Congressional Hearings
ADVANCED BIOFUELS UNDER THE RENEWABLE FUEL STANDARD: CURRENT STATUS AND FUTURE PROSPECTS
Congressional Hearings
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Congress: House of Representatives
CHRG-115hhrg35142
| AUTHORITYID | CHAMBER | TYPE | COMMITTEENAME |
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| hsif00 | H | S | Committee on Energy and Commerce |
[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
ADVANCED BIOFUELS UNDER THE RENEWABLE FUEL STANDARD: CURRENT STATUS AND
FUTURE PROSPECTS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENVIRONMENT
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JUNE 22, 2018
__________
Serial No. 115-144
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
__________
U.S GOVERNMENT PUBLISHING OFFICE
35-142 WASHINGTON : 2019
COMMITTEE ON ENERGY AND COMMERCE
GREG WALDEN, Oregon
Chairman
JOE BARTON, Texas FRANK PALLONE, Jr., New Jersey
Vice Chairman Ranking Member
FRED UPTON, Michigan BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
MICHAEL C. BURGESS, Texas ELIOT L. ENGEL, New York
MARSHA BLACKBURN, Tennessee GENE GREEN, Texas
STEVE SCALISE, Louisiana DIANA DeGETTE, Colorado
ROBERT E. LATTA, Ohio MICHAEL F. DOYLE, Pennsylvania
CATHY McMORRIS RODGERS, Washington JANICE D. SCHAKOWSKY, Illinois
GREGG HARPER, Mississippi G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey DORIS O. MATSUI, California
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia JERRY McNERNEY, California
ADAM KINZINGER, Illinois PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida PAUL TONKO, New York
BILL JOHNSON, Ohio YVETTE D. CLARKE, New York
BILLY LONG, Missouri DAVID LOEBSACK, Iowa
LARRY BUCSHON, Indiana KURT SCHRADER, Oregon
BILL FLORES, Texas JOSEPH P. KENNEDY, III,
SUSAN W. BROOKS, Indiana Massachusetts
MARKWAYNE MULLIN, Oklahoma TONY CARDENAS, CaliforniaL RUIZ,
RICHARD HUDSON, North Carolina California
CHRIS COLLINS, New York SCOTT H. PETERS, California
KEVIN CRAMER, North Dakota DEBBIE DINGELL, Michigan
TIM WALBERG, Michigan
MIMI WALTERS, California
RYAN A. COSTELLO, Pennsylvania
EARL L. ``BUDDY'' CARTER, Georgia
JEFF DUNCAN, South Carolina
Subcommittee on Environment
JOHN SHIMKUS, Illinois
Chairman
DAVID B. McKINLEY, West Virginia PAUL TONKO, New York
Vice Chairman Ranking Member
JOE BARTON, Texas RAUL RUIZ, California
TIM MURPHY, Pennsylvania SCOTT H. PETERS, California
MARSHA BLACKBURN, Tennessee GENE GREEN, Texas
GREGG HARPER, Mississippi DIANA DeGETTE, Colorado
PETE OLSON, Texas JERRY McNERNEY, California
BILL JOHNSON, Ohio TONY CARDENAS, California
BILL FLORES, Texas DEBBIE DINGELL, Michigan
RICHARD HUDSON, North Carolina DORIS O. MATSUI, California
KEVIN CRAMER, North Dakota FRANK PALLONE, Jr., New Jersey (ex
TIM WALBERG, Michigan officio)
EARL L. ``BUDDY'' CARTER, Georgia
JEFF DUNCAN, South Carolina
GREG WALDEN, Oregon (ex officio)
C O N T E N T S
----------
Page
Hon. John Shimkus, a Representative in Congress from the State of
Illinois, opening statement.................................... 1
Prepared statement........................................... 2
Hon. Jerry McNerney, a Representative in Congress from the State
of California, opening statement............................... 3
Hon. Gene Green, a Representative in Congress from the State of
Texas, opening statement....................................... 5
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, prepared statement..................................... 109
Witnesses
Mike McAdams, President, Advanced Biofuels Association........... 6
Prepared statement \1\....................................... 8
Answers to submitted questions............................... 112
Derrick Morgan, Senior Vice President, American Fuel &
Petrochemical Manufacturers.................................... 15
Prepared statement........................................... 17
Answers to submitted questions............................... 117
Robin Puthusseril, Vice President, Greater Chicago Truck Plaza,
On Behalf of the National Association of Truck Stop Operators.. 27
Prepared statement........................................... 29
Answers to submitted questions............................... 142
Randy Howard, CEO, Renewable Energy Group, On Behalf of the
National Biodiesel Board....................................... 50
Prepared statement........................................... 52
Answers to submitted questions............................... 147
Brooke Coleman, Executive Director, Advanced Biofuels Business
Council........................................................ 55
Prepared statement........................................... 57
Answers to submitted questions............................... 149
Collin Omara, President, National Wildlife Federation............ 73
Prepared statement........................................... 76
Answers to submitted questions............................... 157
Luke Morrow, Managing Director, Morrow Energy, On Behalf of the
Coalition for Renewable Natural Gas............................ 85
Prepared statement........................................... 87
Answers to submitted questions............................... 165
Submitted Material
Letter of June 19, 2018, from Representative Bruce Poliquin to
the subcommittee............................................... 111
----------
\1\ The attachments to Mr. McAdams' statement can be found at:
https://docs.house.gov/meetings/IF/IF18/20180622/108464/HHRG-
115-IF18-Wstate-McAdamsM-20180622.pdf.
ADVANCED BIOFUELS UNDER THE RENEWABLE FUEL STANDARD: CURRENT STATUS AND
FUTURE PROSPECTS
----------
FRIDAY, JUNE 22, 2018
House of Representatives,
Subcommittee on Environment,
Committee on Energy and Commerce
Washington, DC.
The subcommittee met, pursuant to call, at 9:17 a.m., in
room 2322, Rayburn House Office Building, Hon. John Shimkus,
(chairman of the subcommittee) presiding.
Present: Representatives Shimkus, Harper, Olson, Johnson,
Flores, Cramer, Walberg, Duncan, Ruiz, Peters, Green, McNerney,
Cardenas, and Matsui.
Staff Present: Samantha Bopp, Staff Assistant; Kelly
Collins, Legislative Clerk, Energy/Environment; Wyatt
Ellertson, Professional Staff, Energy/Environment; Margaret
Tucker Fogarty, Staff Assistant; Theresa Gambo, Human
Resources/Office Administrator; Mary Martin, Chief Counsel,
Energy/Environment; Sarah Matthews, Press Secretary; Austin
Stonebraker, Press Assistant; Jean Fruci, Energy and
Environment Policy Advisor; Caitlin Haberman, Professional
Staff Member; Rick Kessler, Senior Advisor and Staff Director,
Energy and Environment; Alexander Ratner, Policy Analyst; and
Catherine Zander, Environment Fellow.
OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Shimkus. The Subcommittee on Environment will now come
to order. And the chair recognizes himself for 5 minutes for an
opening statement.
This is our fourth hearing this year specifically aimed at
addressing issues related to fuels and vehicles. The first
provided an overview of the future of fuels and vehicles. The
second took a detailed look at the high octane concept. The
third focused on electric vehicles as a small but growing part
of the vehicle mix.
In each of these hearings, the renewable fuel standard was
a part of the discussion, which is not surprising because this
program continues to have a significant impact on the fuels
market. But most of the RFS focus thus far has been on corn
ethanol and related issues, like blend wall, and not the
advanced biofuels part of the program.
Today, we address the imbalance by having a discussion
focused entirely on advanced biofuel issues. And I welcome our
witnesses who represent those operating in that space.
Biodiesel is every bit as important to my soybean growers
as ethanol is to my corn growers. And both biodiesel and
cellulosic production facilities are significant job creators
in the local communities where they are located, including in
my district in southern Illinois.
So the economic impact of advanced biofuels cannot be
ignored. The 2007 changes to the RFS envisioned a transition
from first-generation biofuels to more advanced biofuels. In
fact, the RFS statutory targets for 2022 call for 21 billion
gallons of advanced biofuels while corn ethanol and other first
generation would top out at no more than 15 billion gallons.
The future is going to include a great deal more advanced
biofuels.
The reality has been somewhat mixed. For biodiesel, the
production capacity has grown significantly, and billions of
gallons are now added to the Nation's diesel supply each year.
In that regard, the RFS provisions for biodiesel have been a
success. But biodiesel remains expensive compared to petroleum-
based diesel fuel, and there has been little progress, making
it more cost competitive.
Unfortunately, cellulosic biofuels have not progressed as
well as hoped. Congress was convinced in 2007 that cellulosic
biofuels were just around the corner. But more than a decade
later, we are still waiting for liquid cellulosic biofuels to
make a significant contribution.
Biogas from landfills has been a main source of cellulosic
biofuels. Investors in cellulosic facilities point to the need
for certainty and that the policy surprises coming from EPA and
the White House undercut that certainty. Critics say that
including cellulosic biofuels in the RFS was a flat out
mistake, especially now that the fracking revolution has
reduced dependence on foreign oil.
So some want to double down on incentivizing cellulosic
biofuels while others want to pull the plug on the idea.
Interesting times. It is important to note that, as we consider
various RFS reform ideas, including the transition to high-
octane fuels, we need to be mindful that biodiesel and
cellulosic provisions need to be part of the conversation and
addressed as well. All of these parts are interrelated. Thus,
the future of advanced biofuels is tied up with the future of
the RFS.
I look forward to the hearing from today's witnesses and
the members in order to engage in a meaningful dialogue on this
topic. And looking to my side, anyone wishing my remaining
minute and a half.
Seeing none, I will yield back my time and yield to the
ranking member right now of the subcommittee, Mr. McNerney, of
California.
[The prepared statement of Mr. Shimkus follows:]
Statement of Hon. John Shimkus
This is our fourth hearing this year specifically aimed at
addressing issues related to fuels and vehicles. The first
provided an overview of the future of fuels and vehicles, the
second took a detailed look at the high-octane concept, and the
third focused on electric vehicles as a small but growing part
of the vehicles mix. In each of these hearings, the Renewable
Fuel Standard was a part of the discussion--which is not
surprising because this program continues to have a significant
impact on the fuels market. But most of the RFS focus thus far
has been on corn ethanol and related issues like the blendwall,
and not on the advanced biofuels part of the program. Today, we
address this imbalance by having a discussion focused entirely
on advanced biofuels issues, and I welcome our witnesses who
represent those operating in that space.
Biodiesel is every bit as important to my soybean growers
as ethanol is to my corn growers, and both biodiesel and
cellulosic production facilities are significant job creators
in the local communities where they are located, including in
my district in Illinois. So, the economic impact of advanced
biofuels cannot be ignored.
The 2007 changes to the RFS envisioned a transition from
first generation biofuels to more advanced biofuels. In fact,
the RFS statutory targets for 2022 called for 21 billion
gallons of advanced biofuels while corn ethanol and other first
generation would top out at no more than 15 billion gallons.
The future was going to include a great deal more advanced
biofuels.
The reality has been somewhat mixed. For biodiesel, the
production capacity has grown significantly and billions of
gallons are now added to the nation's diesel supply each year.
In that regard, the RFS provisions for biodiesel have been a
success. But biodiesel remains expensive compared to petroleum-
based diesel fuel, and there has been little progress making it
more cost competitive.
