1

1 ENVIRONMENTAL PROTECTION AGENCY

2 PUBLIC HEARING FOR THE 2014 STANDARDS FOR THE

3 RENEWABLE FUEL STANDARD PROGRAM

4

5

6

7 Thursday, December 5, 2013

8 9:04 a.m.

9

10

11

12

13

14

15

16

17

18

19

20 Hyatt Regency Crystal City

21 2799 Jefferson Davis Highway

22 Arlington, Virginia 22202
2

1 PARTICIPANTS

2 EPA MEMBERS:

3 CHRISTOPHER GRUNDLER, Chair

4 PAUL ARGYROPOULOS

5 DALLAS BURKHOLDER

6 JOHN HANNON

7 DAVID KOROTNEY

8 PAUL MACHIELE

9 KARL SIMON

10

11 SPECIAL PANEL:

12 BOB GOODLATTE, U.S. Representative from Virginia

13 PETER WELCH, U.S. Representative from Vermont

14

15 PANEL 1:

16 MIKE BROWN

17 JOHN BULLOCK

18 BOB DINNEEN

19 CHARLES DREVNA

20 JUDD HULTING

21 JEREMY MARTIN

22
3

1 PARTICIPANTS (CONTINUED)

2 PANEL 2:

3 BRUCE BRALEY

4 R. TIMOTHY COLUMBUS

5 BOB GRECO

6 JEFF JOHANNESMEYER

7 JAN KONINCKX

8 ANNE STECKEL

9

10 PANEL 3:

11 ROBERT ANDERSON

12 JOHANNES ESCUDERO

13 JONATHAN LEHMAN

14 PETER MATRAI

15 PAT PATTERSON

16 JOHN URBANCHUK

17

18 PANEL 4:

19 TERRY BRANSTAD

20 RICHARD HANSEN

21 MARK LEONARD

22 RANDY OLSON
4

1 PARTICIPANTS (CONTINUED)

2 PANEL 4 (CONTINUED):

3 MARK RECKER

4 ROGER ZYLSTRA

5

6 PANEL 5:

7 CHRIS BLILEY

8 GRANT MENKE

9 JEFF REAMY

10 ALLEN RIDER

11 MARK WIGANS

12

13 PANEL 6:

14 PAIGE ANDERSON

15 DAVID BIDERMAN

16 KATIE CAMPBELL

17 MIKE CUNNINGHAM

18 MAURICE FEY

19 JOHN REESE

20

21

22
5

1 PARTICIPANTS (CONTINUED)

2 PANEL 7:

3 AVERY ASH

4 SCOTT FENWICK

5 GLENN JOHNSTON

6 LETICIA PHILLIPS

7 ALEX RINDLER

8 STEVEN SHIMBERG

9

10 PANEL 8:

11 RAMON BENAVIDES

12 KENT ENGELBRECHT

13 BOB HUTCHISON

14 ERICK LUTT

15 RON MARR

16 JOHN MCKNIGHT

17

18 PANEL 9:

19 MICHELE BOYD

20 CURT FRIESEN

21 DAN GILLIGAN

22 DON LOREN
6

1 PARTICIPANTS (CONTINUED)

2 PANEL 9 (CONTINUED):

3 DAVID WHIKEHART

4 MICHAEL WHITNEY

5 CRAIG WILLIS

6

7 PANEL 10:

8 R. BROOKE COLEMAN

9 SANDRA FRANCO

10 CHRISTINE HARBON HANSON

11 BRANDON HUNNICUTT

12 JOHN KASBAUM

13 BEN MCMAKIN

14

15 PANEL 11:

16 KENNETH HAAPALA

17 MITCH MILLER

18 JEFF OESTMANN

19 CHARLES SPANO

20 ALAN WEBER

21 KRISTIN PEARSON WILCOX

22
7

1 PARTICIPANTS (CONTINUED)

2 PANEL 12:

3 MARK BEEMER

4 DAVID HOWELL

5 STEVE HOWELL

6 SCOTT LONIER

7 STEFFEN MUELLER

8 AARON WALSH

9

10 PANEL 13:

11 CLINTON ENSIGN

12 GARY HAER

13 CONNIE LAUSTEN

14 RICHARD SCHWARCK

15 BRYAN TALIAFERRO

16

17 PANEL 14:

18 DAVID DURHAM

19 KEN HARTMAN

20 CHRIS HESSLER

21 MARK KENT

22 BRUCE VOLLAN
8

1 PARTICIPANTS (CONTINUED)

2 PANEL 14 (CONTINUED):

3 OWEN WAGNER

4 NICOLE PALYA WOOD

5

6 PANEL 15:

7 KEVIN ANDERSON

8 JOEL BRANDENBERGER

9 BILL BUSHONG

10 DAYNE DELAHOUSSAYE

11 STEVE FOGLESONG

12 BILL LAPP

13

14 PANEL 16:

15 JEFF JETER

16 TIMOTHY KEAVENEY

17 DENNIS MCNINCH

18 BRIAN SIU

19 MARK THOMAS

20 SCOTT VINSON

21

22
9

1 PARTICIPANTS (CONTINUED)

2 PANEL 17:

3 CHIP BOWLING

4 JENNIFER CASE

5 MIKE CLEMENS

6 THOMAS CORLE

7 GARY EISCHEID

8 NICK YAKSICH

9

10 PANEL 18:

11 JOHN CAUPERT

12 JOHN DAVIS

13 KEVIN POTAS

14 DWAYNE SCHAD

15 KIP TOM

16 STEPHEN WARD

17

18 PANEL 19:

19 DAVID DERAMUS

20 GARY HUDSON

21 RANDY HUGHES

22 ANDREA KAVALER
10

1 PARTICIPANTS (CONTINUED)

2 PANEL 19 (CONTINUED):

3 MIKE MOREHOUSE

4

5 PANEL 20:

6 MARK BORER

7 TOM BROOKS

8 JAMIE JAMIESON

9 STEVE PITTMAN

10 JOSEPH SINCAVAGE

11 H. GRANT TROOP

12

13 PANEL 21:

14 RICH HANSON

15 BRUCE LUTES

16 ROB MACKIE

17 BRIAN MCCLARREN

18 ROBERT MORTON

19 JAY SCHUTTE

20

21

22
11

1 PARTICIPANTS (CONTINUED)

2 PANEL 22:

3 SPARKY CROSSMAN

4 TIM FRENCH

5 JOEL GRAMS

6 WAYNE PRESBY

7 MILES STEPHENS

8 TIMOTHY VERVAECKE

9 BEN WOOTTON

10

11

12

13

14

15

16

17

18

19

20

21

22
12

1 P R O C E E D I N G S

2 MR. GRUNDLER: Good morning, everybody. I think 

3 we'll get started. Please take your seats.

4 (Pause.)

5 MR. GRUNDLER: Well, welcome, everyone. This is 

6 the public hearing for the proposed 2014 standards and 

7 2014 and 2015 biomass-based diesel volume standards 

8 under the Renewable Fuel Standards Program.

9 My name is Chris Grundler. I'm with the 

10 Environmental Protection Agency. I'm the Director of 

11 the Office of Transportation and Air Quality.

12 I'd like to start by introducing some colleagues 

13 of mine who I consider just extraordinary public 

14 servants who have been working in this policy area for 

15 many years and doing an outstanding job. To my right 

16 is Paul Machiele, and David Korotney and John Hannon to 

17 my left, from our Office of General Counsel.

18 In the audience today are Paul Argyropoulos and 

19 Karl Simon. Dallas Burkholder, I think, is maybe still 

20 out front. But they will be here all day and will be 

21 available to answer questions as well.

22 I also want to note that EPA is doing its job to 
13

1 address the financial crisis by choosing this venue 

2 today. I hope you find it all comfortable. We got a 

3 very good rate on it. So --

4 (Laughter.)

5 MR. GRUNDLER: So today, we'll be hearing 

6 testimony on our proposal for the 2014 standards under 

7 the RFS program. This proposal was signed by the 

8 Administrator on November 15th and was published on 

9 November 29th.

10 The proposal, we call an NPRM, proposes 2014 

11 volume requirements for cellulosic biofuel, biomass12 based diesel, advanced biofuel, and total renewable 

13 fuel. It also proposes the 2015 volume requirement for 

14 biomass-based diesel.

15 We recognize that these volume standards are 

16 important to a very wide variety of stakeholders, as is 

17 exhibited by the turnout we have for this public 

18 hearing, for which we are, by the way, very, very 

19 grateful. We're inviting comment on all aspects of the 

20 rulemaking, and we have specifically asked stakeholders 

21 to provide us relevant and up-to-date data and analysis 

22 on the many issues that we lay out in the proposal, 
14

1 either today or subsequently through the comment 

2 period. We're very eager to have this information so 

3 we can make the best decision.

4 So we're looking forward to our continued 

5 engagement after this hearing, as well as working very 

6 closely with our colleagues at the Department of 

7 Agriculture and the Department of Energy as we move 

8 toward a final decision.

9 So under the Clean Air Act, we are required to 

10 determine the renewable fuel standards every year, as 

11 all of you certainly know. While the Congress 

12 specified volumes for each year for all four categories 

13 of renewable fuel, Congress also provided the authority 

14 to EPA to change those volume requirements under 

15 certain conditions.

16 The cellulosic biofuel standard must be based on 

17 the volume projected to be available using information 

18 from EIA, the Energy Information Agency, and 

19 assessments of production capability from the industry. 

20 The applicable volume of biomass-based diesel must be 

21 determined for 2013 and beyond, as the statute does not 

22 specify the applicable volumes for years after 2012. 
15

1 The biomass-based diesel volume requirement can be no 

2 lower than 1.0 billion gallons, but it can be higher 

3 following an analysis of a number of factors listed in 

4 the law.

5 With regard to the total renewable fuel volume, 

6 our proposed approach uses a combination of the 

7 available authorities to ensure that all ethanol that 

8 can reasonably be expected to be consumed in 2014, 

9 given the legal and practical limitations, is included 

10 in the required volumes that we're proposing.

11 In addition to these projected ethanol volumes, 

12 the proposed total renewable fuel volume requirement 

13 also includes the projected volume of all known sources 

14 of non-ethanol advanced and conventional biofuels that 

15 can reasonably be expected to be produced and consumed. 

16 Thus, our proposed volume requirement of 15.21 billion 

17 gallons of total renewable fuel includes both the 

18 projected ethanol consumption and a consideration of 

19 the volumes of non-ethanol renewable fuel that are 

20 projected to be available in 2014.

21 For the advanced standard, as part of addressing 

22 the limitations in ethanol use by consumers, we base it 
16

1 on a combination of volumes of all cellulosic biofuel 

2 and all non-ethanol biofuel, including biodiesel, in 

3 excess of 1.28 billion gallons. While the proposed 

4 approach to advanced biofuel addresses the limitation 

5 in both availability of advanced fuels and ethanol use 

6 by consumers, our proposal also describes several 

7 alternative approaches for how to establish the 

8 advanced biofuel standard, and we are requesting 

9 comment on all of them.

10 I also want to point out that our proposal 

11 includes volume ranges for all categories of renewable

12 fuel, and we do this in order to, first, address the 

13 uncertainty in trying to project these volumes into the 

14 future, but also to provide all of you and people who 

15 aren't here an opportunity to give us this more up-to16 date information so that we can make the accurate 

17 decision, as well as to provide everyone meaningful 

18 comment.

19 So, again, I want to repeat we specifically asked 

20 for data and analysis that will help inform our 

21 estimates of the production and use of renewable fuels 

22 for the final rulemaking. As I noted, there's also an 
17

1 important opportunity, I should say, to send us written 

2 comments. So today is not the only opportunity for the 

3 public to tell us what you think. And this written 

4 comment period will close on January 28, 2014.

5 Now let me just go through some procedural 

6 requirements for this hearing. We're conducting this 

7 hearing in accordance with Section 307(d)(5) of the 

8 amended Clean Air Act, which requires EPA to provide 

9 interested persons an opportunity for oral 

10 presentation, in addition to written submissions.

11 The official record of this hearing will be kept 

12 open for 30 days to provide for submission of rebuttal 

13 and supplemental testimony. I'll be conducting this 

14 hearing informally, and formal rules of evidence do not 

15 apply.

16 I am the presiding officer of today's hearing, and 

17 as such, I will strike statements from the record which 

18 are irrelevant or needlessly repetitious and will apply 

19 reasonable limits on the duration of a statement of any 

20 witness. And we do so so we get -- have an opportunity 

21 for everyone to be able to present some testimony.

22 Because we have a very long list of those wishing 
18

1 to testify, we request that each person keep their 

2 verbal testimony to no more than 4 minutes. We have 

3 some helpful timers on the table to assist you. And, 

4 but we will be here as long as it takes so everyone can 

5 have a chance to say something. So we do expect it 

6 will be a long day, but all of us will stay until the 

7 last person is heard.

8 To make things as efficient as possible, we're 

9 using a panel format for today's testimony. So six 

10 people at a time will sit at tables up front and will 

11 provide their testimony in succession. Again, for 

12 austerity reasons, we only have three microphones. So 

13 we're going to ask people to share so the court 

14 reporter will be able to accurately hear what you're 

15 saying and record it.

16 Please state your name and affiliation prior to 

17 making your statement. And when each witness has 

18 finished his or her presentation, the EPA panel will 

19 have an opportunity to ask questions related to the 

20 testimony. Witnesses are reminded that any false 

21 statements or false responses to a question may be a 

22 violation of law.
19

1 In order to streamline the process, we've asked 

2 members of each panel to be in the room in advance of 

3 their projected panel time and should make their way to 

4 the staging area to the side of the panel tables while 

5 the previous panel members are finishing their 

6 testimony. So we have an on-deck row, not an on-deck 

7 circle, there in front for you to be seated.

8 If any of the members of the audience wishing to 

9 testify have not already signed up, please do so. We 

10 have a sign-up sheet outside the room. Please submit 

11 your name at the registration table, and we'll try to 

12 accommodate everyone who wants to testify. Everyone 

13 attending should sign the registry whether or not 

14 you're testifying.

15 So, with that, I'd like to call up the first panel 

16 of witnesses. Thank you again for coming.

17 So on Panel 1, we have Mr. Charles Drevna, Mr. 

18 John Bullock, Mr. -- I should say Dr. Jeremy Martin, 

19 Bob Dinneen, Mike Brown, and Judd Hulting.

20 (Pause.)

21 MR. GRUNDLER: Mr. Drevna, when you're ready.

22 MR. DREVNA: Good morning. I'm Charlie Drevna, 
20

1 president of the American Fuel and Petrochemical 

2 Manufacturers, AFPM. We are a trade association 

3 representing high-tech American manufacturers of 

4 virtually the entire supply of U.S. gasoline, diesel, 

5 petrochemicals, et cetera.

6 EPA's recognition of the ethanol blend wall and of

7 potential adverse effects on consumers is a very 

8 welcome first step. However, EPA's actions are short 

9 term in nature and really point to the need for 

10 Congress to address the severely flawed and outdated 

11 renewable fuel standard.

12 The statutory quantities of ethanol exceed the 

13 technical limitations of many engines in service today. 

14 The vast majority of existing vehicles and 

15 infrastructure simply cannot handle a gasoline supply 

16 containing more than 10 percent ethanol, E10, which 

17 leads to what is referred to as the E10 blend wall.

18 EPA's proposed waiver attempts to reconcile the 

19 reality of the blend wall with the unrealistic 

20 renewable volumes in the statute and is necessary to 

21 prevent the RFS from artificially limiting the supply 

22 of transportation fuel available for U.S. consumption.
21

1 Renewable identification numbers, RINs, are the 

2 currency used for RFS compliance. The number of RINs 

3 available for compliance depends not on production of 

4 domestic ethanol, but on consumption of these renewable

5 fuels.

6 As the RFS mandate exceeds the ability of the 

7 underlying fuel supply to use additional ethanol, there 

8 will be a shortage of RINs for compliance in the 

9 marketplace. Neither E15 or E85 or drop-in renewable

10 fuels will fill the RIN gap in the necessary timeframe. 

11 The blend wall is here now.

12 Since RINs operate as permits to sell 

13 transportation fuel, if there are not sufficient RINs, 

14 obligated parties will have to reduce their obligation 

15 to comply with the law. Obligated parties can only 

16 legally supply as much gasoline and diesel for U.S. 

17 consumption as they have RINs to meet the obligation 

18 that supplying the fuel incurs.

19 Unless EPA takes action to reduce the mandates to 

20 levels compatible with vehicles and infrastructure, the 

21 result could be to reduce imports, increase exports, 

22 and reduce domestic production.
22

1 In AFPM's August 2013 waiver petition, we proposed 

2 a 9.7 cap on ethanol in gasoline because it is the 

3 minimum EPA action necessary to retain a supply of pure 

4 gasoline required for some engines and account for 

5 historical differences between the EIA projections of 

6 gasoline demand and actual demand and promote liquidity 

7 in the RIN market. EPA's proposal maintains ethanol

8 consumption at about the same levels as consumed in the 

9 past 2 years, which means there will be no actual 

10 reduction in ethanol consumption.

11 To date, the advanced biofuel requirement has 

12 functioned as a de facto mandate for hundreds of 

13 millions of dollars -- hundreds of millions of gallons 

14 of sugarcane ethanol imported from Brazil. This is not 

15 what Congress intended. EPA should consider only 

16 domestic supply when setting the advanced biofuel and 

17 total renewable volumes.

18 EPA is required by the Clean Air Act to publish 

19 annual renewable fuel volumes by November 30th of the 

20 preceding year. The agency was, unfortunately, 9 

21 months late in setting the 2013 volumes and will be at 

22 least 7 months late in finalizing the 2014 volumes, 
23

1 causing additional uncertainty in the transportation

2 fuel markets.

3 EPA was required to set the biomass diesel volume 

4 for 2014 by October 30th of '12 but missed the 

5 statutory deadline by more than a year. There is a 

6 consequence for being late. EPA does not have the 

7 authority to increase the volumes for biomass-based 

8 diesel for 2014 or 2015. Therefore, it cannot 

9 promulgate a volume for biomass-based diesel for either 

10 year that is higher than 1.28 billion gallons, the 

11 regulatory value for 2013.

12 MR. KOROTNEY: Mr. Drevna, you're going to have to 

13 wrap up.

14 MR. DREVNA: The law is clear on this point. One 

15 last thing. The cellulosic mandate, while EPA 

16 recognizes statutory levels, those simply don't exist 

17 and made a downward adjustment. You can't be 

18 aspirational. You have to be realistic in setting 

19 those numbers.

20 Thank you very much.

21 MR. GRUNDLER: Thank you. Next is Mr. John 

22 Bullock.
24

1 MR. BULLOCK: My name is John Bullock. I'm the 

2 chief strategy officer for Darling International. 

3 Darling International is one of America's oldest and 

4 largest green companies. We have a significant stake 

5 in the biomass-based diesel area, as we produce both 

6 renewable diesel and biodiesel.

7 I am here today because we believe that the rule, 

8 as proposed by the EPA, fails to enact the clear 

9 directive of Congress and, what is more troubling and 

10 more important to us, seems to choose a path forward 

11 that misses what looks to us like to be an easy 

12 opportunity to further the development of what has been 

13 one of the most successful aspects of RFS2 -- biomass14 based diesel.

15 For the last several years, we have worked with 

16 our outstanding partner, Valero Energy Corporation, to 

17 design and construct Diamond Green Diesel. Diamond is 

18 the largest renewable diesel plant in North America. 

19 It is located in New Orleans, Louisiana, cost almost 

20 $400 million to build, and started production in June 

21 of this year.

22 Today, Diamond uses animal fats, used cooking 
25

1 oils, and distillers corn oil to make over 140 million 

2 gallons annually of renewable diesel. Renewable diesel

3 is a high-quality diesel fuel which reduces greenhouse 

4 gas emissions by over 80 percent. That's well above 

5 the mandate for cellulosic and more than most 

6 cellulosic fuels have that are on the market today.

7 Darling made the Diamond investment decision 

8 solely because of RFS2. It took over 2.2 million man9 hours to produce -- to make Diamond, and it currently 

10 employs over 50 people in high-paying, quality jobs. 

11 Diamond uses American-made feedstock and markets 

12 greenhouse gas-reducing biofuels to the American 

13 consumer. We believe Diamond is exactly what Congress 

14 intended when it passed RFS2.

15 We disagree with the conclusions reached in the 

16 proposed rule that biomass-based diesel requirements 

17 should be maintained for '14 and '15 and that the 

18 advanced biofuel RINs should be reduced from the 3.75 

19 billion mandate of 2014. It appears to us that the 

20 proposed rule has two fundamental rationales for its 

21 basis.

22 The first is that cellulosic biofuels are simply 
26

1 not available in the quantities needed at this time, 

2 and the second is the potential impact that Brazilian 

3 ethanol, being imported to meet the advanced biofuel

4 requirement, is having on U.S. ethanol production, the 

5 so-called "blend wall."

6 I would like to quickly address why I don't 

7 believe either of those are a reason why you should not 

8 increase biomass-based diesel and maintain the 3.75 

9 billion RINs for '14.

10 While cellulosic will not meet the targets 

11 established for 2014, the biomass-based diesel

12 industry, which makes a fuel that is better than the 

13 required drop-in -- in -- the required drop-in 

14 lifecycle emissions, is ready to meet these goals. In 

15 the proposed rule, the EPA actually acknowledges that 

16 the production, distribution, and feedstock supply is 

17 there for somewhere between 1.6 and 1.9 billion gallons 

18 of biomass-based diesel.

19 The proposed rule spends a great deal of time 

20 trying to determine the impact of the existence of the 

21 tax credit on whether or not biodiesel production will 

22 happen. The analysis concludes that without the tax 
27

1 credit, the industry will not produce at or near its 

2 capability.

3 In our view, it is neither appropriate nor wise 

4 for the EPA to engage in determining whether capacity 

5 that exists and is capable of meeting the requirements 

6 established by the law should not be used when there is 

7 no harm associated with using that capacity and the 

8 clear goals of the law can be achieved by using that 

9 capacity. It is important to remember that in 2012, 

10 when the tax credit didn't exist, the industry produced 

11 at above its mandate that year and only stopped 

12 producing and declined producing when the mandate was 

13 fulfilled during that year.

14 Likewise, the concerns of the blend wall are 

15 easily alleviated if the EPA were to increase the 

16 biomass-based diesel requirement to the level that its 

17 own analysis says exists today. If that path were 

18 chosen and American industry would produce in excess of 

19 3 billion advanced biofuel RINs with no impact on the 

20 ethanol blend wall.

21 In fact, if the EPA would revise the biomass-based 

22 diesel requirement to 1.9 billion gallons, the 
28

1 renewable fuel standard could be increased to 16 

2 billion gallons with no danger of Brazilian ethanol

3 having any impact on U.S. ethanol production and 

4 providing the same level of U.S. ethanol production as 

5 is prescribed by the proposed rule.

6 It looks to us like there is an easy --

7 MR. KOROTNEY: You're going to have to wrap up, 

8 please.

9 MR. BULLOCK: Not a problem. And the EPA should 

10 use it by increasing the biomass-based diesel to 1.9 

11 billion and maintaining the advanced RINs at 3.75 

12 billion RINs for 2014.

13 Thank you.

14 MR. GRUNDLER: Thank you. A question from Mr. 

15 Hannon.

16 MR. HANNON: Mr. Bullock, you probably heard that 

17 Mr. Drevna raised a legal issue, and you're suggesting 

18 that we raise the biomass-based diesel standard up to 

19 1.9 billion, and Mr. Drevna suggests that we don't have 

20 any authority to raise it above 1.28 billion.

21 It would be useful for you or other members of 

22 that industry to provide written comments on your legal 
29

1 views. It will really help the agency. There are a 

2 lot of legal issues in this rulemaking. It will help 

3 the agency to have them fully explored by all the 

4 commenters, and I'd say that broadly to all witnesses.

5 MR. BULLOCK: Be glad to.

6 MR. GRUNDLER: Dr. Martin?

7 DR. MARTIN: Thank you for the opportunity to 

8 testify today.

9 My name is Jeremy Martin, and I'm a senior 

10 scientist working on biofuels at the Union of Concerned 

11 Scientists.

12 UCS strongly supports the oil-saving and climate 

13 goals of the renewable fuel standard, and we're 

14 encouraged to see the EPA use its authority to 

15 administer the RFS in a flexible manner. However, the 

16 proposed 2014 renewable volume obligation is just the 

17 first step towards putting our biofuels policy on the 

18 right track to deliver on its long-term oil-saving and 

19 climate goals.

20 The 2014 RVO reflects a clear reality. The 

21 existing roadmap guiding the RFS is obsolete. The 18 

22 billion gallon target for 2014 and the 36 billion 
30

1 gallon target for 2022 are no longer plausible, and 

2 without more realistic goals, the policy creates, 

3 rather than reduces, uncertainty.

4 The 2014 RVO proposal wisely grapples with the 

5 real challenges facing the implementation of a policy 

6 in the near term, particularly the infrastructure 

7 constraints. But while slowing down and proceeding 

8 with caution is well warranted, the EPA's proposal cuts 

9 too deep and threatens to stifle the investment 

10 required to realize the long-term goals of the RFS.

11 The final 2014 RVO should carefully balance near12 term challenges with the need to make progress on the 

13 oil-saving and climate goal for the policy. So we'll 

14 submit more detailed technical comments on several 

15 points later, but today I'll specifically address the 

16 E85 assessment and suggest a path forward beyond the 

17 2014 RVO.

18 So the proposed RVO underestimates the ability of 

19 existing infrastructure to distribute biofuel. The 

20 ethanol blending challenges are real, but with 15 

21 million flex-fuel vehicles on the road and more than 

22 2,085 pumps, the physical infrastructure to use as much 
31

1 as a billion gallons of additional ethanol as E85 is 

2 already there.

3 The barrier to using this infrastructure has been 

4 the pricing of E85, but the RFS can, has, and should 

5 influence the pricing of E85 through the functioning of 

6 the RIN number system or mechanism. RIN prices alter 

7 fuel prices at existing E85 stations, and that can 

8 happen rapidly. And over time, expanded consumer 

9 demand for E85 will support investment in additional 

10 fueling infrastructure.

11 In parallel, RIN prices support investment in the 

12 production of competing alternatives like drop-in 

13 biofuels. All of these changes are needed to realize 

14 the oil-saving and climate goals of the RFS, but for 

15 this process to work effectively, the market must have 

16 confidence in the future mandates over multiple years, 

17 including 2014 and beyond.

18 So confidence in future mandate levels will not be 

19 secured if EPA takes the passive approach to 

20 determining the waiver level that has been proposed. 

21 In effect, guessing what level of use would prevail in 

22 the absence of a binding mandate and then setting the 
32

1 mandate at this level.

2 This passive approach will ensure that it's never 

3 the right time to make a multiyear investment in 

4 advanced or cellulosic biofuel production capacity or 

5 in fuel distribution infrastructure and will make the 

6 failure of the RFS a self-fulfilling prophecy.

7 The blending constraints are real, and so the 

8 schedule must be adjusted. But the adjustments should 

9 provide predictable and steady growth over the long 

10 term to keep moving us towards the oil-saving and 

11 climate goals of the RFS.

12 The RFS was designed with a roadmap out to 2022 to 

13 provide precisely the long-term policy stability that 

14 would facilitate investments that will change our fuel 

15 production and distribution infrastructure. But with 

16 the approach EPA proposes in the 2014 RVO, the policy 

17 will no longer provide that stability.

18 Tweaks to the 2014 RVO, while needed, are not 

19 adequate to address this challenge. Rather, EPA needs 

20 to revise the mandates for the next decade of the RFS, 

21 at least out through 2022 and perhaps further. EPA is 

22 already obliged to make some of these schedule 
33

1 adjustments in light of past waivers, but we urge EPA 

2 to seize the opportunity to lay out a realistic roadmap 

3 that will reduce uncertainty in the next phase of RFS 

4 implementation.

5 EPA should finalize a revised 2014 RVO 

6 expeditiously. And when it does, it should open an 

7 off-cycle rulemaking to update the mandate levels 

8 between 2016 and 2022. This rulemaking should look 

9 more broadly at the implications of different mandate 

10 levels for food prices, trade, land use, climate, and 

11 fuel distribution infrastructure, and set ambitious, 

12 but realistic targets for the 2016 to 2022 timeframe.

13 An up-to-date roadmap will make the annual --

14 MR. KOROTNEY: You'll need to wrap up, please.

15 DR. MARTIN: Okay. Will make the annual RVO 

16 process more predictable and provide the stability that 

17 will support investments needed to ultimately deliver 

18 on the oil-saving and climate goals of the RFS.

19 On behalf of UCS and all of our supporters, I urge 

20 you to finalize the RVO expeditiously and open the off21 cycle rulemaking. Thanks very much for the important 

22 work that you're doing to protect human health, clean 
34

1 our air, and create a more sustainable future.

2 MR. GRUNDLER: Thank you. Mr. Dinneen?

3 MR. DINNEEN: Thank you, Mr. Grundler and the 

4 others at EPA that are here. Thank you for holding 

5 this hearing.

6 We believe that the RFS is, in fact, working. It 

7 is reducing our dependence on imported oil. It is 

8 stimulating investment in new technology. It is 

9 lowering the consumer cost of gasoline, and it is the 

10 only program that we have that addresses global climate 

11 change.

12 Now you will hear throughout the day our deep 

13 concerns about the backward step that the proposed RVO 

14 represents. There will be environmental backsliding as 

15 a consequence of this rule. We estimate that as much 

16 as 5.0 million metric tons of CO2 will be added as a 

17 result of this proposal. It will increase the price of 

18 gasoline between 6 and 8 cents, costing consumers about 

19 $10 billion.

20 It will have a devastating impact on farmers 

21 across this country, lowering the cost of grain below 

22 the cost of production and upsetting the new 
35

1 equilibrium that had been found in our grain markets. 

2 And it will tell the investment community don't invest 

3 in cellulose. Don't invest in advanced biofuels. We 

4 need to continue to frack our way to energy

5 independence. It is sending a horrible signal to the 

6 investment community.

7 Now at the root of all of these concerns isn't 

8 really the number that's required. It's the integrity 

9 of the RIN market. Rising RIN trade is not a sign of a 

10 broken program. It's, in fact, a sign of a program 

11 that is working.

12 Rising RIN values tell investors that there will 

13 be a market for cellulose, a market for advanced 

14 biofuels, and this is the place to invest. Rising RIN 

15 values create the value proposition to allow the 

16 investment in infrastructure for E85, to encourage 

17 marketers to offer E15 or E85 to marketers. It assures 

18 consumers choice at the pump.

19 Rising RIN values drive down the blend wall, 

20 breaks the blend wall. We saw it happening this 

21 summer. As RIN values were trading, you saw increased 

22 E85 marketing. You saw increased E85 infrastructure. 
36

1 It was working.

2 Boils down to this. You can have a growing 

3 biofuels market, or you can have low RIN prices. You 

4 can't have both. The RFS was designed to drive 

5 investment in new technologies, to drive innovation, to 

6 drive new market opportunities. It was not designed to 

7 be convenient for the oil companies.

8 The RFS is forcing market change. It's telling 

9 the oil companies business as usual can't happen. And 

10 the market mechanism to assure that is the RIN, and 

11 what you've done with this proposal is rip that market12 forcing mechanism away, returning us to more petroleum, 

13 fewer choices at the pump, more costly gasoline.

14 I would add that rising RIN values do not impact 

15 consumer gasoline prices. There is no correlation 

16 between rising RIN values and gasoline prices, and 

17 we'll submit a lot of data on this for the record.

18 But I implore you, throughout the day, listen to 

19 those people that are concerned about what this program 

20 does for rural America, what this program does for 

21 consumers, what this program does for investment in new 

22 technologies, and revise this rule.
37

1 Thank you.

2 MR. GRUNDLER: Thank you. Any questions?

3 (No response.)

4 MR. GRUNDLER: Mr. Brown?

5 MR. BROWN: Good morning. My name is Mike Brown, 

6 president of the National Chicken Council, and we 

7 represent 95 percent of the broiler chicken production 

8 in this country.

9 My best wishes are with the panel today, and 

10 gratitude. I know you're in for a long day.

11 We're thankful for the recent action taken by the 

12 agency and appreciate the 1-year volume reduction. But 

13 quite frankly, chicken producers need a much longer14 term and permanent solution. Congress created this 

15 mess, and ultimately, Congress can fix it.

16 One can quibble over when the law was passed and 

17 what the economy held at the time, it's clear I think 

18 you'll hear today that it is now a bad idea.

19 Last year, more than 40 percent of the nation's 

20 corn crop went to ethanol production, not for food or 

21 feed. This rising demand for corn has artificially 

22 inflated prices for the commodity, up by nearly 40 
38

1 percent since 2005, to the detriment of U.S. food 

2 producers and hungry families. The volatility and 

3 uncertainty in the market has been equally damaging for 

4 poultry producers.

5 Let's put that percent into perspective. That's 4 

6 acres out of 10 acres of corn produced in this country, 

7 4 out of 10 farms you drive by of near equal size, corn 

8 going into your gas tank. Four out of 10 rows or, for 

9 those that don't get beyond the grocery store, 4 out of 

10 10 ears. Significant.

11 As corn comprises nearly 70 percent of the feed 

12 given to chickens, our single largest input cost, 

13 rising prices directly affect farmers' bottom lines. 

14 Since the RFS was aggressively escalated in 2007, 

15 average annual feed costs have skyrocketed by $8.8 

16 billion.

17 The RFS has also meant pricier trips to the store 

18 for consumers. Chicken, beef, pork, egg, and fish 

19 prices have collectively increased 79 percent since the 

20 policy's establishment. Last year, the average U.S. 

21 family of four faced a $2,000 increase in food cost due 

22 to higher corn prices brought on largely by the RFS.
39

1 We're experiencing a bumper crop this year, but we 

2 heard similar forecasts in June of last year, and we 

3 all know the role that mother nature played in the 

4 drought and the waiver that we applied for at EPA. The 

5 law provides for a waiver to the RFS when such action 

6 is in the national economic interest. But if the 

7 waiver was not warranted in 2012, how much more 

8 economic damage can an industry incur for a law to 

9 work.

10 The insecurity and volatility for those of us who 

11 depend on corn and mother nature has caused much 

12 devastation for U.S. chicken producers. Since 2007, 

13 more than a dozen poultry companies have filed for 

14 bankruptcy, been sold, or simply closed their doors 

15 altogether, due in large part to the high feed cost 

16 brought on by the RFS.

17 I want to emphasize that we are not against corn 

18 ethanol. We're not against ethanol. What we are 

19 against is the hand of Government directing into this 

20 market and giving it false signals.

21 Congressional action to repeal the RFS remains the

22 most viable pathway to allowing all users of corn to 
40

1 have equal standing in the marketplace. Let the free 

2 market work. Come on in. The water is warm.

3 And before I conclude, I'd just like to take 

4 special note of the extreme diversity of folks that are 

5 testifying today, well over 20 panels. But you can go 

6 through the names of all the individuals and 

7 organizations, and you can put them in three buckets --

8 king corn, ethanol blenders, and the rest of the U.S. 

9 economy and consumers.

10 Thank you.

11 MR. GRUNDLER: Thank you. Mr. Hulting?

12 If I could also ask the second panel members to 

13 start making their way to the on-deck row so we can 

14 keep moving?

15 Please proceed, Mr. Hulting.

16 MR. HULTING: Good morning. My name is Judd 

17 Hulting. I'm the commodity manager for Patriot 

18 Renewable Fuels in Annawan, Illinois.

19 I'm here today to respectfully object to this 

20 proposal, and I'm doing that on behalf of Patriot 

21 Renewable Fuels. We believe what has been proposed is 

22 a step backwards and really is not what Congress 
41

1 envisioned back in 2005 and 2007. I just want to give 

2 a brief history about Patriot and kind of put it back 

3 to a personal and company perspective.

4 When we started, we were started by the Henry 

5 County Economic Development Committee. We're just a 

6 small county clear outside of Chicago, right on 

7 Interstate 80, and we started small. We didn't have 

8 much money, but the county started this project. We 

9 raised funds, and then over time, we got eventually 

10 200-plus investors, local community people there, and 

11 we started Patriot.

12 I came back home as a graduate of the University 

13 of Illinois with a bachelor's and a master's degree and 

14 thought this was a perfect opportunity to promote 

15 renewable fuels, lessen our dependency on foreign oil, 

16 and provide jobs back in our small town of only 900 

17 people. You know, it took us 2 years to build. I was 

18 the project coordinator and did that, and then we've 

19 been operating now 5 years.

20 We started in '08, the fall of '08, and just now 

21 we celebrated our 5-year anniversary with what our 

22 investors envisioned was a long-term program that's 
42

1 been laid out. And I think you know all the benefits 

2 of that, and that's what our investors still believe 

3 in, and I do personally as well.

4 We've added 50 jobs or we've created 50 jobs. 

5 Last week, another personal event at Patriot. We had a 

6 ground-breaking ceremony, and we announced we're adding 

7 a biodiesel production facility onto our ethanol plant. 

8 So we're using that same bushel of corn not only to 

9 produce ethanol. We're going to be producing 

10 biodiesel.

11 That's a $10 million investment, again for our 

12 small, independent company. We think that's a big step 

13 and a step forward. We're quite proud of that fact. 

14 We're a grassroots company, and we're, again, returning 

15 profits and money back into the local economy there in 

16 Henry County.

17 Now that additional facility will create at least 

18 10 more jobs. We'll probably go closer to 70 people. 

19 Again, it's a $10 million investment, and our original 

20 investment 5 years ago was over $175 million.

21 So just our individual company is a story you'll 

22 hear a lot about, but I think it's not unlike many 
43

1 others that really have done good things. Over 5 

2 years, we've produced over half a billion gallons of 

3 ethanol. Every day, we've produced over 1,000 tons of 

4 feed.

5 My family still farms there. I grew up raising 

6 corn, soybeans, hogs, and cattle. And again, this 

7 1,000 ton of feed that we produce I don't think gets a 

8 lot of positive press. But it does happen, 1,000 tons 

9 every day.

10 So I guess, in conclusion, I would respectfully 

11 request that you revisit this decision and kind of work 

12 it back towards what was envisioned.

13 MR. KOROTNEY: Could you wrap up, please?

14 MR. HULTING: Thank you.

15 MR. GRUNDLER: Thank you very much.

16 Do we have any questions for this panel?

17 (No response.)

18 MR. GRUNDLER: I'd like to invite the second panel 

19 up, and I want to thank everyone for taking the time on 

20 Panel 1 to present testimony.

21 MR. KOROTNEY: Just a quick note. We're going to 

22 make one small change to the schedule. Panels 3 and 4 
44

1 are going to be reversed. So those folks who are on 

2 Panel 4 will actually be coming up after Panel 2.

3 (Pause.)

4 MR. GRUNDLER: Welcome. I'm going to ask the 

5 congressman to present first. Congressman Braley, 

6 welcome.

7 MR. BRALEY: Thank you very much.

8 My name is Bruce Braley. I represent Iowa's First 

9 District. My parents both grew up on Iowa farms during 

10 the Great Depression. My dad managed grain elevators, 

11 and I used to dry corn after playing football on Friday 

12 nights.

13 One of the reasons we're here today is to talk 

14 about the long-term benefits of renewable energy and 

15 its emphasis on innovation, and a lot of people who 

16 don't understand the history of biofuels don't realize 

17 that ethanol, like the digital computer, was invented 

18 in Ames, Iowa, during the Great Depression. It's been 

19 around that long.

20 Ethanol and other biofuels have been commercially 

21 available since the late 1970s in Iowa, and yet we are 

22 constantly being told about all of the adverse impacts 
45

1 of biofuels based on campaigns of misinformation like 

2 this ad that appeared in The Hill yesterday. And the 

3 thing that's important to notice is in the fine print 

4 at the bottom, it says who paid for this ad, the 

5 American Petroleum Institute.

6 That the reality is, is that we've been using 

7 biofuels in our cars in Iowa since 1970, and there is 

8 no evidence, no empirical data of any adverse effects 

9 on vehicles in Iowa that's significantly different than 

10 in any other part of the country. We've been investing 

11 in energy independence in this country as a result of 

12 this mandate, and it's having profound impacts on our 

13 economy.

14 The POET ethanol plant in Emmetsburg, Iowa, and 

15 the developing DuPont cellulosic plant in Nevada are 

16 both the type of advanced biofuels that we have been 

17 talking about promoting in this country. And if we 

18 reduce this mandate, we're going to lose the incentive 

19 to keep innovating.

20 People never talk about all of the byproducts of 

21 biofuels productions, but this is me standing at the 

22 POET plant in Hanlontown, Iowa, in Worth County, 
46

1 holding dried distillers grains in my hand, which is 

2 one of the significant feed byproducts of biofuels 

3 production. But I was also in Shenandoah, Iowa, last 

4 week at a very exciting plant, the biofuels algae 

5 plant, where they're taking CO2, one of the most pure 

6 forms of commercially available carbon dioxide coming 

7 off those ethanol plants, and using it to generate 

8 advanced biofuels in algae that are being used for 

9 biofuels, animal feed, and aquaculture, which is 

10 exactly the type of innovation we had hoped would 

11 happen from investments in the RFS and moving to next12 generation biofuels.

13 We are seeing the incredible economic impact of 

14 that investment in innovation, and by scaling back the 

15 RFS, we are going to lose the incentive to go to these 

16 next-generation biofuels that we've all been talking 

17 about as a pathway to energy independence. This has a 

18 profound impact in my State, where there are already 41 

19 existing facilities, producing 3.7 billion gallons 

20 annually. More under construction.

21 This supports 60,000 jobs in Iowa -- that's 4 

22 percent of our GDP -- 365,000 jobs nationally, and $40 
47

1 billion of impact to the U.S. GDP.

2 One of the things that's often left out of this 

3 conversation is all of the additional side benefits 

4 like we're seeing with this advanced algae production. 

5 This is happening in the Midwest, not on the west 

6 coast. It's happening with linear strands of material 

7 in long tunnels that are being used year-round to do 

8 advanced algae production that has a host of benefits 

9 in pharmaceuticals, in healthcare and animal research, 

10 and that's why scaling back the RFS is the exact wrong 

11 message to send.

12 In fact, most of the critics of this RFS have 

13 never set foot in a biofuels production facility, and 

14 that's one of the things I would invite anyone here who 

15 is complaining about what's happening with the RFS to 

16 come to States that are doing some of the cutting-edge 

17 technology, learn more about this industry and the 

18 enormous positive impacts it's having on other parts of 

19 our economy. That's the message we need to be focusing 

20 on today.

21 I want to thank you all for giving me the 

22 opportunity to address you. I know you have an 
48

1 important job. We appreciate your efforts.

2 MR. GRUNDLER: Thank you, Congressman. Thank you 

3 for coming.

4 Next I'd like to invite Jan Koninckx to speak from 

5 DuPont.

6 MR. KONINCKX: Good morning. Good morning. My 

7 name Jan Koninckx. I'm the global biofuels business 

8 director for DuPont.

9 I'm here to raise major concerns with the proposed 

10 2014 RVO rule and to suggest a different path forward, 

11 a path consistent with the goals outlined in the 

12 renewable fuel standard.

13 The proposed rule is a major step backwards. It 

14 would not only -- it would undo the incredible progress 

15 the industry has made over a few short years and would 

16 jeopardize U.S. leadership in this innovative sector.

17 Most troubling, however, is that it sends a signal 

18 to investors that the U.S. can't play a long game 

19 anymore, that as a nation, we cannot envision a better 

20 future and stick with it long enough to see it through, 

21 that we're not serious about opening a marketplace for 

22 new fuel technologies, and that perhaps their money is 
49

1 better spent somewhere else.

2 I interact with all types of investors interested 

3 in our technology all over the world. These are 

4 business people that want to license our technology and 

5 build their own plants. And while discussions are 

6 progressing with several international companies, deal 

7 flow in the U.S. has lost momentum. I attribute this 

8 to two factors, the American Petroleum Institute's 

9 well-funded and highly coordinated campaign against the 

10 RFS and the uncertainty created by EPA's proposed rule.

11 It wasn't always this way. The administration 

12 showed courage and leadership in the face of strong 

13 opposition from the status quo. Several programs and 

14 policies promoted growth in the industry through 

15 multiple agencies.

16 The President stated with more research and 

17 incentives, we can break our dependence on oil with 

18 biofuels, but that clean air breakthroughs will only 

19 translate into clean energy jobs if businesses know 

20 that there will be a market for what they're selling. 

21 With full encouragement of the administration, 

22 companies like DuPont stepped up and invested hundreds 
50

1 of millions of dollars of private money and years of 

2 dedicated research to build this new-to-the-world 

3 technology that offers a leg-up in energy security, the 

4 environment, and rural economies.

5 The benefits are real today and get even better 

6 tomorrow, but only if the annual RVOs are set on an 

7 increasing trajectory. Removing demand signals after 

8 the private sector has made major resource commitments 

9 in response to a policy need is nothing short of 

10 reversing course midstream, and frankly, it's a poor 

11 choice.

12 This will lead immediately to job and tax revenue 

13 loss. Longer term, we may have a front seat watching 

14 as technologies we develop here are exported overseas 

15 to build industries of the future while America treads 

16 water in the past.

17 Furthermore, the EPA has incorrectly interpreted 

18 the general waiver provision, and with the rule, the 

19 agency would exceed its authority. EPA's current 

20 interpretation of the provision is contrary to the 

21 plain wording of the statute. EPA's description of the 

22 general waiver provision in the 2010 RFS2 regulation 
51

1 and the legislative history and intent of the 2007 

2 energy bill also stand in strong opposition to this 

3 proposal.

4 The Congressional Research Service paper titled 

5 "Waiver Authority under the Renewable Fuel Standard" 

6 provides further substantiation of this position. The 

7 EPA's incorrect interpretation of the general waiver 

8 provision will undercut the biofuels industry's ability 

9 to deliver rural economy growth, climate benefits, and 

10 energy security.

11 The goal for RVO rulemaking is to make renewable

12 fuels more widely available and competitive. 

13 Therefore, the best course of action is for EPA to 

14 abandon this proposed rule, go back to the drawing 

15 board, and issue a new proposal based on the best16 available input from both biofuel and petroleum 

17 industries.

18 We recommend that EPA starts with the volumes from 

19 the 2010 RFS2 rule and exercise its cellulosic and 

20 advanced biofuel waiver authority, setting cellulosic 

21 volume based on an objective evaluation of projected 

22 supply so that no capacity that comes online during a 
52

1 year is unused.

2 DuPont recommends that the cellulosic volume be 

3 set at about 30 million gallons, and the advanced pool 

4 reduced in proportion to the cellulosic volume to about 

5 2 billion gallons.

6 Thank you for the opportunity to submit our 

7 concerns. DuPont will provide additional analysis and 

8 recommendation as part of the comment process.

9 MR. GRUNDLER: Thank you. One question.

10 MR. HANNON: Your testimony is about the loss of 

11 investment push. EPA made a specific very clear 

12 signal, tried to make a very clear signal in the 

13 proposal about cellulosic, that there was absolutely no 

14 reduction in cellulosic. The cellulosic was not a 

15 subject of the waiver authority. It was purely a 

16 decision of what will be -- can be produced in 2014.

17 In your comments, it would help to try to 

18 differentiate, to the extent that you can, is your 

19 concern over the adjustment in the advanced standard or 

20 in the cellulosic standard? Because EPA tried to 

21 approach them differently.

22 MR. GRUNDLER: Thank you. Mr. Greco?
53

1 MR. GRECO: Good morning, and thank you for the 

2 opportunity to testify today. I am Bob Greco, 

3 downstream group director at the American Petroleum 

4 Institute.

5 API is the national trade association representing 

6 all segments of the U.S. oil and natural gas industry. 

7 The over 550 members of API include the obligated 

8 parties under the RFS who are required to meet the 

9 standards.

10 Our members' primary RFS concern is the ethanol

11 blend wall. There are serious vehicle and retail 

12 infrastructure compatibility issues with the usage of 

13 gasoline containing ethanol in excess of 10 percent by 

14 volume. Left untouched, the statutory mandates could 

15 cause fuel rationing, drive up the cost of diesel by 

16 300 percent and the cost of gasoline by 30 percent by 

17 2015, and lead to a $770 billion decrease in the U.S. 

18 GDP and a $580 billion decrease in take-home pay for 

19 American workers, according to a study by NERA Economic 

20 Consulting.

21 The RFS mandates are based on the flawed 

22 presumption that gasoline use would continue to rise 
54

1 well into the future when, in fact, the opposite is now 

2 occurring. These rigid requirements are obsolete and 

3 have no place in today's energy market.

4 API is encouraged that for the first time, EPA has 

5 acknowledged that the blend wall is a dangerous reality 

6 that must be addressed to avoid negative impacts on 

7 America's fuel supply and to prevent harm to American 

8 consumers. However, we will continue to call on

9 Congress to repeal the RFS to protect consumers from 

10 this outdated and unworkable program.

11 While the agency's proposal is an important first 

12 step in the right direction, the proposal does not go 

13 far enough to address the blend wall. Based on the RFS 

14 volume ranges proposed by EPA, the resulting ethanol15 to-gasoline blending ratio could be as low as 9.8 

16 percent or as high as 10.3 percent.

17 As stated in our general waiver petition submitted 

18 earlier this year, API recommends that EPA set the 

19 ratio at no more than 9.7 percent ethanol to ensure a 

20 fungible RIN market and to preserve a market for those 

21 consumers that choose E0, or clear gasoline.

22 The proposed standards represent a significant 
55

1 challenge if finalized and would leave no tolerance to 

2 account for the difficulty of blending ethanol into 

3 each and every gallon. As a result, some of the 

4 negative impacts of the blend wall may not be fully 

5 avoided. We urge EPA to set the 2014 RFS volumes so 

6 that the ethanol-to-gasoline blending ratio stays 

7 sufficiently below 10 percent.

8 EPA also needs to take statutory deadlines 

9 seriously and issue timely rules. EPA's continued 

10 tardiness has real adverse effects on our industry. 

11 Obligated parties need this information ahead of the 

12 compliance period to make operational, logistics, and 

13 investment decisions.

14 A biomass-based diesel standard for 2014 should 

15 have been issued well over a year ago. At this point, 

16 EPA does not have the authority to increase the 

17 stringency of the biomass-based diesel standard before 

18 2016.

19 The uncertainties created by the ethanol blend 

20 wall this year are enormous, and EPA is only adding to 

21 the uncertainty with retroactive rules. The Clean Air 

22 Act recognizes the need for regulatory certainty and 
56

1 clearly defines these nondiscretionary deadlines.

2 Finally, the Clean Air Act clearly requires EPA to 

3 determine the mandated volumes of cellulosic biofuels 

4 each year at the "projected volume available." The 

5 D.C. Circuit Court vacated the 2012 cellulosic 

6 standard, and EPA is taking appropriate steps to 

7 correct the invalid 2011 cellulosic standard.

8 However, EPA's proposal for 17 million gallons of 

9 cellulosic biofuel is once again aspirational and 

10 unreasonable. It shows that EPA did not heed the D.C. 

11 Circuit's admonishment to change its failed "self12 fulfilling prophecy" approach to one which employs a 

13 neutral methodology for setting future cellulosic 

14 biofuel mandates. It is patently unfair and improper 

15 for EPA to set unrealistic cellulosic mandates only to 

16 revise them after the compliance year in response to 

17 court action.

18 This year, EPA suggests an improved methodology. 

19 But the use of spurious statistical simulations based 

20 on unrealistic parameters is a feigned attempt at 

21 legitimacy. Continuing to main --

22 MR. KOROTNEY: Mr. Greco, you're going to have to 
57

1 wrap up.

2 MR. GRECO: Sure. We will submit additional 

3 comments on your Monte Carlo analysis.

4 But in closing, you've taken positive steps to 

5 address the RFS, and we need you to quickly -- move 

6 quickly to finalize this. And also, I'd also encourage 

7 people to go to energytomorrow.com to get the true 

8 facts on some of the RFA's assertions.

9 Thank you.

10 MR. KOROTNEY: Thank you. A quick question.

11 Both you and Mr. Drevna before you have made 

12 reference to aiming for something like 9.7 percent 

13 ethanol for the pool-wide gasoline ethanol content, and 

14 my question is, is that assuming that there is zero E15 

15 and E30 and E85?

16 MR. GRECO: That's presuming that we also don't 

17 know what EIA's actual -- what the actual volume will 

18 be used next year. We're basing a projection on --

19 we're basing a mandate now on a projection for the end 

20 of next year. We need to make sure that EPA has enough 

21 head room to predict.

22 So it's both based on providing E0 on the market 
58

1 and also preserving the ability to recognize that we 

2 don't know what gasoline demand will be next year, and 

3 we haven't done a very good job of predicting it in the 

4 past.

5 MR. GRUNDLER: Ms. Steckel?

6 MS. STECKEL: Hello. My name is Anne Steckel, and 

7 I'm the vice president of federal affairs at the 

8 National Biodiesel Board. We represent the U.S. 

9 biodiesel industry, and I'm here to urge you to 

10 reconsider the proposed rule for the renewable fuel 

11 standard volumes for biomass-based diesel and advanced 

12 biofuels.

13 Just last month, President Obama highlighted 

14 renewable fuels as helping the nation, for the first 

15 time in two decades produced more fuel domestically 

16 than it is importing from foreign countries while 

17 reducing carbon pollution. I mention this because I 

18 think it illustrates quite powerfully why it is so 

19 disappointing to see this administration, one that has 

20 supported and encouraged the development of renewable

21 fuels for 5 years, to suddenly turn its back on 

22 progress we have made.
59

1 And the progress is clear. Many of you will hear 

2 from people today based on the clear signals and 

3 supports sent by this administration, who invested 

4 their time and resources, often their life savings, to 

5 build biodiesel plants that would assist in meeting the 

6 target set by the RFS. Biodiesel is an unmitigated RFS 

7 success story. It is the first EPA-designated advanced 

8 biofuel being produced on a commercial scale across the 

9 country.

10 The industry, along with the help of strong energy

11 policy, has crossed the billion-gallon threshold for 3 

12 consecutive years. And this year is on pace for a 

13 record year of more than 1.7 billion gallons. Gallon 

14 for gallon, according to EPA's own calculations, 

15 biodiesel is reducing greenhouse gas emissions by 57 to 

16 86 percent.

17 All of this is happening, by the way, as biodiesel

18 blends at the pump, usually of 5 percent or less, are 

19 saving consumers money. Because of all the benefits of 

20 biodiesel, 32 bipartisan members of the United States 

21 Senate recently sent a letter to the administration 

22 stating their support for an increased biomass-based 
60

1 diesel number of at least 1.7 billion gallons.

2 We, as an industry, are proud of this success, and 

3 as you will hear from many of us today, biodiesel

4 producers from across the country, large and small, 

5 were shocked, truly shocked to see the EPA's proposed 

6 retreat on advanced biofuels.

7 I want to be clear because it appears that some in 

8 the administration view the proposed biodiesel volumes 

9 as status quo from last year. I am here to tell you 

10 that the decision that you make would cause biodiesel

11 producers to go out of business and jeopardize 

12 thousands of jobs.

13 As I mentioned, biodiesel production is on pace 

14 for at least 1.7 billion gallons this year, enough to 

15 fill the vast majority of the advanced biofuel

16 requirement. Since July, the industry has been 

17 producing some 170 million gallons per month, or at an 

18 annualized rate of 2 billion gallons.

19 This clearly could continue into 2014 and would if 

20 the EPA proposed a stable biomass-based diesel number 

21 of at least 1.7 billion gallons and an advanced biofuel

22 consistent with the statute at 3.7 billion gallons. 
61

1 Yet this proposal would dramatically cut back 

2 production to 1.28 billion gallons. And with potential 

3 carryover of excess 2013 volume into 2014, we could 

4 really be looking at closer to 1 billion gallons.

5 Obviously, cutting an industry from 2 billion 

6 gallon production rate down to close to 1 billion 

7 gallons would cause incredible harm. Plants would 

8 close. People would go out of work, and the goals that 

9 President Obama has so forcefully embraced would be 

10 hurt.

11 Further, you have proposed this cut for 2014 and 

12 2015, for 2 years, sending a terrible signal to 

13 investors and entrepreneurs who are poised to continue 

14 building this industry.

15 Before I close, EPA is required to consider six 

16 factors. At 1.7 billion gallons, at current 

17 production, we exceed every requirement. We meet every 

18 test. And the clear intent of the law is that when we 

19 do meet every test, the volume should be increased.

20 So, in closing, as a representative of the U.S. 

21 biodiesel industry, I urge you to reconsider this 

22 proposal to look closely at the impacts it will have on 
62

1 the goals that Congress established when it created the 

2 RFS -- to create jobs, to boost our energy security --

3 MR. KOROTNEY: You'll need to wrap up, please.

4 MS. STECKEL: -- and to reduce emissions. The 

5 biodiesel industry has proven it can continue to 

6 produce at a rate of at least 1.7 billion gallons next 

7 year, and we urge you to finalize a rule that reflects 

8 that success.

9 Thank you very much.

10 MR. KOROTNEY: Thank you. A quick question -- or 

11 not a question so much, a statement.

12 It would be helpful in your written comments if 

13 you could provide any data or analyses that describe 

14 how in 2013 with a standard of 1.28, what were the 

15 factors that contributed to the industry getting to 1.7 

16 billion gallons, and how does each factor compare to 

17 the other in that story?

18 Thank you.

19 MR. MACHIELE: And just a follow-up on that. And 

20 then you stated that our proposal would force you to 

21 cut back to 1.28 in 2014 or even 1 billion or less. 

22 What is it about 2014 then that's different from 2013? 
63

1 If you're at 1.7 in 2013 with a standard of 1.28, why 

2 are you going to be cut back to 1.28 in 2014?

3 So in your written comments. Thank you.

4 MS. STECKEL: I'm happy -- I'm happy to address it 

5 now, or would you rather it be written?

6 MR. MACHIELE: We'd rather written comments. 

7 Sorry, we just want to keep going.

8 MS. STECKEL: Understood. Happy to address it. 

9 Thank you.

10 MR. GRUNDLER: Mr. Johannesmeyer?

11 MR. JOHANNESMEYER: Good morning. And I 

12 appreciate the opportunity to be here today, and I 

13 appreciate the EPA's efforts to make this happen. So 

14 thank you very much.

15 My name is Jeff Johannesmeyer. I'm president and 

16 general manager of Western Iowa Energy in Wall Lake, 

17 Iowa, a rural community in northwest Iowa with a 

18 population of 850 people.

19 We're a multi-feedstock, biomass biodiesel

20 producer. In our draw area alone, we have 4 major 

21 soybean crushing facilities, 5 pork processing 

22 facilities, 3 beef packing facilities, and 4 billion 
64

1 gallons of ethanol production all within 120-mile draw 

2 radius of our plant.

3 Western Iowa Energy, as I mentioned, is in Wall 

4 Lake, Iowa, a rural area of 850 people. We've 

5 established 30 full-time, well-paying, highly trained 

6 jobs in that community. We generate $1 million in 

7 annual payroll revenue, and we've invested in over $25 

8 million of private equity from local individuals in the 

9 community into that plant. Along with those 30 full10 time jobs, we support over 100 indirect jobs in a 

11 community of less than 1,000 people.

12 Western Iowa Energy's draw area alone in the last 

13 2 years, those 4 billion gallons of ethanol production, 

14 90 percent of those have started to extract corn oil as 

15 a byproduct from their ethanol production. Of that, 

16 they have made available to me in the market 3 billion 

17 pounds of corn oil for biodiesel production, which is

18 equivalent to 418 million gallons of biodiesel just 

19 within my draw area.

20 Since 2011, with the clear signal from the 

21 administration on our renewable fuels policy, Western 

22 Iowa Energy has invested over $2 million to upgrade 
65

1 infrastructure. We've invested over $1 million in 

2 plant upgrades to improve process technology and 

3 efficiency.

4 Today, we've lowered our production cost by some 

5 25 percent through these investments over the last 2 

6 years alone. During that time, our feedstock prices 

7 have dropped over 40 percent. So the current run rate, 

8 as has been pointed out, makes our volumes very 

9 attainable going forward in an increased production.

10 Biodiesel in our area is the cleanest, safest, and 

11 most economical renewable fuel out there today. And 

12 based on the administration's directive in 2005 and 

13 again in 2007, we've continued to invest and grow our 

14 business. This area in rural Iowa needs to send a 

15 clean signal to not only our employees, but our bankers 

16 and our community as a whole.

17 And I thank you for the opportunity to express our 

18 views.

19 MR. GRUNDLER: Thank you. Mr. Columbus?

20 MR. COLUMBUS: Thank you. My name is Tim 

21 Columbus. I'm a partner at Steptoe & Johnson.

22 I appear today on behalf of our client, the 
66

1 Society of Independent Gasoline Marketers of America.

2 SIGMA is a trade association comprised of approximately 

3 270 independent marketers and chain retailers of motor 

4 fuels, whose sales collectively comprise about 30 to 35 

5 percent of the retail market for motor fuels in the 

6 United States.

7 As such, their members have a substantial amount 

8 of individual experience with consumers of blended 

9 fuels some of our other colleagues don't have. SIGMA's 

10 members don't manufacture what they sell. They buy. 

11 So we like long, deep, broad, diverse markets behind 

12 us. It makes us more efficient buyers. As such, we 

13 have supported the renewable fuel standard and oppose 

14 its repeal.

15 Having said all that, I tell you I commend EPA and 

16 for those of you who've had to put up with me for all 

17 these years, I normally come to bury you, not praise 

18 you. This waiver proposal is the right thing to do. 

19 We advocated it, and we appreciate your positive 

20 response.

21 We believe the waiver is important to avoid what 

22 could have been a severe shock to the fuels market next 
67

1 year when we hit the blend wall. The blend wall is a 

2 real threat. The compliance mechanism here is for 

3 RINs. RINs have become a commodity, and this summer we 

4 saw what happens when people in commodities markets 

5 think there is a chance that a market will actually go 

6 physically short.

7 Trying to balance the RVOs, as I believe you've 

8 done, against the probable ability of the market to 

9 absorb the fuels that you're requiring is the best 

10 thing you can do to sustain the program over a long 

11 term.

12 The fact is that demand for motor fuels in general 

13 is down, and you all understand that. E10 is 

14 fundamentally ubiquitous in the marketplace today. So 

15 if we're going to go pi the numbers to hit the 

16 statutory number, you're going to have to have higher 

17 blends. It is my job to tell you that, as of today at 

18 least, my client's members do not see the demand that 

19 would push you to those higher numbers.

20 Two weeks ago yesterday, I was in a room with 

21 about 200 marketers of motor fuels from across the 

22 country. I asked them how many of them sold E85. Most 
68

1 hands went up. I believe we had over half the E85 

2 pumps represented in that room.

3 I asked them what percentage of a retail outlet's 

4 sales have been generated in E85? And the answer was, 

5 with the exception of one guy in San Diego, who has 

6 some magic sauce I don't understand, but everybody else 

7 didn't get past 2 percent, 1.5 to 2 percent. And that 

8 is pricing at very attractive levels in most markets.

9 As a consequence, I think you have to remember 

10 nobody who is a consumer, other than fleets who are 

11 governmentally mandated to buy, has to buy a drop of 

12 this, has to buy a drop of it. If consumers won't 

13 come, we can build all the infrastructure we want, and 

14 we won't move any greater volumes.

15 What's going to have to happen for the program to 

16 expand, and we certainly would support the expansion of 

17 the program as the market permits it, is to get rid of 

18 some practical impediments. We do have some 

19 infrastructure issues. There is a regulatory problem 

20 that we perceive with E15 and E85 specifically in EPA's 

21 misfueling regs, and you could address that in a way 

22 that would take away some of the angst that retailers 
69

1 have in selling these new fuels.

2 The other thing we could do is we could actually 

3 go forward, as we discussed when you did the E15 

4 waiver, on an education program for consumers. The 

5 last thing is you're just going to have to wait for the 

6 market to turn over, and I realize --

7 MR. KOROTNEY: Can you wrap up, please?

8 MR. COLUMBUS: -- the red light is blinking. So 

9 I'm going to stop, and I'm happy to respond to any 

10 questions my testimony may have raised.

11 MR. HANNON: A quick question. Do you have any --

12 since you're representing gasoline marketers, do you 

13 have any thoughts on the market for E0? That's come up 

14 a couple times today.

15 MR. COLUMBUS: Yeah, okay. Primarily in -- there 

16 is a demand for E0. It's become a specialty product, 

17 and as with all specialty products, you're going to 

18 find that it's more expensive than the fungible unit.

19 This is primarily in markets where you have a 

20 marine engine interest. If there's a big powerboating, 

21 if you're in Florida, if you're near the lakes in 

22 different parts of the country, folks like E0, first 
70

1 and foremost, because it doesn't screw around with 

2 their marine engines.

3 There is also a demand for E0 in areas where folks 

4 are convinced that putting E10 in their power tools is 

5 a bad thing for them.

6 MR. HANNON: To the extent you can in your written 

7 comments, it would be useful to have some estimate of 

8 national volume.

9 MR. COLUMBUS: Of E85?

10 MR. HANNON: Yeah.

11 MR. COLUMBUS: Oh, I wish you luck on that.

12 MR. HANNON: I'm sorry. It'd be E0.

13 MR. COLUMBUS: E0 --

14 MR. HANNON: E85 as well, of course.

15 MR. COLUMBUS: I have no idea how we find out what 

16 the volume is of E0. I'll do what I can for you, but -

17 -

18 MR. HANNON: I appreciate it.

19 MR. COLUMBUS: -- I don't hold out a lot of hope 

20 there for you.

21 MR. MACHIELE: Those are -- both the E85 and the 

22 E0 were two of the sort of data areas -- or two of the 
71

1 data areas in the proposal that to the extent you and 

2 your members have any information you can provide, we'd 

3 welcome that.

4 MR. COLUMBUS: You know, Paul, it's going to be 

5 anecdotal. But we'll give you what we can.

6 MR. MACHIELE: Thank you.

7 MR. GRUNDLER: Thank you to all of you for taking 

8 the time to come today. We really appreciate it.

9 I'd like to invite the next panel up, which is 

10 Panel 4, so there's no confusion.

11 (Pause.)

12 MR. GRUNDLER: Welcome, Mr. Governor. Please 

13 proceed.

14 GOVERNOR BRANSTAD: Thank you.

15 Good morning. My name is Terry Branstad. I'm the 

16 Governor of the State of Iowa. I've traveled over 

17 1,000 miles today to bring a message on behalf of the 

18 people of Iowa.

19 You've already heard from one of our congressmen. 

20 I think his views are similar to all the congressmen 

21 and Senators from Iowa, as well as myself, the 

22 Lieutenant Governor, the secretary of agriculture, and 
72

1 the vast majority of people of our State. I'm here to 

2 share my strong opposition to this harmful proposal 

3 from the EPA and to emphasize the tremendous economic 

4 importance of the renewable fuel standard on our 

5 nation's agriculture, agribusiness, and biofuels 

6 industry.

7 I'm proud to call the State of Iowa my home. I 

8 share that pride with 92,000 farmers, dozens of 

9 thriving international agribusiness companies, and a 

10 large variety of bioscience leaders. I've been a 

11 relentless supporter of biofuels from the very 

12 beginning, back in the 1970s when I was in the 

13 legislature and we called it "gasohol."

14 It's truly incredible to see how this industry has 

15 grown and the impact that it's had on communities all 

16 over our State. That strong evolution is a result of 

17 the efforts of many hard-working and determined 

18 Americans and through the use of corn and soybeans and 

19 other biomass produced in our nation.

20 Iowa is proud to be the number-one corn and 

21 soybean producing State in the nation, and the 

22 leadership that helps us to be a top biofuel provider 
73

1 as well. This proposed rule by the EPA would have a 

2 direct impact on the 41 ethanol plants, the 13 

3 biodiesel plants -- you've heard from some of them 

4 already -- located in our State, and the thousands of 

5 Iowans that are dependent on good-paying and vital jobs 

6 in these biofuel facilities.

7 It's estimated that this EPA proposal will cost 

8 45,000 jobs in this nation. We don't need to drive the 

9 number of people employed down. We need to drive it 

10 up. Forty-five thousand families would face undue 

11 financial hardship and stress simply at the hands of 

12 the EPA catering to big oil, and they're not satisfied. 

13 They won't be satisfied until you repeal it 

14 altogether.

15 Many have the misconception that corn is still $8 

16 a bushel. I can tell you it's not. Last year, during 

17 the drought, we saw those kind of prices. Beginning of 

18 this year, corn was about $6 a bushel. It's now 

19 dropped to close to $4 a bushel.

20 This proposal, if adopted, is estimated by Iowa 

21 State University, will drop it another 25 cents a 

22 bushel, which will result in corn prices below the cost 
74

1 of production and result in a large drop in the value 

2 of farm land, a huge loss for farm machinery dealers 

3 and main street businesses, and unbelievable negative

4 ripple effect all through rural America.

5 This is also a time when the Congress has failed 

6 to pass a farm bill. I was Governor during the farm 

7 crisis of the 1980s, a time that brought incredible 

8 hardship to farm families and rural communities all 

9 across America. I will never, ever forget the 

10 challenges endured during those times, and the last 

11 thing we want to do is to again trigger this nation

12 going into another farm crisis.

13 After decades of efforts to reduce our dependency 

14 on foreign oil and increase farm income with policies 

15 like the RFS, the EPA is now caving in to the demands 

16 of big oil, who has always resisted renewable fuels 

17 from the very beginning. It's something they don't 

18 control, and they don't ever want to see renewable

19 fuels continue to grow.

20 The 1990 Clean Air Act required the use of 

21 oxygenated fuel because of the heavy pollution in many 

22 of these cities. In States like Iowa and other 
75

1 Midwestern States, we embraced ethanol as the best 

2 additive to enhance octane and oxygenate our fuels. 

3 Unfortunately, the oil companies convinced many States 

4 in this country, especially on the east coast and west 

5 coast, that they had a better product, called MTBE. 

6 Remember that?

7 It became evident after a number of years that 

8 MTBE was creating massive groundwater pollution, and 

9 eventually, it was banned. At that time, the oil 

10 companies said, oh, no, ethanol cannot replace the use 

11 of MTBE. They were wrong then, and they're wrong now 

12 when they say we can't use higher blends of fuel. And 

13 in Iowa, we are living proof of it.

14 Since then, MTBE has been replaced with the use of 

15 ethanol, and that has led to the momentum that we've 

16 seen behind the renewable fuel standard, and many of us 

17 have personally invested in creating jobs in ethanol

18 and biodiesel plants all across this nation. And I'm 

19 one of them. I'm proud of it.

20 I hope the EPA has learned from the mistakes of 

21 the past and will use good common sense and continue 

22 the progress that has occurred ever since 2005, when 
76

1 the renewable fuel standard started. E15, E85, and 

2 blender pumps are part of achieving the progressive 

3 goals that are set by the renewable fuel standard.

4 And if you don't believe it can't be done, go to 

5 Brazil. Go to Brazil, where they're making ethanol out 

6 of sugarcane and soon going to be doing it out of corn, 

7 and they have virtually all, all flexible-fuel vehicles 

8 in their fleets.

9 In Iowa, we recently launched a new program called 

10 Fueling Our Future. This program, through the use of 

11 CMAQ funding from the EPA, provides financial 

12 incentives for retailers to install blender pumps with 

13 higher blends of ethanol at their station.

14 E30 appears to be the sweet spot to get the 

15 greatest fuel efficiency. Retailers in Iowa know the 

16 importance of biofuels in our State and have installed 

17 many blender pumps, which result in lower-cost ethanol18 blend fuels for their consumers. In some cases, E85 in 

19 Iowa sells for as much as $1 a gallon less than 

20 conventional regular gasoline.

21 Today, as I was going to the airport in Des 

22 Moines, the price of gasoline, regular gasoline was 
77

1 $3.22 a gallon. Compare that to what you're paying on 

2 the west coast and the east coast. E10 was selling for 

3 30 cents a gallon less at $2.92.

4 When consumers have the choice, like they do in 

5 Iowa where the oil companies don't have a stranglehold, 

6 overwhelmingly consumers choose renewable fuels. The 

7 oil companies are preventing some other parts of the 

8 country from doing what we're doing in Iowa in giving 

9 consumers the choice, and people are paying for it with 

10 much higher cost for their fuel.

11 To make sure you see this message clearly, I would 

12 encourage you to come and see this firsthand in the 

13 State of Iowa. Joining me today are several farmers 

14 and industry leaders. We know that your decision will 

15 affect them and their families. It will affect their 

16 children and their grandchildren and the future economy 

17 of rural America.

18 As a State that would be one of the hardest hit by 

19 this proposal, I respectfully request that the EPA come 

20 to Iowa and host a hearing in the heartland, where 

21 people know about the impact that this has and know the 

22 truth and the facts. And I could tell you, I'll be 
78

1 following this up with a letter, and I believe the 

2 entire congressional delegation, the Lieutenant 

3 Governor, and the secretary of agriculture will join me 

4 in this.

5 The people of Iowa deserve an opportunity to make 

6 our case for our livelihoods and the well-being of our 

7 State and the future of our country. As Governor of 

8 Iowa, I urge the President and Administrator Gina 

9 McCarthy and the EPA to continue to support robust and 

10 strong renewable fuel standards, as you have in the 

11 past.

12 The President launched his campaign in Iowa. He 

13 got the support of renewable fuel people in our State, 

14 and people today are feeling betrayed.

15 Thank you for giving me this time. I hope to have 

16 the opportunity to see you all again in Iowa in the 

17 near future.

18 (Applause.)

19 MR. GRUNDLER: Thank you, Governor. And thank you 

20 for traveling here to present your views.

21 Mr. Zylstra, you're up.

22 MR. ZYLSTRA: Thank you. My name is Roger 
79

1 Zylstra. I am a grain and hog farmer from central Iowa 

2 and the president of the Iowa Corn Growers Association.

3 On behalf of thousands of farmers members in the 

4 association, I thank you for the opportunity to be here 

5 today, but it is also on their behalf that it is 

6 critical that I speak against the Environmental 

7 Protection Agency's proposal to reduce ethanol use in 

8 the renewable fuel standard for 2014.

9 Each year, our farmer members develop policy that 

10 impacts them at the farm gate level. Policy positions 

11 relative to the RFS include we believe Federal energy

12 policy should be stepped up to a higher level. We 

13 support the national renewable fuel standard to promote 

14 a more aggressive energy policy that would move the 

15 United States closer to energy independence.

16 We will work to ensure the best rules possible for 

17 implementation of the Federal renewable fuel standard. 

18 We support promoting the expanded use of ethanol and 

19 the use -- and use the development of renewable

20 alternative fuels, such as E85, E-diesel, biodiesel, 

21 and ethanol-based aviation fuel. We support consistent 

22 treatment of E15 and E10 with regard to summer blends, 
80

1 vapor pressure caps, and waivers.

2 So you might be asking what kind of effect will 

3 this proposal have on me personally? With the corn 

4 prices again at cost of production, my son, who just 

5 started his farming career, will have a difficult time, 

6 as I did when I started in the 1980s. For years, no 

7 one wanted to come back to farming, and we were 

8 encouraging our kids to move to town for better jobs 

9 and opportunities.

10 For the first time in decades, it's the opposite. 

11 We are encouraging our children into agriculture, 

12 whether it's directly in farming or the broader ag 

13 industry. This is serious. Serious as anything I've 

14 dealt with in my 33 years as a farmer.

15 As a corn grower, I see the ethanol market as a 

16 homegrown, value-added opportunity. As a hog feeder, I 

17 see the high-quality feed from ethanol production. It 

18 is a delicate balance today, and just one slight change 

19 in the system can produce a domino effect that quickly 

20 brings down our agricultural industry.

21 This isn't just a corn farmer issue. It is much 

22 larger than that. When farmers are squeezed, they 
81

1 aren't able to spend money. When their money isn't 

2 circulating through local economies, town square 

3 businesses close down, and soon communities are 

4 struggling to keep people in town and students in the 

5 school.

6 We know what happens. It depresses agricultural 

7 times. It happened in the 1980s. The Federal 

8 Government estimates that farm land values plummeted by 

9 nearly 60 percent in the Midwest in just 4 short years. 

10 In that same time, record production brought very low 

11 prices. It also limited exports. Our exports 

12 decreased by 20 percent.

13 I don't have a crystal ball, but research and some 

14 real-life 1980s experience tells me that we aren't 

15 nearing a proposed blend wall. We are, rather, sending 

16 farmers crashing into the wall by reducing our market 

17 growth through ethanol production.

