[Senate Hearing 110-16]
[From the U.S. Government Publishing Office]
S. Hrg. 110-16
ACCELERATED BIOFUELS DIVERSITY
=======================================================================
CONFERENCE
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
TO
DISCUSS ACCELERATED BIOFUELS DIVERSITY
__________
FEBRUARY 1, 2007
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______
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota LARRY E. CRAIG, Idaho
RON WYDEN, Oregon CRAIG THOMAS, Wyoming
TIM JOHNSON, South Dakota LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana RICHARD BURR, North Carolina
MARIA CANTWELL, Washington JIM DeMINT, South Carolina
KEN SALAZAR, Colorado BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
JON TESTER, Montana MEL MARTINEZ, Florida
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
Frank Macchiarola, Republican Staff Director
Judith K. Pensabene, Republican Chief Counsel
Tara Billingsley, Professional Staff Member
Frank Gladics, Republican Professional Staff Member
C O N T E N T S
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STATEMENTS
Page
Arvizo, Dr. Dan, Director, National Renewable Energy Laboratory.. 79
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 1
Bostwick, Toby, President, New Mexico Sorghum Producers.......... 24
Brown, Robert, Director, Vehicle Environmental Engineering, Ford
Motor Company.................................................. 47
Burk, Lou, Manager, Alternative Energy and Programs Group,
ConocoPhillips................................................. 46
Burke, Edmund, Chairman, Dennis K. Burke, Inc., Representing the
Coalition of E85 Retailers..................................... 46
Conover, David, Counsel, National Commission on Energy Policy.... 3
Davis, Dr. Michael, Pacific Northwest National Laboratory........ 80
Detchon, Reid, Executive Director, Energy Future Coalition....... 2
Dinneen, Bob, President and CEO, Renewable Fuels Association..... 4
Drevna, Charlie, Executive Vice President, National
Petrochemicals and Refiners Association........................ 61
Fitch, George, Mayor of Warrenton, VA............................ 64
Foltz, Tommy, Vice President of Public Affairs, Earth Biofuels... 62
Fraley, Dr. Robert, Executive Vice President and Chief Technology
Officer, Monsanto Company...................................... 22
Hushka, Niles, CEO, KLJ Solutions................................ 37
Lehman, Jonathan, Verasun Energy................................. 66
McCauley, Ken, President, National Corn Growers Association...... 23
Mears, Mike, Vice President for Transportation, Magellan
Midstream Partners............................................. 49
Melo, John, Chief Executive, Amyris Biotechnologies.............. 33
Michalske, Dr. Terry, Sandia National Laboratory................. 81
Mitchell, Larry, CEO, American Corn Growers Association.......... 20
Passmore, Jeff, Executive Vice President, Iogen.................. 35
Perine, Lori, Executive Director, Agenda 2020 Technology
Alliance, American Forest and Paper Association................ 38
Pershing, Dr. Jonathan, Director, World Resources Institute...... 6
Pierce, John, Vice President of Research and Development, DuPont. 34
Plaza, John, President, Imperium Renewables...................... 48
Prather, Dr. Kristala, Assistant Professor of Chemical
Engineering, Laboratory for Energy and Environment, MIT........ 77
Rigas, Dr. Nicholas, Director, South Carolina Institute for
Energy Studies, Clemson University............................. 65
Standlee, Chris, Executive Vice President, Abengoa
Biotechnologies................................................ 32
Taylor, Dr. Steven, Chair, Biosystems Engineering Department,
Auburn University.............................................. 76
Terry, David, Governors Ethanol Coalition........................ 21
Wald, General Charles F., USAF (Ret.) Representing Securing
America's Future Energy, Energy Security Leadership Council.... 5
Whittington, Charles, President, Grammer Industries, Representing
the American Trucking Association.............................. 25
ACCELERATED BIOFUELS DIVERSITY
----------
THURSDAY, FEBRUARY 1, 2007
U.S. Senate,
Committee on Energy & Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:38 a.m., in
room SDG-50, Dirksen Senate Office Building, Hon. Jeff
Bingaman, chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN,
U.S. SENATOR FROM NEW MEXICO
The Chairman. Why don't we get started? Thank you all for
coming. This has been billed as a transportation biofuels
conference. Senator Domenici is on his way, and indicated we
could go ahead and start and he'll be here shortly.
Let me just say in general I think you're going to see
Senators coming and going during the day. We're scheduled for 3
hours of discussion this morning and 3 hours again this
afternoon, so we have about 30 people lined up to make
presentations, and so we're going to have to do our best to
stay on schedule and keep things moving along. I'm sure there
will be a lot of things people will still want to be saying
after this is over with, and we'll be open to the idea of doing
more in the future, but thank you all very much for being here.
We're focusing today on how we can fuel more of our
transportation sector with renewable biomass. These homegrown
fuel sources are currently our best hope of reversing the trend
toward increased dependence on imported oil. We hope to learn
about both the current state of the biofuels market and also
about any policies that we need to be considering here in
Congress to expand use of biofuels.
We have, I said 30, this says 33 experts who are going to
be speaking in the 6 hours that we have devoted to this. We
hope that we can keep this informal and allow people to make
the main points they want to make. Obviously the full
statements will be made a part of our record and we can review
those, and everyone else can as well, since they will be on our
web site for people to see.
I also want to particularly recognize Mr. George
Sturzinger, who is from Silwa Gas in Atlanta, GA. He is also
providing testimony to us today. He was not on one of the
panels because of late information we got on that, but we very
much appreciate his response to the various questions that we
have laid out here, and appreciate his being willing to come
and observe what the others are saying as well.
So let me go ahead with the introduction of the first
panel. I'll just introduce the five people on the panel and
then have each of them take 2 or 3 minutes to describe who they
are, what their involvement is, and if there's a few points
that they want to make in that period, please do so. And then
Senator Salazar and I will have questions, and others may be
here by then as well.
Reid Detchon is the executive director of the Energy Future
Coalition, and he is going to talk to us today about 25 25, as
well as other issues, which we appreciate.
David Conover is counsel to the National Commission on
Energy Policy, which notes that EPAct 2005 support for biofuels
research was a start, but obviously we need to do a lot more.
Bob Dinneen, who is president and CEO of the Renewable
Fuels Association, we very much appreciate him being here.
General Wald was a witness here in this very room, before
our committee, about 2 weeks ago, I believe, on a somewhat
different issue, more of the global issues affecting our energy
security. He is with Securing America's Future Energy, Energy
Security Leadership Council, and we appreciate him being here
again.
Dr. Jonathan Pershing is director of the World Resources
Institute, and we're very glad to have him here.
Why don't you each just go in that order and give us your
presentations. After each of you is finished, or after all of
you are finished, we'll have some questions.
STATEMENT OF REID DETCHON, EXECUTIVE DIRECTOR, ENERGY FUTURE
COALITION
Mr. Detchon. Thank you, Mr. Chairman. Thank you for holding
this session and inviting us to participate. I'll summarize
briefly. I am Reid Detchon. I'm the executive director of the
Energy Future Coalition.
For U.S. energy policy, two topics must be front and
center--oil dependence and climate change. Both of these pose
enormous risks to our economy, but if we deal with them
together, the transition to cleaner, more secure energy
technologies will create a new wave of economic growth and job
creation, just as the computer and telecom revolutions did
before.
It is that promise that led the bipartisan Energy Future
Coalition, together with 400 other partners, to support the
25 25 initiative, which would set a national goal of producing
25 percent of America's energy from renewable resources by
2025. Senator Salazar is one of our champions, and we hope that
Congress will adopt it early in this session.
With regard to energy security, our objective should be to
minimize the role of oil in the economy so that the Nation is
no longer hostage to a single commodity in its prices and
politics. Alternative fuels must be the centerpiece of such a
strategy.
The near-term options that address both oil dependence and
climate change are biofuels and electricity, together with
increased vehicle efficiency to make those fuels go further.
Alternative fuels that improve energy security but make global
warming worse, such as liquid fuels from coal, are a dead-end
street.
Coal can become an important source of transport energy,
but through electricity, not liquid fuels. Plug-in hybrid
vehicles, operating first on clean electricity and second on
biofuels, could all but eliminate the need for gasoline in
light-duty vehicles, while reducing their global warming
emissions by 90 percent.
We welcome the President's leadership in proposing a
greatly strengthened standard for renewable fuels, and ask for
your support as well. It would do much to strengthen the
investor confidence that's needed to finance a new generation
of biofuels technologies.
The Energy Policy Act of 2005 authorized many programs
needed to advance biofuels, but it must be fully funded to be
effective. We need to encourage the private sector to build
multiple pioneer conversion plants, biorefineries, to
demonstrate the use of different technologies on different
feedstocks, because the technological competition remains quite
unsettled. Not all of these will succeed, but those that do
will create a new American industry.
To offset the cost of those investments, Congress should
place tax incentives for both oil and alternative fuels on
sliding scale, and phase them out as oil prices rise and
Federal support is no longer needed. Such a step would save
many billions of dollars if prices remain as high as EIA now
forecasts.
Mr. Chairman, investments in energy efficiency and
renewable energy can buy us time to develop more climate-
friendly technologies and an energy future that plays to
America's strengths. We look forward to the opportunity to work
with you toward that end, and thank you for having us here
today.
The Chairman. Thank you very much.
Mr. Conover.
STATEMENT OF DAVID CONOVER, COUNSEL, NATIONAL COMMISSION ON
ENERGY POLICY
Mr. Conover. Thank you, Mr. Chairman, and thank you for
being here as well, Senator Salazar.
I am pleased to appear here today on behalf of the National
Commission on Energy Policy, which is a diverse and bipartisan
group of energy experts that first came together in 2002 with
support from the Hewlitt Foundation and several other leading
philanthropies.
In December 2004, the commission released a report entitled
``Ending the Energy Stalemate: A Bipartisan Strategy to Meet
America's Energy Challenges.'' Two key biofuel recommendations
in that report are still highly relevant today. We need to
increase funding for biofuels R&D, and we need to provide early
deployment incentives for new biofuels technologies like
cellulosic ethanol. I'm in agreement with Reid on this point.
As you noted, Mr. Chairman, EPAct 2005 contained several
key provisions on this front, and we are pleased that some of
these provisions, notably the Section 932 grant program and the
DOE Title 17 loan guarantees, are contained in the joint
funding resolution for fiscal year 2007.
At prevailing and projected petroleum prices, as Reid
already mentioned, there are few economic challenges to the
profitability of conventional corn ethanol. But the upper limit
for conventional corn ethanol, at most 15 billion gallons
annually, is far below what would be a significant contribution
to displacing petroleum.
Cellulosic material, on the other hand, whether derived
from agriculture or other waste or produced from dedicated
energy crops, holds the promise of providing sufficient
feedstock to make a real dent in petroleum dependency while
avoiding the food versus fuel debate we are hearing today.
Deployment of cellulosic ethanol and other emerging biofuels
faces significant economic challenges. We support the approach
taken in EPAct 2005: reducing the costs of biomass and waste-
derived fuel production through a combination of targeted
support for research and development and by creating incentives
for first-mover commercial production facilities.
Now, since the commission's report, we have come to several
additional conclusions about biofuels policy. First--and I am
again echoing Reid here--in light of EPAct's fuel mandates and
the established nature of the corn ethanol industry, the
commission believes that Congress should reevaluate and
rationalize the current system of ethanol subsidies to direct a
greater share of scarce public resources to more promising but
not yet commercial options such as cellulosic ethanol and
biobutanol.
Second, where Federal incentives are appropriate, the
commission strongly believes that Congress should seek
technology neutrality. As you'll hear later this morning, new
biofuels are moving quickly along the research, development,
and deployment continuum. Policies should be crafted that do
not unintentionally exclude emerging biofuels, the very
technologies most in need of Federal assistance. Incentives
should be structured to encourage the most energy-efficient
conversion technologies to produce the lowest carbon biofuels
possible.
Finally, Government should partner with the biofuels,
automotive, and refining sectors to seek flexible solutions to
growing the biofuels market. For example, it may be the case
that ethanol blends greater than E10 but less than E85 can be
distributed through existing infrastructure and used in
existing engines without major modifications to either.
I see my time is up. Thank you for your attention. I look
forward to participating.
The Chairman. Thank you very much.
Mr. Dinneen.
STATEMENT OF BOB DINNEEN, PRESIDENT AND CEO, RENEWABLE FUELS
ASSOCIATION
Mr. Dinneen. Thank you, Mr. Chairman, Senator Salazar. It's
an honor for me to be here today on behalf of the Nation's
ethanol industry.
I can tell you that Congress's effort to provide both a
production push and a demand pull has created a very dynamic
and growing renewable fuels industry that is reducing our
dependence on oil, increasing rural economic development
opportunities, and improving air quality in our Nation's
cities. There are today 111 ethanol biorefineries in operation,
capable of producing about 5.5 billion gallons of ethanol from
almost 2 billion bushels of grain. Ethanol today is blended in
45 percent of our Nation's fuel.
But we're not done yet. The industry is growing rapidly.
There are today 78 plants that are under construction in all
parts of the country. There are plants that are going up in
California, in Arizona, in Texas, in the Northeast. The
industry is changing. The industry is improving. The industry
is becoming more efficient. The industry is looking at new
technologies and new feedstocks. And I believe the industry
will be unrecognizable 5 years from now, from what it is today,
because of the efforts that this Congress has put in place to
create a viable and growing renewable fuels industry.
Eighty-five percent of Americans, however, believe the
Nation needs to do more to reduce our dependence on imported
oil and to break the Nation's addiction to oil. And I would
suggest that the industry believes the most important things to
focus on is what has worked. Clearly, consistent and stable tax
policy is going to be critical to ensuring the continued
development of renewable fuels and ethanol, and to move the
industry beyond traditional feedstocks to newer technologies.
Second, I would think that as the industry grows, as we're
blended in 46 percent of the Nation's gasoline already, and
with more than 6 billion gallons of ethanol production capacity
in construction today, the time when we will saturate the blend
market for gasoline is rapidly approaching; and thus,
incentives for flexible fuel technology for E85 are going to be
critical to provide markets for cellulosic ethanol when it is
commercialized. And I would encourage the Congress not just to
put out incentives but to make sure that those incentives
encourage auto manufacturers to optimize the vehicles for the
fuel that's going to be used, so that there isn't a mileage
penalty and so the economics of using ethanol in those vehicles
can be addressed through technology. It's certainly possible.
Finally, I would suggest that additional programs to
encourage the commercialization of cellulosic ethanol are
indeed going to be critical. The Congress has done a lot
already through EPAct. Those programs do need to be fully
funded, but Congress should look to other measures as well, so
that we commercialize cellulosic ethanol as rapidly as
possible.
I thank you, Mr. Chairman, Senator Salazar, for your
leadership on these issues in the past, and I look forward to
working with this Congress as we move this agenda forward.
The Chairman. Thank you very much.
General Wald, welcome back, and go right ahead.
STATEMENT OF GENERAL CHARLES F. WALD, USAF (RET.) REPRESENTING
SECURING AMERICA'S FUTURE ENERGY, ENERGY SECURITY LEADERSHIP
COUNCIL
General Wald. Thank you, Mr. Chairman. Nice to see you
again. Senator Salazar, thank you.
The previous members all mentioned security and
vulnerability. Obviously that's my expertise and interest, and
how I got into this area was as the former deputy commander of
the European Command, which includes 92 countries, mostly
Europe, obviously; Russia; Africa; the Caucasus; as well as
Israel.
In our review of the strategic mission we had post-9/11,
and obviously with NATO not having the mission to counter the
Soviet Union, it became apparent we had to review whether we
needed 115,000 troops in Europe anymore. And during our review
it became apparent that there are obviously threats that still
exist, we know that: terrorism, the proliferation of WMD
potentially.
But also it became apparent that energy security is a
military mission. That's what we have been doing for years. In
1980, then-President Carter announced the Carter Doctrine that
said that oil from the Middle East was a vital interest to the
United States and we would use military force to ensure that
flow if we needed to. And I think that became pretty much the
standard and we made that acceptable. Unfortunately, that
became the standard for the rest of the world.
About a year ago I was in Kazakhstan discussing critical
infrastructure with several oil executives, and before we
started to discuss where those vulnerabilities might be, one of
them stood up and said, ``I'd like to thank you, General Wald,
and the U.S. military, for ensuring the free flow of oil around
the world.'' And I thought that was a nice comment, but
telling.
Ninety percent of all the oil in the world is owned by
nationally-owned oil companies, most of those in unstable or
unfriendly countries. And much of that oil that comes to the
free world, fungible as it is, comes through very vulnerable
straits. Matter of fact, almost 50 percent of all the oil in
the world travels through places like the Straits of Hormuz,
the Malaccan Straits, et cetera.
Now we're starting to be the benefactors of oil from the
Caspian Sea, which is a good place, but vulnerable, as well as
the west coast of Africa. And predictions are within the next
15 years we'll be importing 40 percent of our oil from the west
coast of Africa. I've spent a lot of time there, and the west
coast of Africa does not have the military capability to
protect those assets.
$100 billion of U.S. money from our industry will be
invested in that area over the next 15 years. Again, the
expectation I think will be that the U.S. military is ready and
able to take up that mission of protection. I think that's a
burden-sharing issue for the rest of the world.
In the interim, I believe alternatives--and reducing our
addition has been mentioned--is critical, and I still think
that will take 10 to 20 years. So I would first of all applaud
your efforts and thank you for your efforts in this, reducing
the vulnerability, and I look forward to answering any
questions you may have. Thank you very much.
The Chairman. Thank you very much.
Dr. Pershing, with the World Resources Institute, thank you
for being here.
STATEMENT OF DR. JONATHAN PERSHING, DIRECTOR, WORLD RESOURCES
INSTITUTE
Dr. Pershing. Thank you very much, Senator. I appreciate
very much the opportunity for the World Resources Institute to
participate in this session. We are a research think tank which
focuses on global environmental problems, and to that end also
look for policy solutions that can be pragmatic and successful.
On the issue of biofuels, we believe that the biofuels
offer enormous potential, but that our policies have to be
carefully designed if we are to contribute to meeting both our
environmental and our energy security goals. I want to make
just three points.
The first one is that we are not convinced that the current
set of biofuels policies are being entirely correctly
undertaken. For example, it's not clear we take account
adequately of environmental damages, including water,
fertilizer, soil, soil loss, erosion, diversity loss, in the
design of the current programs. To a certain extent the focus
on corn rather than cellulosic ethanol as a key feedstock
creates some questions, but in other areas, things like our
flexible dual fuel standards for vehicles, we create some
perverse incentives around issues like efficiency.
The second point I would like to make is that there are
ways that we think we could do it right, that would be
consistent with policy objectives that we hold closely. We
should actively pursue the commercialization of cellulosic
solutions, but we need to be careful. Not all cellulosic
options are the same. Not all feedstocks are equal.
We should invest in research to minimize the environmental
impact of the crop choices. We should provide incentives for
best management practice, such as conservation tillage. We
should develop incentive policies that are based on the
characteristics of the fuel that we want to encourage instead
of the fuel itself. If we do these kinds of things, we would
encourage what I would call good biofuel. We would meet both
the energy and the greenhouse gas criteria that we hold,
instead of developing a biofuel solution which meets neither.
The third point, biofuels have to be part of a set of wider
priorities, a portfolio that in the transport sector includes
modal shifts, vehicle technologies, and other fuel options. The
climate emissions and the energy security that we have all
spoken to should be the guiding principles that give us those
criteria. If we adopt those points and frame our solutions in
that manner, we can have a significant impact in both areas and
allow this to be a very successful policy outcome instead of
one that is not as manageable.
We look forward to participating with you and working with
you as you work in this important area. Thank you.
The Chairman. Thank you very much. Let me ask a few
questions and then defer to Senator Salazar, and then we'll do
another round if others haven't arrived.
Let me start with this issue of too much focus on corn and
not enough focus on cellulosic feedstocks. That seems to be a
recurring theme in a lot of what I heard from you folks. We
tried, in the EPAct 2005, at least at one place, to incentivize
the development of cellulosic ethanol by saying that in
reaching the goals for blending of ethanol into the fuels used
in the country, we would give credit for cellulosic ethanol of
2.5 gallons for every gallon of grain-based ethanol.
Now, that became sort of a dead letter because obviously
the development of ethanol generally has been so substantial
that it looks like these goals are not a real concern of
anybody. We're going to blow right past them. What else could
be done, what else needs to be done to be sure we've got enough
focus on development of these cellulosic feedstocks and don't
get into a circumstance where we're putting all of our
investment into corn-based ethanol?
Now, Mr. Dinneen, I know this is an issue near and dear to
your heart. Why don't you give us your view?
Mr. Dinneen. Thank you, Mr. Chairman. First of all, I'd
like to reject the notion that there are good biofuels and bad
biofuels. I mean, biofuels in general are going to be better
than gasoline, and I don't think that there's ever going to be
a situation where cellulosic ethanol replaces corn-derived
ethanol.
Corn is going to continue to be an important domestic
market for farmers. The corn ethanol industry today is
revitalizing rural communities. When I go to an ethanol plant
opening, and I have to go to them quite frequently these days,
I look at 1,000 farmers that are gathered celebrating the
opening of a new business, perhaps the first new business that
has come to that community in 20 years. And it's a facility
that they invested in, and they recognize that it is going to
provide a tremendous economic stimulus to their area, that's a
very positive thing.
That's one of the reasons this policy has been so
successful. To try to demonize corn-derived ethanol I think
misses the bigger picture, which is that we need to be doing
everything possible to promote all biofuels. Corn ethanol will
certainly have a role. Corn ethanol can't do it all, but it's
going to be a part of the future. There are limitations to what
we're going to be able to produce from grain, and that's why
there isn't a corn ethanol producer that I represent that
doesn't have a cellulose-to-ethanol research program underway,
because they know that that is a part of the future.
The Chairman. To push back a little bit, I agree with you
that there are not good biofuels and bad biofuels, but would
you agree that there are good biofuels and better biofuels from
the perspective of getting our energy needs met?
Mr. Dinneen. I'm not in a position to disagree with you
vehemently. How's that?
The Chairman. All right. All right. Mr. Conover?
Mr. Conover. Thank you, sir. I want to say that I would
subscribe to much of what Dr. Pershing said. And I think the
way to think about this, as you put it, is good biofuels and
better biofuels. In addition to the ability to make a dent in
our dependency issue, you've also got life cycle greenhouse gas
emissions issues.
There's a real possibility with cellulosic ethanol that you
will have negative emissions on a life cycle basis, given the
fact that you could use the lignan that is a byproduct of the
process to actually power the plants themselves. So there are
clearly better biofuels from an environmental standpoint.
The point--and I certainly don't want to demonize corn
ethanol because, as Mr. Dinneen points out, it is better than
gasoline. There's no question about that. But one of my jobs in
government was the director of the Climate Change Technology
Program, and the issue for--it's sort of a philosophical
issue--Federal subsidies really ought to be targeted at what a
lot of people in the R&D community call the ``valley of
death.''
And that is where you've got a technology that has been
brought to the near-commercial stage through research,
development, and demonstration, and it needs to get out into
the commercial marketplace to see if it will survive or not,
see if it will be able to compete. That's where cellulosic
ethanol is today. It can compete, but it can't compete on a
level playing field with corn ethanol. Corn ethanol
profitability is extremely high.
Yes, there are issues of natural gas prices, there are
issues of corn prices, but from a fiscal conservative
perspective, you ought to consider directing the subsidies
where they are needed the most. And the only downside to the
current system is whether the fact that we are providing very
generous subsidies to an established, mature industry is
preventing us from providing the assistance we need to give to
the emerging biofuels. It's not a matter of demonizing corn.
It's a matter of where do you need to spend the Federal
dollars.
The Chairman. Dr. Pershing.
Dr. Pershing. Just one short comment about it. I don't at
all mean to demonize corn. What I'm suggesting is that we're
looking at a significant expansion in the total market, and as
we expand in that market, if we are to stay with corn, the
question is where are we going to put it? Where are we going to
grow it?
Well, the place we grow it is by moving away from other
crops. The place that we grow it is by moving away into
conservation-reserved areas. The place that we grow it is
moving into marginal lands. In all of those cases there are
potential environmental consequences that we have to be careful
about, we have to manage.
It doesn't mean that corn is bad. It means we have to think
about designing policies that let us move forward appropriately
as we expand the market. Cellulosic ethanol offers different
choices, an expanded set of choices which, on balance, seem to
have more positives than expansion, simply thinking about the
corn structure as it exists today.
The Chairman. Yes, Mr. Detchon.
Mr. Detchon. Mr. Chairman, I would just say I think that
corn can be produced well or it could be produced badly, and
cellulose can be produced well or it can be produced badly. We
are trying to move toward better biofuels, but more
importantly, more biofuels.
And I think that if you think about how to incentivize
that--you noted that the RFS has had little effect because the
industry has way overshot the targets. But there is a general
consensus, that I think Bob would agree with, that the corn
industry is going to be limited to somewhere in the
neighborhood of 15 billion gallons.
If the Congress embraces the President's goal of 35 billion
gallons by 2017 and puts that into a predictable ramp-up, now
you are creating the investor confidence to make the next
generation of technologies move forward, and that's the most
important thing. There's a lot of money moving into this area
in the private sector, but the need is to have some assurances
to have a market. So the reverse auction that was contained in
EPAct was a useful tool. And a higher RFS, too, that would go
beyond the reasonable expectations of corn supply, will also
drive us toward the cellulosic future.
The Chairman. Let me call on Senator Salazar for his
questions.
Senator Salazar. Thank you very much, Chairman Bingaman,
and thank you for putting the spotlight on biofuels and the
importance of biofuels with respect to our energy future.
I also want to just say thank you to the members of the
panel who are here, who are interested in this issue, and to
the members of the audience who are here. I saw my good friend
Dan Arvizo, the director of the National Renewable Energy Lab,
who is going to be on a panel later on this afternoon. We very
much look forward to his vision on what the possibilities are
of some of the things that we are talking about here.
To the Energy Future Coalition and to all of you who have
been involved in the 25 25 effort with Senator Grassley and
myself, I appreciate that very much. At this point we have, I
think, 25 original cosponsors of that legislation, and I think
it will continue to grow in terms of the kind of support that
it has.
I have a couple of questions for you. We probably have--
I've not counted the bills, but certainly there are dozens of
bills that deal with energy. I think there is a general
recognition here in this capital that energy is one of the top
two or three signature issues of the 21st century.
And I guess the first question that I would ask of you is,
how far do you think we can go? Is the expectation, as set
forth in our vision, of producing 25 percent of our energy from
renewable energy resources by the year 2025, doable? Is it too
modest and insufficient a goal? Could we do better? If we could
do better, how could we do better? So I would ask you to all
respond to that question very briefly.
And the second question that I would ask you to respond to
is a continuation to the set of questions by Senator Bingaman,
and that is that there has been a lot of focus on corn and
ethanol. In my State I see four plants today functioning that
weren't there 2 years ago. I very much am a supporter and the
No. 1 cheerleader of that effort, but I also know that as we
transition from corn over to cellulosic ethanol, that there are
some challenges before we can make cellulosic ethanol
commercially available out there in the market, the way that we
now use corn ethanol. And I would ask each of you to give, in a
very short way, what your top two recommendations would be, to
this committee and to this Congress, as we move forward, to try
to incentivize and to encourage bringing onto the menu of
renewable energies cellulosic ethanol.
So why don't we start with you, Reid, and we'll just go
down the table.
Mr. Detchon. Thank you, Senator Salazar, and thank you
again for your leadership on 25 25.
With regard to the doable question, I think that 25 25 is
clearly doable. I'm sure you are all familiar with the Oak
Ridge so-called billion ton study that indicated that we could
easily harvest more than a billion tons of biomass from
America's lands without disadvantaging food, feed, and export
markets. So the biomass is there.
And on the electricity side, we have a range of
alternatives, including solar, wind, geothermal, and
hydroelectric. Just with respect to wind, for example, as I'm
sure you also know, the administration set a target of 20
percent of our electricity coming from wind. If you can get
that much from wind, getting the next 5 percent is already a
done deal. So 25 25 is not a problem.
But when you think about this in a context--and I'll give
you the example on the transportation side--we're moving, in my
opinion, toward electricity as being the fuel of choice for
vehicles. The Chevrolet Volt, that concept vehicle they just
had out in Detroit, is sort of the first edge of that. Built on
an electric platform, so you don't have a conventional drive
train, and using liquid fuels to recharge the battery as you're
going along, so you have the range that you need.
If you go that path, and you get clean electricity from the
grid, supplemented by clean biofuels, petroleum is out of the
picture completely and your greenhouse gas profile is very
good. So that's a very attractive package to look at
incentivizing. And toward that end, efforts to improve battery
performance for those kinds of cars, I think, are the highest
priority.
With regard to what we need to do, I think that the loan
guarantees providing in EPAct are a very important first start.
As Dave said, it's very important that that got covered in the
CR, and we're very pleased about that. We think the reverse
auction is a very attractive mechanism for early entry fuels,
and again, EPAct authorized that but we don't have
appropriations to it.
And then, last--and I think a lot of you have been thinking
about this--probably the slowest-moving piece of this puzzle is
the availability of fuel to consumers. It would be natural for
the existing petroleum-based infrastructure to be less than
enthusiastic about marketing an alternative product on their
sites, but this is a problem that needs further attention.
