS topics, including the
compatibility of fuels with the existing infrastructure and
vehicle fleet, and the impacts on the agricultural sector and
the environment. The stakeholder response has been as extensive
as it has been substantive. And the range of viewpoints
expressed demonstrates the far-reaching effects of the RFS.
On June 26th, this subcommittee held its first RFS hearing,
and invited the federal agencies most directly responsible for
implementing the RFS. The Energy Information Administration,
Environmental Protection Agency, and Department of Agriculture
all made a similar diagnosis--that there are some real issues
with the RFS that may come to the surface in 2014. In other
words, our review is timely.
Today, we invite stakeholders to continue the discussion. I
welcome all of them, and of course am particularly interested
in hearing from the automakers. Fuels and vehicles operate as a
system, and we need an RFS that works well within that system,
given the changing dynamics of the current CAFE compliance
obligations.
In my view, the current system cannot stand. I hope we can
start a discussion that considers a host of potential
modifications and updates to the RFS, with the end goal being a
system that works best for the American people. To do that, we
need everyone to come to the table with a commitment to listen
and to be constructive. I welcome all proposals to improve the
system and look forward to hearing ideas from today's
witnesses. I am especially looking forward to hearing what each
stakeholder is willing to bring to the table to fix the current
system. I am absolutely committed to ensuring we deliver
workable reforms.
# # #
Mr. Whitfield. The gentleman yields back.
At this time, I recognize the gentleman from California,
Mr. Waxman, for a 5-minute opening statement.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman.
Last year, Americans consumed our lowest amount of oil
since 1996.
This is good news for the climate and for families'
pocketbooks. We are relying less on fossil fuels and are using
those fuels more efficiently. Thanks to President Obama, we
have vehicle standards that will continue to make our cars and
trucks more efficient and less carbon polluting than ever
before.
These standards are saving Americans money at the pump,
enhancing our energy security, boosting our economy, and
cutting carbon pollution.
Yet as long as our transportation system relies almost
entirely on fossil fuels, we will continue to pollute and drive
dangerous climate change. Transportation is the second largest
source of carbon pollution in the U.S. Further improvements in
fuel efficiency are critical but will not achieve the 80
percent reduction in climate pollution that we need by 2050 to
avoid catastrophic climate change.
In my district, scientists at UCLA recently predicted that
if we fail to reduce carbon pollution, southern California snow
packs will fall 42 percent by mid century and by more than two-
thirds by the end of the century. This is an impending crisis
for the 18 million Californians who rely on the snow melt for
drinking water, agriculture, and other economic activities. And
with our interconnected economy, even these effects aren't
limited to California. Reduced production on California farms
introduces uncertainty into our food supply and means we will
pay more for our fruits and vegetables.
In recent years, we have seen historic droughts, fires,
floods, heat waves, and hurricanes. Climate change is hurting
Americans across the country.
As President Obama recently emphasized, we must build a
21st century transportation system to address climate change.
There are several ways that we can reduce carbon pollution in
the transportation system. Fuel efficiency is one, but so are
better land use planning and investments in public
transportation options that lower costs and protect the
environment. Hybrid vehicles and electric vehicles charged with
electricity from renewable sources are also key parts of the
solution.
In today's hearing, we will look at another: low carbon
biofuel, which are being developed under the Renewable Fuel
Standard, or RFS. For some transportation sectors, including
aviation and shipping, low carbon liquid fuels may be the only
option to reduce carbon pollution besides efficiency. However,
as we will also explore today, not all biofuels are low carbon,
and our biofuels policy must be implemented thoughtfully to
achieve climate benefits.
Today's hearing is the subcommittee's second look at the
RFS, which is one of the few laws adopted by Congress that
explicitly and directly aims to reduce carbon pollution.
Last month, we heard from EIA, EPA, and the Department of
Agriculture that the RFS has helped launch an entirely new
advanced biofuels industry that has the potential to offer real
climate benefits and grow our economy. But we also heard that
development of this industry has taken longer than Congress had
originally hoped and that other challenges have arisen,
including the gasoline ethanol blend wall, which may be around
the corner. And I look forward to hearing from our stakeholder
witnesses today and tomorrow on these and other issues.
In addition to these hearings, over the last few months,
Chairman Upton and I have released a series of bipartisan white
papers discussing the RFS and soliciting public comments on the
law. This process has been helpful, and I appreciate the
majority's efforts to work with the Democrats so that we can
all better understand these issues.
The RFS has serious issues, and I welcome the opportunity
to take a careful look at this policy through the white papers
and through these hearings.
And as we move forward, we should continue to evaluate how
the RFS could better contribute to a low carbon transportation
system that benefits both our environment and our economy. As
we consider any changes to the policy, we should ensure that
the law's climate benefits are preserved and strengthened.
Thank you, Mr. Chairman.
Mr. Whitfield. Thank you, Mr. Waxman.
And that concludes the opening statements for the day.
So, at this time, I would like to introduce our witnesses
on the first panel. First of all, I want to tell you, we
appreciate you getting your testimony to us. We read the
testimony. We appreciate you taking the time to give us your
expertise on this very important issue. And our witnesses are
Mr. Jack Gerard, who is the president and CEO of the American
Petroleum Institute. We have Mr. Bob Dinneen, who is the
president and CEO of Renewable Fuels Association. We have Mr.
Charles Drevna, who is the president of the American Fuel &
Petrochemical Manufacturers. We have Mr. Michael McAdams, who
is the president of the Advanced Biofuels Association. And we
have Dr. Jeremy Martin, senior scientist at the Clean Vehicles
Program at the Union of Concerned Scientists.
So thank you for being with us. Each one of you will be
recognized for 5 minutes for an opening statement. And at the
end of that time, then we will have questions for you.
STATEMENTS OF JACK N. GERARD, PRESIDENT AND CEO, AMERICAN
PETROLEUM INSTITUTE; BOB DINNEEN, PRESIDENT AND CEO, RENEWABLE
FUELS ASSOCIATION; CHARLES T. DREVNA, PRESIDENT, AMERICAN FUEL
& PETROCHEMICAL MANUFACTURERS; MICHAEL MCADAMS, PRESIDENT,
ADVANCED BIOFUELS ASSOCIATION; AND JEREMY I. MARTIN, SENIOR
SCIENTIST, CLEAN VEHICLES PROGRAM, UNION OF CONCERNED
SCIENTISTS
Mr. Whitfield. So, Mr. Gerard, you are recognized for 5
minutes.
STATEMENT OF JACK N. GERARD
Mr. Gerard. Great.
Thank you, Chairman Whitfield and Ranking Member Rush and
Chairman Upton and Ranking Member Waxman. We appreciate the
opportunity as API to testify today to express our concerns
with the renewable fuels standard. API represents all sector of
America's oil and natural gas industry. We support 9.2 million
American jobs, 7.7 percent of the U.S. economy. We deliver more
than $86 million a day to the Federal Government. And we are
responsible for delivering most of the energy that drives our
economy, a responsibility that we take very seriously, which is
why we are extremely concerned about the risk the RFS poses to
our economy and to millions of consumers.
In 2007, when Congress created the RFS, the energy market
and our Nation's energy landscape were very different than they
are today. The RFS was designed to reduce greenhouse gas
emissions, make our Nation more energy secure and provide a
reliable domestic source of energy that would lessen energy
imports from less stable regions around the world.
Today we are much closer to achieving these important
goals. Unfortunately, it is not because of the RFS. It is
because of the oil and natural gas industry's technological
advancements and vastly expanded energy resources. The 21st
century energy renaissance has driven our Nation's
CO2 emissions near a 20-year low, made us the number
one producer of clean-burning natural gas, and put us on a
track to become the world's largest oil producer in 7 short
years. Put simply, the RFS, while well intentioned, is today
completely untethered from reality and unless it is immediately
halted will unnecessarily cost our economy and consumers
billions of dollars.
In fact, the RFS and its requirements are already beginning
to drive up energy production costs. The best example is the
price volatility in the renewable identification number or
RINs, which refiners must obtain when blending renewable fuels
into gasoline and diesel. RINs are becoming increasingly scarce
through the impending E10 blend wall, which is the point at
which the RFS mandate exceeds the safe limit of ethanol in
America's fuel supply. These higher ethanol volumes in
America's fuel supply would void millions of car warranties.
Today, RIN prices are near an all-time high which,
according to an editorial in Saturday's Wall Street Journal,
translates into a 10 cent per gallon ethanol tax on consumers
at a total cost of $14 billion to our economy. Other experts,
such as the Energy Policy Research Foundation, EPRINC,
estimates the program could increase the price of gasoline from
20 cents per gallon to as much as $1 per gallon as early as
next year. Further, according to a study conducted by NERA
Economic Consulting, exceeding the blend wall could result in
diesel fuel costs rising as much as 300 percent and a 30
percent increase in gasoline cost by 2015. In broad economic
terms, the RFS could cause a $770 billion decrease in U.S. GDP
by 2015 and would reduce take-home pay for American workers by
$580 billion.
And in an ``only in Washington'' turn of events, the RFS
also mandates the use of a fuel that simply doesn't exist.
Currently, the amount of commercially available advanced
cellulosic biofuels in the market doesn't come close to meeting
the arbitrary requirements of the RFS. In other words, RFS
mandates the use of phantom fuel that could cost American
consumers millions.
All of which leads to the inescapable fact, the RFS isn't
just a relic of America's bygone era of energy scarcity. It is
a grave economic threat and in our view should be stopped
immediately. The real tragedy is that this can all be prevented
and can be prevented right now.
To that end, we again call on the administration to
immediately waive down the volume requirements to below 10
percent for 2013 and 2014 and for Congress to finally repeal
this fundamentally broken law. Because the stakes are simply
too high for inaction, which could cost consumers millions of
dollars, place at risk small engines and automobiles, and
ultimately cause severe damage to our domestic economy. Thank
you for your time and attention today. And I look forward to
answering your questions.
Mr. Whitfield. Thank you, Mr. Gerard.
[The prepared statement of Mr. Gerard follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. Mr. Dinneen, you are now recognized for 5
minutes.
STATEMENT OF BOB DINNEEN
Mr. Dinneen. Thank you, Mr. Chairman.
Thank you Chairman Upton, Ranking Member Rush and Ranking
Member Waxman.
This is an important and timely hearing. And I want to
thank you for having a balanced approach, not just with the
hearing but with the white papers as well. This has been a
process that has allowed all stakeholders an opportunity to get
their views across, and we appreciate it.
By virtually any measure, the RFS has been an unmitigated
success. It has reduced our dependence on imported petroleum,
stimulated investment in new technologies, reduced consumer
gasoline prices, created jobs and economic opportunity across
rural America, saved taxpayers' dollars by lowering foreign
program payments, and is the only program we have that lowers
greenhouse gas emissions.
My written testimony and the RFA's responses to the
committee's white papers describe many of the benefits of the
RFS. Let me focus on one, the success of the RFS in enhancing
energy security.
Slide one, please.
U.S. dependence on imported oil has fallen since the RFS
was enacted, from 60 percent in 2005 to 40 percent today. But
it is important to note that this measure includes net imports
of both crude oil and all other petroleum products. If just
crude oil is considered, import dependence was 57 percent in
2012, meaning that the most significant reduction has been in
petroleum products that is finished gasoline. That is the RFS
at work. That is ethanol.
Now Mr. Gerard suggests that our dependence on imported oil
has fallen because of oil. And indeed, we are fracking more and
producing more. But 62 percent of the new energy production
since 2005 has been ethanol, 38 percent oil. It is ethanol that
has driven that number down. Now my friends in the oil industry
want you to repeal the RFS and have pointed to the blend wall
as a major reason they can't meet the RFS obligation.
So let's take a look at the blend wall.
Slide two, please.
The green bar is the RFS requirement. The 13.8 billion
gallons of corn ethanol that has to be blended this year. We
will sell close to 13.4 billion gallons of ethanol into E10
markets, meeting the obligation for 133 billion gallons of
fuel. We will also sell more than 150 million gallons of
ethanol for E85 for flex-fuel vehicles, meaning that there is
just 280 million gallons of gasoline above the blend wall. That
is what the fuss is about.
The requirement above the blend wall this year represents
less than 0.2 of 1 percent of the U.S. Gasoline market. The
3,000-plus E85 retail outlets in operation today would only
need to sell an average of 15,000 gallons per month to scale
the 2013 blend wall. With ethanol prices today about 60 cents
less than gasoline, E85 sales are spiking. And some stations
are reporting E85 sales close to 50,000 gallons a month. And
with almost 16 million FFBs on the road today, there is enough
potential E85 demand for 8 billion gallons of E85. What blend
wall? All we need is market access for E85, E15, and other
blends, access that is being denied today by an incumbent
industry intent upon holding onto its monopoly.
Well, they say ethanol, the RFS and RINs are driving up the
price of gasoline. No.
Slide three.
Again, ethanol is less expensive than gasoline. The RFS is
saving consumers at the pump. And there is absolutely no
correlation between retail gas prices and ethanol RIN prices.
RINs are free. Let me repeat. RINs are free. Ethanol producers
are required to give RINs to refiners and gasoline marketers
when they purchase a gallon of ethanol. Buy a gallon of
ethanol, get a RIN for free. There is a rather thinly traded
and opaque market for RINs as oil companies trade them amongst
themselves. But if they don't like the price, they can always
blend more ethanol and get more free RINs. They don't have to
short the U.S. gasoline market. And if they do, shame on them.
There is no truth to the notion that ethanol and the RFS
are driving up food prices.
Slide four.
In fact, food prices have actually fallen as the RFS has
been implemented, with the lowest food price inflation in the
past 50 years, 1 percent occurring in 2010. There is no
correlation between food prices and growing ethanol production.
So what is driving food prices? It is the skyrocketing
price of oil, of course.
Slide five.
Now there is a near perfect correlation. When oil prices
spiked to $140 a barrel in 2008, so, too, did food prices.
Energy drives the cost of all food items at the grocery store
because of transportation, refrigeration, production, and
marketing. That is why the RFS is so important. It is the only
policy we have to moderate gasoline prices at the pump.
Congress did an excellent job crafting the RFS, building in a
great deal of administrative and market flexibility to deal
with the issues as they arrive. As a result, there is nothing
wrong with the RFS that can't be fixed with what is right with
the RFS. And there is no need to legislate changes to a program
that is working as designed, even if the incumbent industry
bristles at losing market share. Thank you.
Mr. Whitfield. Thank you, Mr. Dinneen.
[The prepared statement of Mr. Dinneen follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And Mr. Drevna, you are now recognized for a
5 minutes opening statement.
STATEMENT OF CHARLES T. DREVNA
Mr. Drevna. Thank you Chairman Whitfield, Ranking Member
Rush, Chairman Upton, and Ranking Member Waxman of the full
committee.
In 2007, Congress enacted energy legislation which in
essence delivered a contract with the American people that
promised significant steps toward energy independence and
national security and added environmental protections. A major
component of that contract known as the RFS called for massive
amounts of renewable fuels to be blended into the Nation's
transportation fuel supply.
In 2013, we now know that the RFS is a program based upon
erroneous market assumptions, obstacles that prevent the safe
consumption of ethanol at increasing mandated levels, and many
other unintended negative consequences. These critical flaws in
combination with the resurgence of domestic energy production
have led us to one unquestionable conclusion. It is now
abundantly clear that the RFS has systemic problems that
Congress must address immediately and decisively to avoid
severe economic harm to individual consumers and to our
Nation's economy. Ironically in a free market, as opposed to a
mandated market, which somehow we have a monopoly on, consumer
choice and economics would drive the safe and efficient
introduction of biofuels.
However, mandates are not the free market, and the reality
is the RFS will raise prices for virtually all consumer goods,
possibly leading to a consumer backlash against renewables
generally, just not the mandate. We believe this is not the
result Congress wants to achieve. So, in short, Congress should
declare the contract with the American people vis-a-vis the RFS
null and void and repeal the RFS. The flaws of the RFS are
numerous, and they are here now.
First, perhaps the most pressing issue this year is the
onset of the E10 blend wall. As opposed to previous statements,
the E10 blend wall represents the maximum amount of ethanol
that can be blended safely into existing infrastructure without
damaging both vehicle and other engines. U.S. consumers are
projected to use about 133 billion gallons of gasoline this
year, meaning the E10 blend wall is at 13.3 billion gallons.
The RFS requires 13.8 billion gallons of corn ethanol alone. As
outlined in detail in my written statement, E15 and E85, in
spite of dramatic protestations, are not viable due to vehicle
infrastructure incompatibility and more importantly or just as
importantly the lack of consumer acceptance.
Complicating matters further, refiners are not the entities
actually blending the ethanol into the fuel, meaning the
refiner must go into the open market to purchase a compliance
credit, known as a RIN, so when you purchase something, it is
not free. When the fuel supply contains a maximum amount of
fuel it can handle, no more RINs can be generated for the
refiners to achieve compliance. When refiners are unable to
purchase sufficient RINs for compliance, they are left with
only bad options, which force them to reduce the fuel supply to
the U.S. market.
Likewise, importers of gasoline also look elsewhere to
market their products. These economic consequences, also
detailed in my written testimony, could be staggering.
Meanwhile, the harmful impacts of the approaching blend wall
have already begun. One example is the dramatic increase in the
market price of ethanol RINs. Prior to the onset of the blend
wall, RINs traded at 4 to 7 cents. However, as the market
anticipates the scarcity, RIN prices rose to as much as $1.48
just last week. A refiner that purchases all of its RINs now
faces an implied 15 cent per gallon premium to sell fuel in the
United States.
Trade press is already reporting that importers are turning
to gasoline imports to other countries to avoid this RIN tax.
Much of my time has been spent talking about the impact of the
blend wall. By doing so, I do not want to underemphasize the
other negative impacts, including that on food and feed supply.
And as we also know, from EPA's own data, the RFS is actually
undermining its environmental goals. There are many additional
problems created by the RFS, which are detailed in my written
statement. Before concluding, however, let me be clear, AFPM is
not anti-ethanol or anti-biofuels. Both can and will play a
significant role in the fuel mix. But they must be safely
integrated into the fuel supply and accepted by consumers. AFPM
does oppose mandates and subsidies because they limit consumer
choice, stifle innovation, and in the case of the RFS, are
ultimately harmful to the consumer. In short, this unworkable
law should be repealed. Thank you for your attention, and I
look forward to fielding any questions you may have.
Mr. Whitfield. Thank you, Mr. Drevna.
[The prepared statement of Mr. Drevna follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And Mr. McAdams you are recognized for 5
minutes.
STATEMENT OF MICHAEL MCADAMS
Mr. McAdams. Thank you, Mr. Chairman, Chairman Upton,
Ranking Minority Rush, Ranking Minority Member Waxman, and
members of the committee. It is an honor to be with you today
on behalf of the Advanced Biofuels Association.
The Advanced Biofuels Association represents more than 40
of the leading technology innovators in the advanced and
cellulosic biofuels space as well as a number of the
agriculture biomass to energy feedstock producers. In the past
3 months, the Advanced Biofuels Association has responded to
four of your white papers and is currently preparing a fifth.
We congratulate the committee and your staff for this
bipartisan, thoughtful, and substantive approach. Given that
ABFA has provided the committee detailed answers on the RFS, I
would like to take a step back this morning and try to
accomplish three things.
First, I would like to set a context around the RFS.
Second, I would like to call the impacts of the debate into
focus. And lastly, I would like to offer a solution set for
your consideration. Congress expanded the RFS to stimulate an
advance in cellulosic biofuels industry to encourage larger
greenhouse gas reductions and to develop more energy dense
drop-in fuels. Many of these new advanced biofuels are
hydrocarbons, and they are compatible with the existing
pipelines, refineries, planes, trains, and automobiles. ABF
members are delivering on that vision today. Today's hearing is
largely about concerns surrounding the blend wall. Simply
stated, it is the mismatch between the number of gallons of
gasoline the U.S. market is demanding and the number of gallons
of ethanol the RFS calls to be mixed into that gasoline.
With a 10 percent limit on the ethanol to gasoline ratio,
there is a mismatch this year of roughly 500 million gallons.
However, the RIN bank carryover provisions in the law allow the
RINs from 2012 to meet the proposed targets in 2013. And they
are enough this year to easily achieve the proposed mandate.
The RIN market makers, however, they question whether this will
be the case in 2014 and 2015. This year, the United States of
America will use 213 billion gallons of fuel. And of that,
about 15 billion gallons will be renewable fuel. The 500
million gallon mismatch represents 1/30th or 3.3 percent of the
entire production of renewable fuels in the United States and
0.2 percent of 1 percent of the amount of fuel we use in
America.
Additionally, much has been made about the shortfall of the
cellulosic gallons. I would argue that the recent court case
that my colleagues on the panel here were victorious in has
adequately addressed the phantom fuel issue. And this year, we
will see significant gallons in the cellulosic pool, which
began to be placed on the EMTS system last month. Calling for
the full repeal of the RFS over a short-term issue impacting
less than 1 percent of all the fuels we use in America doesn't
make a lot of sense as a public policy solution.
For ABFA's members, the debate over repealing the RFS is
having a chilling impact on the investment community and is
restraining the growth and ability of our members to move
forward. Despite this, many of them are making real gallons of
cellulosic gasoline and diesel today as well as renewable
diesel and other RFS approved fuels. In the last 6 years, U.S.
businesses in the private sector have spent $14.72 billion in
pursuit of the policy goal you collectively laid down in this
committee. According to Bloomberg New Energy Finance, $33
billion has been invested worldwide in this sector. That means
we are almost half of the world's investment.
These numbers represent people and jobs all over America,
jobs in rural America planting and cultivating the best new
energy crops, jobs building and operating biorefineries,
technology and engineering jobs and laboratory jobs researching
new feedstocks and enzymes and many more. To repeal the RFS
would pull the rug right out from under them and change the
rules in the first half of the game. This confusing policy
signal is a benefit to the incumbent players in the fuels
market and is a significant disadvantage to those trying to
finance and build new innovative technologies.
A potential short-term solution can be found in EPA. When
Congress passed the RFS II in 2007, it provided EPA with
significant flexibility and authority to address issues which
could arise from hurricanes, droughts, and unforeseen economic
factors. Much of what is difficult about the RFS today is the
uncertainty surrounding the obligations on a yearly basis. ABFA
and others on this panel and panels after this one have called
for EPA to release the renewable volumes obligations for 2013
and 2014 as quickly as possible. Providing an additional year
of clarity with a framework for the 2015 RDOs would help
rapidly diffuse much of the economic pressure those of us on
this side of the table are feeling.
The committee should encourage EPA to explore a combined
2014-2015 framework. A clear signal from EPA given to the
stakeholders in advance would be a huge step forward in
adjusting EPA's procedure to help all the markets work more
smoothly. Thank you for the opportunity to testify with you
today. And I look forward to your questions.
Mr. Whitfield. Thank you, Mr. McAdams.
[The prepared statement of Mr. McAdams follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And Dr. Martin, you are recognized for 5
minutes.
STATEMENT OF JEREMY I. MARTIN
Mr. Martin. Thank you very much, Chairman Whitfield,
Ranking Member Rush, Chairman Upton, Ranking Member Waxman, and
members of the subcommittee.
Thank you for the opportunity to testify about the
Renewable Fuel Standard. My name is Jeremy Martin. I am a
senior scientist working on biofuels policy at the Union of
Concerned Scientists. USC is the Nation's leading science-based
nonprofit, putting rigorous independent science to work to
solve our most pressing problems. I have been asked to address
the environmental impacts of the RFS. But we need to start with
the challenge the RFS was designed to address, cutting U.S. oil
use.
Despite increased domestic production and new
unconventional oil resources, the problems caused by our oil
use continues to mount. Oil prices remain high and unstable.
Oil-producing regions remain critical security threats. Oil
spills continue, as do extreme weather events made more
damaging by climate change. The need to reduce oil use remains
just as important today as it was 5 years ago. The RFS is an
oil saving policy based on smart goals, not just more biofuels
but better biofuels and biofuels that go beyond food. The RFS
supports increased domestic production of clean, low carbon
biofuels.
Together with improved efficiency, electric vehicles, and
other innovative technologies, biofuels can cut our projected
oil use in half over the next 20 years and reduce the problems
oil use causes to our economy, to our security, and to our
climate. But despite having smart goals, neither the RFS nor
its implementation to date have been perfect, and there are
significant challenges that need to be addressed.
The rapid expansion of food-based biofuels over the last
few years is unsustainable. It is putting pressure on other
users of corn, affecting global food markets, increasing water
pollution caused by corn farming, and accelerating
deforestation.
In contrast to the problems of the food-based fuels, the
opportunities to expand production of cellulosic biofuels are
substantial. Based on our analysis, the $16 billion target for
cellulosic biofuels in the RFS is definitely achievable. And
because cellulosic biofuels have low fossil fuel inputs and low
lifecycle emissions, the potential greenhouse gas mitigation is
large. But while the resources to make cellulosic biofuels are
substantial, converting them into clean fuel requires a massive
scale-up of biorefineries. The first commercial scale
cellulosic biorefineries are starting up now in Florida and
Mississippi. Several more are under construction in Iowa and
Kansas. And this is a major milestone. And it wouldn't happen
without the RFS.
But clearly, it is behind the schedule laid out in 2007. It
will take time to scale up a new fuel industry, as it did for
both the oil and corn ethanol industries. However, the mismatch
between the schedule laid out in 2007 and the actual scale up
creates some ambiguity about the road ahead which needs to be
thoughtfully resolved. Fortunately, the RFS was designed with a
great deal of flexibility, especially with regard to the second
phase of the policy that shifts from food-based fuels to
nonfood-based cellulosic biofuels. Many critical analyses of
the RFS are based on an assumption that the EPA will ignore
this flexibility, ignore the flexibility that Congress provided
them and will expand mandates from just over 15 billion gallons
in 2012 to 20 in 2015 and 36 in 2022.
But this assumption defies common sense. EPA has a clear
authority to cut the rate of mandate growth in half between now
and 2015 and to reduce the 2022 target from 20 billion gallons
to what--from 36 billion gallons to 20 billion, plus whatever
quantity cellulosic biofuels produce. Adopting a more gradual
approach will substantially reduce the challenges facing RFS
implementation in coming years. I have provided more detail on
our advice in this regard in comments to the EPA and in my
written testimony. EPA needs to seize this opportunity and
reset expectations for the next phase of the policy from now
until 2022 and develop a roadmap that delivers on the important
goals of the RFS but is realistic about the competing uses of
agricultural commodities and the rate at which cellulosic
production can scale up and the constraints in our vehicle and
fueling infrastructure. But making legislative changes to the
Renewable Fuel Standard at this time would not reverse the
problems caused by the rapid scale up of corn ethanol over the
last 10 years. Instead, it would lock in place the status quo
of 90 percent gasoline and 10 percent corn ethanol and chill
investments in cellulosic biofuels, just as the first
commercial facilities are starting up.
For this reason, we do not support legislative changes and
suggest that making course corrections through an
administrative process will do more to realize the oil savings
and refinement goals of the RFS.
We are not moving forward as fast as we hoped to be in
2007. But the RFS is still pointing us in the right direction.
To keep moving forward, we need to provide the regulatory
stability that will protect early investments in the advanced
biofuels industry and support further investment to bring the
technology to larger scale.
Thank you again for the opportunity to be here today. I
would like to request that the USC reports that I alluded to on
biomass resources and the comments we submitted to EPA on the
2013 rulemaking be submitted for the record. And I look forward
to any questions that you may have.
Mr. Whitfield. Without objection, they will be entered into
the record. \*\
---------------------------------------------------------------------------
\*\ The information has been retained in committee files and is
also available at http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=101184.
---------------------------------------------------------------------------
Mr. Martin. Thank you.
[The prepared statement of Mr. Martin follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. I thank you all very much for your
testimony. At this time, I recognize myself for 5 minutes.
As I am sure all of you know, the American Petroleum
Institute filed a lawsuit in Federal court against the EPA on
the 2012 cellulosic number mandate.
And, Mr. Gerard, you all won that lawsuit. Is there anyone
on the panel that would disagree with the principle that if EPA
sets a mandated number for, like, cellulosic ethanol, and it
cannot be produced, that refiners should be forced to buy the
RINs anyway? Do any of you disagree with what the API did in
that situation? In following the lawsuit.
Mr. McAdams. Mr. Chairman, I would say that the lawsuit was
very specific in the way the opinion was written. What the
lawsuit specifically said, which Mr. Gerard and Mr. Drevna
should have enjoyed hearing, was specifically EPA could no
longer put its thumb on the scale. And so to the extent anyone
could make the assertion previously that what EPA was trying to
do was stimulate our industry, by driving a number that was
unrealistic, that lawsuit makes it directly clear that they can
no longer do that. In terms of talking to the folks that run
the program at EPA last night, I am confident that what we will
see is a revision in the 2013 cellulosic number which takes
into account the court direction to more closely align what the
actual number is with the actual gallons that would be made.
Mr. Whitfield. And all of you would certainly agree with
that principle, I am assuming.
Mr. Drevna?
Mr. Drevna. Chairman Whitfield, we absolutely agree.
However, we have to look at what the reality is as compared to
the rhetoric. EIA projects by 2022, that there will be 0.5
billion gallons of cellulosic. Mr. Chairman, with all due
respect, I have been sitting in these hearings on both sides of
the of Congress since February of 2008, short 2 months after
this bill was passed. And I have been hearing for 7 years now
that cellulosic ethanol is just around the corner and all we
need is another mandate and people will invest. Well, people
will invest. But you know if the technology doesn't work, it
doesn't work.
Mr. Gerard. Mr. Chairman, I would just add, part of the
dysfunction of this particular statute is that within a week or
10 days after we prevailed in that lawsuit, the EPA came out
with their renewable volume requirement for 2013 and added back
a number higher than the one they had the previous year that we
prevailed on in the lawsuit. Now if you are concerned about
what the market is seeing out there, again, the judge said, You
can't put your hand on the scale, as Mr. McAdams said. But the
EPA immediately turned around and raised it from 8 million to
over 11 million. And once again, there is not that in the
market. Our expectation, our understanding to date is we have
got about 5,000 gallons so far this year. We are halfway
through the year. And the mandate in the statute is a billion.
They narrowed that down to about 11 to 14, depending upon how
you interpret that. But once again, the market sees this as no
action being taken. That is why this is so important on the
part of this committee and the EPA. They send a signal to the
market, you are going to correct this problem.
Mr. Dinneen. Mr. Chairman, if I could, two quick points.
One, this actually demonstrates that there is incredible
flexibility within the program, within the statute for EPA to
do the right thing. They have reduced the cellulosic number
more than 98 percent in each of the 3 years that the RFS has
been in place with the cellulosic requirement. That is because
of the flexibility that this Congress, this committee gave to
the agency to do the right thing.
Now the court said, You can't be aspirational. And we all
agree with that. They all ought not have their thumb on the
scale. But they do need to be accurate with how much cellulosic
and other advanced biofuels are going to be produced.
And that is my second point. The fact of the matter is
cellulose and advanced biofuels are here today. If you wouldn't
mind, I would like to introduce into the record a pamphlet that
was put together by the Advanced Ethanol Council that
demonstrates exactly where cellulosic investments are being
made today.