18 We've been listening to Secretary Vilsack and 

19 Administrator McCarthy and even the President telling 

20 us about their commitment to ethanol, biodiesel, and 

21 advanced renewable fuels. Talk about a broken promise 

22 from the Government and this administration. This is 
82

1 absolutely not acceptable.

2 For the last 2 years, everyone has been saying, 

3 "Grow more corn. Just grow more corn." Farmers 

4 responded, and we have a record corn crop, even under 

5 another tough growing -- year of tough growing 

6 conditions.

7 MR. KOROTNEY: You're going to have to wrap up, 

8 please. Thank you.

9 MR. ZYLSTRA: Thank you. I do not believe that 

10 this EPA is still committed to biofuels. I ask you,

11 respectfully, to set the RFS for 2014 at 14.4 billion 

12 gallons.

13 Thank you.

14 MR. GRUNDLER: Thank you, sir. Mr. Recker?

15 MR. RECKER: Thank you for the opportunity to 

16 speak today.

17 I'm Mark Recker. I'm a farmer. I grow corn and 

18 soybeans in northeast Iowa, and I'm also speaking as 

19 chairman of the Iowa Corn Usage and Production 

20 Committee. We oversee ethanol and ethanol-related 

21 issues in the industry, but we look at it from a corn 

22 farmer's perspective.
83

1 On behalf of Iowa's farmers, I cannot stress 

2 enough the vital importance that the renewable fuels 

3 industry has had on our businesses. Corn turned into 

4 ethanol was originally used in Henry Ford's, that's 

5 Henry Ford's Model T as a renewable source of energy. 

6 Today, the same is true. It is still renewable, and it 

7 is -- make no mistake. It is the only viable 

8 alternative solution we have to our energy needs.

9 The biofuels industry is incredibly important to 

10 our State and the Midwest and the country. It's 

11 allowed kids to come back to the farms and take over 

12 the family business. It's allowed other kids who don't 

13 have a farm to go to to get involved in agricultural 

14 business -- career of their choice. It's allowed 

15 businesses to open up doors on main streets in small 

16 towns or rural communities, mine and the one next door.

17 I've been farming for 20 years. In that time, 

18 I've seen a lot of technological advances that have 

19 made me a better steward of the land and a better 

20 conservationist. I've seen mechanical innovation 

21 that's made me more efficient and made my job a world 

22 easier. But the biggest impact I've witnessed in the 
84

1 past 20 years I've been farming is the impact that the 

2 ethanol industry has had on demand for my product.

3 Back when I started farming in the '90s, we did 

4 what you would call "we farmed for the Government"

5 program. We waited until corn price got as low as it 

6 could, then we claimed the biggest subsidy we could 

7 get, and that's how we made a living.

8 But that system is only good for the people who

9 buy corn. The entitled people who think that they need 

10 to live off Government subsidies, they want cheap corn, 

11 you'll probably hear from some of them later today. 

12 But that's changed. Now we farm for the market. The 

13 system is better. Farmers are better off. Agriculture 

14 is better off, and the country is better off for it.

15 We're planting and harvesting corn with options on 

16 where it can go. I haul mine to my local ethanol

17 plant. It's built with local investment, supplied with 

18 corn by farmers in my area, turned into ethanol and 

19 livestock feed, a great livestock feed that a lot of 

20 livestock producers use.

21 The current RFS has done the job that it was 

22 created and intended to do -- decrease reliance on a 
85

1 single energy source, decrease greenhouse gas 

2 emissions, positively impact rural ag economies, and 

3 increase our energy independence. Why in the world 

4 would we turn the clock back now?

5 It is a fact that ethanol has displaced imported 

6 oil to the tune of 462 million barrels in 2012, some of 

7 that, frankly, from countries who just don't like us. 

8 And I can tell you that, as farmers, we take a lot of 

9 pride in knowing that we are replacing oil with 

10 renewable fuel produced here in the United States.

11 We -- after decades of searching, we finally have 

12 an energy policy that works. Why would we reverse 

13 course and sacrifice more of our country's blood and 

14 treasure when we simply don't have to?

15 We have E15 pumps installed in Iowa, and where 

16 they're at, they have great demand. But we are 

17 fighting a bully, one with more money and more 

18 influence than we have. One that doesn't want to see 

19 cleaner, cheaper alternative fuels in the markets 

20 because they want their own product out there solely 

21 because they know if they blend and get to E15, that's 

22 what consumers are going to want.
86

1 Iowa is many miles from Washington, D.C., but 

2 those miles are covered by many hard-working farmers 

3 like me, who are about to be squeezed by policy limits 

4 that limits our ability to farm. Policy decisions --

5 MR. KOROTNEY: You have to wrap up, please.

6 MR. RECKER: -- with this magnitude and of this 

7 nature should not be taken lightly.

8 The current statute requires 14.4 billion gallons 

9 of conventional ethanol, and the EPA should demand it. 

10 We can meet it by blending more E15 and E85 to 

11 consumers and making it available.

12 We've got the corn to do it. We've got the plants 

13 to process it. We just need the EPA to do the right 

14 thing, stand up, and back it.

15 MR. GRUNDLER: Thank you, Mr. Recker.

16 Mr. Hansen? Thank you for coming.

17 MR. HANSEN: Thank you.

18 Hello. My name is Rick Hansen. I live in 

19 northwest Iowa, a little town called Hinton. My family 

20 has farmed there for over 100 years. Today, I own and 

21 operate an operation called Hansen Feedyards. It's a 

22 5,000 head DNR-approved feedyard. We have five full-
87

1 time employees, and many have been with us for years.

2 Now I could stand up here and tell you that the 

3 byproducts from the ethanol plants have been great for 

4 our business, and for the first time in years, I see 

5 renewed optimism in the Midwest cattle feeder. Or I 

6 could mention how for the first time in decades, the 

7 farmers are making a living without the help of 

8 Government farm payments.

9 Also, the number of young farmers and young 

10 livestock producers that are returning to their home 

11 place to follow their dreams. However, I'm going to 

12 talk about my thoughts and reason I love ethanol.

13 For many years, I watched our small towns die and 

14 wither. My friends and family leaving the Midwest 

15 because they could not make a decent living. Today, 

16 that has all changed. I see renewed optimism in our 

17 towns and new businesses being opened, all that due to 

18 the ethanol business.

19 And once again, I meet my friends and neighbors on 

20 the street, and they are damned proud to say they are 

21 farmers. Wow, what a change this ethanol industry has 

22 made in our lives.
88

1 Now my reason for being here. Today is for young 

2 people -- my two daughters, their husbands, and my 

3 grandkids. See, I want to watch them follow their 

4 dreams here in Iowa, if that's their choice. They need 

5 that opportunity. I think it's our responsibility to 

6 create jobs to keep our children and dreams alive.

7 But if, for some unknown reason, you choose to 

8 change the laws and cripple the ethanol industry, 

9 please keep in mind I truly believe this decision goes 

10 a lot deeper than you think. Once again, the Midwest 

11 will start to dry up way worse than the drought we had 

12 last year.

13 Please do what is right. Everyone who runs for 

14 office always preaches jobs, jobs, jobs. Well, fellas, 

15 we have that right here in Iowa. We have a thriving 

16 farm community, a livestock industry, and a growing 

17 business district, all due to the environmental18 friendly ethanol industry.

19 I want to thank you for letting me here, and I 

20 want to part with four things. One, a renewed optimism 

21 in the livestock industry, thanks to byproducts made by 

22 ethanol.
89

1 Two, farmers for the first time in years can stand 

2 proud.

3 Three, jobs, jobs, jobs. Our children can either 

4 stay on the farm or work locally and make a decent 

5 living.

6 And four, I want you all to know I'm not paid to 

7 be here. I'm speaking from the heart. I believe this. 

8 If you take this away from us, it's going to cripple 

9 us. Please don't, for my kids.

10 Thank you.

11 (Applause.)

12 MR. GRUNDLER: Thank you very much, Mr. Hansen.

13 Mr. Leonard, you're up.

14 MR. LEONARD: I'm Mark Leonard. I'm from 

15 Holstein, Iowa. It's a little town in the far western 

16 part of the State.

17 The renewable fuels industry and ethanol

18 production specifically have offered economic returns 

19 to Iowa and the entire United States far in excess of 

20 any real or perceived downside. While many have made 

21 negative statements regarding ethanol, the facts simply 

22 do not bear out a net downside to ethanol production.
90

1 As a cattle feeder, a cow herd operator, and a 

2 banker in western Iowa, I have seen the benefits of 

3 renewable fuels and the RFS in every facet of my 

4 professional and personal life. Unfortunately, the 

5 current EPA proposal to cut the RFS would see those 

6 benefits reversed.

7 Ethanol usage has reduced petroleum consumption in 

8 the nation's liquid fuel mix by about 10 percent, 

9 allowing for reduced fuel cost for all consumers. 

10 These fuel savings have come at the same time as total 

11 corn acres in Iowa have decreased. That's right. Corn 

12 acres in Iowa have decreased. There is fewer acres of 

13 corn in 2013 in Iowa than there was in the year 2000.

14 And in fact, there is fewer acres of corn in Iowa 

15 in 2013 than what there was in 1948. The increased 

16 conservation efforts on Iowa farms over the years, 

17 coupled with advancing yield genetics in corn varieties 

18 have allowed for increased production while utilizing 

19 fewer acres. In fact, other than the weather-reduced 

20 crop in 2012, there has been more corn available for 

21 non-ethanol uses every year since 2000 than there was 

22 the year before.
91

1 Consider that of approximately 4 billion bushels 

2 of corn that's processed through ethanol plants, about 

3 50 percent of the feed value remains as gluten feed or 

4 DDGs and is used to replace significant amounts of corn 

5 and soybean meal in livestock rations. Any time a 

6 report is given that 4 billion bushels of corn have 

7 been used in the ethanol industry, a follow-up 

8 statement needs to include that 2 billion bushels of 

9 corn was saved in the livestock feed industry.

10 Ethanol blends consistently sell for less than 

11 straight petroleum-based gasoline. And while this 

12 lower cost product has saved consumers nationwide 

13 hundreds of millions of dollars on fuel costs, quite 

14 likely the biggest savings to consumers is in the 

15 supply-demand equation itself.

16 Increasing supply of any product by 10 percent 

17 will typically result in more than a 10 percent drop in 

18 price, assuming demand remains static. A 10 percent 

19 inclusion rate of ethanol in our nation's fuel supply 

20 reduces the cost of the gasoline portion and 

21 additionally reduces the cost of the blended product.

22 As a banker to agriculture and commercial business 
92

1 entities in western Iowa, I have seen the economic 

2 activity generated as a result of renewable fuel and 

3 especially ethanol production. Forty to 50 good, full4 time jobs have been created in each production 

5 facility, in addition to the additional transportation

6 and feed processing opportunities.

7 Local economies have grown with a multiplier 

8 effect of revenue being generated locally and spent on 

9 purchases made locally. Our feed mills, our livestock 

10 equipment manufacturers, our veterinarians, the auto 

11 dealerships, the restaurants, the movie theaters, the 

12 hardware stores, and construction outfits have seen 

13 increased and sustained vigor in their businesses. And 

14 unemployment rates are near 0 percent in areas around 

15 ethanol plants.

16 Iowa's economy is not based on growing corn. It's 

17 based on using corn, and the benefits to our economy 

18 are seen in the increased economic activity resulting 

19 from using and processing our crops locally.

20 Livestock operations in general and cattle 

21 operations in particular have reaped significant 

22 economic benefits from reduced feed cost that come from 
93

1 feeding the co-products of the ethanol industry. 

2 Livestock numbers have increased near ethanol plants.

3 The DDGs coming out of an ethanol plant cost 

4 typically 80 percent of the price of corn, yet have 20 

5 percent more energy and 300 percent more protein.

6 MR. KOROTNEY: You'll have to wrap up, please.

7 MR. LEONARD: I will. I got one sentence left I 

8 want to share with you.

9 The facts is when you see all the facts, you 

10 realize ethanol is good for your vehicle. It's good 

11 for the economy, and it's good for our environment, and 

12 we need to keep the RFS.

13 MR. GRUNDLER: Thank you, Mr. Leonard.

14 Mr. Olson?

15 MR. OLSON: Good morning. My name is Randy Olson, 

16 and I serve as executive director of the Iowa Biodiesel

17 Board, a State trade association focused on the 

18 commercial success of biodiesel in Iowa.

19 I'm proud to say that our members are shining 

20 examples of what this policy, the renewable fuel 

21 standard, was intended to create. And I'm here to ask 

22 that you reconsider the proposed rule for biomass-based 
94

1 diesel and advanced biofuels in 2014.

2 Quite simply, the 1.28 billion gallon biomass3 based diesel target, as proposed, will likely mean a 

4 reduction in biodiesel volumes for 2014 versus this 

5 year's production and, importantly, send a signal to 

6 the growing industry that the hurdles to compete with 

7 entrenched petroleum interests are even higher than we 

8 previously thought.

9 In Iowa, we have 10 operating biodiesel facilities 

10 with a capacity of nearly 350 million gallons a year. 

11 Almost 5,000 jobs supported by biodiesel throughout the 

12 value chain. You have already heard from one of these 

13 facilities and will hear from others throughout the day 

14 today.

15 Additionally, our State has abundant and growing 

16 feedstock supplies from soybean oil, animal fats, corn 

17 oil, and even recycled restaurant cooking oil. 

18 Notably, the petroleum marketing sector in Iowa has 

19 aggressively blended ever-increasing amounts of 

20 biodiesel into their offerings. These small business 

21 owners have integrated a locally produced product, and 

22 many have invested in new blending and distribution 
95

1 facilities.

2 Finally, we've had ambitious individuals look to 

3 meet the needs of a new industry by starting businesses 

4 that meet the gaps that are uncovered through this new 

5 industry that's developing. We're an example of how 

6 this industry can work all across the country, with all 

7 sectors of the value chain participating.

8 And everybody loves biodiesel -- row crop farmers, 

9 livestock farmers, petroleum marketers, consumers, 

10 folks who care about clean air, and the small towns who 

11 need the jobs. Even engines love it. You'll hear 

12 today how OEMs are endorsing higher biodiesel blends 

13 each year.

14 Except maybe for the major oil companies who 

15 dislike competition and prefer an oligopoly, there is 

16 not a single segment of the value chain that objects to 

17 biodiesel. And we thought that this administration 

18 loved biodiesel, too. As well it should. Biodiesel

19 was helping to achieve RFS targets. Meeting or 

20 exceeding our targets under RFS each and every year, we 

21 are doing our part.

22 But what you need to know is that your proposed 
96

1 rule will take us a step backward. What those of us in 

2 Iowa and the Midwest know is that biodiesel is a great 

3 success story. It uses byproducts and co-products and 

4 creates additional value for these by meeting a need 

5 our country has -- cleaner burning, renewable

6 transportation fuels.

7 It's almost so obvious that it's too hard to 

8 believe, but it's not a fantasy. It's not a dream. 

9 It's here. It's now. And this industry that didn't 

10 exist but showed incredible promise 10 years ago is now 

11 at risk of taking a terrible step backwards with your 

12 proposed rule.

13 Please see the biodiesel industry for what it is 

14 doing today and consider 2012 and '13 numbers in your 

15 calculations. And also, for what it can do for us in 

16 the future, and don't harm its potential by cutting our 

17 production in half next year.

18 I urge you to establish a volume requirement at 

19 least consistent with this year's projected production 

20 of 1.7 billion gallons.

21 MR. KOROTNEY: You'll need to wrap up, please.

22 MR. OLSON: Thank you for your time, and I'd be 
97

1 happy to answer any questions you'd have.

2 MR. GRUNDLER: Anyone have any questions?

3 (No response.)

4 MR. GRUNDLER: Thank you so much for traveling all 

5 this way. We're really grateful to listen to you and 

6 hear your stories. Safe travels.

7 We'd like to invite Panel 3 up now. Welcome.

8 (Pause.)

9 MR. GRUNDLER: Okay. We'll begin with Mr. 

10 Escudero.

11 MR. ESCUDERO: Good morning. Thank you again for 

12 the opportunity to provide public testimony today. We 

13 certainly appreciate all the hard work, the effort, and 

14 the ongoing engagement that the EPA and specifically 

15 OTAQ staff have demonstrated to ourselves and our 

16 members.

17 The Coalition for Renewable Natural Gas is a 

18 national 501(c)(6) coalition dedicated to the 

19 advancement and increased utilization of renewable

20 natural gas, which is biomethane, biogas, or RNG, for 

21 the specific uses of renewable thermal heat, electric 

22 power, and transportation fuel. Our members represent 
98

1 the developers, owners, and/or operators of all 39 

2 high-BTU landfill gas-to-energy projects that exist 

3 nationally today.

4 There are two additional projects that are 

5 recently commissioned and/or under development as I 

6 speak. But specifically, 39 of the 41 are currently 

7 operating in production and producing biogas, 

8 biomethane, or RNG. We currently qualify under the 

9 advanced biofuels category and recognize that today the 

10 renewable natural gas sector is sort of caught between 

11 a little less than friendly fire between large oil and 

12 those who -- proponents and opponents of ethanol.

13 But we are seeking some protection in the middle 

14 of the fray, and I think we can find that safely under 

15 the cellulosic category, which we acknowledge and we 

16 strongly continue to support the technical amendments 

17 under consideration that would enable 100 percent of 

18 volume of renewable fuels produced from certain 

19 cellulosic feedstock, including landfill biogas from 

20 landfills and wastewater treatment plants, to generate 

21 either D3 or D7 cellulosic RINs.

22 The only problem we would like to point out really 
99

1 is that the proposed 2014 cellulosic RVO is much too 

2 low. We do understand that that volume is based on 

3 EPA's current estimate of what will be produced in 

4 2014, which is why we also appreciate EPA OTAQ's 

5 commitment to consider public comments today before 

6 setting the final cellulosic standard and, perhaps most 

7 importantly, willingness to adjust the proposed volumes 

8 as appropriate based on the latest information.

9 Again, we do note the slight uptick from 2013's 

10 proposed 6 million to the 14 million ethanol gallon 

11 equivalent volume in 2014. The Coalition for Renewable

12 Natural Gas has consistently, at each comment period 

13 made available this year, advocated for a cellulosic 

14 volume standard range between 114 and 141 million 

15 ethanol gallon equivalents.

16 Briefly allow me to explain why these volumes have 

17 not previously or to date been available for the 

18 market. Currently, only 39.7 million ethanol gallon 

19 equivalents are being used for renewable CNG or 

20 renewable LNG transportation fuel from existing 

21 infrastructure. This represents just 6.4 percent of 

22 the aggregate volume produced by our members in the 39 
100

1 aforementioned high-BTU projects.

2 Because of the uncertainty surrounding programs 

3 like the Federal renewable fuel standard and various 

4 State LCFS-type programs, developers have not been able 

5 to secure the necessary financing to develop projects 

6 dedicated for transportation fuel purchases. As a 

7 result, those projects, those 39 I mentioned, are 

8 currently tied up under long-term renewable electric 

9 power agreements.

10 EPA estimates that 17 million gallons will be 

11 produced in 2014. As I mentioned, this is a 

12 significant jump from the 6 million estimated last 

13 year, but a significant step back from what we know is 

14 already being produced currently and will be dedicated 

15 for transportation fuel in 2014.

16 Again, there are several factors that contribute 

17 and provide a reason as to why the volumes will be 

18 available in the new year. That's the expiration of 

19 Self-Generation Incentive Program, the SGIP program; 

20 the expiration of many of these long-term procurement 

21 contracts for renewable electric power, coupled with 

22 movement, as we're witnessing all here today, on the 
101

1 RFS. Incremental certainty and stability certainly 

2 helps.

3 MR. KOROTNEY: You'll need to wrap up, sir.

4 MR. ESCUDERO: Absolutely. Just important to 

5 share that six producer members of ours alone -- and 

6 we'll provide the exact details and quantities, the 

7 available online dates in our written testimony so that 

8 you have all that comprehensive data on hand. But six 

9 of our member producers alone represent a dedicated 

10 146.6 million ethanol gallon equivalents of landfill 

11 biogas that will be dedicated for transportation fuel 

12 because of availability and expiring contracts in the 

13 new year.

14 This does not include volumes from bio CNG, other 

15 member companies -- Waste Management, for example -- or 

16 an additional project that will be available January 1 

17 of 2014, with an additional 29.5 million ethanol gallon 

18 equivalents available in the new year.

19 So, in conclusion, our two-part request is that 

20 you continue and adopt the consideration to allow 100 

21 percent of all volumes of renewable fuel from landfill 

22 biogas to qualify to generate cellulosic RINs and also
102

1 increase the proposed 2014 RVO for cellulosic to no 

2 less than 1.76 million.

3 Thank you.

4 MR. GRUNDLER: All right. All right. Wrap it up.

5 Questions?

6 MR. HANNON: Just one quick question. On your 

7 written comments, if you could please emphasize the 

8 reality of your projections, the concrete details 

9 supporting them. As was stated in prior panels, 

10 there's a D.C. Circuit case that -- that clearly 

11 directs EPA to not be aspirational in setting our 

12 cellulosic biofuel standard. So to the extent you want 

13 us to consider increasing, you need to support it with 

14 very concrete evidence.

15 Thank you.

16 MR. ESCUDERO: Absolutely, and we'll do that as 

17 the applications are in process, in many cases 

18 registration completed. So we'll include all that data 

19 for you.

20 MR. MACHIELE: And an extension on that. Again, 

21 any information on -- again, your information on long22 term contracts, current contracts tying up into 
103

1 renewable electricity. But then the likelihood or 

2 reality that they won't be renewed for renewable

3 electricity purposes.

4 MR. ESCUDERO: Right. And the 176 million that we 

5 represented today is dedicated, committed already for 

6 transportation fuel purposes. We'll outline the 

7 details in the written comments.

8 Thank you for your questions.

9 MR. GRUNDLER: Mr. Urbanchuk, welcome.

10 MR. URBANCHUK: Thank you very much.

11 I appreciate the opportunity to testify this 

12 morning. My name is John Urbanchuk. I'm the managing 

13 partner and principal of ABF Economics. We're a 

14 privately held agriculture and biofuels consulting firm 

15 located in Doylestown, Bucks County, Pennsylvania.

16 I'm an ag economist with more than 25 years of 

17 experience in the economics of biofuels. And over this 

18 time, I've worked closely with the principal trade 

19 associations representing the biofuels industry, as 

20 well as private firms involved in ethanol and biodiesel

21 production.

22 I was commissioned by Renewable Energy Group, the 
104

1 leading U.S. producer of biodiesel, to examine the 

2 production availability and economic impact of animal 

3 fats, waste greases, and inedible plant oils or FOG 

4 feedstocks in North America. The results of my work 

5 complements other analyses that have been provided to 

6 EPA, such as the analysis of the global supply of 

7 biodiesel feedstocks prepared by LMC and other economic 

8 analysis provided by the National Biodiesel Board.

9 These have been discussed with EPA prior to 

10 announcement of the proposed RVO for 2014, and it's 

11 dismaying to note that they appear to be -- have been 

12 disregarded by the agency in its proposal. If this 

13 proposed rule stands, the U.S. economy will lose out on 

14 billions of dollars of growth, thousands of additional 

15 jobs, and an additional 8 billion pounds of greenhouse 

16 gas reductions from a fuel that we know we can make in 

17 abundance and consumers can easily utilize.

18 My analysis of the production of these FOG 

19 feedstocks indicates that U.S. supply is projected to 

20 increase from 12.7 billion pounds last year to nearly 

21 19.4 billion pounds by 2022 and will be sufficient by 

22 themselves, just these FOG feedstocks, to produce 
105

1 nearly 1.5 billion gallons of biodiesel.

2 An additional 2 billion pounds of these feedstocks 

3 are produced in Canada, and they would support about 

4 140 million additional gallons of biodiesel as well, 

5 most of which would come to the U.S. The most 

6 significant growth in these FOG feedstocks is taking 

7 place in waste greases and oils and distillers or 

8 inedible corn oil due to improved yields resulting from 

9 new technology.

10 A major development in this area has been the 

11 increased recovery of inedible corn oil from the 

12 ethanol production process. Now the recovery of 

13 distillers corn oil benefits both ethanol and biodiesel

14 producers by adding 6 to 8 cents a gallon of revenue 

15 for a dry mill corn ethanol producer and providing an 

16 economically viable alternative feedstock for biodiesel

17 production.

18 The availability and use of these FOG feedstocks 

19 has contributed significantly to the growth of the 

20 biodiesel industry and the use of these feedstocks has 

21 provided substantial benefits to the supplying 

22 industries as well as the economy as a whole.
106

1 The proposal by EPA to maintain the RVO for 

2 biomass-based biodiesel at 1.28 billion gallons 

3 essentially reduces current production and decreases 

4 industry output to a level that's substantially below 

5 capacity, thereby robbing the economy of output, 

6 income, and jobs.

7 Since the use of these feedstocks represents the 

8 purchase of output from supplying industries, every 

9 dollar spent on those inputs circulates throughout the 

10 economy, generating broader economic benefits. For 

11 example, the use of these FOG feedstocks currently 

12 accounts for $1.4 billion of value added in the U.S. 

13 economy, the entire economy, generates $690 million of 

14 household income, and supports the direct employment of 

15 nearly 1,200 full-time equivalent workers. And that's 

16 just the FOG feedstock component of this.

17 Moreover, higher demand for biodiesel increases 

18 byproduct values and the value of slaughter animals for 

19 both beef and hog producers, and they benefit from 

20 this.

21 Finally, the failure to expand the RVO for 

22 biomass-based biodiesel and the reduction in the RVO 
107

1 for advanced biofuel feedstocks is likely to restrain 

2 growth in the development of new feedstocks, which have 

3 the potential to provide additional supplies of 

4 inedible plant oils for biodiesel. For example, there 

5 is some promising opportunities for waste oil from 

6 sorghum, which has been approved as an advanced biofuel 

7 feedstock, and another --

8 MR. KOROTNEY: You'll need to finish up, please.

9 MR. URBANCHUK: I will do that. And that creates 

10 potential opportunities.

11 We hope the agency takes common sense actions to 

12 increase the biodiesel RVO, which will result in wins 

13 for both the economy and the environment.

14 This completes my testimony. I'll answer any 

15 questions, and thank you very much.

16 MR. GRUNDLER: Thank you, sir.

17 Mr. Matrai?

18 MR. MATRAI: Thank you very much for allowing 

19 Butamax to testify before here today -- before you 

20 today.

21 My name is Peter Matrai. I am the chief operating 

22 officer of Butamax. Butamax is a joint venture between 
108

1 DuPont and BP, which was established in 2009 to 

2 commercialize the biobutanol technology, which the two 

3 companies have been developing together since 2003.

4 The goal of this privately funded effort was to 

5 create a new biofuel technology that addresses key 

6 limitations of ethanol and increases the benefits of 

7 blending biofuels. Specifically, biobutanol enables a 

8 doubling of the renewable energy content of gasoline 

9 within existing fuel specifications, improves gasoline 

10 manufacturing economics, and is regarded as a drop-in 

11 biofuel.

12 We are currently implementing the first phase of a 

13 retrofit of a corn ethanol plant in Lamberton, 

14 Minnesota.

15 MALE SPEAKER: Could you move the mike a little 

16 closer, please? Thank you.

17 MR. MATRAI: EPA states in the proposed rule that 

18 the EPA continues to support the objective of continued 

19 growth in renewable fuel production and consumption, as 

20 well as the central policy goals underlying the RFS 

21 program -- reductions in greenhouse gas emissions, 

22 enhanced energy security, economic development, and 
109

1 technical innovation.

2 The EPA goes on to say the approach reflected in 

3 today's proposal is consistent with these objectives 

4 and is intended to put the RFS program on a manageable 

5 trajectory while supporting continued growth in 

6 renewable fuels.

7 We find these two statements impossible to 

8 reconcile with the proposed rule. We do not see how 

9 the approach proposed in the NPRM is at all consistent 

10 with the objectives of the RFS program or is supportive 

11 of renewable fuels growth.

12 For example, example number one. EPA has 

13 essentially based the RVO on the amount of ethanol that 

14 can be accommodated by blending 10 percent volume 

15 ethanol into gasoline, with only very minor allowance 

16 for other products. Since gasoline volume can be 

17 expected to decline for the foreseeable future, the 

18 proposal fundamentally causes contraction in renewable

19 fuels and not growth.

20 Second example, the EPA has been very conservative 

21 in their estimates of the potential contribution of 

22 E85. The proposal completely fails to reflect the 
110

1 demand growth in E85 that the RIN mechanism in the RFS 

2 enables, as demonstrated in 2013. While the EPA notes 

3 the importance of E85 pricing, in setting the RVO as 

4 proposed, the EPA would disable the very mechanism 

5 designed to allow the market to set this price 

6 appropriately.

7 Example number three. By accepting the blend wall 

8 as a fundamental limit, the proposed rule disables the 

9 RIN mechanism that was specifically created to enable 

10 market forces to overcome this issue. An effective RIN 

11 mechanism is absolutely essential to enable drop-in 

12 biofuels to compete in the market.

13 Number four. By defining biofuels demand based on 

14 a fixed percentage of a shrinking market, EPA would 

15 remove all incentive for investment in new biofuels 

16 technology. The effect of the proposed rule would be 

17 to lock in incumbent products and discourage investment 

18 in innovative technology.

19 And finally, the major deviation by the EPA from 

20 the mechanism defined in the RFS for setting the RVO 

21 and the delayed and drawn-out process for its 

22 finalization cause major uncertainty that will affect 
111

1 investment decisions far beyond 2014. As such, this 

2 proposal puts delivery of the policy objectives at 

3 risk.

4 In order to reconcile the NPRM with EPA's stated 

5 objectives, the total RVO must be set at a level that 

6 at least continues the absolute growth in renewable

7 fuel volume. This is essential to maintain -- this is 

8 essential to maintain an environment where there is an 

9 incentive to make the technology and infrastructure 

10 investments needed to underpin this critical policy.

11 In closing, respectfully, I ask the agency to 

12 reconsider the NPRM proposal and draft an alternative 

13 that is actually consistent with the objectives of the 

14 RFS.

15 Thank you very much.

16 MR. GRUNDLER: Questions?

17 (No response.)

18 MR. GRUNDLER: Mr. Anderson, welcome.

19 MR. ROBERT ANDERSON: Thank you.

20 My name is Robert Anderson, and I'm the senior 

21 fuel policy adviser for Chevron. Chevron is a major 

22 refiner and marketer of petroleum products in the 
112

1 United States, and we are an obligated party under the 

2 RFS. This proposed rule directly affects our 

3 compliance requirements for 2014.

4 Chevron believes that the current RFS program is 

5 unworkable and should be repealed or significantly 

6 reformed. The RFS was implemented when gasoline demand 

7 was expected to increase over time. However, demand 

8 has decreased to the point where the mandated volumes 

9 of renewable fuel can no longer be accommodated in the 

10 transportation fuel market.

11 As the RFS mandate continues to increase and the 

12 supply of RINs remains limited, the pressure on energy

13 cost could have a significant negative impact on the 

14 U.S. economy. In the absence of repeal, well-designed 

15 modifications to the RFS should be enacted.

16 In April 2013, Chevron provided written comments 

17 to the EPA regarding the then-proposed 2013 RFS 

18 standards, and we highlighted three primary concerns --

19 the E10 blend wall, the cellulosic volume, biofuel

20 volume determination, and the annual RFS statutory 

21 deadlines. I'd like to address each of these issues 

22 briefly related to the 2014 proposal.
113

1 We are pleased to see that the EPA has 

2 acknowledged the first of these issues, the E10 blend 

3 wall. Chevron is encouraged that EPA is proposing to 

4 use its statutory waiver authority under both the 

5 cellulosic biofuel waiver and general waiver 

6 provisions. We believe that the EPA has the authority 

7 to use these waiver provisions as described in the 

8 proposal.

9 We also believe that it is appropriate for EPA to 

10 reduce both the total renewable fuel standard and the 

11 advanced biofuel standard to address the blend wall. 

12 While the proposal recognizes these issues, we are 

13 concerned that the proposal may not go far enough and 

14 may not address the full scope of the blend wall.

15 EPA should finalize renewable fuel and advanced 

16 biofuel standards that fully protects consumers from 

17 the negative impact of the blend wall.

18 Regarding cellulosic biofuels, we appreciate the 

19 difficulty in predicting the future of the industry as 

20 new plants are being built and brought online. 

21 However, we are concerned that EPA's methodology for 

22 setting the annual cellulosic biofuel volume is 
114

1 aspirational and continues to overestimate the actual 

2 production rate.

3 Finally, the timeliness of meeting the statutory 

4 deadlines for establishing the annual program standards 

5 is still a significant problem. The 2013 standards 

6 were not finalized until August 2013, more than 8 

7 months past the statutory deadline. We are still on a 

8 similar timeline for 2014. This has been a major 

9 problem because timely promulgation of these rules and 

10 standards is critical for business planning and to 

11 ensure compliance for all program participants.

12 In conclusion, EPA's proposed rule for 2014 is a 

13 step in the right direction. However, it will only be 

14 a temporary 1-year fix to the RFS, one in which the EPA 

15 must revisit each year. Congress needs to provide a 

16 long-term legislative remedy to avoid serious impacts 

17 on America's fuel supply and to ensure consumers are 

18 not harmed.

19 Thank you very much for allowing Chevron to share 

20 our views today.

21 MR. GRUNDLER: Thank you. Mr. Lehman?

22 MR. LEHMAN: Thank you. My name is Jonathan 
115

1 Lehman. I'm speaking today at the invitation of the 

2 American Coalition for Ethanol.

3 I was asked to testify in part because of my 

4 ongoing work with conventional and cellulosic biofuel

5 interests, who are relying on the RFS to drive 

6 innovation. I was also asked to testify because as 

7 counsel to Senate Majority Leader Tom Daschle, it was 

8 my initial responsibility to craft the RFS and 

9 negotiate its language. You're welcome, I guess.

10 As part of that effort, I fought the attempts of 

11 the oil industry to insert poison pills into the RFS. 

12 Poison pill waiver language, so deadly to the RFS that 

13 it would be soundly rejected by Congress. That poison 

14 language, at the time championed by Tom Delay and Billy 

15 Tauzin at the behest of the oil industry, was rejected 

16 by Congress in 2005.

17 Now it sits before us in an early identical form 

18 as a proposal of a Democratic administration. Today, 

19 I'd like to put the RFS in context. When the RFS was 

20 being crafted as a replacement for the oxygenate

21 standard in the early 2000s, it was done for several 

22 mutually beneficial purposes -- to address the 
116

1 systematic poisoning of our country's drinking water 

2 supply by MTBE contamination, to drive competition in a 

3 highly concentrated fuels marketplace, to drive 

4 alternatives to petroleum that have inherent air 

5 quality and climate benefits, and to help spur economic 

6 development in rural America.

7 It didn't surprise me when the last two things the 

8 oil industry tried to negotiate for in the RFS when it 

9 was being crafted were MTBE liability protection and 

10 provisions to undermine the certainty of the RFS via 

11 waiver provision poison pills. The basic takeaway 

12 being they wanted legal protection to sell a product 

13 they knew was a known pollutant to U.S. drinking water 

14 supplies, while undermining any chance of replacing it 

15 at a real scale in the marketplace.

16 I was there when Congress rejected both attempts. 

17 The MTBE liability, and they told the oil companies 

18 that there wouldn't be any poison pills put into law to 

19 undermine Congress's direction to transition away from 

20 petroleum. As a result, MTBE was removed from the fuel 

21 stream in a matter of months, and billions of dollars 

22 flowed into the renewable fuels industry under the 
117

1 promise that the RFS would drive real change in the 

2 marketplace.

3 And it's worked. Corn ethanol facilities are 

4 becoming more efficient. Advanced and cellulosic 

5 ethanol facilities are completing financing and coming 

6 online and more to come, if the administration would 

7 hold firm.

8 In 2013, the oil companies had a decision to make. 

9 Either accept that their artificial and anti10 competitive 90 percent share of the market would fall, 

11 as required by the RFS, or try to undermine it. 

12 Instead of choosing to continue to support the 

13 renewable sector that is evolving to become more green, 

14 the EPA proposal sides with oil companies that want to 

15 rely on an oil supply that is getting dirtier by the 

16 barrel.

17 Congress considered and rejected the Delay-Tauzin 

18 oil company request to allow waivers based on lack of 

19 infrastructure. They understood that providing this 

20 proposed waiver based on infrastructure was putting the 

21 very fate of the RFS in the hands of industry bent on 

22 destroying it.
118

1 That the oil industry continues to seek this power 

2 is no surprise to anyone in this room. That a 

3 Democratic administration appears willing to grant it 

4 that power is no short of mind blowing.

5 Yesterday, the President made a speech describing 

6 inequality as the defining challenge of our time, and 

7 yet today's administration is contemplating a proposal 

8 that would worsen the inequality. It would undermine 

9 the success that the RFS has made in driving jobs and 

10 economic developments in areas of the country that have 

11 been previously left behind.

12 And it will short-circuit efforts to bring new 

13 jobs and new economic development to more areas of the 

14 country, all so oil companies can continue to protect 

15 their market share and line their pockets. It would 

16 give one of the most concentrated industries in the 

17 nation, the oil industry, the power to choke the 

18 renewable fuel sector anytime that sector threatens to 

19 displace the oil industry's 90 percent stranglehold on 

20 U.S. consumers.

21 Congress wisely rejected the oil companies. EPA 

22 should do likewise.
119

1 Thank you.

2 MR. GRUNDLER: Thank you. Mr. Patterson, welcome.

3 MR. PATTERSON: Members of the committee, my name 

4 is Patrick Patterson. I'm the vice president of 

5 business operations in the Americas for Novozymes.

6 On behalf of Novozymes and our thousand employees 

7 across the United States in California, North Carolina, 

8 Virginia, Nebraska, Wisconsin, and Massachusetts, I'd 

9 like to thank you for the opportunity to have our voice 

10 heard here today. Thank you.

11 We're a $2 billion technology company. Our 

12 scientists are like detectives. We search in nature 

13 for enzymes and microbes or nature's own technology, 

14 and once we find those, we put them to work, saving our 

15 customers on raw materials, energy, water, and money.

16 Today, our enzymes and microbe technologies are at 

17 work in more than 32 industries worldwide. Novozymes

18 and the EPA, we have many shared goals -- addressing 

19 climate change, improving air quality, reducing the use 

20 of harsh chemicals, and increasing the use of America's 

21 renewable fuels. Like many companies, we were inspired 

22 by the RFS, and working with agencies like yours, we 
120

1 set out on an innovative, ambitious course to make it 

2 come true.

3 Over a 5-year period, we brought down the cost of 

4 enzymes for changing corn leaves, husks, energy crops, 

5 and even trash by more than 90 percent. We put 150 

6 scientists to work designing enzymes for the biofuel

7 industry, the single-largest R&D investment in our 

8 company.

9 These enzymes help make first-generation plants 

10 more efficient, getting more yield from the same 

11 feedstock, and they help the second-generation 

12 customers convert agriculture waste into fuel. We 

13 manufacture those enzymes right here in the United 

14 States.

15 In May 2012, we opened our newest advanced 

16 manufacturing plant in Blair, Nebraska, with 500 jobs 

17 and $200 million in private investment. Our enzyme 

18 plant there is the largest of its kind and the most 

19 sophisticated in the country.

20 We had choices, but we chose Blair and we chose 

21 the United States over places like China. And a big 

22 reason for that choice was the renewable fuel standard. 
121

1 Strong, stable policy was a key to our investment 

2 decision.

3 So you can imagine what it meant to our company 

4 and our industry and companies like ours when the rules 

5 of the game get changed from this proposal. It left us 

6 to wonder about the years of progress we'd made, the 

7 thousands of people who'd done the work, and the 

8 millions of dollars that we'd invested.

9 Today, we partner with many of the first movers in 

10 the cellulosic space. Fiberight, our partner in 

11 Lawrenceville, Virginia, is making fuel literally from 

12 trash. The company is about to break ground on a 

13 second plant in Blairstown, Ohio.

14 Chemtex, our partner in Clinton, North Carolina, 

15 is preparing to turn a field sprayed with hog waste, a 

16 field with no other use, into an advanced renewable

17 fuel plant. Our customer POET, we're helping support 

18 with advanced biofuels in Emmet, Iowa, to complete 

19 construction of their new plant called Project Liberty. 

20 That commercial production is scheduled to start 

21 within 6 months.

22 Our companies, companies like ours, we decided to 
122

1 put steel in the ground based on the belief that we'd 

2 have a policy and a market to support us. Now that 

3 policy and potentially that market is under threat.

4 We want the United States to lead the way with 

5 investments like these, but it won't unless the EPA 

6 returns to a strong, stable interpretation of the RFS.

7 Otherwise, these investments in technologies, they'll 

8 go somewhere else. So will the jobs. So will the 

9 benefits to our climate. And so will the savings at 

10 the pump.

11 The RFS was designed as a two-part strategy. And 

12 first was our industry's challenge was to bring 

13 breakthrough renewable fuel technology to the market, 

14 and we've done that. The second part was with the oil 

15 industry to blend that fuel into the nation's fuel mix, 

16 which they've naturally fought at every turn.

17 We believe the EPA should hold oil accountable and 

18 ensure our shared goals and the goals of the RFS are 

19 met. First, the agency should return to the way it 

20 previously carried out the policy, as well as to 

21 Congress's intent.

22 The fuel produced up to the statutory volumes 
123

1 should be blended into the fuel supply by the obligated 

2 parties. That's good for our drivers. That's good for 

3 the environment.

4 And second, we should also reinstate the integrity 

5 of the renewable identification number system. That's 

6 good for investment, and that's good for growth. And 

7 it's especially good for second-generation fuels, those 

8 made from sources like trash and agricultural waste.

9 We've got investments all over the world, and we 

10 want to keep working with the EPA. But uncertainty is 

11 bad for investment, and uncertainty makes it hard to 

12 work together.

13 We have a saying that the future doesn't happen by 

14 accident. Somebody has to create it. And I can tell 

15 you that we're committed to helping create that future 

16 together with our customers and the EPA.

17 Thank you very much.

18 MR. GRUNDLER: Thank you. I've got a question.

19 Could you clarify what you mean by EPA should 

20 reinstate the integrity of the RIN market?

21 MR. PATTERSON: We're making just similar comments

22 to the rest of the speakers that mechanisms should be 
124

1 in place to keep spurring investment.

2 MR. GRUNDLER: Any other questions?

3 (No response.)

4 MR. GRUNDLER: I thank the panel for your time.

5 I'd like to invite Panel 5 to the table, please.

6 (Pause.)

7 MR. GRUNDLER: Good morning. We'll begin with Mr. 

8 Menke.

9 MR. MENKE: Good morning. On behalf of the 

10 ethanol and biodiesel producer members of the Iowa 

11 Renewable Fuels Association, thank you for the 

12 opportunity to comment.

13 We strongly urge EPA to reverse its proposal to 

14 radically reduce the 2014 RFS volumes to levels below 

15 the 2013 volumes. This proposal is not only a 

16 significant step back for cleaner fuels, consumer 

17 choice, and cutting petroleum dependence, but it is 

18 also based on false premises and contrary to 

19 congressional intent and the administration's stated 

20 goals.

21 The most harmful aspect of the proposed rule is 

22 the notion that a perceived lack of retail distribution 
125

1 today equates to a renewable fuel supply shortage next 

2 year. It would set a dangerous and unlawful precedent 

3 that gives the petroleum industry the power to dictate 

4 future RVOs by failing to make investments in renewable

5 fuel infrastructure. Adopting such a justification 

6 would literally turn the RFS on its head.

7 The proposal is based on false premises because 

8 there is no E10 blend wall. I was proof of this. 

9 Today, we have over 200 retailers that offer consumers 

10 higher ethanol blends up to E85, including more than a 

11 dozen retailers that offer E15 as a registered fuel. 

12 The fact is that everywhere higher blends have been 

13 offered, consumers have responded positively.

14 Recent sales data found the average ethanol

15 content for Iowa blender pump operators was around 25 

16 percent. This is well beyond the near-term goals of 

17 the RFS.

18 Similarly, third quarter E85 sales in Iowa this 

19 year were nearly double the sales from the first 

20 quarter, as RIN values were passed on to consumers 

21 through lower E85 prices. There is not a single real22 world data point to back up the contention that America 
126

1 can't sell enough biofuels to meet the RFS as intended, 

2 and there are thousands of data points to say we can.

3 Finally, the proposal is contrary to congressional 

4 intent and the administration's goals because it 

5 prevents the U.S. from moving beyond 90 percent 

6 dependence on oil, which was always intended, and it 

7 specifically cuts the legs out from under the young 

8 advanced biofuels industry. For instance, EPA's 2014 

9 proposal inexplicably stunts the growth of biodiesel, 

10 the leading advanced biofuel.

11 A 2014 RVO of at least 1.7 billion gallons is 

12 needed to continue this success story. Without a 

13 robust RVO, biodiesel plants will shut down and jobs 

14 will be lost.

15 Similarly, the proposal snuffs out the life of 

16 future cellulosic ethanol projects not because of the 

17 proposed 2014 cellulosic RVO, but because the current 

18 proposal clearly tells the marketplace the U.S. will 

19 use 10 percent ethanol and no more.

20 You've already heard from the Iowa Governor and 

21 farmers who can articulate my closing point with more 

22 authority. But I grew up on a farm in Iowa. I know 
127

1 farmers who made planting decisions based on the RFS. 

2 They knew there were those in Congress who wanted to 

3 see a return to the days of Government-subsidized cheap 

4 corn prices for the benefit of non-Midwestern livestock 

5 producers.

6 But the Iowa farmers trusted President Obama to 

7 keep his word, to live up to his campaign promises. 

8 And those farmers feel betrayed. They feel lied to. 

9 They are frustrated, and they are angry.

10 And although they would never use the word, they 

11 are also scared. Scared that a gutted and useless RFS 

12 will lead to either another farm crisis or a return to 

13 Government-controlled farm policy where decisions are 

14 based on Government farm programs instead of market 

15 demand.

16 And this does not have to be. The EPA can 

17 recognize it made a mistake. The fear of high gas 

18 prices was a bluff from big oil. There is still time 

19 to call that bluff and to uphold the RFS as it was 

20 intended to operate. The result would be lower gas 

21 prices, rural prosperity, cleaner fuels, less foreign 

22 oil dependence, and a promise kept. And that is 
128

1 certainly a scenario worthy of consideration.

2 MR. GRUNDLER: Thank you. We've got some 

3 questions on the panel.

4 MR. HANNON: Like several members of different 

5 panels, you've described our proposal as gutting and 

6 making the RFS gutted and useless in the context of 

7 ethanol. Our proposal has a range of ethanol use that 

8 we project for 2014 that looks almost identical to 2013 

9 ethanol use.

10 Is your concern -- are you saying that our 

11 proposal is going to reduce the ethanol use, or is your 

12 concern a failure to grow ethanol use? Could you be 

13 more clear, either today or in comments?

14 MR. MENKE: Absolutely. Failure to grow ethanol

15 use, but the mechanism to get you to where you have 

16 reduced the volumes. We believe that Congress 

17 specifically rejected the infrastructure waiver that 

18 you've chosen to employ for this proposal in reducing 

19 the conventional renewable fuel volume, and we just 

20 believe the statute does not support that general 

21 waiver authority.

22 MR. KOROTNEY: So my question is in 2013, the 
129

1 estimate of E85 consumption is somewhere in the 100 to 

2 150 million gallons. The statutory volumes for 2014 

3 would require something like 3.5 billion gallons of E85 

4 to be consumed. So my question is do you have any 

5 analyses or data information describing how you would 

6 get that jump from 150 million to 3.5 billion gallons?

7 MR. MENKE: I don't have specific analysis today. 

8 Just anecdotally, the -- as I described in my 

9 testimony, when RIN prices went up, those costs were 

10 passed -- those savings were passed on to consumers in 

11 the form of lower E85 prices, and our third quarter E85 

12 sales in Iowa doubled from the first quarter. We've 

13 had several more, you know, applications for more 

14 infrastructure to be invested.

15 And on the contrary, we've seen news reports of 

16 large-scale investments in E85 and higher ethanol

17 blends that have been stalled as a result of this 

18 proposal due to the uncertainty it created.

19 MR. GRUNDLER: Okay. Mr. Wigans -- or Wiggans. 

20 Forgive me.

21 MR. WIGANS: Thank you.

22 To say that Iowans, including cattlemen like 
130

1 myself, are disappointed with the EPA's initial 

2 proposal for the RFS and its implied and significant 

3 across-the-board cuts in the 2014 RVOs would be a gross 

4 understatement. In my testimony today, I hope to show 

5 why now is not the time to roll back the RFS.

6 When the RFS became law in 2005, American farmers 

7 and the then-fledgling domestic ethanol industry took 

8 that as a sign from our Government that clean, 

9 American-made biofuels were not only here to stay, but 

10 the oxygenate of choice and America's renewable clean 

11 energy of the future.

12 The expansion of the RFS in 2007 gave us 

13 confidence in our quest to build an industry from the 

14 ground up and goals to be attained in meeting RFS 

15 volumes. The build-out of today's corn ethanol

16 industry and the biodiesel industry in those years in 

17 the middle of the last decade is truly an amazing 

18 American success story.

19 The billions in equity and debt financing put at 

20 risk and rolled into not only the processing plants 

21 themselves, but the attending infrastructure in 

22 advancing sciences and technologies was truly 
131

1 incredible. The size and the scope of this build-out 

2 was something that rural America had never seen before.

3 Ethanol's rising tide has lifted everyone's boat out 

4 there where I'm from in flyover country.

5 In the 2012 State of the Union address, President 

6 Obama called for an "all of the above" strategy, an 

7 economy fueled by homegrown and alternative energy that 

8 will be designed in America and built by American 

9 workers. I wholeheartedly agree, and the RFS can be a 

10 large part of the foundation which the "all of the 

11 above" strategy can be built upon.

12 The proposed reductions in the RFS, both year over 

13 year from statutory levels and -- both year over year 

14 and statutory levels of the conventional biofuels will, 

15 in my opinion, have a profound impact on the future 

16 advancements in even cleaner renewable fuels.

17 It will send a clear message to the risk takers 

18 and the private researchers that the Federal

19 Government, through this administration, doesn't 

20 consider the RFS the law of the land, but just a good 

21 idea, a warm and fuzzy.

22 The RFS has some incentive in it and for good 
132

1 reason. Keeping the statutory RVOs intact would help 

2 make folks make decisions in regards to building 

3 additional infrastructure to deliver E15 and E85 to the 

4 American consumer, ending the absurd notion of the so5 called blend wall.

6 When you start tinkering around the edges of the 

7 RFS, it leaves doubts. Who in their right mind would 

8 risk equity, sweat, and tears to create cleaner, safer, 

9 more innovative renewable fuels for our future and 

10 security if this administration can't keep up its end 

11 of the RFS?

12 Clearly, the RFS has worked in getting us to where 

13 we are today, and it will lead us to further energy

14 security. The American farmer has stepped up to the 

15 plate, producing a record corn crop this year to fill 

16 the demand. The USDA confirmed recently that there's 

17 more than adequate supplies of feedstocks of both 

18 grains and fats and oils to meet the RFS.

19 Livestock producers in the Midwest, including 

20 myself, have embraced distillers grains as a favored 

21 feed ingredient. Customers who buy my calves from our 

22 ranch and feed them out depend on a reliable and 
133

1 consistent supply of distillers co-products for their 

2 business success.

3 The Iowa ethanol plant that I and many other 

4 livestock producers invested in sells over 500 tons of 

5 dried distillers products every day of the week to 

6 local feed markets. The hog and layer operations in 

7 that area will not allow a ton of that to be shipped 

8 elsewhere as they know the value of it for them and 

9 their feed rations, and they buy all they can get their 

10 hands on.

11 We've got a conventional biofuels industry that 

12 has the capacity and willingness to produce and a more 

13 than adequate supply of renewable feedstocks. And the 

14 RFS is what has made this a reality. Now is not the 

15 time to roll back the RFS.

16 MR. GRUNDLER: Mr. Bliley, welcome.

17 MR. BLILEY: Good morning. Good morning. Growth 

18 Energy is a leading trade association representing 80 

19 ethanol plants and thousands of ethanol supporters. 

20 Our members produce ethanol from grain and are leaders 

21 in innovating second-generation biofuels.

22 We see the RFS as a modern American success story 
134

1 --

2 MR. GRUNDLER: Hey, Chris. Would you move the 

3 microphone a little closer?

4 MR. BLILEY: Sure.

5 MR. GRUNDLER: Thank you.

6 MR. BLILEY: -- that has created jobs, revitalized 

7 rural America, injected much-needed competition into 

8 the vehicle fuels market, lowered the price at the 

9 pump, improved the environment, and made our nation 

10 more energy independent.

11 Unfortunately, the 2014 proposal to waive the 

12 statutory volume obligations would eviscerate the RFS. 

13 It would cause severe harm to farmers, the biofuels 

14 industry, and the nation's economy.

15 The RFS was approved by a bipartisan majority in 

16 Congress and enacted into law nearly 6 years ago. 

17 Since that time, the oil industry has used its 

18 considerable power to delay, litigate, and undercut the 

19 RFS. Now, by refusing to take any steps to allow 

20 higher biofuel blends into the consumer marketplace, 

21 the oil industry is claiming the volumes of the RFS 

22 cannot be met because of the so-called blend wall.
135

1 The EPA's proposal to waive the renewable fuel 

2 volumes mistakenly accepts this logic. It ignores the 

3 potential for E15, E85, and biodiesel. It ignores the 

4 large surplus of RINs, which could be used in 2014, and 

5 most fundamentally, it ignores congressional intent in 

6 creating the RFS program. This program was designed to 

7 spur investment in renewable fuels, not to punish those 

8 who invested while rewarding those who have impeded 

9 development.

10 Since the RFS began, the ethanol industry has 

11 produced ample biofuel to meet the statutory 

12 obligations, and it has ample capacity to do so again 

13 in 2014. With this proposal, EPA is waiving the 

14 volumes, including for the first time the total 

15 renewable fuel volume on the ground that there is 

16 insufficient demand for higher-level blends, 

17 notwithstanding the fact that the oil industry has 

18 refused to give consumers a choice at the pump.

19 The volumes can easily be met if the oil industry 

20 would simply comply with the original intent and allow 

21 higher ethanol blends like E15 to be competitively sold 

22 to consumers. While some have claimed that the 
136

1 infrastructure is not in place to dispense ethanol

2 blends above 10 percent, it's simply not the case.

3 The vast majority of gasoline dispensing equipment 

4 made since 2008 is warranted for ethanol blends as high 

5 as E15, and underground storage tanks made in the last 

6 20 years are equipped to handle blends up to 100 

7 percent ethanol. As for the market, nearly 80 percent 

8 of the vehicles on the road today are approved by EPA 

9 for E15, and there are over 16 million flex-fuel 

10 vehicles that can consume even higher blends, up to and 

11 including E85.

12 Also, EIA recently increased its gasoline demand 

13 estimates, meaning even more ethanol can be blended as 

14 E10. Clearly, there is the capacity and ability to 

15 push through the so-called blend wall. Now is not the 

16 time to retreat from the goals of the RFS.

17 This proposal would also jeopardize the tremendous 

18 success our nation's farmers have seen since the RFS 

19 began. Net farm income has increased by 51 percent 

20 while Federal farm payments have decreased by 57 

21 percent. Similarly, the proposal directly threatens an 

22 American-made biofuels industry at a time when our 
137

1 nation can least afford to lose jobs.

2 Companies from all over the world have invested 

3 billions of dollars in first- and second-generation 

4 biofuels in the United States and are poised to do 

5 more. Arbitrarily reducing the levels established in 

6 the statute threatens investments that are making 

7 commercial production of cellulosic ethanol a reality, 

8 projects that will help achieve the significant 

9 greenhouse gas reduction goals outlined in the RFS.

10 EPA should move the RFS forward, not backward. 

11 EPA should not reduce the total renewable fuel volume 

12 below the level that provides for 14.4 billion gallons 

13 of conventional ethanol and attainable levels of 

14 domestically produced advanced biofuel.

15 Thank you for the opportunity to appear today.

16 MR. KOROTNEY: Thank you. So I'll ask a similar 

17 question to what I asked earlier.

18 Levels in 2013 appear -- of E85 sales appear to be 

19 around 100, 150 million gallons. E15 is much less than 

20 that. But in order to meet the statutory volumes, 

21 including a 14.4 billion gallons of the conventional 

22 ethanol, the non-advanced, you would need to have 
138

1 something like 3.5 billion gallons of E85.

2 So, yes, there can be more infrastructure. But in 

3 the short time we have between now and 2014, we're 

4 looking for information on how you could actually get 

5 that kind of volume of ethanol sold, what it would 

6 take. Is it just with the existing infrastructure, and 

7 how do you incentivize all of the FFV owners to use it 

8 under those circumstances?

9 MR. BLILEY: We'll certainly provide a lot of that 

10 analysis in our written comments. But I mean, I think, 

11 as I touched on, it's a combination of things. I mean, 

12 you have infrastructure out there now that can take a 

13 great deal of E15. You're seeing a lot more E85 into 

14 the marketplace.

15 We think, frankly, EIA's data on E85 is lagging 

16 behind sort of the real-world circumstances. We will, 

17 again, show much more detail in our written comments. 

18 But that's, obviously, where we're headed.

19 MR. MACHIELE: Thanks, Chris.

20 I just want to follow up, though. Again, now or 

21 in your written comments, I mean, the comments that 

22 we're hearing is don't change the RFS. Don't change 
139

1 the RFS. And what we're asking here is if we're not 

2 changing it, we're talking about 3.5 billion.

3 So if -- so what -- again, we're looking for 

4 information that says if not 3.5 billion, then what is 

5 possible? But if it's not 3.5 billion, it means we are 

6 changing the RFS. So we want you to be very clear in 

7 your comments if a change is needed, what is feasible? 

8 What's possible?

9 Because if we're at a point where it's not 

10 feasible or possible, then I'd also want you to respond 

11 to what is the message to the oil companies? Are they 

12 to go into noncompliance? And what are the 

13 implications of that on the fuel supply and economy?

14 MR. BLILEY: Okay.

15 MR. GRUNDLER: Mr. Reamy, welcome.

16 MR. REAMY: Thank you very much.

17 Good morning. My name is Jeff Reamy. I'm the 

18 manager of Federal Government affairs for Phillips 66 

19 Company. We're an independent downstream energy

20 company. We own and operate 11 refineries across the 

21 United States, and as a producer and importer of 

22 gasoline and transportation diesel fuel, we're an 
140

1 obligated party under the RFS and are directly impacted 

2 by this rulemaking.

3 We're concerned about the increasing end 

4 feasibility of the RFS program, as laid out by Congress 

5 in the Energy Independence and Security Act of 2007. 

6 We have expressed this concern to EPA through meetings 

7 with staff and through written comments on previous 

8 proposals.

9 When this law was enacted, Congress envisioned the 

10 continued increases in gasoline demand and chose to 

11 require renewable fuel volumes to fill the projected 

12 increase in demand. And as we know, this scenario has 

13 not materialized, and in fact, gasoline demand has 

14 significantly declined and is projected to continue to 

15 decline.

16 This has resulted in an inability to consume the 

17 mandated volumes of renewable fuels. We are joined 

18 with others in our industry calling for Congress to 

19 repeal the unworkable mandate. However, in the short 

20 term, the situation necessitates action on the part of 

21 EPA.

22 When EPA issued the proposed 2013 RFS standards 
141

1 earlier this year, EPA chose not to reduce the advanced 

2 or total renewable volumes in concert with the 

3 reduction in the cellulosic volumes. And we know, the 

4 market response to the proposed rule was a significant 

5 and continued increase in RIN prices, an indicator of 

6 the looming shortage of RINs.

7 The RIN price situation was abated only after EPA 

8 issued the final rule signaling their intent to reduce 

9 2014 volumes and further abated when the 2014 proposal 

10 was issued. We're a member of both API and AFPM, as 

11 you know, and as you're aware, the industry filed a 

12 waiver petition specifically asking EPA to use their 

13 general waiver authority to reduce the congressionally 

14 mandated volumes to avoid negative consumer impacts of 

15 the E10 blend wall.

16 Specifically, that waiver petition requests EPA to 

17 set volumes so that the ethanol percentage in gasoline 

18 does not exceed 9.7 volume percent. This allows for 

19 E10 blends while accounting for the variability in the 

20 actual gasoline demand versus the forecasted demand 

21 used to set the annual percentage standards. We 

22 continue to support that approach.
142

1 EPA has missed the statutory deadline for 

2 establishing the 2014 and 2015 biomass-based diesel

3 volumes. EPA has proposed to maintain the biomass4 based diesel volume at the 2013 level. We believe that 

5 the statutory language requiring EPA to set the 

6 standard 14 months in advance prevents EPA from setting 

7 a higher volume standard.

8 Establishing an annual cellulosic volume remains a 

9 challenging exercise for EPA. As with any start-up or 

10 new project venture, there is great uncertainty

11 regarding production capability and economic viability. 

12 Although we can appreciate the difficulty of this 

13 task, we believe that the proposed 2014 cellulosic 

14 volumes continue to be much higher than can be 

15 achieved. Therefore, we believe it should be further 

16 reduced.

17 In closing, the fuel supply infrastructure issues, 

18 coupled with the vehicle warranty and compatibility 

19 problems, result in real limitations on the amount of 

20 ethanol that can be consumed. We are appreciative of 

21 the fact that EPA has recognized the blend wall 

22 constraints and has proposed volume reductions to avoid 
143

1 the detrimental impacts that would ensue absent this 

2 relief.

3 We will be submitting further detailed comments on 

4 the proposal, and we thank you for your time.

5 MR. GRUNDLER: Thank you, Mr. Reamy. Questions?

6 MR. SIMON: Yeah. I would encourage, Jeff, for 

7 you and other parties, the proposal also asked for 

8 comments on not just the things that we, you know, 

9 aren't doing, but also things that the industry and 

10 other stakeholders can do to grow this marketplace. So 

11 we encourage you --

12 MR. REAMY: Sure.

13 MR. SIMON: -- to look a little more positively in 

14 terms of what options there are, both in the short and 

15 long term as well.

16 MR. REAMY: Okay, sure. We'll definitely that 

17 back.

18 MR. SIMON: Look forward to that comment as well.

19 MR. REAMY: Sure, Karl. Thanks.

20 MR. GRUNDLER: Go ahead, John.

21 MR. HANNON: I have a question on the 9.7 percent 

22 figure that's come up several times from oil industry 
144

1 representatives, and I understand the purpose of that 

2 is to -- I guess to assume there is no E15 or E85 and 

3 to give a headroom for errors in the projection of 

4 gasoline and diesel production.

5 I think it's pretty clear from our proposal that 

6 EPA is attempting to balance two -- two major ideas. 

7 One is growth in the biofuels industry, and the other 

8 is a realistic ability to comply.

9 The 9.7 percent seems to assume that we should err 

10 on the side of assuming the EIA will underestimate or, 

11 I should say, overestimate, and that there will be more 

12 of a compliance burden. But it gives no weight to the 

13 concern that EIA may be rolling the other way and going 

14 -- and give less of an incentive for growth.

15 Can you, either here or in your comments, explain 

16 why EPA should pick one side of that error bar versus 

17 the other, as compared to trying to balance them?

18 MR. REAMY: Yeah, sure. We'll explore that 

19 further for you.

20 MR. MACHIELE: Well, and as a follow-up to that, 

21 again in your comments, I know, based on your comments 

22 and those we've heard from the petroleum industry so 
145

1 far, it is sort of 9.7 percent, you know, not 

2 aspirational cellulosic. If the agency's final rule 

3 isn't that, I'd encourage you to provide information as 

4 well on what you think is feasible in terms of not just 

5 that conservative, but what is a reasonable projection 

6 for what could be accomplished in 2014?

7 MR. REAMY: Okay, certainly.

8 MR. GRUNDLER: Thank you. Dr. Rider?

9 DR. RIDER: Thank you very much. Appreciate the 

10 opportunity to be here.

11 My name is Allen Rider. I'm a member of the 

12 National Steering Committee for the 25x'25 Alliance, 

13 which is an alliance that is seeking to have 25 percent 

14 of the total energy consumption to be renewable by the 

15 year 2025. That's the premise on which we operate.

16 The 25x'25 Alliance's preliminary review of the 

17 EPA's proposed 2014 standards for the Renewable Fuel 

18 Standard Program elicits an immediate and deep feeling 

19 of disappointment. The EPA's proposed amendments to 

20 the Renewable Fuel Standards Program represent a 

21 significant step back from the nation's previous path 

22 towards a more diversified energy future and, if 
146

1 implemented as proposed, could deliver a vital blow to 

2 the promise of bringing a new generation of clean, 

3 domestic biofuels to the driving public.

4 Since 2005, 25x'25 has been engaging stakeholders 

5 and communicating how biofuels improve energy security, 

6 stimulate the rural economic development, and reduce 

7 emissions from transportation fuels, among a host of 

8 other benefits. However, to propose reducing the 2014 

9 RFS requirements from slightly over 18 billion gallons 

10 down to slightly over 15 gallons represents a reversal 

11 of a carefully constructed energy policy that is 

12 working.

13 The RFS has proven to be highly effective for 

14 creating high-quality jobs, strengthening our national 

15 security through reduced oil imports, and reducing 

16 overall fuel prices for consumers. We must not pull 

17 back on the reins and kill the momentum that is driving 

18 to a stronger position in the global energy economy.

19 While we concede that the production volumes of 

20 cellulosic biofuels have not met the expectations as 

21 set out in the regulations, the legislation authorizing 

22 the RFS, the EPA has responsibly responded by using its 
147

1 authority under the existing statute to adjust RFS 

2 implementation as needed in response to the financial, 

3 technological, or production challenges.

4 However, the cellulosic and advanced biofuels 

5 energy is on the verge of significant breakthrough. 

6 Three major cellulosic production facilities using 

7 agricultural residues and nonfood feedstocks are set to 

8 open next year, two in Iowa and one in Kansas. In 

9 addition, smaller plants are currently operating in 

10 Florida and Mississippi. If the EPA moves forward with 

11 its proposed standards, these could be the only plants 

12 that we see for years to come.

13 Another success story is the resurgence of our 

14 agricultural sector, driven in part by biofuel

15 production. After a devastating growing season in 

16 2012, our nation's farmers responded positively by 

17 growing and harvesting what the USDA is projecting to 

18 be the largest corn crop and the third-largest soybean 

19 crop ever produced in our history.

20 Thanks to advances in crop genetics, technology, 

21 crop management, and conservation, there are more than 

22 enough agricultural commodities and other renewable
148

1 biomass feedstocks to satisfy our food, feed, fiber, 

2 and energy demands. EPA stood with agriculture and the 

3 biofuel sectors in 2012 and held firm to its RFS goals 

4 in 2013. We urge the EPA and the administration to 

5 stand firm again this year and remove the proposed cuts 

6 to the RFS volumes for 2014.

7 Diminishing the role of first-generation 

8 conventional biofuels in 2014 will benefit no one 

9 except the oil industry, and ramping down first10 generation biofuels will discourage the prospects for 

11 billions of dollars of future investments in second12 and third-generation production technologies in our 

13 rural areas where jobs are absolutely crucial.

14 The RFS is a long-term policy commitment by 

15 Congress to drive innovation, expand research and 

16 development, encourage investment, and open the door to 

17 new markets.

18 MR. KOROTNEY: You'll need to finish up, please.

19 DR. RIDER: I am. Thank you, sir.

20 The benefits of the RFS as envisioned by Congress 

21 are now being realized. The 25x'25 Alliance strongly 

22 believes that the current EPA proposal would 
149

1 essentially close the market and stop growth in its 

2 tracks. We urge you to withdraw this proposal and 

3 reinstate the 2014 volume requirements as laid out in 

4 the legislation.

5 In the coming days, we will make more detailed 

6 comments as you have requested on several other issues 

7 to follow up.

8 Thank you very much for this opportunity.

9 MR. GRUNDLER: Thank you, Dr. Rider.

10 I would just reiterate the questions we were 

11 posing to some of the other panelists. So if you have 

12 analysis or information to show how these statutory 

13 volumes could be met by the marketplace, that would be 

14 very useful.

15 DR. RIDER: We will do that. Thank you very much.

16 MR. MACHIELE: As well as sort of the -- your 

17 comments said you conceded that biofuels are not 

18 meeting the levels of the statute. But then you said 

19 we should hold firm with the levels in the statute. So 

20 I'm looking for something in your comments to reconcile 

21 those two statements.

22 DR. RIDER: We'll provide that.
150

1 MR. GRUNDLER: Thank you for taking the time to 

2 share your views. I'd like to invite Panel 6 up. 

3 Thank you for your patience.

4 I'd also like to announce after the conclusion of 

5 Panel 6, we'll be taking a short break for the 

6 panelists to stretch their legs, and we'll be breaking 

7 for about 30 minutes for others to do the same.

8 (Pause.)

9 MR. GRUNDLER: Mr. Cunningham, we're ready for 

10 your testimony.

11 MR. CUNNINGHAM: Thank you, and good morning.

12 My name is Mike Cunningham, and I'm a soybean 

13 farmer from Bismarck, Illinois, and a director on the 

14 American Soybean Association. The ASA is a national 

15 trade association representing nearly 600,000 soybean 

16 producers, and I want to thank you for the opportunity 

17 to testify today on their behalf.

18 The soybean farmers are extremely proud of the 

19 major role we have played in the development of the 

20 U.S. biodiesel industry, an industry that has helped 

21 diversify our fuel supply, reduce greenhouse gas 

22 emissions, and creating jobs and economic growth, 
151

1 especially in rural America. Biodiesel has become an 

2 important market for soybean oil, adding value to the 

3 soybean co-product and boosting the farm and rural 

4 economy.

5 Soy oil would be a drag on demand for soy meal

6 protein, if not for the biodiesel market. There has 

7 been an increased soybean production to meet the global 

8 protein demand at the same time soy oil is being 

9 displaced from food markets due to the move away from 

10 trans fat.

11 Biomass-based diesel and total advanced biofuels 

12 levels set forth in the proposal are unnecessarily low 

13 and will stifle the growth and job creation potential 

14 demonstrated by the biodiesel industry over the past 

15 several years. ASA believes that there is no need to 

16 limit the biomass-based diesel obligation to 1.28 

17 billion gallons in 2014 and 2015 or to limit the total 

18 advanced biofuels volumes to 2.2 billion gallons, as 

19 EPA has proposed.

20 ASA sees no compelling reason not to increase the 

21 biomass-based diesel volumes above the estimated actual 

22 production for 2013, or at least 1.7 billion gallons, 
152

1 with the equivalent level of total advanced biofuels.

2 Biodiesel is the most prevalent advanced biofuel

3 currently produced in the United States. The industry 

4 has met or exceeded the RFS biomass-based diesel volume 

5 requirements each and every year they have been placed. 

6 And 2013 production is expected to reach 1.7 billion 

7 gallons.

8 Production and supply levels for soybean oil 

9 combined with the increased amount of other feedstocks 

10 being utilized for biomass-based diesel production in 

11 the case of the volume requirements of 1.7 billion 

12 gallons can easily be achieved in 2014. Biodiesel

13 provides numerous benefits for consumers and society as 

14 whole, including jobs, displacing petroleum, reducing 

15 emissions, reducing soy oil cost for livestock 

16 producer, providing a market for soy oil displaced from 

17 the food markets due to trans fat issues.

18 It seems EPA and OMB are considering cost, but not 

19 giving biodiesel any credit for the benefits it 

20 provides. What is the cost of reducing the value of 

21 U.S. ag products? What is the cost of fewer jobs in 

22 rural America? What is the cost of less domestic 
153

1 energy production and higher greenhouse gas emissions

2 for using only petroleum transportation fuels?

3 While it's difficult to isolate the net impact of 

4 biodiesel biofuels on the agricultural sector, 

5 according to the income statement of the U.S. farm 

6 sector published by the USDA from 2009 to 2013, a 

7 period in which biofuel production has increased, the 

8 U.S. farm sector has increased -- experienced an 

9 increase in cash receipts for both crops and livestock, 

10 farm-related income, gross cash income, and net cash 

11 income.

12 Net farm income during this period has more than 

13 doubled. In addition, direct Government payments to 

14 the farm sector has decreased. There are greater 

15 factors beyond biofuels that are contributing to this 

16 success, but expanding biodiesel and other biofuel

17 production has had a positive impact on the 

18 agricultural outputs and jobs and a positive net impact 

19 on the agricultural sector.

20 When considering the dynamics of biodiesel and 

21 soybean production, it is important to understand that 

22 markets and prices for soybeans are driven by demand 
154

1 for soy meal as a protein feed source for livestock.

2 MR. KOROTNEY: You'll need to finish up, please.

3 MR. CUNNINGHAM: Okay. Biodiesel, in turn, 

4 provides an important market outlet to utilize soy oil. 

5 In recent years, demand for soy oil for food use has 

6 declined significantly following the implemented trans 

7 fat labeling requirements.

8 All this suggests that there is no need to limit 

9 the biomass-based diesel obligation to 1.25 billion 

10 gallons in 2014 and 2015. Therefore, ASA supports a 

11 reasonable biomass-based diesel volume increase above 

12 the estimate of actual production for 2013, or at least 

13 1.7 billion gallons.

14 Thank you.

15 MR. GRUNDLER: Thank you. Questions?

16 (No response.)

17 MR. GRUNDLER: Ms. Campbell, welcome.

18 MS. CAMPBELL: Thank you.

19 My name is Katie Campbell, and I am with 

20 ActionAid. We are an international development 

21 organization working in over 45 countries around the 

22 world.
155

1 And at ActionAid, we have been monitoring the 

2 impact of the RFS mandate on the communities and 

3 countries in which we work. It has become clear that 

4 expansion of corn ethanol is putting a strain on land 

5 and food supplies and contributing to hunger and 

6 political instability across the globe.

7 The EPA's proposed reductions to the 2014 biofuel

8 blending requirements are a step in the right 

9 direction, but much more urgent action is required if 

10 we are going to reverse the damaging impacts of corn 

11 ethanol expansion on global food security.

12 The share of U.S. corn crop diverted to biofuel

13 production has gone from 5 to 40 percent since 2000. 

14 This amounts to the diversion of now 15 percent of 

15 global corn supply toward the meeting the mandates of 

16 the RFS.

17 This diversion, as part of a dramatic global 

18 expansion of crop-based biofuel production, has, 

19 without a doubt, led to increased food price 

20 volatility. We have seen three dramatic food price 

21 spikes in the last 5 years alone, which have been 

22 linked to rioting and political instability in 
156

1 countries around the world.

2 This increased food price volatility has had a 

3 particularly detrimental impact on developing countries 

4 where most people spend between 60 and 80 percent of 

5 their income on food. In a 2012 study, researchers at 

6 Tufts University calculated the exact cost of U.S. 

7 ethanol expansion and found that net corn importing 

8 countries spent $11.6 billion more in higher corn 

9 prices over the 5 trade years ending in 2011, with more 

10 than half that cost, $6.6 billion being borne by 

11 developing countries.

12 In Guatemala alone, where half the population 

13 lives below the poverty line and half of children under 

14 the age of 5 are considered malnourished, the cost was 

15 $91 million. This is the equivalent of what the U.S. 

16 normally provides to food aid in Guatemala, which means 

17 U.S. energy policy is effectively canceling out U.S. 

18 foreign assistance objectives.

19 As long as the crop-based ethanol mandates of the 

20 RFS remain in place, the risk that they will fuel 

21 continued global food crises looms large. While this 

22 1-year proposed reduction is certainly welcome, 
157

1 congressional action is urgently needed to permanently 

2 fix the broken RFS and roll back the harmful mandates 

3 for crop-based biofuels.

4 Thank you.

5 MR. GRUNDLER: Thank you. One question.

6 MR. HANNON: One quick question. If you submit 

7 written comments, it'd be useful to try to identify to 

8 what extent the food impacts are attributable to the 

9 RFS versus the marketplace for ethanol and gasoline. 

10 EPA has gone through that process of modeling and 

11 analyzing that in prior waivers and found, at least in 

12 prior years, that there was absolutely no impact, in 

13 fact, of the RFS on the ethanol usage or the corn 

14 price.

15 And recognizing that I'm not at all commenting on 

16 the relationship of food impacture on the world and the 

17 use of ethanol and corn prices, just on the what is the 

18 exact specific role of the RFS program in that?

