January 28, RE: Docket ID No: EPA-HQ-OAR Dear Administrator McCarthy:

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1 January 28, 2014 Administrator Gina McCarthy Environmental Protection Agency Air and Radiation Docket and Information Center Mailcode: 2822T 1200 Pennsylvania Avenue, NW Washington DC RE: Docket ID No: EPA-HQ-OAR Dear Administrator McCarthy: On behalf of the more than 40,000 members of the National Corn Growers Association (NCGA), we appreciate the opportunity to comment on the Proposed Rule for the 2014 Standards for the Renewable Fuel Standard (RFS) Program. The RFS is an important tool in the nation s effort to achieve cleaner fuels. Since the enactment of RFS2 in 2007, corn and corn ethanol production have increased in efficiencies and reduced GHG emissions faster than expected; petroleum production practices have gotten worse. The EPA has sufficient authority to properly encourage clean renewable fuels moving forward. If the 2014 proposed RVO volumes were to come to fruition, it would be in direct violation of the statue and intent of the authors of this critical energy policy. It will lead to a tragic loss of energy security and flexibility while increasing GHG emissions; it will further set back this country s commitment to the environment and make us more dependent on dirtier petroleum sources than when the RFS was first enacted in It will also cause a tremendous loss in the investments already made by this nation and a multitude of private investors as well as dash future investments in advanced biofuels. NCGA s analysis clearly demonstrates that the RFS is doing exactly what it was intended to do. It is successfully driving adoption of renewable fuel alternatives to petroleum, supporting jobs across the country, and ensuring the United States remains a global leader in developing new renewable energy sources while decreasing GHG emissions here at home. Attached are NCGA s comments to the 2014 Proposed Rule. We urge the Agency to stay the course and support this important piece of transformational energy policy. We request that you reconsider your proposed reduction in the 2014 renewable volume obligations. The continued health of the rural economy and the nation s environmental improvements hinge upon your decision. Sincerely, Martin Barbre, President National Corn Growers Association

2 EXECUTIVE SUMMARY Energy security is not just about reducing reliance on foreign resources, it is about diversity. To only rely on one type of energy resource does not allow flexibility in times of crisis or uncertainty. By investing in renewable biofuels, energy diversity and thus energy security are attained. The authors intent of the RFS was to invest in renewable energy that decreases greenhouse gas (GHG) emissions, while spurring economic growth in the agricultural sector of the nation. The modern ethanol industry was established in the United States in 1979 in response to crude oil shortages resulting from the second OPEC oil embargo. The United States still heavily depends on foreign oil imports, thereby presenting a significant drain on the U.S. economy. Reliance on foreign oil has decreased from 60 percent in 2005 to 40 percent today due to several factors including decreased usage and a replacement of 10 percent of the gasoline supply with ethanol. Amazingly, even with this significant reduction in foreign oil declining, the U.S. expenditures on imported oil, at approximately $300 billion per year, are five times higher today than they were in the mid-1980s, when adjusted for inflation. Further, many of the current sources of petroleum have a much heavier greenhouse gas footprint than when the RFS was enacted. During the same time, energy and production efficiency enhancements in corn and corn ethanol production have soared. Thus, since the RFS was enacted, gasoline production has become more GHG intensive while corn and corn ethanol production have become less GHG intensive. Our nation stands at a pivotal point in its commitment to renewable energy. When the RFS was enacted, the authors of this policy envisioned renewable fuel (primarily ethanol) displacing gasoline at an even faster pace than today. Increasing volumes were to be utilized through E10 blends (10 percent ethanol, 90 percent gasoline) while the concomitant production of flex-fuel vehicles (FFVs, can utilize up to 85 percent ethanol) and supporting infrastructure was established. The former has happened; the latter has disappointedly lagged compared to what was outlined in the statute. Congress and EPA laid out a renewable energy plan; agriculture responded, ethanol responded, autos responded. Obligated parties have not complied. NCGA recommends that the 2014 RVO total biofuel level remain at billion gallons, as outlined in the statute. In combination with existing RINs, there is sufficient capacity in the biofuels industry to produce the necessary volumes to meet this level. The RFS was designed to support growth in the industry by setting attainable targets while pushing the market forward. Events of this past year have demonstrated that the RIN system is working as intended by driving the market towards increased usage of ethanol and laying the foundation for further immediate growth. Developments in infrastructure are poised to increase volumes with the proper signals from the EPA that future growth is expected. Since the implementation of the RFS2, the agricultural sector has experienced a decrease in direct government payments, an increase in cropland values with concomitant increases in cropland taxes and increased economic growth in rural America. All this has occurred while corn farmers have met the varied demands for corn. The RFS has also decreased GHG emissions from petroleum through the use of renewable biofuels. Use of ethanol as an octane source in even greater fuel blends holds the promise of powering more highly efficient engines with even cleaner burning fuel. The RFS has spurred growth in agriculture, increased energy diversity and decreased GHG emissions from fossil fuels through the development of renewable energy resources.

3 COMMENTS NCGA s comments are directed toward specific questions posed by the EPA within the Proposed Rule for the 2014 Standards and/or as they relate to the aim of the RFS2. Specifically, we will address: Recommendations for the 2014 RVO levels, Section 1 Impact on the agricultural economy, Section 2 Impact on the production of renewable energy reductions in GHG emissions, Section 3 Decreased reliance on non-renewable fossil fuel, Section Recommended 2014 RVO Levels Corn starch ethanol has been the primary source of biofuel produced to meet RFS2 volume requirements. Cellulosic and advanced biofuels were designed to provide an even greater savings in GHG emissions. However, the speed of market introduction of cellulosic biofuel has been slower than anticipated. The RFS was crafted to allow for cellulosic technology to catch up with the volume requirements through a flexible system that allowed the EPA to adjust the volumes based on the annual projected levels of the respective fuels, namely, the RVO system. Without the requirements of the RFS, lower carbon fuels would no longer have market certainty and investment in process technologies would essentially be lost and with it the energy security upon which the RFS was established. The cellulosic biofuels industry has secured billions in private investment and now has projects under development in more than 20 states. It is important that annual mandates of cellulose continue as this provides market certainty to investors. Table 1 summarizes the RFS2 and proposed RVOs for obligated parties by EPA and NCGA. Table 1: RFS2 Volumes, EPA and NCGA Proposed Volumes (gallons)* Biofuel Category 2014 RFS RVO EPA Proposed 2014 RVO NCGA Proposed Cellulose Biomass-based diesel 1.5 (minimum) 1.92 (1.28 actual) >2.55 (>1.70 actual) Advanced (total) Total Biofuel * all volumes are ethanol-equivalent unless otherwise specified Cellulose: We recommend that the EPA utilize its authority to evaluate the projection in volumes of cellulosic biofuel expected for Bio-diesel: While we agree that the EPA has the legal authority to adjust the volume of biomass-based diesel, we disagree with the analysis and projections provided. The biodiesel industry notes that biodiesel is the first and only commercial-scale fuel produced across the U.S. to meet the EPA s definition as an Advanced Biofuel. Biodiesel is produced in nearly every state in the country and has exceeded RFS requirements in every year of the program, producing more than 1 billion gallons annually since Notably, when EPA issued its Final Rule for RFS2 in the Summer of 2013, it stated that 1.9 billion gallons was likely to be a conservative estimate of the volume of biodiesel that can be consumed. According to EPA figures, since July, the industry has been producing an average of about 170 million gallons per month, or at an annualized rate of about 2 billion gallons. 1

4 A recent study conducted by LMC International, 1 a global economic research firm, predicted that if the RVO for biodiesel is reduced from 1.7 to 1.28 billion gallons, an estimated decrease from 62,200 to 54,500 jobs would occur and a concomitant economic impact reduction of $4.6 billion would follow. The study also found that 2 billion gallons of biodiesel production and consumption would approach a reduction in 17 million metric tons of CO 2 equivalent greenhouse gases. By setting the RVO level at >1.7 billion gallons, the biofuel industry would be encouraged to produce the fuel necessary for meeting both the biodiesel and advanced biofuel mandates, and provide advanced Renewable Identification Numbers (RINs) to the market. While biodiesel production has increased, so has its reliance on corn oil, a co-product of the ethanol production process. Currently, the biodiesel industry uses approximately 12 percent of its feedstock as corn oil. We expect this increasing trend to continue as the corn ethanol and biodiesel industries are mutually beneficial. Undifferentiated Advanced: Based on the current number of D5 RINS generated in 2012 and 2013, we expect significant volumes to again be produced from grain sorghum, corn kernel fiber, renewable diesel and other domestic sources plus imported sugarcane ethanol in the coming year. Sugarcane imports would allow for ethanol trade to continue without placing undue pressure on domestic blending capacity. By encouraging the integration of increasing volumes of advanced biofuel, a continued and necessary pressure will be placed on the market to push for ethanol blends greater than E10. Increasing ethanol utilization was expected when the Energy Independence and Security Act (EISA) was enacted and we must stay the course during this pivotal time period to push forward on increasing blend levels. Total Renewable Biofuel: The NCGA adamantly recommends that the 2014 RVO level for total biofuel be maintained at the statutory level of billion gallons. Reducing levels below the recommended reduction in the advanced category, as proposed by EPA, is in direct violation of the law and puts the Agency in an actionable position. In order to grant a waiver and reduce the RFS2 requirement, EPA must determine either that implementing the requirements would severely harm the economy or environment or that there is an inadequate domestic supply. In the Proposed Rule for the 2014 Standards, EPA justifies the proposed reduction in conventional biofuel due to inadequate domestic supply based on a lack of retailer infrastructure and a fabricated blendwall. The authority to adjust the cellulosic, advanced and total schedules based on cellulosic shortfalls, section 211(o)(7)(D) of EISA requires: EPA to adjust, by November 30 of the preceding year, the volume requirements for cellulosic biofuel if production is likely to be less than called for in the Act. The RFS directs EPA to reduce the applicable cellulosic biofuel volume to the projected volume available during that calendar year. Importantly, the statute limits EPA s ability to reduce the total and advanced biofuel requirements by the same or a lesser amount. This means that EPA can either reduce the total requirement by the amount it reduced the cellulosic mandate or it can allow advanced biofuels to make up a portion of the cellulosic shortfall. EPA has used this authority in each of the last three years in setting the annual RVO requirements for cellulosic biofuels. In each case, EPA estimated cellulosic production, reduced the schedule accordingly but allowed advanced fuels (i.e., biodiesel and sugarcane ethanol) to make up some of the shortfall. This action is in line with the intent of Congress by mandating increasing annual volumes of biofuels. EPA cannot interpret the statute to expand its authority beyond what Congress provided towards cellulosic volume adjustments. The statute does not allow EPA to reduce the overall advanced or total biofuel mandates by a greater amount than the reduction in the advanced categories. The 2014 total renewable fuel standard of billion ethanol-equivalent gallons can be readily achieved in the following manner: 1 LMC International (November, 2013). The Economic Impact of the Biodiesel Industry on the US Economy. 2

