EPA renewable fuel standard management scrutinized at hearing

By Anna Simet | June 19, 2015

U.S. EPA Acting Assistant Administrator Janet McCabe fielded dozens of hard questions and endured heavy scrutiny during a June 18 hearing held to discuss the agency’s management of the federal renewable fuel standard (RFS).

Chairing the hearing was Sen. James Lankford, R-Oklahoma, chairman of the subcommittee of the Senate's Homeland Security and Governmental Affairs Committee. Lankford began the discussion by pointing to the EPA’s inability to meet deadlines since 2009, calling the program “unworkable in its current form,” with “a lot of controversy around it, a lot of opinions circling, and a lot of emotion around this particular issue.”

“On June 1, the amounts for the proposed mandates 2014, 2015, and 2016 volumes were all released together…some say better late than never, but we need to take a serious look at why these delays are unavoidable every year now, under current law,” Lankford said, calling the EPA’s decision to work from actual volumes from 2014 to craft the volumes for 2015 and 2016 wise, but emphasized that the likelihood that the cellulosic and advanced fuels volume requirements would have to be reset by EPA starting next year has increased regulatory uncertainty, and questioned McCabe as to how the agency plans to begin preparing for that. “This authority will likely be triggered due to the agency waiving significant percentages the volume mandated by the law in face of production not being nearly as high as congress imaged in 2007 when the RFS was last modified,” he said. “Congress set the rule…EPA has to figure out how to manage this.”

Sen. Lankford also referenced the food-verses-fuel debate by alluding to the highly-contested idea that the RFS has resulted in increased food and gas prices. “After a decade of implementation, we must ask ourselves, are the RFS goals of yesterday worth [the increased costs]?  He cited livestock feed and grocery prices as being negative repercussions of the program, and also concerns of engine damage.

Following Lankford’s remarks. North Dakota Sen. Heidi Heitkamp explained the importance of the RFS to home state and others, saying she wished there wasn’t a question of the EPA’s management of RFS, or the agency’s ability to implement it as Congress intended. “Unfortunately, we’re in a place where EPA has created, in some ways, uncertainty to biofuels producers, from corn ethanol, to biodiesel, to cellulosic ethanol, and this uncertainly and lacked predictably is costing us investments, costing us environmentally, and costing us jobs.”

Heitkamp said she was glad EPA finally released the proposals for 2014, but that “its lateness has created a great amount of disruption. She added that the proposal continues to ignore congressional intent, and reduces congressional mandated blended volumes citing reasons for a lack of distribution capacity, which EPA was never authorized to do. “The statue only allows for an inadequate supply waiver for domestic biofuel supply, and not a distribution capacity waiver,” she said. “In fact, in 2005, the House included a waiver provision for distribution capacity, but final bill passed by the House and Senate did not. I hope when EPA puts out final rule this November, it will toss out this flawed reasoning and return to management of program to the way Congress originally intended. If they do this, the program will work just fine, as it did in the first few years of the RFS.”

Piggybacking on Heitkamp’s remarks, Sen. Joni Ernst, D-Iowa, described the EPA’s decision to use lack of infrastructure as an excuse for setting biofuel levels lower than originally mandated as a move that “flies in the face of the law….you cite lack of available refueling structure as justification as not setting RVOs higher. However, when Congress passed RFS in 2005, there were only two type of waiver authorities included—a lack of supply, and severe economic harm. That conference committee rejected available refueling infrastructure, which would have severely limited consumer choice and ability to get more biofuels into the marketplace.”

Despite clear direction from Congress, Ernst said, EPA has now decided to use available refueling infrastructure as a condition to waive the standard, even though Congress expressly rejected that when they set the law. She asked McCabe, “Can you explain why the EPA is blatantly overlooking the law?”

McCabe responded by describing the issue as having many views, and offered that the language in the statute is simple and does not explicitly explain what “inadequate supply” means. “It’s EPA’s job to reasonably interpret congressional language in implementing the statute,” she said. “We lay this out at some length in our proposal…the bottom line is that our interpretation is that Congress intended for these fuels to not only be produced, but used. That is where the value in GHG reductions and diverse energy supply and consumer choice comes in. When you have a situation where the fuels cannot, in fact, be delivered to consumers as what set out in the statute—and Congress set out this waiver authority to be interpreted by us—we found it reasonable to reduce the volumes to a level that still complies with Congress’s intent…the program stretches out over a number of years and order to system in a dramatic way, it’s taking time. “

McCabe said EPA did not believe setting program volumes at previous levels would be appropriate, and stated that the waiver provision is there for EPA to use at its judgement to set ambitious but responsible volumes.