19 Thank you.

20 MS. CAMPBELL: We're happy to provide that 

21 analysis. Thanks.

22 MR. MACHIELE: I guess one -- one other question. 
158

1 You said our proposal is a step in the right 

2 direction, and I think you answered my question by 

3 saying, you know, congressional action is needed to 

4 permanently fix it.

5 But in your written comments, I guess, if there's 

6 something about our proposal that is only a step in the 

7 right direction and you're looking for something more, 

8 please clarify that more in there.

9 MS. CAMPBELL: Sure. Will do. Thank you.

10 MR. MACHIELE: I can't control Congress.

11 MS. CAMPBELL: I know. I am aware. Thank you.

12 (Laughter.)

13 MR. GRUNDLER: Ms. Anderson, welcome.

14 MS. ANDERSON: Thank you.

15 My name is Paige Anderson. I'm with the National 

16 Association of Convenience Stores. Thank you so much 

17 for having us here today and holding this hearing and 

18 letting all interested parties share their views with 

19 you.

20 NACS will be submitting written testimony after 

21 this. So I'm only going to be highlighting a few of 

22 our -- our members' views on this proposed rule.
159

1 NACS represents the fuel retailing industry. We 

2 have, as of 2012, over 149,000 stores that are 

3 convenience store operators. Almost 60 percent of 

4 those stores are only single store operators. Folks 

5 confuse us that everybody are the big guys. But the 

6 majority of our industry are single store operators.

7 Eighty percent of the fuels consumed in the United 

8 States are sold by the convenience and fuel retailing 

9 industry. Our daily fill-ups, in 2012, we had 33.5 

10 million fill-ups per day. Though $700 billion in sales 

11 in 2012 were from our stores, 70 percent of those sales 

12 come from fuel sales. Our net -- our pretax profit for 

13 most stores averages about $46,000.

14 In general, NACS believes the RFS program, we do 

15 not at this time support repeal. But we do think there 

16 are some challenges and some things that can be done to 

17 improve the program as we move forward. Specifically, 

18 with the proposed rule, we believe that the volumes 

19 that EPA has proposed are a positive step in the right 

20 direction to give us the time to hopefully work on some 

21 of those issues and challenges.

22 The blend wall issue is real. It is urgent, and 
160

1 we need to deal with it. It's not a made-up economic 

2 fallacy. It is -- it is facing us, and it's facing us 

3 now.

4 There are legal and infrastructure and economic 

5 impediments that are a challenge now and will remain a 

6 challenge unless we can fix them. And it's imperative 

7 that we do do that, if we want to move forward with the 

8 RFS.

9 Some of the market challenges that we're facing, 

10 obviously, the economic assumptions that Congress used 

11 in 2007 have not borne fruit and those need to be 

12 adjusted. But really, from our perspective, our 

13 retailers, we sell what the consumer wants. We're 

14 agnostic on fuel types. If a consumer wants E10, E15, 

15 E85, natural gas, electric vehicles, our folks will 

16 provide it and will sell it.

17 The biggest challenge we really have is consumer 

18 awareness. The information that most consumers are 

19 getting is that E15 and E85 is bad. So even if they're 

20 purchasing a flex-fuel vehicle, they're not necessarily 

21 at our stations fueling it up with E85 for those stores 

22 that offer it.
161

1 So the reality is our retailers will provide the 

2 fuel that the consumer wants, and the majority of our 

3 stores and retailers are not seeing the demand that we 

4 were hoping that they would see with higher blends of 

5 ethanol. There have been some of our retailers that 

6 have had positive experience. It's been a mixed 

7 reaction. Some areas have done well, but the majority, 

8 again, have not done as well as we had hoped.

9 Our concern is though flex-fuel vehicles are 

10 increasing, and there is more demand for those 

11 vehicles, again, it doesn't mean that they're taking it 

12 to the next step at our stations. There are some 

13 infrastructure challenges, which we will put in our 

14 written testimony, having to do with compatibility of 

15 the equipment and misfueling liability issues, which 

16 has been mentioned before. And we will put more of 

17 that in our written statement.

18 But the one thing that we want to get across today 

19 is, you know, it's our folks that are the ones that 

20 have to sell whatever fuel is determined that EPA, 

21 Congress, and others want to have. And it's very 

22 difficult in a limited space and only with so much 
162

1 financial resources to sell something that a consumer 

2 doesn't want.

3 MR. KOROTNEY: You have to finish up, please.

4 MS. ANDERSON: And that's what our consumers are 

5 facing. But we believe that the volumes that you've 

6 proposed are a positive step in the right direction for 

7 us to work on some of those challenges.

8 Thank you.

9 MR. GRUNDLER: Questions?

10 MR. MACHIELE: Just ask you to clarify in your 

11 written comments what you mean by "a positive step in 

12 the right direction," as opposed to, you know, what you 

13 would be looking for.

14 MR. HANNON: You said a couple times that your 

15 association members will provide whatever consumers 

16 want. We heard from several panelists from Iowa and 

17 other States that consumers in those areas were quite 

18 willing to purchase E85, largely driven, it sounded, by 

19 the marketing decisions made by the retailer on the 

20 pricing of the E85.

21 In your comments, could you address the market, 

22 the marketing decisions made by your members in selling 
163

1 E10 versus E85? And for example, you could easily 

2 envision a situation where you can make more profit 

3 selling E10, a gallon of E10 than a gallon of E85 at a 

4 reduced price, and that very well may drive the 

5 marketing of E85 as much or more than what the consumer 

6 awareness is.

7 Not at all negating the fact that consumer 

8 awareness is a critical element of it, but it strikes 

9 me that the marketing decisions by the retailer are 

10 important as well. Information on that could be very 

11 helpful.

12 The other thing that would be useful is several 

13 panelists talked about big oil interfering with the 

14 retail sale of E15 or E85. Any comments you have on 

15 that would be appreciated as well.

16 MS. ANDERSON: Right. We haven't seen it, but 

17 we're happy to put that in our written testimony.

18 MR. GRUNDLER: One more question. We also heard 

19 from prior panelists that the infrastructure to sell 

20 E15 exists today. To the extent that your organization

21 has information on that would be also quite useful.

22 MS. ANDERSON: Okay.
164

1 MR. GRUNDLER: So we're hearing -- we're hearing 

2 conflicting concerns about on the one hand, we've got 

3 liability issues and tank issues and infrastructure 

4 issues, and then we heard from another panel that those 

5 didn't exist or that large volumes of E15 could be sold 

6 today and E85 could be sold today.

7 MS. ANDERSON: I'd be happy to provide that.

8 MR. GRUNDLER: If you have information from your 

9 members, that'd be good.

10 MS. ANDERSON: Absolutely. Thank you.

11 MR. GRUNDLER: Thank you. Mr. Fey, welcome.

12 MR. FEY: Now we're done passing the buck. Thank 

13 you for permitting me to share my thoughts on this 

14 important subject.

15 I believe that reducing or eliminating the 

16 renewable fuel standard from the 10 percent blend in 

17 gasoline should be done, and the sooner, the better. 

18 Let me explain.

19 Ethanol came into the nation's fuel mix a 

20 generation ago when America's import levels of 

21 petroleum were very high and our proven recoverable 

22 reserves were fast shrinking. We should also note that 
165

1 the average fuel consumption of cars and trucks was a 

2 lot higher then than it is today.

3 At the time, it was recognized that substantial 

4 Federal subsidies were required for ethanol facilities, 

5 as were tax credits for each gallon blended into 

6 gasoline. The subsidies were justified as they were in 

7 the national interest.

8 A corn-based ethanol industry flourished, and 

9 blends of 10 percent in gasoline became the standard. 

10 America's corn crop mushroomed, but now about 40 

11 percent of it is diverted to produce ethanol. Corn 

12 shot up in price. Supplies for livestock feeds and 

13 food products shrank, and we all pay higher prices at 

14 the supermarket as a result.

15 Today, America's fleet of vehicles is much more 

16 efficient than it was then. Petroleum is being 

17 produced in vastly increased quantities from the 

18 enormous fields previously thought unfeasible. Doing 

19 so has resulted in a remarkable rise in domestic 

20 supplies.

21 From a technical and economic point of view, it's 

22 difficult to make the case for corn-based ethanol
166

1 unless it is subsidized. When burned, ethanol's heat 

2 release is much lower than that of gasoline, decreasing 

3 an engine's fuel economy. It requires more total 

4 energy to produce than gasoline and more than is 

5 released when it is burned.

6 When natural gas used to produce needed crop 

7 fertilizers and the energy required for ethanol

8 production are added, the carbon footprint of a 

9 gasoline-ethanol blend is higher than the footprint of 

10 unblended gasoline. The increased runoff of 

11 fertilizers from farms further pollutes America's 

12 rivers and streams. Therefore, ethanol is bad for the 

13 environment that we so strive so hard to protect.

14 And finally, automobile producers state that some 

15 blends of ethanol and gasoline have a damaging effect 

16 on the engines in our cars. While ethylene-gasoline 

17 blends may have been a worthy endeavor in years past, 

18 it is my belief that they should now be phased down and 

19 out.

20 Ethylene is not needed to fuel America's fleet for 

21 all the reasons I stated above. Let us return the all22 important production of corn to its intended use, 
167

1 providing food products and livestock feeds and, 

2 ultimately, to feeding the Earth's increasing human 

3 population.

4 Malnutrition stalks far too many people here at 

5 home and around the world. Let us use this precious 

6 resource for its much higher purpose, feeding our 

7 fellow man.

8 Thank you for your time.

9 MR. GRUNDLER: Thank you, sir.

10 Mr. Biderman?

11 MR. BIDERMAN: Good afternoon. My name is David 

12 Biderman. I'm general counsel and vice president of 

13 government affairs for the National Waste and Recycling 

14 Association, and we appreciate the opportunity to 

15 testify here today.

16 The National Waste and Recycling Association, 

17 formerly NSWMA, represents the private waste and 

18 recycling collection, processing, and management 

19 industry. Some of our members own and operate 

20 renewable energy projects at landfills for a variety of 

21 end uses, including electric power generation and 

22 transportation fuel.
168

1 Many of these renewable energy projects are 

2 possible due to the aggressive RFS standards. Biogas 

3 from landfills, known as landfill gas, has been 

4 recognized as a renewable fuel by the EPA for many 

5 years. As private companies in our industry and others 

6 begin converting their fleets to compressed natural gas 

7 and liquefied natural gas, they can utilize this 

8 renewable fuel.

9 Within the waste and recycling industry, about 

10 half of the new trucks that were sold this year in the 

11 United States are powered by natural gas. By switching 

12 from fossil fuel to renewable fuels, these companies 

13 reduced their carbon footprint and greenhouse gas 

14 emissions.

15 Further, the transition can occur smoothly, often 

16 utilizing the very same pipeline that carries 

17 nonrenewable natural gas. This achieves the Federal

18 Government's expressed aim to reduce greenhouse gas 

19 emissions and expand the nation's renewable fuel sector 

20 while reducing reliance on foreign oil.

21 Last month, EPA proposed new volumes for 

22 cellulosic biofuel of only 17 million gallons based on 
169

1 its projection of availability. These projections fall 

2 significantly below the statutory target for 2014 

3 specified by Congress.

4 Congress specified large volume increases to 

5 encourage the growth in renewable fuels from cellulosic 

6 biofuels. Because the volume for the cellulosic 

7 biofuel is so low, the original intent of supporting 

8 this growth will be diminished. Landfill gas dedicated 

9 to transportation fuel qualifies for renewable fuels in 

10 the advanced biofuel category. However, proposed 

11 changes to the RFS Pathways II and technical amendments 

12 to the RFS2 Pathways II rule would change that, putting 

13 it in the cellulosic biofuel category.

14 When this change occurs, there will be 

15 significantly greater volumes of cellulosic biofuel

16 available than is proposed. For example, one of our 

17 members operates a single project that produces 4 

18 million RIN gallons, almost one quarter of the total 

19 volume. Therefore, although the proposed volumes of 

20 cellulosic biofuel may be currently adequate, it should 

21 be modified to account for volumes that will be 

22 considered cellulosic when the Pathways II rule is 
170

1 finalized.

2 The Coalition for Renewable Natural Gas has stated 

3 that their members estimate they will produce between 

4 114 and 141 million ethanol-equivalent gallons of 

5 cellulosic biofuel under the revised Pathways II. 

6 However, many facility owners do not belong to the 

7 CRNG, which means this estimate is probably a little 

8 low.

9 The Natural Waste and Recycling Association 

10 recommends that the cellulosic biofuel category volumes 

11 be increased to at least 120 ethanol-equivalent gallons 

12 in 2014 to account for both existing producers and the 

13 potential new producers with the implementation of 

14 Pathways II. This will encourage project development 

15 in this category.

16 Again, we appreciate the opportunity for 

17 testifying here today and look forward to providing 

18 written comments to the agency.

19 Thank you very much.

20 MR. MACHIELE: We'll welcome the data that you 

21 provide in your written testimony on the volumes and 

22 from where and then how it's used for transportation
171

1 purposes.

2 MR. GRUNDLER: Mr. Reese, welcome.

3 MR. REESE: Thank you. Good morning. It's still 

4 morning. Oh, good afternoon. It's gotten past the 

5 noon hour.

6 So I'm John Reese. I'm responsible for fuels 

7 regulations for Shell, and I've been doing this a long 

8 time. I've been involved in fuels regulations since 

9 1991.

10 Shell is an obligated party under the RFS, but 

11 we're also more than that. We are the world's largest 

12 distributor of biofuels. We played a key role in the 

13 expansion of ethanol and biodiesel use here in the U.S. 

14 Through a joint venture, we are a biofuel producer, 

15 and we're working hard towards the commercialization of 

16 cellulosic biofuels.

17 I put together a few slides making some key points 

18 that I've given to the panel. I've got some extra 

19 copies for anybody that wants it. I also have a one20 pager there that explains the blend wall problem that 

21 I've given to the panel, and I have extra copies.

22 So please enter those into the record, but I'll 
172

1 just summarize a few key points here. Ultimately, it's 

2 Shell's view that Congress needs to act to reduce the 

3 RFS mandates to levels that are compatible with 

4 vehicles and infrastructure and that also provide 

5 appropriate incentives for the cellulosic biofuels.

6 But in the meantime, EPA has to act to address the 

7 blend wall problem, using its existing authority in 

8 order to avoid severe adverse impacts on consumers in 

9 the economy. So we generally support your proposal. 

10 But as you've heard from others this morning, we 

11 actually think that you should go a little bit farther 

12 down to that 9.7 level to provide a little bit more 

13 flexibility.

14 We do believe that you clearly have the authority 

15 to make these adjustments, and I'll talk about that a 

16 little bit more. But we do not think that you can 

17 increase the biomass-based diesel requirement before 

18 2016.

19 I've talked about the blend wall quite a bit this 

20 year. I started the year off back in February going to 

21 the National Ethanol Conference, where I talked about 

22 the blend wall issue. And I continue to come across 
173

1 quite a bit of misunderstanding of how the RFS works 

2 and the blend wall, and I think it's important to kind 

3 of discuss that a little bit here so that there is a 

4 good understanding of it because it also bears on EPA's 

5 authority to make adjustments.

6 Basically, the way the RFS works is EPA takes the 

7 volumes in the law. It divides it by the expected 

8 gasoline and diesel demand, and that gives a percent 

9 RFS standard. Then obligated parties multiply that by 

10 the amount of gasoline and diesel that is supplied into 

11 the U.S., and that's our renewable volume obligation. 

12 That tells us how many of these RIN credits that we 

13 need, okay?

14 Now all's you have to do is a little bit of 

15 algebra here to rearrange the terms, and you realize 

16 that RINs are essentially permits to supply gasoline 

17 and diesel to the United States. We can only supply as 

18 much gasoline and diesel to the United States as we 

19 have RINs to meet the obligation that supplying that 

20 fuel incurs, okay?

21 And really important part here is that the RINs 

22 that count, the ones that count towards compliance 
174

1 depend on the consumption of renewable fuels, not on 

2 the production of renewable fuels. So I've summarized 

3 that on the slide.

4 Now what happens then when the mandates in the law 

5 exceed the ability to consume the renewable fuels? 

6 Well, the first thing that happens is the RIN price 

7 reacts, and that's what we saw earlier this year. But 

8 then, actually, it will get worse unless the Government

9 takes action to fix it because, ultimately, these RINs 

10 are permits to supply. And as we hit the blend wall 

11 and it gets worse, we will limit the supplies of 

12 gasoline and diesel to the United States.

13 So you might say, well, we just need more RINs. 

14 You know, what are the options there? Well, neither 

15 E15, E85, biomass-based diesel, or drop-in cellulosic 

16 fuels are going to supply the RINs needed in the 

17 timeframe necessary. The comment has been made a 

18 couple of times today already you'd have to go from 

19 about 1.5 million gallons of E85 up to 3.5 billion 

20 gallons to fill that RIN gap.

21 So it's a big problem. The blend wall is here 

22 now. There is no solution that is apparent to supply 
175

1 the RINs, and I really want to emphasize this last 

2 point, and that is that noncompliance is not an option. 

3 I heard it, I think, stated earlier today, you know, 

4 well, if there's no changes, then the obligated parties 

5 have to fall into noncompliance.

6 That's not an option. We do not get to knowingly 

7 violate the Clean Air Act. The blend wall problem is 

8 what happens when we have to take action to comply in a 

9 situation that is infeasible?

10 So let me just summarize a few key points. I 

11 mean, we think that EPA is really on the right track 

12 here to make adjustments. We think that you have the 

13 authority to make these adjustments. You've got the 

14 authority to adjust the advanced and general renewable, 

15 as you adjust the cellulosic, but you also have your 

16 general waiver authority, which is really quite broad.

17 It's not -- the law says "inadequate domestic 

18 supply." It does not say inadequate domestic supply of 

19 renewable fuels or, as some people here are arguing, of 

20 the ability to produce renewable fuels.

21 MR. KOROTNEY: I'm sorry. You're going to have to 

22 finish up.
176

1 MR. REESE: Okay. Just, well, that takes me about 

2 to the end, actually. Let me just say that, you know, 

3 we think that also your interpretation of your 

4 authority is a reasonable interpretation of the 

5 statute. We think you have the authority. We think 

6 you need to exercise it.

7 And let me just close by saying we think the law 

8 is very clear that it's not possible to increase the 

9 stringency of the biomass-based diesel standard until 

10 2016 at the earliest, and you have to, of course, meet 

11 all those requirements in the law.

12 Thank you. Sorry if I went over.

13 MR. GRUNDLER: Thank you very much, panel. 

14 Appreciate the time you've given us today.

15 We will reconvene at 12:40 p.m.

16 (Break.)

17 MR. GRUNDLER: Mr. Shimberg, welcome.

18 MR. SHIMBERG: Thank you, sir.

19 MR. GRUNDLER: Ready when you are.

20 MR. SHIMBERG: All right. Well, thank you very 

21 much. I appreciate the opportunity to testify.

22 I am Steve Shimberg, and today I'm appearing 
177

1 before you on behalf of a coalition of merchant 

2 refiners -- okay. Coalition of merchant refiners, all 

3 of whom are obligated parties under the RFS. The six 

4 companies that endorse the testimony today are Monroe 

5 Energy, Philadelphia Energy Solutions, HollyFrontier, 

6 CVR Energy, Alon USA, and Ergon.

7 Merchant refiners, as many of you know, have a 

8 unique -- have unique compliance issues with the RFS 

9 program and, as a result, bring a unique perspective to 

10 this discussion. For the most part, they produce and 

11 deliver unfinished gasoline to blenders. They cannot 

12 control how much renewable fuel is blended into 

13 unfinished gasoline.

14 Unlike integrated refiners who produce finished 

15 gasoline and can separate RINs when they blend the 

16 renewable fuel, merchant refiners must buy RINs on the 

17 secondary market. Their relatively small market share 

18 makes them price takers rather than price setters for 

19 both their blend stock and RINs, and as a result, high 

20 RIN prices have a disproportionate adverse impact on 

21 them.

22 At the outset, I want to emphasize our 
178

1 appreciation for EPA's recognition of the blend wall 

2 and the proposal to reduce the RFS mandate for 2014 and 

3 put in place a program and approach for future years as 

4 well. I also want to urge EPA to complete this 

5 rulemaking as quickly as possible because, as you know, 

6 the 2014 rule will have an impact on compliance options 

7 and costs for both 2013 and 2014.

8 As EPA grapples with estimating and projecting 

9 fuel use over the coming year, I would urge you to keep 

10 in mind that the risk associated with overestimating 

11 ethanol use is extremely high. And conversely, the 

12 risk of underestimating the ethanol use is not high at 

13 all. And the reason for that, the high, if you 

14 overestimate on the high end, it obviously has a 

15 serious impact on the cost of RINs, which then impacts 

16 the merchant refiners and ultimately will impact the 

17 consumers.

18 If you underestimate on the low side, the market 

19 is well established for E10, and people are going to 

20 keep producing and using E10, as close to E10 as they 

21 can. So the downside risk is pretty low.

22 My written statement notes that there are at least 
179

1 three parts of the proposed rule where EPA needs to 

2 make adjustments, and I'm going to address just two of 

3 those today. The first is calculation of the blend 

4 wall, and you've already heard about this from a number 

5 of the prior witnesses.

6 In our view, the calculation of the blend wall is 

7 too high for a number of reasons. Particularly, we 

8 think the agency underestimates the amount of E0 that 

9 is used. It might overestimate by a small amount the 

10 amount of E85 that's likely to be used. It 

11 overestimates the accuracy of blending measurement 

12 devices. The notion that we can get right at 9.9 or 10 

13 percent is just unrealistic, given the measurement 

14 sensitivities. And it fails to account for the EIA's 

15 history of overestimating gasoline use.

16 The result is a projected blend wall that leaves 

17 no room for error and does nothing to ensure liquidity 

18 in the RIN market. As we're seeing, D6 RIN prices are 

19 still too high, and unfortunately, they've been moving 

20 higher since the 2014 proposal was released. In our 

21 view, this is evidence that the market views the 2014 

22 proposal for ethanol use as overly optimistic and, 
180

1 unless modified, could lead to a continued shortage of 

2 D6 RINs.

3 The second issue I'd like to address is -- has to 

4 do with RIN prices and E85. In both the 2013 final 

5 rule and the 2014 proposed rule, EPA asserts that high 

6 RIN prices may subsidize the price of ethanol sold as 

7 E85, and we've heard other witnesses this morning talk 

8 about that as well.

9 But the credit system created by Congress and the 

10 RIN market created by EPA were not designed to be used 

11 as a subsidy for more expensive fuels. EPA, when they 

12 set up the rule in 2007, talked about giving obligated 

13 parties a flexibility to use renewable fuel in the most 

14 economical ways possible and explained that the RIN 

15 system would allow the fuels market to continue 

16 operating according to natural market forces.

17 Nothing could be further -- nothing could be more 

18 antithetical to natural market forces than the use of 

19 Government mandates to force the payment of a subsidy 

20 for more expensive fuels.

21 MR. KOROTNEY: Excuse me. Please complete your 

22 testimony.
181

1 MR. SHIMBERG: Okay. And then there's the 

2 question of who ultimately pays for the subsidy. 

3 Merchant refiners cannot continue to absorb the cost. 

4 So, ultimately, consumers who buy E10 are going to be 

5 paying the subsidy.

6 And do we really want to be telling the vast 

7 majority of consumers who buy E10 that they're paying 

8 more for their gasoline so someone else can pay less 

9 for their E85?

10 Thank you.

11 MR. GRUNDLER: Thank you. Any questions for the 

12 panel?

13 MR. MACHIELE: Yeah. Just a couple of follow-up 

14 questions. One, I guess, narrow one. If you could, in 

15 your written comments, maybe provide more information 

16 on your point on measurement accuracy? Because that 

17 does not ring true with my knowledge of ethanol

18 blending.

19 MR. SHIMBERG: I'd be happy to do that.

20 MR. MACHIELE: Secondly, how do you square your 

21 statement that if we overestimate on the low side, the 

22 E10 market is relatively, you know, established, 
182

1 there's no risk against the -- what we're hearing from 

2 other testimony on the risk to the advanced biofuels 

3 that are just -- they're looking for investors. 

4 They're taking off. They've built plants, new plants, 

5 investments.

6 And if we underestimate on the low side, aren't we 

7 undercutting all those investments that have been made?

8 MR. SHIMBERG: Well, my view is that the market --

9 you've heard from some of the other witnesses earlier 

10 on, the consumer demand drives what is actually 

11 produced and delivered. And so, if the market wants 

12 more of those fuels, they will be delivered.

13 My comment went to the notion of the E10, that 

14 you're not going to see a falloff from E10 to, let's 

15 say, E5 or E4 if you underestimate because ethanol is 

16 still cheaper than gasoline. So it's in people's 

17 interest to be using as much ethanol as they can.

18 Given the limit on the vehicles on the road right 

19 now, E10 is the predominant limit on that. And so, 

20 people -- blenders and suppliers still have an 

21 incentive.

22 MR. MACHIELE: Well, I guess that relates to a 
183

1 third question, which is, quite simply, your statement 

2 that, you know, RIN prices, the RFS was not designed by 

3 Congress to be used to subsidize less economic fuels. 

4 The RFS is a mandate for higher volumes of renewable

5 fuels established by Congress.

6 So I don't know how you square that statement with 

7 the statute we've been given.

8 MR. SHIMBERG: Well, it has --part of it has to do 

9 with who is the proper obligated party? Where is the 

10 pressure likely to produce the desired outcome?

11 And as I outlined earlier, as merchant refiners, 

12 we don't influence what the blend is. We are not in a 

13 position to be investing in new infrastructure for 

14 delivery of E85 or E15. So we don't think that just 

15 imposing the higher RIN prices on our refiners actually 

16 will accomplish the goal.

17 So all you've done is either shift the cost to 

18 consumers or driven out merchant refiners from the 

19 market. So it's -- I don't know how you square the --

20 yes, the statute was designed to encourage more 

21 alternative fuels use. But we do not see anything in 

22 the credit system that was set up or in the regulatory 
184

1 history of the RIN program to suggest that the RIN 

2 program is the way to do that.

3 MR. MACHIELE: Thank you.

4 MR. GRUNDLER: Mr. Fenwick?

5 MR. FENWICK: Good afternoon. Thank you.

6 My name is Scott Fenwick, technical director for 

7 the National Biodiesel Board. I've been involved with 

8 the production, distribution, and application of fuels 

9 for the last 25 years, including the management of 

10 several independent fuel testing labs. I also happen 

11 to currently serve as an officer over the ASTM D02 

12 committee that has jurisdiction over the methods and 

13 specifications for petroleum products, liquid fuels,

14 and lubricants.

15 I'd like to take a moment to discuss specific 

16 inconsistencies and misconceptions between the NPRM and 

17 operational examples from the field used to limit the 

18 RVO for biodiesel. Within the proposed rule, 

19 specifically page 126, it discusses the inability to 

20 use biodiesel blends as low as B5 due to cold weather 

21 constraints.

22 The estimated cloud point for a B5 blend of 
185

1 biodiesel made from soybean oil is 5 degrees 

2 Fahrenheit. While this is correct, it's also the same 

3 cloud point for a typical Number 2 ultra low sulfur 

4 diesel fuel. The addition of 5 percent biodiesel has 

5 very little, if any, impact on the reported cloud point 

6 of that fuel.

7 The rationale that B5 blends cannot be consumed 

8 anywhere in which the 10th percentile temperature falls 

9 below that cloud point would then also rule out the use 

10 of diesel fuel as well.

11 The State of Minnesota has the lowest 10th 

12 percentile temperatures across the country. This is 

13 the same State that's been operating under a B5 mandate 

14 since May 1st of 2009.

15 The cold weather performance of biodiesel blends 

16 are not limited to B5 either. The State of Illinois 

17 has a tax incentive that leads to blends of B11 being 

18 utilized throughout the year, which means that for at 

19 least the last 5 years, most gallons of diesel fuel in 

20 Illinois have been blended with at least 11 percent 

21 biodiesel. Illinois is another cold weather State, and 

22 B11 performs as well as diesel fuel cars in cars and 
186

1 trucks across the State.

2 Without regard to biodiesel, petroleum-based 

3 diesel fuels will also gel in colder weather. The 

4 Department of Energy's National Renewable Energy Lab 

5 has data from a number of studies looking at the cold 

6 weather performance of biodiesel blends.

7 The most recent data shows no significant impact 

8 of blending up to 5 percent biodiesel. However, there 

9 are a number of ways the fuels industry has at its 

10 disposal to mitigate the risks associated with cold 

11 flow performance.

12 Regardless of the presence of biodiesel, the 

13 industry routinely relies on additives, heated systems, 

14 and the additional blending of Number 1 diesel fuel to 

15 improve the cold weather performance of ULSD. Each of 

16 these scenarios works well with the inclusion of 

17 biodiesel as well.

18 The facts are simple when it comes to cold 

19 weather. At 30 degrees below zero, it's hard to drive 

20 any diesel vehicle, which is why a number of fuel 

21 distributors switch to Number 1 diesel fuel in the 

22 winter time.
187

1 In every case, cold weather education of the user 

2 is important, which is why the NBB, as a trade 

3 association in conjunction with the fuels industry, has 

4 produced a number of documents and informational 

5 sources regarding cold weather usage. Much of this 

6 technical support information includes handling and use 

7 guidance, a study on cold weather blending, and many 

8 additional fact sheets for fuel distributors.

9 In addition to the technical support available, 

10 the National Biodiesel Board provides testimonials from 

11 customers successfully using biodiesel blends in cold 

12 climates year round. Several of these customers 

13 include Yellowstone National Park, cities of Ann Arbor, 

14 Michigan, and Denver, Colorado, where it reached minus 

15 12 degrees today.

16 As you know, fuel quality is addressed through 

17 ASTM International, and the current specifications that 

18 govern the quality of diesel fuel, ASTM D975, do not 

19 have a current limit for cloud point. Instead, the 

20 entity offering fuel into the marketplace is 

21 responsible for the quality necessary to achieve a fit 

22 for purpose fuel for the locale and season of its use.
188

1 For example, what may be perfectly fine in Houston 

2 would not necessarily work in International Falls, 

3 Minnesota, which can be said about both diesel fuel and 

4 biodiesel, and that's why we've worked so hard to 

5 educate users about the handling and use guidance for 

6 fuels. What we know for sure is that biodiesel blends 

7 have demonstrated their ability to perform in Minnesota 

8 and elsewhere under the coldest conditions.

9 MR. GRUNDLER: Can you wrap it up?

10 MR. FENWICK: Yes, sir. Just as diesel fuel has 

11 with proper handling and storage. This approach has 

12 served the fuels industry well over the last several 

13 decades and has not hindered the use of either 

14 petroleum diesel fuel nor biodiesel during the winter 

15 months.

16 Thank you.

17 MR. GRUNDLER: Thank you. Any questions?

18 (No response.)

19 MR. GRUNDLER: Mr. Johnston, welcome.

20 MR. JOHNSTON: My name is Glenn Johnston. I'm 

21 executive vice president for Gevo. Today, I'm here on 

22 behalf of the Advanced Biofuels Association, as I chair 
189

1 the Regulatory Committee.

2 So on behalf of the Advanced Biofuels Association, 

3 I want to thank you for the opportunity to provide 

4 testimony on the proposed 2014 renewable volume 

5 obligations. ABFA represents nearly 50 companies that 

6 produce advanced and cellulosic biofuels as well as 

7 renewable feedstocks.

8 This 2014 proposal will pull the rug out from 

9 underneath our advanced biofuels sector and will 

10 destroy the industry. It is a significant departure 

11 from the previous years and from a clear congressional 

12 intent to steadily increase the target for advanced

13 biofuels year after year.

14 EPA's proposal to put the target below the current 

15 production of advanced biofuels by torturing a 

16 mathematical model or flipping its own public arguments 

17 on waiver authority from one year to the next is a 

18 major violation of the statute and the commitment of 

19 Congress and this administration to GHG reductions 

20 through advanced drop-in biofuels.

21 There are many concerns, which we will address in 

22 our written comments. These oral arguments will only 
190

1 focus on three. First, EPA's proposed RFS reductions 

2 fall disproportionately on advanced biofuels. For the 

3 first time ever, the RVOs are leaving behind 

4 congressional intent and moving outside the volume 

5 mandates that were written into law.

6 EPA is proposing to cut volume requirements for 

7 advanced biofuels by more than 40 percent, compared to 

8 the requirements that are currently written in the RFS 

9 statute. In contrast, EPA is proposing to cut less 

10 than 10 percent reduction off of conventional biofuels.

11 We're left scratching our heads and wondering why 

12 EPA would deliver such a disproportionate large blow to 

13 a category of renewable fuels that reduces GHGs the 

14 most. This directional change is counterproductive to 

15 Obama administration's stated goals of reducing climate 

16 change.

17 Point number two, the EPA Monte Carlo model. This 

18 process, which you have selected to set the RVO targets 

19 using a mathematical model system as Monte Carlo, is 

20 driving this nation to an average. We have for the 

21 past years driven ourselves to be leaders in the world 

22 on biofuels, not average performers. And through this, 
191

1 we have exceeded the yearly RVO targets in the overall 

2 advanced pool.

3 To not consider various items during the modeling 

4 such as the RIN carryover, the actual gallons produced 

5 in the biomass-based diesel pool, as well as the actual 

6 gallons produced in the advanced pool, and the impact 

7 of individual State policies such as the low carbon 

8 fuel standard in California, is torturing the model to 

9 gain the predetermined result that you want.

10 For our evolving industry, such policy will ensure 

11 a continuous oversupply of advanced biofuels compared 

12 to what the EPA model forecasts and would deflate any 

13 value in the RIN system. We need EPA to stop looking 

14 in the rearview mirror at these averages and start 

15 concentrating on the road ahead because you're missing 

16 all the signs that this industry is not an average 

17 performer.

18 Point three, the EPA should set the RFS standards 

19 that encourage production. And for an administration 

20 that is committed to addressing climate change, this 

21 proposal sets the consumption targets way below what we 

22 actually produced.
192

1 So, in conclusion, whether intended or not, this 

2 rule has sent a chilling signal to the financial 

3 markets everywhere. This administration has spent over 

4 $500 million from the DOE alone to develop advanced

5 biofuels industry. It's counterintuitive that EPA 

6 would undercut the very companies you funded, continue 

7 to fund to develop these fuels.

8 Option one may be an improvement, and we will 

9 provide detailed comments on it. But many other 

10 concerns will be in our written submission. We look 

11 forward to working with you during the comment period 

12 to revise this proposal to align with the statute's 

13 intent and show the administration's continued support 

14 of the growing advanced biofuels industry.

15 Thank you.

16 MR. GRUNDLER: Thank you. Mr. Ash, welcome.

17 MR. ASH: Thank you.

18 Good afternoon. I'm Avery Ash, director of 

19 Federal relations for AAA.

20 As North America's largest motorist organization, 

21 AAA has advocated for more than 100 years to ensure 

22 that our more than 54 million members and all Americans 
193

1 have access to transportation fuels that are safe, 

2 reliable, and affordable.

3 With this focus in mind, AAA applauds the EPA for 

4 putting consumers first with their proposed 2014 RFS 

5 standards. The proposal will support continued 

6 development of alternative fuels while also recognizing 

7 the needs of millions of Americans who drive every day.

8 To be clear, AAA is not opposed to the use of 

9 ethanol, and we're not opposed to the RFS. However, 

10 more realistic targets must be set to protect drivers, 

11 especially from the increased use of potentially 

12 damaging E15 gasoline. The vast majority of cars on 

13 the road today are not designed to run on gasoline 

14 containing more than 10 percent ethanol.

15 Ethanol has the potential to support the economy 

16 and reduce the reliance on fossil fuels. However, it 

17 is irresponsible to mandate more ethanol than cars can 

18 safely use. More 90 percent of vehicles currently on 

19 the road are not approved by manufacturers to use E15. 

20 This includes most vehicles made between 2001 and 

21 2013.

22 While new model vehicles can increasingly use E15 
194

1 gasoline, previous makes and models were never designed 

2 to use the fuel and are often not covered to use E15 

3 under warranty. This puts motorists and our members in 

4 the difficult and confusing position choosing a fuel 

5 for their vehicle that may be approved for use 

6 according to EPA, but not according to their 

7 manufacturer. It will likely take another decade 

8 before the bulk of the fleet will be able to use -- 

9 will be E15 compatible, as approved by manufacturers.

10 I want to thank you for this opportunity today, 

11 and we urge the agency to act swiftly to finalize 

12 specific targets that both support ethanol use while 

13 also helping to protect drivers nationwide. We look 

14 forward to submitting more extensive comments during

15 the comment period.

16 MR. GRUNDLER: Thank you very much. Questions?

17 (No response.)

18 MR. GRUNDLER: Mr. Rindler, welcome.

19 MR. RINDLER: Thank you.

20 My name is Alex Rindler. I'm a policy associate 

21 at the Environmental Working Group. Thank you for 

22 giving me the opportunity to testify today.
195

1 EPA's proposed rule recognizes that the renewable

2 fuel standard isn't working as designed and that action 

3 must be taken to address the ethanol blend wall. The 

4 Environmental Working Group strongly supports a Federal

5 mandate that drives the development of low carbon 

6 biofuels that do not pit our energy and food security 

7 needs against the environment and public health.

8 But as long as the RFS remains the de facto 

9 mandate for corn ethanol, these low carbon, second10 generation biofuels will not have a viable market in 

11 which they can compete. That is why EPA should place 

12 more emphasis on cellulosic ethanol and drop-in 

13 biofuels and de-emphasize corn ethanol, which has 

14 proved to be disastrous for the environment.

15 The proposed 2014 standards lower the overall 

16 mandate enough to stave off the blend wall, but this 

17 reduction will do little to weaken corn ethanol's 

18 chokehold on the market, and it won't help the 

19 cellulosic ethanol industry gain a foothold in the E10 

20 pool.

21 The more we learn of corn ethanol's harm to the 

22 environment, the more difficult it is to justify a 
196

1 renewable fuels policy that mandates its use. Since 

2 Congress expanded the RFS in 2007, we've witnessed a 

3 dramatic increase in the demand for and production of 

4 corn to burn for fuel. The hope that corn ethanol

5 could greatly lower the carbon footprint of the 

6 transportation sector died as it became clear that its 

7 growth carried a heavy price.

8 The yardstick we now use to measure corn ethanol's 

9 impact is not the gallons of foreign oil it supposedly 

10 replaces. It is the acres of wetlands and grasslands 

11 that have been plowed under to plant corn. EWG's 

12 analysis of the USDA's crop land data layer found that 

13 from 2008 to 2011 the corn ethanol mandate contributed 

14 to the loss of 23 million acres of vegetation, an area 

15 the size of Indiana.

16 In places where the loss of wetlands has been 

17 greatest, namely the wildlife-rich prairie pothole 

18 region of the upper Midwest, corn accounts for most of 

19 this conversion, 68 percent, or more than 236,000 

20 acres. In addition, the rapid conversion of wetlands 

21 and grasslands has driven up greenhouse gas emissions 

22 by releasing huge amounts of carbon stored in the soil 
197

1 and increasing the use of fertilizers that emit nitrous 

2 oxide.

3 EPA's own lifecycle analysis found that corn 

4 ethanol produced more greenhouse gas emissions than 

5 gasoline in 2012 and will continue to do so in 2017. 

6 According to your analysis, corn ethanol produced in a 

7 natural gas-fired or dry mill plant results in 

8 emissions that are 33 percent higher than gasoline's 

9 and 66 percent higher when the ethanol comes from a 

10 coal-fired dry mill plant.

11 Even though corn ethanol contributes to climate 

12 change, virtually all corn ethanol production is 

13 exempted from the greenhouse gas reduction standards of 

14 the RFS, standards that second-generation biofuels like 

15 cellulosic ethanol must meet. With that kind of uneven 

16 playing field, it is no wonder that corn ethanol

17 continues to dominate the market at the expense of 

18 better biofuels.

19 Corn ethanol also increases emissions of harmful 

20 air pollutants, including particulate matter that 

21 contributes to respiratory illnesses. The National 

22 Academy of Sciences concluded in 2011 that the effects 
198

1 of ethanol fuel on air quality would be more damaging 

2 to human health than those from gasoline use.

3 Even worse, as the acreage dedicated to corn 

4 production has increased in recent years, more nitrogen 

5 from fertilizer has washed off farm fields, polluting 

6 waterways and contributing to low oxygen dead zones 

7 lethal to aquatic life. The National Academy also 

8 highlighted these harmful effects on water quality, 

9 noting that the increase in corn production contributes 

10 to both hypoxia and harmful algal blooms.

11 The verdict is in. The RFS isn't generating 

12 environmental benefits because it relies on a fuel that 

13 increases greenhouse gas emissions, worsens air and 

14 water pollution, and scars America's landscape, as this 

15 grim reality comes at the expense of cellulosic

16 producers at the very time their first commercial 

17 gallons enter the marketplace.

18 Unfortunately, Federal law limits EPA's ability to 

19 address the long-term flaws of the RFS and provide the 

20 cellulosic ethanol industry the certainty it needs to 

21 succeed.

22 MR. GRUNDLER: Could you wrap it up?
199

1 MR. RINDLER: We, therefore, hope EPA will support 

2 congressional efforts to reform Federal biofuels policy 

3 in order to restore the agency's ability to advance the 

4 innovative low carbon fuels of the future.

5 Thank you very much.

6 MR. GRUNDLER: Thank you. Any questions?

7 MR. MACHIELE: Just a request that, I guess, in 

8 your written comments that you -- I mean, I thank you 

9 for your testimony, all the information provided. But 

10 then, as you prepare your written comments, if you 

11 could translate that into what you would encourage the 

12 agency to finalize in the context of what we propose as 

13 far as option one, two, three and the volumes 

14 associated with it. So --

15 MR. RINDLER: We'll be happy to do so. Thank you.

16 MR. MACHIELE: Thanks.

17 MR. GRUNDLER: Welcome, Ms. Phillips. Please 

18 proceed.

19 MS. PHILLIPS: Thank you.

20 My name is Leticia Phillips, and I'm the North 

21 American representative for the Brazilian Sugarcane 

22 Industry Association, UNICA. I thank you for the 
200

1 opportunity to testify here today.

2 UNICA is the leading trade association for the 

3 sugarcane industry in Brazil, representing 60 percent 

4 of the country's sugarcane production and processing. 

5 Sugarcane ethanol production in Brazil uses only 1.5 

6 percent of the country's arable land, reduces GHG 

7 emissions by 90 percent on average compared to 

8 conventional gasoline, and helps move beyond fossil 

9 fuels.

10 For over 6 years, UNICA has been working closely 

11 with EPA and the U.S. renewable fuel industry. Since 

12 the beginning of the RFS program, EPA had been a strong 

13 supporter of the modest, but important role that 

14 Brazilian sugarcane ethanol plays supplying Americans 

15 with sustainable fuel. In 2010, the agency certified 

16 that Brazilian sugarcane ethanol cuts CO2 emissions by 

17 more than 60 percent and classified it as an advanced 

18 renewable fuel.

19 Following congressional intent, EPA has encouraged 

20 advanced biofuels because they are the renewable fuel 

21 with the greatest GHG reductions. So it came as an 

22 extraordinary shock and it is deeply concerning to us 
201

1 that EPA has proposed to drastically reduce the volumes 

2 of advanced fuels for the 2014 RFS.

3 This last and next year's target for advanced 

4 biofuels is a huge step backward from the Obama 

5 administration's goals for decreasing GHG emissions and 

6 improving the energy security. Advanced biofuels, 

7 including Brazilian sugarcane ethanol, are a proven 

8 solution for addressing climate change. Yet EPA's 

9 proposed formula for setting advanced biofuels targets 

10 ignores its own estimate that 650 to 800 million 

11 gallons of sugarcane ethanol can be supplied to the 

12 U.S. market in 2014.

13 EPA's proposal pulls the rug from under the 

14 advanced biofuel industry, not just Brazilian sugarcane 

15 producers. EPA is proposing to cut advanced biofuels 

16 volume by more than 40 percent while proposing a less 

17 than 10 percent reduction to volume requirements for 

18 conventional biofuels, which include a number of 

19 grandfathered facilities that may not meet the minimum 

20 requirement of 20 percent reduction.

21 EPA should set renewable fuel standard that 

22 encourage production and consumption of all available 
202

1 advanced biofuels because the domestic market for 

2 advanced biofuels in America is growing rapidly. While 

3 EPA originally projected that U.S. would import around 

4 600 million gallons of Brazilian sugarcane ethanol to 

5 meet the 2013 RFS, we will end this year with about 450 

6 to 500 million gallons, not because Brazil has 

7 exhausted its capacity for export, but because American 

8 production of advanced biofuels is expanding quicker 

9 than EPA forecast.

10 Congress clearly intended to encourage greater use 

11 of advanced biofuels year over year in order to achieve 

12 the largest GHG reduction possible. That's why UNICA 

13 supports EPA's option one, which would set the advanced

14 biofuel volume requirement based on the availability of 

15 advanced biofuels plus carryover RINs.

16 We also encourage EPA to consider implementation 

17 of California's low carbon fuel standard when setting 

18 the RFS targets. California considers Brazilian 

19 sugarcane biofuels the low carbon fuel with the best 

20 performance today, and the only fuel available at 

21 commercial scale to contribute to meeting its low

22 carbon fuel standard.
203

1 We also urge the administration to consider the 

2 repercussions for trade policy. Europe has already 

3 assessed dumping charges on some U.S. biofuels, and the 

4 last thing the global biofuels market needs is policy 

5 reversals that flood other countries with unwanted 

6 products.

7 Our association looks forward to commenting 

8 further on the proposal and will continue to play an 

9 active role in the RFS rulemaking process. Brazil will 

10 continue to be a strong, dependable partner, helping 

11 America meet its clean energy goals.

12 Thank you very much.

13 MR. GRUNDLER: Thank you. Questions?

14 I have one. Did I hear you say that you recommend 

15 that EPA considers the California standard in setting 

16 the -- our standard?

17 MS. PHILLIPS: Yes. It's just what we mean is 

18 that California will continue to demand Brazilian 

19 sugarcane ethanol to meet their low carbon fuels --

20 their low carbon fuel standard. And this fuel will 

21 come in, and this fuel could be generating RINs.

22 So we will explain further in our written comments 
204

1 what we mean by that, but this is essentially what we 

2 have in mind.

3 MR. GRUNDLER: Thank you.

4 MS. PHILLIPS: You're welcome.

5 MR. HANNON: Both yourself and a prior speaker 

6 referred to a 40 percent reduction in the advanced

7 biofuel compared to a 10 percent in the conventional. 

8 That's also clearly in a context where all the --

9 almost all of the growth in advanced was coming from 

10 cellulosic, not from non-cellulosic advanced, but from 

11 the cellulosic advanced.

12 So the 40 percent reflects, to some extent, that 

13 disproportionate growth that Congress mandated that was 

14 unrealistic, as we all know, not just a clear 

15 overemphasis on advanced compared to conventional. I 

16 think in the proposal, EPA describes it as the actual 

17 volume drop in conventional to be greater than the 

18 volume drop in non-cellulosic advanced.

19 So, in both of your comments, it'd be useful to 

20 address that and explain why the 40 -- if you consider 

21 the 40 percent the important percentage for us to 

22 consider, why that is the important percentage in the 
205

1 context of the cellulosic growth.

2 The -- that's it. Thank you.

3 MS. PHILLIPS: Thank you.

4 MR. MACHIELE: I have one follow-up question, I 

5 guess going back a few speakers. But more, I guess, 

6 again, in written comments -- Glenn, I assume you'll 

7 put it in written comments anyway. But just to 

8 request, I was asking Steve Shimberg, sort of asking 

9 him about the implications of EPA overestimating on the 

10 low side.

11 I assume you will be addressing that in your 

12 written comments as it relates to your advanced biofuel

13 producers?

14 MR. JOHNSTON: Yes, we will.

15 MR. GRUNDLER: Again, thank you so much for 

16 spending the time sharing your concerns. Well worth 

17 it. Thank you.

18 Panel 8, come on up.

19 (Pause.)

20 MR. GRUNDLER: Welcome. Mr. Hutchison, you're up 

21 first.

22 MR. HUTCHISON: Good afternoon. Thank you for 
206

1 this opportunity.

2 My name is Robert Hutchison, and I farm with my 

3 two brothers, a son, and a nephew on our family farm in 

4 Cordova, Maryland. And although we're not directly 

5 involved in the production of agriculture, I've been a 

6 strong proponent of ethanol for more than 20 years and 

7 believe it has been extremely important in allowing 

8 American farmers to move away from farm support 

9 programs to making market-driven decisions.

10 The actions that you are proposing to reduce the 

11 renewable fuel standard by 1.4 billion gallons from 

12 conventional ethanol can change all the hard work that 

13 -- and investments that farmers across the nation have 

14 done to develop an important economic driver for the 

15 rural community and for agriculture.

16 More importantly, EPA is sending a message to 

17 investors that making financial decisions based on 

18 Government policy is a bad idea in the long run, and it 

19 will diminish investments in second-generation in 

20 cellulosic biofuel production.

21 We have no ethanol production in Maryland today, 

22 but we do see an opportunity in the future with the 
207

1 production of switchgrass, which can be raised in 

2 buffer areas and to serve as both the cellulosic

3 biofuel renewable fuel and a way to protect the 

4 Chesapeake Bay. But I, for one, would not invest in 

5 such an opportunity if by the whim of a Federal agency 

6 any required use of a fuel could be eliminated.

7 Today, cellulosic ethanol is considered the 

8 preferred option, but in 2007, corn-based ethanol was 

9 considered an immediate solution to fulfill the first 

10 15 billion gallons of production. No one at that time 

11 suggested that once that level was reached, the plug 

12 would be pulled and investors would just have to deal 

13 with it.

14 In the early 2000s, Maryland Grain Producers

15 Utilization Board investigated building an ethanol

16 plant. As a corn deficit State and with a strong 

17 desirable poultry industry, we did not want to use corn 

18 as our feedstock. Instead, we investigated using 

19 barley, a crop we can grow in a 2-year, 3-crop rotation 

20 in conjunction with corn and soybeans.

21 This would enable us to produce domestic fuel 

22 locally, grow a winter cover crop to help protect the 
208

1 Chesapeake Bay, and maintain the same corn and soybean 

2 production for the poultry industry. We believed it 

3 was a win-win concept, and although we decided not to 

4 move forward with our project, the idea did result in 

5 construction of a barley to ethanol plant in Hopewell, 

6 Virginia.

7 I mention this to demonstrate that Maryland grain 

8 farmers have made their decisions in an effort to 

9 protect the poultry industry, which is our biggest 

10 customer, and also to protect the water quality of the 

11 Chesapeake Bay.

12 Ethanol is one of the best tools we have to fight 

13 air pollution from vehicles, and there is no other fuel 

14 available today that matches ethanol's ability to 

15 improve overall environmental quality compared to 

16 gasoline. In 2012, the 13.2 billion gallons of ethanol

17 produced reduced greenhouse gas emissions on road 

18 vehicles by 33.4 million tons. That's equivalent to 

19 removing 5.2 million cars and pickups or removing all 

20 the cars and trucks registered in Maryland from the 

21 road every year.

22 According to the Maryland Department of 
209

1 Environment, results of 2012 air quality monitoring 

2 data showed continuing improvements in the State's air 

3 quality, thanks to sustained and continued strong 

4 support for Maryland's air quality programs by Governor 

5 Martin O'Malley. These improvements have been made 

6 since the introduction of E10 blends after the use of 

7 MTBE was eliminated and could --

8 MR. GRUNDLER: Could you please conclude your 

9 remarks now? Could you wrap it up?

10 MR. HUTCHISON: Okay. And could be improved more 

11 with E85.

12 On a personal note, the policy decision -- excuse 

13 me. On a personal note, the policy decisions have 

14 reduced the income on our family farm by about $63,000 

15 if you take the price when the announcement was made 

16 and today's price and apply it to our production.

17 The current price of corn is below our cost of 

18 production, and my cost of production is somewhere 

19 between $4.30 and $4.80, and the current price is 

20 somewhere around $4.30 to $4.50.

21 So thank you. Appreciate your time.

22 MR. GRUNDLER: Thank you for your time. Mr. Marr?
210

1 MR. MARR: Thank you very much.

2 I kind of laughed this morning when Iowa Governor 

3 said he flew 1,000 miles to come here. I spent 18 

4 hours trying to get through Chicago O'Hare yesterday.

5 I'm with the Minnesota Soybean Processors. We're 

6 own by about 2,500 local investors, located in a little 

7 500-person town of Brewster, Minnesota, in southwest 

8 Minnesota. We process soybeans into soybean meal for 

9 animal consumption and inedible soybean oil, and about 

10 half that oil goes into biodiesel refining.

11 We began operations in 2003. We began refining 

12 biodiesel in 2005. We have about 80 employees, 20 

13 specific to biodiesel. These are fully benefitted 

14 jobs. We're known as the best employer in a 100-mile 

15 radius.

16 We'll provide detailed written comments later, but 

17 briefly today, it appears that EPA is basing 2014 

18 biomass-based diesel fuel requirements upon some 

19 strange, contrived relationship to the ability to 

20 produce cellulosic ethanol. Last August, you required 

21 2.7 billion gallons of advanced biofuels for 2013. We 

22 will easily exceed those volumes.
211

1 So it's extremely troubling to us that because 

2 we're an advanced biodiesel producer why you would take 

3 actual wet gallons of the advanced biofuel biodiesel

4 that doesn't affect the gasoline pool out of the 

5 marketplace. It just doesn't make Midwest sense if 

6 your goal is to replace petroleum with advanced

7 biofuels.

8 The proposed rule focuses almost entirely on the 

9 retail cost to consumers, but it really missed the mark 

10 on biodiesel because today biodiesel is less expensive 

11 than diesel fuel, and in 2014, with or without the tax 

12 credit, we anticipate being extremely competitive with 

13 diesel fuel prices. We can't predict the future. We 

14 can only model it, and our models have been more 

15 accurate than EPA's.

16 When you modeled feedstock prices in 2012, you 

17 predicted feedstock prices would increase by at least 3 

18 cents a pound. You were wrong. Feedstock prices have 

19 decreased dramatically, and with the abundance of 

20 available oils in the marketplace due to the 

21 development of qualifying feedstocks, we anticipate the 

22 feedstock cost will drop even further in 2014. We 
212

1 remind you again that our product, biodiesel, plays in 

2 the distillate pool, not in the gasoline pool.

3 On October 21, the Wall Street Journal had an 

4 article, "Gasoline Prices Skid as Diesel Burns." And 

5 in that article, it said refiners are still running at 

6 high speed because they are earning fat profits 

7 exporting diesel, which is made using the same process 

8 that converts oil to gasoline. We submitted that 

9 article to you.

10 The article further states U.S. diesel exports 

11 surpassed 1 million barrels a day for the first time 

12 this past summer, doubling from the start of the year. 

13 In 2010, U.S. diesel exports averaged just 300,000 

14 barrels a day.

15 The article further goes on and states that 

16 Marathon's Garyville, Louisiana, refinery and Valero, 

17 all three refineries are spending money to increase 

18 diesel fuel production on the Gulf Coast, production 

19 that can be exported. And exports of petroleum fuel 

20 actually reduce the RVO for that specific fuel. In the 

21 case of diesel, the export reduces the RVO for diesel.

22 By keeping the biomass-based diesel fuel 
213

1 requirement at 1.7 billion in reality could allow 

2 obligated parties to offset some of their RVO, ethanol

3 RVO with biomass-based diesel RINs. Essentially, 

4 biodiesel producers are providing crude oil refineries 

5 nearly 2 billion gallons of free distillate refining, 

6 distillate that's being exported.

7 We remind EPA that biomass-based diesel is today 

8 the only commercially produced advanced biofuel and is 

9 produced from multiple feedstocks, nearly all 

10 nonedible, especially important when you consider the 

11 recent FDA proposal to eliminate all trans fat oil and 

12 products.

13 We strongly urge EPA to reanalyze the relationship 

14 between ethanol RVOs and the ability of biodiesel to 

15 temper the so-called ethanol blend wall. But really, 

16 we're here today to personalize the economic impact 

17 these proposed rules could have on our employees. It 

18 will reduce our payroll by at least $500,000, brings 

19 uncertainty to our investors. It's $500,000 that 

20 doesn't go up Main Street, USA.

21 I'm not here to pick on major oil, but in major 

22 oil's 2012 SEC proxy shows five named executives 
214

1 receiving $117 million in compensation, and they 

2 proudly note on their Web site, "As we develop oil and 

3 gas resources to meet the world's growing energy needs, 

4 we work to build and sustain local economic growth and 

5 improve social conditions." But apparently, that 

6 doesn't apply to their fellow Americans.

7 Thank you.

8 MR. GRUNDLER: Thank you, Mr. Marr. Questions for 

9 the panel?

10 MR. BURKHOLDER: Yeah, you mentioned the 

11 decreasing feedstock costs to the biodiesel industry as 

12 well as cost of biodiesel being less than petroleum13 based diesel. Just appreciate any information you 

14 could provide in your written comments on those two 

15 issues. We'd like to take a look at that.

16 MR. MARR: We'll be glad to provide that. Thank 

17 you.

18 MR. GRUNDLER: Okay. Mr. McKnight, welcome.

19 MR. MCKNIGHT: Thank you.

20 My name is John McKnight. I work for National 

21 Marine Manufacturers Association. I appreciate the 

22 opportunity to speak today, and we'll be submitting 
215

1 written comments by the deadline.

2 A little bit about the recreational marine 

3 industry, you guys have been regulating us for years. 

4 So you already know it. But we got, you know, 12 

5 million registered boats. It's a $121 billion economic 

6 impact. And the nice thing about recreational boating 

7 is it is a strong U.S. manufacturing business. We got 

8 over 340 jobs that we create, and they are jobs in the 

9 United States.

10 NMMA commends the EPA on behalf of marine 

11 manufacturers and boaters for proposing to lower the 

12 renewable fuel obligations for 2014. Boating industry 

13 continues to experience a damaging effect of high14 ethanol blends and appreciates EPA's steps to ensure 

15 that low-level ethanol fuel remain available.

16 NMMA members to the Department of Energy's 

17 Renewable Labs studied the effects of E15 on marine 

18 engines, and the results unequivocally show significant 

19 engine damage, poor engine runnability, performance, 

20 and difficulty starting. Additional oxygen that we 

21 find in E15 makes the fuel burn hotter, and the higher 

22 temperatures can reduce the strength of the components.
216

1 In addition, the ethanol can cause compatibility 

2 issues with other materials in the fuel system. Our 

3 testing proves utilizing high-ethanol blends can lead 

4 to significant issues for marine engine consumers and 

5 can result in premature engine failure.

6 The negative effects of E15 are not only seen in 

7 marine engines, but there's been testing to show it on 

8 other small and off-road equipment. The overwhelming 

9 majority of nonroad engines, from chainsaws to weed 

10 trimmers to lawn mowers, operate similarly to 

11 recreational marine engines with open loop systems and 

12 with fuel systems that are set at the factory and 

13 designed to be, as required by EPA, tamper proof.

14 The 2014 proposed renewable fuel standards will 

15 help ensure that safe fuel remains a viable source for 

16 marine consumers. Many marine consumers prefer 

17 ethanol-free gasoline for their engines, particularly 

18 our legacy products. The proposed RVOs help ensure 

19 that E0 will be available to consumers, which totaled 

20 somewhere around 3 percent of the fuel production in 

21 2012.

22 Most critically, the proposed RVOs for 2014 will 
217

1 allow the continued availability of E10 in the 

2 marketplace. Marine engine products are designed, 

3 calibrated, and tested so they can run on E10 fuel. 

4 Our engines are specifically prohibited from operating 

5 on E15 fuel, as established by this agency's partial 

6 waiver.

7 This agency needs to ensure the continued 

8 available fuel for the millions of marine products, 

9 small engine equipment, and older cars that rely on it. 

10 The rulemaking will help ensure that E10 fuel is 

11 available for the short term.

12 NMMA is not opposed to ethanol or renewable fuels 

13 in general, but simply opposes to any fuel blend that's 

14 going to ruin our engines. Our engines present the 

15 worst-case operating condition due to their infrequency 

16 of use, the start and stop running conditions, and the 

17 interaction with surrounding water.

18 NMMA and our members pride ourselves on innovation 

19 and testing new fuels to safely and effectively operate 

20 our marine engines. We will also continue to explore 

21 the alternative biofuels, such as isobutanol. We'll 

22 continue to invest in testing that reveals exactly how 
218

1 ethanol is hurting marine engines so that we can better 

2 inform our customers. We have been working with the 

3 Department of Energy and have done a lot of evaluation 

4 and studies to looking at isobutanol and other effects 

5 of ethanol.

6 While NMMA commends the EPA's 2014 RVO proposals, 

7 we understand that this is merely a short-term fix 

8 which fails to ensure the long-term market reliability.

9 What we really need is for Congress to go back and 

10 without delay and amend the renewable fuel standard. 

11 The RFS is currently a broken law, which sets a totally 

12 unrealistic fuel mandate, and we believe that Congress 

13 needs to address the RFS with head-on legislation.

14 I appreciate the opportunity to be able to come 

15 before you today and testify, and I'm certainly 

16 available to answer any questions.

17 MR. GRUNDLER: Thank you.

18 MR. BURKHOLDER: Just a clarifying question. If I 

19 understood you correctly, you said that all of your 

20 marine engines are designed to run and operate on E10 

21 fuel? Is that correct?

22 MR. MCKNIGHT: To accommodate.
219

1 MR. BURKHOLDER: To accommodate an E10 fuel blend?

2 MR. MCKNIGHT: Yeah, what we do is we'll do like 

3 certification of E0, and now it's moving to E10. So 

4 within the fuel ratio, we calibrate the engines to run 

5 within that band of 0 to E10. When you start going up 

6 to E15 and you're increasing the amount of oxygen in 

7 the fuel, that affects the combustion chamber, and we 

8 run a lot hotter.

9 We saw with the tests that we did with NREL, with 

10 DOE funding, we saw temperatures 100 to 150 degrees 

11 higher than we normally run on E10 using E15, and 

12 that's what caused the damage.

13 MR. BURKHOLDER: Okay. Thanks.

14 MR. ARGYROPOULOS: A follow-up also. I just want 

15 to make sure I heard you correctly, and maybe we can 

16 read it in your testimony, but did you say that these 

17 engines consume about 3 percent of the fuel, nation's

18 fuel or --

19 MR. MCKNIGHT: No, no, no. Oh, no. I'm sorry. 

20 Was I getting really fast, and I stayed in the time.

21 MR. ARGYROPOULOS: That's okay.

22 MR. MCKNIGHT: But what I'm saying is, okay, you 
220

1 go over to the Eastern Shore. I was there a couple of 

2 weeks ago. I pull up to a gas pump, and I can get E0.

3 MR. ARGYROPOULOS: Right.

4 MR. MCKNIGHT: Some places you can get it. That 

5 was the point. I'm trying to say right now in the U.S. 

6 fuel supply, from the data that we've seen, 3 percent 

7 of the fuel out there -- I guess in entertainment 

8 areas, people sell it for marine.

9 Because I pulled up to the pump, and I go to the 

10 guy -- I went to fill, and he goes, "You don't want 

11 that. That's ethanol free." It's going to cost you a 

12 little more because, obviously, supply and demand. But 

13 right before me was a boater filling up his boat with 

14 it.

15 So it's out there. We would like to see it 

16 maintained out there. But I mean, there's another 

17 issue, too. Most of your boaters that fill up their 

18 truck and then they fill up their boat, they're putting 

19 E10 in there, and we're okay with E10. We can 

20 calibrate that.

21 We can't get to that next range unless, you know, 

22 we make some decision here as to, okay, we're going to 
221

1 start calibrating these engines to that. But then 

2 we've got to start talking about --

3 MR. ARGYROPOULOS: Well, any data you have kind of 

4 on that would be useful as well.

5 Thank you.

6 MR. MCKNIGHT: Thank you.

7 MR. GRUNDLER: Mr. Benavides?

8 MR. BENAVIDES: Thank you, Mr. Chairman, and thank 

9 you for allowing me to testify today and to the 

10 distinguished members of the board and colleagues.

11 My name is Ramon Benavides, and I'm the president 

12 of Global Renewable Strategies and Consulting, a 

13 strategic business development company. I'm also a 

14 founder/shareholder of two biomass-based diesel

15 facilities and now a new owner of a third advanced

16 fuels refinery that is scheduled to open in 2014. This 

17 facility will produce a unique renewable, high-energy

18 density liquid based upon DoD technology.

19 The proposed renewable fuel volumes represented in 

20 the NPRM today are yucky, regressive, and represent 

21 stagnation for a 2-year period, and I oppose them. I 

22 understand the methodology the agency is proposing, and 
222

1 I'm appreciative of the agency's decision to remain 

2 open to any evidence that suggests the numbers may be 

3 larger than proposed and its willingness to review that 

4 data as presented. However, I am concerned that the 

5 official data for 2013 issued by other regulatory 

6 agencies will not be available at the time of comment 

7 closure and may lead to incomplete analysis.

8 It is clear the proposal has had an adverse effect 

9 on the market for both fuel and RINs. Regardless of 

10 prior statements that the agency is not responsible for 

11 market conditions, the EISA authorizes credits, 

12 volumes, waivers, and relegates authorities to the EPA. 

13 In reality, this means the agency is the market maker, 

14 and because of those authorities, no other party, 

15 entity, or business has this power.

16 The proposed numbers sent a strong signal to the 

17 investment and producer community that indicates growth 

18 will be stagnant that will result in loss of investment 

19 opportunity and jobs. The publicly traded companies 

20 have already experienced a share loss on the markets, 

21 and others are reassessing their expansion plans.

22 How can the agency derive that M&A will occur when 
223

1 investment monies have vacated the sector? It's akin 

2 to the scenario that when monies run out, governments 

3 shut down, credit downgrades occur, and I'm sure the 

4 agency can correlate with my question.

5 Despite the agency assumption that the tax credit 

6 will have an effect on the industry, an historical 

7 review of production data provided by the EMTS and the 

8 Energy Information Agency for the prior lapsed tax 

9 credit periods indicates that the domestic biodiesel

10 volumes were sustained and subsequently grew.

11 The U.S. facilities achieved greater efficiencies 

12 that resulted in lower cost to compete with the diesel

13 prices, and that was not reflected in the NPRM. Two 

14 major events that directly coincided with diminishing 

15 RIN values were in part based upon actions or perceived 

16 actions of the agency.

17 The first incident extended the annual compliance 

18 date beyond the traditional 28th of February, and the 

19 second was the leaked 2014 volumes. The markets have 

20 not recovered from those events, and the influences of 

21 the agency's actions were not discussed as factors that 

22 influence or -- and potentially impede the production 
224

1 of a renewable fuel.

2 I remain standoffish about Monte Carlo models 

3 because the initial data the agency has selected may be 

4 based on less than credible information that is not 

5 evidentiary based. These models worked very well when 

6 historical, factual, and finite data is used.

7 When legislation or rules that are designed to 

8 grow businesses and industries, such as the EISA and 

9 the RFS, become an impediment to growth, then that 

10 legislation or rule is obsolete and counterproductive 

11 to the true business, regardless of the intended 

12 purpose. In regards to the biomass-based diesel and 

13 advanced category, the agency is going the wrong 

14 direction as it fails to recognize growth.

15 Thank you for the consideration of my brief 

16 testimony at this hearing, and happy holidays to those 

17 of you who are still gainfully employed.

18 MR. GRUNDLER: Thank you. Mr. Engelbrecht?

19 MR. ENGELBRECHT: My name is Kent Engelbrecht. 

20 I'm with ADM Biodiesel Group, and I'd like to thank you 

21 very much for the opportunity to discuss the EPA's 2014 

22 RVO proposal and its impact on the future of American 
225

1 biodiesel.

2 Archer Daniels Midland Company has been producing 

3 biodiesel in the United States since 2006. Today, we 

4 manufacture and market more than 200 million gallons 

5 every year, produced from a wide variety of feedstocks, 

6 including soy and canola oils.

7 In 2005 and again in 2007, Congress took important 

8 steps to ensure renewable fuels would have a permanent 

9 place in the American landscape. As a producer that is 

10 helping make this commitment a reality, we appreciate 

11 the EPA's efforts to work closely with the biodiesel

12 community. In the past, your understanding of the 

13 market and its potential helped to set accurate and 

14 constructive biodiesel goals.

15 That is why we are so disappointed to learn of 

16 EPA's proposal to reduce the volumes of the RFS across 

17 the board and to hold biodiesel constant for next year. 

18 It is important to understand that for biodiesel, 

19 constant is actually a cut. We've heard that several 

20 times today.

21 Setting the RFS at 1.28 billion gallons for 2014 

22 will lead to a surplus of RINs since production this 
226

1 year is actually expected to top the 1.7 billion 

2 gallons that we and other stakeholders have advocated 

3 targeting for 2014. Between 2012 and 2013, with an 

4 increasing RVO that offered the financial incentive to 

5 run at maximum capacity and the insurance that demand 

6 will be in place to support further investment, we 

7 reduced our operating cost by 25 percent by 

8 streamlining operations, increasing efficiencies, and 

9 enhanced processing technique at a time when feedstock 

10 costs declined by 30 percent.

11 ADM is a producer of biodiesel on an international 

12 scale, with facilities in North America, South America, 

13 and Europe. The United States is currently blending 

14 biodiesel at a rate of less than 2 percent of total 

15 diesel demand. This pales in comparison with other 

16 countries.

17 For example, in Europe, they are currently 

18 blending at a rate of 5.7 percent. In Argentina, 

19 currently 7 percent and increasing to 10 percent in 

20 2014. Brazil, likewise. Currently 5 percent and 

21 increasing to 7 percent in 2014.

22 Indonesia, currently 5 to 7 percent and increasing 
227

1 to 10 percent in 2014. Philippines, currently 2 

2 percent, although they were contemplating an increase 

3 to 5 percent prior to the recent typhoon.

4 Even countries in colder climates maintain higher 

5 blend rates than the United States. Western Canada is 

6 at 2 to 4 percent blend rate. Norway is currently 

7 blending at a 5 percent rate.

8 In conclusion, biodiesel has been a great success 

9 story. 2014 was poised to be a breakout year. We 

10 believe the market came back -- can get back on track, 

11 but it needs a clear signal from the EPA that biodiesel

12 -- that the biodiesel market can support a 1.7 billion 

13 gallon standard.

14 Through conversations like these and by 

15 collaboration with all the stakeholders, we believe 

16 that we can help craft an RFS that will continue to 

17 strengthen America's rural economies, protect our 

18 environment, and diversify our fuel supply for years to 

19 come. We look forward to the opportunity to work with 

20 EPA to help construct a strong RFS and preserve 

21 America's commitment to biofuels.

22 Thank you.
228

1 MR. SIMON: Thank you, Mr. Engelbrecht. 

2 Appreciate your comments on the blend rates in

3 different parts of the world.

4 If you have information that's part of your 

5 official submittals in terms of where those biofuels 

6 are coming from? Are they domestic, or are they being 

7 imported, and where are the markets and how the 

8 interaction is, that would be very helpful for us as 

9 well.

10 Thank you.

11 MR. ENGELBRECHT: Thank you.

12 MR. GRUNDLER: Mr. Lutt?

13 MR. LUTT: Yes, thank you.

14 Good afternoon. My name is Erick Lutt. I'm a 

15 policy director at the Biotechnology Industry 

16 Organization, or BIO. Can you hear me now? Oh, 

17 thanks.

18 BIO is pleased to have the opportunity today to 

19 comment on EPA's proposed renewable fuel volumes for 

20 the 2014 RFS. BIO is the world's largest technology 

21 trade association representing biotechnology companies 

22 across the U.S. and 30 countries. BIO represents 
229

1 nearly 90 companies leading the development of new 

2 technologies for producing conventional and advanced

3 biofuels.

4 Through the application of the industrial 

5 biotechnology, BIO members are improving conventional 

6 ethanol processes, enabling advanced biofuel production 

7 technologies, and speeding development of new, 

8 dedicated energy crops. To date, these companies have 

9 invested more than $5.7 billion in private capital here 

10 in the U.S., building the advanced and cellulosic

11 biofuels industry.

12 Our membership includes four companies EPA cites 

13 in its proposed rule as producing commercial gallons of 

14 cellulosic biofuels in 2014. Our member companies are 

15 deeply concerned that the proposed rule is a 

16 fundamental change in direction, and it sets a 

17 troubling precedent for the RFS in 2014 and beyond.

18 EPA's proposal to waive volumes of the advanced

19 and total renewable fuel volumes for 2014 is 

20 inconsistent with past regulatory practice. This 

21 regulatory inconsistency will undermine investors' 

22 confidence in the program, short-circuiting our 
230

1 companies' efforts to commercialize new technologies 

2 that are highly dependent on investment capital.

3 For regulatory consistency and to ensure stable 

4 and sustained growth in the advanced and cellulosic

5 biofuels industry, EPA should revise the proposed rule 

6 to be consistent with past practice in setting volumes, 

7 EPA's interpretation of waiver requests, the plain 

8 language of the statute, and congressional intent.

9 EPA should also revise the advanced and overall 

10 renewable fuel volumes in the proposed rule to reflect 

11 the levels required by the statute for 2014 and follow 

12 actual production and availability of renewable fuels 

13 coming on the market, rather than focus on distribution 

14 constraints.

15 BIO is concerned the proposed rule is designed to 

16 grant regulatory relief to obligated parties that is 

17 not warranted. The rapid rise and fall in renewable

18 identification number, or RIN, prices that occurred 

19 throughout the year was caused by refiners who refused 

20 to comply with the spirit of the law, instead looked 

21 for escape clauses.

22 It should also be noted since RINs are bought and 
231

1 sold among competing refiners, consumers are protected 

2 from the cost, a fact reflected in the refiners' 

3 quarterly statements. The final rule should ensure the 

4 RIN market continues to work in incentivizing fuel 

5 market stakeholders to make the necessary investments 

6 in infrastructure for greater deployment of biofuels.

7 BIO recognizes the challenges associated with the 

8 RFS. However, codifying a 10 percent blend wall is 

9 inconsistent with the statute and congressional intent.

10 The RFS serves as the solution to the oil industry11 erected blend wall. BIO would encourage EPA to use 

12 regulatory flexibility inherent in the law to 

13 facilitate the transition over the blend wall without 

14 decreasing volume obligations.

15 The RFS was designed by Congress to provide a 

16 supportive environment for private companies to develop 

17 new technology, new production infrastructure, and new 

18 energy crop supply chains. Our companies have acted on 

19 this, investing billions of dollars in private capital 

20 in conjunction with Federal and State grants to launch 

21 this new industry.

22 The proposed rule will strand existing investments 
232

1 in advanced biofuels, curtail any further investment in 

2 development of future facilities, and put hundreds of 

3 thousands of existing and future jobs at risk. It will 

4 undercut commercialization of other biotechnology 

5 research and development, such as the burgeoning 

6 renewable chemical industry, that are following the 

7 growth of the biorefinery platforms encouraged by the 

8 RFS.

9 This proposal will leave us ever more dependent on 

10 oil, which is increasingly coming from volatile regions 

11 of the world or is extracted in an environmentally 

12 detrimental way, such as Canadian oil sands or 

13 deepwater drilling. Setting the 2014 RFS obligations 

14 lower than 2013 levels would mean that American will 

15 use 100 million additional barrels of oil next year 

16 alone. This would result in more than 30 million added 

17 tons of greenhouse gases going into the atmosphere.

18 In conclusion, this proposed rule, if finalized 

19 and carried into the future, will stymie the growth of 

20 advanced and cellulosic biofuel production, discourage 

21 additional innovation in the biotechnology industry, 

22 harm economic growth, undermine U.S. energy security, 
233

1 and enable significant backsliding of the nation's

2 environmental goals.

3 Thank you for your time, and look forward to 

4 working with you guys through the comment period.

5 MR. GRUNDLER: Thank you.

6 MR. MACHIELE: Just I guess in your written 

7 comments, if you could elaborate on how the proposal 

8 stymies cellulosic especially, I'd appreciate that.

9 MR. LUTT: Yeah. No, we'll expand on that.

10 MR. GRUNDLER: Thank you, Panel 8.

11 Panel 9, welcome.

12 (Pause.)

13 MR. GRUNDLER: Mr. Willis, we're ready when you 

14 are.