How do we get high-blend ethanol and other biofuels more
available in the market to consumers? We now have more than 6
million flexible-fuel vehicles out on the road today. Where are
they going to get fueled? That's an important problem for
further review.
Senator Salazar. So you would say that one of the things
that we could do in this Congress is to move forward to
incentivize a change of the infrastructure so that these
alternative fuels are in fact available to consumers all across
the country, moving from a limited availability now to a much
broader availability?
Mr. Detchon. Yes, sir.
Senator Salazar. OK. David.
Mr. Conover. Thank you, sir. I again agree with much of
what Reid said. The commission doesn't take a position on what
a specific goal should be in terms of the use of renewable
fuels, and in fact the commission is perhaps more concerned
with the issue of zero-emitting sources of energy. And so, as
Reid talks about plug-in hybrids, if a plug-in hybrid is being
fueled by an IGCC coal plant that's fully sequestered and there
are no emissions associated with it, that addresses the climate
change and the international dependency issue as well as some
of these other questions.
So with respect to the most important things that this
Congress can do, and staff hates to hear this, but yes, fund
the things that this committee authorized. This committee did
an outstanding job in crafting energy legislation that was
signed into law in 2005. The Appropriations Committee needs to
follow suit, and they need to fund those programs that you
authorize. That will perhaps make the largest difference of
all.
I think an issue that maybe you won't hear a lot about
today, that will also be important as we grow the ethanol
industry, is consumer preference. Due to the lower energy
density that ethanol has as opposed to gasoline, you will end
up taking more trips to the gas station if our vehicle
efficiency stays stable. And so one of the important things
that this Congress can do is pass, reform, and strengthen a
CAFE system that will in turn make ethanol fuel more attractive
to consumers by increasing the range of the vehicles that are
fueled by it.
Senator Salazar. Bob.
Mr. Dinneen. Thank you, Senator. I would say that if you go
the route of looking at an additional standard, don't be shy
about giving a big, bold number. When we had the debate over
the renewable fuels standard 2 years ago, there were a lot of
people that said, ``7.5 billion gallons, that's an awful lot of
ethanol. How are we doing to get there?'' And there were a lot
of doubters that the industry would be able to respond by 2012.
Well, responding to the marketplace signal that was given,
we're going to have 7.5 billion gallons by July 4 of this year,
not 2012, and we're looking at a time when we will have 14 or
15 billion gallons of ethanol from grain, but we do need to go
beyond that.
And indeed what the President established when he gave his
State of the Union speech and he talked about a 35 billion
gallon goal, that's a very aggressive goal, but one that would
be eminently achievable if the right tools are in place to
assure that the marketplace can respond. It is a goal that will
indeed incentivize cellulosic ethanol and make sure that the
marketplace responds with the necessary R&D----
Senator Salazar. Is that goal high enough, Bob, or would 50
billion be something that would be achievable? Would 60
billion? What's the right goal?
Mr. Dinneen. I'm not sure that I've seen a goal yet that I
would say isn't high enough.
Senator Salazar. So your point is, be bold with our goals?
Mr. Dinneen. Yes.
Senator Salazar. Be bold, then.
General Wald.
General Wald. Senator, I'm not a scientist and I'm not an
expert on biofuels, other than I know we need energy. And I
would say that a couple things come to my mind as I hear--the
solutions I think are all admirable but, as was mentioned
earlier, it's going to be multifaceted.
But the thing that strikes me most of all is that even if
we were to have an epiphany of commitment today by all the
different types of alternate fuels, it would take us--as you
point out in your support of the 25 25 initiative--until 2025
to get there, and then it's only 25 percent of what we use.
So we're always going to have some dependency on oil, it
appears. In my time in Europe or overseas, which was 15 years,
I went to 125 countries and I've seen many things, but it's
striking how vulnerable some of the places that much of the
energy that we're dependent upon are to disruption or lack of
security--in Georgia, in Azerbaijan, off the coast of Africa.
I am encouraged by the fact that we have a commitment by
Senators like yourself, and this country is mobilized now to
address the problem, but it's going to be multifaceted. It's
going to take huge national leadership, and I think we need to
do this in the very near future, because what oil has become to
this country is basically an asymmetric threat somewhat similar
to terrorism. I don't want to be alarmist or overembellish
this, but the fact that countries can now direct or drive what
our foreign policy is is something we're not necessarily used
to, and we're going to become more and more vulnerable to that
in the future unless we take broad and immediate action.
So thank you.
Senator Salazar. Thank you, General Wald.
Seeing that my colleagues are here and we only have about
15 minutes left on the panel, I'll take your answer privately,
Dr. Pershing, later on.
I'll go ahead and yield, Mr. Chairman.
The Chairman. Let me call on Senator Corker to ask his
questions. He was the next here.
Senator Corker. I'll yield to more senior members.
The Chairman. Let me then call on Senator Domenici. He was
right after you.
Senator Domenici. Thank you very much, and thank you,
Senator. You don't have to do that. There is no precedent here.
If you have questions, you should go ahead and take them, but
I'm most appreciative.
I want to explain to my chairman and to all of you why I
was late. I think what I say will apply to Senator Craig. We
both were at the National Prayer Breakfast over here at the
Hilton Hotel on--what is it?
Senator Craig. Florida and Connecticut.
Senator Domenici. Yes, Florida and Connecticut. And we got
caught in traffic, I got caught in local traffic down here, and
we apologize for being late, but not for where we went. It was
a very outstanding place. We even had a gigantic scientist of
our day speak as a believer, which was rather interesting.
Usually you can't get anybody in the science community to talk
as a believer, but he was the speaker and was very glad to do
it.
And he's a geneticist besides, one who works on genes and
how it affects us, which is good.
I'm going to try to be brief. I don't know what has gone on
so far, or what is more appropriate elsewhere. You can tell me,
Senator. How quickly could flex-fuel vehicles be introduced
into the Nation's fleet of automobiles?
And I'll just piggyback on that, the CAFE standards, as
written, allow automobile manufacturers to receive credit for
flex-fuel vehicles toward their CAFE obligations even if these
vehicles never actually ran on biofuels. Should we eliminate
this flex-fuel loophole, or is it a useful way to encourage the
manufacturing of flex-fuel automobiles? I don't know, whomever
is best at it.
Mr. Detchon. Senator Domenici, one thing you missed by
being absent was a fair amount of praise for the Appropriations
Committee for including the loan guarantees in the continuing
resolution, and I want to particularly recognize your
leadership on that. It is much appreciated and it's going to be
very important.
Senator Domenici. You mean in the CR?
Mr. Detchon. In the CR.
Senator Domenici. We got $4 billion. Senator Bingaman and I
have looked it over and we have seen how broad its application
is, and we think they missed a zero. We think it should be $40
billion. We'll be working on that.
[Laughter.]
Mr. Detchon. That's what I would call an aspirational
target.
Senator Domenici. We'll get a lot more than $4 billion
before the year is out.
Mr. Dinneen. Needs more prayer.
[Laughter.]
Senator Domenici. We'll get that, too. Dr. Pershing should
answer my question.
Dr. Pershing. Thank you, Senator. I would like to echo the
comments made about the importance of the work you've been
doing historically to move all of these issues forward. It
makes a great deal of difference.
The question you have asked strikes me as a critical one,
and it comes down to the issue about where standards are set
and how to make sure that we don't create loopholes that are
unintentional. In this particular circumstance, what has ended
up happening is that a trivial, small fraction of the vehicles
that are labeled as flex-fuel vehicles use any form of biofuel.
The vast majority are in areas where there is no gasoline
station that sells ethanol.
The consequence of that is that we have in fact lowered the
standards, because those vehicles do not get the kind of
efficiency that a gasoline vehicle would get. It seems to us,
as we look at that, that as you develop your policy you want to
create incentives that avoid that kind of perverse outcome, and
there are ways to do it: Set up standards that are manageable
across the board; think about things that move you to
incentives that are life-cycle-based, not just ones that are
exclusive to one technology; open up the doors so that when you
look at these life-cycle questions, those issues don't
contradict areas in other policy that we're seeking to move.
I would highlight narrowly the question of efficiency. I
think all the people on the panel have spoken about this being
one part of our solution. Clearly we can get to a much higher
level, to answer Senator Bingaman's question, a much higher
level than a 25 percent share. We can much more easily do it if
we have cut the total consumption in half through efficiency
programs. Then it's actually a matter merely of moving the
technologies we've all spoken to into the market, and those are
the policies you're working on.
Senator Domenici. Very good.
Mr. Dinneen. Senator, if I could just briefly add to that.
I agree with much of what Dr. Pershing just said, but I do
think some credit needs to be given to the domestic auto
manufacturers for the commitments that they have made in the
production of flexible-fuel vehicles. A couple of months ago
they made a commitment in the White House to produce as much as
50 percent of their vehicles, beginning in 2012, as flexible
fuel.
There are 6 million FFVs on the road today. That's a small
fraction of the total number of vehicles that are on the road.
There are only about 1,000 E85 refueling stations across the
country, a small fraction of the number of gasoline stations
that there are.
But you need three components to make the E85 market work:
You need more vehicles, you need more infrastructure, and you
need more ethanol. If you're going to be able to satisfy that
market, you really do have to be able to produce significantly
more volumes of ethanol that can be used to satisfy the blend
market today, so you need to crack the code to be able to
produce ethanol from cellulose.
All of this is happening, but it really doesn't serve much
of a purpose to criticize how little is happening today,
because the marketplace is evolving, there are more vehicles
coming on-line, and there are more stations all the time. We
are working as hard as we possibly can to crack the code to
produce ethanol from cellulose. It's not going to happen
tomorrow, it's not going to happen next year, but in 7 years,
in 10 years, you can indeed have a meaningful E85 market and be
making a real dent in this.
Mr. Conover. Senator, if I could on this, I agree with much
of what Bob has said. The vehicle issue is less of a challenge.
It's only roughly $100 to modify engines to be flex-fuel cells.
Obviously when you multiply that by the number of vehicles out
there, that's a big number, but it is not a big burden.
The infrastructure issue is a bigger challenge, and one of
the recommendations that we are making today is that we not be
wedded to E85 as the next step. We don't have to go from E10 to
E85 to grow this market. If we can go from E10 to E20, and if
there are fewer impacts on existing infrastructure and delivery
systems, then that will more quickly grow this market at a
lower cost to consumers, at a much greater ease of
technological sophistication. So we would urge this committee
to examine that issue. What will it take to get us from E10 to
E20 in a very near time?
Mr. Detchon. A brief word in support of the existing CAFE
credit. If you think about the problem of trying to introduce a
high-blend ethanol into the market, it would be foolhardy to
develop a major production industry and have no cars that can
run on it. This has been an effective tool to get ahead of that
problem, since we do have 6 million cars on the road and the
automakers are willing to ramp up production very rapidly. What
they feel constrained by is lack of demand for ethanol, just as
everybody is concerned here. Let's address that problem by
dealing with the infrastructure issues, and not figure out ways
to penalize the automakers for doing the right thing.
Senator Domenici. Thank you very much.
Senator Bingaman, I might be prepared to yield, and you can
go with whoever you think is next, but I was going to say to
all of the Senators, but in particular you, if we are going to
be continuously burdened by having a low level of numbers for
our loans, for our guaranteed loans, and things like $4 billion
get eaten up like nothing but they go to the wrong places, and
it seems to be even $10 billion or $12 billion would go to the
wrong places, it does make sense, it would seem, for some of us
to ask the Secretary to work on the supply that he has so as to
have dual purpose, so as to develop the technology but also put
the technology that's most needed in the infrastructure arena,
but that first. Otherwise, we could dot all over the place and
still not do maximum infrastructure development with a short
supply of loan guarantees.
I talked to Larry, and I don't speak for him, but I think
he agrees that the Government doesn't understand what we're
talking about. The Government doesn't get hurt by these loans.
They don't even lose any money. Why they can't just have a
giant portfolio of them and watch them carefully, I don't quite
understand. So we'll have to work. And if you agree with me, we
just have to work on that.
Thank you very much.
The Chairman. Well, thank you very much. Let me just alert
everybody. We're within 4 or 5 minutes of having to finish this
panel, unfortunately, if we're going to stay somewhat on time.
We have two other Senators who indicated they have questions.
Let me call on each of them, and they can ask a question or
two, and if we could get quick answers, that would sure help us
a lot.
Senator Cantwell.
Senator Cantwell. Well, thank you, Mr. Chairman. I think
Senator Craig walked in before I did.
The Chairman. Oh, did he? OK.
Senator Craig.
Senator Craig. Well, all right.
The Chairman. It makes no difference if we----
Senator Craig. I will be brief. I have one question. Prior
to asking that, General Wald, thank you for your message on the
sense of urgency as it relates to security and energy. I
started speaking out about petronationalism early last year,
trying, at least to my audience, to say we have a very real
problem here and it's getting worse, not better, and it will
change the character of our foreign policy and our Nation if
we're not helpful. Thank you for your message. I hope it's
getting out. I think it is. I think people are beginning to
listen.
My question is for all of you, and you can answer it
quickly and individually. DOE, because of its failure in coal
to liquids, is scared to death of loan guarantees, and they are
nitpicking and doing something that is frustrating to all of
us, and I think Pete just referenced that. So is USDA a better
place for this than DOE? They have been in that business for a
long while. They seem to be able to handle it.
We have a farm bill coming up, and we have an opportunity.
Should we move exclusively or substantially in that direction,
and away from an agency which has not done this well or is
fearful? I don't see any losers here, but I will tell you we're
missing windows of opportunity and at a time, in my opinion,
that is critical to our country.
Anyone want to respond to that observation?
Mr. Conover. Well, sir, as a relatively recent refugee from
DOE, I am going to say that there are a lot of folks over in
that building that want to make that program work. And I think
that there is room in this--as Senator Domenici pointed out,
there is room in this market for a proliferation of loan
guarantee programs, so I would very much encourage the Congress
to beef up USDA abilities in this regard, as well as DOE's
abilities in this regard.
Senator Craig. General.
General Wald. Senator, first of all, I am not an expert on
bureaucracy, so whether it's in USDA or DOE, I would----
Senator Craig. Neither am I, but I don't want to be a
victim of it, either.
General Wald. I agree, but I will say that I think you've
asked the right question. That is one of the serious issues I
think our country needs to face, how are we going to take
advantage of coal. And I know it's a serious issue on climate,
and I understand that, but from a security aspect, we have a
huge opportunity to take advantage of coal.
I had the opportunity to briefly discuss this with Senator
Cantwell the other day by the train, and I mentioned that she
asked during the last hearing why we don't help China with coal
technology, from a climate aspect, and I think there's some
benefit there.
But my point would be that I think--as Senator Domenici
mentioned, I think it becomes a governmental issue now on how
are we going to assure that we can produce clean coal. The
benefit of that asset would be hugely important to getting off
this dependency on imported oil, and I think when the standards
and regulations are established that say this is what the
standard for that coal is, we're going to make a huge step
forward in getting off that dependency. So thank you for that.
Mr. Dinneen. Senator, if I could just add really quickly,
DOE has had some reluctance, it seems, to move forward with
their loan guarantee authority. I do think that that attitude
is changing, and I do think they are certainly capable of doing
it and they seem to have a new commitment to it. But I believe
that USDA has had some expertise in this. They are enthusiastic
about building a renewable fuels industry, and from my
perspective, all the better.
There are companies that have been waiting for years,
literally, for a loan guarantee program to finally hit the
streets, because they are ready with technology. All they need,
as a first supplier of this new technology, is a loan guarantee
from the Federal Government. So as soon as somebody hits the
street with it, you are going to see commercial cellulosic
ethanol facilities built, and it can't happen fast enough.
Senator Craig. Thank you. I concur.
The Chairman. Dr. Pershing, why don't you give us your
view, and then we'll call on Senator Cantwell.
Dr. Pershing. Just two very brief points. It strikes me--as
you design your loan guarantee program, I personally believe
that this will become a commercial technology. The loan
guarantee program does not have to be permanent. It can be
phased down over time.
The second point is, with regard to the comment made by
General Wald, I agree that we have to think about how we do a
clean coal system. I do not believe that coal-to-liquids needs
to be part of the transport infrastructure to do that. The
effectiveness of a capture and storage program under the
liquids solution is not very promising. We can use alternative
technologies like the ethanol structure, like cellulose, like
efficiency, like plug-in hybrids, which would allow us perhaps
to use coal on the electricity side.
The Chairman. OK. Thank you.
Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman, and thank you,
gentlemen, for the discussion this morning on what at times
seems to be the chicken-or-egg discussion of which to do first
to jump start this market to a full run.
In the Northwest we certainly have developed a great deal
of use for biodiesel--that is, public school buses, military
vehicles, our ferry fleet, more cars per capita than just about
anyplace else--so it's no surprise that we also sold out of all
the biodiesel that we had, and that the largest biodiesel
facility in the country didn't produce 100 million gallons all
last year, and this facility will now produce that, because
that market was there and demonstrating that capacity.
So my question is on infrastructure. What should we either
incent or mandate as it relates to the distribution of
alternative fuels? And, second, do any of you think, given what
you have already said this morning on the cap-out of U.S.
production of ethanol, that we need to do something to further
establish that market by getting other sources of ethanol?
Mr. Detchon. Senator Cantwell, I think with regard to
infrastructure, the----
Senator Cantwell. And specifically mandates or incentives,
if you could.
Mr. Detchon. Yes. I think probably it's a combination. I
would rather not make that choice. I think that I would
recommend a dialog with the auto manufacturers who would like
to partner up and identify areas where they have already sold
substantial numbers of flexible-fuel vehicles. And maybe, once
you reach a certain trigger level, there would be a mandate in
that region for a certain percentage of refueling stations to
be present. I think that there are flexible ways to do this.
And I think that, in terms of biodiesel, the only thing I
wanted to suggest there is that I think that the infrastructure
for using and producing biodiesel from vegetable and animal
fats is pretty well established, but there is a very large
opportunity to use a wide range of organic material through
gasification and conversion to liquid fuels, and I think that's
an area we have underinvested in historically.
Senator Cantwell. Thank you.
Mr. Conover. Let me just quickly add, because I don't
believe you were able to be here when I made the point earlier,
the biggest mandate that's missing--and it was part of the
commission's 2004 report--is fuel economy for vehicles. Given
the lower energy density of ethanol, there's going to be
consumer reaction, the more we grow this market, to the reduced
range that they get in driving their vehicles with greater
blends of ethanol. So increasing the Corporate Average Fuel
Economy standards is one of the single most important steps
this Congress can take to reducing our dependency on foreign
oil.
Senator Cantwell. I actually did catch that part of your
comments. So do you support mandates or incentives for other
infrastructure, or do you think we should just pass on that and
focus on CAFE?
Mr. Conover. Both have a place, mandates and incentives,
but you've got strong elements of each of those in the Energy
Policy Act of 2005, and the greater challenge there is ensuring
that the Appropriations Committees on both sides of the Hill
fund the programs you have authorized.
Senator Cantwell. What mandates on infrastructure do you
think are there, that say this is how many alternative fuel
stations and infrastructure should be built?
Mr. Conover. I think--this is not a commission policy, but
I think it's instructive to look at Security America's Future
Energy and their Energy Security Leadership Council's
recommendations that came out recently, where they call for
mandates on a growing percentage of fueling infrastructure at
stations that are part of the branded family of stations. You
don't want to put a mandate on the small mom-and-pop gas
station, but for the larger businesses, a mandate may be an
appropriate way to go.
Senator Cantwell. Thank you.
Mr. Dinneen. Senator, I think I have just a couple of quick
points. One, I think the infrastructure that exists today is
certainly capable of handling the market that is there today in
terms of ethanol and biodiesel as a blend component in gasoline
and diesel fuel. Ethanol today is blended in 46 percent of the
Nation's fuel, and we are shipping coast to coast and border to
border, and that infrastructure is there.
When you start talking about much greater volumes of
ethanol or other biofuels, if you're meeting a vision of 35 or
60 billion gallons, then different infrastructure challenges
certainly develop. But I think we're going to be a lot smarter
because I think that we may not know as yet just what those
infrastructure challenges are.
As the ethanol industry is building, we're building far
beyond the Grain Belt. We're building plants in Washington, in
California, in the Southwest and the Southeast and the
Northeast. Our industry is developing with smaller production
centers all across the country. It's going to be a much
different infrastructure challenge than what you have today,
where much of our petroleum infrastructure is based off of a
production center in the Gulf Coast.
Senator Cantwell. So just to be clear--because I want to
move on, because I want to get, Mr. Chairman, to have the next
panel called--you are agnostic about mandates or incentives, or
you're just wait and see what happens?
Mr. Dinneen. There are different elements of this question.
Are you talking about pumps----
Senator Cantwell. I'm talking about infrastructure. I'm
talking about the delivery system. I'm talking about ensuring
for the producers that the delivery system exists.
Mr. Dinneen. I think we need to understand how the market
is going to develop, to understand what the needs are, to get
the product from the production facility to the marketplace.
There are incentives in place at the gasoline retail level that
I think are sufficient and will develop further as the
marketplace develops.
Senator Cantwell. Dr. Pershing.
The Chairman. Yes, Dr. Pershing, why don't you give us the
final word, and then we'll go on to the next panel. Thank you.
Dr. Pershing. Thank you very much, Senator. I wanted to
only answer briefly the last of your questions about the
international part of the community. It strikes me, as we look
at the development of both cellulosic and corn and other forms
of starch-based ethanol, we have significant environmental
questions.
As Brazil moves into expanding its reach, it's mostly doing
so by moving into rain forest. As Indonesia moves into
detropha, it mostly does so by cutting down the rain forest. As
we look at China, which has proposed not to have any additional
starch-based ethanol because it runs into food problems,
they're looking now at cellulosic. If we could develop that
technology, we could be an exporter of the technology and an
importer of a much cleaner source of fuel without getting into
these other environmental constraints that we should worry
about.
Senator Cantwell. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you, and thanks to this panel. I think
it's been very useful testimony.
Why don't we have the second panel come forward. Could the
witnesses please be seated, and we'll put the signs where you
sit.
Let me go ahead and introduce the panel, and then we'll
have each of them take 2 to 3 minutes and give us the main
points they think we need to understand, and then we'll go to
some questions.
First, we have Larry Mitchell, who is the CEO of the
American Corn Growers Association. Second, Richard Moskowitz of
the American Trucking Association. We appreciate both of them
being here. David Terry, with the Governors Ethanol Coalition.
Dr. Robert Fraley, who is the executive vice president and
chief technology officer with Monsanto Company. Toby Bostwick,
who is president of New Mexico Sorghum Producers. And Ken
McCauley, who is president of the National Corn Growers
Association.
So we're glad to have all of you here. Why don't we just go
across the table from our left to our right, please.
STATEMENT OF LARRY MITCHELL, CEO, AMERICAN CORN GROWERS
ASSOCIATION
Mr. Mitchell. Thank you, Chairman, members of the
committee. My name is Larry Mitchell. I'm with the American
Corn Growers Association, but I'll tell you right off the bat,
representing the corn producers, we will be the first to tell
you that we think that ethanol must be much bigger than just
corn and much bigger than just Midwestern. We believe that we
can make ethanol out of just about anything in every State, and
the key to this entire process is to decentralize and get
diversity in the field stocks that we use. And to see where
we're going, we need to sort of do a quick review of where we
came from.
I'm a fifth generation farmer from Texas, but I'm only the
second generation to start out farming using petroleum as my
energy source. A hundred years ago most U.S. farms used half of
what they produced to fuel that farm, because we had a huge use
of people power and, more importantly, horsepower. Also, a
large percentage of the other half of what we produced also
went for the local economy. So going to a local-based, farm-
based renewable energy system certainly isn't something new.
It's something that we're finally returning to after 100 years
of the petroleum age, an age that may well be half over.
Also, a review. It was mentioned this morning about
national security and international security, we are about to
start our fifth year of a war in Iraq that is a war and we are
there for many, many reasons. And one of those reasons of
course is the liberty of the Iraqi people, but the other is the
liberty of Americans and the liberty of our lifestyle and our
energy systems.
And so if we look back at previous conflicts, and realize
that when FDR was building his arsenal of democracy to defeat
the evil people at that time, he reached out to some very, very
good people, his dollar-a-year men as he called them, and other
folks such as Henry Kaiser, who figured out how to float a
Liberty ship on a pretty regular basis. In fact, in 1943 he
floated three of them a day. Now, any nation that can launch
three Liberty ships a day surely can figure out how to launch a
liberty fuel refinery each week.
You see, if we work to expand our 100 ethanol plants to
1,000 ethanol plants scattered all across the Nation, each of
them producing about 60 million gallons apiece, we're at that
60 billion gallon level, which doesn't alleviate our need for
importing petroleum but it does alleviate our need to import
petroleum from the Middle East. I think that that is a noble
endeavor that we should pursue.
A couple of things while I've got just another moment here,
things to look at in the farm bill to help us get there. We
need a national strategic grain reserve, just as we have a
national strategic petroleum reserve. That reserve should be
not only for national food security but now national energy
security, and for international famine relief. We need a
national cellulosic reserve similar to, but apart from, the
Conservation Reserve Program, to help farmers have the
incentive to move to those new energy crops that we're going to
need in the future. And we need to retain and expand the energy
title of the farm bill.
Some other areas we need to look at. The tax incentives
that are in place are very critical. We need some longer-term
extensions of those so that we have more continuity for the
people that are financing this new industry, and that would be
for ethanol, biodiesel, and on a side issue, wind. The American
Corn Growers has worked very hard for 6 or 7 years now on
expanding wind understanding and application for farmers,
because it's also a part of this overall goal.
We need to expand and extend the renewable fuel standard. I
was very pleased to find yesterday that the President has
abandoned his move to eliminate the ethanol import tariff. I
think that he has made a good decision in abandoning that
course of action. And we need to extend the ethanol import
tariff because, if for no other reason, that tariff pays for
the ethanol splash blend incentive that we have.
Given that, I will yield the rest of my time to my friends
down the table.
The Chairman. All right.
Mr. Terry, welcome.
STATEMENT OF DAVID TERRY, GOVERNORS ETHANOL COALITION
Mr. Terry. Thank you, Mr. Chairman, Senators. I appreciate,
on behalf of the Governors Ethanol Coalition, the opportunity
to be here this morning. The coalition includes 37 Governors
across the country, in all regions, from the coasts, and
obviously, the center of the country as well. We focus on
expanding ethanol production and use policies in the States to
achieve those goals, to bring the benefits of ethanol from an
environmental, economic, and security perspective to all
regions of the Nation.
I just want to take a few moments to summarize the
Governors' policy recommendations that were recently adopted by
the Governors and released. The first among those is an
expansion of the Renewable Fuels Standard to 12 billion gallons
beginning in 2010, expanding on a Btu basis to 15 percent at
2015 and 25 percent of the transportation fuel base in 2025,
equal to about 60 billion gallons.
The second policy recommendation the Governors have adopted
is establishing a timetable for infrastructure, E85
infrastructure, focusing in particular on regional approaches,
perhaps providing competitive cost-shared incentives to the
private sector and State and local governments, focused on
metropolitan areas, expanding infrastructure in particular
regions or metro areas that it makes the most sense. Also
providing incentives for ethanol production, particularly
cellulosic ethanol production, monetizing the current Renewable
Fuels Standard cellulosic ethanol credit in particular.
And, finally, providing elevated and stable funding for
research and development and demonstration programs. In
particular we cite the Department of Energy's biomass R&D
program; the genomics effort, also at the Department of Energy;
the USDA program, the biomass research and development program.
And expanded funding for infrastructure, some of the
infrastructure policies that we have highlighted, we feel
that's a particularly important area.
I would just like to thank, on behalf of the coalition, the
Senators for support of these issues, both in the Energy Policy
Act, but more recently in the CR as well, with regard to the
loan guarantees, as was previously mentioned. Thank you.
The Chairman. Thank you very much.
Dr. Fraley, thank you for being here.
STATEMENT OF DR. ROBERT FRALEY, EXECUTIVE VICE PRESIDENT AND
CHIEF TECHNOLOGY OFFICER, MONSANTO COMPANY
Dr. Fraley. Mr. Chairman and the committee, it's a great
pleasure.
As I sit here today, I just remind you that we are probably
in the midst of the most remarkable technology revolution in
the history of agriculture. Biotechnology will have the same
impact on crop production, food production, as what we saw in
the 1960's with computers and electronics that have changed our
world today. This technology promises to increase yields and
productivity in very remarkable ways.
Many of the crops across the United States are benefiting
from these tools, but I think the advances, particularly in
corn, have been very remarkable. We're seeing tremendous yield
gains that I think assure us of meeting both the opportunities
that we see with corn for feed, for food, and for fuel.
In fact, I fully expect that corn grain itself can provide
10 percent of the Nation's gasoline requirements by 2015 and 40
percent of the Nation's gasoline requirements by 2030. And I
remind you that in addition to the grain, that corn is also,
through its stems and leaves, the stover, an excellent source
of biomass for cellulosic ethanol production.
And to put this in context, when my dad was farming 40
years ago, the average yield for corn in this country was 75
bushels per acre. In 40 years, we've doubled that. The average
today is 150 bushels per acre. With these new technologies,
based on knowledge of the corn genome and using molecular
breeding tools, using biotechnology to introduce new genes into
corn that can allow the corn plant to literally resist insects,
resist weeds, provide drought tolerance, better fertilizer
efficiency, we see the opportunity to double corn yields in the
next 20 years, going from an average today of 150 bushels per
acre to as much as 300 bushels per acre by 2030.
