[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
RENEWABLE FUELS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON RURAL ENTERPRISES,
AGRICULTURE, AND TECHNOLOGY
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, JULY 24, 2001
__________
Serial No. 107-21
__________
Printed for the use of the Committee on Small Business
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74-836 PS WASHINGTON : 2001
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York WILLIAM PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio DONNA M. CHRISTIAN-CHRISTENSEN,
PATRICK J. TOOMEY, Pennsylvania Virgin Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN THUNE, South Dakota TOM UDALL, New Mexico
MIKE PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLY MOORE CAPITO, West Virginia MIKE ROSS, Arizona
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
------
Subcommittee on Rural Enterprises, Agriculture, and Technology
JOHN THUNE, South Dakota, Chairman
ROSCOE BARTLETT, Maryland TOM UDALL, New Mexico
FELIX GRUCCI, New York DONNA M. CHRISTIAN-CHRISTENSEN,
MIKE PENCE, Indiana Virgin Islands
BILL SHUSTER, Pennsylvania DAVID D. PHELPS, Illinois
BRAD CARSON, Oklahoma
Brad Close, Professional Staff
C O N T E N T S
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Page
Hearing held on July 24, 2001.................................... 1
Witnesses
Dinneen, Bob, Vice President, Renewable Fuels Association........ 4
Donaldson, Guy, President, Pennsylvania Farm Bureau.............. 7
Heck, Ron, American Soybean Association.......................... 8
Abnee, Conn, Executive Director, Geothermal Heat Pump Consortium. 10
Smith, Megan, Co-Director, American Bioenergy Association........ 12
APPENDIX
Opening statements: Thune, Hon. John............................. 35
Prepared statements:
Dinneen, Bob................................................. 37
Donaldson, Guy............................................... 45
Heck, Ron.................................................... 49
Abnee, Conn.................................................. 52
Smith, Megan................................................. 57
HEARING ON RENEWABLE FUELS
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TUESDAY, JULY 24, 2001
House of Representatives,
Subcommittee on Rural Enterprises,
Agriculture, and Technology,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:15 a.m., in
room 2360 Rayburn House Office Building, Hon. John R. Thune
[chairman of the Subcommittee] presiding.
Chairman Thune. Good morning. This hearing will come to
order. I apologize for my tardiness here. We have got a little
subject in another committee I am working on, called the farm
bill, which is in the works and something we only do every 5
years. So we are trying to get that squared away before the end
of next week, and we hope to have it marked up.
Today's hearing has been called to discuss the issue of
renewable energy and its importance in solving our Nation's
energy crisis. The subcommittee will explore the ways in which
Congress can help to create a more productive environment for
the use of renewable fuels.
Renewable fuels play a productive role in improving our
national energy security by providing stable, homegrown
renewable energy supplies. Renewable energy can take many forms
from ethanol and biodiesel to wind and hydroelectric power, to
power generated by the Earth and sun.
To promote the increased use and availability of renewable
fuels, I have introduced two bills to make it easier for
producers to market renewable fuels.
The first bill, H.R. 2423, the Renewable Fuels for Energy
Security Act of 2001 calls for renewable fuels such as ethanol
and biodiesel to play a larger role in America's transportation
fuel market. The bill sets a national fuel standard, not a
gallon-by-gallon mandate, and will not force a level of
compliance in places where compliance may be difficult.
It is important to note that this bill does not attempt to
alter the Clean Air Act of 1990. The Clean Air Act mandates the
use of renewable fuels and requires gasoline to contain
cleaner-burning additives, called fuel oxygenates, primarily
ethanol or MTBE, a methanol-based additive which has since been
found to be harmful to groundwater. With MTBE now prohibited in
11 States and probably more in the near future, ethanol and
biodiesel are the most viable options for abiding by the
mandates of the Clean Air Act.
To enhance national security and improve the quality of our
air, H.R. 2423 gradually increases the market share for
renewable fuels to 2 percent by 2008, 3 percent by 2011 and 5
percent by 2016.
The United States Department of Agriculture estimates that
for every gallon of ethanol produced domestically, we displace
7 gallons of imported oil. Today, ethanol is estimated to
reduce our demand for foreign imported oil by 98,000 barrels
per day. A 3 percent market share for ethanol and biodiesel
would displace about 9 billion gallons of gasoline annually or
between 500,000 and 600,000 barrels of crude oil a day, the
amount we now import from Iraq.
To help promote the use of ethanol as a renewable fuel, I
have introduced H.R. 1636, which would make ethanol
cooperatives eligible for the current small producer ethanol
tax credit. Under current law, a small ethanol producer is
eligible for an income tax credit of 10 cents per gallon, up to
15 million gallons of production. H.R. 1636 expands eligibility
for the credit to producers whose annual ethanol production
capacity is below 60 million gallons.
Current trends in South Dakota indicate that co-ops are
building larger ethanol plants with production capacities of 40
to 60 million gallons. Through this tax credit, a co-op that
produces 15 million gallons could pass along $1.5 million to
its members.
The use of renewable energy sources is crucial to building
a stronger domestic energy policy and will provide a positive
economic impact to many rural areas.
I thank the witnesses for attending today's hearing and
very much look forward to your testimony.
At this point, I will yield to the gentleman from New
Mexico, the ranking member, Mr. Udall.
Mr. Udall. Thank you, Mr. Thune. At the outset, I want to
thank you, Mr. Chairman, for holding this hearing today on the
topic of renewable fuels and renewable energy policy.
Whether we are talking about rising gas prices or
skyrocketing electricity costs, the problem is proving to be an
almost crushing burden on small business owners. Statistics
during the most recent set of rolling blackouts in California,
in May of this past year, show that small businesses lost an
average of $5,000 to $25,000 per day during that period. I
think we can all three agree that the United States must
develop a national energy policy that is mindful of not only
the needs of the environment and the realities of future energy
supplies and demands, but also that of small businesses.
As a Washington Post editorial put it, it may now be
possible to discuss energy policy in a calmer way and that
should lead to the acceptance of a principle the administration
initially neglected, that the need to expand supply to keep up
with population and economic growth has to be balanced with the
needs of the environment.
Today's hearing focuses on the twin issues of developing
renewable energy sources and the necessity for energy
conservation. Renewable energy comes in a whole host of forms
including ethanol, wind, geothermal, solar and biomass. To this
end, small businesses play a key role in the production,
marketing, conversion and implementation of renewable fuels in
their everyday use.
Unfortunately, the administration's fiscal year 2002 budget
contains several cuts to key energy efficiency and renewable
programs, which makes no sense at a time when we have to
properly plan for our country's energy future. For example,
funding for renewable and alternative energy sources, solar
research funding, geothermal, hydrogen and wind research
programs have all been cut in the administration's budget.
Despite these cuts, the Appropriations Committee did restore
some funds to renewable programs in the fiscal year 2002 energy
and water development funding bill.
Instead of pushing for renewable and alternative energy
sources, the administration has called for the construction of
new power plants over the next 20 years, as well as nearly
doubling coal production, more funding for nuclear energy and
increased oil exploration and production. Should the
administration continue to endorse an energy policy that
focuses more on development and less on renewable energy and
conservation, I am afraid that this argument could perpetuate
an economic and/or national security crisis for our country.
There are several bills in the Congress that focus on
renewable energy in one form or another. I have introduced the
Small Business and Farm Energy Emergency Relief Act of 2001. My
legislation would provide emergency relief through affordable,
low-interest Small BusinessAdministration disaster loans and
USDA emergency loans to small businesses and small agriculture
producers adversely affected by significant increases in the price of
heating oil, propane, kerosene or electricity. One component of my
legislation would allow small businesses to use these loans as capital
to convert their systems from using heating oil or electricity to those
using renewable or alternative energy sources such as fuel cells or
wind energy.
Today's energy and environmental challenges call for a new
and expanded approach to help address all of these concerns. We
need an energy policy that will help fix our short-term energy
needs as well as prepare us for any long-term energy crises we
may face; and I believe that today's hearing is a start in
helping us tackle this challenge.
I hope the information obtained at this hearing will serve
as an opportunity to push for a national energy policy and can
be supported by small businesses, consumers and industry alike.
And I yield back to Mr. Thune.
Thank you.
Chairman Thune. The Chair thanks the gentleman from New
Mexico for that statement; and at this time I would also
welcome to the panel today the gentleman from Pennsylvania, Mr.
Shuster, and the gentleman from Illinois, Mr. Phelps, both of
whom care a lot about this subject.
Before we begin receiving testimony from the witnesses, I
want to remind everyone that we would like each witness to keep
their oral testimony to 5 minutes, and in front of you on the
table you can see a little box that will let you know when your
time is up. When it lights up yellow, you will know you have 1
minute remaining, and when 5 minutes have expired, a red light
will appear. Once the red light is on, the Committee would
appreciate if you could begin wrapping up your testimony as
soon as you are comfortable doing that.
So we will begin by introducing our first witness who is
Mr. Robert Dinneen, and he is Vice President of the Renewable
Fuels Association.
So, Mr. Dinneen, welcome to the panel today and we look
forward to your testimony.
STATEMENT OF ROBERT DINNEEN, VICE PRESIDENT, RENEWABLE FUELS
ASSOCIATION
Mr. Dinneen. Thank you, Mr. Chairman and members of the
committee. I want to thank you for the opportunity to be here
today to provide comments on the role of renewable fuels such
as ethanol in our Nation's energy policy.
As you know, small businesses have a prominent role in the
production and the marketing of fuel ethanol and, thus, will be
critical to developing a sustainable energy policy for the
future. Thus, I commend you for convening this hearing and for
your long-standing support for farmers, for value-added
agriculture and for ethanol, Mr. Chairman.
The RFA is the national trade association for the domestic
ethanol industry. We represent 56 ethanol production facilities
operating in 20 different States across the country that, this
year, are going to produce over 2 billion gallons of fuel
ethanol. Our industry is growing at an unprecedented rate,
particularly among farmer-owned cooperatives, the fastest
growing segment of our industry and an example of small
businesses providing jobs and economic growth throughout rural
America.
Mr. Chairman, there are many benefits of fuel ethanol I
would like to discuss today, including the positive impacts on
the environment and consumer gasoline prices, but in the
limited time that I have, I want to focus on the specific
benefits to small businesses which are often overlooked in the
broader public debates about energy and air quality.
First, the Federal ethanol program has created the most
significant value-added market for farmers, perhaps the most
significant small businesses across the country. As the third
largest use of corn, behind feed and exports, ethanol
production utilizes nearly 7 percent of the U.S. corn crop or
over 600 million bushels of corn, adding $4.5 billion in farm
revenue annually.