Unfortunately, cellulosic biofuels have not progressed as
well as hoped. Congress was convinced in 2007 that cellulosic
biofuels were ``just around the corner'' but more than a decade
later we are still waiting for liquid cellulosic biofuels to
make a significant contribution. Biogas from landfills has been
the main source of cellulosic biofuels.
Investors in cellulosic facilities point to the need for
certainty and that the policy surprises coming from EPA and the
White House undercut that certainty. Critics say that including
cellulosic biofuels in the RFS was a flat-out mistake,
especially now that the fracking revolution has reduced
dependence on foreign oil. So, some want to double down on
incentivizing cellulosic biofuels, while others want to pull
the plug on the idea.
It is important to note that as we consider various RFS
reform ideas, including a transition to high-octane fuels, we
need to be mindful that the biodiesel and cellulosic provisions
need to be part of the conversation and addressed as well. All
of the parts are interrelated; thus, the future of advanced
biofuels is tied up with the future of the RFS.
I look forward to hearing from today's witnesses and the
members, in order to engage in a meaningful dialogue on this
important topic.
Thank you.
I yield back the balance of my time.
OPENING STATEMENT OF HON. JERRY MCNERNEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. McNerney. Well, I thank the chairman. Good morning.
And I thank the witnesses for coming here this morning.
An important goal of the renewable fuel standard program is
to promote fuel diversity and lower consumer and environmental
costs of transportation fuels. Until Congress created the RFS
program, the transportation sector relied exclusively on fossil
fuels. Our overdependence on these fuels has made consumers and
our economy vulnerable to price spikes and supply disruptions
at various times in the past. Decades of fossil fuel use have
unleashed massive volumes of harmful air pollutants and carbon
emissions. Developing cleaner fuels must be part of the
solution to these ongoing challenges.
Growth in the use of advanced biofuels fuels far short of
what Congress anticipated when this program was expanded in
2007. The industry has made progress, but technical and
economic challenges are still holding back greater use of these
fuels. I believe the witnesses here today will all be offering
some suggestions on how we can improve the investments and
marketing climate for advanced renewable fuels.
The advanced biofuel program is very important to my home
State of California. This Federal program helps California to
meet its goal for low carbon fuels. Regulatory programs, like
California's low-carbon fuel standard and Federal RFS program,
help the early market incentives needed to spur investments in
cleaner fuels. Biodiesel, biogas, and cellulosic ethanol are
needed to reduce carbon emissions and other harmful air
pollutions from the transportation sector. Reducing carbon
emissions from the transportation sector is a big challenge,
but it is one that we must take since emissions in this sector
do continue to grow.
The good news is that, despite these challenges,
investments in alternate fuels are being made. And these
investments are creating jobs and increasing the supply of
alternative fuels in California.
There are several facilities in my district, and a new
biogas facility is under construction. If we want to see these
investments continue, investors must be convinced that there
will be a market for these fuels. The uncertainty created
through the EPA's delays in rulemaking and in approval of new
biofuel pathways are among the challenges with the RFS program
that affect advanced biofuel investments.
Clearly, the management of the program is an important
factor in ensuring steady progress for new fuel technologies.
Unfortunately, it appears that Administrator Pruitt has used
his waiver authority to create additional uncertainty in the
renewable fuels market. The Administrator's decision to grant
unprecedented numbers of waivers to some refiners through a
process with no transparency calls into question the target
amount of biofuel that the market and its participants will be
using. Conventional ethanol still makes up the bulk of the
renewable fuel markets.
But I suspect that reducing the number of refineries
obligated to blend biofuel will affect the market for all
biofuels, including biodiesel and advanced biofuels. Whatever
the faults of the RFS program, manipulating markets through a
secret waiver process that calls the program into question is
not the way to address those faults. Our committee should be
looking into this and ensuring that the Administrator is
managing the program accordance with the law.
Again, I want to thank the participants and the witnesses,
and I yield back.
Mr. Shimkus. The gentleman yields back his time.
Let me apologize to the folks here for the heat of this
room. And I think the air has kicked on. So maybe we are going
to feel a little bit cooler. And this is a note to committee
staff to make sure that it stays cool.
Mr. McNerney. Mr. Chairman, this room is either too hot or
too cold.
Mr. Shimkus. And this issue might be a little too hot or
too cold for a lot of people.
So, looking on the majority side, anyone seeking time to
make a statement?
Seeing none, looking on the minority.
The chair recognizes the gentleman from Texas, Mr. Green,
for 5 minutes.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman. I want to thank you and
both the ranking member for holding the hearing today. Most
people here know that I am not really a big a big fan of the
renewable fuel standard, the RFS.
The RFS has led to artificially inflated costs thrust upon
both refiners and our consumers for a product that hasn't had
the environmental impact reduction that was promised when the
RFS was created.
A few years ago, our district had three small biofuel
refineries, but the market cratered, and I think I have one
left. Although in our area, I don't have small refiners. They
are 100,000 barrels, 250,000 barrels. And so that is one of my
concerns.
I look forward to hearing from our witnesses today,
specifically about the RFS interaction with advanced biofuels
market. While I think the RFS program is inherently flawed, I
do not believe waivers given out in secret without established
processes is a good use of Administrator Pruitt's authority. I
am afraid that, while many of these smaller refineries have
received waivers, the larger ones who do not will still have to
meet the overall blend requirements which satisfy the RFS
program.
Thank you again for calling this hearing.
Mr. Shimkus. The gentleman yields back his time.
We now conclude with members' opening statements. The chair
would like to remind members that, pursuant to committee rules,
all members' opening statements will be made part of the
record.
We want to thank all our witnesses for being here today and
taking the time to testify before the subcommittee. Today's
witnesses will have an opportunity to give opening statements
followed by a round of questions from the members present.
Our witness panel is before us, and I would personally also
like to thank you all for coming. I have some folks from
Illinois and actually my congressional district. And we will
recognize them appropriately when we get a chance to do that.
I would like to start with Mr. Mike McAdams, President of
Advanced Biofuel Association. Sir, your full statement is in
the record. You have 5 minutes. Welcome.
STATEMENTS OF MIKE MCADAMS, PRESIDENT, ADVANCED BIOFUELS
ASSOCIATION; DERRICK MORGAN, SENIOR VICE PRESIDENT, AMERICAN
FUEL & PETROCHEMICAL MANUFACTURERS; ROBIN PUTHUSSERIL, VICE
PRESIDENT, GREATER CHICAGO TRUCK PLAZA, ON BEHALF OF THE
NATIONAL ASSOCIATION OF TRUCK STOP OPERATORS; RANDY HOWARD,
CEO, RENEWABLE ENERGY GROUP, ON BEHALF OF THE NATIONAL
BIODIESEL BOARD; BROOKE COLEMAN, EXECUTIVE DIRECTOR, ADVANCED
BIOFUELS BUSINESS COUNCIL; COLLIN OMARA, PRESIDENT, NATIONAL
WILDLIFE FEDERATION; AND LUKE MORROW, MANAGING DIRECTOR, MORROW
ENERGY, ON BEHALF OF THE COALITION FOR RENEWABLE NATURAL GAS.
STATEMENT OF MIKE MCADAMS
Mr. McAdams. Thank you, Mr. Chairman, Ranking Member,
members of the committee. It is nice to be with you this
morning.
My name is Mike McAdams. I am the President of the Advanced
Biofuels Association. I welcome the opportunity to testify this
morning on the current status and the future prospects of the
RFS program. I want to thank Chairman Shimkus and members of
the committee for your efforts over the last year to reform the
RFS.
ABF members strongly support RFS reform. ABFA represents 35
companies across the entire biofuels distribution chain who
produce the fuels, distribute the fuels, and market advanced
biofuels under the RFS program. Our combined production is over
4 billion gallons per year currently. The RFS has resulted in
both great successes as well as shortfalls. We believe
comprehensive reform will maximize future volumes of advanced
and cellulosic fuels for the future.
On the success front, the production and use of biodiesel
and renewable diesel is three times greater than what was
originally anticipated and is now approaching 3 billion gallons
per year. The environmental performance of these gallons
achieve GHG reductions of up to 80 percent off of baseline
fuel. This sector also continues to hold great potential as the
United States diesel market is over 50 billion gallons a year
and growing.
In this space, we can deliver not only biodiesel, but we
can also deliver drop-in diesel and jet fuel for a growing
airline industry.
As for advanced and cellulosic fuels, I urge the committee
to address numerous barriers of entry in the RFS program that
specifically disadvantages the innovative fuels of the future.
I have provided the committee with ABFA's list of 21 RFS reform
proposals for you to review. These proposals fall into three
broad categories: one, address definitional and technical
issues; two, clarify statutory ambiguities; and, three, tweak
certain overly burdensome regulatory frameworks which are
currently in place. As much as possible, we urge the Congress
in making these changes to the statute, to take the politics
out of the equations and make the RFS a rules-based system as
much as possible. An example of this is Congressman Welch's
legislation to amend the annual RVO process. His bill would
base the RVO on the previous year's actual production, queuing
up at midyear and end-year adjustments to account for increases
or decreases in production. This approach would remove the
uncertainty and therefore reduce voluntarily in the RIN market.
It also diminishes the need for using waivers when you set the
RVO, especially the use of cellulosic waivers. Additionally,
the cellulosic waiver system must be reformed so that RINs
attached to actual cellulosic gallons are purchased before we
use the waiver credits in their place.
Finally, in order to finance the production of new and
advanced biofuels of the future, investors must have certainty
over time that there will be the value of the RIN standing
behind them. A 20-year guarantee would provide that certainty
and encourage much more investment in this space as it is tied
to the average debt frame for a capital loan.
Among ABFA's 21 proposals are suggestions to permit the use
of a broader range of technologies and feedstocks via pathway
approval reform. For instance, Chairman Walden has been working
on a number of fixes for the wood-based fuels that would allow
the growth for pyrolysis, one of the promising technologies in
the cellulosic space. Currently, three of ABFA's members are
building cellulosic plants in the United States with this
technology.
In conclusion, I urge the committee to review EPA's recent
actions regarding the small refinery exemptions which have had
significant impacts on the RIN market. Administrator Pruitt has
recently chosen to lower the thresholds that EPA utilizes to
grant RFS compliance exemptions to small refineries. Press
reports state that EPA has granted up to 30 exemptions for
years 2016 and 2017, three times what we have ever previously
seen. These actions have undermined the program and rendered
the RVO mandates meaningless. ABF urges the committee to review
EPA's applications of these thresholds and the lack of
transparency surrounding these decisions.
Thank you again for the opportunity to testify. And I look
forward to your questions.
[The prepared statement of Mr. McAdams follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[The attachments to Mr. McAdams' statement can be found at:
https://docs.house.gov/meetings/IF/IF18/20180622/108464/HHRG-
115-IF18-Wstate-McAdamsM-20180622.pdf.]
Mr. Shimkus. Thank you. The gentleman yields back his time.
The chair now recognizes Mr. Derrick Morgan, Senior Vice
President of American Fuel and Petrochemical Manufacturers.
You are recognized for 5 minutes.
STATEMENT OF DERRICK MORGAN
Mr. Morgan. Thank you, Mr. Chairman, Mr. Ranking Member,
members of the committee. Thank you for inviting me to testify
today on advanced biofuels under the renewable fuel standard.
AFPM members account more than 95 percent of the refining
capacity in the United States and are the obligated parties
under the RFS. As a result, we are acutely aware of the costs
and the challenges associated with advanced biofuel mandates.