I think it's important that there are lots of tools and
technologies involved. There's lots of research going on in
companies and government labs. We work with institutions like
Sandia and others to bring these tools together in an
integrated way. And I remind you that it's the knowledge, the
sophistication, and the dedication of our farmers that make all
of this possible as we bring these tools to the farm.
We think these tools can not only increase yields, but they
can allow for agriculture to have an even more benign effect in
terms of its environmental impact by reducing the amounts of
fuels and fertilizers and pesticides that are used for
production. And of course by increasing farm productivity, we
are increasing farmer profitability, and that is absolutely
key.
This country has had a great history of improving crop
yield, as I said, having doubled corn yields in the last 40
years. Using these new tools that are available, I fully expect
that we will double that again in the next 20. Thank you very
much.
The Chairman. Thank you very much.
Mr. McCauley, we welcome you. Thank you.
STATEMENT OF KEN McCAULEY, PRESIDENT, NATIONAL
CORN GROWERS ASSOCIATION
Mr. McCauley. Thank you, Mr. Chairman, members of the
committee. It's a privilege to be here today speaking for the
National Corn Growers.
I'm a farmer from White Cloud, KS. I represent the National
Corn Growers Association as their president. It's truly a
privilege to be here today.
I represent the producers who produce the feedstock for the
ethanol industry today and the future. At NCGA we have a
mission statement that says ``to create and increase
opportunities for corn growers.'' That's what we're doing with
the ethanol industry. I represent 33,000 dues-paying members
and I represent 300,000 corn growers across the country.
At NCGA, over 2 years ago, we had a vision of 15 billion
bushels of corn produced going into 15 billion gallons of
ethanol. Also, when we get through with the ethanol production,
we still have 10 billion bushels of corn left to do the things
we're doing today, to satisfy our markets of food and feed in
the livestock industry.
NCGA would like to see the continuation of the ethanol
incentives that we have today and also the ethanol tariff, just
because we don't feel like we're mainstream yet. We feel like
we will be. Also, research into potential cellulose feedstocks,
such as corn stover and fiber, will be very vital to increasing
the ethanol production in the future.
Specifically, NCGA sees incremental acreage shifts from the
cropland we have today and the advances in biotechnology,
looking at the yield curves that we have today and in the
future. These will all be key components in getting to the 15
billion bushels that we're projecting. The National Corn
Growers Association believes that we can continue to satisfy
the markets we have today of food and feed, and look forward to
the tremendous opportunities that we have for rural
development, new farm income, and opportunities for young
people in the addition of fuel to our mix of products that we
produce for.
I look forward to answering any questions that you have,
and thank you for the opportunity to be here today.
The Chairman. Thank you very much.
Next is Toby Bostwick, who is the president of New Mexico
Sorghum Producers. Thank you for being here. We're glad to have
New Mexico represented on this panel.
STATEMENT OF TOBY BOSTWICK, PRESIDENT, NEW MEXICO SORGHUM
PRODUCERS
Mr. Bostwick. Thank you, Mr. Chairman and Senator Domenici,
especially for all your work in the past in renewable energy.
We typically raise 3,000 acres of sorghum on our family
farming operation. I plant sorghum because New Mexico, like
most of the Sorghum Belt, is in the semi-arid region of the
United States. That means we receive less than 21 inches of
rainfall a year. Sorghum is one of the most drought-tolerant
crops in the country, and is an integral part of our farming
system.
The sorghum industry believes that New Mexico can be a
leader in the renewable fuels industry despite its semi-arid
climate. Because of its diverse plant genetics, sorghum can
play an important role in the renewable fuels industry and the
farming operations.
There are several ways in which ethanol can be produced
from sorghum: from starch sources, such as grain sorghum or
corn; from sugar produced from sweet sorghum or sugarcane; or
from new technologies like cellulosic ethanol, which uses
biomass from many sources. Sorghum is truly unique in that it
can play a role in all three of these different ethanol
schemes, which distinguishes it from any other crop being
researched for ethanol production.
Regarding the starch industry, the Abengoa plant in
Portales has used sorghum solely as its feedstock for the past
18 years. In fact, one bushel of sorghum is equivalent to one
bushel of corn in ethanol production. Sweet sorghums are a crop
that we could be using now, along with grain, to produce
ethanol.
China and India have robust programs that convert the high-
sugar juices extracted from sweet sorghum into ethanol. Though
most people grow these specialty crops in sorghums for
molasses, sweet sorghum can be grown from Florida to Virginia
and would also grow well in New Mexico.
Forage sorghums and sorghum-sudan grasses have the
potential to produce a tremendous amount of biomass. Sorghums
with the brown midrib trait could potentially convert more
biomass to ethanol per acre, but more importantly, forage
sorghums make good use of the limited natural resources--for
instance water--while still producing high yields.
DOE has stated that the ideal crop for ethanol would be
drought-tolerant, have low lignan, high cellulosic composition,
require limited inputs, have a seed industry that can supply
the needed seed, have known agronomics, and have a genome that
will be sequenced. We raise that crop, Mr. Chairman. It's
sorghum. It meets these requirements and needs little
modification to work in a robust, diverse ethanol industry. We
just need a stronger commitment to research.
In conclusion, my neighbors and I want to make sure that
the renewable fuels industry does not pass by the semi-arid
regions like New Mexico and the Sorghum Belt. We see the
potential economic development that goes with the local ethanol
plant with local feedstock. We want to be a part of the
solution, and produce local ethanol that will benefit the State
and give us real security for my family, my country, and for
generations to come. Thank you.
The Chairman. Thank you very much.
Our final witness on this panel is Charles ``Shorty''
Whittington, who is with Integrity Biofuels, representing the
American Trucking Association. Thank you for being here.
STATEMENT OF CHARLES WHITTINGTON, PRESIDENT, GRAMMER
INDUSTRIES, REPRESENTING THE AMERICAN TRUCKING ASSOCIATION
Mr. Whittington. Thank you very much, Mr. Chairman and
members of the committee, and thank you for inviting me to
share the information on the subject of transportation of
biofuels. My name is Charles ``Shorty'' Whittington. I'm the
president of Grammer Industries, a for-hire trucking company
headquartered in Grammer, IN, which is in central Indiana. I
also own Integrity Biofuels, a 10 million gallon per year
biodiesel production facility located in Morristown, IN.
I'm here today as the vice-chairman of the American
Trucking Association, and past chairman of the Agricultural and
Food Transporters Conference, a component of the ATA. My
remarks are directed to the production, distribution, and use
of biodiesel, which may be used as an additive to extend our
supply of diesel fuel.
As the owner of both a biodiesel plant and a trucking
company, I'm interested in promoting the use of biodiesel while
making sure biodiesel does not create operational problems for
the end user. The increased voluntary use of biodiesel is an
acceptable means to extend the supply of diesel fuel, reduce
diesel particulate emissions, and lessen our dependence on
foreign sources of oil.
As the largest consumer of diesel fuel, however, the
trucking industry is concerned over the absence of federally-
enforced biodiesel quality standards. I can tell you firsthand
that while biodiesel is relatively simple to manufacture, high
quality biodiesel is very difficult to produce consistently.
States are not doing an adequate job of ensuring biodiesel
quality. For this reason, any program to expand the use of
biodiesel must include a Federal component that ensures that
only high-quality fuel enters the marketplace.
The trucking industry is also concerned with the growing
proliferation of State-implemented renewable fuel mandates
which distort the market, limit competition, and result in
higher cost to consumers. A Federal approach to increased
biodiesel use is far superior to a patchwork quilt of State
boutique biodiesel mandates.
While the trucking industry supports the use of biodiesel
as a means to extend the diesel supply, we remain concerned
over the higher costs associated with biodiesel use and
operational challenges that biodiesel blends of more than 5
percent create for the trucking industry. These include cold
weather performance and lower fuel economy.
In summary, we believe that the Federal Government has a
role to play in ensuring the growth of the biodiesel industry:
first, to ensure that all biodiesel entering the marketplace
meets acceptable minimal quality standards; second, ensure that
biodiesel is used as part of a single national fuel standard,
preempting State boutique biodiesel mandates; third, enact
appropriate financial incentives to ensure that the cost of
using biodiesel is comparable to the cost of using petroleum-
based diesel, and that these incentives not reduce the amount
of money needed to support and expand the Nation's highway
infrastructure; and, last, ensure that biodiesel blends are
appropriately labeled so that the end user may make an informed
decision on usage.
Thank you again for the invitation to attend today's
conference and I'll be happy to respond to any questions. Thank
you very much.
The Chairman. Thank you very much. Let me go ahead with
Senator Domenici and then Senator Craig, and we'll take as many
questions as people have here.
Senator Domenici. Thank you, Mr. Chairman. I'll try to be
brief.
Mr. Whittington.
Mr. Whittington. Yes, sir.
Senator Domenici. How does the choice of an energy crop,
whether it's corn or switchgrass or wood chips, for example,
affect the environmental impact of ethanol production?
Mr. Whittington. The new technology that's in the
marketplace today is going to change that, the results of that
question, on a daily basis, I believe. If you look at the
technology in the ethanol industry today versus 5 years ago, it
has changed rapidly, and the conversion tables are much greater
now than what they used to be.
The use of cellulose and switchgrass and all those things I
think is a good possibility as we move forward in the future.
But once again, the cost compared to--it's sad to say, the
American people are interested in what the cost of the products
that they use on a daily basis might be, and until we come up
with some new energy efficiency conversions of some of these
things, it will be some time before we get to that degree.
Senator Domenici. It seems that there is a real need for
greater quality control in biodiesel.
Mr. Whittington. Very much so. That's a real problem in the
industry that we have today. The biodiesel industry is the
small baby in this equation today. Ethanol has approximately 18
to 20 years on the biodiesel industry. Up until a year ago we
didn't have a Federal standard.
In 2004 there was only 25 million gallons produced on a
yearly basis, with about 50 producers. Today, in 2006, that
number has jumped to almost 175 to 200 million, depending on
what you look at, and the capability out there to produce
biodiesel today has already reached 800 million gallons. But we
don't have anybody checking what the quality standards are in
certain locations, which is a real problem to a trucking
industry that can consume over 700 million gallons of
biodiesel. But if the trucks won't run on it, why buy it?
Senator Domenici. Are loan guarantees more appropriate for
the cellulose ethanol refineries?
Mr. Whittington. I would say that loan guarantees are
important, but we in this country have been very competitive
and very, very active in gathering money to make products that
make other people money. I think that we have to be careful of
how we spend the money. Your group in the Senate has been very
good in appropriating money, but as we take that money and put
it down the line, having different agencies to distribute that
money in the way that they see that you want it spent has been
a real problem in the biodiesel, industry as we look at it
today.
Senator Domenici. Could I ask our New Mexico witness these
questions, if he has answers, and then I'll yield to Senator
Craig.
Some analysts predict a glut in the ethanol market, saying
that we have increased biorefinery capacity too quickly. Do you
believe this is the case?
Mr. Bostwick. No, sir, I don't I think there will be demand
throughout the next 10 years. I know they're saying in 2008,
2009 that glut will happen, but I don't believe that the
production will meet the demands.
Senator Domenici. If we are headed for a glut in the
ethanol market, could we alleviate the problem by increasing
the percent of the ethanol blended into gasoline?
Mr. Bostwick. You bet. I truly believe if we went to an E15
or even an E20 mark, I don't think infrastructure-wise or
elsewhere there would be any problems.
Senator Domenici. Is this projected glut truly national, or
is it regional? In other words, could we address this problem
by building infrastructure to serve additional regions of the
country rather than considering it to be national?
Mr. Bostwick. Yes, sir, I think we could increase our
infrastructure to supply additional regions with ethanol, and
that would be a big bonus to the problem.
Senator Domenici. Well, I want to say to you, from a New
Mexico standpoint, because we have a drought kind of climate,
your sorghum development is much welcomed. We hope to work with
you, and we hope that it can do all the things you are hoping
it will do, because of its condition, which has changed
drastically. That is, the product has changed by working with
the university and others who are working in that field. I
thank you for that.
Mr. Bostwick. Thank you, Senator Domenici.
Senator Domenici. I think you wanted to go, Senator Craig.
Senator Craig. Gentlemen, thank you all for participating,
and the insight and thoughts you bring to this committee.
So we have gone from $2.06 corn to, let's see, $4.08 now a
bushel? And my cowboys are screaming, but Monsanto is going to
fix that.
And how long will it take, and what is our trade deficit
going to be when we diminish the export of our No. 1 export
commodity, corn, and blend it all or consume it largely in the
domestic market of both ethanol and the human food chain? Corn
producers, talk to us about that. We're about to write a farm
bill, and there's going to be great pressure from other
interests to limit your use of corn in the ethanol market.
Mr. Mitchell. It's an excellent question, Senator. Corn
drives the price of almost all of the other commodities. Corn
has been underpriced for way too long. Corn farmers have been
losing money on every bushel they have produced for the last
decade.
In the area that we're in now it's getting close to our
cost of production. Prior to this crop year, which saw a 26
percent increase in the farmer's expense just for energy, prior
to that, the cost of raising corn was around $3.20, so we're in
the cost of production area. This is going to present some
challenges for the livestock industry.
That's why in this next farm bill we should probably work
toward establishing a floor price at about the levels we're
looking at now, to help us on the downside of prices for corn
farmers and other farmers, but also establish a national
strategic grain reserve, to have the reserve in place to help
damper what could be $8, $9, and $10 corn. But the other silver
lining here is, as I mentioned, corn has been dramatically
underpriced for way too long, and I think at $3.50 and $4 corn
there's still profitability in the ethanol industry for corn-
based ethanol, but it also gives more incentive to move toward
cellulosic ethanol production.
Senator Craig. Good points. Ken.
Dr. Fraley. I'd just like to make the point that the United
States enjoys this position because of many years of
investments by universities and the Government in the basic
technology that is now opening the door for tremendous and vast
improvements in crop productivity. We are certainly sensitive
to the pricing issues that you talked about, and I think the
key is to be able to drive yields, as we both are selective, as
we expand the acreage of the crop, but also take full advantage
of the technology that is now possible, that is driving and
fueling the productivity of our production acres.
Senator Craig. Thank you.
Mr. McCauley. Thank you, Senator. We at National Corn
Growers feel that the market prices will prevail if we let the
market work. The livestock industry understands cycles. They
understand the way this high-priced corn will usually lead to
low-priced corn, and how the corn prices, feed prices, fit into
their cycles. But one thing that we really have looked at hard
is the trend line yields and the accelerated trend line yields
that we have today, due to the seed companies and the
biotechnology, that have really improved our yields.
One other thing that we really feel you can't measure is
the profitability out there on the farm, how that gets your
attention. If the farmer, looking at $1.50 corn and higher
government payments, just really didn't get with it, buy the
high quality seed, get out of bed in the morning, really get
after it. I guarantee you the wives of the country are looking
at this price and saying, ``Let's get going,'' because it's a
real factor when you start looking at the profitability of the
farm.
So we think those factors really will make a difference and
we can produce enough corn for the export market as well.
Because if you look at the 5 billion bushel number going into
15 billion gallons, you still have more corn than we had to
deal with even a year ago. So that's really important to
remember when you hear the livestock industry talking.
And one thing that's really important at this stage of the
game is, we now do something to affect the producer's decision
for this year's crop, because the prices are calling and
showing the profit potential for corn to be grown. We think
that's very important.
Senator Craig. Yes?
Mr. Whittington. Senator, I grew up on a farm. We do farm
also, besides having a trucking company. And I think that one
of the things, as we look at value added for an agricultural
commodity, is we build wealth throughout the United States on
value added from a production crop. The other thing is that
some of the offal of the ethanol plant can be used to produce
biodiesel. Some of the offal of an ethanol plant can be used to
cheapen the ration for a cattle feed operation.
And as we look at other opportunities of some of the waste
products coming off of these renewable energy places, it
certainly enhances and reduces some costs. In the
pharmaceutical industry, the glycerine price alone has dropped
from 90 cents a pound down to 20 cents a pound because of the
availability of the waste coming out of these things. So we
have a really neat circle going on out here if it's handled in
the right way.
Senator Craig. Well, I don't disagree with any of you. I
grew up farming and ranching, although cattle was our dominant
income. And I do agree markets level out and profitability is a
phenomenal incentive out on the farm or ranch to do things
better, differently, and even get greater levels of production.
So I do believe it will level out and adjust accordingly, and
we ought not get too busy about fouling up the marketplace.
Some would argue we already have by the incentives we're
creating that are making these changes. At the same time, that
kind of diversity is important.
Thank you all.
Senator Domenici. Mr. Chairman, what is your pleasure
regarding the schedule?
The Chairman. Well, I was going to ask these folks two or
three questions and then bring on the third and final panel for
this morning, and hear from them and ask questions to the
extent we have questions, and then adjourn for lunch and come
back at maybe 2:15 or so. So we're going to have one more panel
right now after I ask this panel some questions, and then have
three panels this afternoon.
Senator Domenici. Well, Mr. Chairman, I want to try to be
with you on all of them, so I would like to ask you if I could
make an observation and then leave for the rest of this panel
and come back for the next one.
The Chairman. Go right ahead.
Senator Domenici. I want to say to all of you, starting
back about 5 or 6 years ago, when we started a little tiny bit
of a move toward ethanol, and then it grew each year and it got
pretty much a big, big swell, it seemed to me that for one
Senator and a number of Governors that I read about, they had
focused their attention on trying to build back some life,
economic life, into their rural communities.
If you know my State, you have Albuquerque and the Rio
Grande Valley with another couple of cities, and you have the
State split by that, and the rest of it is rural New Mexico
like you've never seen it, long distances between cities. You
can't get industry started, and you just work like the devil to
get one or two new job-producing companies.
But it's quite obvious that while we're not the best
agricultural State, one of the solutions is that this rural
part of my State, much less every rural State, has a chance of
capitalizing on the new economic regeneration that's going to
come from ethanol and related products being grown out on the
rural plains and in the rural areas in my State and other rural
areas. I believe it is the second crop which will revitalize
rural America, if those looking at it and watching it will get
with it and watch it and participate.
I don't want to waste your time. Our chairman is moving
rapidly, and I share his concern. But I am quite sure from
listening to your testimony that subject to your own
conditions, you would agree with what I have said, that
ethanol, methanol, diesel, and bio can be the regeneration of
rural America in ways we could never do by economic
development, EDA, and farm programs that tried to generate
economic life into rural America.
That's what I think of it, and I think we need to help, at
the origin, with loan guarantees to get technology and new
plants built, and we'll see within 10 years a rather dramatic
change. Thank you for giving me this time, and thank you for
letting me bore you.
Dr. Fraley. Senator, I would very much echo your comments.
I've been in the ag industry for 26 years, and I travel
extensively across the country, speaking with farmers, and I
would tell you that this has probably been the best input to ag
policy that these growers have ever seen.
The Chairman. Let me just follow up on that one and ask one
question. Then we'll move to the next panel.
But, Dr. Fraley, obviously we have a lot of people out
there growing corn. We have now finally come to the realization
that we can use this corn to produce fuel, that as a feedstock
it is very valuable, and you have indicated your company is in
the process of substantially improving the productivity per
acre of corn, and that's all very positive.
It strikes me, though, that long-term there may be other
crops that are more productive from the perspective of being a
feedstock for biofuels, and that the productivity per acre of
those other crops will exceed the productivity per acre of
corn, even if your company is able to double the productivity
of corn per acre. Do you agree with that, or disagree, or what
are your thoughts?
Dr. Fraley. I think all of us in the industry share the
view that the more biofuels that are available, the better this
country and all of our consumers are served.
What I believe as a scientist is that we will see,
ultimately, the advances in the enzymes that enable the
cellulosic sources. We will put in place the types of
transportation, distribution, and storage infrastructure to
take advantage of those other alternative sources of cellulose.
I think realistically, though, we all see that in the next
10 to 15 years the bulk of that need and opportunity will need
to be addressed by corn and grain sorghums and other crops. And
so I think we see this as being the start, the priming of the
pump that enables the renewable fuel industry to really get off
the ground and bring with it the necessary changes of
infrastructure.
You know, my view is that we will reach the 10 percent
ethanol goal with the capabilities that are in place today. The
real question becomes, where do we go beyond that, both in
terms of the next generation of cellulosics, but also the
infrastructural investments that it will take to ensure that we
have the automotive engines that can take advantage of these
renewable fuels, as well as the systems of tanks and pumps and
distribution to ensure that we have access across the country.
The Chairman. Well, thank you all very much. We have been
informed that there are going to be three votes starting at
11:45, which means that we need to go ahead and move to the
next panel and hear from them, and then hopefully we will have
some time for a few questions of them before we have to leave
for those votes. So thank you all very much.
Thank you all for being here. Let me introduce this panel,
and then we'll go ahead and hear from each of you.
Chris Standlee, thank you for being here. He is vice
president of Abengoa Biotechnologies, which has a plant in our
State--we're very glad to have them there--and I understand
also has a demonstration cellulosic ethanol plant under
construction in Spain. So we're glad to have you here.
Mr. Standlee. Thank you, Senator.
The Chairman. John Melo of Amyris, thank you for being
here, another industry leader in cellulosic ethanol production.
Mr. John Pierce with DuPont. Of course DuPont has been working
in partnership with our Department of Energy to do a great many
things in this area. We appreciate your willingness to testify.
Jeff Passmore is the executive vice president of Iogen. Thank
you for being here. Mr. Niles Hushka is with KLJ Solutions,
which plans and develops renewable fuels plants in North
Dakota. Thank you for being here. And Lori Perine is with the
American Forest and Paper Association, which supports private-
public investments in forest product biorefineries. Thank you
very much.
Why don't each of you give us 2 or 3 minutes of your views
as to what we need to be doing by way of Federal policy in this
area. We appreciate your willingness to testify.
STATEMENT OF CHRIS STANDLEE, EXECUTIVE VICE PRESIDENT, ABENGOA
BIOTECHNOLOGIES
Mr. Standlee. Thank you very much, Mr. Chairman. My name is
Chris Standlee. As you indicated, I am the executive vice
president of Abengoa Bioenergy. We appreciate the opportunity
to be here today.
We are one of the world's largest producers of ethanol,
with six operating grain ethanol facilities in both the United
States and Europe, two more under construction, and several
more in a development stage. Our Portales plant has been
producing starch-based ethanol for 18 years, and we're very
proud of our renewable fuels economic footprint in the State of
New Mexico.
More importantly for the purposes of this committee,
Abengoa Bioenergy is a world leader in research and development
related to renewable fuels, and particularly ethanol. For
example, the company has two ongoing cost share projects with
the Department of Energy, which were competitively awarded
projects and have resulted in our company committing to spend
over $150 million on research and development of ethanol
technologies, particularly focusing on cellulosic ethanol
technologies.
We have almost completed construction of a cellulosic pilot
plant in Nebraska, as well as simultaneously working on and
almost completing construction of the world's first commercial
demonstration cellulosic plant in Salamanca, Spain. Those
completions are expected by midyear. Actually the plant in
Nebraska should be finished within the next 2 months.
Additionally, we have submitted an application most
recently in response to the Department of Energy's
demonstration cellulosic plant solicitation. We have high hopes
for that grant, and believe that the funding of those grants is
one of the most important steps that Congress can take to
support this cellulosic effort within the States.
We've heard a lot of talk about loan guarantees, and we
certainly appreciate the efforts of this committee and of the
Congress on loan guarantees. We think they're an excellent tool
to expand the implementation of technology after some level of
development. But we believe that the funding of the grants such
as the DOE's cellulosic demonstration plant projects are
critical initial steps to establish that technology.
Additionally, our company encourages this committee to
ensure funding for the programs that this committee has already
authorized, such as the prior Energy Policy Act; certainly, as
I mentioned, the DOE's cellulosic demonstration plants and loan
guarantee programs. I think, also, a key priority has to be
extending the existing ethanol tax credits, and providing
independent incentives to develop both ethanol from the
standpoint of promoting the development of cellulosic
feedstocks and promoting the development of cellulosic
production.
Thanks for the opportunity.
The Chairman. Thank you very much.
Mr. Melo.
STATEMENT OF JOHN MELO, CHIEF EXECUTIVE, AMYRIS BIOTECHNOLOGIES
Mr. Melo. Good morning, Mr. Chairman, and thank you for the
opportunity. My name is John Melo, and I am the chief executive
of Amyris Biotechnologies. Climate change and energy security
are two of the most important issues facing our country and the
world. We believe that innovation can help to address these
problems and that our company can play a role in these efforts.
Innovation often comes from very unpredictable places.
Until recently, Amyris was completely dedicated to solving
another significant global problem, the malaria problem that
plagues many of the children in the world today. With funds
from the Bill and Melinda Gates Foundation, we have spent the
past several years developing technology to reduce the cost of
the world's most effective malaria drug by an order of
magnitude, so that it can be made available and affordable to
those in the developing world that need it the most. Based on
our success to date, we expect this drug will be available to
these individuals in 2010.
The same innovation which enables this low-cost
antimalarial is now being applied to create high-performance,
low-cost biofuels that could significantly reduce our petroleum
consumption. While corn ethanol and conventional biodiesel have
provided an important and necessary start for biofuels in the
United States, neither is sufficient to adequately address
climate change and energy security. The global supply and
demand challenges that must be overcome to meaningfully impact
climate change and energy security must and can be addressed
through innovation in two areas.
Feedstock innovation will increase the potential scale,
decrease the cost, and improve the greenhouse gas benefit of
biofuels. Product innovation that results in improved biofuel
properties will increase customer demand and largely eliminate
the need for infrastructure investments that are necessitated
by ethanol and conventional biodiesel. Innovation in both areas
can dramatically and synergistically decrease soil, water, and
air pollution while improving energy security.
Amyris is developing a gasoline substitute that contains
more energy than ethanol, will result in lower-cost-and-less-
pollution biofuel blends, and is fully compatible with today's
infrastructure in our petroleum system and also with today's
vehicles. We are also developing a diesel substitute that can
achieve lower costs and much greater scale than vegetable-oil-
based biodiesels. Our next generation biodiesel is inherently
stable in cold temperatures and does not break down during
storage and transport.
Both our gasoline substitute and our diesel substitute will
be made from the same feedstocks and production plants that are
used today to make ethanol, and thus add value to the
investments that have been made by America's farm community. I
was so struck by the potential of Amyris's technology that I
left an executive position in the oil industry, where I was
leader of one of the world's largest petroleum marketing,
trading, and transport businesses.
The cost and risk for America to achieve any penetration
target for renewables beyond 2010 will be significantly reduced
if alternative biodiesels and feedstocks are allowed to compete
fairly with corn ethanol and conventional biodiesel. Existing
incentives, such as State mandates and Federal tax credits,
unfairly advantage ethanol and conventional biodiesel solely
because they happen to be first to market. As such, existing
incentives actually make it more difficult for better
alternatives to emerge in a timely manner.
In order to realize the potential benefits of new biofuels
technologies, Congress must ensure that mandates or financial
incentives follow the model that EPA established in their RFS
rulemaking by focusing on desired attributes and performance
standards as opposed to chemical formulas. Furthermore, it's
critical that mandates or incentives established by Congress be
of sufficient duration to encourage private sector investment
into research and development.
Finally, we recommend that incentives be inversely
proportional to global oil prices. In such an environment, we
are confident that the innovations in feedstock and product
being carried out in our labs and many others will help America
achieve energy security.
My last thought for you is, remember that looking at
cellulosic ethanol and calling it under the same name is like
calling a computer the Microsoft computer. We have feedstocks
and we have products, and we have a significant opportunity in
the next 2 to 3 years to have significantly new products that
actually use all the current farm infrastructure, ethanol
infrastructure, and petroleum infrastructure to really make a
difference in the environment and the adoption of biofuels
throughout our country and the world.
The Chairman. Thank you very much.
Mr. Pierce.
STATEMENT OF JOHN PIERCE, VICE PRESIDENT OF RESEARCH AND
DEVELOPMENT, DUPONT
Mr. Pierce. Thank you, Mr. Chairman. My name is John
Pierce, and I lead the group of researchers at DuPont who are
actively engaged in bringing high-performance biofuels
technology to the marketplace. We are leveraging our technology
and science across the entire biofuels value chains, from
almost 150 pioneer high fermentable starch corn varieties that
are sold into ethanol production markets, to advanced
cellulosic technology primarily focused on corn stover
presently, as well as next generation biofuels such as
biobutanol.
We had the pleasure of hosting the President in Wilmington
last week, and I would like to share a few thoughts I told him
while he was there. We first demonstrated and developed our
biotechnology capabilities and know-how by commercializing a
high-end polymer called Sorona from cost-competitive corn-based
feedstock, and we won the Presidential Green Chemistry Award
for that effort. There are many similarities to this type of
effort in the production of biofuels, and we are taking that
metabolic engineering expertise gained from developing this
feedstock and applying it to biofuels.
Working with the DOE and others, we have developed a
cellulosic ethanol technology that employs corn stover, using
the corn plant rather than the grain to produce ethanol, and we
hope to demonstrate that technology at commercial scale soon,
with the Broin Companies, under a cellulosic biorefinery grant
from DOE. With this Broin partnership and assistance from the
DOE, we plan to build and operate an economical commercial-
scale cellulosic ethanol facility in a few short years.
