[Senate Hearing 110-81]
[From the U.S. Government Publishing Office]
S. Hrg. 110-81
BIOFUELS FOR ENERGY SECURITY AND TRANSPORTATION ACT OF 2007
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
ON
S. 987
TO ENHANCE THE ENERGY SECURITY OF THE UNITED STATES BY PROMOTING
BIOFUELS, AND FOR OTHER PURPOSES
__________
APRIL 12, 2007
Printed for the use of the
Committee on Energy and Natural Resources
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36-418 PDF WASHINGTON DC: 2007
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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
Kathryn Clay, Republican Professional Staff Member
C O N T E N T S
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STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 1
Burr, Hon. Richard, U.S. Senator from North Carolina............. 3
Cavaney, Red, President and Chief Executive Officer, American
Petroleum Institute............................................ 35
Dinneen, Bob, President and Chief Executive Officer, Renewable
Fuels Association.............................................. 24
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
Foody, Brian, President and Chief Executive Officer, Iogen
Corporation, Ottawa, Ontario, Canada........................... 40
Karsner, Andrew, Assistant Secretary for Energy Efficiency and
Renewable Energy, Department of Energy......................... 4
Lashof, Daniel A., Science Director, Climate Center, Natural
Resources Defense Council...................................... 29
Murkowski, Hon. Lisa, U.S. Senator from Alaska................... 2
APPENDIXES
Appendix I
Responses to additional questions................................ 53
Appendix II
Additional material submitted for the record..................... 57
BIOFUELS FOR ENERGY SECURITY AND TRANSPORTATION ACT OF 2007
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THURSDAY, APRIL 12, 2007
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m., in
room SD-366, Dirksen Senate Office Building, Hon. Jeff
Bingaman, chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. We'll go ahead with the hearing. Thank you
all for coming. This is a hearing to discuss S. 987, which is
the Biofuels for Energy Security and Transportation Act. This
is a bipartisan bill that Senator Domenici and I and several
other senators here in the committee introduced 2 weeks ago.
It's intended to increase our use of homegrown biofuels and
reduce our dependence on imported oil.
Biofuels are the top priority in this committee. Already,
S. 987 has six co-sponsors in addition to Senator Domenici and
myself. Senators Akaka, Dorgan, Cantwell, Salazar, Craig, and
Martinez have co-sponsored the bill.
The committee explored key issues on this subject during an
all-day biofuels conference in early February. Legislation that
we have before us today is, in large part, the result of what
we believe we learned from the hundreds of conference
submissions and the 30-plus conference participants. I've very
glad that some of our conference participants are back talking
with us today.
Today's hearing will help ensure that we're putting the
right policies in place to expand our biofuels industry in an
economically and environmentally responsible way. Again, thank
you all for your interest and participation and I look forward
to the testimony.
Senator Domenici.
STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW
MEXICO
Senator Domenici. Thank you very much, Mr. Chairman, and
thanks to all the people who are here. We appreciate the
witnesses' willingness to come and give of their time today.
The purpose of this hearing is to receive testimony on S.
987, Biofuels for Energy Security and Transportation, or BEST
Act. I'm pleased that we've been joined, as indicated by the
chairman, by Senators from both sides of the aisle, and he has
enumerated that. I'm sure there will be more, Senator, before
this is finished, because this bill is going to pass this
committee with a large vote in my opinion.
In the State of the Union Address, the President laid down
a very ambitious goal. It was ambitious but worthy in my
opinion, to reduce our consumption of gasoline by 20 percent in
10 years. I applaud that and hope that we can achieve it.
Just 2 days ago, Secretary Bodman and EPA Administrator
Johnson, Mr. Chairman, gave a joint press release announcing
the rollout of new regulations for the RFS Program. I'm pleased
that the Department of Energy is moving forward to put this
program in place as required by the Energy Policy Act.
The new regulations include compliance and enforcement
provisions, reporting requirements and various fuel tracking
mechanisms. These provisions will enable the program to develop
and deliver the energy security and environmental benefits that
we envisioned as we crafted the provisions.
At the time that we were writing the RFS in 2005, we all
thought that ethanol was a--thought of it as a fuel additive.
Just 2 years later, we see that ethanol can be a fuel in its
own right. This is also true for advanced alternatives, such as
biobutanol.
I understand that we need to avoid unintended consequences
as we develop a domestic industry in this area and obviously,
we have seen some unintended consequences in the ethanol area,
and we ought to be careful. We must balance the use of cropland
to produce food and feed and also fuel.
