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23–956 PDF 2017

S. Hrg. 114–555 

EXAMINING TWO GAO REPORTS REGARDING THE 

RENEWABLE FUEL STANDARD 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

REGULATORY AFFAIRS AND FEDERAL 

MANAGEMENT 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

DECEMBER 1, 2016 

Available via http://www.fdsys.gov 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

RON JOHNSON, Wisconsin, Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

JONI ERNST, Iowa 

BEN SASSE, Nebraska 

THOMAS R. CARPER, Delaware 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

CORY A. BOOKER, New Jersey 

GARY C. PETERS, Michigan 

CHRISTOPHER R. HIXON, Staff Director 

GABRIELLE A. BATKIN, Minority Staff Director 

JOHN P. KILVINGTON, Minority Deputy Staff Director 

LAURA W. KILBRIDE, Chief Clerk 

SUBCOMMITTEE ON REGULATORY AFFAIRS AND FEDERAL 

MANAGEMENT 

JAMES LANKFORD, Oklahoma, Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

MICHAEL B. ENZI, Wyoming 

JONI ERNST, Iowa 

BEN SASSE, Nebraska 

HEIDI HEITKAMP, North Dakota 

JON TESTER, Montana 

CORY A. BOOKER, New Jersey 

GARY C. PETERS, Michigan 

JOHN CUADERESS, Staff Director 

ERIC BURSCH, Minority Staff Director 

RACHEL MAIRELLA, Chief Clerk 
(III) 

C O N T E N T S 

Opening statement: Page 

Senator Lankford .............................................................................................. 1 

Senator Heitkamp ............................................................................................ 4 

Senator Ernst .................................................................................................... 8 

Prepared statement: 

Senator Lankford .............................................................................................. 25 

WITNESSES 

THURSDAY, DECEMBER 1, 2016 

Frank Rusco, Director, National Resources and Environment, U.S. Government Accountability Office .................................................................................. 5 

Janet McCabe, Acting Assistant Administrator for Air and Radiation, U.S. 

Environmental Protection Agency ...................................................................... 6 

ALPHABETICAL LIST OF WITNESSES

McCabe, Janet: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 41 

Rusco, Frank: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 27 

APPENDIX 

Letter submitted for the Record by Senator Heitkamp ........................................ 45 

Statement submitted by Anne Steckel, Vice President of Federal Affairs, 

National Biodiesel Board ..................................................................................... 46 

Statement submitted by Biotechnology Innovation Organization ....................... 49 

Responses to post-hearing questions for the Record: 

Mr. Rusco .......................................................................................................... 71 

(1) 

EXAMINING TWO GAO REPORTS REGARDING 

THE RENEWABLE FUEL STANDARD 

THURSDAY, DECEMBER 1, 2016 

U.S. SENATE, SUBCOMMITTEE ON REGULATORY, AFFAIRS AND FEDERAL MANAGEMENT, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 2:30 p.m., in room 

342, Dirksen Senate Office Building, Hon. James Lankford, Chairman of the Subcommittee, presiding. 

Present: Senators Lankford, Ernst, Sasse, Heitkamp, and Tester. 

OPENING STATEMENT OF SENATOR LANKFORD 

Senator LANKFORD. Good afternoon, everyone. 

I want to welcome everyone to today’s Subcommittee hearing titled Examining Two GAO Reports Regarding the Renewable Fuel 

Standards (RFS). Thanks for being here. 

Today is this Subcommittee’s second hearing on the Renewable 

Fuel Standard and my fourth hearing total on this topic since being 

elected to Congress, committed to continuing the oversight of the 

RFS until we find a solution to what has become this deeply flawed 

program. 

In 2005, Congress established the RFS with the goals of reducing 

our Nation’s dependence on foreign oil and lowering greenhouse 

gas emissions by mandating that biofuels be blended with domestic 

transportation fuel in increasing volumes until the year 2022. After 

that time, the Environmental Protection Agency (EPA) will have 

wide latitude to decide the volume of biofuels that must be blended 

into the gasoline supply. 

However, the situation has changed pretty dramatically since the 

RFS enactment in 2005, and in subsequent 2007 revision. Demand 

for oil in the transportation sector is lower than originally predicted, in part due to heightened fuel economy standards and sluggish economic growth. Further, given the substantially increased 

domestic oil production resulting from the shale oil boom, the 

United States also imports much less oil than initially forecasted. 

For instance, in 2005 and 2007, we were importing 60 percent of 

our oil; now it is 27 percent. 

Through a series of hearings, I have worked to determine the 

structure and viability of the RFS to achieve its goals. Specifically, 

I have tried to understand the RFS through the eyes of the EPA 

and appreciate how difficult it is for the agency to administer the 
2 

program. Congress created the unworkable RFS formula. The EPA 

is left trying to make it work anyway. 

The EPA is required to release the final volumes of biofuels to 

be blended with the gasoline supply by November 30 of the preceding year, to allow industry participants and other stakeholders 

to comply and plan for the future. Between 2009 and 2015, EPA 

failed to meet this November 30 deadline and only finally released 

final mandated volumes for 2014 through 2016, on November 30, 

2015, one year late for the 2015 volumes and two years late for the 

2014 final volumes. 

I would like to recognize the EPA has released its 2017 volumes 

on November 23, meeting the statutory deadline, in fact, beating 

it by all of seven days. You are making up ground. 

Recognizing the difficulties the EPA faces with the RFS, on April 

6, 2015, I asked the Government Accountability Office (GAO) to examine the viability of the RFS and determine whether the program 

will be able to meet its goals in the future. It has taken GAO approximately 19 months to conduct a thorough, independent analysis of the RFS and finalize its conclusions. In order to reach its 

conclusions, GAO, in coordination with the National Academy of 

Sciences, convened a group of stakeholder experts from industry, 

academia, and the nonprofit sector to produce two reports on the 

RFS, both of which were released Monday, November 28, 2016. 

GAO’s first report determined that advanced biofuel production 

is unlikely to meet the RFS’s increasing production targets. GAO 

noted that advanced biofuels are still too expensive for stakeholders to produce it at necessary levels to meet the RFS increasing targets through 2022, even with government-funded research 

and development (R&D) and mandated subsidies. 

Despite the Federal Government spending of $1.1 billion between 

fiscal years (FY) 2013 and 2015, for advanced biofuel research and 

development, GAO determined that advanced biofuel targets are 

unattainable. 

In its second report, GAO concluded that the RFS is unlikely to 

meet its goal of reducing greenhouse gas emissions. The production 

of advanced biofuels, which should reduce greenhouse gas emissions, will remain too limited to meet the program’s greenhouse gas 

reduction targets. For example, in 2015, cellulosic biofuel, an advanced biofuel category, was produced at a meager 140 million gallons, less than five percent of the statutory target of three billion 

gallons. 

This hearing will give GAO the opportunity to present its findings on the RFS from these two reports and the EPA to comment 

on the findings. With the release of the GAO reports, we have an 

independent government auditor’s findings that confirm the 

stances many in Congress, including myself, have come to hold, 

that the RFS is not sustainable and will not meet its intended 

goals. 

This program yields few benefits but it inflicts substantial cost 

on consumers. Rather than continuing with an unwieldy program 

which consistently fails to meets its targets and goals, it is time for 

Congress, the next administration, and the American public to do 

away with the RFS. 
3 

Here is my comparison. Last year, Congress looked again at education. Fifteen years ago, we created No Child Left Behind, in a 

very eager effort to do what is best for our kids in the future. There 

was a whole series of mandates that were put in place with No 

Child Left Behind. Fifteen years later, Congress looked at it again 

and said those mandates were the wrong way to go, and we fixed 

it. We came back in wide bipartisan majorities, after extensive research and examination, and said it is time that we do away with 

these mandates and do education a different way. It is not that we 

do not like education; we do. We just went a wrong direction with 

No Child Left Behind and we fixed it. 

It is not that any of us are opposed to ethanol. It is a good fuel 

source. It is a good octane booster. It is in the fuel supply right 

now. It is not that I meet anyone that is opposed to ethanol. It is 

the series of mandates that were put in place and volume requirements that are not sustainable. 