Ernst brought the conversation back to delayed rulemaking, and described the current trend as “a very, very vicious cycle with producers not knowing what the volume will be. We’ve delayed production and research, and the furthering of those types of fuels, so without the standards being set, we don’t know where to go.”

On that topic, Heitkamp emphasized the importance of certainty to producers to grow their businesses, and reiterated the need for the EPA to follow congressional mandates. “Uncertainty has real consequences…the advanced and cellulosic sectors have already lost $13.7 billion due in investment to EPA’s delay.  For biofuels, 54 plants in 20 states have closed or idled due to lack of certainty from EPA.”

Heitkamp added that in 2014, nearly 80 percent of U.S. biofuel producers scaled back, and almost six in 10 idled production all together, due to policy uncertainty. “Our Velva, N.D., biodiesel plant stalled production for first past of 2015,” she said. “However, this is not a problem with the RFs, but a problem with administration of the RFS…this isn’t a hearing about repealing or adjusting the RFS, but about how we can administer it in a way that provides certainty.”

Sen. Ben Sasse, R-Iowa, questioned McCabe about the discrepancies between the EPA’s and USDA’s corn production volume estimates, and whether the agencies are working together as needed. McCabe assured Sasse that the agencies are, and said, “It’s hard to convince people who might have a different view, but our proposal reflects that we work with those agencies… we’re not agricultural economists and we don’t try to be, so we certainly must work with them.”

Sen. Gary Peters, D-Michigan, also referenced EPA’s decision to use blending distribution as a reason to decrease RVO volumes, saying that it is outside of the agency’s waiver authority, and that the conditions of said waiver authorities are “clearly defined.”

“In relation to infrastructure investment, it’s clear the proposal will depress renewable fuel credit prices and eliminate infrastructure and investment incentives. What’s your plan to get infrastructure investments made, if this proposal is finalized as is?,” Peters asked.

“The certainly of having the volumes out there is absolutely critical,” McCabe answered. “I think this proposal signals intent of administration and EPA to steadily grow volumes over time—that’s important. USDA is [also] very committed to help build infrastructure…we think that the combination of those efforts, and things we’re doing in order to streamline pathway approval process to get these new and innovative pathways into the market will also help. If you put these things together…these things will help us move in the right direction.”

Peters repeated a figure mentioned by Heitkamp, that the Biotechnology Organization found that $13.7 billion in advanced biofuel investments were lost because of the most recent, one-year delay. “Does that sound accurate to you, and isn’t it a big concern?”

McCabe said she could not speak to the number, but said EPA is “absolutely concerned,” and therefore determined to get the program back on schedule.

When asked by Peters if she sees the amount of renewable fuels blended in the fuel supply increasing in the future years beyond 2016, McCabe said that she does. “Before the RFS, there was very little of this fuel in the market, now much more, and we see growth…we see pathways coming in, and have had many conversations with stakeholders across the biofuels industry that are very optimistic about their ability to supply fuel into the marketplace…we believe these volumes will continue to promote, encourage and drive fuel production.”

Lankford turned the discussion to an evaluation of deadlines over the past five years—in 2010, the final RFS rule was four months late, only two weeks late in 2011, a month and a half late in 2012, nine months late in 2013, 18 months late and counting in 2014, and six months late and counting in 2015. “Now the challenge is, once we get into 2016, 2017, 2018, and keep going, how does this get better, and how does RFS get back on schedule? Or has Congress put a requirement on EPA that it can’t fulfill? Is there something systemically in the structure, that year after year, it can’t meet the requirement?’

McCabe said the question was fair and that the EPA doesn’t like missing deadlines, either. “A couple of things happened that made 2014 particularly challenging, which led to significant delays,” she said. “I’m an optimistic person, my job is to implement this program and meet our statutory obligations in terms of timeframe. I’m confident we’ll do that [in the future], for a couple of reasons.”