Mr. Whitfield. Without objection. \*\
---------------------------------------------------------------------------
\*\ The information has been retained in committee files and is
also available at http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=101184.
---------------------------------------------------------------------------
Mr. Dinneen. And you do have commercial sized facilities
being built in Kansas in Florida, in California, all across the
country. And if we pull the rug out from under these facilities
today, none of that investment moves forward. And my friends on
either side of me get what they want, and that is a continued
stranglehold on the U.S. gasoline marketplace.
Mr. Whitfield. Dr. Martin, do you all have any figure in
mind for cellulosic production in the future? Right now, total
gasoline is about 213 billion. I mean, do you all have a number
you are looking at?
Mr. Martin. Well, certainly in terms of--I mean, we have
been looking at the impacts of the different choices more
broadly. And I would say what we have learned over the last few
years is that impacts on the underlying feedstocks, on whether
it is corn or vegetable oil or biomass, it is important. And
there is plenty of biomass to meet the 16 billion gallon
target. I think it is clear that that is not going to happen in
2022. And it is likely to take us closer to 2030. The date that
that happens is not an external factor. It depends a great deal
on the policies that are set here, which will determine how
quickly people make investments and what that date is finally.
Mr. Whitfield. Thank you very much.
Mr. Rush you are recognized for 5 minutes.
Mr. Rush. Thank you, Mr. Chairman.
I have a question that I would like to have all of the
panelists respond to. I would like you to be brief in your
response. I only have 5 minutes. I need some initial questions
to be answered.
The U.S. has globally compared electricity prices in large
part because we have diverse fuel choices--nuclear, coal, gas,
wind, solar, hydro, geothermal, and biomass all used to
generate power. However, in the area of transportation, we are
almost entirely reliant on petroleum. What more diversity in
the transportation fuel sources such as renewable fuels also
provide consumers and the economy more protection from price
shocks?
I will start with you, Mr. Gerard. Please be brief.
Mr. Gerard. OK. I will. Thank you very much for the
question.
In the broader context, diversity is good. We see that
natural gas has become a major player in electricity
generation, as you know, in helping drive down the carbon
emissions in this country. The important thing to remember
though and the thing we will emphasize here is you have to look
at the costs related to consumers. We have been using gasoline
for many years in this country. It is affordable, reliable in
the context competing other fuels. So diversity is good. But
always look at it in the context of what it actually costs the
consumer.
Mr. Rush. Mr. Dinneen.
Mr. Dinneen. I absolutely agree with the premise. I think
diversity is critical to driving down cost. I would suggest
that my friends in the oil industry believe diversity means we
get oil both from the Gulf of Mexico and the Baakens. But that
is not diversity. And that is not going to help consumer
gasoline costs. In fact, if gasoline or oil were to fall below
$90 a barrel, none of those investments in the Baakens make any
sense economically. So the only way you are going to help
consumers and drive down the cost of gasoline is with domestic
renewable alternatives and renewables.
Mr. Rush. Mr. Drevna.
Mr. Drevna. I will agree that we can have a diversified
fuel supply, but a couple items, Mr. Ranking Member.
One, the oil and refining industry does not control the
transportation infrastructure to get the product to the
consumer; 95 percent of those service stations are owned by
private individuals.
Number two, the idea that we--that the refiners and those
relying--you know, producing a product that is efficient,
reliable and abundant to the American consumer is somehow
detrimental to the economy boggles my mind.
Number three, when the cable industry looked around and saw
there were only three options for television viewers, they
bellied up to the bar, they invested lots of money, and right
now, over 60 percent of the households in this country have
cable TV.
I ask my colleagues to the left and right of me, if it is
so good, invest. You don't need a mandate.
Mr. Rush. Thank you.
Mr. McAdams.
Mr. McAdams. I agree with your assertion, Congressman.
Mr. Rush. All right.
Mr. Martin. I think the best way to protect the consumers
from the price of oil and gasoline is to use less, and biofuels
are a part of the diverse set of strategies to accomplish that,
and, of course, there is a great diversity of biofuels that
contribute to that.
Mr. Rush. Thank you, Dr. Martin.
And you get an A for the diverseness of your answer, and
because you were so great, I want to give you another question.
Mr. Martin. Wonderful.
Mr. Rush. In your testimony, you acknowledged the RFS is
not perfect. Is it your opinion that EPA has the tools and the
authority to deal with challenges as they arise, or does the
Congress need to actually modify the law?
Mr. Martin. After having studied this at some length, it is
my belief that the EPA has the tools it needs in the statute as
it is written to address the immediate challenges and to set a
long-term path. I think it is important that EPA be aggressive
about demonstrating its intention to use that flexibility and
in convening a stakeholder process. And I agree with Mr.
McAdams that not just doing one year at a time, but really
looking further down the road and laying out how these
decisions will be made over a multi-year time frame will
provide all the players the support, the certainty and the
anticipation they need to make smart investments.
Mr. Rush. Well, I thank you, Mr. Chairman. I have 10
seconds left, and I want to reserve my 10 seconds.
Mr. Whitfield. The gentleman reserves his 10 seconds.
At this time, I recognize the gentleman from Louisiana, Mr.
Scalise, for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman.
I appreciate you having this important hearing and all of
our panelists, both the first and second panel that are going
to be testifying, because there are a lot of important
components of the RFS that need to be brought to light, and
consumers are starting to have a lot of serious questions, as
they should. I think when you look at the assumptions that were
made back in 2007, many of those predictions didn't come true
and we are starting to see the problems that that creates.
One of the reasons that I support full repeal of the RFS is
because, number one, it is not workable. And we have had many
hearings, including people within the Obama administration,
EPA, EIA, USDA and others that talk about all of the problems
that are coming both near term and long-term, and so when you
look at these problems, they are very real problems, you can't
just gloss over it, but when you look at the fuel projections
alone, the usage is down and the revolution that some of you
have talked about that has brought so many more forms of
American energy to market to bear have not been recognized.
And so I want to start off, if I may, when you look at Mr.
Gerard and Mr. Dinneen and Mr. Drevna on the panel and hearing
each of you, very, very conflicting testimonies that have been
given, so I want to give you an opportunity to expand a little
further on some of the things that you have all said.
I will start with you, Mr. Dinneen. You said RINs are free.
And anytime somebody's talking about something from the
government being free, you usually check your pocket book first
and start getting real concerned. When you talk to people about
the RINs and the dramatic fluctuations in the price, this was
something that was sold as a stability force. And the RINs are
in fact not free. They started off at a very low price and have
gone dramatically higher. Can you address the fluctuations in
the price of RINs, which are not free, but in fact are much
more expensive today than when this legislation was passed in
2007?
Mr. Dinneen. Sure, Congressman, but understand my point is
the ethanol industry, when we produce a gallon of gasoline, we
by statute and by regulation have to give that credit to the
oil companies. They get them from us for free, without any
question. Now, there is a--as I said----
Mr. Scalise. But is it just them that are getting them?
Because one of the questions is, do you have some of these
Enron-type players that are getting into the marketplace buying
up RINs to help jack up the price to help make it an Enron
trading commodity instead of something that was established to
bring stability to fuel?
Mr. Dinneen. The oil companies wanted the RIN system,
wanted a credit trading program to bring flexibility to the
RFS, which I believe it has done, but as they raised----
Mr. Scalise. Is it just the oil companies that have these
RINs?
Mr. Dinneen. I am sorry?
Mr. Scalise. Is it just the oil companies that have these
RINs?
Mr. Dinneen. No. They----
Mr. Scalise. They have some----
Mr. Dinneen [continuing]. Marketers.
Mr. Scalise. And I apologize. My time is very limited. Mr.
Gerard, if you could touch on this as well.
Mr. Gerard. Yes, as refiners, we are the obligated parties,
so we are the ones that have to produce the RINs. We don't get
all the RINs, and we certainly don't get them for free, because
in many instances whoever is blending that fuel and gets that
RIN, we have got to go buy that RIN to meet our obligation,
because we are the obligated party.
The more fundamental issue here, as you know, Congressman,
is the E10 blend wall. The market sees it coming, it sees it
head-on, there is pressure out there from those of the
obligated parties to make sure they have got enough to meet
their requirements under the RFS. That is what is driving that
cost, that is what the experts say the problem is. That is that
we have got to deal with that blend law.
Mr. Scalise. And you mentioned on the--I know Mr. Dinneen
talked about the EPA having flexibility in the law to address
the numbers. I agree EPA has the flexibility. They have not
exercised it. We sure haven't seen them doing the things they
ought to be doing in the short term. In the long term, I agree,
though, that Congress does have to address it for the long
term.
Mr. Drevna, you had something?
Mr. Drevna. The essence of the problems with the RINs
emanated with the EPA, when the first EPAct 2005 was written,
and it was only seven and a half billion gallons by then. Of
course, before the ink was dry, it went up to 36 billion in
years.
We suggested to EPA that we should be able to trade freely
with the credits. They said, No, we want a free market. Our
response was, it is a mandate, folks, so there is no free
market. They didn't buy that.
Then they said, OK. Refiners and importers, you are the
obligated party. And we said, Wait a minute, if we can't trade
the RINs among ourselves, how are you going to--how are you
going to have this market work? And we said, It wouldn't work.
And right now, not only are there RINs that are expensive
and not free, there are 140 million fraudulent RINs out there
that we still have to deal with, and who knows how many more,
because--and I understand the FBI is still investigating some
of the biodiesel folks.
Mr. Scalise. Absolutely. And I know I am out of time, and I
have more questions I will reserve for the second panel, but I
appreciate that, Mr. Chairman. I will be happy to yield back.
Mr. Dinneen. If I could just--one quick point, because I
think you are going to like it, because I will acknowledge that
there is an issue here, and that is we need to have more
transparency with the RIN market. And I do think EPA could help
this situation by letting us know who is making the trades, how
many trades, what the price is. Right now, there is no
transparency whatsoever.
Mr. Scalise. All right. And unfortunately, they have not
been willing to do that either. Thank you. I appreciate it.
Mr. Whitfield. At this time, I recognize the gentleman from
California, Mr. McNerney, for 5 minutes.
Mr. McNerney. Well, I thank the chairman. Wow, what a
diverse set of testimony, and I want to thank you all for your
passion on this issue. It is an important issue, and it is a--
it should be a bipartisan issue. So, again, thank you for
testifying.
Dr. Martin, you suggested that the EPA should produce a
realistic roadmap for introducing biofuels into the market--I
see Mr. McAdams was shaking his head yes--using the flexibility
that is built into the statute. What do you think are the
chances that the EPA will do that? I mean, how likely is it
that they are going to come through with something like that?
Mr. Martin. Oh, well, I am quite optimistic about that. I
mean, it is a challenging process to--especially to do a
multiyear process, and I think they have been going through one
year at a time, and it has been quite a lot of work, but I
think all the parties would be better served by providing at
least a framework for multiple years.
Mr. McNerney. Well, they have the flexibility to do that,
but last year's drought caused real problems, there were 150
Members of Congress and Governors that asked them to waive the
ethanol mandates, and they didn't. How do you feel that that
came about and what is your response?
Mr. Martin. Sure. Well, we supported making adjustments
last year to the mandate in light of the drought, but I would
say that the kind of flexibility in the second phase of the
policy, and in particular how quickly we get to 36 billion
gallons, this isn't the same waiver process with a real
relatively high bar. It is an entirely different process, and
really, it is--it is just a discretionary matter. So, in some
respects, I think it actually makes more sense to describe the
2022 target as 20 billion plus, sort of 20 billion gallons plus
however much cellulosic gets produced, and EPA has discretion
to go higher, but they have no obligation to go higher, and so
I think, in some respects, analyses which are based on the
assumption that we get to 36 billion in 9 years are flawed,
because that assumption is just not a realistic assumption
anymore.
Mr. McNerney. OK. So you think they are showing flexibility
in some ways and not in others?
Mr. Martin. Well, they haven't shown flexibility up to now.
And so, as I said, we encouraged them to do that last year.
Last year, the circumstances were very different, as has been
alluded to several times. I mean, when there were petitioned
last year, RIN prices were very low, and that, you know,
without any fancy economics is a demonstration that obligated
parties were not trying to buy their way out of complying with
the standard. And so EPA's analysis said, look, if we reduce
the standard, not much is going to happen. And I think you have
other panelists later who will address this in more detail.
Obviously, with RIN prices where they now, the circumstances
are quite different, and so what I understood from EPA is that
they don't view those past decisions as providing the framework
for future decisions, and they recognize the need to be
flexible.
Mr. McNerney. Well, thank you. You also mentioned in your
testimony that the--or you acknowledged anyway the cellulosic
biofuels have not lived up to their potential. Do you see that
happening? I mean, how do you see that happening, or what has
been the roadblock so far?
Mr. Martin. Well, certainly the law was passed at the end
of 2007 and based on some presumptions about how quickly
capital could be raised. And 2008 and 2009 were tough years for
raising capital in all industries, and that was certainly a
setback.
I think a case can be made that the numbers were always
optimistic. And, frankly, the structure of the law, which
essentially says that this is the maximum, not the minimum
level for the standard, reflected an understanding that this
wasn't something that could be counted on, but was an
aspirational----
Mr. McNerney. So, with the current trajectory, you believe
that we can meet--what I think you said, we can cut our oil by
50 percent in 20 years. Do you think that is realistic, then?
Mr. Martin. Yes. Not solely on the basis of biofuels. I
mean, if we look at cutting our oil use, efficiency has a big
role, electrification, we need to do all of these things to
make those kind of deep reductions, but biofuels definitely
have a key role in a kind of comprehensive strategy like that.
Mr. McNerney. Thanks.
Mr. Dinneen, you had some pretty striking data that you
showed on your graphics, and I think--and I didn't--I am not
sure I got the numbers exactly right, but 60 percent of new
oil--or new fuel production is from ethanol and only 38 percent
is from oil? Were those the numbers?
Mr. Dinneen. 62,005, correct, 62 percent of 38 percent,
because you got to remember through 2005, 2006, 2007 and 2008,
oil production in this country, it continued to fall. It wasn't
until 2009 that oil production had begun to increase, which is
a good thing, and we are happy about that. I am just pointing
out that you can't say that the reduction in energy dependence
that has occurred since 2005 is because of oil. It is not--68
percent of it--I am sorry. Sixty-two percent of it is because
of a growing ethanol market.
Mr. McNerney. Well, I have run out of time, Mr. Chairman.
Mr. Gerard. Mr. McNerney, if I could just comment. We would
strongly----
Mr. McNerney. If the chairman will allow it.
Mr. Whitfield. The gentleman's time has expired, but I will
let you all briefly respond; not very long, so----
Mr. Gerard. I will be very brief. Thank you. We would say
that clearly our import reliance has gone down considerably
because we increased oil production. We have increased over 2
million barrels a day in our production the last 4 years at the
same time ethanol production has increased about 250,000
gallons per year, so there is a big disparity. It is a very
different equation.
Mr. Whitfield. Mr. Dverna, did you want to make one
comment?
Mr. Drevna. It is not the oil industry saying it, it is the
Energy Information Administration saying in testimony before
the Senate last week that the impact of ethanol production on
oil imports is minimal.
Mr. Whitfield. OK. Mr. Barton is recognized for 5 minutes.
Mr. Barton. Thank you, Mr. Chairman.
You know, it is too bad you couldn't get a few more
witnesses for this hearing. We are certainly going to have the
most comprehensive hearing record.
Mr. Whitfield. If anybody in the audience wants to testify.
Mr. Barton. Yes. I have been on both sides of this issue.
Obviously, in 2005, the original mandate was in the Energy
Policy Act, which I was one of the chief authors of. I voted
against the 2007 act, which took what we did in 2005 and
basically increased it by order of magnitude five times.
We are in a situation now where what appeared to be a good
political compromise and maybe even a market compromise, you
know, 8, 9 years ago, doesn't appear to be working, not because
of its good intentions, but because the marketplace has
changed. We thought that gasoline consumption in the United
States was going to continue to go up. Well, it has not. It has
gone down considerably. And while I don't have the exact
number, I believe this year the difference between the
projection and what we think is going to be reality is 30 to 40
billion gallons of gasoline. That is a significant discrepancy.
So the question before the committee is, what do we do? And
you have got three options: One is do nothing, which Congress
is very good at. Just let the mess keep going. The second
option is to repeal the renewable fuel standards, and that is
where I am. I think with all the good intentions in the past,
basic principle is when all else fails, go back to basic
principles, which is let the market operate. And then the third
option be to modify the renewable fuel standards. And my guess
is a majority of the committee is probably at that option,
modification, take the middle road, but I am for full repeal.
So my first question would be to my friend from the
renewable fuels association, who has I think done a fairly
eloquent job of putting the best face on this, what would
happen if we repealed the renewable fuel standard to the
ethanol industry? Would it go away, would it continue to
flourish, or would it be somewhere in between?
Mr. Dinneen. Thank you, Congressman.
First of all, let me compliment you again on crafting the
2005 RFS, because you really did craft a good piece of
legislation with lots of flexibility for EPA to address the
situations, and it has.
If the RFS were repealed, though, Congressman, I think that
you would first of all devastate investments that are being
made in next generation biofuels. All of the progress that is
being made today would go away, and I think that would be a
terrible thing.
Mr. Barton. It would--the harm would be to Mr. McAdams'
group, not necessarily to the pure corn-based ethanol.
Mr. Dinneen. Actually, that would be the first impact.
There absolutely would be an impact to the existing industry as
well, however. Back in 2007, when we were holding hearings on
the RFS, there was a member of the oil industry that was asked,
if we didn't have this program, how much ethanol would you use?
And that person had indicated, well, you know, we would still
want to use ethanol for its octane, but we would probably use
about 5 billion gallons of ethanol. That was a candid moment,
and I think that is what you would see. You would see a
dramatic reduction in the use of ethanol in fuel as they
replaced it with their own petroleum. These folks are in the
business of through-putting hydrocarbons, not----
Mr. Barton. My time is about to expire, and I do want to
give the other side a chance, since I am actually with the
other side.
Mr. Dinneen. But you were with us at one time, Congressman.
Mr. Barton. No. I am not against you, not against you.
But, Mr. Martin or Mr. Gerard, if we repealed the ethanol
mandate, if we repealed the renewable fuel standard mandate,
since ethanol right now does cost less per gallon than
gasoline, wouldn't the oil industry continue to use ethanol and
blend it in because it is less expensive?
Mr. Gerard. Well, a couple things. First, we are pleased
with your conversion.
The second thing is ethanol, let me just say this, on a BTU
basis, does not cost less than gasoline.
Mr. Barton. OK. On a BTU basis.
Mr. Gerard. So that is an important consideration, because
you have to compare energy to energy, not gallons.
Mr. Barton. OK.
Mr. Gerard. First thing. EIA testified last week, as did
the Department of Agriculture, that it is likely that where
current production isn't, current blending would remain. In
fact, they believe there would be very little change, because
of the octane values and other things that are part of the
blending process.
Mr. Barton. And, Mr. Chairman, could I ask Mr. McAdams a
question, or I would be happy to yield back, because I know my
time has expired?
Mr. Whitfield. Yes. Did Mr. McAdams want to make a comment
or----
Mr. Waxman. I ask unanimous consent that our former chair--
--
Mr. Whitfield. Mr. Waxman asks unanimous consent that you
ask one additional question.
Mr. Barton. Well, I appreciate Mr. Waxman for being nice to
me for--I almost said for a change, but that would be not cool.
But cellulosic has always been portrayed as the great hope,
that we knew that ethanol from corn was somewhat inefficient,
but we were told that if we could ever get to the cellulosic
era, that it would be very efficient and very cheap. It hasn't
happened yet. What is the realistic expectation of the ability
to get ethanol from cellulosic--cellulosic sources? Is that
still 10 years down the road or are we close to----
Mr. McAdams. No, sir. While I sit in front of you--thank
you for the question, Mr. Chairman. I appreciate the
opportunity to answer this.
As I sit in front of you today, there is a facility in
Mississippi, in rural Mississippi, by the name of KiOR. It is a
pyrolysis facility. It is crushing pine trees. And it is not
making ethanol; it is making gasoline and diesel. And Mr.
Gerard's and Mr. Drevna's clients, Chevron, and Hunt Petroleum
have made 100 percent of the off-take purchases of that fuel.
That plant came online in March. It is a new innovative plant.
It is now a full capacity, running flat out and the RINs have
gone on the market, effective this month for July. There are
other plants, Dupont has one in Iowa. POET has another one.
There is a range of cellulosic technologies that are coming
into being now on a commercial basis. They are being funded
commercially. There are about five or six of them that is in
the book that Bob has put onto the record.
The other thing I want to say is, don't overlook the
advanced biofuels technology. I had the opportunity to witness
the F-18's fly off the deck USS Nimitz using a hydro-processing
technology in Louisiana, making 45 million gallons of renewable
diesel.
So you are seeing both advanced biofuels and cellulosic
biofuels come. And I agree with your assertion. If you repeal
the RFS, the guys that get hurt the most are the members that I
represent.
Mr. Barton. OK. Thank you very much, Mr. Chairman.
Mr. Whitfield. At this time, I recognize the gentleman from
California, Mr. Waxman, for 5 minutes.
Mr. Waxman. Thank you, Mr. Chairman. I would like to
explore how the RFS aims to reduce carbon pollution, how well
it is working and whether there are ways to strengthen its
climate benefits.
Mr. McAdams and Mr. Dinneen, do you agree that reducing
carbon pollution through the use of low-carbon renewable fuels
is a critical goal of the RFS?
Mr. McAdams. Absolutely. As we move to 9 billion people on
the world and other--other places around the world other than
America increase their use of energy demand----
Mr. Waxman. You agree.
Mr. McAdams [continuing]. Having sustainable fuels--yes,
sir.
Mr. Waxman. You agree.
Mr. Dinneen. Without a doubt. Absolutely it is. And, in
fact, the amount of carbon removed as a consequence of ethanol
production last year is the equivalent of taking about 9
million vehicles completely off the road. The program is
working.
Mr. Waxman. Dr. Martin, how does the RFS derive climate
benefits?
Mr. Martin. Well, my colleagues here have spoken to the
current status. I would like to look to the future and say that
the largest potential source of benefits from the RFS comes
from the next generation of biofuels, where we have the
opportunity to substantially--I mean, first of all, to see
fuels with very low greenhouse gas impacts, including very good
integration with agricultural systems so that we see less
competition with food crops, but also it is both the reduction
per gallon and the number of potential gallons, and because the
scale that is available to make cellulosic biofuels is very
large, the greenhouse gas mitigation potential is also very
large.
Mr. Waxman. Mr. McAdams and Mr. Dinneen, without the RFS,
are we likely to see the investments we need to develop new
low-carbon renewable fuels in this country?
Mr. Dinneen. Sadly, no, you will not. And the consequences
is without the RFS, you are going to see more oil production in
this country and the----
Mr. Waxman. The----
Mr. Dinneen [continuing]. Profile of oil is getting worse
while biofuels is getting better.
Mr. Waxman. OK.
Mr. McAdams. It is the main driver for our industry.
Mr. Waxman. There are concerns, however, that the RFS has
some unintended consequences that may significantly reduce its
climate benefits. For example, ramping up production of
biodiesel may boost palm oil production.
Dr. Martin, could you please explain how large increases in
the demand for advanced biodiesel could drive further
production of palm oil, and what are the concerns about palm
oil production?
Mr. Martin. Yes. Thank you. So the--I think RFS allocates a
different bucket with regard to--with some consideration of,
you know, what is available underneath them. And the--you know,
biodiesel is--you know, there are some sources of biodiesel
that are very low carbon, but the scale that those resources
are available are limited. So, for instance, when you make a
biodiesel or a renewable diesel or renewable jet fuel out of
waste animal fat, then this seems like a very good low-carbon
fuel, but there are other users for that, and so if the scale
of those mandates exceeds what is available in that market,
people aren't going to produce more chickens, because of that
demand, and so you will end up driving more demand for
vegetable oils. And the lowest-cost source of vegetable oil
coming into the global market is palm oil, and so that is the
basic concern.
Mr. Waxman. And palm oil production is linked to severe
deforestation, land degradation and habitat destruction abroad
and increases carbon pollution. Is that right?
Mr. Martin. Yes, that is absolutely right.
Mr. Waxman. I would like to enter into the record a
statement from the Clean Air Task Force on this point, Mr.
Chairman.
Mr. Whitfield. Without objection. \*\
---------------------------------------------------------------------------
\*\ The information has been retained in committee files and is
also available at http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=101184.
---------------------------------------------------------------------------
Mr. Waxman. As we consider any changes to the RFS, we need
to think about how to minimize unintended consequences and
assure that we are actually getting the promised climate
benefits. And there may be ways to structure the RFS to provide
incentives for additional reductions in carbon pollution.
When the RFS was amended in 2007, existing corn ethanol
plants were grandfathered, exempting them from the law's
greenhouse gas requirements. These facilities produce most of
the ethanol, and overall, the net effect of their fuel may be
to increase carbon pollution, rather than reduce it. Some
grandfathered facilities have reduced their carbon pollution
through operational changes, such as fuel switching from coal
to natural gas, but there is no requirement for such
improvements.
Dr. Martin, do you think it would make sense to require all
grandfathered facilities to improve their operations and reduce
carbon pollution over time?
Mr. Martin. Yes. Absolutely. And if----
Mr. Waxman. I only have a few seconds left. Even for the
newer facilities that were not grandfathered, the standards to
reduce carbon pollution are fairly limited. Once a facility
produces a biofuel that meets the greenhouse gas requirements,
the RFS does not give that facility any incentives to do
better.
Dr. Martin, would it also make sense for the RFS to
encourage additional improvements, such as by giving additional
credit to fuel producers that exceed the minimum emission
requirements? Yes or no?
Mr. Martin. Yes.
Mr. Waxman. The renewable fuel standard is critical in
developing next-generation low-carbon biofuels, but it appears
that it could be improved to better achieve the intended
climate benefits.
Thank you, Mr. Chairman.
Mr. Whitfield. The gentleman's time has expired. At this
time, I recognize the gentleman from Illinois, Mr. Shimkus, for
5 minutes.
Mr. Shimkus. Thank you. I think we lost the mike on this
side.
Mr. Whitfield. Do we have anyone that is technically
attuned?
Mr. Terry. Barton's works.
Mr. Shimkus. Imagine that. Oh, the irony. And I was all
organized. So--he is a munchkin, too.
All right. Thanks, gang. It is great to--it is great to be
with you. So palm oil. That is a new one on me. Our diesel
production is mostly soybeans, beef tallow and the like.
And I think we will talk about biodiesel in the next panel,
but other than the RIN fraud, which is being investigated,
biodiesel really isn't part of this debate. I think most
people, it is dropped in, it is--there is no retail issues, it
is across the market, and I just want to put that on the table.
And that was kind of testified in the last hearing.
So, folks, we could have had this hearing in January, and I
would have gotten the same freaking answers out of you all in
January that I got today. And so the point is, as Chairman
Upton said, listen and be constructive. Maybe we are getting--
we got your sides. We know what they are. That is not really
being constructive, because we have some issues we have to
address, and so we would respectfully request that you come in
and be constructive, because I think if--as you are learning,
as much as we are, because you are hearing the members ask
questions; you don't have enough for repeal. You do have enough
for some reforms. So we better get in the room and get it done,
which will help everyone. It will send the market signals to
the next generation. It will keep the regular guys in. And it
will address the price disparity, or I call it the risk
premiums on the RINs, based upon producing something that is
really not available or accessible at this time.
You all represent associations. And the members of your
associations are not in line with your opening statements when
they come in individually and talk to us. So, good for you guys
for toeing the party line. We have to find, and we are
committed to move on a fix, and it would be helpful for you all
to start negotiating in good faith to get this done, because as
the media was successful in reporting last time, I have got two
refineries in and around my district. I have got ethanol
refineries all over southern Illinois. I have got as much corn
as you want. I have got crude oil production. I have got
fracking. I have got it all, and I am standing squarely with a
foot in both bodies, and it is my goal and desire to get to a
solution that benefits us all, not one side over the other.
So let me go to the crux of the--and I think I lost it when
I moved over here--the--so we have advocation of the repeal of
the RFS. I think that has been clearly stated today. Obviously,
my friends in the RFS are saying don't do anything.
Can I get you all to commit to at least exploring something
that is in between, in between full repeal and keeping as in
with no change? Can I get you all to say, we are going to meet
with you and try to make this happen? You can do yes or no or
answer a question, but I would like to go down the table. I
would like to start with Mr. Gerard.
Mr. Gerard. Mr. Shimkus, I think you know we will work with
you always, and we are happy to have those conversations. Let
me make one brief point, if I can.
Mr. Shimkus. Be brief. I have got a minute left.
Mr. Gerard. I will hurry. First is, though, the reason we
call for repeal first and foremost is this statute is
fundamentally broken. It is not working. It is----
Mr. Shimkus. OK. We are back to the same thing, because now
Bob is going to say it is perfect.
So, Bob, would you work with us? Jack, I don't--no.
Mr. Gerard. We will work with you----
Mr. Shimkus. No. Jack----
Mr. Gerard [continuing]. But let's address the question----
Mr. Shimkus. No, Jack.
All right. Bob?
Mr. Dinneen. I believe to the extent that there are issues
associated with the RFS, and I will acknowledge that there are
some concerns that need to be addressed, they can be addressed
administratively, but I would like to work with you to
determine how we can make that happen.
Mr. Shimkus. OK. Charlie.
Mr. Drevna. Absolutely, Congressman. If we all agree what
the facts are and not what the bombast is.
Mr. Shimkus. Well, that is----
Mr. Terry. That means no.
Mr. Shimkus. OK.
Mr. McAdams.
Mr. McAdams. We recognize our--maybe if they recognize it
is the committee's jurisdiction and legislative authority, we
would welcome the opportunity to work with you.
Mr. Shimkus. And, Dr. Martin, I don't have to--I mean, you
can chime in if you want. I mean, you would be willing to help,
I am sure.
Mr. Martin. Absolutely. Happy to help.
Mr. Shimkus. OK. But let me end on this premise, the
government has established by law, and you have all heard me
say this before, procedures to refine either traditional or
next generation. We have moved, because of our Federal law
position, have moved capital into these positions.
You all can't advocate us repealing a thing that
shareholders would lose billions of dollars and that the
promise of the investment made by Mr. McAdams in future
cellulosic, that we walk away from a government-mandated law
that moved capital in these refineries.
You are not advocating that we walk away from that and
cause them to lose their private sector investment? Would--
Jack, you wouldn't want us to do that to the refinery sector.
Mr. Gerard. No, we wouldn't, but what I would suggest, the
second part of what I was going to say earlier is we need to
define what it is we are trying to accomplish.
For example, when Mr. Waxman was asking questions about
carbon emissions, he asked the future, particularly from the
people that Mr. McAdams represents, they are much less carbon-
intensive than some of the other fuels. However, the National
Academy of Science points out that the current corn-based
ethanol we are producing is more greenhouse gas----
Mr. Shimkus. All right. Let me stop you. My time's expired.