The RFS was intended to grow a market for first-generation
biofuel while spurring commercialization of advanced and
cellulosic biofuels. Although reasons for these goals are
understandable--energy security, rural development,
environmental benefits--our experience with the RFS has made
clear that the law is failing to deliver upon many of its
goals.
The corn ethanol industry has been the prime beneficiary of
the RFS. E-10 is a competitive fuel and does not require a
mandate, as evidenced by more than a billion gallons of ethanol
exports last year. The advanced biofuel and cellulosic mandates
are a different story, though.
The vision of cellulosic biofuels capturing 16 billion
gallons of market share by 2022 is illusory, has proven
illusory. The U.S. will produce only about 10 million gallons
of liquid cellulosic fuels in 2018, a mere fraction of the
nearly 200 billion gallons of transportation fuel we will
consume this year.
Despite this reality, EPA has routinely set mandates hiring
than actual production, leaving refiners to buy phantom fuel
credits for gallons of products that just don't exist. The lack
of cellulosic production is not for a lack of trying, including
by a number of our member companies. Someday, someone could
make a breakthrough. And when they do, it very likely won't
need a mandate.
Biodiesel is the primary advanced biofuel on the market
today. Unfortunately, it is also tremendously expensive. Last
year, biodiesel cost approximately $1.50 more per gallon than
the petroleum diesel it was blended into, even before taking
into account its lower energy density. For this reason and
despite advanced biofuel mandates approaching 3 billion
gallons, U.S. producers never made more than 2 billion gallons
of biomass-based diesel in a given year.
As a result, imported biofuels are displacing U.S.-produced
petroleum and diesel. This simply does not make sense for a law
entitled the Energy Dependence and Security Act. AFPM strongly
supports a transition to a more competitive fuels market and
away from the RFS. We have gone from the world's largest
importer of crude oil and refined products to the largest
exporter of refined products in the world. Our net imports of
petroleum are way down, the lowest percentage since 1967.
Domestic production of crude oil and finished products
continues to increase. Of what we do import, more is coming
from our immediate neighbors with 40 percent from Canada.
North American energy security has never been stronger. But
as long as the RFS is the law of the land, we ask policymakers
to place a stronger nexus between mandated volumes and
demonstrated domestic production. This will ensure we can
comply with the law and would be better for consumers who
should not have to pay more for fuel to subsidize foreign
biofuel manufacturers.
We also support rural communities and biofuel production.
Many of our members, our large biofuel producers themselves,
will have investments or joint ventures with biofuel producers.
Many of our refineries are located in rural areas. And we
produce the diesel that powers tractors and school buses. We
simply believe there must be better ways to support rural
America than by creating expensive and inefficient Federal
mandates.
We remain open to good-faith discussions about the future
of the RFS and ways to create better opportunities for all
stakeholders, especially consumers. The committee's work on the
issue is greatly appreciated by our members. We look forward to
the dialogue in the coming weeks and months, and I look forward
to answering your questions today.
Thank you very much.
[The prepared statement of Mr. Morgan follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Shimkus. Thank you.
Now, next for my colleagues, we are going to recognize
Robin Puthusseril. So that is probably the most difficult name
to pronounce and read here. So we are glad she is here. Vice
President of Greater Chicago Truck Plaza. Now, I am a down-
stater. So we will claim her today. Greater Chicago Truck
Plaza, on behalf of the National Association of Truck Stop
Operators.
And you are recognized for 5 minutes.
STATEMENT OF ROBIN PUTHUSSERIL
Ms. Puthusseril. Chairman Shimkus, Ranking Member, and
members of the subcommittee, thank you for the opportunity to
testify this morning. My name is Robin Puthusseril, and I am
the Vice President and part owner of the Greater Chicago I-55
Truck Stop in Bolingbrook, Illinois. Along with my father, John
Puthusseril, and my brother.
I am testifying today on behalf of NATSO, the national
association representing travel centers and truck stops. NATSO
represents not only small, single-store operators, such as
myself, but also large, nationwide travel center and
convenience store chains. My testimony today will focus on my
company's experience with biodiesel and provide my perspective
as to how Congress can continue to incentivize fuel retailers
like myself to incorporate biodiesel into our diesel fuel
supply.
First and foremost, it is important to understand that, as
a diesel retailer, I operate in the most transparent,
competitive commodities market in the United States. Truck
drivers are, by and large, more savvy and price-conscious than
typical American motorists. Truck drivers are often aware of
retail diesel prices when they are hundreds of miles away from
potential refueling sites. Fleet managers use this information
to direct drivers to specific retail locations in order to
purchase the lowest priced fuel available.
I say this to illustrate the competitive nature of my
market, which compels me to pass through cost savings on to my
customers.
The RFS is sound Federal policy because it recognizes this
reality. Specifically, it creates a structure where, when it is
implemented properly, I am able to offer lower fuel prices the
more biodiesel I sell. This is generally good for retailers
because, as buyers, we like long markets with a diverse array
of supply options at our disposal.
Absent government incentives, biodiesel costs more money to
sell than diesel fuel. So, absent government incentives, I
would have absolutely no reason to blend biodiesel into my
diesel fuel because it would make the end product more
expensive rather than less expensive.
The RFS makes the end product less expensive. Under the
RFS, when I blend biodiesel into diesel fuel, I am able to
separate and sell compliance credits, known as RINs. When I
sell RINs, I can lower the cost of my diesel fuel. This allows
me to better compete for market share.
My travel center has been selling biodiesel blends for 12
years. After the RFS and similar State incentives were enacted,
it was clear to me that I had to invest in biodiesel in order
to remain competitive. In addition to spending more than
$500,000 to update my fuel infrastructure, I spend
approximately 70 percent of my time today managing this line of
supply. This includes analyzing pricing proposals, testing our
fuel supply, coordinating deliveries, managing inventory, and
ongoing administrative and regulatory compliance work, which is
significant. This is all on top of managing our staff of more
than 50 employees and overseeing all aspects of our truck stop,
from fuel sales and truck parking lot maintenance to our sit-
down restaurant and convenience store.
I didn't ask for the RFS. But now that it is the law of the
land, I view it as my responsibility to my family's business
and our employees to adjust our practices accordingly. The
growth prospects for advanced biofuels are in Congress' hands.
Because biodiesel is more expensive than diesel fuel, it must
continue to be subject to robust Federal incentives if it is to
continue to gain market share. I firmly believe that the
advanced biofuels market has a potential to be a part of
American's long-term all-of-the-above energy future.
I am concerned, however, that the EPA in recent months has
granted small refinery hardship waivers to an unprecedented
number of refineries. These waivers have lowered demand for
advanced biofuels. They have substantially diminished the value
of the biodiesel investments that Congress encouraged me to
make when it established the RFS.
Going forward, I would hope that EPA act in a manner that
is more consistent with the RFS by requiring all waiver
requests be received and assessed prior to finalizing biofuel
mandates for a given compliance year. That way, when RVOs are
finalized, the market can be confident that those numbers will
not be adjusted downward after the fact.
When the RFS was enacted, if I didn't invest in biofuel
infrastructure and adjust my business practices, I would be at
a serious disadvantage today. That is why I made the
investments. If Congress can continue to provide a roadmap that
leads to robust advanced biofuels markets, the travel center
industry will be better able to offer affordable fuel for
motorist as we serve as the home away from home for America's
truck drivers.
Thank you for the opportunity to testify today. I am happy
to answer any questions that you may have.
[The prepared statement of Ms. Puthusseril follows:]
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Mr. Shimkus. Thank you very much.
Now I would like to turn to Mr. Randy Howard. For full
transparency, REG operates national biodiesel refinery in
Danville, Illinois, which is in the northern part of my
congressional district. And he is the CEO of our renewable
energy group.
You are recognized for 5 minutes. Welcome.
STATEMENT OF RANDY HOWARD
Mr. Howard. Thank you.
Chairman Shimkus, Congressman McNerney, and members of the
subcommittee, it is my pleasure to be here with you this
morning. I am Randy Howard, President and CEO of Renewable
Energy Group, or REG. I am honored to speak to you today on
behalf of the National Biodiesel Board and more than 60,000 men
and women across the country that support the biodiesel
industry.
Established in 1992, NBB is the leading U.S. trade
association representing biodiesel and renewable diesel,
including producers, feedstock suppliers, and fuel
distributors.
Let me tell you a little about my company. REG is the
largest domestic producer of advanced biofuel making biodiesel
in 10 plants across the United States. We also own and operate
a 75 million gallon renewable diesel refinery in Louisiana and
two biodiesel plants in Germany. Combined, our plants have
demonstrated the annual production capacity of 575 million
gallons. We currently employ 840 people in our company in good-
paying jobs and also support thousands of other jobs in
agriculture, transportation, and energy sectors.
I first joined REG as a member of their board of directors
after a 33-year career in the petroleum industry. When I
retired from Unocal 76 in 2005, the oil industry was embracing
renewable fuels as part of the Nation's all-of-the-above
strategy. I saw then and continue to see biomass-based diesel
as the key to the future of liquid transportation fuels,
transforming waste, fats, and oils into high-quality, low-
emission renewable fuel that extends our precious petroleum
reserves and contributes greatly to the energy security of
America.
The most important part I would like to make to you today
is that biodiesel is truly a success story of the RFS, helping
to realize the energy security and environmental benefits that
are RFS was intended to achieve. Biodiesel is by far the most
wildly used advanced biofuel, meeting more than 90 percent of
the annual RFS advanced biofuel obligations. According to EPA,
biodiesel reduces lifecycle greenhouse gas emissions by 57
percent to 86 percent compared to petroleum diesel. The
greenhouse gas reductions from 15.5 billion gallons of
biodiesel used through 2017 equates to the removal of over 30
million passenger vehicles from America's roadways.
Biodiesel has consistently delivered more than the RFS
currently requires, and we can do much more. Federal and
industry data shows the U.S. biomass-based diesel plants
operate at the start of this year have an aggregate capacity of
more than 2.6 billion gallons. Since that time, companies have
announced or completed another 238 million gallons of expanded
capacity. REG just completed a 20 million gallon expansion of
our first plant, and we are looking at a major expansion of
renewable diesel in the future.
Biodiesel can also help to boost U.S. exports and rebalance
international trade. The EIA estimates growth of another 200
billion gallons of distillate fuel demand worldwide by 2030.
U.S. biodiesel is and should be a part of that growth.
Second, in addition to these energy and environmental
benefits, biodiesel supports rural American jobs. Biodiesel can
help solve the current farm crisis. Farm income has declined
steadily over the last 4 years, reaching lows not seen since
2009. Last year, REG added value to nearly 4 billion pounds of
agricultural waste.
Feedstock diversity continues to be a strength of our
industry. U.S. producers utilize a wide range of feedstocks,
such as recycled cooking oil, vegetable oils, animal fats, and
distillers corn oils. This diversity allows biodiesel and
renewable diesel producers to alter feedstock use based on
regional and global market dynamics. Supplies are ample and
continue to grow. There is also a number of feedstock pathway
applications which EPA has not acted on, in some cases for
several years, which would provide even more feedstocks.
Third, there are no infrastructure barriers to biodiesel's
continued growth. While biomass-based diesel currently makes up
less than 5 percent of the distillate pool, there are hundreds
of fuel retailers across the U.S. selling biodiesel blends up
to B20, or 20 percent. REG and other advanced biofuel companies
are selling high biodiesel and renewable diesel blends to a
growing list of corporate and municipal customers. We are proud
to have customers such as FedEx, UPS, and the New York City
sanitation department, just to name a few.