15 MR. WILLIS: Okay. Hello, everybody. I'm Craig 

16 Willis, vice president of ethanol with ADM. We'll be 

17 following up the testimony today with comments in the 

18 60-day period.

19 I'd like to say thank you very much for the 

20 opportunity to discuss EPA's 2014 RVO proposal and the 

21 path forward for American ethanol. In 2005 and again 

22 in 2007, Congress took important steps to ensure 
234

1 renewable fuels would have a permanent place in the 

2 American landscape. Archer Daniels Midland Company has 

3 been producing ethanol since 1979. Today, we 

4 manufacture and market 1.7 billion gallons of corn5 based ethanol at 6 plants in the United States.

6 These six plants directly support more than 800 

7 jobs at ADM and have created stability and opportunity 

8 for countless American farmers. That is why we were 

9 disappointed to learn of EPA's proposal to reduce the 

10 volumes of the RFS across the board.

11 Thanks to the renewable fuel standard, the use of 

12 biofuels has not only driven down cost for drivers at 

13 the pump but has also served as a check against price 

14 volatility in the oil markets. We want to make certain 

15 that any EPA rule does not undermine these consumer 

16 savings, nor cut short the other benefits of the RFS, 

17 including a positive effect on rural economies, job 

18 creation, and the reduction of greenhouse gas emissions 

19 at the tailpipe.

20 Corn-based ethanol is the foundation of today's 

21 American renewable fuels industry. Even in difficult 

22 years, like last year's historic drought, we have met 
235

1 the standard and still delivered ethanol cheaper than 

2 gasoline. I'll repeat that. Even in a drought like 

3 last year, the worst since the mid 1950s, we met the 

4 standard and still delivered ethanol cheaper than 

5 gasoline. And in boom years, corn-based ethanol has 

6 not only met demand but has played a critical role in 

7 absorbing corn volumes and providing certainty to the 

8 markets.

9 2014 can be a watershed year, one in which we 

10 overcome the volume constraints in the marketplace due 

11 to insufficient infrastructure investment. Blending 

12 economics should provide sufficient incentive to 

13 deliver biofuels to market in growing volumes. We were 

14 very close to reaching this point last fall, but people 

15 lost faith once the draft, the EPA draft was leaked.

16 The market can get back on track with a clear 

17 signal from the EPA. Unfortunately, the proposal, as 

18 written, does not provide that signal. Worse, it sets 

19 a legal precedent that would make waivers far easier to 

20 achieve, regardless of real-world economic or market 

21 conditions.

22 In conclusion, as we look forward -- as we look 
236

1 toward the future of biofuels, we believe that the EPA 

2 should consider additional steps to address their 

3 concerns while still maintaining a clear path for 

4 biofuels. Amongst the many avenues, EPA should 

5 consider addressing the RVP issue to help ensure 

6 greater adoption of E15 by abolishing the 1-pound 

7 waiver or granting it up to 15 percent.

8 Through conversations like these and by 

9 collaboration with all the stakeholders, we believe we 

10 can help craft an RFS that will continue to strengthen 

11 Americans' rural economies, protect our environment, 

12 and diversify our fuel supply for years to come. We 

13 look forward to the opportunity to work with you and 

14 the administration to reach this important goal.

15 Thank you.

16 MR. GRUNDLER: Thank you. Any questions?

17 MR. BURKHOLDER: Yeah, I just wondered if you 

18 could elaborate briefly. You mentioned that in 2014, 

19 you project blending economics would provide sufficient 

20 incentive for additional ethanol without higher 

21 standards. If you'd just elaborate, I guess, on the 

22 importance of the standards in that case?
237

1 MR. WILLIS: I just think it helps -- it gives a 

2 retailer, the RFS, an incentive or he knows long term 

3 that the program is going to be place. You know, those 

4 blending economics are volatile, obviously. But it 

5 gives them the confidence to go forward and spend money 

6 on infrastructure to offer E15 and higher-level blends.

7 MR. SIMON: Mr. Willis, we would encourage you 

8 also as part of your written testimony or written 

9 response that on the issue of the 1-pound waiver, to 

10 address that in light of the fact that there is a 

11 congressional requirement on top of the regulatory 

12 requirement, and that would need to be managed as well 

13 to --

14 MR. WILLIS: We will certainly do that.

15 MR. SIMON: Thank you.

16 MR. GRUNDLER: I just want to underscore this 

17 blending economics questions, and we'll need to 

18 understand it a little bit more than just it will 

19 happen. If you could provide data or evidence or 

20 analysis that would suggest that in 2014, that would be 

21 a lot different, I'd be grateful.

22 MR. WILLIS: Okay. Thank you.
238

1 MR. GRUNDLER: Okay. Next on the list is Mr. 

2 Whikehart. Welcome.

3 MR. WHIKEHART: Thank you.

4 My name is Dave Whikehart. I'm the director of 

5 product supply and optimization for Marathon Petroleum

6 Company, LP.

7 MR. GRUNDLER: Let me just remind everybody to 

8 please bring the microphone closer.

9 MR. WHIKEHART: I'm responsible for our company's 

10 purchase and distribution of biofuels, including our 

11 compliance with the renewable fuel standard.

12 Our company has been one of the nation's largest 

13 blenders of biofuels for nearly three decades. We are 

14 the nation's fourth-largest refiner and producer of 

15 roughly 10 percent of the nation's gasoline and diesel

16 fuel. Simply put, we are a major obligated party under 

17 the RFS2.

18 In its 2014 proposed rule, EPA recognized the 

19 realities of the E10 blend wall. That's a good start. 

20 However, there are many other realities that the EPA 

21 fail to deal with in its proposal. Specifically, three 

22 significant issues need to be addressed by EPA.
239

1 The first and most important of these issues is 

2 the unsustainable blending requirements proposed for 

3 2014 that will require the consumption of a significant 

4 quantity of D6 RINs carried forward from 2013. The 

5 second issue is the assumed rapid escalation of E85 

6 consumption, and the third issue is lack of accounting 

7 for significant customer demand for ethanol-free 

8 gasoline.

9 Each of these issues contributes to increased cost 

10 to consumers of gasoline and diesel fuels. I want to 

11 discuss each of these three issues, and if I have time, 

12 I have a couple more to get to.

13 Marathon briefed EPA on the E10 blend wall in May 

14 of 2009. At that time, we accurately predicted the 

15 timing and impact of hitting a hard limit on ethanol

16 blending into gasoline. While EPA acknowledged the E10 

17 blend wall as a significant issue, the agency has not 

18 addressed it with a sustainable approach to setting 

19 blending mandates.

20 The 2013 standard was set too high and without a 

21 consideration for what the blending mandates might be 

22 in 2014 and '15. As a result, we have run full speed 
240

1 into the E10 blend wall, and now EPA must reduce the 

2 blending mandates in 2014 to avoid an infeasible 

3 outcome.

4 The Clean Air Act limits the EPA's waiver 

5 authority to a single year. This limit, coupled with 

6 EPA's failure to consider the implications of an RVO 

7 decision in the current year on subsequent years, 

8 demonstrates the infeasibility of the RFS.

9 The EPA's unrealistic projections on E85 demand 

10 must be reconsidered. E85 sales in the first half of 

11 2013 totaled just 35 million gallons. The EPA 

12 extrapolated this data point into a projection of more 

13 than 100 million gallons of E85 demand for the full 

14 year 2013, and then 300 million gallons of E85 in 2014.

15 Marathon's Speedway retail chain is a significant 

16 E85 seller in the Midwest. Based on our experience, 

17 the reality is that E85 sales growth has diminished in 

18 the second half of 2013 and is not likely to increase 

19 in 2014. We have seen the same patterns at our E85 

20 rack sales at our ethanol production facilities.

21 The inflation of projected 2014 E85 sales is 

22 misleading at best and at worst obscures the number of 
241

1 carry-forward RINs that will be needed for compliance 

2 when these erroneous E85 sales numbers fail to 

3 materialize. EPA must discontinue basing ethanol

4 blending requirements on aspirational E85 projections.

5 In this proposal, EPA failed to recognize that 

6 many consumers demand ethanol-free gasoline and that 

7 their use of ethanol-free gasoline is not discretionary 

8 but is required for the safe operation of their 

9 engines. Our customers own boats, antique cars, and 

10 many other vehicles and equipment that use small 

11 engines.

12 EPA claims there is a lack of data on the sales of 

13 ethanol-free gasoline, but careful analysis of EIA data 

14 shows that more than 3 percent of gasoline leaves major 

15 terminals free of ethanol. Recreational marine 

16 gasoline sales account for more than 1.5 percent of all 

17 gasoline sales, and it is our experience that nearly 

18 all of this fuel is ethanol free.

19 Based on our experience, the 3 percent volume for 

20 national ethanol-free gasoline sales does not seem 

21 unreasonable. EPA, in partnership with EIA, needs to 

22 conduct a due diligence analysis of ethanol-free 
242

1 gasoline volumes. The demand for ethanol-free 

2 gasoline, coupled with the unrealistic E85 demand 

3 projections, limits the total ethanol blending content 

4 to 9.7 percent or less of the total gasoline pool in 

5 order to avoid the E10 blend wall.

6 Well, I see my time is up. So I just want to say 

7 in closing, I would like to emphasize the absolute 

8 importance of EPA meeting the statutory deadlines. The 

9 current practice of retroactive rulemaking creates 

10 uncertainty in the market and confusion for market 

11 participants.

12 The fact that EPA has not been able to meet its 

13 statutory deadlines further demonstrates the 

14 infeasibility of this standard.

15 MR. GRUNDLER: Thank you. Mr. Friesen?

16 MR. MACHIELE: Oh, could I --

17 MR. GRUNDLER: I'm sorry. I'm sorry. Jumping 

18 ahead.

19 MR. MACHIELE: I would like to ask a question.

20 MR. GRUNDLER: Please do.

21 MR. MACHIELE: Thank you. Actually, I guess more

22 of, like often, a request. If you could follow up in 
243

1 your written comments. You talked both about our 

2 projections on E85 and our projections and information 

3 on E0, both of which are areas that we are seeking 

4 comment and seeking information on.

5 As you can tell in the proposal, these are both 

6 areas where data is -- complete data on the national 

7 picture are hard to come by. If you could at least --

8 if you would be willing to provide us in your written 

9 testimony information specific to your experience with 

10 Speedway -- E0 sales, E85 sales, how you said based on 

11 your experience with E85 how it is less in the second 

12 half of 2013, what is the trend, and what was the 

13 pricing that might have gone along with that.

14 Any information that we can use in a way to 

15 actually then project going forward would be greatly 

16 appreciated.

17 MR. WHIKEHART: We'd love to work with you on 

18 that. Thank you.

19 MR. MACHIELE: Thanks.

20 MR. HANNON: Like other panelists, you've brought 

21 up the 9.7 volume percent figure. And in your context, 

22 it's on the idea of E0 and overestimating E85. Can you 
244

1 please address in your comments, I would imagine, how 

2 that fits in a situation where there is more than 

3 ethanol as a renewable fuel.

4 Diesel is the other major renewable fuel. There's 

5 2 billion gallons of it, RIN gallons anyway, being used 

6 this year. There are carryover RINs from 2013 to 2014. 

7 What is the context of isolating ethanol separately 

8 from the entire renewable fuel pool?

9 I think that's an important factor to take into 

10 account, if you could, in explaining why 9.7 percent 

11 would be the appropriate outcome.

12 MR. WHIKEHART: Yes. We'll do that.

13 MR. GRUNDLER: Mr. Friesen, welcome.

14 MR. FRIESEN: Good afternoon. I'm Curt Friesen, a 

15 corn farmer from Henderson, Nebraska, and vice chairman 

16 of the Nebraska Corn Board. And I thank you for this 

17 opportunity to testify in opposition to the reduction 

18 in the ethanol requirements of the renewable fuel 

19 standard.

20 The renewable fuel standard is a Federal policy 

21 that has done exactly what it was intended to do. It 

22 has created American jobs. It has revitalized rural 
245

1 communities. It has reduced greenhouse gas emissions 

2 and cleaned up our air.

3 It has reduced our dangerous and expensive 

4 addiction to imported oil and helped improve America's 

5 energy security. And of course, it has helped spur a 

6 renaissance in rural America that has reverberated 

7 across the heartland and all across our nation.

8 My farm sits in the very heart of Nebraska corn 

9 country. There are 6 ethanol plants within a 50-mile 

10 radius of my operation. This has provided me with 

11 numerous competitive options for marketing my grain, 

12 options that exist because of the promise and the 

13 commitment that Congress made in establishing the RFS.

14 These 6 plants represent a capital investment of 

15 more than $500 million in my part of rural Nebraska. 

16 The investments by ethanol production companies and 

17 their shareholders, including farmers themselves, have 

18 been predicated on the national strategy of increasing 

19 our domestic fuel supply through the renewable fuels, 

20 such as ethanol and biodiesel. These companies and 

21 investors have committed themselves to long-term 

22 viability of renewable fuels based on the commitment 
246

1 that Congress made in establishing the RFS.

2 Before these ethanol plants were built, a high 

3 percentage of our corn in our area was exported to 

4 domestic or international markets, shipped out as raw 

5 corn sold at the going price. Now virtually every 

6 bushel is transferred into fuel and feed, adding 

7 considerable value to every kernel. That value is 

8 captured and multiplied several times throughout the 

9 communities in my area, generating economic vitality 

10 and tax revenue.

11 The economic vitality that the RFS has spurred in 

12 rural America extends well beyond my farm. I see the 

13 impact of increased tax revenue for our county to build 

14 roads and provide services. I see main street 

15 businesses with customers in the aisles. I see 

16 entrepreneurs starting new ventures, many of which are 

17 based in agriculture and food production..

18 We're also seeing a shift in demographic trends in 

19 rural America. In fact, my daughter and son-in-law 

20 have recently returned to the family farm, thanks to 

21 the optimism and potential that exists in large part 

22 because of new markets and demand created by the RFS.
247

1 Currently, I will be planning my next corn crop 

2 that will be marketed in 2015. Until now, the RFS 

3 provided some certainty that there will be a growing 

4 market for my corn.

5 But if the RFS is revised downward, American 

6 agriculture and rural communities will be left to 

7 wonder what might happen next. This uncertainty erodes 

8 confidence, undermines potential investment, and 

9 generally stifles the robust growth that we've seen in 

10 America's heartland.

11 Corn ethanol never was supposed to be the answer 

12 to America's energy needs, but part of a diverse 

13 portfolio of renewable fuels made here at home. We 

14 need to maintain our commitment to corn ethanol, which 

15 has broadened our fuel choices and provided even 

16 greater choice in energy security.

17 The RFS is a commitment that Congress made to 

18 America, a commitment to develop our own domestic fuel 

19 supply. Instead of retreating, as the EPA proposes, 

20 America should be advancing toward a broader portfolio 

21 of domestic renewable energy and the fueling 

22 infrastructure to support this growth. We must take a 
248

1 long view of our nation's energy portfolio, and we 

2 cannot be swayed by temporary market conditions or 

3 voodoo science or the influence of those whose market 

4 share is threatened by our growth.

5 Yes, corn farmers have benefited from the growth 

6 in the ethanol industry that the RFS has fostered, but 

7 maintaining our resolve to stay the course, to maintain 

8 the volume requirements prescribed in the RFS is about 

9 securing greater economic growth, cleaner air, and 

10 energy security for every American.

11 MR. GRUNDLER: Thank you. Mr. Gilligan?

12 MR. GILLIGAN: Yes. Well, thank you for inviting 

13 us here today.

14 My name is Dan Gilligan. I'm president of the 

15 Petroleum Marketers Association of America. PMAA is a 

16 national federation of 48 State and regional trade 

17 associations representing approximately 8,000 

18 independent petroleum marketing companies. We are not 

19 big oil, and the vast majority of our PMAA companies 

20 qualify as small business under SBA rules.

21 Every PMAA member company stores and dispenses a 

22 wide variety of fuels, liquid fuels such as gasoline, 
249

1 E85, diesel, biodiesel, heating oil. These companies 

2 and their customers benefit from the plentiful supply 

3 of liquid fuels. Therefore, we're very supportive of 

4 the important supply benefits of ethanol and biodiesel.

5 And early on in my remarks, I want to say we have 

6 no concerns with biodiesel RVOs. They could actually 

7 be raised. We think that would be a good thing. 

8 Expanded production of both biodiesel and ethanol would 

9 be a good thing.

10 My primary purpose for speaking today relates to 

11 E15 in the RFS. Many of our member companies would 

12 very much like to offer E15. However, legal and 

13 regulatory barriers keep them from doing so.

14 In our view, the single greatest barrier to E15 is 

15 legacy underground infrastructure at the retail level. 

16 The most obvious infrastructure barrier is the typical 

17 two-tank system found at most gas stations. Very few 

18 retailers can justify eliminating premium or E10 to 

19 sell E15.

20 The less obvious and least understood 

21 infrastructure barrier is legacy underground equipment,

22 such as piping, submersible pumps, leak detectors, 
250

1 floats, adhesive seals, sensors, probes. EPA requires 

2 USDA equipment to be compatible with the product 

3 stored. However, most legacy equipment is certified 

4 compatible with ethanol blends no greater than 10 

5 percent.

6 EPA's Office of Underground Storage Tanks recently 

7 publish guidance for retailers to certify legacy 

8 equipment as E15 compatible. The guidance calls on 

9 equipment manufacturers to voluntarily certify their 

10 E10 components for E15. There are two problems with 

11 this approach.

12 First, most retailers lack the detailed records to 

13 necessarily identify all the components of their 

14 underground system. Remember, they're underground. 

15 They can't see them.

16 Second, when identification can be made, 

17 manufacturers will not -- not all manufacturers will 

18 offer the E15 certification for fear of product 

19 liability if they fail. Additionally, manufacturers, 

20 obviously, are motivated to sell new equipment that is 

21 certified for E15.

22 We applaud EPA's Office of Underground Storage 
251

1 Tanks for efforts to provide an alternative method for 

2 determining compatibility. However, the guidance 

3 offers no realistic pathway for retailers to prove that 

4 the legacy equipment is compatible with E15.

5 We support EPA's proposal to lower the 2014 corn6 based ethanol mandate because exorbitant RIN prices 

7 could incentivize retailers to take risks they would 

8 not normally take. A study performed by UL and NREL 

9 demonstrated some UST system components might fail when 

10 subjected to E15. EPA should not be incentivizing 

11 retailers to take risks with environmental protection.

12 Another reason to lower the mandate is to prevent 

13 the loss of neat premium in some markets. We are 

14 already seeing some refiner suppliers blending E10 

15 premium, eliminating consumer choice to purchase fuel 

16 without ethanol. There are circumstances where 

17 ethanol-free gasoline is essential.

18 For example, a lot of above ground storage tank 

19 owners, they have to have a non-ethanol gasoline to 

20 prevent what -- the alcohol phase separation that 

21 occurs with water in above-ground tanks. If RIN values 

22 are exorbitant, ethanol-free gasoline could become 
252

1 totally unavailable in the markets, a very negative, 

2 unintended consequence.

3 Several times today I've heard folks suggest that 

4 big oil has failed to invest in infrastructure for 

5 higher ethanol blends. Well, big oil owns less than 6 

6 percent of the gas stations in the United States. Our 

7 members own 94 percent.

8 They're small business. They don't -- we 

9 calculate today's infrastructure to be approximately 

10 $300 billion in underground infrastructure. To replace 

11 that, to upgrade it is a very -- is a very daunting 

12 challenge.

13 Thank you.

14 MR. GRUNDLER: Thank you. Questions? Paul?

15 MR. ARGYROPOULOS: Dan, just let's say the 

16 obstacles were removed -- the infrastructure issues and 

17 things like that -- you indicated that your members 

18 would like to sell E15. In your comments, could you 

19 put that in some context in terms of what volume that 

20 might equate to? Because that would be important in 

21 terms of, you know, setting the standards at least in 

22 the future.
253

1 MR. GILLIGAN: I will do that, and I would simply 

2 say there are some underperforming gas stations that 

3 retailers would like to convert to E15 to make them 

4 more functional and more profitable.

5 MR. ARGYROPOULOS: Having the context in terms of 

6 volume would be helpful. Thank you.

7 MR. GILLIGAN: Sure. Okay.

8 MR. GRUNDLER: Mr. Whitney, welcome.

9 MR. WHITNEY: Great. Thank you. Thank you, 

10 gentlemen. Thanks for having me here today.

11 My name is Michael Whitney. I'm the general 

12 manager of renewable fuels at Musket Corporation.

13 Musket Corporation is a wholly owned subsidiary of 

14 the Love's Travel Stops and Country Stores. We operate 

15 a nationwide chain of retail truck stops and 

16 convenience stores, 305 travel centers altogether in 39 

17 States.

18 Like so many in the fuel retail business, the 

19 renewable fuel standard matters to us because it 

20 matters to our customers. So full stop, we're here to 

21 talk to you about the impact that it will have on fuel 

22 prices to our customers.
254

1 Our customers basically are small businesses, and 

2 it's a rolling profit center for them to move goods to 

3 and from -- to the markets, et cetera. So the fuel 

4 price is an extremely important thing to these guys. 

5 And the reason why we put biodiesel into diesel fuel is 

6 it is cheaper than diesel for us, full stop.

7 We don't have any environmental pretensions. We 

8 don't really look at greenhouse gas reductions, et 

9 cetera. We use this fuel because it is cheaper than 

10 diesel fuel.

11 We gladly shoulder these concerns, and we make it 

12 our responsibility to manage the fuel supply on account 

13 of our customers. Under the renewable fuel standard, 

14 Musket is not an obligated party. So we don't have to 

15 do this.

16 We don't have to buy RINs and turn them into the 

17 EPA at all. But we have to buy, sell, and move 

18 biodiesel and, therefore, RINs because it's part of our 

19 commitment to provide more competitively priced diesel

20 fuel to our customers.

21 Let's take a real quick look at some rack prices 

22 here and see that this discount is real in the 
255

1 marketplace. Alexandria, Minnesota, ultra low sulfur 

2 diesel, $3.21. B5, $3.12. The same rack you have a 

3 cheaper price for B5. And if we don't go and buy this 

4 fuel and give it to our customers, they are going to 

5 pay a higher price.

6 You'll hear today from many public policy virtues 

7 the shortcomings of the renewable fuel standard. We're 

8 not here to discuss those nuances, what Congress may or 

9 may not have intended. We're here to talk about the 

10 impact and why it matters to our customers.

11 We must give purchasers a variety of biodiesel

12 from various producers throughout the country, and we 

13 take that product directly to our truck stops where we 

14 can manage and control our quality, and we blend it 

15 directly into diesel fuel. We've done investments in 

16 over 30 States over the last 3 years so that we can 

17 bring this fuel to our customers and provide them more 

18 competitively priced diesel.

19 We're also a major manager of risk in this process 

20 because of the RIN credits. We hear a lot of people 

21 here talking about what RIN credits are worth or what 

22 they're not worth or what's exorbitant or not, and I 
256

1 doubt anyone on this table has probably actually traded

2 a single RIN to help manage their fuel risk related to 

3 this product.

4 I'm the guy that actually does that. We take B100 

5 with RINs. We blend it below B80. We separate the 

6 RINs from the physical product, and we take that RIN as 

7 a currency of sorts, and we sell it to obligated 

8 parties. And that transaction makes biodiesel cheaper 

9 than diesel fuel for us.

10 Our point of being here is and has been echoed by 

11 a lot of people on the panel is that a 1.28 billion 

12 number is actually a step backwards, and if you do not 

13 have an increasing RVO or it stagnates, what is going 

14 to happen? Quite simply, to our customers, their 

15 diesel fuel will be more expensive.

16 So that's pretty much all I have to say, and if 

17 you have any questions about pricing, et cetera, I can 

18 give you more examples of racks and discounts that we 

19 see on B5. And our concern here is keeping diesel

20 prices from going higher.

21 Thank you.

22 MR. GRUNDLER: Thank you. Questions?
257

1 MR. BURKHOLDER: Yeah, I want to ask a clarifying 

2 question. When you said that biodiesel is cheaper than 

3 diesel fuel, you then referred to a diesel price versus 

4 a blended B5 price. Is that the context in which that 

5 statement is true, or is it also true for the B100, for 

6 example, versus a petroleum diesel?

7 MR. WHITNEY: That's the context is really what we 

8 buy at the rack. So B100 is cheaper if you take into 

9 account the various aspects of it. The RIN price is 

10 embedded in that B100. So when you buy B100, you get 

11 1.5 D4 category RINs.

12 So we take all that into account when we look at 

13 it. So you can't just say, well, does B100 cost more? 

14 Well, it does, but the RINs are attached to it, and 

15 the RINs have value.

16 MR. ARGYROPOULOS: And again, any data that you 

17 have and trend data on that would be useful, too, in 

18 the context of looking at this.

19 MR. GRUNDLER: Ms. Boyd, welcome.

20 MS. BOYD: My name is Michele Boyd. I am the 

21 government relations manager for Abengoa Solar. Today,

22 I am here making these comments on behalf of Abengoa 
258

1 Bioenergy.

2 Abengoa is an international company that develops 

3 and implements sustainable technologies in the energy

4 and environmental sectors. Our Bioenergy Division is 

5 one of the largest international producers of renewable

6 fuels, including both ethanol and biodiesel. We have 

7 15 commercial-scale biorefineries in operation on 3 

8 continents and production capacities exceeding 800 

9 million gallons per year.

10 Largely because of the promise of the RFS, we have 

11 invested over $2 billion developing our 8 U.S. ethanol

12 production facilities, including a cellulosic pilot 

13 plant and one of the world's first commercial-scale 

14 cellulosic ethanol plants, which we expect to complete 

15 and start up within the next several weeks.

16 We currently employ over 600 full-time, permanent 

17 employees in the U.S., plus over 1,000 full-time 

18 construction workers at the site of the new cellulosic

19 facility, located in Hugoton, Kansas. As of today, 

20 based upon EPA's decision to backtrack on its support 

21 of the RFS, we have placed all future biofuels 

22 investments in the U.S. on hold until final resolution 
259

1 of this RVO issue.

2 We are here today to urge the EPA to reconsider 

3 its proposed RVO for 2014, which we believe would be 

4 disastrous for the future of biofuels in this country. 

5 Implementation of this proposed rule would undermine 

6 the primary purpose of the RFS, which was to provide 

7 steadily increasing amounts of alternative renewable

8 fuels in this country, even if petroleum refiners and 

9 gasoline distributors chose not to voluntarily give up 

10 their monopoly on our fuel supply.

11 The benefits of the RFS are clear. Within just a 

12 few years after passing the 2005 and then the 2007 RFS 

13 programs, dramatic growth led to support for hundreds 

14 of thousands of jobs. Ethanol-blended gasoline became 

15 significantly cheaper than unblended gas, and 

16 Government expenditures for farm programs were able to 

17 be reduced.

18 Private companies like Abengoa have invested 

19 billions of dollars in new technologies based upon this 

20 promise, and the next generation of biofuels is 

21 breaking out and starting commercial production. But 

22 the primary market driver is being shown to be 
260

1 unreliable and inconsistent in its support.

2 The EPA proposal essentially validates the 

3 mythical blend wall, rather than encouraging the fuel 

4 industry to offer more blending options to the consumer 

5 and overcome the hurdles of infrastructure, as the RFS 

6 intended. This action substantially rewards that 

7 failure to prepare for compliance with a loosening of 

8 the rules that indicates that the law has no meaning 

9 and that future compliance will never be required.

10 There is no way to separate the advanced and 

11 cellulosic biofuels industry from the conventional 

12 ethanol production. Taking actions that negatively 

13 impact the market for conventional biofuels will weaken 

14 the market for second-generation fuels and reduce the 

15 financial ability for the most likely first adapters to 

16 build second-generation facilities.

17 Most importantly -- more importantly, taking 

18 actions that constitute a failure of consistent support 

19 for the RFS will be a clear signal to future investors 

20 that there is no reliable expectation of a market for 

21 these fuels and no reason to take the risk of that 

22 investment. If the EPA implements its proposed RVO, 
261

1 the following consequences will result.

2 First, consumers will pay $8 billion more for 

3 gasoline, increasing oil company profits by a similar 

4 amount.

5 Second, 1.4 billion gallons of existing ethanol

6 production capacity will be shut down, potentially 

7 closing 15 large plants, stranding $4 billion of 

8 investment, and resulting in direct job losses for 

9 roughly 1,000 employees.

10 Third, rural economies that are about to produce a 

11 record corn crop and rebound from a 50-year record 

12 drought will find corn prices much closer to production 

13 costs, increasing the need for farm subsidies.

14 Fourth, investment in new biofuels technologies 

15 will virtually stop in the U.S., as there is no policy 

16 or market consistency. Future investment will likely 

17 to go other countries with more supportive policies.

18 And finally, fifth, greenhouse gas pollution from 

19 the transportation sector will increase.

20 We ask the EPA to take the actions needed to avoid 

21 these negative consequences and to reevaluate the terms 

22 of the proposed RVO rule for 2014.
262

1 Thank you.

2 MR. GRUNDLER: Thank you. Any questions?

3 MR. MACHIELE: At least one. I guess I'd like to 

4 ask the question, I mean, it's widely acknowledged that 

5 in 2013, we hit the blend wall already. So my question 

6 is you said that near the beginning of your testimony 

7 that our proposal has put all future investments on 

8 hold. What is it about our proposal that's done that 

9 relative to what's already playing out in 2013?

10 Because our proposal is taking every source, every 

11 projected source of cellulosic biofuel and putting that 

12 as a standard for cellulosic. That's the exact same 

13 thing we did for 2013. It's the exact same thing we 

14 did for 2012. When it comes to cellulosic, we have not 

15 changed one iota of our approach from 2012 or 2013, 

16 except for responding to court rulings on how 

17 aspirational we were being.

18 Which, but again, we are still including every --

19 you know, all the sources of cellulosic, including 

20 ethanol. So if you could please -- what is it that 

21 changed for your business for -- with our 2014 

22 proposal?
263

1 MS. BOYD: We can go into more details in our 

2 written comments.

3 MR. MACHIELE: I'd appreciate that. And now also 

4 probably in your written comments, we asked the 

5 question earlier about if we don't change the RFS 

6 volume for 2014, we're looking at a growth from, you 

7 know, 100 million to 3.5 billion gallons of biodiesel.

8 MALE SPEAKER: E85.

9 MR. MACHIELE: Oh, I'm sorry, of E85 in 2014. 

10 Again, we'd like you to address in your comments what, 

11 you know, how do we -- how does -- how is that 

12 possible?

13 MS. BOYD: Yes.

14 MR. GRUNDLER: Admiral, you have the last word on 

15 this panel.

16 Did you have a question there? Okay.

17 ADMIRAL LOREN: Thank you very much. Thank you 

18 for the opportunity to appear here today, and I've 

19 submitted a written statement already, and this is much 

20 more pleasant than being on the Hill doing this. So 

21 thank you.

22 MR. GRUNDLER: Same for us.
264

1 (Laughter.)

2 ADMIRAL LOREN: I'm Don Loren. I'm a retired 

3 United States Navy Rear Admiral, former senior National 

4 Intelligence Service executive with the Director of 

5 National Intelligence. In the previous administration, 

6 Deputy Assistant Secretary of Defense for Homeland 

7 Security Integration.

8 I'm here today on behalf of Veterans for Energy, a 

9 grassroots organization present in 26 States in the 

10 nation who are committed to the concept that energy

11 policies are inexorably linked to sound national 

12 security and not just merely military, all the facets 

13 of national power that make up national security in 

14 accordance with the National Security Strategy of the 

15 United States, dated May 2010.

16 Unlike some other veteran groups that have 

17 recently made some appalling claims concerning the RFS 

18 proposal, "it equates to killing our soldiers," we find 

19 that offensive and, in fact, denigrating to the men and 

20 women who serve in uniform today, and partisan. We, at 

21 Veterans for Energy, believe in a common sense, all22 encompassing approach to energy policy, not partisan, 
265

1 not single issue, but well-balanced energy policy that 

2 ensures primacy and prosperity and military efficacy of 

3 the United States of America.

4 We very much salute an EPA decision to recognize 

5 the blend wall. Along with Congress, American 

6 businesses, the American consumer, and the 21.8 million 

7 veterans in our nation today, we support rethinking the 

8 impact of an ill-planned and ill-executed shift to E15.

9 In addition to the many consequences described 

10 here today concerning automobile engines, maritime 

11 engines, and small engines, the economic impact to the 

12 consumer and business of an ill thought out RFS policy,

13 also please remember that the thousands of petroleum

14 product-fueled engines in the military -- whether they 

15 be large vehicles, pumps, lifesaving devices, or 

16 homeland security devices within Department of Homeland 

17 Security -- will be affected if we do not execute this 

18 policy in a well thought out manner.

19 The impact of a poorly conceived shift to higher 

20 ethanol blends will have devastating impact on our 

21 military, as well as a defense budget that is not 

22 currently prepared to bear the financial burden 
266

1 associated with the impacts of that shift.

2 We, at Veterans for Energy, advocate a complete 

3 energy policy that includes development of renewables, 

4 development of oil and gas resources, nuclear, hydro, 

5 geothermal, and all sources of energy that make us 

6 energy independent, promote a vibrant economy, and 

7 ensure that we are the most prosperous and military 

8 capable nation on the globe. And we believe we can do 

9 that while being good stewards of the planet as well.

10 We veterans have sworn to support and defend the 

11 Constitution of the United States, which has as its 

12 Preamble clearly states, is predicated to provide for 

13 the common defense, promote the general welfare, and 

14 ensure the blessings of liberty for ourselves and our 

15 posterity.

16 Sound energy policies that ensure American 

17 independence and prosperity are key elements of doing 

18 that. They must be strategically planned and 

19 strategically executed, and we support the current EPA 

20 proposal.

21 Thank you.

22 MR. GRUNDLER: Any questions?
267

1 (Applause.)

2 MR. SIMON: Thank you, Admiral. Appreciate your 

3 views.

4 Maybe in terms of if you have a follow-up or if 

5 you'd like to answer now. I think your position on E15 

6 was relatively clear. If you had a view on E85 or --

7 and other mechanisms that we've asked for in comment in 

8 the proposal, that would be very helpful for us.

9 ADMIRAL LOREN: Okay. Thank you.

10 But I must say that it would probably be more 

11 appropriate for the Department of Defense and those

12 currently serving the nation to answer those types of 

13 questions. I can give you thoughts and opinions.

14 MR. GRUNDLER: Thank you for your comments, 

15 Admiral. Thank you for your service.

16 MR. MACHIELE: If I could ask one follow-up 

17 question?

18 MR. GRUNDLER: No, you're out of time.

19 MR. MACHIELE: No?

20 MR. GRUNDLER: Go ahead.

21 (Laughter.)

22 MR. MACHIELE: Actually, going back to Curt 
268

1 Friesen. If in your written comments, and this applies 

2 not just to you, but I think some of the speakers 

3 earlier in the day, our RFS proposal, especially when 

4 it comes to corn ethanol, a lot of the testifiers are 

5 characterizing it as we are cutting -- well, we're 

6 reducing volumes from the 2014 RFS volumes that 

7 Congress set, but we're not really reducing below what 

8 2013 volumes are, 2012 volumes, actual production 

9 volumes.

10 So I want to make sure that in your written 

11 comments, you -- they're written in a way that reflects 

12 that sort of reality, as opposed to just looking at the 

13 reduction below the level that the Congress set.

14 MR. FRIESEN: I guess I was just -- I'm more 

15 concerned with the precedent that you're setting, 

16 looking forward as to what might happen in future years 

17 so that we can have more certainty.

18 MR. ARGYROPOULOS: And just one other follow-up in 

19 that context as well. I mean, the act has 15 billion 

20 gallons corn ethanol for the standard there. So, I 

21 mean, incrementally, I mean putting aside Paul's point, 

22 there is still only a little bit more to go. So 
269

1 putting that in the context of kind of the national 

2 impact, if you will on growth in that particular 

3 category would be useful as well.

4 MR. GRUNDLER: Thank you very much.

5 It's a good time for me also to remind the 

6 audience that we are accepting written comments as 

7 well, and the comment period will go to January 28, 

8 2014.

9 Panel 10, come on down.

10 (Pause.)

11 MR. GRUNDLER: Okay. Mr. Hunnicutt, ready when 

12 you are.

13 MR. HUNNICUTT: Good afternoon. I'm Brandon 

14 Hunnicutt, a corn farmer from Giltner, Nebraska, and a 

15 member of the Nebraska Corn Growers Association.

16 I appreciate this opportunity to testify in 

17 opposition to the proposed changes in the ethanol

18 requirements of the renewable fuel standard.

19 America's corn farmers spent decades watching the 

20 price of their product tread water, as input costs 

21 rose. So they decided to do something about it. They 

22 invested check-off dollars and formed collaborative 
270

1 partnerships with other advocacy groups to develop the 

2 ethanol industry and pushed hard for Federal policy to 

3 ensure a place for renewable domestic alternatives in 

4 our nation's transportation fuel supply.

5 The renewable fuel standard created a number of 

6 benefits for our nation -- increased energy security, 

7 new jobs, rural development, cleaner air, and lower 

8 gasoline prices. And yes, it created a new market for 

9 America's corn farmers.

10 Farmers have responded to the increased demand for 

11 corn by producing more, and we're not plowing up virgin 

12 land to do it. We're simply changing what we plant on 

13 the acres we already have based on market conditions.

14 Recently, we've seen misleading news stories 

15 accusing farmers of turning Conservation Reserve 

16 Program, or CRP, land into corn production to meet 

17 ethanol demand. Here is the truth. As part of the 

18 2008 farm bill, the cap on CRP acreage was dropped from 

19 39.2 million acres to 31.3 million acres beginning in 

20 2010.

21 So CRP enrollments fell. It had nothing to do 

22 with ethanol. The limited amount of CRP acreage that 
271

1 has returned to production is actually decreasing 

2 Federal spending, and those dollars have been directed 

3 to protecting the most environmentally sensitive land.

4 Ethanol has been blamed for an increase in food 

5 prices due to higher corn prices. First, higher corn 

6 prices have been driven primarily by 2 years of 

7 drought, not ethanol demand. Second, corn comprises a 

8 small percentage of the cost of the food product.

9 For example, you would think that the highest cost 

10 in a box of corn flakes would be the corn itself, 

11 right? In fact, at today's prices, the amount of corn 

12 in an 18-ounce box of corn flakes is just 6 cents. 

13 That's right, 6 cents.

14 As corn prices have recently headed downward 

15 toward $4 a bushel, very near the cost of production 

16 for us U.S. corn farmers, American consumers have not 

17 seen a corresponding decline in food prices. So it's 

18 pretty clear that ethanol and corn prices have not been 

19 the culprit they've been made out to be.

20 But one thing is certain. American consumers have 

21 seen cost savings at the pump, thanks to ethanol in our 

22 fuel supply. And the higher the blends of ethanol, the 
272

1 more American consumers can save.

2 Here is the rub. Instead of leveraging the RIN 

3 market to expand fueling infrastructure and increase 

4 the availability of higher ethanol blends, the EPA 

5 proposes to use the 10 percent blend wall as an excuse 

6 to cut back on ethanol. This plays right into the 

7 hands of the oil industry, which has resisted the 

8 growth of renewable fuels and invested huge amounts of 

9 money to protect its market share.

10 Continuing our nation's commitment to a diverse 

11 and domestic fuel supply is good for all Americans. 

12 It's good for our economy, our energy security, our 

13 environment, our rural communities, and American 

14 agriculture. Reducing the amount of ethanol in our 

15 fuel supply is good for one group, the oil industry.

16 I urge you to come down on the side of what's good 

17 for the majority of Americans and America herself by 

18 rejected the proposed reductions in the ethanol

19 requirements for the RFS.

20 Thank you.

21 MR. GRUNDLER: Thank you. Questions?

22 MR. MACHIELE: I guess if in your written 
273

1 testimony -- I don't expect you to do all the math now. 

2 But I mean, you and other testifiers have talked 

3 about, you know, corn prices down around $4 a bushel. 

4 Who knows where they'll stay or where they'll go. But 

5 that should also then correspond into reduced ethanol

6 prices, which, regardless of RINs, should then 

7 translate into reduced E85 prices at the pump, or at 

8 least the ability to have reduced E85 prices at the 

9 pump.

10 So, in your testimony, if you could go into what 

11 might the role of reduced corn prices now have on the 

12 potential for increased volumes of E85 next year?

13 MR. HUNNICUTT: Okay. I'll make sure of that.

14 MR. MACHIELE: Thank you.

15 MR. GRUNDLER: Ms. Hanson, welcome.

16 MS. HANSON: Thank you for the opportunity to 

17 speak today.

18 My name is Christine Hanson, and I'm the Federal

19 affairs manager for Americans for Prosperity, an 

20 organization of grassroot citizen leaders committed to 

21 advancing economic freedom and opportunity. AFP is 

22 committed to promoting energy policies that promote 
274

1 affordability and reliability for all Americans.

2 On behalf of over 2 million AFP activists in all 

3 50 States, I'm pleased to have the opportunity to 

4 comment on the proposed rule for the 2014 standards for 

5 the RFS. Let me state from the start that AFP 

6 considers the proposed rule changes a strong step in 

7 the right direction, and we strongly support efforts to 

8 repeal the RFS entirely.

9 We have endorsed legislation currently in Congress 

10 that does so. Our position is that energy technologies 

11 should compete in the marketplace on their own merits, 

12 not on political favoritism and Government mandates 

13 such as the RFS.

14 In my prepared -- in my written testimony, I 

15 elaborate and express concern that the RFS leads to 

16 higher food prices, restricts Americans' access to 

17 affordable energy, and burdens small businesses. This 

18 mandate encourages farmers to shift corn production 

19 away from food and feedstock, as well as to scale back 

20 their production of other commodities, such as soybeans 

21 and wheat.

22 The ultimate result is higher prices for 
275

1 groceries, not only for corn, but also for everything 

2 that corn goes into, as well as for other commodities 

3 like milk, eggs, and meat. Recent research from Purdue 

4 University shows that repealing the RFS would cause 

5 overall food prices to fall approximately 13 percent. 

6 Last year, the RFS caused food costs for the average 

7 American household to increase by approximately $2,000.

8 Another way that the RFS strains household budgets 

9 is by damaging vehicles. Most vehicles on the road 

10 today are only designed to run on E10, a gasoline blend 

11 containing 10 percent ethanol. Using E15 causes car 

12 problems like damaged valves and valve seats, misfires, 

13 engine damage. It can also destroy cylinder heads, 

14 which cost $2,000 to $4,000 to replace.

15 The RFS imposes high cost of compliance on small 

16 business as well, particularly for gasoline refiners 

17 and convenience stores, the majority of which are small 

18 businesses. The RFS requires refiners to purchase RINs 

19 to demonstrate compliance or face a fine. The mandate 

20 also requires gas stations to build new pumps. 

21 Installing an E15 dispenser costs $100,000 while the 

22 average gas station only makes $40,000 per year.
276

1 I go into further detail in my prepared statement, 

2 but overall, we consider this a step in the right 

3 direction, and we're supportive.

4 Thank you.

5 MR. GRUNDLER: Thank you. Ms. Franco?

6 MS. FRANCO: Thank you.

7 My name is Sandra Franco, and I'm an attorney at 

8 Bingham McCutchen. I'm here today speaking on behalf 

9 of the National Biodiesel Board, the national trade 

10 association representing the U.S. biodiesel industry.

11 My testimony today will focus on EPA's legal 

12 obligations under the program with respect to the 

13 advanced biofuel and biomass-based diesel volumes. As 

14 our oral testimony must be brief, the National 

15 Biodiesel Board's written comments will go into more 

16 detail on these issues raised, as well as other aspects 

17 of EPA's proposal and the petitions for waiver.

18 EPA's obligations and authority under the statute 

19 must be considered in light of the overall statutory 

20 structure. The Clean Air Act requires the EPA to 

21 ensure that transportation fuel sold or introduced into 

22 commerce in the United States contains at least the 
277

1 applicable volume of renewable fuel, advanced biofuels, 

2 cellulosic biofuel, and biomass-based diesel.

3 In NPRA v. EPA, the D.C. Circuit recognized that 

4 "by including the authorizing phrase 'at least,' 

5 Congress also signaled its intent that volumes not be 

6 reduced, at least not in the first decade of the 

7 renewable fuel program."

8 While in API v. EPA, the D.C. Circuit addressed 

9 EPA's authority to reduce the cellulosic biofuel volume 

10 based on projected production, it also found in 

11 affirming EPA's decision to retain the full statutory 

12 advanced biofuel volume that that unlike cellulosic

13 biofuel, there appears to be no great obstacle to the 

14 production of advanced biofuel generally. And they 

15 emphasized production.

16 For advanced biofuel, Congress set an applicable 

17 volume of renewable fuel at 3.75 billion gallons for 

18 2014. EPA's proposal cites to no great obstacle to the 

19 production of advanced biofuel generally to meet that 

20 amount.

21 First, the cellulosic biofuel waiver provision 

22 regarding advanced biofuel is not without some 
278

1 parameters. Provision in Section 211(o)(7) must be and 

2 can be read together. Incorporating the criteria from 

3 the general waiver provision in Section 211(o)(7)(A) 

4 and assessing whether to reduce the advanced biofuel

5 volume under Section 211(o)(7)(D) does not render any 

6 provision superfluous, as subparagraph (d) provides an 

7 alternative basis for reducing the cellulosic biofuel

8 volume, as well as an alternative procedure to the 

9 motion required.

10 Regarding EPA's interpretation of that criteria, 

11 the National Biodiesel Board agrees that severe 

12 economic harm is not applicable here, but disagrees 

13 with EPA's reading of the criteria "inadequate domestic 

14 supply." EPA attempts to create an ambiguity in the 

15 plain meaning of supply to incorporate considerations 

16 of demand.

17 Moreover, EPA's assertion that it believes 

18 providing flexibility to obligated parties to meet the 

19 advanced biofuel standard ignores the statutory 

20 provisions that Congress included to address such 

21 flexibility and is counter to EPA's obligation to 

22 ensure the statutory volumes are met. Thus, the 
279

1 proposal fails under both Steps 1 and 2 of Chevron v. 

2 NRDC.

3 Moreover, the record shows that more biofuel

4 volumes can be produced than would be provided under 

5 EPA's proposal. And EPA's proposal is a reversal of 

6 EPA's prior determinations, including, for example, 

7 that the biodiesel industry has met and exceeded 

8 expectations when demand existed.

9 Thus, EPA's proposal to reduce the advanced

10 biofuel volume, particularly to the levels proposed, is 

11 arbitrary and capricious on several grounds. For these 

12 same reasons, among others, EPA's proposed methodology 

13 to address volumes into the future is not consistent 

14 with the statute and is arbitrary.

15 The National Biodiesel Board also believes EPA has 

16 not complied with its statutory obligations with 

17 respect to the proposal to keep biomass-based diesel

18 volumes at 1.28 billion gallons for 2014 and 2015.

19 I see I'm running out of time. So I will try to 

20 summarize. We believe that the statutory factors are 

21 outlined in the statute, and the proposed volume does 

22 not give due consideration to the implementation of the 
280

1 program, which is a consideration that EPA noted in 

2 2013 would help and assisted in setting its other 

3 volumes. We believe the proposal ignores this 

4 consideration.

5 We also believe that the record, even if you look 

6 at the 2013 volume analysis, would support continued 

7 increase in volumes, and so we think that there is 

8 various grounds to support an increased volume for both 

9 2014 and 2015.

10 MR. GRUNDLER: Thank you.

11 MS. FRANCO: In response to concerns regarding the 

12 timing of the EPA's proposal, we believe NPRA and EPA 

13 also address this --

14 MR. GRUNDLER: Ms. Franco, you need to wrap it up, 

15 please.

16 MS. FRANCO: -- in affirming EPA's authority to 

17 effectuate Congress's intent, even where it just misses 

18 its deadlines.

19 We'll provide further detail in our comments.

20 MR. GRUNDLER: Thank you. Mr. Coleman, welcome.

21 MR. COLEMAN: Thank you, Mr. Grundler.

22 Gentlemen, hang in there. We're about half way 
281

1 done.

2 My name is Brooke Coleman. I represent the 

3 Advanced Ethanol Council, and I want to talk about a 

4 couple of things. We have a number of companies that 

5 are going to talk about the specifics with regard to 

6 how this proposed rule puts us in a very difficult 

7 position at sort of the granular level.

8 First, I want to thank you to date for your 

9 administration of the RFS. I think you've got the 

10 right balance before this proposal between driving the 

11 marketplace and reacting to very real market signals.

12 Obviously, we feel that the new proposal, we are 

13 off track, and we've recalled far too much. We will 

14 engage specifically with regard to data on a number of 

15 key points, including 17 million gallons for 

16 cellulosic. It's the right ballpark, but I think we 

17 can -- we can work on a plus-up there based on real 

18 gallons.

19 We think your E85 data is woefully pessimistic, 

20 and to the degree that this rule is going to reflect 

21 that type of thing, we really need to get that data 

22 updated.
282

1 But with regard to the big picture, it's much more 

2 important because the 17 million gallons does not 

3 insulate us from the other decisions that have 

4 apparently been made in this proposal, and that's 

5 because the RIN programs are all nested together and 

6 the signals that come out from the RFS are also nested 

7 together. And so, for our investors, the bottom line 

8 is for our investors to believe in this program and to 

9 sort of stay out of social media and real estate and 

10 actually want to enter into this marketplace, they have 

11 to believe in RINs. That's the game-changer.

12 And the reason that's true is not because there is 

13 this free market and this price-driven marketplace, and 

14 we should be able to exist on our own, and RINs just 

15 give us a leg up. That's all not true.

16 So some of the things we've heard to my right, we 

17 don't live in a world where we have a free market and a 

18 competitive market. We live in a world where our 

19 investors are modeling 2015, and they know that if they 

20 make a prediction about June 2015, that OPEC can sit 

21 down in May 2015 and fundamentally change that model 

22 via collusive activity.
283

1 And so, the solution to that is we can either 

2 break up OPEC, which is sort of challenging. We can 

3 break up some of the consolidation that goes on in this 

4 country with regard to the oil industry, which we've 

5 done once a long time ago, but is also not part of the 

6 RFS.

7 Or we can have this RIN program. And what the RIN 

8 program does is it forces the Exxons of this world, who 

9 ignore market signals and do not buy our fuel based on 

10 price, to buy a RIN. And when they buy a RIN and all 

11 their friends in the market buy RINs, RIN prices go up, 

12 and that encourages the non-Exxons of this world to buy 

13 ethanol, use the RIN, and sell it to the noncomplying 

14 entity.

15 It's not a cost of compliance. It's the

16 noncomplying entity that's forced to buy a RIN. It's a 

17 major, major leveling for the playing field because it 

18 puts the Cumberland Farms and the Gulfs of this world 

19 on equal footing with Exxon, and they actually are 

20 rewarded for complying with the rule.

21 Now it doesn't matter whether you believe in that 

22 system for a D6 RIN, a D5 RIN, a D4 RIN, or a D3 RIN. 
284

1 Our investors have to know that that's how it's going 

2 to go. And the EPA is not going to run away from high 

3 RIN prices, and the White House is not going to pretend 

4 that high RIN prices increase gas prices.

5 And if we don't, then our investors are not stupid 

6 enough to invest against the power of Exxon and the 

7 power of OPEC. And our biggest issue with this 

8 proposal -- and I see 40 seconds. So if you don't stop 

9 me, I'll stop on time, I swear.

10 The biggest issue we have with regard to this 

11 proposal is it depressurizes the RIN program to an 

12 extraordinary degree, to a degree to which our 

13 investors are no longer going to say we're going to 

14 drive change because we don't know if there's going to 

15 be offtake. And so, we have got to move those numbers 

16 up significantly, not unreasonably, but significantly 

17 to put the pressure back in the program, or the 

18 advanced biofuels industry is going to have a very, 

19 very, very difficult time surviving.

20 Thanks.

21 MR. GRUNDLER: Thank you. Questions?

22 MR. MACHIELE: I'll start, and John can follow. I 
285

1 would appreciate if, not now, but in your written 

2 testimony, you reflect a little bit more on not just 

3 RIN prices driving it, but really -- because RIN prices 

4 are a reflection of the relative value of the renewable

5 fuel versus the petroleum that they're replacing.

6 So, for example, if petroleum was very expensive 

7 today or if corn ethanol becomes very inexpensive, the 

8 RIN price could become very small, and it's a very good 

9 investment for your investors. It doesn't need a high 

10 RIN price, just like it didn't a year ago, to drive 

11 investment if the renewable fuel is actually less 

12 expensive than the petroleum it's replacing.

13 So I'd encourage you to make sure that in your 

14 written comments, you don't focus too much just on 

15 what's happening with RIN prices because, quite 

16 frankly, the future is hopefully where the renewable

17 fuels are less expensive than the petroleum they're 

18 replacing.

19 MR. COLEMAN: You don't want me to respond now at 

20 all?

21 MR. MACHIELE: No. In your written comments, 

22 please.
286

1 MR. COLEMAN: Okay.

2 MR. MACHIELE: But, well, you've got 30 seconds?

3 MR. COLEMAN: Yeah. I mean, the 20-second 

4 response is that's sort of the point that I'm trying to 

5 make is we can show up with a cheaper fuel. The 

6 ethanol industry before us, we've been -- the corn 

7 ethanol industry has been cheaper than gasoline for the 

8 better part of the last 20 years, and the oil industry 

9 only really uses what the Government makes them use.

10 We don't go into these sort of wild price-driven 

11 marketplaces. We have a very difficult time with 

12 regard to E85. So I hear what you're saying, but on 

13 the other hand, it is RINs that change that equation. 

14 So, but what you're asking me to do is focus on it, and 

15 I will do that.

16 MR. ARGYROPOULOS: And just to follow up real 

17 quick, Brooke. I mean, your last statement, I'd 

18 probably challenge that a little bit. But if you have 

19 some context for that, it'd be good. Because the 

20 industry has been blending way more ethanol than has 

21 been required, and that's why there has been an excess 

22 of RINs and low RIN prices as well.
287

1 So to the extent that you can kind of put that in 

2 context, it would be useful.

3 MR. COLEMAN: Yeah, I think it's an important 

4 issue.

5 MR. HANNON: On cellulosic, there's also very 

6 little history of the relationship with cellulosic RIN 

7 prices to other category prices. But, one, so if you 

8 could speak to that?

9 Because I think your testimony is an assumption 

10 that RIN prices for non-cellulosic fuels will have a 

11 big impact on investments in cellulosic fuels. And so, 

12 if you could discuss that, the lack of history of the 

13 relationship with those prices.

14 Plus, the unique thing about cellulosics is the 

15 price -- is the cap on RIN prices in the statute 

16 through the waiver credits, if you could discuss that 

17 in your testimony as well, your written testimony. How 

18 that affects your projection that there needs to be 

19 increasing RIN prices in order to incentivize the use 

20 of specifically cellulosic biofuel when Congress set a 

21 cap on -- through the waiver credit on the RIN, an 

22 effective RIN price.
288

1 MR. COLEMAN: I appreciate the comment. That does 

2 speak to one of my fundamental points, and that is, is 

3 that when our investors are looking at cellulose 

4 because the cellulose basket is really not activated by 

5 the market yet, they're looking at advanced biofuel

6 RINs. Okay?

7 And so, that's the conversation they're having. 

8 So that's why the 2.21 -- that's why the 17 doesn't 

9 save us from the 2.21. That's the conversation they're 

10 having with investors.

11 MR. GRUNDLER: Mr. McMakin, welcome.

12 MR. MCMAKIN: Sure. Thank you.

13 Good afternoon. My name is Ben McMakin. I'm here 

14 today on behalf of Enerkem. And first of all, I want 

15 to thank your entire team that worked so hard to stage 

16 this event. It's obviously an important hearing.

17 Enerkem is a member of the Advanced Ethanol

18 Council, works closely with Brooke and his team. 

19 Enerkem converts nonrecyclable municipal solid waste 

20 and residual materials into ethanol, methanol, and

21 other chemicals.

22 Headquartered in Canada, Enerkem produces 
289

1 cellulosic ethanol from urban waste at its industrial 

2 demonstration plant in Westbury, Quebec. Enerkem is a 

3 private company backed financially by strategic 

4 investors, such as Waste Management and Valero.

5 Enerkem is currently completing the construction 

6 of its first full-scale commercial MSW to biofuels 

7 facility in Edmonton, Alberta. Enerkem will complete 

8 commissioning this facility during the next few months. 

9 When fully operational, this biorefinery will have a 

10 production capacity of up to 10 million gallons per 

11 year. The company will register and participate the 

12 Edmonton facility under the RFS program.

13 Enerkem is developing other projects in North 

14 America, including a commercial project in Mississippi, 

15 which has received support from both the DOE and the 

16 USDA. The RFS, as Brooke noted, is the key driver of 

17 the cellulosic and advanced biofuels industry in North 

18 America.

19 For a company like Enerkem, the RFS opens the 

20 marketplace, creates the demand, which then stimulates 

21 private investment. Any signal to the investment 

22 community that the EPA is weakening the RFS and its 
290

1 ability to drive change in the marketplace via 

2 reasonable RIN prices will create huge uncertainty in 

3 our sector, will slow down and limit capital investment 

4 for building plants.

5 Enerkem is committed to selling and producing 

6 cellulosic biofuels in the United States. With that in 

7 mind, we urge the EPA to maintain a strong RFS in the 

8 following ways.

9 One, the RFS must maintain pressure on the 

10 marketplace in order to work. The controversy over the 

11 RFS boils down to a market share battle between a 

12 growing biofuels industry and the incumbent oil 

13 industry.

14 In essence, the oil industry wants the EPA and the 

15 Obama administration to make administrative adjustments 

16 to the RFS that would greatly reduce or eliminate the 

17 drivers that facilitate more biofuel blending over 

18 time. More biofuels blending will ultimately lead to 

19 price competition between the two industries at the 

20 fuel pump, ultimately a good sign for consumers.

21 Two, the key to making the RFS work is the 

22 deployment of improved higher biofuel blends in the 
291

1 marketplace. Forward-looking volumetric requirements 

2 and healthy and robust RIN markets are critical pieces 

3 to this puzzle. From our perspective, the EPA cannot 

4 attempt to use the very policy tool intended to 

5 overcome the blend wall in order to avoid it. The RFS 

6 was intended to incentivize, not circumvent, E85 

7 deployment and higher blends such as E15.

8 Three, this is where I'm sounding like a broken 

9 record following Brooke here. But three, weakening the 

10 RFS will have a number of serious unintended 

11 consequences. The RFS is engineered to address 

12 challenges like the oil industry's reluctance or 

13 noncompliance to blend more renewable fuels.

14 Investors in the new generation of biofuels 

15 understand how the RFS and RIN values work to introduce 

16 market access for advanced biofuels. As such, any 

17 perceived willingness on the part of the EPA to allow 

18 the program to work would send a clear signal to the 

19 advanced biofuels marketplace that the RFS will not 

20 promote change as promised.

21 The mere possibility of this increases investment 

22 risk, which, in turn, drives capital away from the 
292

1 market and decreases the effective deployment of 

2 advanced biofuels.

3 Enerkem wants to continue its expansion strategy 

4 in North America --

5 MR. GRUNDLER: Please wrap it up, sir.

6 MR. MCMAKIN: -- particularly given the 

7 longstanding track record of favorable and consistent

8 biofuels policy. We encourage the administration, the 

9 EPA to continue the pressure on the marketplace as 

10 originally envisioned with robust RIN markets that 

11 incentivize the blending of less costly biofuels, 

12 domestically produced biofuels.

13 Thank you.

14 MR. GRUNDLER: Thank you. Questions?

15 (No response.)

16 MR. GRUNDLER: Mr. Kasbaum, you have the final 

17 word.

18 MR. KASBAUM: All right, thank you.

19 I'm John Kasbaum, senior vice president with KiOR, 

20 which is a publicly traded company that produces 

21 cellulosic drop-in hydrocarbon gasoline and diesel22 blend stocks at its first facility in Columbus, 
293

1 Mississippi.

2 In many ways, KiOR's product embodies the vision 

3 of the renewable fuels program. It's a drop-in 

4 hydrocarbon compatible with the existing vehicle fleet 

5 and fuel distribution system produced from nonfood 

6 cellulosic feedstock that is currently available in 

7 large quantities with no changes in land use. Full 

8 exploitation of this resource would result in the 

9 creation of a large nondepletable domestic source of 

10 transportation fuel at a price competitive with 

11 petroleum-based equivalents.

12 Moreover, this fuel would reduce greenhouse gas 

13 emissions by at least 60 percent and potentially more 

14 than 80 percent relative to the petroleum-based fuels 

15 it replaces while creating high-paying, permanent jobs 

16 in rural America.

17 KiOR and cellulosic fuel in general have come a 

18 long way in a short period of time. In less than 7 

19 years, we have gone from concept through research pilot 

20 demo and ultimately the start-up of our and the 

21 industry's first commercial-scale cellulosic fuel 

22 facility that began shipping fuel in March of 2013.
294

1 In 2013, we expect to produce around 1 million 

2 gallons of ethanol-equivalent cellulosic fuel, and in 

3 2014, we will continue to work toward our goal of 

4 ramping production towards target production capacity 

5 of 12 to 14 million gallons.

6 We are currently working to raise funds for our 

7 second facility and have identified and begun work on 

8 selecting sites for additional facilities to be 

9 constructed as soon as financing is secure. However, 

10 we are concerned that the proposed rule may undermine 

11 this progress, indeed the entire advanced and 

12 cellulosic biofuel industries, just as real progress is 

13 being demonstrated.

14 The 2014 RVO proposal has the potential to 

15 significantly undermine future RIN values, and if RIN 

16 values fall, investment in biofuel companies will drop 

17 since there is a lower prospect of adequate returns. 

18 While we are sympathetic to EPA's challenge of 

19 forecasting future production, the proposed approach 

20 systematically underestimates future volumes for us and 

21 others in the cellulosic fuels industry.

22 Moreover, it appears that the bias towards 
295

1 underestimation is built into the model such that EPA 

2 would continue to underestimate future volumes as long 

3 as this methodology is used. We believe there are ways 

4 that EPA can meet its need to generate an unbiased 

5 estimate of future volumes without risking the future 

6 of the industry that the RFS is trying to enable, and 

7 we look forward to working with the EPA to develop such 

8 an approach before the rule is finalized.

9 From a macro level, I see three factors that 

10 challenge the growth of commercial-scale production of 

11 cellulosic fuel. The first being technical, in that 

12 cellulosic biofuel production is a new technology. 

13 Commercial-scale production will only go as fast as 

14 development, construction, and operation of new 

15 technology will allow. Nevertheless, companies like 

16 KiOR are showing that progress.

17 The second factor is economic. Companies like 

18 KiOR derive revenue for gasoline and diesel from three 

19 sources -- the value of the hydrocarbon, the value of 

20 the RIN, and any additional value associated with a 

21 positive environmental impact of the fuel. Since 

22 cellulosic RINs are not traded at this point, the proxy 
296

1 or synthetic value is an advanced RIN plus a waiver 

2 credit.

3 The price of the waiver credit is capped in the 

4 statute. Low volume projections impact both of these 

5 values. Lower advanced RVOs result in lower advanced

6 RIN prices, and cellulosic RVOs below production 

7 prevent KiOR and companies like KiOR from capturing the 

8 full value of that waiver credit.

9 The third factor is financial. What the financial 

10 community needs to see is predictable and consistent 

11 cash flows. For us, that means sales of fuel and 

12 generation of RINs at a relatively predictable price. 

13 If we cannot demonstrate cash flow, it is more 

14 difficult to obtain the financing required to support 

15 the innovation and expansion that is a goal of the 

16 statute.

17 Investors in particular are concerned with the 

18 possibility that actual production will exceed the 

19 number of RINs required to be available under the 

20 proposed 2014 RVO program. If cellulosic or advanced

21 fuel production exceeds the number of RINs available in 

22 the pool, the price of those RINs will collapse.
297

1 This undermines the support the RFS provides to 

2 producers like KiOR and makes it very difficult to 

3 convince the financial community that we have a 

4 reliable cash flow associated with the generation of 

5 our RINs. We do not believe that a zero-value 

6 cellulosic RIN at levels of production well below the 

7 statutory targets is what Congress had in mind when 

8 they wrote the statute.

9 Given the potential damage underestimation does to 

10 this program and the companies operating under it, we 

11 believe EPA should and can do a better job of 

12 developing better, closer to actual production 

13 estimates, and KiOR would like to help EPA develop such 

14 a methodology.

15 MR. GRUNDLER: Thank you. Questions?

16 MR. BURKHOLDER: Yeah, you mentioned and 

17 characterized our approach in 2014 standards as 

18 something you viewed as systematically underestimating 

19 the cellulosic volumes. I'd just appreciate if, in 

20 your written comments, you elaborated a little bit on 

21 that, given the history and the challenged nature of 

22 the start-up of the cellulosic industry.
298

1 MR. KASBAUM: Sure. Be glad to address that.

2 MR. GRUNDLER: Any other questions for the panel?

3 (No response.)

4 MR. GRUNDLER: Thank you very much, panel. 

5 Appreciate your time and your comments. 

6 Now I would like to invite up our special panel, 

7 two members of United States Congress.

8 (Pause.)

9 MR. GRUNDLER: Gentlemen, welcome to our hearing. 

10 Since we are in the State of Virginia, the privilege 

11 goes to Mr. Goodlatte to go first. Congressman, when 

12 you're ready.

13 MR. GOODLATTE: Well, thank you very much. I 

14 appreciate the EPA holding this hearing and all of the 

15 distinguished members of the panel allowing us to 

16 testify. It's a pleasure to join you all today.

17 Since the renewable fuel standard was dramatically 

18 expanded in 2007, we saw almost immediately the market19 distorting effects of the RFS on our economy. The EPA 

20 has the tools to ease this market distortion fueled by 

21 the RFS. Members of Congress have asked several times 

22 for EPA to use your authority to lower the RFS.
299

1 Last year, we experienced one of the worst 

2 droughts in our nation's history, severely impacting 

3 the corn supply. Livestock and food producers were 

4 confronted with corn prices as high as $8 a bushel due 

5 to the drought and requirements of the RFS.

6 Last year, livestock producers were not just left 

7 with the concern of price, but also legitimate concerns 

8 over having enough corn to feed their animals and fear 

9 that that livestock herds would shrink. EPA partially 

10 acknowledged these concerns. In response to the waiver 

11 request, the EPA's own analysis said that a waiver last 

12 year would have provided relief of over $80 million to 

13 the pork industry just in Virginia and North Carolina 

14 alone, yet action was not taken.

15 This year, we are grateful to not be experiencing 

16 a drought that compounds the market-distorting effect 

17 of the RFS, but we are still confronted with the 

18 detrimental effects of the RFS. The imposition of the 

19 2014 volumes now threatens to cause economic and 

20 environmental harm. Perhaps the newest challenge would 

21 be the imposition of the statutory requirement of 18.15 

22 billion gallons of renewable fuels in 2014, of which 
300

1 approximately 14.4 billion gallons will be made up by 

2 corn ethanol.

3 In particular, the combination of rising ethanol

4 mandates and declining gasoline demand has exacerbated 

5 the onset of the E10 blend wall, the point at which the 

6 gasoline supply is saturated with the maximum amount of 

7 ethanol that current vehicles, engines, and 

8 infrastructure can safely accommodate.

9 I was pleased to join Congressman Peter Welch and 

10 our colleagues Jim Costa and Steve Womack to lead a 

11 letter with 165 of our colleagues asking the EPA to 

12 lower the RFS mandate. And I ask to make a part of 

13 your record this letter from 169 bipartisan members of 

14 the U.S. House of Representatives from across the 

15 nation.

16 Despite our frustration -- and would add that if 

17 you count members of the House who have either signed 

18 that letter or signed last year's letter or cosponsored 

19 either of the two bills that I have introduced, we are 

20 now at 198 members of the House seeking relief in this 

21 matter. And I'll get to the other alternatives in a 

22 moment.
301

1 Despite our frustration that the EPA has failed to 

2 recognize the detrimental effects of the RFS in the 

3 past, we appreciate that the Environmental Protection 

4 Agency has proposed a slight reduction of the RFS for 

5 2014. While this is an acknowledgment that the mandate 

6 is unworkable, it is not enough to provide the much7 needed relief businesses, farmers, and consumers need.

8 The RFS is clearly unworkable. The mandate 

9 drastically manipulates the corn marketplace and 

10 increases commodity and food costs across the supply 

11 chain. Under the RFS, the Federal Government is 

12 essentially telling a private industry that they must 

13 buy one product, ignoring other groups who also depend 

14 on that product and creating an artificial supply and 

15 demand.

16 The RFS is the Federal Government disrupting the 

17 marketplace by putting its heavy thumb on one side of 

18 the scale, tipping it in favor of one side over the 

19 other. In the debate over ethanol, the Government is 

20 picking winners and losers. I urge the EPA to use your 

21 authority to provide the maximum relief possible.

22 While it is imperative that the EPA provide the 
302

1 maximum relief possible, we must recognize that any 

2 band-aid relief that the EPA may provide does not fix 

3 this broken policy. The volatility that the RFS has 

4 imposed on our economy needs fundamental reform. 

5 Congress created this artificial market that is 

6 distorting the food and feed market, and now the fuel 

7 market, and Congress must provide relief from its 

8 unintended consequences.

9 Every one of my constituents, every American has 

10 felt the additional cost of the RFS. Every cattle 

11 producer who faces higher feed cost, every family who 

12 shops in a grocery store or dines at a restaurant, and 

13 every motorist who fills up their tank at the gas 

14 station pays the price of this unworkable policy.

15 I look forward to working with you to ease the 

16 effects of the RFS for these everyday, hard-working 

17 Americans, and I again thank you for the opportunity to 

18 be here today.

19 MR. GRUNDLER: Thank you, Congressman.

20 From the State of Vermont, Congressman Welch.

21 MR. WELCH: I think it's on. Thank you very much. 

22 I appreciate, too, the opportunity to be here. It's 
303

1 tremendous to be here with Bob Goodlatte, who's been a 

2 leader in Congress on that.

3 As Bob mentioned, we've got that letter signed by 

4 165 of our colleagues. Many others are supportive. We 

5 fully do support the lowering of the volumetric 

6 requirements for RFS, and we encourage you to go 

7 further to ensure RIN prices remain stable and do not 

8 inadvertently drive up the cost of gasoline.

9 You know, the bottom line, we've had some history 

10 now with this policy, and it's time for us to be 

11 straight with ourselves as well as the public. The 

12 RFS, my view, it's been a well-intentioned flop. The 

13 EPA's decision to lower the mandate reflects the 

14 growing consensus that the mandate just isn't working.

15 The annual increasing mandate contained in the 

16 RFS, it's created a bottomless appetite for more corn, 

17 and the corn rush has driven up the price of food. 

18 It's inflicted real environmental damage across the 

19 wetlands and conservation lands, and it's wrecked a lot 

20 of our small engines, and it's dealt brutal price 

21 increases to livestock farmers.

22 Let me just talk first about the environment. 
304

1 Since Congress passed the updated RFS in 2007, corn 

2 plantings have exploded. Last year, farmers planted 15 

3 million more acres of corn than before the ethanol

4 boom. These new plantings are coming at the expense of 

5 conservation.

6 Prior to the RFS, the Conservation Reserve 

7 Program, an incredibly important program to preserve 

8 our agricultural base, that was growing. Farmers used 

9 it. Now millions of acres are disappearing from that 

10 program.

11 Worse, the new lands that are being plowed under 

12 to make room for more corn include thousands of acres 

13 of virgin land that's going to corn and soybeans. And 

14 even if we ignore the damage being done to the land, 

15 the environmental claims of the ethanol supporters are 

16 pretty dubious now that the evidence is in.

17 Corn ethanol production, as you know, is very 

18 energy intensive. It requires huge quantities of 

19 water, and it's been found in some cases to have a 

20 higher lifecycle greenhouse gas emission than gasoline. 

21 One study found that ethanol's greenhouse gas 

22 emissions were 28 percent higher.
305

1 Now I want to talk about the dairy, livestock, ag, 

2 and corn price impact. The ethanol mandate has had the 

3 unintended effect of driving up the price of corn, as 

4 Bob has said. It's great for corn producers. I mean, 

5 there are some winners here. But it's really bad for 

6 livestock producers.

7 CBO has estimated that the increase is in the 

8 range of 28 to 47 percent in the price of corn, and a 

9 10 to 15 percent increase in food prices. And that's 

10 whether you're going out to buy dinner or buy at the 

11 grocery store. And livestock across the country has 

12 been really screaming for some relief.

13 My State, Vermont, which is a dairy State, is 

14 being hammered with the cost of production. Farmers 

15 are hanging on by their fingernails when they have 

16 these cost increases due to the ethanol. That's one 

17 contributing factor.

18 And you know that the price of corn used to be in 

19 the range of $2. Since RFS, it went up to around $8, 

20 oftentimes around $6, coming down a little bit now, but 

21 still propped up by the ethanol.

22 So the corn farmers are doing good. You know, 
306

1 they were doing better with ethanol, there's no 

2 question. But there's been a downside for other 

3 farmers, obviously, who are entitled the same fair 

4 consideration.

5 Engine damage. Corn ethanol, it really is 

6 wrecking our engines. My own chainsaw, I've got a beef 

7 about this, got wrecked, all right? Small engines 

8 struggle with E10.

9 As you know, when ethanol sits in an unused engine 

10 for a few weeks, it corrodes the machinery by oxidizing 

11 the aluminum. I visited a little, small engine repair 

12 shop in Colchester, Vermont, a while ago, and business 

13 is booming for him, up 60 percent. A typical repair 

14 runs from $50 to $400 because the damage can spread to 

15 carburetors and fuel lines.

16 And Adam Porter, the proprietor, said most people 

17 don't understand it until they're stung by it. If they 

18 have lawn mowers or chainsaws, it really ends up 

19 hurting. So if we continue to follow the mandate and 

20 drive towards E15 -- thank you for not doing that -- we 

21 could see dramatic engine damage continue to chainsaws, 

22 boats, snowmobiles, and countless other engines.
307

1 The blend wall in the ethanol industry. You know, 

2 we understand why we're here. The EPA finally 

3 recognized or did recognize, thank you, the blend wall 

4 is a real problem. And that's going to get worse. 

5 We've had advances made in the CAFE standards that's

6 driven down fuel consumption while the ethanol mandate 

7 continues to rise.

8 Now the mere anticipation of the blend wall in 

9 2013, as you know, caused the RIN prices to spike and 

10 could have caused severe damage to the economy through 

11 increased price -- gas prices. We've got that short12 term fix for 2014, thanks to the EPA. But Congress, 

13 Bob and I note, needs to act. So we're going to 

14 continue pushing hard for passage of our legislation in 

15 2014.

16 You know, ethanol has been a boon for the corn17 producing farmers and the industry, but we really can't 

18 continue a policy which is solely defended on the basis 

19 that it props up one industry, and there ought to be 

20 some other ways to help corn so they have some price 

21 stability. So I encourage the EPA to hold firm in the 

22 face of demands from the industry to even further 
308

1 reduce the blend levels for 2014 and ensure RIN prices 

2 remain steady.

3 And just towards the end here, I want to note that 

4 you took action on soy-based biodiesel, and there is 

5 growing concern about the demands on soy because of 

6 biodiesel in 2014 and in the outyears of the RFS.

7 So I thank you for hearing Bob and I. I think we 

8 represent the point of view I would say of the majority 

9 of Congress. This is tough in terms of the transition, 

10 but it's a dead-end policy that has nowhere to go. 

11 It's wrecking engines. It's unfair to lots of farmers, 

12 and it's not good for the environment.

13 So thank you very much for your efforts.

14 MR. GRUNDLER: Thank you both for coming here and 

15 presenting your views. While it's very tempting for us 

16 to be able to ask you questions for a change, we will 

17 resist that temptation.

18 Well, just one. Will we have a budget by January? 

19 I'm just kidding.

20 (Laughter.)

21 MR. GRUNDLER: Thank you again for your time.

22 MR. WELCH: It's a fair question.
309

1 MR. GRUNDLER: Okay. I'd like to invite Panel 11 

2 up.

3 (Pause.)

4 MR. GRUNDLER: Welcome, everyone. Mr. Weber, 

5 we're ready when you are.

6 MR. WEBER: Very good, and good afternoon. My 

7 name is Alan Weber. I'm a founding partner with Marc

8 IV. We have for the past 20 years or so provided 

9 technical and economic support to the biodiesel

10 industry, and most of that time also serving as an 

11 adviser to the National Biodiesel Board.