We're also developing a next generation, high-performance
biofuel in partnership with BP, called biobutanol. Biobutanol
is one of what I believe, as the previous speaker mentioned,
are a number of future fuels that will come to bear that are
renewable and have interesting properties for use.
Biobutanol itself is fully compatible with ethanol, comes
from the same feedstocks, has some significant performance
benefits either as a cold blend with ethanol or on its own. It
has a higher energy density, better mileage, keeps fuel
volatility low, and butanol-gasoline blends can be distributed
using existing gasoline infrastructure, including pipelines. It
improves the properties of ethanol-gasoline blends.
Now, to ensure companies like DuPont and Amyris continue to
dedicate the resources to bring these technologies and products
to market, I'd like to echo the comments of the previous
speaker and encourage that incentives be scaled to desired
performance, such as lower carbon footprint or higher energy
density, and that you also keep in mind that this matter of
innovation and bringing multiple technologies and integrated
science to bear is not some linear process that stops with
research and then moves to development and then moves to
commercialization. These occur all the time, right up to the
end. There is continuing innovation right at the start of this
biotechnology revolution, and R&D funds need to continue to be
made available on a matching grant basis to develop those
technologies to commercial reality.
With that, I would like to thank you for the opportunity to
participate, and look forward to discussion.
The Chairman. Thank you very much.
Mr. Passmore, thank you for being here.
STATEMENT OF JEFF PASSMORE, EXECUTIVE VICE PRESIDENT, IOGEN
Mr. Passmore. Thank you, Mr. Chairman, and thank you so
much for the invitation. It's a privilege to be here.
As I was thinking, looking over the panel this morning at
all of the distinguished supporters of cellulose ethanol, I was
wondering what I might be able to say that would be useful, and
I thought I would just tell a little bit of the Iogen story,
starting with the fact that yesterday, when I drove to the
airport, I drove in my Chevy Impala, cellulose-powered, E85. We
have a whole fleet of 12 cellulose E85 vehicles. We also power
two Government of Canada fleets, the Natural Resources and the
Agriculture Departments.
The reason I'm telling you this story, Chairman, is that we
have been producing cellulose ethanol from our demonstration
plant for the last 3 years, started in the spring of 2004. We
have spent about $40 million on that demo plant, and we're
ready to go. We're ready to go commercial. We've got 320-some
farmers signed up for straw contracts for a facility in
southeast Idaho, and in fact we have taken the options on the
land there.
So what's the problem? Why aren't we just getting going, if
we're that close to getting going? Well, there's three legs to
this stool. One of course is the technology leg. The other two
legs are financing and government.
So the technology leg, in our estimation, is ready to go.
The financing leg, you cannot get lenders, if you're imagining
doing a conventional project finance with a combination of
equity and debt. We have the equity players at the table. You
probably know that our partners are Shell and Goldman Sachs.
But if you're going to do debt financing, lenders will not take
the technology risk. Lenders simply do not lend to technology
that has not been built at that scale before, unless that debt
is guaranteed by a strong credit rating, such as the
Government. And that's where the Government role comes in.
So you have the technology leg, the financing leg. You're
going to do the equity, you're going to do the debt. Well, the
Government's role is to guarantee the debt financing, and
indeed, in EPAct 2005, this committee recognized that was a
role for government. You recognized that market failure and put
in place loan guarantees for emerging technologies, not just
cellulose ethanol but, the next generation of nuclear and coal-
to-liquids and so on. And so as part of that process, the DOE
issued, in addition to the grant applications that the previous
speakers have talked about, the loan guarantee preapplications.
And what I would urge this committee, going forward, is not
to lose that momentum. You have an important oversight role to
play to make sure that commercialization doesn't get delayed.
The other comment I would make in terms of a possible role
for this committee is that beyond initial commercialization
there needs to be assurances in the market, some type of market
signal that there's going to be a significant market share
there or a market for cellulose ethanol.
Let me explain what I mean by that. I think we've heard
from previous speakers that there's a huge potential for corn;
and indeed, corn could potentially meet the E10 market. You
could get 15 billion gallons from corn, and 15 billion gallons
would be 100 percent market penetration of E10 across the
United States. So the committee needs to be thinking about
increasing the RFS too, whether it's an E20 or an E30, or if
all vehicles can take E85, and you gradually, gradually ratchet
it up. But the market is going to want to know that there's
going to be an opportunity there to achieve that, whether it's
a 30 billion or 35 billion gallon target of the President's or
some other target.
And I guess my last comment would be, please, Chairman,
there are three flights a day from Dulles to Ottawa. If your
committee wants to come up and tour a functioning demonstration
plant and see these 1,000-pound square bales of wheat straw
coming in through the facility, we invite you to come for a
tour.
I would agree with the previous two speakers. Abengoa
commented on funds that the committee has already authorized. I
certainly echo that. And I also want to echo the comment from
DuPont that this is not a linear process. People say, ``Well,
how much more research needs to be done?'' We're ready to go
commercial now, but we'll never stop doing research. Research
is--listen, we've all been driving cars since the early 1900's
but we still are improving vehicle technology, so it's not a
linear process.
The Chairman. Thank you very much.
Mr. Hushka.
STATEMENT OF NILES HUSHKA, CEO, KLJ SOLUTIONS
Mr. Hushka. I thank you. I lead a regional firm that
envisions, engineers, and constructs conventional alternative-
energy projects, facilities that provide financial returns
acceptable to investors. We also design sustainable-value
chains to produce biofuels. Today's emerging biofuels
technologies can spur energy independence, but parallel system
improvements at the macro level of the value chain are
required.
Development processes require 12 to 18 months of narrowing
options as we customize input streams and output markets.
Investors require that risks be tolerable, and we create
investor security through production guarantees. A 50 million
gallon a year plant must produce 50 million gallons. Each new
process integration needs a guarantor, an entity that will
invest continuously until guaranteed delivery rates are met.
Underwriting risk is required.
Ensuring input streams is difficult today because farmers
have many options. Our average farmer is near 60, and does not
see the same opportunity that I do to change his business
model, to begin again to pay off the new equipment for the new
crops. High-energy grasses require 2 to 3 years to mature,
which is a long time to expect no revenue in a very hot farm
market. It is difficult to build processing plants with no
assurance of input crops. Farmers will require emerging
technology to supply input markets.
In the heartland, our transportation systems are
historically focused on moving low-priced, bulky commodities.
These systems were designed to move raw commodities whenever
the railroad had capacity. Products are not processed here
generally, just grown. Today we are in the midst of a crisis,
and the bulk commodities are now locally converted to high-
dollar consumables requiring just-in-time delivery. We are
asking overloaded transportation systems to double their
output, to first ship the liquid portion, the biofuels, and
then the solids, the animal feed. New transportation corridors
using emerging technologies are essential.
Our public focus is primarily product output, but project
feasibility always lies with secondary product utilization. We
are presented with the opportunity to create a very new system
of both efficient food and a biofuel production model--
America's energy island, where livestock are fed oilseed meals,
adjacent to vertically integrated crushing and biofuels plants.
Manure from livestock will be biodigested, creating methane,
firing boilers to firm wind energy and produce heat for the
biofuels utilization.
Utilizing waste, heat, and captured CO2, we can
grow oil-producing algae and send that back through our
crushers to produce biodiesel. Revenue streams from secondary
plant outputs ensure sustainable biofuel markets. Emphasis must
be placed on emerging technologies for the secondary product
market, also.
Emerging technologies at the primary plant level create
significant stresses within existing markets. Groups that
utilize existing technologies are today working to eliminate
emerging technologies from the market through legislative
controls. The Government should not select winning
technologies, but rather encourage innovation. Moving forward,
we must revamp inefficient systems as we integrate emerging
technologies into America's energy island.
Thank you.
The Chairman. Thank you very much.
Ms. Perine, you're the final witness on this panel. Please
go ahead.
STATEMENT OF LORI PERINE, EXECUTIVE DIRECTOR, AGENDA 2020
TECHNOLOGY ALLIANCE, AMERICAN FOREST AND PAPER ASSOCIATION
Ms. Perine. Thank you very much, Mr. Chairman, and thank
you to the other members of the committee as well. As you know,
I'm Lori Perine. I'm the executive director of the Agenda 2020
Technology Alliance with the forest products industry. This is
an alliance of government and academia with the industry for
collaborative and precompetitive research and development.
I am here because the forest products industry has an
economic and strategic commitment to playing a strong role in
establishing a domestic production capacity for renewable
fuels. We can do this by transforming our existing
manufacturing infrastructure into what we like to call
integrated forest products biorefineries.
These integrated biorefineries are created by incorporating
new emerging technologies into our existing infrastructure,
thereby establishing geographically distributed facilities that
can process both forest and agricultural materials and produce
green liquid transportation fuels, as well as other bioenergy,
such as renewable power, and has the potential to produce
chemicals and other bioproducts as well. If these technologies
are fully realized, there are significant energy and
environmental benefits as well as economic benefits for the
industry and for the Nation as a whole.
We are conservatively estimating at the moment that the
industry has the potential to produce up to 2 billion gallons
of cellulosic ethanol each year, another 10 billion gallons of
other renewable transportation fuels, and some coproduction of
20,000 megawatts of renewable power. This is possible using the
wood that we already use in production of our pulp and paper
products and our wood products, so it's not inconceivable to
think that the actual production capacity of this industry
could be double or even triple the estimates that I've given
you here today.
Now, the technologies that we have been using are a
combination of some of the technologies that you have heard
from some of the previous speakers on the panel. Like our
colleagues, who are looking at corn stover and switchgrass, we
have a fermentation platform or a fermentation pathway that we
are pursuing as well.
This involves us taking the wood chips that would normally
go into pulp and paper manufacturing, actually processing those
first to pull out a material called hemicellulose. That is a
complex sugar that can then be fermented into fuel-grade
ethanol. But what that does is it then allows us to take those
extracted chips and put those back into the manufacturing
process, and so we're getting two very good products for the
price of one, ethanol and pulp and paper out of the same batch
of chips.
That's a technology set that we are actually developing
along with CleanTech Partners in Wisconsin, a couple of enzyme
companies, the national labs, with support from the Department
of Energy. We would like to see more of those types of
technologies in development, because they will help not only
the forest products industry but our agricultural colleagues as
well.
A second technology area that we're very strong in is
gasification. And you've heard quite a bit about gasification
from some of the other panels, I'm sure. In our case we're
looking at gasifying both residuals and waste materials from
our mills, the idea being that we're trying to create new value
out of materials that previously have had no economic value.
In doing that, we're finding that we have a synthetic gas
that can provide a variety of products, some of them in use in
transportation markets, such as converting the syngas through a
Fischer-Tropsch process to motor gasoline, distillate fuel, or
waxes. We can also be using techniques to create ethanol,
methanol, dimethyl ether, that can be used to produce diesel or
LPG, or going into production of synthetic natural gas and
supporting other applications as well.
What is key for us is making sure that there is continued
and sustained funding for the research and development, and
demonstration, in particular, that is needed to make sure that
these technologies actually come into use. But also important
for us is the fact that we need to understand--and it's
important to understand--that the biomass resources that we're
all talking about here today actually have competing uses.
That is all the more true in the forest products industry,
where the very wood that we're looking at for renewable fuel
production is going into production of our pulp and paper, wood
and composite products. Thus, we are hoping that Congress will
work with us to find market-based ways to promote biofuels and
biofuel conversion, but at the same time make sure that wood
and other biomass materials are not drawn into biofuel markets
at the disadvantage of the existing manufacturing industry.
It's actually rather ironic, because this potential that I have
outlined for you today is not possible unless we've got the
existing manufacturing infrastructure in place.
So I thank you, Mr. Chairman, for this opportunity to
speak.
The Chairman. Thank you. Thank you very much.
We unfortunately have three votes starting up, we're told,
pretty much right away. So let me just call first on Senator
Tester, if he has a question to put to the group. And if we
have time, we'll have every Senator ask a question.
Senator Tester. I apologize for not being here earlier to
hear the first two speakers speak, so I'll just direct this to
anybody who wants to answer it.
There has been some debate on ethanol using some grain
products and energy out of the net, sometimes even a net loss
in energy. Cellulosic ethanol, is it a net energy gain in the
end?
Mr. Pierce. Senator, let me take a stab at that. There has
been a lot of debate about that. In my opinion the debate is
settled, however, and all forms of grain-based and cellulosic-
based energy production are positive. And if you compare them
to fossil fuel energy inputs, if you compare them to petroleum
inputs, they're dramatically positive. Cellulosics, based on
petroleum inputs, is off the charts.
Senator Tester. The byproduct from the cellulosic ethanol,
does it have a value as a feedstuff, or is there some other
value?
Mr. Pierce. There's a joke about lignan, which is some of
the glue that holds all the plants together, helps them stand
up. There's a joke that says you can make anything from
lignan--except money. But one thing you really can do with
lignan, it's very high energy content, and very much of the
cellulosic-based processes depend on having the lignan as a
separate component which is then burned--you make steam. That
drives the energy to make the plant run.
Mr. Passmore. If you would construct a biorefinery,
Senator, that would have a whole host of associated coproducts,
so you would have ethanol, power, heat and steam from the
lignan, other associated coproducts, fertilizer,
CO2, acetic acid.
Senator Tester. Good, good. It wouldn't be associated--at
least in my mind, it seemed like some of the stuff from the
grain ethanol is used as animal feedstuff. The cellulosic is
not in that same line, though. It's more of a direct energy for
steam or whatever.
Mr. Passmore. Correct.
Senator Tester. In my neck of the woods in Montana we've
got an incredible amount of acreage of CRP that has all sorts
of different grasses in it, none of which is to my knowledge
called switchgrass, unless switchgrass is generic to all
grasses. I mean you've got wheatgrass, you've got all sorts,
with a little alfalfa mixed in some of it. I hear a lot about
cellulosic ethanol made from switchgrass. Is it cost-effective
to make cellulosic ethanol from grass of all sorts of different
varieties that might be in a CRP mix?
Mr. Passmore. As long as it's high in cellulose content,
then you can make cellulose ethanol out of it. I mean,
switchgrass is a native prairie grass that used to grow back in
the days when the buffalo roamed. And I think what's going to
happen is that farmers are going to be more comfortable
initially--rather than planting a bunch of switchgrass or even
going with a CRP, they're going to want to see ag residues used
first. Then, once they're comfortable with the technology and
everybody is convinced that it works and there's a market there
for the product, then they might start switching over to
switchgrass.
Senator Tester. OK. And the cellulose residue is just--it's
a fiber product, right? So it's basically dry biomass, this
cellulosic product, right?
Mr. Passmore. I mean, what's in wheat and barley after you
harvest the grain, the straw is cellulose.
Senator Tester. Right.
Mr. Passmore. Or cobs and stalks and leaves, commonly
referred to as corn stover, that's cellulose. And somebody
referred earlier to hemicellulose. I mean, both of those are in
fiber.
Senator Tester. The last question, and I think it was Mr,
Passmore that talked about marketing the product once you get
it done. Are you talking about a market that is a market that
has our automobiles capable of accepting the product, or are
you talking about a market that's driven more at the pump,
where we have an energy portfolio perspective--anybody can
answer this, by the way--an energy portfolio perspective where
we're going to require a certain percentage of renewable energy
in our petroleum energy?
Mr. Passmore. I was talking about increasing the RFS so, if
you can get--different numbers are out there, but you will hear
that you could get possibly 15 billion gallons from corn, you
could get another 15 billion gallons from ag residues and
another 15 billion gallons from switchgrass. And I'm not even
talking about the forest residues that Lori spoke about. So the
question is, where is all that ethanol going to go? And I think
the market pool needs to be created through a more aggressive
RFS.
Senator Tester. And what's RFS?
Mr. Passmore. Sorry. Renewable Fuels Standard. Right now
it's set at 7.5 billion gallons, and I think that's--I mean,
people argue that's a floor, not a ceiling, but the investors,
before they invest in a plant, want to know that there's going
to be a market there for the product.
Senator Tester. OK. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Domenici.
Senator Domenici. I pass.
The Chairman. Let me call on Senator Dorgan--who came
first? Bob? Bob, why don't you go ahead. I think you were here
before Senator Dorgan.
Senator Menendez. Thank you, Mr. Chairman.
I want to thank the panel.
I want to ask Mr. Pierce, I think you talked a little bit
about butanol, and that there are some advantages to butanol
over ethanol. Could you give us a sense of what those are?
Mr. Pierce. Right. Butanol is an alcohol-like ethanol. It's
got four carbons instead of two carbons. It has a higher energy
density, so you get more energy per gallon. That means for a
certain gallon you can drive more miles. It doesn't absorb
water as well as ethanol, so it's more compatible with existing
infrastructures. And there are a variety of other differences.
But the point I wanted to make is that this thing with
ethanol and butanol, sometimes it gets framed as an either/or
type of thing. It's absolutely not. I mean, ethanol is there
today because it could be made by yeast, that we have known to
make bread and beer for years and years. New biotechnologies
will bring newer fuels that are also useful, and all of these
fuels will coexist and find their place in the right niches of
our fuel infrastructure.
Senator Menendez. Is there a downside to butanol?
Mr. Pierce. The downside right now is that we can't make it
cost-competitively with ethanol because we don't have the kind
of experience that we have with the ethanol game, so we're
pushing very hard to get to that point.
Senator Menendez. Is it the experience or the incentives,
the way in which we treat incentives for ethanol?
Mr. Pierce. Well, I frankly am not as up to speed on all
the various policies and incentives as many people in this
room. I would say, however, that it seems logical to me that
however you structure incentives, they ought to be structured
on what you want.
So, for instance, if you have a very highly energetic fuel
that gets you further miles per gallon, having incentives on a
gallon basis is a little bit odd, because if you get further on
a gallon then that ought to count. So again I would suggest
that incentives be structured on what Congress and the country
is looking for, that is to say, low carbon and replacement of
various petroleum fuels.
Senator Menendez. If that's the case, if you're saying
we'll meet the goals that we want and this particular energy
source has higher output, then it seems to me that we should be
looking at how we incentivize this within a mix.
Mr. Pierce. I agree with you, and I would say that butanol
is the example we're talking about now. I tell you there will
be others. We are on the opening gambit of biofuels. So if you
do it on an energy basis, in the case of butanol, I can't
remember the numbers, maybe 12 percent or 15 percent more
energetic than ethanol. If you did it on an energy basis, it
would attract an incentive approximately that much higher.
Senator Menendez. Thank you, Mr. Chairman.
The Chairman. Senator Dorgan hasn't had a chance to ask
questions. Why don't you go ahead, and then we'll probably have
to adjourn after that to go make these three votes.
Senator Dorgan. Mr. Chairman, thank you very much. I regret
I have not been able to listen to the presentations. I've been
over in the Commerce Committee, and was just able to leave
there.
But let me thank Mr. Hushka, Niles Hushka from North
Dakota, for coming and participating. He has a vast knowledge
of all of these issues and is involved in virtually every facet
of them.
I want to ask a question that I raised in North Dakota with
those that are interested in biofuels. I was involved in the
7.5 billion gallon renewable fuels standard that we now have.
We created a 7.5 billion gallon standard by 2012. It looks like
we'll be producing 10 billion gallons by 2010. Just guessing,
but that's where it looks like we're headed. People talk about
35 billion gallons or more.
We use 140 billion gallons of fuel in this country. If you
blend 10 percent ethanol or biofuels with every gallon, you've
got a market for 14 billion gallons. It seems to me that unless
you find ways to put E85 in gas tanks or have blend pumps at
20, 30, 40, 50 percent, we're going to build a bunch of
biofuels plants and then we're going to find at some point
we're going to have a supply that far exceeds demand, unless we
find a way to require those fuels to go in at a much greater
rate than 10 percent.
In my State, for example, we have 16,000 flex-fuel vehicles
and 24 pumps. In a State 10 times the size of Massachusetts, 24
pumps where you can pump E85. Think of it, 16,000 vehicles, 24
places, in a State 10 times the size of Massachusetts, where
you can get E85. Well, clearly that's not working, is it?
And so I'm wondering if any of you have the same concerns I
do. Are we going to produce and produce--and nobody is a bigger
fan of producing biofuels than I am--but are we going to
produce and produce and produce, only to discover that because
there are no E85 pumps out there, there's no incentive, in fact
there's a disincentive for the major branded stations to put
them in, and there's no blend pumps. Are we going to find we've
got a real problem? Who wants to tackle that? Niles, do you
want to?
Mr. Hushka. Senator, I think that you are hitting on
something that's extremely important, not only at that level
but at other infrastructure levels. As you know, today in our
State we have one source to get our fuel to the market, and
that's a single railroad, and they are already overloaded.
As we produce more and more fuels in the heartland, we have
to put infrastructure systems in place that allow for the
adequate distribution of those fuels into the population
markets, and I think that that will become one of the major
criteria for how we can easily and readily make access with
fungible fuels.
There are also new technologies that I believe are
important, especially in our cold technologies, cold locations.
There are generation-two biodiesels that are coming out. Neste
Oil, for instance, in Finland will begin producing 55 million
gallons a day of the product which has cold flow capabilities
down into the negative 30 degree range instead of negative 5.
Those are the types of technologies that can be integrated
more readily. This is a fungible fuel, so it can be used in
existing pumps. It can be used in existing vehicles without any
modifications. I think our emphasis should be placed on
fungibility, and I do not believe that we will have to worry
about levels at that point.
Senator Dorgan. Just on that point, I ran into a young man
about 20, 22 years old, in Valley City, ND. He said he had been
living on the West Coast. He said, ``I just came back to North
Dakota driving a pickup truck with vegetable oil, using
vegetable oil as fuel.'' He's a young man very interested in
alternative fuels. I said, ``Well, how did it go?'' He said,
``It was fine until I reached Montana. Then it was too cold.''
The vegetable oil coagulated, I guess. Does that happen? So
there are a lot of people out there looking at alternative
fuels, and vegetable oil is a portion of it, but it's the issue
you raised with respect to at what temperature can you use it.
Mr. Passmore. Senator, you touched on a question that I
raised in my opening remarks, and I think it's a very real one.
I think the committee should look at it from two perspectives,
low-level blends and then flex-fuel E85s. So how high can we
push the low-level blends? In Brazil they run, apparently, cars
that run on up to E24 in the low-level blends, so you need to
talk to the car companies about that and find out how much
protest you would get.
But imagine a situation where all the vehicles gradually
were flex fuel. Then you would have vehicles that could take
E15, E20, E30, E40, because they can take up to E85. But
definitely our investors want to be assured that there's going
to be a market for ethanol beyond 15 billion gallons.
Senator Dorgan. Thank you very much.
The Chairman. Thank you very much.
Senator Craig, you have a final question, I was told?
Senator Craig. Well, thank you very much, because I'm not
going to be able to return after the vote, and I did want to
ask Jeff Passmore of Iogen a couple of questions, because from
what we've heard from other panels this morning, ethanol, corn-
based, is moving very rapidly now into production, the
competitive nature and the importance of cellulosic, and of
course the research and the work that Iogen has done.
Jeff, I understand you have applied for a loan with DOE?
Mr. Passmore. Yes. There are two programs. There was the
grant application process and then the loan guarantee pre-app.
We have submitted under both of those with DOE.
Senator Craig. And that occurred when?
Mr. Passmore. Well, the closing for the loan guarantee pre-
app was December 31, and the grant application was back in the
summer of 2006.
Senator Craig. OK. The reason I'm establishing this
timeframe for the committee is, we passed EPAct in August 2005.
If you had a loan guarantee today, how soon would it take you
to build a commercial production facility?
Mr. Passmore. We had hoped to get the shovel in the ground
on the facility in the spring or fall of this year, so starting
in 2007. There has been a slight delay in the appropriations
for the loan guarantee authorization, so it appears that--
though I was encouraged by the fact that the House passed the
bill yesterday, and we're certainly looking forward to being
able to charge forward, Senator, I'm not sure how many months
we've lost. We may not be able to go with the fall of 2007 but
slip to the spring of 2008.
We'll see how fast this--when you were out of the room,
Senator, my encouragement to the Chairman was that this
committee make sure that we don't lose any momentum with the
DOE with respect to the implementation of the intent of
Congress.
Senator Craig. What were you going to build, sir?
Mr. Passmore. We're going to build a cellulose ethanol
plant based on barley straw and wheat straw. Again, in my
opening remarks I mentioned that we already have 320 farmers
signed up for straw supply for a facility in southeast Idaho,
and we're ready to go. We've taken options on land and just
want to get going.
Mr. Standlee. Senator, Chris Standlee with Abengoa. I would
like to point out that our company also, as with Iogen and
others, is one of the companies that has submitted a response
and a proposal in connection with the DOE solicitation. Again,
we're in pretty much the same boat. We have demonstration
facilities under construction now, pilot plant facilities in
operation, and our estimation is that once the grants are
funded, as we certainly hope that they will be soon, we
certainly could have cellulose production in effect by 2008 for
sure.
Senator Craig. It's also my understanding that once the
money is made available, we're still looking at potentially a
6-month window in DOE to get their process refined and ready.
Are you hearing that?
Mr. Passmore. Well, we understand they're going to go to
regulations, which is apparently--according to the bill in the
House yesterday, they have been told to get that in place
within 6 months. But, Senator, if concurrent with that they
were reviewing the loan guarantee pre-apps that have already
been submitted, then if those could move forward concurrently--
as I understand the DOE process, they are then going to review
the pre-apps and invite actual applications for loan
guarantees, and those actual applications could be submitted
while they're developing the regs.
Senator Craig. For both of you, to bring plants into
production, what type----
The Chairman. Let me just interrupt to say I think I'm
going to go to make these three votes.
Senator Craig. I think we should.
The Chairman. If you wanted to stay and ask----
Senator Craig. I'll ask one last question, and then I'll
shut the committee down, if you want me to.
The Chairman. OK. Why don't we do that. Let me thank all of
you for testifying, and Senator Craig can close the hearing.
We'll start again about 2:15.
Senator Craig [presiding]. Thank you. In relation to the
capacity that we're offering through this CR--and Senator
Domenici prompted me to ask a question I think appropriate--in
relation to the loan guarantees we're looking at, what size are
you looking for in guarantee? I'm asking that of both of you.
If you were awarded this kind of guarantee, based on what we
have provided, are we building enough capacity into the system
to assure these kinds of new production facilities coming on
line in both commercial and experimental----
Mr. Passmore. As I understand it, the proposed cap is $4
billion, and certainly that has enough room in it for several
cellulose ethanol plants. I mean, we might be looking for
something in the $350 million range.
Mr. Standlee. Senator, I think the loan guarantee program,
as I mentioned in my opening remarks, is an excellent program
to help further the implementation of the technology after
development, but frankly I think the initial step that's even
more sorely needed is the funding of the grants for the biomass
demonstration facilities that the DOE has proposed and
solicited. So I think that's probably the most important first
step.
Senator Craig. Thank you.
To all of you, again, thank you very much. I'm going to
miss a vote. They're not holding them these days, so they're
prompting us to be a little more attentive. Gentlemen, thank
you all, and Lori, thank you for your testimony.
The committee will stand in recess.
[Recess.]
The Chairman. OK, I think we'll startup. As I understand
it, Senator Domenici is delayed with another meeting, but
Senator Cantwell and I will go ahead.
This is the fourth panel, and we have six witnesses. Let me
just briefly introduce them, and then we'll just go from our
left to our right and hear your points of view. Again, if you
could do that in about 3 minutes, we would sure appreciate it.
Edmund Burke is representing the Coalition of E85
Retailers, and we appreciate you being here. Lou Burk, who
manages alternative fuels for ConocoPhillips, is here, and we
appreciate your presence. I think they're getting you a name
tag. Robert Brown is the director of vehicle environmental
engineering for Ford Motor Company. Thank you for coming. John
Plaza of Imperium, this is the Nation's largest biodiesel
refinery. Thank you very much for being here. Mike Mears, who
is the vice president of transportation at Magellan Midstream,
thank you very much. And Charles Drevna, Charles is the
executive vice president of the National Petrochemical and
Refiners Association. We very much appreciate you being here.
Why don't you start, Mr. Burke, and we'll be glad to hear
from all of you.
STATEMENT OF EDMUND BURKE, CHAIRMAN, DENNIS K. BURKE, INC.,
REPRESENTING THE COALITION OF E85 RETAILERS
Mr. Burke. Good afternoon. Thank you very much for inviting
me, Senator. I appreciate it. My name is Ed Burke. I'm chairman
of the board of Dennis K. Burke, Inc. We're a very large,
family-owned distributor in New England, just outside of
Boston--Chelsea, MA. We have distributed biodiesel for 10 years
now, and we are just starting up on E85 and trying to retail
it, but I do have the capability of loading it on trucks, and
along with General Motors, I've filled a lot of vehicles that
are going to various fairs, demonstrating the vehicles.
The Coalition of E85 Retailers is relatively new, just
formed to try to solve some of the issues involved. Some of
them are fire safety--and don't get me wrong, some of my
problems are not really complaints. Health and safety is
certainly a priority, and we need the UL certification or
similar on some of the equipment.