Let me just go back to say you all need to come to the room,
because if you keep these positions, no one is going to be
happy and nothing's going to get done.
I yield back my time.
Mr. Whitfield. The gentleman's time has expired.
And we are happy to know that all of you are going to
graciously come and work with us on this issue.
At this time, I recognize the gentlelady from California,
Ms. Capps, for 5 minutes. Not you? OK. Who is it? Who is it?
Mr. Green. Me.
Mr. Whitfield. OK. Mr. Green from Texas, you are recognized
for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
Although I would defer to my colleague from California, but
I just love following my colleague from Illinois. Congressman
Shimkus and I are good friends and over the years, but we also
understand we come from different geographical locations.
And I am frustrated as anybody else with the RFS, and I
voted for it in 2007. A number of us from my part of the
country did, but what we have seen in the last number of years
is, whether either with the RINs fraud, the gaming of the
system, and I think some of us have gotten to the point where
if we are going to have an RFS, it only should deal with things
that are not edible. And I know that is some concern with Bob
and your group. Corn and soybeans, obviously, you can raise the
prices for everything. And coming from Texas, I first realized
the problem was back in 2007 or 2008, and I got calls from all
my neighbors saying our deer corn went up, whey they were
buying it in October to fill up their deer feeders.
So there needs to be--and I agree with my colleague from
Illinois. I would probably vote for repeal of the RFS, but I
just don't see where we are going to get there, but we need to
see what we can do to make sure it is quality.
And a lot of people know I represent a lot of oil-based
refineries, but I also have some biofuel facilities that are
relatively small. And we actually have one that reopened
because of market conditions and things like that, but I would
like to sit down with that group in the room and see what we
could do to make it workable.
But let me ask a few questions before my time runs out.
Mr. Gerard, can you tell me more about the Coordinating
Research Council on the E15?
Mr. Gerard. Yes. The Coordinating Research Council is an
institution, collaboration, if you will, research, to retest
fuels, particularly in automobiles. It has been around since
1942. And we have come together over time, collaborated with
government, particularly DOE and EPA, to test the potential
impacts on the fleet, if you will, from bringing new fuels into
the marketplace.
Most recently, and the reason this probably came up, is we
have tested the E15. And what it concluded after testing on a
few models, after designing the test program with EPA and DOE,
I might add at their direction originally, we have found that
it has significant impact. And as all the auto makers have now
indicated, they will not warranty their cars under E15 and the
current existing fleet.
Mr. Green. The EPA and the DOE were aware of this research?
Mr. Gerard. They participated in it. In fact, in about 2006
and 2007, they helped us devise it. And the testing that we did
was actually--part of the creation came from the EPA and what
they felt needed to be tested to look at these questions.
Mr. Green. OK.
Mr. Dinneen. Congressman, might I suggest----
Mr. Green. Well, let me ask you a question, and you might
be able to answer it any way you want. You stated in the public
documents that oil companies have blatantly ignored the law and
refused for more than 5 years to make any meaningful
investments in infrastructure would allow the sales of E85 or
blends above E10. Can you respond to the type of investments in
renewable fuels that oil and natural gas has made?
Mr. Dinneen. Sure. But, first, on the CRC test, I would ask
that DOE's critique of that test be included in the record,
because they had a great number of problems with the test fuels
that we used. They were not indicative of what is out in the
marketplace. And, in fact, one of the vehicles that failed
actually failed on nothing but straight gasoline. So if you are
going to live by that test, maybe we ought not be using
gasoline in this country.
Mr. Green. OK.
Mr. Dinneen. With respect to the investments that the oil
companies have made, frankly, they have made precious little,
but more importantly, they have prevented gasoline marketers
from making those investments and offering fuels to consumers.
For example, Phillips 66 has a franchise in Kansas, ARCO 66,
that for years had been offering E85, and Phillips 66 was OK
with that, and it was an important part of his business. He
then wanted to offer E15 and did. He was the very first E15
marketer in the country.
Mr. Green. OK.
Mr. Dinneen. And Phillips wasn't OK with that.
Mr. Green. I am going to run out of time unless I get a
chance----
Mr. Dinneen. So what they did is they changed their
franchise agreement----
Mr. Green. Let me ask a question.
Mr. Dinneen [continuing]. To prevent that from happening.
Mr. Green. Let me ask, Mr. Gerard, if Congress were to cap
ethanol blending at 10 percent and match the cellulosic
requirement with the progress of the technology, how would you
respond and API respond?
Mr. Gerard. Well, we would have to look at how you do that
in order to the fuel mix across the country. We are happy to
work with you on that.
If I could respond quickly, the oil and natural gas
industry are the leading investors in zero-carbon-emitting and
low-carbon-emitting technologies. From 2000 to 2010, the
Federal Government spent $43 billion in this area. We spent $71
billion. The rest of all the private sector spent 74. We are
leaders. We are trying to find the breakthrough in
technologies. What the RFS attempts to do is mandate
technological change, and it has now demonstrated that you
can't do that with statute.
Mr. Green. Well, Mr. Chairman, I know I am out of time, and
I wish I had more time for the whole panel, because we have a
bunch of questions.
Mr. Whitfield. The gentleman's time has expired. At this
time, I will recognize the gentleman from Nebraska, Mr. Terry,
for 5 minutes.
Mr. Terry. Thank you, Mr. Chairman.
And I want to associate myself with Mr. Shimkus's
statement. It has been frustrating to just hear the same old
entrenched, ``you are either in or you are out,'' ``nothing
needs to be fixed,'' ``it is either totally right or totally
wrong.'' So it doesn't leave us a lot of options here for this
committee to look at if that is where we are.
Now, I am interested in some of the more advanced biofuels.
And, Mr. McAdams, I have been informed or told for over the
last several months about exciting new advanced projects going
to commercial state now. Could you give an update here?
Mr. McAdams. Sure. Be happy to do that.
Mr. Terry. There are comments that there haven't been any
going commercial from pilot projects. So have there been?
Mr. McAdams. I am happy to do that. Let me just take a myth
off the table here. We have been able to hit the advanced
biofuels numbers in 2011, in 2012, and we will hit them in
2013. It took the ethanol industry 20 years to produce the
first 2 billion gallons, and in 2012, we delivered 2.25 billion
gallons of advanced biofuels to the American public. Now, the
largest portion of that 2.25 billion came from America's
biodiesel industry. That was 1.1 billion. And the way the
statute works, it receives a 1.5 to 1 energy dense multiplier.
So if you can do the math, that is about 1.6 billion gallons
that goes towards the 2.25 billion gallon target.
Second myth I would like to take off the table is that
Brazilian ethanol fills the bulk of the advanced biofuels pool.
That is simply not correct. Because of the nesting requirements
in the RFS, you have biodiesel and renewable diesel, its new
little brother, coming online filling the bulk of that target.
Just so the members understand the difference, renewable
diesel is a pure hydrocarbon that hits the same exact ASTM spec
as if you made it from a barrel of oil. That is what we flew
the F-18's on; that is the F-76 we put in the USS----
Mr. Terry. Let me interrupt you there, because that was the
next question I have. I have also read stories about aviation
fuel as an advanced biofuel, that it is not just being used as
an experimental fuel within the Navy or Air Force, but also in
commercial. Can you update me?
Mr. McAdams. I have had--I actually got to fly on the first
flight from Seattle to Washington, D.C., last year. The first
flight in the United States was a United flight from Houston to
Chicago. One of my members has flown over 1,100 flights in
Europe on a renewable jet fuel.
We have a number of technologies that have given the
gallons to the military and have been certified on most of the
military air frames. And then we have the hope of alcohol-to-
jet, which is now moving through the process.
So, again, it is not just about cellulosic, it is about a
whole variety of advanced technologies. We have one, two
renewable diesel facilities in the State of Louisiana now that
are running. We have several other smaller----
Mr. Terry. Well, if you could submit the rest for the
record, I would appreciate that.
Mr. McAdams. Sure. I would be glad to do that.
Mr. Terry. So with my last minute 20, I want to ask,
starting with Jack going to my right, I have been a supporter
of biofuels, not just because I am from the Cornhusker State
and that is economically important to Nebraska, but been a
rabid supporter of a variety of fuels to offset imports.
So, Mr. Gerard, Jack, if you could start, do we need
diversity in our fuel portfolio?
Mr. Gerard. Diversity is always good, as I mentioned to Mr.
Rush.
I would say what is happening today, of course, is we are
providing more and more domestically, which is getting us off
the foreign import question.
Mr. Terry. Is that a yes or a no?
Mr. Gerard. Yes. Diversity is always good.
Mr. Terry. Sorry.
Mr. Dinneen. Yes, Congressman, it is critically important.
And thank you for your leadership on this issue over the past
several years.
Mr. Drevna. Diversity is always good as long as ago it has
a positive impact on the consumer, including costs.
Mr. McAdams. I practice it in my 401 every day.
Mr. Martin. Yes. Absolutely.
Mr. Terry. Thank you.
I yield my time, yield back my 5 seconds.
Mr. Whitfield. The gentleman's time has expired.
At this time I am recognize the gentlelady from California,
Ms. Capps, for 5 minutes.
Mrs. Capps. Thank you, Mr. Chairman, for holding this
hearing. And I appreciate the witnesses' testimony today. We
all have a range of perspectives on RFS, but I hope we can
agree on the importance of the policy's primary goal to develop
a cleaner, more sustainable fuel supply. Developing reliable
renewable fuels were reduce our dependence on oil, much of it
foreign, strengthen national security and create quality local
jobs.
There are a variety of Federal policies to help us move in
that direction. Some are direct investments like tax incentives
and research funding, and some, like the RFS, set public policy
goals for private industry to work toward. I think both
approaches play an important role of fostering growth of
renewable fuels, but the RFS in particular is vital to creating
some stability in an otherwise uncertain and volatile
marketplace.
As we know, some are calling for the complete repeal of RFS
due to concerns about the ethanol blend wall. I agree there are
some issues with RFS that do need to be addressed, but a
complete repeal would have far-reaching negative impacts, going
far beyond the blend wall.
So I am going to ask Dr. Martin a couple of questions. You
point out in your testimony that repealing RFS would lock in
the status quo by more or less ending the development of
advanced cellulosic biofuels. Can you elaborate on this? How
would repealing the RFS impact our ability to develop viable
new advanced fuel resources?
Mr. Martin. Yes. Thank you very much. I think it has been
mentioned several times that the investment in the next
generation of biofuels really does rest on understanding what
the goals of the fuel policy are and the objectives that we are
trying to meet. The RFS sets those goals and the companies have
made investments and are starting to produce fuel.
I think something that sometimes gets lost in the sense of
how much progress have we made, isn't this a failure already,
is that we have moved from laboratories to commercial
production, and we have done that in a relatively short amount
of time, but the fuel industry is enormous, and so the amount
of time to go from one commercial facility to 16 billion
gallons is, of necessity, will take some time.
Mrs. Capps. Thank you. To continue, a key part of the RFS
process is evaluating the total reductions in life cycle,
greenhouse gas emissions for a given biofuel. In your
testimony, you also state that the--and this is a quote from
your testimony, the implementation of the RFS to date has had
at best a limited positive impact on greenhouse gas emissions.
Can you explain why this is the case and how increasing the
use of cellulosic biofuels would impact this assessment?
Mr. Martin. Right. Absolutely. We are very much looking to
the RFS as a policy to reduce greenhouse gas emissions from the
transportation sector and from fuels, but we think the biggest
opportunity there is in the cellulosic biofuels and because of
the competition with food in particular. And so I think it
makes a lot of sense that the RFS, after scaling up the
biofuels that were available in the beginning of the policy, is
shifting to other resources and we think that--and that is
where the big opportunities are going forward.
Mrs. Capps. One final question. I have a little time. And I
see some others nodding, so if there is time to get a comment
from others as well, but the RFS has played and will continue
to play a critical role in accelerating the development and
integration of advanced biofuels that we need in order to
reduce our dependence on oil, but there is so much more that we
can and should be doing. That is maybe the subject for another
hearing.
Dr. Martin, other than the RFS, what more could Congress be
doing to accelerate the development of a cleaner, more
sustainable fuel supply?
Mr. Martin. Yes. Absolutely. I think there are a lot of
opportunities outside of this policy, in particular in the Tax
Code, because the delay in cellulosic has been all about
investment, and certainly there are policies that could support
more rapid investment.
Mrs. Capps. Mr. McAdams or others, would you like to
comment as well?
Mr. McAdams. I wholly agree. The Tax Code has several
options that would be very helpful. That is an area to look at.
Mr. Drevna. Congresswoman Capps, the advanced biofuels, I
think we have to differentiate on the cellulosic. What is--what
is cellulosic ethanol, we are still going to have the 10
percent blend wall, with cellulosic drop-in biofuels that my
industry is doing a lot of research on, so we are having this
cross-section of definitions here, but all cellulosic is not
cellulosic. The ethanol, we are still going to have the 10
percent blend wall, the cellulosic drop in biofuels are still
years away.
Mrs. Capps. Any other comment?
Mr. McAdams. Ms. Capps, I am going to send Mr. Drevna some
of the drop in gasoline made from pine trees so he has got
some.
Mrs. Capps. There you go.
Mr. Gerard. Ms. Capps, I would suggest maybe this might be
a way--an area that you might look at for those who are looking
for the middle ground. As Mr. McAdams said, cellulosic and
advanced in those areas, which are less greenhouse intensive,
versus what we have today. If you look at the E10 blend wall we
have today, driven heavily by corn ethanol, which is driving us
to that brink, that is why we argue we should repeal that, and
then if we want to look at another agenda or another policy
down the road, those are the areas we should look at.
I think, as Mr. McAdams said, when you look at the advanced
fuels that are still way down the road, there might be a better
way to do this than have a mandate like the RFS that brings us
to the point of crisis and has very adverse impacts on
consumers.
Mr. Whitfield. The gentlelady's time has expired. At this
time, I recognize the gentleman from Texas, Mr. Olson, for 5
minutes.
Mr. Olson. I thank the chair and I thank the panelists for
joining us this morning. This issue is slightly controversial,
with some passion. That is a little attempt at some humor,
something I learned from the ultimate Texas humorist, William
Philip Graham, otherwise known as United States Senator Phil
Graham, who I worked for 4 years. And Phil Graham always taught
me to seek the truth, and he said, by something very simply,
Boy, facts are a little persistent ``thangs.'' And that is a
crummy Georgia-Texas, accent, but that is what I am here to do
today, is find out the facts.
Here are the facts I took away from the discussion of last
month's hearing before this committee. The RFS was designed for
a U.S. energy future that no longer exists, that of a peak oil
and increasing gas demand. The mandate will be met this year by
using most of the older excess credits in the system. In future
years, if unchanged, will be much more difficult. Compliance
costs are spiking, especially for small refiners who don't
blend fuels and generate their own credits.
The RFS has helped increase corn prices, and that has hit
consumers back home, at Kroger's, at Safeway and HEB, and, yes,
at Wendy's and even Whataburger. With all due respect to some
of the panelists who said that there is not an impact on food
prices, RFS does have that impact. Wendy's came into my office
a month ago, wanted to talk about Federal issues. You think
they want to talk about Obamacare, increasing taxes, all sorts
of things? No. They wanted to talk about RFS corn-based ethanol
and how it has increased their cost of doing business.
And I want to have a disclaimer, too. I am not, not opposed
to corn farmers or ethanol. I have gotten blisters on my hands
throwing a hoe in my uncle's farm there in south central
Wisconsin cutting down the weeds in his corn fields, so I know
how important corn is in that part of the country.
I do have some questions. I want to dig deeper on the RINs
issue, so I have some questions for Mr. Gerard and Mr. Drevna,
on its impact on small refineries. Large refineries, as we have
seen, are able to generate many of their own RINs, however,
many small refineries lack the distribution network and
blending operations to do that. Can you please explain what
this has meant for small refineries as RINs prices rise?
Mr. Gerard. Well, thank you. Go ahead.
Mr. Drevna. OK. I am sorry. First of all, thank you,
Congressman Olson, but I think that the issue is just--it
transcends all refineries whether you are large or small,
because not all refineries blend, not all refiners own blending
facilities. Most do not. But it is a great question, because in
response to your question, I can also comment on Mr. Shimkus'
thought about not wanting to take away investment and have
people suffer in the marketplace. Back in--when the RIN prices
first skyrocketed, when the market saw that there wouldn't be
enough RINs either for 2013 or 2014, they shot up at that time
to a modest 60 cents. Huh. The refiners, the independent
refiners lost $2.5 million of market capitalization in one day.
So that is what this RIN thing has done. And that is over and
above them having to pay for the cost.
Last week, Bill Klesse, chairman and CEO of Valero,
testified on the Senate side that Valero, a very large
independent refinery, is going to be spending between $500
million and $700 million on RINs. And, oh, by the way, they are
the third largest ethanol producer in the country. They produce
more ethanol than 97 percent of the above-the-knees members. So
that is the reality. This is a market-skewering, economically
disastrous kind of policy that needs to be addressed.
Mr. Olson. Mr. Gerard?
Mr. Gerard. Mr. Olson, the impact on whether they are small
or large is fundamentally the same. Let me bring us back to the
focus. The real culprit here is the E10 blend wall. Charlie and
others have mentioned for many years, those RINs were in the 2
cent to 3 cent range, and it wasn't a concern.
What has happened is the markets are seeing the mandate
under the renewable fuel standard and say, we are going to
force you or mandate you through to essentially where we have
options to either create an unsafe fuel, but the auto
manufacturers say, we are not going to warranty our cars if you
do that, or go to fuels like E85, where consumers are already
telling us they don't want to buy the fuel. Why? Because it has
less energy content in it. There is about one-third less energy
in a gallon of ethanol than there is in a gallon of gas.
So when you look at the price differentials, the cost of
pure ethanol has always been higher than a gallon of gasoline.
Consumers are figuring this out. That is why even with flex-
fuel vehicles, they are not buying E85, even though it is
available. Minnesota is a good example. They have actually
increased the number of filling stations in Minnesota, and the
demand for E85 is going down. Consumers understand it is all
about energy; it is what you have to pay for to get from point
A to point B.
Mr. Whitfield. The gentleman's time has expired.
Mr. Olson. Yes. I am sorry, Mr. Dinneen. My time----
Mr. Dinneen. I thought the search for the truth would
include both sides.
Mr. Olson. Well, I mean, the chairman's got the gavel
there, so----
Mr. Whitfield. At this time, I recognize the gentlelady
from Florida, Ms. Castor, for 5 minutes.
Ms. Castor. Well, thank you, Mr. Chairman.
And thank you to all the witnesses for your testimony
today.
I am certainly open to some reform of the RFS, but there
are some overriding issues that I think have to keep in mind.
In 2007, the Congress updated the RFS with the explicit purpose
of reducing carbon pollution from the transportation sectors.
The Congress at that time was looking for different strategy
among different sectors of the American economy. The Congress
said, here in the transportation sector, we have got to reduce
greenhouse gases being generated in the sector and also to help
Americans across the country avoid the impending high costs
that are being brought about by climate change.
So the two primary ways in which the RFS aims to deliver
these reductions are in the mandate for advanced biofuels,
which must cut carbon pollution by at least 50 percent on a
lifecycle basis, compared to petroleum fuels, and the mandate
for cellulosic biofuels, which must cut carbon pollution by at
least 60 percent. I know Congresswoman Capps was able to ask
Dr. Martin about the greenhouse gases.
Mr. McAdams, what role do you see--how is it going? Are we
really achieving the targets that we have set? You represent
many of the companies that are developing and producing these
advanced and cellulosic biofuels. What kind of greenhouse gas
reductions are we actually seeing?
Mr. McAdams. Well, by law, all of my members have to
deliver a 50 percent greenhouse gas reduction over a 2005
baseline gasoline or diesel standard. And we delivered 2.25
billion gallons last year. And when you think about that--and
the rules of the RFS were not even implemented until July of
2010. I defy anybody to say to stand up an entire industry in
less than 3 years is a pretty decent performance, and we are
probably going to be at 2.75 billion this year or above and
over 3 next year. So we have done very well in the diversity of
technologies that are coming online. These were all new,
innovative technologies. This is--unlike the oil industry, who
has depreciated their refineries, because they haven't built
one in the last 40 years, my members have built three new
refineries in the last 18 months. That is a heck of an
accomplishment for America, and that diversifies our portfolio.
So I am proud of the progress we are making, and you will see a
lot more between now and 2016.
Ms. Castor. Well, I do believe they are replacing a
significant quantity of petroleum with these low-carbon
biofuels could result in climate change benefits and help. And
the cost equation, you have to think about it on both sides.
And coming from the State of Florida, I am particularly
sensitive to this, because we are asking local taxpayers now to
fund plans to address sea level rise, what is happening to our
infrastructure along the coast. And unless we have some
provable, evidence-based strategies going forward, we are just
going to flail around and probably waste a lot more money.
The development of cellulosic biofuels, however, hasn't
been as quick as Congress wanted. We are impatient. Plus corn
is problematic. Is it raising food costs? Based upon what I am
hearing from folks back home, they certainly believe so and
they are providing evidence to back that up.
Last year, however, we saw the first cellulosic gallons
produced in the U.S. The Energy Information Administration
predicts the sector will grow substantially in the coming
years.
Mr. McAdams, as I said, we are impatient. What else can we
do? What else constructively in the RFS can we do to move this
along? I know you talked about tax benefits, but this is the
Energy and Commerce Committee and not Ways and Means. And if we
are going to draft any legislation, what should it include?
Mr. McAdams. Well, one of the things I would encourage you
to consider is the point that Dr. Martin referred to, which is,
from a performance-based standard, we have many companies that
build a fuel now that exceed the 50 percent threshold. Yet,
under the RFS, it is just a 55-mile-per-hour line. They don't
get any extra credit for it. You could actually see companies
that have facilities that are less than the 50 percent
threshold that might be encouraged to make further upgrades,
like combined heat and power or switch their fuel sources to
natural gas, that would actually increase their GHG coefficient
if they were to get something for it, which would encourage
them to do that. That is not currently in the RFS.
Ms. Castor. OK. And, Dr. Martin, I think you mentioned a
new Florida company that has come online. Could you reference
that for me, please?
Mr. Martin. Absolutely. I had a chance last year to visit
the INEOS refinery in Vero Beach. And they are starting up a
process using vegetative waste that would otherwise be headed
to the landfill to make not just biofuel but also renewable
energy. So it is really exciting to see these commercial
facilities come up. And when you understand the time frame that
that went from a laboratory to a pilot plant to commercial
production, I think it is hard for them sometimes to
understand--if you only look at the number, like how quickly is
it going to be half of gasoline production, you miss these huge
improvements as you go from, you know, milliliters to gallons
to 1,000 gallons to 1 million gallons to 10 million gallons. We
need to get to 10 billion or more gallons. But we have made
tremendous progress to get to where we are now.
Ms. Castor. Thank you very much.
Mr. Whitfield. The gentlelady's time has expired.
At this time, I recognize the gentleman from Colorado, Mr.
Gardner, for 5 minutes.
Mr. Gardner. Thank you, Mr. Chairman. And thank you for
convening this hearing on a very important issue for my
congressional district.
The Fourth Congressional District of Colorado is the 11th
leading agricultural district out of the 435 districts in
Congress. We have corn growers. In fact, my home county has in
the not-too-distant past been the number two or number three
corn-producing county in the United States. And we produce
livestock, the fifth largest cow calf operation in the country.
We boast thriving oil and gas production. In fact, the State of
Colorado ranks fifth in the United States in terms of natural
gas production. Many of the groups who are represented here
today and tomorrow do have different opinions regarding the
Renewable Fuel Standard. And I thank the committee for what is
a deliberative and systematic process in this debate. And I
appreciate the witnesses for being here today.
So I will first direct my questions to Mr. McAdams. You
discussed a need for certainty for investors and makers of
advanced biofuels. I have an ethanol plant currently in my
district that is looking to make cellulosic ethanol from bark
beetle-killed wood. How would the development of this project
be impacted if Congress made changes to the RFS?
Mr. McAdams. I addressed that directly, Congressman, in my
opening statement. The largest single problem we have is
certainty. Both in the Tax Code, where the provisions are on
one year and off another year and now in the debate as to
whether we are going to repeal the RFS or not repeal the RFS.
Mr. Gardner. Affecting your investors?
Mr. McAdams. It is the number one concern of the CEOs that
I represent.
Mr. Gardner. In your testimony, you discuss short-term
solutions to issues raised today that would give EPA more
flexibility. Do you believe Congress can fix this problem and
give the EPA the flexibility it needs?
Mr. McAdams. I am unclear as to whether they can. But I
know that the EPA, because I have spoken to them on a
consistent basis, is trying to deal with this RVO issue in the
short term.
Mr. Gardner. Do you think they have the authority make
changes within the RFS currently?
Mr. McAdams. Yes, sir, I do.
Mr. Gardner. To Mr. Dinneen, we are going to hear tomorrow
from representatives--and I will give you a little time to
respond to the comments made earlier. We are going to hear
tomorrow from representatives of the livestock industry. As
someone who hails from an agricultural district, I represent
both the farm side and the ranching side. Can you discuss how
the coproduct from ethanol production distiller's grain, how
they impact livestock operations?
Mr. Dinneen. Thank you very much, Congressman. Absolutely.
We are only using the starch in the production of ethanol. What
is left behind is a very high-protein, high-quality feed that
is then going to poultry and livestock markets across this
country and, indeed, across the globe. In fact, the amount of
DDG, distillers' dry grains, that our industry produced last
year is enough to produce the hamburgers to give everybody a
quarter pounder a day for the next 8 months.
Mr. Gardner. And I will ask a similar question at
tomorrow's hearing with that panel because we have got group
that is on the opposite side of that question tomorrow. How
would you respond to the issue of higher feed and operating
costs?
Mr. Dinneen. Well, look, one of the reasons that the RFS
was passed was to stimulate economic opportunity across rural
America; $2 corn was not sustainable. And the Congress was
having to pay farmers not to grow. What they wanted was a
value-added market for farmers. One of the purposes of the RFS
was to increase farm income, increase the price of corn. And it
has done that. And as a consequence, this Congress can now
contemplate a farm program that is significantly different than
what you otherwise would do. And farmers are getting more of
their income from the marketplace, not from the mailbox. And
that is a good thing. But even so, our industry is using less
than 3 percent of the world's grain supplies and none of its
food grains--like rice or wheat. So we think that the impact on
food is negligible to nothing.
Mr. Gardner. I will give you a couple additional seconds if
you want to respond to comments made earlier because I do have
some questions for Mr. Gerard.
Mr. Dinneen. I appreciate that.
Earlier, the issue was whether or not small refiners or
large refiners that don't have downstream blending opportunity,
they can't get the ranch. Well, we sell a lot of ethanol to
major refiners. But regardless, these companies have more
market power than anybody in the universe. And in their
contract negotiations, they can make sure that the RINs are
returned to them for ethanol that is blended with gallons that
they are providing. And for Valero in particular, the third-
largest RIN producer in the country, if they can't find RINs,
they have got a problem. But that problem is not with the RFS.
That problem is with their own internal operations. It isn't
doing what it can to capture the RINs that it is producing.
Mr. Gardner. Thank you, Mr. Dinneen.
Mr. Gerard, I am going to ask two quick questions. We may
not have time to get to them. Can you discuss how you believe
RINs translate to consumer costs. And number two, outline the
risks you see associated as you have done so with blending
higher volumes of ethanol in your opinion.
Mr. Gerard. Great question. I will try to be brief here,
but I would like to provide you a lot of material.
EPRINC just did a study and released it a couple of days
ago which pointed out that they believe because of the E10
blend wall--keep in mind that is the culprit here that drives
the RIN price increase. Because of the E10 blend wall, when
companies like ours, obligated parties, now try to comply with
the Renewable Fuel Standard, it is arbitrarily and
unfortunately driving up those costs. So when we try to comply,
we have very few options. We can go out and quit producing,
which we are trying to avoid doing. We can produce the fuel if
the auto manufacturer says don't put it in our cars; and by the
way, we have liability if we do for not having the appropriate
product. Or we can try to push a larger blend, an E85 blend
which the market has already shown won't take. What this report
concluded is it shows over the next couple of years this will
drive the cost of gasoline from 20 cents to $1 a gallon. That
is just one of three reports we have. The Wall Street Journal
editorial last Saturday said, they expect it will drive the
cost of gasoline at least 10 cents a gallon and will cost the
economy $14 billion.
The real injustice here, this is all avoidable. We can
address this question if we will deal with the E10 blend wall
and make sure that mandate is taken away. And that is why we
support repeal. This law is fundamentally broken. And it is
driving us to the brink of crisis for no reason other than the
fact that we just haven't dealt with it.
Mr. Gardner. Thank you, Mr. Chairman.
Mr. Whitfield. The gentleman's time has expired.
At this time, I recognize the gentleman from New York, Mr.
Engel, for 5 minutes.
Mr. Engel. Thank you very much, Mr. Chairman.
I am very pleased that we are holding these hearings on the
Renewable Fuel Standard. A program as important as this should
be reviewed by Congress and any possible issues addressed. I
believe that the Renewable Fuel Standard is an important tool
in promoting U.S. energy security, an issue that I have been
promoting for several years. When it comes to the RFS, much has
been said, both good and bad during the last hearing and in
testimony today. However, I believe, it is important to
remember that this program reduces our greenhouse emissions and
reduces our dependence on foreign oil. And both of those are
very important. I believe that the EPA has the authority to
deal with issues discussed today, such as the so-called blend
wall. And the levels of advanced biofuels that are mandated. It
is also important to remember that many of these new
technologies aren't exactly new. So it is premature to judge
their success or failure. There are things we can do to
strengthen the RFS. I have recently introduced the Open Fuels
Standard Act, which I believe is a complement to the RFS with
my colleague from Florida Representative Ros-Lehtinen. This
legislation would require auto manufacturers to build cars that
can run on alternative fuels. In addition to gasoline, it could
include ethanol, methanol, natural gas, electricity, biodiesel,
hydrogen, or some new technology. It would empower our
consumers to make a choice about what fuel is best for them. I
urge this panel to take up the Open Fuels Standard Act.
Let me ask, Dr. Martin, in your statement, you spoke about
the motivation behind the expansion of the RFS which was to cut
U.S. oil consumption. I believe that the evidence shows it has
moved the U.S. toward that goal. Can you speak to how adoption
of the Open Fuels Act might help us toward furthering that
goal?
Mr. Martin. Certainly. I think reducing the use of oil is
good for the country. And I guess I have heard in today's
discussion some comments that the predictions in 2007 were
wrong. And because we are using less oil now than we were in
2007, I think it is important to note that that is a positive
sign. That is good for the country. Using less oil is the
solution to the problems that oil causes to our economy. With
respect to the open fuels standard, I think we have had some
discussions in the past with your staff, and we have some
detailed concerns about the best way to provide incentives for
vehicles that use more--that they use cleaner alternatives. And
so I think we definitely support those goals. And I think our
approach to cutting oil use is not just a biofuels approach but
relies on, as the open fuels standard emphasizes, reducing oil
use with better biofuels but also with electric vehicles and a
later variety of technologies.