5 E10 blending The latest gasoline demand forecast from the Energy Information Administration (EIA), 2 forecasts 2014 gasoline demand of billion gallons. Of this, the EIA forecasts 13.3 billion gallons will be fuel ethanol blended into gasoline. This would provide 13.3 billion 2014 D6 RINs. Biomass-based diesel To meet the 2.55 billion ethanol-equivalent gallons proposed, 1.7 billion gallons of biodiesel/renewable diesel blending would be needed. In 2013, this volume of blending was readily achieved even though the 2012 drought reduced feedstock availability. With the abundant 2013 soybean harvest (USDA, January, 2014 data shows U.S. soybean production for 2012/2013 was 8.4 percent more than 2011/2012), and with more corn oil available from ethanol producers, biodiesel/renewable diesel production in 2014 would likely exceed the proposed levels should there be incentive. The EIA reports that in October 2013 there was 2.2 billion gallons per year of installed U.S. production capacity. Carryover 2013 RINs Based on the December 20, 2013 release of EPA EMTS data and forecast 2013 RIN requirements by Houston BioFuels Consultants, LLC, it is estimated that there will be 1.86 billion 2013 RINs carried into 2014, comprised of 1.28 billion conventional and 0.58 billion advanced biofuel RINs. Ethanol blended E15, E85 and other higher level blends To meet the 440 million ethanol-equivalent gallon gap between the sum of the preceding RIN sources totaling billion (E10: billion, Biomass-based diesel: 2.55 billion and Carryover 2013 RINs: 1.86 billion) and the annual standard of billion, additional ethanol blending in the form of higher level blends could readily fill this gap. Existing infrastructure is available for more than the 440 million gallons to be provided with E15 blending for the two grades of gasoline (regular and premium) available throughout the supply chain. Blenders and retailers could decide whether to substitute E15 for E10 in one of these grades. This would make E15 available at the retail level while also continuing to provide E10. Higher level blends, in particular E85, could also contribute additional RINs to meet the statutory billion gallon annual standard. The 2014 Proposed Rule by EPA assumes that E15 would be zero and that the highest level of E85 (at an average of 74 percent ethanol) would be in the range of 100 to 300 million gallons. We do not agree with these predictions and by setting such low targets, the EPA is encouraging obligated parties not to comply with the law. Additionally, the use of a Monte Carlo analysis by EPA to project E85 volumes invoked a complex mathematical analysis based on the inappropriate assumption that future volumes will trend with past (low) usage. In a recent report published by Iowa State University s Center for Agricultural and Rural Development, the authors point out that historical consumption of E85 is a poor indicator of the level of possible future consumption because E85 has not been consistently priced low enough to save consumers money. 3 Instead, NCGA proposes, that strong and consistent RINs would push sales of E85, E15 and other mid-level ethanol blends (MLEBs). In so far as the EPA is concerned about the carryover 2013 RINs being used in 2014 and not being rolled into 2014 RINs that carryover into 2015, we believe that the obligated parties and the market should decide what amount of surplus RINs to hold. The above explanation utilizing all of the 2013 carryover RINs in lieu of renewable fuel blending is one way the 2014 annual standards could be met with the 2014 total renewable fuel annual standard left at the statutory level of billion. Obligated parties and the 2 Short Term Energy Outlook (STEO) covering 2014 and 2015 issued January 7, Babcock, B. and Pouliot, S. (January, 2014). Feasibility and Cost of Increasing US Ethanol Consumption beyond E10 14PB17. 3

6 market could readily blend more biodiesel/renewable diesel than required for the biomass-based diesel standard and increased amounts of higher-level blending could readily take place with the existing infrastructure, should obligated parties want to hold surplus RINs going into future years. However, this is a decision best made by the individual participants rather than being dictated by the EPA. Attempts by the EPA to manage the RIN balances could lead to severe RIN price swings if the EPA were to forecast incorrectly. Since individual market players will have alternatives available as 2014 unfolds, they will be in the best position to make decisions and act promptly to avoid severe RIN price changes. As described in the 2014 Proposed Rule for the Standards, carryover RINs were put into place within the RFS to provide flexibility in the face of a variety of circumstances that could limit the availability of RINs [the] flexibility of these carryover RINS is also what we highlighted in the 2013 standards final rulemaking as providing the opportunity for compliance despite potential constraints on physical ethanol consumption. However, for the current year, the EPA proposal does not account for carryover RINs in the assessment of the projected volumes for This lacks precedent and is contrary to the flexible intent of the system as designed. Per the EPA s request for comments on p of Proposed Rule to this process, NCGA strongly opposes this practice. RINs must be used in the calculations for the obligated parties for 2014 and all subsequent years. 1.1 Renewable Identification Numbers Drive the Market RINs are used both for recordkeeping and flexibility in meeting the separate RFS biofuel targets. When renewable fuels are blended into gasoline or diesel fuel or sold to consumers in neat form (i.e., 100 percent biofuel), the RIN representing the renewable attribute of the fuel becomes separated from the physical biofuel and can be used for either compliance purposes or traded. Separated RINs have a market value attached to them and provide flexibility for obligated parties in meeting their required volume obligations. Obligated parties have the option to either acquire RINs by purchasing and blending physical quantities of biofuel, or by purchasing already separated RINs and submitting them to the EPA for compliance. 4 Notably, the EPA and DOE fully expected RINs to drive the integration of higher blends into the market for use by the FFVs produced by the automobile industry and incentivized by the EPA as outlined in the RFS. The Energy Information Administration 5 states that Ethanol RIN values may also increase in order to provide an incentive for blenders to lower the retail price of E85 gasoline relative to E10 gasoline, given E85's lower energy content. A higher ethanol RIN price makes it more economical for the blender to add greater volumes of ethanol to gasoline blendstock. The EIA further explains: In addition to being used for recording RFS compliance, RINs are part of the value of each gallon of biofuel to which they are attached. The value of RINs, which derives from the RFS program, provides an economic incentive to use renewable fuels (emphasis added). If RIN prices increase, blenders are encouraged to blend greater volumes of biofuels, based on their abilities to sell both the blended fuel and the separated RIN. If a biofuel is already economical to blend up to or above the level required by the RFS program, such as ethanol was from 2006 through much of 2012, one would expect the RIN price to be close to zero. When the biofuel is more costly than nonrenewable fuels but is needed to meet RFS standards or must be blended in greater volumes to be economical, the RIN value should increase to a point at which firms will increase biofuel blending. Several recent reports, as well as practices in several states this past summer, demonstrated that the RIN system can drive the market to utilize more E85. In a recent report from Iowa State University, the RIN market is explained in basic economics, namely:. in competitive markets, prices settle where the Ibid. 4

7 quantity of a product that sellers want to sell equals the quantity that buyers want to buy. Thus, market prices reflect both the value that buyers place on the product as well as the production costs. If demand increases, then the resulting price increase signals producers to expand production. If production costs decrease, then the price of the product falls to reflect lower production costs. Demand for RINs exists solely because they are needed to meet EPA requirements. In a hypothetical market with no biofuel mandate there would be no demand for RINs so the price of RINs is zero. RIN prices are positive only when the number of RINs that obligated parties need exceeds the number that would be supplied absent the mandates. Further, Babcock shows that by investing no more than $325 million, compliance costs would be reduced by about $1.4 billion. 6 Clearly, if EPA sets the mandate at difficult-to-achieve levels, the resulting increase in RIN prices will signal a large incentive to invest in the infrastructure that turns difficult-to-achieve mandates into easy-to-achieve mandates. Thus, RIN prices are expected to rise and fall based on supply and demand. The fact that RIN prices can, have and will fluctuate is expected by virtue of how the system was implemented. The obligated parties have made it clear that the price of RINs has influenced the price of gasoline and that no further ethanol is needed. However, gasoline pricing is competitive. If station A is offering fuel at $3.50 per gallon and Station B across the street is offering the same grade for $3.65, it doesn t take long for Station B to lose clientele. Since most fuel stations make the greatest majority of their profit from inside the convenience store, the price of the fuel needs to be at levels that customers are driven inside for drinks and snacks. Those retailers that are able to benefit from the RIN can influence the price set by other local retailers who have to remain competitive and thus prices adjust accordingly. During the summer of 2013, D6 RIN prices spiked to nearly $1.50. This was in part due to the 2012 drought and speculation that insufficient ethanol would be available for purchase; thus, projected supply drove demand. During the late winter and early spring, U.S. gasoline prices increased. Some claimed that increased RIN prices drove the increased price of gasoline but a recent report from Informa 7 clearly demonstrated this was not the case. Factors driving the increased gasoline costs were driven by crude oil prices, the spread between domestic and international crude oil prices, and seasonal driving patterns. A recent economic analysis by economists Pouliot and Babcock also concludes that increases in ethanol utilization through E85 will lead to decreased costs at the pump. 8 Two examples from two different states, namely Minnesota and Illinois, illustrate how increased volumes of ethanol as E85 were utilized in Peak summer D6 RIN prices led to lower prices of E85 in some markets. Figure 1 contains data from the state of Minnesota showing the dramatic increase in E85 sales volumes with increased RIN prices. These volumes were not universal across the state but mainly seen among non-rvo obligated retailers that were able to blend the ethanol and pass the savings onto the consumer. 6 Babcock, B.A RFS Compliance Costs and Incentives to Invest in Ethanol Infrastructure 13PB13. 7 Informa Economics (January, 2014). Analysis of Whether Higher Prices of Renewable Fuel Standard RINs affected gasoline prices in A Whitepaper prepared for the Renewable Fuels Association. 8 Pouliot, S. and Babcock, B (January, 2014). Impact of Increased Ethanol Mandates on Prices at the Pump 14PB18. 5

8 Figure 1. RIN prices influenced E85 sales in Minnesota Source: Minnesota Department of Agriculture Further, Figure 2 illustrates growing demand for E85 from one dry grind corn bio-refiner in Illinois over the last two years. These sales were possible because the refiner installed a load-out system to blend E85 fuel on site and sell directly to the gasoline retailer. Unfortunately, sales dropped off in October, just after the RVO numbers were leaked, thereby illustrating market uncertainty influence on ethanol sale volumes. Figure 2: Volumes of E85 from an Illinois dry grind bio-refiner Source: Illinois Corn Growers Association Generally, obligated parties that blend more than they refine were able to benefit from higher RIN prices this past summer. On the other hand, refiners that do not blend as much as they refine had to purchase RINs. Additionally, some retailers are not obligated parties but blend fuel and were able to greatly benefit from high priced RINs. In some areas of the country, higher RIN prices reduced E85 prices because some blenders of E85 were able to retain some portion of the value of the RIN in the process of making the E85 blend. The RIN that was obtained from blending and making E85 was either sold or, if the blender was an 6