12 More recently, I've been providing close technical 

13 support to the NBB's RVO industry workgroup, and that

14 group, which consists of industry stakeholders, it 

15 depicts all of the various aspects of the value chain. 

16 So it includes feedstock providers, bioscience 

17 companies, biodiesel producers, fuel marketers, as well 

18 as fuel end users.

19 And that particular group, their charge is to help 

20 depict realistic economic conditions for our modeling 

21 efforts, and then also to be able to commission that 

22 work that needs to happen empirically to be able to 
310

1 quantify the impacts of a growing biomass-based diesel

2 fuel market. We rely primarily upon a partial 

3 equilibrium model that is maintained by waste. This 

4 particular model has a domestic as well as an 

5 international component to it, and it has a very 

6 detailed biofuels as well as a nested RIN structure 

7 that's part of it.

8 So our approach economically is to assess the 

9 systemwide impacts of various levels of production of 

10 biomass-based diesel fuel, and our work has concluded 

11 beyond, at least in our minds, a shadow of a doubt that 

12 there are sufficient feedstock supplies out there to 

13 support an RVO of 1.7 billion gallons. And that the 

14 RIN cost associated with that increase will actually 

15 decrease whenever you look at all of the RIN values 

16 together in summation from the program.

17 I think the fact needs to be made or possibly 

18 restated from earlier this morning that the volumes 

19 that we're talking about are equivalent actually to the 

20 current run rate right now in 2013 of 1.7 billion 

21 gallons. And in fact, that during this point in time, 

22 the feedstock prices have not increased. They've 
311

1 actually decreased.

2 When we look back towards last year, soybean oil 

3 was averaging close to 52 cents a pound. But if we 

4 look at the markets that are trading right now, we're 

5 closer to 40 cents a pound. Other feedstocks used for 

6 biodiesel production -- animal fats, yellow grease --

7 trading in a range of 25 to 35 cents. So we're 

8 actually at record productions, and feedstock prices 

9 are falling.

10 This same RVO workgroup has also commissioned 

11 several other pieces of work. They've commissioned a 

12 global assessment of feedstock supplies. They have 

13 commissioned a domestic input/output study to look at 

14 jobs supported by the biodiesel industry, and other 

15 testimony later today will document in detail some of 

16 those works.

17 I'd also like to shift gears just slightly. We've

18 also looked empirically at the impacts of a growing 

19 biomass-based diesel fuel market in terms of the 

20 livestock sector, and for those of us involved in 

21 livestock, its profitability is the same as it is for 

22 any other industry.
312

1 We want to increase our revenues. We want to 

2 contain our cost, and we want to look for ways to be 

3 able to mitigate risk, do diversification. And 

4 realistically, that is what increased production of 

5 biomass-based diesel fuel does in all three aspects.

6 So the predominant feedstock utilized in the 

7 United States is soybean oil. And as we increase the 

8 demand for soybean oil because of biodiesel use, 

9 because of the co-product nature, we're also increasing 

10 the supplies of meal, which depresses prices.

11 Every study that we have evaluated or commissioned 

12 has highlighted the exact same conclusion, and that is 

13 that increased production of biomass-based diesel fuel 

14 will, in fact, lower the relative cost of protein for 

15 livestock producers.

16 Second, we continue to rely upon animal fats more 

17 and more as we go. Although these byproducts are not 

18 primary drivers in terms of the prices paid to 

19 livestock producers, they do have an impact in terms of 

20 the margin, in terms of byproduct drop values.

21 We commissioned work by Centrec Consulting Group 

22 to look at this, and they concluded that every 
313

1 livestock sector -- pork, poultry, beef -- all 

2 positively impacted. So, for example, a livestock 

3 producer could expect $10 to $12 more per head at 

4 market based upon those increased values.

5 And finally, third, increased production of 

6 biodiesel results increased supplies of crude glycerin. 

7 Crude glycerin is a potential feed ingredient for 

8 livestock producers. It has a tentative definition for 

9 approval by AAFCO. It has been evaluated by multiple 

10 universities in feedstock rations, and it does, for 

11 those of us as livestock producers, it provides an 

12 additional energy source that we can consider.

13 So, in conclusion, we're experiencing a record 

14 year in terms of production. Feedstock prices have not 

15 increased. They're actually decreasing in terms of the 

16 overall cost of production. Our empirical work that we 

17 have done from a modeling perspective we believe is 

18 very comprehensive and clearly details that there is 

19 sufficient feedstock supplies to hit an RVO of 1.7 

20 billion gallons.

21 And I appreciate your time.

22 MR. GRUNDLER: Thank you. Any questions for Mr. 
314

1 Weber? John?

2 MR. HANNON: In 2013, the volume production is 

3 about 1.7 with a 1.28 billion standard. The fact that 

4 there would be feedstock available to support 1.7 

5 production is a separate question than what's the 

6 biodiesel standard. It's one element of it, but it's 

7 not the only.

8 We certainly analyzed that, and in fact, we 

9 projected significantly higher than 1.28 would be 

10 produced in 2014 with some issues about the tax or not 

11 the tax. Has your modeling looked at what would be 

12 produced in 2014 under the proposal based on the 

13 advanced biofuel standard?

14 MR. WEBER: The short answer is yes, and the long 

15 answer is no. Because whenever we looked at various 

16 scenarios, one scenario we did not look at was to 

17 actually reduce the advanced biofuel or the D5 RIN 

18 category that much below the statutory levels. And so, 

19 we will -- we are in the process of rerunning those 

20 models, and we'll provide that information in written 

21 testimony.

22 But the difference is, is that, you know, there's 
315

1 no head space between the D4 and D5 elements right now. 

2 So growth above 1.28 would be severely limited under 

3 the proposed rule.

4 MR. SIMON: And I would encourage you, Alan, in 

5 terms of your written comments, to provide as much data 

6 on the modeling that you're running that you can 

7 because I think that will be very helpful for us as we 

8 go forward.

9 MR. WEBER: Okay. Very well.

10 MR. SIMON: Thank you.

11 MR. GRUNDLER: Mr. Miller, welcome.

12 MR. MILLER: Thank you. Thank you for giving me 

13 the opportunity to speak with the EPA today.

14 My name is Mitch Miller, and I am the CEO of 

15 Carbon Green Bioenergy, which operates and owns a 50 

16 million gallon per year ethanol plant in Lake Odessa, 

17 Michigan. I'm a 20-year veteran of the ethanol

18 industry. I was in this industry at least a decade 

19 prior to RFS1 and 2 and have seen the positive effects.

20 I'm here to express my concern and to request an 

21 increase in the proposed 2014 RVO. RFS2 is working as 

22 designed. It was designed to break the monopoly by 
316

1 creating competition and consumer choice at the pump

2 Big oil's scare tactics of rising gasoline prices 

3 in the U.S. due to the inability to meet RFS2 is 

4 fiction. They will sell gasoline to the highest bidder 

5 regardless of the RVO level. The oil monopoly has done 

6 everything in their power to prevent E15, midlevel 

7 blends, and E85 from reaching consumers. And now your 

8 proposal rewards that behavior.

9 This comes at a time when obligated parties are 

10 silently and quickly installing E85 pumps at hundreds 

11 of locations in order to comply with the rising RFS. 

12 The DOE's alternative fuel infrastructure Web site is 

13 missing at least 1,000 E85 fueling stations. See 

14 E85prices.com for the most accurate data, which lists 

15 3,215 sites.

16 I also estimate that this site is missing up to 

17 500 higher-fueling, higher-level blend locations that 

18 have not been reported.

19 Your proposal reduces the required volume by 1.34 

20 billion gallons compared to 2013. This is the wrong 

21 direction and will stall investments in all sectors of

22 renewable fuel. The proposed rule will reduce 
317

1 American-made conventional biofuels by 799 million 

2 gallons. If this becomes law, there are only two 

3 outcomes.

4 The U.S. ethanol producers will either export 

5 ethanol at the 799 million gallon level, or 16 ethanol

6 plants, equivalent to the one I operate in Lake Odessa, 

7 will be shut down. Likely a combination of the two.

8 In both scenarios, the leverage needed to continue 

9 expansion of higher-level blends will be lost, and we 

10 will be importing more crude oil. I ask that you look 

11 at Michigan as an example of the competition that is 

12 being created by ethanol produced in our State and the 

13 investment in bringing higher-level blends to the 

14 market.

15 On October 1, 2013, Carbon Green Bioenergy

16 launched an intensive and comprehensive program to 

17 expand higher-level blends in the State of Michigan. 

18 We currently have 25 E85 fueling stations that are 

19 achieving at least $1 discount to gasoline in the Grand 

20 Rapids market. This price spread is being promoted 

21 with an intense marketing campaign.

22 E85 sales at our stations are up 400 percent year 
318

1 over year, and just yesterday, local rack gasoline hit 

2 an extreme low of 44 cents under RBOB. Ferrysburg, 

3 ExxonMobil rack gasoline was 44 cents under RBOB. 

4 Every consumer in our market is saving money at the 

5 pump due to this competition.

6 Now I realize this is an isolated example, but 

7 this can and will be replicated across the country 

8 because we are going to make it happen. You can learn 

9 more about our program at yellowhose.com.

10 Please stay the course and raise the RFS, and we 

11 will break through the so-called blend wall that has 

12 been fabricated and exacerbated by the oil industry to 

13 protect their monopoly.

14 Thank you for your time and consideration.

15 MR. GRUNDLER: Thank you. Questions?

16 MR. MACHIELE: Just encourage you to follow up in 

17 your written testimony with more of that information, 

18 including if you have any data on actually what 

19 happened with the demand for E85 as the price 

20 relationship changed. That would be very helpful to 

21 us.

22 MR. MILLER: Will do.
319

1 MR. MACHIELE: Sort of how the volumes change with 

2 pricing, and just FYI, most of here are located in Ann 

3 Arbor, Michigan.

4 MR. MILLER: Okay. Great.

5 MR. MACHIELE: You're not a State fan, are you?

6 MR. MILLER: Say that again?

7 (Laughter.)

8 MR. GRUNDLER: We'd have to discount your 

9 testimony if you went to Michigan State.

10 Mr. Haapala, you're next.

11 MR. HAAPALA: Thank you. I'm Ken Haapala, 

12 executive VP of the Science Environmental Policy 

13 Project.

14 Good afternoon, carbon-based life forms. I'm glad 

15 to be here.

16 (Laughter.)

17 MR. HAAPALA: On numerous occasions, 

18 representatives of SEPP have criticized regulations 

19 proposed or implemented by EPA stating why the 

20 regulations are not supported by rigorous science. I'm 

21 here to thank the EPA for taking a baby step in the 

22 right direction.
320

1 The renewable fuel standards are without 

2 scientific merit. The mandate was passed by Congress 

3 during a time in which its judgment was clouded by two 

4 fears. One, that the United States would become 

5 increasingly dependent on oil imported from unstable 

6 regions of the world. Thus, national security was 

7 threatened.

8 And two, human health and welfare are endangered 

9 by unprecedented and dangerous global warming. 

10 Subsequent events have shown that these fears are no 

11 longer justified.

12 In the first decade of this century, one could 

13 look at charts comparing the falling U.S. oil 

14 production and increased U.S. oil imports and possibly 

15 conclude that the trends would continue indefinitely, 

16 jeopardizing U.S. energy security. But the conclusions 

17 were wrong. The U.S. and Canada had vast reserves of 

18 oil waiting to be tapped if Government regulations, 

19 technology, and economics would permit.

20 Things have changed. In recent years, we have 

21 seen a dramatic increase in domestic oil production. 

22 The White House recently released a report stating that 
321

1 in October, U.S. oil production exceeded imports for 

2 the first time in 18 years. Also stable, Canada has 

3 enormous oil reserves. The fear of reliance on oil 

4 from unstable regions of the world threatening U.S. 

5 security is outdated.

6 Global warming. Around the turn of the century, 

7 this century, one could have possibly examined various 

8 charts and conclude that humanity faced a future threat 

9 of unprecedented and dangerous global warming from 

10 carbon dioxide emissions, which the ethanol mandate may 

11 reduce.

12 In 2009, the EPA asserted that greenhouse gases, 

13 principally carbon dioxide, present such a threat. The 

14 EPA stated that science supported its claims and 

15 offered three lines of evidence.

16 One, a distinct human fingerprint, a hotspot in 

17 the atmosphere centered over the tropics at about 

18 33,000 feet. It doesn't exist. No one can find it. 

19 Satellites and weather balloons have failed to find it.

20 Two, EPA claimed that surface global warming was 

21 unprecedented and dangerous. It was not, and it 

22 stopped 16 years ago.
322

1 Three, EPA claimed climate models are reliable. 

2 The climate models failed to predict that global 

3 warming would stop. All of the 19 U.S. climate models 

4 we examined greatly overestimated the warming for the 

5 last 30 years by 2 or 3 times. As with the fear that 

6 the threat to national security from increasing 

7 dependence on oil imports from unstable regions of the 

8 world, the fear of future threat to humanity from 

9 human-caused global warming is outdated.

10 Based on the best available technology and 

11 empirical science, I urge the EPA to adopt the proposed 

12 changes in regulations. They are a baby step towards a 

13 policy based on reality rather than outdated concepts 

14 and fears. Anything less would be as obsolete as 

15 mandating buggy whips for automobiles.

16 In addition, I suggest EPA request Congress to 

17 reevaluate the entire renewable fuels program.

18 Thank you.

19 MR. GRUNDLER: Thank you. Questions?

20 (No response.)

21 MR. GRUNDLER: Okay. Next we have Mr. Oestmann?

22 MR. OESTMANN: Oestmann.
323

1 MR. GRUNDLER: Oestmann.

2 MR. OESTMANN: That's quite all right. It happens 

3 all the time.

4 MR. GRUNDLER: That was the German pronunciation.

5 Proceed.

6 MR. OESTMANN: All right. Thank you.

7 Hello, and thank you for the opportunity today to 

8 submit comments to the EPA on a matter of national 

9 importance.

10 My name is Jeff Oestmann. I'm president and chief 

11 executive officer of East Kansas Agri-Energy. It's 

12 located in Garnett, Kansas. It's about a 45 million 

13 gallon a year facility. It's in a rural community of 

14 Kansas, about 3,000 people.

15 Today, we find ourselves again debating the intent 

16 of Congress, the administration, and the facts. I'm 

17 here today to advocate for the status quo and keeping 

18 the 2014 renewable volume obligation, and I come today 

19 with a unique -- unique perspective. Similar to my 

20 colleague here on my right, I started in biofuels when 

21 there was less than a billion gallons being produced.

22 And the thought of reaching 10 percent, well, 
324

1 doggone it, it just seemed unreachable. And all the 

2 obstacles put in front of us from the petroleum

3 industry, the automotive manufacturing lobby, things 

4 have changed a lot, I guess.

5 In addition to my years in biofuels, I've also run 

6 a biodiesel plant and spent a number of years on the 

7 international scene. And lastly, as a former United 

8 States Marine, I view the efforts of my industry as key 

9 to reducing our dangerous dependency on foreign oil. I 

10 have been a leader and continue to have hands-on, 

11 boots-on approach of the renewable fuels industry from 

12 all perspectives.

13 So to say I have seen a lot is an understatement. 

14 This industry has grown more than I could have ever 

15 imagined, and it's all due to the renewable fuel 

16 standard, adopted during the Bush administration. When 

17 the RFS was established, it was always envisioned -- it 

18 always envisioned ethanol blends well over 10 percent. 

19 So I sit here today and scratch my head.

20 The economic impact of the RFS has been 

21 dramatically positive for the U.S. economy, 

22 particularly in rural America and rural Kansas. In 
325

1 rural Kansas, the impact that the RFS has had on 

2 production agriculture cannot be overstated. I have 

3 witnessed the positive impact it has had on the local 

4 economy in Kansas and throughout the Midwest.

5 Before our facility was built, Anderson County was 

6 one of the poorest counties per capita in Kansas. East 

7 Kansas Agri-Energy has committed substantial investment 

8 in the production of renewable fuels in Anderson 

9 County. East Kansas Agri-Energy has helped the local 

10 community grow and thrive, showing the nation and the 

11 world that rural America and east Kansas is booming and 

12 leading the area of innovation investment in future 

13 energy technologies.

14 So this proposal has the potential to destabilize 

15 rural economies like ours. Again, we must move 

16 forward, not backwards when it comes to developing 

17 alternatives to fossil fuels and foreign oils.

18 We all know that the RFS and biofuels have created 

19 jobs that cannot be outsourced, which have helped 

20 ensure a robust rural America. East Kansas Agri-Energy

21 has continued to commit and invest in technologies and 

22 make modifications to increase the efficiency of our 
326

1 production.

2 As we look toward the future and next-generation 

3 fuels, such as cellulosic ethanol and other advanced

4 biofuels, East Kansas Agri-Energy is very concerned 

5 about the message this proposal is sending future 

6 investment and rural innovation. Quite honestly, it 

7 has already affected a decision that we have and 

8 stalled our future work.

9 It will have an impact of stranding billions of 

10 dollars of private capital invested in the United 

11 States by renewable fuel producers and related 

12 companies who have brought the industry from infancy to 

13 commercialization in just 5 years based on the 

14 stability offered by the 15-year policy adopted in law 

15 in 2007.

16 In essence, when I look at this, it will increase, 

17 not decrease, the risk of investment in low carbon 

18 cellulosic and advanced renewable fuels, as well as 

19 renewable fuel infrastructures. EPA must balance the 

20 goals of all Federal agencies, elected officials, and 

21 successful goals of previous administrations.

22 The Obama-led EPA will effectively circumvent all 
327

1 future growth and stamp out half of the goals of the 

2 2007 RVO law. The impact, billions of dollars of idled 

3 capital, wasted time and effort as the law has been 

4 envisioned. I'm running close on time here.

5 So after years of success from the RFS, we must 

6 not move backward. We must capitalize on current 

7 success and continue to invest in future development 

8 and commercial-scale production of next-generation 

9 biofuels.

10 MR. GRUNDLER: If you could wrap it up, sir?

11 MR. OESTMANN: Absolutely. So why are we even 

12 here today? I guess I have to ask. It boggles the 

13 mind to understand why we have a completely successful 

14 program by any measure. All targets are being met, and 

15 we have compliance by all RVO parties.

16 In summary, it's hard to come to Washington today 

17 as our company is small and really can't afford my time 

18 to be spent here today. Our investment in ethanol

19 solves energy security, provides high-value markets for 

20 our farmers, cleaner fuel, and a superior U.S.-based 

21 solution to energy and transportation.

22 Congress has created the RVO. It is EPA's job to 
328

1 implement the will of Congress, not the will of the 

2 auto or petroleum industry.

3 Thank you very much.

4 MR. GRUNDLER: Thank you. Ms. Wilcox?

5 Oh, I'm sorry. Any questions?

6 (No response.)

7 MR. GRUNDLER: Ms. Wilcox, you're up.

8 MS. WILCOX: Thank you.

9 On behalf of the American Frozen Food Institute, 

10 I'm Kristin Pearson Wilcox. I'm vice president of 

11 government affairs for AFFI, and I wish to convey our 

12 support for EPA's proposal to reduce the amount of 

13 corn-based ethanol that must be blended into our 

14 nation's fuel supply under the RFS for 2014.

15 The frozen food sector contributes over $70 

16 billion to the economy, supporting nearly 2 million 

17 jobs. AFFI members help to feed and nourish Americans 

18 and consumers around the globe. We believe food-based 

19 commodities should be used to fuel bodies, not vehicle 

20 engines.

21 Most of the ethanol mandate today relies on corn, 

22 and the biofuel proposed today -- produced today relies 
329

1 on soybeans. EPA's proposal to reduce the 2014 RFS 

2 mandate for corn ethanol by 1.4 billion gallons 

3 compared to 2013 levels and to propose 17 million 

4 gallons of cellulosic fuels, biofuels be blended next 

5 year is a step in the right direction. Both proposals 

6 must be implemented, but much more needs to be done.

7 Corn is used in 75 percent of the food found in 

8 the supermarket shelves. Corn and soybeans are key 

9 animal feed ingredients, and feed accounts for 69 

10 percent of the cost of livestock production. As a 

11 result, price volatility for corn and soybeans has a 

12 tremendous negative impact on the cost of food.

13 Frozen food companies are vulnerable to rising 

14 corn and soybean prices because we are major consumers 

15 of these products. Frozen food depends on the price 

16 and availability of meat proteins, dairies, wheat, 

17 sweeteners, soybeans, corn, and specialty crops. These 

18 ingredients are critical in preparing a diverse range 

19 of popular, nutritious, family-focused, and affordable 

20 frozen foods, including entrees such as frozen 

21 casseroles, calorie-conscious foods, pot pies, pizzas, 

22 frozen foods prepared, and meals.
330

1 When the RFS causes corn prices to rise, the price 

2 of other major crops rise as well. This includes 

3 horticultural crops, such as potatoes, strawberries, 

4 vegetables for processing, sweet corn, and peas. 

5 Shrinking supplies of corn grown for food consumption 

6 has caused food prices to spike nearly 18 percent, 

7 increasing the food cost for a family of 4 between 

8 $1,300 and $2,600 per year, according to a study 

9 conducted by the National Council of Chain Restaurants.

10 Rising food prices are a significant challenge for 

11 the poorest 20 percent of Americans, who spend about 

12 one-third of their after-tax income on food. In 2012, 

13 despite the worst drought in 50 years, the U.S. 

14 diverted 40 percent of its corn crop to fuel to satisfy 

15 the RFS, risking the rise of corn prices and food costs 

16 across the country.

17 AFFI petitioned EPA to waive the mandate to save 

18 consumers from predicted food price spikes. 

19 Unfortunately, the agency failed to act. Should EPA 

20 fail to enact its proposed 2014 volume levels, the 

21 ethanol and cellulosic biofuels mandates will be set at 

22 extremely aspirational levels.
331

1 Here is just one example beyond the debate of 

2 corn. If EPA does not make the appropriate adjustment, 

3 soy oil used for biodiesel will likely explode in 2016, 

4 rising to 150 percent of all current U.S. soybean 

5 production with demand exceeding production.

6 If the RFS mandates are not holistically examined 

7 or repealed, we are expected to experience annual price 

8 increases in beef and chicken over 7 percent, in eggs 

9 over 11, in potatoes 13, according to a National 

10 Economic Research Associates October 2012 study. This 

11 is not an outcome food makers or consumers want to see.

12 Consumers should be shielded from the cost of 

13 overly aggressive ethanol and biodiesel mandates. We 

14 applaud EPA for this first step, and we urge the agency 

15 to finalize their proposed volume levels and provide 

16 relief to food makers and consumers.

17 Thank you. And we're happy to follow up with any 

18 questions you have in our written comments.

19 MR. GRUNDLER: Thank you. Mr. Spano?

20 MR. SPANO: Thank you. Thank you for the 

21 opportunity.

22 I speak today as an average senior citizen with a 
332

1 fixed income who owns two vehicles, both 8 years old. 

2 I'd like to speak on three points -- the overall impact 

3 on the environment, impact on less than new vehicles, 

4 and hidden costs. And as a member of Energy Citizens, 

5 I want to thank you for your stand on lowering the 

6 volume of RFS.

7 Ethanol is an additive. It is a diversion of food 

8 resources and may even be a net negative impact on the 

9 environment, if a cleaner environment is the goal, due 

10 to the infrastructure for the production of the corn 

11 crop in the first place, such as the diversion of land 

12 from other uses and the use of marginal land.

13 Studies in 2002 and 2004, as reported by Ronald 

14 Cooke, cultural economist writing for EVWorld.com, 

15 contend, "If we evaluate corn ethanol as a fuel system, 

16 we must add the hydrocarbon and poisons produced during 

17 planting, growing, harvesting, conversion, 

18 transportation, blending, distribution, and consumption 

19 to the additional hydrocarbons released by corn ethanol

20 waste, and the hydrocarbon penalty from energy

21 inefficiency."

22 Cooke's point that ethanol production and use is 
333

1 nowhere near a clear winner for the environment is 

2 reinforced by University of California, Berkeley 

3 geoengineering professor Tad Patzek, who worked for 2 

4 years and produced a 50-page report taking into account 

5 the many varied energy inputs. He concluded, "The 

6 cumulative energy consumed in corn farming and ethanol

7 production is six times greater than what the end 

8 product provides your car engine in terms of power."

9 If the purpose of creating the ethanol additive 

10 market is to reduce carbon in the atmosphere, it would 

11 seem the production of corn for ethanol is a net loss.

12 If the corn went to animal and human food use, food 

13 prices might at least stabilize, if not drop.

14 Domestic exporters of corn and corn products could 

15 expand their markets to poor countries whose need for a 

16 basic food crop is paramount. Our exporters of food 

17 would gain, jobs would be created, and the importing 

18 countries would have a stable food base.

19 It's clear to me that ethanol is a mixed blessing 

20 at best for the larger environment and is costly to 

21 produce, supplying less energy output for engines than 

22 gasoline.
334

1 A 102-page study for the Coordinating Research 

2 Council, titled "Intermediate Level Ethanol Blends 

3 Engine Durability Study" and dated April 2012, tested 8 

4 common internal combustion engines at 500 hours of 

5 running with varying levels of ethanol gasoline mixes. 

6 In all, 28 engines were tested, and 12, nearly 50 

7 percent of the tested engines, failed in one respect or 

8 another in performance attributable to ethanol blended 

9 gasoline.

10 "The study has shown the two popular gasoline 

11 engines used in light-duty automotive applications of 

12 vehicles from model years 2001 through 2009 failed with 

13 mechanical damage when operated on intermediate-level 

14 ethanol blends of E15 and E20."

15 This report would seem to show that many vehicles 

16 on the road today, hundreds of millions, could be 

17 subject to failure in valves and gaskets due to higher 

18 blends of ethanol. According to a report in the New 

19 York Times a few weeks ago, even the EPA would agree 

20 that ethanol can damage vehicles.

21 "Most fuel pumps and vehicles are not equipped to 

22 handle more than 10 percent ethanol," the EPA said, 
335

1 "and there has been little demand for more."

2 Alternative fuels may present themselves, but more 

3 ethanol at this time is not one of them.

4 Thank you.

5 MR. GRUNDLER: Thank you. Thank the panel, 

6 particularly those who traveled here to present 

7 testimony. Grateful.

8 I'd like to invite Panel 12 up.

9 (Pause.)

10 MR. GRUNDLER: I'd like to invite Mr. Steve Howell 

11 to go first.

12 MR. STEVE HOWELL: Good afternoon. My name is 

13 Steve Howell. I am the principal and co-founder of 

14 Marc IV Consulting. I served as the technical director 

15 for the National Biodiesel Board from 1994 to 2013 and 

16 currently serve as a technical adviser for the National 

17 Biodiesel Board.

18 I'm also the chairman of the ASTM International's 

19 Biodiesel Task Force, a position I've held since 1994. 

20 I've received the Meritorious Service Award from the 

21 American National Standards Institute in 2008 for work 

22 on international standards, and I'm the only person 
336

1 that has been honored as a fellow of the society from 

2 both ASTM International, as well as the American Oil 

3 Chemist Society. So I've been involved in biodiesel

4 for quite some time.

5 In the early 1990s, the OEM community made it 

6 abundantly clear that fully vetted and approved 

7 biodiesel ASTM standards would be needed before they 

8 would recommend biodiesel blends. With this in mind, 

9 many millions of dollars of cooperative research and 

10 testing over the last 20 years has occurred, and this 

11 has provided sufficient data to secure ASTM standards 

12 for pure biodiesel, B100, used for blending. That's 

13 ASTM D6751, which was first approved in 2001.

14 Standards for blends of 5 percent biodiesel or 

15 less biodiesel, ASTM D975, and blends for biodiesel

16 containing 6 to 20 percent biodiesel, ASTM D7467, were 

17 approved in 2008.

18 Many major fleets and users, such as school buses, 

19 municipal buses, and government fleets, have used B20 

20 without incident since the mid 1990s. All OEMs doing 

21 business in the U.S. now tell their customers it's 

22 acceptable to use B5 and lower blends. Over 75 percent 
337

1 tell their customers using B6 to B20 blends meeting 

2 D7467 standards is acceptable in all or a portion of 

3 their diesel offerings, many going back as early as the 

4 mid to early 2000s.

5 ASTM specs for B20 are working, and users are 

6 having a positive experience with B20 in both existing 

7 and new diesel engines. This has been a real key and a 

8 major basis for the development of biodiesel in the 

9 volumes that have occurred over the past several years.

10 I also managed the NBB program that provided 

11 health effects testing data to the EPA under the Fuels 

12 and Fuel Additive Registration Program of Section 

13 211(b) of the Clean Air Act. Based on the health 

14 effects information submitted and the ASTM standards 

15 for biodiesel, EPA has registered biodiesel B100 as a 

16 legal fuel and a legal fuel blending component in the 

17 U.S. under the Clean Air Act.

18 As a legally registered fuel in the U.S., use of 

19 biodiesel in an existing diesel engine does not, in and 

20 of itself, void an OEM warranty. OEMs warranty the 

21 workmanship of their parts, materials, and vehicles 

22 they sell. OEMs don't sell fuel. So they don't 
338

1 warranty fuel.

2 If a legally registered fuel used in a diesel

3 engine causes a specific problem, whether that problem 

4 is caused by petroleum diesel fuel, conventional fuels, 

5 or biodiesel, that problem is the responsibility of the 

6 fuel supplier and not the engine company and not 

7 associated with the engine company warranty.

8 The question for a biodiesel user, therefore, is 

9 not whether the use of biodiesel will void an OEM 

10 warranty, it is whether they believe using a biodiesel

11 blend higher than that recommended or approved from the 

12 manufacturer will, indeed, cause a fuel-related issue.

13 We are hopeful that the cooperative efforts of the 

14 National Biodiesel Board with the OEM community will 

15 result in all OEMs issuing formal support of 

16 recommendations for B20 blends in all of their 

17 equipment moving forward. That is certainly our goal. 

18 That's what we're working toward.

19 In the meanwhile, the continually improving ASTM 

20 standards for biodiesel, industry commitment to fuel 

21 quality, and the current recommendations from the OEM 

22 community provide sufficient conditions to allow 
339

1 significantly higher levels of biodiesel penetration in 

2 the market moving forward.

3 Therefore, based on this, there is no biodiesel

4 blend wall, as was inferred by the NPRM. And there is 

5 no need for policymakers or others to consider limiting 

6 the level of biodiesel based on the end use acceptance 

7 or OEM support.

8 Thanks for the time today.

9 MR. GRUNDLER: Thank you.

10 MR. KOROTNEY: All right. Now it's on. All 

11 right. So, Steve, well, yeah, we did talk about this 

12 issue in the NPRM, and we don't have a really good 

13 analysis of the actual makes and models in the in-use 

14 fleet and their associated B5, B20 warranties or what 

15 that might be.

16 In other words, what we're really looking for is 

17 some good data and analyses on for the in-use fleet. 

18 Not current sales, but for the in-use fleet, what is 

19 the breakdown between the volume of biodiesel that 

20 could be B5, for instance, and is acceptable to engines 

21 in the in-use fleet?

22 What is the volume that is acceptable up to B10 or 
340

1 B50 or B20 or something like that? So if that's data 

2 that you can get your hands on and submit it to us, 

3 that would be great.

4 MR. STEVE HOWELL: We can certainly provide some 

5 of that information, although the reality is for many 

6 vehicles, the OEMs may not recommend levels higher than 

7 B5, we have very successful use of B20. Have for many, 

8 many years.

9 So I'm not sure that that analysis really would 

10 have a determining factor on how much biodiesel we can 

11 use in the market, but we'll be happy to supply the 

12 information.

13 MR. GRUNDLER: Mr. Howell number two, proceed.

14 MR. DAVID HOWELL: Thank you, and we're not 

15 related. Well, we probably are. Our 9th or 10th 

16 great-grandfather probably came to Long Island in about 

17 1638, if our figures are right. But enough detail.

18 Good afternoon. Thanks for the opportunity to 

19 talk about your recent EPA decision.

20 My name is David Howell, and I'm a farmer from 

21 near Muncie, Indiana. I'm here to talk about how the 

22 proposed decrease in renewable volume ruling has -- RFS 
341

1 will have a drastic negative impact on our family farm, 

2 but also the people of Indiana and across all of 

3 agriculture.

4 I'm fortunate to farm with three of our grown 

5 children and their families. On our farm, we raise 

6 corn, soybeans, processing tomatoes, and jack o'lantern 

7 pumpkins. Many people at first glance would say we're 

8 large farmers because we operate several thousand acres 

9 over seven counties in Indiana. However, our farm 

10 provides the only income for 4 farm families, and at 

11 least half the income for 10 more families.

12 When many rural communities have struggled to 

13 bring their best and brightest children back home after 

14 going to college, we were fortunate that our children 

15 chose to return to the family farm after college and 

16 make agriculture their career. With degrees they 

17 earned from Princeton and Texas A&M, Iowa State and 

18 Purdue, they had many easier options than farming. But 

19 they love the Indiana land. They wanted to come back 

20 and take care of it.

21 Our long-term plans have been made, given their 

22 decisions, with the knowledge that RFS standards, which 
342

1 we believe were written into the law. The last month 

2 has been challenging for our family and other family 

3 farms as we try to plan for the future.

4 The EPA and the current administration made a 

5 pledge to the American people to become energy

6 independent by developing an American-based energy

7 sources, like corn ethanol and soy-based biodiesel. 

8 Farmers responded, growing enough corn not only for 

9 fuel, but for also the livestock and the important 

10 export markets.

11 The record yields of 2013 that we've obtained have 

12 proven our abilities. There is no shortage of corn. 

13 The food for fuel hysteria is inaccurate.

14 The industry responded by investing in 

15 infrastructure across rural America, and today we have 

16 a thriving renewable energy -- fuels energy. But now 

17 the EPA and President Obama have pulled the proverbial 

18 rug out from under America's farmers on the planned and 

19 accounted for renewable fuels market.

20 There is no question this arbitrary decision from 

21 EPA is what has caused the most recent drop in corn 

22 prices to levels below cost of production in the 
343

1 outyear. This is the equivalent of "If you like your 

2 plan, you can keep your plan" for agriculture.

3 And some would argue it's a direct result of the 

4 political pressure exerted by big oil. Many of the 

5 input commitments for next year have started before the 

6 RFS announcement. Many farmers offset their risk 

7 through futures purchasing and forward contracting at 

8 the time of planting. But since input prices are 

9 locked in now, we are facing difficult financial 

10 situation, planting a crop that we know will not 

11 produce a profit, all due to the abrupt and somewhat 

12 illegal -- some would say illegal change in the RVO.

13 The math is simple. For us in Indiana, the 

14 proposed reductions of 1.4 billion wipes out our 

15 Indiana production of 1.4 billion bush -- gallons. 

16 It's just wiped out Indiana's entire production.

17 In Indiana, we have 13 ethanol plants in 13 rural 

18 communities, which have just been devastated by the 

19 announcement. These plants are located in rural 

20 communities that need the more than 600 direct jobs 

21 created by the ethanol industry, as well $1.5 billion 

22 in direct capital investment since 2006 and the 
344

1 increase to the gross State product by $520 million 

2 attributed to ethanol. The ethanol has also 

3 contributed $47 million to the State tax rolls.

4 When the OMB does their work, I hope they -- I 

5 don't think they have, but I wish they would consider 

6 that benefit to us. Central policy goals underlying 

7 the RFS program are reductions in greenhouse gases 

8 emissions, enhanced energy security, economic 

9 development, and technological innovation. However, 

10 does diminishing the use of U.S.-grown renewable fuels 

11 enhance energy security and spur investment in the 

12 industry?

13 The environment is -- that goes without question. 

14 Farmers responded to increased demand by producing 

15 more while using less ground than has been stated by 

16 most people. The change has been coming from other 

17 crops and the -- the CRP, the highly arable land that's 

18 used has been so because of Government regulation, 

19 cutting down budget constraints, rather than it has 

20 been from taking it on.

21 And I know I'm out of time.

22 MR. GRUNDLER: If you could wrap it up, please?
345

1 MR. DAVID HOWELL: I'm an old man. I'm starting 

2 on my 44th crop. Hopefully, I'll get through it. I've 

3 started to see the patterns of things over the last 44 

4 years. I think this decisions has the potential to do 

5 every bit as much damage.

6 I've had droughts. We've had floods. We've had 

7 the '80s that I survived, barely. But I think this 

8 decision has drastic potential to be a huge impact to 

9 the rural economy of the United States of America.

10 MR. GRUNDLER: Thank you, sir. Mr. Beemer?

11 Oh, I'm sorry. John?

12 MR. HANNON: I would ask that in your written 

13 comments, you provide the analysis that leads you to 

14 the conclusions that you're stating, for example, that 

15 the drop in corn prices are attributable to our 

16 proposal. Taking into account indications such as the 

17 proposal discussion that we are projecting the same 

18 volume of ethanol use in 2014 as in 2013.

19 MR. DAVID HOWELL: I'll do it in the written. But 

20 the uncertainty, sir, is what I think is creating a lot 

21 of our problems. If we have no certainty as far as 

22 investment and/or in the market, we're -- the thought 
346

1 that that would be done had major effect on it, but 

2 I'll write it out.

3 MR. GRUNDLER: Thank you. Mr. Beemer, proceed.

4 MR. BEEMER: Good afternoon, and thanks for 

5 allowing me to testify today in front of the EPA.

6 My name is Mark Beemer. I'm president of Aventine 

7 Renewable Energy.

8 Aventine, I think, is the second-oldest ethanol

9 producer in the United States behind ADM. We have both 

10 wet milling and dry milling facilities located in 

11 Pekin, Illinois, near Peoria. We have current capacity 

12 of 460 million gallons per year.

13 We are currently operating 160 million gallons of 

14 that in Pekin, and 4 other plants are currently idle as 

15 a result of the 2013 drought and, frankly, the 

16 uncertainty over the 2014 RFS standard.

17 Ethanol is a fantastic and wildly successful story 

18 about locally grown green transportation fuels for the 

19 American consumer. It is story whereby American 

20 agriculture is supplying 1 year out of every 10 years 

21 of transportation fuels, excluding diesel fuel, to the 

22 American consumer.
347

1 Unfortunately, the new proposed EPA rules threaten 

2 that type of successful program. The fantastic ethanol

3 story really is about American jobs and the reemergence

4 of rural America. It's clean and green, domestically 

5 produced energy security, not being fought overseas in 

6 the Mideast.

7 It is also the cheapest energy molecule that the 

8 consumer has they can put in their gas tank. It also 

9 has resulted in record net farm income. I got in the 

10 business in 1988, and it was a disaster. Net farm 

11 income was $40 billion. Last year, 2013 -- or 2012, it 

12 was $131 billion.

13 It's also allowed for tremendous agribusiness 

14 income. John Deere was making frames for motorhomes 

15 back in 1988 because there was no demand for farm 

16 equipment. There is new yellow, orange, green paint 

17 going down the highways like crazy because of the new 

18 investment.

19 I have two issues I want to discuss specifically. 

20 One is the jobs and the impact locally if we were able

21 to, for example, open our two Aurora, Nebraska, ethanol

22 facilities in a town of about 4,500 people. The first 
348

1 thing that would happen, we would be adding $5 million 

2 of payroll to the local community with 65 to 70 jobs.

3 We would be hiring and paying for about $5 million 

4 of millwright activity to repair and maintain these two 

5 ethanol facilities. We would be spending another $85 

6 million to buy enzymes, yeast, equipment, spare parts, 

7 rolling stock, railcars, track mobiles.

8 But the big thing is that we would be spending 

9 between $270 million and $300 million to buy local corn 

10 in the Aurora, Nebraska, area. It's a benefit of 

11 roughly $400 million to that local community. That's 

12 why ethanol has been so successful because of the 

13 impacts in rural America.

14 Finally, the other topic I would like to discuss 

15 very quickly is RINs. RINs are free. Every ethanol

16 producer in this room, when they sell a gallon of 

17 ethanol, they transfer the RIN to the blender or to the 

18 refinery for free. It's a zero-sum game among the 

19 obligated parties.

20 If the EPA waivers, the obligated parties will 

21 have learned a successful strategy to circumvent 

22 congressional intent. Congress was fully informed on 
349

1 the blend wall issue with RFS2 when it was established, 

2 and the expectation was that higher blends would find a 

3 market and that rising RIN values would be the stick, 

4 the stick -- not the carrot, but the stick -- embedded 

5 into the legislation that would incentivize the 

6 distribution of E85 and E15.

7 By the way, I have an 11-year-old vehicle, and 

8 I've burned approximately 250,000 gallons of E85. It's 

9 a wonderful energy molecule.

10 In closing, American agriculture has met the 

11 challenges of the RFS2 and delivered on the RFS2 

12 mandates. Fifteen billion gallons of ethanol capacity 

13 and 2 billion gallons of biodiesel capacity have been 

14 built in the United States at an investment of almost 

15 1/10th of a trillion dollars, almost $100 billion.

16 Infrastructure, railroads, ethanol blending 

17 capacities has been delivered, another deliverable, and 

18 unit train receivers are moving ethanol into all the 

19 markets. Agribusiness has delivered.

20 MR. KOROTNEY: You need to wrap up, please.

21 MR. BEEMER: And finally, the ethanol industry 

22 delivered last year when it produced the mandated 
350

1 volume of ethanol in light of the worst drought since 

2 the 1940s. I ask the EPA to reconsider your changes to 

3 the mandate and restore the RFS2 to the original 

4 congressionally mandated target levels.

5 Thank you very much.

6 MR. GRUNDLER: Questions? I would only ask in 

7 your written testimony the same question we've asked 

8 other producers, which is your ideas or -- on how the 

9 industry and the marketplace could go from roughly 100 

10 million gallons of high-level E85 consumption this year 

11 to, if we do not make any adjustments, 3.5 billion 

12 gallons in 2014, over a very short period of time?

13 That's the information we'd particularly like to 

14 get from you.

15 MR. BEEMER: Is that also then in combination with 

16 E15?

17 MR. GRUNDLER: Sure. Sure, yeah.

18 MR. BEEMER: Because I mean, I don't -- E85 is not 

19 the only answer to the calculus in the room, right?

20 MR. GRUNDLER: Yes.

21 MR. BEEMER: Okay. Thank you.

22 MR. GRUNDLER: Okay. Mr. Mueller?
351

1 MR. MUELLER: Okay. I hope everybody can hear me. 

2 Well, I am -- well, thank you, first of all, for 

3 giving me the opportunity here to testify. I'm a 

4 researcher. I work for University of Illinois at 

5 Chicago. I've been involved in greenhouse gas 

6 lifecycle modeling for about 10 years.

7 I sat on the expert working group for the 

8 development of the California low carbon fuel standard, 

9 and I'm a coauthor on the CCLUB Land Use Change 

10 Interface to the Argonne GREET Lifecycle Model.

11 Our research -- my research is generally widely 

12 published in scientific peer literature. Our research 

13 has demonstrated that today's average corn-based 

14 ethanol, as well as biodiesel, do significantly reduce 

15 greenhouse gas emissions compared to petroleum, even 

16 when we take land use change emissions into account.

17 You know, in fact, if we look closer at land use 

18 change emission, in 2007, land use change emissions 

19 were at a metric of above 100 grams per megajoule, 

20 right? That's the metric we are measuring that at. 

21 One hundred grams of CO2 emitted per unit, heat unit of 

22 ethanol.
352

1 Now, 5 years, 6 years later, we've updated the 

2 models, updated the databases, updated the emissions 

3 factor models. That number now in the latest Argonne 

4 GREET model using certain modeling assumptions is down 

5 to 9 grams per megajoule. And that's sort of 

6 tremendous progress in just modeling, updating the 

7 modeling.

8 In addition to that, ethanol plants are very 

9 efficient in adopting new technologies. My team has 

10 surveyed corn ethanol plants and also population in the 

11 peer literature that showed that 2008 corn ethanol is 

12 30 percent more energy efficient than 2001 corn 

13 ethanol.

14 So I heard earlier, you know, claims being made 

15 about energy ratio and corn ethanol having -- requiring 

16 more energy to make than it releases. That was exactly 

17 10 years ago, right, under certain conditions could 

18 have happened, right?

19 Modern corn ethanol is a different animal, 

20 substantially different. And ethanol blends, even 

21 since 2008, have further invested in energy-efficient 

22 technologies, and we've also documented that. And we 
353

1 attribute this at least, this recent investment is 

2 partially to the working renewable fuel standard, 

3 right, that created a stable environment for plants to 

4 invest.

5 But new RFS2 modeling runs are needed in support 

6 of the effectiveness of RFS2, right? We have to show 

7 that corn ethanol is now much better because if you 

8 look at the outdated RFS2 runs that were done for RFS2 

9 to support the original RFS2, they're based on outdated 

10 data, right?

11 We have to put in the new energy efficiencies for 

12 the plants. We have new carbon models, right, that 

13 take carbon stock changes into account on the 

14 agricultural face that greatly reduces emissions from 

15 land use change. We have to take those into account.

16 We have updated land use change databases, land 

17 use models, since the RFS2 was originally conceived. 

18 And we have emerging new air technologies that are not 

19 reflected, right, application of nitrification 

20 inhibitors.

21 The removal of corn stover on the front end to 

22 serve as an additional animal feed at feedlots is now 
354

1 really emerging in practice, and that's just as a co2 product similar to the production of DDG animal feed at 

3 the back end of a corn ethanol plant.

4 We have just recently modeled that a corn-based 

5 ethanol, meaning a blend of starch and cellulosic --

6 stover cellulosic ethanol will be more than -- will 

7 reduce on a gallon-per-gallon basis greenhouse gas 

8 emissions by more than 50 percent in the year 2020, 

9 which is --

10 MR. GRUNDLER: Sir, I need you to wrap up, please.

11 MR. MUELLER: -- the EPA target year. So, in 

12 closing, I'm just reading this. In closing, we believe 

13 that the RFS has provided an environment that 

14 stimulates technology adoption, both at the biorefinery 

15 as well as the feedstock production level. This has 

16 resulted in cumulative greenhouse gas benefits.

17 Crucially, RFS2 modeling runs will need to be 

18 updated to document the greenhouse gas reductions. Any 

19 reduction in the renewable volume obligation will slow 

20 the cumulative greenhouse gas benefits that can be 

21 achieved with biofuels.

22 MR. GRUNDLER: Thank you, sir. Questions?
355

1 MR. SIMON: Not a question, per se, but I would 

2 encourage you to provide the modeling and the 

3 additional information in support of your comments for 

4 the record. I think that would be very helpful for us 

5 to look at.

6 Thank you.

7 MR. GRUNDLER: Mr. Walsh?

8 MR. WALSH: Thank you, everyone.

9 I am just a Lansing, Michigan, college student who 

10 is appalled by the environmental atrocities of oil. I 

11 am not currently employed or otherwise affiliated with 

12 any pro-ethanol group, industry, or lobby.

13 And like one of our Panel 11 members, I am also on 

14 a fixed income, going to college, making car payments, 

15 and I was largely unable to appear today because of the 

16 high cost of driving here. However, I drove here 600 

17 miles on E85.

18 I love ethanol because it is a renewable fuel that 

19 is within my reach. I don't have to spend thousands of 

20 dollars for a hybrid or electric vehicle. And unlike 

21 hydrogen, the ethanol refueling infrastructure exists.

22 If the renewable fuel standard is reduced or, 
356

1 worse, repealed, the adverse environmental and societal 

2 impacts from increased oil use will increase in 

3 frequency and severity. Diluted bitumen -- I'm not 

4 sure if I pronounced that right -- colloquially 

5 referred to as "tar sands," is far denser and heavier 

6 than conventional crude by a factor of roughly 10 

7 times.

8 When spilled, tar sands will sink to the bottom of 

9 a body of water instead of staying afloat like 

10 conventional crude does. One instance in particular I 

11 would like to describe is the March 2013 tar sand spill 

12 from a ruptured pipeline in Mayflower, Arkansas.

13 Two dozen families come home to oil covering their 

14 yards and flowing down their street. None of these 24 

15 families were aware that this pipeline ran behind their 

16 neighborhood, 22 of whom remain out of their homes 

17 today. ExxonMobil, the owner of the pipeline, has 

18 repeatedly threatened to cut these residents off of 

19 housing assistance.

20 Many who make the argument that ethanol is not as 

21 good for the environment as it is touted to be 

22 conveniently overlook the deplorable and atrocious 
357

1 impacts caused by oil and, more specifically, tar 

2 sands, which recently has been touted as an answer to 

3 our energy independence.

4 Another infamous spill I would like to talk about 

5 real quick is in Calhoun County, Michigan, back in 

6 2010, right after the Deepwater Horizon spill had just 

7 ended. Also the deforestation and the various other 

8 environmental impacts, like I said, these catastrophes 

9 only serve to increase in frequency and severity should 

10 the RFS be scaled back or repealed.

11 Another point worth noting is that the oil and 

12 natural gas industry, big and growing as they are, 

13 stand to have no job impact if the RFS is kept intact 

14 and as is. A common and misguided argument against the 

15 renewable fuel standard is the dramatic increase in 

16 food cost since the implementation of it.

17 First -- or excuse me, it's true. Food prices 

18 have, in fact, risen since the implementation of the 

19 RFS. But those rises have nothing to do with the RFS.

20 First, only 30 percent of the corn kernel is used 

21 for ethanol production. The final 70 percent goes into 

22 vegetable oil and a product called distillers dried 
358

1 grains, or DDGs. This is a high-protein, low-cost 

2 animal feed that, if anything, serves to decrease food 

3 costs under the RFS.

4 The smoking gun that few notice and I have not 

5 heard yet today, the rising transportation costs. How 

6 is much of our food transported today? Trucking. 

7 Which, as many of you know, is powered by petroleum8 based diesel.

9 This industry has nearly been crushed time and 

10 again by $4 to even $5 per gallon diesel costs. 

11 Additionally, out of every dollar, only 16 cents goes 

12 to farming. The rest goes to marketing, 

13 transportation, and profits.

14 Today, corn is at $4.20 a bushel, near where it 

15 was when the RFS was signed into 2007 -- signed into 

16 law, excuse me. Also, there are 15-plus million flex17 fuel vehicles on the road today, mine included. These 

18 vehicles can run on E85, thus increasing the use of 

19 ethanol in satisfying the RFS without increasing 

20 ethanol blends in conventional gasoline-only vehicles.

21 We have gone in my 20-year lifetime from less than 

22 10 stations carrying E85 nationwide to over 3,200, 
359

1 according to E85prices.com. A fuel that doesn't work 

2 for the American economy, doesn't have any promise, and 

3 harms the consumer does not grow like that.

4 And also, I would like to address concerns that 

5 have been brought up in the previous panels regarding 

6 engine damage. First of all, I have been running a 

7 lawn mower at home on E15 without any treatment or 

8 anything like that all year, and I have not had a 

9 single problem.

10 And also I have yet to hear from anybody that 

11 there is such a thing as ethanol treatment, and this 

12 treatment will help lubricate the engine and lubricate 

13 the mower and the small engines so that they do not 

14 feel the corrosive effects of ethanol.

15 MR. GRUNDLER: You'll need to wrap up, please.

16 MR. WALSH: Thank you for allowing me to speak 

17 today.

18 MR. GRUNDLER: Thank you. Can you state for the 

19 record where you go to school in East Lansing?

20 MR. WALSH: I go to --

21 (Laughter.)

22 MR. WALSH: I go to Lansing Community College. 
360

1 Trust me. I do not enjoy the layout of East Lansing. 

2 So I have no desire to go there at all.

3 MR. GRUNDLER: Questions.

4 MR. MACHIELE: No questions. But thanks for 

5 driving down here from East Lansing. If I miss my 

6 flight, can I get a ride back?

7 (Laughter.)

8 MR. WALSH: Sure. Sure, not a problem.

9 (Applause.)

10 MR. GRUNDLER: Thank you, Mr. Walsh. Well done.

11 Mr. Lonier?

12 MR. LONIER: Thank you for allowing me to come 

13 here to testify before you today, and also thank you 

14 for calling an audible here 2 days on the eve before 

15 the Big 10 championship. And kind of ironic that an 

16 audible has been called, and they're from Ann Arbor. 

17 I'm from Lansing. He's from Lansing, and it's Michigan 

18 State and Ohio State playing on Saturday.

19 So I have a question for you guys. Who are you 

20 rooting for?

21 MR. GRUNDLER: Go green, go white.

22 (Laughter.)
361

1 MR. LONIER: Your echoes are said in my voice as 

2 well.

3 Thank you. My name is Scott Lonier. I am a fifth 

4 generation family farmer. Together with my brother 

5 Steve, we own and operate a 3,000-acre farm in mid 

6 Michigan that has been a family business of ours since 

7 1876.

8 I'm here today to urge you to reconsider your 

9 decision to scale back the renewable fuel standard. My 

10 brother's son recently, the past 5 years, quit his job 

11 in the city and came back to work on the farm. Jake is 

12 now the sixth generation in our family that has had the 

13 honor and privilege of operating our family farm.

14 I have two boys who are 11 and 13 years old who 

15 show interest in farming also. I would love for them 

16 someday to have that same opportunity in the future to 

17 come and work in our family business. But without the 

18 RFS, that hope could be in jeopardy. Allow me to tell 

19 you why for a little bit.

20 When the renewable fuel standard was first adopted 

21 in 2007, its most immediate impact was to help increase 

22 revenues for family farms like ours. It helped by 
362

1 bringing commodity prices to a realistic level that 

2 allowed family farmers to become more independent from 

3 Government subsidies while also growing and encouraging 

4 an energy source that helped our nation become more 

5 energy independent.

6 With increased revenue, my brother and I 

7 reinvested in our local economy. We were able to build 

8 up enough capital to buy our mother and father out of 

9 the family business, allowing them to enjoy their 

10 golden years. We've also invested millions of dollars 

11 in new fuel-efficient, clean-burning equipment with GPS 

12 technology used to autosteer equipment back and forth 

13 across the fields.

14 We also use this GPS technology for site-specific 

15 techniques like variable rate seeding and variable rate 

16 fertilizing, allowing us to put just the right amount 

17 of fertilizer and just the right amount of seed on a 

18 particular acre of soil to maximize the capacity that 

19 that soil is capable of producing.

20 We've also had in the past few years an 

21 opportunity and the capital to buy farm land, which, as 

22 many of you know, is only a once in a generation 
363

1 opportunity that you get and doesn't come along very 

2 often. To date, through these investments, we are more 

3 productive, growing more bushels on the same amounts of 

4 land.

5 In addition to supporting our family farm and the 

6 local economy, we've also been privileged to help young 

7 farmers get a foothold in the business as well. Thanks 

8 to the RFS, we are supporting Ross Meyer, a 19-year-old 

9 young man in our community whose lifelong dream was to 

10 become a farmer. His family happens to own 400 acres 

11 of farm land in the area, but they have no equipment to 

12 operate it.

13 Thus, we striked out a partnership with Ross, and 

14 his family and we traded the use of our equipment on 

15 their property for his labor helping us on our land. 

16 This mentorship over the past 3 years is allowing Ross 

17 to build up capital and credit in order to someday 

18 purchase equipment of his own so he can operate his 

19 family's ground.

20 Farming is not easy work, and it's not easy to get 

21 into. Without at least a few million dollars of 

22 capital, modern farming is out of the question for many 
364

1 young folks who want to do so, but just can't afford 

2 it. With more revenue from the RFS, we can now afford 

3 to help keep the tradition of family farming alive in 

4 our community and extend that opportunity to others.

5 The RFS has provided a stable, realistic, 

6 commodity-based price that has helped American 

7 agriculture become what it is today, and that is one of 

8 the engines of our economy, especially in the rural 

9 America. Without RFS, commodity prices could once 

10 again plunge below loan rates. Family farming may no 

11 longer become economically viable.

12 The next generation, like Ross Meyer, like my 

13 nephew Jake, or even my sons, may not be able to 

14 continue the family farming businesses. However -- or 

15 also, housing developers will once again be the ones 

16 that are purchasing the farm land because we can no 

17 longer afford that land anymore, and that ground will 

18 be taken out of production, and housing and businesses 

19 will be located on that instead.

20 More people will be forced to sell and leave their 

21 family farms, and a way of life will vanish. A source 

22 of income and revenue driving the local economy in 
365

1 rural America will disappear.

2 The RFS is central to the discussion about energy

3 independence and the future of agriculture. It is also 

4 central to the discussion about whether we want to 

5 support rural communities for whom ethanol has provided 

6 a lifeline, or do we simply abandon them?

7 MR. KOROTNEY: We'll need to wrap up, please.

8 MR. LONIER: With less ethanol, the alternative is 

9 more oil. Product will be imported from tar sands in 

10 Canada or from countries who are often more hostile to 

11 -- from countries who are often hostile to that of our 

12 own.

13 For my brother and I, the alternative is much more 

14 personal. It's about whether Americans choose to stand 

15 up with families and businesses who work hard on their 

16 family farms like ours that have been around for 

17 generations, or does America turn its back on a 

18 domestic, homegrown fuel that is supporting jobs and 

19 opportunities in rural America?

20 I urge you to choose the first option and support 

21 a robust renewable fuel standard. Thank you.

22 MR. GRUNDLER: Thank you.
366

1 We're going to take a short break to allow our 

2 court reporter and us to stretch our legs. We'll 

3 reconvene at 4:30 p.m., 15 minutes. Thank you.

4 (Break.)

5 MR. GRUNDLER: We're ready to begin Panel 13. 

6 We're halfway through already.

7 (Pause.)

8 MR. GRUNDLER: We're going to begin with Ms. 

9 Lausten. Proceed.

10 MS. LAUSTEN: Thank you.

11 Good afternoon. My name is Connie Lausten. I 

12 have a small consulting firm, cLausten, LLC. I'm here 

13 on behalf of a couple small biomass-based diesel

14 producers.

15 One in particular that I'd like to point out is 

16 Viesel Fuel. Viesel is located in Stuart, Florida. He 

17 employs 30 to 40 people, depending upon the season. 

18 They produce around 5 million gallons per year of 

19 biodiesel.

20 So Viesel struggled through the tax definition 

21 changes, RIN challenges due to fraudulent producers, 

22 regulatory delays, and recently made a major personal 
367

1 investment in an enzymatic and resin biodiesel process. 

2 And by doing this, it has lower energy requirements 

3 than most other biodiesel processes and, hence, lower 

4 greenhouse gas emissions.

5 The proposed level of biomass-based diesel RVOs 

6 and advanced biofuel, the reduction really, obviously, 

7 caused a significant reduction in the RINs, and this is 

8 devastating to Viesel and other small, biomass-based 

9 diesel producers around the country. It's pushing 

10 Viesel Fuel out of business, and it will eliminate tens 

11 of thousands of jobs created under the RFS2.

12 A number of these small biomass-based diesel

13 producers planned for the tax credit to go away. They 

14 made investments so that they could be more efficient, 

15 and so, hence, they planned for the RVOs to be growing 

16 or to -- basically to grow. They weren't planning on 

17 them going down.

18 Further, there is a massive surplus of biomass19 based diesel RINs that were produced in 2013, and we 

20 don't think that they were taken into consideration 

21 correctly under the proposed rules, and therefore, 

22 those should be taken into consideration when the 
368

1 biomass-based diesel RVOs and the advanced biofuel pool 

2 is considered.

3 What I really want to point out is that EPA, in my 

4 estimation, correctly modified the heating regulations 

5 and that expand the biomass-based diesel market. So 

6 right now, biodiesel and biofuels that meet the number 

7 one and number two fuel oil that can be used in any 

8 boilers, including industrial, commercial, electricity 

9 generation. Other biofuels can be used for heating 

10 spaces for people if they have the quarterly 

11 affidavits.

12 Expanding this market is important. The new 

13 definition opens up a 15 billion gallon market each 

14 year. Biomass-based diesel fuel can displace 80 

15 percent or more of that 15 billion gallons, especially 

16 in the large scale. This is a massive environmental 

17 and health benefit. It reduces emissions for heating 

18 in cities.

19 Tremendous health benefits. If you've ever 

20 watched a child gasping for air due to an asthma 

21 attack, you'll recognize how important this was and 

22 that expanding this market is very important.
369

1 Further, there is less pressure on the 

2 transportation sector. There is no blend wall issues 

3 in the biomass-based diesel category. This market is 

4 massive. There is more opportunities to reduce 

5 greenhouse gas emissions.

6 Reducing the RVO targets runs contrary to the 

7 finalized heating oil regulations and runs contrary to 

8 President Obama's agenda to reduce greenhouse gas 

9 emissions. We will obviously file comments. We 

10 appreciate this opportunity and thank you for your 

11 time.

12 MR. GRUNDLER: Thank you. Mr. Taliaferro?

13 MR. TALIAFERRO: My name is Bryan Taliaferro, and 

14 I'm president of the Virginia Grain Producers 

15 Association.

16 For 41 years, I've farmed with two brothers in the 

17 middle peninsula of Virginia along the southern shores 

18 of the Rappahannock River on land that's been in 

19 continuous cultivation for 400 years. We raise corn, 

20 soybeans, wheat, and barley, and we've been through 10 

21 major droughts, 12 damaging hurricanes of varying 

22 intensity, pestilences of Mexican bean beetles, corn 
370

1 earworms, aphids, cereal leaf beetles, stinkbugs, and 

2 fought wars with free-loading fast deer and fat 

3 groundhogs.

4 We've made it through periods of adversity, but 

5 none worse than having prices well below production 

6 cost while interest rates were above 20 percent like 

7 they were back in the early '80s. Some of us may 

8 recall the pick year of 1983 when almost one half of 

9 the corn acres in the country were idled at a great 

10 expense to the Federal Government.

11 We made it through with borrowed capital, but 

12 creating a debt hangover which lingered for 20 years. 

13 It was that experience that spawned the idea of 

14 ethanol. Derived from corn, blended with gasoline.

15 There were attractive benefits like having a 

16 domestic fuel source during periods -- a period of 

17 escalating imports. Oxygenated fuel, reducing CO 

18 emissions. And enhanced octane. All of these would 

19 occur while preserving the protein from each bushel of 

20 corn.

21 My corn-producing colleagues and I from around the 

22 country caught this vision, went for it, and as we say, 
371

1 the rest is history. The timing couldn't have been 

2 better because improvements in crop genetics were 

3 generating yields double that of 40 years ago. With 

4 respect to corn, fuel ethanol absorbs much of this 

5 expanded production.

6 Today, the proposal under consideration would 

7 reduce consumption of that expanded production. If 

8 ethanol is reduced by 1.4 billion gallons from 

9 previously anticipated levels and the fermentation 

10 yield is 2.8 gallons per bushel, we're talking about 

11 500 million bushels of corn added to the annual 

12 carryover or ending stocks.

13 This additional burden on ending stocks has been 

14 estimated to depress the price by approximately 32 

15 cents a bushel. For my farm, this would mean $32,000 

16 in additional losses for the unpriced corn I presently 

17 have in inventory. And that's just for this year's 

18 crop. Next year, that number will be $96,000.

19 How will I decide to make up that loss? Lay off 

20 employees? Defer replacement for aging equipment, 

21 letting the equipment dealer lay off his? Go into debt 

22 again at my age? This kind of impact reverberates and 
372

1 will reverberate through the farm economy.

2 As you might imagine from my hair color these 

3 days, I'm looking to transition the farm to the next 

4 generation. I have two nephews who have come back to 

5 the farm. Both went off for their college degrees and 

6 have returned full of hope and encouragement.

7 When you reduce this market, bringing the price of 

8 corn to below the cost of production, what kind of hope 

9 can they have, and what kind of future? As the 

10 surpluses build up, do we go back to the 1983 pick year 

11 and idle land again? Is this what you intend?

12 To put this to you in personal terms, suppose the 

13 recent Government shutdown was without the prospect of 

14 any back pay, and 25 percent of your agency was 

15 permanently laid off. And imagine how morale and 

16 productivity would be affected. That's how it will 

17 reverberate across the country if the RFS is violated.

18 We've already recovered from the 2012 drought 

19 without disturbing the RFS. This is a good thing. 

20 It's working. Leave it alone.

21 Thank you.

22 MR. GRUNDLER: Thank you, sir.
373

1 Mr. Ensign, welcome.

2 MR. ENSIGN: Happy holidays to you all.

3 My name is Clint Ensign. I'm senior vice 

4 president with Sinclair Oil Corporation. We're a 

5 family-owned corporation based with two refineries in 

6 Wyoming. My offices are located in Salt Lake City.

7 Both of those refineries are considered small 

8 refineries. Under the Energy Policy Act, we're an 

9 obligated party, and we do not own -- we own three 

10 service stations connected with hotel operations that 

11 we have. But our major customers are the clients for 

12 PMAA, the petroleum marketers that are the wholesale 

13 jobbers that fly our flag.

14 We own a few terminals. We own a few pipelines. 

15 But by and large, most of our distribution of product 

16 throughout the Rocky Mountain region is on common 

17 carrier pipelines owned by others and terminals owned 

18 by others as well.

19 I'd like to focus on -- my comments on the PADD IV 

20 region, which is Utah, Wyoming, Colorado, Montana, and 

21 Idaho. This is a unique region in that it's a region 

22 that's self-sufficient for fuel. Very few amounts, 
374

1 quantities of refined product come into the region. 

2 Very little leave the region, just for geographic 

3 reasons.

4 It is a region where the use of diesel fuel is 

5 higher than the nation at large. It's a region where 

6 there is very poor infrastructure for biodiesel, and in 

7 most terminals, except for the ones that we own, that 

8 we cannot -- there is not an ability for us to even 

9 blend biodiesel if we wanted to. There is no ability 

10 for us to export diesel offshore to other countries. 

11 There's no pipeline capacity that leaves the Rocky 

12 Mountain region to the areas, to the coastal areas.

13 So with a high amount of diesel use in the region, 

14 diesel fuel, biodiesel is just RIN deficient. And so, 

15 you're stuck. Last summer, we came to visit with 

16 senior officials of EPA here in Washington, D.C., and 

17 in doing so were very transparent about the amount of 

18 gasoline and amount of diesel that we produce. And we 

19 wanted to counsel with the agency not to complain, but 

20 to counsel on how we meet the standard and how we meet 

21 our obligation.

22 And based on the amount of gasoline and diesel we 
375

1 sell and because of the heavy demand for diesel in the 

2 west, we're not close to meeting the obligation through 

3 blending. It means that year on year, we have to go 

4 out and buy -- buy RINs in the marketplace. And as of 

5 last summer, as you know, the price exceeded $1 per 

6 RIN. Very expensive proposition for us.

7 And it's a situation where we're in a constant 

8 state of noncompliance unless we go out and spend 

9 millions and millions of dollars, which is a difficult 

10 regulation for us. It's a poor regulation for us in 

11 that sense.

12 So we applaud the effort that you've made to 

13 recognize the blend wall issue and rebalance that in a 

14 way. We'd like to see you go further and within the 

15 rule provide some mechanism for a company that is doing 

16 all that they can to comply in good faith with the law, 

17 but can't reach it just because of the demand for 

18 diesel in the region.

19 Thank you.

20 MR. GRUNDLER: Thank you. Mr. Schwarck?

21 MR. SCHWARCK: Thank you.

22 My name is Rick Schwarck. I'm president and the 
376

1 CEO of Absolute Energy on the Iowa-Minnesota border.

2 Our plant straddles the border. We own property 

3 in both States. Our address is 1372 State Line Road, 

4 and we're owned by 470 local residents, the vast 

5 majority of whom are farmers.

6 Ninety-five percent of our owners live within 50 

7 miles of the plant. Oh, a little louder? All right. 

8 Ninety-five percent of our owners live within 50 miles 

9 of the plant.

10 It's a busy time for me back home, and I'm lucky 

11 my wife has let me be here because for more than two 

12 decades, we've operated a choose-and-cut Christmas tree 

13 farm. So I'm just glad to be here.

14 I'm also president of the Iowa Renewable Fuels 

15 Association. I'm also a board member of Growth Energy

16 and the Renewable Fuels Association. I'm here to speak 

17 in support of the RFS, just as it was written and just 

18 as it was intended.

19 My time is short, but it's important you 

20 understand that we will likely have a record farm 

21 income in the United States this year. But ag is not 

22 just doing well in the United States. Ag is doing well 
377

1 across the planet.

2 Yeah, we've heard a lot about food versus fuel. 

3 But a rising tide lifts all boats, and I want to give 

4 you -- and I'm not going to talk about a paid-for 

5 study. I'm going to talk about what has happened since 

6 2004 when ethanol burst on the scene.

7 In Costa Rica, their GDP in 2004 was $18.6 

8 billion. Last year, $45 billion. Colombia, $117 

9 billion. Last year, $369 billion. Papua-New Guinea, 

10 $3.9 billion. Last year, $15.6 billion. Kenya, $16.1 

11 billion. Last year, $37 billion.

12 And in Ethiopia, the poster child for starvation, 

13 in 2004, that country's GDP was $10 billion. Last 

14 year, it was $43 billion. Eighty percent of the 

15 population of Ethiopia is rural, agricultural based. 

16 Over 50 percent of their GDP comes from ag.

17 So, and I talk about Ethiopia because in 1984, a 

18 million people died of starvation. It's hard to talk 

19 about because this has been so perverted. It was 

20 caused due to low ag prices. So just please read the 

21 U.N. report on that causality.

22 Now everybody's got smartphones. You can look 
378

1 this up. Just Google any ag country and take a look at 

2 the growth curve in their economies. It's been 

3 staggering.

4 Now RIN -- now I want to talk about E85. We are 

5 selling E85 directly as a manufacturer to the retailer. 

6 RINs is a big component of that, and we wanted to make 

7 sure that the RINs value was -- the retailer was able 

8 to get that RINs value and pay for his infrastructure 

9 cost and then pass that cost savings on to the 

10 consumer.

11 Since we began this program, most of the retailers 

12 that we're selling to, their average increase in E85 

13 sales has gone up 400 percent. So when the consumer 

14 has a chance, he responds, and the consumer votes with 

15 their dollars. Typically, in our area for most of the 

16 summer, the retailers we were selling to were anywhere 

17 from $1.34 to $1 a gallon under the E10 alternative at 

18 that same station.

19 MR. GRUNDLER: You're going to have to wrap up.

20 MR. SCHWARCK: Oh, thank you. In closing, E15 has 

21 a lower RVP than E10, no reason not to give it a 

22 waiver.
379

1 Merry Christmas.

2 (Laughter.)

3 MR. GRUNDLER: Thank you. Any questions?

4 (No response.)

5 MR. GRUNDLER: Mr. Haer, you're up.

6 MR. HAER: Thank you. Good afternoon.

7 On behalf of the National Biodiesel Board and REG, 

8 I'm grateful for the opportunity to testify regarding 

9 the 2014 RVO.

10 I'm Gary Haer, vice president of sales and 

11 marketing with Renewable Energy Group, and through 

12 November, I served as chairman of the National 

13 Biodiesel Board, and I continue to serve those members 

14 and the National Biodiesel Board as its immediate past 

15 chair.

16 I'm here today because during the past 12 months, 

17 I appointed and oversaw the work of the NBB's RVO 

18 Working Group. The working group was established in 

19 2011, was created to work with you on many aspects of 

20 the biomass-based diesel RVO. And as you know, EPA 

21 must go through a specific process and analysis to 

22 evaluate whether the RVO for biomass-based diesel
380

1 should be increased.

2 As chairman of the NBB, my job and the job of the 

3 RVO Working Group was to provide you with all of the 

4 information necessary to allow you to evaluate our 

5 industry, and I think we did a pretty good job of that. 

6 In fact, our industry has met with you on many 

7 occasions since February on issues specifically related 

8 to the 2014 RVO.

9 In previous testimony, it's been reported that our 

10 industry is on track to produce at least 1.7 billion 

11 gallons of biodiesel this year, and our current run 

12 rate is 2.1 billion gallons on an annualized basis. I 

13 think it's important to note that at 1.7 billion 

14 gallons, we create at least 2.55 billion RINs to fill 

15 not only the biomass-based diesel RVO, but also the 

16 majority of the 2.75 billion advanced pool.

17 And at 2.1 billion gallons, we would create at 

18 least 3.15 billion advanced RINs. We're achieving this 

19 while also reducing the cost of finished diesel fuel to 

20 consumers in the marketplace today, as you've heard in 

21 previous testimony today.

22 It's difficult to ascertain what your goals were 
381

1 in proposing dramatic changes to this program, but it 

2 has already had a devastating impact on interest in 

3 biodiesel. This week, ethanol RINs, D6 RINs are 

4 trading at about 30 cents, which is probably what they 

5 will trade at well into the future. But now, given the 

6 proposed biomass diesel and advanced program, there is 

7 little differential in values as premiums for biodiesel

8 RINs, the D4 RINs, or the advanced RINs, which are D5, 

9 are gone.

10 Which seemed contrary to what you want the market 

11 to do It would seem that you would like more interest 

12 in biomass-based diesel RINs and advanced RINs and less 

13 interest in conventional RINs, given the gasoline and 

14 ethanol issues you're trying to address. But that is 

15 not how the market is reacting.

16 In fact, we believe that you have the flexibility 

17 to address ethanol issues and the shrinking gasoline 

18 pool while at the same time adding more advanced

19 biofuels to the growing diesel pool. When it comes to 

20 biodiesel, the NPRM is disappointingly wrong on so many 

21 accounts, and we have lots of folks here testifying 

22 today to assist you in better understanding our 
382

1 industry.

2 I don't have time to cover a lot of those today, 

3 but I'd like to make a few points here. All of the 

4 data that was used to set the volume at 1.28 billion 

5 gallons in the 2014 NPRM was the same data that EPA 

6 used to set it at 1.28 in 2012. The data was from 

7 2011.

8 We have prepared numerous updated documents and 

9 analyses, and we have given the documents to your teams 

10 on at least four different occasions. I know this to 

11 be true because I was actually at the meetings where we 

12 provided your team with the data.

13 I've heard you ask others for their data to 

14 support their ask today. So, as an industry, my 

15 question is why? Why did you ignore all the data that 

16 we provided you, and why did you not analyze 1.7 

17 billion gallons instead of just the 1.28?

18 Furthermore, you set a range for every other part 

19 of the program, all those parts that you are supposedly 

20 having trouble with, even conventional biofuels, but 

21 you did not set a range for biodiesel. So I've got to 

22 ask you, why the bias against biodiesel?
383

1 Now I want to talk about the environmental 

2 benefits of using more biodiesel instead of petroleum

3 diesel fuel in the marketplace. This year's production 

4 of more than 1.7 billion gallons will reduce greenhouse 

5 gas emissions by 32 billion pounds when compared to 

6 diesel fuel, and that's 8 billion pounds more than if 

7 we just produced 1.28 billion gallons, which is the RVO 

8 for this year.

9 MR. KOROTNEY: You're going to have to wrap up, 

10 please.

11 MR. HAER: Thank you. With greenhouse gas 

12 emissions as a factor for EPA to consider and a goal of 

13 this administration, why would you choose to increase 

14 the use of petroleum diesel fuel, which will also 

15 increase the cost of diesel fuel to the consumers, and 

16 cut biodiesel production by nearly 1 billion gallons? 

17 Again, the goals of this administration do not line up 

18 with this proposed rule.

19 I think that we just avoided all discussion of the 

20 reason that we have the RFS in this country today. But 

21 I've got to tell you, in closing, the biodiesel

22 industry has been responsible in its approach to 
384

1 filling both the biomass-based diesel pool and the 

2 advanced biofuel pool, and we are exercising restraint 

3 once again, even as we ask you to increase the biomass4 based diesel program to 1.7 billion gallons and the 

5 advanced program to 3.7 billion gallons.

6 We can and will produce well over that amount if 

7 given the chance to do so by this administration, and 

8 we urge EPA to give us the opportunity to do so.

9 I'd be happy to take any questions you may have.

10 MR. KOROTNEY: So it would be helpful in your 

11 written comments if you provide some information, more 

12 information about what's actually happened in 2013.

13 So we know that the volumes are increasing in such 

14 a way that you're likely to hit somewhere in the order 

15 of 1.7 billion gallons by the end of the year. What 

16 we'd be more interested in is the factors that go into 

17 driving that, given that the standard is 1.28.

18 So the standard is 1.28, you're reaching 1.7 this 

19 year, the various factors have got to be some 

20 combination of feedstock costs, feedstock supply, the 

21 Federal tax credit, imports and exports, and so on. So 

22 if you could provide more information on that for your 
385

1 written comments, that would be helpful.