I am delighted to have the EPA’s Janet McCabe and GAO’s 

Frank Rusco here today as witnesses to engage in a productive conversation on the RFS. 

I look forward to continuing this Subcommittee’s oversight of the 

RFS with my colleagues and our witnesses today. 

I will recognize the Ranking Member, Heidi Heitkamp, for her 

opening statement when she arrives. She is running a little bit behind, but as we always say, the lady is never late. So when she 

gets here I will allow her to be able to do her opening statements. 

With that, let me swear in our witnesses. 

If you would please stand. 

Do you swear the testimony that you are about to give before 

this Subcommittee will be the truth, the whole truth, and nothing 

but the truth, so help you, God? 

Ms. MCCABE. I do. 

Mr. RUSCO. I do. 

Senator LANKFORD. Thank you. Let the record reflect the witnesses answered in the affirmative. You may be seated. 

Let me do a quick introduction for both of you, and then when 

Senator Heitkamp arrives, even if it is after your testimony, I am 

going to have her do an opening statement as well. 

Frank Rusco is the Director of the Government Accountability 

Office’s Natural Resources and Environment team, leading work on 

a broad spectrum of energy issues. Mr. Rusco holds both a master’s 

degree and a Ph.D. in economics from the University of Washington in Seattle. 

Janet McCabe is the Acting Assistant Administrator for the Environmental Protection Agency’s Office of Air and Radiation (OAR), 

having previously served in the OAR’s Principal Deputy to the Assistant Administrator. Ms. McCabe was also the Executive Director 

of Improving Kids’ Environment, Inc., in Indianapolis, Indiana, and 

from 1993 to 2005, held leadership positions in the Indiana Department of Environmental Management’s Office of Air Quality. Ms. 

McCabe served as Assistant Attorney General for environmental 

protection in Massachusetts and graduated from Harvard College 

in 1980 and Harvard Law School in 1983. 

Thank you, both, for being here as well, and with that I would 

recognize the Ranking Member for opening statements. 
4 

OPENING STATEMENT OF SENATOR HEITKAMP 

Senator HEITKAMP. Thank you, Mr. Chairman, and again my 

great apologies for being a little late. It has been a crazy day. 

First off, I want to thank both of our witnesses for attending this 

hearing. This actually follows on our hearing last June on the RFS. 

In that hearing, we discussed, at length, issues we saw with the 

EPA’s management of the program and the statute, and I am glad 

EPA took our words to heart, and that just last week the RFS is 

back on track and hit the levels required by law for calendar year 

2017, for most fuels, and they even increased the volumes for 

biofuels and advanced biofuels. So thank you, Ms. McCabe, for your 

good work on that. We were grateful. Wish it would have come a 

little earlier, but we will take it when we can get it. 

Of course, EPA did not meet the statutory levels for some advanced biofuels, allegedly because of the lack of production, and we 

want to hear more about that, and that really is what generated 

this discussion today. 

Senator Ernst and I noted last June that such delays in setting 

up the program and in setting annual volume obligations really did 

lead to stalled investments in advanced biofuels, and so had we 

had more certainty in the marketplace we could have actually, I 

think, seen the kind of investment that it would have taken to get 

that product into the market. 

So the reports that we are reviewing today do not necessarily 

come as a surprise. GAO found that we will not meet some of the 

statutory targets for advanced biofuels or greenhouse gas reductions, two measures which, arguably and do, go hand in hand. 

Again, this is not a surprise or even new, as we acknowledged at 

last year’s hearing. It was part of the disruption that we saw in 

the marketplace as a result of uncertainty from earlier decisions. 

Fortunately, the authors of the RFS made contingency plans if 

EPA ever found the industry was not ready to meet these targets, 

and the law allows EPA to reduce those annual obligations. This 

is why having annual rule-setting is helpful, though it also brings 

a level of uncertainty. We can adjust course when it is absolutely 

necessary. The authors put in place authorities for EPA to rewrite 

the statutory levels through the reset authority, and I look forward 

to discussing that here today with both of our witnesses. 

So I look forward to hearing from the witnesses and discussing 

how we can work together with the industry and the administration, and we certainly note that President-Elect Trump supports 

the RFS, and we all know how important that is to markets and 

to certainty for our farmers. 

So we are grateful that you are both here. This is will be an ongoing and continuing subject of discussion. But if you are going to 

be for all of the above, this is a key component to an energy policy 

that helps us diversify our energy sources, moving into the future. 

Congress was wise when they first enacted it, providing these incentives. I want to see that these incentives work. 

And so thank you, Ms. McCabe, thank you, Mr. Rusco, for being 

here. I look forward to your testimony. 

Thank you, Mr. Chairman. 

Senator LANKFORD. Thank you as well. 

Mr. Rusco, you are recognized for your opening statement. 
5 

1The prepared statement of Mr. Rusco appears in the Appendix on page 27. 

TESTIMONY OF FRANK RUSCO,1 DIRECTOR, NATURAL RESOURCES AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. RUSCO. Thank you, Chairman Lankford, Ranking Member 

Heitkamp, and Members of the Subcommittee. I am pleased to be 

here today to discuss GAO’s two Reports on the Renewable Fuel 

Standard program. 

In response to a request from Chairman Lankford, we undertook 

two studies on the RFS. One study reported on Federal efforts to 

support R&D for advanced biofuels and the current state of technology as well as prospects for meeting the RFS statutory targets 

for advanced biofuels production. The second study reported on 

EPA’s administration of the program and how that administration 

could be improved as well as the prospects for meeting the RFS 

goals for reducing greenhouse gas emissions, among other things. 

To do these studies, we entered into a contract with the National 

Academy of Sciences to identify a broad and comprehensive group 

of experts who could assist us in answering our questions. Last 

spring, we held a group meeting at the Academy with 20 of these 

experts and explored the state of technology and prospects for 

meeting production targets for advanced biofuels. We also met individually with 24 experts identified by the Academy, to evaluate 

EPA’s administration of the program. In addition, we spoke with 

officials from the Department of Energy (DOE), Department of Agriculture (USDA), EPA, the National Science Foundation (NSF), 

and the Department of Defense (DOD). We also visited research 

laboratories in Iowa, Illinois, and Wisconsin, and interviewed representatives of 11 advanced biofuels producers that use a wide variety of feed stocks and conversion technologies. Finally, we reviewed numerous studies and reports pertinent to our questions. 

The most salient finding of our reports is that it is unlikely that 

advanced biofuels can meet statutory targets for the RFS in the 

near to mid term. Specifically, production of advanced biofuels fell 

below statutory targets by well over one billion gallons in 2014, 

and is expected to be almost five billion gallons short by 2017. 

While there is some room for growth of advanced biofuels, particularly for the fuels that have already been commercialized, we found 

broad expert consensus that this growth potential in the near to 

mid term falls far short of RFS statutory targets. 

The second major finding is that changes to law or EPA’s administration could marginally improve the program and the investment 

climate for advanced biofuels. For example, experts said that 

changing obligated parties to blenders as opposed to oil refiners 

would improve the functioning of the Renewable Identification 

Number (RIN) market, reduce RIN fraud, and eliminate an asymmetric burden on small, independent refiners who are not also 

blenders of biofuels. In addition, providing Federal tax credits that 

do not expire periodically would reduce uncertainty. 

However, there remained significant barriers to adding more 

biofuels to the transportation fuel network. These include the need 

to install costly infrastructure at retail stations, to educate consumers about how to value different blends of biofuels, and ad-
6 

1The prepared statement of Ms. McCabe appears in the Appendix on page 41. 

dressing the risk that increased advanced biofuels use, if mandated, will lead to higher consumer fuel prices. These barriers, if 

not overcome, will constrain growth in biofuel use and also dampen 

investors’ appetite for risk. 