9 obligated party, it was used to meet the blender s RFS obligation. This allowed for higher D6 RIN prices to lower E85 prices. Additionally, a blender who is not an obligated party could sell the RIN and also have lower priced E10 to sell. Thus, higher RIN prices could also work to lower E10 prices. However, if the refiner increased the price of the BOB (blendstock for oxygenate blending) it produced to recover the cost of the RIN it purchased to meet its RFS obligation, the higher cost BOB increased the blender s costs and this increase exactly offset the additional revenue the blender obtained from selling the RIN (the blender is a separate entity from the refiner in this case). This left the cost of E10 gasoline, a mixture of BOB and ethanol, the same as before RIN prices increased. Conversely, because some refiners are also blenders and do not experience the benefit or cost of the RINs (since they use all of the generated RINS for compliance to meet their obligations) these refiners did not increase their BOB prices when RIN prices went up; blenders could purchase from them instead of the refiners who do not have enough blending to meet their obligations. This is why higher RINs were benefiting some refiners and not others. The net result was that there was no impact of higher RIN prices on retail gasoline prices (as found by the Informa study) because retailers have to be competitively priced. It is fictitious for the refiners to say they would export their gasoline rather than incur a RIN obligation. The export market has finite demand. More exports would cause the international price of gasoline to crash downwards, spurring imports into the U.S. from traders who would want to capture the arbitrage. The refiners who do not have blending in proportion to their gasoline production (e.g., Valero, Tesoro, Marathon, PBF, Monroe) have made many public statements to the press and stock market analysts about how higher RINs were costly and negatively impacted their profits. If RIN prices increased their retail gasoline prices, why didn t their profit margins suffer? If they are passing along the higher RIN cost, their profits should be unchanged. Further, refiners who have blended in proportion or in excess of their gasoline production (e.g., Chevron and BP) 9,10 have commented that higher RIN prices did not negatively impact their margins and/or profits. In other words, profits of major oil companies have not been negatively impacted by RIN prices. The market this past summer demonstrated that RIN prices are not significantly coupled with retail gasoline prices and that E85 could be competitively priced in markets where the value of the RINs were passed onto the consumer and drove the market. Clearly, the price of RINs impacts sales of E85 but not the price of gasoline. The RIN system is a viable means to push infrastructure investments and impact the pricing of E85 on an energy-parity basis. 1.2 Retailer Infrastructure As the volumes produced from EISA grew, further utilization of ethanol was expected through E85 utilization by FFVs. With the support of the EPA and DOE, E15 has come into the market as well as other mid-level blends for use in FFVs. The point at which E10 would saturate the market was expected to occur and is reflected in the following statement from the Federal Register: To meet today s RFS2 requirements we are going to need to see growth in FFV and E85 infrastructure as well as changes in retail pricing and consumer behavior. However, the amount of change needed is proportional to the amount of ethanol observed under the RFS2 program. Further, the infrastructure needed was described as..we assumed reasonable

10 access would grow from 4 percent in 2008 to 60 percent in 2022 and for our low-ethanol control case we assumed that access would only grow to 40 percent by This year marks the half-way mark of the RFS from 2007 to There are approximately 150,000 fuel retailers in the U.S. 12 Of these, approximately 3,200 offer E85; this represents just over 2 percent. Clearly infrastructure integration is far behind what EPA expected the obligated parties to accomplish. This sentiment was reflected on November 16, 2012, when the EPA utilized the following language in its denial to the 2012 RFS waiver request: E10 is approaching the point at which it saturates the gasoline market. As a result, if obligated parties choose to achieve their required RFS volumes using ethanol they should work with their partners in the vehicle and fuel market to overcome any market limitations on increasing the volume of ethanol that is used. Stakeholders in the refining sector have been aware of the E10 blendwall since passage of EISA in December of Clearly the EPA, a little over a year ago, was signaling the obligated parties to alleviate market limitations on ethanol through the use of FFVs. We pose the following question to the EPA: How is it possible that the obligated parties have not been held accountable for this blatant lack of statutory responsibility? Congress fully anticipated the infrastructure and pricing of biofuels to be the responsibility of the obligated parties; this has only minimally occurred. Instead, the infrastructure build-out to date has been mainly due to the diligence of state and national corn grower associations, the ethanol industry, and fuel retailers. Additionally, several state corn grower associations have formed partnerships with their regional American Lung Association (ALA) groups to promote E85 13 including: Illinois, Indiana, Iowa, Minnesota and Wisconsin. As mentioned, multiple state corn grower associations have developed programs and incentives within their particular state to integrate infrastructure and promote ethanol either as E15, E85, or other mid-level ethanol blends. Unfortunately, tracking these volumes is variable; this is due, in part, to retailers not wanting to release volumes in order to maintain market competition. That said, some states are able to track this information and a few sample volumes of ethanol utilized as E85 and E15 during are provided in Table 2. Table 2. Volumes of ethanol utilized as E85 and E15 during 2013 State 2013 volume of E85 (millions of gallons) 2013 volume of E15 (thousands of gallons) E85 pumps Number of FFVs Iowa 3.0 unknown ,234 Minnesota , ,000 (just Nov Dec) Colorado 2.5 NA ,000 North Dakota ,464 (just Oct Dec) 74 76, Federal Register, March 26, 2010, 40 CFR NACSonline.com/News/Press_Releases/ The policy of the ALA supports E85. 8

11 Volumes of E85 possible The volume of ethanol estimated in 2013 is a far cry from the amount possible with the existing 16 million FFVs on the road today. The following calculation illustrates this point million 15 FFVs *15,000 miles * (1/23 mpg) * 0.74 = 6.8 billion gallons of ethanol This calculation illustrates the great potential in the market for the utilization of ethanol as E85 with existing FFVs, namely, nearly seven billion gallons. Experience from those who have worked to integrate E85 infrastructure report several critical factors to utilizing the fuel including: lack of consumer education; many owners of FFVs do not realize what a flex-fuel vehicle means nor the environmental benefits of the fuel; lack of consistent energy-parity pricing of the fuel; and retailer infrastructure availability (pump dispensers). Education Multiple state corn grower associations have developed educational and promotional programs within their respective states including: radio advertisements for the launch of new pumps in the area, distributing coupons for E85, educating local mechanics/dealerships/small engine specialists on the advantages and uses of ethanol (and misconceptions surrounding the fuel), and they have also hosted local promotional events at retailer stations. Additionally, state ALA groups have partnered with the respective corn grower association to promote E85 infrastructure and usage. The following quote from Wisconsin Corn Growers illustrates how a typical state Lung partnership has worked: ALA in Wisconsin does virtually all of our ethanol promotional work by going to green energy fairs, car shows, ag expos etc. with their flex fuel vehicle & display, materials on ethanol, our table top flex-fuel pump, distributing a map of E85 locations in Wisconsin and conducting station promotions around the state. They were the force that got E85 stations listed on the blue highway signs around the state over the past 5 years and often write letters of support for E85 in state newspapers. Pricing Energy-parity pricing has been an issue that continues to keep the volumes of E85 low; more often than not, E85 often costs just pennies below or often times above the cost of E10. This past summer was an example of how the RIN system effectively worked to price E85 so that large volumes were utilized in some states and regions where retailers who have the opportunity to blend (but are not obligated parties) chose to pass the savings on to the consumer, as described earlier. During September, 2013, EIA also reported on the impact of energy-price parity and its utilization of E85 in the Midwestern states as seen in Figure million FFVs traveling an estimated 15,000 miles annually at an average mileage of 23 mpg and average E85 containing 74% ethanol million FFVs were derived from the US DOE, Alternative Fuels Data Center, On-road AFVs made available by year through 2012 at This sum totals 15 million. We added (conservatively) 1 million for 2013 as recommended from private conversations with members of the automobile industry. 9

12 Figure 3. E85 motor fuel is increasingly price-competitive with gasoline in parts of the Midwest Source: U.S. Energy Information Administration and OPIS Prices represent daily average observed E85 and regular gasoline prices at the same stations in the states of Iowa, Illinois, Indiana, Kentucky, Michigan, Minnesota, and Ohio. The regular gasoline price shown above represents a subset of all retail outlets selling motor fuels and is not the same as the average regular gasoline price for those states. The width of the E85 price parity with gasoline range reflects variation in the relative energy content of E85 and regular gasoline blends. From the EIA website: The retail price of E85 motor fuel has fallen in recent months. While ethanol has been cheaper than regular gasoline on a per-gallon basis for several years, ethanol's lower energy content often meant that consumers paid more per mile when using higher ethanol blends such as E85. However, recent declines in E85 prices at stations offering that fuel in several Midwestern states have brought E85 close to price parity with regular gasoline on an energy content basis. Accessibility Recent analyses from Iowa State University have demonstrated how large volumes of E85 with existing infrastructure and 16 million FFVs could easily provide close to a billion gallons of utilization. 6 Further analyses illustrated that multiple billions of gallons are possible with reasonable cost investments in infrastructure. They concluded that: the lack of stations that sell the fuel results in a lack of demand of ethanol, not a lack of supply (emphasis added). Further, the economists from Iowa State University showed that if the RIN price is allowed to grow and ethanol is priced consistently, E85 will move in great volumes. This is exactly what occurred in multiple regions across the Midwest this past summer. Multiple scenarios were evaluated and depending upon the price of the fuel and volumes per station, the economists estimate 700 million to 3.6 billion gallons of ethanol could be consumed as E85 in 2014 using existing FFVs with no additional investment in E85 stations. Overall, their results conclude that meeting the 14.4 billion gallon ethanol mandate is feasible in 2014 with no new stations, modestly lower E85 prices and judicious use of available carryover RINs. However, creating sufficient demand for 2014 and beyond is contingent upon EPA setting mandates sufficiently high enough to drive the market. 10