So while we are happy to continue to work on details and
the best way to implement that, I think is moving forward with
oil-saving solutions across the economy is the right way to
address the problems that oil causes.
Mr. Engel. Thank you. I might also add that in the various
Appropriations bills, I have gotten amendments in those bills
which would implement the President's executive order that in
the Federal fleet of cars that they would all be flex-fuel
cars.
Let me ask you again, Mr.----
Well, let me ask Mr. McAdams or Mr. Dinneen, would either
of you comment on how the increased ability of consumers to
choose their fuel as they would with the adoption of the OFS
would affect the so-called blend wall? And can either of you
address how more consumer demand of biofuels would help the
industry grow more quickly?
Mr. McAdams. Well let me just make one comment, and I then
will defer to Bob.
A number of my members--in fact, the majority of my members
actually make a drop in hydrocarbon molecules which doesn't
need an open fuel standard. It can compete directly with the
hydrocarbon fuels today. So I will let Bob pick up the other
piece.
Mr. Dinneen. Thank you, Congressman.
We do support the open fuels standard, and we appreciate
your leadership over the years on that issue.
I will tell you that greater E85 sales is absolutely a way
around the blend wall. The blend wall this year, as I testified
to earlier, is less than tow-tenths of 1 percent of the U.S.
gasoline market. You can meet that with greater E85 sales. If
the 3,000-plus E85 stations today were offering E85 and selling
just 50,000 gallons a month, we would meet that standard. And
you can most certainly do that.
Certainly, as the price of gasoline has increased and
ethanol prices have been coming down, consumer use of E85 is
increasing specifically. And I can give you some specific data
from the State of Minnesota that has shown since May there has
been a spike in E85 use because the economics today are just
compelling. And that is ultimately what is going to move this
market.
Mr. Engel. Thank you. If you could get that to me, I would
appreciate it.
Thank you, Mr. Chairman.
Mr. Whitfield. The gentleman's time has expired.
At this time, I recognize the gentleman from Kansas, Mr.
Pompeo, for 5 minutes.
Mr. Pompeo. Thank you, Mr. Chairman. Thank you all for
being here today. There has been a lot of discussion about the
RFS protecting investments or being good for a particular
industry, corn growers, bad for cattle guys. It seems to me
those are the wrong discussions. It seems to me this is about
consumers, providing them the independent energy at the source
that they demand and that they want. It seems like that ought
to be everybody's focus. A lot of nodding heads, but I haven't
heard much talk about it today. So I want to try to get to
that.
Mr. Gerard, a moment ago you said--but I will ask everyone
to try to give me a yes or no. Yes or no, does the RFS today
impact the cost of transportation energy for consumers in the
marketplace today?
Mr. Gerard.
Mr. Gerard. It does. It clearly impacts it, but it is not
in a downward fashion.
Mr. Pompeo. You think it goes up.
Mr. Dinneen.
Mr. Dinneen. Yes, it impacts it.
And because ethanol is less expensive than gasoline, it is
helping consumers today.
Mr. Drevna. I respond in the affirmative to what Jack said.
Mr. McAdams. I think it is helping consumers because it is
giving them a diversity of choice.
Mr. Martin. It is having a limited but positive benefit at
the present time.
Mr. Pompeo. So you think it makes a gallon of gas cheaper?
Mr. Martin. It is hard to say. I don't have actually a
specific analysis.
Mr. Pompeo. And Mr. McAdams, you think it makes it more
expensive. But you think it is worth it because of the
diversity?
Mr. McAdams. I think, over the long haul, the return on the
investment is good.
Mr. Pompeo. My question is today. If you drive up to a
pump, is it costing you money----
Mr. McAdams [continuing]. Compete with today's market. And
my members are doing that.
Mr. Pompeo. Mr. Drevna, one of the responses to the RFS
potentially is that refiners will export products to solve this
challenge that they perceive, at least, with respect to RINs.
Is there evidence of that happening already today?
Mr. Drevna. I am sorry. I didn't catch the last part of the
question.
Mr. Pompeo. The question is about exports. The question is,
is there evidence that refiners are exporting refined products
today as a result of the RFS, that they would not have absent
that?
Mr. Drevna. Right today, I can't say definitively yes. But
I can guarantee you, if this blend wall product isn't solved,
refiners are going to--they have a couple of options to address
the RIN in a blend wall. One is to cut runs, which will limit
the supply of gasoline and diesel overall; and two is to export
more, which would also limit their obligation. Another thing
you have to take into consideration is the import of either
gasoline or gasoline product to be blended here in the United
States. There is evidence that shipments of gasoline and
gasoline components have made a u-turn to go somewhere else
because of the high cost of those free RINs.
Mr. Pompeo. Mr. McAdams, you talked about an F-18 you saw
flying off the deck with this new and improved product. What
did that cost compared to what it would have cost the taxpayer?
Mr. McAdams. I am not familiar with the exact price. I
would be happy to try to find out for you.
Mr. Pompeo. If I am saying it is 10 or 15 times as much,
would you dispute that?
Mr. McAdams. I just don't have the information.
Mr. Pompeo. Thank you.
If it was 10 or 15 times, would you still think it was a
good idea?
Mr. McAdams. Over the long frame and depending on the
number of gallons, it might be a great bet.
Mr. Pompeo. Mr. Dinneen, you talked about RINs being free.
The gentleman who runs Valero said its RINs are going to cost
$500 million. Why is he wrong?
Mr. Dinneen. Because he is the third largest ethanol----
Mr. Pompeo. But why is he wrong? I understand what he does.
Why is he factually wrong? It is about facts. We are trying to
create policy from facts. Tell me why he is wrong about what he
is going to have to report under Sarbanes-Oxley next year for
the cost of his RINs.
Mr. Dinneen. By regulation, ethanol producers have to give
a RIN to the purchaser of the ethanol. So they are free. If
they are out on the marketplace looking for RINs, looking for
credits, it is because they have made a decision not to invest
in E85 infrastructure, not to allow more ethanol to be used,
and to go to the marketplace elsewhere.
Mr. Pompeo. I want to get to that. I appreciate that. You
said, it is because they hadn't invested. Is there any lawful
requirement for these companies to invest in this
infrastructure? You posted on your blog--and I want to make
sure I get the language exactly right, quote, ``oil companies
have blatantly ignored the law, refusing more than 5 years to
make any meaningful investment in infrastructure that would
allow the sale of E85 or blends above E10.'' What law is it
that they were violating in not making those investments?
Mr. Dinneen. Well, what they are ignoring----
Mr. Pompeo. No, no. What law? I am just trying to figure
out what statute, what U.S. Code. I assume it was a Federal
law. What law did they violate?
Mr. Dinneen. The point is they are ignoring the RFS, which
sent a very clear signal to everybody that we are going to be
using more renewable fuels. The auto companies responded by
producing more FFVs. Our ethanol responded by investing in new
technologies. The oil companies responded by deciding not to
allow consumers access to these other fuels.
Mr. Pompeo. So many more questions, but Mr. Drevna, go. I
will see if the chairman will bear with me.
Mr. Drevna. I have to respectfully disagree with Mr.
Dinneen. We have no control over what the 95 percent of the
independent gasoline operators do. It is up to them. It is up
to them. If they want to make the investment to sell E85, which
the consumers don't want, have at it. If Mr. Dinneen's members
want to invest in E85 stations, my members would be more than
willing to sell him the 15 percent gasoline.
Mr. Dinneen. The franchise agreements is how they control
what is sold. And in Kansas, in particular, we have seen what
they do.
Mr. Pompeo. I know the story very well. Did any of those
franchise agreements under penalty of death? Or did they enter
those franchise agreements voluntarily, do you know?
Mr. Dinneen. I am not privy to the franchise agreements,
but I wouldn't say no to anything. All right? That is all I am
saying.
Mr. Whitfield. The gentleman's time has expired.
At this time, I recognize the gentleman from Texas Mr. Hall
for 5 minutes.
Mr. Hall. I knew when Barton turned it off on Shimkus it
would come back. And your suggestion that they instruct or
inform and help us reform, Mr. Shimkus, is probably one reason
he whacked it off.
I am going to take a chance on that and ask some of the
same questions that have been asked because just about
everything has been covered.
Mr. Drevna, in your talking points, I guess American Fuel &
Petrochemical Manufacturers' white paper is a good bit about
the advanced biofuel shuffle. And I am told there is no
difference between corn ethanol and sugarcane ethanol for fuel
blending. The shuffle occurs only because of the RFS advanced
biofuel requirement. So let me maybe go to Mr. McAdams if I
might. And first, I want to thank the chairman for the hearing
because I haven't attended a more important hearing, a more
divisive hearing, or a hearing where men like you five could
get together and really give us some good work if you could get
together in the future. There ought to be some answer to this
other than the Congress having to make an answer.
And how to proceed with RFS and issues with blend wall are
very important to our energy future. I am not sure what our
best path is right now where all of you come in. Hopefully, by
the end of this hearing, we will have a better idea of how to
move forward in the future.
So, Mr. McAdams, the blend wall, probably the most pressing
concern to the renewable fuel standards and specifically an
ethanol issue. But the RFS is designed to include advanced
biofuels other than ethanol, including so-called, as some of
you mentioned, the drop-in fuels that don't contribute to the
blend walls and, in fact, may be the solution to it.
Mr. McAdams, are there currently any fuels being made that
avoid the blend wall and take pressure off the use of ethanol?
And are you concerned that unless the blend wall is addressed,
it could sink the entire RFS, including the advanced biofuel
provisions? Do you have that figure?
Mr. McAdams. Thank you Chairman Hall.
Let me first answer the question about the biofuels. Yes,
there are a number of fuels that are drop-in biofuels that are
currently being used in the D6 or the conventional pool. When
you originally designed the RFS, I don't think most of the
folks in the committee understood that other fuels could be
compliant with the D6 pool, which was originally set up for the
ethanol industry. With the advent of the rise in the RIN price
for the D6 pool, we have seen a number of renewable diesel
gasolines and some biodiesels actually come into the D6 pool.
If you take Mr. Dinneen's testimony at his word that there is a
280 million gallon gap in terms of the number of gallons of
gasoline to put the ethanol in, we may actually see 100 million
gallons of renewable diesel this year used in the State of
California because the State of California wanted the enhanced
greenhouse gas reduction of those fuels back out the blend wall
issue to some degree. Now I am not suggesting to the committee
it is the panacea moving forward as the size of the cellulosic
number grows.
But I do want everyone to be aware that there are a variety
of flexible drop-in fuels that are now helping take the
pressure off the blend wall. And yes, the blend wall issue has
created a great firestorm, as you have witnessed today. And it
is had a negative impact on my guys being able to build these
innovative plants to find financing.
Mr. Hall. Mr. Gerard, would you like to comment?
Mr. Gerard. Yes, I would, Mr. Chairman. Thank you.
What Mr. McAdams says is probably true and important. Let
me just add, though, and I think we talked about this before
the issue. It is an incremental pressure. And what I mean by
that, it still doesn't resolve the entire problem. Keep in mind
the challenge we have with the blend wall today is only for
this year. Next year, the volume goes up. The following year,
the volume goes up yet again. And so this continues to escalate
into the future. So while we are getting some incremental
improvement in some biofuels and others, diesel, that is
terrific. It is assisting, but none of it is sufficient to
offset the pressure and the crisis we have in the blend wall.
That is why we have got to come back and address the blend wall
issue.
Mr. Hall. Thank you for that.
Mr. Drevna, I wish you would address the advanced biofuel
shuffle, the import of sugarcane ethanol from Brazil and the
exporting of corn ethanol from the U.S. to Brazil. What is
happening and what ought to be done to fix this? And let me
just say this because I think my time is probably almost gone.
I know most of you there that have invested and have built
companies and are relying on a reasonable well-thought-out
answer to this problem. You might feel like the button people
felt when the zipper guy came along. But for your knowledge,
the button companies are still going, and the zipper companies
are all going together. So we need to work something that is
satisfactory to all five of the folks you all represent there.
That is a big job.
And I will yield back my time.
Mr. Whitfield. The gentleman yields back the balance of his
time.
It is time to recognize the gentleman from Louisiana, Dr.
Cassidy, for 5 minutes.
Mr. Cassidy. Thank you. One of the advantages of going last
is that you get to hear your colleagues and get a sense of
where they are going. Some of you I know would like to totally
repeal the RFS. But if Mr. Hall from Texas is saying that the
buttons and the zippers are going to list, I am a little bit of
a vote counter, and I don't think that there are, frankly,
votes to repeal it. It is not--because I have been kind of
sounding my colleagues as they walk out to get a sense of it.
Now, Mr. Gerard, you just suggested that--I am not
committing you to searching for--I am a practical guy. So if we
have got to come up with something that is going to keep the
most deleterious effect of this from happening and if even Mr.
Hall from Texas is going to say that we have to coexist, then I
am going to kind of accept his lead and ask you guys, if there
was something that we could do to at least ameliorate the
negative effects. I gather we would start with the blend wall.
Keep it from escalating. Can I just go down the line and ask
each of you, if you can concede that there would be something
that we could work on, what would that be?
Mr. Gerard. Clearly, the blend wall is the crisis right
now. I would suggest, Mr. Cassidy, that the first thing we have
got to do is to define what we are trying to accomplish. What I
mean by that, I hear conversations about greenhouse gases. I
hear import reliance. I hear a variety of other things
involved. I think we need to define it because fundamentally
today, the market is very different than it was in 2007.
Mr. Cassidy. I accept that. As I listen to everybody and
have read your testimony, it seems like the major concern that
will keep all those guys voting against repeal would be
greenhouse gases. Now I gather there is a confusion of experts
on that. There just is. But also gather that for some folks, it
is something which is going to be accepted as holy scripture,
and they are not agnostic.
Mr. Gerard. Well, if you look at the panel today, there
might be a distinction between Mr. Dinneen and Mr. McAdams
because the National Academy of Sciences has concluded that the
corn-based ethanol----
Mr. Cassidy. I accept that. I am a practical guy. And they
are going to believe it no matter what. And there are going to
be some others who, for some other reason, decide they want to
stay with the renewable fuels standard. I am not arguing either
side. I am just telling what you I have observed. So when we
start with the blend wall, perhaps prevent the escalating sort
of demands of it, is there anything else that you would
suggest, Mr. Gerard?
Mr. Gerard. Well, I think we need to do that first, and
then again, I would suggest we go back and look at the
foundation of the fundamentals. What are we trying to do?
Mr. Cassidy. So walk down the aisle.
Mr. Dinneen. Congressman, as I indicated before, I will
acknowledge that there are issues that need to be addressed.
But I do believe strongly that EPA has the authority to address
some of those issues. I, for example, believe that the agency
ought to be looking at transparency in the RIN market.
Mr. Cassidy. Let me first say, our side doesn't trust EPA,
OK? And I think if there is some legislative vehicle that could
give assurance to both, that might be preferable. We can argue
for the world view which we would like to have. I am just
listening to my colleagues and getting a sense of what the
world view is up here. So aside from relying upon the
beneficence of the EPA, what else would you suggest?
Mr. Dinneen. Well, the suggestion was that this blend wall
is creating a crisis. I am a practical guy, too, Congressman. I
just happen to believe that two-tenths of 1 percent of the U.S.
gasoline market that is represented by the blend wall this year
is not a crisis. And it can be addressed.
Mr. Cassidy. But it escalates, as the other panel has said.
So even though we may be able to mitigate it this year, in
subsequent years, it will become more difficult. And as your
neighbor just pointed out, there may be tanks of gasoline going
elsewhere.
Mr. Dinneen. The ethanol requirement increases by 600
million gallons----
Mr. Cassidy. I feel like we are battling----
Let's work down the aisle.
Mr. Drevna. Congressman, thank you. I think you have to
look at what was anticipated, what were the directives, how
they have played out, and a lot that hasn't been talked about
today and we tried to bring it up, what is the ultimate impact
on the consumer? What is the ultimate impact on the overall
American economy, not this segment or this segment or this
segment. Look at the thing holistically. Is, has it worked?
Where has it failed?
Mr. Cassidy. I accept that. I totally accept that. I think
you have very compelling testimony. That said, I don't think
that we are going to repeal the RFS. And so, keeping in mind
that our primary thing should be the working family of the
United States of America, is there anything incrementally that
we could do that could improve that?
Mr. Drevna. Well, incrementally, I don't think if a problem
is unworkable at its core or at its nucleus, that tinkering on
the outer electrons isn't going to get the job done. And that
is why we are for repeal. And as Jack said earlier, you repeal
it, we are still going to use 10 percent ethanol. Mike's gang
is still going to get advanced biofuels. We are we will
progress, not digress. I have maintained, Congressman, if we
keep this law as it is, we are going to digress.
Mr. Cassidy. Next?
Mr. McAdams. I would say immediately the committee should
in a bipartisan way send a letter to the EPA because it is of
no loss to you. And call on them to immediately release the
2013 RVO. And I think you will be surprised you will actually
see a decrease in the cellulosic number from the preproposed
rule. And ask them whether or not they could do the 2014 and
2015 framework by November 31. I would do that irrespective of
what your decision is with respect to legislation. I think you
should do both.
Mr. Cassidy. Dr. Martin?
Mr. Martin. I think moving forward with flexibility and
also recognizing that the pace of expansion of biofuels over
the next few years is going to be lower but putting a complete
halt to it or trying to put it in reverse is going to have a
very negative consequence. So moving forward at a deliberate
but not excessive rate is the best solution.
Mr. Cassidy. I yield back. Thank you.
Mr. Whitfield. The gentleman's time has expired. And there
are no further questions for this panel. So I want to thank you
all very much for----
I know it is frustrating for all of to you listen to the
other side of the issue. But we look forward to working with
you as we move forward to make some determination.
Mr. Rush. Mr. Chairman, I have one question that has been
kind of percolating in my head.
Can't we all just get along?
Mr. Whitfield. Why are you asking me that question?
Well, listen, thank you all. And we do look forward to
working with you. We appreciate your testimony.
I would like to call up the second panel at this time: Mr.
Tom Buis, who is CEO of Growth Energy; Mr. Joseph Petrowski,
who is CEO of the Cumberland Group, on behalf of the Society of
Independent Gasoline Marketers of America and the National
Association of Convenient Stores. We have Mr. Shane Karr, vice
president of Federal Government affairs, the Alliance of
Automobile Manufacturers. We have Mr. Todd Teske, who is
chairman and CEO of Briggs & Stratton. We have Mr. Robert
Darbelnet, who is president and CEO of AAA. And we have Mr. Joe
Jobe, who is the CEO of the National Biodiesel Board.
So if you would all have a seat. We thank you for being
with us today. Thank you all for joining us today. And we do
look forward to your testimony because many of you are quite
affected by this renewable fuels standard. And I am sure you
have some practical thoughts and ideas about it.
STATEMENTS OF TOM BUIS, CEO, GROWTH ENERGY; JOSEPH H.
PETROWSKI, CEO, THE CUMBERLAND GULF GROUP, ON BEHALF OF SOCIETY
OF INDEPENDENT GASOLINE MARKETERS OF AMERICA AND NATIONAL
ASSOCIATION OF CONVENIENCE STORES; SHANE KARR, VICE PRESIDENT,
FEDERAL GOVERNMENT AFFAIRS, THE ALLIANCE OF AUTOMOBILE
MANUFACTURERS; TODD J. TESKE, CHAIRMAN AND CEO, BRIGGS &
STRATTON CORPORATION; ROBERT DARBELNET, PRESIDENT AND CEO, AAA;
AND JOE JOBE, CEO, NATIONAL BIODIESEL BOARD
Mr. Whitfield. So Mr. Buis, we will recognize you first.
Each one of you will be given 5 minutes. And on the table,
there are a couple of boxes that will turn red when your 5
minutes is up. So if you can stay within the time limit, we
would appreciate it. We do have your testimony though.
So, Mr. Buis, you are recognized for an opening statement
for 5 minutes.
STATEMENT OF TOM BUIS
Mr. Buis. Thank you, Mr. Chairman. I appreciate the
opportunity to testify, and I do appreciate----
Mr. Whitfield. Do you have your microphone on?
Mr. Buis. There we go. Thank you, Mr. Chairman and members
of the subcommittee. I appreciate this opportunity to testify
today. And I would ask that my written testimony and the charts
and data that we have submitted be submitted into the record.
Mr. Whitfield. So ordered.
Mr. Buis. Thank you very much. I am Tom Buis. I am CEO of
Growth Energy. We represent 79 ethanol plants and 81 associate
members and about 40,000 grassroots supporters at Growth
Energy. Our plant members utilize grain, corn, and sorghum to
make biofuels. But they have also invested very heavily in what
we call next generation production, both cellulose. We have a
plant that is currently under construction in Iowa that will
use farm waste, corn stover to produce cellulosic ethanol that
should be online the first of next year.
We have another plant in Iowa that is actually capturing
carbon from the corn ethanol plant and feeding it to algae
bioreactors. That is about a 20-acre bioreactor process that
can be seen there. And we have others that have invested in the
use of woody biomass.
So the first generation of ethanol producers, which we
primarily represent, are all invested in next generation, both
to meet the greenhouse gas emissions targets and the targets of
the RFS. The RFS, in our opinion, is an overwhelming success.
You know, it has injected much needed competition and consumer
choice into the fuel markets. We are only a little over 5 years
since the passage of that law and only 3 years since the rules
were finalized.
And already we are producing 10 percent of our Nation's
gasoline supply. It has lowered the price at the pump. It has
created American jobs. It has revitalized rural America,
including farm income. It has improved the environment and made
our Nation more energy independent.
Some want to see this policy fail, as we have heard today
and elsewhere. But keep in mind not only are we producing 10
percent today in a very short period of time because of the RFS
but we can do more in the future. With oil approaching $110 a
barrel and gasoline nearing $4 a gallon, does anyone believe we
don't need a less expensive competitive alternative to oil?
That was one of the purposes of the RFS originally. We have
that competitive product today.
And despite what some on the first panel have said, ethanol
is the cheapest fuel in the world. We are 67 cents a gallon
cheaper than clear gasoline. And even when they challenge or
come back with the BTU unit, they are not counting the value of
octane in the refining of that fuel. And our efficiency keeps
improving. Energy use and water use keep declining while yield
and productivity is increasing from every pound of feedstock we
use.
Despite this data, some are trying to blame biofuels for
driving up gas prices. It is just another scare tactic to try
to eliminate what I consider the best energy law passed by
Congress in the last 40 years. RIN prices are not the cause of
higher gas prices. There are 2.6 billion surplus RINs that can
be used in the marketplace for this year.
We are going to produce about 13 billion gallons of ethanol
and biofuels. Last year, the same situation with a short crop
and a short production, RIN prices were 2 or 3 cents a gallon.
And we still had high gasoline prices. So all this doesn't
square. The real cause of higher gasoline prices and RIN prices
is self-inflicted by the obligated parties who refuse to blend
higher levels of ethanol. The real cause of higher gas prices
is unrest in the Middle East, refinery outages, speculation,
and increased demand.
Ethanol's competitive price is why Growth Energy led the
way in asking the EPA to approve the use up to 15 percent
ethanol fuel. That is how you break the blend law. That is how
you solve all the controversy that we were hearing today. We
could see it coming, Mr. Chairman. One of the reasons to go on
to E15 is, even with the rosy scenario laid out in 2007 on fuel
consumption, we were going to have to go to higher blends. That
is why we filed it. That will allow the marketplace plenty of
space for next generation biofuels.
The RFS and the E15, as I just mentioned, go hand in hand.
E15 is the most tested fuel in the history of fuel changes. DOE
performed a comprehensive test, using 86 different vehicles a
total of 6 million miles. They found no harm to emissions
equipment and no issues with engine durability, the two
requirements for granting a waiver under the Energy
Independence and Security Act.
By contrast, the CRC study that gets mentioned by our
critics only tested eight vehicles, two of which had known
engine issues. They did not test these engines on E10 and only
tested three of the eight on ethanol-free gasoline and even one
of those failed. It was a flawed test designed to make a
political point to eliminate the cracking of the Berlin Wall.
The E15 waiver is only approved for light duty vehicles built
after 2001 and flex-fuel vehicles. It is not approved for off-
road vehicles, small engines, motorcycles, or marine engines.
In fact, it is illegal for those vehicles to use it, and it is
stated so on the label that must be acquired on any station
offering E15. The stations that have been offering E15, the
results are pretty amazing. One of the myths that is
perpetuated by the oil industry is that consumers don't want
higher blends. Well, how do they know if they have never been
offered them? Where they have been offered them, we are seeing
volumes go up significantly. In one case from a retailer that
testified at a congressional briefing last week, his volumes
quadrupled in a year. They have not had access to that
marketplace. So let's let the consumer have a choice.
I would also add that over the past 2 and a half seasons,
NASCAR, which has quite a bit of its reputation staked on the
durability and performance of its race cars has put 4 million
miles on those cars without a problem. They got increased
horsepower and increased performance.
Mr. Whitfield. Mr. Buis, I have let you go over about 2
minutes. If you could summarize, please.
Mr. Buis. All right. I would like to summarize, Mr.
Chairman, by saying that to repeal the RFS to me is
unnecessary. To reform it is also unnecessary. We feel that
there is enough flexibility within the law that all of these
issues can be addressed. And if we want to get beyond the
problem, let's crack that blend wall.
Mr. Whitfield. Thank you.
[The prepared statement of Mr. Buis follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. Mr. Petrowski, you are recognized for 5
minutes.
STATEMENT OF JOSEPH H. PETROWSKI
Mr. Petrowski. Thank you, Mr. Chairman.
I am Joe Petrowski, the CEO of the Cumberland Farms Gulf
Oil Group. We deliver gas to 3,000 locations over 29 states. We
operate almost 900 company owned and operated convenient stores
in 13 states. We are not a refiner. We are not a producer. We
don't have any investments in ethanol. We are out there dealing
with the customers. We have over a million transactions a day
selling fuel. All we want to do is sell the fuel that our
customers want in a legal and lawful manner. And we do believe
that it is demand that generates supply. We will sell what our
customers want.
Now I, too, don't believe the RFS should be repealed. I
think it has achieved much of what Congress intended which was
a diversity of supply, a domestic source of fuel, and has, I
believe, on balance brought down the price of fuel to the
consumer. With RINs trading at $1.50, for a blender that is
almost picking up 15 cents a gallon on a 10 percent blend and
with ethanol at 60 cents under, that is another 6 cents; that
is 20 cents a gallon. But with RINs at $1.50, we are
subsidizing exports and taxing imports, which has an effect of
increasing prices. Just recently, a refiner who bought a
refinery in Hawaii announced that when they invested in the
refinery and got product up to levels, they would export to
China rather than California or use it locally really to
generate the RINs because an exporter get that RIN and an
importer has to pay that RIN. So there are some deficiencies in
the RFS, which Congress could never have anticipated. Driving
is down, which is somewhat a demographic--online shopping, an
older population. CAFE standards are up, which was mandated by
Congress and was done effectively. But we are using less fuel
than we did when the law was first put in. You cannot mandate
to pour 14 ounces of fluid into a 12-ounce cup, which is
essentially what we have done. Our suggestion is that the EPA
in concert with the DOE set the standards of what should be
blended forward, taking the realities of the marketplace. We
think that is the right solution.
We are also going forward going to have more alternate fuel
vehicles. So we do believe--there are other things I would like
to see Congress--and maybe this is discussion for another day.
It is cheaper because of the 1920 Jones Act for product in
Louisiana to be shipped to Venezuela and Mexico than it is to
Boston or New Jersey. Along with getting the RIN for being an
exporter, that is giving a great incentive as we ramp up
domestic production and ethanol production that we are
exporting the product rather than using it domestically to
lower costs for consumers.
If we have a bias at Cumberland Farms and Gulf Oil is we
want lower energy prices for our customers because we have just
noticed the discretionary spending in our stores is just much
higher when the consumer is not spending it on fuel. So we
might be rare among oil companies that we like lower oil
prices. Now that is not altruism. It is the simple fact that we
are not a producer or a refiner. We are a retailer.
That is it, Mr. Chairman. I have used my time.
Mr. Whitfield. Thank you very much.
[The prepared statement of Mr. Petrowski follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. Mr. Karr, you are recognized for 5 minutes.
STATEMENT OF SHANE KARR
Mr. Karr. Thank you, Chairman Whitfield, Ranking Member
Rush, and members of the subcommittee.
I really appreciate the opportunity to testify here today
on behalf of the alliance and our 12 member companies. We
represent companies headquartered all over the world that make
roughly three out of every four new vehicles purchased each
year, so a broad breadth of manufacturers representing a very
sizable portion of the marketplace.
We, first of all, want to say we appreciate the thoughtful
review of the RFS, and we have responded to several of the
white papers, as other stakeholders have, and think that this
has been a great process. The alliance didn't take a position
on RFS II in 2007. And frankly, I can't tell you how many
gallons of renewables the market is going to produce by a date
certain. Of course, neither can any of the other 15 witnesses
that you are hearing from over the course of these 2 days.
Frankly, we are all here because a number of the
assumptions that were made in 2007 have proven inaccurate in
2013. And the first panel spent a lot of time talking about the
decline in overall fuel use and the slow emergence of
cellulosic biofuel. So I am not going to spend time on those.
Rather, I would like to talk about another faulty assumption,
if you will, and one that is actually embedded in the name of
the standard. The assumption was that renewables would, in
sufficient quantities, become a stand-alone alternative fuel.
And it kind of went like this: Renewable producers would make
billions of gallons and auto companies would make FFVs capable
of running on fuel that was composed of 85 percent renewables
and be sort of done and done. No blend wall issues, no
compatibility problems. In the right vehicle, gasoline is
largely displaced by a competitor that is almost all biofuel
based, right?
It was a great vision. It has proved to be totally wrong.
Instead, the better way to think about biofuels might be as
an additive. And that is not pejorative. It is just an attempt
at an accurate description. It is effectively the tack that
Growth Energy took when it petitioned EPA to increase the
national blend from E10 to E15. To their credit, the producers
were among the earliest to attempt to address the issue.
But the fact is that even as an additive, implementation
has turned out to be very complicated and problematic, as the
witnesses at the table will attest. We can make vehicles that
can run on virtually any fuel. So I want to emphasize that. But
there are a lot of competing policy priorities that we have to
navigate.
So taking seriously Chairman Upton and Chairman Shimkus and
Chairman Terry's--there are a lot of chairmen--admonition to
come to the table with something, I will say to you that these
would be our key watch words for moving forward, how we should
look at biofuels policy:
One, prospectively, prospective, not retroactive policies
with appropriate lead time for manufacturers.
Two, definitively, we need certainty about the fuel specs.
The more precise the spec, the better we will be able to
optimize all aspects of vehicle performance.
Three, comprehensively. Making the fuels important and
having vehicles that can use the fuel is important. But it
turns out distribution is absolutely critical as well, and we
seem to have forgotten about distribution in 2007.