USDA has determined that ethanol production adds 25 to 30
cents to each bushel of grain. According to a Midwestern
Governors' Conference report that was completed last year, the
economic impact of the demand for ethanol boosts total
employment by over 200,000 jobs, increases State tax receipts,
improves the U.S. balance of trade by $2 billion and results in
$3.6 billion in net savings to the Federal Treasury.
That is right, the reduced farm program costs and increased
tax revenue attributable to ethanol results in $3.6 billion in
savings to the Federal Government. In other words, for every
dollar invested in this program, $7 is returned to the Federal
Government.
Second, the Federal ethanol program has been good for small
independent gasoline marketers, those mom-and-pop operations
that do not refine gasolines, do not drill for oil and have no
overseas investments to protect. They are the foundation of
ethanol marketing in this country. Years ago they saw the
potential of ethanol to provide octane and volume to the
gasoline pool, giving them an important tool to compete
effectively with their much larger, integrated refinery
suppliers.
Consider this statement by the Society of Independent
Gasoline Marketers, which represents those small businesses,
quote: ``the tax benefits afforded ethanol blended fuels
constitute an important means by which independent marketers
reduce their cost for product, enhancing independent marketers'
ability to price-compete with their economically more powerful
integrated competitors. Such price competition has consistently
restrained retail market prices and thereby generated
substantial benefits for consumers of gasoline.''.
Mr. Chairman, we are more reliant than ever before on
foreign nations to supply our insatiable and growing appetite
for oil, importing 54 percent of our petroleum. At the same
time, U.S. production has fallen to the lowest point in 30
years. There has not been an oil refinery built in this country
in 25 years, but there have been 56 ethanol refineries built
during that time, stimulating rural economies, creating jobs
and improving air quality.
In addition to the over 2 billion gallons of current
ethanol production capacity, 34 existing ethanol plants are
undergoing expansions and 11 new plants are actually under
construction today.
Let's just take one State for an example; I don't know,
South Dakota. There are three ethanol plants in South Dakota
today, producing 31 million gallons. But there are another
three plants under construction with a planned production
capacity of 95 million gallons, and there are five others that
have been proposed that will have 125 million gallons of
production capacity if they are built. All but one of these new
plants are farmer-owned cooperatives.
The ethanol industry expects to have an additional 300
million gallons of production capacity on line by the end of
this year and a total of 3 billion gallons of production
capacity by the end of 2003. Now is the time to extend this
important program. For plants being built today there will be
less than 4 years to recoup the investment.
President Bush recommended extending the Federal ethanol
program in his energy recommendations to the Congress, and I
would urge each of you to strongly consider such action as
energy legislation is contemplated by the Congress in the next
several months.
Second, as you know, Mr. Chairman, the existing small
producer tax credit doesn't work for those smaller farmer-owned
cooperatives that it was intended to help. I commend your
efforts toaddress this issue through your H.R. 1636. We support
it, and we look forward to working with you to assure its passage this
year. Indeed, similar legislation has already passed the Senate three
different times and was just not included in a final piece of
legislation. We hope with your efforts, and with your commitment and
with our help, we will be able to get it done this year.
Finally, as the Congress contemplates a comprehensive
energy policy, renewable, domestically produced fuels can and
should play a larger role in meeting our Nation's energy needs.
Mr. Chairman, your bill, H.R. 2423, the Renewable Fuels for
Energy Security Act of 2001, which would create a national
renewable fuel standard, is the kind of progressive legislation
that must be included in national energy legislation. When
fully implemented, this program would reduce the need for more
than 600,000 barrels of oil. That is roughly twice the energy
we import each day from Iraq.
America has the resources to address our long-term energy
needs without having to rely on the benevolence of OPEC. We
should be investing here at home, not overseas, to build a
sustainable energy future for our children. America's farmers
and small businesses are willing and able to help us with our
energy needs.
Again, Mr. Chairman, I want to thank you for holding this
important hearing, and I want to add my voice to those that
have applauded your efforts and those of others that have
helped to promote the increased production and use of fuel
ethanol. You have helped create a vitally important domestic
renewable energy resource. You can be proud of your
accomplishment, and we certainly thank you for your commitment
to value-added agriculture, small businesses and a sustainable
energy future.
I thank you very much and shall be happy to take your
questions.
[Mr. Dinneen's statement may be found in the appendix.]
Chairman Thune. Thank you, Mr. Dinneen, and we will get a
chance to ask some questions in a moment. But at this time I
would yield to my colleague from Pennsylvania, Mr. Shuster, to
introduce our second witness.
Mr. Shuster. Thank you, Mr. Chairman, for giving me the
opportunity this morning to introduce Guy Donaldson. Guy is the
President of the Pennsylvania Farm Bureau. Although Guy lives
in Gettysburg, Pennsylvania, it is a neighbor to the east of
the Ninth Congressional District which I represent. He clearly
understands the needs of the Pennsylvania farmers, and I am
pleased you have asked him here today to testify.
Guy's been a fruit grower all his working life, and in
fact, today he and his wife Betty are in a partnership with
their children. They farm over 550 acres of apples, peaches,
cherries and vegetables. In addition to farming, the family
also operates a retail farm market from May to October.
Guy has been a long-time leader in farm organizations. He
has served as the President of the Adams County Farmers
Association, was a director of the Pennsylvania Farm Bureau
State board of directors, Chairman of the Pennsylvania Farm
Bureau Growth Study Committee and was elected to two 3-year
terms representing the agricultural community on Penn State's
board of trustees.
If that hasn't been enough, Guy is a member of the Adams
County Fruit Association, on the board of directors of the
Mount Orchard Cooperative and a member of the Knouse Foods
Cooperative.
As the current President of the Pennsylvania Farm Bureau, I
look forward to hearing his testimony today.
Thank you, Mr. Donaldson, for being here. I think it is
extremely important that people such as yourself are here
before Congress testifying. You are out there working the
fields, and it is important we hear your testimony.
Thank you, Mr. Chairman.
Chairman Thune. Mr. Donaldson, please proceed.
Mr. Donaldson. Good morning, Mr. Chairman. Congressman
Shuster sort of stole my thunder in the opening remarks there,
but that is okay. Let me move on down the page here a bit.
As you know, times are tough in farm country and commodity
prices across the board have been too low for too long. As an
industry, we must expand the markets for the crops that we
grow. Congress needs to pass trade promotion authority
legislation for one thing, and American farmers and ranchers
need open and fair access to foreign markets and to those
consumers anxious for the safe, abundant and affordable food
that we produce in this country.
Farm Bureau also supports the use of commodities to produce
goods other than food. Nothing has more potential in this area
than the use of agriculture commodities to produce energy. The
potential for our farmers, our consumers, our environment, our
economy and our national security is staggering. We are close
to realizing this potential and we simply, gentlemen, cannot
miss this opportunity.
Mr. Chairman, Farm Bureau strongly supports your
legislation, H.R. 2423, the Renewable Fuels for Energy Security
Act of 2001. This is the type of policy that must be
implemented to bring prosperity back to rural America and
energy security back to the United States.
According to a report from the Midwestern Governors'
Association, the economic impact of the demand for ethanol adds
$4.5 billion to farm revenue every year; Produces more than
195,000 jobs, mostly in rural areas; Replaces $2 billion of
imported oil, thus improving our balance of trade; and Saves
the Federal Government, as was mentioned before, $3.6 billion.
But the point most important to our membership is that the
current use of 600 million bushels of corn for ethanol
production adds another 25 to 30 cents to the price a farmer
receives for a bushel of corn. With the low price of corn, this
market is vital and it is important that it expands.
H.R. 2423 requires that by 2016, 5 percent of the Nation's
fuel contain renewable energy. It will provide an income to our
corn farmers from the marketplace and not the Federal
Government. And both farmers and government should work toward
that goal.
But it is not only corn producers who benefit. The use of
soybean-based biodiesel will receive a tremendous boost as an
important part of our energy mix.
Other commodities will find opportunities under H.R. 2423.
Currently there are 26 different feedstocks used in this
country to produce ethanol. Think of that, 26. With the
exponential growth in technology and the ethanol industry, we
can anticipate the increased use of those feedstocks and the
use of cellulose feedstocks such as corn stover, rice straw,
and waste from processing of agriculture products.
We all gain when we better utilize all the production from
our farms and ranches. The technology to use these sources is
now in the research lab. With a new demand created for biobased
energy, that technology continues to develop and to become
economically viable.
We should also look at other energy production that can
occur on farms and ranches. There is a great deal of interest
among our members in siting of wind and solar generators. Some
are weighing the economic return on micro-hydro generation. One
area that holds promise as a source of energy and a solution to
a problem is the capture of methane from the manure that we
produce in this country and that is abundant. Our livestock
producers are increasingly concernedas to how they will be able
to comply with restrictions on the storage and disposal of animal
waste.
We need research in the development of farm-sized
facilities that can store manure and capture the methane
therein; and beyond that, we should look at taking that manure
after the methane is captured and using it as a fuel in the
generation of electricity to provide heat.
Mr. Chairman, farmers and ranchers have long provided safe
and affordable food to this Nation. We will continue to do so.
But as we have produced such an abundance of food, agriculture
needs to provide energy, as well, when we can. But it will take
time to build this industry to the point where that production
becomes a major component of our energy mix.
Some in Congress question a mandate for renewable fuels.
They believe that this is just another subsidy for farmers. Mr.
Chairman, we spend billions of dollars every year to protect
our petroleum sources in the Middle East. American servicemen
and women have lost their lives in a war against Iraq, and we
today import more energy from Iraq than we produce in this
country from ethanol. Our servicemen and women are still
risking their lives in an area where we must have a military
presence. Let's put our faith not in the benevolence of Saddam
Hussein, but in America's farmers and ranchers.
Mr. Chairman, we stand ready to work with you to build a
domestically based renewable energy industry in America. We
should, and we must; and I thank you, sir, for having the
opportunity to testify.
Chairman Thune. Thank you, Mr. Donaldson.
[Mr. Donaldson's statement may be found in the appendix.]
Chairman Thune. Next the subcommittee will hear from Mr.
Ron Heck, who is a soybean and corn farmer from Perry, Iowa,
our neighbor State.
Where exactly is Perry in Iowa?
Mr. Heck. Central Iowa, 30 miles north of Des Moines.
Chairman Thune. It is too far away from South Dakota for an
exit then, I suppose; but anyway Mr. Heck is here on behalf of
the American Soybean Association. We welcome you and look
forward to hearing your testimony.
STATEMENT OF RON HECK ON BEHALF OF THE AMERICAN SOYBEAN
ASSOCIATION
Mr. Heck. Thank you, Mr. Chairman and members of the
subcommittee. I appreciate the opportunity to come here today
and talk with you regarding the need for a national
comprehensive energy policy that includes a meaningful
renewable fuel component for biodiesel and ethanol.