13 The analysts calculated costs associated with infrastructure and found that the investment would be far below what obligated parties would be required to spend for compliance purposes and that the 2015 statutory requirements could be met with only modest infrastructure investments. A separate report 16 outlined key areas that contain large numbers of FFVs but low numbers of E85 pumps and recommended these areas be targeted first for the integration of E85 pumps. The report states If increased mandates need to wait for the stations to be built, mandates will never increase. The key point is that creation of sufficient demand to meet ethanol blending targets that exceed E10 levels is contingent on EPA setting mandates sufficiently high to incentivize the investments in fueling infrastructure that allow the targets to be met. In other words, tight but achievable RVOs must be set to allow the system to work. With the proper level of consumer education, pricing, and accessibility billions of gallons of E85 are easily attainable, as demonstrated in multiple regions of the Midwest during the summer of E15 The first E15 station opened in the summer of 2012 in Lawrence, Kansas. There are now more than 60 stations in 12 states registered to offer E15. This fuel is still new to the consumer but even so, two major retailers, namely Murphy USA and MAPCO Express, Inc. recently announced the adoption of this fuel in their chains in December, 2013 and January, 2014, respectively. Murphy USA operates 1,179 stores in 23 states throughout the country and MAPCO Express is one of the country s largest company-operated retail chains and one of the leading convenience stores operating in the Southeast with 362 convenience stores in seven states. We fully expect this momentum to continue but education, promotion and accessibility will be key to adoption. Retailer Initiatives In order to understand some of the challenges and opportunities of the retailer industry, it is worth a review of key facts. A 2012 report by the National Association of Convenient Stores is summarized in Table 3. Table Summary of U.S. Fuel Retailers Summary of State of the Industry Report of 2012 Data. 12 Size of the industry $708 billion sales industry of which, $500 billion is derived from the fuel $199 billion is from in-store sales Source of Gross Profits 66 percent occurs in-store 33 percent from the fuel i.e., the fuel draws consumers into the store Employees 1.84 million Federal, state, local tax generation Total number of stores that sell fuel Volume of fuel moved in 2012 $171 billion This represents 4.5 percent of the entire $15.68 trillion U.S. GDP or one out of every 22 dollars. 149,220 stores 37 percent are chains; 63 percent are single-store owners Note: there are four times the number of convenience stores as supermarkets. 141 billion gallons 2007 was the peak year 16 Babcock, B. and Pouliot, S. (August, 2013). Impact of Sales Constraints and Entry on E85 Demand. 13PB12. 11

14 Average volume of fuel utilized Fuel accessibility Average retailer income 97,800 gallons/month per store 1,168,590 gallons/year Average of 6 pumps/store with 9.2 fueling positions $50,000/year Multiple station owners have adopted innovative marketing strategies to specifically promote the environmental benefits of ethanol and a few are highlighted in Table 4. These stations are located primarily throughout the Midwest and California. These retailers, and many others, have made these investments, based on the statutory expectations of the RFS increasing annual volumes of biofuels. Table 4. Examples of Renewable Energy Retailers 45 sites on the west coast, primarily California Partners include U.S. Department of Energy, CA Department of General Services, CA Energy Commission, Clean Cities Coalition Leading Fleet Partners: U.S. Postal Service, CALTRANS, Department of Veterans Affairs, CA Highway Patrol, Enterprise Fleet Services Propel ranks as the 17th fastest growing private company in the Energy sector, 352nd overall, and America s fastest growing private fuel brand Promote and sell: E15, MLEBs, E85 and biodiesel Customer surveys found the main reasons people purchase from them is cost, convenience and carbon footprint Propel s website: Carbon-Neutral, Eco-Conscious Design: All of Propel s stations are green-built and feature sustainable design, ultra-low power draw, efficient LED lighting, paperless transaction options, recycled construction components and carbon-neutral operation in partnership with Carbonfund.org. Propel is also the first fuel company to offer customers the choice to Carbon Offset conventional fuel purchases, enabling drivers to make cleaner, healthier choices regardless of their vehicle technology. Propel s biodiesel and Flex Fuel E85 products displace imported oil, reduce your carbon footprint and enhance the performance of your vehicle. We provide our customers with the most local and sustainable fuels that meet our cost and quality standards. 160 locations across the Midwest Thorntons Ranks 250 among Forbes 500 largest privately held companies Heavily promotes renewable fuels and energy security especially E85 Partners include Clean Air groups, Clean Cities Coalitions across the Midwest, Department of Energy, Corn Growers Associations, State Energy and Agriculture Offices Renewable energy education program for employees Work directly with ethanol plants Thornton s website: Your use of biofuels is making a difference in the air you breathe and cities you 12

15 live, and in the lives of Americans right here at home, in the energy security of our country. Make Everyday Earth Day and Fuel with Renewables! Air and the Environment American Jobs and Economic Prosperity Energy Security 9 retail locations in Kansas First in the nation to offer E15 Sells E85, biodiesel and other mid-level ethanol blends Green team partners include: Kansas Corn Commission, Lawrence Waste Reduction and Recycling, Metropolitan Energy Center, U.S. EPA Zarco website: Zarco USA is one of the nation s leaders in energy independence and innovation, starting with a brand of fuels that represents our core values and our country. We call it American Fuels. We work with local energy producers, farmers and innovators in the energy transportation world to bring other sources of transportation energy to you, fueling the local economy. 1,179 stores in 23 states Just recently announced E15 will be offered at its locations Murphy USA s website: Produced right here in the U.S., ethanol is a high-octane, clean-burning fuel made from corn and other grains. The United States approves the use of 10 percent ethanol blends (E10) in car engines for environmental reasons. Renewable fuels like ethanol help to reduce our dependence on foreign oils and are in keeping with our commitment to use U.S.-based fuel sources wherever possible. Biodiesel is a cleaner-burning diesel fuel made from natural, renewable sources. As part of our commitment to renewable fuels, we are currently testing this product in a number of locations and hope to expand its usage as it becomes readily available. Additionally, in August, 2013, Ethanol Producer Magazine captured the enthusiasm from an ethanol producer, a petroleum refiner, and a RIN compliance marketing company. The following is an abbreviated version of the article. Absolute Energy, LLC, St. Ansgar, Iowa: Rick Schwarck, chairman, president and CEO said the 115 million gallon per year ethanol plant has been blending E85 on site and selling it direct to retailers since mid-april. As a blender, the ethanol plant retains D6 RINs from the sale of E85. The [recent] steep increase in E85 sale volumes at two gasoline stations the plant provides with fuel, went from about 2,000 gallons in April to nearly 9,000 gallons in late June. Vollan Oil in Baltic, S.D.: Bruce Vollan, owner, is also a blender and leveraging higher-valued RIN prices to sell lower priced fuel at his South Dakota gasoline station. Vollan installed blender pumps in 2007 and started selling E15 in June of His small, struggling gasoline station was transformed from selling up to 300,000 gallons of fuel a year to nearly one million gallons of fuel in For the life of me I can t figure out why everybody with an independent, unbranded gasoline station doesn t do this, he said. After E15 was added to the mix of fuels he offers, it quickly became his second most popular fuel, behind E10. In August, E10, the most popular fuel, was priced at $

16 a gallon and E85 was priced at $2.29. Straight gasoline, which is at the bottom of the popularity list, was the most expensive at $3.59 a gallon. RIN Alliance, a RIN compliance and marketing company: Jeff Hove, vice president discussed the effect that increased RIN prices have had on the company s 200 members, 95 percent of which are renewable fuel blenders, including ethanol and biodiesel. The value of RINs is providing incentives to blend higher percentages and install more blender pumps, he said. It s absolutely clear, that the RFS is doing what it was meant to do - prompt the use of renewable fuels. Looking at the Aug. 21 rack prices in Des Moines pre-blended E10 was $2.93, straight gasoline was $2.99 and E100, $2.40. With a RIN value of 76 cents, blenders that blend their own gasoline can achieve a price of $2.86 cents a gallon for E10, opening up the door for about a 13.5 cent margin from the price of straight gasoline. In our industry that is huge, he said. In the 2014 Proposed Rule, EPA requested input on actions that could be done to increase volumes of ethanol sold. The following list is a response to the request as it relates to E15 and/or E Hold the obligated parties responsible for retailer infrastructure as outlined in the RFS statute. 2. Issue an F factor guidance letter with the modifications previously suggested by NCGA (thereby reinstating FFV credits past MY2016) Grant an RVP waiver for E15 use in summertime conventional gasoline markets. 4. Approve a new mid-level blend certification fuel through the Tier 3 standards so that engine designs can take full advantage of the physical and chemical properties of ethanol. 5. Align CAFE Standards and RFS energy policies to support, not impede, each other. 6. Eliminate below the check valve equipment verification requirement (E15). As the volumes of EISA grew, obligated parties were expected to concomitantly increase infrastructure. This has not occurred. However, the 16 million FFVs on the road today and the nearly 3,200 E85 pumps in place could easily utilize billions of gallons of E85 if the fuel was priced on an energy-parity basis to E10. Additional billions of gallons of ethanol could be consumed with further infrastructure investments by the obligated parties. 2.0 U.S. Agriculture and the Impact of the RFS on the Agricultural Economy The RFS has influenced agriculture overall and as intended, impacted corn production and utilization. This section will review the general impacts on agriculture as well as specific impacts to corn. If the proposed 2014 volumes are enacted, the major advancements in agriculture spurred by the RFS will be lost and have a devastating impact to the U.S. agricultural economy. Production in U.S. agriculture has increased for many reasons, including the enhanced genetics of plants and agronomic practices. Because of these enhancements, farmers are able to produce more crops using fewer resources while technological improvements have led to incredible advancements in production. In 1960, the average U.S. farmer fed 26 people; today, due to these advances, the number has increased to 155 people. All of these changes have occurred while, in spite of claims about indirect land use change, the U.S. agricultural land used for production agriculture has decreased over the past 70 years as shown in Figure 4. It is noteworthy that a recent international study found that urbanization, industrialization, expansion of infrastructure, nature and forest development and land abandonment has taken twice as much agricultural land as biofuels production globally Docket ID No. EPA-HQ-OAR (April 22, 2013) 18 Langeveld, J. et al., Biomass Research Report 1301 (2013). Analysing the effect of biofuel expansion on land use in major producing countries:evidence of multiple cropping. 14

17 Figure 4. U.S. Agricultural land use has decreased Source: USDA In the last 30 years, corn production has improved on all measures of resource efficiency, by decreasing per bushel: land use by 30 percent, soil erosion by 67 percent, irrigation by 53 percent, energy use by 43 percent and greenhouse gas (GHG) emissions by 36 percent. 19 All of these improvements have continued while the RFS has increased corn demand. In the U.S., corn processed into ethanol represents less than six percent of harvested cropland. With increasing yields in agricultural production, farmers have avoided clearing additional acres of land that would have been required to produce the same amount of food. The impact of the higher yields has curbed greenhouse gases equal to a third of the total emissions since the dawn of the Industrial Revolution in No other industry can claim to have done more. A 2010 study 20 from Stanford University found that advances in high-yield agriculture have prevented massive amounts of GHG from entering the atmosphere, the equivalent of 590 billion metric tons of carbon dioxide (CO 2). The study concludes improvements of crop yields should therefore be prominent among a portfolio of strategies to reduce global greenhouse gas emissions. Recently high corn prices have received significant attention. While prices have increased for several reasons, most notably the 2012 drought, when adjusted for inflation, a different picture emerges as seen in Figure 5. Amazingly, corn prices (in adjusted dollars) were roughly the same during the recent 2012 drought as they were in Corn prices at their 2012/13 peak were lower in real dollars than they were in 1970s; they have now retreated to levels similar as before the RFS2 was implemented. 19 Environmental and Socioeconomic Indicators for Measuring Outcomes of On-Farm Agricultural Production in the United States Field to Market: The Keystone Alliance for Sustainable Agriculture (July 2012)