In closing, biodiesel is a renewable industry success story
and stands ready to deliver more gallons and more economic and
environmental benefits to the market. The RFS provides a
winning combination of benefits for Americans, greater energy
security, substantial environmental benefits, and enhanced
value-added agriculture. We would ask Congress to continue the
support of the program and to use its oversight authority to
ensure the EPA administers the program according to Congress'
intent.
I look forward to answering your questions, and thank you
for this opportunity.
[The prepared statement of Mr. Howard follows:]
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Mr. Shimkus. I thank the gentleman.
The chair now recognizes Mr. Brooke Coleman, Executive
Director at Advanced Biofuels Business Council. He has been
here before. Welcome back.
STATEMENT OF BROOKE COLEMAN
Mr. Coleman. Good morning, Chairman Shimkus, Congressman
McNerney, members the committee. My name is Brooke Coleman. I
am the Executive Director of the Advanced Biofuels Business
Council. Thanks for the opportunity today to testify. We
represent worldwide leaders in the effort to develop and
commercialize the next generation of advanced and cellulosic
biofuels.
By any measure, the RFS is doing what it was designed to
do. The ethanol industry alone has built 200 biorefineries in
the last 30 years to the oil industry's roughly 10 and now
displaces the rough equivalent of Saudi Arabia and foreign oil.
And few, if any, of the companies producing first-generation
biofuels are not somehow invested in advanced biofuels.
It is politically expedient to cast the RFS as good for
first-generation biofuels but less effective at promoting
advanced biofuels. These claims are designed to divide and
conquer the left-right coalition that made the RFS a reality
and are wildly overblown. Already advanced biofuels make up
about 20 percent of the volumes required under the RFS, and now
the most technologically advanced biofuel, cellulosic biofuel,
is on the precipice of large-scale commercial growth.
Policy and financing uncertainty notwithstanding, we are
producing commercial volumes of cellulosic ethanol from
agricultural residues and municipal solid waste. Not everyone
has succeeded in the timeframe anticipated, but delay should
not be mistaken for failure.
So let me address the elephant in the room. Why are we
measuring cellulosic biofuels by the millions instead of the
billions, as anticipated? Certainly, the global recession
occurring shortly after the passage of the law slowed things
down. When things started to get better in the 2012-2013
timeframe, the previous administration succumbed to oil
industry pressure and stopped enforcing the law altogether. The
RFS was back on track in November 2016, but the current
administration almost immediately proposed to cut RFS volumes,
ultimately turning to refinery waivers to roll the program back
and create the investment uncertainty that biofuel innovators
are too familiar with.
While it is certainly plausible to argue that these
implementation issues could be cured by amending the statute,
we disagree. Current law could not more clearly prohibit the
type of waivers used by the Obama administration from 2013 to
2016 as recently confirmed by, I believe, the 10th circuit. But
they did it anyway. Current law could not more clearly prohibit
giving small refinery waivers to some of the largest refiners
in the world, but the current administration did it anyway.
Current law could not more clearly make woody biomass and corn
fiber eligible for the RFS. But a decade later, we still don't
have answers about trees, and many corn fiber pathways are
logjammed at EPA.
These aren't statutory problems. They are political will
problems, and not the political will in this room. We do not
support trying to cure a political will problem by opening up
an already strong Clean Air Act statute. It is unclear to me
what political metric would suggest that the current political
environment would produce a stronger statute for advanced
biofuels than we have today. But either way, the process would
not produce solutions to the problem at hand.
Let me finish with a couple of thoughts. The RFS is
essentially a contract designed to convince the private sector
to spend billions of dollars to bring new fuels to market, and
they have done that. Single companies in my council have spent
$500 million alone. If you want to keep U.S. investment, keep
and hold program administrators to this commitment.
Two, proper enforcement of the law is extremely important
for our fuel industry. Fuel markets are not free markets. Oil
prices are manipulated at the top by OPEC often for the express
purpose of weakening competition, including in the oil
industry. At home, ethanol has been the cheapest form of octane
for decades. But without policy, we struggle to find buyers
because the oil industry would prefer to buy octane from
themselves, even when it is cheaper.
Number three, while it may not seem like it, the oil
industry is running out of ways to avoid the law. The courts
have struck down prior misuse of RFS general waiver authority
already, and the absurdity of the current small refinery waiver
scheme has and will continue to be exposed.
Four, there are much easier ways to produce step change
results for my industry and advanced biofuels in general. I
will mention two. First, it is not easy work, and progress has
certainly been made. But EPA must kick out eligibility pathways
faster. For example, we can produce hundreds of millions of
gallons of cellulosic ethanol from corn fiber in the near term
if we can clear the pathway logjam at EPA. Clarity on municipal
solid waste are two more that have already been mentioned.
Second, and this is largely for cellulosic ethanol.
Regulator parity for RVP, which we have discussed, Reid vapor
pressure, would open new and immediate opportunities for growth
in cellulosic ethanol. As you mentioned, 15 billion gallons is
capped.
I will close by saying that it may not be the sexiest
answer to the question asked, but the best statutory path
remains the path that we are on.
Thank you.
[The prepared statement of Mr. Coleman follows:]
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Mr. Shimkus. The chair thanks the gentleman.
The chair recognizes Mr. Collin O'Mara, President of the
National Wildlife Federation. You are recognized for 5 minutes.
Welcome back.
STATEMENT OF COLLIN O'MARA
Mr. O'Mara. Thank you, Mr. Chairman, and thank you, Mr.
McNerney, for convening this session today.
Is this on?
OK. My name is Collin O'Mara, and I am head of the National
Wildlife Federation. We are America's largest conservation
organization with 6 million members, a couple million hunters
and anglers and as well as birders and gardeners, completely
bipartisan, representing every part of the country.
And 2 years ago today, I was before this committee talking
about this exact issue. And at the time, I said, we were
supporters of the original RFS and the RFS2 because of the
promise of getting to advance truly sustainable fuels and the
promise that was made that there would not be adverse impacts
to habitat and to wildlife, both of which have kind of proven
not to be true.
And so, at the time, I said, the road to hell is paved with
good intentions. But at the end of the day, as my old boss Jack
Markell used to say, he used to be Governor of Delaware, a
vision without execution is nothing but a hallucination. And I
do think that we have to have an honest conversation about the
role of government in getting us to the point where we are
today. We have distorted these markets to the point where we
are basically reducing the amount of investment that we are
seeing in the advanced, and we are basically creating a massive
incumbent industry that is having adverse impacts on the
landscape.
And so I want to talk about three things today. The first
one is to expand on the vision for what an advanced biofuel
future could actually look like. The second is I want to offer
a perspective for why we failed to achieve the vision so far.
And I want to suggest some ways that Congress can actually
right the ship and reach these elusive goals because I do
think--and I do disagree with some of my panelists here. I do
think that there is this fallacy that we all accepted 7 years
ago, or 11 years ago now, that if we invest in first-generation
biofuels, they will automatically lead to kind of the future
that we want for the advanced biofuels. And we just simply
haven't seen that happen.
And if you look at the amount of venture capital money and
equity money going into the advanced fuels, it is a fraction of
the money going into traditional corn ethanol. And the reason
is pretty simple. If you give a fairly guaranteed return from a
fairly predictable program on the first-generation side and you
have wildly unpredictable volumes on the next-generation side,
of course you are going to put the smart on the last
generation. It is just good economics.
In my previous testimony, I talked a lot about the wildlife
impacts, the loss of grasslands in the plains. Right now, 87
million acres of land are in corn production. That is the most
since World War II. Eighty-nine million acres are in soy
production. If you look at those 176 million acres, the
production on them, the productivity on them, is absolutely
fantastic. We are getting better and better at being more
efficient in the amount of crop that we are producing. This is
because of biotechnology, because of the application of
fertilizers and pesticides.
The landscape is shifting, so we are losing acres in more
arid places--we are basically taking acres that are more arid
places out of production, and then we are putting more acres
that were habitat in the grassland into production. And what
has ended up happening, for folks that care about wildlife and
sportsmen, folks who like to duck hunt and pheasant hunt, we
are losing some of the best habitat in the country for ducks
and for pheasants.
And so kind of the point I wanted to make on the vision was
that sustainably harvesting native grasses, native prairie,
these could provide feedstock and provide revenues for ranchers
and for folks across rural America while continuing to
sequester additional carbon, providing homes and forage for
wildlife species, and maintaining or enhancing water storage
capacity, and offering diversified revenue streams.
The same thing with cover crops. Instead of just paying
folks for cover crops that are taking up nutrients, actually
harvesting those cover crops, turning those into feedstock for
biofuels creates another revenue stream for farmers that are
already trying to do their part to improve water quality.
Same thing in areas with more trees and grasses. They could
benefit significantly from thinning and using other woodywaste
to create a few feedstocks for advanced biofuels.
And so the question is, why aren't we there? If there is
all these potential food stocks that have good economics behind
them at a micro level, why can't we get to the macro growth?
And I would argue it is mainly for two reasons.
The first reason is that EPA's having to lower the statute
for their overly ambitious target has really strangled the
industry in its infancy. And then, once these annual targets
are set, they are consistently undermined by the issuance of
these waiver credits. And I think you are hearing broad
agreement on that point today.
These moving targets are horrible for both the producers as
well as the investors that are looking to make decisions. And
so there isn't that incentive to make the big investments for
the next generation of fuels.
And so the two industries are in a very different place. If
you think about where the corn ethanol industry was 11, 12
years ago, it was in its infancy. We are at 10 percent now. I
mean, soybeans right now, it is 2 billion gallons. We have made
incredible progress in those areas to the chagrin, in some
ways, of the wildlife impacts.
But we haven't seen any of that on the other side. And I
think what I would really encourage this committee to do is
look at the GREENER Fuels Act that Congressman Welch has
introduced. There are a lot of commonsense solutions,
bipartisan solutions in that act that will create a lot more
certainty in the industry, reduce the conservation and the
wildlife impacts from the current RFS, and do it in a
bipartisan way.
The longer we wait for a solution, the harder it is going
to be to get one. I do think that there is a bipartisan
solution here that could have a huge benefit for wildlife and
still achieve that incredible vision for a sustainable energy
future at the same time.
I look forward to your questions. Thank you, Mr. Chairman.
[The prepared statement of Mr. O'Mara follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Shimkus. Thank you very much.
And last but not least is Mr. Luke Morrow, managing
director at Morrow Energy on behalf of the Coalition for
Renewable Natural Gas.
Sir, you are recognized for 5 minutes. Welcome.
Mr. Morrow. Thank you. Are you able to hear this?
Mr. Shimkus. You are good.
STATEMENT OF LUKE MORROW
Mr. Morrow. OK. Excellent.
Thank you, Chairman Shimkus, Ranking Member, and members of
the subcommittee. I am Luke Morrow, President and Founder of
Morrow Renewables. I also serve on the board of directors of
the Coalition for Renewable Natural Gas, which is the trade
association for the renewable natural gas industry. I
appreciate having the opportunity to testify today about
renewable natural gas, or RNG, and the important role it plays
in the RFS program.
RNG is biogas-derived biofuel. Our industry takes untreated
biogas captured from landfills, wastewater facilities, and
anaerobic digesters and refines it to meet the fuel qualify
standards of geologic natural gas. It is fully fungible in
existing pipeline infrastructure.