Farmers are small business owners and much of current
biodiesel production is by small businesses and cooperatives.
There are two farmer cooperatives in Iowa that are producing
biodiesel now.
These are times when the prices for our commodities are
very low and the prices of our energy input costs are very
high. This causes great concern across the countryside, and
producers are reviewing options for both reducing input costs
and also opportunities for increasing prices of what we grow.
While in the short term there is little we can do to
completely alleviate this situation, the American Soybean
Association believes the development of a comprehensive
national energy plan would help avoid these crisis situations
in the future. We feel strongly that a national energy plan
should include a renewable fuels component and include both
biodiesel and ethanol, and that is why we strongly support the
renewable energy legislation you, Chairman Thune, introduced
last month, H.R. 2423. We commend you for this bold and
innovative step in moving our country to homegrown energy
sources.
As you know, Mr. Chairman, for the last 8 to 10 years, U.S.
soybean growers have invested in the research, development and
commercialization of biodiesel. Biodiesel is a cleaner burning
fuel produced from renewable resources such as soybean oil. It
contains no petroleum, but can easily be blended with
petroleum. Biodiesel is typically blended at the 20 percent
level with diesel or at 2 percent or lower levels.
It can be used in compressed ignition diesel engines with
little or no modifications. Biodiesel in its neat or pure form
is biodegradable and nontoxic and is the first and only
alternative fuel to meet EPA's Tier I and Tier II health
effects testing standards. Biodiesel has the highest BTU
content of any alternative fuel similar to Number 1 diesel.
This year EPA finalized regulations that require a
reduction in sulfur content of highway diesel fuel of over 97
percent from its current level of 500 parts per million.
Current industry methods to decrease sulfur in diesel also
negatively impact the fuel's lubricity and, therefore, engine
life. Biodiesel has no sulfur or aromatics, and tests have
documented its ability to increase fuel lubricity significantly
when blended with petroleum diesel fuel even at blends as low
as 1 percent.
According to Department of Energy tests, biodiesel has an
80 percent life cycle reduction of CO2 compared to
petroleum diesel. This means that it offers the best
opportunity for greenhouse gas reduction of any heavy duty
vehicle and equipment application. Biodiesel also has the
highest energy balance of any alternative fuel, which means
that it offers some of the most promising benefits for
conservation efforts. Additionally, biodiesel offers
significant reductions in virtually all regulated emissions and
a 90 percent reduction in EPA-targeted air toxics.
With the chairman's permission, I will include additional
information regarding the environmental benefits of biodiesel
for the record.
Soybean growers began to invest in biodiesel almost a
decade ago with our own money, not because we wanted to have
our own ethanol. Instead, we were driven by the economics in
the soybean industry.
Soybeans are widely produced for the protein source in the
soybean meal. It is the plant protein of choice in the pork and
poultry industries, leaving soybean oil as a valuable but too
abundant coproduct. Because of large supplies of vegetable oils
in the world market, we have a surplus of soybean oil, which
depresses the price of the oil and, thus, the whole soybean.
While biodiesel offers environmental energy security and
economic development benefits, it is not competitive in the
U.S. on a pure cost comparison. Public support will be
necessary to help the industry develop.
Our culture and our policies are focused on petroleum
products, most of which are imported. I did not want to imply
that soybean growers are opposed in any way to the use of
petroleum products. In fact, agriculture is a major user of
petroleum-based products. However, I would make the challenge
that our country needs to have an aggressive energy policy that
includes clean, renewable fuels as well as significant domestic
production of both oil and gas.
The current biodiesel market is growing rapidly from
500,000 2 years ago to 5 million gallons last year, with an
expected target of 25 million gallons in 2001. Just last week
the USDA released a study that shows biodiesel production can
have significant economic benefits for producers, rural
consumers and the overall U.S. trade balance.
The study shows an increase of 200 million gallons of
biodiesel per year would boost total crop cash receipts by $5.2
billion, cumulative, by 2010, resulting in an average net farm
income increase of $300 million per year. The price for a
bushel of soybeans would rise by as much as 17 cents a bushel
and also increase more than 13,000 jobs in the production and
distribution. New jobs are created in the farm sector, food
processing, manufacturing and service.
Just this weekend, our industry, along with the ethanol
industry, learned the results of an economic analysis conducted
by John Urbanchuk of AUS consultants. The report shows that if
your bill, Mr. Chairman, is enacted, soybean prices and farm
income will increase and result in direct benefits to American
consumers. We will be happy to share this report with you when
the details become more available.
We think the timing is right for these major proposals to
promote the use of biodiesel. We look forward to working with
you on this agenda and other issues of interest.
I will answer questions at the appropriate time. Thank you.
Chairman Thune. Thank you, Mr. Heck.
[Mr. Heck's statement may be found in the appendix.]
Chairman Thune. Next, the Subcommittee will hear from Mr.
Conn Abnee, who is the Executive Director of the Geothermal
Heat Pump Consortium.
Mr. Abnee, welcome.
STATEMENT OF CONN ABNEE, EXECUTIVE DIRECTOR, GEOTHERMAL HEAT
PUMP CONSORTIUM
Mr. Abnee. Thank you. Mr. Chairman, members of the
subcommittee, let me thank you for the opportunity to testify
this morning. My name is Conn Abnee. I am the Executive
Director of the Geothermal Heat Pump Consortium. The consortium
is based in DC, was established in 1994 by the Department of
Energy and the Environmental Protection Agency to promote the
use of energy-efficient and environmentally friendly heating
and cooling technology. We are a nonprofit organization.
Geothermal heat pump technology is a renewable technology
that uses the relative constant temperature of the Earth below
the frost line to heat and cool buildings and heat water with a
savings of 25 to 40 percent for the owner of the building, home
or institutional facility. It is the world's most efficient way
to heat a commercial or an institutional building.
Geothermal heat pumps are not standard or conventional heat
pumps nor do they use the geothermal resources from deep
reservoirs. Rather, geothermal heat pumps take advantage of the
constant temperature of the subsurface Earth to provide an
energy-efficient and environmentally friendly means to heat and
cool buildings and homes.
Geothermal heat pump technology relies on the fact that the
Earth remains at a constant temperature throughout the year. It
is warmer in the winter than the outside air; and cooler in the
summer than the outside air.
In winter, geothermal systems bring the Earth's natural
warmth up to a building through polyethylene heat exchange
piping buried in the ground, then transfers it to each room of
your home or your building via heat pump. In the summer, to
cool the house, this process is simply reversed. The system can
work in any climate, any geographical location, coast to coast,
border to border.
For example, in South Dakota, the St. Thomas Catholic
Church in DeSmet saw a dramatic reduction in energy costs after
installing a geothermal system. Its energy bill dropped from
$13,900 a year to only $2,000 a year after the installation of
geothermal heat pumps.
In Wilmot, an addition to a school uses geothermal heat
pumps; the original structure uses a conventional system. The
electric bill for the older half of that building was $18,000
just for heating. The electric bill for the new half of the
building was only $3,100, and that includes heating and
cooling.
Mr. Chairman, the General Accounting Office has studied
geothermal heat pumps and concluded in a report that the
Federal Government has the responsibility and the authority to
promote geothermal heat pump technology as a tool to meet our
national energy goals. The EPA has recognized the technology
for its efficiency, and its ability to reduce greenhouse gas
emissions.
President Bush has installed a system in his new home in
Waco, Texas--right outside of Waco.
Here at the consortium, we are working to jump-start the
technology. Let me mention those now: research and development,
demonstration programs across the country, training for
designers and installers, and implementing a design assistance
program where the engineering community is not aware of our
technology.
Mr. Chairman, this technology can make a real contribution
now to energy savings and energy efficiency in both urban and
rural America. Currently, we are not included in the national
energy policy, but let me offer our help to working with the
Small Business Administration to help overcome what you earlier
mentioned were high energy costs to small businesses across the
country.
I appreciate the opportunity to testify this morning and
tell you about the technology, and will welcome any questions
that the subcommittee might have.
Thank you very much.
Chairman Thune. Thank you Mr. Abnee.
[Mr. Abnee's statement may be found in the appendix.]
Chairman Thune. And finally we will turn to our last
witness, who is Megan Smith, and she is Codirector of the
American Bioenergy Association.
Ms. Smith, thank you for being here.
STATEMENT OF MEGAN SMITH, CODIRECTOR, THE AMERICAN BIOENERGY
ASSOCIATION
Ms. Smith. Mr. Chairman and distinguished members of the
Subcommittee, thank you for allowing me this opportunity to
testify on behalf of the members of The American Bioenergy
Association of which I am Codirector.
The United States is at a critical time for the development
of alternative energy sources, particularly for transportation,
where the majority of our precious oil is used. Our dependence
on foreign oil has put our economy and national security at
great risk. These two issues--increased energy demand and the
need for reducing our dependency on foreign oil--have put us at
a crossroads today, where creating a win-win situation is more
than just possible.
Low-value, high-quantity cellulosic biomass is widely
available throughout the U.S. and is found in virtually every
State, particularly in rural communities. However, any plan
regarding the use of cellulosic biomass for conversion to
ethanol is going to take a large commitment on the part of key
decision-makers. At the same time, an increased use of corn for
ethanol production will also require a large amount of support,
especially to reach the production goalscontained in various
legislation now before Congress.
Biomass is any matter composed of the two sugars, cellulose
and hemicellulose, and lignin, which is the high-energy glue
holding these two sugar chains together. Examples of biomass
include wood waste, agriculture residues, fast-growing grasses
and trees and the paper component of solid waste. Low-value
biomass can be converted to several high-value products such as
electricity, ethanol and chemicals. Markets will determine
which of these three is the highest value in that particular
situation, and industry will adapt these biorefineries
accordingly.
In using biomass as an energy resource, we are essentially
weaning ourselves from a hydrocarbon or oil economy and,
instead, creating a robust carbohydrate economy, or one relying
on sugars in the form of starch and cellulose.
The current corn-based ethanol industry converts to ethanol
only part of the available sugar in the corn plant, the
remainder being mostly cellulose. Industry's new, highly
efficient technology for bioethanol has shown conservative
estimates for energy efficiencies at four to one, that is, four
energy units and output compared to energy used during
production. This is largely due to the use of lignin's high-
energy content.
The world's first biomass ethanol plant with expected
start-up in 2002 will be located in Jennings, Louisiana, and
will use sugar cane bagasse as its feedstock. Other plants
under development include ones using waste feedstocks, such as
rice straw, sawmill waste and small diameter trees, which are
largely responsible for Western catastrophic fires.
Benefits of biomass ethanol include job creation with a job
multiplier for a 20-to-25-million-gallons-per-year ethanol
plant creating about 500 jobs, both direct and indirect. Most
importantly, these jobs are largely in the poor rural
communities of the U.S.