McCabe was vague when explaining what those reasons were, but offered one was as being that the E10 blendwall was broken in 2014, and attributed it as one factor in the lateness of that year’s numbers. While she did not detail the second reason, she said the agency had learned a lot from past rulemaking and that the current proposal reflects “a very different approach to implementing the required volume to the statute…if we continue that sort of approach, we believe it would enable us to issue the annual volume standard in a timely way…our staff of technical folks is working on it all the time.”

Lankford responded by telling McCabe that he doesn’t think anyone thinks EPA isn’t working on it, but the timing and method are issues of concern. “The concern is that when 2014, 2015 and 2016 are all finalized Nov. 30, we will have that, but come Nov. 2016, we’re in reset time…I assume you would agree there’s no chance we will hit the target for 2017 based on the statute required for 2017, so we’ll have to reset it…unless there’s a tremendous amount of cellulosic ethanol that comes on board.”

 Lankford also pointed out that the way the statute is written, corn ethanol continues to decrease and cellulosic fuel continues to increase. “If there’s a clear aspect of the law, that’s clear. But that’s also not possible, based on production, so you’re in a very odd quandary come Nov. 2016, trying to promulgate 2017. How do we avoid a delay?”

McCabe agreed that the cellulosic fuel number would need to be decreased by at least 50 percent, and said EPA would soon be planning work to set those annual volumes and consider resetting.

Lankford would not let the issue rest, and questioned McCabe as to what EPA’s plan forward would be, whether there would be a comment period for both the reset and the RVO rulemaking, and how EPA would handle both without falling behind schedule.

“Our highest priority right now is to make sure we get the 2014, 2015, and 2016 volumes out, but that doesn’t mean we don’t have our staff already thinking about the reset rulemaking,” McCabe said. “I don’t have a schedule for you on the reset rulemaking, but the minute 2016 is done, we’ll be turning our attention to the 2017 rule and the reset.”

McCabe’s response didn’t satisfy Lankin, who again questioned how the reset will fit into EPA’s timing, and if there will be rulemaking on how the rules are reset, just on the reset numbers or both. “If we’re going to have it ready…we need to know that agenda. If I give you one month, can you come back with a reset timeframe on the major calendar events? Is that a reasonable amount of time? Not what the reset is, just the schedule...it would be very helpful.”

McCabe said her understanding was that EPA’s job was only to reset the numbers, and not the process. She said a reset process would likely take longer that the process to set annual volumes, and they would likely be separate processes and both have comment opportunities. She did not say whether the one-month time frame was reasonable to put forth major calendar events, but said she would “be happy to go back and talk with folks on how much clarity we can give.”

Toward the end of the hearing, Heitkamp asked McCabe if EPA considered the disruption its recent rulemaking would have on the RIN market and what it would mean in the long term, and wondered if EPA knows how it will deal with the issue in the future. “Your latest proposal talks about the lack of correlation between RIN prices and gas prices, as well as the need for higher RIN prices to drive investment and infrastructure. However, your proposal had the opposite effect…”

McCabe described the issue as “incredibly complicated, very, very complex. I’ve been working on it for two years and I feel like I’m beginning to understand it, but I’m no economist…there is much discussion about this issue that goes on, and people with that kind of training understand it…what we try to do is provide some information for the public record about what we’ve seen in the RIN market… the relationship between RIN prices and what we set in the volumes is complex and influenced by many, many things, not just the volumes we set.”

Heitkamp countered with, “Don’t you think it’s [volumes] a major driver?”

McCabe said she wouldn’t say it’s not a factor, but that feedstock prices and many things that go into producing fuel have a lot to do with it as well. It is not simple, it is complex, we pay attention to RIN prices, but we don’t formally factor them into our decision making…”

“I think we’ll have to agree to disagree, I think it’s a major factor in the disruption in the RIN marketplace,” Heitkamp answered.

McCabe assured hearing attendees that EPA is focused on the program, and that it understands, appreciates and agrees with many things urged by the Senators in terms of administering the program the way Congress attended. “We are doing our very best job, as we should, as the executive agency charged with administering this…for the American people, to make sure that we make both responsible and ambitious efforts to implement the RFS, and that’s my guarantee to you.”