The third major finding is that because advanced biofuels production targets are unlikely to be met, so too are the goals set out 

for the RFS, including greenhouse gas reductions. Specifically, experts questioned the extent to which the RFS is achieving its goal 

of reducing greenhouse gas emissions, considering that most of the 

biofuels produced today come from cornstarch conversion technologies which do not yield large reductions in greenhouse gases. 

With regard to reducing reliance on imported fuels, the United 

States has made great progress in recent years in reducing net imports of petroleum, in large part because domestic oil production 

has increased dramatically. Domestic biofuel production, net of imported biofuels, have also helped, but to a much smaller degree, 

and further progress would require breakthroughs in development 

of cost-competitive advanced biofuels. 

Last, experts generally agreed that meeting goals of the RFS 

could be done more efficiently using other policies. In particular, a 

carbon tax or low carbon fuel standard (LCFS) would more directly 

incentivize greenhouse gas reductions than does the RFS, and 

would do so at lower cost. 

GAO does not make any recommendations in these two reports 

because we feel there is no consensus among experts on how best 

to proceed with the policy, in general. 

This ends my prepared statement. I will be happy to answer any 

questions you may have. 

Senator LANKFORD. Thank you. Ms. McCabe. 

TESTIMONY OF JANET MCCABE,1 ACTING ASSISTANT ADMINISTRATOR FOR AIR AND RADIATION, U.S. ENVIRONMENTAL 

PROTECTION AGENCY 

Ms. MCCABE. Thank you, Chairman Lankford, Ranking Member 

Heitkamp, and other Members of the Subcommittee. I also appreciate the opportunity to be here and testify on the Renewable Fuel 

Standard program and on EPA’s recent final rule, setting the annual volume standards for 2017 and the biomass-based diesel volume requirement for 2018. 

The RFS program began in 2006, under the Energy Policy Act of 

2005, and was subsequently modified by the Energy Independence 

and Security Act of 2007. That law’s stated goals include moving 

the United States toward greater energy independence and security 

and increasing production of clean renewable fuels. The law established new annual volume targets for renewable fuel that increase 

every year, to reach a total of 36 billion gallons by 2022, including 

21 billion gallons of advanced biofuels. Congress also included 

tools, known as waiver provisions, for EPA to use to adjust the 

statutory targets in specified circumstances, including where the 

statutorily prescribed volumes could not be met. 

The Clean Air Act requires EPA to issue annual standards for 

four different categories of renewable fuels: total, advanced, bio-
7 

mass-based diesel, and cellulosic. These standards designate the 

percentage of each biofuel category that producers and importers of 

gasoline and diesel must blend into transportation fuel, and must 

be issued by November 30 of each year for the following year, and 

14 months in advance for biomass-based diesel category. 

EPA is committed to successful implementation of the RFS program, and the past year has been an active and productive one for 

the program. 

One of our chief priorities, if not the chief priority, has been 

timely issuance of the annual volume rules, and we have stayed on 

schedule for the 2017 rule, as the Chairman acknowledged, and we 

just finalized that last week. The final rule incorporates the most 

up-to-date data available to us, and is informed by written stakeholder comments, by input provided during a public hearing we 

held this year in Kansas City, Missouri, and by our consultation 

with the Departments of Energy and Agriculture. 

The 2017 volume final rule established requirements for cellulosic, advanced, and total renewable fuel for 2017, and includes 

a biomass-based diesel volume requirement for 2018. The 2017 

final rule once again establishes ambitious but achievable targets 

for the RFS program, and becomes part of what is not a multi-year 

track record of growth. As finalized, total renewable fuel volumes 

would grow by nearly 1.2 billion gallons between 2016 and 2017. 

Advanced renewable fuel, which requires a minimum 50 percent 

lifecycle greenhouse gas emissions reductions, would grow by nearly 700 million gallons from 2016 to 2017. And while Congress did 

not establish specific goals for non-advanced or conventional 

biofuels, the established targets for total and advanced fuel means 

that conventional biofuels would read 15 billion gallons. The 2017 

final rule achieves that level. 

Biomass-based diesel, which must achieve at least 50 percent 

lifecycle emissions reductions, would grow by at least 100 million 

gallons from 2017 to 2018, and the final 2018 standard is more 

than double the congressionally mandated minimum level of one 

billion gallons. Finally, cellulosic biofuels, which requires 60 percent lifecycle carbon emissions reductions, would grow by 81 million gallons, or 35 percent, between 2016 and 2017. 

Beyond the volume rule, the Agency remains active in multiple 

other areas of the program, and I would like to briefly mention two. 

On November 16, we published the ‘‘Renewables Enhancement and 

Growth Support’’ (REGS) proposed rule, a collection of proposed revisions to the fuel regulations that will support market growth of 

advanced and other biofuels in the United States. That proposal, 

among other things, would establish an updated regulatory structure that would allow biofuel producers to partially process renewable feedstocks at one facility and further process them into renewable fuels at another facility under existing pathways. This would 

improve the economics and efficiency for the production of biofuels, 

particularly advanced and cellulosic fuels. The proposal strongly reflects input we have received from many stakeholders in recent 

years, and we are looking forward to people’s comments in January. 

The second thing to mention is that over the past year, EPA has 

received several petitions from RFS stakeholders asking us to 
8 

change the point of obligation under the program. That has already 

been mentioned. Currently, refiners and importers of gasoline and 

diesel are the regulated parties under the RFS program, and certain stakeholders have asked us to initiate a rulemaking to change 

that point of regulation to a point further downstream, such as 

blenders. There has been a huge amount of input from a wide 

range of stakeholders with widely divergent views, and on November 10 of this year we issued a proposed denial of these positions 

that examines the issue in depth and, importantly, provides an opportunity for the public to provide comment to the Agency, which 

was a strong request as well. So we are, again, looking forward to 

people’s input on that. 

And just recently, the GAO issued these two reports. We provided responses to drafts of both reports and appreciate that opportunity, and those comments are included as part of the final report. 

Broadly speaking, the reports examine the same challenges that we 

have recognized and that we have talked about before, associated 

with reaching greater levels of advanced biofuel production, especially cellulosic fuels, and we welcome the discussion in the reports 

and certainly the discussion today. 

So we recognize that there are opportunities and challenges 

ahead. We are committed to implementing Congress’s statute the 

best way we can, to achieve Congress’s goal, and look forward to 

the conversation today and appreciate the opportunity to be here. 

Senator LANKFORD. All right. Thank you. 

The Ranking Member and I are deferring our questions to the 

end. 

We recognize Senator Ernst. 

OPENING STATEMENT OF SENATOR ERNST 

Senator ERNST. Great. Thank you, Mr. Chair, and thank you to 

both of you for appearing today. 

This is an interesting topic for a number of us, and especially for 

me, coming from the Midwest, where this is a great part of our 

economy. So, again, I always appreciate the opportunity that we 

have to discuss the RFS, and it really has spurred investment in 

domestic energy production. It has helped grow our economy 

throughout the Midwest, especially in those rural areas. And it has 

brought a lot of competition, needed competition, to the gas pump, 

saves American consumers money, and reduces reliance on foreign 

oil sources. 

So while some of the aggressive production targets for advanced 

biofuels originally envisioned by Congress have not been 

achieved—and I think we all recognize that—it is certainly not 

time to hit the panic button and pull the rug out from under this 

burgeoning industry. We are really just getting started, is how I 

feel about this. 

And so, Mr. Rusco, one of the reports that GAO had, states that 

bolt-on cellulosic technology at existing plants is the most cost-effective means for generating those advanced biofuels, and I did 

visit one of those facilities, one of the bolt-on facilities, in Galva, 

Iowa, earlier this year, and they are using corn fiber, which is a 

byproduct of the ethanol process, to create cellulosic ethanol. And 

this is a great example of what this was originally intended to do. 
9 

It was to support the expansion of conventional biofuels as a 

springboard for those advanced biofuels. And if we create further 

uncertainty about the future of the RFS and our commitment to 

biofuels, it will only serve to slow our research and investment 

down toward attaining these goals originally set by Congress. 