The area of biomass conversion to chemicals may provide the
largest market potential in the future. This November, Cargill
Dow will start up a plant that will make polylactic acid, or
PLA, from corn. From PLA ``beads,'' Cargill Dow will be able to
produce such products as carpet, clothing and plastic cups
which are all biodegradable and renewable.
Here is one such example. The material in this shirt was
about, 1 year ago, carbon dioxide in a farmer's cornfield. PLA
can greatly help to displace petroleum now used as feedstock
for these products.
The ABA applauds Congressman Bartlett's Bioenergy Act of
2001 which builds upon the Lugar-Udall biomass bill of last
year. The Bartlett bill will fill a void by doubling
authorization over a period of 5 years for biomass research
conducted by the Department of Energy. In addition, moneys are
authorized for the biorefinery concept developed by DOE.
Regarding the bills that would increase the ethanol market
by three to ten times the current market, ABA would like to
point out that no analysis above a threefold increase has yet
been carried out by USDA. The repercussions of a larger
increase than threefold on the corn community is, therefore,
unknown. We would like to point out also that the ABA supports
the inclusion in these bills of a leverage for biomass of 1.5
to 1, as contained in S. 670, the Daschle-Lugar legislation.
Thank you, Mr. Chairman and members of the subcommittee,
for allowing me to speak on behalf of the many benefits of
biomass conversion to energy and chemicals for a cleaner and
stronger nation for future generations to come.
Chairman Thune. Thank you, Ms. Smith, for that testimony.
And we are all trying to figure out who fits that shirt here.
Ms. Smith. You can each have one.
[Ms. Smith's statement may be found in the appendix.]
Chairman Thune. Let me also welcome to the committee Mr.
Carson from Oklahoma and Mr. Bartlett from Maryland. Do either
of you have comments you would care to make before we go to
questions?
All right.
I appreciate all your testimony. Obviously, this is an
issue which I think has great importance not only to
agriculture--which is obvious, I guess--but also in terms of
the impact that it has on our energy security as we move into
the future. And I really believe that the use of renewables and
providing incentives encouraging production and use of
renewable energy sources is going to be profoundly important in
making sure that we diversify our energy supplies as we move
into the future, and that is why I think hearings like this are
so important.
I guess one of the questions I would like to pose to the
panel is, what do you think is the greatest obstacle in terms
of increasing public acceptance and use of renewable fuels as a
legitimate energy source? I mean, are there things out there
that perhaps we are not doing in trying to educate and make the
public more aware of the value of these types of energy
sources?
Mr. Dinneen.
Mr. Dinneen. Mr. Chairman, I am not sure that there are
barriers out there to the public. I think every survey that has
ever been done of public attitudes towards renewable fuels
wants to see a great deal more ethanol, for example, used.
I know that the Sustainable Energy Coalition a year or so
ago had conducted a rather extensive voter poll to determine
the receptivity to the use of ethanol, and overwhelmingly,
about eight in ten wanted to see the increased use of ethanol
fuels.
I think the barriers, to the extent that they are there,
are that we don't necessarily sell to the public. We are
selling to oil refineries or refineries that are not in the
business of through-putting renewable fuel products. They are
in the business of through-putting hydrocarbons, and to the
extent that you are able to look at incentives that would
create the market pull for refiners to act in the public
interest, as opposed to their own self-interest, would be very
helpful.
That is why the legislation that you have proposed, which
would create a standard that would require the use of renewable
fuels in a very sound way, makes so much sense.
Chairman Thune. Does anybody else care to comment on that?
Mr. Abnee. With the geothermal heat pump technology, our
technology is known to be very efficient, very environmentally
friendly; but we are facing an awareness issue. We have less
than 1 percent of the marketplace for heating and cooling and
water-heating devices. Consequently, it is not an accepted
technology, and we are looking for an advantage, some way to
help us increase that awareness among the engineering and
architectural communities, so we can build awareness of this
technology now to provide an energy-efficient process for our
society. In schools, commercial buildings and for small
businesses across the country.
Chairman Thune. Go ahead, Mr. Heck.
Mr. Heck. Yes. Although I am here for biodiesel, I want to
point out the market acceptance of ethanol gasoline in Iowa is
very high; over half of our gasoline is sold with ethanol in
it. There is not significant resistance among consumers. And I
say that to highlight my second point, where it is an
infrastructure problem.
Our manufacturers are supposed to know that there will be a
market for their biofuels. After they are produced, will there
be regulations or resistance from the industry that is already
there? As I said in my testimony, we have a culture in our
society based on oil, and before you can make the investment to
venture into these wonderful products, there has to be some
assurance that there will be a market available for product
that is produced.
Chairman Thune. Ms. Smith.
Ms. Smith. I would agree with Mr. Dinneen that if left to
the oil companies, they probably won't be blending a whole lot
of ethanol; so something like a renewable fuel standard is
necessary, particularly if they get rid of the oxygenate
standard that is now in place.
Also, for biomass ethanol, incentives are needed early on
to stabilize the market and for when the people go in to get--
the entrepreneurs go in to get loans from the bank, they can
point to something that is already enforced in law or whatever.
Also, the DOE authorization, appropriations such as Mr.
Bartlett introduced about a month ago, will help stabilize
research dollars.
Chairman Thune. It just seems to me that part of it--and I
was asking the question, and you mentioned on geothermal--I
asked Mr. Udall--of course, he was much more knowledgeable on
the subject than I was.
But it was interesting for me to hear about the Catholic
church in DeSmet, too, because that is a technology I am not
familiar with. But there are many types of those technologies
out there that I think could really be useful in terms of
meeting our energy needs.
Let me ask, and I think in terms of Iowa, South Dakota, I
think we are about 50 percent, too, use of ethanol; but my
assumption is that that is not something that when you get out
of our part of the country, people are as well acquainted with.
Question for--I guess, for perhaps Mr. Dinneen.
One of the questions that is always raised with me when I
talk about ethanol--as you note in your testimony, we have a
number of plants that are coming on line--is, if we begin to
produce and we have the supply of ethanol to meet, for example,
California's demands, which, with the denial of the request for
a waiver from the Clean Air Act, will become a bigger market
for ethanol, getting it there, is the infrastructure in place?
Are we going to be able to supply the demand that exists, or
will exist, we hope, in the future for ethanol?
That is one of the questions that is often posed, and the
transportation of it and that sort of thing. What is your
response to that?
Mr. Dinneen. Well, there is absolutely the infrastructure
to get the product to wherever it needs to go.
Take California, for example. I mean, it is often suggested
that because ethanol is not shipped via pipeline today that
there is just no way to get all this product there. Well, that
argument sort of misses the fact that 90 percent of the MTBE
that is currently being used in California and polluting their
groundwater is imported. California is getting their MTBE from
Saudi Arabia and from the Gulf Coast. Well, there are no
pipelines that go from Saudi Arabia to California, frankly,
there are no pipelines that go from the Gulf Coast to
California.
The MTBE that is shipped to California today is shipped via
vessel. That is exactly the same way that ethanol will be
shipped to the State of California, by vessel. And Mr.
Chairman, because ethanol has twice the oxygen content of
MTBE--I like to say it is twice as good as MTBE--we only need
half as many vessels.
We actually in the past week have gotten letters from the
American Waterways Operators, which represent all the barge and
vessel operators across the country, that have said with no
reservation, there are absolutely enough vessels, enough
barges, to get the product to California. There are also
letters from Union Pacific and other railroads that say we can
ship product to California or the Northeast or wherever it
needs to go that way as well.
So there is absolutely no question in our minds or in the
minds of the industries that would actually move the product
that we will be able to get it there.
Chairman Thune. I yield to Mr. Udall.
Mr. Udall. Thank you, Mr. Thune.
My first question is for Ms. Smith, on this issue that you
mentioned in your testimony about using fuels from the forest.
As you are probably aware, we have had a huge buildup in the
West over the last 100 years--because of overgrazing and fire
suppression and clear-cutting, we have an overgrowth of smaller
trees, and we are seeing these catastrophic wildfires. And in
order to get the forest back in a healthy situation, we are
going to need to do some significant thinning of smaller trees,
12 inches in diameter and under; and you mention in your
testimony that one of the things that is needed--and you
highlight this, you say, ``If long-term reliable feedstock
contracts, at least 5 to 10 years, are not put in place,
biomass energy plans will not multiply anytime in the future in
great numbers that is enough to make a difference in the forest
fire abatement plan.''
What specifically are you talking about there that needs to
be done in order to grow this industry to the point where we
make a real impact?
Ms. Smith. I was talking about basically, the Forest
Service needs to put into place long-term feedstock contracts.
I am not sure they have. I think they are looking into that, if
they could--their legal department was looking in to see if
they could do that; but they have stewardship contracts which
are long term, but were looking to possibly expand that, so
they have the authority to do 5 to 10 years.
Without biomass, the biomass putting a plant in without
contracted feedstock supply is--you know, again, when they go
to their banks for loans, unless they have that in hand, it is
very difficult for them to get the loans that they need.
Mr. Udall. What we are really talking about is creating a
market for these plants and then allowing them to develop and
grow.
Ms. Smith. Right, it is a chicken-egg thing.
Mr. Udall. You talk about, on some of these renewable fuels
that they are carbohydrate-based versus carbon. I didn't hear
any of the panel do any comparisons of CO2
emissions. I mean, we are all very aware of this climate
change, global warming situation.
Are any of you aware of--what are the comparisons there in
terms of, if you are talking combustion between carbohydrate
versus carbon? And any of you.
Mr. Dinneen. Congressman Udall, Argonne National
Laboratories had done a comprehensive national analysis late
last fall in which they took a look at the greenhouse impacts
relative to gasoline to determine that there was a 12 to 19
percent reduction in greenhouse gases. Other studies have shown
higher levels of reductions. A previous DOE study had suggested
35 percent.
But there is just no question, because you are taking
carbon out of the atmosphere in the production of the crops,
that there is a cycle there that is very beneficial to the
environment.
One environmental group in California, after the President
had announced his decision on the California waiver, issued a
news release saying that that one decision was responsible for
taking 580,000 tons of carbon out of the air. So from the
standpoint of global warming, that one decision was incredibly
important.
But anything that is encouraging the increased production
and use of renewable fuels, like ethanol, biodiesel, whether it
is from crops that are being used today, like corn or the
cellulose and lignin that Megan Smith has talked about in her
testimony, is going to have tremendously positive greenhouse
gas benefits.
Mr. Abnee. Mr. Udall, I draw your attention to our
submitted testimony, on page 2, where we quote, ``Geothermal
heat pumps lower electricity demand by 1 kilowatt per ton of
capacity.''This would mean that a conventional, average-size
home would reduce the KW demand on that home by 3 KW. ``If 100,000
homes began using geothermal heat pumps, the United States would reduce
annual electric consumption by 799 million kilowatt hours and reduce
carbon dioxide emissions by 588,000 metric tons. Those numbers are
equal to converting 129,000 cars to zero-emission vehicles or planting
38.4 million trees.''