18 Figure 5. Corn prices corrected to 2009 dollars. Source: USDA and DOC Since the RFS2 was enacted in 2007, total direct government payments, adjusted to 2009 dollars, have decreased. This can be seen in Figure 6. This represents tens of billions of dollars in the reduction of federal outlays. Figure 6. Total direct government payments U.S. total in 2009 adjusted dollars Billion Dollars Source: ERS Historical U.S. and state-level farm income and wealth statistics The RFS and other global market forces have increased the demand for agricultural products, both within and external to the U.S. market. It is important to consider that demand for U.S. agricultural products outside of this country can impact the internal economics and priorities set for farmers as they make their planting decisions. For instance, two major changes that have simultaneously occurred post-rfs are the 16

19 demand for corn for ethanol along with soybean export demand from China. The amount of U.S. land needed to produce soybeans for the Chinese export market is nearly equal to the amount of land needed to grow corn for ethanol production in the U.S., as shown in Figure 7. Even with these increased demands, overall land use has decreased in the U.S. due to the advancements in agricultural production practices and plant genetic enhancements. Figure 7. Corn acreage for ethanol is nearly equal to soybean acreage for export to China Mil ac 200 US CORN & SOYBEAN AREA PLANTED, WITH CORN AREA SET-ASIDE for GOV'T PROGRAMS PRX 2013, File PRX_US_Reference_Start.xls, Feb Corn "new" market US Corn Ethanol & China Soybean Import Episodes together account for 1/3 US Corn + Soybean Area Corn area for fuel ethanol (adj. For DDG) Soybean area exported to China Corn "old" markets Soybean area planted for other than China Corn "base acres" in CRP, per USDA- ERS-AREI Corn area for Paid Diversion and Acreage Reduction Programs Corn area planted excluding for Govt Programs & RFS Source: Pro-Exporter Increased demand for U.S. crops has led to increases in cropland values. Figure 8 shows how cropland value increases have also led to increases in tax revenues. Figure 8. Cropland and tax increases with the RFS implementation Source: NASS & BEA 17

20 Increases in cropland values have expanded the property tax base in rural America, which is vital to funding schools, roads, and other public services. Figure 9 shows the increase property tax payments since 2005 has increased 28 percent for the farming sector. This data represents tax payments on property held by farmers. Figure 9. Historical property tax payments, U.S. total, 2009 adjusted dollars +28% since 2005 Source: USDA ERS: Farm Income and Wealth Statistics As mentioned above, the benefits accruing to agriculture have not just stopped at the farm gate. A number of industries provide inputs and services to production agriculture and in the utilization of crops. In a recent evaluation of farm income and impact on the broader agricultural sector, namely, employment in industries and businesses related to production and use of crops (i.e., agriculturally-related industries), an increase in jobs from 2,947,458 in 2005 to 3,116,369 in 2012 was observed, equating to a 5.4 percent increase. 21 It is also noteworthy that employment in agriculture rebounded much faster than overall U.S. employment. The agricultural crop production sector increased at a rate of 4.47 percent while that of all other industries (excluding agriculture) only increased at a rate of 2.33 percent when comparing 2005 to The economies of many communities in the U.S. are tied to agriculture in profound ways. This data only captures a piece of the broader story of the importance of agriculture to local economies and the national economy. According to the USDA, total net agricultural income has risen since the passage of the RFS. Table 5 shows that in 2006, average farm income was $57.4 billion. In 2012, farm income was $112.8 billion, a 97 percent increase. This table also illustrates that in addition to net farm income increases, both crop and livestock receipts have increased over this time period. 21 Bureau of Labor Statistics Quarterly Census of Employment and Wages. These figures exclude farm operations themselves. 22 Cumulative Aggregate Growth Rate from National Agricultural and Statistics Services and Bureau of Economic Analysis. 18

21 Table 5. Income statement for the U.S. farm sector ($ billion) F 2013F Crop Receipts 23 Livestock Receipts Gross Income Total Expenses Net Farm Income Although there has been criticism from the livestock sector regarding the negative impacts caused by the RFS, meat production has not dramatically fallen. The slight downturn in beef production since 2007 is due to the persistent drought in the southern plains, not the RFS. Figure 10 shows the annual meat production in the United States. Meat production has expanded in almost every sector since the passage of the RFS. During this same period, the U.S. has been expanding export markets for meat products. Increased exports have driven up the price received for livestock and thereby covered much of the higher costs of production including feedstuff costs. If the RFS was detrimental to the livestock industry, annual meat production should have dramatically declined post-rfs, which is not the case. Figure 10. U.S. meat production Source: USDA ERS The RFS increased the demand for corn and farmers responded. In 2005, 1.6 billion bushels of corn out of 10.9 billion produced were utilized for ethanol; in 2013, 3.9 billion bushels out of 13.2 billion produced were utilized for ethanol. Corn kept up with demand in all the other categories namely, feed (for animals), 23 Cash receipts for agricultural commodities are defined as the gross income from sales of crops, livestock, and livestock products during a calendar year. The USDA, Economic Research Service (ERS) uses USDA, National Agricultural Statistics Service (NASS) estimates to develop state level cash receipts. 19

22 exports and other which includes human food, high fructose corn syrup and non-food uses. Following the 2012 drought, all major market sectors reduced corn usage as the market rationed the reduced corn supply. The market that experienced the most significant decline was the export market. However, this did not lead to global corn shortages, as major importers switched to corn imports from our major competitors. Likewise, U.S. livestock industry imported over 162 million bushels of corn to meet demand. These import levels have not been seen since previous droughts in the 1930s. Through it all, the market worked as predicted, and farmers responded by producing a 2013 corn crop to meet demand and rebuild stocks. While the RFS has increased the demand for corn, the impact of higher corn prices on retail food prices has been grossly exaggerated. Analysis of the Consumer Price Index of U.S. average retail food prices does not support the assertions made. Specifically, if the assertion were true, higher corn prices would have resulted in equal or higher increases in meat prices. The data simply does not support this claim. The main reason higher corn prices do not translate into higher food prices is that it represents a minor share of commodity prices in the retail food dollar. According to the USDA, across all commodities, the farm share of the food dollar is 15.5 cents for This is below the average of 16.1 cents per dollar for the time period 1993 to Because the farmer is getting a smaller percentage of the food dollar post-rfs, commodity prices alone (or any other single factor) cannot be attributed to food price inflation. Notably, as cited by the USDA, the vast majority of the retail food dollar arises after products leave the farm. Other costs that make up the majority of what impacts the consumer includes, but are not limited to: transportation costs including fuel, food processing and packaging. A couple of examples to illustrate this point are the following: assuming a corn price of $4 per bushel (or $4 per 56 pounds of corn) would require six cents of corn per one 18 ounce box of corn flakes or 19 cents worth of corn (representing 2.6 pounds) to produce one pound of meat. If the assertion that higher corn prices have driven up food prices were true, why have food prices not declined since last summer? Corn prices have dropped precipitously since June, 2013 from $6.97 per bushel to $4.31 per bushel in December 2013, a 38.2 percent drop. Over this same time period, the U.S. average price of boneless chicken breasts declined 1.8 percent, while whole frozen turkeys and boneless pork chops increased 3.4 and 4.0 percent, respectively. Clearly, the drop in corn prices has not been reflected in the price of meat or other foods, as many have deliberately misled the consumer to believe. Since the passage of the RFS2 corn prices have risen, as have all agricultural commodities. As noted above a significant portion of this increase has come from increased domestic and international demands. Concurrent with this demand-driven increase, commodity markets were influenced by Futures markets. A dramatic increase in Futures markets as an investment vehicle from non-traditional players during the general economic recession, triggered by the housing bubble in late 2007, drove up corn prices and other commodities. These factors combined with three years of below trend yields in 2010, 2011 and 2012, led to increased prices. However, crop production costs also rose along with increases in corn prices. The University of Illinois 25 noted that the price of corn this fall dropped to near or below the current cost of production (meaning that it took more money to produce the crop than farmers will receive). While the return of abundant corn supplies accounted for most of the decrease since June 2013, the Agency s actions have compounded the price decline. On October 9, 2013, the day before EPA leaked the proposed reductions, the March Futures contract closed at $ per bushel. By January 9, 2014 the same Futures contract was $4.12 per bushel, a $ drop. Simple math illustrates the magnitude of loss to the farmer: $0.443 per bushel x 160 bushels of corn per acre x 1000 acres (a small farm) = $70,880. A significant portion of this price reduction is directly attributable to the 2014 RVO proposal by the EPA, as Schnitkey, G. (November, 2013), FarmdocDaily. Break-even Corn Prices: History and Projections. 20

23 future demand for corn has been brought into question. This clearly illustrates the impact this proposed volume reduction will have on the agricultural community. In terms of international food prices related to biofuels, another area filled with misinformation, several academic investigations have evaluated this topic. Recently, Pangea, 26 conducted an extensive analysis of food price transmission in the international markets and sub-saharan Africa. The concluding remark summarizes their finding regarding the impacts of biofuels on the agricultural market: The biofuels debate in Europe and beyond must be focused on the true challenges to sustainable bioenergy production, use and trade. Pointing the finger incorrectly, as demonstrated by the price analysis in this report, at allegedly negative impacts on African food security due to biofuels mandates outside the region only serves to inhibit the opportunities for development of a true bioeconomy in Africa and around the world. African food prices are impacted negatively by issues such as systemic lack of investment in agriculture and infrastructure, postharvest losses and climate change, but links between biofuels mandates and rising African food prices are weak at best. The focus should instead be on strengthening agricultural production in Africa so developing economies can at last achieve lasting economic development and end poverty. Data analysis with the report documents that biofuel production has not caused food spikes nor shortages. In fact, if the maize surplus in 2010 had been better managed, and used for bioethanol for cooking and electricity, the biofuel sector would have counteracted the falling price trend and stabilized planted area and production the following year. Overall, the RFS has been good for the agricultural sector of the U.S. economy, as intended. The proposed reduction in ethanol demand, and tying future demand to inaccurate and shifting gasoline consumption projections, injects a dangerous level of uncertainty into grain markets. This uncertainty comes with an economic cost, first in grain prices and later in land values. A rapid deflation in crop prices and land values will quickly shake American agriculture. Using history as a guide, anyone in rural America could explain how rapidly the economic boom in 1970s agriculture turned into a bust from market uncertainty related to the export demand shock. This agricultural recession lasted for decades. Driving corn prices below their cost of production will force land values down. The rate of this decline could be disastrous for the rural economy. This will shrink rural tax bases, negatively impacting schools, hospitals, fire departments and roads. Forcing land values and rents down will adversely impact landowners, many of whom are elderly and living on fixed incomes. A recent study by CoBank 27 demonstrates that long-term policy uncertainty and the likelihood of future adjustments will influence the size and profitability of the industry, the rate of capacity utilization, and, ultimately, the volume of domestic ethanol production. The report also states that EPA s proposal sends a signal to fuel retailers that investments in higher ethanol blend infrastructure are not necessary. If the EPA moves forward with a reduction in corn ethanol volumes this will most certainly: Confound agricultural planning and marketing; Threaten the economic viability of corn growers and ethanol producers; Halt the economic vitality of the agricultural sector and related economies; and Undermine business plans for future biofuel optimization and expansion. In summary, since the implementation of the RFS, agriculture has seen a positive dramatic economic increase which has rippled into many other sectors. Farm incomes have increased, resulting in many families experiencing the return, and/or maintaining the presence of, family members. Total direct government payments to agriculture have decreased while property tax payments have increased prior to the RFS. Jobs in agriculture have increased and the agricultural production sector has increased twice that 26 Pangea (2012) Who s Fooling Whom? The Real Drivers Behind the 2010/11 Food Crisis in Sub-Saharan Africa. 27 Kowalski, D. CoBank Knowledge Exchange Division (December, 2013). Ethanol s New Path Forward." 21