And finally, holistically. There are a number of ways to
achieve energy security and our environmental goals. Biofuels
are an important path, but they are just one. My members are
giving consumers choices, and ultimately, the market will
decide which one works.
If there is a lesson in the last 5 years, it is that we
should be humble about our ability to see the future and
committed to working together to overcome the challenges that
arise. We appreciate the opportunity to appear. And again, I
want to reemphasize we are committed to working with the
committee going forward.
Mr. Whitfield. Thank you Mr. Karr.
[The prepared statement of Mr. Karr follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. Mr. Teske, you are recognized for 5 minutes.
STATEMENT OF TODD J. TESKE
Mr. Teske. Chairman Whitfield, Ranking Member Rush, and the
distinguished members of the committee, thank you very much for
soliciting our viewpoint on this. This is a very important
issue for Briggs & Stratton. Briggs & Stratton is located in
Milwaukee, Wisconsin. We are the world's largest manufacturer
of air-cooled gasoline engines that are used in outdoor power
equipment. We also manufacture the same equipment. So we have
knowledge, obviously, on the engine side and the application
side under various brand names. We operate in about 100
countries. So we are global. We have 6,200 employees throughout
the world, of which, most of them, 5,300, are here in the U.S.
We are primarily a U.S.-based manufacturer. We have 85 percent
of our manufacturing is done here in the U.S. And we are really
proud to be celebrating our 105th anniversary this year.
I would like to first take the opportunity to commend the
committee on their workmanlike efforts in terms of these
issues. There are a lot of different issues we have been
following. Obviously, the white papers that the committee has
put out through the Outdoor Power Equipment Institute. I am
currently chair of that group. But I really am here today on
behalf of Briggs & Stratton to give you an idea of small engine
manufacturers. And the issue isn't just unique to Briggs. It
applies to others in the industry as well, the issues that we
have with the RFS and specifically with E15.
I would also like to recognize the EPA. We have over the
years worked an awful lot with the EPA in terms of emissions
regulations. Their career employees are just very professional
people, and we have found them to be fair and balanced as we go
through finding regulations that both protect, obviously, the
environment but also make sure that the consumer is protected
along the way.
So let me talk a little bit about the affect of ethanol on
our engines. Our engines are currently designed to run on
blends of E0, so zero percent ethanol, all the way up to E10.
They are calibrated as such. The materials that we use will
withstand E10. And when the partial waiver came out with
regards to the EPA introducing E15 into the marketplace, they
excluded offroad engines, which were excluded. So the EPA
really recognizes that there is an issue with regards to our
types of equipment. The problem is, it introduces the fuel into
the marketplace. Part of the partial waiver also included a
misfueling mandate that was out there to make sure that people
don't misfuel. Because I think the EPA recognized that, in
fact, there will be misfueling. That can and will occur.
So the issue along the way is when you get to E15--let me
just give you a little bit of background when you get above
E10. It degrades the engine components very quickly. And the
engine itself will achieve premature failure. So our concern is
really those consumers. There are 80 million engines out there
in the U.S. today that Briggs & Stratton has made. And we want
to make sure that those consumers get the value they deserve as
we go along. So it is really the legacy equipment and also
moving forward.
So the misfueling, we anticipate--and there are a lot of
studies that have been done that misfueling will occur.
Currently, the misfueling mandate really calls for a label on a
pump. And we have all been to the pump and filled up our cars.
There is a lot of information there and this small very small
label is not going to deter someone from basically putting fuel
in their 5 gallon can or the 2.5 gallon can and taking it home
and putting it in their piece of equipment, small engine. Also,
when you look at it, studies have shown that because the cost,
as we talked earlier today, the cost of ethanol, higher blends
of ethanol is cheaper. People will migrate towards that fuel.
There is also just simply a lack of knowledge out in the
marketplace. Just yesterday I was talking with a CEO friend of
mine in Milwaukee, and he was telling me about his boat. And I
said you don't put even E10 in your engine. He said E what? He
doesn't understand. The fact is, people don't understand these
things. They will misfuel. And it will lead to premature
failure with regards to their engines. They will not get the
value they need.
So we at Briggs, we are not against renewable fuels at all.
We believe renewable fuels are important. We want to make sure
that there are renewable fuels that can be used in not only
equipment that we make into the future but also equipment that
we have made in the past that is out in the field, the legacy
equipment. We are really very much for a drop-in fuels. We have
tested isobutanol at our own expense. We have worked
extensively with a company named Gevo in the past. We have
found that the isobutanol as an example is a fuel that could be
used as a drop-in fuel for our equipment, again, both legacy
and going forward.
We would suggest that the committee rescind E15, the
partial waiver because there will be misfueling that will
occur.
And finally we would recommend at a minimum that the amount
of ethanol that is blended into the national fuel supply be
capped at 10 percent ethanol. So our engines can handle 10
percent. We would suggest you cap it at 10 percent.
So, again, thank you very much for allowing us to be here.
And we look forward to your questions.
Mr. Whitfield. Mr. Teske, thanks very much for your
testimony.
[The prepared statement of Mr. Teske follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. Mr. Darbelnet, you are recognized for 5
minutes.
STATEMENT OF ROBERT DARBELNET
Mr. Darbelnet. Thank you. My name is Bob Darbelnet. I am
president and CEO of AAA.
Mr. Whitfield. Would you move it a little closer to you,
Mr. Darbelnet?
Thank you.
Mr. Darbelnet. We represent 54 million motorists in North
America and appreciate this opportunity to share with you our
concerns both relative to the premature introduction of E15 and
what I think, in due course, you are going to be required to
do, and that is to adjust the RFS standard.
But dealing with E15 first, we have--in our view, there are
three prerequisites for the introduction of the new fuel. And
the first one is that there be adequate testing to ensure
safety. And in our view, that has not occurred. Granted, the
EPA did extensive testing. But it was focused predominantly on
emission controls. Industry testing, however, revealed real
concerns, some of which have already been mentioned relative to
premature engine wear and fuel pump failures. For that matter,
even the Renewable Fuels Association, which is a great advocate
for ethanol, advises retailers to be aware of the damage to
their underground fuel systems that can be caused by E15. So if
it is not safe for their tanks, it makes us wonder why it would
be safe for our members' tanks.
The second requirement is that there be coordination
between regulators, fuel retailers, and auto manufacturers. In
our view, that has not occurred either. A number of the
retailers are opposed to the sale of E15, and virtually all the
significant auto manufacturers in this country have advised
that E15 is incompatible with 95 percent of the vehicles that
are on America's roads today.
And then, the third requirement is that there be outreach
to consumers to mitigate the risk of misfueling. And that has
not occurred either. We did some polling recently that
indicated, much to the point that Mr. Teske made, 95 percent of
Americans don't know what E15 is, let alone whether they ought
to put it in their vehicle. And the EPA ceded to pressures to
tone down that very small label that is required on pumps, such
that it reads ``attention'' rather than ``warning,'' which
might have been the more advisable term, albeit, as noted, it
is unlikely that that small label--by about 3 inches by 3
inches--is going to be detected in all the other messages that
are on today's pumps. If you pump your own gas, you know what I
am referring to.
But let me be clear, AAA is not opposed to the use of
ethanol for automobiles. E15 is compatible with most vehicles,
and it would allow for the reduction of our dependency on
fossil fuel and offer motorists a choice as to what they
purchase. So we are not opposed to ethanol. We are comfortable
with E10. But we are certainly opposed to E15 under the current
circumstances.
Allowing it to continue to be sold is irresponsible, and in
our view, it should cease until adequate testing allows for the
regulators, the retailers, and the people who manufacture the
cars to reconcile their views, agree on which vehicles it can
safely be used for, and adequately inform consumers.
Now as to the issue, which I know you are quite interested
in, which is what to do with the RFS, for the moment, we are
not calling on you to revoke or even modify the RFS
requirement. We do believe that you are going to find
yourselves confronted with the obligation to make some
adjustment. And we certainly believe that it should be adjusted
if we find ourselves in a situation where the only way to
achieve it is to allow the continued sale of E15. If that were
the only way to meet the requirement for 2014, it would
definitely need to be adjusted, and I commend you for
addressing this issue before it becomes much larger than it
already is.
Thank you very much.
Mr. Whitfield. Thank you.
[The prepared statement of Mr. Darblenet follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. Mr. Jobe, you are recognized for 5 minutes.
Turn your microphone on.
STATEMENT OF JOE JOBE
Mr. Jobe. Thank you, Chairman Whitfield, Ranking Member
Rush, and members of the committee.
It is good to see you again. I want to thank you for the
opportunity to come and testify on behalf of the U.S. Biodiesel
Industry.
My name is Joe Jobe. I am the CEO of the National Biodiesel
Board. And I hope to leave you today with two important
messages. First, under the RFS, the advanced biofuel and the
biomass-based diesel categories programs are working. And
second, with the help of the RFS, biodiesel is reducing
consumer prices at the pump.
As a brief background, biodiesel is a renewable low-carbon
diesel alternative made from an increasingly diverse mix of
resources, including agricultural oils, recycled cooking oil,
and animal fats. It is the first and currently the only EPA-
designated advanced biofuel that is produced on a commercial
scale with plants in virtually every State and was the first to
reach a billion gallons of annual production.
NBB is the national trade association representing the
biodiesel and renewable diesel industries. Our 200-plus member
companies have produced the vast majority of the advanced by
biofuel pool under the RFS, and we are pleased to be welcoming
a new 137 million gallon renewable diesel member located in St.
Charles, Louisiana.
Our industry has exceeded the biomass diesel category in
every single year of the program, and we are on track to do so
again this year. This is a tremendous success story. It has
created over 50,000 jobs. It is diversifying and actually
improving the domestic fuel supply, and it is reducing
pollution.
A few positive things about biodiesel to point out. Our
industry has added decentralized renewable refining capacity.
It is diversifying the transportation fuel supply, which will
ultimately help stabilize prices to the consumer. It is
actually improving the quality of the nation's diesel fuel
supply. Biodiesel blends have premium diesel characteristics.
It is an oxygenated fuel, has high cetane, high lubricity, zero
sulfur, and there is no fuel economy or horse power penalty. In
fact, the diesel land speed record was set using B20. Biodiesel
significantly reduces virtually all regulated emissions,
including 57 to 86 percent carbon reductions.
One of our main feed stocks is recycled cooking oil. It
helps keep waste out of the sewer systems, landfills, waterways
and prevents costly infrastructure repairs.
Another important feed stock is animal fats, which means
biodiesel is giving livestock producers new markets for waste,
fats, and oils, increasing the value of cattle by $10 a head,
$1.25 for hogs, and 30 cents for poultry.
Additionally biodiesel is saving consumers money at the
pump. With the help of the RFS, fuel distributors are
purchasing wholesale biodiesel and offering it to consumers at
a discount to diesel fuel. The mayor of Gadsden, Alabama,
recently announced that his city is saving $100,000 annually by
using 20 percent biodiesel in his fleet. Additionally, Navy
Secretary Ray Mabus, stated in testimony in April that the Navy
is saving an estimated $0.13 per gallon currently by use B20.
Now, the biomass-based diesel category is structurally
different than the other sections of the RFS. Primarily there
is no automatic mandate on the annual volume requirement. There
is an EPA rulemaking each year to determine the appropriate
volume for the following year. This is a robust and
comprehensive process that is open to all stakeholders. Last
year, that process resulted in a very conservative increase
from 1 billion to 1.28 billion gallons, and we estimate that we
are on track to exceed 1.5 billion gallons this year.
Before I close, I want to discuss briefly the issue of
fraudulent RINs. In 2010 and 2011, the biodiesel industry
experienced a few cases of criminals generating and trading
fraudulent RINs. Our industry took very aggressive measures
working closely with EPA and the petroleum industry to address
the fraud head on. We developed and deployed a robust and
comprehensive RIN integrity program that has effectively
addressed the problem. This was a private sector solution that
we developed and deployed. Two of the three cases of fraud were
resolved in court and two criminals are sitting in jail. The
third case is pending.
We also worked with the EPA and the petroleum industry to
put in place a new regulatory framework that defines quality
assurance plans, which gives obligated parties the opportunity
for an affirmative defense. With these measures in place, we
are confident that the issue of RIN fraud for biodiesel has
been effectively addressed.
In conclusion, we believe that the RFS was the right policy
when President Bush signed it in 2005 and again in 2007 with
overwhelming bipartisan support, and it remains a sound policy
today. My industry is fully committed to working diligently
with this committee, with the EPA, our partners in petroleum
and anyone else willing to work with us to make the RFS an
unqualified success.
Thank you for inviting me to testify, and I look forward to
answering your questions.
Mr. Whitfield. Mr. Jobe, thank you.
[The prepared statement of Mr. Jobe follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And thank all of you for your testimony. And
I will recognize myself for 5 minutes of questions.
I think all of us have appreciated the additional capital
investment that has gone in for ethanol and has gone in for
biofuels and other technology, so that we know that we can
produce these fuels. And those people who are most concerned
about climate change, they are very excited about it as well.
And I am really glad that Mr. Petrowski, Mr. Karr, Mr. Teske,
Mr. Darbelnet are testifying today, not that I am not pleased
to hear from Mr. Jobe and Mr. Buis, because we hear from those
people frequently, but the one group of people out in the
country that really do not have a voice is the consumer. And
frequently, we don't focus on the consumer because we know that
the overall policy is supposed to be a good policy, everyone is
supposed to benefit from it, but the reality is when you get
down to the independently-owned gas station, the automobile
manufacturers, the small engine manufacturer, representative of
millions of drivers, you do run into liability issues, you do
run into expenses for putting in the new equipment that is
compatible with what the government is mandating, and I am
assuming you also are exposed to liability issues, because
somebody's going to be sued if something goes wrong.
So, to the four of you, I would just ask, on a scale of 1
to 10, 10 being you are most concerned about it, how concerned
are you about the cost to your consumers, the cost to you
personally in your business, the liability issues, how
concerned are you that there really will be problems if there
is not some adjustment made in some way to this? So 10 being, I
am really very much concerned; or 1, I am not really concerned
about it at all. You can just let it go. We think it'll be OK.
So can we start with you, Mr. Petrowski?
Mr. Petrowski. I would say ten, Mr. Chairman.
Price is the number one driver for consumers at all times,
but especially in hard economic times that we have been in. So
I would say 10. Price is the driver for our business.
Mr. Whitfield. So you are saying by this that if we don't
do something, you are as concerned about it as you can be?
Mr. Petrowski. Well, I would not scrap the RFS. Today I
would----
Mr. Whitfield. Yes. I am not talking about scrapping. I am
talking about adjusting.
Mr. Petrowski. Yes, I would be concerned if we don't
address it, bringing the price of RINs down to something
cheaper that we are going to translate to higher pricing, even
though today I would just love to blend more ethanol. 5 percent
ethanol with a 60 cent discount earns me 3 cents more, which I
either can keep as profit or put--lower the price 3 cents on
the street, which increases traffic to my facility, but I
cannot put 15 percent in if we do not have liability relief on
the automobiles, if we don't have the right labeling, if my
equipment is not insured for 15 percent, pumps, dispensers, and
tanks, so I would love to lower the--anything I can do to lower
the price to my consumer is wonderful. But $1.50 RINs is
subsidizing exports and taxing imports, which in the long run
will lead to higher energy prices in the U.S., which I don't
want to see.
Mr. Whitfield. OK. Thank you.
Mr. Karr.
Mr. Karr. It is a little bit difficult to pick the right
number, but I am going to go with eight. I think, look, we have
very serious concerns about the potential problems with E15 and
the legacy fleet. Having said that, there are F50s out there.
We--some of my companies are already certifying and warranting
vehicles to E15, so, we are--again, we are committed to, we are
able to adjust, but we have these issues with the legacy fleet,
and we need to think about how we transition going forward.
Mr. Whitfield. Mr. Teske.
Mr. Teske. Ten. And I would go higher if you'd let me.
Mr. Whitfield. OK.
Mr. Teske. Yes. The fact is, is there is going to be
misfueling, and it will cause premature failure of these
engines, and whether somebody bought their engine 20 years ago
or 20 weeks ago or 2 weeks ago, they are not going to get what
they expected, and it is going to come right back at us.
Mr. Whitfield. OK. Thank you. Mr. Darbelnet.
Mr. Darbelnet. I would say, for our organization, so for us
or our company, if you will, it is probably a two, because
while we have thousands of vehicles on the road, I think we can
educate our drivers to make sure that they don't put E15 in the
tank that shouldn't absorb it, but thinking about our 54
million members, I would say it is a 10, because there is a
great likelihood that they will damage their vehicles.
Mr. Whitfield. Right. OK. Thank you all so much. My time
has expired.
Mr. Rush, you are recognized for 5 minutes.
Mr. Rush. I want to thank you, Mr. Chairman.
You probably have noticed that there are a lot of cameras
in the hearing room today. And there are many Americans who are
at home today, and some of them are probably viewing this
hearing, and they are hearing all the testimony and all the
questions, and I am sure that there are--far too many of them
are at home watching this because they are out of a job. And
they have not heard any commentary on jobs and the impact of
the RFS on jobs.
I think that it would be really a shame, really, if we had
this 3-hour hearing and did not even utter the word ``jobs''
and--so I just want to ask each of you, if you would, what is
the impact of the RFS on jobs, and what do you see the future
of jobs in relation to RFS? Mr. Buis?
Mr. Buis. Thank you very much, Congressman Rush.
The impact currently of the number of jobs that the ethanol
industry has created, both direct and indirect, is around
400,000 jobs. When we filed what we called the green jobs
waiver to EPA to increase the blend rate from 10 percent to 15
percent, the job assessment that was included with that waiver
request says moving to E15 would create 136,000 new jobs, jobs
here in America, jobs that can't be outsourced.
Mr. Rush. Mr. Petrowski?
Mr. Petrowski. Thank you, Congressman Rush.
I feel very passionately about the solution of jobs is to
lower overall energy prices in this country. And it is not
about jobs in the ethanol industry or jobs laying pipe. It is
about manufacturing jobs, lowering the cost of energy. The
average consumer, both in their heating bills and driving, uses
about 1,500 gallons a year, so if we can lower the price by a
dollar, we have put that back into the consumer's pocket. And
discretionary consumer spending is a driver to the economy and
jobs, so I think the focus of Congress should be on lowering
energy prices however we can do it, domestic production, having
the right facilities to move product from where it is to where
it isn't. And I think the RFS has been very helpful in creating
an additional motor pool supply of fuel and a diverse supply of
fuel, so I think it has been very positive.
But I am not looking at ethanol jobs or pipeline laying
jobs; I am looking at low energy prices and more consumer
spending, and that is where I think we will pick up the jobs.
Mr. Rush. Thank you very much.
Mr. Karr, do you have anything you want to add?
Mr. Karr. I am not an expert. I have no reason to dispute
Mr. Buis' numbers.
Mr. Rush. All right.
Mr. Karr. I assume they are probably accurate.
Mr. Rush. Mr. Teske?
Mr. Teske. Thank you, Congressman Rush. The RFS itself,
obviously, we are not against renewable fuels, and so to the
extent that there are drop-in fuels and they can create jobs,
that is great.
The one comment I would make, though, is there are 5,300
people that work in our U.S. facilities.
Chairman Whitfield, there are 1,000 jobs in Murray,
Kentucky.
Congressman Barrow, there are 1,500 plus jobs in Georgia.
The fact is that if there are negative effects that result
from E15 and we get blamed, those people are going to be
hindered, because we are going to get--it will come right back
at us, and our brand will be impacted.
And although there is not--I can't quote the kind of jobs
that others on the panel can, the fact is those jobs are really
important to those people, and those jobs are really important
to those communities in which they operate, and so we want to
make sure that we are not only protecting the consumers, but we
are protecting our employees that are in our factories today.
Mr. Rush. Mr. Darbelnet?
Mr. Darbelnet. Thank you, Mr. Rush.
We would agree that the domestic production of ethanol has
increased the number of jobs in this country, which we dearly
need and support. However, we are concerned that we should not
be introducing a product which can be harmful to consumers for
the purpose of increasing the number of employed individuals.
So we support the positive results that have been achieved, but
we are concerned about the further risk that we are putting the
consumer at by not dealing with the E15 issue.
Mr. Rush. OK.
Mr. Jobe. Thank you, Mr. Rush.
Our industry--I will speak for the advanced biofuel
category. Our industry accounts for about 85 to 90 percent of
the advanced biofuel category. And I have been very proud to be
a part of what is going on in the biodiesel industry. We have
added 50,000 direct jobs. And many of our members have said
that they look for soldiers that are coming home from Iraq and
Afghanistan, because these are guys that are experienced in
using fuels and dealing with equipment, and it is--that is kind
of a success story there.
But one thing that--two quick things I want to point out is
that it is not just about the direct jobs. In the last 6 or 7
years, our industry has built more than 200 plants. There has
been a lot of investment, and that has been a lot of indirect
jobs that have gone into that in building renewable refinery
capacity, and it is all happened not at the expense of the
petroleum industry. The petroleum industry, as you will notice,
is doing fine. And it is really just helping to diversify the
transportation fuel supply.
And that is really what the goal of the RFS is, because if
we can diversify the transportation fuel supply, as you pointed
out in the first panel, if we can make the transportation fuel
supply look more like the power generation supply, make it more
diverse, more domestically abundant, then we can really bring
transportation fuel prices down. And as Mr. Petrowski said,
that is going to have the biggest impact on the economy.
Mr. Rush. Thank you.
Mr. Whitfield. The gentleman's time has expired.
At this time, I recognize the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman.
Again, appreciate the hearing.
Mr. Jobe, can you--Mr. Waxman talked about palm oil. So,
obviously, I am from the Midwest. We were very involved,
obviously, in getting biodiesel into the market and mine
soybeans, reformulated cooking oil, beef tallow. And also I
made a statement in the opening statement that the issues that
you are or may not be involved with in this whole debate on
blend wall; you really are kind of a subset of this whole
debate. I don't know if anyone's raising concerns. Can you talk
briefly about a couple of those provisions, the palm oil thing
and how else you are related to this sector?
Mr. Jobe. Thank you, Congressman.
I was really hoping you would ask me about that question.
Very simply put, palm oil does not qualify for the RFS, so the
concern that palm oil will be coming in to fill the advanced
biofuel is not a concern at this time. Furthermore, the concern
stated by the gentleman from Union of Concerned Scientists is
not a concern either, and here is the reason: It is based on
the structural difference built into the advanced biofuel
category. In order for the biodiesel industry to grow our
category, the biomass-based diesel category, we have to go to
EPA every year; it is just baselined at a billion gallons, a
minimum of a billion gallons. And we have to go to the EPA
every single year and we have to demonstrate them through very
substantial and robust data development how much we can
produce, how much our growers can produce, how much domestic
supply we have without disrupting other markets, imports,
exports and all of those other things.
We have been very, very conservative with our target goals,
and so you are very right. Biodiesel is made from a very, very
diverse range of domestic materials, from all types of animal
fats from livestock production, all types of oil seeds, and
that has been a real strength to our industry.
Mr. Shimkus. And we wouldn't have passed the original piece
of legislation back in 1998 had we not really expanded the
ability for a lot of different commodity products to get in
there, because it needed a big coalition. If it was just
soybeans, we wouldn't have enough votes, but by bringing in a
whole new coalition, that helped.
And the poignant thing about your explanation of how the
system works is really what we are kind of demanding, Mr.
Chairman, on part of this ethanol debate, is, what is the real
production limits? There are four different categories in this
whole calculation now. What are we actually producing, and what
can get into the market versus what theoretically do we think
we should have and why aren't we there, and that is--I would
say that is the whole risk premium on the RINs, because we just
don't know. We have got an arbitrary number set in statute
versus what are we continuing to ask to do?
I want to raise to Mr. Petrowski this question: Mr.
Dinneen, and I had to leave, but he mentioned on the first
panel, he asked about contractual agreements that may prevent
retailers from offering E15 and E85. Is that an issue that you
are aware of? And, of course, that would be a retail chain, I
guess, vertically integrated might be versus an independent.
Can you speak to that?
Mr. Petrowski. Yes. Thank you, Mr. Shimkus. I think what he
was referring to is our equipment, the dispensers, the tanks,
plus the fear of mislabeling, that someone is going to pull up
with an older car that can't take the ethanol, keeps us from--
--
Mr. Shimkus. No, I don't think that is what he is referring
to.
Mr. Petrowski. No.
Mr. Shimkus. I think he is referring to actual contractual
limitation on a retail location from placing these things in
their retail location. Do you want to--go ahead.
Mr. Petrowski. No, not at all. We make agreements to buy
product all the time, and we can either buy it in bulk and do
the blending ourselves. We are fortunate enough to have our own
terminal----
Mr. Shimkus. Let me ask Tom to answer this question.
Mr. Buis. Thank you, Congressman. That has been an issue in
some areas. The contractual arrangements, I think, is what Bob
was referring to. And with an E15 retailer, it came to head--
once he started offering E15 and he was told he was in
violation. We have also seen, I think, the State of South
Dakota and most recently Iowa have passed provisions that
prevent contracts that prohibit higher blends under the same
canopy. And, you know, if you guys want to look at some
suggestions into the future, that might be something you look
at, because----
Mr. Shimkus. You mean, you are going to offer a possible
solution to some of this----
Mr. Buis. I am.
Mr. Shimkus [continuing]. These challenges?
Mr. Buis. I just did.
Mr. Shimkus. Great. Thank you. And we would hope you all
would do that. Let me just end on this.
My time has expired. But I just pulled up E85prices.com,
and I do drive a flex-fuel vehicle. In Illinois, we have
multiple locations. And you would be surprised a--now, there is
a BTU fall-off, but if you are saving 80 cents, 85 cents a
gallon, it can pay, and so if we can get them into the retail
locations, we can address the blend wall and we can solve a lot
of problems.
Thank you, Mr. Chairman.
Mr. Whitfield. The gentleman's time has expired.
At this time, I recognize the gentleman from California,
Mr. McNerney, for 5 minutes.
Mr. McNerney. Thank you, Mr. Chairman.
You know, I didn't hear anyone in this panel say do away
with the RFS. There was some comment about there--it needs
tweaking, maybe the E15 ought to be scaled back to E10 for
reasons, and I appreciate that.
Mr. Teske, I just want to say, I have loved my Briggs &
Stratton motors over the years, so they are an American icon.
And I appreciate your remark on the professionalism of the EPA.
That is something I truly believe is the case, and it is
something we need to get the word out a little bit more about.
The question I have for you is what causes, what specific
mechanism causes the failures of the Briggs & Stratton motors
when they use blends higher than E10?
Mr. Teske. Yes. First off, thanks for being a customer. I
really appreciate it.
What happens, there are a couple of things that go on.
There are a number of things, but a couple of things in
particular. Basically, the materials that we use are rated for
certain temperatures, and so when you have blends that are
higher than E10, the alcohol will burn at a higher rate, a
higher temperature. And basically what happens is, like, valve
seats and other materials that are in the engine will degrade
prematurely, because it can't handle the heat that it was
intended to handle. And so, basically, then when that fails,
all of a sudden a lot of the emissions regular--the emission
control things that are in the engine will fail, and then,
ultimately, it will lead to engine failure.
Also, when you get--not to take you back to high school
history, but basically, when you have water and alcohol,
obviously, there is an attraction that goes on, and so what
happens is a lot of our seals and other things in the engine
will absorb the alcohol, which will cause warping and
disforming, if you will, and therefore the engine will not
operate in the same manner that it was intended to operate with
lower blends of ethanol.
Mr. McNerney. So can these engines be protected proactively
or is that too expensive for the average legacy customer?
Mr. Teske. For the legacy customer, it can't--it won't--it
can't be done. Going forward prospectively, certainly we can
design engines that will operate. They operate on a plus or
minus 5 percent of whatever the target is, and when that
happens, obviously, one of the concerns we have is as we get to
E15, and then we ultimately probably get to E20 and then E25,
all of a sudden, it becomes very confusing. It is difficult to
design a cost-effective engine that will handle a multitude
beyond plus or minus 5 percent.
Mr. McNerney. So when did Briggs & Stratton begin designing
for E10, or did it have to do any design for E10?
Mr. Teske. We have seen--we have had to change some
materials over time. Years ago, when basically ethanol started
to be introduced, we have added--what has been interesting here
is of late is over the last year or so, we have seen more
carburetor issues, for example, have occurred throughout the
country. The calibration and the materials basically don't
handle ethanol all that well, although they will handle E10.
When ethanol was pretty much in the Midwest, we didn't see a
whole lot of issues on the coast. Now E10 is throughout,
because we were--we test about E5 for certification purposes
with the EPA. As you start to see the E10 go throughout the
country, we do on occasion see fuel problems generally because
as ethanol, higher blends of ethanol sit in the engine, it will
gel up and will cause issues with starting and other things,
which is why we have introduced fuel additives to make sure
that consumers are protected from that.
Mr. McNerney. OK.
Mr. Buis, I had a question.
Mr. Buis. Yes.
Mr. McNerney. I was going to ask you, continuing from the
first panel, what has caused the delay of the success of
cellulosic biofuels from the initial projections?
Mr. Buis. That is a great question.
You know, the RFS didn't pass through the Energy
Independence Security Act till late of 2007. In 2008, we had
the biggest economic downturn that any of us have seen in our
lifetime, not just here, but around the world, so you had a lot
of investors and lenders that went to the sideline. They have
started to slowly come out over the past year or so, and you
started to see more investment into biofuels, but the second
issue is market space. When you are going to produce a product
that is already limited to 10 percent, and it costs a quarter
to a half a billion dollars to build a cellulosic commercial
bio refinery, you are probably not going to pull that plug and
make a lot of investment. That is why we filed the waiver to
move to higher blends. And despite all the--I think a lot of
people think it is just E15. The waiver was actually approved
for up to E15, but there are some, I am not saying this panel,
that have this feeling, we are not going one ounce, one gallon
above E10, because we want to kill the RFS.
Mr. McNerney. OK. Go ahead and answer, if the chairman will
allow that, Mr. Petrowski.
Mr. Petrowski. Yes. I would say as a retailer, if--
cellulosic doesn't need to be mandated, remember, the import is
going to be silage, grass, biomass, which is much cheaper than
corn. We are processing 3 billion bushels, I believe that is
the right number, of corn into the ethanol business at $4 or $5
a bushel. Any manufacturer who could substitute biomass for
corn would do so in a heartbeat, because that would just all
flow to the bottom line. So I think the limitations on
cellulosic have been technological. And believe me, if I--
ethanol today is 60 cents cheaper than gasoline. If somebody
were to offer me cellulosic or any ethanol cheaper than that, I
would buy it in a heartbeat if I could sell it.
Mr. McNerney. OK. Thank you, Mr. Chairman, for your
indulgence.
Mr. Whitfield. The gentlemen's time has expired.
At this time, I recognize the gentleman from Nebraska, Mr.
Terry, for 5 minutes.
Mr. Terry. Thank you, Mr. Chairman.
Mr. Buis, I missed earlier discussions, but I want to know
what your feel is about whether the blend wall is a real issue
or real concern.
Mr. Buis. Thank you.