Mr. Heck. The Department of Energy study showed that
biodiesel reduces CO2 emissions by 80 percent
compared to petroleum diesel.
Ms. Smith. And for biomass, depending on how large you draw
the box, if you take a green field, say, with just grass
growing on it, and plant trees, you are going to absorb more
carbon. So it can be upwards of 80 to 90 percent for greenhouse
gas reduction.
Mr. Udall. Mr. Abnee, you talk about geothermal, and the
one geothermal project I am familiar with is up in my district
near Los Alamos National Laboratory, and they drill down 3
miles into the Earth and they hit what they call hot dry rock;
and the theory is to inject water, or something along that
line, that then takes advantage of the heat, and then transfer
it back up in order to generate power.
Is this the same technology you are talking about, more or
less?
Mr. Abnee. In theory, it is the same technology, but we
only use the top 150 to 300 feet of the Earth's surface, which
allows us to use this technology across our country. You don't
have to go to the hot reservoir to get the power production.
We are not generating power; we are only using the thermal
mass of the Earth to heat and cool commercially. It is a heat
transfer process.
Mr. Udall. And this hot dry rock phenomenon is also one
that could be very effective, I think, in terms of producing
power on a renewable basis; couldn't it?
Mr. Abnee. The hot dry rock process is very efficient in
producing power, but there again what our technology is--in
theory, we are using the same principles, but we are only using
the top surface of the Earth, bringing that technology to
everyone's use, not only in your part of the country, but all
over the country where they don't have the hot reservoirs.
Mr. Udall. That is great. Thank you.
I yield back, Mr. Chairman.
Mr. Shuster [presiding]. Thank you.
Mr. Bartlett, do you have any questions?
Mr. Bartlett. Thank you very much.
I want to make sure I understand the geothermal heat pump.
What you are doing in your geothermal heat pump is simply
working against the relevant constant temperature of the Earth,
rather than working against the hot summer and cold winter?
Mr. Abnee. That is correct, Mr. Bartlett. What we are
looking at are the efficiencies that are derived from--
geothermal heat pumps based on the fact that the Earth has a
constant temperature below the frost line, and in the
summertime, the Earth is cooler than the ambient air that you
are trying to cool within your home, business or school; and in
the winter, the Earth is warmer than the ambient air, and that
is where you get the 25 to 40 percent efficiency for the
customer.
Mr. Bartlett. If you really think of--what we do with the
standard heat pump is, you are trying to heat up the outside
air in the summer and you are trying to cool down the frigid
outside air in the winter.
Mr. Abnee. That is exactly correct, and you are defying the
law of physics by doing that. And this way, we are using the
constant 55+F to 60+F degree Earth to our benefit. The heat
transfer is much more efficient; and consequently, you get the
efficiency of our technology.
Mr. Bartlett. Yes. There is also the potential advantage of
storing heat during the summer so that you can now reclaim it
in the winter?
Mr. Abnee. That is essentially what we do, because you are
adding heat in the summer that is actually drawn back out of
the Earth in the winter. So the process is a reversible process
and that is what makes it efficient. That is correct.
Mr. Bartlett. Thank you.
Just spend a couple of moments on the biomass energy bill.
To kind of put this in context, we have in this country 2
percent of the known reserves of oil in the world, 2 percent.
We use 25 percent of the world's oil. We now import 56 percent
of our oil, compared to 34 percent during the Arab oil embargo.
This is a critical national security concern in addition to an
economic concern.
I am opposed to rushing out and finding that measly 2
percent and pumping it. I think that we need to husband that.
This may be a rainy day; I think there is going to be a rainier
day, and so I am very supportive of these alternate
technologies.
Ultimately, essentially all of the energy that we use
except the bit of geothermal, true geothermal where you drill
down to the hot core and nuclear, just about all the rest of
the energy we use came from the sun, or comes from the sun--
whether it is photovoltaic or whether it is the corn and the
soybeans that you grow, whether it is the rain that the sun
lifts and drops on the mountain and runs down through our
turbines, whether it is the wind that blows as a result of
differential heating and cooling on the Earth's surface,
produced by the sun--essentially, all of our energy came from
the sun in the form of our fossil fuels, or comes from the sun
today.
There are about 1,000 gigabarrels of oil remaining in the
world. At the current use rate, that is about 30 years. Now, we
are going to find more, but we are also going to use more. So
if you can make the assumption that the more that we will find
is going to match the more that we are going to use--if the
Third World is going to industrialize and if we are going to
continue to grow--then we have got about 30 years of readily
accessible oil available in the world.
By the way, ever since 1970 in this country--a little blip
with Prudhoe Bay--every year since 1970 we have found less oil
and pumped less oil than we did the year before. As a matter of
fact, in 1982, we spent more energy drilling for oil than we
will ever get from all the oil that we found in 1982.
A question was asked, how do we get the message out to the
American people that bioenergy and all these other alternative
sources of energy are very important? I think the average
American understands the statistics that I just went through.
And they are really understandable; when you present them to
the people, they will be more than supportive of what you all
want to do and what we want to do.
How do we get this message out? High gas prices help us.
You know, that is a very regressive way to help us. That hurts
the poorest of the poor the most. If it didn't hurt them, I
would pray for higher gas prices because it gets the message
home. But I don't want to hurt those that can least afford to
be hurt.
How do we get that message out, so that we get support to
do what we really need to do for our national security, as well
as for the environment?
Mr. Abnee. Mr. Bartlett, I think your example of higher
fuel prices, higher energy prices is an excellent one; and the
analogy I make to that is, no one likes to go to the dentist,
but you always go when you have a toothache. And as energy
prices go up, people continue to look for alternative ways to
heat and cool their buildings--to alternative fuels and so
forth.
Working in this particular setting with the Small Business
Administration, hand-in-hand, in developing ways that we can
help reduce those energy cost is one way to do that. Make
people aware, develop some way to get this technology--whether
it is nontraditional fuel, as you have heard today, or a
technology such as geothermal heat pump technology--we have to
get that message and awareness out; and the way we do that is
working with alliances, working together. And one is with the
Small Business Administration, helping to work hand-in-hand,
developing ways to deploy that type of technology and that type
of alternative fuels.
Mr. Bartlett. Even if you don't think there is an
environmental threat to using fossil fuels the way we do--and I
think there is, but even if you don't believe that, you still
have to be concerned about the national security and the
economic impacts of our having only 2 percent of the oil and
using 25 percent of the oil.
Anything you all can do to help us get that message out
helps all of us to move more quickly from a fossil fuel economy
to a renewable fuel economy. Thank you very much.
Thanks, Mr. Chairman.
Chairman Thune [presiding]. Thank you Mr. Bartlett.
Mr. Phelps.
Mr. Phelps. Thank you, Mr. Chairman. Thank you for this
hearing and valuable discussion that we all find important.
And thank you, Panel, for your testimony.
Mr. Donaldson, you alluded to some portion of your
testimony about the handling of manure. I know you came to the
right place. You know we are experts in that up here.
Mr. Donaldson. I didn't mean it that way.
Mr. Phelps. You had mentioned that the connection between
renewable fuel development and eventually reducing farm
subsidies as an item. How do you believe that should be?
Mr. Donaldson. Well, it has got to work through the
marketplace. There is a demand for the products that the farmer
produces out there, whether it is manure or whether it is the
crops that he grows.
As I said, the use of corn could increase that price 25 to
30 cents a bushel if it was used for ethanol production.
The farmers today are not looking for a handout from you
folks. They are looking for a helping hand. So if we can gather
our income in the marketplace, that is where we want to get it.
And I think that the things that I have talked about, if it is
developed, if the technology is there and everything develops
as all the panel has talked about, there is an opportunity for
agriculture to receive from the marketplace the income that we
are looking for.
Mr. Phelps. Thank you. I believe that, too.
In your testimony, you had mentioned that you would suggest
that we have a stronger partnership between the oil industry
and ethanol industry. How do you suggest that would be
accomplished?
Mr. Dinneen. Well, the biggest problem with energy markets
today, quite frankly, is indeed a lack of refining capacity.
Refineries are operating at 96, 97 percent of capacity today.
So you can get more crude oil from wherever, and it does not
make any difference if they can refine that product into
gasoline for consumers.
Indeed, last year when the Administration had released some
product from the petroleum reserve, that product actually had
to be exported to European refineries to make gasoline and then
reimported back into the United States.
Ethanol offers a way of adding volume, adding clean octane
to the liquid gasoline pool without having to go through that
refinery bottleneck. So, in that way, I think finally refiners
are recognizing that ethanol may not be quite the threat that
they may have thought it was; and we are working very closely
with refiners today to try to figure out a way, how we can work
with them to continue to provide high performance, high quality
fuels for the driving public.
Mr. Phelps. Thank you very much.
Mr. Heck, in your testimony, you had mentioned that
including the combination of clean renewable fuels and domestic
oil and gas would be the way to go. Do you feel that the
administration's budget proposal includes enough of that for
your support or encourage our support?
Mr. Heck. We are encouraged by the support that is in the
President's proposal, but there is no specific mention of what
specifically could be done for biodiesel, so we believe we need
to go further. In the chicken-and-egg market concept, there is
a problem because we have millions of individual buyers, but we
have bulk distributors. And there is no way for our customers
to go to the store and buy one unit of biodiesel. It has to be
introduced through the distribution system and that requires
legislation such as you are considering.
Mr. Phelps. Hopefully, before the debate is over, maybe it
will include some of those items. We hope so.
Finally, Ms. Smith, you mentioned increase in the ethanol
market by nearly 10 times may be actually detrimental to the
corn market. Why do you think this to be the case?
Ms. Smith. I am not absolutely positive, but I just know
that USDA has not studied anything larger than a three-time
growth factor. Anything larger than that, until--it is not
studied extensively. Anytime you get involved with a commodity
such as corn, which is volatile because of--you know, just
because of atmospheric--you know, things going on in the
atmosphere, the weather patterns, et cetera, I think you just
have to study it extensively. Ten times market growth over 15
years is very large. Not that I don't support the premise of
the bill, I do; but it is just very large.
Mr. Phelps. So you don't think it is worth the risk in
stabilizing our investment in lieu of the energy crises we are
facing?
Ms. Smith. I do if we are sure of the path that we are
going down, that it is not going to be detrimental to something
else, if you push here, something else is not going to push out
in the other direction. I would hate to see us go down that
path.
Mr. Dinneen. Congressman, could I just add to that real
quick?