2 MR. HAER: We'll be happy to do so.

3 MR. GRUNDLER: Thank you very much, all of you. 

4 It's very helpful.

5 Panel 14?

6 (Pause.)

7 MR. GRUNDLER: Mr. Hessler, proceed.

8 MR. HESSLER: Gentlemen, so there are 16 million 

9 flex-fuel vehicles on the road today. It appears the 

10 question that EPA is wrestling with and has put to the 

11 public is how do fuel prices in the market arrange 

12 themselves such that an additional 3.5 billion gallons 

13 of renewable fuel gets used in the coming year?

14 So rather than talk about what would happen if 

15 your proposal went final, I'd like to talk about what 

16 has already happened in the market with energy prices.

17 So there was, obviously, a large run-up in RIN 

18 prices in the first quarter this year. That run-up did 

19 not increase ethanol prices from suppliers to -- to

20 blenders. Nor did it increase E10 at the retail pump.

21 The main effect of high RIN prices in the fuel 

22 market was that it drove down the price of high 
386

1 renewable content fuels like E85 and biomethane CNG. 

2 So, in this first chart, we're basically -- in both

3 charts, we're comparing on an energy basis gasoline 

4 prices, which are the red line, with the energy

5 discounted price of E85.

6 In order for E85 to be selling at a properly 

7 energy discounted price, it's got to be below this 

8 line. So the green band is basically the expected 

9 price, the market expected price of E85 based on 

10 wholesale prices with normal margins, normal retail 

11 margins.

12 In the first quarter of this year, as RIN prices 

13 ran up, we saw a sharp rundown in the expected -- the 

14 market expected price of E85. This happened for other 

15 high-renewable content fuels as well. The nationwide 

16 average price didn't quite keep track of what the 

17 market expected price was, and the reason for that is 

18 interesting.

19 Basically, this is average data that includes --

20 includes independent retail stations at which E85 was 

21 being sold at a 15 to 30 percent discount, right in 

22 line with the market expected price. At E85 pumps 
387

1 found under major oil company canopies, the E85 price 

2 essentially was pegged to gasoline. So it sold at the 

3 same price as E10. So if we just looked at the 

4 independents, it'd be right here.

5 More importantly, what the market was telling us 

6 in July, the futures market was suggesting that in the 

7 very near future, we should be expecting prices for E85 

8 at a 40 to 50 percent discount against gasoline. That 

9 would certainly drive demand.

10 You know, the question on infrastructure that's 

11 been asked repeatedly today, I think the way to think 

12 about that is infrastructure follows demand, demand 

13 follows price. When you have a 50 percent discount on 

14 your fuel, you're going to see demand follow that 

15 price.

16 So what happened? Somewhere in the late summer, 

17 EPA started suggesting and industry started getting a 

18 sense that there might be a change in the RVO, that the 

19 conventional biofuel RVO might be reduced, and there 

20 was an immediate and fairly logical response in the 

21 market.

22 RIN prices fell. The price of E85 expected by the 
388

1 market rose sharply, and the actual price of E85 rose 

2 as well. And again, that generally reflects changes in 

3 the independent retail price of E85.

4 Again, the bigger story here is what did the 

5 market tell us about futures? And the future vision 

6 now is saying, well, E85 might be priced at the energy

7 -- at par on an energy basis, which is substantially 

8 better than it has been historically, but nowhere near 

9 the incentive of the 40 to 50 percent discount we were 

10 looking at when RIN prices were high.

11 So, you know, several times today, you've asked 

12 for market data about what went on with high RIN 

13 prices. There's no correlation with E10 prices. 

14 There's no correlation with ethanol prices. There is a 

15 direct correlation with high renewable-content retail 

16 prices.

17 So the question EPA should be asking itself is 

18 what vision of the future do you want? You control 

19 this with the RVO. And if the future that you want is 

20 an E10 future with the blend wall basically reinforced, 

21 then your proposal is the right proposal.

22 If the future you want is to break through the 
389

1 blend wall and bring more renewable fuel into the --

2 into the market, then the track we were on with the 

3 expectation that the RVOs would proceed according to 

4 statute for the conventional renewable fuels was the 

5 right track.

6 MR. GRUNDLER: Thank you. Questions?

7 (No response.)

8 MR. GRUNDLER: Mr. Durham?

9 MR. DURHAM: Thank you. Good afternoon.

10 Thank you. Good afternoon. I am David Durham. 

11 I'm a farmer from Missouri. I grow corn there with 

12 many other things.

13 As a farmer, I'm used to dealing with inclement 

14 weather and all the attributes that it brings with it 

15 and the variability of that. The past 2 years have 

16 really pointed that out to us.

17 This year, we as farmers have responded to the 

18 market signals to produce a record crop to beat these 

19 projection demands. Despite the success, the proposed 

20 2014 RVOs threaten to change that demand in the middle 

21 of the game.

22 As farmers, we plan far ahead to produce a crop to 
390

1 meet expected demand. I already have purchased seed 

2 for next year, which won't be planted for 5 months or 

3 harvested for 11 months or even probably sold until 

4 2015. We cannot respond as farmers as fast as 

5 literally someone who can increase or decrease supply 

6 by turning off a spigot or turning it on.

7 The 2013 crop will be a record of around 14 

8 billion bushels, according to USDA. There is ample 

9 corn for all uses this year, plus a large carryover 

10 going into next year. Corn prices have already 

11 declined in relationship to this big crop and the 

12 demand that is known.

13 The worst-case scenario for us as farmers and 

14 rural America would be to reduce a significant chunk of 

15 that demand curve during a year when record corn 

16 production happens and falling prices. It's not just 

17 farmers who will also suffer from this loss of demand. 

18 Our local communities will suffer. Our schools will 

19 suffer, and our State will suffer.

20 In Missouri specifically, ethanol production is 

21 adding approximately $350 million in increased taxes, 

22 Federal and State, to our economy. In Missouri, all 
391

1 the ethanol production facilities are farmer owned and 

2 farmer built. So we are the first on the line of a 

3 negative impact in this industry.

4 Also I sit on the board of a local bank, and we 

5 have seen what rural revitalization ethanol has brought 

6 to us. Better-paying jobs at the plants, more jobs as 

7 suppliers to those plants, and more retail 

8 establishment to address -- to feed and take care of 

9 those people.

10 In this tight economy, what I also see from a 

11 banker's perspective is that there are more people 

12 coming into our small local banks and borrowing money 

13 to pay their monthly electricity and heating bills. 

14 These are the people that will really suffer when they 

15 have to go to the local gas station and pay 40 to 50 

16 cents more per gallon because their fuel is not a 

17 blended fuel.

18 As farmers, we have fought for years to obtain 

19 market access for ethanol. The renewable fuel standard 

20 passed by Congress is the tool that was chosen to bring

21 -- slowly bring fairness to the marketplace and allow 

22 consumers choice at the pump. If that tool is changed 
392

1 by a simple request of the oil companies, the 

2 environment suffers, farmers suffer, consumers suffer, 

3 and the U.S. economy suffers. Only big oil benefits.

4 As a farmer, I have seen the rural revitalization 

5 due to ethanol production. Please do not reverse this 

6 trend by gutting the renewable fuel standards.

7 Thank you.

8 MR. GRUNDLER: Thank you. Any questions?

9 Mr. Kent?

10 MR. KENT: Thank you for holding the hearing, and 

11 thank you for your endurance at this time of the day.

12 (Laughter.)

13 MR. KENT: My name is Mark Kent, and I'm the 

14 general manager of Beltway Biodiesel, located here in 

15 Washington, D.C. We do have local biodiesel. We're 

16 not all from farm country. We do biodiesel here in 

17 D.C.

18 We are a waste cooking oil to biodiesel company, 

19 and a subsidiary of the Sustainable Biodiesel Company, 

20 which oversees Tristate Biodiesel, Connecticut 

21 Biodiesel, Independence Biodiesel, and Liberty 

22 Biodiesel. We collect waste cooking oil from Virginia 
393

1 to Maine and recently acquired a biodiesel production 

2 plant in Bridgeport, Connecticut, that will be expanded 

3 to a capacity of 10 million gallons per year.

4 Additionally, we recently acquired an algae to 

5 biodiesel company and are in the process of scaling 

6 that company up to commercial levels. We currently 

7 employ over 50 workers. With our new acquisitions, we 

8 will be doubling the number of employees to over 100 in 

9 all of our operations spanning over 10 States.

10 Our continued growth is dependent on the RFS and 

11 the RINs that accompany it. Biodiesel is a renewable

12 energy success story, and in particular, our segment of 

13 the industry. We're taking a waste byproduct that has 

14 already been used to serve a purpose and recovering the 

15 embodied energy that is still available for repurposing 

16 into fuel.

17 The EPA should be stimulating the production of 

18 such an environmentally beneficial fuel, not 

19 intentionally trying to stunt its growth. When we look 

20 at financing new projects, our model is dependent on 

21 the RFS and tax credits to make our fuel competitive to 

22 petroleum diesel.
394

1 I'd like to share a little story about the 

2 beginnings of our industry, and that's the biodiesel

3 industry. In 1900 at the World's Fair, Rudolf Diesel 

4 introduced his engine that ran on peanut oil. He had 

5 patented an engine that was designed to run on peanut 

6 or vegetable oil that was produced by farmers for their 

7 machinery.

8 Thirteen years later, on September 29, 1913, 100 

9 years ago this fall, he disappeared from a steamship 

10 traveling from Belgium to England. The mystery still 

11 surrounds his death to this day. With his death, so 

12 died the vision of vegetable oil to power his engine.

13 Petroleum companies quickly filled the void with 

14 petroleum diesel, and that began the journey of dirty 

15 diesel, which would pollute our environment for the 

16 next 100 years. Over the past 20 years, the biodiesel

17 industry of today has sought to complete Rudolf

18 Diesel's vision of his engine running on vegetable oil 

19 grown by farmers.

20 We have been cleaning up the image of diesel fuel 

21 by providing a cleaner burning, renewable fuel that 

22 reduces toxic emissions by over 90 percent over 
395

1 petroleum diesel. While we may never know how Rudolf

2 Diesel died, we'll certainly know that the EPA is the 

3 cause of the death of the bio industry -- biodiesel

4 industry today if the RFS is left at the current 

5 levels.

6 I strongly urge the EPA to reconsider its proposal 

7 and increase the biodiesel production standards to 

8 levels beyond our current capacity to stimulate the 

9 growth of this industry and foster the innovators that 

10 are providing green jobs to our economy.

11 Thank you.

12 MR. GRUNDLER: Thank you. Questions?

13 (No response.)

14 MR. GRUNDLER: Ms. Wood, you're up.

15 MS. WOOD: Thank you. My name is Nicole Palya 

16 Wood, and I'm here on behalf of BoatUS.

17 We are the boat owners of the United States, boat 

18 owners association of the United States. We have over 

19 half a million members. We also have the nation's 

20 largest recreational towing operation, with 600 vessels 

21 in 300 ports. So to say that we know boats is an 

22 understatement.
396

1 I want to take a few minutes to talk about the 

2 proposed RVOs tonight. First and foremost, we want to 

3 commend you and the work that you guys have done. We 

4 believe it's a giant step forward to addressing the 

5 current day realities of the renewable fuel standard

6 with the drafting of these RVOs.

7 We applaud their pivotal recognition of the 

8 shrinking demand for fuel, particularly gasoline, and 

9 hope this sends a signal to Congress of the dangers 

10 that the impending blend wall presents to the average 

11 consumer. The EPA has in a small way recognized the 

12 impact to the consumer in addressing these market 

13 changes, and now is the time for Congress to do so as 

14 well.

15 As the RFS policy pushes higher blends of ethanol

16 gasoline into the market, there is an increased 

17 potential for misfueling and engine failure that needs 

18 to be made clear. Not all Americans can afford to 

19 drive tow vehicles made after 2001. I know in my 

20 family, sometimes it's a tractor. Sometimes it's a 

21 family farm truck. But I can guarantee you that most 

22 families who have the average of a 16-foot or 17-foot 
397

1 boat that's a towable is not going to have a brand-new 

2 tow vehicle.

3 Not to mention that these higher blends, E15 in 

4 particular, are poison to our marine engines. There is 

5 a critical safety and soundness issue related to the 

6 use of higher blends of ethanol in marine engines that 

7 cannot be denied.

8 Over 63 percent of our members fuel their boats at 

9 roadside gas stations. With over 180,00 gas stations 

10 now with the ability to sell the approved E15, a fuel 

11 that no marine engine is warrantied to run on nor 

12 calibrated to run on, the opportunity for misfueling 

13 must be acknowledged and is obviously growing. And 

14 what may result in a roadside breakdown for a car 

15 quickly leads -- can quickly lead to a search and 

16 rescue mission or a search and recovery mission for a 

17 boat.

18 I think it's also important to point out that 

19 EPA's role in the renewable standard is to implement 

20 the policy, not reform the law. Although there are 

21 implicit waiver authorities written into the law, the 

22 EPA shouldn't have to use that authority to modify 
398

1 policy to meet the realities of the current marketplace 

2 every year.

3 It is the responsibility of the EPA and Congress, 

4 however, to ensure that the fuel they approve for our 

5 consumers is a safe and a reliable fuel for our 

6 engines, all engines. On behalf of our members, we 

7 would like to thank the EPA administrators and staff on 

8 drafting the 2014 RVO proposal, which sets targets that 

9 are more in line with the reality of current supply 

10 volumes.

11 However, we don't believe this goes far enough in 

12 reducing the pressure to mix more ethanol into our 

13 gasoline than is safe. It is our hope that Congress 

14 will now accept the baton and continue their work on a 

15 permanent fix for the renewable fuel standard.

16 In closing, I'd like to share a few words. 

17 Yesterday, as I was wrapping up drafting of my 

18 comments, I asked a colleague what he thought I could 

19 say today that might make a difference and that would 

20 stick in someone's mind, that would stand out. He's a 

21 man of few words, and as he walked away from my office 

22 and grumbled down the hall, he said, "Tell them I have 
399

1 three dead outboards wasting space in my garage."

2 So I will leave you with that, and thank you very 

3 much. I'd be glad to accept any questions.

4 MR. GRUNDLER: Thank you.

5 MR. MACHIELE: I would just, I guess, ask you in 

6 written testimony if you could provide information 

7 elaborating more on how much of the fuel that's 

8 consumed in recreational boating is fueled through 

9 marinas versus through service stations, like you said. 

10 How much of it really goes through just normal gas 

11 stations?

12 MS. WOOD: Sure. I can tell you that 63 percent 

13 of our members fuel their boats at roadside gas 

14 stations rather than marinas, which are more commonly 

15 those that serve E0. And I know that basically E0 

16 accounts for about 3 percent of the gasoline that's 

17 sold in the United States.

18 MR. MACHIELE: Okay.

19 MS. WOOD: But I'd be glad to include as much 

20 information as I can.

21 MR. MACHIELE: And I don't know how your members 

22 correspond to boating at large, so would more of your 
400

1 industry fuel at service stations versus at marinas or 

2 vice versa would be helpful.

3 MS. WOOD: We have members in every State. We 

4 have inland members as well as coastal members. So I 

5 think we have a very good representation of the boating 

6 -- a boating snapshot of the country.

7 MR. MACHIELE: Thank you.

8 MR. GRUNDLER: Mr. Hartman, welcome.

9 MR. HARTMAN: Yes. Thank you. Thank you for the

10 opportunity to comment today.

11 I'm Kenneth Hartman, and I farm with my family 

12 near Waterloo, Illinois, which is 25 miles southeast of 

13 St. Louis. My wife and I have three daughters, one 

14 attending Kansas State University, and two still living

15 at home in grade school and high school.

16 With my young family to think of, I'm very 

17 interested in preserving the family farm for the next 

18 generation. Your proposal to limit the amount of corn19 based ethanol our country will use in 2014 sends a very 

20 negative signal for the future of my family farm.

21 I have two ethanol plants within 40 miles of my 

22 farm. I sell corn to one of these plants. So to say 
401

1 I'm invested in your decision is an understatement. As 

2 I read the proposal, I couldn't help but wonder what is 

3 U.S. EPA thinking?

4 In 2012, during the worst drought I've ever 

5 experienced, I raised 78 bushel corn. Yet the ethanol

6 plants around me continued to run and still produced 

7 enough ethanol to help our country meet the 

8 requirements of the 2013 3.8 billion gallons.

9 This year, I produced an average of 160 bushel 

10 corn. And my price based on December futures, which is 

11 locally around $4.20, is below my cost of production 

12 with the cost of fertilizer, seeds, and chemicals of 

13 today. Why now, when I have record yields and USDA 

14 predicts bushels and bushels of corn to spare, would 

15 you consider reducing the ethanol requirement, 

16 resulting in a massive surplus of corn and one less 

17 market for my crop?

18 What were you thinking? There is no shortage of 

19 corn to fulfill the requirements of the RFS for 14.4 

20 billion gallons of conversional biofuels for 2014. Our 

21 corn crop this year, according to USDA numbers, is 13.9 

22 million bushel -- I'm sorry, billion bushel.
402

1 With an expected carryout at the end of this year 

2 of over 2 billion bushel. If we have another year 

3 similar to this year, our carryout for 2014 could 

4 easily be over 3 billion bushel with an ag sector 

5 seeing a huge decline. This is a great example of the 

6 Federal rules and regulations have a serious 

7 unintentional consequence.

8 I am a farmer first, but I am also vice president 

9 of the Illinois Corn Growers Association. I have to 

10 come to D.C. and represent the interests of the corn 

11 farmers of Illinois. We are concerned over uncertainty 

12 that U.S. EPA has created with this proposed rules to 

13 reduce ethanol volumes for 2014.

14 With these rules, we could lose up to 500,000 

15 million bushels of corn demand. If these rules 

16 continue, farmers can look forward to relying on USDA 

17 for foreign policy decisions and now for U.S. EPA for 

18 ethanol decisions before we determine what crops we can 

19 plant.

20 The original law passed by Congress was working. 

21 America was moving towards energy independence. 

22 Consumers had a choice of cheaper liquid fuels. 
403

1 Farmers and rural America were enjoying more stable 

2 economies. I could look forward to a future for my 

3 daughters on our family farm.

4 After all that, what is this about? We are 

5 talking about creating and preserving an inheritance 

6 for the future generations of farming. Whether there's 

7 more -- whether that's a more healthy environment or 

8 more stable economy or a future on the family farm, 

9 isn't our future our priority?

10 Thank you.

11 MR. GRUNDLER: Thank you very much. Mr. Wagner?

12 MR. WAGNER: Thank you. I appreciate the 

13 opportunity to provide testimony here this evening.

14 My name is Owen Wagner, and I'm a senior economist 

15 with LMC International, a leading economic and business 

16 consulting firm for the agribusiness sector.

17 LMC provides market intelligence, analysis, and 

18 advice to most of the major companies and organizations 

19 around the world involved with agricultural commodities 

20 and their end markets, including foods, industrial 

21 materials, and biofuels. On the basis of our expertise 

22 and in light of similar studies we have conducted on 
404

1 this subject, we were asked by the National Biodiesel

2 Board to prepare an economic impact assessment of 

3 biodiesel on the U.S. economy.

4 The impact of the biodiesel industry on the U.S. 

5 economy was assessed on the basis of three different 

6 metrics. The first being the economic impact, which is 

7 analogous to the value added to the U.S. economy. The 

8 second being the employment impact, which is the number 

9 of jobs that the industry supports. And the third 

10 being the wage impact, which is the support to wages 

11 paid that the industry provides.

12 The biodiesel industry is complex, and to account 

13 accurately for the economic impact of the industry as a 

14 whole, we evaluated at 11 distinct steps along the 

15 value chain, ranging from the procurement of plant- and 

16 animal-based feedstocks to processing and distribution 

17 as a transportation fuel. The economic, employment, 

18 and wage impacts directly attributable to biodiesel

19 were calculated by LMC using in-house models across 

20 these 11 steps in the value chain.

21 Where possible, data came from public sources, 

22 principally the U.S. Department of Agriculture, the 
405

1 Department of Energy, and the Bureau of Labor 

2 Statistics. In instances where public datasets lacked 

3 the data required, as in the case of biodiesel factory 

4 staffing and wage rates, we were granted access to 

5 proprietary biodiesel industry data and interviews with 

6 industry stakeholders.

7 Although the direct effects of biodiesel are 

8 significant unto themselves, they do not capture the 

9 full impact of the sector. To assess the total impact 

10 of any industry, one must include not only the direct 

11 effects, like those calculated by LMC for the biodiesel

12 industry, but also the indirect effects, which capture 

13 the ripple effect on supporting industries, and induced 

14 effects, which capture the economic activity stemming 

15 from expenditures of households drawing an income from 

16 the sector.

17 Recognizing the interconnectedness of any 

18 subsector on the broader economy, the U.S. Department 

19 of Commerce's Bureau of Economic Analysis maintains a 

20 database of economic employment and wage multipliers 

21 across 406 detailed industries for both indirect and 

22 induced effects. To evaluate total impacts of the 
406

1 biodiesel industry on the U.S. economy, LMC employed 

2 the BEA multipliers corresponding to each step in the 

3 biodiesel value chain.

4 LMC was asked to evaluate the economic impact of 

5 biodiesel from 2006 onwards. Since that time, the 

6 production of biodiesel and its contribution to the 

7 American economy in terms of economic activity, jobs, 

8 and wages supported has grown significantly. For 2013, 

9 in which biodiesel production in the U.S. is expected 

10 to reach more than 1.7 billion gallons, the U.S. 

11 biodiesel industry will support $16.8 billion in 

12 economic activity, in excess of 62,000 jobs, and nearly 

13 $2.6 billion in wages paid to the broader U.S. economy.

14 In addition, LMC evaluated the projected impact of 

15 biodiesel on the basis of three levels of production 

16 for 2014. If production next year remains consistent 

17 with 2013 levels at 1.7 billion gallons, then the 

18 impact of the sector in terms of economic activity, 

19 jobs, and wages supported will remain intact.

20 If, however, production falls back to the current 

21 RFS2 level of 1.28 billion gallons and currently the 

22 industry believes production may go lower than that, 
407

1 then the industry would not be able to maintain this 

2 level of economic activity. In fact, at this level of 

3 production, we estimate that the industry's ability to 

4 contribute to the broader economy would fall by $4.5 

5 billion in the medium term, while its ability to 

6 support jobs would ultimately fall by 7,700 full-time 

7 positions, with its wage contribution falling by more 

8 than $330 million.

9 If, on the other hand, U.S. biodiesel production 

10 were to hit the 2 billion gallon mark, which is 

11 virtually impossible under the current proposal, we 

12 forecast that the economic impact of the sector would 

13 increase by more than $3.2 billion. Meanwhile, to 

14 maintain this level of production, we would expect the 

15 employment impact of the sector to increase by 4,400 

16 jobs, with an additional $191 million in wages paid.

17 Again, I appreciate the opportunity to present, 

18 and I'd be happy to take any questions now or after the 

19 hearing. Please don't hesitate to contact me either 

20 way.

21 MR. GRUNDLER: Thank you.

22 Okay. One more testifier. Mr. Vollan, proceed.
408

1 MR. VOLLAN: My name is Bruce Vollan. I own and 

2 operate Midway Service in Baltic, South Dakota. Midway 

3 Service is a small business that sells bulk fuels, 

4 operates a retail fuel station at a convenience store, 

5 and does all types of auto repairs.

6 The business has been in my family for 35 years, 

7 and 6 years ago, we had to make a decision between 

8 going out of business and spending a lot of money to 

9 modernize. Fortunately, that decision was made easier 

10 because of the renewable fuel standard.

11 When Congress decided to increase the amount of

12 ethanol that would be used in vehicles, we decided to 

13 move forward with the rebuilding of our business to be 

14 a leader in the sale of renewable fuels. The risk we 

15 took has been rewarded through increased fuel volume 

16 profits, and we were able to help our bottom line while 

17 we passed on savings from lower-cost ethanol blends to 

18 our customers.

19 My family has invested a lot of money in the 

20 future of our small business with the expectation that 

21 Congress and the EPA would keep its word and follow 

22 through with the renewable fuel standards, and that is 
409

1 why I'm here today to speak in opposition of the 

2 proposed reduction in the 2014 RVOs.

3 It is my understanding that the EPA has proposed 

4 to reduce the amount of ethanol blended into gasoline 

5 next year because it's concerned about an E10 blend 

6 wall. Well, part of me does not want to tell you what 

7 I'm about to share with you because I could lose a huge 

8 competitive advantage I gain by offering E15 and higher 

9 blends.

10 But EPA and Congress have not been receiving 

11 accurate or honest information on this subject, and 

12 this threatens my ability to continue to operate my 

13 family's business. The truth is getting over the blend 

14 wall is to try to get over the blend wall.

15 You know, there's no such thing as a 10 percent 

16 blend wall unless petroleum marketers refuse to give 

17 their customers any choices above 10 percent. In my 

18 station, over the past year my monthly sales have been 

19 at least 18 percent ethanol overall, with the maximum 

20 of 28 percent. And we hit these percentages month 

21 after month, even with my station offering ethanol-free 

22 gas and even with E15 sales restricted to flex-fuel 
410

1 vehicles in summer, low RVP season.

2 We're confident in the quality of E15, given EPA's 

3 thorough testing, and so are our customers. When we 

4 began selling E15 legally, it immediately became our 

5 second-highest selling blend fuel.

6 Again, part of me hopes that the oil companies 

7 continue to refuse to even sell anything over E10 

8 because the refusal also drives up the value of the 

9 RINs that Midway Service and other stations like ours 

10 receive for proving that the blend wall is imaginary.

11 Oil companies could force RIN prices back down to 

12 nothing if they would just start selling E15 and E85. 

13 But until they do, you know, I'll be happy to sell our 

14 RINs to them, and those extra dollars help me offer 

15 lower prices at the pumps. I hire more people to 

16 handle the extra business. It's paying for my fueling 

17 equipment, and it increases my bottom line.

18 I've also heard concerns over the cost of 

19 converting E15. At one point, I had someone ask me if 

20 it actually cost $300,000 to convert your station for 

21 an E15 upgrade. I'm here to tell you in my case 

22 changing my pumps to sell E15 cost me less than $300.
411

1 Most pumps -- most pump manufacturers over the 

2 past 10 years are warranted for up to 15 percent 

3 ethanol. Even if stations want to sell E85 and other 

4 blends, like we do at Midway Service, those dispensers 

5 are each about $9,000 more than a standard pump that 

6 most station owners can use to still sell E15.

7 Three hundred thousand dollars, it would buy all 

8 the new fueling equipment for an entirely new station 

9 that could sell any blend of ethanol, not just E15, and 

10 in either case, it's interesting that those equipment 

11 cost estimates in compatibility statements almost 

12 always come from representatives from the oil 

13 companies.

14 I'd suggest you ask equipment manufacturers or 

15 installers. I think they'll confirm that a station 

16 like mine cost little or nothing to convert to E15. 

17 The final issue that is usually thrown out as a reason 

18 not to sell E15 is that the risk to vehicles and the 

19 potential liability is too high. As I mentioned 

20 earlier, we also do auto repair at Midway Service.

21 MR. KOROTNEY: You'll need to wrap up, please.

22 MR. VOLLAN: And contrary to what ethanol
412

1 opponents would like consumers and Congress to believe 

2 about E15, since selling E15, I have had zero 

3 complaints and have had no -- and have had not to pay 

4 for a single repair.

5 The renewable fuel standard allows us to sell 

6 clean fuel made by our neighbors. It's created six new 

7 jobs in my business to handle additional business that 

8 I've earned and helps me compete with the big box 

9 retailers. It has done all of these things while 

10 offering lower price fuel to customers.

11 We urge you to stay the course on the RFS. Midway 

12 Service is proof that the blend wall only exists if you 

13 refuse to step over it.

14 MR. GRUNDLER: Thank you. John?

15 MR. HANNON: Both yourself and Mr. Hessler have 

16 talked about the role of RIN prices in the marketing 

17 decisions on the higher ethanol blends. Could you --

18 could you explain what the role is of the delta between 

19 the ethanol price and the gasoline price? That would 

20 seem to be as important as the RIN price.

21 Is that fair or not fair?

22 MR. VOLLAN: Could you explain what you're looking 
413

1 for here?

2 MR. HANNON: In making decisions to market E85, 

3 for example --

4 MR. VOLLAN: Right.

5 MR. HANNON: -- Mr. Hessler's point is that RIN 

6 prices facilitate that by allowing the price of the E85 

7 to be marketed down lower so consumers will buy it and 

8 the retailer has the price, has the value of the RIN to 

9 help justify that.

10 My question is what's your experience with how 

11 that calculus also takes into account the delta in 

12 price between ethanol and the CBOB or the RBOB to 

13 gasoline?

14 MR. VOLLAN: Well, I think you need to understand 

15 that if you're going to take advantage of these RINs 

16 and be able to pass these through to the consumer, it's 

17 something you don't wait for the pie in the sky, that 

18 $1.40 RIN. You market these on a continuous basis, and 

19 you know, I've sold RINs for 3 cents, you know?

20 So you're either going to have increased RIN 

21 prices for those people not willing to blend, you know, 

22 and the ability for ethanol to go up and down, it is 
414

1 just as volatile as gasoline and diesel fuel.

2 MR. HESSLER: John, can I just add? They're 

3 clearly an important component of the economics in the 

4 market. So one of the things that we saw in this in 

5 2013 as RIN prices went really high, we were benefiting 

6 also from fairly low ethanol prices. That accelerated 

7 the downturn.

8 Recently, and not reflected on these charts, we've 

9 seen a real run-up in ethanol prices, driven by exports 

10 from what I understand, just in the last 2 weeks. The 

11 futures market aren't reflecting that that's going to 

12 be there. But if you had a really high RIN price, but 

13 an even higher ethanol price, then E85 isn't going to 

14 be valuable at the retail level.

15 So it's not like RINs are a silver bullet, but 

16 RINs are an integral component. You take them out, and 

17 you're not going to -- you're not going to make this 

18 work.

19 MR. GRUNDLER: Thank you so much for your time 

20 today. It's very helpful.

21 Next panel is number 15. I don't see them on the 

22 on-deck row. You know who you are.
415

1 (Pause.)

2 MR. GRUNDLER: Mr. Bushong, you're up first. 

3 Proceed, please. Welcome.

4 MR. BUSHONG: Hello. My name is Bill Bushong, and 

5 I thank you all for the opportunity to speak to you all 

6 today. I am from Woodstock, Virginia, in the 

7 Shenandoah Valley. I am a member of the Virginia Grain 

8 Producers Association and also a director.

9 My family produces corn and soybean, small grain, 

10 and livestock, which is mainly cattle. I have been 

11 involved in the grain and livestock industry for 50 

12 years and have seen the ups and downs of all the farm 

13 commodities. I have seen the positive impact ethanol

14 has had on the agriculture industry.

15 I'm going to give you some of the positive of the 

16 ethanol. Number one, it reduces our imports by 10 

17 percent. It's another market for the corn producer. 

18 It has created a lot of jobs, and also, number one, 

19 it's made in America. And I have a hard time finding a 

20 hat that's made in America anymore.

21 Out of a bushel of corn, 2.5 gallons of ethanol is 

22 produced, and 37 pounds of feed and protein going back 
416

1 into the livestock, the cattle, poultry, hogs, fish 

2 industry. Ethanol environmentally provides up to 50 

3 percent less reduction in greenhouse gas emissions 

4 compared to gasoline, and also ethanol is renewable and 

5 gasoline is not.

6 The corn producers have stepped up production to 

7 meet demand, producing almost 14 billion bushel crop 

8 this year. I want to give you some of the myths that's 

9 in ethanol, and one that concerns me the most, that 

10 we're starving people. Out of our total corn 

11 production produced in any given year, only 10 percent 

12 goes to the food consumption, and a lot of this

13 includes the corn sweeteners.

14 And as to these gasoline engines, I don't know why 

15 they're having so much trouble with them. I've got an 

16 old '58 International tractor that I use on the farm to 

17 back wagons around, and it's never missed a beat. All 

18 my chainsaws, lawn mowers, and everything is run by 

19 ethanol, and I've had no problem at all.

20 And I am -- Bob Goodlatte, I heard him speak, and 

21 he is my representative. And I'm going to be sure to 

22 let Bob know that I sold the highest price feeders two 
417

1 weeks ago and the highest fat cattle this summer that 

2 I've ever sold, and I figured the corn prices at $8 a 

3 bushel.

4 And in conclusion, the mandate by RFS means the 

5 price received back the corn producer could be well 

6 under the cost of production and will take the positive 

7 effects ethanol has had. I urge you to do everything 

8 possible to let the RFS continue to work and do its 

9 job.

10 Thank you for your time.

11 MR. GRUNDLER: Thank you, sir. Mr. Delahoussaye?

12 MR. DELAHOUSSAYE: Thank you. It's good to see 

13 you all again. Thank you for sticking with us.

14 My name is Dayne Delahoussaye, and I'm here to 

15 testify on behalf of Neste Oil U.S., Incorporated.

16 Neste Oil continues its successful strategy for 

17 focusing on the production of cleaner traffic fuels by 

18 producing a non-ester renewable diesel marketed under 

19 the name NExBTL. NExBTL is a drop-in diesel

20 replacement fuel produced by hydrodeoxygenation, the 

21 isomerization of biogenic triglyceride oils and free 

22 fatty acids.
418

1 It is a pure hydrocarbon oil virtually free of 

2 contaminants, such as aromatics and sulfur, that meets 

3 the current diesel ASTM D975 specification and is fully 

4 fungible with the slate of ultra low sulfur diesel fuel 

5 available today without logistics, equipment, or 

6 infrastructure changes, a true drop-in diesel

7 supplement in every sense of the word.

8 The NExBTL technology can allow for the production 

9 to tailor to cold weather performance characteristics, 

10 often as low as minus 37 degrees Celsius, and makes it 

11 an ideal solution in cold climate blends for uses even 

12 in the harshest winters.

13 This drop-in fuel, produced from qualifying 

14 feedstock, meet the requirements of biomass-based 

15 diesel in the D4 pool. More significantly, it has an 

16 equivalence value of 1.7, a 13 percent increase in the 

17 number of RINs over the same volume of traditional 

18 first-generation methyl ester biodiesel.

19 Focusing only on biodiesel production in the EPA's 

20 recent RVO analysis only eliminates the inclusion of 

21 this higher-density -- higher-energy density fuel and 

22 ignores and fails to include these additional RIN 
419

1 volumes available, based on the historical data and 

2 reasonable RIN production estimates for 2014 and 

3 beyond.

4 Secondly, Neste Oil is very disappointed that the 

5 current RVO proposal specifically declines to include 

6 imported volumes in its calculations of the expected 

7 renewable fuel volume. The methodology is flawed and 

8 adverse to reasonably expected market expectations.

9 State-specific mandates, such as the California's 

10 low carbon fuel standard program, serves as a market 

11 factor that acts as an independent driver to this 

12 program for biofuel consumption. Specifically, the 

13 mechanics of that program provide very specific draws 

14 for renewable diesel and low carbon ethanol, 

15 significant volumes of both of which are achieved via 

16 imports.

17 California is still part of the United States and 

18 one of the world's largest diesel and gasoline markets. 

19 Its expected consumption and significant public policy 

20 drivers must be considered and included in this 

21 agency's evaluation of the total Federal renewable fuel 

22 supply sources, and it would be naïve to continue to 
420

1 ignore that.

2 To that end, Neste Oil has invested over $2 

3 billion in its worldwide production capacity. While 

4 not physically located within the sea to shining sea 

5 boundaries, the United States market plays an important 

6 part of Neste Oil's investment decisions and business 

7 plans. The locations were selected in part with a view 

8 to the logistic opportunities for deliveries to the 

9 U.S. and to procure and convert U.S.-sourced 

10 feedstocks.

11 Global companies are producing low carbon and 

12 clean renewable fuels. I would strongly caution the 

13 EPA against omitting consideration of these imports as 

14 it sends a chilling signal on the international trade 

15 of transportation fuels and would force these real GHG 

16 reduction fuels in the U.S. fuel supply to other 

17 markets.

18 Finally, I think it's important to remind this 

19 panel and participants that the D6 pool is not limited 

20 to corn ethanol. EPA regulations allow for any fuel 

21 with a GHG reduction of 20 to 50 percent to qualify as 

22 a D6 renewable fuel. Included in this volume are non-
421

1 ethanol grandfather fuel producers and pathways.

2 Neste Oil would encourage the EPA to consider 

3 historical volumes and reasonable RIN production 

4 estimates and include non-ethanol renewable fuel along 

5 with the non-ethanol advanced fuel when revising its 

6 proposal and setting a more accurate renewable volume 

7 obligation under the RFS.

8 MR. GRUNDLER: Thank you very much.

9 MR. KOROTNEY: Can you tell us, either now, if you 

10 know it off the top of your head, or in your written 

11 comments, how much Neste specifically has imported into 

12 the U.S. for the California low carbon fuel standard

13 program?

14 MR. DELAHOUSSAYE: I don't have that figure, but 

15 I'd be glad to share that with you.

16 MR. KOROTNEY: Okay. And then --

17 MR. DELAHOUSSAYE: It's a couple -- it's a 

18 significant amount, though.

19 MR. KOROTNEY: Okay. And then, as an aside, we 

20 didn't intentionally omit things. What we're looking 

21 for is things that we know are actually going to count. 

22 They're going to be RIN generating either for advanced
422

1 biofuel or for conventional. So if there is more of 

2 that coming into the U.S. than we accounted for in the 

3 rule, we want to know that.

4 So make sure you tell us what kind of volumes 

5 we're talking about of -- of renewable diesel that can 

6 actually count under the RFS program as advanced or 

7 conventional.

8 MR. DELAHOUSSAYE: And to that point, all of the 

9 renewable diesel that we import would count. So I'd be 

10 glad to share those with you so you can have those 

11 California draw figures.

12 MR. KOROTNEY: Okay.

13 MR. GRUNDLER: Other questions?

14 (No response.)

15 MR. GRUNDLER: Thank you. Mr. Brandenberger?

16 MR. BRANDENBERGER: Thank you all very much.

17 My name is Joel Brandenberger. I'm the president 

18 of the National Turkey Federation. We represent 

19 virtually all the family farmers who raise turkeys and 

20 the processors who process them, as well as breeders, 

21 hatchery owners, allied industry. We sort of view 

22 ourselves as part of the original market for corn 
423

1 producers.

2 I think, in the interest of time, I've given you 

3 all a copy of the written statement. I'm sure at the 

4 end of this day you all will want to read it for light 

5 reading tonight. But --

6 (Laughter.)

7 MR. BRANDENBERGER: But we'll keep it to a couple 

8 points, starting with thank you all for having this 

9 hearing. Thank you all for the proposal. It 

10 recognizes some inherent problems in the standard and I 

11 think begins to move us in the right direction.

12 I recognize it's based -- our members recognize 

13 it's based primarily on the blend wall, but hopefully, 

14 this dialogue will open some discussion to the issues 

15 that affect our industries as well going forward.

16 So the two primary points I want to make is that 

17 the impact on our members and everybody in the 

18 livestock and poultry industries is indisputable. For 

19 our industry, since 2006, production at times has 

20 ranged as low as 11 percent below the pre-RFS levels. 

21 Today, we're still about 6 percent below pre-RFS 

22 production levels. We've had four companies either 
424

1 close their doors, seek Chapter 11 bankruptcy, or just 

2 move to other products and quit producing turkey since 

3 then.

4 And the problem is less the price. Now I'm not 

5 going to sit here and pretend that the price of feed 

6 isn't a part of it. That's 70 percent of the cost of 

7 production. But it's the volatility is the bigger 

8 problem.

9 I had a member, a retired CEO of one of our 

10 companies who said, look, up to a point if I know what 

11 the price is going to be and the normal, mother nature 

12 variable factors that can go into it, I can figure a 

13 way to operate. It's wild swings in feed cost that 

14 make it very difficult to plan and produce.

15 And so, the impact is real, and everybody can 

16 quote all of the studies they want. But when I talk to 

17 the members who are suffering, they say it's not fuel 

18 prices. It's not energy costs. It is not anything 

19 other than the high cost of feed that has caused these 

20 problems in our industry and, more importantly, the 

21 unpredictable cost of feed.

22 The second thing is, and this has puzzled me a 
425

1 lot, I actually foolishly thought that the renewable

2 fuels industry might be comfortable enough with the 

3 proposal when it was released. Because a year ago, 

4 when the Governors of a number of States petitioned 

5 your agency for a complete waiver of the RFS for 2013, 

6 the reaction from the renewable fuels industry is, 

7 well, that wouldn't have any impact that the livestock 

8 and poultry industry thinks. I mean, there are all 

9 kinds of reasons why refineries will continue to blend 

10 ethanol into gasoline.

11 In fact, one of the leading associations wrote in 

12 their comments last October of 2012, they wrote, 

13 "Studies estimating the impact of a potential RFS 

14 waiver on corn prices show that waiving the 

15 requirements" -- and this is 100 percent waiver we're 

16 talking about -- "in 2013 might reduce corn prices by 

17 as little as 4 cents a bushel, or 0.5 percent."

18 Today, we've heard testimony that makes it sound 

19 like a waiver that is a fraction of what the Governors 

20 were seeking last year is going to lead to Armageddon 

21 on the farm. I've seen repeated comments about how 

22 this will gut the RFS.
426

1 I don't understand how you can have it both ways. 

2 A 100 percent waiver is not going to have a big 

3 impact, but you know, a waiver of less than 10 percent 

4 from current production levels is going to gut the RFS? 

5 It does not make sense to us.

6 Thank you all.

7 MR. GRUNDLER: Thank you. Mr. Anderson?

8 MR. KEVIN ANDERSON: Good afternoon. I am Kevin 

9 Anderson. I farm 3,500 acres of corn, soybeans, wheat, 

10 and barley with my family in Princess Anne, Maryland. 

11 I am a fourth-generation farmer and was privileged to 

12 be the 2002 American Farm Bureau Achievement Award 

13 runner-up and the 2007 National Outstanding Young 

14 Farmer.

15 I currently serve as the president of the Maryland 

16 Grain Producers Association, and in that capacity is 

17 why I've come before you today to express the 

18 association's strong opposition to the EPA's proposal 

19 to reduce the RFS for conventional ethanol to below 

20 production capacity.

21 If this proposal goes through as proposed, my 

22 family's net income has the potential to decrease by 
427

1 $100,000, making it difficult to squeeze a profit out 

2 of my current corn crop, which will be marketed in 

3 2014, based on the highest cost per bushel of any corn 

4 crop I have previously grown.

5 I live in the heart of Maryland's poultry 

6 industry. The poultry industry is Maryland's biggest 

7 customer of grain. As Jim Purdue stated, the industry 

8 is a three-legged stool -- poultry processors, poultry 

9 growers, and grain farmers. When any of these legs are 

10 weakened, the trouble impacts us all.

11 For many years, grain farmers were the weak leg 

12 due to low commodity prices that left us dependent on 

13 Federal subsidies for sustainability. Through greater 

14 discipline, substantial investment of grower check-off 

15 funds, and private industry, we have brought production 

16 agriculture away from the need of Government price 

17 support programs and strengthened the three-legged 

18 stool.

19 Recently, the poultry and livestock industries 

20 experienced high-energy end feed costs, loss of export 

21 market, declining domestic use, and industry 

22 overproduction. These items were all contributing to a 
428

1 loss of income.

2 We shared their concerns. As grain farmers, we 

3 stepped up to the plate and even with significant 

4 weather challenges produced the largest corn crop in 

5 history. To accomplish this, it took significant 

6 investment in new technology and more efficient 

7 machinery to accomplish this by the agriculture 

8 community.

9 We need the ethanol industry to continue to 

10 provide the demand for our corn in order for us to cash 

11 flow these investments we have already made in good 

12 faith. It is important to note while feed costs are a 

13 significant input cost to the poultry industry, poultry 

14 production is very efficient, requiring only 2 pounds 

15 of feed per pound of weight gain.

16 At $8 a bushel for corn, that is 14.2 cents per 

17 pound. That is 28.6 per pound of live chicken. With 

18 corn prices reduced to $4.20, that is 7.5 cents per 

19 pound, or 15 cents per pound of live chicken. That is 

20 only a difference of 13.6 cents per pound of chicken, 

21 and we all know that's a very small portion of what we 

22 pay in the grocery store.
429

1 I mentioned the figure of $8 for corn, which was 

2 the level it peaked at for a short period of time last 

3 year after farmers experienced the worst drought in 

4 many years. The peak in the price was caused by 

5 speculators in the market that felt crop production 

6 would have devastating impact.

7 Speculators were wrong. The country survived the 

8 drought. Less ethanol was produced. Margins were 

9 tightened for all of us, but we survived.

10 We now start a year with farmers having to step up 

11 to the plate to ensure that there is adequate corn for 

12 food, feed, export, and fuel. Our farmers have 

13 invested millions in growing our 2013 and '14 crops to 

14 meet our standards, to ensure that our fuel providers 

15 can meet the renewable fuel standard, only to find us 

16 with bumper crops and the EPA pulling the rug out from 

17 underneath of us.

18 The impact of this decision will have significant 

19 negative effects on my family farm and the farm 

20 families around us, farm workers. And when our bottom 

21 line is impacted, the local businesses that we support 

22 will also realize the negative impact to their bottom 
430

1 line.

2 MR. KOROTNEY: You'll need to wrap up, please.

3 MR. KEVIN ANDERSON: A couple things I'd like to 

4 point out. I've farmed through three droughts. '98 --

5 or '88, '96, and '12. In '88, the corn price went up 

6 40 percent because of drought. In '96, the corn price 

7 went up 30 percent because of drought.

8 With the RFS standard in 2012, corn prices only 

9 went up 26 percent. That's low volatility, and the RFS 

10 did not cause significant volatility in the market when 

11 you look back on the Chicago Board of Trade figures.

12 MR. GRUNDLER: Thank you, sir.

13 Mr. Lapp, welcome.

14 MR. LAPP: Good afternoon, and thank you for your 

15 patience and opportunity and your endurance you should 

16 be congratulated on.

17 My name is Bill Lapp, and I'm the president of 

18 Advanced Economic Solutions. AES is an independent 

19 commodity and economic forecasting firm. In the past, 

20 we've done analysis on biofuel policy options for a 

21 wide range of companies from the National Corn Growers 

22 Association to the Grocery Manufacturers Association.
431

1 In my view, the EPA proposal to reduce the RFS 

2 mandates is warranted and appropriate. Without these, 

3 we have the prospect for higher fuel prices, higher 

4 gasoline prices, and upward pressure on the price of 

5 corn and soybean oil.

6 Since 2007, biofuel mandates have been a primary 

7 catalyst for rising food input costs, costs that are 

8 ultimately passed on to the consumer. Specifically 

9 with regard to your proposal, I have three comments.

10 One is that AES agrees with your proposed 

11 reduction in the RFS for 2014. Without this change, 

12 the conventional ethanol would exceed the E10 blend 

13 wall by more than a billion gallons, and this, combined 

14 with the impact of advanced, the advanced biofuel

15 mandate, would force a tenfold increase in the 

16 consumption of E85 by my analysis.

17 The ultimate consequence of this is higher 

18 gasoline prices, and depending on how you set the 

19 parameters within -- with regard to biodiesel and 

20 pulldown of RINs, you would -- my model suggests that 

21 you'd have retail gasoline prices 8 cents to 30 cents 

22 higher than you would without the reduction that you 
432

1 have proposed.

2 Secondly, with regard to biodiesel mandates, AES 

3 agrees with your proposal to maintain a biodiesel

4 mandate of 1.28 billion gallons for both 2014 and 2015. 

5 The challenge in meeting these is not a blend wall 

6 one, but one from feedstock availability and the 

7 potential sharp increase in advanced biofuel mandates 

8 in 2014 and beyond.

9 Soybean oil inventories are declining to their 

10 lowest level in 8 years this year, and your proposal 

11 suggested an increase in soybean oil production during 

12 calendar crop year 2013-14, and the latest USDA data 

13 suggests a 2 percent decline, in fact. So there's an 

14 update may be in order there.

15 If the mandates lead to higher biodiesel

16 production, then the soybean oil market is going to 

17 face significant market disruption, and consumers could 

18 face higher, significantly higher soybean oil prices.

19 My point on the advanced biofuel mandates is that 

20 they grow so rapidly from in the coming years to over 7 

21 billion gallons, and this would equal as much as 4.8 

22 billion gallons of biodiesel production if it all were 
433

1 achieved through biodiesel. And with that, these 

2 levels, based on your analysis for sure and my 

3 understanding of the feedstock, are unattainable, and 

4 the need for EPA to lower the mandates in order to 

5 prevent further market disruptions is in order.

6 The other point, and it was well articulated in 

7 the proposal, is the risk of biodiesel output rising to 

8 meet the blend wall requirements where conventional 

9 ethanol cannot. And it's critically important that EPA 

10 has recognized in its proposal that relying on 

11 biodiesel to meet the shortfall caused by the blend 

12 walls is not feasible, given biodiesel production 

13 capacity as well as limitations on feedstock.

14 This becomes a bigger and bigger issue in 2015 and 

15 2016 and would compel you to come back here next year 

16 for the same fun and frivolity a year from now.

17 In conclusion, the proposals for the 2014 

18 standards, EPA took a bold and appropriate step towards 

19 putting the RFS on a manageable and sustainable path 

20 for 2014 and beyond. Without these changes from the 

21 original schedule, increased mandates would result in 

22 higher gasoline prices and diesel fuel prices.
434

1 Additionally, left unchanged from the original 

2 levels the mandates would create upward pressure on the 

3 primary feedstock used to produce these fuels -- corn 

4 for ethanol and soybean for biodiesel. AES recommends 

5 that the EPA adopt the renewable fuels mandates for 

6 2014 as prescribed in the proposal.

7 I've included some information on a study I've 

8 published and would be glad to share that and portions 

9 of that as desired in my formal comments submitted.

10 MR. GRUNDLER: Thank you so much. Questions?

11 (No response.)

12 MR. GRUNDLER: Okay. Mr. Foglesong, welcome.

13 MR. FOGLESONG: Good afternoon. Sir?

14 MR. GRUNDLER: Welcome.

15 MR. FOGLESONG: Welcome to you. I'm Steve 

16 Foglesong. I'm a cattle feeder, rancher, corn grower, 

17 and maybe the only pork producer that will at least 

18 admit it so far today.

19 (Laughter.)

20 MR. FOGLESONG: Today, I'm here on behalf of the 

21 National Cattlemen's Beef Association, and I would be 

22 remiss if I didn't mention this is the first time that 
435

1 I was ever to appear before EPA where we actually 

2 agreed on something. So I applaud you.

3 (Laughter.)

4 MR. FOGLESONG: My family owns and operates the 

5 Black Gold Ranch and feedlot in west central Illinois. 

6 And as a corn farmer, we decide that we're going to 

7 feed all of our corn. That's called value added.

8 It's just exactly like ethanol producers. They 

9 take corn and they feed it to their plant, and they 

10 produce ethanol, DDGs, carbon dioxide. We feed it 

11 steers. It's the exact same process, with the 

12 exception that the RFS mandate that gives the ethanol

13 producers an advantage in purchasing that corn.

14 RFS has been a topic of interest in the beef 

15 industry since Congress passed that legislation in 

16 2005, and then they greatly expanded it in 2007. Be 

17 clear. Our industry and me personally supports 

18 renewable energy. I'm all about ethanol. All my 

19 neighbors are corn farmers. It's risky for me to come 

20 here and talk about this.

21 There is no denying that ethanol has brought 

22 prosperity to rural America. I mean, everybody's got a 
436

1 new pickup. We all got a new tractor. We're getting 

2 along, and it's made a huge difference. But Government

3 policies that are passed by Congress and enforced by 

4 you all has created significant challenges in the 

5 livestock sector.

6 The NCBA strongly supports the EPA's proposed rule 

7 to reduce the 2014 renewable volume obligations for 

8 conventional ethanol by 1.3 million gallons. We 

9 recognize your proposal is focused on the energy side 

10 of this debate rather than the feed side, but your 

11 actions will have a direct impact on our industry that 

12 also utilizes corn.

13 During the 2002 to 2003 marketing year, USDA 

14 estimated that corn use for ethanol production 

15 accounted for 10 percent of the total U.S. corn usage. 

16 Today, because of Government policies that are in 

17 place, roughly 42 percent of that corn is utilized by 

18 one user, the ethanol industry. From 2002 to 2013, the 

19 use of corn for feed has fallen from 58 percent to 

20 about 37 percent. That's a pretty substantial number.

21 Even though the cattle industry is able to utilize 

22 the byproducts created from the ethanol process, their 
437

1 efficiencies replacing the corn is not comparable, 

2 considering that only 17 pounds of distillers grain can 

3 be produced from a bushel of corn.

4 I often hear the phrase that more feed is 

5 available now than ever before because of the RFS, 

6 available to who? The ethanol industry has done a 

7 fantastic job of marketing DDGs around the world. I 

8 don't compete with other cattle producers. I compete 

9 with some Chinaman for DDGs because he can get them to 

10 him duty-free.

11 This year alone, we've sent 5.92 million metric 

12 tons of DDGs overseas, removing them from the domestic 

13 feed supply. In western Illinois today, the corn is 

14 worth $4.20 a bushel. That's $150 a ton. DDGs priced 

15 in Peoria are $220 a ton. That's not an even deal, and 

16 it's not really a bargain.

17 I'll tell you what. This whole ethanol and the 

18 feed thing has me kind of feeling like a first wife. I 

19 was there, you know, and I went to college and I helped 

20 you start your business, and then you start looking for 

21 a younger model. And the next thing I know, you know, 

22 I'm left holding the bag, and I kind of feel like I'm 
438

1 holding the bag here.

2 The U.S. cattle industry has realized a 

3 significant economic impact due to the RFS mandate and 

4 the historic drought that impacted over 70 percent of 

5 the country last year. From 2007 to 2010, the cattle 

6 feeding sector and our industry lost a record $7 

7 billion, billion, in equity due in large part to feed 

8 costs.

9 Over the past 4 years, the average cost of grain 

10 to finish a market steer in the feedyard has gone up by 

11 over $200 a head as a direct result of increasing feed 

12 costs. These costs are not able to be passed on to the 

13 consumer, and they're absorbed by me and my fellow 

14 cattle producers.

15 This type of loss is not sustainable for a segment 

16 of industry that relies on corn. And as a result of 

17 the continued diversion of corn to satisfy the 

18 mandatory RFS, it is unlikely -- it is likely that 

19 these losses will continue.

20 There's been a lot of talk here today about what 

21 might happen if you leave your deal in place. Well, 

22 I'll tell you what has happened. In the beef industry, 
439

1 we've got feedlots that are closing. We've got pack 

2 and -- those are jobs that are gone. They're not going 

3 to get them back.

4 Those things have happened, not any supposition 

5 that they're going to happen.

6 MR. KOROTNEY: You're going to have to finish up, 

7 please.

8 MR. FOGLESONG: Our industry appreciates EPA's 

9 proposal as it acknowledges that the current policy 

10 needs to be reevaluated, especially since the agency 

11 denied the petitions to waive the RFS last year in the 

12 most recent drought. The agency's policy is a great

13 step in the right direction, and we hope the EPA will 

14 work to retain those lower projections.

15 At one time, there was a need for Government

16 policies and the American taxpayer to help the ethanol

17 industry find their feet. Today, we have a mature and 

18 sophisticated industry before us that after many years 

19 of Federal support, it's time to get everybody on the 

20 level playing field to compete for that bushel of corn.

21 In closing, we appreciate the opportunity to visit 

22 you today and support your recent decision to reduce 
440

1 the 2014 standards. In September, the Renewable Fuels 

2 Association encouraged the cattle industry to look at 

3 the flexibility of the RFS policy on the regulatory 

4 side of this debate. Typically, this is an area where 

5 we disagree with the RFA, but your recent activity does 

6 acknowledge that flexibilities do exist.

7 This is a step in the right direction, and as the 

8 policies that are in place are outdated, we will 

9 continue to work with Congress to level that playing 

10 field.

11 Thank you very much.

12 MR. GRUNDLER: Thank you. Safe travels. Thank 

13 you.

14 Panel 17. Correction. Panel 16.

15 (Pause.)

16 MR. GRUNDLER: Mr. McNinch, we're ready when you 

17 are.

18 MR. MCNINCH: I am Dennis McNinch. I'm a fourth19 generation corn farmer from Kansas, and I've been a 

20 farm banker for over 30 years. I am here to tell you 

21 how I believe ethanol has impacted rural America.

22 My banking career began in 1983 after college 
441

1 graduation. My dream, however, was to be working on 

2 our family's farm that my great-grandfather homesteaded 

3 in 1885.

4 In 1983, that dream had little hope of becoming 

5 reality as our country was in the middle of a farm 

6 crisis. Commodity prices were low. Interest rates 

7 were high. Land prices were falling, and farmers were 

8 losing their farms to foreclosure.

9 My grandfather was in his 60s and should have been 

10 cutting back his workload instead of increasing it. 

11 He, like many others, was saddled with debt and had to 

12 go to town and get a job so that he could pay the 

13 mortgage. My career as a banker in agriculture was far 

14 from rewarding in the 1980s. I spent most of my time 

15 collecting loans instead of making them.

16 In fact, I experienced one of the most awkward 

17 times of my life as I had to collect a loan from my 

18 father's best friend as his farm was no longer 

19 profitable. The economic impact on the heartland was 

20 devastating to agriculture and Main Street America.

21 In my opinion, the one thing that contributed the 

22 most to those hard times was the lack of demand for the 
442

1 grain. Simply put, we did not have enough end users to 

2 create value.

3 Going into the 1990s, things improved slightly for 

4 the corn farmer. Foreclosures had subsided, and farms 

5 were starting to be profitable. However, from a 

6 banker's perspective, I believed that many of the 

7 profits were artificial, as many farms were receiving 

8 Government payments. I can attest that many of my farm 

9 customers would not have shown a profit without those 

10 payments.

11 Commodity prices for the decade remained low. We 

12 still lacked end users for our product, and surpluses 

13 were mounting. During this period, I returned to the 

14 farm not because it was profitable, but because a 

15 banking job in the area became calling and because of 

16 my grandfather's fading health. I then assumed his 

17 role of providing labor on the farm, plus having a job 

18 in town.

19 At the start of the 21st century, the agriculture 

20 economy had grown stagnant. Farmers were still 

21 dependent upon Government payments. Corn prices were 

22 below $2 per bushel, and we still struggled to create 
443

1 value for our grain. We had a recipe for disaster if 

2 we did not find a way to create value.

3 At about that time, the landscape in agriculture 

4 started to change. That was the period when our 

5 industry realized that we did have a way to create 

6 value for our grain, and that was by making ethanol.

7 Capital requirements were many to get the ethanol

8 industry going. Many farmers invested heavily with 

9 their own money, some of whom had no business risking, 

10 but they had to take a chance or risk becoming 

11 unprofitable again.

12 Our critics will tell you that our industry would 

13 never have made it without the Government subsidies. I 

14 could not agree more, and I do not apologize, as the 

15 ethanol story is a success story. I believe that the 

16 Government's return on investment had to be huge as 

17 farmers, for the first time in decades, were paying 

18 large sums of Federal taxes on farm profits.

19 The economic tide created by ethanol has floated 

20 many boats in and outside of agriculture. Industries 

21 such as equipment and auto manufacturers, seed dealers, 

22 chemical dealers, grain merchandisers, banks, and many 
444

1 others reaped the benefits from ethanol. A real-life 

2 example of the economic impact of ethanol would be the 

3 success the bank I work for has had.

4 In 1987, the credit quality of the bank was quite 

5 poor as only 60 percent of the loans were considered 

6 acceptable quality, and our loan volume was below $70 

7 million. Today, our bank's credit quality is over 99.5 

8 percent acceptable quality. Our loan volume is almost 

9 $300 million, and we have had -- have not had to 

10 collect a loan for over 10 years.

11 Besides the economic impact of ethanol, our 

12 national security is sounder, as imported oil needs 

13 from foreign countries, many of whom do not like us, is 

14 less. And ethanol, as you well know, is a cleaner 

15 burning fuel than gasoline refined by the petroleum

16 industry.

17 Today, the ethanol industry is under attack, and 

18 if our opponents are allowed to succeed in pushing back 

19 ethanol, our nation will be at great risk economically 

20 as the corn farmers will again be faced with the lack 

21 of end users. The RFS has achieved what it was 

22 originally intended, and that is to provide our country 
445

1 with a renewable fuel source, clean up the environment, 

2 and provide economic stability.

3 As you finalize the RFS ethanol requirements for 

4 2014, I ask you, on behalf of my partners in ethanol,

5 to please leave the RFS as it originally was drafted 

6 into legislation.

7 Thank you.

8 MR. GRUNDLER: Thank you. Questions?

9 (No response.)

10 MR. GRUNDLER: Mr. Keaveney?

11 MR. KEAVENEY: My name is Timothy Keaveney. I 

12 serve as the vice president of sales for HERO BX. HERO 

13 BX is a privately held biodiesel refiner located in 

14 Erie, Pennsylvania.

15 Our plant will manufacture 50 million gallons of 

16 biomass-based biodiesel in 2013, record production for 

17 our company. We use recycled cooking oil and rendered 

18 animal fats as feedstock. Our fuel helps supply 

19 America's enormous demand for diesel fuel and heating 

20 oil.

21 Since our inception in 2006, HERO BX has invested 

22 in the people and the technology that would enable our 
446

1 company to produce a gallon of biodiesel at a cost 

2 equal to petroleum diesel. Today, by running multiple 

3 feeds, price parity between domestic biodiesel feed and 

4 global crude oil prices, economies of scale as a result 

5 of running at full capacity, and a ratable market that 

6 buys our products, we are producing a gallon of 

7 biodiesel at a price that rivals petroleum diesel, 

8 making biodiesel affordable to United States consumers.

9 Our company provides well-paying jobs to 43 full10 time employees who contribute to the economic and 

11 manufacturing revitalization of Erie, Pennsylvania. 

12 The proposed EPA renewable fuel standard for biomass13 based diesel and advanced biofuel in 2014 will have a 

14 negative impact on our business. The proposed rule 

15 effectively reduces U.S. biodiesel consumption by 50 

16 percent from current production rates, directly and 

17 indirectly threatening hundreds of jobs in Erie County, 

18 PA, and freezes our planned corporate growth 

19 initiative.

20 In 2013, HERO BX made a $6 million capital 

21 investment to expand its refining capacity by 22 

22 percent, as well as other plant efficiencies, 
447

1 anticipating an increase in the 2014 biomass-based 

2 volume that would at least match 2013 industry 

3 production volume of 1.7 billion gallons.

4 Since the proposal to reduce biomass-based diesel

5 volume was released, now in question is whether our

6 plant upgrades will be commissioned. Furthermore, 

7 we've delayed our plan to hire up to 10 new employees 

8 that were slated to staff our expansion.

9 Our owner, Pat Black III, has invested $120 

10 million into our biodiesel refinery with a vision of 

11 supporting a green industry, to foster innovation, and 

12 to create meaningful jobs in Erie, Pennsylvania, one of 

13 America's oldest manufacturing towns.

14 The investment was made in part due to 

15 Government's stance on establishing and supporting 

16 renewable fuels. To pull the rug out from under us now 

17 would foil current investment and likely stagnate 

18 future development in clean energy.

19 Thank you.

20 MR. GRUNDLER: Thank you, sir. Mr. Thomas, 

21 welcome.

22 MR. THOMAS: Gentlemen, thank you for this 
448

1 opportunity and your uncanny ability to stay awake.

2 My name is Mark Thomas. I'm a dairy farmer from 

3 Lewisville, Ohio, up in the northeast corner. We milk 

4 400 cows, farm 2,000 acres with my wife and three kids 

5 and several employees.

6 I have a long history of working with ethanol, as 

7 in my younger years, I was a professional drag racer 

8 for 25 years and saw the incredible benefits of ethanol

9 as a fuel in my race car. We are the winningest team 

10 in International Hot Rod Association history.

11 We had a car that made 3,000 horsepower, went 0 to 

12 250 mile an hour in 5.7 seconds, and we won 7 world 

13 championships due to ethanol. I retired at the end of 

14 2008.

15 The three things I dislike the most are being away 

16 from my family, being away from my farm, and wearing a 

17 suit.

18 (Laughter.)

19 MR. THOMAS: And one day you can't screw up is my 

20 birthday, and I'm 55 today. That's 18 years with 37 

21 years experience. Now, but here I am today, wearing a 

22 suit, away from my family and my farm, and that's how 
449

1 important the renewable fuel standard is to me.

2 We had an extreme drought in 2012 that drove the 

3 price of corn through the roof, and many livestock 

4 farmers screaming mad and blaming high input cost on 

5 the ethanol. However, the anger was misplaced. The 

6 drought drove up corn prices, not ethanol.

7 This year, we have seen a bumper crop of grain, 

8 and the price of corn has dropped in half in one short 

9 year to that that it was in 2012 to between $3.50 and 

10 $4 a bushel in my area, much lower than the cost to 

11 produce it. These prices are declining even with the 

12 renewable fuel standards and the ethanol industry in 

13 place, highlighting once again that there are so many 

14 other factors contributing to the corn price.

15 We in the agricultural industry need access to all 

16 the markets for our products that we can get, and 

17 rolling back RFS just opens the door for massive 

18 oversupply of corn, artificially cheapening it, and 

19 that will hurt all of us. Does anyone remember the 

20 challenge of 2009 that the livestock and dairy industry 

21 had? We had the privilege of working 24-7 to lose a 

22 ton of money, equity, and were exhausted and depleted.
450

1 This was a result of too cheap of inputs leading 

2 to an oversupply of milk and other commodities, 

3 crashing the markets and creating the most challenging 

4 year of my life, my depression. I feel strongly that 

5 changing the renewable fuel standards will create an 

6 atmosphere allowing for oversupply of milk, beef, pork, 

7 and poultry, and once again make it hard to make a 

8 decent living in agriculture.

9 As we all know, the farm bill expired in 

10 September, and it is clear we cannot depend on farm 

11 programs to keep our industry afloat in these tough 

12 years of oversupply. We need all the markets to keep 

13 growing.

14 I have an ethanol plant within 70 miles of my farm 

15 that allows me for a great market for my extra corn 

16 that I don't feed my cows. I can sell it at a premium 

17 of about 30 to 40 cents per bushel extra. I also use 

18 25 tons of wet distillers grain a week, a co-product of 

19 the plant and ethanol production. It's a very 

20 economical, high-protein feed that my cows love.

21 Unfortunately, our agricultural world has seen a 

22 great division within our community between the grain 
451

1 farmers and the livestock producers on the importance 

2 of the renewable fuel standard and the ethanol

3 industry. As a grain farmer and livestock producer, I 

4 could attest we cannot afford to fight each other.

5 For the agriculture industry to be strong, all of 

6 ag must be strong, and I'm certain nothing is stronger 

7 than American agriculture. The RFS is helping make 

8 American agriculture stronger, and we are now just 

9 starting to see the benefits. We should not be scaling 

10 back.

11 Thank you for your time and consideration, and I 

12 appreciate the opportunity to share my thoughts and my 

13 birthday with you guys.

14 MR. GRUNDLER: Thank you. Happy birthday.

15 MR. THOMAS: Thank you.

16 MR. GRUNDLER: You didn't have to wear a suit for 

17 us.

18 MR. THOMAS: Pardon me?

19 MR. GRUNDLER: Next time you don't need to wear a 

20 suit to provide testimony.

21 MR. THOMAS: My wife said I'd look more 

22 professional.
452

1 MR. GRUNDLER: You have to wear something, but --

2 (Laughter.)

3 MR. GRUNDLER: Any questions?

4 MR. HANNON: Yeah, can you come tune my sports 

5 car?

6 (Laughter.)

7 MR. HANNON: And I'll even convert it to higher 

8 ethanol blends if you can get it to 3,000 horsepower.

9 MR. THOMAS: Not a problem at all.

10 MR. HANNON: Happy birthday.

11 MR. THOMAS: I'd be glad to do it. Thank you.

12 MR. HANNON: Just a quick comment for yourself and 

13 Mr. McNinch. What I take from both of your comments 

14 and actually several other panel members on various 

15 panels is you need an increased demand for grain. You 

16 have a large supply of corn and abundance of it. 

17 Prices have gone down. You're concerned that there is 

18 not enough demand for the product to make it a livable 

19 wage for the producer.

20 Our proposal is premised on the view of how to 

21 grow ethanol use, how much -- how quickly and how much 

22 ethanol can actually physically be used? And neither 
453

1 yourself nor Mr. McNinch have really addressed that. 

2 In your written comments, if you can, that would be 

3 very helpful because that is the key issue in front of 

4 us is how much ethanol can be used?

5 Mr. Hessler earlier commented on and various other 

6 people on E85 or E15, other ways to expand ethanol use. 

7 If you could make sure your comments address that, 

8 that would be very helpful.

9 Thank you.

10 MR. THOMAS: Thank you.

11 MR. GRUNDLER: Mr. Jeter?

12 MR. JETER: Yes. I'd like to say thank you for 

13 the opportunity to comment today on the proposed rule 

14 for the 2014 standards of the Renewable Fuel Standard 

15 Program.

16 I'm Jeff Jeter, and I'm speaking today for NAFA 

17 Fleet Management Association. I'm the fleet director 

18 for Chesterfield County, Virginia. My fleet includes 

19 2,400 vehicles and 3 central fueling facilities.

20 NAFA is a not-for-profit association for 

21 professionals who manage fleets of civilian public 

22 safety vehicles, trucks and buses of all types and 
454

1 sizes, and a wide range of military and offroad 

2 equipment. NAFA's members are responsible for more 

3 than 3.5 million vehicles.

4 NAFA has long supported Federal environmental 

5 energy policies, including the renewable fuel standards 

6 that reach the entire motoring public and return

7 benefits to fleets and the general public. My comments 

8 today will address two topics. First, EPA's proposal 

9 to reduce the advanced biofuel in the total renewable

10 fuel standards for 2014 and the proposal to maintain 

11 the same volume of biomass-based diesel for 2014 and 

12 '15 as was adopted for 2013.

13 As fleet managers, we are concerned that the 

14 approaching blend wall will result in the mandated use 

15 of E15, an ethanol blend that fleet managers fear will 

16 void vehicle warranties, damage engines, and cause 

17 damage to underground storage tanks. As a major 

18 consumer of vehicles and engines, we are concerned with 

19 the potential impact of both light-duty engines as well 

20 as noncovered engines, including engine failure, 

21 corrosion, water in fuel, phase separation, higher

22 exhaust temperatures, increased pollution emissions, 
455

1 and reduced life of the vehicle or engine.

2 We take very seriously the statements of the 

3 vehicles and engine manufacturers that E15 will damage 

4 engines, void warranties, and reduce fuel efficiency. 

5 For fleet managers, the warranty issue is very real,

6 and it has been raised by several auto manufacturers.

7 NAFA just recently queried the OEMs, and the 

8 warranty issue continues to be a valid concern. As a 

9 fleet manager, I simply cannot rely on EPA's findings 

10 that E15 is suitable for use in vehicles manufactured 

11 in model year 2001 and newer when the OEMs are telling 

12 me the E15 might void the warranty. It's a catch-22 

13 the fleet managers just cannot accept.

14 NAFA members that are users of small engines have 

15 been -- have seen a significant increase in engine 

16 failures due to issues with ethanol in the fuel. Many 

17 times we find that the fuel will separate with a small 

18 amount of moisture. We now have an additional expense 

19 to purchase fuel conditioners to counter this effect.

20 The overall result is that we spend more dollars 

21 now on maintenance and repairs while the lifecycle 

22 expectancy of the equipment is reduced. This 
456

1 negativity affects production and profitability and 

2 will be made worse with E15.

3 Fleets that have their own fueling facilities 

4 predominantly store and issue diesel and only one grade 

5 of gasoline, generally 87 octane. Fleets have many 

6 vehicles and equipment that are not compatible with the 

7 E15 blend, as well as model year 2001 and later 

8 gasoline vehicles and equipment that EPA claims are 

9 compatible with E15.

10 If E15 were mandated, these fleets with these 

11 vehicles and equipment mix have no additional fueling 

12 infrastructure to store the issued two grades of 

13 gasoline, E15 and E10. This places fleets in a 

14 position of not being able to meet their mission 

15 requirements for gasoline refueling for all their 

16 vehicles and equipment.

17 This is a real-world logistical issue that cannot 

18 be solved by simply mandating the use of E15 for model 

19 year 2001 and later gasoline vehicles and equipment. 

20 The fueling infrastructure is simply not there yet.

21 There are also many unanswered questions regarding 

22 the compatibility of E15 with underground storage tank 
457

1 systems and the potential for leaks for these systems. 

2 Many fleets, including the fleet that I manage, have 

3 central fueling facilities to provide onsite refueling 

4 to our vehicles.

5 The EPA's decision to allow the use of E15 in 

6 certain vehicles does not remove a fleet's obligation 

7 to assure that all their equipment is lawfully 

8 certified to store and sell this product. EPA rules 

9 require that equipment be proven compatible with E15. 

10 However, in 2011, the U.S. Government Accountability 

11 Office advised that the compatibility of many existing 

12 underground storage tank systems with ethanol blends is 

13 uncleared for two main reasons.

14 MR. BURKHOLDER: Can you please conclude your 

15 testimony?

16 MR. JETER: Many retailers have older equipment 

17 and lack of records. On short for that, we just don't 

18 think it'd be a good idea to go with the E15 at this 

19 time.

20 And then, on the biomass diesel, you know, without 

21 repeating everything everybody else has said, what 

22 we're recommending from NAFA is to carry on with the 
458

1 same blends that you did for 2014 -- for '13 and go 

2 ahead and do the same thing for '14 and '15.

3 MR. GRUNDLER: Thank you.

4 MR. JETER: Thank you.

5 MR. GRUNDLER: Mr. Vinson, welcome.

6 MR. VINSON: Gentlemen, good evening. My name is 

7 Scott Vinson, and I'm here on behalf of the National 

8 Council of Chain Restaurants, which is the trade 

9 association that represents America's quick service and 

10 table service restaurant chains. We appreciate this 

11 opportunity to testify at today's hearing, and we will 

12 also submit written comments on the proposal.

13 Chain restaurants are, by and large, owned and 

14 operated by tens of thousands of small business 

15 franchisees, most of whom have one or two or a small 

16 handful of individual restaurant locations.

17 These small business franchisees are often family18 run enterprises, and they are the very picture of small 

19 business in America. They give back to their 

20 communities through charitable donations to local good 

21 causes. They serve as popular gathering places for 

22 family events and special occasions, and they serve 
459

1 countless meals to everyday Americans every single day.

2 In recent years, food commodity costs for chain 

3 restaurants and their small business franchisees have 

4 increased dramatically. This increase has happened to 

5 coincide with the enactment and implementation of the 

6 renewable fuel standard.

7 These higher food commodity prices are not unique 

8 to chain restaurants but have been experienced by 

9 nearly every entity along the food chain, from poultry 

10 and livestock farmers on one end of the chain to chain 

11 restaurants and other food retail outlets on the other, 

12 as we've heard here today.

13 Several entities, including the Congressional 

14 Budget Office, USDA, Economic Research Service, 

15 Congressional Research Service, World Bank, and 

16 National Research Council, have all implicated the RFS 

17 in the recent climb in food commodity prices. 

18 Moreover, numerous academic studies have done the same.

19 My organization was not content to simply rely on 

20 the studies of all of these experts. So last year, we 

21 went the extra mile, and we engaged a third party to 

22 determine whether the RFS is responsible for at least a 
460

1 portion of the higher food commodity cost experienced 

2 by chain restaurants and, if so, to what degree.

3 We commissioned the independent firm of 

4 PricewaterhouseCoopers to examine this issue. PWC 

5 reviewed existing private sector, academic, and 

6 Government studies on the impacts of the RFS mandate on 

7 ethanol production and the price of corn and other 

8 commodities. They then combined these estimates with 

9 survey information on commodity purchases by chain 

10 restaurants to estimate the overall impact of the RFS 

11 on chain restaurant input cost.

12 PWC issued its findings in a report released last 

13 November entitled "Federal Ethanol Policies and Chain 

14 Restaurant Food Cost." I have copies of the executive 

15 summary from the report, and I'm happy to provide them 

16 to the members of the panel. The full report is 

17 available at our Web site, nccr.net.

18 PWC concluded that the conventional portion of the 

19 mandate, when it's fully implemented in 2015, will 

20 raise chain restaurant food cost by up to $3.2 billion 

21 a year every year. That's billion with a "b." And 

22 that estimate is prospective from 2015 onward. It does 
461

1 not even include all the years that the RFS has been in 

2 effect since its enactment.