24 of other industries. To abandon the RFS at this point in history when so much has been gained, would be devastating not only to agriculture but many other sectors tied to this bedrock of the U.S. economy. 3.0 The RFS has Spurred the Production of Renewable Energy and decreased GHG Emissions As intended, the RFS is responsible for decreasing GHG emissions from renewable biofuels, mainly corn ethanol. Since this policy was enacted, petroleum extraction has become more GHG intensive while corn and corn ethanol production practices have become much less GHG intensive than expected by the EPA. The petroleum industry has used ethanol mainly as an octane replacement by blending up to 10 percent of this non-toxic alcohol into 95 percent of the transportation fuel supply. In the meantime, the automobile industry and other research labs have reported that the chemical and physical properties of mid-level blends of ethanol (a new regular ) increase engine efficiency leading to increased gasoline mileage while decreasing CO 2 emissions. This new fuel would be higher in octane, lower in cost, lower in toxic petroleum-derived aromatics and provide a means to meeting CAFE Standards over the E10 of today. If the proposed 2014 volumes are enacted, the path envisioned by the authors of this policy to attain cleaner burning renewable fuel will be dashed as well as seriously jeopardize advancements in future more efficient automobile engines. During the past seven years the RFS has been responsible for reducing approximately 200 million metric tons of CO 2, which is the equivalent of taking 39 million cars off the road. 28 Continued and expanded replacement of fossil fuels with lower GHG emitting renewable transportation fuel will lead to even greater advances in CO 2 reductions. Since 2007, private and public research labs have continued to invest in the development of new technologies that have enhanced the production efficiency of conventional biofuels. Such investments have resulted in optimized processes in today s ethanol production facilities including, but not limited to: combined heat and power, corn oil separation, cold-cook processing, and corn-expressed enzymes. All of these enhancements have led to the continued reduction in CO 2 emissions of conventional biofuels. 29 EPA is not only required by law to enforce the RFS, it is also responsible for controlling emissions of greenhouse gases under the Clean Air Act. The latter is a responsibility specifically sought when EPA testified in a case before the Supreme Court in favor of using the Clean Air Act to regulate GHG emissions. As a result, the Court determined CO 2 to be a harmful pollutant and charged EPA to regulate it under Clean Air Act. 30 Given that responsibility, it is surprising that the agency would propose to significantly jeopardize GHG emission reductions from the RFS. The transportation sector consumes 72 percent of all petroleum used in the U.S. and contributes 28 percent to the nation s greenhouse gas emissions. 31 The RFS was implemented, in part, to reduce the production of GHG by increasingly substituting ethanol for petroleum in the transportation fuel sector. These emission reductions set by Congress have already been booked as part of our nation s contribution to the world effort to address climate change. Ignoring the potential GHG reductions lost when weakening the RFS conflicts with EPA s responsibility to reduce national GHG emissions. As the lead agency in our government empowered to lower GHG emissions, we request that the EPA address how the lost benefits from the RFS will be provided by other sources. 28 Renewable Fuels Association 29 Mueller, S. et al. (2013) Corn ethanol: emerging plant energy and environmental technologies available: 30 Massachusetts v. Environmental Protection Agency, decision announced April 2, Fairley, P. (2011). Nature 474:S2-S5. Introduction: next generation biofuels. 22

25 Corn starch ethanol has an underestimated GHG score by EPA When the RFS was enacted and then modified in 2007, the EPA calculated that by 2022, corn starch ethanol would produce approximately 20 percent less GHG emissions than the extraction and conversion of petroleum into gasoline. Corn starch derived ethanol has not only reached the 2022 goal of reduced GHG emissions today, but due to significant advances in agriculture and ethanol production practices, it produces nearly 50 percent fewer GHG emissions compared to gasoline. Today, EPA considers the total GHG emission value of gasoline from petroleum as g CO 2/MJ of fuel (baseline 2005 value) vs g CO 2/MJ of ethanol from corn (calculated for 2022). In fact, a case can be made that corn starch ethanol today produces nearly 50 percent less GHG emissions than petroleum, as shown in Table 6. This represents tremendous advancements in agriculture and corn starch to ethanol production technologies. Table 6. Comparison of GHG emissions for petroleum and corn ethanol Petroleum Corn Ethanol Corn Ethanol (including optimizations) 29,32 Direct GHG g CO 2/MJ Indirect GHG 0* g CO 2/MJ Total g CO 2/MJ *Note that petroleum has no indirect GHG accounting. This ignores LCA for petroleum to gasoline. The improvements have been in both corn and ethanol production practices. Corn yields are higher, fertilizer rates have been reduced, tillage practices are less intensive; all of which lead to lower GHG emissions from corn production. Some ethanol plants are operating with very little fossil energy inputs. Instead, renewable sources of energy are utilized to supply the heat and power requirements of the plants. Innovation at ethanol plants is not just limited to renewable energy; a large number of plants are extracting the corn oil thereby, increasing the value obtained from the co-products. Some plants are looking at other biochemicals and further fractionation of the feedstock to extract even more value from the corn kernel. A loss in GHG emission reductions is at stake The RFS has driven improvements in corn ethanol production setting the platform for the next generation fuels, e.g., corn stover and corn kernel fiber. With these feedstocks, and others expected in the future, the RFS2 was designed to further reduce greenhouse gas emissions when fully implemented. However, with the recent proposal to reduce the amounts of biofuel from conventional sources and factoring this same loss into future projection, losses in CO 2 reductions are expected. Figure 11 illustrates the lost benefit of the RFS if the current EPA proposed RVOs are enacted. 33 It is estimated that by 2022 the RFS would reduce annual GHG emissions by 135 million metric tons (top, blue line). 34 The proposed EPA rulemaking and stated intent to use the same rationale in later years, cuts 32 Lifecycle greenhouse gas emissions were estimated for a corn ethanol pathway that includes collecting corn stover and substituting it for corn grain in cattle feed plus the isolation of corn oil during ethanol production. Using stover as feed results in a GHG credit for the displaced corn. The credit includes the energy inputs and emissions associated with corn farming and transport of corn as well as reduced indirect land use change (ILUC) emissions associated with corn farming. ILUC is defined as the conversion of forests and other natural lands around the globe to agriculture to replace grain or cropland diverted to biofuels. 33 This analysis was conducted by Air Improvement Resources, through the Minnesota Corn Marketing Board. 34 From the RFS2 Regulatory Impact Analysis, EPA-420-R , February The 135 million metric ton reduction in GHGs are lifecycle tons of reductions and do not all occur in the 2022 calendar year. 23

26 this reduction by over half, to just over 60 million metric tons by 2022, assuming the same percent reduction as the last several years (middle, red line). If the RFS benefits are further reduced to an E10 volume only, this yields the lowest levels to under 40 million metric tons (lowest, green line). This recommendation was recently made by the American Petroleum Institue (API) in their petition to the EPA to modify RFS volumes in the future. If these 2014 proposed volumes are enacted, not only will the future of the industry be placed in jeopardy but huge decreases in GHG emission reductions will be lost. Figure 11. Potential losses in GHG emission reductions Cost benefits of RFS compared to CAFE Standards In addition to GHG emission reductions, the RFS also provides energy diversity and thus energy security. Both the RFS and CAFE were meant to improve energy security by decreasing reliance on fossil fuels. Both can be evaluated in terms of cost to the consumer. An analysis of these costs demonstrates that the RFS actually provides a cost savings to the consumer while implementation of the CAFE Standards come with a tremendous cost. There are three major threats to energy security including: monopoly pricing, price surges and supply disruptions. Since oil is a fungible commodity, the price of oil worldwide moves in tandem. Even though the volume of U.S. oil imported from the Middle East has declined recently, oil prices are still driven by the actions of the OPEC cartel. Without any meaningful diversity in fuel supply, U.S. consumers are impacted by this oligopoly. Biofuels have provided flexibility to relying on just a single energy source whether that source is within or external to the boundaries of this nation. The most conservative estimate of this flexibility benefit that is almost uniquely attributable to biofuels can be derived from recent work from the University of California, Berkeley and University of California, Los Angeles. Economists from these institutions found that in 2007 worldwide production of 17 billion gallons of biofuels displaced billion gasoline-equivalent-gallons (gegs) and led to an average