Thank you, Congressman. We have referred to it as a so-
called blend wall. And it is so-called because the resistance
by those who control the infrastructure, the fueling
infrastructure, the refining, the obligated parties have not
done, and oftentimes erected hurdles to move into higher
blends.
When the RFS was enacted in 2007, it was always intended to
get to 36 billion gallons by 2022. We were going to have to
have higher blends. It has been 4 and a half years ago since we
filed that waiver for the higher blends. Every regulatory,
legal, PR and now legislative hurdles that they can erect, they
have tried to erect instead of moving to a higher blend.
It could be solved real easy. There is not that much above
the blend wall for 2013. For 2014, it could go up. You could
use E15. You can use up to E15. You can use the 85, E30. Those
are popular brands that sell extremely well, and consumers,
despite what the first panel said, actually want them, they are
buying them.
Mr. Terry. All right. Appreciate that.
Mr. Karr, the EPA said, or it came out when they said--or
was approving E15, but said it shouldn't be used for
automobiles that were manufactured before 2001. Now, average
life expectancy of a car today is 11 years. I am just
wondering, do you know offhand how many are left for 2011 and
below?
Mr. Karr. I should probably get you that number for the
record rather than give you a bad number here.
Mr. Terry. That is fine. I wasn't going to pin you down for
an exact. I was just curious.
Mr. Karr. I would say the average age of a car on the road
today is 11 years. So that tells you that is kind of the
middle. We have got a lot that are a lot older than that.
Mr. Terry. So it could be significant.
Mr. Karr. But, yes, I can get you the precise number for
the record.
Mr. Terry. So a lot of the arguments, and Mr. Teske was
kind of hinting at this, but what some engines, EPA said that
E15 and what can be appropriate for Briggs & Stratton, for lawn
mowers or for boat motors or--so I guess the question here is
that you are not--or Mr. Teske, that you are not here saying no
E15 anywhere, are you?
Mr. Teske. Well, what we are concerned about is misfueling.
And there needs to be measures taken other than just a very
small label on top.
Mr. Terry. Well, that is what I wanted to kind of dive down
into deeper, is OK, so are there methods that we can use to
make sure that the consumer is informed? I mean, I can pull up
to the pump right now and know which one is the E10 and the E85
and the no-ethanol blend, or unblended, I guess. Do you have
enough confidence in the consumer to read those on the pump?
Mr. Teske. While I have a tremendous amount of respect for
consumers and consumer knowledge, what studies have shown is
that when consumers are very comfortable with what they have
had, they don't pay as much attention as they would when there
is something new and different. And so if you pull up to the
pump and you basically have your red can, that 5-gallon can,
and you want to fill it up and you have always filled it up for
the last 20 years at the same gas station, you are not going to
pay as much attention to the fact that there are issues. And
that is really our concern, is that we will try to educate the
consumer, definitely, and consumers are very smart, but studies
have shown that when they are comfortable----
Mr. Terry. Well, let me ask Mr. Petrowski, then, not to cut
you off, but do you think there is a way of communicating at
the pump so that consumers aren't mistakenly putting in E15
when it should be E10?
Mr. Petrowski. I think we can label very well, but I was
told, and I am not old enough to remember this, I worked at a
gas station in the 1970s, but I was told that when leaded and
unleaded first came out and people were offering leaded at a
much cheaper price, there were people, even though the nozzles
were mandated to be different, who would bring a screwdriver
and actually gerrymander their fill pipe so they could take the
cheaper product.
Mr. Terry. Yes. That is not a mistake. That is intent.
Mr. Petrowski. No, no. That is not a mistake, but not
always--I have great respect for the consumers, but they are
not always paying attention at the pump.
Mr. Terry. All right. Thank you.
Mr. Whitfield. I would like to just get one clarification
here, Mr. Buis, something that you had indicated, and someone
on the first panel made this comment, too, that market access
was being limited by the obligators. And factually, is it true
that retail service stations are primarily owned by large oil
companies or not?
Mr. Petrowski. No, Mr. Chairman. Can I answer that?
Mr. Whitfield. Yes.
Mr. Petrowski. In fact, I think that is part of the reason
the obligated parties are now feeling the strain, is at one
time, that was true, but the Exxons of the world, the Mobils of
the world. We bought a lot of stations from Mobil, have gotten
out of the downstream, so they are selling their product in
bulk rather than blended to the consumer, so their obligations
are greater. So I think that has been part of the problem, but
most of the gas stations in the United States today at the
retail level are owned and operated by small business people or
people who have aggregated, like ourselves. We have 900
stations that we operate. But major oil diversified out of
integrating and get rid of their downstream, so they are facing
an obligation where they are selling in bulk and are obligated,
and they are not selling as much what we say the parlance in
the trade is over the rack or at the nozzle.
Mr. Whitfield. Thank you. I am sorry.
Mr. Olson, you are recognized for 5 minutes.
Mr. Olson. I thank the chairman. And thank you to the
witnesses for coming back. Our previous panel helped us get a
better sense of where things stand on the RFS from the upstream
view. This panel represents a shift, where the rubber meets the
road and the impacts of RFS on families and businesses. It
helps us get our hands on one of the most controversial issues
related to ethanol: how it impacts engines in vehicles. And I
apologize if my questions have been repetitive, but duty
called, and I had to run away for a bit, but my first question
is for you, Mr. Petrowski. Increased use of E15 is one of the
ways in which the ethanol industry sees a path to meeting the
RFS. What would it take in terms of infrastructure for E15 to
be more widely available with your member companies?
Mr. Petrowski. Thank you, Mr. Olson.
What I would like to see is us get some waiver from
liability for misfueling. I would like to see us--when they
talk about the average age of the cars, every new station we
put in, we are putting in equipment that is compatible with the
higher blend. The problem is we have 135,000 stations in the
United States, and there are probably only 10,000 that get
their tanks and pumps done every year, but, yes, we ourselves
have done 150 of our own stations, 600, over new mainly for the
inside to sell more food products, because there has been a
shift in this country from tobacco, which has been a good
shift, to food and beverages inside, but when we do it, we also
change our pumps out to be more compatible with higher blends,
but we could get there faster. As I said, because ethanol is 60
cents cheaper, we would rush to there--if I can save 3 cents to
4 cents a gallon by blending more ethanol, which at 60 cents
discount, a 5 percent more blend will save me 3 cents. I sell 4
billion gallons a year, so you can work the math on that. The
Federal Government would be very happy with the taxes, I would
be very happy with my paycheck. Everybody--and the consumer, if
I posted a 4 cent lower price on the pump, the consumer would
be very happy.
Mr. Olson. Yes, sir. And that is a real issue, because if
the Secret Service could make a mistake of filling up the
President's limousine in Israel with diesel fuel in a gasoline
vehicle, then people that come into Tex 22 could probably make
that same mistake with E10 and E15.
I have one more question for you, sir. How much do you hear
from consumers about a ban for E15, your clients, the people
that make your industry go? Are they clamoring for it? Just a
little murmur?
Mr. Petrowski. Again, I would say our consumers would say
if you can get me a fuel that is cheaper that isn't going to do
damage to my engine, I am with you all the way. Again, demand
pulls supply; supply does not create demand. And so we have no
objections.
We had 20 E85 stations throughout our system. We have
actually switched them over to diesel, not because we have
anything against ethanol, but we weren't selling it. For
example, on the Massachusetts turnpike, our E--we sold 12
million gallons of gasoline last year and 1 million gallons of
E85. Now, maybe there is more SUV's and flex-fuel vehicles in
Minnesota or Illinois than there is in Massachusetts, but we
switched a lot of our E85 tanks over to diesel because we saw
our customers say to us, as the new diesels were coming in, the
high-mileage diesels, they wanted more and more access. So we
respond to the consumer.
Mr. Olson. And thank you, Mr. Petrowski.
Final question for you, Mr. Teske, on not just automobile
engines, but the engines you make from Briggs & Stratton. And
in deference to the truth, I must admit that I have a lawnmower
in my garage, but it is not powered by a Briggs & Stratton
engine. But if I had a lawnmower in my garage powered by a
Briggs & Stratton engine and I misfueled it with E15, who would
be responsible for the damages? Any idea?
Mr. Teske. Yes. And you are a prospective customer, so
perhaps later we can chat. Basically, if you use E15 in your
engine, your small engine, we void the warranty, the warranty.
So, basically, theoretically, we are not responsible. It is
really the consumer who would be responsible. But the consumer
will not--they will not look at it and say, oh, I put ethanol
in, they will look it in and they will see the diamond bar logo
on the top, and they will say, boy, what happened to my Briggs
engine.
Mr. Olson. How could I have prevented that? What could I
have done to mitigate the damage by putting E15 in there?
Anything? I just reach in my wallet and pay it?
Mr. Teske. No. I mean, once E15 in, right, it is in there
and it is--unless you--if you start it up, it will start to
cause issues.
Mr. Olson. We have a name for that, but I will leave that
at the side.
Mr. Whitfield. The gentleman's time has expired.
At this time, I recognize the gentlemen from Texas, Mr.
Hall, for 5 minutes.
Mr. Hall. Mr. Buis, in your opening statement, I think the
chairman and I were the only ones that heard it, but ethanol's
cheaper than any other fuel? Was that your statement?
Mr. Buis. I am sorry. I couldn't hear the question. I did
make the statement ethanol is cheaper than any other
transportation fuel.
Mr. Hall. And----
Mr. Buis. We are 67 cents today under unblended gasoline.
Mr. Hall. Let me ask you, is the blend wall a real concern?
Just yes or no.
Mr. Buis. Yes.
Mr. Hall. Your organization led the efforts to secure EPA
approval in E15?
Mr. Buis. Correct.
Mr. Hall. And do you now think E15 is a viable option for
gas stations to sell and vehicle owners to use?
Mr. Buis. I do.
Mr. Hall. E15 was approved for 2001 and new vehicles but
not for older vehicles, was it?
Mr. Buis. Well, not for older vehicles was much to our
chagrin, because when we filed----
Mr. Hall. Well, much to your chagrin, but it is a fact.
Mr. Buis. Yes, it is.
Mr. Hall. OK. Let me go on. Why do you think vehicle and
equipment makers are concerned about E15?
Mr. Buis. I didn't hear the first part of it, sir.
Mr. Hall. Why do you think most gas stations have shown
little interest in carrying E15?
Mr. Buis. I think there has been enough controversy raised
by those who don't want to see us move to higher blends that it
has caused some resistance. We are slowly breaking through it,
but there was also legal challenges filed to E15. The U.S.
District Court of Appeals ruled two to one in favor of EPA, and
the Supreme Court refused to hear an appeal of the case.
Mr. Hall. Well, let's get back to ethanol, then. For small
and marine engines and any other gasoline engine other than
2001 and newer passenger cars and light duty vehicles, the law
explicitly prohibits E15. Further, EPA has issued a specific
rule to mitigate consumer mis-fueling, including a label
specific to E15. In fact, ethanol is the only fuel that
requires a warning label at the pump.
Mr. Buis. Yes, sir.
Mr. Hall. Is that true? And ethanol is the only ingredient
labeled in gasoline, even though gasoline is a chemical which
contains approximately 200 different components----
Mr. Buis. Correct.
Mr. Hall [continuing]. And that is not even listed. So it
may be cheaper to buy, but is it cheaper to use in the long
run? If I would fill my tank up with high ethanol, how far
could I get from the service station in the country?
Mr. Buis. With pure ethanol?
Mr. Hall. Yes.
Mr. Buis. That is not available. You can go up to 85
percent. Oftentimes 85 percent is not even 85 percent,
depending upon the season. It can be----
Mr. Hall. Well, how far would my car go if you filled it up
with ethanol? Just----
Mr. Buis. If you filled up your regular car----
Mr. Hall. I wouldn't get out of the station, would it?
Mr. Buis [continuing]. With E15, the mileage drag is going
to be less than 2 percent.
Mr. Petrowski. Congressman Hall, could I interject on
retailers and stations?
Mr. Hall. Not right now.
Mr. Petrowski. No? OK.
Mr. Hall. And you say there is no reason to repeal or to
reform RFS. That is your opinion, isn't it?
Mr. Buis. It is, yes, sir.
Mr. Hall. And if the RFS is repealed, would anybody still
be using ethanol?
Mr. Buis. I think would be----
Mr. Hall. In this country? You use it overseas and in South
America, but would they be using it in this country----
Mr. Buis. Yes, sir, they would.
Mr. Hall [continuing]. With gasoline?
Mr. Buis. Yes, sir, they would. Ethanol is the cheapest
source of octane available to produce gasoline from.
Mr. Hall. So did you--I think that--40 percent of corn's
going to fuel. I am thinking about ethanol being the cheapest
of all fuels and what it is used for. Ethanol is used with
gasoline, or it has to be mixed with something to be sold, does
it not?
Mr. Buis. Yes. Yes, sir.
Mr. Hall. And 40 percent of the corn going to fuel, but it
can be eaten or it can be fed to livestock, or Jack Daniel
might buy it or the vodka people or Jose Cuervo might want to
bid on it, but absolutely unless it is mixed with gasoline, it
has very little use, does it?
Mr. Buis. Well, yes. There is industrial uses also for
ethanol.
But I have to challenge this 40 percent. Everybody gets--
when they get a paycheck, you have a gross salary and you have
a net, and what the critics use on corn ethanol is the gross.
They say we use 40----
Mr. Hall. But don't you use 40 percent? How about using----
Mr. Buis. Pardon me?
Mr. Hall [continuing]. Thirty-nine percent?
Mr. Buis. No, it is not 39 percent, sir.
Mr. Hall. Or 20 percent.
Mr. Buis. It is about 18 percent of the corn crop,
because----
Mr. Hall. If you use 17 percent of the corn crop? That is a
lot more than ethanol.
Mr. Buis. Pardon me?
Mr. Hall. If you use 17 percent of corn, that is going to
fuel.
Mr. Buis. There is residual value. We create a co-product.
Mr. Whitfield. I am sorry to interrupt this. We have got
the Health Subcommittee that wants to come in here for a
hearing at 1:30.
And Mr. Petrowski, I am going to give you 1 minute to
reply. You were trying to make a comment.
Mr. Petrowski. Thank you, Mr. Chairman. Here is the problem
for retailers today. I would love to have a higher blend than
E10, and as I have said before, but my in-ground tank
equipment, my pumps, my dispensers are warrantied for nothing
higher than E10. And my insurance company has also said that if
I put any product in that voids a warranty on this equipment, I
am not insured for any residual spills or leaks. So short term,
if I put in a greater amount, I would make a lot of money, but
long term, the expense of putting a liability on that would
make me----
Mr. Whitfield. Yes. That is a serious--it is a very serious
issue.
Mr. Petrowski. It would make me an ex-CEO.
Mr. Whitfield. Yes.
Mr. Shimkus. Mr. Chairman, what Mr. Petrowski should have
done is made sure he mentioned the liability relief bill that
we have before the Chamber, which would be very helpful in his
sector.
Mr. Petrowski. Yes. I----
Mr. Whitfield. Mr. Shimkus can take care of your liability
for you.
OK. That concludes today's hearing. We will have another
hearing tomorrow. And I want to thank all of you for coming. We
appreciate your testimony. We look forward to working with you
as we explore further options.
And with that, the hearing will be adjourned, but I do ask
unanimous consent that we enter into the record comments by the
climate--it has been accepted.
Mr. Whitfield. The record will remain open for 10 days.
The hearing is adjourned.
[Whereupon, at 1:36 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. John D. Dingell
Mr. Chairman, I would first like to commend you, Chairman
Upton, and Ranking Members Waxman and Rush for holding this
hearing. The way that the Committee has gathered stakeholder
input through whitepapers and extensive witness testimony
reflects the complexity of the issues surrounding the Renewable
Fuel Standard and I commend our committee leaders for dealing
with this in a bipartisan manner.
The use of renewable fuels can help us reduce our use of
foreign sources of oil however there are also other arguments
against biofuels. There is differing information on the effect
renewable fuels have on the food supply chain, the life-cycle
air emissions, and the cost-benefit of adding biofuel to
gasoline. Shortly after passage of the Energy Independence and
Security Act of 2007, I said changes to the RFS would likely
need to be made based on changing market predictions. Perhaps
now is the time and I look forward to working with Committee
leadership to determine what changes merit further discussion
based on the factual record the committee is now gathering.
We have already heard testimony from the Department of
Agriculture that feed costs are over half of dairy cattle
expenses and over 40 percent for hogs. This in turn may drive
up costs for the food and restaurant industry. We also heard
from the Energy Information Administration about ethanol's
lower energy content could be driving consumers away from
purchasing E85. Also, our innovative automotive manufacturers
can make vehicles that can run on any number of types of fuels
but if we don't have the refueling infrastructure in place,
where will consumers fuel up?
Today we will hear from stakeholders who deal with the
requirements of the RFS on a daily basis. Arguments will be
made about the effect on food prices within the restaurant
industry and the fact that so little E85 is sold at stations.
Other arguments will be made regarding the benefits to the
agriculture industry and securing America's energy
independence. Some will advocate for a full repeal of the RFS
and other will want it remain as it is. I will continue to
listen to stakeholders about what action makes the most sense
and I remain encouraged by the bipartisan work to this point by
both Republicans and Democrats and encourage them to continue
their work.
We need to keep fighting to put policies in place that
create domestic demand for clean energy so that we can regain
our leadership position in the clean energy race. I believe
that good environmental policy and good economic policy go hand
in hand. I look forward to today's testimony and examining what
proposals the committee determines warrant further examination.
[GRAPHIC] [TIFF OMITTED]
OVERVIEW OF THE RENEWABLE FUEL STANDARD: STAKEHOLDER
PERSPECTIVES, DAY
2
----------
WEDNESDAY, JULY 24, 2013
House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 1:35 p.m., in
room 2123, Rayburn House Office Building, Hon. Ed Whitfield
(chairman of the subcommittee) presiding.
Present: Representatives Whitfield, Scalise, Shimkus,
Terry, Latta, Cassidy, Olson, Gardner, Griffith, Barton, Upton
(ex officio), Rush, Barrow, and Christensen.
Also Present: Representatives Matheson, Braley, and Welch.
Staff Present: Nick Abraham, Legislative Clerk; Gary
Andres, Staff Director; Charlotte Baker, Press Secretary; Sean
Bonyun, Communications Director; Matt Bravo, Professional Staff
Member; Allison Busbee, Policy Coordinator, Energy & Power; Tom
Hassenboehler, Chief Counsel, Energy & Power; Ben Lieberman,
Counsel, Energy and Power; Chris Sarley, Policy Coordinator,
Environment and Economy; Tom Wilbur, Digital Media Advisor;
Kristina Friedman, Minority EPA Detailee; Bruce Ho, Minority
Counsel; Ryan Skukowski, Minority Staff Assistant; and
Alexandra Teitz, Minority Senior Counsel, Environment and
Energy.
Mr. Whitfield. I am going to call the hearing to order. As
you know, yesterday was our second hearing on Renewable Fuel
Standards. We had two panels of witnesses yesterday and we have
our third panel of witnesses today. So I want to thank all of
you for joining us today. And I will be introducing the members
of the panel. But I would like to recognize the distinguished
gentleman from Iowa, Mr. Braley, for the purpose of an
introduction.
Mr. Braley. I want to thank you, Mr. Chairman, for holding
the hearing and extending me the courtesy of introducing a
friend of mine, a very distinguished Iowan, who is the first
woman to be president of the National Corn Growers Association,
Pam Johnson from Floyd, Iowa. Pam is a sixth generation farmer,
who raises corn and soybeans with her husband, their two sons,
and their young families. They also manage a seed business. And
the thing that I noted most about her is she describes herself
as coming from a long line of very strong men and women who
have farmed for hundreds of years. And I think that says a lot
about you. Welcome to the committee.
Mr. Whitfield. Well, thank you very much. And, Ms. Johnson,
I thank you for being with us today. We do look forward to your
testimony.
And at this time, I will introduce the other members of the
panel. We are glad to have all of you. Mr. Bill Roenigk, who is
the senior vice president of the National Chicken Council; we
have Mr. Ed Anderson, who is CEO of Wen-Gap. And he is
testifying on behalf of the National Council of Chain
Restaurants; we have Mr. Chris Hurt, who is a professor at the
Department of Agricultural Economics from Purdue University;
and then we have Mr. Scott Faber, who is Vice President of
Government Affairs for the Environmental Working Group.
And as you know, this is one of those issues where there is
not a lot of complete agreement on. So we have heard a lot of
different views. And we do look forward to hearing your views
today. Each one of you will be given 5 minutes for an opening
statement. And you will notice there are a couple of boxes on
the table. And actually when the light turns red, that means
stop. But if you are in the middle of a sentence, feel free to
go ahead and complete it.
So, at this time, Ms. Johnson, we will start with you. And
you are recognized for 5 minutes for your opening statement.
STATEMENTS OF PAM JOHNSON, PRESIDENT, NATIONAL CORN GROWERS
ASSOCIATION; BILL ROENIGK, SENIOR VICE PRESIDENT, NATIONAL
CHICKEN COUNCIL; ED ANDERSON, CEO, WEN-GAP, LLC, ON BEHALF OF
NATIONAL COUNCIL OF CHAIN RESTAURANTS; CHRIS HURT, PROFESSOR,
DEPARTMENT OF AGRICULTURAL ECONOMICS, PURDUE UNIVERSITY; AND
SCOTT FABER, VICE PRESIDENT OF GOVERNMENT AFFAIRS,
ENVIRONMENTAL WORKING GROUP
STATEMENT OF PAM JOHNSON
Ms. Johnson. Thank you, Chairman Whitfield, and members of
the subcommittee, thank you for the opportunity to testify
about the impacts of the Renewable Fuel Standard on the
Agricultural Sector. My name is Pam Johnson. I am a sixth
generation farmer for Floyd, Iowa, where I raise corn and
soybeans with my husband and two sons, and we raised hogs for
38 years. I currently serve as the president of the National
Corn Growers Association. And here today I am the voice of the
family farmer and give the perspective of the rural community
to this panel.
NCJ was founded in 1957, and represents over 39,000 dues-
paying corn farmers. And corn is possibly the most versatile
crop in the world, and demand is at an all-time high. The RFS
is a critical piece of our Nation's energy policy. It has
created jobs, lessened our dependence on foreign oil, and
improved the environmental footprint of our Nation's
transportation fuels. In 2012, the RFS supported more than
300,000 jobs, displaced 465 million barrels of imported oil,
and lowered gas prices by at least 89 cents per gallon. It
spurred the development of advanced in cellulosic biofuels. In
short, it is doing exactly what it was designed to do.
When the RFS was initially conceived, corn producers were
facing significantly depressed prices, averaging $2 per bushel.
Between 1990 and 2006, producing corn was a losing business. As
a result, grain farmers became reliant on government payments
as a source of income and as a means of survival. This dynamic
changed in part to the emergence of the ethanol industry and
the certainty provided by the RFS. Now all commodity prices
across the board have risen, and without the RFS, it is likely
that the entire farm economy would be in a deep recession.
There is opportunity once again in rural America. Our two sons
and a growing number of young farmers have returned to the farm
after college. Corn production has allowed our livestock
industry, ethanol industry, and our communities to grow. Due to
the tax revenues and job security that the RFS enables, my
small community has a new fire station, a remodeled hospital,
and my grandson's kindergarten class is large enough to need
another teacher.
Much of the criticism that the RFS faces regarding food
prices, food availability, and its environmental footprint, are
exaggerated at best and blatantly false at worst. Because of
the farm value of commodities represent such a small share of
retail food prices, the impact of the RFS on food prices is
indiscernible. Higher energy prices as a result of increased
petroleum costs play much larger role. The World Bank found
nearly two-thirds of the increases in food price since 2004 are
the result of the increased price of crude oil. According to
USDA, the farm share of the food dollar is 15.5 cents for 2011,
this is below the average of 16.1 cents for the prior 18 years.
The farmer is getting a smaller percentage of the food dollar,
therefore, it is unlikely that commodities prices or the RFS
are large contributors to food price inflation.
Corn farmers have responded to demand by producing more
corn on roughly the same amount of land. In the last 30 years,
corn production has improved all measures of resource
efficiency, land use, oil erosion, irrigation, energy use, and
greenhouse gas emissions. I am proud to say that corn farmers
work hard to be good stewards of the land and the environment.
Our farmers continue to produce enough to meet increased demand
for corn as food, feed, fuel, and fiber. We know the importance
of seeking and embracing practices that will sustain the soil,
to produce crops in the future.
Farmers have increased yields, produced more food, and
avoided clearing additional acres of land. This has curbed
greenhouse gases equal to a third of the total emissions since
the industrial revolution. No other industry can claim to have
done more. Not only has the RFS enabled our Nation to be more
energy secure, some consumers have been given better and lower
options at the pump. Last Friday, I filled my car at a station
in Iowa with E-85. It was $1.34 cheaper than E-10, as pictured
on the screen. The RFS is enabling families to choose a gas
that is cleaner for future generations at a fraction of the
price. NCGA appreciates the subcommittee's work to understand
our perspective. We strongly believe that the RFS is doing
exactly what it was intended to do. It is successfully driving
adoption of renewable-fuel alternatives to petroleum,
supporting jobs across the country, and ensuring we remain a
global leader in developing new energy sources here at home. I
look forward to hearing the testimony from the other witnesses
and answering your questions. Thank you.
Mr. Whitfield. Ms. Johnson, thank you very much.
[The prepared statement of Ms. Johnson follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And, Mr. Roenigk, you are recognized for 5
minutes.
STATEMENT OF BILL ROENIGK
Mr. Roenigk. Good afternoon, Chairman Whitfield, members of
the subcommittee. Thank you for this opportunity to participate
in this critically important and most timely hearing on the
Renewable Fuel Standard. I am Bill Roenigk, and I am speaking
on behalf of the National Chicken Council. The National Chicken
Council represents companies that produce, process, and market
over 95 percent of the chicken in the United States. About 40
vertically-integrated chicken companies that are federally
inspected comprise the U.S. industry. Since 2007, all these
companies, at times, have struggled financially. Some have
struggled longer and more severely than others. Chicken
companies have been economically squeezed for much of the past
6 years. Rising feed costs for much of the past 6 years have
outpaced the ability of these companies to pass on the higher
cost of feed.
At least a dozen chicken companies have succumbed to this
severe cost price squeeze by ceasing operations or having to
sell their assets at basically fire-sale values, in some cases,
to foreign owners. The business disruptions directly affects
over 25,000 family farms and more than 300,000 employees that
are directly working for the chicken companies. Since the RFS
was implemented in October 2006, the feed costs for chicken,
turkeys, and eggs have gone up over $50 billion. And that is
not the total farm--or feed cost, that is the additional feed
costs that we have had to incur, and it has been an
understatement to say that we have had a difficult time passing
on that $50 billion cost. More troubling than the higher costs
actually is the volatility in trying to outguess the market. If
you buy corn at $8 and it goes to $6 and your competitor buys
at $6, you are at a tremendous disadvantage in trying to
compete in the marketplace.
The RFS statute and the Energy Independence Security Act of
2007 is not just broad and complex, as the chairman has
indicated in his comments about the hearing, it is also a
statute that has outlived its usefulness if in fact the
conventional fuels component of the RFS ever did have any
usefulness. The actual experience of implementing the RFS has,
unfortunately, been very much as those of us in animal
agriculture expected. Our negative expectations have for the
most part been exceeded and exacerbated by the impact of
shortfalls of the corn crops of the past 3 years.
The RFS clearly lacks flexibility when the corn crop falls
short. The unintended consequences of forcing a move too far
and too fast with corn-based ethanol have become overly clear
and overly painful. It has also become overly clear and
apparent that there is no workable or reasonable provision in
the RFS to provide flexibility when the corn crop is severely
inadequate to meet all the needs.
I also would like to point out that the ``renewable'' part
of the Renewable Fuel Standard term is a misnomer. That is,
``renewable'' implies there is abundance of some natural
resource that provides an unending supply of some product.
Having to apply over 200 pounds of commercial nitrogen
fertilizer to achieve a corn yield of 160 bushels an acre does
not qualify in our estimation as being a renewable resource. If
you did not apply that fertilizer, your yields would be cut in
half; if you didn't apply them again the next year, you would
be cut in half again. In short, the Renewable Fuel Standard, at
least for the conventional biofuels part of it is broken beyond
repair.
It is imperative and important at this time that Congress
take action to take a hard, critical look at the RFS. If
Congress concludes as we do, the RFS cannot be fixed because it
is broken beyond repair, then Congress must do the right thing.
And I would recommend those who are interested in more
information about the National Chicken Council's position that
you go on the committee's Web site and look for our white paper
we submitted in response to your call for the impact on
agriculture. The National Chicken Council looks forward to
working with the ask subcommittee and others in Congress to
fix, if possible, this very broken legislation.
Thank you, Chairman Whitfield, and members of the committee
for this opportunity. And we look forward to your questions.
Mr. Whitfield. Thank you very much.
[The prepared statement of Mr. Roenigk follows: ]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And Mr. Anderson, appreciate you and your
family being here, and you are recognized for 5 minutes.
STATEMENT OF ED ANDERSON
Mr. Anderson. Thank you. Good afternoon, Chairman.
Mr. Whitfield. Be sure and turn your microphone on.
Mr. Anderson. Good afternoon, Chairman Whitfield, Ranking
Member Rush, and members of the committee. My name is Ed
Anderson. My wife Judy and I, with our son, Eddie, own a small
Wendy's franchise with four restaurants in Virginia. We have
138 employees. I was also elected to the board of Wendy's
Quality Supply Chain Coop, QSCC, a not-for-profit purchasing
coop owned by Wendy's restaurant operators like me. QSCC
purchases the food for Wendy's and is staffed by experts who
understand and help us interpret commodity markets. The
National Council of Chain Restaurants asked me to be here to
represent our industry. I have never done anything like this in
my life, but I do have a responsibility to my employees, fellow
franchisees, customers, the food service industry, and my
family to make sure Congress knows a well-intended idea has
turned out to be a very serious problem, and it is getting
worse.
Judy and I are the face of American small businessmen and
women. We have worked hard to build our business. But when
Congress passed the Renewable Fuel Standard, it created a new
burden for businesses like ours. Now restaurant owners and
employees like us are being hit at a time when our economy
can't afford it. I doubt many restaurant operators or our
customers know that an EPA mandate on corn ethanol is at the
root of food cost increases.
Based on several analyses, we are asking Congress to repeal
the RFS because it is estimated to be costing us up to $30,000
more per restaurant than we would normally pay. For our family
business, that is up to $120,000 a year in additional costs.
That might not be a lot of money in Washington, D.C., but for
me and many others in the restaurant business, that is a lot of
money. If Congress repealed the RFS, it would level the playing
field and over time, return normalcy to the food supply chain
so everyone competes fairly and food becomes more affordable.
Last year, RFS proponents blamed the drought for high corn
prices. This year, they are blaming it on oil prices. But a
2012 report by PricewaterhouseCoopers confirms what our
analysis at QSCC already thoroughly studied. It is the RFS that
distorts food commodity costs so much that restaurants, our
suppliers, and consumers are forced to pay more than we
normally would under market conditions.