So my question to you would be, what are the most effective 

things that we can do, as a Federal Government, to provide certainty so that these companies want to invest in the advanced 

biofuel production process? What can we do to provide certainty? 

Mr. RUSCO. So we did hear from a number of people that—cer- tainly, certainty about the availability of Federal tax credits, the $1 

per gallon tax credits. We also heard from a lot of the producers 

that they really relied on Federal funding for R&D because there 

really is not available investment funding from the private sector 

that is sufficient to do a lot of the research that they need. But we 

also heard that even with those changes, they are many years 

away from bringing even the technologies that they understand 

very well, like cellulosic ethanol, and for which there are currently 

a couple of commercial plants, they are many years away from 

bringing costs down to where they would be competitive in a market sense. 

Senator ERNST. OK. Thank you. 

And Ms. McCabe, I want to first applaud, just as the Vice Chair 

did, for the EPA getting RFS back on track last week. We appreciate that, and the issuance of the final 2017 Renewable Volume 

Obligation (RVOs). And can you highlight the factors that led to 

the Agency increasing the blending targets from the proposed levels to the final rule? 

Ms. MCCABE. Yes. So the major factor that we look at, and we 

update it throughout the year, is expected gasoline usage, and so 

there were—we rely on Energy Information Administration (EIA) 

for their estimates of that. And so it was predicted that there 

would be additional gasoline usage in 2017, which allowed us to 

grow those volumes. And we just continually update our expectations about the ability of the industry to produce volumes, and so 

when we put all that together, that is the way the numbers fell 

out, that we were able to increase those volumes. 

Senator ERNST. OK. Very good. Well, I appreciate that very 

much. 

We do have some challenges in the industry, but again, I think 

providing certainty, going back, is an important part of ensuring 

that we can stay on target with the production of ethanol and 

biofuels, advanced biofuels. And we have seen other concessions 

made within the Federal Government, other tax credits for other 

petroleum-based products. We see it with fracking. I do not see 

why we should not continue with research and development in this 

area, especially when it has done a great deal to support the economy, especially when we have downturns in the agricultural economy, like we have seen in the last number of years. 

So I encourage you to continue supporting the RFS. Let us look 

at ways we can further research and development in this industry. 

I think it is a valuable part of our American economy. 

But I want to thank you both for being here today and answering 

our questions. Thank you. 
10 

1The letter submitted by Senator Heitkamp appears in the Appendix on page 45. 

Thank you, Mr. Chair. 

Senator LANKFORD. All right. Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman. Before I begin my 

questions, I just want to ask that the letter that I am going to 

hand to you is, in fact, introduced into the record.1 It is signed by 

a number of groups who frequently you will not find their names 

on the same letter. They are suggesting and expressing their unified position in opposition of efforts by petitioners to move the point 

of obligation on compliance. You have API and the RFA on the 

same letter. That is pretty remarkable. 

Senator LANKFORD. Without objection. 

Senator HEITKAMP [continuing]. That might speak some volumes 

in terms of answering the petition, and obviously we hope that you 

give full consideration, but these interest groups have been long involved in this, and for them to share a common opinion might put 

a little more weight on what they are doing, or what they are suggesting. 

So I think we are all trying to get a handle on how we do not 

have this happen again, where the market is unresponsive, or is 

in a position of uncertainty given the lack of certainty on where we 

are headed, in terms of numbers. And so in order to prevent that 

from happening again, I think we have to better understand why 

the market did not respond and come to numbers that were adequate to meet the quotas or meet the levels. 

So I guess my first question would be for you, Mr. Rusco. In your 

opinion, what was the most significant contributor to the delay in 

advanced biofuels production? Was it delays in setting up the RFS 

program, initially, uncertainty related to the RVOs’ timing from 

the litigation and flawed—what I believe was flawed—reading of 

the statutory waivers, or was it really more about tax uncertainty, 

or was it something all together? And in your opinion, in the work 

that you did, do you believe that had we had maintained a level 

of statutory certainty, or certainty in meeting those statutory requirements, we would have seen the level of investment that would 

have been able to meet the standards? 

Mr. RUSCO. I think that it is pretty clear from most of the people 

that we spoke with, including producers of advanced biofuels and 

researchers in that area, that, sort of, the biggest issue is the price 

of oil. So if the price of oil is very high, then there is going to be 

more investment in alternatives to that, and when the price was 

high a number of years ago, even some oil companies were diversifying and investing in biofuel technology. But when the bottom fell 

out of the market for oil, and also with reductions and slower 

growth since then of motor fuel demand in the United States, investors just looked at biofuels as not as viable an investment as 

other things, so money flowed elsewhere. 

I do think that in the margin, things like—regulatory uncertainty and uncertainty about tax credits, do play a role, but what 

we have found is that, for example, cellulosic ethanol, which is 

probably the most likely advanced biofuel to be technologically and 

commercially ready in the near to mid term, it will require multiple 

generations of plants to achieve the kinds of efficiencies that might 
11 

bring it down to where it is commercially viable. But that also, 

then, depends on, again, on the underlying price of motor fuels. 

And so that, I think, is the biggest. 

Senator HEITKAMP. I mean, I understand what you are saying, 

that a lower-price competitor can drive investment someplace else 

and cause people a lot of concern, but so can regulatory uncertainty. And I think when we look at advanced—not to put a fine 

point on it, but this is a building block industry, as you look at 

other potential available growth in advanced manufacturing for ag 

products. I used to say, well, we want to move beyond food, fiber, 

and fuel, and the pushback I always got is that this technology 

that can be developed, and the plants that can be developed, really 

provide the building block for other opportunities, whether it is 

Styrofoam or whether it is seat covers or all of that begins at this 

level of innovation. 

And so I think there is, beyond an all-of-the-above energy policy 

that really works for the United States and gives us the diversity 

in our fuel choices, we have to realize that this is also technology 

that is very transferrable to other kinds of renewable manufacturing, and it is critical, as we look into the future, of how we utilize natural resources, especially the natural resource of the soils 

and the stuff that we grow in our country. So we are hopeful that 

we will have consistency now going forward which will lead to predictability. 

But I want to get to the reset authority. I only have so much 

time and I think it is important that we remember that the reset 

authority, when we have this discussion around reports and not 

meeting advanced fuel mandates, just because, for a variety of reasons, we do not meet the targets does not mean the law is either 

a failure or needs amendment. 

We have a process in place to, I think, correct, if necessary. I 

think, Ms. McCabe, the 2007 law that Congress passed included 

the reset provision to allow EPA to adjust the RFS mandates after 

2016, if the volume totals in the table had gone below the law by 

20 percent in two consecutive years, or by 50 percent in one year. 

Has this authority been triggered for any of the tables in the law 

today, and since the authority—I guess I would just like you to explain where you see the reset authority today and the likelihood of 

reset, and if—what role this disruption played in getting to the 

reset authority. 

Ms. MCCABE. So just to explain what Congress laid out, you have 

it exactly right—20 percent in two years or 50 percent in one year. 

So those levels have been triggered for cellulosic and for advanced, 

but not for total. And so the Agency has not—and we have just finished—we are just finishing 2016—the Agency has not embarked 

upon a reset rule. We, of course, are paying close attention to it. 

A couple of things are going on that cause us to think really hard 

about how to proceed with that. One is the idea of moving forward 

with one or two, but not all of the volume standards, seems like 

it could be very disruptive to the market because of the careful balance that Congress established with the relationship of those 

nested standards. We also still have some ongoing uncertainty because of pending litigation about our authorities with respect to the 

waiver, in particular, but other things as well. 
12 

So we have not hit even the first-year trigger for total, so it 

would be at least two more years before that—all three would be 

triggered, and that is kind of where we are with the reset. 

Senator HEITKAMP. Yes, and we do not want a self-fulfilling 

prophecy, which is the reset happens because we have reset. 

So, Mr. Rusco, was this reset discussed by your panelists, and 

would the reset not make the report on not meeting increasing targets moot since the law already addresses this? 