We are conducting a comprehensive analysis of the
interrelated agricultural impacts of the bill that is being
discussed. We don't believe that there is going to be a
negative impact. We think that there is going to be a
tremendous farm income impact as a result of increase in the
demand for ethanol in this fashion. I mean, 16 billion gallons
of ethanol sounds like a heck of a lot, and it is, but not all
of that is going to be corn. We think probably about half of it
is likely to be cellulose.
The next generation of ethanol production facilities that
are going to be built are going to use a variety of different
feedstocks, new technologies. This is still relatively an
infant industry, and as the industry grows, you are going to
see expanded feedstocks, expanded technologies.
Ms. Smith mentioned some of the new cellulose technologies
that are likely to come on line in the very next year. Sixteen
years from now, who knows what is going to be possible, what is
going to be economic. We know there is tremendous expansion in
our industry today.
Mr. Phelps, you happen to represent a state and indeed a
congressional district where more ethanol is produced than any
other district in the country.
But, Mr. Carson, you probably don't recognize that the
second largest ethanol producer is a Tulsa-based company,
Williams Energy, which operates two different ethanol
facilities in other States. And the State of Oklahoma is
looking at trying to promote the increased production and use
of ethanol right there in the State.
Mr. Udall, the third largest ethanol producer operates a
facility in Portales, New Mexico.
There are also planned facilities in York, Pennsylvania.
I have been working with the Maryland Corn Growers, Lynne
Hoot, Mr. Bartlett, you are probably very familiar with.
I mean, the planned expansions and the excitement in our
industry, you know, goes from coast to coast, and we don't see
any difficulty at all in meeting the demand that is created by
the bill. And we believe it is going to be done in a way that
is very beneficial to farmers across the country.
Mr. Phelps. Thank you for that valuable information. And
that is why we sit here as a team.
Chairman Thune. Even though we would like to see South
Dakota get to the top of that list.
Mr. Shuster.
Mr. Shuster. Thank you, Mr. Chairman. I would also like to
thank all the panels for being here today. I appreciate your
testimony. My question is a two-part question.
First, the cost of ethanol-blended gasoline and biodiesel
versus standard gasoline, typical gasoline we use in
Pennsylvania? And also what does it do to the efficiency of the
vehicle that is using it to operate?
Mr. Dinneen. Mr. Shuster, the cost is very competitive with
gasoline as a result of the Federal Tax Incentive Program. But
if you look at the cost of ethanol versus other octane
components in gasoline, be they MTBE or benzene or toluene or
any of the other aromatic components that refiners might use
for octane in place of ethanol, we are very competitive today.
The fact of the matter is, though, they are going to use
those refinery-based products if they can despite the cost
impacts.
Second part of your question was----
Mr. Shuster. What does it do to the efficiency of the
vehicle?
Mr. Dinneen. Adding ethanol to gasoline is going to
increase the octane 3 percentage points. So if refiners want
to, they could produce at lower cost a lower octane base fuel,
86 octane or 84, blend it with ethanol and have an 87 or 89
midgrade.
The performance of ethanol fuels is exceptional, and that
is why many marketers today are using ethanol in markets where
it is not required to be used.
Mr. Shuster. Mr. Heck, do you care to talk about biodiesel?
Mr. Heck. For biodiesel efficiency in its 100 percent pure
or neat form, which is not generally the way it is commonly
used, the efficiency is the same as it is for number 1 diesel
fuel--not marginally better or worse--just approximately the
same.
The most exciting use for the biodiesel is, in a low blend,
at a 1 or 2 percent level, where it improves the lubricity,
improves the quality of the petroleum diesel fuel that it is
blended with. And in that case, it does improve the performance
of the engine marginally, not by a lot, but it does extend the
life of the engine quite a bit because of the improved
lubricity.
However, on the cost question, we don't yet have
biorefineries like the oil company refineries, so our cost is
higher. It is a new industry; we have not gotten the cost
economies of scale going. And we definitely need some help,
through a excise tax exemption, so we can get this industry
started.
Mr. Shuster. You mentioned that some vehicles need
modification. What kind of modification would they require?
Mr. Heck. At a 1 or 2 percent blend, there is absolutely no
modification required. Your engine will just run better and you
will hardly know that it is in there; there is no change.
If you choose to run 100 percent biodiesel, perhaps because
you are in a pristine wilderness area, for example, and you do
not want to risk a fuel spill on a lake or you are in an
enclosed mine or something and you do not want any toxic
exhausts, the engine will still run. But if you want to keep
your fuel efficiency up, you will have to have a timing change,
which means--on a modern diesel engine means going in and
reprogramming the computer.
Mr. Shuster. Mr. Abnee, could you tell us what the cost
differential is between installing a geothermal system versus
in a house, for instance?
Mr. Abnee. In a conventional, normal-sized house, you are
looking at a premium cost of--between $4,500 and $7,500 for the
geothermal heat pump versus conventional heating and cooling.
Mr. Shuster. I am not quite sure I am clear on that.
Mr. Abnee. A conventional home of 1,800 to 2,000 square
feet, typically, a 3 to 3\1/2\, or 4-ton system depending on
the geographical location--the premium cost for the geothermal
heat pump, is essentially the cost of the heat exchanger loop
that is buried in your yard or under your parking lot or
driveway. That will cost an additional $4,500 to $7,500.
Mr. Bartlett. How quickly do you get that back in decreased
energy costs?
Mr. Abnee. We are looking at somewhere between 3\1/2\ to 5
years on a conventional home.
On a commercial building, you have a wash as far as the
capital investment is concerned. So it is the same investment
cost up front on a commercial or large-scale building. You have
a payback from day one. You immediately get the savings.
But on a home, we are typically seeing 3 to 5 years.
Mr. Bartlett. And the system will last very much longer
than 3 to 5 years?
Mr. Abnee. The system historically will last longer than
conventional systems because you are working that equipment at
lower stress than you do with conventional equipment, because
you are using the 50 to 55 degree Earth's temperature as the
temperature transfer medium, so the equipment works at its
optimum level.
So you are extending the life over 22 years of that heating
and cooling system versus around 17 years for conventional
systems.
Mr. Bartlett. Thank you for yielding.
Mr. Shuster. One final question. Compared to the rest of
the world, where do we stand with renewable fuels?
Do any of you care to comment?
Mr. Dinneen. In terms of ethanol, we are growing at a
pretty rapid pace, but we are still far behind Brazil, which
has a very aggressive ethanol fuel program. Indeed, 50 percent
of the vehicles that operate in Brazil run on a 22 percent
ethanol blend. The other 50 percent of the vehicles run on a
100 percent ethanol blend. So they produce about 4 billion
gallons of ethanol from sugar cane in that country.
But aside from Brazil, while there is a lot of activity in
many countries around the globe, ethanol in the United States
is probably--still produces more and uses more than most other
countries as well.
Mr. Heck. For the biodiesel, it would be easy for me to say
more than I know for certain. I believe the market share in
Europe is around 4 percent. And I am not certain of that, but
we are certainly behind what Europe is doing.
South America has not been involved in biodiesel to any
large extent yet.
Mr. Shuster. Thank you, Mr. Chairman.
Chairman Thune. Mr. Carson.
Mr. Carson. Thank you so much, Mr. Chairman.
And thank you all for being here. Mr. Bartlett and Mr.
Shuster touched on a couple of questions I have about
geothermal energy.
You said right now, it is a premium of $4,500 to $7,500 for
a home?
Mr. Abnee. For a typical home, that is correct.
Mr. Carson. What are the energy efficiencies that you gain
from installing that versus a conventional----
Mr. Abnee. It is 4\1/2\ to 1. That means for every unit of
energy that you purchase, in exchange, you will receive 4\1/2\
units of energy--using the Earth as well as the technology that
is in the box for the heating and cooling device. So it is 4\1/
2\ to 1.
Mr. Carson. A question to the rest of the panel.
One of the big criticisms about ethanol, biodiesel, biomass
fuels is that many times it costs as much energy to produce
them as it does--as, in fact, they might save for us.
I would like you to comment on that. And I guess the key
metric would seem to be the cost per BTU of energy or watt of
energy or however you want to measure energy production, if you
could talk about what the production costs per BTU are going to
be for the various alternative sources we are talking about
here today.
Mr. Dinneen. Mr. Carson, I will get myself into trouble if
I try to start quickly doing the math in my head of the cost
per BTU, but I will supply that to you and the committee.
Generally speaking, however, there is just no question that
ethanol provides far more energy as a fuel than is used to
produce it. In 1980, when some of the first reports were used--
and the oil industry continues to cite--that may have been the
case, but our industry has been getting far more sophisticated
in terms of how it uses energy.
The energy input now in terms of ethanol is probably about
32,000 BTUs for a gallon of ethanol that produces 76,000 BTUs
when used as a fuel. So we are very energy efficient in that
regard, which is why Argonne National Labs, when it is doing
greenhouse gas emission studies, has determined that we have
such a positive global warming benefit. Because if we were a
negative energy user, we would not have that kind of a benefit.
The industry is getting more energy efficient all the time.
Again, we are a relatively young industry. And the next
generation of ethanol production facilities is going to be more
energy efficient than the last, using the most up-to-date
technologies. So as the industry grows, those economic
benefits, those efficiencies are just going to expand.
Mr. Carson. Did you say it takes 32,000 BTUs to create a
gallon of ethanol?
Mr. Dinneen. That is correct.
Mr. Carson. For 76,000 BTU payout. How does that compare to
gasoline?
Mr. Dinneen. Gasoline has about 111,000 BTUs, but it takes
gasoline or takes petroleum products to make it. So its energy
efficiency is not anywhere near as good.
Mr. Carson. How about biodiesel?
Mr. Heck. Biodiesel made from soybean oil, I believe the
energy balance is 3.24 to 1. An even more important point is
that we raise soy beans for the protein and the oil is the
leftover by-product.
As far as the production costs go, we are behind the
ethanol industry in our time frame and in developing the
industry. We really do not know what the price is going to be.
We know that there are valuable products within the soybean
oil, but without the biorefinery, we do not know what the
eventual price would be. We know that we are in the early
development stage, and the price has been dropping sharply over
the last few years; without the necessary infrastructure, we do
not know what the net cost will be.
We are certain it will be coming down. We are certain that
biotech will allow us to make the oil source more readily
available.
Any answer I would give you would be tend to be misleading.
But it is a positive energy balance and a by-product of our
primary product, which is protein.
Mr. Carson. Before going to Ms. Smith on this, let me come
back over here. Do you have a cost per BTU for ethanol? How
much are we talking about per BTU--the cost of the product?
Mr. Dinneen. The production costs of ethanol are probably
between 95 cents and $1.05, depending on the facility and the
current price of corn.
Mr. Carson. Per gallon?
Mr. Dinneen. Per gallon.