RNG qualifies as cellulosic biofuel under the RFS. It
represents over 95 percent of the fuel used to meet the
program's cellulosic biofuel requirement and reduces lifecycle
greenhouse gas emissions by 80 percent or more compared to
conventional diesel fuel.
My company, Morrow Renewables, is based in Midland, Texas.
We have been involved in the natural gas industry since 1986
and have been active in the RNG industry for the last 18 years.
We work collaboratively with landfill owners, operators, and
waste management companies to bring RNG projects to fruition.
Our company developed and utilizes patented technologies to
refine biogas into high BTU RNG that can be readily used in
natural gas vehicles. We employ over 180 people and have seven
projects across the Texas, Louisiana, and Arkansas producing
cellulosic biofuel.
In fact, 2 days ago, I was the ribbon cutting for our
latest project in Melissa, Texas, which is one of our biggest
projects to date. This project will produce, at a minimum, 12
million gallons of cellulosic biofuel annually. In total, our
current projects produce about 35 million gallons of cellulosic
biofuel every year, which we expect to almost double by the end
of this year.
Since 2011, the RNG industry has developed over 45
facilities capable of producing high BTU RNG that can be used
for transportation applications. There are currently an
additional 48 projects under construction or consideration.
Our industry has produced increasing volumes of cellulosic
biofuel since RNG was incorporated into the RFS program. RNG
production for transportation fuel grew from approximately 33
million ethanol equivalent gallons in 2014 to over 240 million
gallons in 2017. That is more than a 620-percent increase in
the 3 years--620 percent.
For 2018, the EPA estimated that RNG production would
increase by approximately 21 percent over the previous year's
levels. EPA actual data show that the industry has grown 29
percent over the last 12 months. In other words, our industry
is currently on track to exceed the EPA's estimate of 274
million gallons of production for 2018.
America's RNG industry has a great story to tell. We are
converting waste into a transportation grade fuel that can be
used in natural gas vehicles, such as the Metro buses here in
Washington, D.C.
In addition, we are providing the fuel needed to meet the
RFS program's cellulosic biofuels target and doing it in an
environmentally sustainable manner while adding high-paying
engineering, manufacturing, construction, and operations jobs
to our economy.
As this subcommittee thinks about the future of the RFS
program, I want to convey how important policy certainty is to
the stability and growth of our nation's RNG industry. I can
tell you from firsthand experience that bringing an RNG project
to fruition requires significant capital investment and long-
term contractual arrangements.
There are things that the EPA can do to provide this
stability. Keeping the annual rulemaking process that sets the
program's volumes requirements on schedule is helpful. The use
of a consistent methodology that recognizes historic growth
while accounting for new investment when setting the cellulosic
biofuel volume targets will help provide the certainty required
to attract additional investment and expand cellulosic biofuel
production.
Lastly, I would note that reports of the small refinery
exemptions being applied in new expanded ways have injected
uncertainty and undermine the economic assumptions upon which
capital investments were made and continue to be made in the
RNG industry.
We would encourage the subcommittee to take appropriate
steps to ensure that the small refinery exemption is being
applied in a manner consistent with the letter and intent of
the law and in a way that does not undermine our industry's
ability to produce additional volumes of cellulosic biofuel.
Chairman Shimkus, ranking member, and subcommittee members,
thank you again for the opportunity to testify. I would welcome
any questions you may have, and may God bless America.
[The prepared statement of Mr. Morrow follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Shimkus. May God bless America. Thank you very much.
Especially after this testimony here, we need a lot of
blessing going on here.
So let me thank you for your testimony and move to the
question-and-answer portion the hearing. I will recognize
myself 5 minutes for the beginning.
So we are here because, really, the policy certainty
question, right? So anyone know who is going to be elected
President in 2022? Anyone know who will be the next
Administrator of the EPA? The answer is no, right? Does anyone
know when it is perceived that the RFS program will be turned
over to the next Administrator? 2022, right?
So let me start with my question for McAdams, Howard,
Puthusseril, Morrow, and Morgan. What are your main concerns
with the RFS post-2022? And what, in your view, is the best way
to address those concerns?
Mr. McAdams. So I would answer by doing a reform bill so
that we have clarity, not only before 2022 but after 2022,
instead of waiting for a reset. And the reason I say that is
because so many of the current provisions in the statute and in
the current regs are so ambiguous that EPA doesn't have the
ability to make the calls they need to make. And I have seen
two major companies build plants, one in China and one in
Sweden, because we couldn't make the calls on how to apply the
policy in the first place.
So I know I have disagreements with folks on this panel
about that. But having represented those two companies who
couldn't build a plant here because we couldn't make a decision
on whether tall oil was a waste when it is 2 percent residue in
a tree or whether a single-cell organism is an algae, but----
Mr. Shimkus. OK. I have got other people to go. We got your
point.
Mr. Morgan.
Mr. Morgan. I would say it is certainly a little bit of the
uncertainty question post-2022. But the main point is that
ultimately fuel should be standing on their own two feet and
competing in a free and open marketplace where there is a
willing seller and a willing buyer. Both people are better off
after the transaction.
So we need to move toward a free market. And doing that now
would actually be good, because it would give you more of an
opportunity, more of a runway to figure out how to do that
post-2022. So now is the time for reform.
Mr. Shimkus. Ms. Puthusseril.
Ms. Puthusseril. I run a truck stop, and so we look at
things on a day-to-day basis. And so for my customers, what
they are looking for is the most affordable fuel prices. They
are looking for a fuel that they can get that is good. And we
have seen the RFS, as it is intended to work, is working.
Whenever I can offer low price fuel for the drivers----
Mr. Shimkus. Let me ask, you have you been briefed by the
association of a concern on 2022?
Ms. Puthusseril. No.
Mr. Shimkus. OK. Let me move--I am running out of time, so
let me go to Mr. Howard.
Mr. Howard. Thank you, Mr. Chairman.
Frankly, Mr. Chairman, I am not sure we see much difference
post-2022 with the uncertainty that we have seen to date in the
RFS and the implementation. Certainly we would like to see
updates in transparency and consistent long-term growth that is
clear for biodiesel and renewable diesel. Clearly, it has been
a success story, but it has been in fits and starts, and we
don't see much difference.
Mr. Shimkus. OK. Let me go to Mr. Morrow.
Mr. Morrow. Yes. Thank you, Mr. Chairman.
So we have only been as cellulosic biofuel RNG in the
market for 3 years, and 2022 is right around the corner. So our
entry is making massive investments. So we would just like to
see some certainty going forward and to know what that is to
make investments to continue to do what we do.
Mr. Shimkus. So does your industry feel that there is
certainty right now?
Mr. Morrow. Not at all.
Mr. Shimkus. OK. And this is kind of outside. But one of
the main drivers of us possibly moving forward is the octane
debate. The basic debate is best fuel engineers and the best
vehicle passenger engineers producing the best vehicles to meet
CAFE and low carb and some of those other issues.
I would like to go through the panel, but quickly. I know
that is not in your segue, but since that drives about 75
percent of this debate, what are your thoughts on that?
McAdams, you want to----
Mr. McAdams. Oh, I----
Mr. Shimkus. Quickly though. Quickly.
Mr. McAdams. OK. I am on the optimal task force with DOE,
and they going through a range of different fuels. And you want
to make sure that you leave enough flexibility that you can
have a drop in fuel that is renewable. And it doesn't have to
necessarily----
Mr. Shimkus. OK. Let me go to Mr. Morgan because he is
really the person I want to ask this of.
Mr. Morgan. Yes. We definitely see potential in a 95 octane
specification in exchange for a sunset of the RFS that could
potentially work better for everybody, including for consumers.
A 95 RON level would be a nationwide fuel on day one. That is
important to the automakers. The automakers tell us and
testified before this committee that that is the optimal level
that would allow them to engineer the vehicles. And if the RFS
goes away, it will free up enough investment for us to be able
to compete in a free and open market.
Mr. Shimkus. And I will end here. But I think, in
observation of the other panels, you would probably be alone in
the statement of sunsetting the entire RFS? Just instructional.
So, with that, I will turn to the ranking member, Mr.
McNerney, for 5 minutes.
Mr. McNerney. I thank the chairman.
Mr. O'Mara, how can Congress work to improve the RFS and
ensure it includes other biofuels and biogasses?
Mr. O'Mara. Thank you, Mr. McNerney.
And I think, if you look at the legislation that
Congressman Welch just put forth, the GREENER Fuels Act,
looking at having more clear, kind of, definitions for the
types of fuels that are allowed but then being a little
technology agnostic. Like, we shouldn't be picking winners and
losers from LG versus native grass versus, you know, different
technologies. Set performance standards and let the market
actually work. And I think, right now, we are overly
prescriptive. And the process of having EPA allowing new next-
generation fuels into the process has been absolutely abysmal.
And so, again, I mean, I do think there are models in
California and other places that have set standards, and then
let American innovation work.
Mr. McNerney. I have heard a couple of panelists refer to
Mr. Welch's legislation.
Is there anyone that is familiar with it that would oppose
that legislation?
Mr. Coleman. Yes. We oppose Mr. Welch's legislation. So
there is a number of things in that bill that, quite frankly,
are mind blowing, from my perspective. There is a whole bunch
of asks from the American Petroleum Institute: a cap of ethanol
use, a total exclusion for corn fiber, cellulosic ethanol,
sunsetting where it shouldn't exist.
We have a number of problems with that bill, and we would
ask for opposition.
Mr. McNerney. Thank you.
Anyone else?
Mr. McAdams, does your industry find the playing field for
biofuels, gas, and diesel to be level?
Mr. McAdams. No, sir, because they are at different
economic places at the current time. And that is part of the
problem with the program when you have had 40 years and $20
billion, as the incumbent corn industry has, and you are trying
to compete ethanol to ethanol, they are not on a level playing
field.
So you have to buoy up if you are going to have the
advanced fuels compete with the incumbent fuels on both an
octane basis and just on an entry to the market basis. And,
frankly, the teeth in the RFS didn't do that for cellulosic.
Mr. McNerney. Does anyone on the panel feel that the EPA's
waiver for small refineries that is actually given to large
refineries is a good idea? Does anyone think that is a good
idea?
Mr. Morgan. I will just say we don't take positions on any
individual refinery waivers because it deals with confidential
business information and all that. But we oppose the idea of
doing a retroactive reallocation. We are not sure how they
could do that legally and logistically under the statute. And
it points to the need, really, for a comprehensive solution.
That is why we are here. I would just say to my fellow
panelists, if they are frustrated with how the RFS is run,
welcome to the club. And if you think it is bad now, wait for
2022 when there is even more uncertainty. So all of this to me
points right back to the need for a comprehensive solution.
Mr. McNerney. Mr. O'Mara, who do you think that that policy
benefits, the policy that the Administrator is pushing forward?
Mr. O'Mara. Yes. I think there are places where the
uncertainty and the RIN cost and things like that have
adversely impacted some manufacturers and some refiners. I do
think that reduces some pressure on kind of habitat impacts,
especially as prices get up higher and higher.
But I think the challenge of this debate continues to be
projected as just corn versus oil. And there are a whole series
of constituencies that are badly influenced by the status quo.
And I think the problem is that we keep trying to have these
little quick fix kind of get through the press cycle and do
something from either the administration where we need to have
a bigger conversation because it is just more complicated than
any individual action that the Administrator has taken.
Mr. McNerney. Well, I certainly agree with the chairman on
this. It is a good diverse panel, and so we get some different
viewpoints on that.