Mr. RUSCO. It did come up but our report just is focused on what 

is likely to be available in terms of how much volumes will be 

available, not necessarily whether or not the industry will be in 

compliance. 

Senator HEITKAMP. We keep talking in circles, because one of the 

problems that we have, and that we have had from the beginning, 

is what is available depends on regulatory certainty, and I recognize the marketplace, and we were a big producer of oil so we understand what is happening with oil. But, the frustration for me is 

that we say, well, ‘‘What is available? What is available?’’ What is 

available is going to depend on what there is capital investment for 

and whether there is capital investment and innovation is going to 

depend on regulatory certainty. 

So we are in this kind of spiral that deeply concerns me, and I 

am wondering, when you discussed the reset, was this, the, well, 

what if we had not had regulatory uncertainty, what if these targets had remained available, we would then have the ability to 

amp up and meet the requirements under the law or the targets 

under the law? 

Mr. RUSCO. So I do not think that we heard a lot of people say 

that if EPA had maintained the statutory targets that they would 

have been met. I do not think anybody said that. What they did 

say is that, going forward, reducing regulatory uncertainty improves marginally the investment climate. But I think that they 

also did not say that that would sort of fix the problem and that 

there would be adequate investment to get there. 

Senator HEITKAMP. Where they would have been likely to say a 

$100 a barrel will fix the investment problem. They were not willing to say, $40 to $50 a barrel with regulatory uncertainty was not 

causation for the problem? 

Mr. RUSCO. Well, in the report where we talked about R&D and 

the sort of state of science, they are just well up the curve on commercialization and bringing costs down. They are far above the 

market rate. They are many years from that under the most optimistic scenarios. So even if you threw money at it, a lot of money 

at it, which right now there is not a lot of money being thrown at 

this, you would be many generations of plants, even for the already 

sort of commercial scale operations, you are many generations 

away from achieving the efficiencies that are available, and the 

current cost at which they can produce is so high that you would 

need many generations in order to bring those costs down, if it is 

possible at all. And so—— 

Senator HEITKAMP. So the discussion really went to technological 

impossibility, at this point in time. 
13 

Mr. RUSCO. Not impossibility, but that it is just far away 

from—the cost, currently, given the state of technology, is very 

much higher than a market competitive price of motor fuels. 

Senator HEITKAMP. Well, I think we are going to have an ongoing 

discussion, given that we have reached the trigger on the reset, 

and I know the Chairman has been discussing this quite a bit, and 

we need to live in reality. I get that. But we also need to understand that this was designed to create an environment, a regulatory environment, and a regulatory certainty that would grow investment and grow technology. And I think we have missed a couple of years here because of the uncertainty that has been in the 

market. 

So with that I will yield to the Chairman. 

Senator LANKFORD. Let me pose a few questions and then I 

would like to just open this up, as we typically do in our committee, 

to more open conversation from there. 

Ms. McCabe, the statute itself, the way that it was designed in 

2007, had a high volume for corn-based ethanol at the beginning 

and then a decreasing amount. If I remember correctly, the number 

was around 44 percent by the time we get to the end of the window. That is the other part of the statute that is the battle for you, 

because while you are trying to follow a statute that was written 

in an unworkable way, and this put you in an untenable situation 

to be in waiver-land, to constantly have to work with every side of 

an argument to try to figure out how to be able to match this when 

there is really—the statute itself does not work with the gallons requirement, based on the gallons that we are using—so you are having to work through this process. 

How are you balancing this issue of the statute requires we use 

much less corn ethanol and much more cellulosic and advanced, 

when the technology does not exist yet for large-scale production of 

the advanced and for cellulosic? So, literally, for you to be able to 

keep a total amount and not do a reset of total amount, you are 

having to violate a different part of the statute, which requires we 

use less of this one. How does that conversation go for you all? 

Ms. MCCABE. Well, that is exactly the point I was making a 

minute ago about our concern about moving forward with reset on 

two of the categories and not the third, because of that balance. 

The goals of the statute, as I understand it, Senator, are really to 

focus, in the long term, on advanced biofuels, and in particular on 

cellulosic biofuels that provide the most opportunity for greenhouse 

gas reductions. And as has been discussed already here, that is an 

industry that is just starting, as compared to the petroleum institute—industry, or the ethanol industry, where those technologies 

have been around for quite a long time. 

So I think it was a tall order, and this is what Congress does, 

in establishing the aspirational legislation to move things in a certain direction—I do not mean aspirational in the sense that we are 

not supposed to do it, but it was a vision, and an ambitious one. 

So our focus, and the Administrator’s focus, all along, in every 

rule, has been we need to be providing as much encouragement as 

possible to advanced biofuels, to cellulosic biofuels, as we can, and 

because we are just at the point now, with this rule, where we have 

gotten to that maximum conventional amount, we are now moving 
14 

to the area where hopefully those volumes will continue to grow, 

continue to grow, and move toward that ultimate proportion that 

you mentioned. 

Senator LANKFORD. Some of this has been a redefinition of what 

is included in cellulosic and what is included in advanced fuels, as 

you have expanded more the biogas and some of those things. So 

give me a percentage for the advanced fuels, of what is—what was 

defined as an advanced fuel, let us say, four or five years ago, and 

then some of the changes that have been made to be able to add 

in some of the other types of fuels. 

Ms. MCCABE. Well, it is not quite a redefinition because the statute says in order to count as cellulosic you have to get a 60 percent 

reduction, and advanced, a 50 percent reduction. So there are processes in the rule which we are implementing as expeditiously as we 

can to identify and approve, when people come to us with pathways. And so for each one of those we look at what the applicant 

comes to us with, and what does this mean in terms of the reduction, and does it qualify as a cellulosic fuel or does it qualify? 

So things that have been approved recently, one of the most 

promising is biogas, which qualifies as a cellulosic fuel and has allowed us to increase volumes of cellulosic quite significantly, and 

we continue to look for those technologies, and as they fit into different categories we will put them in the right category. 

Senator LANKFORD. In that particular area, and it is promising 

on the biogas to be able to see that, the feedstock for that and the 

ability, that has been some of the challenge with biodiesel, is that 

it has been very productive, it has exceeded its targets on it, but 

the amount that we actually produce of feedstock is the problem for 

that. You have to be able to literally kill more hogs or find more 

way to get grease or something else to be able to go after that, to 

be able to get more of it. 

Are we going to have the same issue with the biogas as well? Is 

there a cap in the amount of feedstock that is out there? 

Ms. MCCABE. I do not know the answer to that. I would be happy 

to find out. I mean, certainly with any of these feedstocks, that is 

a part of the analysis, is how much is available—how much more 

can and should be encouraged and is cost-efficient to encourage, 

and that is where the market comes into play in a significant way, 

and people continue to innovate also. 

Senator LANKFORD. And the innovation we want to be able to 

maintain. Obviously that is part of where we are. We always want 

to be able to innovate in energy. 

Ms. MCCABE. Right. 

Senator LANKFORD. Mr. Rusco, as I go through the two reports, 

the key takeaways that I get from the two reports, one is, based 

on where we are, what is happening, the production levels, we are 

not seeing a reduction in greenhouse gases and we will not see that 

in the foreseeable future unless there is a very significant change 

in the advanced fuel and cellulosic. Is that correct? 

Mr. RUSCO. The reduction in greenhouse gas emissions is uncertain in terms of conventional biofuels, in large part because most 

of the conventional biofuel production was already in place before 

the requirement to have a 20 percent reduction. So we do not know 
15 

how much reduction there is. It really just depends on what technologies they are using, and that has not been measured. 

For the small proportion that are subject to that 20 percent reduction, then there is still a little bit of debate about how much of 

a reduction there is with conventional ethanol because some people 

think that EPA’s model has not effectively taken into account indirect land use, the effects on carbon emissions. But that aside, if you 

assume that that part has 20 percent and then the advanced 

biofuels that are in the market are 50 or more percent, then there 

has been a modest reduction in greenhouse gas emissions, but it 

will only grow significantly with growth of advanced biofuels. 