Please understand we are not anti-ethanol. We know if it
wasn't for American farmers and ranchers, we wouldn't be here,
and we support American agriculture. We get all of our beef and
chicken from here in North America. But this mandate is making
food so expensive that it is harder to continue investing in
new or remodeled restaurants, which would create badly needed
construction and restaurant jobs. I believe with all my heart
that we live in the greatest country in the world. This country
was built on the hard work and the ingenuity of those who were
willing to risk it all to build something. Removing the mandate
for ethanol allows to stand on its own. Capitalism allows us
all to adjust and be successful.
Let the natural market dictate the cost of ethanol, not a
mandate. We can't pass these costs on to our customers. They
are already struggling in this economy, and their own food
costs at grocery stores have also gone up because of the RFS.
We are appealing to Congress to thoroughly study the issue
like we have. Please listen to all sides and consider all
implications. Then you will understand why repeal is the best
solution. Recently, an educational campaign was launched called
``Feed Food Fairness, Take RFS Off the Menu.'' It is led by the
National Council of Chain Restaurants and supported by a
coalition of small business owners, operators, franchisees, and
many others in the food supply chain to urge Congress to repeal
the RFS.
We believe the RFS must be repealed because we are
concerned that if, for example, just the corn ethanol mandate
is eliminated from the RFS, it would simply be replaced with
some other food crop, and we would be right back where we are
today. What sounded like a good idea has had serious
consequences and artificially driven up the price for food both
at home and in our restaurants.
Judy and I are the kind of people that make up much of the
chain restaurant industry. We are here as small business
owners, as employers, and as a family to bring attention to
this issue and ask Congress to take action for all of us. Thank
you.
Mr. Whitfield. Thank you, Mr. Anderson.
[The prepared statement of Mr. Anderson follows: ]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And Professor Hurt, you are recognized for 5
minutes.
STATEMENT OF CHRIS HURT
Mr. Hurt. Thank you for the opportunity to provide some
comments on the impacts of the RFS to date and to discuss the
future direction of the RFS and its implementation. Out in the
Midwest, we view what happens to the RFS as one of the most
important drivers of the entire farm economy. The RFS really
does matter to U.S. agriculture. I am here today as an
agricultural economist from Purdue University. That is the land
grant college of Indiana. And I am here to represent U.S.
agriculture broadly and not to have any advocacy position on
the RFS.
Some call the current high farm commodity price period the
``biofuels era.'' I think it is a little bit of a mistake to
believe that the RFS was the sole factor that caused the amount
of changes in prices we have had. And those have had major
impacts as you have already heard on different sectors.
We really have had two major things that changed that drove
the demand so much higher for agricultural grains. One of those
was clearly the biofuels. There we saw the massive increase in
acreage, a lot of new demand for acreage, for corn, that
increased about 16 million acres in the United States. That was
a very large surge in demand. But there was a second very rapid
surge since 2005, and that has been the growth of incomes in
China and resulted in purchases of soybeans here in the United
States, the additional purchases required about 13 million
additional acres. All these factors have been built into higher
grain prices. If we just look at the acreage impact, 16 million
acres on corn driven by RFS. And 13 million on soybeans, it is
about 55 percent of the acreage, higher acreage was driven by
the--directed by the RFS.
So in some way, I think the RFS did have increased--the
increase for corn ethanol was very rapid, maybe a little more
rapid than U.S. farmers could supply. And clearly, we have had
supply problems, as was mentioned already. But the soybean
purchases from China are also part of this explosive price
period.
Certainly, RFS has, as you have already heard, provided
positive benefits for some sectors, the grain producers and
farm landowners, especially. And it has been negative for
people who are end-users and obviously the animal producers we
have heard from, food consumers we have heard from, and those
that are involved like restaurant industry. In the farm sector,
U.S. farm incomes shot from $79 billion in 2005 to a record 128
billion estimated by USDA this year. Even more startling is
farm land values have risen about 150 percent during this time
period, since 2005, and that is, really, a very large number,
approaching $1 trillion of extra real estate value in farmland.
$866 billion higher land value, real estate value for farms in
2013 versus 2005.
The downside, of course, was felt by those users of grains.
Prices of feed shot higher for the animal industry, as you have
heard. And the animal industry cannot immediately pass that on.
The prices are determined by their supply that year; when they
had much higher feed prices, they can't pass it on. They
absorbed that in losses in their margins, as you have already
heard. And then eventually those losses discouraged some
people. We have then a reduction in the amount of food
available.
I looked at some of the meat sector. Per capita
availability of meat has gone down, since grain prices went up
at about 5 percent this year, per capita supplies of chicken
and turkey; pork availability is 6 percent lower, and beef
supplies in the United States are down 14 percent since we had
that cheap corn.
So, clearly, we look at that. Consumers have less food
availability to choose from at higher prices. They are
definitely losers. Retail food prices have been mentioned. They
have risen about--food has risen about 1 percent faster than
the core inflation rate. And again, as is mentioned, it is the
commodity portion of the food that we would relate to, the RFS,
so it is a smaller portion.
Certainly the RFS has some major issues coming up. The
blend wall I am sure you have talked about. We have a really
slow start towards E-15 and E-85. We have tiny cellulose
production, which was supposed to be the direction we were
going at this point. And other issues.
Let me conclude then by saying crop farmers, I think, would
like to maintain conventional ethanol levels about where they
are today. I think they can reach the 15-billion gallon level
that is slated. Our problems really are over on the cellulosic
side.
And in terms of oil seeds, we can see some further increase
in oil seeds. This might be like soybean oil. But I think the
bottom line is what we would like the agricultural sector is to
see some stability, as corn growers have indicated. We would
really like to see, from the end-user side, we would like to
see that there not be legislative mandates that increase the
demand beyond the ability to supply that. So that we look at
the supply, how quickly can supply grow. And if we are going to
have mandates that those mandates, not increase demand quicker
than supply. I look forward to any questions you have. Thank
you.
Mr. Whitfield. Thank you.
[The prepared statement of Mr. Hurt follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Whitfield. And Mr. Faber, you are recognized for 5
minutes.
STATEMENT OF SCOTT FABER
Mr. Faber. Thank you, Mr. Chairman, Ranking Member Rush.
And thank you, members of the committee. I am the last witness
on the last panel. So I will be brief, and I will take to heart
Mr. Shimkus's command to listen and be constructive. I think
that is exactly the right mindset to bring to this issue.
Mr. Whitfield. Would you mind just taking your microphone a
little closer.
Mr. Faber. Absolutely. I will do whatever Mr. Shimkus says.
So I do think it is time to--and we have heard this over
the last 2 days--it is time to recognize that the RFS is
producing too many biofuels that increase greenhouse gas
emissions, that increase food prices, that pollute our air and
water, and not enough of the good biofuels that really help
hold the promise of not pitting our energy needs against our
food security and environmental needs. And it is important to
look back and remember that the RFS was once heralded as a way
to combat climate change. But according to EPA's own analysis
in their 2010 Regulatory Impact Analysis, the RFS has actually
increased greenhouse gas emission by encouraging farmers for
plow up millions of acres of land, releasing carbon into the
atmosphere and releasing nitrous oxide emissions into the
atmosphere.
Again, according to EPA's own analysis, the rapid expansion
of corn ethanol increased greenhouse gas emissions in 2012, and
will continue to increase greenhouse gas emissions for years to
come. And that is because most corn ethanol is either produced
in a natural gas fire dry mill ethanol plant, which, according
to EPA, increases lifecycle greenhouse gas emissions by 33
percent when compared to gasoline, or in a coal fire dry mill
ethanol plant, which increases greenhouse gas emissions, again,
according to EPA, by 66 percent when compared to gasoline. But
that is not all. As farmers have applied more fertilizer to
millions of acres of new crop land, the RFS has also increased
the amount of fertilizer that winds up in our rivers and
streams that, in turn, increases the cost of treating our
drinking water. It has increased the amount of water that is
used in many drought-stricken States. It has increased
emissions of air pollutants, like particulate matter and ozone,
and, as we have heard on this panel, increased food prices for
consumers.
That is the bad news. I think the good news is that many
second-generation biofuels hold real promise because many of
these fuels convert wastes, not food crops, into fuel.
Unfortunately, as you heard yesterday, the marketplace is
saturated by corn ethanol, blocking the commercial development
of these much more promising fuels. And so we believe that in
order to allow second-generation fuels to gain a foothold in
the marketplace, Congress must reform RFS to phase out the corn
ethanol mandate. There is simply no reason to think that RFS as
currently designed is providing sufficiently powerful incentive
to develop these new fuels. In fact, all of the evidence
suggests that RFS is failing to deliver on that promise. Over
the last year alone, EIA has, on three separate occasions,
revised downward its estimates for cellulosic ethanol
production in 2022.
At a minimum, Congress should level the playing field for
these second-generation biofuels by making corn ethanol subject
to the same high greenhouse gas reduction standards as second-
generation biofuels. Right now, as I mentioned, most corn
ethanol production is completely exempt from any of these
greenhouse gas reduction standards. So they are, again,
completely exempt from meeting these greenhouse gas reduction
standards under the 2007 Act. And according to EPA's 2010
Regulatory Impact Analysis, increasing greenhouse gas
emissions.
What is more, phasing out these food-to-fuel mandates
would, as you have just heard, create a level playing field for
livestock operators, for food manufacturers, for restaurant
owners, who are paying more for food and feed.
I would like to just close by thanking you for reviewing
these issue. We have now had many years of experience with the
RFS. I applaud you all for recognizing that now is the time for
reform, and we do look forward to working with you to come up
with constructive ways to help bring these promising second-
generation fuels to the marketplace. Thank you.
Mr. Whitfield. Mr. Faber, thanks very much. And thank all
of you for your testimony. We appreciate your taking the time
to be here.
[The prepared statement of Mr. Faber follows:]
[GRAPHIC] [TIFF OMITTED] T6397.176
[GRAPHIC] [TIFF OMITTED] T6397.177
[GRAPHIC] [TIFF OMITTED] T6397.178
[GRAPHIC] [TIFF OMITTED] T6397.179
[GRAPHIC] [TIFF OMITTED] T6397.180
Mr. Whitfield. I am going to recognize myself for 5 minutes
of questions. We actually have votes on the floor. And,
unfortunately, there is like eight or nine amendments. It is
going to take some time. So I know members are interested, have
a lot of questions. I will go and ask mine now and maybe we
will get to Mr. Rush. And then hopefully, you all can go down
to the cafeteria and have a sandwich or something for an hour.
But I do apologize in advance for this inconvenience.
As I said, we have had a number of hearings on this. And it
is a complex topic. Initially, when the Renewable Fuel Standard
was adopted, there were three basic reasons for doing so. One
was less reliance on foreign oil, the second was to revitalize
the rural areas, and the third reason was to reduce greenhouse
gas emissions. And so the question I would like to ask each one
of you is, if those were the three primary reasons given for
the adoption of Renewable Fuel Standard, the International
Energy Agency recently said that within a short period of time,
5, 6 years, America will be the number one oil producing
country in the world because of recent finds in new fields like
the Bakken Field, which means that one of the reasons for this
standard, being less dependent on foreign oil, seems to be less
important.
The second reason is that we reduce greenhouse gases. Well,
Mr. Faber, in his testimony, points to studies. And I will just
read from a few of them here. ``Researchers found that the
cumulative greenhouse gas emissions caused by corn ethanol for
the period between 2015 and 2044 will be about 1.4 billion
tons, or 300 million tons more than emissions from an energy
equivalent of gasoline.'' And they say that actually EPA's
original research was wrong. And then it says, ``The National
Academy of Sciences found that overall production and use of
ethanol was projected to result in increases in the pollutant
concentration. Those projected air quality effects from ethanol
fuel would be more damaging to human health than those from
gasoline use.'' And I could go on from there.
Now, I am from a rural area. And I could tell what you
what, every time I go home, our corn growers, our soybean
growers there are thrilled because great yields, good prices,
and the economy is going strong. But if the validity of doing a
program like this, as complex as it is, only one reason given
initially still appears to be out there, I would ask each one
of you if you could just give me your view on, since we are
only fulfilling now it looks like maybe one of the original
intents of the standard, of why should we continue it? And, Ms.
Johnson, if you wouldn't mind responding, I would appreciate
it.
Ms. Johnson. Thank you for that question. Several things.
We have data to prove that corn production alone has reduced
greenhouse gas emissions by 36 percent. And we are doing that
with new technologies and farming smarter and putting nutrients
into the crop precisely using GPS and computers so that those
techniques are helping on that end. And in the end, on the corn
to ethanol, the EPA asked that corn ethanol reduced greenhouse
gas emissions by 20 percent by 2022, and the corn ethanol
business has already met that.
Mr. Whitfield. So, Ms. Johnson, sorry for interrupting. I
have a minute and 24 seconds left. But basically what you are
saying is that your studies indicate that there has been a
reduction?
Ms. Johnson. Correct.
Mr. Whitfield. And what about the oil independence issue,
as we produce more and more oil, what would you say to that?
Ms. Johnson. The amount of gallons of ethanol added to the
fuel supply has reduced it. Yes, we are using less gas here.
Yes, we have more gas here, but it is harder to get that kind
of gas out of the ground, and the carbon footprint of that will
be bigger also. So I think we have to look at going forward in
the future these--these products are still fossil fuels, and
they are still, at some point, finite and we need to develop
renewable fuels.
Mr. Whitfield. Mr. Roenigk, do you have a comment?
Mr. Roenigk. I would just observe what Dr. Hurt set about
almost a trillion dollars increase in land values. That is
great for the people who own that land, wanted to sell it. But
if you are a young farmer trying to get into agriculture, and
we do need some young farmers out there, we have raised a very
high hurdle for them to overcome to continue to be in animal
agriculture,
Mr. Whitfield. But is it still your position it should be
repealed?
Mr. Roenigk. Our position, there needs--if we cannot put
flexibility into the program, then we need to fix it. And if we
can't fix it, then we need to repeal it.
Mr. Whitfield. Mr. Anderson.
Mr. Anderson. Thank you. I am just a small businessman. So
when we talk about these other things, it is very difficult for
me. But on a daily basis, the thing I can speak about is I have
a responsibility to my 130-plus employees. And I know that the
rising of the food commodity prices has put a severe impact on
us, not only at the restaurant, but even in the grocery stores.
And that has made it very difficult for everybody to pay higher
prices for gas and for food at this time.
Mr. Whitfield. Mr. Hurt.
Mr. Hurt. Yes, I think there has been enough change that we
need--Congress should look at the Renewable Fuel Standard, and
implementation is going to be very difficult given the high
amounts of additional biofuels that are to be produced.
Mr. Whitfield. Mr. Faber.
Ms. Faber. I would just add that it is not EWG's view, it
is both EPA's view and the National Academy of Sciences' view
that the corn ethanol mandate has increased greenhouse gases.
They wrote in 2011 that, ``regardless of whether the co-product
is sold wet or dry, corn grain ethanol has life cycle
greenhouse gas emissions higher than gasoline in 2012 and
2017.'' So I think we don't need to get into this fight of
dueling studies. The experts, EPA and the National Academy of
Sciences, have already drawn the conclusion that especially in
the short run when we need greenhouse gas reduction the most,
corn ethanol is increasing emissions by increasing the amount
of carbon that is released into the atmosphere.
Mr. Whitfield. Thank you very much. And now, Mr. Rush,
would you like to ask questions now or do you want to come
back?
Mr. Rush. I think it would be appropriate given the fact
that we have got, like, seven votes left.
Mr. Whitfield. OK. I know a number of members have
questions for you all. And I do apologize. But if you don't
mind, we do need to go vote. There is going to be seven or
eight votes. It may take 50 minutes, 55 minutes. So if you all
would come back at about hour from now, we would genuinely
appreciate it. With that, we will recess the hearing for one
hour. Thank you.
[Recess.]
Mr. Whitfield. At this time, I will recognize the gentleman
from Colorado for 5 minutes of questions.
Mr. Gardner. Thank you, Mr. Chairman, and I appreciate the
witnesses' time and their time for being here. Yesterday, the
witnesses were able to provide entertainment, insight,
arguments, and a lot of good information on the impact of
renewable fuel standards on fuel production sales and usage.
Today, I thank you for the opportunity to talk about the
impact it has on agriculture, on food prices around the
country. And I mentioned yesterday about my district's strong
agricultural sector, not only some of the Nation's leading corn
producers on the county basis in the country as well as farmers
and ranchers throughout Colorado, and the 4th congressional
district, the 11th largest ag district out of the 435 districts
here in Congress.
And to William Roenigk, is that Mr. Roenigk?
Mr. Roenigk. Yes.
Mr. Gardner. Of the National Chicken Council. I asked a
similar question yesterday to Bob Dinneen, president of the
RFA. Could you talk about the coke product from ethanol product
to distill his grains, how they impact livestock operators that
you represent?
Mr. Roenigk. Yes, thank you. Great question. You are
referring to DDGs?
Mr. Gardner. Yes.
Mr. Roenigk. It is a great product if you are ruminant. If
you are a chicken cattle, dairy cattle, but if you are single
stomach animal like poultry and hogs, doesn't work so well, and
even works less today than it did a few years ago. Now the
technology is such that they are able to take the oil out of
the DDG. So, before there was some energy from the oil, but now
that energy is gone, and so for poultry, very difficult to
really get much benefit from DDGs, and so we use a very limited
amount, in most cases, less that 5 percent. Having said that,
it is good that the--our competitors in large animals can use
it and take some of the pressure off the corn market.
Mr. Gardner. And your conversation as livestock operators,
they believe that DDGs have actually helped with their
profitability; is that correct?
Mr. Roenigk. Yes, I would agree.
Mr. Gardner. Ms. Johnson, to you, I got my start in
Congress actually as an intern working in the Corn Growers
Office, which right now represents the 24th highest producing
corn district in Congress. In your testimony you talk about how
the RFS has benefited rural communities. Can you elaborate on
what has happened to farm income in the United States since we
adopted the RFS in 2005?
Ms. Johnson. Sure. As I say in my written testimony, before
the days of the RFS, farmers were facing prices of $2 corn and
below, and so actually, as corn growers, we got together with
other entrepreneurs and decided what we had to do to develop
markets, and ethanol looked like it was promising growth
because we were fulfilling our needs to the domestic livestock
industry and our exports, and so we needed a new market. So, it
has been very important to us to help work with that and
develop it.
Mr. Gardner. Thank you. Talk a little bit again about what
has happened with government payments to farmers in that same
time period.
Ms. Johnson. Sure. Well, at that time, unfortunately, we
had to get half of our income from the government just to be
able to survive, and some of us that are old enough like me
have been through the 1980s and we have seen what that can do
to farms and farm families. So, now we are able to get our
income from the marketplace.
Mr. Gardner. And, in your testimony, you talk about RFS
impact on food prices. Mr. Hurt has made some comments about
that as well. Would you further elaborate on that a little bit?
Ms. Johnson. Sure. As the Secretary of Agriculture, Tom
Vilsack has said it, at this time, the American consumer can
leave the grocery store with more money in their pocket even
with food prices today the way they are, and have more
disposable income to spend on other things. And corn gets $0.03
out of the food dollar that the consumer has to spend.
Mr. Gardner. And can you talk about that a little bit. I
think in your testimony, you talk about how it was $0.16 of
every dollar spent, the farm share being $0.15 now lower. Can
you talk a little bit about that impact?
Ms. Johnson. Sure. So, for the food dollar, 84.5 cents goes
into marketing, or the petroleum cost to get that food product
to market, and of that dollar, then the 15.5 cents, as you say,
goes to the farm, and of that, only $0.03 can be attributed to
what the corn price is in that product, whether it is hamburger
or chicken or beef or pork.
Mr. Gardner. And you know, there are various biometric
requirements within the renewable fuel standard, and do corn
growers, your organization supportive of new biofuels and
cellulosic ethanol coming to the market?
Ms. Johnson. We do. As was said earlier that we are
blocking cellulosic and new biofuels coming in, that couldn't
be further from the truth. We welcome them, and we think that
corn ethanol is the basis and the foundation of that happening,
and with the RFS, that provides the incentive that there is
certainty, just like when corn ethanol started out, that those
industries can build on that and have innovation and technology
coming to improve and start the next generation.
Mr. Gardner. Thank you. And Mr. Chairman, I yield back.
Mr. Whitfield. Gentleman yields back. At this time, I
recognize the gentleman from Illinois, Mr. Rush, for 5 minutes.
Mr. Rush. Thank you, Mr. Chairman. Following up on my
friend from Colorado's line of questioning. The issue of
providing food costs is an issue that I am extremely sensitive
to. I represent a district with some of the highest rates of
both poverty and unemployment in the Nation, and making sure
that my constituents can afford to put food on the table is of
the highest concern for myself.
In various meetings regarding the RFS, my office has
received some conflicting information on the impact that this
policy has had on food prices. Some have insisted that the RFS
has helped to raise food prices due to the use of corn ethanol,
while others have stated in writing, energy costs have played a
much larger role in raising food prices.
During today's panel discussion, in fact, Mr. Dinneen
stated and showed a pretty convincing slide--yesterday's panel,
rather. Mr Dinneen showed a pretty convincing slide
demonstration that the year end global food prices and global
fuel oil prices rose and fell almost simultaneously between the
years 2000 to the present.
And I want to ask all the panelists today, as I understand
it, as many witnesses confirmed yesterday, the RFS has actually
helped to reduce fuel costs, at least in the transportation
sector. I want to learn more about the impact that repealing
the RFS would have on food costs, if any?
So I want to go down the line and ask each of you to
briefly share your views on what has been the greatest impact
on food costs, the RFS or rising energy costs?
Separate question. What impact would repealing the RFS have
on the price, the price that Americans pay for food?
So I am going to go down the line, beginning with you, Ms.
Johnson. Can you answer those questions?
Ms. Johnson. Thank you very much. We believe that it is the
rising cost of fuel that is costing people more for their food
dollar. There is a high correlation between the price of a
barrel of oil and what people pay for food because as
transportation costs go up, and we believe that the impact of
removing that would be deleterious to your constituents also,
because the average family saves $1,200 a year out of their
family budget by reduced fuel prices because of having ethanol
at the pump, $1.09 per gallon on the average to save. And I buy
both food at the--groceries and fuel for my family, and as corn
prices have gone down this year 30 percent, I have yet to see
food prices come down 30 percent. So, we will see if they do,
and then we will decide if there is a correlation between the
two.
Mr. Rush. Mr. Roenigk.
Mr. Roenigk. Yes, thank you for the question. With all due
respect to Ms. Johnson, I would like to suggest the following
example. She is making so much per acre on growing corn, but
let's say Green Giant came to her and said, OK, I would like
you to grow green beans for us. I suggest that Ms. Johnson
would say, I am making this much on corn. If you want me to
grow green beans, I need to make at least that much on green
beans.
So when corn says we only increase food a little bit
because we are only so much of the market, it is not just one
boat in the harbor. It is raising all the boats in the harbor.
So you have to look at all the food costs. Corn competes with
all the other crops. If you are a farmer, you are going to
produce what is most profitable, and if somebody else wants you
to produce something other than corn, it has got to be least as
profitable, or more so. So the argument needs to be much
broader than just what is the cost of corn.
Mr. Rush. Mr. Anderson, do you have anything that you want
to add to this?
Mr. Anderson. Yes, sir, Congressman. There are a couple of
things.
One, when we talk about the increase in food, I can tell
you that the Bureau of Labor Statistics states that from 2005
to 2012, that food has outpaced core inflation during that
time, 25 percent to 16 percent. When we talk about the price of
higher food, I can tell you that I come here and can tell you
that, in my restaurants, food has increased for the last 5
years. In a QSCC, which is the Quality Supply Chain Coop at
Wendy's, they study it every day, and that is a fact as far as
we are concerned.
Additionally, it impacts everybody because, as was just
stated, whether it is too much corn being planted, then it
takes away from soy beans, so then the soy bean price go up.
So, the cost to consumers has gone up significantly and the
cost for us in the restaurants has gone up significantly for
the same reasons. Thank you.
Mr. Rush. Thank you. Mr. Hurt.
Mr. Hurt. My evaluation would be that there has been a
direct correlation. RFS has raised food prices. There is always
a question of what is the magnitude. I think the direction is
on the upside. We have seen food inflation be about a percent
higher than the core inflation per year on average. Our
evaluation is about half of 1 percent a year as related to the
commodity food portion of that, kind of the farm value of that.
As we work that through, that ends up being about $7
billion a year on our food system. We have a very large food
system and that there are some additional higher costs. Energy
is also very important in that, and splitting those out,
exactly which one is the bigger contributor, I am not well
qualified, but I think they both have been positive.
I would also mention that food inflation, I would expect to
now drop below the core inflation. We have a good crop in the
United States finally here in 2013. We are going to see
moderation in some of these basic food prices like our corn,
soybeans, wheat. That is going to help to begin the process of
moderating food price inflation even more.
Mr. Rush. Thank you. Mr. Faber. Thank you, Mr. Chairman.
Mr. Faber. I would just add that there are many factors
that are contributing to food inflation. When USDA chief
economist Joe Glauber was here a month ago, he attributed about
a 30 percent of the increased price of corn to the RFS, but
there are many factors that are contributing to higher corn
prices and ultimately higher food prices, including energy
prices, strong global demand for our commodities.
The RFS is one of the factors that Congress can control. So
of all the things that impact the price of corn and ultimately
the price of food, energy prices, the weather, strong global
demand, the amount of ethanol that we blend into gasoline is
one of the factors that we can actually change.
Mr. Whitfield. Thank you. The gentleman's time has expired.
At this time, I recognize the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. I think, since we are
getting close to the ending of the whole panels, I think it
would be instructive just to talk about ethanol and how it
actually got developed. And everybody talked about 2005, but it
wasn't in 2005 that developed ethanol into the markets. It was
the Clean Air Act of 1992 because it caused the fuel to burn
cleaner, it was tailpipe emissions, and that was the entry. It
was also the entry with another product called MTBE, which
eventually became a persona non grata because of some odor and
discoloration, not toxicity but--so MTBE got left, ethanol
started going into that market for the Clean Air Act. So then
it was 2005 that we made the transition of energy security,
decreased our reliance on imported crude oil by having
renewable fuels.
The environment has shifted quite a bit with our own
ability to produce fracking and going through our depleted
wells using new technology and getting more oil out of them,
and that is kind of what stirred up this debate again.
But I think the basic premise is that in any business, and
as the government has sent a signal, and you have made capital
investment to respond to that Federal law, I think no one would
be supportive of the government changing the rules to bankrupt
those who invested private capital to meet the law of the
national government. Is there anyone? No.
So, that is part of this debate, that we made promises,
investment, private capital to build refineries. Ethanol
refineries, a lot of times in rural America where they have
nothing but fields, now they have got a little refinery there,
it is paying taxes, as Pam has mentioned. So that is why we are
trying to find the sweet spot in this.
Scott and I appreciate your acknowledging that. We didn't
get much of that yesterday, but we think we will as we move
forward. But Scott, let me ask you, we understand the new world
of cellulosic. There will be many of us who, and I think even
my friends on the other side, it is going to be built on the
foundation of corn-based ethanol. So I would hope that, if that
is the future you-all want to go----
Mr. Faber. Yes.
Mr. Shimkus. Your testimony says reduce. I don't think that
is going to pass the political scrutiny, but if it is, build on
that future, then we have got an area we can work together.
Mr. Faber. Here is the challenge, and I think--we see this
problem the same way, and one of your witnesses made this point
yesterday that I can't pour this jug of water in this cup, and
that is fundamentally the problem with the RFS we have today.
Mr. Shimkus. But that is why we are having this hearing.
That is exactly why we are here.
Mr. Faber. But, and I think one of the things that was not
said explicitly, but we all know, is that we will be in an E10
environment because of the engine and infrastructure hurdles
for some time.
Mr. Shimkus. All right. My time is expiring, but you can't
put 14 ounces in a 12-ounce cup.
Mr. Faber. Right.
Mr. Shimkus. But that is where we need your help. How do we
make these changes? And I want to go to Pam real quick, because
I want to ask this question.
Can you, representing National Corn Growers, a lot of my
friends, can you envision a modified RFS that avoids the near
term pitfalls that would be acceptable to American corn
farmers?
Ms. Johnson. Yes, I can.
Mr. Shimkus. OK.
Ms. Johnson. And I think some of the problems that we are
encountering now could have been avoided because when the law
was written in 2005, we knew that one of the goals was to
increase the level of blending renewable fuels. So part of that
problem is a willingness to make sure that those renewable
fuels are available.
So it comes as no surprise to me in 2013 that now--it does
not come as a surprise to me that we need to blend those fuels.
Mr. Shimkus. Right. And let me go to Mr. Roenigk real
quick, because I want to get--because I am from livestock
sector, not chicken, we have the other white meat, which we are
very proud of, and of course, DDGs are a big part of what they
have done to offset their cost. Can you and the Chicken Council
see a way in which, kind of the same question, and modify RFS
that avoids some of these near term pitfalls?
Mr. Roenigk. We need flexibility. It is clear that the
current RFS doesn't have flexibility, and so we are open to
reasonable alternatives that would provide for those situations
where there is not enough corn and we can all share in that
situation.
Mr. Shimkus. And let me finish on this, and just because my
time is very close. Two articles when I was flying out talked
about the high price of gas. Gas is going up again for a lot of
reasons, and in both these articles, there was not a single
mention of ethanol RINs. When you take the--when you take this
policy paper from the World Bank, May 2013, I read it here
numerous times, it says this, it concludes that the most of the
price increases--this is about food increases, prices of food
increases from the World Bank. It concludes that most of the
price increases are accounted for by crude oil prices, more
than 50 percent, followed by stock-to-use ratios and exchange
rate movements which are estimated about 15 percent. Crude oil
prices mattered most during the most recent boom period because
they experienced the largest increase.
So, we can have this food-fuel fight all the time. It is
transportation costs, it is crude oil, it is the barrel, and it
is the truth.
So, Mr. Chairperson, thank you, and I yield back my time.
Mr. Whitfield. The gentleman yields back. At this time, I
recognize the gentleman from Virginia, Mr. Griffith for 5
minutes.
Mr. Griffith. Thank you, Mr. Chairman. I appreciate it, and
start with Mr. Faber.
Mr. Faber. Yes, sir.
Mr. Griffith. In your testimony you state that the EPA's
own analysis has since shown that the lifecycle greenhouse gas
emissions of corn ethanol were higher than gasoline last year,
2012, and will be higher in 2017. So, the RFS was intended to
introduce cleaner, more efficient fuels, and the largest
existing component, by far, corn ethanol is less efficient and
dirtier than gasoline, question mark; is that true?
Mr. Faber. That is correct. That is according not only to
EPA's analysis, but the National Research Council's 2011 report
as well as other studies that have looked at--that have
compared the greenhouse gas emissions associated with corn
ethanol to the energy equivalent amount of gasoline.