Mr. Carson. Ms. Smith, just for a housekeeping measure,
oftentimes you use the term ``biomass.'' do you consider
biodiesel, when we are talking about ethanol, a type of biomass
fuel?
Ms. Smith. It is a type of biofuel. Biomass, we define as
cellulosic.
Mr. Carson. Same questions I asked earlier about, kind of
the cost per BTU and the energy required to produce a unit of
energy from biomass fuels.
Ms. Smith. The energy efficiency is about 4 to 1 and that
is largely due to the lignin that is contained, holding the
cellulose and the hemicellulose together. It is like a clean
coal. It has the same BTU content. It is 4 to 1, so it is
pretty efficient; and that is conservative.
As far as cost, it is about the same as the first plant--it
is going to cost about the same as a corn ethanol plant. And
from there, as they develop these enzymes called cellulase to
break down the cellulose, it should ratchet down the cost of
the ethanol production. And we hope to be competitive with
gasoline in 10 years' time.
Mr. Carson. Very good.
I yield back the remainder of my time, Mr. Chairman.
Chairman Thune. Just a couple more questions and then I
will yield back to the panel to see if anybody else has
additional questions they would like to ask.
I would like to come back, Mr. Dinneen, to the whole
question--the problem in the petroleum market. Obviously, one
of the problems is refining capacity. They are max'd out or
close to it. How does that compare with the number of ethanol
refineries, and is refinery capacity going to be a problem with
ethanol in the same fashion as it would be with--and I do not
know how the different--the refineries differ in terms of----
Mr. Dinneen. We are operating closer to the norm in terms
of all manufacturing industries. We are operating at about 84,
85 percent of our production capacity today. We have got a
production capacity of about 120,000 barrels per day. We are
producing about 110,000 barrels per day. We think we can grow
more, even with existing capacity. But we are putting steel in
the ground because we want to continue to grow this industry.
Chairman Thune. It just seems to me they have got to go on
parallel tracks, because you have got to have the refinery
capacities--we continue to get more production, obviously--so
we do not run into the same problem that they run into.
Mr. Dinneen. Absolutely. And we have seen our demand grow
tremendously over the past several years. That is why you have
seen the growth in our industry.
I was telling somebody earlier today, I started with the
Renewable Fuels Association a few years ago--14 years ago, but
we were producing about 600 million gallons at that time. We
are going to produce over 2 billion gallons this year. I mean,
it has grown exponentially in the last 5 years, and as I said
in my testimony, primarily in farmer-owned cooperatives, as
farmers across the country have recognized that this is an
opportunity for them to seize the economic benefits of ethanol
production more directly.
Take a $2.50 bushel of corn, and rather than just giving
that to a grain silo for that amount of money, having ownership
in that ethanol-production facility, producing ethanol out of
that plant, as well as food and feed by-products, you have got
$4 or $5 worth of product coming out of those facilities. They
are economic engines across rural America, and that is the
model that is going to continue to be followed in many States
across the country.
Chairman Thune. It really has been the only bright spot in
the ag economy in the last few years, if you think about it.
And it really is not just--obviously, it puts more dollars in
farmers' pockets, but it also creates economic activity in
rural areas. That is one thing we have seen with all the out-
migration, and that is one of the issues that we were
discussing with this new farm bill. Production agriculture is
one aspect of it, but also how do we support and continue to
keep our rural economies going? That is a broader, broader
issue. And that is where value-added industries like ethanol
have been successful.
A question for Mr. Heck on biodiesel, and you have
mentioned that it is not yet competitive in the U.S.
necessarily on a pure cost comparison. What, in your mind,
needs to be done to make it competitive--I should say, the
question of making it an affordable alternative?
Mr. Heck. That is the correct question, affordable
alternative.
Within the renewable standards legislation, we also would
have to have a excise tax exemption, so our fuel would be one
of the fuels of choice in competition with the other renewable
fuels.
And another answer that is also relevant here: The impact
on consumers for the low blends of biodiesel is very slight. At
a 0.5 percent or 1 percent blend, the cost doesn't matter as
much because we are talking about pennies per gallon or less.
And in exchange for that, their engines last longer. They get
slightly better economy. It makes petroleum diesel a better
fuel.
So we are not trying for the whole market. We do not have
that much. We are not trying to be competitive on a gallon-for-
gallon basis. We are going for the lubricity qualities in
regular petroleum diesel.
Chairman Thune. How is the trucking industry accepting
biodiesel as a fuel additive?
Mr. Heck. The people who make the engines for the truckers
are enthusiastic about it. And Stanadyne, the largest fuel
injector manufacturer, has written a letter to the EPA
endorsing the low blends as an aide for longer diesel fuel
injector and engine life. Among the trucking industry, they
have a great many concerns about any type of a local program,
because of the ease with which their competitors can cross
State lines and buy a different kind of fuel. It is really a
situation that is tailor-made for a Federal regulation of some
type to introduce the renewable fuel standard and all the
diesel fuel at the same time.
Chairman Thune. Thank you. Mr. Udall.
Mr. Udal. Thank you, Mr. Chairman.
Mr. Bartlett, you mentioned earlier this figure of 1,000--
is it a 1,000 gigabarrels? The Chairman and I----
Mr. Bartlett. 1,000 gigabarrel. A gigabarrel is a billion
barrels. And somehow, they do not go to a trillion; It is 1,000
gigabarrels.
If you want to talk about gigatons, it is about 295
gigatons of oil.
This is the general consensus from a number of
authoritative sources. We had a hearing on this in our Energy
Subcommittee on Science. And there is general agreement it is
about 295 gigatons, or 1,000 gigabarrels, of oil remaining in
the world.
Mr. Udal. So about a 30-year supply?
Mr. Bartlett. Roughly. We use almost 20 million gallons a
day. The rest of the world uses about 60. If you multiply
those--say that the year has roughly 400 days, it comes out to
be 30 years more or less.
Mr. Udal. And one of the other crucial factors in this
whole equation is when we peak in terms of oil production in
the world, isn't it? I mean, it seems to me we peak in the
United States. That is why our imports are going up, as you
mentioned, 57 percent.
But when world oil production peaks, which I think many
experts are saying is 7 to 10 years, the price impact is going
to be enormous, because the control of the price will be from
outside the United States, from those producers. And small
businesses and others that can't weather these ups and downs, I
think, are going to be impacted severely.
Would you----
Mr. Bartlett. It is beyond our control. We believe in about
7 to 10 years, and maybe earlier than that, we will have pumped
about half of all the oil there is in the world.
And Hubbard suggested a number of years ago what turned out
to be true. In this country, when we reach the midpoint of our
oil pumping, which is about 1970, try as hard as we might after
that, we would not pump more oil, and we have not.
So whatever they would like to do when we have reached that
midpoint, it will probably be impossible to meaningfully
increase oil production beyond that. And since the oil demands
are going to keep going up, we can expect meaningfully higher
prices in oil, and nobody will be able to do anything about
that. It is the marketplace that determines that supply and
demand.
Mr. Udal. Thank you. And the reason why I wanted to ask
those questions is that I think it emphasizes once again the
importance of renewables at this point in time in our history,
and how we have to move forward very quickly on this renewable
front.
Do any of you have any thoughts on how we could use, in
addition to the testimony you have already given, use the
government to create markets in these areas? I mean, there are
always ideas in terms of government fleets and government
buildings and for geothermal. Are there any ideas out there and
any thoughts on using government as an entity to create
markets?
Ms. Smith. I think consideration of an E85 vehicle that
uses 85 percent ethanol--they have got a chicken-and-egg
problem also. You probably know about the CAFE standard trade-
off with the 85s. And the vehicles are out there, but there are
no filling stations with ethanol to put into the vehicles. So
if the government could help straighten that out, that would
help in creating a market for the ethanol.
Mr. Abnee. As far as geothermal heat pump technology, first
of all, we would love to see it in a national energy policy and
point out that this is a way to reduce energy costs across the
board.
Other ways we are finding to be beneficial, if we can get
memorandums of understanding with GSA, the military
installations, the United States Postal Service, where we have
been very effective in pushing that technology--having them
review the technology and giving us an honest assessment or
letting us show them that we can compete and beat not only on,
first, cost in some cases, but also energy efficiency, I think
that would be a help.
Mr. Heck. The bioindustry has been helped a great deal by
the Ag Research Service, usingbiodiesel B20 blends in all of
their motors that they run that are diesel, 143 motors, from portable
diesel generators to combines and trucks and vans to transport visitors
around. So we would appreciate very much if this was extended and more
government agencies were asked to burn B2 or B20 or any biodiesel
blend.
We are currently working on and asking for CMAQ legislation
to be modified to allow for the purchase of biodiesel as a way
to negate air quality in cities.
And there is also been some talk of legislation to allow
more EPACT credits for biodiesel use. Currently you can only
satisfy half of your credit for EPACT and perhaps that could be
extended.
Mr. Udall. Thank you. Just a final comment.
I note in the March blueprint of the administration's plan
for a national energy policy, they link renewable tax credits
to drilling in the Arctic National Wildlife Refuge. So the
proceeds from leasing of ANWR would be used for extended tax
credits for renewable fuels and, in particular, to fund and
expand the tax credit for the purchase of hybrid or electric
vehicles.
It just seems to me that linking those to such a
controversial activity is not the direction we should head. I
think those should be decoupled, and we should be looking at
those kinds of tax credits as standing on their own, and find
another source for them.
And with that, I yield back, Mr. Chairman.
Chairman Thune. Mr. Bartlett.
Mr. Bartlett. Thank you very much. I just would like to
return for a moment to the geothermal heat pumps. There is no
reason that every government facility shouldn't be using these
because it is going to ultimately save money and be easier on
the environment. And that is something we ought to be--we can
do that--the government needs to be a leader here. The average
homeowner has no idea of the savings that would accrue to them
as a result of using a geothermal heat pump. Somehow we have to
get the architects and builders familiar with this so that they
will be encouraging that.
What can we do to promote this in the private sector so
that the people understand that they really will be many
dollars ahead and also be very much kinder to the environment
if they do this?
Mr. Abnee. One of the things that comes to mind is some
kind of a tax incentive. If we can get some type of a tax
incentive for the customer, for the homeowner, that shows the
benefit of this, as well as working with us and giving us some
opportunity to do an awareness campaign for the general public
to show them this technology is the most efficient, is the
renewable example that we need to employ--to deploy for the
masses. It is efficient and environmentally friendly.
I would say, a tax credit is one of the things I would
encourage for homeowners.
Mr. Bartlett. All we need to do to get this started. Once
people understand that if you are going to make money--it is
like making an investment that is going to pay dividends in 3
years and continue ever after that, as long as the system
lasts, to pay dividends, just education alone, if we can get it
out there, should be effective.