3 For a typical chain restaurant franchisee, that's 

4 an increase of about 10 percent per year, or $18,000 in 

5 higher food cost. For a typical casual dining 

6 restaurant, it represents a 9 percent increase, or 

7 about $17,000. But for many franchisees, the cost can 

8 be far higher.

9 To provide an example and bring these numbers into 

10 perspective, let me tell you about the experience of 

11 one individual chain restaurant franchisee. Ed and 

12 Judy Anderson own and operate with their son four 

13 Wendy's restaurants in Virginia. Mr. Anderson 

14 testified before the House Energy and Commerce 

15 Subcommittee on Energy and Power in July that he 

16 estimates the RFS to cost his restaurants up to $30,000 

17 a year per location.

18 For his four Wendy's restaurants, that's $120,000 

19 a year in higher food costs, which is money that the 

20 Andersons are not able to use to expand their business 

21 and help grow the economy. Unfortunately, the 

22 Andersons' experience with the RFS is all too common.
462

1 In conclusion, we encourage the agency to go 

2 further than the proposed 2014 RVO, recognizing the 

3 very negative impact on food cost for American small 

4 business, farmers, and consumers. Ultimately, Congress 

5 will have to address the long-term challenges created 

6 by the RFS, but in the interim, we urge the agency to 

7 take every available step to further lower the mandate 

8 for 2014 and each year the RFS mandate remains in 

9 effect.

10 Thank you.

11 MR. GRUNDLER: Thank you. Mr. Siu, you have the 

12 final word on this panel.

13 MR. SIU: Well, good evening, and thank you very 

14 much for the opportunity to comment on EPA's proposed 

15 2014 renewable volume obligation. My name is Brian 

16 Siu, and I'm a senior policy analyst with the Natural 

17 Resource Defense Council.

18 Founded in 1970, NRDC is a national advocacy 

19 organization with over 1.4 million members and online 

20 activists working to protect the environment, climate, 

21 and public health. That's why we believe that getting 

22 our biofuel policies right is critically important.
463

1 The renewable fuel standard is one of the most 

2 critical biofuel policies, but requires enormous 

3 balance in both substance and process. We need low

4 carbon fuels to reduce the substantial climate impacts 

5 of our transportation system and protect the air 

6 quality and public against harmful pollution.

7 But not all biofuels are created equally. Some 

8 will provide climate benefits, while others, like corn 

9 ethanol using current practices, can make climate 

10 change worse while also harming wildlife, water, food, 

11 and feedstocks. Thus, a balance must be struck that 

12 transitions us to meaningful volumes of low carbon, 

13 nonfood-based fuel without otherwise impacting the 

14 environment. We hope that these issues can be resolved 

15 by EPA through future rulemakings.

16 In the current rulemaking, however, EPA must 

17 strike a balance that responds to ethanol blending 

18 limits while still fostering deployment of biofuels and 

19 biofuel infrastructure. It must move the policy 

20 forward while carefully accounting for significant 

21 unforeseen changes in fuel demand.

22 NRDC is currently studying the NPRM but would like 
464

1 to offer two points that will guide our detailed 

2 written comments. First, we support EPA's authority to 

3 address practical E10 blending limits. Specifically, 

4 we support EPA's interpretation of the term "supply" 

5 under Section 211(o)(7)(A) of the Clean Air Act. When 

6 Congress provided this authority to EPA, it sought to 

7 avoid the unintended product of a mandate coupled with 

8 significant supply constraints.

9 It stands to reason that severe volatility or 

10 other compliance challenges will be the same whether 

11 the supply constraint occurs upstream with the producer 

12 or downstream with the consumer. For instance, so long 

13 as a blender cannot produce or sell supply, RIN 

14 separation will suffer and volatility will result.

15 It's unlikely that Congress sought to prevent this 

16 outcome for upstream supply constrains, but not an 

17 identical outcome for downstream supply constraints. 

18 Focusing on the outcome that Congress intended to 

19 prevent supports a broader interpretation of the term 

20 "supply." Furthermore, EPA's ability to manage 

21 unanticipated challenges is key to maintaining public 

22 support for the program and, thus, the bedrock policy 
465

1 framework for biofuels.

2 Secondly, however, NRDC does not think that every 

3 downstream supply constraint justifies waiving the 

4 mandate where the compliance needs to be cost free or 

5 even low cost. Congress also foresaw a greater share 

6 of our fuels eventually coming from alternative 

7 sources, and stable price signals can help facilitate 

8 that goal.

9 While EPA must adopt measures to address severe 

10 unanticipated blending challenges, it must also avoid 

11 any long-term approach that waives the requirement any 

12 time reasonable compliance costs are present and must 

13 navigate between managing volatility and sustaining 

14 support for the right types of biofuels. We believe 

15 that EPA is working to strike that balance, and we'll 

16 provide detailed analysis on whether its proposal hits 

17 the mark, goes too far, or falls short.

18 How sustainable forms of advanced biofuel fare 

19 under the proposal will be of paramount importance, and 

20 NRDC will study this issue in particular.

21 I'd like to close by stating that EPA continues to 

22 do admirable work in administering this very complex 
466

1 program. EPA is the right forum to resolve these 

2 issues, as it has the expertise and the flexibility to 

3 address these and other challenges as they arise. This 

4 is not a black and white issue, and all parties should 

5 recognize that the best outcome will result from an 

6 open engagement in the public rulemaking process.

7 This concludes my remarks, and thank you once 

8 again for hosting this public forum.

9 MR. GRUNDLER: Thank you. Thank you very much, 

10 everybody, especially those who traveled here. 

11 Appreciate it.

12 All right. Panel 17, come on down.

13 I also want to announce that we're going to be 

14 taking a short break prior to Panel 19.

15 (Pause.)

16 MR. GRUNDLER: Mr. Bowling, welcome. We're ready 

17 when you are.

18 MR. BOWLING: Thank you. My name is Chip Bowling. 

19 I'm a grain farmer from Newburg, Maryland, which is 45 

20 miles south of Washington, D.C. My farm is located on 

21 the Wicomico River, which feeds into the Chesapeake 

22 Bay.
467

1 None of the corn that I grow is used to make 

2 ethanol. My corn is used to feed the poultry industry. 

3 I'm here today to testify on behalf of the National 

4 Corn Growers Association, as I serve as the 

5 association's first vice president.

6 As the organization that represents the nation's 

7 corn farmers, we are extremely disappointed after 

8 hearing of the proposed 2014 RFS volume obligations. 

9 The RFS has worked and continues to be successful by 

10 supplying a domestically produced renewable resource, 

11 and this rule proposes to do the exact opposite of what 

12 the intent of the RFS was -- that was to produce and 

13 consume ethanol.

14 In the March 26, 2010, Federal Register, the EPA 

15 noted that the increasing volumes of renewable fuel 

16 would need to be consumed by flex-fuel vehicles and 

17 that the higher volumes of ethanol in the fuel system 

18 were expected to exceed 10 percent. The automobile 

19 industry, corn farmers, and consumers responded to this 

20 demand.

21 Now approximately 15 million flex-fuel vehicles 

22 are on the road in the United States and are capable of 
468

1 running blends of ethanol up to 85 percent. While 

2 there are approximately 3,200 retail stations that 

3 offer flex fuel, it is often inappropriately priced, 

4 higher than regular gas even though the cost of ethanol

5 is 50 cents to $1 cheaper per gallon.

6 Not surprisingly, consumers choose the cheaper 

7 regular blended fuel, picking E10 over E85. Not until 

8 recently was much E85 utilized. However, this past 

9 summer, we saw an example of how the RIN system was 

10 originally designed to support the market through the 

11 combination of lower-priced ethanol, coupled with 

12 higher-priced RINs, fuel marketers were able to 

13 capitalize on the RIN market and economically price E85 

14 for consumption.

15 The EPA's latest proposed rule has undercut 

16 exactly what the system was designed to do, which was 

17 to move the market towards the production and 

18 consumption of ethanol and away from oil's monopoly. 

19 Within the November 29, 2013, Federal Register, the EPA 

20 states that the objective is to put the RFS program on 

21 a manageable trajectory to support continued growth in 

22 the renewable fuels over time.
469

1 How do you proposed to continue to grow the 

2 renewable fuels market while cutting it at the same 

3 time? This proposed cut will negatively influence 

4 investors who will be less likely to fund future 

5 innovations for second-generation biofuels.

6 Further, in the same Federal Register, the EPA 

7 cites the Clean Air Act, Section 211, which provides 

8 the EPA the authority to address extreme and unusual 

9 fuel and fuel additive supply circumstances, which 

10 prevent the distribution of an adequate supply of fuel 

11 and fuel additives to consumers. That must be the 

12 result of a natural disaster, an act of God, a pipeline 

13 or refinery failure, or an event that cannot be 

14 reasonably foreseen.

15 The EPA justifies this to mean there is a supply 

16 issue, when there is plenty enough ethanol production 

17 capacity to provide the supply. Instead, the EPA 

18 attempts to make the case that infrastructure is 

19 controlling supply when it's simply not true.

20 Today, as we sit here, the infrastructure is in 

21 place to dispense 14.4 billion gallons of ethanol for 

22 2014 if only the pricing was in place to move the 
470

1 product. Again, your recent proposed action is exactly 

2 the opposite of what the RFS was intended to do, again 

3 to produce and consume ethanol.

4 Clearly, past actions of the EPA supported the 

5 desire to produce and consume ethanol. The latest RVO

6 proposal does not support the claim of the EPA to place 

7 biofuels on a growth trajectory as designed in the RFS 

8 statute and clearly moves away from the climate action 

9 plan put forth by the current administration.

10 NCJ strongly urges you to reconsider this ill11 advised proposal. Thank you.

12 MR. GRUNDLER: Thank you. Questions?

13 (No response.)

14 MR. GRUNDLER: Ms. Case?

15 MR. MACHIELE: Oh, wait. Just you said the 

16 infrastructure is there for 14.4 billion gallons of 

17 ethanol, if only the pricing were there to support it. 

18 Is that -- I mean, what -- I guess follow up in your 

19 comments or your written testimony of what do you mean 

20 by that infrastructure, and what is the pricing that 

21 would be necessary then to get to that level?

22 MR. BOWLING: And we will follow this up with some 
471

1 written testimony. But if all the vehicles that were 

2 E85 on the road now could use E85 and should, if the 

3 price were in place for them to choose that over E10, 

4 they would definitely use that product.

5 MR. GRUNDLER: Proceed.

6 MS. CASE: Good evening. My name is Jennifer 

7 Case, and I am the CEO of New Leaf Biofuel, a small 

8 biodiesel refinery in San Diego, California. I'm here 

9 today to discuss how the proposed RFS volumes will 

10 devastate my business and my employees.

11 You may remember my name from testimony earlier 

12 this year when I appeared in front of this agency to 

13 discuss the RIN fraud issue. Myself and others worked 

14 very diligently with the EPA to rectify that issue so 

15 that today, plants across the country are enrolled in 

16 quality assurance programs which have added security to 

17 the marketplace.

18 It's baffling to me that the EPA would spend such 

19 considerable energy strengthening the integrity of the 

20 RIN program while paying particular attention to ensure 

21 that small plants like mine survive the RIN fraud 

22 crisis only to issue a proposed rule that could wipe us 
472

1 out completely in a matter of months.

2 We started New Leaf in 2006 with a mission to 

3 convert used cooking oil, plentiful to the large 

4 metropolitan city of San Diego, into biodiesel and sell 

5 that fuel back to the community. Over the last 8 years 

6 we have been in business, we have seen some very 

7 challenging times and some very prosperous times. 

8 Unfortunately, we have yet to see any consistency.

9 As would be expected in a new industry, it was 

10 initially very difficult to raise money to build the 

11 business, obtain raw materials at a competitive price, 

12 and to convince the users of petroleum to switch to a 

13 new, relatively untested product. This was especially 

14 challenging for small plants like New Leaf, who are 

15 located on the west coast, far from the large biodiesel

16 markets established in the Midwest.

17 Prior to the RFS, the biodiesel consumed in the 

18 United States was largely manufactured using virgin 

19 soybean oil, and plants like New Leaf struggled to find 

20 a market to sell its fuel made from used cooking oil. 

21 Then came the RFS.

22 New Leaf was finally able to attract investment, 
473

1 obtain loans, and hire more employees to build the 

2 business that we have today. With a strong Federal

3 policy mandating the increased use of biodiesel, the 

4 demand that was initially focused in the Midwest 

5 finally started making its way to California.

6 By 2010, New Leaf was producing a high-quality, 

7 low carbon biodiesel fuel at commercial scale, and 

8 customers such as the local military bases, 

9 municipalities, utilities, and school districts were 

10 consuming the fuel with success and at a price equal to 

11 or lower than the price they were paying for diesel.

12 Due to our ever-increasing demand, New Leaf has 

13 spent millions of dollars over the last couple of years 

14 upgrading our refinery and is currently working toward 

15 tripling the annual production capacity. We have also 

16 spent considerable time researching and developing 

17 methods for reducing cost of production, improving 

18 yields, and utilizing lower-value feedstocks.

19 In 2013, due to reaching better economies of scale 

20 and lower feedstock cost, the cost to produce New 

21 Leaf's fuel went down compared to 2011 and 2012. Our 

22 plant is located in the economically depressed area of 
474

1 Barrio Logan. But over the last few years, we have 

2 nearly tripled our workforce, offering well-paying 

3 management, sales, manufacturing, transportation, and 

4 office jobs to area residents.

5 Our lowest paid employees earn more than 1 1/2 

6 times the minimum wage. And in 2013, New Leaf was able 

7 to hire a brand-new management team to run the plant, 

8 allowing the founders to pursue more business 

9 development opportunities.

10 New Leaf's plant has also supported indirect jobs 

11 in the transportation of raw materials and finished 

12 products, equipment, parts, and we've offered 

13 supplemental income to restaurants in exchange for 

14 their used cooking oil.

15 The EPA's proposal has now severely jeopardized 

16 our survival. The practical application would be to 

17 remove 500 million gallons of demand from the biodiesel

18 marketplace.

19 It's questionable whether larger, more established 

20 plants will be able to survive that kind of blow. To a 

21 plant like New Leaf, who has always fought for the 

22 scraps, survival to 2016 would be nothing short of a 
475

1 miracle. Our employees will lose jobs. Our lenders 

2 and investors will lose capital. And the State and 

3 Federal government will lose tax revenue.

4 Most important for all of us, if the biomass-based 

5 diesel category is not increased to 1.7 billion gallons 

6 next year, the 500 million gallons of biodiesel demand 

7 will be replaced by 500 million gallons of petroleum

8 diesel at an unmeasurable cost of adding greenhouse 

9 gases to the atmosphere.

10 We really don't like fighting this battle with the 

11 EPA year after year. We both have the same goals, 

12 goals that we share with the President, to see small 

13 business and low carbon fuels thrive. There must be 

14 some way we can work together going forward that 

15 ensures my business a positive pathway forward.

16 MR. BURKHOLDER: Please conclude.

17 MS. CASE: In closing, on behalf of small 

18 biodiesel plants across the country, please reconsider 

19 how your proposal will stifle small business.

20 Thank you.

21 MR. GRUNDLER: Thank you. Mr. Yaksich?

22 MR. YAKSICH: Good evening. My name is Nick 
476

1 Yaksich. I'm vice president of government and industry 

2 relations at the Association of Equipment 

3 Manufacturers. In the interest of time, I will 

4 summarize my summary.

5 AEM is the international-based trade group serving 

6 the offroad equipment manufacturing industry. AEM 

7 members number more than 900 companies that manufacture 

8 equipment, products, and services used worldwide in the 

9 agriculture, construction, forestry, mining, and 

10 utility fields.

11 Our agriculture equipment manufacturing members 

12 are an integral part of the American economy, directly 

13 and indirectly employing 370,000 workers. We are 

14 optimistic about the market potential represented by 

15 the continued development of an advanced biofuels 

16 industry.

17 Because of the market-driving force of the RFS, 

18 several advanced biofuels projects are set to begin or 

19 ramp up production in 2014. Their operation should 

20 drive investment in new equipment purchases.

21 Based on these developments, preliminary analysis 

22 indicates demand for ag equipment, specifically bailers 
477

1 used to collect biomass for cellulosic ethanol

2 production, will be created next year. This infant 

3 market is valued at $25 million. And if the RFS is 

4 left intact, by 2022, early projections are that this 

5 market could grow to nearly $2 billion with a potential 

6 growth market of $4 billion in equipment needed to 

7 support agriculture production.

8 The recently proposed EPA rule to reduce the 

9 amount of renewable fuel blended into our supply 

10 threatens future demand for agriculture equipment by 

11 adding uncertainty and discouraging investment. 

12 Significant investment and research towards renewable

13 fuels would be lost, putting American jobs at risk.

14 In summary, the equipment industry is excited 

15 about the opportunities presented by the advanced

16 biofuels sector. However, lowering the RFS will cause 

17 an exodus of investment capital, which could 

18 permanently stunt growth in this market.

19 We will provide more detailed analysis and 

20 comments within the 60-day timeframe for comments. 

21 Thank you for the opportunity to present our views at 

22 this time.
478

1 MR. GRUNDLER: Thank you. Mr. Clemens, welcome.

2 MR. CLEMENS: For the record, my name is Mike 

3 Clemens from Wimbledon, North Dakota. That's close to 

4 the end of the world, if you've been watching the 

5 weather lately. It's going to be 12 below 0 tomorrow 

6 morning.

7 But you know, that's where the biggest oil play is 

8 happening in the United States right now is in the 

9 Bakken oil field of western North Dakota. Also 50 

10 percent of the 3.6 million acres of corn we grow in 

11 North Dakota is being converted into ethanol also, and 

12 cattle expansion is taking place at a record pace in 

13 North Dakota due to the RFS, the certainty of having 

14 corn grown and the co-product of DDGs also being into 

15 the marketplace.

16 The ethanol industry has survived rough years by 

17 investing millions of dollars to keep the plants 

18 running in poor economic conditions only to have the 

19 rug pulled out from underneath it by removing the 

20 certainty of the RFS. A reduction of the volume 

21 obligation will have severe income consequences for 

22 North Dakota's ethanol and corn industries, which are 
479

1 currently providing great economic contribution to the 

2 State.

3 The proposed volume reduction would have 

4 significant impact on corn producers like myself, as it 

5 would result in a 500 million bushel drop in corn 

6 demand. Deutsche Bank says that it would result in an 

7 80 cents to $1 bushel drop in corn prices, which we've 

8 probably seen some of that already being taking place 

9 since the announcement.

10 This comes in a year with a projected record corn 

11 crop of 14 billion bushels, which already has dropped 

12 the prices. As someone who has invested their own 

13 money into the ethanol plants in North Dakota, South 

14 Dakota, and Minnesota, the economic impact would be 

15 devastating. A proposal like this would stifle current 

16 multibillion dollar investments in the next-generation 

17 biofuels such as the one at Spiritwood, North Dakota, 

18 that just received RFS2 certification from this very 

19 agency.

20 In record deficits in Government spending, it is 

21 imperative that this industry is able to sustain 

22 itself. On my farm, last time any countercyclical 
480

1 payments or marketing loan LDP payments were collected 

2 was back in 2005. The marketplace has set a new 

3 plateau in commodity prices higher than the trigger for 

4 such payments due to the demand base created within the 

5 ethanol production, saving the Government payouts to 

6 farmers.

7 Another way I manage risk at my farm is that 

8 investment into ethanol plants. The RFS has given me 

9 the confidence to invest in the business. With change 

10 and lower requirements for ethanol not only will I be 

11 looking at lower corn prices, but my investment will 

12 also struggle to break even.

13 I look at this as a lose/lose proposition. I like 

14 win/win models for the ethanol industry and for the 

15 consumer. The current infrastructure can't absorb the 

16 14.4 billion gallons of ethanol. This can be met with 

17 an E85 carryover of RINs and/or biodiesel. E85 

18 structure and flex-fuel vehicles are in place. 

19 However, the oil companies have refused to allow 

20 retailers to offer it to consumers.

21 If the marketplace were available, an additional 8 

22 billion gallons of fuel could be accommodated. E15 has 
481

1 been available for 14 months, including the past 4 

2 months in North Dakota, with not a single sighted 

3 engine problem. However, oil companies are running 

4 false ads and campaigns telling people not to use E15 

5 because it's bad for their cars.

6 You know, it surprising everybody gets home every 

7 night, and our wreckers aren't running up and down the 

8 road just snagging them and bringing them in. But 

9 they're getting home every night.

10 Then they tell you that the Government and the 

11 consumer doesn't want E15. This proposal will reward 

12 the distribution of false information. Right now, in 

13 my State, North Dakota, there is roughly an 85-cent 

14 spread between unleaded fuel and E85. There is even a 

15 30-cent spread and a 50-cent spread between E10 and 

16 E15, respectively.

17 This is a photo that I -- you know, I didn't want 

18 to fill with fuel when I got home, and it was 15 below. 

19 So this is the snapshot I took at our local station in 

20 Fargo, North Dakota, just to point out the difference 

21 in fuel prices and the selection to the consumer out 

22 there that is the ultimate winner at the end of the 
482

1 day.

2 MR. GRUNDLER: Please conclude.

3 MR. CLEMENS: I hope that this hearing from this 

4 group of people who work in agriculture as well as the 

5 renewable fuel industries, and when you take into 

6 consideration the comments that are made during the 60-

7 day comment period, you will see that it will be a huge 

8 mistake and a colossal failure on our fragile economy.

9 Thank you.

10 MR. GRUNDLER: Thank you. Mr. Eischeid, welcome.

11 MR. EISCHEID: Thank you.

12 Good evening, gentlemen. I'm Gary Eischeid, 

13 general manager for POET Biorefining in Gowrie, Iowa, 

14 also a member of the Iowa Ethanol Producers 

15 Association, and I'm a retired brigadier general with 

16 the Iowa Army National Guard.

17 I flew here to speak with you today because the 

18 administration has always been our partner, and I think 

19 you deserve to know this proposed rule threatens that 

20 partnership. These teammates employed by the Iowa 

21 ethanol producers are part of an American dream. They 

22 are employed in a growing clean energy industry that 
483

1 did not have to leave their hometown to make it happen.

2 We all know what a family represents and consists 

3 of. These families have children in local schools, are 

4 members of the church, spend their paycheck in their

5 local businesses, contribute to local and State tax 

6 base. At the same time, our plant supports over 1,150 

7 vendors, from sandwich makers to highly technical 

8 specialists who also have families that depend on them.

9 On the basis of the RFS, POET and Iowa's ethanol

10 industry has worked hard to put together a customer 

11 base that can supply us with corn today and cellulosic

12 material in the future so we can manufacture the 

13 ethanol that reduces the need for foreign oil.

14 The trickle-down effect of this added income has 

15 also helped to support the local economy. Auto and 

16 truck dealerships, grain bin companies, trucking and 

17 railroad operations, contractors and implement dealers. 

18 The RFS was a clear roadmap to the expansion of the 

19 renewable fuels industry, and so far the administration 

20 honored the commitment mandated by Congress in 2007.

21 Currently, our sister POET facility located in 

22 Emmetsburg, Iowa, has partnered with Dutch Science 
484

1 Mining, headquartered in the Netherlands, and is 

2 undergoing an expansion into cellulosic ethanol that is 

3 scheduled for commissioning this March of 2014. This 

4 operation was built right next to the existing grain 

5 ethanol plant.

6 Grain ethanol producers and their investors are 

7 the most significant players in pioneering this 

8 technology. The proposed rule will hurt the Iowa 

9 economy and ignore one of the goals of the RFS, to give 

10 the consumer a choice at the pump.

11 Every American will feel the pain at the pump. 

12 Ethanol today displaces 10 percent of petroleum, and 

13 independent analysis suggests this saves consumers 

14 anywhere from 50 cents to $1.50 at the pump. Reducing 

15 volumes by 1.4 billion gallons will increase pump price 

16 by as much as 8 cents per gallon.

17 We need more ethanol fuel, not less. The ethanol

18 industry generates annual sales of ethanol, corn oil, 

19 and DDGs of 2.9 billion annually, which, in turn,

20 generations $500 million in additional economic 

21 activity. Reduced volume of ethanol could result in 

22 more than 500 million bushels drop in corn demand. 
485

1 This decrease in demand could result in 80 cents to $1 

2 drop in corn prices per bushel.

3 We need to move away from our addiction to foreign 

4 oil. My great hope is that someday I can put out a 

5 sign that says now hiring for cellulosic plant that we 

6 will build if you stay committed to the vision of the 

7 RFS. My greatest fear that I hope to leave you with 

8 today is that instead of a hiring sign, we may instead 

9 someday see a for sale sign outside our doors.

10 Thank you for this opportunity.

11 MR. GRUNDLER: Thank you very much. Mr. Corle? 

12 Corle.

13 MR. CORLE: Corle.

14 MR. GRUNDLER: Corle. My apologies.

15 MR. CORLE: Thank you for sticking in here and 

16 allowing us to continue.

17 The grandest strategy in the world can't be 

18 sustained if the tactics are counterproductive. 

19 Lowering the RVO targets is counterproductive. It 

20 erects a roadblock, putting the RINs market in jeopardy 

21 of not functioning in a way that provides sufficient

22 incentive for blending more renewables. That's very 
486

1 important for historical policy support here from 

2 Washington that financial institutions will base their 

3 investment risk on this historical event.

4 It alters the strategy from one of encouraging the 

5 RFS to one of retarding its implementation. And I 

6 speak for Inbicon. It's a Danish cellulosic

7 technology, and my company has been marketing and 

8 developing business across North America and including 

9 in Spiritwood, North Dakota, and internationally since 

10 2008.

11 DONG Energy, the largest power company in Denmark, 

12 has invested over $200 million in developing and 

13 optimizing the Inbicon process and mitigating the 

14 process risk. They built their demonstration refinery 

15 in Denmark in 2009 and now surpassed 15,000 hours of 

16 operation turning wheat straw into cellulosic ethanol.

17 They're marketing that ethanol to 100 fueling 

18 stations over the past 3 years through Statoil. They 

19 advance the enzymes -- Novozymes, which is right next 

20 door, DuPont, and DSM -- at this refinery over the past 

21 3 years, being able to run their enzymes on near 

22 commercial production.
487

1 DONG is now committed to investing development 

2 capital and equity to future projects globally. But 

3 here's what a former CEO of Inbicon, Niels Henriksen, 

4 stated recently.

5 And I quote, "In 2008, the USA looked to be the 

6 most promising market for cellulosic ethanol in the 

7 world, but it has now been replaced or outpaced by 

8 other markets that are moving faster, especially China 

9 and Brazil. The branding value of Inbicon, created 

10 primarily in the U.S., has led to very good projects 

11 and partners in these other areas.

12 "The big marketing push in the U.S., but the 

13 climate of commercialization is better in China and 

14 Brazil right now. We could be driving biomass 

15 refineries in China before get our first commercial 

16 project commissioned here in the U.S. because the 

17 policy risk in the U.S. is greater than even China."

18 Unless investors see a clear policy path to 36 

19 billion gallons of total renewable fuels by 2022, they 

20 will remain on the sidelines, and that's what's 

21 happening. Every other risk, from biomass to technical 

22 to financial, can be understood, evaluated, and 
488

1 mitigated.

2 Investor uncertainty over shifting EPA regulations 

3 have guided new directions in a $400 million greenfield 

4 Inbicon biomass refinery in Indiana at Fair Oaks Farms. 

5 It's a 40,000 head dairy showcase, who made a 

6 commitment at the COP 15 to reduce carbons and the only 

7 industry to make a pledge in the U.S.

8 Half the sugars from the corn stover on this 

9 project is going to produce power instead of ethanol

10 because debt financers are more certain on a long-term 

11 contract to the power market than the ethanol because -

12 - mainly because of policy risk and the blend wall.

13 Another project in Oregon is being mitigated -- is 

14 mitigating risk from our technology to take those 

15 sugars to glycols for the --

16 MR. BURKHOLDER: Could you please complete your 

17 testimony?

18 MR. CORLE: EPA actions recently have also stalled 

19 our project development with several large U.S. grain 

20 ethanol producers. RVO reductions will weaken their 

21 business and opportunity to invest in new projects.

22 Although they've acknowledged the necessity of 
489

1 investing in a lower carbon future of collocating 

2 biomass refineries on their sites, two of these 

3 producers have backed off since you made this 

4 announcement. All these delays and diversions of 

5 sugars serves no one but the petroleum industry.

6 Thank you.

7 MR. GRUNDLER: Thank you. Any questions?

8 (No response.)

9 MR. GRUNDLER: Thank you very much for providing 

10 your testimony today. We're very grateful.

11 Panel 18?

12 (Pause.)

13 MR. GRUNDLER: Mr. Schad, please proceed.

14 MR. SCHAD: Thank you.

15 My name is Dwayne Schad, and I am a farmer from 

16 central Missouri in the heart of the United States. 

17 And I want to thank you for the opportunity to comment 

18 today.

19 I not only raise corn, but I raise beef cattle as 

20 well. I could be working on the farm today, but I 

21 thought it was more important to come to Washington, 

22 D.C., because I support ethanol and have seen how 
490

1 important the RFS is to all of agriculture and to 

2 America.

3 My wife and I use ethanol because it's the right 

4 thing to do to reduce dependence on foreign oil. We 

5 have a 2007 Ford F-150 and use the clean-burning E85 in 

6 it virtually all the time. When I change the oil, it 

7 doesn't look like it needs to be changed. And after 

8 running over 160,000 miles with no mechanical issues, 

9 we feel it's a premium fuel.

10 With these proposed cuts, we will not see the 

11 reduced greenhouse gas emissions assumed under the RFS. 

12 As a farmer, I deal with the ups and downs of the 

13 marketplace every year. Year in and year out, I work 

14 through whatever curveballs that weather throws us. 

15 It's just the nature of our business.

16 This year, with the help of God, we, as farmers, 

17 responded by bouncing back to grow a record corn crop 

18 to meet projected demands. Because of our success, I 

19 am deeply troubled by the proposal to reduce the RFS. 

20 Reducing the demand for corn in a record crop year will 

21 have a devastating impact on our communities.

22 With corn prices already on the decline below the 
491

1 cost of production, this could be a blow that is very 

2 unexpected in a year with so much promise. We are used 

3 to fighting markets and weather, but we're not used to 

4 a Government agency deciding to pull the rug out from 

5 underneath us in the middle of the game.

6 As I mentioned before, I am also a cattle 

7 producer. Yet I support ethanol and the RFS. I see 

8 all of the positives ethanol provides to Missouri. As 

9 I served on our local school board for 18 years, I know 

10 how important the increased tax bases are for our 

11 schools, high-quality feed for livestock farmers like 

12 myself.

13 And Missouri has some of the lowest gas prices in 

14 the nation due to the inclusion of ethanol in our fuel.

15 That benefits all Missourians, not just those involved 

16 in agriculture.

17 Oil has always resisted homegrown, renewable

18 fuels. Their resistance to accepting this viable 

19 domestic fuel source is no reason for America to go 

20 backwards in our goal of being energy independent.

21 Don't just stand with farmers. Stand with 

22 Americans and reverse this proposed rule. Oil is the 
492

1 only one who benefits if you don't.

2 Thank you.

3 MR. GRUNDLER: Thank you, sir. Mr. Ward?

4 MR. WARD: I want to thank you all for your 

5 Herculean efforts to pay attention throughout what's 

6 been a very long day, and there's still time to come, 

7 I'm sure.

8 MR. GRUNDLER: It's the chocolate.

9 MR. WARD: What's that?

10 MR. GRUNDLER: It's the chocolate.

11 MR. WARD: Do you have any left?

12 MR. GRUNDLER: I'm not sharing.

13 (Laughter.)

14 MR. WARD: Okay. Thanks.

15 I'm Steven Ward, a principal with the D.C.-based 

16 consulting firm VH Strategies. I speak today on behalf 

17 of three of the nation's largest biodiesel producers --

18 Imperium Renewables, Renewable Biofuels, and Green 

19 Earth Fuels -- companies with more than 350 million 

20 gallons of annual production capacity combined. We 

21 plan to provide extensive written comments on a range 

22 of technical issues not covered in this far more 
493

1 general testimony.

2 Congress created the RFS2 as an energy security 

3 program to grow domestic biofuels industry with the 

4 goal of diversifying our fuel supply, reducing our 

5 dependence on foreign sources of oil, and reducing 

6 greenhouse gas submissions in the transportation

7 sector.

8 In the statute, Congress crafted the economic pool 

9 of the renewable volume obligations with annual 

10 increases out to 2022 as a tool to drive domestic 

11 demand and provide confidence to investors to fund 

12 domestic infrastructure, crop development, and R&D. 

13 Congress understood that a long-term Federal commitment 

14 was necessary -- excuse me, was a necessary factor to 

15 attract this requisite private investment.

16 In response, our companies and hundreds like them 

17 have invested billions of dollars to help the nation

18 fulfill these stated goals, building a domestic 

19 industry that's met and exceeded these annual volume 

20 requirements every year. In 2013, the biodiesel

21 industry is projected to exceed the volume mandate for 

22 biomass-based diesel, producing over 1.7 billion 
494

1 gallons and generating over 2.55 billion RINs, which 

2 also will meet most of the broader advanced biofuels 

3 requirement for this year.

4 In 2013 alone, the industry supported more than 

5 62,000 jobs, contributed nearly $17 billion in total 

6 economic value to the economy. Biodiesel producers 

7 have been able to bring this additional capacity online 

8 and attract the investments for their future based on 

9 the expectation of annual increases in demand.

10 To sustain this success, it's imperative that the 

11 Federal Government continue to meet the intent of the 

12 statute and provide a clear signal of support to the 

13 industry and its investors through increases in RVOs.

14 Unfortunately, the proposed 2014 rule -- with the 

15 proposed 2014 rule, producers are suddenly facing the 

16 possibility of a static biodiesel mandate for 2 years, 

17 a drop in the advanced biofuels requirement far below 

18 even 2013 levels, and significant carryover RINs from 

19 2013. If these factors happen in concert, the industry 

20 and the policies of this administration and its 

21 predecessor will suffer a devastating blow.

22 With the proposed RVOs, demand will drop 
495

1 precipitously, and if obligated parties utilize the 

2 eligible carryover RINs, demand could drop further to 

3 as low as 1 billion gallons. The reduced demand will 

4 force our producers to shed at least 30 percent of 

5 their workforce. Many smaller producers will go out of 

6 business, and investors will flee with serious 

7 implications for the future of the program and to next8 generation fuels.

9 In setting the 2013 requirement, EPA made a 

10 forceful argument to raise biomass diesel requirement 

11 by 28 percent and retain the statutory RVO for advanced

12 biofuels based on their confidence that the industry 

13 could meet these volumes, and the industry outperformed 

14 expectations. These same conditions remain for 2014. 

15 EPA's own analysis states that the industry has the 

16 capacity to produce increased volumes, has ample 

17 affordable feedstocks, and is not bound by 

18 infrastructure or fuel blending limitations.

19 The RVO is a proven tool to stimulate demand. 

20 Obligated parties have shown they will buy the volume 

21 and RINs necessary to meet their obligations. We 

22 encourage the EPA to continue to use this effective 
496

1 tool by proposing to increase the 2014 volumes for 

2 biodiesel to at least 1.7 billion gallons, reflecting 

3 this year's production.

4 We also urge the EPA to raise, rather than lower, 

5 the 2014 advanced biofuels requirement to a level that 

6 reflects at least this production, enough additional 

7 volume to accommodate the projected domestic production 

8 of all other advanced biofuels and room for production 

9 to grow.

10 I'll wrap up quickly. Moreover, we strongly 

11 discourage the EPA from setting the 2015 biomass diesel

12 volume at this year's level.

13 Finally, in conclusion, by setting this year's 

14 volume at 1.7 billion gallons and raising the RVO for 

15 advanced biofuels, the EPA will send a strong and 

16 critical signal to producers and investors, 

17 demonstrating a sustained commitment to the program and 

18 its goals.

19 Thank you.

20 MR. GRUNDLER: Thank you. Mr. Tom, you're up.

21 MR. TOM: Thank you, and good evening.

22 Thank you, and good evening. We appreciate your 
497

1 resilience today during this hearing. I also sincerely 

2 thank you for allowing me to speak in regards to the 

3 RFS this afternoon.

4 My name is Kip Tom. I've just concluded 

5 harvesting my 40th crop and am representing a family 

6 farm based in northern Indiana operated by sixth, 

7 seventh, and eighth generation on the same land we 

8 settled on in 1837, today producing corn, soybeans, and 

9 beef cattle, employing over 30 full-time staff and over 

10 500 seasonal staff.

11 When I knew I'd have this opportunity to be 

12 involved in the discussion here today, I took the time 

13 to do an inventory of what improvements and investments 

14 we have made to support conventional and cellulosic

15 ethanol since the passage of the RFS2. Since the 

16 passage of the RFS, our family farming operation has 

17 spent over $12 million on grain handling 

18 infrastructure, several hundred thousand dollars to 

19 improve environmental ecosystems, from restoring 

20 wetlands, installing waterways, to filler strips 

21 without relying on Government support.

22 We, like many producers, have not brought any 
498

1 environmentally sensitive acreage into crop production. 

2 In fact, we have retired some acreage to noncrop 

3 ecosystems. In the meanwhile, we have made significant 

4 strides in reducing our carbon footprint from reducing 

5 soil erosion, fuel consumption and, in the meanwhile, 

6 using less water and fertilizer resources to produce 

7 each and every bushel of corn due to the RFS2 with our 

8 confidence in Government standing behind their policy 

9 commitment.

10 We, along with many farmers, invested in 

11 information management systems to improve our 

12 productivity supporting sustainable gains for our 

13 output to meet the challenge of doubling the world's 

14 food supply by 2050.

15 Today, we are at the convergence of three 

16 innovations in crop production agriculture --

17 biotechnology, the ability to remote monitor, sense, 

18 and control equipment with GPS and GIS systems, and 

19 informatics, allowing us the ability to make cognitive 

20 computing decisions -- taking an analog agriculture 

21 production system to a digital agriculture model. This 

22 is the next lever that will be pulled to increase ag 
499

1 productivity and will allow us to meet the demands of 

2 both food and fuel.

3 In 1973, when I graduated from high school, corn 

4 yields nationwide were just 75 bushel per acre. This 

5 year, the U.S. average will be over 160, and our own 

6 farm's acreage will be over 220 bushel per acre. We 

7 are well on our way to producing a 300 bushel corn crop 

8 per acre by the year 2030.

9 While in the meantime, the consumption of corn for 

10 livestock rose in the U.S. due to consumer preferences, 

11 this year, American corn farmers have produced a record 

12 crop, producing a carryout of over 2 billion bushels 

13 and have no reason not to believe that this will 

14 increase that carryout into 2014 while using nearly 5 

15 billion bushels for ethanol production.

16 We have now slashed corn values in half in less 

17 than 1 year, benefitting the livestock and biofuels 

18 industry, and remind you that every year since the 

19 initiation of the RFS, livestock producers have had the 

20 opportunity sometime during the marketing season, the 

21 opportunity to lock in a profit for their livestock 

22 production. As an additional benefit, do not forget 
500

1 that 22 pounds of every 56 pounds of a bushel of corn 

2 go back into a high-value feed protein source for 

3 livestock.

4 Although livestock interests oftentimes lead us to 

5 believe that they have had -- they -- although 

6 livestock interests oftentimes lead us to believe that 

7 we have at times been threatened to run out of corn the

8 last several years due to the drought, they still 

9 maintain their herds and flock while, in the meanwhile, 

10 U.S. consumers paid only 9 percent of their disposable 

11 income for food, the lowest in the developed world and, 

12 in the meanwhile, saving money at the fuel pump and 

13 supporting a cleaner environment and the use of 

14 ethanol.

15 In 1991, in my Hoosier State, 142 percent of corn 

16 and soybean producers' net income came from Government

17 subsidies, while indirectly subsidizing low cost for 

18 our vital livestock producers. In sharp contrast 

19 today, our family business receives little in the form 

20 of USDA subsidies with plans to move completely away 

21 from the engagement of any USDA farm programs.

22 We do not want to be a burden to the U.S. taxpayer 
501

1 due to receiving subsidies. The RFS has helped us 

2 accomplish this goal.

3 MR. BURKHOLDER: Can you please complete your 

4 testimony?

5 MR. TOM: In conclusion, we would like to 

6 encourage your agency to stay the course of the current 

7 RFS, both cellulosic and corn-based, in a single policy 

8 that has been the largest contributor to growth in 

9 rural economies across the United States. Any movement 

10 away from the planned sunset of the mandate will have 

11 significant consequences to our rural economies across 

12 the country and the largest employer in this country, 

13 that being agriculture.

14 We again ask you to remain committed to this 

15 policy, which is an environmentally friendly, cost16 effective source of transportation fuel for all America 

17 and those of us who made long-term financial 

18 commitments based on your policy.

19 Thank you.

20 MR. GRUNDLER: Thank you, sir. Mr. Potas?

21 MR. POTAS: Thank you for the opportunity to speak 

22 today. It's much appreciated. 
502

1 My name is Kevin Potas. I'm the business 

2 development manager at POET-DSM Advanced Biofuels.

3 My company is currently building a $250 million 

4 commercial cellulosic bioethanol plant in Emmetsburg, 

5 Iowa, that will process at full scale approximately 

6 300,000 tons of crop residue to produce 25 million 

7 gallons per year of cellulosic bioethanol. Start-up is 

8 scheduled for early or the first part, first half of 

9 2014.

10 My responsibility within POET-DSM is to sell our 

11 process and technology package to other companies. We 

12 are primarily targeting corn-based -- or corn ethanol

13 producers who can collocate cellulosic facilities on 

14 their site, taking advantage of synergies in 

15 infrastructure, marketing, the feedstock supply, staff, 

16 and other considerations.

17 Expanding that cellulosic capacity became much 

18 more difficult when the EPA released its proposed 2014 

19 volumes under the renewable fuel standard. The 

20 prospects I am talking to are facing a major investment 

21 decision. They see this proposal as an indicator of an 

22 uncertain future and, therefore, an uncertain return on 
503

1 their investment. The message you are sending could 

2 have a negative impact on the development of the 

3 cellulosic industry, just as its initial capacity comes 

4 online.

5 Without growth and market access, cellulosic

6 ethanol cannot make headway into the U.S. fuel supply. 

7 The RFS was designed to force the oil industry to 

8 allow our product into the monopolistic distribution 

9 chain. Without growth and access, there is no road 

10 forward for developing and expanding this process and 

11 technology.

12 POET-DSM expects to produce anywhere from 7 

13 million gallons to 12 million gallons of cellulosic

14 ethanol next year, depending on how quickly start-up 

15 proceeds. The 17 million gallons proposed for the 

16 industry in 2014 is below what the industry is capable 

17 of producing. However, more disturbing is the cut to 

18 grain ethanol. We rely on a healthy grain ethanol

19 industry in order to build this new cellulosic

20 capacity.

21 The low-hanging fruit of cellulosic biofuel

22 production is the existing network of corn ethanol
504

1 producers and their access to plentiful crop residue. 

2 When you weaken that industry, you weaken the 

3 opportunity for cellulosic ethanol expansion. Cutting 

4 the corn ethanol levels does two things.

5 First, it tells the market that the Government

6 policy cannot be trusted long term, which undermines 

7 the confidence of banks and investors, as well as our 

8 current customer base of grain ethanol producers. 

9 Secondly, it hurts the profitability of corn ethanol

10 producers, thereby limiting their ability to invest in 

11 this new technology.

12 When the renewable fuel standard was created, the 

13 Government made a contract with the private sector, and 

14 Congress said, listen, if you can produce domestic 

15 renewable fuel, we will ensure there is a market for 

16 this important product. Based on that commitment, 

17 companies like POET invested millions of dollars 

18 towards bringing this technology to scale.

19 Companies like DSM brought millions of dollars 

20 into the U.S. to be part of this leading energy

21 revolution. The fact that a European company chose to 

22 invest in the U.S. should be seen as a clear indication 
505

1 that the RFS is working and has achieved recognition 

2 across the world as s visionary policy.

3 MR. GRUNDLER: If you could please wrap up your 

4 testimony?

5 MR. POTAS: Private investment of over well over 

6 $1 billion has occurred in the cellulosic biofuel

7 development because of this policy. To discard this 

8 progress at this point is not only bad for our 

9 country's ability to produce its own energy

10 sustainability, it's a dangerous precedent for future 

11 efforts.

12 If the Government cannot be counted on to fulfill 

13 its side of the bargain, how can anyone expect the 

14 private sector to invest in these sorts of endeavors?

15 The corn ethanol industry has set the base upon 

16 which the cellulosic ethanol industry will grow. That 

17 can only happen if the Government remains firm to its 

18 commitment to wean our nation off of foreign and 

19 increasingly dirty sources of oil. To move forward --

20 MR. GRUNDLER: Thank you.

21 MR. POTAS: -- appropriately, the EPA should stay 

22 true to the vision of the RFS by increasing biofuel use 
506

1 and shifting the country towards more fuel options, 

2 such as E15.

3 MR. GRUNDLER: Thank you, Mr. Potas. Thank you 

4 very much for your testimony.

5 MR. POTAS: Thank you.

6 MR. GRUNDLER: Mr. Caupert?

7 MR. CAUPERT: I sometimes wish I were French, but 

8 it's Caupert, which is about as German as you can get.

9 I ask you to bear with this kind of frog in my 

10 throat that I have. Allergies are kind of driving me 

11 nuts. When I talked to my wife earlier today, she 

12 goes, "Well, you've always said that Washington makes 

13 you sick." So I think today it's been proven.

14 MR. GRUNDLER: Welcome.

15 MR. CAUPERT: I'm going to be brief. You guys 

16 have been gluttons for punishment. I've got send a 

17 shout-out to the ladies out there that have allowed me 

18 to move up six panels. I wasn't looking forward to 

19 testifying 3 hours after my bedtime. So it's nice to 

20 be here 1 hour before my bedtime.

21 But before I start into my testimony, which will 

22 be brief, there is three or four factoids that I must 
507

1 point out. One is in the Midwest where I'm from, 

2 within 1 hour of the proposed rule coming out, gasoline 

3 prices jumped up 9 cents. I don't think that was by 

4 coincidence. That 9-cent jump, that's a $10.6 billion 

5 hit to the consumer.

6 In that same time period of corn trading, corn 

7 prices dropped 14 cents a bushel. That's a $1.9 

8 billion devaluation of the 2013 corn crop. That's 

9 $12.5 billion of loss in 1 hour that the consumer and 

10 the industry won't get back.

11 That being said, my name is John Caupert. I'm the 

12 executive director of the National Corn-to-Ethanol

13 Research Center, today known as NCERC biofuels research 

14 center.

15 We're a nationally recognized center. We're 

16 dedicated to research, development, commercialization 

17 of biofuels and technologies utilized to produce 

18 biofuels. We were actually created out of a 

19 congressional directive. We opened our doors in 2003.

20 The first 6 to 7 years of our existence over 90 

21 percent of our funding came through public sources. 

22 Today, that's different. Today, between 85 and 90 
508

1 percent of our funding actually comes from the private 

2 sector in the form of contractual services that we 

3 perform for them. We're a success story of public4 private partnership working together.

5 The decade that we've been in operation over $33 

6 million of contractual projects have passed through our 

7 doors. This has resulted in more than 50 technologies 

8 that are now in the commercial marketplace. These 

9 technologies have been adopted by dozens of ethanol

10 plants, allowing them to stay competitive despite 

11 reduced profit margins.

12 As a result of these technologies, more than 4,000 

13 direct jobs, 50,000 indirect jobs have been created in 

14 the State of Illinois alone. On a national scale, you 

15 can multiply this by a factor greater than 8.

16 Now due to our dependence on private sector 

17 contractual work, we felt and will continue to feel the 

18 immediate impact of this proposal. Why? Policy 

19 uncertainty, as been said numerous times today, leads

20 to market uncertainty. Market uncertainty leads to 

21 investment uncertainty, as Kevin just said.

22 And when the investment community feels uncertain, 
509

1 what do they do? They stop investing in research, 

2 development, and commercialization. This impacts jobs, 

3 and there is a direct overlap between research, 

4 development, commercialization, and jobs.

5 At our center alone in the last half decade, we've 

6 trained more than 600 unemployed and underemployed 

7 personnel. Ninety-three percent of these folks are 

8 working in the biofuels sector today. If this proposal 

9 becomes final, these 600 persons, along with tens of 

10 thousands more, will find themselves back on the 

11 unemployment lines.

12 So, in closing, the National Corn-to-Ethanol

13 Research Center is staunchly opposed to the proposed 

14 level of RVOs for 2014. This proposal has already 

15 created uncertainty in the marketplace, resulting in 

16 millions of dollars of biofuel's contractual research 

17 be postponed.

18 If these proposed levels are finalized, the result 

19 will be financially devastating to many sectors of the 

20 U.S. economy. Why? Because with this level of RVOs, 

21 investment in research, development, and 

22 commercialization, it won't be postponed. It won't be 
510

1 slowed down. It will stop.

2 Thank you for the opportunity.

3 MR. GRUNDLER: Thank you. Mr. Davis, welcome.

4 MR. DAVIS: Yes, thank you for the opportunity. 

5 And I, as well, was planned to do later, but to get my 

6 flight, the ladies allowed me to move up, and I 

7 appreciate it.

8 My name is John Davis. I'm a corn farmer, 

9 soybeans, wheat, from Delaware, Ohio, central Ohio.

10 I farm there proudly with my wife, Jill, two sons 

11 aged 17 and 12, and my nephew, who will be the fourth 

12 generation on that farm, as well as my sons. I hope 

13 they eventually have the opportunity to take over my 

14 role, and I can do something different.

15 I'm here today to offer my displeasure, obviously, 

16 with the proposal to the reduced renewable volume 

17 obligations in the renewable fuel standard for 2014. I 

18 guess now would be the time, I'm no expert, but the 

19 question was posed, how much ethanol can we use?

20 I guess let's not forget the day the Energy

21 Independence and Security Act of 2007 was passed, we 

22 all knew that we would need renewable fuel blends much 
511

1 higher than 10 percent to reach the goal of 36 billion 

2 gallons of renewable fuel by 2022. The American corn 

3 farmer has met our obligations of producing enough corn 

4 for food, feed, and fuel.

5 Oil and gas industries would meet theirs for 

6 infrastructure placement and delivery methods of 

7 ethanol, maybe we both can find out how much ethanol we 

8 can use. The decision to lower the RVO number is just 

9 it's a red herring, and they drag their feet on 

10 building the infrastructure to expand the availability 

11 of the cleaner and more domestic renewable fuels.

12 As a farmer, hunter, and outdoorsman, I treasure 

13 rural America. I cannot begin to tell you how much the 

14 RFS has benefited my community, and I am hard pressed 

15 to think of another policy in my lifetime that has had 

16 a more positive effect on rural America.

17 As a member of our local school district's 

18 athletic boosters, serving as vice president -- my wife 

19 is also serving on the school finance committee --

20 there is an unforeseen firsthand positive effect that 

21 the RFS has had on rural America. The RFS has 

22 certainly helped bring about a new market for my corn 
512

1 and, as a result, has increased the value of America's 

2 farm land. While I, by no means, am here to advocate 

3 for higher taxes, we have seen significant increases in 

4 taxes from farmers like myself, which directly benefit 

5 our local community and my school.

6 By rolling back the RFS, a potentially very real 

7 and unintended consequence will be the devaluation of 

8 this farm land throughout America, shrinking an already 

9 overstressed rural tax base and taking resources away 

10 from my school, local government, and community. And 

11 with increased higher taxes if they stay in my local 

12 community, I think we all can agree we can deal with 

13 that.

14 The RFS has been a tremendous success and 

15 continues to reach many of the goals it set out to 

16 achieve. The more renewable fuels we use, the more 

17 reduced greenhouse gas emissions, decrease our reliance 

18 on foreign energy sources, lower gasoline prices for 

19 consumers, thus keeping billions of dollars here in our 

20 economy, stabilize the tax base in rural America, and 

21 continue to keep the door open for new innovations and 

22 other renewable fuels.
513

1 At the end of the day, this decision will penalize 

2 the American consumer. Let's not take a knee-jerk 

3 reaction to issues that we cannot overcome, such as a 

4 drought from last year.

5 We farmers continue to step up and answer all 

6 calls for the demands for our products. We will 

7 produce a corn crop this year that even after all the 

8 needs have been met for food, livestock, feed, ethanol, 

9 and exports will have enough corn left over to fill the 

10 Empire State Building 66 times. It's food and fuel, 

11 not food versus fuel.

12 I am proud of my small role in helping Americans 

13 and providing for our energy needs. Let's not scale 

14 back on a resoundingly successful program in the RFS.

15 Thank you for your time and consideration and for 

16 giving me the opportunity to share some thoughts on 

17 this important topic.

18 MR. GRUNDLER: We thank you. Thanks again to all 

19 of you for taking your time and giving us your 

20 thoughts. We're very grateful.

21 We're going to take a short break now so we can 

22 stretch our legs. We'll be back in about 15 minutes.
514

1 (Break.)

2 MR. GRUNDLER: We'd like to get going again. And 

3 we have room on this panel. These people look a little 

4 lonely.

5 So I'd like to invite Gary Hudson and David -- oh, 

6 Gary Hudson is already there. How about David Deramus? 

7 Okay. All right. Sorry. How about Grant Troop and 

8 Randy Hughes, come on down.

9 (Pause.)

10 MR. GRUNDLER: Okay. Mr. Hudson, you may proceed.

11 MR. HUDSON: Thank you. Thank you for this 

12 opportunity to share my experience on the farm and to 

13 comment on your renewable volume obligation numbers for 

14 2014.

15 My name is Gary Hudson, and I farm about 1,000 

16 acres of corn and soybeans in Douglas County, Illinois. 

17 We have some cattle, and we also have some alfalfa, 

18 which is part of the kids' FFA projects.

19 I'm currently the president of the Illinois Corn 

20 Growers Association, but I'm not here to pile on and 

21 tell you that corn is not happy with what you're 

22 planning here. I am here as a school board member to 
515

1 indicate that the kids need us to support them.

2 We have a school district in Oakland, Illinois, of 

3 about 300 children. We have around 40 staff members, 

4 including the teachers, the administrators, and the 

5 other staff. Current economic outlook for Illinois, if 

6 you might have looked in the news every now and then, 

7 you might see that it's not real rosy in Illinois, and 

8 we're having a hard time financing from the State the 

9 schools. So we have to fall upon the local financing, 

10 which is basically the land values, which we tax.

11 Sixty percent of the kids in our district are on 

12 free and reduced. So we're not a wealthy district, but 

13 yet we still use the farm land assessment to collect 

14 enough taxes to educate these children.

15 Western Illinois University recently did an 

16 economic impact study and found that 50,000 jobs were 

17 created by ethanol in Illinois, and $7 billion worth of 

18 economic impact came from ethanol.

19 In summary, according to the Illinois Farm Bureau, 

20 farmers have paid 10 percent more each year in crop 

21 plan assessment value in taxes on all soils across the 

22 entire State. And we're using these increased revenues 
516

1 and the higher property taxes in order to keep our 

2 school districts solvent.

3 Just this week since your announcement, I have 

4 seen prices drop 25 percent. A piece of land a year 

5 ago sold for $10,000 per acre. Last week, a piece 

6 right across the road from it had a hard time getting a 

7 $7,000 bid, and I know for a fact that it sold for 

8 $7,600 this week.

9 Rolling back the ethanol volume number to pre-2010 

10 levels will stop growth in its tracks. It's critically 

11 important to keep the ag sector strong and growing so 

12 it doesn't stagnate and depress like similar portions 

13 and sectors of the economy.

14 If we lose 500 million bushels of potential corn 

15 demand based on U.S. EPA's current proposal ruling, the 

16 farm economy, we're going to plummet. And along with 

17 it are going to go the rural economy as well as our 

18 children's education.

19 Did the U.S. EPA consider the full ramifications 

20 of this proposal and the impact on the schools, the 

21 impact on local governments, and the small businesses

22 in rural America? I pray that you will consider that 
517

1 now.

2 Thank you.

3 MR. GRUNDLER: Thank you, Mr. Hudson.

4 Mr. Hughes, please proceed.

5 MR. HUGHES: My name is Randy Hughes. I'm a 

6 farmer from Janesville, Wisconsin. We grow wheat, rye, 

7 blue corn, white corn, yellow corn, lima beans, snap 

8 beans, peas, beets, oats, and several other crops that 

9 I just can't quite remember right now.

10 One of the things we do is we take our blue corn 

11 and make it into a blue corn tortilla chip and 

12 distribute that throughout the Midwest. A lot of my 

13 farmer buddies ask me what it's like to have a product 

14 that we take all the way from the field to the table, 

15 and I tell them all the same thing that if you want to 

16 make money in the food business, don't be the farmer. 

17 The money is made on the other end, and I know that 

18 from what I've been into now.

19 When we have a bag of chips that we sell for $4, 

20 that retails for $4, there is only 10 cents worth of 

21 corn in it. That's with a price of $5.60 a bushel. If 

22 you were to double that to $11.20, farmers would be 
518

1 doing handsprings everywhere, and it would only add 

2 another dime to that $4 bag of chips.

3 We also do sweet corn, and we sell that by the 

4 ton. That's $100 a ton. That comes to about 4 cents 

5 for a little bag that you might buy in the store 

6 that's, what, $1.50 or maybe $2.

7 I think that a lot of people would have you 

8 believe that the increases in prices for food is 

9 strictly due to the increase in prices of corn or some 

10 of the products that are grown on the farm, and that's 

11 just not the case. There's an awful lot that goes into 

12 it.

13 A lot of it is transportation. Of course, 

14 transportation is primarily fuel based, and ethanol

15 helps cover the cost of that, too. So one of the 

16 things that I want to make sure that you understand is 

17 that that $7 or $8 corn that we had was not caused by 

18 ethanol. That was caused by a 100-year drought.

19 I had some corn that was early this year, and I 

20 had called my grain dealer and said to him we're going 

21 to harvest a little early. I heard that corn was 

22 fairly tight. Are you interested in getting some of 
519

1 that?

2 And he came back to me. These are his words. He 

3 said, "Tight?" He said it was "tighter than a bull's 

4 ass during fly season." You got your own visual on 

5 that, you can imagine.

6 (Laughter.)

7 MR. HUGHES: And I had to -- and I asked him why 

8 that was, and his response was that it was due to the 

9 drought and due to the wet spring. It had nothing to 

10 do -- I shouldn't nothing to do, but he didn't say that 

11 it was from ethanol, nor was it from cattle, nor was it 

12 from corn sweetener or any of the other uses. It was 

13 strictly about a production thing.

14 So it's very important that you understand that if 

15 you really -- if you want to change corn prices, all 

16 you've got to do is change the weather. And if you 

17 want to change the weather, just keep burning fossil 

18 fuels because that's already happening already, isn't 

19 it? A lot of people would tell you that.

20 The CRP was capped at 32 million acres beginning 

21 in 2010. That's down from 39.2 as a result of the 2008 

22 farm bill. It is against the provisions of the Energy
520

1 Independence and Security Act to use any land that was 

2 not in production in 2007.

3 I take big offense to the two congressmen that 

4 were sitting here that indicated there was widespread 

5 abuse of land due to ethanol, due to the ethanol boom. 

6 That's just not true. There are a lot of farmers who 

7 do a great job. We are stewards of the land.

8 I want to pass my farm on to my son in better 

9 shape than I got it, and I expect him to do the same 

10 thing. We aren't doing that. There might be a few 

11 that do, but it's against the law. If that's the case, 

12 arrest them.

13 And politicians, of all people that would be 

14 saying something like that, jeez, if you look at their 

15 industry, if you were to judge them based on what one 

16 or two of them did, they wouldn't look good either.

17 Well, by gosh, the farmers aren't that way. We 

18 are stewards of the land, and we do take care of it.

19 The one other thing I wanted to mention was just 

20 about the compatibility of E85. General Motors is 

21 coming out with a three-quarter ton pickup. I have got 

22 two of them ordered. They will be here in February. 
521

1 Until now, I could not get those pickups because they 

2 didn't seem to think that it was worthwhile to do the 

3 technology that is needed or do the research needed to 

4 put that into their heavier pickups.

5 I also bought a brand-new John Deere lawn mower, 

6 and it's E85 compatible. That's a small engine. It's 

7 got aluminum, and it's got valves, and it's got hoses, 

8 and it's got tanks, all those things. They figured it 

9 out, and it works absolutely wonderful.

10 My point is, is that these two companies and 

11 several others are now geared up for the 18.5 million 

12 gallons. They don't want to have a reduction that they 

13 have just now started to do these things. The dealers 

14 didn't even know about this when I came to them. It's 

15 now happening, and I just hope that you don't stop it.

16 That's why I'm here today. Thank you for your 

17 time.

18 MR. GRUNDLER: Thank you, Mr. Hughes, and thank 

19 you for waiting so long to present those comments. 

20 Grateful. Seeing you here sitting all day, taking 

21 notes.

22 Okay. Ms. Kavaler?
522

1 MS. KAVALER: Very good, yes. Exactly.

2 MR. GRUNDLER: Welcome.

3 MS. KAVALER: Thank you.

4 I'm Andrea Kavaler, executive vice president for 

5 LMC International Limited. LMC is an independent 

6 consulting firm founded in 1980 to analyze the 

7 economics and markets of agricultural commodities. Our 

8 largest business practice covers oil seeds, vegetable 

9 oils and fats, and their downstream products, including 

10 biodiesel.

11 We have staff all over the world, researching 

12 markets and policies. As a result, the National 

13 Biodiesel Board commissioned LMC when they needed a 

14 third-party evaluation of global availability of 

15 feedstocks for the production of biodiesel.

16 We were asked to do four things. First, to 

17 examine recent global production of vegetable oils and 

18 fats that qualify under the RFS. That's soybean oil, 

19 canola, rapeseed oil, animal fats, inedible corn oil 

20 from dry distillers grains, waste greases and camelina 

21 oil, and to forecast their production to 2018.

22 Second, to do the same for RFS nonqualifying 
523

1 vegetable oils and fats, sunflower seed and cottonseed 

2 oils, edible corn oil, palm, palm kernel, and coconut 

3 oils, and jatropha and castor oils.

4 Third, to evaluate the contribution of the U.S. 

5 and Canada to the overall global supply of RFS 

6 qualifying oils and fats.

7 Finally, to consider a host of factors that may 

8 influence the supply and demand for vegetable oils and 

9 fats, concluding with a breakout of global demand

10 between nonbiodiesel and biodiesel end uses.

11 We analyzed GNC technology, yields, growth in 

12 vegetable oil and meal demand, soybean oil demand in 

13 the U.S., the Conservation Reserve Program, and trends 

14 in the U.S. oleochemicals industry and its demand for 

15 tallow, to name just some of the issues we've covered.

16 As the study is lengthy, I am here just to 

17 summarize it. The single most important takeaway from 

18 our global analysis is that there are large volumes of 

19 vegetable oils and fats in the marketplace, which are 

20 getting ever larger, dwarfing biodiesel's demand for 

21 these feedstocks.

22 In specific, we project total global production of 
524

1 RFS qualifying feedstocks to rise from 87.5 million 

2 metric tons last year, that's 2012, to more than 108 

3 million in 5 years, that's 2018. And most of that 

4 growth is expected to come from an increase in the 

5 production of soybean oil.

6 Looking just at next year, the supply of RFS 

7 qualifying oils and fats is projected to rise strongly 

8 with total availability growing from more than 92 

9 million metric tons this year to almost 98 million next 

10 year. The rise in soybean oil output will be 

11 particularly strong, with a 7 percent increase 

12 anticipated.

13 For next year, we forecast that the demand of 

14 qualifying feedstocks for uses other than biodiesel

15 will be more than 77 million metric tons, and that 

16 still leaves almost 21 million metric tons of 

17 qualifying feedstocks for biodiesel production. This 

18 is equivalent to 6.2 billion gallons of biodiesel.

19 By 2018, these numbers will have risen 

20 significantly, with almost 25 million metric tons of 

21 qualifying feedstocks available for biodiesel

22 production after accounting for other uses. That's the 
525

1 equivalent of 7.4 billion gallons of biodiesel. That 

2 means that for both next year and the longer term, 

3 there will be more than enough qualifying feedstocks to 

4 produce biodiesel for the U.S. and that only a small 

5 percentage of these feedstocks will go into biodiesel.

6 Around one-third of qualifying vegetable oils and 

7 fats are located in the U.S. and Canada, and we do not 

8 expect this proportion to change much in future. The 

9 other two-thirds of qualifying feedstocks are located 

10 in Argentina and Brazil, supplying soybean oil, and the 

11 EU supplying rapeseed or canola oil.

12 We look forward to submitting our in-depth, 

13 detailed study and to working with the EPA on feedstock 

14 supply assessment.

15 Thank you for your consideration.

16 MR. GRUNDLER: Thank you. Yes, please share that 

17 report with us through your written comments. We're 

18 interested in seeing that.

19 Mr. Morehouse, welcome.

20 MR. MOREHOUSE: Welcome, thank you, fellows, for 

21 spending your whole day here.

22 Hello. I'm Mike Morehouse, partner of Morehouse 
526

1 Grain Farms. I'm a fifth-generation family farmer, 

2 established in 1866. We live in Indiana, northern 

3 Indiana by South Bend.

4 We farm 2,000 acres of corn, soybeans, and seed 

5 corn. We've been a strong supporter of ethanol and 

6 biodiesel.

7 Why do we make laws in 2007 and change them in 

8 2014 uses for ethanol? I thought the law was good 

9 until 2022 for volumes for biodiesel and ethanol.

10 Do we really want to go back to foreign oil? No.

11 When I was 20, I won the Star State FFA Farmer Award 

12 in Indiana because of the hard work and dedication that 

13 I have given to the agriculture sector. It's time for 

14 American citizens to stand up for making our fuel on 

15 our soils, not foreign.

16 Why do we want to cut gallons? POET is going to 

17 start cellulose ethanol in April of 2014. Why don't we 

18 let the farmers help grow food, fuel, and fiber?

19 I'm tired of regulations of big oil. They seem to 

20 always get their way. Can we make and use all the 

21 ethanol we produce if you let us? I want you to think 

22 positive about this.
527

1 MR. GRUNDLER: Thank you. Mr. Deramus?

2 MR. DERAMUS: Yes, thank you. My name is David 

3 Deramus. I'm an economist with the economic consulting

4 firm of Bates White.

5 The focus of my remarks is a NERA consulting 

6 report asserting that RFS2 will cause significant 

7 economic harm by 2015, and I am concerned that NERA's 

8 flawed study has been given undue weight in current 

9 policy discussions. According to NERA, RFS2 will cause 

10 the U.S. economy to enter a death spiral, driven by RIN 

11 shortages, dramatic fuel price increases, and refinery 

12 capacity closures.

13 NERA predicted that RFS2 will result in RIN prices 

14 of $10 to $14 a gallon in 2013 and over $100 by 2015, 

15 that the price of diesel fuel will be $12 per gallon by 

16 2015, and that U.S. GDP will decline by fully $770 

17 billion in 2015 alone. NERA's fear-mongering is based 

18 on fundamentally flawed assumptions, and its death 

19 spiral forecasts are flatly contradicted by current 

20 data.

21 U.S. fuel prices in late 2013 are roughly the same 

22 as in early 2011. RIN prices are approximately 20 
528

1 cents per gallon, with some near historical lows, and 

2 petroleum refining margins are high, while capacity is 

3 expanding.

4 Retail fuel prices are driven almost entirely by 

5 crude oil prices and petroleum refinery capacity. And 

6 none of the data suggests that RFS2 has caused any 

7 meaningful change to this relationship. If anything, 

8 the data suggests that biofuels have led to lower 

9 retail fuel prices by providing a competitive 

10 constraint on petroleum prices.

11 With respect to biodiesel, the available supply 

12 and demand are far in excess of EPA's 2014 and 2015 

13 volume targets of 1.28 billion gallons. Current 

14 biodiesel production capacity is double EPA's volume 

15 target, and current biodiesel blending rates of less 

16 than 5 percent are a small fraction of what is 

17 currently feasible.

18 The most salient flaw of the NERA study is its 

19 incorrect assumption that the EPA has no meaningful 

20 flexibility in setting biofuel volumes. One hardly 

21 needs a sophisticated forecasting model to know that 

22 imposing a binding constraint on fuel production or 
529

1 consumption will result in massive U.S. economic harm.

2 The EPA, however, has significant statutory 

3 flexibility in administering the RFS2 program, 

4 including establishing the specifics of the RIN trading 

5 program, annual volume targets, and compliance periods. 

6 The EPA has repeatedly exercised its flexibility since 

7 the inception of RFS2, and I have no doubt it will 

8 continue to exercise such flexibility, particularly in 

9 the unlikely event that the mandated biofuel volumes or 

10 RIN prices would even begin to show any signs of actual 

11 economic harm.

12 The NERA study also suffers from the flawed 

13 assumption that the 10 percent blend wall would be an 

14 insurmountable constraint on biofuel consumption, even 

15 in the face of significant RIN or fuel price increases. 

16 NERA further assumes no significant change in 

17 technology, investment, or demand.

18 If a supply of gasoline were truly limited by the 

19 availability of RIN credits, as NERA assumes, one would 

20 expect a precipitous decline in the price of E85, for 

21 example, increased demand for E85, and increased demand 

22 for advanced biofuels that generate more RIN credits 
530

1 per gallon.

2 NERA's modeling approach to holding everything 

3 else constant in the event of large, assumed price 

4 increases and supply constraints is simply unrealistic 

5 in the context of this rapidly changing industry. 

6 Ironically, NERA's death spiral is largely a result of 

7 its predictions of reduced diesel supply and increased 

8 diesel prices.

9 Biodiesel, however, is far from being constrained 

10 by either supply or demand limitations. Biodiesel

11 penetration is currently well below 5 percent. There 

12 is broad consensus that the use of biodiesel is not 

13 limited to B5, whether with respect to distribution or 

14 engine performance. B20 is increasingly available, 

15 does not require engine modification, and provides 

16 similar performance as petroleum diesel.

17 Biodiesel can be produced from a variety of 

18 feedstocks, and biodiesel is available throughout the 

19 U.S. Thus, given the large excess biodiesel capacity, 

20 well above the 2014 and 2015 RFS2 mandates, there are 

21 significant unexploited opportunities to further 

22 increase biodiesel production and consumption, which 
531

1 can further help push back the assumed blend wall, 

2 particularly since each additional biodiesel RIN credit 

3 is equivalent to 1.5 conventional RIN credits.

4 Further reducing the RFS2 volumes would undermine 

5 the important policy goals of the EPA and Congress, as 

6 well as undermine the U.S. biofuels industry, which has 

7 been an important contributor to U.S. employment and 

8 GDP growth. Such actions would significantly dampen 

9 the pace of investment and technological innovation in 

10 this important sector of the economy, precisely when 

11 many of these innovations are reaching commercial 

12 feasibility.

13 Thank you.

14 MR. GRUNDLER: Thank you. Questions?

15 MR. MACHIELE: Just maybe briefly now or in your 

16 follow-up written testimony, you're countering the NERA 

17 study and talking about they're assuming some 

18 infeasible constraints in their analysis, which is 

19 driving it. I guess the question that we're asking 

20 today, which is specific to our proposal, we're hearing 

21 testimony saying EPA has gone too far low. We're 

22 hearing EPA has gone far enough.
532

1 Is our -- but you're saying EPA has authority to 

2 avoid infeasible constraints, and the question, I 

3 guess, is, is based on your work or your analysis, 

4 where are we in that continuum of --

5 MR. DERAMUS: Well, the main purpose of the 

6 testimony is to say put the near a doomsday conclusion 

7 off to the side. I think you could ignore them, for 

8 all meaningful purposes of your actual work here in 

9 terms of establishing the RFS2 volumes. I don't think 

10 any of those -- there's no way in which given the 

11 statute that those outcomes are -- could ever 

12 conceivably occur.

13 I do think that there is significant headroom, and 

14 that -- in the current volumes you've established, and 

15 I think that you are doing a disservice to the biofuels 

16 industry by lowering the -- or by keeping the RFS, the 

17 biodiesel volumes constant and lowering the advanced

18 fuel requirements.

19 MR. GRUNDLER: Will your written comments provide 

20 your own analysis in terms of what the volume should 

21 be?

22 MR. DERAMUS: I have not come up with an 
533

1 independent estimate, but I certainly think the volumes 

2 that are closer to the actual capacity of the biodiesel

3 industry, something that's closer to the 2 million --

4 sorry, the 2 billion gallon mark is certainly feasible. 

5 And my understanding is that it was the intent of 

6 Congress in establishing these different nested 

7 categories was that EPA should target the actual 

8 productive capacity and the absorptive capacity of the 

9 economy for each of those sectors.

10 And everything that I've seen would indicate that

11 the economy, that consumption can absorb that quantity 

12 of biodiesel and that that amount can be produced.

13 MR. GRUNDLER: Okay. Thank you so much for your 

14 time today. We're really grateful, particularly those 

15 who have traveled a long distance.

16 All right. I'd like to invite the next six people 

17 up to present testimony. Mr. Grant Troop, Mr. Joseph 

18 Sincavage, Mark Borer, Jamie Jamieson, Tom Brooks, and 

19 Steve Pittman. Welcome.

20 And we'll start with Mr. Troop.

21 (Pause.)

22 MR. GRUNDLER: When you're ready.
534

1 MR. TROOP: Thank you, gentlemen, for the time and 

2 long hours you put in today.

3 My name is Grant Troop. I'm a Pennsylvania 

4 farmer, produce field corn, which is not sweet corn, 

5 which is what people eat, for the most part. Grow 

6 soybeans and grow both of those crops as grain crops. 

7 I do it by the continuous no-till method of crop 

8 production.

9 We grow cover crops and follow the implementation 

10 schedules of our soil and water management and nutrient 

11 management plans. So we're good stewards of the land 

12 by all measures that are out there. Wildlife abounds 

13 on our farm land, and sportsmen enjoy days afield 

14 harvesting wild game.

15 Now the RFS, in our opinion, to this point has 

16 done what it was developed to accomplish. The United 

17 States of America is becoming more self-sufficient by 

18 producing its own homegrown energy supply. As a 

19 result, our national security has increased, and our 

20 rural agricultural communities have grown.

21 With blended gasoline now containing at least 10 

22 percent ethanol, greenhouse gas production has 
535

1 decreased, improving air quality. And the RFS to this 

2 point has systematically taken us in a direction we 

3 need to go to become energy independent as a nation.

4 Pennsylvania agriculture is very diverse, 

5 especially concerning corn utilization. Corn-based 

6 ethanol production has provided another market choice 

7 for Pennsylvania corn growers.

8 Ethanol-blended gasoline has saved our farm 

9 operation and the farmers and consumers of the 

10 Commonwealth of Pennsylvania a lot of money since the 

11 price of ethanol is usually well below the price of 

12 gasoline. Blending gasoline with ethanol lowers the 

13 price per gallon.

14 Corn prices have gone done following the proposed 

15 reduction in conventional ethanol. Before the RVO 

16 proposal was leaked, March 2014 corn futures closed at 

17 $4.56 per bushel. Today, according to the Chicago 

18 Mercantile Exchange, at 1:45 p.m., the March 2014 

19 futures market was at $4.33, a drop of 23 cents a 

20 bushel.

21 And I also note that the shares of the oil giants 

22 gained $23 billion after EPA unveiled the 2014 biofuel 
536

1 plan. Of paramount importance is the fact that the 

2 current market price for corn is very close to the cost 

3 of production. In many parts of the country because of 

4 the local basis pressure, corn prices are already below 

5 the cost of production.

6 AgWeb has reported that corn prices could plummet 

7 to $2.75 cents if the proposed ethanol production 

8 limits are implemented. This would prove very 

9 devastating to the corn growers of Pennsylvania and 

10 across the country. Profitable corn prices are needed 

11 to assure that ample corn is produced to supply all 

12 corn users, including animal agriculture, ethanol

13 distillers, industrial users, and the export market.

14 The proposed reduction in conventional ethanol

15 usage is supported by a few groups as a knee-jerk 

16 reaction to the corn supply reduction brought on by the 

17 2012 countrywide drought, resulting in higher corn 

18 prices in 2012. However, in 2013, Pennsylvania corn 

19 growers produced a new record-high corn crop, and the 

20 same can be said of the U.S. corn crop, a new record21 high yield.

