Senate committee hearing focuses on GAO’s RFS reports

By Erin Voegele | December 06, 2016

On Dec. 1, the Senate Subcommittee on Regulatory Affairs and Federal Management held a hearing to discuss the U.S. EPA’s management of the renewable fuel standard (RFS) and two Government Accountability Office reports released on Nov. 28. During the hearing, participants discussed several issues associated with the RFS, including recently finalized renewable volume requirements (RVOs) for 2017, the agency’s response to petitions seeking to move the point of obligation, the impact of regulatory uncertainty, future administration of the program, renewable identification number (RIN) prices, and greenhouse gas (GHG) reduction levels.

Chairman James Lankford, R-Okla., opened the hearing with a statement largely criticizing the RFS, calling it a “deeply flawed program,” and calling for the next administration and the American public to “do away with the RFS.” Later on in the hearing, Lankford indicated that while he does not support the RFS, he does see ethanol as a good source of fuel, noting people seem to like to use it and stressing its benefits for use as an oxygenate and octane booster.  

In her opening statement, Ranking Member Heidi Heitkamp, D-N.D., stressed her support of the RFS program and applauded the EPA for getting the RFS back on track with the recently finalized rule to set 2017 RVOs. During the hearing, Heitkamp also called the biofuels industry a building block industry, noting it provides a stepping stone for the agricultural industry to move beyond the production of food, fiber and fuel. In addition, she spoke about the relationship between regulatory certainty, the ability to attract capital investment, and the resulting impact on technological innovation.

Frank Rusco, director of natural resources and environment at the GAO, and Janet McCabe, acting assistant administrator for air and radiation at the U.S. EPA, testified at the hearing.

During his opening statement, Rusco discussed the two GAO reports released on the RFS in late November. One report states that low expected production volumes make it unlikely that advanced biofuels can meet increasing targets. The other report states that the RFS program is unlikely to meet its targets for reducing GHG emissions. The reports have been criticized by those in the biofuels industry.

During her opening statement, McCabe discussed the final rule setting 2017 RVOs and the EPA’s recent response to petitions seeking to move the point of obligation under the RFS. She also addressed the GAO reports. “Broadly speaking, the GAO’s reports examine the challenges associated with reaching greater levels of advanced biofuel production and achieving Congress’s GHG reduction targets,” McCabe said. “As we discuss in our response letters, EPA agrees with many of the identified challenges, including limited production of cellulosic biofuels currently and limited potential for expanded cellulosic fuel production by 2022. EPA recognizes that both opportunities and challenges lie ahead for the renewable fuel sector. Introducing new fuels into the marketplace, especially cellulosic biofuels, is not an easy task. But that is the challenge that Congress took on with the RFS program, and we are committed to implementing the program in a way that responsibly pushes forward and grows renewable fuels over time, as Congress intended.”

Several issues associated with the EPA’s implementation and administration of the RFS were also discussed during the hearing. Heitkamp asked several questions regarding potential triggering of the “reset provision” included in the regulation establishing the current RFS program. She noted that that provision states that in years after 2016, the EPA is allowed to adjust statutory RFS mandates if the volume totals contained in the RVO tables fall below those set in law by 20 percent in two consecutive years or by 50 percent in one year.

Responding to her question, McCabe indicated those levels have been triggered for the cellulosic and advanced fuel pools, but stressed the EPA has not embarked upon a reset rule at this time. She added that the first year trigger has not yet been hit for the total nested volume requirement. She added the agency is watching the issue closely. McCabe said the agency believes that trying to move forward with one or two, but not all, of the nested volume requirements would be very disruptive to the market because of the careful balance congress established within the relationship of the program’s nested standards. She said the agency also has some ongoing uncertainty due to pending litigation over its waiver authority and other issues. McCabe also noted that any action on a reset rule would not be triggered for at least two more years.

Rusco responded to questions concerning the GHG reduction impact of biofuels. He explained that the GOA determined the reduction in GHGs is uncertain in terms of conventional biofuels largely because most conventional biofuel production capacity was in place before the RFS requirement that corn ethanol meet a 20 percent GHG reduction threshold was in place. These existing producers were grandfathered under the RFS program, while newer production capacity is required to meet the GHG reduction threshold in order to participate in the RFS program. He indicated that the GAO is unable to determine the GHG reduction level of this grandfathered production capacity. The specific GHG reduction level of each plant is dependent upon the specific technologies it employs, which Rusco noted has not been measured.

Even for those that meet the 20 percent reduction threshold under the RFS, Rusco said there is still some debate because some people think EPA’s model has not effectively taken into account indirect land use change and the resulting effect on GHG emission. That issue aside, he said the RFS program has resulted in a modest reduction in GHG emissions. He also stressed that the GHG benefits of the program would significantly with greater deployment of advanced and cellulosic fuels. 

In response to Rusco’s statements on indirect land use change, McCabe stressed that the EPA looks into the issue each year when it completes the annual RFS rulemaking and to date has found no evidence that the RFS program has caused additional land to enter feedstock production. In each rule provide our analysis and background information on how we come to our conclusions, McCabe said.

Also during the hearing, McCabe noted that the long-term goal of the RFS program is to increase the production and use of advanced and cellulosic biofuels. The goals of the program are ambitious, she said, stressing that the advanced and cellulosic industries are just starting out. She also touched on the pathway approval process for advanced and cellulosic fuels, noting the agency continues to look for new technologies that produce these fuels. She explained that biogas-based fuels were recently found to meet the 60 percent GHG reduction threshold need to qualify as a cellulosic fuel and have allowed for a significant increase in the volumes of cellulosic fuels.

Responding to the GAO reports, the Biotechnology Innovation Organization said it believes the EPA’s actions over the past few years have delayed the success of the RFS and shaped the outcomes included in the GAO report.