But I wanted to address, we have some conflicts, like EPA
has recommended that States give waivers for Stage II, which is
a vapor recovery phenomenon, but all the flex-fuel vehicles are
equipped to handle vapors. It's $20,000 and a lot of time for
one little pump. I'm \1/10\ the size of North Dakota, which was
referenced earlier. Massachusetts is \1/10\ the size of North
Dakota, and to my knowledge I'll be the first retail outlet
running in the Northeast, never mind just Massachusetts.
And I own an E85 Chevy Impala. We have an Avalanche on loan
from General Motors. So there's a lot of frustration. Again,
it's a harder turnkey operation than was biodiesel because
we're dealing with a much more flammable product that has
various mechanical issues as well as the health and safety
issues.
Mostly I would be pro some kind of incentives. I liked the
discussion earlier on the loan guarantee kinds of things, as
opposed to individual mandates. I've had peers that want to
have one standard for biodiesel blends across the country, and
it's just fundamentally crazy, because south of the Mason-Dixon
Line, cold weather is much less of an issue that it is in half
the States that are represented in this room.
And I would save the rest of the time for questions and
dialog. Thank you very much again.
The Chairman. Thank you very much.
Mr. Burk, go ahead.
STATEMENT OF LOU BURK, MANAGER, ALTERNATIVE ENERGY AND PROGRAMS
GROUP, CONOCOPHILLIPS
Mr. Burk. Thank you, Mr. Chairman and committee members. My
name is Lou Burk. I run the Alternative Energy and Programs
Group at ConocoPhillips. My group focuses on all forms of
future energy and also biofuels.
Most of our work on biofuels is actually on technologies to
look at ways to utilize existing infrastructure to better
facilitate introduction of biofuels into the marketplace. We
are one of the largest blenders of biofuels. We are a developer
of biofuels technology, and we are a biofuels manufacturer in
Europe with a technology called renewable diesel which we would
like to introduce into the United States.
We are also extremely active in the industry groups that
work on setting the standards that Mr. Burke next to me was
talking about, working with UL on pump standards, working with
ASTM on quality standards, and all the things that we need to
do to make sure the fuels that are in the marketplace, whether
or not they have renewable content, meet the customers'
expectations.
We're looking at two general tracks for biofuels
development. The first one is, are there ways that we can
broaden the feedstocks we use in our existing infrastructure to
make gasoline and diesel fuel that are renewable in their
contents. Some of this is thermochemical conversion, some of
this is using different feedstocks into existing equipment, and
those are very interesting and exciting opportunities for us.
The other thing we look at are novel, out-of-the-box
technologies, whether that be cellulosic ethanol, whether that
be biomass-to-liquids, and those sorts of technologies as well.
We think that modifying existing refineries to process a
variety of renewable feedstocks that will utilize the existing
infrastructure, because it will make gasoline and diesel fuel,
will facilitate biofuels penetration much quicker.
As you contemplate how to create an environment that will
encourage continued growth of renewable fuels, you have to make
sure we don't pick winners and losers. With the aspirational
goals that have been set and discussed, we don't know what the
fuels will look like that best fit those. So we would, we say,
let all flowers bloom. Make sure you don't pick winners and
losers, and let the technologies go forward.
And, finally, we have to make sure that as we introduce
these fuels, we do not backslide on the different environmental
standards and climate goals that we have set or are setting.
Backsliding in these areas should not be tolerated.
Again, I thank you for your invitation and look forward to
your questions.
The Chairman. Thank you very much.
Mr. Brown, we're glad to have you here.
STATEMENT OF ROBERT BROWN, DIRECTOR, VEHICLE ENVIRONMENTAL
ENGINEERING, FORD MOTOR COMPANY
Mr. Brown. Thank you. Good afternoon, and thank you for
providing me the opportunity to participate in this conference.
Diversifying our transportation energy supplies, and in
particular expanding America's use of biofuels, is an important
issue to Ford and the American people. The instability of the
world's oil supply, the growing worldwide demand for oil, the
fragility of our domestic infrastructure, and increasing
political pressure on climate change, are all leading to
renewed interest in finding alternatives to oil and in finding
more efficient ways to use the oil we have.
At Ford, we recognize that we have a responsibility to do
something to help address America's energy security needs, and
we are accelerating our efforts to develop innovative
solutions. We are bringing to the marketplace a range of
advanced vehicle technologies that are increasing fuel
efficiency and diversifying our vehicle fuels away from
petroleum.
Ford Motor Company has been building flexible-fuel
vehicles, or FFVs, for over a decade, and we are an industry
leader in this technology. FFVs are a great alternative for our
customers, because they provide an option to choose between E85
and gasoline, as desired. Last summer, Ford, along with GM and
DaimlerChrysler, voluntarily committed to double the production
of FFVs by 2010. In November, we expanded that commitment to
include half of our vehicles produced each year, beginning in
2012, provided there are sufficient amounts of fuel and retail
facilities to support customers.
But there is a limit to what we can achieve on our own. We
believe that our Nation's energy challenges can only be
properly addressed by an integrated approach, a partnership of
all stakeholders, which includes the automotive industry, the
fuel industry, government, and consumers. There is no silver
bullet that will diversify our transportation fuels, and this
is not a short-term problem.
Longer term, Ford has endorsed the 25 25 campaign, which
sets the goal of getting 25 percent of U.S. energy needs from
renewable sources by 2025. To achieve this level of biofuels in
transportation, we need, first of all, to expand the ethanol
feedstock diversity; second, increase ethanol production; and
third, accelerate infrastructure development on a national
scale. These are all critical building blocks that will lead to
competitive E85 pricing and customer convenience.
The challenges are considerable, but not insurmountable,
and there is an enormous amount we can achieve at a lower cost
and in a shorter timeframe if we act together in an integrated
manner. All of us have the opportunity to do something about
energy diversity and independence.
Thank you again for the opportunity to participate.
The Chairman. Thank you very much.
Mr. Plaza, please go right ahead.
STATEMENT OF JOHN PLAZA, PRESIDENT, IMPERIUM RENEWABLES
Mr. Plaza. Mr. Chairman, I first want to convey my
appreciation for the invitation to speak at this. This is a
tremendous opportunity for a new industry such as ours. And
then I have to give credit to Senator Cantwell, who has been
just a tremendous leader in our State and in our Nation for
renewable fuels, but biodiesel especially.
My name is John Plaza. I'm the president and founder of a
company called Imperium Renewables. We're building the Nation's
largest biodiesel plant in a pulp and paper town that's sort of
decimated by the old timber industry, looking for new industry.
We're building a 100 million gallon a year facility. It's about
6 months into construction. It will be done in about 4 months.
Using vegetable oil from around the world.
We started out in Seattle, with the recognition that
Seattle has the highest per capita consumption of biodiesel.
It's one of the easiest forms of alternative fuel to integrate
in. It has a very good life cycle analysis balance, from the
EPA point of view, of 3.2 to 1 unit of energy. It's one of the
best renewable fuels, very low carbon. It's got a lot of
benefits and integrates in quickly.
As recognized, the Pacific Northwest has huge demand. We
decided to go forward with our business plan, mimic the
petroleum industry to locate facilities that give us
operational flexibility for logistics, transportation in and
out, not be dependent on rail alone. We use marine logistics,
barge logistics.
We're extremely well-funded. We've received more than $100
million in equity into the company. We've had no direct
subsidies or funding to the company from the Federal
Government. We of course enjoy the tax credit of $1 a gallon
for biodiesel and methyl esters, which is critical to the long-
term success of this industry.
As we have developed our company, we've seen a lot of
interest in biodiesel, so we're excited about the opportunity.
We think it can be a tremendous amount of renewable energy, due
to the fact that 20 percent of America's petroleum usage is in
diesel. Ninety-four percent of our goods that travel by truck,
travel by diesel. It's a 5.4 billion gallon home heating oil
market. There are a variety of different uses for diesel, and
biodiesel integrates immediately and effectively right into
that existing infrastructure, we believe.
We certainly think that the opportunity to grow this
industry is tremendous. We have opportunity in alternate
feedstocks other than soy. We can look at any different oil
seed. Today we're just announcing the first and largest oil
seed contract in the State of Washington, for about a million
gallons of canola oil. Although it's only 1 percent of our
facility, it's a tremendous sort of show of what direction this
industry can take and bring new agricultural commodity business
to the farming community that's solely dependent on wheat in
the Pacific Northwest.
There's just a tremendous sort of path forward. There's a
version of a crop that we can grow that's the equivalent of
cellulosic, called algae. It has carbon sequestration, energy
production, ethanol production, and biodiesel production
available to us. So it's a tremendous opportunity, and I
appreciate the chance to be here.
The Chairman. Thank you very much.
Mr. Mears.
STATEMENT OF MIKE MEARS, VICE PRESIDENT FOR TRANSPORTATION,
MAGELLAN MIDSTREAM PARTNERS
Mr. Mears. Well, thank you, Mr. Chairman and members of the
committee, for the opportunity to speak to you today. My name
is Mike Mears. I'm vice president of transportation for
Magellan Midstream Partners, headquartered in Tulsa, OK. I also
currently serve as the chairman of the Association of Oil
Pipelines, but I'm testifying today in my capacity as an
officer of Magellan.
Magellan owns and operates the Nation's longest refined
products pipeline system, as well as 81 refined products
terminals. Our pipeline system stretches through the heart of
the country, from the Texas Gulf coast to Minnesota. In several
Midwestern States we provide transportation and distribution
services for the majority of gasoline and diesel fuel consumed.
We do not currently transport ethanol or ethanol blends in
our pipeline system today, and in general, the industry has
very limited experience in this area. We do have ethanol
storage and blending capabilities at 26 of our terminals, and
we have four more under construction in the State of Missouri.
We have provided these ethanol blending services for customers
since the early 1980's, and we have also recently, within the
past year, invested in biodiesel blending infrastructure in
many of our terminals in Minnesota, North Dakota, and Iowa.
I am here today to address the potential transportation of
ethanol in our multiproducts or dedicated pipeline system.
Pipeline is an efficient, safe, economic, and reliable way to
transport large volumes of liquid fuels. However, there are a
number of operational, technical, and economic issues
associated with the potential transportation of ethanol in
pipeline systems. These include the practices and equipment to
minimize water content and impurities, compatibility of
existing seals and gaskets used in the valves and pumps and the
other equipment on the system, and the potential for stress
corrosion cracking of pipelines and tanks.
Substantial research into the causes of and solutions for
these items, particularly the stress corrosion cracking issue,
is needed. It is our responsibility to prevent pipeline leaks
and protect the environment, so a complete understanding of
this issue will be necessary before we are comfortable in
considering ethanol transportation by pipeline. Targeted
industry research on this matter is already underway, and we
have left some materials on that research on the table outside.
It is conceivable that limited opportunities to transport
10-percent ethanol blends in existing pipelines may prove to be
technically feasible due to the low concentration of ethanol in
the product. However, we believe the most likely opportunity to
transport fuel-grade ethanol will be in a dedicated pipeline
built for that specific purpose. This position is based on the
assumption that the solutions to the operational and technical
issues described earlier may be unachievable or cost-
prohibitive on an existing multiproducts pipeline.
We face a number of economic and commercial variables when
considering a dedicated pipeline for the transportation of
ethanol. For example, a line from the Midwest to the East Coast
could be a $2 billion or more project. Key variables in a
project of this nature would include the ability to develop
secure long-term throughput commitments from ethanol producers
or end users; the development of aggregation systems within the
producing region, since it could take up to dozens of
individual plants to baseload a pipeline; the development of
distribution systems at the terminus of the pipeline; and the
definition of regulatory authority associated with ethanol
pipeline oversight. Since we have not conducted a study on
these issues, we don't have the answers to all of these
questions yet.
In closing, to address the major issues associated with
ethanol and pipelines, we believe Congress should provide
funding to study the technical concerns related to pipelining
ethanol. Second, Congress should pass the Ethanol
Infrastructure Expansion Act of 2006. This bill focuses
attention on existing barriers, market risks, regulatory
issues, and financial incentives, using a range of ethanol
production levels.
Thanks again for the opportunity to speak here today, and I
look forward to your questions.
The Chairman. Thank you very much.
Mr. Drevna, go right ahead.
STATEMENT OF CHARLIE DREVNA, EXECUTIVE VICE PRESIDENT, NATIONAL
PETROCHEMICALS AND REFINERS ASSOCIATION
Mr. Drevna. Chairman Bingaman, Senator Cantwell, Senator
Thomas, good afternoon. I am Charlie Drevna, executive vice
president of NPRA, the National Petrochemical and Refiners
Association. We are a national trade association with over 450
members, including those who own or operate virtually all U.S.
refining capacity, as well as most of the Nation's
petrochemical manufacturers with processes similar to those of
refiners.
There is no doubt that biofuels is a growing--and will be a
growing--component of the Nation's transportation fuel mix. And
let me unequivocally state that NPRA does not oppose the use of
biofuels. What we do oppose, however, is the mandated use of
biofuels. And in saying that, what we do support is the
sensible and workable integration of biofuels into the
marketplace based upon market demands.
So during my time today, I would like to walk you through
some of the challenges that we face as refiners using biofuels.
First, as relatively new biofuels enter the market, increased
transportation and logistical issues are likely to arise, and
some of the folks here on the panel have already gone through
some of those.
As Mr. Mears said, ethanol is not distributed through
pipelines because of problems with water contamination and
corrosion. So because of this, ethanol must be blended with
gasoline or the appropriate blendstock at the terminal or as
close to the final consumer as possible. This makes the
delivery and distribution of ethanol expensive because it
requires more expensive transportation modes such as truck,
rail car, barge, or even ship.
Ultimately, mandating biofuels costs consumers. One example
is--I want to talk about E85 for a second. E85 has a
substantially lower energy content per gallon than gasoline,
only about approximately 70 percent of the gasoline's energy
content, which translates into a significant fuel economy
penalty.
So in order for the retail customer to cover the same
distance they would get using gasoline at the same cost, the
retail price of E85 would need to be approximately 25 to 30
percent less than that of gasoline. As reported by the EIA,
similar results for biodiesel show that they have a lower fuel
economy than regular petroleum diesel.
Now, mandates will not cure that. Mandates will exacerbate
that problem--not the technical problem but the cost problem--
because if every drop that is produced is mandated, there is no
reason for the marketplace to decide how best to use the
product.
Second, we believe that Congress should preempt State
biofuel mandates. The present enthusiasm for renewable fuels
has resulted in several States and even municipalities adopting
mandates. Local mandates will impose additional requirements on
the ethanol distribution system and increase costs for shipping
and storage. The existing Renewable Fuels Standard, or RFS,
mandate, with its credit-trading provisions, contains a degree
of freedom that allows the distribution system to operate at a
low-cost optimum by avoiding infrastructure bottlenecks such as
lack of storage or rail capacity. Mandating ethanol or other
biofuel usage in specific areas will force a distribution
pattern that is less flexible and therefore has less capability
to minimize cost. Again, these additional costs will be borne
by the consumers.
Third, biofuels should be developed with the full
realization of their impact on air quality. Congress should
defer any support for an additional renewable fuel mandate
until it completes an analysis of the ozone impacts of
ethanol's additional summer volatile organic compound, or VOC,
emissions and the potential impacts on maintaining attainment
with the 8-hour ozone national ambient air quality standards,
or the NAAQS.
If, however, Congress decides to continue its support for a
renewable fuels mandate after completion of these additional
studies, the EPA should, one, announce the list of ground-level
ozone insensitive areas to the country, where the increased use
of gasohol would be environmentally safe, and two, for such
areas, list how additional gasohol could be used without
causing additional respiratory problems or contributing to
other ozone-related kind of problems.
In closing, NPRA recommends that Congress avoid mandating
increased volumes of biofuels or a hastened implementation
schedule for biofuels beyond that of the existing Federal RFS.
The goals of the biofuels industry, including corn-based and/or
cellulosic or biodiesel, should be economic parity or better
with that of refined products, while not adversely contributing
to air quality or the manifestation of other unintended
consequences.
Again, thank you for the opportunity to appear today, and I
look forward to hopefully answering any questions you may have.
The Chairman. Well, thank you all very much for your
testimony. Let me ask a few questions, and then I'll defer to
Senator Thomas and then to Senator Cantwell here. Senator
Domenici just came in. We'll defer to him first, before the
other two.
Let me just ask, on this issue of standards for biodiesel,
some of the earlier testimony, as I understood it this morning,
was that one of the advantages of ethanol is that there's a
consistent standard that is present for ethanol. And there's no
question as to performance and that sort of thing. Nothing
similar exists with regard to biodiesel at this point. I took
the testimony to suggest that the Government needed to step in
and do something to bring that about.
Now I gather, Mr. Burke, you said that obviously you have
concerns because of different weather in different parts of the
country. You don't think one size fits all. I guess the other
question, though, is even if that is true, should there be a
standard in your region of the country, perhaps a somewhat
different standard somewhere else, or should we just let it go
the way it is?
Mr. Burke. It's very much a matter of experience and common
sense. The previous speaker, when he alluded to economics, said
don't forget the cooking grease phenomenon. There are a lot of
places across this country that are converting cooking grease,
and the cost--people can do it their back yard for 70 cents a
gallon.
But to answer your question, in May, ASTM revised 6751.
They revised it again in August. It's getting there. There's a
few funky things, without getting into the chemistry of it,
monoglycerides, triglycerides. It's kind of like you going to
the doctor. But the issues are being solved.
My point is that if you're south of the Mason-Dixon Line,
in January, you may be very successful using a B10 or even a
B20, but if you're up in Minnesota or Wyoming or somewhere
where it's cold, you drop down to a lower percentage. In my
case, my company, we avoid B20, with a few exceptions where
some grant deals are involved. We sell B5 from Halloween to St.
Patrick's Day, but we won't do B20. The people who are on B20,
we drop them down to B5, which is 5 percent biodiesel.
But the specs are being--it's not fair to put people's feet
to the fire on the specs. They are evolving and they're
learning as they go. It's a very new business. In Hawaii, you
would be interested to know, they had a problem with the Maui
landfill catching on fire, and a guy with an electric generator
company--they asked people to solve it. No one did. He went
online. He took the name. He's the same fellow that's building
plants worldwide, including the one President Bush visited last
May in Virginia.
So the market will take care of a lot of things. I'm
generally a market guy and an incentive guy, but believe me,
thank God we're sitting here. Thank God we had 1992 EPAct. That
was when Federal, State, and utilities had to buy a certain
percentage of alternatively-fueled vehicles. That's where the
whole biodiesel thing began.
Costs are coming down. We have bigger quantities being
shipped. The economies of scale in oil are very large. When I
was first selling biodiesel, the rule of thumb was a penny a
gallon upcharge for each percent of biodiesel, so you're
selling stuff for 20 cents a gallon more than the equivalent.
That's a pretty hard sell.
But the alternative fuel credits made it such that somebody
could spend that 20 cents and trade the credit in for the
alternative fuel. You could use half your requirement by using
the fuel. So maybe you need a declining subsidy or a declining
incentive, but as the scale kicks in--I mean, you see every day
the amount of plants being announced. It's getting to be a real
win.
The Chairman. Let me see if anyone else wants to comment on
that. Mr. Brown, did you have a comment?
Mr. Burke. Yes. First of all, Ford products are designed to
operate on B5, or 5 percent biodiesel. There is a joint effort
underway that includes the Government, the OEMs, auto
manufacturers, and the fuel industry, to come up with a
specification for biodiesel, because there is a problem in both
warm and cold weather. In warm weather, it's a stability
problem that can cause acid to form and corrode the system and
affect the fuel filters. And in cold weather, you get wax
particles that form, which again plug the system. So we
recognize there are challenges, but there is an effort underway
hopefully to resolve those challenges.
The Chairman. Mr. Plaza, did you have a comment?
Mr. Plaza. Yes. I think it's important, Mr. Chairman, to
recognize that there actually is an American Society for
Testing and Materials specification for biodiesel. It has been
in place since the dawn of biodiesel. It certainly is being
refined as we grow as an industry. In 2004 we produced 30
million gallons. In 2005 it was about 50. Last year it was
about 150 million gallons. So it's still small, but there is a
standard in place.
And we can look to others for examples of how to grow and
learn. The petroleum industry certainly had problems with
quality, and they figured those out a long time ago. We are
blessed to not have as many quality issues with petroleum.
Europe also uses a billion gallons of biodiesel a year
without issue, so it's not as if there are not standards. The
standards are there. They're improving. What it really takes is
large-scale, quality production, at a larger scale, similar to
the petroleum industry, and I think that's what we're starting
to see in the industry.
The Chairman. Mr. Mears and then Mr. Drevna, and then I'll
call on Senator Domenici if he has questions.
Mr. Mears. Just briefly, our experience I think coincides
with what Mr. Plaza had to say. We started blending biodiesel
in the State of Minnesota in the fall of 2005. They have a 2
percent biodiesel mandate. Our standards for accepting
biodiesel, our quality control standards were being developed
at that time, and our first winter up there was not a success.
We had a lot of problems with biodiesel blending in the State
of Minnesota. Over the course of last year we refined our
product quality specifications, and this winter we've had no
problems whatsoever with biodiesel blending in Minnesota. So I
think it's a process of trial and error, and it's still early
on in the process, but I think it's progressing well.
The Chairman. Mr. Drevna.
Mr. Drevna. Senator, we, as the refining industry, are one
of the most heavily regulated industries in the country, in the
world, and our specifications are very, very, very tight and
very, very, very strict. Unfortunately, as an industry we don't
have the luxury of saying, ``OK, we can give you some time.
We're going to blend some stuff into our product, but if it
doesn't work, well, it will work next week, or their new
standard will be developed.''
My point is, again, we support biodiesel, it's fine, but as
I think maybe the first Mr. Burke down there said, people can
make this stuff out of their garage and sell it. I don't know
if those folks are going ASTM anything, but somehow or another,
that stuff's going to end up in the product stream. So my
industry is very, very concerned that before we mandate any
significant levels of this stuff, we understand the full
ramifications of this before we mandate it. That's the only
thing we're asking.
The Chairman. All right. Thank you.
Senator Domenici.
Senator Domenici. Senator Thomas was first.
The Chairman. Senator Thomas, then.
Senator Thomas. Thank you. I'm glad we're having this
hearing and appreciate your being here. This is obviously a
very important issue. Everyone agrees that we need a change and
we're going to have to have a change, but all we hear basically
are ideas and fairly small amounts of change, 5 percent. We're
talking about the year 2025 before we can really get there.
We're going to have to emphasize the production of our current
products pretty strongly in order to fill this gap, it seems to
me.
Whoever would like to respond, what do you think is
necessary to reach this goal of alternative fuels, with respect
to the market, with respect to the Government, with respect to
the refiners and the requirements and so on? Very simply, what
should be done besides talk about it?
Mr. Burke. I think--and I'm not going to get into
incentives and mandates because I think Mr. Drevna represented
our position fairly well, but I would say that as we look at
how--because we have the blending obligation. We're the second
largest refiner in the United States. The blending obligation
to comply with the RFS and then comply with all the different
State mandates lies with us.
And we look at how we are going to hit targets, and we have
run scenarios since the State of the Union, saying how would we
possibly hit these targets and what sorts of things would
happen. And what we find out is that the only way to get to
those sorts of volumes are to make sure that we leave the doors
open to multiple technologies. This is not a silver bullet,
which I think Mr. Brown talked about. There isn't one.
It's the idea that we will have to build this. There's
going to be a corn-based ethanol piece. There will be a
cellulosic ethanol piece. There will be a biodiesel piece, a
biomass-to-liquids piece. And public policy should make sure
that no one pathway gets blocked now while we're trying to find
out what's going to be the most cost-effective way to bring
fuels to the marketplace and not overly burden the consumer.
Senator Thomas. Yes, but you mention you're reaching the
mandates. That implies that what's going to happen is rules or
laws; is that right?
Mr. Burke. Well, we are blending to meet the mandates
today, yes. Because right now----
Senator Thomas. But I hear others of you saying, ``We don't
want any restrictions. We don't want any requirements.'' And
yet that seems to be what you're doing, is meeting
requirements.
Mr. Burke. We're meeting the requirements because we have
to, to sell the fuel, because the basic economics do not----
Senator Thomas. What would you do if we didn't have
requirements?
Mr. Burke. We would make the products that the marketplace
would want to pay for.
Senator Thomas. OK. Then you're saying the marketplace
would do this. Anyone else want to comment on that?
Mr. Drevna. Yes, sir, Senator. If you look at what's going
on right now, we're not only meeting the mandate that Congress
passed in 2005, in EPAct, we're exceeding it. And we will be
exceeding that, those target numbers, all the way through the
period. And the reason is, in all deference, we are supply
short. There's no question we're supply short in the country.
We see ethanol and biodiesel--as a refining industry, we see it
as a valuable blendstock. It keeps additional volumes coming
in.
So what we're saying is, the marketplace is a pretty good
thing. It dictates where and when and how best to use these
things. And we're very confident, as our counterparts in the
renewal fuels industry should be confident, that this is going
to be a growing thing.
And just to expand upon what Mr. Burke from ConocoPhillips
said there a minute ago, when you focus your attention on one
aspect or one particular element of the biofuels in a mandate,
it really inhibits innovation. The box that we work in, the
innovation box, so to speak, shrinks, because there are
constraints.
Now I'm not saying that my industry--we always reserve the
right to be a little smarter tomorrow than we are today, but it
inhibits us in what we can do and what we should do if we're
facing something in costs that----
Senator Thomas. What I keep hearing is that maybe we can
get to 25 percent alternative use by 2025.
Mr. Drevna. Senator, it's----
Senator Thomas. That's a long time.
Mr. Drevna. That's a long time, but unfortunately for
refiners, we have to make business plans for 2025 today.
Senator Thomas. But we may have to make plans for something
different before that. I think that's the issue.
Mr. Drevna. But the thing is, we have this ever-changing
target. We had a target set in 2005 of 7.5 billion gallons. Not
2 years later, we're talking about moving that target. We have
to make business plans.
Senator Thomas. I appreciate it, and I understand. My time
has run out, but my point is, I guess, we all want
alternatives. I think we know we're going to get there, but we
talk about them a lot. We're not really making a lot of
progress in terms of the percentage change, or even in our
prognosis for the percentage change.
And so we either have to decide what we do to innovate that
a little more quickly, or else make sure we continue to support
the needs through our traditional sources. And sometimes we
forget about the traditional sources when we keep talking about
alternatives, but alternatives are not going to take over for
quite a while. My time is up.
The Chairman. Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman.
Mr. Plaza, do you want to comment on that, since you've
seen a five-fold increase in what the United States produced
last year just in your facility? And what else do you need,
from an infrastructure perspective, that would help in the
delivery and growth of your particular product?
Mr. Plaza. Absolutely. Thanks for the chance.
First of all, Senator Cantwell, I appreciate your asking
the question, because I actually do believe as a new industry
we can address these supply sort of concerns with new crops.
For example, we have 60 million acres of fallow land that we
don't grow on in the United States. We have existing land that
we don't grow energy crops in. Washington alone could grow 100
million gallons of canola oil, rotating it in with wheat.
There are next generation feedstocks. There are studies
that show that with algae, we could grow all the world's liquid
transportation needs on .2 percent of the world's land mass.
All of this data is out there. Companies like ours that are
new, small, innovative, and looking to break into the energy
market, are having vision to that, and are going there quickly
and making the investment from the venture capital world, the
hedge funds of the Nation investing in us, looking to that next
generation, not being focused on corn-based ethanol or soy-
based biodiesel.
But what are the next steps? Those are out there. They're
identified. There's investment going into this industry to meet
that, so it's not impossible. It's actually quite achievable.
What makes it work, we believe, is a long-term, stable
environment that takes into account we have to help support
these new industries, just like we've done with petroleum,
nuclear power. All the energy sources that we've seen, all have
received support from the Federal Government, so we're asking
for the same level of support as we grow this new industry.
We're bringing jobs to communities that are decimated by the
old timber industry.
We're supposed to be talking about infrastructure, and I
want to address that, because we've heard a lot about ethanol,
but we haven't heard much about biodiesel. Twenty percent of
the Nation's petroleum usage is diesel. Biodiesel is a one-for-
one replacement for diesel, and most studies show it's about a
2 percent loss of overall energy, versus the 11 percent we've
heard. That's with soy-based. With canola-based, it's actually
an increase in efficiency over petroleum diesel.
The other component is, it works in the existing
infrastructure with no change. We can go into a terminal
operation with biodiesel, 100 percent, through pipelines,
through barge economics, which we have at our facility. We'll
be able to take a 83,000-barrel barge from our facility, load
it, and transport it to California, to western Washington, into
the existing infrastructure. The only thing that's preventing
us from entering into that infrastructure is really acceptance
from that terminal operator.
So we see it as not a barrier of actual technology but a
barrier of acceptance. We don't feel that there really are a
lot of problems in taking this industry where it needs to go,
other than education, awareness, and acceptance as a Nation,
and as bigger industries accept a smaller sort of up-and-coming
opportunity. We think there's a tremendous opportunity and very
little actually blocking the implementation of it, other than
knowledge.
Thanks.
Senator Cantwell. Mr. Brown, thank you for the flex-fuel
initiative in Brazil. We heard yesterday--I think it was
yesterday--from Honda, who branded themselves at the hearing as
the technology leader in the automobile industry. How is Ford
looking at diesel cars and the potential for looking at a
variety of sources of biofuels, including that one?