Senator LANKFORD. OK. Ms. McCabe, let me follow up on one 

thing on that, because Mr. Rusco brings up one of the issues and 

that is about land use. The original design of this was to make sure 

that grasslands did not suddenly have corn planted on them as 

well, and have expansion. Are you confident that right now, we do 

not have things that used to be grasslands being now used for corn, 

based on the ethanol requirement, and if so, how are you monitoring and assuring that? 

Ms. MCCABE. That is something that we look at every year, for 

every rule, and we work with our fellow Federal agencies to make 

sure that we have the best information possible on that, and that, 

indeed, was the expectation, and in each rule we provide our analysis and the background information of how we have come to our 

conclusion that that is not happening. 

Senator LANKFORD. So if I remember correctly, and again, it is 

off the top of my head, about eight million additional acres are now 

corn that used to not be corn. So your confidence is that those were 

acres that were planted with wheat or with soybean or something 

else that are now corn. They were not just originally grasslands. 

They have now been transferred into corn use? 

Ms. MCCABE. Well, I think I would like to have the opportunity 

to get back to you with more specifics on exactly what our analysis 

showed and the reasons for our conclusions. 

Senator LANKFORD. OK. That would be terrific. 

The one thing that I heard over and over again was, one of the 

reasons that we are not seeing the gain in ethanol is because the 

price of gasoline is too cheap, that if gasoline was $5 a gallon there 

would be not necessarily more incentive but the cost of the ethanol 

and the cellulosic would be closer in price, meaning that the more 

that we put some of the ethanol into gasoline now, with the lower 

price of gasoline that we face now, we are actually paying more per 

gallon for a gallon of gas with the ethanol blend than we would if 

it was 100 percent gasoline and was typical on it. 

Have you all been able to run any numbers on the cost—and 

again, that changes every day, with multiple features, based on the 

RINs prices, the price of crude oil, the price of the ethanol, where 

it is coming from. I get that. Have you all had any opportunity to 

be able to look at just snapshots of different days, what the differences in price are, based on ethanol or non-ethanol, and what 

that would be for the consumer? 

Mr. RUSCO. We have not done that in the course of this work. 

In looking at past work, we did have an opportunity, years ago, to 

look at ethanol and gasoline prices and ethanol use. Most of this 
16 

did not make it into a report, but we—and it was not really our 

objective—but just as we looked at it, you could see what looked 

like a strong correlation between the use of ethanol—when ethanol 

was below its—below the blend wall, significantly below the blend 

wall, and you would see that when ethanol prices were below gasoline prices there was more blending. So you would see that the 

market would work, that people were seeking the lowest cost fuel. 

But when you are at the blend wall and you have to blend that 

10 percent, then that ability to blend less if the price of ethanol is 

higher than gasoline is gone, and so there you would see—if there 

are fluctuations you would see differences in the price of the final 

fuel that would reflect that. 

Senator LANKFORD. So the Congressional Budget Office (CBO) 

did a study in 2014. That is the most recent one that I could find 

and I have asked around, trying to be able to identify it, because 

this is a very complicated issue when you deal with the cost of fuel 

per day, and what that is and how that blends out. The most recent I could find was the CBO study in 2014. They looked at the 

RFS program and they tried to determine three alternative solutions or scenarios. One was compliance with total renewable fuel 

and advanced fuel mandates, corn ethanol cap as set by the RFS; 

the second one was hold future volume requirements at levels previously proposed, so the lower levels; and a third options was just 

repeal the RFS. 

This is the statement: ‘‘The study evaluated the impacts of these 

three options on ethanol production and motor fuel prices. According to CBO, if the RFS was repealed or if its future mandates were 

kept at previously proposed 2014 levels, corn-based ethanol production would remain at 13 billion gallons’’—it would still stay high— 

‘‘and American consumers would have lower gas prices.’’ 

The numbers that they ran behind that was that with a mandate—and then pulling the mandate away, if they removed the 

mandate it could reduce the price by up to 26 cents a gallon. Now 

this was, again, a study that was done in 2014, and then, for diesel, it could reduce it as much as 51 cents a gallon. Now that was 

a snapshot that they did at that point. 

The challenge that we have is trying to determine where we are 

with greenhouse gas emissions, and where we are with price to 

consumers. If they even dropped that down to a dime, if we have 

a dime a gallon more in cost right now, per gallon, for every gallon, 

with the mandate, and the study that they did, they said even if 

you repealed the RFS, at that time they were estimating that we 

would still use 13 billion gallons, tells me it is in the market, it 

is still out there, it is going to be used. It is not as if the mandate, 

if it is pulled away, suddenly no one will use ethanol. It seems to 

me that a lot of people like using ethanol, and it is a good fuel 

source, and it is an especially good source for octane boost, and it 

is plentiful, especially in the easier-to-produce areas like corn-based 

ethanol. 

So my question still comes back to, it seems to be raising the 

prices and not hitting the totals that we need for the greenhouse 

gas emissions, and if we remove the mandate we will still use it 

anyway. What am I missing here? Why is the mandate so important? 
17 

Mr. RUSCO. I cannot answer that, but you will definitely still use 

a lot of ethanol, as an oxygenative, an octane boost, if for no other 

reason. There is another thing that might happen but it will take 

a lot of other changes, and that is that auto makers could make 

high-compression fuels that would burn 30 percent ethanol and get 

great fuel economy, but that—again, there is no current market for 

that. But there is a lot of possibility to use ethanol. It is just not 

clear to us exactly how much would be used. 

Senator LANKFORD. If that would the primary fuel out there, 

then my folks in Oklahoma could not drive their 1978 Silverado 

Chevy pickup, because they would not have a good fuel option for 

that as well, and that is the other challenge that is in this. 

Ms. McCabe, why the mandate? Why is the mandate essential? 

If it is a good fuel, it is in the system, and it is out there, and we 

know it raises costs, why maintain the mandate? 

Ms. MCCABE. Well, Senator, I also cannot answer on behalf of 

Congress, but I will reflect that my understanding of what Congress was also trying to do was to bring advanced and cellulosic 

fuels into the marketplace, and they were not already there, like 

ethanol, and those were new industries. They needed the push. 

They needed the mandate. They needed the subsidy, essentially, 

that the RFS provided in comparison to readily available petroleum 

fuels, and that that fit the goals of energy security and lower 

greenhouse gases, and Congress chose to use a mandate approach 

in order to achieve those goals. 

Senator LANKFORD. I would tell you, looking back on it, 10 years 

later, we obviously have seen great progress in corn-based ethanol. 

We have seen some progress in cellulosic and some progress in the 

advanced, and obviously progress in the biodiesel programs. But if 

the tax for that is 10 cents a gallon for every gallon of gasoline to 

be able to accomplish that, I am not sure most consumers would 

say so far that has been worth the cost, because that is a pretty 

high cost to pay, especially for those that are in poverty and on 

very limited incomes. 

So I would just challenge us, as Congress, to look again at ethanol and the mandate, and to be able to evaluate, is there a better 

way to accomplish the same thing, to incentivize fuel, without actually punishing the consumer so much every single gallon of gas, 

and a different alternative. 

I do not want to hog the time. I know we have several things to 

talk about still. 

Senator HEITKAMP. Mr. Chairman, I think that we should always 

have a willingness to think about and reopen and explore new 

ideas on how we can do things better. 

I do dispute somewhat the notion that the only value that the 

mandate has had is, those expressed in the statute itself, which is 

greenhouse gas, which is looking at energy independence. I think 

that a variety of fuel sources, especially in transportation fuel, that 

up to this point there has not been the diversity that we have seen. 

We are seeing more electric cars. We are seeing more compressed 

natural gas as natural gas prices stay low, especially in fleet vehicles, especially in locomotives. Burlington Northern had a big 

project converting to compressed natural gas, when we saw that 

differential between natural gas prices and oil prices, diesel prices. 
18 

So I think that one of the problems that we always have in this 

country is that we make decisions based on too short of a frame 

of our history, and I think that it was Congress’s judgment that 

incentivizing and providing a market for biofuels was essential for 

our long-term economic well-being, both in terms of transportation 

fuels but, as I said in the past, in terms of developing technology 

which really can be extraordinary as we go to the next generation 

of advanced manufacturing as it relates to agricultural products. 