“BIO has noted that EPA’s delays and methodology for setting the annual RFS chilled investment in advanced biofuels,” said Brent Erickson, executive vice president of BIO. “Based on BIO’s findings, investment patterns clearly demonstrate that EPA is sending a sustained market signal that disincentivizes advanced biofuels, causing a $22.4 billion shortfall in necessary investment.”

“Further, EPA continues to be too slow in making decisions on RFS pathway review and approval process,” Erickson continued. “Petition review and approvals for advanced biofuel companies have averaged more than three years. These lengthy waits for approval of new pathways discourage investment in commercial production of advanced and cellulosic biofuels. Under these conditions, companies have found it difficult to attract the necessary investment to initiate, continue, and complete the construction and startup of new facilities; a number have delayed or abandoned their commercialization plans.”

“The GAO report also notes that the program is unlikely to meet its targets for reducing greenhouse gas emissions,” Erickson said. “BIO has repeatedly pointed out that EPA’s delays and reductions in the annual volumes have caused increases in transportation-related greenhouse gas emissions. BIO estimates that emissions increased by 72 million metric tons in 2014 and again by 22.9 million metric tons in 2015 because of EPA reducing biofuel volumes and delays in getting the rule out. However, the report fails to note that over its first 10-years the RFS reduced U.S. transportation-related carbon emissions by 589.33 million metric tons. The total reduction is equivalent to removing more than 124 million cars from the road over the decade. Further the GAO report fails to point out if EPA had maintained the successful approach to the RFS that it used in 2013, EPA could have considerably limited greenhouse gas emissions from the increase in transportation fuel use.”

“While the findings in this report grab headlines, they should not be surprising,” Erickson continued. “Unfortunately, political uncertainty and the actions taken by the EPA have undermined the goals of the RFS statute. With EPA now abandoning its legally flawed reliance on general waiver authority as a basis for departing from statutory biofuels volumes requirements in its final rule for the 2017 RFS, the agency has sent a strong signal that it will support the biofuels industry and grow advanced and cellulosic biofuel production. This will allow the RFS to be successful in driving development of cleaner transportation fuels that measurably reduce carbon emissions.”  

The Renewable Fuels Association said the hearing missed the point. “The RFS has been a resounding success by any measure,” said Bob Dinneen, president and CEO of the RFA. “It has created high-paying jobs across America, reduced oil imports from OPEC, lowered consumer fuel prices, slashed emissions from the transportation sector, and driven substantial investment into advanced and cellulosic biofuel technologies.

“While first-generation biofuels were already proven in 2007 when Congress expanded the RFS, legislators knew full well that the pace of commercialization for advanced and cellulosic biofuel technologies was somewhat uncertain. That’s precisely why Congress included measures allowing EPA to adjust advanced and cellulosic volume requirements. Indeed, the volumes in the 2007 bill were not a forecast, but rather an aggressive goal and bold vision to support the creation of a vibrant low-carbon advanced biofuel market,” Dinneen added. “That bold vision is in fact being realized, and advanced biofuel production has grown dramatically under the RFS. Production and use of advanced biofuels has risen from less than 200 million gallons when the original RFS was adopted in 2005 to approximately 4 billion gallons (RINs) in 2016—a 20-fold increase. That’s a remarkable achievement that simply wouldn’t have occurred without the RFS.

“GAO also ignores a number of important factors that have impeded more rapid growth in advanced and cellulosic biofuel production,” Dinneen said. “The Great Recession and financial crisis, lengthy delays by EPA in setting annual RFS volume requirements, uncertainty caused by oil industry lawsuits and repeal efforts, and OPEC manipulation of world oil markets are just a handful of unforeseen challenges that have undercut more rapid development of next generation biofuels. Still, even with that uncertainty and instability in the background, leading innovators like DuPont, POET/DSM, Quad County Corn Processors, East Kansas Agri-Energy, CHS, Adkins Energy, ICM, Valero and many others are showing that advanced and cellulosic biofuels are real and are poised for explosive growth in the years ahead.”

Growth Energy called the RFS the country’s most successful energy and climate policy and noted it strengthens our nation’s energy security while reducing harmful emissions.

“Corn ethanol reduces greenhouse gas emissions by an average of 34 percent compared to conventional gasoline while saving consumers money at the pump, displacing toxic additives found in gasoline, creating American jobs and adding high-performance octane to the country’s fuel supply,” said Emily Skor, CEO of Growth Energy. “Ethanol producers have shown time and time again that they are capable of meeting the goals for conventional biofuel production under the RFS.

“The goals laid out by the RFS are ambitious, especially in regards to next generation biofuels,”Skor continued. “It is difficult to predict the timing of new technology, and adding to that is the economic, administrative and congressional uncertainty that have contributed significantly to the projections made in these GAO reports. EPA’s recent decision to set the 2017 Renewable Volume Obligations (RVOs) for conventional biofuels to the statutory level of 15 billion gallons is a great first step in creating certainty for the industry.

“The ethanol industry is a shining example of American innovation and ingenuity. We now see our first commercial-scale cellulosic ethanol plants bringing advanced biofuels to the market. These are technological advancements that would not have happened without the goals laid out under the RFS. Policymakers can help further spur this progress by continuing to let the RFS program work as intended,” Skor said. “Lastly, EPA has the multiple, very explicit authorities to adjust the levels of advanced and cellulosic biofuels called for under the RFS, some of which have been used multiple times. To suggest that the policy needs to be changed to accomplish these reductions in advanced and cellulosic biofuels simply ignores that the policy already has these mechanisms in place.”

A video recording of the full hearing can be found on the Senate Committee on Homeland Security & Government Affairs website