27 percent reduction in world oil prices. 35 Using the analysis from this work, it can be estimated that the value per gallon of conventional fuel displaced would be a net savings of $0.46 per gallon in The second threat to U.S. energy security is a sudden surge in oil prices resulting from worldwide instability. The ability to increase the volume of biofuels in the fuel system can also act as a buffer against short-term price shocks. The best estimate of this value is found in NHTSA s recent Final Regulatory Impact Analysis regarding Model Year 2017 through 2025 fuel economy standards, which estimates a value of $0.20 per gallon for a reduction in the expected costs of oil supply disruptions to the U.S. economy. 37 In the current year, the biofuels produced in response to the RFS can be expected to directly save the consumer: $0.46 cents per gallon of gasoline displaced as a result of biofuels impact on world oil prices. $0.20 per gallon of gasoline displaced as a result of the lessening of oil price shocks. This translates into a quantifiable energy security (cost savings) benefit of $0.66 per gallon of gasoline displaced. The third area of energy security relates to supply disruptions by hostile nations. Biofuels, and the vehicles that use them, serve as a backup to the Strategic Petroleum Reserves for the U.S. and is allies to withstand hostile supply disruptions for extended periods. The 20th Century provides examples of nations turning to biofuels for their military when supplies of oil were blocked. Today, in the event of a major trade disruption, the U.S. military would be called upon to quell the cause of the disruption and restore trade routes. For this reason the Department of Defense has embarked on an extensive effort to switch from oil to biofuels. 38 The cost impacts of complying with the CAFE Standards paint a much different picture. Several economic studies estimate the costs of compliance with the MY 2016 CAFE laws on the order of $5 per gallon of fuel saved and higher. 39,40 The cost of the last and most expensive technology for MY 2025 fuel economy standards (the consumer s net cost of purchasing an all-electric vehicle) 41 that constitutes the value Congress is willing to exact from the nation s consumers, is on the order of about $8.00 per gallon of fuel saved relative to a Model Year 2016 base. These comparative estimates give an idea of the upper bound on the potential savings from the substitution of biofuels through the RFS versus the potential huge costs the fuel economy standards are expected to transmit to the consumer. 35 Hochman, G., Rajagopjal, D. and Zillberman, D. AgBioforum (2010) "The Effect of Biofuels on Crude Oil Markets. 36 Using the values from Hochman, et al., the level of savings can be calculated for 2014 where 134 billion gallons of gasoline are projected by EIA, and using an average of $3.43 per gallon gasoline this yields a total consumer bill of $ billion. 1.14% of this total equals $5.2 billion, when divided by the billion required to achieve that savings, equals 46 cents per gallon of conventional fuel displaced. 37 NHTSA, Final Regulatory Impact Analysis, CAFÉ for MY Passenger Cars and Light Trucks, p The Pew Foundation (2011), From Barracks to the Battlefield: Clean Energy Innovation and America s Armed Forces. 39 Ian Parry, David Evans, and Wallace Oates, Are Energy Efficiency Standards Justified? Resources for the future Discussion Paper10-59, at pages and Figure 1, page Carolyn Fischer, Winston Harrington, and Ian Parry, Energy Journal (2007) Should Fuel Economy Standards be Tightened, at pages and Tables 4 and 5, pages This is a net cost, the additional cost of hardware less the present value of the stream of benefits the consumer can expect to realize over the life of the all-electric vehicle. The cost of the additional hardware on an electric vehicle consists mainly of the cost of the battery and the cost of wiring homes and businesses to provide the fuel. 25

28 Misalignment of two energy policies We previously expressed our concerns to EPA about the inconsistency between the RFS and the 2017 GHG/CAFE Standards 42 citing: 1) No mention in the Standards of the role of renewable fuels in achieving the required GHG reductions and 2) Credits and incentives arbitrarily favor electric and natural gas vehicles; FFV production is discouraged since the maximum CAFE credit is reduced from 1.2 mpg in 2014 to zero after Namely, nearly all of these credits either directly or indirectly provide incentives for the production of electric vehicles including hybrid electric (HEV), plug in hybrid electric (PHEV), fuel cell electric (FCEV), battery electric (BEV) or natural gas vehicles. While these credits advance laudable goals, The Administration s all of the above energy policy requires that favorites not be picked. Leaving out credits for a liquid fuel system using ethanol in cost-effective vehicles does not make economic and environmental sense. The array of alternate fuel vehicles (e.g., HEV, PHEV, BEV) have limited infrastructure in place and are significantly more expensive than minor modifications needed to deliver current liquid fuels containing higher blends of ethanol. Ideally, the anticipated additional cost for these automobiles is tens or even a hundred times higher than FFVs. The CAFE credits to build vehicles powered by electricity or natural gas are based on the claim that they will produce lower GHG emissions. This is misleading. In the accounting for the GHG emissions, EPA only considers emissions from the tailpipe. Electric cars are powered by electricity and 42 percent of the nation s electricity is generated by coal, a major contributor to the nation s GHG emissions and thus this should be included in the calculation as well. Cars that run on natural gas provide a number of challenges not the least of which are extremely limited existing fueling infrastructure, very high cost of additional infrastructure (up to millions of dollars) 43 and the use of non-renewable fossil fuel derived natural gas. Additionally, it can be shown that when comparing GHG emissions from either an electric-powered car fueled with coal-generated electricity or natural gas-generated electricity compared to an FFV running on E85, that the GHG emissions are greater for either of the electric cars compared to emissions from an E85 fueled FFV. 44 Thus, in 2012, a complete switch in the focus of automobiles and infrastructure occurred from a system designed to decrease GHG emissions using a renewable feedstock to one that increases GHG emissions using non-renewable feedstock. Benefits of ethanol for engines of the future to further GHG reductions and enhance performance Motor vehicles and fuels form a system. Working together, the system provides energy that is transmitted to the wheels and thereby propels the vehicle. This is why it is important that the development of future engines consist of a collaboration between the feedstock providers for the fuel, the fuel providers, the automobile industry and policy makers. Using ethanol as an octane source for a new regular fuel has been considered for some time and would allow even greater reductions in GHG emissions. This realization has been investigated by those who produce and utilize the fuel. The primary characteristics of fuel are energy density (usually expressed in BTU per gallon) and octane rating, a measure of a fuel s resistance to ignite under pressure. The octane rating in turn affects vehicle characteristics, e.g., engine compression ratio which relates directly to an engine s thermal efficiency, or how much energy from the fuel is converted into useful work. Thus, the energy to the wheels is a product of the energy in the fuel (energy density) times the thermal efficiency of the engine. This is illustrated in the Appendix (Figure 1). 42 Comments of the National Corn Growers Association, the Illinois Corn Growers Association and the Minnesota Corn Growers Association on 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards, Proposed Joint Rule, published at vol. 76, pg. 74,854 (December 1, 2011), dated February 10, GREET 2012 revision 2. 26

29 If the standard fuel available in the U.S. had an octane rating of today s premium gasoline (93 AKI) 45 versus the current octane rating of regular gasoline (87 AKI), engines could be designed to use fuel more efficiently, reducing the amount of fuel required per mile. If that advanced vehicle used today s premium fuel, both gasoline mileage and tailpipe CO 2 emissions could be reduced at virtually no increase in vehicle cost. Unfortunately, high-octane gasoline is significantly more expensive than regular by at least 30 cents per gallon. Requiring new vehicle owners to use this more expensive fuel therefore is not feasible, which limits the degree to which engineers can boost engine thermal efficiency. While there has been discussion about future drop-in non-ethanol biofuels, the reality is that, in the near term, biofuel means ethanol. To date, research on higher octane for advanced engines has focused on a mid-level blend that adds additional ethanol to today s regular gasoline to increase the octane rating from 87 AKI to 93 AKI. It is estimated that an additional 20 percent ethanol added to E10 would achieve the desired increase in octane rating, so the new fuel would be in the range of 20 to 30 percent ethanol and 80 to 70 percent gasoline. Since ethanol typically costs $0.50 to $1.00 less than a gallon of gasoline, this new fuel would cost significantly less than E10. In other words, a higher octane fuel could be prepared using ethanol for less than today s premium fuel. 46 This combination of higher octane and lower consumer cost has resulted in increased interest in this midlevel blend fuel as the fuel of the future. In 2009, the U.S. Council for Automotive Research (USCAR) began a test program to evaluate the impact of mid-level blends on current technology vehicles. USCAR has expanded the scope of this study to look at the potential of using these blends in higher compression ratio engines. Resultantly, Fuel/Engine Interactions was published that highlights some of these findings and the promise of a new fuel. The following quote illustrates this enthusiasm: As SI [spark ignition] engines are developed to become more efficient, knock will become more likely. Fuels of high anti-knock quality, and with high RON and preferably low MON, will enable future SI engines to reach their full potential. One could imagine a long-term future where a majority (60percent?) of engines are GCI [gasoline compression ignition] engines The rest of the engines will be SI engines requiring high RON and preferably low MON gasoline; ethanol would be very important in making such fuels. 47 In addition, several automobile manufacturers and Oak Ridge National Labs (ORNL) have published results demonstrating the effects of octane through mid-level blends of ethanol on increasing engine efficiency and decreasing CO 2 emissions. 48,49,50,51,52,53 Testing to date has found that this new fuel: 45 The standard octane rating system is the Anti-Knock Index, or AKI, which averages two octane ratings: the motor octane number (MON) and the research octane number (RON). In advanced engines, the fuel required must have a higher RON number. The 93 AKI fuel described above is a fuel with enhanced RON octane that brings up the AKI number to 93, rather than a fuel with both higher RON and MON values. 46 For example, the wholesale cost of a mixture of 30 percent ethanol and 70 percent RBOB, using the September 23, 2013 OPIS values, would be 70 percent X $2.730 per gallon for RBOB + 30 percent X $2.269 per gallon for ethanol, or $2.592 per gallon. Since the wholesale price of regular gasoline with 10 percent ethanol is $2.684 per gallon 47 Gautam Kalghatgi, pages SAE Automotive Engineering International (October 1, 2013). Chrysler sees the ICE future aei-online.org. 49 Jung, H., et al., SAE Int. J. Engines 6(1):2013, SAE Fuel Economy and CO2 Emissions of Ethanol-Gasoline Blends in a Turbocharged DI Engine. 50 Stein, R., Anderson, J. and Wallington, T. SAE Int. J. Engines 6(1) doi: / (2013). An Overview of the Effects of Ethanol-Gasoline Blends on SI Engine Performance, Fuel Efficiency, and Emissions. 51 Anderson, J., et al., Fuel, High octane number ethanol-gasoline blends: Quantifying the potential benefits in the United States. 52 Splitter, D. and Szybist, J. Energy and Fuels (2014). Experimental Investigation of Spark-Ignited Combustion with High- Octane Biofuels and EGR. 1. Engine Load Range and Downsize Downspeed Opportunity 27