Mr. Griffith. And that deals with the production costs and
so forth, correct? Not just the burning of the----
Mr. Faber. In part, because of the carbon debt created by
corn ethanol. When we encouraged farmers to plow up millions of
acres of land to produce more corn, we released an
extraordinary amount of carbon into the atmosphere. We applied
a lot more fertilizer that went into the atmosphere in the form
of nitrous oxide, which is 300 times more potent greenhouse gas
than carbon dioxide.
And in combination, that has increased in the short run the
lifecycle greenhouse gas emissions associated with corn
ethanol.
Mr. Griffith. All right. And so should corn ethanol
continue to be a part of the RFS from an environmental
perspective? I understand there is always a balance.
Mr. Faber. If our goal is to reduce greenhouse gas
emissions, and I think this goes back to Mr. Shimkus' point, we
have to find room in the E10 pool for these promising
cellulosic biofuels. If I produced a cellulosic ethanol today
that got a 50 or 60 percent reduction in greenhouse gas
emissions, there simply would be no place in the pool because
the pool is only 13.4 billion gallons and the corn ethanol
industry has the capacity to produce 14.7 billion gallons. So I
think we just need to create a foothold in the existing E10
pool for these new biofuels that really promise to deliver on
greenhouse gas reductions.
Mr. Griffith. All right. Thank you.
Mr. Roenigk, last year we had a drought across a big chunk
of the country, bad weather scenario. I was one of those who
asked the EPA to grant a waiver from the RFS. What, in your
opinion, would it take for the EPA to recognize severe economic
harm and waive the mandate? What kind of conditions do you
think they would have to have?
Mr. Roenigk. I can't speak for EPA what it would take for
them to do that, but it is difficult to imagine a scenario,
short of a, whatever definition of a crisis is, but they have
demonstrated that the current regulations, it is basically
impossible to rise to that level.
Mr. Griffith. From your opinion, last year probably would
have met the test; is that correct?
Mr. Roenigk. I think it came very close. It didn't go over
that hurdle and EPA felt that wasn't enough, so I'm not sure
what the situation is. I was pleased to hear Dr. Hurt, I won't
say guaranteed, but basically say the corn is in the crib or in
the bin, but those of us in the chicken industry have learned
not to count the chickens till they are hatched.
And so I am hoping the corn is in the crib this fall and we
can all perhaps breathe a little easier, but to go back to your
question, I can't speak for the EPA, but it is difficult to
imagine under current rules what it would take for them to
recognize that.
Mr. Griffith. All right. And Mr. Anderson, your restaurant
group has been vocal about repealing the RFS. You were asked
what factors were out there, you listed that one. Of course,
transportation is a big one too, but would I be wrong in saying
that another cost driver, not only at your restaurants, but in
the grocery field is the refrigeration of the food, and that is
usually electric and the jump in electric prices has also been
one of the concerns that are cost drivers for you-all?
Mr. Anderson. It would be difficult for me to speak on that
as far as specifics.
Mr. Griffith. Sure.
Mr. Anderson. What I can tell you is that, again, the cost
of corn has impacted the proteins, which we use. You have
cattle, you have dairy cattle, you have got chickens, you have
got the hogs, all of them use corn. You also, we use buns. All
of these things have the food in it and it has impacted us
dramatically in the cost of the products.
Mr. Griffith. And somebody mentioned earlier, and it may
have been you. I apologize because I don't remember, but you
know, if you raise the cost of corn, the soybeans--it might
have been you, Mr. Roenigk, but if you are producing more corn,
then the price of soybeans goes up, that would be true for the
wheat, too, when you referenced the buns, that is what you are
talking about?
Mr. Anderson. Exactly. Because what would happen is, as
corn goes up, more people want to plant corn. Well, if you
plant more corn and there is only so many acres that can be
planted, then there is less soybean and then less wheat, and so
we have seen significant increases in soybean, and we use that
to make our chili and other products, and obviously, our buns,
which we sell quite a few of those also.
Mr. Griffith. All right. Thank you very much, and I see my
time is up, and I yield back, Mr. Chairman.
Mr. Whitfield. The gentleman's time is expired, and at this
time, I recognize the gentleman from Louisiana, Mr. Scalise for
5 minutes.
Mr. Scalise. Thank you, Mr. Chairman. And again, thank you
for having this series of hearings. This is the third panel
that we have heard from, and a lot of really good interesting
perspectives on the renewable fuel standard. I wasn't here in
Congress when it passed and was updated, but I have seen and
heard a lot of firsthand stories of the problems that it is
causing, whether intended or unintended, but serious
consequences that we are seeing throughout many parts of our
economy, and again, it is still in the early stages as we are
approaching the blend wall, by all estimates, by next year, or
at the latest at the end of next year, we would be hitting that
blend wall, and then you have even deeper problems.
And so that is why we are here is to talk about what those
problems are and then solve this problem. And I know I support
legislation that would solve it by repealing the mandate
because clearly it is not working the way it was intended. But
when we get to some of the points that have come up in some of
our earlier panels, we had, in our first panel yesterday, we
had a gentleman who talked about the impact on the price of
food, and I know some of our panelists here testified about how
RFS, one of its intended or unintended consequences, and an
increase in food prices that you are experiencing, one of our
panelists said that the--I think his quote was the impact of
the renewable fuel standard itself on food prices is
indiscernible. And I would like to, Ms. Johnson, get your take
on it, and then also ask Mr. Roenigk and Mr. Anderson as well,
because I know you each have different perspectives on it, but
that was one of the panelists yesterday.
Ms. Johnson. Thank you for the question, and we can get you
more information from the consumer price index, but some of the
data that we have, if corn is $6 a bushel, the corn equivalent
is $0.27 for a pound of beef, $0.38 for a pound of pork, $0.27
for chicken, if it drops down to $4, which it is heading there,
we had rain across the midwest, as Dr. Hurt said, and we are
below----
Mr. Scalise. Would you agree or disagree when he said that
the renewable fuel standard itself had no impact or an
indiscernible impact on the price of food?
Ms. Johnson. It had some impact, but the greater impact is
from the price of a barrel of oil and energy prices, and we can
get you the data on hamburgers, chicken, pork, milk, eggs.
Mr. Scalise. Well, let me ask the chicken--the chicken man,
Mr. Roenigk. I apologize if that's----
Mr. Roenigk. That is fine. I appreciate that.
Mr. Scalise. If you can give me kind of your perspective on
what you have seen.
Mr. Roenigk. Sure. The rule of thumb is, if a bushel of
corn goes up $0.30 a bushel, you have added one penny to the
cost of producing a live weight chicken. And the same way on
soybean meal. Of a ton of soybean meals goes up $30 a ton, you
have added $0.01 to the increased cost production of producing
a live chicken, so that is the rule of thumb. It is a pretty
direct correlation, and there is not a whole lot of
substitutes, and you--if you want to produce chickens and you
got them in the field, you got to feed them and you absorb the
cost or try and pass it on.
Mr. Scalise. Let me ask you, Mr. Anderson, because in your
testimony, I think it is the closest thing I have seen to an
exact number, to a rough estimate of a dollar figure that has
been attached to increase in the cost of food to consumers by
the renewable fuel standard. Taking out fuel, and you know,
there are all other factors going in, but the renewable fuel
standard is one of those factors. I don't see a lot of people
disputing that it is, and so, you know, if it is, then there
has got to be an amount attached to it.
What you are saying is the amount that you are seeing at
your stores is $30,000 more expense of food due to the
renewable fuel standard; is that right?
Mr. Anderson. That is correct. And just to tag on right
there, it takes 8 pounds of corn to make 1 pound of beef, so
you can imagine as the price goes up, what that does to the
cost of beef.
Additionally, it wasn't just us that came up with the
$30,000, you know. We would be happy to provide the 2012 report
by PricewaterhouseCoopers that confirmed what our analysis at
QSCC was already thoroughly studying, and that is the fact that
the RFS does distort food commodity prices so much, that
whether you are a restaurateur, a supplier, or a consumer, that
you are forced to pay more for the price of food.
Mr. Scalise. Thank you. And I mean, this is passed on to
consumers. I would imagine it is not just like, OK, it is
another 30 per store, 30,000 per store, and that is just money
that comes out of the sky. I mean, that is money that somebody
let goes, and goes to a restaurant, they are going to have to
be paying more money, in essence, $30,000 per store more that
is going to cost consumers, every store, and these are real
prices that are affecting people.
One last thing I want to mention is, we had somebody
testify yesterday about the impact on--from Briggs & Stratton,
impact on motors, one of the many other detriments that are
coming if you get to E15. There are many tests that have been
run by not third parties, but the actual companies that make
some of these motors and engines that have seen and experienced
tremendous damage to engines, and I don't know if anybody wants
to comment on it, dispute it. I have heard nobody dispute that,
but that is a serious consequence that has been out there, real
testing that has been done that is a detriment that many
consumers are facing, and frankly, are very concerned about
when they see this coming down the road.
Mr. Anderson. Congressman, may I respond to the price
increase piece. The fact is that we can't pass these costs,
these additional costs onto our consumers right now. And there
is two reasons right now: One, they are already strapped by
paying a higher price for food and for gas.
Mr. Scalise. Because they are paying it, too, at the
grocery.
Mr. Anderson. Exactly. Secondly, we are in an extremely
competitive market, and people will vote with their feet on
price increases. So this is something that has been very
difficult for us, and we have just had to absorb this increase,
a significant portion of it.
Mr. Faber. Congressman, we carefully looked at these engine
effects issues, and clearly, most of the engines for boats,
lawnmowers, augers, chainsaws, small engines are simply aren't
equipped to run on higher blends, and the cost of having to
convert all of those engines would be enormous. So, it seems to
me that our focus ought to be how do we--how do we bring more
advanced biofuels to a market that can compete fairly for that
pool of E10, that E10 pool and not try to force every consumer
and every car owner in America to switch engines in order to
meet the needs of one particular industry.
Mr. Scalise. Why we need to stop. Thank you. Mr. Chairman,
thank you, I yield back the balance of my time.
Mr. Whitfield. The gentleman's time has expired. At this
time, Mr. Braley and Mr. Matheson are on the Energy and
Commerce Committee. They do not happen to be on this
subcommittee, but both of them have been so focused on the
renewable fuel standard that they come to these hearings, and
we give them an opportunity to ask questions, so I recognize
Mr. Braley for 5 minutes.
Mr. Braley. Thank you, Mr. Chairman. Is anyone on the panel
a history buff, by chance?
All right. Mr. Faber, Mr. Anderson, have you heard of
something called ``The Whiskey Rebellion''? I am going to pit
the chairman against Mr. Scalise with this question, so I want
you to pay close attention.
Isn't it true that we have been refining corn in this
country a lot longer than we have been refining petroleum?
Mr. Faber. People have been refining corn to produce
ethanol since the Persians, absolutely.
Mr. Braley. So, when we talk about some of these issues,
and we are talking about these trade-offs, I think it is
important to keep that in perspective, because when you talk
about the trade-off, Mr. Roenigk, between growing green beans
in Iowa and corn in Iowa, you are talking about a false choice,
because people grew corn in Iowa for over 150 years before
ethanol plants started appearing on the prairies. You knew
that. And they grow corn in Iowa because the climate and the
soil conditions make it very conducive to growing corn, and it
is much more conducive than growing green beans. And one of the
things that we have to focus on in this hearing is the actual
trade-offs that make a difference to the people in this
country.
One of the things that you talked about in your testimony,
Ms. Johnson, is how the National Corn Growers are not opposed
to new generation biofuels that can take us beyond corn-based
ethanol, and in fact, one of the things that we have been
talking about is the demand that corn ethanol production places
on the cost of food for livestock, and yet one of the
byproducts of ethanol production is distiller's grains, which
are used by many livestock producers as a feed source.
So, that is one of the benefits that comes from ethanol
production, and another thing that can happen is, as we move to
cellulosic ethanol, when in fact there are two ethanol plants
in Iowa that are cellulosic-based, then you use corn stover and
the byproducts of the corn stock to generate biofuels as well,
correct?
Ms. Johnson. Right.
Mr. Braley. One of the things that you mentioned was this
photograph that was up on the screen showing the prices for E85
ethanol in St. Ansgar, Iowa, which is in my congressional
district, 2.24 a gallon, which is a clear benefit to consumers
who are interested in using advanced biofuels. And I just
happened to check, in addition to that price in St. Ansgar, you
can buy E85 for 2.39 in Westside, for 2.49 in Riverside and
Neal and Urbandale, Iowa, so this is a product that is already
reducing the cost of fuel for consumers in our state, correct?
Now, one of the things that we talked about was the trade-
offs that are impacting the price of food. And Mr. Anderson,
you grew up in the Garden State of New Jersey?
Mr. Anderson. Yes, I did.
Mr. Braley. You did. And you talked about the impact of
rising corn acres on soybean planting and the loss of acres to
soybeans. Do you remember that?
Mr. Anderson. Yes.
Mr. Braley. Have you ever been a farmer?
Mr. Anderson. No, I have not.
Mr. Braley. Worked on a farm? Do you understand the concept
of crop rotation in States like Iowa and Illinois where Mr.
Shimkus lives, and Nebraska. They call themselves the Corn
Husker State, but nobody is husking corn there anymore that I
know. Do you know what crop rotation is and why farmers
alternate between corn and soybeans?
Mr. Anderson. Yes, sir.
Mr. Braley. It is to replenish the soil by putting nitrogen
back in if it is taken out by the corn crop, and that is why in
States like ours you see large acres of production of corn and
soybeans. And one of the things we know about soybeans is that
they are used to also generate a renewable fuel called
biodiesel. You are aware of that?
Mr. Anderson. Yes, sir.
Mr. Braley. And in fact, many restaurants in this country
have gotten into the renewable fuels business by using their
waste fats to deliver to companies that are using it to convert
it into biofuels, correct?
Mr. Anderson. Correct.
Mr. Braley. So some of the members of your restaurant
association are also generating income from the biofuels
industry to help reduce the cost of operating their businesses.
Mr. Anderson. I can assure you that the income from that
grease comes nowhere near the $30,000 impact from the increase
in the RFS.
Mr. Braley. Well, you talked about the fact that some of
the restaurants are faced with the risk of closure because of
the RFS. Do you remember saying that in your opening statement?
Mr. Anderson. No, I don't.
Mr. Braley. OK. My recollection is that when you were
describing the impact of the RFS on restaurants in the United
States, you suggested that some of them could be faced with
closure if we don't do something about the RFS. So you are not
suggesting that.
Mr. Anderson. No, I did not suggest that.
Mr. Braley. All right. With that then, I would yield back,
and I thank the chairman for extending me this courtesy.
Mr. Whitfield. Well, thank you, Mr. Braley. At this time, I
recognize the gentleman from Nebraska, Mr. Terry, for 5
minutes.
Mr. Terry. Well, I appreciate that. I appreciate this, and
so my first question is to Mr. Roenigk. And you talked about
the expansion of the corn crop and the additional millions of
acres that have been used in the fertilizer, and that helps the
production of our crops, and that they are producing twice as
much now, and I just want to make clear what you were trying to
get at, because I am sure you are not saying that we should
stay at a process where our corn crops and soybean crops should
be cut in half.
Mr. Roenigk. Absolutely not.
Mr. Terry. If you are advocating that we cut our corn crops
in half as it sounded like you were doing, what would that
effect be on corn and soybean prices?
Mr. Roenigk. If I could clarify. What I tried to say is the
term ``renewable'' implies, suggests that this is a resource in
a natural basis continues to be more or less unlimited in terms
of being available. If you want to produce corn, at least
commercially, you need to apply commercial nitrogen which comes
from a source that Congress considers not to be renewable. So
that is all I was saying. If you don't use commercial nitrogen
fertilizer to produce corn, I don't think you are going to get
160 bushels or per acre.
Mr. Terry. Well, I have never heard that argument before
that if you use fertilizer, it is not a renewable crop. I can't
tell you how adamantly I oppose that position. I think it is
just silly, frankly, because we have used fertilizer on crops
for hundreds of years.
Mr. Roenigk. I think you should use fertilizer on crops.
Mr. Terry. Well, nitrogen is a fertilizer on----
Mr. Roenigk. Is it organic fertilizer or commercial
fertilizer or----
Mr. Terry. Oh, so it can all be pig crap that we can put on
there and then it is renewable under your standards?
Mr. Roenigk. I am sorry?
Mr. Terry. I said ``pig crap,'' you should be waste. And
then it is renewable, but only if it is from animal waste.
I am going to move on. Well, I do want to ask you one thing
because--does the chicken industry use distiller grains in
their feed? Do you mix that up?
Mr. Roenigk. Yes. We used to use more, but since the oil
has come out of the DDGs, we use less of it because the energy
is out, but yes, we still use a small amount. Some companies
use up to 5 percent, but it is not a preferred feed ingredient.
Mr. Terry. OK. So what percentage of it would be mixed in,
5 percent?
Mr. Roenigk. Up to 5 percent. I would suggest the current
usage is probably something in the 2 to 3 percent range when we
look across the industry.
Mr. Terry. All right. Mr. Hurt, I have two--or Dr. Hurt. It
should say ``Dr.'' Up there, and I appreciate that you are
taking no position in this repeal RFS.
Mr. Hurt. That is safe or unsafe.
Mr. Terry. That means supposedly you are neutral. So I want
ask you a couple of questions, and I have read your testimony,
and I want to follow up on some concepts that weren't, I think,
taken to conclusion.
So, Mr. Anderson and Mr. Roenigk and Mr. Faber argue just
repeal the RFS, do it today, it is the cause of all the world's
problems, and if we repeal it today, what are the consequences?
Does that have an effect on corn prices and does it have an
effect on the land prices?
Mr. Hurt. Nobody knows for sure. We will just start with
that statement. But we think repeal of the RFS does away from
cellulose altogether. It is gone.
Mr. Terry. Well, if you repeal the total, yes, you will.
You will repeal advanced----
Mr. Hurt. Let's start with the things that----
Mr. Terry [continuing]. Biofuels, ethanol, advanced,
cellulosic whatever, it is all gone.
Mr. Hurt. Probably goes away if the subsidy, the dollar
subsidy goes away, biodiesel goes away. Actually, as we look at
conventional ethanol, what we have today is an oil industry
that has as their mixture, their chemistry, they have ethanol
in that blend. They have ethanol in the blend for two primary
reasons, one is oxygenate, that is replacement of MTBE; the
second is as an octane booster, and they have it because it is
economic to have it in their mix for octane. They--we
understand from the oil industry that they refined to about 84-
octane now. That is a lower level than they would normally, to
get 87-octane, they then blend 10 percent ethanol. Ethanol is
about 113- to 115-octane. That brings that gasoline up to 87.
Now, what we don't know is because of the renewable fuel
standard, the oil industry knew that they were going to have to
blend 10 percent ethanol, so this, given the fact they have to
blend 10 percent ethanol, this is economic. If we assume that
economics continues, then maybe there would not be a collapse
in corn use for ethanol. Maybe.
On the other hand, 5 years from now, the oil industry might
find other ways to oxygenate and octane, so I think it doesn't
say it would all go away. In the short run, we don't think a
lot would go away.
Mr. Terry. I think that is a fair analysis, but Mr.
Anderson and Mr. Roenigk have advocated no use anymore, so we
couldn't use corn-based ethanol for an oxygenate or to increase
the octane.
Mr. Hurt. Yes. And again, I think your question was if you
take away RFS.
Mr. Terry. I did. I changed the question on you.
Mr. Hurt. You take away the RFS, the market, the market
determines, and then what we are saying is the market would
still buy some for awhile until the oil industry, perhaps,
totally reformulated it.
Mr. Terry. Mr. Anderson, wouldn't you be frustrated if the
market still allowed 10 percent blend and it was ubiquitous
because of octane needs? I mean, you would still would then
have Armageddon occurring in the fast food industry.
Mr. Anderson. What I would say to you is that, first of
all, we are not anti-ethanol. What we are saying is take the
mandate away and let free enterprise and free market conditions
determine the cost of the product.
That way the government is not picking winners and losers.
All we are doing----
Mr. Terry. You can't have it both ways.
Mr. Anderson. I am sorry.
Mr. Terry. You can't say eliminate the mandate because the
mandate for the--that essentially gets you to the 10 percent is
wrong, but then when Mr.--Dr. Hurt was saying, well, there may
not be any displacement because the market was pretty much
built off of that 10 percent, well, you are still going to have
Armageddon then. So, it sounds to me like you are just against
corn ethanol, not just market.
Mr. Whitfield. The gentleman's time is expired.
I would like to remind all the members that not to change
the question in the middle of the question.
Mr. Olson, you are recognized for 5 minutes.
Mr. Olson. I thank the chairman. There will be no change in
the middle of the question from this Congressman from Texas. I
would like to thank the witnesses for coming this afternoon. I
appreciate your time and patience with the votes.
As we were hearing yesterday on this issue, a little
different group here, but as I said in the hearing, I am not
opposed to corn farmers, I am not opposed to ethanol, corn-
based ethanol. I have got some corn production in Texas 22,
small, but the western part of the county produces corn. Uncle
Gus had a farm, corn farm in South Central Wisconsin. Every
summer he would go up there. Guess who worked in the corn field
with a hoe whacking the weeds? P. Olson getting paid $5 a week.
Yay, thank you so much, Uncle Gus.
Mr. Terry. He had machinery for that.
Mr. Olson. Just to make sure, you know, it seems very clear
to me that the renewable fuel standard is on a path right now
with some very negative consequences for our economy. One of
those consequences is related to the impact on families trying
to put food on the table.
Last month we had the Department of Agriculture before this
committee. I asked about the impact of RFS on food prices.
Their economists say most of these point to about 30 percent of
recent spikes in corn prices being due to RFS.
These corn prices trickle into every aspect of our economy.
The USA Report this spring predicted that high-priced corn and
other commodities will ``permeate supermarkets,'' and that,
``stressful inflation for beef and pork will intensify.'' That
hurts families and that hurts businesses.
So my first question is for you, Mr. Roenigk, I hope I
pronounced that correctly, sir, and I apologize if this
question was answered while I was off there counting my votes,
but we routinely hear from supporters of the RFS that it boosts
employment for corn farmers that, of course, you remember, are
heavily present in rural America as well, and you point to
negative impacts of the RFS. Would you argue that the RFS has
hurt hiring for employment in your industry, and are you able
to put a number on that impact?
Mr. Roenigk. Thank you for the question. If I understand
correctly, we need corn farmers, corn farmers need us, and to
give you a specific number as to what that balance should be, I
would like to get back to you if I could on that.
Mr. Olson. That works for me, sir. Thank you very much.
I would like to talk to you, Mr. Anderson, next question,
please, sir. And my question for you, sir. I had a Wendy's
franchise owner from back home in Texas come to my house about
a month ago, and I thought we would talk about Obamacare,
impact on small businesses, tax policy, none of that. We talked
about the RFS in corn-based ethanol.
And they agreed, he agreed with your testimony, each of the
restaurants loses roughly $20- to $30,000 per year because of
commodity prices in the RFS. So my question is, what does
$30,000 mean to your stores? Where are some things you would
otherwise be able to do with that money?
Mr. Anderson. Thank you, Congressman. That $30,000 per
store means a lot, and I will give you two examples. With that
additional money, I can reinvest in my restaurants. If I
reinvest in my restaurants, then not only am I maintaining the
jobs that I have in my restaurant with the employees that I
have, but also it helps to create or sustain other jobs.
When we build new restaurants or remodel, I will give you
two specific examples. The person who does the landscaping in
my Wendy's, for my four Wendy's, he started just as a person
cutting a couple of lawns. He came to me and asked for an
opportunity to present his case to take care of that. I agreed.
That person now hires over 35 people. He has created 35 jobs
along with the sustainability of his because of that. That is a
trickle-down effect of jobs.
Additionally, my window cleaner, same thing. This gentleman
was just cleaning a couple of windows. He came in and asked me
if he could have the opportunity to quote cleaning our windows.
I agreed to do that. He now hires 7 to 10 people to help clean
windows. So there is a trickle-down effect when I can have
money to invest in my restaurants.
If I build a new restaurant, I create 30 more jobs on
average, I create four to six more management positions, and I
have created work for construction which we all know is badly
needed in this country. While they build the restaurant, the
equipment to supply that restaurant, and then there is the food
that has got to be there to supply it, and again, it is more
job security for those that are cutting my landscaping and
cleaning my windows.
Mr. Olson. Washing windows. Yes, I am out of time. One
suggestion, sir, get the first Whataburger franchise here in
the Washington, DC Area. You will be booming. That is the Texas
national restaurant, a hamburger restaurant, Whataburger,
Whataburger, Whataburger.
Mr. Whitfield. What is the name of it?
Mr. Olson. Whataburger.
Mr. Whitfield. Oh, Whataburger. Thank you.
Mr. Olson. I yield back.
Mr. Whitfield. At this time I would like to recognize Mr.
Matheson for 5 minutes. He has been sitting here very
patiently.
Mr. Matheson. Thanks, Mr. Chairman. Thanks for doing these
hearings. I am sorry my conflict prevented me from being here
for the first two panels, and I assume we can send some written
questions in for them, if we can. Appreciate your patience with
that.
Couple of questions I wanted to ask. Ms. Johnson, you
mentioned a savings on fuel cost, $1.09 a gallon. I think that
was a study by the Renewable Fuels Association that came up
with that number; is that correct?
Ms. Johnson. Yes.
Mr. Matheson. Are you familiar with the article in
Scientific American this week, the study out of MIT that says
that that study was flawed and that that number is actually not
true and that there is no discernible effect on fuel costs from
ethanol?
Ms. Johnson. I am not.
Mr. Matheson. OK. Mr. Chairman, I wish I had a paper copy
of that study, but if it is permissible, I think that ought to
be part of the hearing record. This is an article in Scientific
American.
[The information appears at the conclusion of the hearing.]
Mr. Whitfield. Without objection.
Mr. Matheson. Thank you. I think also, the issue that is
interesting now compared to a couple of years ago is the impact
of RINs. Didn't I hear they are a buck thirty-four or something
like that? It is a lot more. So I think the effect on fuel
costs is a relevant topic for us to look at, and we ought to
talk about things have changed. Whatever study said it was in
2009 or 2010 or 2011, I just know in 2013, the cost of RINs has
gone up a lot, and it has got to be having an impact on price
at the pump.
Another question I wanted to ask you, Ms. Johnson. Last
month, during the first RFS hearing, we heard testimony from
government witnesses. We had someone from the Energy
Information Administration. We had someone from the U.S.
Department of Agriculture. They indicated that as long as
ethanol continues to be economical, which I believe in your
testimony you indicate is true, this issue about using it as an
oxygenator, as an octane booster, that they estimate, the EIA
estimates that if you get rid of the RFS altogether, it would
result in roughly about a 10 percent reduction in the amount of
ethanol that is used in the supply chain today.
Do you agree with that or do you have a sense if that would
be the case or not?
Ms. Johnson. I do not agree with that statement because the
oil industry needs an incentive to blend renewable fuels;
otherwise, there is no incentive to blend those fuels. And you
know, we have talked in other panels, too, about battling over
different studies, so you know, we have got the numbers that
say that consumers saved $1.09 a gallon at the pump and that
saved families $1,200 last year.
Mr. Matheson. I hear you. You are right. In our business,
we hear about different studies and different statistics all
the time. Sometimes it is good to see who it is coming from if
they have an interest in what that study says.
Ms. Johnson. Congressman, if I can just say we have got a
short-term problem. The drought did cause a lot of damage last
year, a lot of tough issues for all of us, and so the short-
term answer to a short-term problem is we are looking at
producing a very abundant corn crop for this year, which will
answer short-term problems. We have to start looking at what
the long-term big picture is for fuels in America and what it
means for the three things that the RFS was originally set out
to do.
Mr. Matheson. I couldn't agree more.
Mr. Faber, do you have a thought about the statement from
the Energy Information Administration that indicates that if
the mandate goes away, it will result in a drop of about 10
percent on the overall use of ethanol in our fuel supply chain?
Mr. Faber. I think it is incredibly important question and
it goes back to something that Mr. Terry was alluding to as
well. What happens if you got rid of RFS? And when you, I think
some of your witnesses yesterday alluded to this, and EIA has
confirmed it, that in the short run, not much. That because we
have more than 14 billion gallons of ethanol production
capacity and because the gasoline refiners are now routinely
blending ethanol, in part because of Mr. Braley's picture, in
part because in some time--at some points in the year it helps
water the scotch (phonetic). It is a little bit cheaper than
the RBOB in gasoline. There is plenty of incentive for gasoline
refineries to continue to blend ethanol. To Professor Hurt's
point, in the absence of the floor, in the absence of mandate
that some day there may be other ways for blenders to improve
octane or to provide an oxygenate, and that is the trade-off.
The benefit to consumers of phasing out the corn mandate,
not repealing the entire mandate but phasing out the corn
mandate is you are providing more room in that 13.4-gallon
E10--13.4 billion gallon E10 pool for these cellulosic biofuels
that have the potential to really reduce greenhouse emissions.
Mr. Matheson. Well, I would concur with that. I would also
say the other benefit would be that you would get rid of the
need for the RINs that are, I think, increasing and distorting
markets.
Mr. Faber. Absolutely.
Mr. Matheson. And I think that that would be helpful.
Mr. Chairman, I think that weraised an issue that may be
interesting for this committee to look at which is, in the
short run, it appears that ethanol is a good way to pursue
oxygenating fuels or octane boosters. There is a concern in the
longer run there may be alternative choices that the refining
industry could use. Maybe we could have a hearing to talk about
what the likelihood or viability is of those alternative
choices. That might make us a little more informed as we look
at the impacts of the renewable fuel standard. With that, I
really appreciate your patience, and I will yield back my time.
Mr. Whitfield. Well, thank you, Mr. Matheson, and thanks
for that suggestion. The RINs were certainly discussed a lot
yesterday, and the RIN prices yesterday, and I want to thank
all of you for taking time from your busy schedules to come and
join us and to give us your views.
As we all know, it is a rather complex issue, and we are--
we have had a lot of hearings, and we have read a lot of
responses to the White Paper invitations, and it is an
important issue, so we are going to proceed cautiously. I think
most people agree that there are some inequities that need to
be addressed, and I don't know precisely where we are going to
end up, but that is what the political process is all about.
And so with that, I would thank you-all again and that--I
would ask unanimous consent to enter into the record letters
from various groups, including the American Motorcyclist
Association, the American--the Oregon Dairy Association, the
Oregon Cattleman's Association, the Oregon Petroleum
Association and the American Cleaning Institute. So, if you
would enter that into the record.
[The information appears at the conclusion of the hearing.]
Mr. Braley. Mr. Chairman.
Mr. Whitfield. Yes.
Mr. Braley. Would you also allow unanimous consent request
to enter a similar statement from the Iowa's Cattleman's
Association?
Mr. Whitfield. Absolutely.
Mr. Braley. In support of maintaining the RFS.
Mr. Whitfield. Absolutely. Absolutely. Without objection,
so entered.
[The information appears at the conclusion of the hearing.]
Mr. Whitfield. Hey, I had heard about the Iowa Cattleman's
Association. So that concludes today's hearing. The record will
remain open for 10 days, and thank you-all once again.
[Whereupon, at 4:10 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC] [TIFF OMITTED]