Dear Administrator McCarthy,

On behalf of the Renewable Fuels Association (RFA), I am writing to respond to a misleading letter addressed to you from Mr. Robert L. Greco, III, of the American Petroleum Institute (API). The API letter, dated April 29, 2014, requests that EPA use outdated Energy Information Administration (EIA) projections of 2014 gasoline consumption—rather than the latest available projections—when establishing the final 2014 Renewable Volume Obligations (RVOs). Yet, in other correspondence and comments, API demands that the Agency use the very latest data and projections on cellulosic biofuel production to inform the cellulosic biofuel RVO. The letter also convolutes the statutory requirements related to establishing annual RVOs and cites API- funded analyses that have been thoroughly debunked by experts in government and academia. At its core, the API letter exhibits the highest form of hypocrisy and misdirection.

At the outset, API’s letter misconstrues the fact that the Renewable Fuel Standard (RFS) is fundamentally a volumetric standard, not a percentage-based requirement. In the Energy Independence and Security Act of 2007, Congress set forth the specific volumes of renewable fuels that must be consumed annually. From these statutorily required volumes, as well as projected levels of gasoline and diesel consumption, EPA derives its annual percentage RVOs. The renewable fuel volumes specified by Congress may only be adjusted according to the explicit waiver criteria contained in section 211(o)(7) of the Clean Air Act. API obviously has the RVO-setting process backward, requesting that EPA start with an arbitrary renewable volume percentage and work in reverse to establish the commensurate volumetric requirements.

Further, API suggests that the statute requires EPA to use EIA fuel consumption projections from October of the preceding calendar year when setting the final RVOs, even in cases where EPA misses its November 30 deadline for publishing the final RVOs. In reality, the statute is silent as to the date of the EIA fuel consumption projections that should be used by EPA in the event the November 30 deadline is missed. Common sense and the principles of good rulemaking dictate that the final RVOs should be based on the latest available fuel consumption projections from EIA.1

1 EPA and Office of Management & Budget (OMB) information quality guidance documents recommend that rulemaking activities and supporting analysis be based on the most current available data and information.

425 Third Street, SW, Suite 1150, Washington, DC 20024 • 202.289.3835 • www.EthanolRFA.org

Indeed, the 2013 final RVOs published in August 2013 were based on EIA projections from May 2013.2 It is presumed that these were the most current projections available to the Agency at the time it was completing the final rule for 2013 RVOs. Notably, API did not object to the use of May 2013 EIA projections in the setting of the final 2013 RVOs (probably because the May 2013 EIA data projected lower gasoline and diesel consumption than the October 2012 projections, thus requiring lower levels of renewable fuel blending).

Since the inception of the RFS2, EPA has always relied on the most recent EIA projections to set annual RVOs. In the March 2010 final rule for RFS2, EPA clearly stated that “[t]he projected volumes of gasoline and diesel used to calculate the standards will continue to be provided by EIA’s Short-Term Energy Outlook (STEO).”3 The STEO reports are released monthly, meaning EPA will always rely on the most recent month’s projections of fuel consumption when finalizing the RVOs. API has never objected to this. In fact, API itself relied on the most recent STEO projections when commenting to EPA on the proposed 2014 RVOs. In their comments, API and the American Fuel and Petrochemical Manufacturers (AFPM) provided a recommendation for the 2014 RVO percentage that was based on December 2013 STEO fuel consumption data (i.e., the latest available at the time).4

API’s hypocrisy is further underscored by the fact that the organization has repeatedly requested that EPA base its cellulosic biofuel RVO on the most current available production data, not on months-old projections from EIA. According to API and AFPM, “We recommend that EPA set the cellulosic standard at an annualized volume based on the most recent 3 months of cellulosic production.”5 In essence, API wants EPA to arbitrarily use whichever EIA projections work to the refiners’ favor.

Finally, API’s letter again includes references to oil industry-funded studies that have been thoroughly discredited by scientists in government and academia. The Coordinating Research Council (CRC) testing cited by API was found by the Department of Energy (DOE) to be “significantly flawed.” DOE stated that “…the choice of test engines, test cycle, limited fuel selection, and failure criteria of the CRC program resulted in unreliable and incomplete data, which severely limits the utility of the study.”6 Similarly, prominent Iowa State University (ISU) economists uncovered numerous flaws with the NERA Economic Consulting study referenced by API. The ISU economists wrote, “…the NERA compliance strategy is not feasible unless

2 Letter from A. Michael Schaal, EIA, to Christopher Grundler Director, Office of Transportation and Air Quality, EPA, May 8, 2013. Available at www.regulations.gov; EPA-HQ-OAR-2012-0548-0152.
3 75 Fed. Reg. 14716 (March 26, 2010)
4 API and AFPM comments in response to 2014 Standards for the Renewable Fuel Standard Program, Proposed Rule, at 33. January 28, 2014. Available at http://www.api.org/~/media/Files/News/2014/14- January/API-AFPM-2014-RFS-Comments-012814.pdf

5 Oil & Gas Journal. API, AFPM urge EPA to consider actual production in biofuel quotas. Available at:

http://www.ogj.com/articles/print/volume-112/issue-2b/general-interest/api-afpm-urge-epa-to-consider-actual- production-in-biofuel-quotas.html (emphasis added). Feb. 17, 2014.
6 Davis, Patrick B. May 16, 2012. Getting it Right: Accurate Testing and Assessments Critical to Deploying the Next Generation of Auto Fuels. Available at: http://energy.gov/articles/getting-it-right-accurate-testing-and- assessments-critical-deploying-next-generation-auto

425 Third Street, SW, Suite 1150, Washington, DC 20024 • 202.289.3835 • www.EthanolRFA.org

obligated parties formed an illegal cartel to reduce sales to boost prices.”7 In a separate paper, the economists concluded that “…no company would find it profitable to reduce gasoline sales in the United States…”, which is the primary response of refiners to the RFS assumed in the NERA study.8

In closing, we urge you to reject the request from API to use outdated fuel consumption projections when finalizing the 2014 RVOs. We strongly agree with you that EPA should use “the most up-to-date data”9 on fuel consumption and we believe doing so would be perfectly consistent with previous RVO rulemakings.

Thank you for your consideration of our response to API and please do not hesitate to contact me should you require further information.

Sincerely

Bob Dinneen President & CEO

cc:
The Honorable John Podesta, Counselor to the President

Howard Shelanski, Administrator, Office of Information and Regulatory Affairs

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,

7 Bruce A. Babcock and Sebastien Pouliot, Iowa State University Center for Agricultural and Rural Development, RFS Compliance: Death Spiral or Investment in E85?, at 4. (Nov. 2013) Available at http://www.card.iastate.edu/publications/dbs/pdffiles/13pb16.pdf .
8 Bruce A. Babcock, Iowa State University Center for Agricultural and Rural Development,

RFS Compliance Costs and Incentives to Invest in Ethanol Infrastructure, at 16 (Sept. 2013). Available at www.card.iastate.edu/policy_briefs/display.aspx?id=1191 .
9 Hagstrom, Jerry. AgWeek. “McCarthy: RFS will reflect most recent data.” April 10, 2014.

425 Third Street, SW, Suite 1150, Washington, DC 20024 • 202.289.3835 • www.EthanolRFA.org

May 1, 2014
The Honorable Gina McCarthy Administrator
U.S. Environmental Protection Agency 1200
Pennsylvania Avenue, NW Washington, D.C. 20460
RE: Response to American Petroleum Institute
(API) letter (April 29, 2014)