Mr. Brown. Well, let me say, first of all, that we do have
a portfolio approach that will deal with, from our perspective,
energy security as well as climate change as well as air
quality, and clean diesel is part of our portfolio. So we are
not only researching technologies that lead to the use of
advanced diesel in the field, but also the type of fuel that's
required.
Just recently EPA, working with the fuel industry as well
as the OEMs on the auto side, issued rules for ultra-low-sulfur
diesel. And we have begun that roll-out. We have technology
that will coincide with the delivery of that fuel. And we
expect there will be air quality benefits, as well as fuel-
efficiency benefits, but clean diesel is only one of the
products in our portfolio.
Senator Cantwell. Are you seeing a play--because the
Europeans, with this 1 billion biodiesel--they're at 80 times
what we are, I think. Anyway, they have established that, and
so some of their European auto manufacturers are making big
plays in diesel. Do you see that competition?
Mr. Brown. Well, of course there's competition, but in
Europe the air quality standards allow greater use of diesel.
And we have been working with the Environmental Protection
Agency here in the United States to resolve some of those near-
term challenges, as well. So, yes, diesel offers an immediate
CO2 benefit. The challenge has been, where do you
set the air quality standards, from a tailpipe perspective?
Senator Cantwell. Thank you.
The Chairman. Senator Domenici.
Senator Domenici. Mr. Chairman, Senator DeMint arrived, and
he has been delayed most of the day. I would yield my time to
him. I know we don't want to----
Senator DeMint. Senator, I'm actually introducing someone
in the next panel, so I would rather listen to you and the
gentlemen here.
Senator Domenici. Well, you might have to wait a long time,
then.
Senator DeMint. OK.
[Laughter.]
Senator Domenici. In fact, we have a lot more to do before
him. The Chairman has a half hour, I have 30 minutes. That
would be an hour. I don't know, what do you have, Senator, 20
minutes? Come back in an hour and 20 minutes.
[Laughter.]
Senator Domenici. Anyhow, I'm going to be very quick, but I
wish I knew a little bit more about the history of the
automobile and the fuel that fuels our engines that have been
part of the evolution of the automobiles taking us around with
the combustion engine. But I would assume that we just didn't
bust into, all of a sudden, nationwide, using an internal
combustion engine, six or eight cylinders, that all used one
kind of gasoline. That didn't happen just overnight, all at
once, did it? Any of you enough of a historian to say that it
came in in bits and pieces, and arrived at parts of the country
and then other parts? Is that a fair assessment? Who knows?
Mr. Brown. Yes, that's a very fair assessment.
Senator Domenici. OK.
Mr. Brown. But, Senator, I would point you to just the
experience with, let's just say, unleaded fuel and the
catalyst-equipped vehicle. That took about 2\1/2\ decades to--
--
Senator Domenici. Just for that?
Mr. Brown. Just for that.
Senator Domenici. Well, it seems to me that we have to be
careful here when we're talking about the system that had
imposed upon it--this national system. There were some
impositions, but it was still a national system. Except for
California, for the most part, I guess. All of a sudden we know
so much, we have some big news about what might work better in
terms of conservation, right? A new way to produce the product
that will run the engines or that will be different, so we will
save a lot of petroleum product as we move our vehicles. And
we're going through the stretches of ``How do we go from where
we are to the next and the next?'' Is that correct?
Mr. Plaza. I'd like to just sort of tell an anecdotal story
that got me interested in this as an entrepreneur.
Senator Domenici. Go ahead.
Mr. Plaza. If you look at the automotive industry, because
I am somewhat of a fan of history, the original Ford, the Model
A, was designed, if I understand correctly, to run on alcohol,
ethanol. The original diesel motor was designed by Rudolf
Diesel to run on peanut oil, vegetable oil.
Senator Domenici. On what?
Mr. Plaza. On peanut oil. It was modified to use petroleum.
So we're almost coming full circle back to the original source
of our energy. So for us to dismiss these as inconsequential or
minor is foolish, and it also prevents America from being
leaders in the world and using our land mass to grow our
energy. There's tremendous potential there. We need the
support, long-term, of the Federal Government, such as the
extension of the tax credit and others.
Senator Domenici. OK, that just gets me to the question.
All of you are important, so if one of you said this, it's
important. I can't remember which one talked about the fact
that we ought to get on with using one regulation and one
system, and not have--not be imposing multiples on the industry
or the people that make the liquid we call petroleum. Who said
that?
Mr. Burke. Actually, I think Charlie was the one who talked
about a single national standard, but when you market in
multiple States, and we distribute, it gets difficult when
different States have different standards or mandates. The
State of Washington is implementing a new Renewable Fuels
Standard that is different than the State of Oregon's in their
timing and their implementation. We have a terminal in Portland
that serves the greater Portland area, both sides of the
Columbia River. It's difficult for us to have a fuel that works
on both sides when there is discontinuity between the States.
Senator Domenici. Let's get back to this issue, and then
I'll quit. We're not talking about the difference in two States
choosing. We're talking now about how we are going to implement
a variety of new products into the system that are going to be
imposed on the system because they--say there are conservation
issues or something like that, and we've got to get them into
the system. Now, we're going to have to ask the system to
adjust to that, right, and do it in an orderly manner. That
isn't going to be done by one overpowering regulation, when we
see all these different new products coming on. Am I correct in
that assessment, or am I looking out the wrong kind of windows?
Mr. Drevna. Senator, I think I know what I said. What I
meant to say is--and I apologize for any confusion, but I was
referring to the biodiesel side of the equation.
Senator Domenici. OK.
Mr. Drevna. But if you look at ethanol, it's distilled.
It's ethanol, and it's pretty much a singular product. In the
biodiesel end of the business, there are so many different
kinds of potential feedstocks for it. It goes from oils to
animal fats to anything in between.
So the point I was making was, until the time where there
are actual standards set, a biodiesel standard, it must contain
X, Y and Z, before we, as refiners, feel comfortable in
blending it into our diesel, that's what we are looking for.
And I think they're saying we are on our way and we're doing
it, and we have some bugs to maybe get out of the system. Well,
that's all fair and well, but we, as an industry, as the
refining industry, we can't afford to have things put into our
product that we don't know if they will pass the test. That's
all I was saying. We're going to use biodiesel, but let's make
sure we're using the component that will operate the best
through the system.
Senator Domenici. Thank you, Mr. Chairman. I think by
coincidence it has some application to what we'll be doing,
nonetheless. Thank you.
The Chairman. OK. Well, thank you, and let me thank this
panel very much for your testimony. I think it's been very
useful. And we will bring forward the next panel.
OK, if everyone could take their seat, we'll go ahead and
get started with this panel. Let me just introduce each of the
panel members. Senator DeMint, you wish to introduce one of
panel members yourself. Why don't we call on you right now to
do that, and then I'll introduce the other four.
Senator DeMint. Thank you, Mr. Chairman. I do want to thank
you--really, all the members--for holding this conference today
and extending an invitation to Dr. Nicholas Rigas to
participate. It's a privilege to introduce Dr. Rigas, a fellow
South Carolinian, at this conference, but it shouldn't be a
surprise. South Carolina has been leading the way in the
development of alternative energy technologies, whether it's
hydrogen, wind power, biofuels, and then integrating them into
our everyday lives.
As director of the South Carolina Institute for Energy
Studies, he has been a key advocate for new ways of meeting our
Nation's energy needs and helping diversify our energy
portfolio. I look forward to hearing his testimony. Dr. Rigas,
I appreciate you being here, along with all the other
panelists.
Thank you, Mr. Chairman.
The Chairman. Well, thank you very much.
Welcome, Dr. Rigas. We're glad to have you here. Also we
have Don Paul, who is the vice president and chief technology
officer for Chevron. Don, thank you for being here.
Mr. Paul. Thank you, Senator.
The Chairman. I remember seeing you out there in Idaho, as
I remember.
Tommy Foltz is with Earth Biofuels. Thank you very much for
being here. George Fitch is the mayor of Warrenton, VA. Thank
you for coming today. And Jonathan Lehman is with VeraSun,
which is the Nation's second largest ethanol producer. Thank
you for being here.
Why don't we start with Mr. Paul and just go across from
left to right, and then we'll have some questions.
STATEMENT OF DON PAUL, VICE PRESIDENT AND CHIEF TECHNOLOGY
OFFICER, CHEVRON
Mr. Paul. Thank you, Mr. Chairman, and members of the
Senate Energy Committee. Chevron appreciates the opportunity to
participate in this conference. We believe that it's essential
to U.S. energy security to diversify our fuel supply system,
and biofuels are integral to that diversification.
I'll briefly make a few points regarding biofuel
infrastructure growth and its integration in the fuel system.
First off, as we expand and integrate biofuels into the fuel
supply system, we believe it is essential to do so in such a
way that it continues to provide the same quality, reliability,
and efficiency of the fuel supply system that we all count on
every day.
Second, to achieve this objective, we believe that the
infrastructure required to support increased use of biofuels
needs to incorporate three key principles that I call the three
S's: scale, standards, and sustainability. Let me comment
briefly about these.
Scale. As we heard in the last panel, one of the challenges
that we're facing is, the fuel system is enormous. The one we
have took the better part of a century to build, and today, to
give you a point of reference, basically half a gallon is used
for every human on Earth, in the global system, every day. This
is an enormous system. And this requires, to meet where we're
going, a robustness and a diversity of feedstocks to meet this
scale as we grow the biofuels systems, including, in our own
efforts, cellulosic sources that we focus a lot of effort and
R&D on.
Standards. We have heard about standards, critical not just
for the fuel standards themselves but standards in the
equipment to build out the supply chains themselves. This is a
new industry with respect to biofuels, and the standards are
yet being developed. Standards are required to induce customer
confidence that the fuel they're going to have is going to meet
their expectations every time they show up to fill up. And
then, third, standards are required to ensure that the
environmental performance of the fuel, not just the fuel in
use, but the infrastructure that supplies it, that the plants
themselves meet the environmental standards and safety
standards we've come to expect from the fuel system.
Third, sustainability. And what I mean by this is that
energy infrastructures, once in place, live not just for years
or decades but generations. In fact, some part of our current
system is 100 years old. So when we make choices and we grow
this infrastructure, and we're talking about growing it
significantly to meet the envisions that have been discussed,
we're going to live with it a very long time. And I think the
key that we would say is, let's make the right choices. Let's
evolve the standards. Let's recognize the scale where we need
to get to, so that we can go down the road and build this
diverse, robust, and secure energy system we all need.
Thank you again for the opportunity to contribute to this
biofuels conference. Chevron is committed to being involved in
the biofuels business through a number of activities in
research as well as infrastructure, construction such as we're
doing in Galveston Bay. Thank you for the opportunity. I would
be glad to respond to any questions you have.
The Chairman. Thank you very much.
Mr. Foltz, why don't you go ahead.
STATEMENT OF TOMMY FOLTZ, VICE PRESIDENT OF PUBLIC AFFAIRS,
EARTH BIOFUELS
Mr. Foltz. Thank you, Chairman Bingaman. I want to thank
the committee for recognizing the importance of this issue and
holding this conference. I'd also like to thank my home State
senator, Senator Lincoln, for all that she has done on this
issue. She has been out front and unwavering in her support and
we appreciate that.
For all of us who have children or grandchildren, it's
almost impossible not to think about the future. And that's
obviously what this conference is about, the future: our future
environment, our future economic well-being, and our future
security. I think we all agree with that or we wouldn't be
sitting here today. But there are some lessons from the past
that I think that we can use as well.
I have been in this business for about 14 years now. I
started at the Energy Department in the Clinton administration
as the co-director of the Clean Cities Program. I was the vice
president of a company called Blue Energy that sold compressed
and liquified natural gas to the vehicle market. And I'm a co-
founder and shareholder of Patriot Biofuels in Stuttgart, AK,
which is a biodiesel plant. So I've seen this industry from a
lot of different angles.
Right now I am the vice president of public affairs at
Earth Biofuels. Earth is a publicly traded company that
currently has an operational biodiesel plant in Durant, OK,
that's got a capacity of about 10 million gallons per year.
We're also the largest supplier of transportation-grade LNG in
Southern California, which we liquify at Earth LNG in Topock,
AZ. And that's about a 31 million gallon per year plant. And we
recently announced acquisition and upgrades to an ethanol plant
in Moses Lake, WA, which should have the capacity to produce 36
million gallons by the first quarter of 2008. I look forward to
working with Senator Cantwell on that.
I want to get into a specific issue and try to keep it
brief, but I want to just make three broad comments, and that
is that for the most part we would rather see incentives than
mandates in a policy, going forward. We saw very well last
summer that when the economics are right on alternative fuels,
there are plenty of buyers out there. There were a lot of
biodiesel plants out there that literally could not make enough
biodiesel to supply the market last summer. That's because the
economics were there.
So if we're going to push incentives, they need to be
sustainable. They need to be much more long-term. They
basically need to be able to outlast a bank loan, in terms of
creating investor confidence in the industry. And I think that
obviously, for those of us in the biofuel business, President
Bush's comments in the State of the Union about 35 billion
gallons a year of biofuels was a great boost to everyone who
frankly are in the middle of a struggling industry right now.
We're kind of almost polar opposite from where we were last
summer.
But what I would say in terms of setting a goal is, we
obviously have to have goals and we have to be shooting for
something, but let's not let the goal get in the way of good
public policy. And what I mean by that is that in the past--the
Energy Policy Act of 1992 comes to mind, and that is where
essentially the Department of Energy was allowed the
flexibility to either impose or not impose the private and
local fleet mandate based on whether or not imposing that or
implementing that fleet mandate would get to the goals of the
Energy Policy Act of 1992. When it was determined that going
with those mandates would not achieve the goal, then they did
not impose the mandate.
Again, we're not really for mandates, but I would say that
on incentives, in any way, I think that what we might see from
the detractors out there is that they say, ``We can't ever get
to 35 billion gallons, so why try?'' And you have a hard time
convincing me that if we made it to 28 million gallons or 30
million gallons--or billion gallons--that the country would be
a worse off place. So Rome wasn't built in a day, and neither
will the widespread alternative fuels market be.
On regional infrastructure, I think we heard in the
previous panel that it's pretty unlikely that biofuels are
going to be transported by pipeline in any big amount anytime
real soon. So I think that the biggest thing that can be done
on regional infrastructure is to increase the amount of
biodiesel storage and blending at the pipeline terminals.
I'm echoing what was said in the earlier panel, but just to
give you an idea of not what it is but what it is not, the
Little Rock, AK, school district was a B20 user, and they will
be again, but as they got into their plan, their diesel
distributor had to go through North Little Rock, pick up 6,000
gallons of straight diesel, drive 35 miles to the closest bulk
plant that had B100, splash in 1,500 gallons of B100, close the
lid, drive 35 miles back to Little Rock, just to supply B20 to
the school district. That added about 20 cents a gallon to the
overall process. It works perfectly fine as a fuel to do it
that way, but the logistics, and therefore the economics, are
not viable with that.
When you have pipeline terminal blending, the jobber is
able to pull up, put unleaded gasoline in one compartment,
straight diesel in one compartment, B20 in one compartment, B5
in one compartment, then go on about his business without
spending 1 extra minute of labor or 1 extra mile of
transportation.
The Chairman. Could you summarize the remainder of your
remarks?
Mr. Foltz. That is the remainder of my remarks.
The Chairman. OK. Well, thank you very much. We'll have
some questions.
Mayor Fitch.
STATEMENT OF GEORGE FITCH, MAYOR OF WARRENTON, VA
Mr. Fitch. Thank you, Mr. Chairman. I am the mayor of
Warrenton, the seat of Fauquier County, about 50 miles west of
here. We are dedicated to becoming self-sufficient in renewable
energy. Toward that end, we have embarked on a plan for an
integrated biorefinery at our landfill that will use different
types of waste: our municipal waste at our landfill;
construction and demolition waste, broken pieces of drywall,
broken kitchen cabinets, tops and bottoms of wood posts. We
will also use agricultural residue, primarily corn stover, a
bit of wheat straw, and some soybean stubble.
Woody biomass, forest residue--40 times a year, thinners go
into the woods, private and public, in Fauquier County, and
thin them out. They don't really take them anywhere. In
addition to that, you have all the tree thinnings by the
private contractors, the leaves. There's a lot of woody biomass
material right in our back yard.
We're horse country, so we have horse manure in addition to
cow manure that's been composted. We also operate a sewage
treatment plant. We have 2,000 tons of sewer sludge. We pay
$40,000 a year for someone to come in, pick that up, take it
out of the county and drop it on somebody's farm, I'm sure much
to the chagrin of the neighbors. We could get paid $40,000 by
selling it to a biorefinery plant.
So we're using a multitude--at least the plan is to use a
multitude of different types of waste. We have sized this, at
this particular stage, for about a 350 to 400 ton per day
facility that would then produce about 8 megawatts of
electricity, of which about 3 or 3\1/2\ megawatts would be used
internally for process heat and steam. The balance we would put
on the grid, and in so doing, electrify every single household
in Warrenton.
Now, I didn't come here to shine the light on Warrenton,
but I'd like to point out to the committee what I think is an
overlooked stakeholder in this whole debate, in trying to reach
this very laudable goal of using renewable energy, and that is
local governments like mine. There must be hundreds if not
thousands of Warrentons across the country with a lot of
different types of waste in their back yard, that should be
encouraged to use that in a biomass facility. Even though the
ledger says that small scale biorefineries are not economical,
we believe we can show that they are.
I think what's fascinating is that in this case a local
government can actually be efficient, and in so doing, shatter
that oxymoron where local governments are ineffective. Because,
just like Chevron and the major integrated oil companies, we
can control or certainly influence the stream of the product,
the downstream, the midstream, and the upstream. We, as a local
government, in conjunction with the private sector--I'm not
proposing the local government should be in this business, but
just to facilitate the development, to take it to a stage that
will attract the private sector to come in under a public-
private partnership.
We influence the permits. We can enter into PPAs with a
utility company. We can work best with our farmers. We can work
best with the forest residue. So we are uniquely positioned to
facilitate the development of what I believe is an untapped
resource, and that is local communities contributing on a very
large scale. For example, the numbers I gave you, 10 million
gallons for a small area like Warrenton, 55,000 people in our
county, times hundreds and thousands of communities like that,
can really make a valuable contribution toward not only
ethanol, but renewable diesel, as well as green electricity.
Now, I have had a chance to talk to farmers in my community
and throughout Virginia and colleagues of mine in other
counties, and based on those discussions and finding out what
is holding them back, I have come up with two specific
suggestions that I would like to make to your committee that
would really provide a big, important kick start to get local
governments and the stakeholders in the community to get
motivated, to get involved in what we're doing.
First is to provide an incentive production payment of $20
per ton for agriculture and forest residue used in a
biorefinery. Congress has a Section 210 to provide a $20
payment, but that is strictly for forest residue on tribal land
and at-risk forest land. Extend that to any forest land, and
extend that for agricultural residue. Farm land in Virginia is
basically idled. Half of our farm land, half of 8 million acres
of Virginia farm land is idled. It is not being used. It is
marginal. We have farmers that are prepared to try switchgrass.
Quickly, my second point would be the whole area of
infrastructure--the collection, the gathering, the harvesting,
the storage--needs a lot of help according to the farmers that
I've talked about.
Those are two of my suggestions. Thank you, Mr. Chairman.
The Chairman. Thank you very, very much.
Dr. Rigas.
STATEMENT OF DR. NICHOLAS RIGAS, DIRECTOR, SOUTH CAROLINA
INSTITUTE FOR ENERGY STUDIES, CLEMSON UNIVERSITY
Dr. Rigas. Yes. Thank you, Senators, for this opportunity
to discuss biofuels and regional infrastructure integration. My
name is Nick Rigas, and I am the director of the South Carolina
Institute for Energy Studies at Clemson University. I serve as
the chairman of the newly formed South Carolina Biomass
Council, and lead a commission focused on promoting alternative
transportation fuels sponsored by the South Carolina General
Assembly.
Many organizations, including Clemson University, the
Savannah River National Laboratory, the Palmetto State Clean
Fuels Coalition, the South Carolina Biomass Council, and
others, have been working together to develop statewide
programs to promote a sustainable biofuels industry in South
Carolina. My comments today are a result of this collaborative
effort, and represent the thoughts and ideas of many of the
individuals throughout the State.
Development of the biofuels industry has been based on the
successful corn and soybean model that capitalized on the
existing regional infrastructure in the Midwest. Although the
model has been very successful where grain yields are high,
this model would be less successful where grain yields are
lower, and in many cases, a grain deficit exists.
Most of the biomass potential in South Carolina and the
Southeast resides in the form of cellulosic materials which
will require a different regional model in order to develop a
viable and sustainable biofuels industry. First, the diverse
nature of the cellulosic feedstocks will require a regional
infrastructure to support the growing, harvesting, collection,
processing, and delivering of these feedstocks.
Studies are needed to, a, identify the regions and the
feedstocks that will support a sustainable and competitive
industry; b, examine the synergies within the existing regional
infrastructure, including agriculture, forestry, and other
industries; and c, identify the infrastructure and methodology
gaps that exist to efficiently grow, harvest, process, and
deliver these feedstocks.
Second, the biofuels industry will require a large regional
distribution network. The industry, due to the nature of the
feedstocks, will be decentralized, and therefore, cannot be
developed on a centralized distribution model as exists for
petroleum fuels. Biofuels will require a regional model that
reliable and cost-competitive services demand.
Incompatibility with the existing petroleum fuel
infrastructure will add to the complexity of the supporting
infrastructure. Studies should focus on developing distribution
systems that service this regional demand and capitalize on the
respective regions' strengths.
And, third, the technology to produce the cellulosic
biofuels will require a regional focus, due again to the
diversity of these feedstocks. The capacity of these units and
the technology that these facilities utilize will be dependent
on the regional feedstock. Research will be required to
identify and develop the best feedstocks and technologies to
convert these regional feedstocks into biofuels. Projects
should be wholistic, funded through regional centers, and
should address the entire supply chain from growing the biomass
through delivering the fuel to the customer.
Thank you, Senator, and I look forward to your questions.
The Chairman. Thank you very much.
Jonathan, we're glad to have you here. Go right ahead.
STATEMENT OF JONATHAN LEHMAN, VERASUN ENERGY
Mr. Lehman. Thank you very much, Mr. Chairman and members
of the committee. I really appreciate the opportunity to
participate today in this very important hearing.
We're very fortunate, because of your hard work and the
Energy Policy Act of 2005, to be looking at what we do next.
For several years we were looking at pushing a renewable fuels
standard to get to 7.5 billion gallons of ethanol. Because of
your hard work, we're going to be surpassing that in the not-
too-distant future.
As you heard this morning, there are 70-plus ethanol plants
under development and construction which will add 6 billion
gallons of ethanol into the United States. That allows us to
look at where we go next. We're going to easily meet the near-
term demand of the 10 percent blend market, and it allows us
the opportunity to see where we go next to spur renewable
fuels. To that end, we really appreciate the President's
statement during the State of the Union setting the goal of 35
billion gallons of ethanol, and we believe that is eminently
reasonable.
VeraSun Energy is one of the Nation's leading producers of
ethanol. We have two operating facilities, three under
construction, and one under development. When complete, we'll
have 670 million gallons of ethanol capacity each year. In
addition, VeraSun has spent the last 24 months on an aggressive
E85 strategy. We have partnered with Ford and GM to spur
additional E85 locations across the country. To date, we have
more than 80 locations offering VeraSun E85 in eight States.
VeraSun believes that the long-term outlook for renewable
fuels includes a robust E85 market as well as additional lower
blends such as E20. From our experience, there are several key
steps that are necessary to achieve large-scale E85 and a
robust cellulosic ethanol market.
First, in the near term, we need to maintain the E10
demand. And to do that, we should look at increasing the RFS as
well as extending the existing ethanol tax credits. This gives
us the opportunity to springboard to higher blends.
In the mid-term, we believe that E20 is the catalyst to
move to an E85 infrastructure in the United States. E20
provides the near-term demand driver necessary to continue to
move to E85. It will double the amount of ethanol demand in the
current blend market, and this is important because it provides
incentives for the ethanol industry to continue to grow as well
as to work to develop E85. It ensures a continued investment in
research and early stage development of cellulosic ethanol.
Finally, in the long-term our experiences indicate in order
to spur additional investment in E85, we need to do several
things to change the economics of E85. Today E85 is sold at a
discount because current FFVs are not designed to take
advantage of E85's high octane. This results in fewer miles per
gallon run on E85 versus conventional blends, and it has to be
priced accordingly.
Additionally, refiners take advantage of ethanol's high
octane to increase refinery output, so ethanol is valued more
highly as a blend component than a move to E85. These two
factors mean that currently ethanol is blended in E10 versus
E85. We need to change those economics today to start spurring
an additional E85 infrastructure across the country.
Second, we should provide incentives for the automakers to
increase the production of advanced fuel-efficient vehicles. We
truly appreciate their commitment to increase the number of
FFVs on the road. We believe that we should work to decrease
the mileage penalty and create FFVs that have comparable fuel
efficiency standards as existing automobiles.
And, finally, our experience indicates that we should
increase the incentives for retailers to offer E85 from 30
percent to 50 percent, to try to spur additional E85 stations
across the country.
With that, I'm happy to take your questions.
The Chairman. Thank you very much.
Senator Lincoln has arrived, and she has not had a chance
to ask questions during today's conference. Let me defer to
her. She can take my place in this round of questions.
Senator Lincoln. Well, thank you, Mr. Chairman. I
appreciate that, and certainly knowing that chivalry is not
dead around here. I'm very grateful to you for that.
And I want to say how proud we are to welcome Tommy Foltz
here today in the committee. Tommy is an Arkansasan, and has
done tremendous legwork in bringing about the reality of
renewable fuels in our home State of Arkansas. So we're very
grateful to him and grateful that he is spending time with the
committee, and we look forward to working with you.
Mr. Foltz. Thank you. I appreciate that.
Senator Lincoln. Just a couple questions, if I may, Mr.
Chairman. One of the things that I have focused on, that I
think is really important for us as a legislative body to
recognize when we look for incentives that are really going to
jump start the industry of renewable and alternative fuels, is
to ensure that we get them out to the consumer as quickly as we
can.
And for me, in looking at this process, one of the things
that has been most relevant has been making sure that rural
communities have the tools that are necessary. They are the
likely place where this has to occur, obviously, and they need
the tools to build the infrastructure to produce and distribute
the fuels. It makes all the sense in the world. Obviously we're
not going to jump start an industry if it costs them more to
use an 1-wheeler burning petroleum diesel to haul their
feedstock from one place to another and it becomes cost-
ineffective.
It has long been recognized that one of the most efficient
models for getting this industry off the ground is small
facilities serving a local area. And the industry represents an
opportunity, I think, also, from my standpoint representing a
rural State, to revitalize many of our rural communities. I
think we must all work hard to ensure that we can take
advantage of that.
My hope is that Mr. Foltz, who was a real pioneer in
Arkansas, could help us in that conversation. I know the
multiple different entities that we worked with Mr. Foltz and
the others in bringing about the partners to make this happen.
It also took time. And if there are ways that we here in the
legislative body can jump start some of those or even reinforce
some of those areas, I know it was patching together grants,
working with wonderful nonprofits like Winrock International
and different types of groups to put together what was
necessary to actually start a facility.
Maybe you might expand on that, in terms of those different
components that really brought us to the reality of having
Patriot Fuels in Stuttgart, AR. I think that would be
enormously helpful.
And then my second question--and certainly this is to the
entire panel, any of you who would like to jump in on that
question and the next one--is really looking at diesel
vehicles. They are so common in Europe, as we know, and in many
cases preferred, but here in the United States, consumers are
not as assured of a diesel vehicle product. They're still wary
of whether a diesel car is going to be as clean, despite the
rapid advancements that we've seen in diesel technology and
certainly much better fuel mileage.
So maybe in discussions here we can look at how we
encourage Americans to give a second look to diesel
automobiles, because I think that really has an effect on the
market. Or maybe perhaps you might want to talk about what
effect that would have on the market for biodiesel and other
types of diesel fuel.
So, Mr. Chairman, those would be my two questions, for
starters, if I may. Thank you.
Mr. Foltz. I think I would like to take the second question
first, because I think I can explain it more quickly.
From my personal experience, when I was with Patriot
Biofuels, we had a company car. And essentially we were
relegated to a Volkswagen Jetta, which is a very good car. We
would have rather had an American-made car, but they don't--
American automakers don't really make passenger diesel
vehicles.
But the thing that strikes you the most with the Volkswagen
Jetta, at least, is when you walk on the lot there, if you want
the gasoline version, it gets 32 miles to the gallon, which is
excellent, but if you want the diesel version, it gets 41 miles
to the gallon. So we talk a lot about hybrids, which are very
positive for the marketplace and on a number of different
levels, but without even trying, diesel is more efficient than
gasoline.
I don't think that we're going to replace all the gasoline
with diesel, but Europe made a transition primarily for
greenhouse gas reduction strategies. I believe that in 1991 or
1992, about 10 percent of the new vehicle registrations were
diesel, and now it's about 50 percent. So if you combine the
inherently better fuel efficiency that you get with a diesel
vehicle with biodiesel, which according to the Department of
Energy and the Department of Agriculture gets about a 78
percent reduction in greenhouse gases on a life cycle basis,
that's a good place to be.