We move beyond fuel, fiber, and food, and we go into using this as 

a base for growth long-term, growth in advanced manufacturing 

and value-added manufacturing in agriculture. 

So I get what you are saying and I get that we need to have a 

broader discussion, but I also think that we have not had the time, 

given the disruption that we have had in looking at this, and the 

marketplace, and fluctuations in oil prices, to really see this experiment and to really see this whole system from a big picture, milehigh, beneficial value. 

I do not disagree with you, Mr. Chairman, that at 10-cent, if, in 

fact, you and I could agree on that number, a 10-cent cost to consumers is something we need to take very seriously, because it is, 

in aggregate, very high. But then what is the benefit to the economy long term, and not just in a five-or six-year window but in a 

20-, 30-, 40-year window? 

And, not to get on my high horse here, but I am well familiar 

with a facility called Great Plains Natural Gas. I have served on 

their board of directors. It is a syngas. It was a 1970s project that 

was done in response to the oil embargo, where we looked at what 

is our fuel that is abundant in this country? And we saw a lot of 

coal. We said, well, how about we gasify coal because we think we 

are going to be in a natural gas shortage? 

So we went about that and eventually the consortium that made 

the investment bowed out because we deregulated natural gas. 

Natural gas prices literally went below a dollar an MCF. We found 

that we had too much natural gas on the market, again, a market 

manipulation that really was not reflecting true market conditions. 

But that facility chugged away, looking at byproducts, looking at 

how we could be part of the CO2 discussion, with CO2 injection. 

And, as a result, now we have a facility that has created huge 

economies in gasification of coal which could, in fact, lead to CO2 

reductions overall as it relates to kind of the global economy. So 

how long did that take? The facility went online in 1984, and here 

we are, 30 years later, really having a meaningful discussion about 

the value of that facility. 

And so I just think that there is a real impulse in this country 

to look so short-sighted in terms of the time period, and these technologies can be extraordinarily important, and there is an incentive 

beyond just simply transportation fuels that I think need to be considered. Now, obviously, we have to go with the statute we have, 

which identifies what those goals are. 

And so, we will continue to have that discussion, but we also 

have to have the statute be enforced the way the statute was intended, to really evaluate the economic success. And, it is certainly 

not the first time the Chairman and I have disagreed about this 

subject, and it will not be the last. But I think that the issues that 
19 

have been raised here are ongoing, and the issues that have been 

raised by the Chairman are issues that we need to stand ready to 

defend the statute going into the future. 

I am concerned about the reset. I am concerned that that creates 

more uncertainty in the market, and that because we have had this 

earlier market disruption that, as we look for investment, that is 

the sweet spot in all of this and we do not want to hinder and encumber the development of those technologies too quickly. 

So, Mr. Chairman, that is my—— 

Senator LANKFORD. That is your story and you are sticking to it. 

Senator HEITKAMP. Yes. You have it. 

Senator LANKFORD. Yes. I just want to remind you that the De- partment of Energy gave a $500 million-dollar grant to do a cellulosic facility in Kansas, that Shell just bought for $28 million recently, because it just did not prove to be viable long-term, and 

they may very well use that $28 million and convert that into 

something else in the future that may be very viable, and I hope 

they do. 

Senator HEITKAMP. Yes. And I would suggest that if you looked 

at the history of Great Plains, it is exactly that—Federal loan guarantees that through negotiations, pennies on the dollar back to the 

Federal Government. But I would maintain that that facility on the 

prairie has enormous R&D benefit to our country. 

Senator LANKFORD. Mr. Rusco, give us a guess. For the cellulosic, 

you talk about the multiple generations to be able to move. All of 

this as you talk to people in the industry and you talked to the experts and the science folks, give us a guess of how many years it 

would take for a viability for cellulosic, and do you feel like it could 

reach any of the target numbers by 2022? 

Mr. RUSCO. So I cannot guess how many years. So what we 

heard is—— 

Senator LANKFORD. Come on. That is what we do. We are in Congress. We guess. [Laughter.] 

Mr. RUSCO. I will do my best. So it would take three to four, even 

five years to build a second-generation plant, and they think they 

might be able to achieve—some of the crews think they might be 

able to achieve, with a second-generation plant, maybe 25 percent 

efficiencies, but they are going to need to achieve well over 100 percent efficiencies to get close to that, and each generation they have 

to be able to achieve that. 

So if you figure they have to go four or five generations, even if 

they can get that low, right now they can see that the next generation might get them 25 percent lower in cost, but they need to be 

a lot—they need to cut costs by a lot more than that. If they can 

see this one and it is going to be three, four, five years out, if they 

can get the money to build it, then they have to figure out how to 

operate that and get that up and running, and then they have to 

build another generation and another one after that, so not by 

2022. 

Senator LANKFORD. OK. Ms. McCabe, let us talk about the authorities the administration would have, any future administration, 

whatever it may be, between now and 2022, and then 2022 and beyond, for the reset. How broad are the authorities to be able to 

reset the numbers for the EPA? 
20 

Ms. MCCABE. So the statute gives some guidance to the Agency. 

I brought it right here, because I thought you might ask. But it is 

broad. It says that if those triggers are set that the Agency needs 

to look at recalculating the numbers all the way through 2022 for 

whatever category is being reset, and it gives a series of factors 

that the agency is supposed to consider. 

Senator LANKFORD. Did they reconsider all three categories? 

Ms. MCCABE. I am sorry? 

Senator LANKFORD. You talked about if they could reset the total 

amount, or any of the individual categories, or do all of the above? 

Ms. MCCABE. Right. I mean, whatever categories that have been 

triggered that the Agency is moving forward with. Our thought is 

it is better to do them all at once, because of the interconnecting 

relationships. So we would undertake a notice and comment rulemaking and background work to look at all of those factors, to put 

forward a proposal based on the experience of the program to date 

and the expectations going forward, and as Mr. Rusco has said, 

there are just so many factors, and we do not know what is going 

to happen with oil prices in the future, and just a variety of other 

things. But we would have a public process to do that so everybody 

could weigh in. 

Senator LANKFORD. A couple of quick questions. We are going to 

run out of time but I want to be able to honor everyone’s time. One 

of the main goals of the RFS was to get us off any imported energy 

sources. What percentage right now of RFS volume uses any imported source, whether that be Brazilian sugar cane, or any other 

outside of the United States feedstock source? 

Ms. MCCABE. Yes. I do not have a precise number for you but 

we can get you a number. It is small. 

Senator LANKFORD. But there are some things that are foreign 

sources, that are actually being permitted right now? 

Ms. MCCABE. Yes. The statute does not distinguish between imported and domestic, and it really varies a lot, depending on all 

kinds of different factors that have nothing to do with RFS or domestic policy. But it is small. 

Senator LANKFORD. You had mentioned as well, Ms. McCabe, 

about the obligated parties, and I am not going to try to work you 

into a corner—I am really not—on this. Help us understand the decision for the denial at this point, and to just say no, we are going 

to deny this, and help us understand what brought you to that 

point. As you know, both sides of the argument have expressed this 

to you very clearly, obviously. Some of the independent refiners 

that I know of have told me, point blank, the second most expensive part of their operation are RINs. It is crude oil and RINs. 

After that it is the energy for their facility and personnel and 

health care. But the second most expensive thing they have is 

something that is paper, that does not really exist anywhere except 

in the world of government, and that is the RINs purchase. 

So help us understand just the process that you went through to 

make this decision. 

Ms. MCCABE. Yes. So let me talk about the process first. So when 

we get petitions, it is up to the Agency to grant or deny them, and 

we not required to go through a proposal process to do that. In this 

case, we felt it was important, for one reason, because people 
21 

across the board asked for a public forum to be able to put information forward and have that conversation, but also because we felt 

that it was an opportunity for us to put forward our best thinking, 

at this moment, of the information that we have received. And as 

you have acknowledged, people are in very different places, and 

they are not only clear, they are vehement, and I have sat in many 

meetings, my staff have gone to some of these facilities, we have 

had many conversations where people will come in with the same 

exact data and say one thing to us one day, and then another group 

will look at the same data and say exactly the opposite to us. 