Mr. McAdams. Mr. McNerney, I just want to make the
committee aware that I have actually sued the Environmental
Protection Agency over the way they are issuing the small
refinery waivers. And what they have done is they have
purposely driven down the price the D6 RIN. And that is a
direct benefit to the merchant refiners.
Then what they did was they went from an average of 7 to 10
to 30. And some of my largest distributors of diesel have lost
millions and millions of dollars as a result because they were
sitting there holding a hundred million RINs. So our guys have
received economic harm and that some of the people they gave
them to didn't pass the economic harm test.
Mr. McNerney. Thank you.
Mr. Coleman. One additional point. When it all comes down
to it, what those waivers do is they transfer wealth from rural
America into the pockets of refinery owners. That is what they
do in the short-term. And rural America is hurting and
refineries are not.
Mr. McNerney. I just want to end by saying, Mr. Morrow, I
was pretty excited hearing your testimony. Let's see how we can
continue that success story.
Mr. Morrow. Thank you, sir.
Mr. McNerney. Mr. Chairman, I yield back.
Mr. Shimkus. The gentleman yields back his time.
The chair recognizes my friend and colleague from Texas who
has been laboring with me on this issue, Mr. Flores, for 5
minutes.
Mr. Flores. Thank you, Mr. Chairman. I apologize to the
audience for being late today. My mother experienced a
significant medical condition earlier this week, so I had to
deal with some of those things this morning.
Mr. Morgan, your organization has been supportive of the
high octane concept. What, if any, changes need to be made to
the advanced biofuels provisions in the RFS in order for a high
octane program to move forward?
Mr. Morgan. Thanks for the question.
Yes, I think the key thing is there that we need to be
moving toward a free market. We are open to all ideas about how
to do that in the advanced space. We feel like the octane idea
has the potential to do that in the conventional ethanol space.
We don't have a specific solution, to be honest, on the
advanced space, but we are open to ideas and looking for an
off-ramp toward all the fuels competing on an equal basis.
Mr. Flores. OK. Would your constituents accept a sunset
date for advanced biofuels that is later than a sunset date for
the remainder of RFS?
Mr. Morgan. We feel so strongly that the program needs to
be sunset over time that we are open to all ideas. The
timetable needs to be reasonable of course. But we are open to
hearing what the colleagues on this table and others need to
have the certainty that they need and the timeframe that they
need. We will take a look at that, take it back to our
membership, and we are open to ideas.
Mr. Flores. OK.
Mr. McAdams, do you envision a sunset date for RFS that
includes advanced biofuels? And if so, what would that sunset
look like?
Mr. McAdams. Well, I think you have to base it on how you
would get your financing. And so 20 years is what most people
have in terms of the debt that they take when they have a loan.
And if you gave the plants, when the plants came on, like you
do in the Tax Code, you flip the switch on and you get 20 years
of a RIN, then people are going to have the confidence to
finance those plants.
Twenty is not the only answer you could have, but I think
you have got to have some longevity where they can repay the
loan just like you have a 30-year loan on your house because it
is easier to pay for.
So that is the game that has to be worked on in terms of
how long you would go forward in order allow these plants to be
financed and built.
Mr. Flores. OK. Thanks for the answer. Just to clarify, you
are saying most of the capital investments have about a 20-year
financing----
Mr. McAdams. Yes. When you look at the electric side, you
usually see a 20-year agreement between the purchaser of the
power and a purchase power agreement, right? That is generally
what the electric industry does, so I just borrowed that from
the electric----
Mr. Flores. Oh, OK, I see what you are saying.
Mr. Morgan. And I would just point out that would be 17
plus 20, which is 37 years, is a long time to wait.
Mr. McAdams. Well, you wouldn't have to do it that way. You
could do it in some other constructions is what I am saying.
You have to work that out. Because you guys had to have 30
years to pay for the $6 billion refineries. It is the same
issue.
Mr. Flores. OK. Well, this is helpful.
Mr. Morgan, there are recent reports that the EPA is
considering reallocating waived volumes from exempted small
refineries in the 2019 RVO. What is your perspective on these
reports?
Mr. Morgan. I would just say that----
Mr. Flores. Just to be clear there, reallocating from small
refineries to everybody else.
Mr. Morgan. Yes. We have very grave concerns about that,
particularly trying to retroactively put in waived volumes into
a new rule. I am not sure how they could do that. We have very
strong concerns for that legally.
Also, I think, to my point just a minute ago, I think this
points out why we need to have a comprehensive solution,
clarity in the statute, rather than relying on administrative
action. And in 2022, the statutory guidelines fall off and
there is more administrative discretion.
So for those of us who are concerned about how the program
is being operated now, it is much more so in the future, which
is why we all need to figure out a path forward.
Mr. Flores. OK. Mr. McAdams, am I interpreting correctly
that that is one of the catalysts for your litigation?
Mr. McAdams. Yes, sir. Absolutely. I mean, who is going to
finance a $200 million plant in 5 years?
Mr. Flores. OK. I thank the panel. It has been great.
And, Mr. Chairman, I yield back the balance of my time.
Mr. Shimkus. Wow, the gentleman yields back his time.
The chair recognizes, I think, the gentleman from Texas--
maybe not--for 5 minutes.
Mr. Green. The chair and I have some little competition.
I want to thank all of the panel for being here today.
One of the frustrations--and I think the chair and I were
on the committee when this system we have now was created from
a number of energy legislation over the last decade or so--the
frustrating thing I have is that, not only coming from an oil
and gas community, but biofuels hasn't taken on, and what is
picked up is the corn ethanol.
And I know from the environmental perspective, biofuels
really have a plus for the environment, whereas corn ethanol
doesn't, and that is the frustration.
So, Mr. Morgan, has the RFS had help to commercialize and
develop cellulosic biofuels and advanced biofuels other than
biodiesel?
Mr. Morgan. Not really. I think you have heard the numbers
today, that it is overwhelming, that biodiesel has been in the
advanced pool with only 10 million gallons of liquid cellulosic
fuels at this point, setting aside the biogas, the compressed
natural gas.
Mr. Green. Have we seen domestic production rise
dramatically? Has the mandate kept pace with the domestic
production capabilities?
Mr. Morgan. No, it has not.
Mr. Green. And how do existing mandates prioritize imports
over domestic production?
Mr. Morgan. Yes, I think you see that in a couple of
different ways. So if the mandate is placed higher than
demonstrated domestic production, then you are either going to
have some increased domestic production, which we have seen a
little bit of that, but you also have a lot of increased
foreign imports. And that is kind of against the whole purpose
of the Energy Independence and Security Act.
Mr. Green. And I agree that one of the concerns is that we
should be producing it. If you don't like bringing in foreign
oil, you surely wouldn't want to bring in biofuels.
Mr. Morgan. Yes, that is right, and especially because we
produce the diesel here in the United States, our members. So
we are actually, in terms of refined products, we are a net
exporter, the largest net exporter in the world of refined
products.
So when you bring in the biofuels from overseas, you are
actually displacing American fuels. Again, some of that is
derived from foreign crude oil, but it is domestically
produced.
Mr. Green. Speaking for AFPM, what effect has Mr. Pruitt's
RFS waivers had on the industry? Are some of the refineries
concerned that they will be left holding the short end of the
stick when the burden of compliance only applies to remaining
refiners who do not receive those waivers?
Mr. Morgan. I would say it certainly splits our members. It
is between those who have received waivers and those who have
not.
And as to how they are reallocated, we have very strong
concerns about that. That would actually hurt everyone,
including, for example, like PES, for example. It would be
reallocated to them when they are in financial distress at the
moment. That is just one example.
Mr. Green. And the chair and I have been wrestling with RFS
for a number of years. And a lot of it is just--the RIN system
is just broken and somewhere along the way Congress needs to
fix it. And I think everybody at the table ought to be there to
help, because I like domestic production, but I also see that a
lot of folks making money out of the energy sector, it is not
putting one drop of gas in our vehicles.
Mr. Chairman, that is all the questions. I yield back.
Can I save it for next week?
Mr. Shimkus. I think you already owe us numerous minutes.
Mr. Flores. Will the gentleman yield the balance of his?
Mr. Shimkus. Mr. Flores would like to----
Mr. Flores. Thank you.
Mr. Green brought up an issue that I think is important to
consider. Do any of you think the EPA can fix this on its own
administratively or do you think that it is going to require a
statutory initiative? As quickly as you can.
Mr. Morrow. That sounds like a loaded question.
Mr. Flores. It is not intended to be a trick question.
Mr. Morrow. I think, from our industry's standpoint, as we
are new in the RFS, I think maybe any type of legislative post-
2022 would be good for us in knowing that there would be some
certainty and potentially something that would transcend the
next election. So that would probably be helpful for us.
Mr. Flores. Mr. O'Mara?
Mr. O'Mara. Yes. I think if there was absolute certainty
and multiple year out and actually saying the volumes are going
to be consistent and not having all these the workarounds, I
think there are some abuses that could be a avoided.
I also think if the Triennial report on the environmental
impacts, which is now 7 years overdue, because there are things
that they can do to reduce filings based on impacts and that
work isn't being done. But the only way to make sure it is
right, to the chairman's point, long term, regardless of
administration, regardless of administrators, have Congress
take action.
Mr. Coleman. EPA has the administrative authority to fix
everything that I have heard mentioned. And so I think if there
is disagreement, it is how to get those things fixed.
Mr. Howard. Yes, I would agree. I think a long-term
consistent plan is easily implemented if the guidelines are
there.
Mr. Flores. Do you agree with the statutory approach or the
administrative approach?
Mr. Howard. I think there needs to be changes and updates
to the RFS. I think it can be fixed to give more clarity, to
give more transparency. A lot of the issues I have heard
articulated here are due to the lack of transparency in the
policy.
Mr. Flores. I need to move on. I am running short on time.
Sorry.
Mr. McAdams. We did this program 10 years ago and a lot has
changed in the industry on the innovative technology side and
the original statute didn't take that into consideration.
So a lot of projects now are multifaced projects with two
elements to them instead of one. The statute was written for
one element, not two. There are all kinds of problems with
respect to how they put the programs together. For the use of
wood, they just box these facilities.
Mr. Flores. Just to summarize, you are saying statutory,
right?
Mr. McAdams. It needs to be reformed.
Mr. Flores. OK.
Mr. Morgan.
Mr. McAdams. And I have given you a list of 21 things that
directly need to be statutorily reformed.
Mr. Flores. OK.
Mr. Morgan. We believe the statutory reform is the best
path going forward.
Ms. Puthusseril. I agree with that.
Mr. Flores. OK. Thank you. I yield back my negative time.
Mr. Shimkus. The gentleman from Texas yields back his time.
The chair now recognizes the gentleman from South Carolina,
Mr. Duncan, for 5 minutes.
Mr. Duncan. Way over here on the far right.
Thank you, Mr. Chairman.
Thanks to the panel for being here.
I want to examine the future of advanced biofuels under the
RFS. We need to set demands and mandates that the market can
actually meet. I think Mr. Morgan addressed in his testimony
that nearly a third of all the RFS advanced biofuel mandates
were met in the last 2 years with imported fuels. So it seems
to me that the demands and mandates are exceeding what the
market here in America can provide.
It seems counterproductive, especially since RFS was set to
mitigate the dependence on foreign sources. We have, in fact,
decreased dependence on foreign oil, but I am not so sure that
much of that can be attributed to RFS standards. Most of it is
due to aggressive exploration and production here at home of
fossil fuels. And so just because the government set up
biofuels demand doesn't mean we are able to domestically meet
it.