Unfortunately, and this is where the right hand doesn't
know what the left hand is doing, that Volkswagen Jetta is not
available in diesel in the 2007 model year because it's
slightly over the NOX requirement. So from a ground-
level ozone perspective, it's worse than a gasoline-powered
Jetta, but from a greenhouse gas production strategy, it's far
better, and from an energy security standpoint, it's far
better. I think that we would do well to look from a very
comprehensive approach to our policy, in that it's not just
about air quality, it's not just about greenhouse gas
reduction, it's not just about energy security.
I said I would make it short, but I didn't, so I apologize.
Senator Lincoln. That's OK.
Mr. Foltz. In terms of the teamwork to put together Patriot
Biofuels, I think that we were fortunate to find some pretty
enlightened investors. Those don't exist everywhere, but I
think that one of the reasons that our investors were willing
to invest is because they didn't see the biodiesel tax credit
going away. We felt like, in the post-9/11 world, it's more
likely that that gets extended than gets sunsetted. And we hope
that that's the case, because the biodiesel industry needs that
$1 blender's credit in a very, very big way.
As I said in my opening statement, having long-term,
sustainable incentives that are out there, that create investor
confidence, if what we're trying to do is build a biofuels
industry, we need investors and so we've got to create that
investor confidence. But downstream you've got people like
Winrock and the Arkansas Oil Marketers, et cetera, that are
very helpful to the process.
You know, we talk about the Arkansas Oil Marketers or the
Texas Oil Marketers or Oklahoma, and you think they're going to
be against us. They're not. They move really all of our product
into the marketplace. They are interested in selling liquid
fuel, and it doesn't really matter exactly what it's made out
of.
The Chairman. Why don't we go ahead and ask Senator
Domenici to ask questions, and then I know Senator DeMint also
had some questions.
Senator Domenici. Senator, I want to tell you as Chairman
how good this symposium has been and how good the record will
be to help us. I'm sorry that more Senators didn't come and
spend more time, but that's the way it is here. I did my best
to find time, and I'm hopeful that I have been constructive. I
think having one of our new Senators here, I want to let him
ask a couple of questions and then I'll go about and do
something else.
I want to thank all of you particularly for the good
testimony you gave us, and just ask this one question. As new
kinds of fuels and new kinds of engines requiring in many
instances, different infrastructure and different service, as
they start entering this gigantic market, how do you see this
melding together? Is there going to be a problem? Have we
created any problems by pushing when we shouldn't or pulling
when we shouldn't, and therefore we have automobiles trying to
get into the market or the things that feed them trying to get
space when it doesn't fit anywhere else? Do you understand what
I'm talking about? Would somebody just answer for us as to how
things are going out there in that regard?
Mr. Lehman. Senator Domenici, VeraSun's perspective is that
E85 is a long-term goal and flexible-fuel vehicles will meet
the needs of our transportation fuel system. That's going to
take some time in order to change the fleet from the
conventional vehicle to a fuel-efficient FFV. And our belief
is, in order to get there you have to sequence the items.
Today we have E10, and we're going to meet that demand from
the 10 percent blend in the not-too-distant future. We need a
stepping stone and a catalyst to get from E10 to an E85
structure in a robust, nationwide system. It's our belief that
an E20 system that can run in our conventional automobiles can
be that catalyst to get us to the next generation flexible fuel
vehicle.
Senator Domenici. Dr. Rigas.
Dr. Rigas. Yes, Senator. If you look at biofuels, we're
talking about a liquid fuel here, similar to our petroleum fuel
infrastructure, which is one of the beauties of biofuel. I
don't view biofuel as competing with the new plug-in or hybrid
technology. They're actually complementary technologies. One
really promotes energy efficiency in terms of getting more
miles per gallon out of that fuel, whether it's a gasoline, a
biodiesel, or a bioethanol.
I think that is one of the things we're talking about here,
is diversifying our liquid fuel resources, not just being
strictly reliant on one, which we have been for many, many
decades, which is petroleum. And so I think with the right
resources and the right focus, the integration will be fairly
smooth, because we are still talking about a similar type of a
fuel. We're talking about a liquid fuel here, again, whether
it's bioethanol, biodiesel, gasoline, or diesel.
Mr. Paul. I see this diversification as an essential part
of strengthening our energy security. We are early in the
beginning of this, so there will be adjustment factors and
there will be learning as we go along, but I think the
diversification of the fuel mix to include blends, to include
traditional petroleum products, to include pure bio products,
as well as vehicles that take advantage of them, I think we are
in a more diversified area.
There are some key things that we all need to work
together--government, private sectors, local, national, and
State governments together--so that the standards can be put
together to let this infrastructure evolve efficiently. Because
you are going to need to leverage the existing infrastructure,
as opposed to building an entirely new one alongside it. That
would probably be the one thing that would create problems in
the long run. But I think we can do that.
Mr. Foltz. And I think also, just from a diversity
standpoint, again, Earth Biofuels, we're in the ethanol,
biodiesel, and LNG business. Now, Southern California needs the
emission reductions badly, so LNG works. It's one of the few
places that it really works in as robust a way.
And I think what we need to understand is that it may make
more sense to make biodiesel out of cottonseed oil in the South
rather than soybean oil, and I think we need to be open to the
idea that different feedstocks, as long as they spit out a
biodiesel that meets the standards--there was a lot of
discussion about that in the previous panel. There is a
standard, it's ASTM. I can't think of the number, but you've
got to meet that standard. It doesn't matter what you're making
it out of. And I think we need to understand that we can't get
where you all want us to get and where the President wants us
to get based on one feedstock. It's just not real possible.
The Chairman. All right. Senator DeMint, why don't you go
ahead with any questions you have.
Senator DeMint. Thank you, Mr. Chairman.
Mayor Fitch, you kind of stimulated my thinking here. I
know when you were talking about local fuel production you were
primarily talking about fuel for the generation of electricity,
but it did make me think. We're looking at a major paradigm
shift in fuels in the country, and it seems that we are
assuming that we are going to send these new fuels through the
same infrastructure.
Before we put new wine in old wineskins, or assume that
maybe we do need this infrastructure that Dr. Paul was talking
about, I would just like to question the panel on the idea, as
we look at biofuels, we're looking at really a decentralization
of the production of the fuel source itself, the raw material.
In effect, it would become very much a cottage industry. And as
I think was just said, maybe in different parts of the country,
different fuel sources--cottonseed may be better, and sawgrass
in another, sugar beets in another. It could become very
diversified.
And I think it seems like we're assuming that we're going
to take all this feedstock to some central distribution center,
we're going to use all the fuel to get it there, we're going to
use all the fuel to distribute it like we're doing now with
petroleum. And I just wonder, as we think about what Mayor
Fitch was talking about, I know from years of working with our
local communities, the infrastructure for roads, we've got
sewer plants that serve multiple counties, we've got reservoirs
of water that may serve a small region. Electricity, you've got
this regional area. You've got cable that is--I just wonder, as
you think about this, should we assume that we need major
centralized refining and distribution, or can we possibly look
at more and more localized actual refining capability and
distribution that may not require the dependency on a major
infrastructure in a centralized system?
Obviously, the ability for our country to sustain some kind
of major terrorist attack that could destroy a large part of
our fuel production, if we have hundreds of mini biofuel
refineries and the ability for local communities to cooperate,
share fuel, it just seems like maybe we should be talking about
that paradigm, or at least exploring if that may be possible,
because that would create a whole lot more energy security and
may take a whole lot of trucks off the road.
Dr. Rigas.
Well, Mayor, I'll yield to you, since I have referenced you
here.
Mr. Fitch. You did a much better job of selling what I came
here to sell, which is that local communities like ours are the
answer, the decentralization, the cottage industry. When we use
basically what's in our back yard, that nobody else is using--
the waste, the urban waste, the sludge, the municipal waste,
the corn stover, the soybean stubble--we're small, and
hopefully the economic modeling will show that we will not lose
money, that you can have a small scale biorefinery.
We will make 10 million gallons of ethanol. We will lean on
a couple service stations to have a dedicated underground
ethanol tank, to make it available to our local residents. If
not, we don't have to go too far, to Arlington County, which
has a mandate to use renewable fuel, to sell it. And of course,
as I said earlier, the electricity generated will go on the
local grid.
This is exactly why I came here, Senator, was to present
this idea of, ``Don't forget about local communities as being a
major player and contributor in the effort to generate more
renewable energy.'' What I didn't think about was your idea of
the security aspects of it, too, so I'll have to use that next
time I make a presentation.
Senator DeMint. Thank you. We've helped you cover it.
Dr. Rigas.
Dr. Rigas. Yes, Senator, you're absolutely correct. And I
agree with Mayor Fitch, it is going to be a distributive system
that we're talking about in the future, for several reasons.
First of all, the feedstocks are now decentralized, so
therefore they don't come out of the ground from large
reserves, similar to our petroleum industry. Therefore,
locating small plants to produce the biofuels near the
feedstocks is going to be the way it's going to be done,
similar to the way it has been done in the Midwest. That's how
the ethanol industry and the biodiesel industry came out of the
Midwest, which was a very successful model.
Second is that the markets are regional, too. We're not
making a product here that we have to take to the coast to
export or do whatever. There is a regional demand in the local
area for that product, therefore, local production and the
local regional demand feeds exactly into what you're saying,
into a distributive, decentralized type of infrastructure.
Senator DeMint. Any other comments?
Mr. Paul. I would agree. I think our view is that it's
going to take--this will be the hybrid. They'll be distributed.
Biomanufacturing, I think that's the nature of it, combined
with the existing underlay of the larger petroleum system that
can also serve the very dense urban areas.
Mr. Foltz. I mean, one thing that I would add to that as
well, it's not that we have to take it to the coast, it's that
we can't take it to the coast. Typically, your economies of
scale that you get from going big are outweighed by the freight
that it costs to get it to a much bigger market. At some point
you saturate your local area, and so you really need to size--
you want your plant close to feedstock, but you also want it
sized appropriately to the market because the freight is going
to kill you.
Mr. Lehman. You're seeing that today in the new ethanol
plants that are under construction. They are coast-to-coast.
They're not just centralized in the upper Midwest, where they
were 10 years ago. So you're seeing this regional diversity
come into play already.
Senator DeMint. Right.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman. Thank you,
gentlemen, for your discussion of biofuels and the distribution
of biofuels. I wonder if you could comment on the current
energy language that allows for $30,000 of tax incentives for
those facilities to actually have alternative fuel pumps on
their site, and whether you're finding that a success. Or
Chevron, I don't know if you are motivated to install lots of
alternative pumps at that particular point or what else we need
to do. So maybe Mr. Lehman, and then Mr. Paul, if you could
address that.
Mr. Paul. Yes, Senator, I would be glad to give our
perspective. Since we blend more than 300 million gallons a
year at such large volume, especially in major urban markets
such as California, we basically consume all of the ethanol
that we can get in the blending of gasoline at the volumes that
we do. So I think that over time, where you have more
production, and especially distributed production that may come
from cellulosic ethanol, which will allow you to distribute the
feedstocks, I think that would shift.
So I think, from our perspective, where we're managing a
very large fuel system, we may have a different perspective on
it than local retailers may have, and I think my colleagues
here might have other comments on that.
Senator Cantwell. So basically you're saying that isn't
motivation?
Mr. Paul. For us, no. For us it's not a motivation.
Senator Cantwell. Mr. Lehman.
Mr. Lehman. Our experience has shown that it's kind of
threefold. You need to have E85 and you need to have FFVs in
order to spur the retailer to put in the E85 pump. So it's a
combination of the incentive of the 30 percent--we would say
increase that level to give the retailers a little bit more
incentive to do it, while we increase the number of FFVs and
the amount of E85 that's available. You need all three
components in order to spur the siting of new E85 stations.
Senator Cantwell. So have you had a lot of interest from
people?
Mr. Lehman. We've been at this for 24 months, and we have
locations in 8 States. Over 80 stations have put in these
facilities. And it has taken a public awareness campaign. We
work very closely with Ford and GM in different roll-outs in
order to make consumers aware that they may actually own an FFV
or they can go out and purchase an FFV. And once we get to a
critical mass, the retailer makes a decision: ``OK, I'll knock
out a premium or a midgrade and put in E85 capacity.'' So you
need those three pieces.
Senator Cantwell. Mr. Rigas, I noted you wanted to comment
on this.
Dr. Rigas. Yes, Senator Cantwell. I just want to give you
an example of a local retailer, a very large local retailer,
Spinx Corporation, in upstate South Carolina, in the Greenville
area, who have taken advantage of what you talked about. They
have really led the State in introducing bioethanol, E85,
biodiesel, to their stations in the upstate. Now, he is
concentrated in the upstate, but it is again an example of
local, regional people taking advantage of the incentives being
offered.
Unfortunately, he has to import all his bioethanol and
biodiesel from the Midwest. He is still waiting for bioethanol
facilities and biodiesel facilities. Even though there are some
biodiesel facilities going up in South Carolina, there are no
bioethanol facilities currently.
Senator Cantwell. What kind of dealer is he?
Dr. Rigas. He's a retailer of--a local retailer. He has I
think it's over 40 or 50 stations in the upstate, and he has
introduced bioethanol and biodiesel to his service stations in
the upstate.
Senator Cantwell. But is he, in those 40 stations, a
specific dealer of Chevron----
Dr. Rigas. No, no, no.
Senator Cantwell. What?
Dr. Rigas. He's an independent. He's an independent,
Senator.
Mr. Paul. Senator, I would like to comment on--we're
involved in a very important demonstration project with the
State of California having E85 facilities. These are
demonstration facilities with General Motors, in order to
validate the key issues with respect to specific emission
requirements that exist in California, E85. So we are involved
in that, but as your question was for specific conventional
retailing, no.
Senator Cantwell. Mr. Chairman, I see my time is almost up,
but I think this is an interesting point, and that is that the
one person who has taken advantage of this is an independent
dealer with 40 stations. Given what has transpired in the
challenges of individual retailers versus company-owned stores
at the retail level, I think that poses a particular challenge
for us as we try to roll out things that are incentives that
might be usable. So I think it's something that we should look
at further.
The Chairman. I agree. I think that's a very good point.
We have one other panel. Let me just ask if either Senator
DeMint or Senator Sessions wish to ask some additional
questions of this panel, or should we dismiss them and go on to
the next panel?
[No response.]
The Chairman. Well, thank you all then very much, we
appreciate your good testimony.
And we will ask that the sixth panel come forward, please.
If the witnesses would go ahead and take their seats, I'll go
ahead and introduce the panel and then we'll go to their
statements. First, on my left, is Dr. Steven Taylor with Auburn
University, which, as I understand it, will have demonstration
biorefineries running throughout Alabama later this year, and
we're anxious to hear about that. Maybe Senator Sessions wishes
to say something else in introduction of Dr. Taylor before I
introduce the remainder of the panel.
Senator Sessions. Well, thank you, Senator Bingaman. Thank
you for your leadership and the time that you have committed to
this, this year. I think this is the kind of attention that's
required, and I thank you for it.
Dr. Taylor and his team at Auburn have an alternative fuel
initiative. He is the chair of Auburn's Biosystems Engineering
Department. Auburn has had a tremendous reputation as a land
grant institution, that has been its heritage, with decades of
experience in agriculture, forestry, and engineering. I visited
their switchgrass program over a decade--I guess a decade ago.
They have studied it intensively and have seen its
possibilities before the product became as well known as it is.
Dr. Richardson, Auburn's president, saw that Auburn could
play a role in helping meet the important issues facing our
Nation regarding alternative energy. He launched the
alternative fuels initiative. He has committed $3 million, at
least, already to developing a center there, using university
money to help augment our Nation's energy supplies.
We in the Southeast have an abundant growing season and a
great deal of rainfall, and properly utilized, I think we have
some special capabilities to contribute to our Nation's energy
system. Mr. Chairman, the more I read and I understand from the
hearing today, there's a growing understanding that corn cannot
meet all our needs for ethanol, and the cellulosic breakthrough
is what's needed to take us to a higher level, and I think
that's what Auburn in working on. I've been pleased to work
with them.
Thank you for letting me have those few minutes.
The Chairman. Thank you very much. Let me introduce the
rest of the panel. We have four of our Nation's excellent
laboratories represented. Dr. Kristala Prather with MIT's
Laboratory for Energy and Environment, welcome to you. Dr. Dan
Arvizo, who is the head of the National Renewable Energy
Laboratory. He used to be in our State of New Mexico, and we
are glad to have you here, Dan. Dr. Michael Davis with the
Pacific Northwest National Laboratory, from the part of the
country Senator Cantwell hails from. And Dr. Terry Michalske,
who is of course from Sandia National Laboratory, where Senator
Domenici and I hail from.
So we're glad to have all of you here, and look forward to
hearing your views, particularly focused on what we need to be
doing in the research area to get to the goals we've been
talking about today. Dr. Taylor, why don't you start and give
us about 2\1/2\ or 3 minutes of your views, and then we'll go
across the panel.
STATEMENT OF DR. STEVEN TAYLOR, CHAIR, BIOSYSTEMS ENGINEERING
DEPARTMENT, AUBURN UNIVERSITY
Dr. Taylor. Thank you, Mr. Chairman, and special thanks to
Senator Sessions for his longstanding support of Auburn
University.
I am here representing Auburn University's alternative
energy program, and as such, I really speak for a diverse group
of scientists and researchers. For example, among our faculty
is a researcher with decades of experience in growing energy
crops like switchgrass, other scientists are world leaders in
the technologies for producing and harvesting forest biomass,
and we have nationally recognized experts in the conversion of
synthesis gases to liquid fuels.
To build on our intellectual wealth, Auburn University is
investing significant resources, our own resources, into
research and education on bioenergy and bioproducts that can be
created from our abundant natural resources. We're here today
with two primary messages. First, a sustainable biofuels
industry must be based on a balanced portfolio of regionally
appropriate biomass feedstocks and biofuel conversion
technologies. And, second, the creation of a successful
biofuels industry will only be possible through significant and
sustained funding of research and development that identifies
technologies to make biofuels cost-competitive with petroleum
fuels.
We recognize the significant strides that the corn-based
ethanol and soy-based biodiesel industries have made for
acceptance of biofuels. We believe, however, that to achieve
U.S. energy security goals, we'll need additional biomass
feedstocks and fuel conversion technologies. Like many others,
we believe various forms of cellulosic and ligno-cellulosic
material hold great promise for expanding our biofuels industry
and should therefore be emphasized in our national R&E funding
priorities.
For example, in the Southeast United States, abundant woody
biomass, energy crops, and agricultural waste like poultry
litter should be major sources of our feedstocks. In other
regions of the United States, different biomass feedstocks are
going to be more appropriate and more cost-effective.
In a similar fashion, we believe it's critical to fund the
development of a balanced portfolio of fuel conversion
technologies, not just ethanol production. Auburn's energy
initiative is currently emphasizing the thermochemical
approaches and gas-to-liquids technologies that will make
synthetic diesel fuel, aviation fuel, and gasoline directly
from biomass.
For our Nation to create a sustainable biofuels industry,
we recommend emphasizing the following four principles in
research and development funding: First, utilize this diverse
suite of biomass feedstocks and fuel conversion technologies.
Second, use a systems approach from the farm or forest all the
way to the fuel pump. Yesterday in a meeting with Energy
Assistant Secretary Karsner, he commended Auburn's approach
using systems approaches to solving problems. Third, we must
ensure long-term sustainability of the production systems. And,
fourth, we must demand cost-competitiveness with petroleum
fuels.
With focused R&D, these technologies will be ready for
commercialization in 2 to 5 years, by using Auburn's
partnership approach with industry and government agencies. You
know, regardless of our actions, we're all leaving a legacy for
our children and grandchildren. At Auburn University, we hope
that part of our legacy will be a secure, sustainable energy
supply for America.
Thank you again, Mr. Chairman, for inviting us, and thank
you, Senator Sessions.
The Chairman. Dr. Prather, go ahead, please.
STATEMENT OF DR. KRISTALA PRATHER, ASSISTANT PROFESSOR OF
CHEMICAL ENGINEERING, LABORATORY FOR ENERGY AND ENVIRONMENT,
MIT
Dr. Prather. My name is Kristala Jones Prather. I'm an
assistant professor of chemical engineering at MIT, and I'd
like to start by thanking Chairman Bingaman and the rest of the
committee for this invitation to speak to you on behalf of MIT
on the topic of R&D for transportation biofuels.
You may or may not be aware of a major initiative we do
have at MIT in the area of energy. We have a major energy
initiative, which was launched by our new president almost 2
years ago. And at the same time that she announced a major
effort in energy, she also announced that we should spend time
working toward the further integration of life sciences and
engineering. And so it's particularly appropriate to talk about
transportation biofuels, because we do believe that it combines
both of those areas very nicely.
Let me start by saying we do think of this as a grand
challenge in technology. I heard one of the panelists earlier
say that he doesn't think there's a single silver bullet in
terms of identifying one biofuel, and we also believe there's
not a single technological hurdle that can be overcome in order
to make all of this a reality.
Instead, as Dr. Taylor has already said, this is certainly
a systems problem. It requires integration, from planting of
the crops, identifying what those crops are in the first place,
all the way through toward separation and end use of the fuel.
And so while it's helpful to think about specific technological
hurdles, we don't want to forget about the fact that each
individual decision we make is going to impact both what's
happening upstream and what's happening downstream.
I would like to highlight a couple of areas where I think
biotechnology, this integration of life sciences and
engineering, can play a role, and the first one is on the side
of biomass production. You've heard lots of talk about corn-
based ethanol, and you are, I'm sure, very aware by now of a
lot of the debate regarding the energy balance associated with
it. A recent MIT study concluded that it was essentially too
close to call, that it really depends on what your inputs are
and the system boundaries.
On the other hand, cellulosic ethanol is generally agreed
to be very positive in terms of the energy balance. The
problem, from a technological perspective, is that it's more
difficult to convert into useful biofuels. So where we think
biotechnology can play a role is in helping to develop crops
that are easier to grow, requiring less energy input, and
easier to convert into the biofuels that we're interested in.
Second, on this conversion scale, we want a process that's
going to have very high yields and have high productivities,
and we're limited in that capacity currently by our ability to
really convert all of the sugars that are available to us and
to deal with the toxicity issues. Again, we have work at MIT in
this area. A recent paper from a research group in Science
showed increased tolerance of both bacteria and yeast to
ethanol, which would presumably give us higher productivities.
I've been talking about biotechnology because we again are
interested in that, and it's my own area of expertise, but I do
want to also emphasize what Dr. Taylor has said, in that there
are chemical methods as well that should be examined in terms
of how you can convert biomass-derived carbons into biofuels.
Likewise, we can take advantage of chemistry and chemical
engineering for the separations part of this process, and that
tends to be typically very energy-intensive and also cost-
intensive as well. So if we can have some novel chemistry and
chemical engineering methods to help us to purify the fuels
that we get, usually in fairly dilute solutions, this can help
in the economic balance.
I want to end by making two points. First of all, I don't
think we should confuse biofuel with ethanol or biodiesel. I
think that point has been made, but I want to emphasize it
again, that we need to be considering lots of different
options.
Certainly ethanol is the most advanced, and biodiesel as
well, from a commercial perspective, but there are lots of
challenges associated with them, including the low energy
density relative to gasoline and the infrastructure issues
which you've already heard about. So we should be thinking
longer term about alternatives, some of which I believe you
heard about this morning; and as well, not forgetting about
this systems problem, we should think about how new fuels or
alternative fuels would integrate into both our existing
vehicle infrastructure and distribution infrastructure.
Let me end by saying that I think this is a big problem. I
think it's a problem we can solve. We can do it as scientists.
We can do it as a country, if our government shows the will and
puts the full support of our country behind it. I like to think
of the Manhattan Project and the Apollo Program as examples of
great technological challenges which we met, as long as we had
the support for it. What we don't need is the up and down, on
again, off again investment in the R&D for alternative energy.
Instead, we need a sustained commitment for it.
As far as a timeline, I think we'll see cellulosic ethanol
at a commercial scale within 10 years. Alternative fuels are
going to take longer, but it can certainly be done.
Thanks very much for the time, and I look forward to
questions.
The Chairman. Thank you very much.
Dr. Arvizo, welcome.
STATEMENT OF DR. DAN ARVIZO, DIRECTOR, NATIONAL RENEWABLE
ENERGY LABORATORY
Dr. Arvizo. Thank you, Mr. Chairman. It's great to be here,
and I do appreciate the leadership that's exhibited by this
committee. It is clearly a very robust topic and we've had a
great day already in terms of informing, I think, the
discussion and debate.
I'm the director of the National Renewable Energy
Laboratory, and I want to acknowledge the faithful and
tenacious commitment that Senator Salazar has provided to our
laboratory and to this topic in general. I commend him for
that. We are the home of a number of technology opportunities,
one of which is the National Bioenergy Center, and it is, in
fact, the Nation's only pilot-scale cellulosic ethanol
laboratory. I had the opportunity and the privilege to brief
the President while he toured that facility last year.
I think this is a unique point in time and we have great
opportunities in front of us. What was striking about the
discussion today thus far is the enormity of the task. And
while the technology research, certainly from our perspective,
is required, so is resource development and utilization
research, ensuring that the integrity and the fuel supply have
validity to them, vehicle and transportation system integration
with fuels, impacts on water and environment, and
infrastructure requirements, among a number of other things
that are necessary and in play to get to where we need to be.
So what we need first and foremost is a comprehensive,
integrated program for biofuels development that takes into
account the critical factors both individually and
collectively. And to do this, I propose that we have a national
needs assessment to be undertaken with haste and that it be
comprehensive, a report and study that would analyze our long-
term needs and take into account the full range of needs, on
the demand side, on the supply side, on the infrastructure
supply, on what is required to meet the goals that we have set
out for ourselves.
Second, we need to look beyond today's research. We have a
robust research program, but much more needs to be done. We
need to carefully plan to embark on the broadest portfolio.
We've heard that recurring theme today. And we need to work, as
we have worked with the producers and people who have pioneered
these areas and the scientific and technologic community and
providers in the energy business. It's very clear that we need
a multifaceted approach to biofuels development, and that will
serve the country well. We need to do that in close
collaboration with industry. We manage, at the national
laboratories and certainly at NRL, portfolios that are very
much hand-in-glove with industry, so that the technologies that
emerge are market-relevant.
Third, we need to make necessary investments in our
research capabilities. I think having adequate research
capabilities is important. The Nation's world class laboratory
system and leading academic institutions need to be retooled
for this mission, and I think we can do that. We need to draw
on the regional research and educational capabilities.
And while we are confident that the current focus on
developing technology to quickly enable the development of
cellulosic ethanol in this country is a correct and prudent
first step, I think we need to go much beyond that. History has
shown that by setting out the broadest research courses, we can
best guarantee that we're going to get to the place we need to
be as the market evolves, as the technologies evolve, and
provide choices from which policymakers, industry, and the
marketplace can make wise decisions to have sustainable
industries, going forward, and maintain U.S. leadership in what
I consider to be an area that's going to have fierce global
competition.
I'll be happy to take questions at the appropriate time.
Thank you.
The Chairman. Thank you very much.
Dr. Davis.
STATEMENT OF DR. MICHAEL DAVIS, PACIFIC NORTHWEST NATIONAL
LABORATORY
Dr. Davis. Thank you, Mr. Chairman, members of the
committee. Also, Senator Cantwell, who actively engages the
full resources of the Northwest in terms of these important
issues, we thank you for that.
I like to keep in mind the two big challenges. One is
energy security, the other is climate change. Energy security
is much more of a domestic issue. Climate change is much more
of a global issue. We have got to get our policy right
domestically to meet both challenges. There is no question
about it.
We also have heard a lot about infrastructure today. We
really need to get clear on our point of departure. We're in an
85 percent dependent situation on hydrocarbons, domestically
and globally. That is an incredible infrastructure and
dependency, and that fundamentally is a hydrocarbon dependency.
Biomass is just another form of hydrocarbon. It might be very
young, but it's another hydrocarbon.
So I think we need a much greater focus on conversion
efficiency across the whole board. Anything we convert, we've
got to convert more efficiently. As long as we're dealing with
hydrocarbons, we need a much more aggressive program on carbon
capture and management, and I don't think we've done near
enough yet on end-use efficiency. If we save a gallon there, do
the math, it's two or more gallons of production.
So with respect to biofuels, it's still a hydrocarbon. I
think there is sufficient focus on corn and bioconversion
technology. I think we need much greater focus on broadening
the feedstock base, and certainly municipal waste is an
example. We have not aggregated a lot of the biomass waste. We
certainly have aggregated a lot of municipal waste. We put a
lot of money into aggregating it. We ought to be thinking about
how to better convert it. And we need more work on conversion
technology, particularly in the thermochemical conversions
base.
I think there is sufficient focus on ethanol, and I think
ethanol remains a very substantial infrastructure challenge.
While I think the overall goal is right, I think we ought to
think very carefully about how much of that goal we actually
try and meet with ethanol.
I think we need much greater focus on other products.
Certainly biodiesel is one; DME; there's others. We should be
much more careful, I think, about what products we actually can
derive, what their price points are, and what their market
entry points are. There's an awful lot we can do with biomass
besides going directly to commodity fuels. I think we should
anticipate more electricity into the transportation sector, and
be equally as enthusiastic as we are with ethanol in terms of
electricity.