Let me ask you a question about the potential for energy
from agricultural products, a couple of different sources of
ethanol, the biodiesel, the biomass, these are all potential
sources of energy. We have been encouraging farmers for the
last number of years to cut back on production. If we stop
doing that and farmers could just produce what they could
produce, how much of our energy needs could be met with energy
from ag products? This is really beneficial to farmers.
We now have a farm economy which is in real trouble,
because they are too efficient. They produce too much in the
marketplace. The supply and demand has driven prices down so
the average farmer is barely meeting expenses. If a rain
doesn't come this week in our state, they won't be meeting
expenses this year.
How much of our energy could we ultimately produce from
agriculture products if farmers weren't discouraged from
growing, if they could get a reasonable price for their
product?
Mr. Donaldson. I do not know how much. I can't give you an
accurate answer to that. But I know if there is profit in it
for the farmer, he will produce it.
The ag economy, as you said, and as I alluded in my
testimony, as a fruit grower, it is the worst I have seen in
the last 12 years. Our input costs continue to escalate at
about 5 or 6 percent a year. The price for the product that we
sell has declined. Now that can only go on so long.
I think if there is profit in ethanol and in renewable
energy sources, farmers are very innovative; they will find
ways in which to do that. But there has to be that carrot out
there to entice them to do it.
Our production problem right now is worldwide. It is not
necessarily just here in this country. You look at the
soybean--and Mr. Heck can talk about the soybean situation in
Brazil and South America. I do not know if this will enter into
this picture or not. I am no economist there. But the farmers
in this country, if they see an opportunity here--and we have
talked about farmer cooperatives to generate ethanol--there is
one being proposed in New Jersey, close to your neck of the
woods.
So there is interest there. And it will depend on what the
profitability is, whether farmers are going to really get
involved in this and go all out and do it.
Mr. Bartlett. Megan, is chicken litter a good biomass feed
stock? If it is, we are rich on our Eastern Shore.
Ms. Smith. Actually, it is. I went and visited Fibrowatt's
chicken plant over in England, and it was fascinating. It was
very pungent, but it was functioning and it works. It works for
electricity.
Mr. Dinneen. Congressman, ethanol is actually important to
both ends, because a by-product, corn gluten, is used as a feed
product for poultry. There is a rather large chicken producer,
Purdue, that uses corn gluten extensively in its feed mix; and
I am told that is what gives the Purdue chickens that yellow
coloring. So whatever end you want to talk about with the
chicken, we can help you out.
Mr. Donaldson. To follow up on what Megan said, I saw a
segment on television Sunday evening about the Eastern Shore
and the poultry manure being generated down there. And I think
it is a British--and maybe that is the same one you saw--a
British outfit has a process by which they can make methane out
of that chicken manure and then burn the chicken manure after
they have reduced that for heating energy.
Mr. Bartlett. Our landfills make methane, don't they?
Mr. Donaldson. Maybe we ought to be looking at that to
generate.
Mr. Bartlett. If you just set it aside and try to ignore
it--out of sight, out of mind--you are going to get methane
from it, aren't you?
Thank you very much, Mr. Chairman.
Chairman Thune. That, as they say, is the smell of money.
And I think, to seize on a term of the gentleman from
Maryland--and you referenced it, Mr. Donaldson, too--with the
prices we have had and the costs and the farm economy in the
last few years, that we have a gigaproblem with the ag economy
which is only going to be corrected by, hopefully, a turnaround
in the economic conditions.
Mr. Carson.
Mr. Carson. Just a couple of follow-up questions on that,
and a note of skepticism as well. I mean, it seems like in this
whole debate and the whole larger debate about renewable
sources, we have gotten about two different policy objectives,
one of which is to provide better, more efficient energy to our
country, which is a serious problem. Mr. Bartlett has talked
about some of the long-term problems we face on that.
The second is, how are we going to help the rural economy.
I am a strong supporter of ethanol, for research for these
programs, because they are great programs to our rural economy.
The chairman outlined the jobs, the dollars, that will be
created for the rural economy.
If we are talking about energy policy where our goal is to
provide a more efficient energy, which means higher BTU, lower
cost energy for us, I remain a bit skeptical about it. For
example, on the geothermal side, you know, we typically provide
tax incentives or we tax activities or products that the market
itself will either generate too much of or generate not enough
of--where the social costs differ from the private costs. We
have a situation of these geothermal heat pumps, a great
program, where it pays for itself over 4 to 5 years, as you
said. You know, that doesn't seem to be typically the kind of
activities that we are providing tax incentives for.
I wonder if we could talk not about the rural issues and
how it will help rural America. I have a reason to support it.
Our rural economy is in serious trouble. But the economics of
biodiesel or ethanol or geothermal and why the market is not
driving increased production of these or why government, from a
pure energy perspective, should be trying to step in through
subsidies and credits and programs like that to encourage more
production of them.
Mr. Abnee. Let me address the geothermal heat pump
technology issue. And your comments are well founded.
The tax incentive that I alluded to or the subsidies that I
alluded to are nothing more than to stimulate or jump-start the
market. We are still less than 1 percent in the marketplace in
the heating technology; this is not a mature industry. In order
for us to benefit from the energy efficiency that this
technology can deliver, we have to get more and more
utilization and usefulness out of the technology.
I would not be a proponent of or suggest that we continue
tax incentives or subsidies for any longer than to where we can
become a mature technology, and then let the marketplace and
the private sector begin to take over.
Mr. Carson. By mature technology, you mean have greater
penetration in the marketplace?
Mr. Abnee. That is correct. The technology itself, the
research and development is there. It is completed. It is done.
This is a deployment activity to utilize the benefits of the
technology that we have today.
The private sector industry will more than keep up the pace
to be competitive and continue to advance and become more and
more efficient. But the utilization of the technology is where
we think we need some stimulant.
Mr. Carson. Would you not agree that advertising would be
an effective private market substitute for a tax credit in that
situation?
Mr. Abnee. You have to keep in mind that the majority of
these companies that are building these boxes and this
equipment are small companies. They are very small and some
people would say, actually in their infancy, although we have
been doing this for over 15 to 18 years.
But keep in mind the heating and air conditioning industry
has a tendency to rely on what has occurred and what has
happened 20, 30 and 40 years ago. They are reluctant to make
changes or to have a paradigm shift from one technology to
another, much similar to what we are hearing here with
alternative fuels.
It is not a case where we can just tell someone how great
this is and they do it.
Mr. Carson. Let me ask two technical questions about how
the geothermal heat pumps work. Is it a substitute for, is it
supplemental to conventional heating and cooling units?
Mr. Abnee. And it is a substitute for; It is not a
supplement. We take the technology of the heat pump itself and
couple that with the Earth, instead of the outside air as Mr.
Bartlett had discussed. So this is a substitute for heating and
air conditioning.
Mr. Carson. And can it be installed in existing homes or
does it have to be new construction?
Mr. Abnee. Yes, it can. It can be installed in buildings
such as this. It can be installed in retrofitted applications
of schools, and homes. It is not just for the new building
market.
Mr. Dinneen. Congressman, in terms of the renewable fuel
side, I think you sort of need to look at gasoline that has a
BTU content of 111,000 BTUs. There are 200 or so different
hydrocarbons that will form that blended gasoline, some of
which will have higher BTU content than ethanol. Others that
would have a lower BTU content than ethanol. All we are
suggesting is that there are, as you mentioned, externalities
that are important in terms of public policy, health,
environment and energy security, that are helpful to make sure
that at least a component of that gallon of gasoline is
domestically produced renewable fuels like ethanol. When
compared against other important octane enhancers like toluene
or benzene, ethanol has tremendous benefits to society and,
frankly, to the refiner in meeting clean air objectives under
the current law and other things.
I mean, I am not sure I am quite getting at what your
question was, but I think ethanol has significant vale.
Mr. Carson. Clarify for me, what is ethanol aspiring to be
a substitute for, other gasoline additives or as a primary
source of fuel in and of itself?
Mr. Dinneen. The ethanol industry doesn't think we are
actually going to replace gasoline. Our future is likely as a
blend component with gasoline, to boost octane, to provide
cleaner fuels, high performance fuels for the public. If you
were to blend 10 percent ethanol in every gallon of gasoline, I
think you would be making a pretty bold statement in terms of
energy security.
The State of Minnesota has a tremendously aggressive
ethanol blend program. And actually in that State, every gallon
of gasoline is blended with 10 percent ethanol. It is the only
State in the country meeting its EPACT goals, because it has
replaced 10 percent of its fuel with an alternative.
That ought to be our goal as a Nation; it is certainly our
goal as an industry.
Mr. Carson. Does anyone else care to respond?
Mr. Heck. The world and the United States made the decision
to go to an oil-based economy 100 years ago, and it was a good
decision that has served us very well in quite a few areas, and
not served us quite as well in other areas.
But if we could take time out today to rethink the whole
process and decide which way we were to go if we were starting
from scratch, would we decide to go with an oil-based economy
with an uncertain energy supply from foreign countries or would
we decide to grow our own energy? I think the answer is obvious
that if we could just call a time out and start over, if we
made that decision today for energy security, for environmental
and for economic development, we would decide to use our own
fuel and our own products that are made from biomaterials. But
we have an energy industry and oil industry that is firmly
entrenched with 100 years ofexperience and billions of dollars
of research and great production facilities, all of which I am grateful
for.
But to make this transition to where we should be 50 years
from now or 100 years from now, we need government help to
facilitate this change as rapidly as possible.
Ms. Smith. If you look at the history of energy subsidies,
every conventional energy source has had lots of government
funding in the form of subsidies put behind it before it
becomes commercial. We are just starting out, as Bob Dinneen
said. We are the new kid on the block as far as being market-
driven.
I am not sure that the technologies, such as nuclear and
coal, just went on their own; oil is still getting all types of
subsidies that are hidden.
Ms. Carson. Thank you very much. Thank you all.
Chairman Thune. Mr. Shuster. I believe we have exhausted
our questions, so we appreciate your patience, panel, and your
great testimony and your responses.
As I said earlier, I think this is an issue which bears
strongly not only on the issue of agriculture, but on the
future of our energy security in this country. And we welcome
your input as we continue to have a dialogue and discussion on
energy policy. In my mind, it is very, very important that
renewable sources be a part of our energy mix as we head into
the future.
Mr. Donaldson.
Mr. Donaldson. The question was raised or discussed here
awhile ago about the acceptance by the public. That is
important. You fellows sitting up there and the rest of the
Congress, political leadership is going to be key if it is
going to move ahead.
The time is now. The time is critical. Gentlemen, do not
let it pass by.
Chairman Thune. You can count on that in South Dakota. The
one member from South Dakota agrees with you.
With that, the hearing is adjourned. Thank you.
[Whereupon, at 12:00 noon, the subcommittee was adjourned.]
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