So, Mr. Morgan, your testimony directs EPA to set a
reasonable advanced biofuel mandate tied to domestic
production. In your opinion, what is a reasonable advanced
biofuel mandate?
Mr. Morgan. Yes, I think you would look at the previous
year's production domestically here and set it at it that level
so you have a track record there. And then as it grows, then
you can increase the number the next year.
But you are exactly right, that if a third of this is being
met by foreign imports--and again, as I just mentioned, some of
that is displacing American-produced fuel, or it all is--some
of which is derived from feedstocks from overseas certainly,
but it is all American-derived fuel, it is kind of at
counterpurposes.
Mr. Duncan. Mr. Howard, do you want to comment on that?
Mr. McAdams. Isn't a third of the fuel you use in the U.S.
refineries from overseas?
Mr. Morgan. In terms of feedstock, now our percentage of
imports is the lowest it has been since 1967.
Mr. McAdams. But it is still a third.
Mr. Shimkus. OK. I love this banter. This is a throwback to
Billy Tauzin. We will let Mr. Duncan control his time.
Mr. Howard. Yes, Mr. Duncan, I think you----
Mr. Duncan. Let's go to Mr. Howard.
Mr. Howard. Yes. So let me say, Mr. Morgan, some of these
numbers are very misleading. As of through last year, through
August of last year, 600 million gallons of Argentine biodiesel
were dumped into this market and that preceded the prior 3
years. Countervailing duties were put in place last August that
restricted that volume.
The biodiesel industry has stepped up. We were running at
two-thirds capacity because of that. Now that those
countervailing duties are in place and we have fair trade, the
biodiesel industry is meeting the RVO requirements. And we have
continued growth and plans to continue to meet that from
domestic production.
Mr. Duncan. Let me just ask you this. Because, look, I
drive a Chevy Duramax diesel pickup truck. That is my truck
when I am at home in the district. I like biodiesel. I think
the viscosity actually helps my engine probably more than
anything. So I am not a novice on this.
But I will say this, that biodiesel is much more expensive
than regular diesel fuel. So how can we overcome that? Because
if I as a consumer--and trust me, I am--if I can find biodiesel
in South Carolina now, I think there is one distributor that
has got it.
So if I want to buy biodiesel and I find a station that has
it, why am I paying 30, 40 cents more a gallon for biodiesel?
Because I can tell you, even though I want to do that, because
think it will help my engine, and I like the whole idea of
biodiesel, I am not going to buy it, I am not, not with 30 or
40 percent price difference.
So until you can overcome that, you are not going to have
the consumer buying your product. So how do you overcome that?
Mr. Howard. Well, I think you have heard from one of my
customers sitting next to me that she is able to lower her
price by blending biodiesel.
Part of the industry's need for continued growth is to be
able to have the distribution network to get to everywhere in
the country. Right now we have great distribution in the
Chicago area, where her truck stop is. We do not have great
distribution in your area.
We need to continue to invest in infrastructure. Last year
REG, we opened 10 new distribution terminals.
Mr. Duncan. What is the price point difference in the areas
where you have great distribution?
Mr. Howard. Right now, typically biodiesel with incentives
is sold less than diesel price and passed on to the consumer.
Mr. McAdams. Congressman, I represent Pilot Flying J and
Love's, which are the two largest distributors of diesel in the
United States, 15 billion out of 50, and they generally pay 25
percent less for the diesel and blend it because they get
margin. And when the marginality isn't there, they don't blend.
And because of the small refinery waivers, the RIN
collapsed on the floor pool and now we are 15 percent lower
blending. So all the truckers supported us on the tax credit
because we provided cheaper fuel over the long haul in the
entire United States.
Mr. Duncan. Let me just say this in the 5 seconds that I am
actually over.
Mr. Shimkus. Ms. Matsui.
Mr. Duncan. The market will dictate what is purchased. And
if we as an American government want to see more of these
products on the market, they need to be cost competitive, cost
effective, right? They need to be almost equal to or less than
the competitive fossil fuel brand.
With that, I will yield back.
Mr. Shimkus. The gentleman yields back.
At this time the chair recognizes the gentlelady from
California, Ms. Matsui, for 5 minutes.
Ms. Matsui. Thank you, Mr. Chairman. I do appreciate the
testimony we have heard today.
Advanced biofuels can have a substantially lower climate
impact than traditional gasoline and even corn ethanol. The
California Air Resources Board last year reported that about
one-third of all biofuels in the state's fuel mix were
categorized as advanced. That is a significantly higher percent
than the rest of the country as a whole.
The key to California's success has been the State's
biofuels program, known as the Low Carbon Fuel Standard, which
sets goals based on the carbon content of the fuel rather than
the feedstock. Under the program the state measures the carbon
intensity of the fuel over its full lifecycle. Low carbon
intensity fuels generate credits that can be traded.
This performance-based standard clearly has greater climate
benefits, but it seems to me that its flexibility is also
better for the advanced biofuels industry.
Mr. McAdams and Mr. Coleman, would you say it is more
beneficial to have standards that are performance-based, like
the Low Carbon Fuel Standard, or technology-based, like the
RFS? What are the benefits of each?
Mr. McAdams. Go ahead.
Mr. Coleman. Thank you, Congresswoman Matsui, for the
question.
So I worked on that program for a while out there. And you
are right to point out that not just advanced biofuels have
carbon benefits. So we are playing this game right now where we
draw a line between advancing corn ethanol even though corn
ethanol is the largest investment in cellulosic ethanol. So you
have gains with corn ethanol and then you have bigger gains
with advanced biofuels.
In terms of the answer to your question, we like both
policies. The RFS is prescriptive. It is very clear for
investors when it is properly implemented. And the Low Carbon
Fuel Standard has more flexibility.
If there was an opportunity to talk about performance
standards, we are more than willing to have that conversation.
Right now those policies are perfect complements to each other.
And if you go to California and talk to the California Air
Resources Board, they will tell you the RFS drives gallons
towards California and makes compliance with that program
helpful and possible. So it is a tremendously important. We
would be happy to have further conversation with you.
Ms. Matsui. Well, another difference between the two
standards is that California standards are structured to
incentivize the lowest-carbon fuels possible. So under the RFS,
once the fuel has achieved the requisite 50 or 60 percent
greenhouse gas reduction, it is eligible to compete in the
market, but there is no benefit for fuels that go beyond the
standard.
So on the other hand, the California standard rewards lower
carbon-intensity fuels by allowing them to generate more
credits than fuels that barely meet the standard. This creates
an incentive to develop fuels that can reduce carbon emissions
to the greatest extent possible.
Once again, Mr. McAdams or Mr. Coleman, what do you think
about the different market signals created by the two
standards? Are there benefits to using a sliding scale of
rewards based on carbon intensity?
Mr. McAdams. So I think it is a great program they have. I
think the political situation in the Congress makes it hard to
take the California standard and put it into Federal law, to be
candid with you.
But I think you could address the same impact by simply
saying any fuel that delivers more than the baseline of 50
percent or 60 percent of the statute will receive an extra one-
tenth of a RIN would give an incentive.
So, for instance, if my colleague down here with the
Biodiesel Board uses a tallow, he gets an 80 percent reduction
fuel, he would get three-tenths of a RIN.
Well, three-tenths of a RIN on a 40 cent RIN value is quite
a bit of incentive for the margin for him and that would help
bring the fuels into the market in the same way that
California's standard does, but using the existing format of
the RFS.
Ms. Matsui. OK. In 2014 the EPA finalized regulations
permitting biogas to count as cellulosic biofuel under the RFS
when converted to electricity to power electric vehicles or
used directly in natural gas vehicles.
Applications to generate RINs using electricity from biogas
to fuel EVs are currently pending before the EPA, but the
Agency has yet to approve an application.
The potential impact of the electric pathway under the RFS
is great for both biogas producers and EV manufacturers. DOE
estimates that a proved electric RIN pathway could reduce the
cost of electric vehicles and potentially put an additional 3.5
million battery electric vehicles on the road by 2025. The
demand for biogas would also rise dramatically.
Let me ask probably Mr. Morrow first. Are you familiar with
electric RINs and what type of benefits do they have and the
potential to provide for the environment and biofuels industry?
Mr. Morrow. Thank you for the question.
The electric pathway there, it is just like anything, I
think the devil is in the details. We are not really sure how
many RINs would be generated on a per MMBTU or per kilowatt
basis, so it is hard for me to comment on what that might look
like if it becomes a proved pathway. So really all we know
right now at this time is what an MMBTU of treated RNG going to
the pipeline looks like. I am familiar with the pathway.
Ms. Matsui. OK. Well, it seems I am going to run out of
time. I think this is an area we ought to explore further.
Thank you very much. I yield back.
Mr. Shimkus. The gentlelady yields back her time. Shows you
that there is interesting opportunities in future, good or bad,
for those at the panel.
So we want to now turn to another Californian, Mr. Peters,
and you are recognized for 5 minutes.
Mr. Peters. Thank you, Mr. Chairman.
And I apologize, I was on floor so I didn't get to hear
some of the testimony from the beginning. So if you answered it
I hope you will bear with me.
I also want to wish the best to my colleague Mr. Flores'
mother, hope she is all right.
I wanted to ask Mr. O'Mara, in general, given the timeframe
and what has happened since this was first adopted, how does
the dramatic price collapse in natural gas affect all the
incentives? And is that part of your thinking as you suggest we
take another look at how to incentivize next-generation
biofuels?
Mr. O'Mara. Yes. I appreciate the question.
We feel strongly that we should be looking at actual
reductions, right, where are the performance based, where do we
actually achieve the greatest kind of environmental outcome,
and don't pick winners and losers on the technology side.
Because I do think that there was a price--like, any time a
fuel has a dramatic decrease in the price, it does drive
greater competition and forces other people to try to meet that
price in the marketplace. And so we have seen it in the
electrical sector and we are seeing it a little bit here.
And I just think the less Congress is being prescriptive on
technology and the more they are focused on outcomes and
performance, the better off for everybody, particularly better
off for the environment.
And David De Janeiro from my team is over here who has been
working with your staff and others on this. There are a lot of
these kind of safeguards you can put in place and also
performance standards. And I would encourage folks to look at
Congressman Welch's bill, the GREENER Fuels Act, because it
actually gets in that direction.
Mr. Peters. In terms of technological, in terms of
performance standards, how would you define those?
Mr. O'Mara. So there are the examples that Congresswoman
Matsui talked around actual performance. Let's talk about
emission reductions based on some kind of full lifecycle
analysis that we can all agree upon.
I do think that there are lessons that could be learned
there fairly easily. I think the easiest one is the carbon
content, because it is one that has--there is more
standardization of the methodology and it is a way to basically
compare apples to apples across the entire fuel portfolio.
Mr. Peters. Mr. McAdams, did you have a comment on that
kind of approach? Is that what you were talking to Ms. Matsui
about?
Mr. McAdams. I was just saying you could solve a lot of
these problems in different ways. So if you wanted to reward
from a behavioral standpoint, just like the Tax Code that
sometimes scales things at percentage bases, you could amend
the RIN, give away portions. They are done on energy density
now and you could change that section of the law.
Mr. Peters. And that is another way of tracking the subsidy
with the need for the subsidy I suppose, right?
Mr. McAdams. And so that gives guys more headroom, right,
to sell their fuel against incumbent fuels that are going to be
cheaper. So it lets them play in the market.