I think we need to use existing infrastructure to the
maximum extent possible. We've got 1,000 biomass stations--or
ethanol stations, if you will. We've got 170,000 fueling
stations. We've got something like 5 million flex-fuel
vehicles. We need something like 55 million if you wanted to
consume all the ethanol that you're talking about producing. We
also need much more focus, as I said earlier, on vehicle
efficiency.
I would echo what Dan said. He was the first guy all day, I
think, that mentioned water. We need to pay much more attention
to water, both for processing and also realize that these
feedstocks are hydrogen-deficient. The hydrogen has got to come
from somewhere.
I would be very careful with incentives and subsidies, and
avoid biasing either the conversion technology or the product.
Then, finally, I would say that we should do everything we can
to encourage public and private R&D partnerships, because all
the R&D we're doing, we should really work hard to have the
best market channel we can to get that research to the
marketplace as quickly as possible. So please reinforce the
public-private partnerships and research.
Thank you.
The Chairman. Thank you very much.
Dr. Michalske is the clean-up hitter here on this whole
conference. Go ahead.
STATEMENT OF DR. TERRY MICHALSKE, SANDIA NATIONAL LABORATORY
Dr. Michalske. Thank you. It's a great honor for me to be
here representing Sandia National Laboratory. Sandia is managed
and operated by the National Nuclear Security Administration of
the Department of Energy, and the Sandia Corporation, which is
a subsidiary of Lockheed Martin.
On behalf of Sandia, I'd like to begin by thanking Chairman
Bingaman and the members of the committee for organizing this
conference, and I'd also like to thank both Senators Domenici
and Bingaman for their leadership in passage of the Energy Act,
which provides important new policies in the biofuels area.
Now, I think everything we've heard in the course of the
day would confirm the potential for biofuels to have an
important impact on reducing our Nation's dependence on foreign
oil, and also reducing the level of greenhouse gas emissions,
which makes this an important and high-priority area for
government investment. And we think the Government investment
ought to be focused in a number of areas: first, in supporting
long-term and sustained fundamental research--there are
difficult challenges here that will need to be addressed over
the long haul; providing key incentives that speed the
development of infrastructure for production, distribution, and
the utilization of biofuels as they come into the market; we
also think the Government needs to play a role in establishing
innovative mechanisms that promote public and private
partnerships in the research, development, and deployment; and,
finally, in assessing and enacting policies that will ensure
the protection of our environment, land and water resources.
So the challenges that lie before us really sit at the
intersection of science, technology, economics, and social and
political interest and support. And these challenges have to be
met in a world of fluctuating oil prices, where free market
principles don't necessarily apply, and our environmental
constraints are frequently changing. There is no question that
success is going to depend on the development and deployment of
some advanced technologies and engineering systems that simply
don't exist today.
To meet these challenges, the investment should be
systematic, with a focus on driving critical, fundamental
science, understandings that are directed at achieving dramatic
cost reductions and efficiency gains. In this regard, I think
it's going to be very important that we look at innovative ways
to focus together the strengths of industry, academia, and the
Government laboratories, to bring those talents together to
focus on these critical problems. Just as SEMATECH demonstrated
the value of public-private partnerships in advancing our
competitive advantage in the semiconductor industry, I think
those same kind of models will be very important as we go
forward here.
We believe that in the near-term the focus on ethanol
moving toward the technologies for cellulosic biomass
conversion are going to be very important, but in the longer-
term, we need to evaluate the broader range of biofuels and
biocrude as it may be produced from novel biomass sources such
as algae or microorganisms. And again we're going to have to
focus on the entire energy system, including the distribution,
the utilization, and that's going to mean investments in
materials, engineering, and combustion and engine design.
But as we move forward, we must be mindful of the water
resources. Because biomass-based fuel production requires water
both for growth and for processing, biofuels will have
significant impacts on our water resources. For this reason,
investments in technologies to address those challenges must be
prioritized in the context of these interdependencies.
So thank you again for the opportunity, and I look forward
to questions.
The Chairman. Thank you very much. Let me just ask one
question. I'll start with Dr. Arvizo, and any of the rest of
you who want to comment can do so.
You talked about the need for a comprehensive plan. I think
you stated we need a national needs assessment in this area. I
recall when the semiconductor industry came up with--I think
working with some of our Federal laboratories participating,
came up with a road map for the development of the
semiconductor technology that they thought was needed to move
ahead. Is that what you're talking about, a road map for where
we need to make breakthroughs and where we need to concentrate
resources in the research field and the development field? Is
that what you're describing?
Dr. Arvizo. Yes, sir. In fact, it has a lot of the flavors
of that old SEMATECH that you're talking about, which is really
a private sector road map and partnership that would go
forward. In the 2002 Biomass R&D Act--I'm sorry, in the 2000
R&D Act, there was a biomass R&D board that was formulated to
coordinate activities across agencies, and I think that maybe
is the start of where we can plug a national needs assessment
type of thing into it.
But we need an architecture, we need a framework around the
entire--as my colleagues have said, a systems approach to the
entire fuel-to-transportation chain--a value chain, if you
will. And what I envision would happen would be something of a
network that is coordinated centrally, but it is very
regionally distributed in terms of trying to get at the
regional specifics of some basic tenets regarding what are the
attributes we need out of a future energy economy that has a
much more robust acceptance of biofuels.
Biofuels touch so many different things. We've got to worry
about everything from sustainability to the way financial
markets work, the way the players work, the way the
infrastructure is all formulated, and it does inform an R&D
agenda in that process.
The Chairman. All right. Let me defer to Senator Domenici.
Why don't you start, Senator Domenici, and then I'll come back
to this side over here.
Senator Domenici. Thank you very much. And I'll be brief,
because it is late.
I at least want to thank you, all of you, especially for
waiting so long. By the time you get up here, not only are you
tired, but it's quite obvious everybody up here is tired. We
just hope you had a fine afternoon in spite of all that.
We're glad to have you, and we know a couple of you pretty
well. You've been at this kind of thing for quite some time,
and we're very proud of you. Some not so long, only because you
aren't very old; some a long time, because you are very old,
like me. No aspersions. I'm old, too, and I still think I know
what I'm doing, but you know that's questionable. In any event,
let me thank you all.
But let me ask Dr. Arvizo just one follow-up on Senator
Bingaman's question. I don't quite get it. Why is it more
important that we do a road map for this when we have so many
other alternative energy sources that are entering the arena
that are going to be--in terms of quantity, that are going to
be just as big as this, and we're not doing road maps on them?
Is this something special here, or am I misstating the
question?
Dr. Arvizo. You're not misstating it. I would offer that we
need road maps in a much broader and more comprehensive way.
You know, in our laboratory we look at the renewable areas,
renewable fuels, renewable electricity. I think you need road
maps on both. The kind of impacts that are required, the kind
of investments in the private sector that are going to be
required, are in the trillions of dollars, and to do that, I
think government has a role to play that can help facilitate
market mobilization of capital. And that's really what is I
think at the origin of this.
Senator Domenici. Let me ask one for you, Dr. Prather, and
then I'll yield to the chairman. You stated that cellulosic
ethanol is 10 years away from commercialization; did I read
that right? Didn't you say that?
Dr. Prather. Yes. The estimate of that is actually less an
estimate of the demonstration of technical feasibility, and
includes actually bringing up biofuels-dedicated crops, so that
includes the entire process timeline. The demonstration of
actually being able to convert cellulosic materials to ethanol,
that is already happening, but in terms of getting something up
to scale, where we would actually see competition with corn-
based ethanol and actually having the appropriate agricultural
infrastructure in place in order to do that, I do think is
closer to a 10-year timeline.
Senator Domenici. Well, the President is asking for 35
billion gallons by 2017 from this particular fuel. Is the
President's goal attainable, given the state of research, if
alternate fuels were limited to cellulosic ethanol?
Dr. Prather. Let me make sure I understand the question.
Are you saying, if we are only looking at cellulosic ethanol,
is it possible to do that in 10 years?
Senator Domenici. Right.
Dr. Prather. If we're looking at cellulosic, if we look at
it in combination with corn-based ethanol, I think that's
realizable. I'm less confident that we're going to go
completely from a corn-based ethanol system to a cellulosic-
ethanol-based system, and we're going to stop making ethanol
out of corn, in a 10-year timeframe.
I do think what we'll see--and I will also say again this
is not my area of expertise, but I think what we'll see is a
gradual introduction of cellulosic-based ethanol into the
market. The benefit to that is, as the cost of that comes down
to be competitive with corn or better than corn, you may see
some displacement of what is made from corn, but I think you'll
see a combination of both of those for some time before you
actually get the net benefits that are available from
cellulosic.
Senator Domenici. OK. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman.
I want to follow up on Senator Domenici's question, because
I think there is a bit of irony here. Obviously my two
colleagues from New Mexico and the lab that is there and the
Pacific Northwest lab remember the history of our country, when
we had a mandate from a President who said in a very short
period of time he wanted us to, I think, go from about $2,000
of research into becoming a plutonium-producing Nation, and we
did that in about 3 of 4 years. I can't believe the challenge
of cellulosic is more daunting than that.
And so my question is, in this process--and maybe, Mr.
Taylor, your 6 years on switchgrass can give us some insight as
to this issue, enzymes versus gasification of materials--what
really is the focus of what we need to do on breaking through
on cost-effective production of cellulosic material so that we
can expedite this time period? Anyone who wants to answer.
Dr. Davis. I'd like to comment on that, because I think
there are technologies today, particularly gasification, where
we can break down any hydrocarbon and we can synthesize what we
break it down into, into the molecules we want, and we can
actually do that at a massive scale. It's back to focus. We've
focused for 20 years on bioconversion. I think we've made
progress. I think we need to continue to work.
I think we forgot about the thermochemical conversions, and
that's our world today, and we do it because we can do them at
very large scale and they're quick conversions. So
thermochemical conversions open up the market substantially.
I'll say again that I don't think the only product we ought
to be trying to produce is ethanol. I think we ought to let the
market sort out the product, and I think we ought to broaden
the technology base we're using to produce them. And I only
want to, at some risk, chide Senator Domenici because, if he
remembers, in a prior life he actually confirmed me for a
position in DOE, so you're partly to blame, sir.
Senator Domenici. Somebody did tell me that recently. I
wouldn't have remembered, but now I do. It's a long time ago.
Dr. Davis. Right.
Senator Cantwell. So, Dr. Davis, just to clarify, you're
saying we could go faster with the focus? It's not the science
that's prohibiting us; Is that what you're saying?
Dr. Davis. I think we can go much faster than what's
conventional wisdom.
Dr. Taylor. Can I add to that, Senator Cantwell?
Senator Cantwell. Yes, go ahead.
Dr. Taylor. We both talked about thermochemical conversion.
The technologies are there. The oil industry is investing very
heavily in that to take natural gas to liquid fuels. The
technologies are there, and they're fairly well known. There
are some small process control variables that we've got to work
out.
Take an example: If you're feeding poultry litter into
that, as your feedstock, into that gasifier, you know there are
some things we've got to work out there. If you're feeding wood
chips from Washington State versus Alabama, there's probably
differences in how we control that process. So the things that
we need to know, the technologies, are there, and we think
there's a fairly quick horizon to be able to commercialize
those and produce a significant amount of fuel.
I guess our message is: Have a balanced portfolio, don't
just put all your eggs in one basket. Let's look at cellulosic
ethanol. That's fine, but let's also broaden that to bring in
other technologies that are----
Senator Cantwell. Well, I'm definitely not for picking
technology winners and losers, but at the same time, I'm not so
sure that the security threat is any less than it was during
this previous decade in there where the United States wanted to
shift strategy in investment. We have a very big challenge and
we're very dependent, and it could be a lot more drastic
scenario than just trying to talk the Chinese into putting more
pressure on Iran for nuclear proliferation. So, to me,
expediting this is a national security issue.
Dr. Arvizo. Senator, if I may comment on that, we
frequently get asked that question: ``So what can you do in
what kind of timeframe?'' And it really is about the timeframe.
We have run some models. And I'll grant that the models for
predictions in these areas are very inadequate, but the best
models that we have suggest that over the course of the next 10
years the upper limit for cellulosic ethanol is on the order of
6 billion gallons. Now, that's a small fraction of what the
President's goal is, maybe a sizable fraction from some
circles, but it doesn't meet the whole goal. And part of what--
--
Senator Domenici. How many was that, Doctor? How many?
Dr. Arvizo. Up to 6 billion. In fact, we've run models, a
very aggressive scenario, assuming a variety of things in terms
of how you mobilize capital, and it's 5 to 6 billion gallons by
2017. Now, the way you accelerate that is, you make assumptions
about more aggressive public policy. Now, we're not modeling
anything, but some of what we've considered to be more basic
kinds of instruments, the mechanisms for--we don't have the
first cellulosic ethanol plant in production yet, and it's not
because--as we heard earlier today, it's not because we don't
have the technology to actually begin the pilot testing
program. We simply don't have investors willing to take the
financial risk to make that happen. Loan guarantees, as you
offered earlier, are a way in which we can accelerate.
So there is a technology component, there is a market
component, and there is a policy component, and I think it is a
matter of national will as to how quickly we want to get to
those goals.
Dr. Michalske. If I could add to that. This challenge, it
is quite a large challenge, but I think what's inspiring is
that there are a set of tools now in the world of biosciences
that give us a completely new way to go about this. These tools
have the ability to learn how to genetically modify plants so
that they actually are easier to break down, to develop through
nanotechnology and biotechnology better ways to extract the
energy and then convert it into a useable fuel.
And one of the things that's very difficult now is that
there are many process steps along the way. This is a very
intensive process of conversion. The opportunities are to
really gain great efficiency advantages by combining those
steps, and using these technologies to have single process
steps that do multiple functions and really streamline the
cost-effectiveness. So I think we can do the processing now,
but the potential to be able to do it in a much more cost-
effective way is what the science and technology investments
really need to focus on.
Senator Cantwell. And that's a U.S. economic advantage?
Dr. Michalske. Absolutely.
Senator Cantwell. I mean that what you just said about
nanotechnology and other things is an advantage we have in the
production of these biofuels that the Europeans or Chinese or
other people don't have; right?
Dr. Michalske. It's an advantage that we need to capitalize
on.
Senator Cantwell. Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Sessions.
Senator Sessions. Thank you. If you would just, Dr. Taylor,
clarify for us. You take a product like switchgrass, Dr.
Bransby's field--I've seen it--and we talk about how many
gallons per acre, if you had a good conversion system. But what
I really am curious about is, how do you take this dry
cellulose, this cornstalk, and convert that to a fuel that we
can utilize?
And I understand there are two ways to do it, through
biochemistry and hydrolysis and through heat or a thermal
process. Can you explain the differences? And then I know
you're going to be building some bio plants this year, Auburn
University is; are they going to emphasize these technologies?
Dr. Taylor. Yes. You've got two or three questions there.
I've got to remember all of them.
Senator Sessions. Yes, I do.
Dr. Taylor. The investment that Auburn is making this year
is really emphasizing that thermochemical approach, so we're
putting in larger laboratory-scale gasification, gas-to-liquids
equipment. Auburn has had a longstanding history of gas-to-
liquids technology research at a fairly small laboratory scale
to work out some really neat new breakthroughs in the gas-to-
liquids technologies. And so we're going to a larger scale that
will let industry come in and partner with us and take the
results and scale that up to an industrial process.
Senator Sessions. Now that you have concluded, I think it's
fair to say, from what I understand, that the prospect for
thermoconversion gasification is better at this point than
the----
Dr. Taylor. We think so. Both approaches, the biochemical
approach versus thermochemical approach, I guess if you look at
the billion ton report, the assumption that's in there is a ton
of biomass might make 60 gallons of ethanol or 60 gallons of
fuel. We think those are fairly conservative estimates. By
really increasing our efficiency, increasing the technology
there, maybe you double that.
Theoretically, if you look at the carbon that's there,
theoretically we might be able to produce 200 gallons per ton,
we think. So let's say you take that 60 gallons per ton and you
double it. That's a significant increase in the amount of fuel
that we might be able to produce.
Those are the kind of things that we need to answer in both
the biochemical and thermochemical approaches. The
thermochemical approach gives us some other advantages.
Senator Sessions. Can you say basically, just for the
layman, how the heat will convert a dry cellulosic product to
become a fuel?
Dr. Taylor. In those thermochemical approaches, typically
you would gasify the material, and that's an incomplete
combustion process that gives you--it takes that cellulose,
lignon, all the hemicellulose, and you get a synthesis gas that
has primarily carbon monoxide and hydrogen molecules in it. And
then you can take those into the gas-to-liquids technologies or
other catalytic conversion technologies and re-form those or
put them into a new molecule that might be a diesel fuel,
gasoline, or other paraffins, olefins, other higher value
chemicals that come out of that stream at the end of that.
Senator Sessions. And you will test that this year?
Dr. Taylor. Yes.
Senator Sessions. And one more thing. How much, and how
many kinds of switchgrass cellulose can be produced in an acre
of land?
Dr. Taylor. If I remember right, Dr. Bransby, your good
friend, I think his record is about 15 tons per year, per acre.
Does that sound right?
Senator Sessions. So at 60 gallons per ton, 15 tons an
acre, that's a good bit of fuel.
Dr. Taylor. Several gallons per acre, that's right.
Senator Sessions. If you can make the conversion process
work, you should be able to have a pretty good source of
energy. Now, the thing about switchgrass is, everybody is
talking about it, but the advantage, if you see it, is you just
cut it like you do regular grass. It grows up to 10 feet tall.
And you can go in and cut it, but you don't have to replant it.
I believe Dr. Bransby has cut the same fields for 10 or more
years, never had to replant, don't have to break the soil up,
and does not fertilize at all or very little. So it's a pretty
tough, hardy-growing product, if you could make the conversion
work.
Dr. Davis. Senator Sessions, if I might add a comment, I
think we're not trying to put thermochemistry or biochemistry
against each other. Keep in mind that we need conversion
technology that both scales up to massive scale and scales down
to a distributed scale, that works for a wide variety of
feedstocks. That's pretty challenging.
We just got back from 10 days in China, and they are
building gasification technology on a massive scale, but
they're not producing it to make ethanol. They're basically
building it to make fertilizer and to make methanol as an
intermediate for chemical activities. And, in fact, we have
agreements now to work with them to campaign some of our
technology on their gasifier, because I'm not ready to ask the
committee for enough money to build a new gasifier at PNL, but
I'd like to do that. So with that cooperation, we'll be able to
campaign a number of important technologies on large
gasification systems this year.
Dr. Taylor. If I can just tack onto it, I guess our
approach is, let's keep our slate open. Let's consider a
balanced portfolio of those fuel conversion technologies.
Thermochemical just happens to be one of those that we have
some expertise in, and that's what we're emphasizing.
Senator Domenici. Mr. Chairman?
The Chairman. Yes, Senator Domenici.
Senator Domenici. I know we don't have a DOE official here.
I guess maybe you come closest, being from Sandia. Or I guess a
couple of you do, three of you do. Anyway, I want to lay this
before you, because I know about it and I think you would be
interested in getting the facts for us.
It would seem kind of strange that the President of the
United States would be giving a State of the Union address and
be talking about such a large quantity of ethanol in the
future, when you are sitting before us today talking about the
fact that we don't know how to make it yet, we don't know how
to make that second breakthrough which will create big
quantities.
But the Department of Energy has let three contracts or
loans or whatever the instrument is, Senator Bingaman, $160
million each. That's out there, and I don't know where they are
in status, but I think it would be good, if you would think so,
that we write DOE and ask them. Because it would seem that our
committee, we started it by authorizing it in our bill, and
then they took it and they found the money for it. They didn't
find the money for some of the other things, which I'm glad
for, but I think it would be good for us to know where it is.
It seems rather important that we pursue it with some degree of
vigor.
The Chairman. I agree. I think we should inquire from the
department how we get from here to 35 billion.
Senator Domenici. It's a good point.
The Chairman. Yes.
Senator Domenici. Very simple.
The Chairman. Since that's what we're supposed to be doing.
Let me call on Senator Salazar.
Senator Salazar. Thank you very much, Senator Bingaman. And
I know it's late in the day, so I will be short.
Let me just first say that I congratulate each of you and
your institutions for all that you do in the laboratories. I am
particularly fond of NRL, and thank you for greeting the
President and Secretary Bodman and myself and others, Senator
Allard, over the last year and a half.
I have a question that I'd like each of you to just take a
quick minute and a half to answer. I heard Dr. Arvizo's
response to several of the questions here: that we are limited
perhaps in even reaching the President's renewable fuels goal
here at 35 billion gallons by 2017. And I thought I heard Dr.
Arvizo say we have the technology issues and the market issues
and then the public policy issues that we deal with. And I
think your concluding statement was that an aggressive public
policy might make a difference in terms of your modeling how
much alternative fuel we can produce by 2017, 10 years out. So
my question to all of you--and I would like you to spend less
than 2 minutes on this each, 1 minute maybe, because otherwise
the chairman will get mad at me. So at the end, he said an
aggressive public policy could accelerate us achieving these
goals, an aggressive public policy. What would be the two
things that we could do in this U.S. Capitol on that aggressive
public policy, to accelerate what we are doing now so that we
can achieve and perhaps surpass the President's goals? Terry,
we'll start with you and go down the table.
Dr. Michalske. I think that currently we are investing a
shockingly small amount of our resources to achieve this goal,
and that if we're going to take on a challenge like that, I
believe we can make it. But we can't make it on a shoestring.
We're going to have to take that challenge seriously in how we
support the research all the way through the development that
will allow this to go forward.
Senator Salazar. Do you have a quantum of what that would
be? I mean what kind of money we're talking about. When you say
it's on a shoestring now, how much more do we need to get the
acceleration done that you're talking about?
Dr. Michalske. Senator, I don't have a good quantitative
estimate for that.
Senator Salazar. But your conclusion is, right now we're
operating on a shoestring budget to essentially reach this goal
that is a visionary goal.
Michael, let's go to you.
Dr. Davis. I'd like to do a ``don't'' along with a couple
``dos''. Don't require the 35 billion gallons to be all
ethanol. I don't think that's a good solution. Do more on
vehicle efficiency. The math is for you. You save a gallon on
the consumption side, you're saving more than two on the
production side. Allow for some electricity to be a part of
this solution.
We're spending--the whole DOE research budget on energy is
$2.5 billion. We spend $1 billion on oil every day. If I was
buying insurance, I'd spend a hell of a lot more than $2.5
billion on energy research in this country, period. So I don't
think we've even begun to understand the challenge, relative to
the total budget.
And then we fracture that budget pretty substantially
because all these issues have some merit. We don't set
priorities well enough to manage the resources we do, and I
think we can make the case that we're underinvested, aside from
the wishes of the committee. We certainly appreciate your
support.
Senator Salazar. Thank you, Dr. Davis.
Dr. Arvizo.
Dr. Arvizo. Yes, I think first of all we're talking about
all the wrong scale here. I think we need to have--earlier in
the presentation or during the day, Senator Domenici said we
got the zeros wrong. I think we've got the zeros wrong here. I
agree with Dr. Davis regarding underinvestment in our energy
future. Our future energy economy requires a lot more
investment than we've had to date.
If I just focus on this one area, biofuels, the one thing I
will say is that right now, under Ray Orbach's program for
bioscience centers, we have scheduled two essentially
bioscience centers that will be funded at something on the
order of $50 million a year for 5 years. These are formidable
efforts. There are actually five major bioregions of the
country where you have feedstocks that are similar in nature.
We ought to have five bioscience centers, not two. That would
be a huge step forward in getting regionalization and getting
an infrastructure.
I think there is some science to be done. Clearly it can be
aided by public policy. I think in this case, looking at more
robust feedstocks that are for the purpose of energy
production, we have to get out of this quandary that we have
that we're affecting food prices because we're trying to
develop energy, liquid fuels.
Again, taking a holistic approach back to this road map
that I was talking about earlier, we really do need to look at
this thing in its broadest perspective. I think we'll find more
than enough challenges to spend an enormous amount of money on,
only a little bit of which will be really, really effective in
terms of meeting the needs.
The difference between this and the Manhattan and the
Apollo programs is that we've got to do this at an achievable
and sustainable market price. We didn't have that particular
dynamic overlaid on those other grand challenges. This is a
grand challenge of unprecedented proportion, so it needs that
kind of attention.
Senator Salazar. Thank you, Dr. Arvizo.
Dr. Prather.
Dr. Prather. I think I'll kind of piggyback exactly on that
point, that I think there's a difference between ``can we do
it'' and ``can we do it at a price that makes it realistic.''
So I'll leave it at that.
I apologize for not remembering the writer's name, but
there was a professor at the University of California at
Berkeley who did an analysis in terms of economic investment in
R&D and concluded that what we need is a ten-fold increase in
investment, governmental investment, in the energy area. And
this included renewable energy altogether, it wasn't specific
to transportation, biofuels.
But his analysis concluded that it was a factor of 10, and
that through historical analysis you could do that ten-fold
increase in investment without significantly affecting the R&D
efforts of other major initiatives. One of the concerns is
always if you overfund in one area, you're going to underfund
significantly someplace else. And he also argued in this
analysis that historically what we've seen is when the
Government does ramp up its investment in major R&D issues, the
private sector follows, so a ten-fold increase from the
Government actually ends up being more than that because
private industry steps in as well. So I'll try to give that
number.
The second point I'll make in terms of what to do is
diversification, to really get the conversation going beyond
``Can we make 30 billion gallons of ethanol?'' to ``What does
it really mean to have renewable, sustainable energy?'' And
think about going much broader than that.
Senator Salazar. If you can find that article, I'd
appreciate it if you could get it to us.
Dr. Prather. Sure. I have it in my backpack back there.
Senator Salazar. Thank you, Doctor.
Dr. Taylor.
Dr. Taylor. Dr. Kammen, I think, at UC-Berkeley, is who
you're thinking about.
Dr. Prather. Yes.
Dr. Taylor. A couple of things. I guess maybe our goals--we
could rethink our goals a little bit. Instead of saying so many
gallons, let's say that our goal is to create a biofuels
industry that's cost-competitive with petroleum. If it's
competitive, consumers will buy it. You know, if it's the right
price, we're going to buy that and put it in our cars and
trucks. So let's fund the R&D that will make the technology
that will make the industry cost-competitive and sustainable at
the same time. You've got to have both of those.
Long-term environmental sustainability is what we want, but
if it's cost-competitive, we're OK. The money, I don't know how
much we spent on the Apollo missions or other things like that,
but if we elevate it to a level of a national priority, let's
really look at how much money was invested in those and that
will give us some perspective on how much we should invest
here.
I know the farm bill has a bioenergy, bioproducts research
initiative in it, proposed. That's wonderful, but I'm not sure
that that's enough.
Senator Salazar. Thank you very much.
And thank you very much, Mr. Chairman.
The Chairman. Thank you.
Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman. I just want to
thank you for today's various panels. And the organization of
the committee into this biofuels day I think has been very
helpful to the committee and to the Senate, so I thank you for
your leadership on this issue.
I wanted to follow up with Dr. Davis.
You mentioned electricity a couple of times, and the notion
that electricity, in and of itself, is a fuel. I know that the
lab just came out with an analysis that 70 percent, I believe,
of the cars, trucks, and other vehicles could be powered off of
our current electricity grid capacity. That is, if we had plug-
in cars, with that plug-in capacity, batteries could be
recharged with the current supply of today's grid.
Dr. Davis. That's correct.
Senator Cantwell. If that's the case, what do we do to
enhance the use of current energy that's already available?
Dr. Davis. There are a couple of important aspects to that.
We looked at the 150 control regions of the country, and we
looked very carefully at the installed electric-generating
infrastructure, transmission and distribution. If you look at
the amount of energy that could be produced off-peak, that's
available, largely from coal plants, then it gets very specific
in terms of different regions, but it does look, in aggregate,
like something on the order of 70 percent of the entire fleet,
on an energy-equivalent basis, could be powered with
electricity.
The infrastructure is there to generate it and deliver it.
You're going to use more fuel. You've got to use that
electricity off-peak, because you can't compete with peak
demands, where we're essentially using the infrastructure for
delivery. What's going to require that to be unlocked is the
right kind of technology on board vehicles, electric vehicles,
plug-in hybrid vehicles, battery technology. Those are
challenges as well, but those challenges might be a shorter
path to victory than some of the other challenges.
As to Dan's point, I think I would look at a study that
gets at how we move things, not just biomass in particular, but
what are the options for us to gain energy security and address
climate change issues in terms of how we move things? And I
think you come up with a broader suite of answers, and some of
them get you there faster than what we're talking about with
just ethanol.
Senator Cantwell. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Sessions, did you have additional
questions?
Senator Sessions. I would just add, I believe Auburn is
looking also at garbage, waste-to-ethanol. Is waste and
newspaper and traditional garbage also potentially a source of
ethanol?
Dr. Taylor. It is another one of those cellulosic forms of
material, yes. I think that we have some partnership agreements
with an industry partner and we are working together there.
Senator Sessions. Thank you.
The Chairman. Well, I thank this panel very much. I think
it has been very useful testimony, and we appreciate everyone
who has participated in today's conference. The hearing is
adjourned.
[Whereupon, at 4:55 p.m., the conference was adjourned.]