And so we are trying to sort all this through, and one of the 

questions that I was getting from people, as I was having these 

meetings, was, ‘‘Well, tell us what you think about what you are 

seeing.’’ So we thought it was fair to do that, and to put our thinking out in a proposal. So rather than just say—to open it up for, 

‘‘We do not know whether we are going to grant or deny it, but give 

us your thoughts’’—we thought it would be a more meaningful opportunity for input if people could understand our thinking currently. 

We tried to lay it out very clearly, our analysis of the objections 

and the points that people were making to us. Nobody is denying 

that RINs are a significant cost for businesses that buy them, but 

there is a complicated interplay between whether the value of that 

RIN is recovered through the products that they sell—and again, 

there is a wide range—— 

Senator LANKFORD. Which is then passed on to the consumer. 

Ms. MCCABE. Well, or maybe not. That is complicated too, and 

I think it bears a lot of discussion by people who are much smarter 

on the economics of this than I am. I would not presume to be an 

expert on that. But I think there is a range of views on whether 

the consumer does see those costs or whether they are passed back 

and forth among the regulated industry. 

So people have different views on this and we wanted to try to 

lay that out as best we could. I know we will get lots and lots of 

input. 

Senator LANKFORD. I am all for an open process on it. It is a 

complicated, difficult issue. I am exceptionally skeptical that any 

industry could have a $200 million cost, for instance, for a small 

manufacturer, or for a small refiner, and that that would not be 

then passed on to the consumer in some ways. If your second-highest cost of your business is an item, you do not swallow that and 

the other folks do not swallow that. The consumer does at the end. 

That is part of that 10-cent increase that we see just in cost that 

is sitting out there, if we can agree on a simple number, because 

that ongoing cost has to go somewhere. 

So that will be part of—by the way, I do not think that goes 

away if you shift the obligation. I am not saying that it does. So 

I am not arguing one way or the other. What I hear from people 

is, just tell us how the process is going, and the more open the 

process can be, or not, is better. I had integrated retail folks that 

have, as a part of their business model, the RINs that they produce 

and then sell, and it is part of their business model now, and it is 

exceptionally helpful to them as a company. And I have other 

groups that are refiners, that struggle exceptionally under this. 
22 

So I get that part of the business. The hard part is just the consistency, and trying to guess how to predict a RINs price, and it 

is, as you know, very hard to predict a RINs price, and when it is 

such a large part of your business, everyone wants to know how to 

plan for the next year, and it is tough to do that when the RINs 

move so much. 

Ms. MCCABE. Yes. I will add, Senator, too, that we made a clear 

point that if we are looking for certainty in the system, changing 

the point of obligation now will completely undermine that. It 

would take multiple years to get that fixed. People will be arguing 

about how we should do it. So that is a consideration—— 

Senator LANKFORD. It is so much simpler if we just do away with 

the mandate entirely. That just fixes that entirely on both sides. 

[Laughter.] 

Senator HEITKAMP. I want to make a point about transparency 

in the RIN market. I think EPA has long recognized the potential 

for fraud and the concern about lack of transparency and volatility. 

You have implemented the quality assurance program, and I do not 

think we should leave this subject without acknowledging that and 

at least getting some feedback from you on whether that quality 

assurance project has worked. 

But you have also been working with Commodity Futures Trading Commission (CFTC) on a memorandum of understanding related to transparency and oversight. And so I do not know that we 

need to comment, given our short period of time, but I did want 

to acknowledge the work that you are doing outside of this debate, 

about, who has the obligation to try and make the program more 

transparent, to try and work cooperatively with the CFTC, to guarantee minimization of speculation and fraud. 

Ms. MCCABE. Yes. Thank you, Senator. We are looking at those 

opportunities every day, to try to provide more transparency. 

Senator LANKFORD. The only thing worse than a RIN is fake 

RIN, and that is what takes it away. [Laughter.] 

Senator HEITKAMP. Yes. Buy a fake RIN, that is pretty miserable. 

Senator LANKFORD. The last question that I have, unless you all 

had other comments, as well, Ms. McCabe, you and I, when we 

spoke last, you were in the process of dealing with the requirements for ozone in the ambient air quality, at the same time that 

you are dealing with the RFS, and we talked about the conflict between the two. Help me catch up on where that conversation is 

going right now, because, as you produce more ethanol it produces 

more ozone in those areas in the production part of it, at the same 

time we are dealing with reducing ozone nationwide as well. 

Ms. MCCABE. Yes. So back in 2010, when we did our analysis, 

when we put the rule in place, we did note that there were places 

and times where ozone air quality could be increased. It is not uniform, it is not across the board, it is not necessarily in places where 

the ozone standard is not met already, so those are all complicating 

factors. 

And, Senator, I think we are about where we were last time, 

which is that States and cities are working to meet the ozone 

standard. Most of those areas that are ozone non-attainment areas 

are large metropolitan areas, and so the contributors to ozone are 
23 

overwhelmingly motor vehicles, generally, industry power plants, 

and large emitters. But I am certainly not denying that we have 

found that there could be some increases in ozone as a result of 

ethanol. 

Senator LANKFORD. I did notice, as well, that you and others had 

very different—the EIA had a number for what is E–0, at quite a 

bit higher, while you all have estimated what the E–0 number is 

as well. I think we are around 200 million and they were somewhere around five billion or something. 

Ms. MCCABE. Yes. It was order of magnitude. So that is the kind 

of discrepancy that gets people sitting down and talking to one another, which we did, and worked out that we were looking at different points in the process. So we were looking at the retail level. 

Their numbers were reflecting a point higher up in the supply 

chain. 

So we feel we have resolved that discrepancy between the two 

agencies. 

Senator LANKFORD. I would assume, then, the higher number 

still is used in the United States, or the lower number is what is 

used in the United States? 

Ms. MCCABE. We were looking at what is used at retail, what is 

expected to be needed at retail—— 

Senator LANKFORD. Right. 

Ms. MCCABE [continuing]. In terms of people buying E–0, as opposed to E–0 somewhere else in the supply chain then being blended later. 

Senator LANKFORD. OK. 

Ms. MCCABE. If that makes sense. 

Senator LANKFORD. It does make sense then. 

Any other final comments that the two of you need to make, that 

we did not cover? 

Ms. MCCABE. Nope. 

Senator LANKFORD. Mr. Rusco, your report is very thorough. I 

appreciate that. And hopefully in the days ahead we can get some 

good consistency on numbers and costs, because that is one of 

the areas that is missing, still, is to try to figure out this number— 

what does it really cost the consumer? We have some estimates but 

industry has not been able to do an estimate, we have not been 

able to get an independent estimate, and we are all kind of guessing what that would be at this point, based on some numbers that 

are several years old. 

And so it would be extremely helpful for us to be able to get a 

good snapshot, even if it was literally grabbing one day a month 

for a year, and then just snapshotting those days, this is what the 

estimated cost would be with or without the mandate, or with or 

without ethanol, because I would assume some days that it is less 

expensive, and it depends on the price of oil at that time. But I 

would also assume many days it is more expensive, especially with 

a lower oil price right now, with what we have. 

So hopefully in the days ahead we can get that kind of number. 

Any final comments? 

Senator HEITKAMP. No. Thank you. 

Senator LANKFORD. Thank you, both. Let me see if I have got a 

very formal closing statement for you to be able to make. 
24 

That concludes today’s hearing. There is my formal statement. I 

would like to thank the witnesses for their testimony. The hearing 

record will remain open for 15 days until the close of business on 

December 16, for submission of statements and questions for the 

record. 

What that, this hearing is adjourned. 

[Whereupon, at 3:50 p.m., the Subcommittee was adjourned.] 
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