22 Corn grain supply has been replenished by the 
537

1 tremendous production capacity of our farmers across 

2 the country. Corn prices have dropped significantly 

3 since 2012. Reducing the production mandate for 

4 conventional ethanol will reduce demand for a record5 high corn crop and force the price of corn well below 

6 the cost of production.

7 No one wins in this scenario, especially rural 

8 America. Mid course is not the time to change 

9 direction. Maintaining the RFS is required to avoid 

10 the economic devastation that will be encountered 

11 should the proposed reductions be pursued.

12 Corn growers across the U.S. now produce about 30 

13 percent more corn than in 20 --

14 MR. BURKHOLDER: Please conclude your testimony 

15 here.

16 MR. TROOP: 2007. Okay.

17 MR. GRUNDLER: Thank you very much.

18 Mr. Borer, proceed.

19 MR. BORER: First of all, I'm amazed by and I 

20 applaud your level of attention at this late hour. 

21 Thank you.

22 I also appreciate the opportunity to comment on 
538

1 behalf of the Ohio Ethanol Producers regarding the 

2 recent EPA proposal to reduce renewable volume 

3 obligations despite established rules in an industry 

4 that has invested and prepared itself to meet those 

5 obligations.

6 The progress and considerable success that has 

7 been made to date are a direct result of a 

8 collaboration and partnership between Government and an 

9 emerging renewable fuels industry. No administration 

10 has been a bigger supporter than this one, which makes 

11 this proposal all that much more perplexing.

12 This change of direction will have a direct and 

13 immediate impact on the economy. It'll put at risk the 

14 approximately $1 billion in capital investment that's 

15 been made in Ohio since 2007 to meet established and 

16 legislated RFS obligations. The reduction of blending 

17 requirements will have a dramatic effect on the supply 

18 and demand equation and severely challenge renewable

19 fuel producers' margin environment.

20 It will also damage rural economies. The economic 

21 impact will be to extend to more than just one 

22 industry. The approximately 100 truck drivers that 
539

1 come through my plant every day to pick up and drop off 

2 product will be impacted. The direct employees, local 

3 businesses, and their families will also feel the pain.

4 But a broader and much more far-reaching impact 

5 will be to the local farmers and the industries that 

6 rely on them. They will be entering a new crop year 

7 with record corn supplies, slashed market demand, 

8 break-even or worse input cost, and all of this with an 

9 undefined farm bill that is predicted by all to have 

10 much less protection in it.

11 Ultimately, the EPA's renewable fuels commitment 

12 reversal puts at risk all of Ohio's 300-plus direct 

13 jobs and 1,500 indirect jobs. But less immediate, but 

14 equally certain is the negative impact this proposed 

15 action will have on the future investments, 

16 particularly with regards to cellulosic biofuels.

17 Opponents of renewable fuels have cited the delay 

18 in cellulosic fuel production as a failure, despite the 

19 significant technological and investment progress that 

20 has been made, along with the impending growth spurt 

21 that 2014 plant openings will provide. This proposed 

22 action and the lack of Government commitment it 
540

1 displays will have a dramatic impact on the investing 

2 environment and incentive to develop advanced biofuels.

3 Banks and entrepreneurs do not respond well to risk ̧ 

4 unstable targets, or wavering markets.

5 If the EPA decides to go ahead with a reduced RVO 

6 requirement for 2014, it will be responsible for 

7 creating this uncertainty, and I may well need to quit 

8 watching the fields next to me and wondering if I will 

9 ever see stacks of cellulosic biomass sitting on them 

10 waiting to be converted into fuel.

11 Regardless if the Government initiative to launch 

12 a biofuels industry was with the goal of gaining energy

13 independence, transitioning economic benefit from 

14 abroad to the U.S., or if it was, as presumedly it is 

15 the EPA's desire to begin using a cleaner, more 

16 environmentally friendly, renewable transportation

17 fuel, the fact is we've succeeded in all of these 

18 areas. That this administration, beyond all others, is 

19 the one to reverse this success and course is, again, 

20 extremely perplexing.

21 I must say that this has created a high level of 

22 excitement and discontent amongst Ohio's largest 
541

1 industry, which is agriculture. The farmers can often 

2 be slow to respond until that that they are most 

3 passionate about, which is tilling the land, harvesting 

4 the crop, and transitioning this way of life to their 

5 children, is threatened. I think we've seen it today, 

6 but I think their concern is growing, and I sense that 

7 you will continue to see their voices and advocacy 

8 grow.

9 I would hope that the EPA would reconsider 

10 reducing the RVO requirements for 2014 and continue our 

11 path towards growing our use of American-made biofuels 

12 and achieving clean energy independence.

13 Thank you.

14 MR. GRUNDLER: Thank you, sir. Mr. Jamieson, 

15 please.

16 MR. JAMIESON: Are we on? Okay. My name is 

17 Charles Jamie Jamieson. I am here speaking as a 

18 Maryland grain farmer to voice strong opposition to the 

19 EPA proposed rule to reduce the corn ethanol allocation 

20 in the renewable fuel standard.

21 I farm with my three sons in Poolesville, 

22 Montgomery County, Maryland, just 40 miles north of 
542

1 here. If EPA continues with this proposal, this has 

2 the potential to reduce the value of my crop below my 

3 cost of production.

4 Based on the EPA's continued support of the 

5 renewable fuel standard last year, how could anyone 

6 imagine the EPA would pull the plug on ethanol

7 allocation levels in a year when farmers adjusted their 

8 crop acreage to ensure adequate corn to meet all the 

9 needs of our customers?

10 On November the 8th, USDA said U.S. corn farmers 

11 produced almost 14 billion bushel of corn, with an 824 

12 million bushel carryover, for a total supply of 14.8 

13 billion bushels of corn. USDA projects there will be 

14 1.8 billion bushels of corn carryover after all uses on 

15 September 1, 2014.

16 There is lots of cheap corn. This reduction in 

17 the proposed allocation makes no sense and is totally 

18 irrational and unacceptable.

19 The oil industry has made little effort to expand 

20 the use of E85. In fact, the oil industry has been a 

21 roadblock to our efforts in Maryland to expand the 

22 number of E85 stations. Although now illegal, fuel 
543

1 suppliers still discourage the installation of E85 

2 pumps, even though there is abundant ethanol available 

3 at the Baltimore terminal. There's been no interest 

4 from oil companies in Baltimore to blend E85 for our 

5 stations in Maryland.

6 We frequently hear comments that it should be left 

7 to the marketplace to decide which fuels are used. 

8 Yesterday, February 2014 RBOB gas futures were trading 

9 at $2.72 a gallon. Ethanol February 2014 futures were 

10 trading at $1.66 per gallon. This was about 5 o'clock

11 in the morning. That is $1.06 cheaper.

12 When the American consumer fills up with 20 

13 gallons, this is a $20 difference. This $20 belongs in 

14 the consumer's pocket, not the trillion-dollar big oil 

15 safe.

16 Perhaps the best solution for the future is the 

17 expanded use of blender pumps to provide more choices 

18 to the consumers for fuels with E10, 20, 30, as well as 

19 85. We should work with vehicle manufacturers to 

20 improve fuel consumption so car manufacturers can 

21 attain EPA fuel economy standards. But this will not 

22 happen if EPA responds to the whims of the petroleum
544

1 industry that the blend wall is a barrier and 

2 eliminates the requirement that they search beyond the 

3 blend wall by expanding market opportunities for 

4 renewable fuels.

5 Please reconsider your proposed reduction in the 

6 baseline 2014 renewable volume obligations. Many 

7 family farms and gas consumers depend on you making the 

8 right decision, and thank you for all your work today. 

9 You guys earned your money, and so did staff.

10 (Laughter.)

11 MR. GRUNDLER: Thank you. I want to thank you for 

12 sticking around to share your thoughts. It's 

13 important.

14 Mr. Brooks?

15 MR. BROOKS: Good evening, gentlemen. Thank you 

16 for your continued attention.

17 I'm here to share my frustration and concerns of 

18 the proposed RVO change. I am the general manager of a 

19 30 million gallon biodiesel plant in Farley, Iowa. I 

20 have a payroll that supports $1.65 million in direct 

21 jobs to employees and another $2.2 million for my 

22 leased drivers.
545

1 The market will only support half the biodiesel

2 currently produced if the proposal is allowed to stand. 

3 This potentially means that half the industry will be 

4 laid off, terminated for the next 2 years. For my 

5 company, that means $2 million to $3.8 million loss in 

6 revenues that will certainly hurt our local economy and 

7 our State in Iowa.

8 Western Dubuque Biodiesel anticipated that the tax 

9 credit would not be in place in January of 2014 and 

10 would hope that the EPA would not factor that into the 

11 volume requirement. It is not something that you, the 

12 EPA, has control over, nor us, the plant.

13 In fact, the EPA is using the loss of the tax 

14 credit as a reason to hold biodiesel volumes at 1.28 

15 billion gallon mark because it believes our product is 

16 dramatically more expensive than diesel fuel. 

17 Biodiesel production costs are decreasing, and in 2014, 

18 with or without the tax credit, we anticipate we will 

19 continue to be competitive with diesel prices.

20 When my facility runs at capacity, I save 26 cents 

21 per gallon on every 20 percent of the plant's running 

22 capacity. So if you run me at 80 percent, I've just 
546

1 increased my cost by 26 cents. At 50 percent, as this 

2 RVO suggests, I've just increased cost by 52 cents per 

3 gallon.

4 Feedstock prices in 2013 have dropped 70 cents per 

5 gallon to me, the producer. To the end user at the 

6 pump, he should see that cost, but he's not seeing that 

7 cost because big oil is keeping that cost for 

8 themselves.

9 I'm disappointed, as my company is and my 557 

10 investors, that the EPA decided to punt on biodiesel

11 for 2014 and 2015 and set the RVO number at 1.28 

12 billion on analysis that was completed in 2011 and 

13 2012. Because some in the industry or the agency felt 

14 it was an easier lift to ignore the data that suggests 

15 an increase in volume.

16 I am a Gulf War veteran, an officer who served his 

17 country in the Air Force. I have concerns on domestic 

18 energy security. The biodiesel industry is increasing 

19 domestic energy production, diversifying our fuel 

20 supplies, and expanding domestic refining capacity so 

21 that we're not vulnerable to global oil markets and 

22 associated refining bottlenecks.
547

1 This improves U.S. energy security because no 

2 matter how much oil we discover domestically, consumers 

3 will continue to be at the mercy of a heavily 

4 manipulated global petroleum price until we have 

5 diversity in our market. Using methodology developed 

6 by the EPA and Department of Energy's Oak Ridge 

7 National Lab, increasing biodiesel production from 1.28 

8 to 1.7 billion gallons would generate energy security 

9 benefits valued at $61.4 million due to reduced imports 

10 and associated price disruptions.

11 The final thing that concerns me by reducing the 

12 RVO is that you increase global emissions, specifically 

13 greenhouse gases. 1.28 billion gallons reduces 

14 emissions by 24.1 billion gallons. So with this 

15 proposal, versus the current market where we're 

16 producing at, you would be increasing emissions by 

17 almost 14.6 billion pounds of added emissions with your 

18 reduction.

19 I thank you for your time and your consideration 

20 of my thoughts.

21 MR. GRUNDLER: Thank you, sir, and thank you for 

22 your service.
548

1 MR. BROOKS: Thank you.

2 MR. GRUNDLER: Questions? John?

3 MR. HANNON: One question, sir. You stated that 

4 there'd be -- our proposal would lead to a 50 percent 

5 drop in market demand for biodiesel based on the 1.28 

6 minimum standard. So are you assuming there is no 

7 impact from the advanced biofuel standard?

8 The current biodiesel standard is 1.28, and the 

9 biodiesel standard itself is then drawing significantly 

10 more. What's your analysis about the market in the 

11 context of 1.28 minimum and an advanced biofuel

12 standard significantly higher than that?

13 MR. BROOKS: The advanced biofuel pool for the 

14 most part is being filled by the biodiesel pool. So 

15 when you decrease that nested pool of -- right now,

16 we're producing at 2 billion gallons. So you've pulled 

17 away 700 million gallons of biodiesel.

18 And of the biodiesel, that 1.28, roughly 300 

19 million of that was the renewable diesel. So when I 

20 say my numbers, you're taking me from 1.28 down to a 

21 billion, and we're currently producing at 2 billion. 

22 So you've cut our industry in half. So the market 
549

1 can't pull the product away.

2 We were already seeing this in the price. When 

3 the RVO numbers were leaked, RINs have dropped. The 

4 price of biodiesel has dropped. I was selling 

5 biodiesel at heating oil plus 75 and 80 cents April 

6 price now. Let's go with January price. That's even 

7 better.

8 Heating oil plus 40 cents out in the Midwest, 

9 Iowa, that's a 35-cent a gallon loss to my facility to 

10 even produce the fuel because the nested volumes were 

11 changed. And when you change those nested volumes, you 

12 impacted RVO numbers that affect RINs. The RINs price 

13 is tied to those nested volumes. And as those volumes 

14 move up and down, you're playing with the markets.

15 The day that number was released, my numbers here 

16 support that big oil made billions of dollars, in 

17 addition to the $17.9 billion that they currently have 

18 in tax subsidies that are grandfathered to them each 

19 year, while our industry is taking billion-dollar 

20 losses because we've taken the nested volume decrease.

21 Did I answer your question?

22 MR. HANNON: You answered it, but I think there is 
550

1 still a lot of uncertainty about that issue. Our 

2 proposal, for example, projected, I think, 1.4 billion 

3 biodiesel for 2014.

4 MR. BROOKS: In the proposal that I saw was 1.28.

5 MR. HANNON: 1.28 is our minimum standard for the 

6 biodiesel standard. We projected, I think, 1.4 within 

7 a range of 1.2 up to 1.6 or .7 in calculating the 

8 advanced biofuel standard of 2.2 billion.

9 MR. BROOKS: Be glad to submit my comments in 

10 writing. I have --

11 MR. HANNON: Yeah, it'd be very helpful. Thank 

12 you.

13 MR. BROOKS: All right. Thank you.

14 MR. GRUNDLER: Thank you again. Mr. Pittman, 

15 proceed.

16 MR. PITTMAN: Thank you very much for this 

17 opportunity in the late hour.

18 I'm here to represent the Indiana Ethanol

19 Producers Association, which is 13 plants, and we 

20 produce over 1.1 billion gallons a year of ethanol, of 

21 which I am the general manager of 1 of those 13 plants.

22 Just to say up front, I practice what I preach. 
551

1 My wife and I both drive flex-fuel cars, and we fill 

2 them up with E85 every week, and I'm enjoying about $1 

3 a gallon cheaper than I saw on your gas station out 

4 here locally. So we're very happy with that, and we're 

5 supporting the industry.

6 As my opening remarks, I'd like to state that the 

7 current administration, up to and including the 

8 President of the United States, has been the most 

9 supportive of the advancement of renewable energy of 

10 any administration in the history of our country, and I 

11 think that is noteworthy.

12 Therefore, you cannot imagine our complete 

13 surprise and feeling of abandonment by this 

14 administration for our industry as we are on the cusp 

15 of the introduction of new cellulosic technology that 

16 will change the world and, poof, our support is cut off 

17 at the stroke of a pen that limits our market 

18 immediately by this proposal.

19 The main points I want to cover are the current 

20 state of our industry, the forward impact I see from my 

21 level at the State level in Indiana, and the effect 

22 it's going to have on cellulosic production.
552

1 You know, we were blessed last year to elect Joe 

2 Donnelly as our Senator in the State of Indiana to 

3 replace Richard Lugar. What I say -- what I mean by 

4 that is he is very supportive of the ag industry. He 

5 gets it with ethanol, and he came to all the ethanol

6 plants during his campaign and impressed us all.

7 So just as soon as this proposal was made, he 

8 arranged to have Gina McCarthy come to a farm in 

9 Indiana and to speak to the farmers there. There were 

10 60 of us in that cold barn that morning, and I was 

11 there, and I was able to talk to Gina. So we 

12 appreciate that opportunity.

13 She understood where we come from, just like you 

14 guys are listening to us. And the thing that bothers 

15 me is here we have elected, we've cross party lines to 

16 go from a Republican to a Democrat just to keep on the 

17 same track with our industry, and Joe is going to be a 

18 great guy for that.

19 But I wonder if this proposal sticks and we go the 

20 other way and we reduce this bill down to what it's 

21 going to be, is Joe going to get reelected? Are we 

22 going to get somebody else in there we're going to 
553

1 change course? We want to stay the course. We want to 

2 stay consistent. So who can predict those results? We 

3 don't know.

4 You've heard many people say farmers are making 

5 money, and we don't apologize for that because they 

6 spend it. They buy new shiny pickup trucks. They buy 

7 new tractors. They're spending it in the economy, and 

8 they're part of this resurgence out of this depression 

9 or recession that we've had, and that needs to be 

10 noted.

11 Gas prices are down, and reduced dependence on 

12 foreign oil has never been better. And good-paying 

13 rural jobs are being developed.

14 In fact, the plant manager at my plant is a third15 generation farmer who is able to graduate from Purdue 

16 University, come to work in my plant as a plant 

17 engineer, and now he's the plant manager. And he's 

18 able to stay on his family farm, help his dad farm, and 

19 he's actually rebuilding his grandfather's original 

20 farmhouse on that property for him and his wife and his 

21 children to move into. That's what America is about.

22 The forward impact of this proposal on our 
554

1 community and State economy, I see a really bleak 

2 picture. Gas prices have already increased, as many 

3 have said, as well as corn support prices are starting 

4 to erode quickly.

5 The reduction would wipe out the entire Indiana 

6 production level. It would take all these jobs away 

7 from a State like Indiana, fifth-largest producer, and 

8 it undermines existing operations and their 

9 profitability.

10 We have the oldest plant in the State of Indiana -

11 - in fact, the oldest plant in the country, I believe -

12 - that produces ethanol, New Energy, go bankrupt this 

13 last year. A handful of investors have bought the 

14 plant. They reinvested in it, and they waited on this 

15 new corn crop.

16 And now it's back in jeopardy because they don't 

17 know based on this change to the renewable fuel 

18 standard whether or not they're going to be able to 

19 market the product. There's 100 jobs in South Bend, 

20 Indiana, that are hanging in the balance on that.

21 In closing, what I'd like to say is this. I've 

22 saved the most important concern I have about this 
555

1 proposal for the last, and it's a very personal one for 

2 me. My son served two tours of duty in Iraq. He put 

3 his life on the line for all of us and to protect 

4 United States interests there.

5 My personal concern is for the next generation of 

6 children we're raising, which includes my three little 

7 grandsons, okay? Will they have to leave this great 

8 country, starting within the next 14 years, to go and 

9 protect our oil interests in the Middle East, putting 

10 their lives on the line when we had the answer to 

11 energy independence right under our noses but just 

12 didn't have the courage to do the right thing?

13 Don't listen to special interest groups in this 

14 decision. You guys know the facts. The next time you 

15 pick up one of your grandkids, listen to them. They 

16 deserve better from us, and I plan to continue fighting 

17 to see that they get the chance to be heard.

18 Thank you very much.

19 MR. GRUNDLER: Thank you, Mr. Pittman.

20 Mr. Sincavage?

21 MR. SINCAVAGE: Sincavage.

22 MR. GRUNDLER: Sincavage. Welcome.
556

1 MR. SINCAVAGE: All right. First of all, I'd like 

2 to thank you for your time. You know, this is a really 

3 great country where a citizen can come and speak their 

4 mind to the Government and I just want to thank you for 

5 that opportunity today.

6 MR. GRUNDLER: Thank you.

7 MR. SINCAVAGE: All right. The renewable fuel 

8 standard is not good for the environment, the consumer, 

9 or the economy. It sounds great on paper, but when you 

10 examine the details, it falls short of its goals in 

11 many areas.

12 First, consider the negative impact. While it is 

13 true that 1 gallon of ethanol burns cleaner than 1 

14 gallon of gasoline, ethanol is not the green 

15 alternative that was sold to the American public. 

16 Ethanol contains less energy than pure gasoline. One 

17 must burn more ethanol to produce the same amount of 

18 energy that results in E10 having a reduction of fuel 

19 economy versus ethanol-free gasoline.

20 Every year, more and more of our farm land is 

21 being used for corn crops, which are designated for the 

22 production of ethanol. This reduction of farm land 
557

1 used for food production results in higher food prices, 

2 poor land management practices, and farmers must dump 

3 petrochemical fertilizers on the land to boost 

4 production. Valuable and sometimes scarce fresh water 

5 resources also go into the raising of corn for ethanol

6 production.

7 Once the ethanol is produced, it cannot be 

8 combined with the fuel and sent to the regional fuel 

9 depots through our network of pipelines as it causes 

10 damage to the pipelines. It must be shipped by truck 

11 and/or rail to the depot, which accelerates wear on our 

12 highways, and of course, more fuel is burned to get it 

13 there, increasing the carbon impact of ethanol fuels.

14 Corn itself is an inefficient means of producing 

15 ethanol. There is a reason moonshiners dumped sugar in 

16 their mash.

17 Next, think of the negative impact on the American 

18 consumer. As mentioned earlier, the use of farm land 

19 for fuel production increases food costs. Instead of 

20 crops for fuel being planted, crops should be planted 

21 for food.

22 Fuel is taxed by the gallon, not by its energy
558

1 content. As the average vehicles experience a decrease 

2 in fuel economy from the use of E10, the average driver 

3 is paying higher taxes because of it. I often say that 

4 the ethanol mandate is a hidden tax on the American 

5 consumer.

6 The Government taxes the fuel by the gallon and 

7 then mandates an additive that lowers the fuel economy. 

8 Because of the reduced efficiency of fuels containing 

9 ethanol, the consumer must purchase more fuel more 

10 often.

11 Ethanol is hydrophilic. Ethanol in the fuel 

12 absorbs water from the atmosphere and runs it straight 

13 through the engine. This even further reduces the fuel 

14 economy. It literally waters down the gasoline.

15 Ethanol damages engines. It's for this reason 

16 that gasoline for boats and airplanes are exempt from 

17 ethanol mandates. All vehicle owners should have this 

18 option.

19 Now I'll scrutinize the negative impact on the 

20 national economy. Heavy trucks hauling ethanol to the 

21 fuel depots cause undue damage to our highways and 

22 roads. This results in increased highway maintenance 
559

1 costs. Drivers in the United States are purchasing and 

2 using more gasoline than needed because of the reduced 

3 economy that results from ethanol fuels.

4 Using our farm land and fresh water resources for 

5 motor fuel increases our food cost at the grocery 

6 store.

7 I own several vehicles -- a motorcycle, a full8 sized pickup truck, and a hybrid vehicle. I keep 

9 detailed records of all of my mileage. I find that 

10 when I use ethanol-free fuels, I get 2 miles per gallon 

11 better in my pickup truck.

12 My hybrid and motorcycle both get 3 to 6 miles per 

13 gallon better on ethanol-free fuel. From my 

14 experience, using ethanol-free gasoline increases my 

15 fuel economy by at least 8 to 10 percent.

16 In the end, the only ones that benefit from the 

17 ethanol mandates are the Government from the increased 

18 tax revenues, corn farmers and ethanol producers from 

19 Government subsidies and selling a product that is 

20 mandated to be added to the fuel. If the EPA is truly 

21 interested in reducing overall emissions, reducing the 

22 amount of fuel used in this country, and increasing the 
560

1 fuel economy of every gasoline-powered vehicle on the 

2 road right now, then eliminate the ethanol mandate.

3 Let the market decide. If consumers want ethanol

4 in their fuel, they can purchase it. But those that do 

5 not should not have the option -- or excuse me. Those 

6 that do should have the option to obtain ethanol-free 

7 fuel.

8 MR. GRUNDLER: Thank you very much.

9 MR. MACHIELE: Did you have an affiliation or --

10 MR. SINCAVAGE: Just a regular citizen.

11 MR. MACHIELE: All right. Thank you. Great.

12 MR. GRUNDLER: Awesome. Thank you.

13 MR. SINCAVAGE: All right. Thank you.

14 MR. GRUNDLER: Thank you very much to everyone for 

15 staying so late to provide us your thoughts. We value 

16 them very much.

17 (Pause.)

18 MR. GRUNDLER: I'd like to invite up to the panel 

19 now is Mr. Bruce Lutes, Rob Mackie, Jay Schutte, Robert 

20 Morton, Brian McClarren, and Rich Hanson. I hope I 

21 didn't put too many names. Welcome.

22 (Pause.)
561

1 MR. GRUNDLER: Okay. Welcome, everybody. We'll 

2 go from my left to my right. We're ready when you are, 

3 Mr. Lutes.

4 MR. LUTES: Thank you very much, and I do 

5 appreciate the fact that you gentlemen have been able 

6 to hold your attention all day. It's incredible, and 

7 you've done a nice job.

8 My sheet says good afternoon, but I'm going to say 

9 good evening because it is that time of night. My name 

10 is Bruce Lutes. I'm a general manager of two biodiesel

11 refineries for Renewable Energy Group. One is a 45 

12 million gallon nameplate capacity biorefinery in 

13 Danville, Illinois. The other is in Newton, Iowa, and 

14 is a 30 million gallon plant.

15 A little over 5 years ago, I made a decision to 

16 leave a Tier 1 automotive supplier, where I'd been 

17 employed for 29 years. It was my decision.

18 I left that job because I wanted to be in the 

19 biodiesel industry. It was good for America's energy

20 security. It was good for the environment. It was 

21 good for the economy, and it still is today.

22 The economies in the two communities where I work 
562

1 were not good, and they're still struggling today. In 

2 Newton, Iowa, the Maytag plant had just closed its 

3 doors and wiped out 2,500 direct jobs in a town of only 

4 14,000.

5 Most of the employees at the REG Newton plant are 

6 former Maytag employees. Newton is starting to recover 

7 from this huge loss of jobs, but the ripple effects are 

8 still very present, as you can imagine.

9 In Danville, Illinois, where I live, we've lost 

10 thousands of jobs since the mid 1990s, when companies 

11 like GM, 2,000 jobs gone. GE, 500 jobs gone. Hyster, 

12 800 jobs, all left Danville. Our population dropped 

13 from 45,000 down to 33,000, as it is today.

14 Most of the people that have been hired at REG 

15 Danville were not leaving jobs as I did. There were no 

16 jobs to leave. They didn't have a job. The current 

17 Danville area unemployment is close to 13 percent. And 

18 we need these jobs more than ever before.

19 The total number of jobs that a biodiesel plant 

20 supports is really hard to count, but that number is 

21 much higher than you may think. First, you have the 

22 actual employees, the operators, the loaders, the 
563

1 maintenance staff, the office staff. Then you have the 

2 transportation companies, the truck drivers. We had 

3 14,000 truck drivers in and out of the Danville plant 

4 last year alone.

5 We have railcar loaders offsite that bring in our 

6 raw material on railcars some. The raw material 

7 suppliers, many of whom are adding value to what was 

8 once a waste product. Chemical suppliers, pipe fitters 

9 and welders, hose makers, parts suppliers, outside 

10 repair crews. The list just goes on and on.

11 These are real people, paying taxes, buying goods, 

12 sending their children to schools, and buying houses. 

13 With the sequestration and the Government shutdown, 

14 maybe you or some of your Government colleagues have 

15 gotten a small taste of what it means when your job 

16 isn't there. You were told you couldn't come to work.

17 Some of you had to tell your colleagues they would 

18 have to take days or maybe even weeks off without pay.

19 I've had to do that in my past and present careers. 

20 And I've had to look people in the eye who had done 

21 their jobs very well and told them, "You're not going 

22 to have a job to come back to."
564

1 Biodiesel has proven itself with increased 

2 production, increased efficiencies, increased 

3 environmental benefits. Biodiesel is not a part of the 

4 problem. It's part of the solution. So why would we 

5 want to slash these tremendous benefits and ignore the 

6 data and ignore the facts?

7 To those who say the RFS forces the Government to 

8 pick winners and losers, I say this policy is a winner 

9 for jobs, for the economy, for energy security, and 

10 most definitely for the environment. The only way you 

11 pick a loser here is by picking the numbers in the 

12 current proposal. Let's not take that step backward.

13 On behalf of the employees I have the honor of 

14 working with in Danville, Illinois, and in Newton, 

15 Iowa, and the tens of thousands of other Americans 

16 whose jobs are directly or indirectly supported by 

17 biodiesel industry, I ask you to please stick with a 

18 winner and increase the biomass-based diesel and 

19 overall advanced RVOs.

20 I thank you very much for your time.

21 MR. GRUNDLER: Thank you, Mr. Lutes. Mr. Mackie?

22 MR. MACKIE: Thank you very much, and I appreciate 
565

1 your persistence. My comments were good morning, and 

2 we're well beyond the morning hour, although it may be 

3 rapidly approaching.

4 (Laughter.)

5 MR. MACKIE: Former Arizona congressman Mo Udall 

6 said, "Everything has already been said, but everybody 

7 hasn't had a chance to say it yet." So I'll move along 

8 very quickly.

9 My name is Rob Mackie, and I'm president of the 

10 American Bakers Association. ABA advocates on behalf 

11 of more than 700 wholesale baking facilities around the 

12 country and their suppliers. ABA members produce 

13 wholesome, nutritious baked products for America's

14 families.

15 The baking industry generates more than $102 

16 billion in economic activity annually. It employs over 

17 630,000 skilled employees around the country. We 

18 greatly appreciate this opportunity to provide our 

19 perspective on the renewable fuel standard proposal.

20 We recognize and support the modest proposal to 

21 lower the corn-based ethanol mandate in the 2014 

22 standards for the Renewable Fuel Standard Program. 
566

1 However, we strongly encourage EPA to move further to 

2 alleviate the volatility that corn-based ethanol

3 creates in the grain markets. Corn-based ethanol is a 

4 factor that has led to decreased wheat acreage in the 

5 United States.

6 While we find no fault in the farmer for planting 

7 what will bring the most profit, wheat acreage has 

8 declined by almost 25 million acres over the past 30 

9 years in large part, we believe, to the renewable fuel 

10 standard. In fact, Kansas, which used to be the wheat 

11 basket of the world, more corn is now grown than wheat.

12 The wheat market typically follows the corn 

13 market. So when the renewable fuel standard drives 

14 corn prices higher, wheat prices also rise. Some 

15 studies show that the RFS drove corn prices up by 35 

16 percent during the 2011 and '12 crop year. During this 

17 same time, wheat prices rose by 22 percent. These 

18 spikes impact market volatility and create market 

19 uncertainty for the baking industry.

20 The above factors continued leading to higher 

21 budgets and hinder job creation at a time when many 

22 bakers are challenged by the ongoing economic 
567

1 environment. But ultimately, it is the American family 

2 that pays the price.

3 ABA will submit more detailed written comments, 

4 including some documentation on some of our figures, in 

5 the written comment period, and we just want to say 

6 thank you again for the opportunity.

7 MR. GRUNDLER: Thank you. Mr. Morton, welcome.

8 MR. MORTON: My name is Robert Morton. I'm here 

9 to represent Newport Biodiesel, the only biodiesel

10 production facility in Rhode Island and one of several 

11 small producers spread throughout the New England area.

12 I'm going to give you another version of the story 

13 you've heard before from the other small producers that 

14 have presented. So you know that our situation is 

15 widespread throughout the country.

16 We started our company in 2007 with 4 partners and 

17 have since grown to 19 employees producing biodiesel at 

18 a rate of 2 million gallons a year. We use waste 

19 vegetable oil exclusively as our feedstock, which we 

20 collect from over 2,000 restaurant partners.

21 The growth of our company was accomplished through 

22 a great deal of hard work and persistence, but also 
568

1 through the support of State and Federal programs, such 

2 as the renewable fuel standard. The RFS has not only 

3 been extremely successful on a national level, but it's 

4 been a huge win for southern New England, as every 

5 gallon of biodiesel we produce and distribute within 

6 the region lowers greenhouse gas emissions by as much 

7 as 89 percent.

8 However, if biodiesel is to continue to develop as 

9 an alternative to fossil fuels, Newport Biodiesel and 

10 the entire industry need the commitment of EPA and the 

11 administration to attain that goal. We continue to 

12 face enormous resistance from entrenched fossil fuel 

13 interests that simply ignore or, as we actually heard 

14 today, deny the established reality of climate change.

15 And it is extremely frustrating to learn that the 

16 Environmental Protection Agency is giving credence to 

17 arguments that renewable energy, such as biodiesel, is 

18 simply too expensive to compete with fossil fuels that 

19 have had decades of Government subsidies to establish a 

20 monopoly on energy supply.

21 At Newport Biodiesel, 2013 has been a banner year 

22 for production and expansion. Earlier in the year, we 
569

1 received a retroactive payment of the blending tax 

2 credit, and through most of the year, we are able to 

3 produce and distribute biodiesel in a cost-effective 

4 manner, as reasonable RIN prices worked to establish a 

5 viable market for our fuel.

6 Based on this favorable economic situation, we 

7 invested in our facility to double our production 

8 capacity from 1 to 2 million gallons per year. This 

9 expansion was very beneficial to our business model as 

10 we've been able to significantly increase the 

11 efficiency of both our collection and our processing 

12 operations.

13 We also initiated efforts to more than double 

14 again to a level of 5 million gallons per year by 2015. 

15 Toward that end, we extended the lease on our facility 

16 for a 10-year period. We initiated conceptual designs 

17 for the expansion and worked with the Rhode Island 

18 Economic Development Corporation and our banks to 

19 finance the effort.

20 This expansion would certainly mean the addition 

21 of several more employees to support the additional 

22 collection of waste vegetable oil and production of 
570

1 biodiesel. However, as a result of EPA's RVO proposal, 

2 the financial viability of Newport Biodiesel is in 

3 extreme jeopardy, and the potential for future 

4 expansion simply no longer exists.

5 We've already put a hold on further efforts toward 

6 expansion, and we are looking at methods to reduce 

7 expenses, which will almost certainly mean reduction in 

8 the amount of biodiesel we now produce in spite of the 

9 gains in efficiency that we've been able to achieve 

10 this year.

11 EPA's recent announcement regarding the RVO level 

12 of biomass-based biofuels for 2014 has already had an 

13 extremely negative effect on our business. By 

14 extending those levels to 2015, the EPA has taken away 

15 all of the opportunity for further expansion. The fact 

16 that these decisions were based on 2011 data, not the 

17 current information supplied by the National Biodiesel

18 Board, is extremely frustrating.

19 On a personal note, after retiring from 35 years 

20 as an oceanographer addressing environmental issues 

21 with coastal waters, I was excited to have the 

22 opportunity to create Newport Biodiesel and continue to 
571

1 work towards a cleaner and more sustainable environment

2 through the use of renewable energy.

3 I enthusiastically recruited other investors and 

4 put a great deal of time, energy, and money into this 

5 effort because I thought I would have the support of 

6 EPA and the administration in this endeavor. It's 

7 extremely disappointing to find that that is not the 

8 case.

9 I appreciate the opportunity to speak at this 

10 hearing, and I hope that EPA acts quickly to correct 

11 this situation.

12 Thank you.

13 MR. GRUNDLER: Thank you very much. Mr. Schutte?

14 MR. SCHUTTE: Thank you for allowing me to speak.

15 My name is Jay Schutte. I farm just east of 

16 Mexico, Missouri, with my two brothers. We have about 

17 3,000 acres, and we also feed cattle. We raise corn, 

18 soybeans, and wheat.

19 You know, and also just recently, we added my 

20 niece's husband as an additional partner, bringing on 

21 another generation in our operation. My family came to 

22 the Midwest many years ago as payment for their service 
572

1 in the Revolutionary War. This was in lieu of getting 

2 paid cash.

3 This was a creative way of satisfying an 

4 obligation from the Government without using taxpayer 

5 dollars. I think the RFS was done in the same spirit. 

6 We're not requiring tax dollars, but just requiring a 

7 product to be used.

8 In all full disclosure, I am not just a farmer. I 

9 am a board member of an ethanol plant, also a biodiesel

10 plant, and I'm also a member of the -- board member of 

11 the Missouri Corn Growers Association.

12 In 2007, 564 farmers gathered together for the 

13 ground-breaking of a biodiesel plant in Laddonia, 

14 Missouri, a town of 260 people. It employs 40 people. 

15 We now write a check to the local school district, 

16 $150,000 a year. I know by Washington standards, these 

17 are very small numbers. But with a small town like 

18 that, these are very significant.

19 Anyhow, the plant, within 1 week, was operating at 

20 its faceplate capacity, providing a market for 15,000 

21 bushels of corn in our area. We have improved and 

22 innovated as time has gone by, as many industries do. 
573

1 We are now extracting the oil from the distillers 

2 grains and using that to produce biodiesel to local 

3 biodiesel plants in our area, and we are producing at 

4 70 thousand -- million gallon faceplate capacity and 

5 providing a market for 25,000 bushels of grain.

6 Last year, we not only used corn as a feedstock, 

7 but also grain sorghum and wheat, just to meet the 

8 demands after the very bad drought. We've already paid 

9 one dividend this year, and that's put, you know, tax 

10 revenue back into the community as well.

11 The big thing that I would like to stress is we 

12 are -- you know, this is a multigenerational operation 

13 at my farm, and we are getting ready -- we brought in 

14 the next generation and would like to have the option 

15 to bring on the next one. You know, the Founding 

16 Father Benjamin Franklin once said that democracy is 

17 two wolves and a sheep deciding what they're going to 

18 have for dinner. Liberty is when the sheep is well 

19 armed.

20 The arming that we want is just protection with 

21 the RFS to keep things on an even keel. I would say 

22 that the two wolves in the room, though, are big oil, 
574

1 big food, and that's all I would like to say.

2 Thank you.

3 MR. GRUNDLER: Thank you very much. Mr. Hanson?

4 MR. HANSON: As everyone else on this panel has 

5 said tonight, thank you for all of you having the 

6 patience to sit and listen to all of us and to hear 

7 what we all have to say.

8 I'm the general manager at Show Me Ethanol, LLC. 

9 The plant is located in Carrollton, Missouri, north

10 central Missouri.

11 Our plant has been in operation since mid 2008, 

12 producing about 56 million gallons of ethanol annually 

13 from corn grown by local farmers. We also produce 

14 approximately 170,000 tons of dried distillers grains 

15 as a feedstock for cattle, swine, and poultry. All of 

16 our products are transported from the plant via truck, 

17 with the majority of our ethanol being delivered for 

18 consumption in the State of Missouri.

19 While Show Me Ethanol provides employment to only 

20 38 individuals, the number of families dependent upon 

21 our production is much greater. The local truck 

22 drivers moving products to and from our facility, the 
575

1 employees of the local elevator supplying our corn, as 

2 well as the farm families in the area that grow corn to 

3 support our production, all depend on us to help 

4 provide a livelihood in rural America, rural Missouri 

5 more specifically.

6 Studies show that over 400,000 American workers 

7 benefit directly from a job in the robust ethanol

8 industry. Ethanol production has helped to invigorate 

9 the local economy by providing good jobs to a broad 

10 variety of people, allowing families to stay in the 

11 rural areas and support local businesses. Every 

12 ethanol plant plays an important role in keeping our 

13 local rural communities alive.

14 The renewable fuel standard allows companies such 

15 as ours to continue to provide those quality -- to 

16 provide quality employment in rural areas, keeping 

17 families here and supporting the schools and local 

18 commerce. The drastic volume cuts in the proposed 

19 ruling could have a devastating effect on the rural 

20 communities of America.

21 Not only does ethanol lower the cost of fuel 

22 consumed by each of us in our daily transportation, it 
576

1 also provides price support for the agricultural 

2 economy that is the heart and soul of the United 

3 States. The EPA did a wonderful thing by putting in 

4 place the RFS, reducing our dependence on foreign oil 

5 and providing an opportunity for a clean domestic 

6 renewable fuel source.

7 By taking a step backward, you are sending a 

8 signal that the Government no longer supports the 

9 production of biofuels. Making changes to the mandated 

10 volumes takes away incentive for businesses such as 

11 ours to expand and will create challenges for some to 

12 even continue operating.

13 Changing the mandate will impact demand for our 

14 product, depressing the value. Additionally, it will 

15 negatively impact the value of corn for the local 

16 farmers, many of whom are investors in Show Me Ethanol. 

17 Those farmer investors should be allowed to continue 

18 to sell their crops for a profit in the free market and 

19 not go back to the days of depending on Government

20 subsidies for survival.

21 As a producer, I know the requirement of 14.4 

22 billion gallons of ethanol for 2014 can easily be met. 
577

1 13.3 billion gallons can be consumed as E10, leaving 

2 just 1.1 billion gallons, which can be met with 

3 increased use and sales of E85 and E15.

4 When the RFS was established, it always envisioned 

5 ethanol blends above 10 percent, even with decreasing 

6 gasoline volumes. We should not be going backward, but 

7 should be charging ahead, encouraging on a national 

8 level the use of higher ethanol blends in vehicles 

9 designed to operate on those higher blends and 

10 supporting the economic stability of rural America.

11 The RFS has had a positive impact on the people in 

12 our community as well as the rest of the nation. I'm 

13 truly concerned that making the proposed volume change 

14 to the 2014 RVO will create an even greater negative 

15 impact for all of us.

16 I do hope you will consider the fallout of a rule 

17 such as the one proposed would have on ethanol plants 

18 and the workers who count on their jobs at these 

19 facilities around the country.

20 Thank you.

21 MR. GRUNDLER: Thank you, sir. Mr. McClarren, 

22 welcome.
578

1 MR. MCCLARREN: First of all, thank you for having 

2 us all here today. I appreciate being able to speak in 

3 front of the Government.

4 My name is Brian McClarren, and I appreciate the 

5 opportunity to speak on behalf of the renewable fuel 

6 standards and its impact on agriculture.

7 I'm a farmer in northwest Ohio that farms 1,500 

8 acres and raises 2,500 head of cattle. My operation 

9 has evolved into one that relies heavily on the five 

10 ethanol plants in my area. My family has farmed our 

11 land since 1832, and my children are the sixth 

12 generation to do so.

13 The EPA's proposed change to the renewable fuel 

14 standard and undermining the progress we've made in 

15 developing domestic renewable fuels will have far16 reaching impact. It will, number one, disrupt the 

17 transition that many farmers, like myself, have made by 

18 relying on local ethanol plants to raise the revenues 

19 from the fields and reduce the cost of my cattle 

20 operation.

21 Despite what many opponents say, I'm here to tell 

22 you that the renewable fuels industry does more than 
579

1 just produce biofuels. The use of corn for ethanol has 

2 provided a market demand for corn and eliminated a 

3 decade-long oversupply imbalance that has resulted in 

4 depressed grain prices. Now that there is local demand 

5 for corn, farmers have the ability to sell corn at its 

6 true value.

7 The local ethanol plants also supply a high-value 

8 feed product -- distillers grains with soluble -- that 

9 is used for dairy feed, feed for cattle, feed for hogs, 

10 chicken, and poultry. This permits me to sell corn 

11 that I previously grew primarily as a feed product for 

12 my livestock to the ethanol plants and replace it with 

13 these distillers grains.

14 The impact is that I'm now getting increased value 

15 for my corn while reducing the cost of feeding my 

16 cattle. It allows me access to distillers grains that 

17 are worth 130 percent the value of the corn that I 

18 produce. The decision to reverse the EPA's direction 

19 on growing the use of biofuels will place this new 

20 lower cost, improved efficiency operation of mine in 

21 jeopardy.

22 The impact of EPA's proposed decision will also 
580

1 extend to those that provide supplies and services to 

2 both the biofuels industry and agriculture in general. 

3 The increased demand for corn has permitted the farmer 

4 for the first time in many years to be profitable 

5 without relying on Government programs.

6 Ohio farmers are purchasing semis and hiring 

7 drivers. I have personally invested $200,000 in 

8 equipment and facilities, and the increased 

9 efficiencies on my operation have allowed my small farm 

10 to hire two new employees. And more importantly, it

11 has allowed my son, my daughter, and my son-in-law to 

12 join our family farm.

13 This has also had a dramatic effect on farm 

14 purchases and acreage values. Most important to many 

15 of the farmers that I talk to is the increased 

16 sustainability of the farm.

17 The ability to raise a family without having 

18 numerous side jobs to supplement income. The ability 

19 to actually make a profit without relying on Government

20 programs. The ability to have children be a part of 

21 the farm instead of having to send them off to the 

22 cities to find jobs to support their families. And the 
581

1 ability to fend off the mega farms and keep the smaller 

2 farms that are under 1,000 acres in the family by 

3 passing it down to their children.

4 I'm also concerned about the impact this direction 

5 will have on our next generation of biofuels. I follow 

6 with interest the advances being made in cellulosic

7 ethanol, and I have a hope, too, that I will be selling 

8 corn stover to make biofuels. The wavering and 

9 uncertainty that has been shown by the EPA and this 

10 administration will be responsible for slowing down or 

11 eliminating future investment in advances in biofuels.

12 I'm surprised that this administration would want 

13 to be responsible for limiting the future of advanced

14 fuels. In the end, I would hope that the EPA would 

15 reconsider its proposal to reduce the use of biofuel

16 and ethanol.

17 As a farmer that talks with many other farmers, I 

18 assure you that this proposal is increasingly unpopular 

19 in rural America. We believe we've done our part by 

20 working together with the industry in order to be able 

21 to provide for our families and produce domestic, 

22 clean-burning renewable fuels. We ask that you 
582

1 maintain your commitment to this worthy endeavor and 

2 restore the RFS RVO to the previously established 

3 volumes.

4 My goal is the same as many other farmers and 

5 folks that I talk to. I want the McClarren farm to 

6 remain McClarren farms for the next generation, the 

7 seventh generation, and the RFS and the volumes it 

8 establishes are crucial.

9 Thank you.

10 MR. GRUNDLER: Thank you very much.

11 MR. MACHIELE: No questions. But thanks to all of 

12 you for sticking out this late as well and to the 

13 audience that's still here, and we still have another 

14 panel at least to go. So --

15 (Applause.)

16 MR. GRUNDLER: Thank you very much. Appreciate 

17 it.

18 Okay. Next up, would you please come on down? 

19 Joel Grams, Sparky Crossman. We need a spark. Tim 

20 French, Wayne Presby, Ben Wootton, and Miles Stephens.

21 (Pause.)

22 MR. GRUNDLER: Mr. Grams, proceed, please.
583

1 MR. GRAMS: Okay, thank you. Thank you guys for 

2 staying so late, too.

3 I'm Joel Grams, a corn farmer from Minden, 

4 Nebraska, and president of the Nebraska Corn Growers 

5 Association. Thank you for the opportunity to testify 

6 today in opposition to the proposed changes in the 

7 renewable fuel standard.

8 If I had to boil down the importance of 

9 maintaining the current renewable fuel standard to one 

10 word, it would be "choice." As a corn farmer, the 

11 ethanol industry gives me more choices in marketing the 

12 corn I grow. Having a couple ethanol plants near my 

13 farm gives me a competitive market that helps me stay 

14 ahead of continually rising costs for land and inputs.

15 Rather than simply selling raw corn, we're adding 

16 value to those bushels, transforming them into fuel, 

17 feed, and food. The added value creates jobs and 

18 economic growth all along the value chain, not just on 

19 the farm. From the grain elevator to the ethanol

20 plant, from the trucking companies to the livestock 

21 operations, from ag equipment dealers to seed and 

22 fertilizer companies.
584

1 Nebraska is the nation's second-largest ethanol

2 producer, and our economy has benefited from this 

3 position. A recent study by the Nebraska Department of 

4 Labor found that the average wage in Nebraska's ethanol

5 industry is more than $56,000, compared to $37,000 from 

6 all Nebraska industries combined.

7 These are good-paying jobs in rural communities 

8 that need them, providing more career choices for young 

9 people and more disposable income to spend with local 

10 retailers and other businesses.

11 Thanks to ethanol, American consumers have more 

12 choice at the pump also. Drivers can choose a wide 

13 range of fuels from E10 to E15, from E30 to E85, and 

14 yes, they can even choose fuels with no ethanol at all. 

15 That's what choice is all about.

16 But without ethanol in our nation's fuel supply, 

17 it would be -- we would all be subject to 100 percent 

18 oil mandate, and that's having no choice at all. The 

19 price of ethanol is consistently below the cost of 

20 gasoline, sometimes by a $1 more. So choosing to add 

21 more ethanol to our fuel supply helps lower price at 

22 the pumps.
585

1 That means consumers spend less to fill up and 

2 have more money available to spend as they choose, to 

3 save for the future, to buy a home, make purchases, pay 

4 for their children's college education, and generally 

5 enjoy a better quality of life.

6 By increasing the amount of ethanol in our 

7 nation's fuel supply, we choose cleaner air instead of 

8 continuing to choke on toxic exhaust and its invisible 

9 deadly particulates that cause damage to our lungs, 

10 hearts, and brains. With ethanol, we choose a cleaner 

11 burning fuel that protects children with asthma and 

12 seniors with respiratory disease.

13 Since EPA is responsible for our country's 

14 environmental health, I would think that choosing to 

15 reduce the amount of fuel that makes our air healthier 

16 to breathe would be counter to their mission.

17 When the renewable fuel standard was established, 

18 Congress made the choice to free America from the 

19 shackles of costly imported oil and create a domestic 

20 renewable energy industry that would spur economic 

21 investment, strengthen American agriculture, and 

22 improve our nation's energy security. That's exactly 
586

1 what has happened. The RFS is Federal policy that is 

2 working and working well.

3 The proposed revision of the volume of corn 

4 ethanol is completely arbitrary and violates the intent 

5 of the law. We should be expanding our renewable fuels 

6 infrastructure, not stifling it. We should be 

7 increasing the volume of ethanol in our fuel supply, 

8 not reducing it. Should be strengthening our 

9 commitment to energy independence, cleaner air, and 

10 consumer choice, not making it weaker.

11 I'm a corn farmer. So you would expect me to 

12 support the growth of the ethanol industry, and I do. 

13 But first and foremost, I am an American, and I 

14 appreciate having the choices that a robust renewable

15 fuels industry provides for my business, my family, my 

16 community, and my nation.

17 I strongly urge you to reject the proposed changes 

18 to the renewable fuel standard and choose instead to 

19 renew America's commitment to energy independence, 

20 environmental health, and economic strength. To me, 

21 it's a pretty easy choice.

22 Thank you.
587

1 MR. GRUNDLER: Thank you very much. Mr. Crossman?

2 MR. CROSSMAN: Good evening.

3 MR. GRUNDLER: Good evening.

4 MR. CROSSMAN: My name is Sparky Crossman. I want 

5 to thank you for the opportunity to speak tonight. I 

6 speak to you from -- as a fifth-generation farmer from 

7 Laurel Springs Farm in Mount Holly, Virginia.

8 Laurel Springs Farm is a family operation. We're 

9 located in northern neck of Virginia. Today, the farm 

10 grows soybean, corn, small grain, and barley. We're 

11 all no-till and have been for about 30 years.

12 Promoting and supporting ethanol industry to me is 

13 important. I personally know the importance of a 

14 successful corn crop to my family and community to feed 

15 the world. I take pride in work and time and energy to 

16 serve as vice chair of the Virginia Grain Producers 

17 Association, chair of the Virginia Corn Board, and I 

18 serve as a delegate to the U.S. Grains Council.

19 On our farm, our corn goes into chicken feed. 

20 None of our corn goes into corn-based ethanol, but I am 

21 for corn-based ethanol. This year, we had an excellent 

22 crop of corn. Our average corn was about 170 bushel to 
588

1 the acre.

2 Well, when EPA came out and said that the corn3 based ethanol was going to be reduced, our corn prices 

4 fell. My break-even price per bushel this year was 

5 about $4.50 a bushel. So when corn dropped below $4, I 

6 lost money, and ethanol is what's kept our prices up.

7 Two years ago, my daughter Katie joined the family 

8 farm. She graduated from Virginia Commonwealth 

9 University with a degree in environmental science. 

10 Couldn't find a job, and she's been on the farm here.

11 She also sees the low corn prices, the high 

12 fertilizer prices, seed price, equipment prices, and 

13 sees what profitability does to a family farm. Every 

14 farmer in this room probably has a daughter, son who 

15 would like to come back to the farm. But if it's not 

16 profitable, farmers can't bring the next generation in.

17 In this country, we've already lost our textile 

18 industry. It's been difficult to find a shirt made in 

19 this country. We've lost our steel industry. I don't 

20 want to see agriculture lose. Because by 2050, the 

21 population is supposed to have doubled, and we're going 

22 to have to be doubling what crops we grow today.
589

1 Agriculture is the only industry that has a 

2 science-based product like ethanol. It's 

3 biodegradable. It's renewable, and it's safe for the 

4 environment. It helps curb our appetite for foreign 

5 oil and helps the American farmer stay in business and 

6 compete in our world economy.

7 In closing, I read a little article in the farm 

8 magazine the other day, and it said an attack on 

9 agriculture -- an attack on ethanol is an attack on 

10 agriculture. And I urge you to rethink the arbitrary 

11 decision and let the RFS continue its work and do its 

12 job.

13 Thank you.

14 MR. GRUNDLER: Thank you, sir. Mr. Stephens?

15 MR. STEPHENS: Again, thank you for the 

16 opportunity to testify before you tonight.

17 My name is Miles Stephens. I am the compliance 

18 officer at Washakie Renewable Energy, also known as 

19 WRE. I'd like to note first that I have never 

20 testified to the EPA before today.

21 WRE has been what I consider to be a poster child 

22 success story as a direct result of the RFS mandate. 
590

1 Our company literally started -- in 2007, it literally 

2 started as a mom-and-pop greenfield project in the

3 Quonset shop. Today, WRE is a 10 million gallon per 

4 year biodiesel producer.

5 It's the only commercial facility in Utah, and we 

6 have also just now completed a second production line 

7 for 10 million gallons per year, totaling 20 million 

8 gallons per year. That will go online -- it was 

9 scheduled to go online in January, this January. But 

10 now it's being reconsidered whether or not we'll be 

11 able to bring that online, pending the outcome of this 

12 proposal.

13 In addition to that production increase, we've 

14 also broke ground on a 36,000 barrel biodiesel blending 

15 facility and a 48,000 barrel capacity petroleum service 

16 storage tank, as well as a glycerin refining unit and a 

17 high-capacity seed crushing facility. So we've had the 

18 opportunity to start a lot of new projects.

19 We also hold a unit train capacity at our plant 

20 that we installed. We currently employ approximately 

21 200 people. These expansions that we have are 

22 privately financed. However, our private financing is 
591

1 in jeopardy of noncommitment because of the proposed 

2 rule.

3 We oppose the proposed renewable fuel volumes 

4 represented because they are meritless, regressive, and 

5 they represent stagnation for a multiyear period. This 

6 will seriously affect our expansion plans and our job 

7 creation at a time when jobs are an endangered species.

8 Utilizing the job modeling established by the 

9 Department of Labor, we have estimated a minimum of 

10 permanent jobs after project completions to be 60 

11 direct jobs and an additional 300 indirect jobs. We're 

12 concerned that the rule will alter our expansion and 

13 jeopardize all of the plans, and this means an 

14 estimated loss of $5 million tax revenue.

15 It's clear that the proposal has an adverse effect 

16 on the market for both fuel and RINs, regardless of 

17 prior statements by the agency that it is not 

18 responsible for market conditions. The publicly traded 

19 producer companies have already experienced a share 

20 loss on the markets, and others are reassessing their 

21 expansion plans. The proposed numbers send a strong 

22 signal to our investors that they deem will be a loss 
592

1 of investment and jobs.

2 We also assess that $58 million will be lost in 

3 the Utah -- in our local Utah economy. Despite the 

4 assumption that the tax credit will have an effect on 

5 the industry, we sustained operations and we've

6 subsequently grown because of the costs to operate our 

7 facility, and the support operations were controlled 

8 with good business practices.

9 MR. KOROTNEY: You'll need to wrap up, please.

10 MR. STEPHENS: We believe our company will 

11 continue to grow, and we can -- I mean, we can fight 

12 through this. I believe that a mid-sized plant, we can 

13 fight through this, but it certainly is not our plan 

14 and a business model that we'd like to follow.

15 When legislation and rules that are designed to 

16 grow businesses and industries, such the EISA and the 

17 RFS, become an impediment to growth, then the 

18 legislation or rule is obsolete and counterproductive 

19 to true business, regardless of its intended purposes.

20 Again, I thank you.

21 MR. GRUNDLER: Thank you. Mr. Wootton?

22 MR. WOOTTON: My name is Ben Wootton, and I'm 
593

1 president and CEO of Keystone Biofuels. More 

2 importantly, I'm 100 percent shareholder of the 

3 company.

4 Keystone is a biodiesel production facility that 

5 started in 2006. Right now, we are a multi-feedstock 

6 facility that uses recycled grease, soybean oil, and 

7 animal fats to produce our fuel, and we have a 

8 production capacity of over 30 million gallons a year.

9 I say right now because if this proposed rule of 

10 1.28 billion RVO for biomass-based diesel becomes an 

11 actual rule, my company will be out of business. To 

12 say this is an important issue to me is an 

13 understatement. You see, being 100 percent owner means 

14 I'm all in. It's not just my job. It's not my career. 

15 It's my family's savings, retirement, and future.

16 One hundred percent owner means my house being 

17 mortgaged and personal guarantees on millions of 

18 dollars of debt that I've invested in this industry. 

19 But it's not just my family that relies on this 

20 business and this industry. It's also my employees and 

21 their families and their mortgages and their savings 

22 and their retirements.
594

1 At my peak, I had approximately 24 employees 

2 working for me. Over 40 percent of them were active or 

3 former military personnel. We also had an annual 

4 revenue run rate of $40 million a year, which is 

5 significant for a small town in Camp Hill, 

6 Pennsylvania.

7 Since the RFS2 program was implemented, my annual 

8 volume production went from hundreds of thousands of 

9 gallons a year to millions of gallons of biodiesel

10 production a year. More importantly, as my production 

11 volumes increased, my production cost decreased.

12 So why is this so important to me? The reason is 

13 that I'm a small business owner, and in today's world, 

14 it's almost impossible for a small business owner to 

15 obtain financing to start or run a business. Like most 

16 small businesses, my company has been challenged by the 

17 recent downturn of the U.S. economy, and like most 

18 small businesses, we have been turned down by bank 

19 after bank on obtaining additional capital needed in a 

20 competitive market.

21 Fortunately, we have recently signed agreements 

22 with an investors to move forward with our company, but 
595

1 the EPA's proposed rule has put serious doubts in the 

2 investor's strategy in investing in this industry. 

3 From an investor's perspective, you invest because you 

4 think the market or the investment is going to grow. 

5 If you know that market or investment is not going to 

6 grow or decrease in value, you're not going to get the 

7 investment.

8 That is what the EPA and the administration would 

9 be doing if the industry -- if the current proposed 

10 ruling of 1.28 billion gallons for biomass-based diesel

11 stands. The rule will prevent new investments in the 

12 industry. Keystone and, I assume, many other small 

13 producers will not survive without continued and new 

14 investment.

15 So I'm asking this panel and this organization and 

16 this administration to truly listen to this industry 

17 and implement a biomass basal RVO of at least 1.7 

18 billion gallons for 2014. It's been a long day, and as 

19 one of today's final speakers, I want to thank the EPA 

20 staff for taking the time to hear everyone's views on 

21 this issue.

22 I will close with this observation. The biodiesel
596

1 industry and the EPA have historically worked together 

2 in a constructive manner to advance the worthwhile 

3 energy security and environmental benefits associated 

4 with the RFS program. The result of this positive 

5 joint effort has been a robust and growing domestic 

6 biodiesel industry that has consistently exceeded the 

7 RFS program targets for biomass-based diesel.

8 Keystone shares the current concerns of many 

9 biodiesel stakeholders as it pertains to the proposed 

10 RVO rule. That said, going forward, it is my sincere 

11 desire to work together with you to craft a final rule 

12 that allows America's biodiesel industry to reach its 

13 full potential, realizing the significant impact, 

14 economic, environmental, energy security benefits 

15 associated with expanded domestic production and use of 

16 biodiesel is our shared interest.

17 Thank you for letting me testify today.

18 MR. GRUNDLER: Thank you, Mr. Wootton. Mr. 

19 French, you're up.

20 MR. FRENCH: Well, good evening, and like everyone 

21 else, I appreciate your all's patience.

22 And I'm not very good at public speaking, and I 
597

1 practiced this speech on my cows. But I think they 

2 were rejected from Chick-Fil-A, so they didn't give 

3 much feedback.

4 (Laughter.)

5 MR. FRENCH: But my name is Tim French, and I come 

6 to you from a family farm, French Brothers Dairy in 

7 Woodstock, Virginia, which is in the Shenandoah Valley. 

8 And just so you all know why I'm here, I was asked 

9 from Virginia Grains Council to share my story.

10 And Shenandoah Valley, Virginia, is a corn deficit 

11 area 50 weeks out of the year. Our farm is a 100-year12 old family operation, and we have soybeans, corn, small 

13 grains. We milk 150 cows and have 300 cow-calf beef 

14 operation, and we have 130,000 broilers that we raise 

15 with George's Family Farms, which is an integrated 

16 poultry producer, and also row crop 500 acres of corn.

17 And I'm sharing my story with you because for the 

18 younger years of my life, I'm the youngest of nine, and 

19 we didn't know nothing to do but get up in the morning 

20 and work. And I can remember our tractors being out of 

21 fuel, and our farm not being profitable enough to get 

22 fuel. And my dad, because we owned our land, free and 
598

1 clear, and the oil companies knew our family well,

2 would extend us credit that they didn't normally extend 

3 to other people.

4 And so, we couldn't get the oil at the station. 

5 We had to go around back, and the owner would come, get 

6 it to us. And it kept us going until we'd sell a load 

7 of cattle or something and pay off our bill, and we'd 

8 go again. But because of the farm economy over the 

9 last 4 or 5 years and the efficiencies and investments 

10 that seed companies and other things have made, we are 

11 -- became a very viable family farm.

12 We employ about 10 people in the Shenandoah 

13 Valley. And it's quite rewarding to wake up in the 

14 morning and know that you're making a difference and 

15 you're paying your bills and you're a substantial 

16 member of your community.

17 So, with this, and I'm in a deficit area, and I've 

18 heard some people today speak about how we've hurt 

19 livestock feed prices and things like that. And I'd 

20 just like you to know that I've never been more 

21 profitable, and my family has never been more 

22 profitable in the livestock industry. And we are 
599

1 diversified, as we have been the last 5 years. I'm 

2 just fortunate enough to sell our 2013 calf crop about 

3 a month ago and received figures, and I took my 90-

4 year-old uncle along to the sale with me to watch them 

5 sell, and he'd never believed we could get money like 

6 that for our cattle.

7 And this is in a time when a lot of our citizens 

8 of our nation feel that because of ethanol they're 

9 paying more for their food. But I think it's more 

10 because over the years, farming has not been 

11 profitable, and herds have went out of business because 

12 people were not making money. And we do not have the 

13 herd size it takes to sustain our desires as citizens 

14 of the United States and the people of our country who 

15 want our wonderful feed.

16 Just one other thing. On our dairy farm, we feed, 

17 right now I'm feeding 3 1/2 pounds of distillers grain 

18 today to my 150 dairy cows. I say me. It's me and two 

19 other brothers that are actively managing our farm, and 

20 we have one uncle who is an owner. My father has 

21 passed away.

22 So we have plenty of corn. We're fortunate enough 
600

1 that we have the acreage to raise all the feed we need, 

2 but we choose to feed the distillers grains because it 

3 helps us balance the ration for our dairy cows. And I 

4 got a lot of stuff written here, and you're all making 

5 me a little bit nervous, but I don't know why because 

6 you seem like awful nice people.

7 I'll just look. One more thing. I want to say 

8 one more thing, and I'm going to get off here. I was 

9 elected the FFA president of my high school in 1986, 

10 and I was full of something and vinegar.

11 And I went to the Ruritan Clubs and Rotary and 

12 gave my talk about how this was and how we're going to 

13 change this world and this, that, and the other. And I 

14 was constantly reminded by my older peers, people who I 

15 respected very much, how agriculture was dying in 

16 Virginia. "If you really want to make a difference, 

17 boy, pack your bags and move west."

18 And today, those same people are there, renting me 

19 their land and can't believe what we're doing on land 

20 in Virginia. And I do believe that ethanol has helped 

21 this, has fueled interest in young kids today to go to 

22 college and come back and contribute to agriculture in 
601

1 many ways, be it through service companies or any way 

2 that they can if they don't have the land.

3 So in your decision, and I know it's tough, just 

4 remember agriculture is thriving all across this 

5 country, and I know you all have driven through the 

6 Shenandoah Valley. If you've ever driven 81, you've 

7 driven past my corn fields, my cattle, my sheep, my 

8 dairy.

9 And if you ever want to stop in, stop at 

10 Woodstock, Virginia, and ask for a French, and they'll 

11 point you to the Walton & Smoot drug store. And you'll 

12 find one of us there, and we'll give you a good tour.

13 Thank you.

14 MR. GRUNDLER: Thank you, Mr. French, for sharing 

15 that story. You did fine.

16 Mr. Presby, welcome.

17 MR. PRESBY: Thank you very much, and I appreciate 

18 you giving me the opportunity to address my concerns 

19 regarding your proposed RVO and for staying here so 

20 late this evening.

21 My name is Wayne Presby. I'm the primary owner 

22 and operator of White Mountain Biodiesel in North 
602

1 Haverhill, New Hampshire. I believe we're currently 

2 the largest biodiesel production facility in New 

3 England.

4 You know, we really got into this business years 

5 ago because I believe in what the RFS is all about. 

6 You know, I believed that we could create jobs here 

7 domestically. I believed that we could achieve energy

8 independence. I was interested in helping to clean up 

9 the environment, and I've made substantial investments 

10 in this plant because of that.

11 And I think that any change to the RFS is very 

12 shortsighted, and it's just plain bad policy. I think 

13 people have spent so much time on the details of the 

14 RFS that you've really lost sight of what the intent 

15 was of the law in the first place. You can't really 

16 see the forest through the trees anymore.

17 I make about 3 million gallons of biodiesel a year 

18 from a feedstock called waste vegetable oil. Big oil 

19 makes diesel from a feedstock called crude oil. Do you 

20 think for one minute that the price of a gallon of 

21 diesel at the pump reflects what it really costs big 

22 oil to produce that gallon? If you do so, you're being 
603

1 extremely naïve.

2 The price at the pump leaves out a huge cost that 

3 you and I bear every day, and we pay it through our 

4 income taxes. The price at the pump does not include 

5 the cost of our sons and daughters, dying in battle or 

6 the cost of caring for their maimed bodies for years to 

7 come. It does not include the hundreds of billions of 

8 dollars that we spend every year protecting the 

9 feedstocks used by big oil to produce their fuel.

10 This is a hidden cost that nobody considered 

11 because it isn't in the price at the pump. It's in our 

12 income taxes.

13 U.S. Secretary of Defense Chuck Hagel said of the 

14 Iraq War in 2007, "People say we're not fighting for 

15 oil. Of course, we are. They talk about America's 

16 national interests. What the hell do you think they're 

17 talking about? We're not there for figs."

18 Fed Chairman Alan Greenspan said in 2007, "I'm 

19 saddened that it is politically inconvenient to 

20 acknowledge what everyone knows. The Iraq War is 

21 largely about oil."

22 The most recent major report on the costs of the 
604

1 war come from Brown University in the form of a cost of 

2 war project. Their current estimate is that the cost 

3 of the Iraq War was over $6 trillion, $6 trillion. 

4 We're not talking about billions anymore. We're 

5 talking about trillions.

6 One trillion of that is going to be spent on care 

7 for our veterans that have come back maimed from that 

8 experience. This means that the cost of all of our 

9 fuel over the last 10 years, if you look at the IEA's 

10 numbers concerning how much liquid fuel we consume, 

11 actually cost us $3 a gallon more at the pump than what 

12 we paid for it.

13 For the last 10 years, if you extrapolate it over 

14 the next 20, it's $1.50 a gallon. And you say that 

15 biofuels can't compete with these fellows? We're 

16 already half their price.

17 Instead of listening to big oil complain about the 

18 cost of RINs, we should be complaining about the direct 

19 cost of protecting their feedstocks. The last I knew, 

20 no one sent the U.S. military up to North Haverhill to 

21 protect my tanks of used vegetable oil.

22 What we should be doing is charging the oil 
605

1 companies for protecting their feedstocks. If we did 

2 this, their product couldn't compete with mine.

3 I was interested today to see people running 

4 around wearing T-shirts that said, "Save my engine, 

5 repeal the RFS." How trite. Evidently they're more 

6 interested in the wear and tear on their car engines 

7 than saving American lives and trillions of dollars.

8 They don't realize that if we actually stuck to 

9 this energy policy, they might be able to get a student 

10 loan or cheap health insurance. They don't realize 

11 that sticking to the energy policy could eventually pay 

12 off the national debt.

13 They don't realize that if we don't stick to this 

14 policy, things are going to get much worse. This won't 

15 be the end of the wars. It's just the beginning, and 

16 they're not going to get cheaper. They're going to get 

17 more expensive.

18 I think we've lost sight of what this program is 

19 all about. National security and energy independence 

20 is about saving lives and trillions of dollars in 

21 military costs. It's about not sending trillions of 

22 dollars to foreign governments who like killing 
606

1 Americans and ramming airplanes into our buildings. 

2 It's about creating jobs at home and making America 

3 stronger.

4 We shouldn't be cutting back the RFS. We should 

5 be enhancing it and every other alternative source of 

6 energy available to us so we can stop the loss of human 

7 life, the drain on our country's finances, and start 

8 creating jobs at home and making this country strong 

9 again.

10 Thank you.

11 (Applause.)

12 MR. GRUNDLER: Thank you, Mr. Presby. This panel 

13 certainly was worth waiting for.

14 (Laughter.)

15 MR. GRUNDLER: Thank you very much.

16 MR. PRESBY: You're welcome.

17 MR. GRUNDLER: Now we've got a few more names 

18 here. I don't know if these people are still here. 

19 Like you, Mr. Crossman. If you are, you're welcome to 

20 come up -- Tim VerVaecke, Lisa Evans, Robert Batt, and 

21 Prabhsharan Singh.

22 And if those people are napping and there is 
607

1 anyone else that wishes to provide testimony who hasn't 

2 signed in, we'd love to hear from you as well. Any 

3 takers?

4 MR. VERVAECKE: How do you like that, best for 

5 last?

6 MR. GRUNDLER: Okay. All right.

7 MR. VERVAECKE: And I've been here since 8:00, and 

8 not p.m.

9 (Laughter.)

10 MR. GRUNDLER: Well done. Well done. Okay, we're 

11 all ears. All ears.

12 MR. VERVAECKE: Well, distinguished members of the 

13 hearing board and colleagues, thank you for this 

14 opportunity to briefly testify before you today.

15 My name is Timothy VerVaecke. I am the chief 

16 operations officer at Global Alternative Fuels, also 

17 known as Global, and I, nor my company, have ever 

18 testified before the EPA before today.

19 Let me tell you a little bit about our company. 

20 Global is currently a 10 million gallon a year 

21 biodiesel producer located in El Paso, Texas, that 

22 supplies key petroleum refineries and distributors in 
608

1 our region. Our parent company, Mesilla Valley 

2 Transportation, is the 55th largest trucking company, 

3 trucking fleet in the United States with over 1,400 

4 trucks within the fleet covering over 180 million miles 

5 a year, boasting the best average miles per gallon

6 rating in the U.S. utilizing B20 as its primary fuel.

7 We do not blend this material onsite. We sell it 

8 to the local refiner, and he sells it back to us, and 

9 we are partners because we both benefit. And this is 

10 something I haven't heard today. We are partners.

11 On the Monday before Thanksgiving, the refinery 

12 personnel management people who purchase 90 percent of 

13 our material came and talked to us about how are we 

14 going to manage the brick wall that is going to hit us 

15 in January, and we are working collectively together to 

16 find a way. We both realized one thing. They need us, 

17 and we need them.

18 Our biodiesel division has been in business for 

19 over 7 years. We've just completed an additional 8 

20 million gallon a year expansion and are in process of 

21 initiating the engineering on a Phase 3 expansion 

22 project to increase our production by an additional 10 
609

1 million gallons a year by mid 2015. In all, our 

2 facility, when completed, will represent 28 million 

3 gallons per year of production.

4 Additionally, we are in negotiations with a 

5 California producer/distributor to restart the 

6 suspended production at their facility under a joint 

7 venture and increase its production from 5 million 

8 gallons a year to 10 million gallons a year by mid 

9 2015. All of this current production and expansion has 

10 been privately financed. However, any additional 

11 outside financing is in jeopardy of noncommitment 

12 because of this proposed ruling.

13 We currently employ 90 people, and when our 

14 expansion plans are completed, we estimate at a minimum 

15 an additional 50 direct and 250 indirect jobs would be 

16 created utilizing the job modeling established by the 

17 Department of Labor.

18 We oppose the proposed renewable fuel volume 

19 represented in the NPRM today because they represent a 

20 stagnation for a 2-year period. This will seriously 

21 affect our expansion plans and job creation when we 

22 were just starting to obtain an ROI on our initial
610

1 investment of $35 million.

2 It is clear the proposal has an adverse effect on 

3 the market for both fuel and RINs, regardless of the 

4 prior statements that the agency is not responsible for 

5 market conditions. The proposed numbers send a strong 

6 signal to our investors that they deem will be a loss 

7 of investment and jobs. The publicly traded producer 

8 companies have already experienced a share loss on the 

9 markets, and others are reassessing their expansion 

10 plans.

11 Despite the assumption that the tax credit will 

12 have an effect on the industry, we sustained operations 

13 and subsequently grew because the cost to operate our 

14 facility and subsequent operations were controlled with 

15 very good business practices. We will continue to work 

16 to grow and support the industry. However, this ruling 

17 will make it extremely difficult for us to sustain 

18 these objectives.

19 When legislation or rules that are designed to 

20 grow business and industries, such as the EISA and the 

21 RFS, become an impediment to growth, then the 

22 legislation or rule is counterproductive to true 
611

1 business, regardless of its intended purpose.

2 We will provide specific responses to requests for 

3 comments in a formal written submission in accordance 

4 with the timelines of the NPRM. From a company 

5 standpoint, I'd like to thank you for your 

6 considerations of my brief testimony at this hearing.

7 One thing I want to close with here. As I've sat 

8 here all day long, pretty much watching all of you and 

9 watching what has transpired here today and this being 

10 my first experience with this, I do not envy your 

11 position. I've sat here and watched both sides present 

12 their opinions, and it looks like I'm watching C-SPAN.

13 We have those on the right and on the left, and 

14 with all due respect, with the wide disparity in 

15 comments, it looks like this is a gigantic ping pong 

16 match, making volleys back and forth.

17 You've been given a task to establish something 

18 that needs to be fair and equitable and that will move 

19 us in the direction you were charged. And I, for one, 

20 feel sorry for your position because I don't know how 

21 you're going to do that and satisfy everyone. It's not 

22 going to happen.
612

1 Unfortunately, I'm charged with going back to my 

2 investors after tonight and report back to them should 

3 we move forward with expansion plans in a business 

4 they've been committed to for nearly 7 years? 

5 Committed to, but are now questioning where it's 

6 headed.

7 They've seen in their own business practices and 

8 use of biodiesel there is a benefit to this investment, 

9 but the decisions you will make will define whether 

10 this will be sustainable. We see the benefits of this. 

11 We experience the benefit of this.

12 We didn't look at beating each other in the head 

13 with big oil with a 2x4. We sat down and said how can 

14 we work together? I haven't heard that here today.

15 And like I said, I feel sorry for you guys. I 

16 really do. All I can tell you is I hope you have a 

17 good holiday.

18 Thank you.

19 (Laughter.)

20 MR. GRUNDLER: Thank you, and you don't need to 

21 feel sorry for us. We consider this a privilege. We 

22 really do. That has been a great day for all of us.
613

1 Let me ask if there is anybody else who would like 

2 to provide testimony before I close this hearing?

3 (No response.)

4 MR. GRUNDLER: This gentleman looked expectantly. 

5 Okay.

6 Okay. This concludes the hearing on the EPA's 

7 2014 Notice of Proposed Rulemaking for the Renewable

8 Fuel Standard.

9 Thank you all who stuck it out all day here. 

10 We're very grateful for the time. This is what 

11 democracy is all about. Thank you again for your time.

12 Good night.

13 (Whereupon, at 9:44 p.m., the hearing was 

14 adjourned.)

15

16

17

18

19

20

21

22