30 Allows engine compression ratio increases up to 25 percent Reduces knock tendency Cools the fuel charge increasing part-load efficiency of the engine Reduces combustion gas temperatures and criteria pollutant emissions Produces no loss in volumetric fuel economy (mpg) and range Based on the promise that this new fuel offers, EPA included the option to manufacturers of using a new 30 percent ethanol test fuel in the certification process, 54 thus creating a path that would help automobile manufacturers reduce their CO 2 tailpipe emission responsibilities. A Tier 3 specification for the new fuel is needed ahead of time to ensure the fuel s availability prior to the manufacturing of the engine. The sentiment of the importance of developing the engine and fuel together as a system is reflected in a recently published quote from a member of the automobile industry. 48 Knock is the further impediment to fuel economy and to a large extent we re hand-cuffed without the improvements in the grade of fuel.and further, you can t just task the automakers; this has to be a holistic full-scale effort in partnership with the fuel guys. There s an opportunity to shift octane number in the U.S., just as Europe has done. Otherwise, we can t run these downsized engines as hard as we need to. We can t push compression ratios up as high as we want to, and we re leaving efficiency on the table. Reduced Vehicle CO 2 Tailpipe Emissions Historically, EPA has not considered the tailpipe CO 2 emissions from vehicles operating on ethanolgasoline blends, assuming that ethanol s primary contribution to reducing greenhouse gas emissions is its renewability. There are two reasons for this. In typical vehicles optimized for 87 AKI fuel, any reduction in inherent CO 2 emissions from using ethanol in fuel is largely offset by ethanol s lower energy content. Under international agreement, CO 2 from ethanol and other biofuels are not counted at the tailpipe. 55 As part of the Tier 3 Criteria Emission rulemaking, EPA has proposed changing the 93 AKI octane certification gasoline to an 87 AKI octane E10 ethanol-gasoline blend. If this becomes the rule, CO 2 tailpipe emissions from ethanol blends will be measured and used to determine compliance with EPA s CO 2 tailpipe emission standards. As engineers have known from experience and EPA has taken into account when ignoring ethanol tailpipe emissions in today s vehicles, the energy factor largely cancels out the emission factor. This is further illustrated in the Appendix (Tables 1-3). If engines were modified by increasing compression ratio and otherwise optimized to make use of higher octane through a mid-level ethanol blend, it could extract more energy out of a BTU of fuel and therefore have a lower energy factor (i.e., less E30 would be needed to obtain the same useful energy as one gallon of E10). As described above, testing by automobile manufacturers and ORNL has demonstrated that a vehicle optimized to run on a high-octane ethanol blend would provide similar fuel economy to a conventional vehicle operating on E10. This vehicle would be expected to achieve a fuel economy of between 29 to 30 mpg operating on E30 and thereby significantly lower CO 2 tailpipe emissions. For instance, at: 53 Splitter, D. and Szybist, J. Energy and Fuels (2014). Experimental Investigation of Spark-Ignited Combustion with High- Octane Biofuels and EGR. 2. Fuel and EGR Effects on Knock-Limited Load and Speed EPA Tier 3 Emission Rulemaking. 55 EIA FAQ How much carbon dioxide is produced by burning gasoline and diesel fuel? 28

31 29 mpg, this vehicle would emit 277 g/mi tailpipe CO 2 emissions on E30 56, or 7 percent less than the 299 g/mi CO 2 emitted by the unmodified vehicle. 30 mpg, this vehicle would emit 267 g/mi tailpipe CO 2 emissions on E30 57, or 11 percent less than the 299 g/mi CO 2 emitted by the unmodified vehicle In summary, if regular fuel became a 93 AKI octane E30 blend and vehicles were optimized accordingly, CO 2 tailpipe reductions of 7 11 percent are achievable. Transitioning to this new fuel would advance the current 10 percent to a mid-level ethanol blend in 95 percent of the base fuel over time while reducing the cost of fuel to the consumer and decreasing tailpipe emissions. The new fuel would make compliance with current and future tailpipe CO 2 standards much more cost-effective and align the projected volume utilization of the RFS with CAFE. Additionally, the expanded use of this new fuel would enable greater downward pressure on the cost of energy, thereby increasing domestic and worldwide economic growth. Unfortunately, EPA s current proposal to scale back the nation s biofuel program puts the possibility of these advancements at risk. 4.0 The RFS has Decreased Reliance on Fossil Fuels Energy security is not just about reducing reliance on foreign resources, it is about diversity. To only rely on one type of energy resource does not allow flexibility in times of crisis or uncertainty. By investing in renewable biofuels, energy diversity and thus energy security are attained. Investing in renewable energy that decreases GHG emissions, while spurring economic growth in the agricultural sector of the nation, was the original intent of the authors of the RFS. The proposed 2014 RVO levels will undo energy diversity and thereby diminish energy security by increasing reliance on petroleum. This country s renewable energy policy spans nearly 40 years with the Energy Policy and Conservation Act of 1975, EPAct of 2005 and EISA of All of these laws were: enacted with bipartisan support instituted under seven administrations enacted to increase energy security and reduce petroleum fuel consumption Notably, the modern ethanol industry was established in the United States in 1979 in response to crude oil shortages resulting from the second OPEC oil embargo. Opponents of biofuels have spread the misperception that corn ethanol is no better at reducing GHG emissions than petroleum. Peer-reviewed scientific research demonstrates the opposite. 58,59,60,61 Also lost in the debate is the fact that fossil fuels require the reintroduction of fossilized carbon into the environment and is not a renewable energy source. This country enacted policies to not eliminate the usage of fossil fuels but to develop and utilize alternative energies, particularly renewable energy with lower GHG emissions than fossil fuels. By so doing, the nation would increase energy security while decreasing GHG emissions. A few facts are worth review regarding this nation s current reliance on fossil fuels = (8.02 X 1,000 / 29), see Appendix for further details = (8.02 X 1,000 / 30), see Appendix for further details 58 Wang, M., et al., (2012). Environ. Res. Letters 7 Well-to-wheels energy use and greenhouse gas emissions of ethanol from corn, sugarcane and cellulosic biomass for US use. 59 Dunn, Jennifer B., et al. (2013) Biotechnology for biofuels 6.1 (51). "Land-use change and greenhouse gas emissions from corn and cellulosic ethanol." 60 Oladosu, G. and K. Kline (2012) Energy Policy, 61 "A dynamic simulation of the ILUC effects of biofuel use in the USA." 61 Taheripour, F. and W. E. Tyner (2013) Applied Sciences 3 (1) "Biofuels and Land Use Change: Applying Recent Evidence to Model Estimates." 29

32 Looking at the volumes of imported oil over the longer term shows that despite recent progress, the U.S. is still very dependent on foreign oil imports, thereby presenting a significant drain on the U.S. economy. Today, even though the U.S. imports of crude oil have declined in the recent past they are still far higher (over 3 billion barrels/year) than they were in 1979 as seen in Figure 12. Figure 12. U.S. crude oil imports Source: U.S. EIA Not only has the volume of crude oil imported to the U.S. increased over the past 35 years but the price of oil has also increased, even accounting for inflation. Figure 13 shows the oil price in constant 2009 dollars. U.S. expenditures on imported oil, approximately $300 billion annually, are five times higher today than they were in 1980s in real dollars (i.e., accounting for inflation). This still represents not only a major security threat but large volumes of GHG emissions from combusting fossil fuels. It should be noted that fossil fuels received 70 percent of U.S. federal subsidies between 2002 and 2008, estimated at $70 billion. 62 Figure 13. U.S. expenditures on imported oil in 2009 dollars Source: Calculated from U.S. EIA and DOC data

33 The world s thirst for fossil fuel continues, however, it is not without a significant price. A recent report 63 entitled Marginal Oil: What is driving oil companies dirtier and cheaper? describes the reasons for the search in regions of the world new to explorations and heavier carbon-intensive oil. Current explorations for these marginal oil resources include: tar sands in Canada, bitumen-type resources in Venezuela and Africa, deep offshore oil in Africa and Brazil, and heavy oil in the remote Western Amazon. The report cites that the lack of access by international oil companies to the remaining easy-to-produce oil that is driving them to carbon-intensive (and more costly) processes. The report cites that in the 1960s, international oil companies had access to approximately 85 percent of global oil reserves, today that is close to 6 percent. Since OPEC controls most of the world s easy oil the vast majority of future non- OPEC production growth will be in unconventional oil. The report estimates that marginal oil processes will be 3 to 5 times more carbon intensive than with conventional oil. Highlighted in the report are concerns by local environmental groups regarding the Orinoco River in Venezuela; specific concerns include: deterioration of sensitive ecosystems in the area as a result of continuous spills and leaks loss of soil and triggering of erosion build-up of environmental liabilities including holding pits for hazardous waste products flaws in the handling of hazardous by-products of the refining process high level emissions of CO 2, SO 2 and NO 2 in refining processes discharge of petroleum products in bodies of water pollution and degradation of soils due to the presence of waste products of oil exploration Things will only get worse. The report notes that reducing demand for oil will not [occur] by itself without other policy changes [to] address the environmental and social injustices endured by local communities affected by oil development. The use of methane (natural gas) is highly promoted as a clean fuel yet GHG calculations show that using E85 in an FFV has a lower GHG footprint that natural gas. 64 Due to this large and continuing battle against renewable energy, the RFS was put into place to provide alternatives to fossil fuel. This has had the corollary effect of allowing great strides in agricultural and ethanol production efficiencies. The Federal government initially provided a volumetric tax credit (VEETC) to blenders to foster use and thereby the development of the biofuel industry. This tax credit was eliminated over two years ago. Unfortunately, the tens of billions of dollars used to subsidize the petroleum industry, yet alone the billions used to support defense of oil-producing lands, goes unnoticed by the general public. The RFS is doing exactly what it was intended to do. It is successfully driving adoption of renewable fuel alternatives to petroleum, supporting jobs across the country, and ensuring the United States remains a global leader in developing new renewable energy sources while decreasing GHG emissions here at home. We urge the Agency to stay the course and support this important piece of transformational energy policy. We request that you reconsider your proposed reduction in the 2014 renewable volume obligations. The continued health of the rural economy and the nation s environmental improvements hinge upon your decision. 63 Stockman, L. and Wykes, S., Edited by Heinrich Boll Foundation (2012) Marginal Oil: What is driving oil companies dirtier and deeper? 64 GREET 2012 revision 2. 31

34 APPENDIX The following are excerpts taken from a study report commissioned by the Minnesota Corn Research and Promotion Council with consultants from Defour Group LLC (D4), Transportation Fuels Consulting Inc. (TFC) and Air Improvement Resource, Inc. (AIR), issued January 18, Motor vehicle fuels and the vehicles designed to operate on these fuels form a system. Fuel properties and vehicle design characteristics work together to provide the energy transmitted to the wheels that propel the vehicle. This is why it is important that the development of future engines should be a collaboration between the feedstock providers for the fuel, the fuel providers, the automobile industry and policy makers. The primary fuel characteristics are energy density (usually expressed in BTU per gallon) and octane rating, a measure of a fuel s resistance to ignition under heat and pressure. The octane rating in turn affects vehicle characteristics, e.g., engine compression ratio which relates directly to an engine s thermal efficiency, or how much energy from the fuel is converted into useful work. Thus, the energy to the wheels is a product of the energy in the fuel (energy density) times the thermal efficiency of the engine. This is shown in Figure 1. Figure 1. The Interrelationship between Fuel Properties and Engine Design Pure gasoline has a very high energy density but low octane rating. The BOB used in making regular gasoline has an octane rating of 84 AKI. When this BOB is combined with a 10 percent blend of ethanol it produces the 87 AKI regular gasoline that is available in almost every market. Premium gasoline, with an average octane rating of about 93 AKI, costs between 30 to 40 cents per gallon more than regular gasoline. EPA will need to establish an emission factor for ethanol if the switch to an ethanol blend certification fuel is enacted. The emission factors for CO 2 can be calculated using a fuel s percent carbon by weight 1, the ratio of CO 2 to carbon (3.6667), density 2 and appropriate English/metric conversion factors. These 1 Source: Alternative Fuels Data Center, Department of Transportation. 2 ibid i