Mr. Peters. I would just say it strikes me--and I haven't
really looked that deeply at the Welch bill yet, it strikes me
there must be a difference today in the market from what would
happen when this was enacted. And it seems to me that I am
skeptical that staying with this program has got to be the best
we can do.
But I am going to take you at your word, Mr. Coleman, and
sometimes the best is not to do anything. But it does strike me
that given the dramatic change in the whole price structure in
the energy market and the fact that we have 100 years of energy
here domestically now, the way you incentivize alternatives
must have been affected by that.
Mr. Howard, did you want to say something?
Mr. Howard. Yes. Thank you, Mr. Peters.
Let me just make sure that it is clear that the industry
has transformed, REG specifically. Ten years ago we made 50
million gallons; last year over 500 million gallons.
The foundation of our business is a waste collection
business, used cooking oil, agricultural byproducts. And so
when you think about how we have transformed, 80 percent of our
feedstock now is a waste fat and oil, not a refined vegetable
oil.
So, yes, the market has changed, and we have responded to
the California incentives that the Congresswoman mentioned. So,
yes, there is a transformation of our industry much more
towards that foundation of waste-based conversion. In that, you
also get the tremendous environmental benefits.
So however you think about this program going forward and
giving us a long-term kind of consistent pathway, you need to
make sure that both those functions are valued, the
environmental benefits as well as this kind of waste-based
environmental collection process. And that is never mentioned
as something that is really foundational to our business and
must be valued.
Mr. Peters. Yes. That is a very fair point. And I think it
is useful going forward.
I would just observe in closing that it is very clear to me
that the states as laboratories is very constructive in terms
of giving each state a little bit of leeway to do that. And I
would forward that message on to Administrator Pruitt who seems
to not want California to be able to do these kinds of
experiments. I think it is very useful.
I yield back.
Mr. Shimkus. The gentleman yields back his time.
And I, again, appreciate the panel. You all are great. And
I think it illustrates the challenge that we have.
I would just note for my colleagues one of the concerns I
deal with is we have incentivized based upon current law and so
we have to be careful about taking away from folks that we have
already got into the market and the investments that have been
made. And not just current production levels, but as I tell
people stay, still in the ground and things moving based upon
the law as written.
So it is a very challenging exercise, as we continue to
find out.
Seeing that there are no other members wishing to ask
questions for this panel, I would like to thank you all for
being here.
Before we conclude, I would like to ask unanimous consent
to submit the following document for the record: a letter from
Representative Bruce Poliquin, which has a question for the
record. The Democrat majority has agreed with that.
[The information appears at the conclusion of the hearing.]
Mr. Shimkus. And pursuant to committee rules, I remind
members that they have 10 business days to submit additional
questions for the record. And I ask that witnesses submit their
response within 10 business days upon receipt of the question.
Without objection, the subcommittee is adjourned.
[Whereupon, at 10:44 a.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. Greg Walden
Thank you, Mr. Chairman, for recognizing me for this
opening statement.
As you mentioned in your remarks, today's hearing is the
first time in this subcommittee's hearing series on the future
of fuels and vehicles where we have directly tackled advanced
biofuels. Before I get to more general remarks on that subject,
I want to observe how today's subject highlights a problem
facing my constituents and a solution that could help the
nation in several ways. Mr. Chairman, I know you are very proud
of the corn and soybean growers in Illinois that you represent.
In Oregon, we're equally proud of the generations of foresters
and millworkers who have been helping manage our forests since
the days of the Oregon Trail.
As we learned in our hearing last October on air quality
impacts from wildfires, federal forests in Oregon and across
the West face the threat of catastrophic wildfires pumping
harmful particulates and carbon into the atmosphere. Our
witnesses that day made clear the importance of thinning our
forests and removing the fuel that's out there. A key component
of this preventative management is addressing chips and slash
material that are volatile in a fire and help carry the fire up
into the tree canopy. With limited economic value for this wood
product, much of it is burned in piles in the winter. While
this is much better than a wildfire, an even better alternative
is to utilize this wood as a carbon neutral energy source to
power our vehicles.
We used to think the main barrier to garnering sustainable
and economic wood-based biofuels was technical in nature--such
as developing ways to economically remove lignin from forest
materials. That in turn would allow us to access and utilize
the valuable cellulosic material for productive, value-added
purposes.
However, it turns out that beyond the technical barriers,
another significant barrier to growing the use of sustainable
wood-based biofuels is the arbitrary limits established within
the Renewable Fuel Standard (RFS). Specifically, the RFS
renders biofuels sourced from woody biomass off federal land
ineligible for RIN credits. As a result of these RFS limits, we
are missing another opportunity to clean up and improve the
management of our federal lands. Going forward, I hope we can
address this matter.
As for the broader topic of advanced biofuels, the 2007
amendments to the Renewable Fuel Standard were passed with the
expectation of a fully mature advanced biofuels marketplace--
one that, four years from now, was supposed to be 28 percent
larger than that of corn-based ethanol and other first-
generation biofuels. While some people think it was a mistake
then to include cellulosic biofuels in the RFS, the fact is
they are not going away and should be part of any discussion on
this complex and interdependent program. For this reason, it is
important that when discussing the RFS program we keep these
fuels in mind.
I want to thank our witnesses for joining us to share their
experiences and expertise on this subject. We appreciate them
taking time out of their busy schedules to help us better
understand intricacies of advanced biofuels.
Thank you, again, Mr. Chairman for the time. With that, I
yield back.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]
| MEMBERNAME | BIOGUIDEID | GPOID | CHAMBER | PARTY | ROLE | STATE | CONGRESS | AUTHORITYID |
|---|---|---|---|---|---|---|---|---|
| Rush, Bobby L. | R000515 | 7921 | H | D | COMMMEMBER | IL | 115 | 1003 |
| Upton, Fred | U000031 | 7991 | H | R | COMMMEMBER | MI | 115 | 1177 |
| DeGette, Diana | D000197 | 7859 | H | D | COMMMEMBER | CO | 115 | 1479 |
| Shimkus, John | S000364 | 7939 | H | R | COMMMEMBER | IL | 115 | 1527 |
| Schakowsky, Janice D. | S001145 | 7929 | H | D | COMMMEMBER | IL | 115 | 1588 |
| Walden, Greg | W000791 | 8115 | H | R | COMMMEMBER | OR | 115 | 1596 |
| Murphy, Tim | M001151 | 8723 | H | R | COMMMEMBER | PA | 115 | 1744 |
| Blackburn, Marsha | B001243 | 8154 | H | R | COMMMEMBER | TN | 115 | 1748 |
| Burgess, Michael C. | B001248 | 8182 | H | R | COMMMEMBER | TX | 115 | 1751 |
| Rodgers, Cathy McMorris | M001159 | 8209 | H | R | COMMMEMBER | WA | 115 | 1809 |
| Matsui, Doris O. | M001163 | 7810 | H | D | COMMMEMBER | CA | 115 | 1814 |
| McNerney, Jerry | M001166 | 7816 | H | D | COMMMEMBER | CA | 115 | 1832 |
| Bilirakis, Gus M. | B001257 | 7881 | H | R | COMMMEMBER | FL | 115 | 1838 |
| Castor, Kathy | C001066 | 7883 | H | D | COMMMEMBER | FL | 115 | 1839 |
| Loebsack, David | L000565 | 7915 | H | D | COMMMEMBER | IA | 115 | 1846 |
| Sarbanes, John P. | S001168 | 7978 | H | D | COMMMEMBER | MD | 115 | 1854 |
| Walberg, Tim | W000798 | 7992 | H | R | COMMMEMBER | MI | 115 | 1855 |
| Clarke, Yvette D. | C001067 | 8072 | H | D | COMMMEMBER | NY | 115 | 1864 |
| Welch, Peter | W000800 | 8204 | H | D | COMMMEMBER | VT | 115 | 1879 |
| Latta, Robert E. | L000566 | 8095 | H | R | COMMMEMBER | OH | 115 | 1885 |
| Scalise, Steve | S001176 | 7959 | H | R | COMMMEMBER | LA | 115 | 1892 |
| Guthrie, Brett | G000558 | 7954 | H | R | COMMMEMBER | KY | 115 | 1922 |
| Harper, Gregg | H001045 | 8021 | H | R | COMMMEMBER | MS | 115 | 1933 |
| Lance, Leonard | L000567 | 8049 | H | R | COMMMEMBER | NJ | 115 | 1936 |
| Lujan, Ben Ray | L000570 | 8058 | H | D | COMMMEMBER | NM | 115 | 1939 |
| Tonko, Paul | T000469 | 8082 | H | D | COMMMEMBER | NY | 115 | 1942 |
| Schrader, Kurt | S001180 | 8118 | H | D | COMMMEMBER | OR | 115 | 1950 |
| Olson, Pete | O000168 | 8178 | H | R | COMMMEMBER | TX | 115 | 1955 |
| Kinzinger, Adam | K000378 | 7931 | H | R | COMMMEMBER | IL | 115 | 2014 |
| Bucshon, Larry | B001275 | 7947 | H | R | COMMMEMBER | IN | 115 | 2018 |
| Long, Billy | L000576 | 8015 | H | R | COMMMEMBER | MO | 115 | 2033 |
| Johnson, Bill | J000292 | 8096 | H | R | COMMMEMBER | OH | 115 | 2046 |
| Duncan, Jeff | D000615 | 8143 | H | R | COMMMEMBER | SC | 115 | 2057 |
| Flores, Bill | F000461 | 8173 | H | R | COMMMEMBER | TX | 115 | 2065 |
| McKinley, David B. | M001180 | 8222 | H | R | COMMMEMBER | WV | 115 | 2074 |
| Cardenas, Tony | C001097 | H | D | COMMMEMBER | CA | 115 | 2107 | |
| Ruiz, Raul | R000599 | H | D | COMMMEMBER | CA | 115 | 2109 | |
| Peters, Scott H. | P000608 | H | D | COMMMEMBER | CA | 115 | 2113 | |
| Brooks, Susan W. | B001284 | H | R | COMMMEMBER | IN | 115 | 2129 | |
| Hudson, Richard | H001067 | H | R | COMMMEMBER | NC | 115 | 2140 | |
| Cramer, Kevin | C001096 | H | R | COMMMEMBER | ND | 115 | 2144 | |
| Collins, Chris | C001092 | H | R | COMMMEMBER | NY | 115 | 2151 | |
| Mullin, Markwayne | M001190 | H | R | COMMMEMBER | OK | 115 | 2156 | |
| Walters, Mimi | W000820 | H | R | COMMMEMBER | CA | 115 | 2232 | |
| Dingell, Debbie | D000624 | H | D | COMMMEMBER | MI | 115 | 2251 | |
| Costello, Ryan A. | C001106 | H | R | COMMMEMBER | PA | 115 | 2266 | |
| Doyle, Michael F. | D000482 | 8132 | H | D | COMMMEMBER | PA | 115 | 316 |
| Engel, Eliot L. | E000179 | 8078 | H | D | COMMMEMBER | NY | 115 | 344 |
| Eshoo, Anna G. | E000215 | 7819 | H | D | COMMMEMBER | CA | 115 | 355 |
| Green, Gene | G000410 | 8185 | H | D | COMMMEMBER | TX | 115 | 462 |
| Barton, Joe | B000213 | 8162 | H | R | COMMMEMBER | TX | 115 | 62 |
| Pallone, Frank, Jr. | P000034 | 8048 | H | D | COMMMEMBER | NJ | 115 | 887 |
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