Today, U.S. ethanol production relies heavily on corn.
Rapid expansion of ethanol production has caused some rises in
corn prices. As a result, our farmers must pay more to feed
their livestock and our exports of corn to nations such as
Mexico have declined.
In our bill, we include several provisions to lessen the
negative impacts, if we can, that relate to various industries.
I look forward to today's hearing, and to your leadership,
and to working with you in your leadership capacity to get this
bill done as soon as possible.
Thank you very much, Mr. Chairman.
[The prepared statements of Senators Murkowski and Burr
follow:]
Prepared Statement of Hon. Lisa Murkowski, U.S. Senator From Alaska
Mr. Chairman: Thank you for holding this hearing on the biofuels
bill that you and Senator Domenici have developed to speed the pace of
renewable fuel development.
I support assistance to the ethanol and entire bio-fuels industry.
I do so since biofuels certainly should cut traditional pollutants like
smog forming sulfur dioxide and ozone forming nitrogen oxide, should
cut greenhouse gas emissions, and will lessen our dependence on foreign
sources of oil. Those are good things.
But my support for helping get an ethanol industry started does
have limits and this bill comes very close to reaching those limits.
In testimony earlier in the year we heard that it is probably not
possible for the United States to produce more than 15 billion gallons
of ethanol from corn kernels without having huge impacts on farm land
allocation, crop selection and having even larger impacts on farm
prices. I'm glad this bill caps aid at the 15 billion-gallon level for
traditional corn-kernel-based ethanol production.
I'm afraid that even at the 15 billion-gallon target we will be
triggering further increases in the price of corn, hiking the costs of
everything from meat and milk to breakfast foods, and perhaps
encouraging farmers to switch to corn from other crops, such as
soybeans or even wheat, perhaps worsening consumer prices for
everything from tofu to bread.
I'm more concerned about the language that ``mandates'' that we
produce another 21 billion gallons of biofuels either from cellulosic
ethanol or other substances, from animal fats to fish oils, by 2022. (I
do like encouraging greater fish oil utilization, however.)
I am concerned that we are putting the cart before the horse in
setting the RFS at 36 billion gallons within 15 years, when we don't
have a single production-scale cellulosic ethanol plant currently in
full production in this country.
We know that biofuels, while they help the environment, don't
currently and may never help the pocketbooks of drivers. Since ethanol
contains between 20 and 28 percent less energy per unit volume than
gasoline; all things being equal, motorists will get poorer gas mileage
and thus will have to buy more fuel than if they used pure gasoline.
Other fuels, like butanol, apparently contain more energy, but still
don't equal gasoline on an energy basis.
I have this nagging concern that once we pass the level of ethanol
production needed for Clean Air Act additive requirements, 10% or
perhaps 15% in the future, that ethanol is going to have to stand on
its own two feet. Detroit should make more E-85 capable vehicles, but
motorists are still going to have to buy the ethanol to put in their
tanks, and I have my doubts whether they will do so consistently unless
the price of the fuel can be made truly competitive with gasoline on an
energy/mileage basis.
I would like to thank both Senators Bingaman and Domenici and their
staffs for meeting some of my concerns in the drafting of this
legislation. Coming from a cold-climate state like Alaska where
distribution of fuel is a major logistical and economic concern, I
appreciate the flexibility this bill contains to help Alaskans deal
with the issues related to biofuels in cold weather.
The truth is that I would feel far better about this major
expansion of our efforts to promote biofuels, if we had a better sense
that future technological improvements will permit the fuels to be
priced competitively, on their own, without substantial obvious or
hidden governmental subsidies.
I would also feel far better about voting for this, if this
biofuels initiative was part of a balanced energy package that also
promoted increased domestic production of both conventional fuels like
oil and gas, and of other renewables. At mark up I may well attempt to
partially remedy at least part of that concern.
Given that this nation uses 180 billion gallons of gasoline and
diesel fuel a year, this bill will not be putting the petroleum
industry out of business. It will not be a panacea to offset our
nation's dependence on foreign oil, since if the RFS target is some how
met, biofuels will still only be delivering far less than 20 percent of
our fuel needs in 2022.
It does send a signal that we want to lessen that foreign oil
dependency. I just worry about the total cost to consumers and
government of that signal.
I also worry about the private investment markets. I know one of
the reasons we are considering this bill now is because industry
already has invested in so many ethanol plants, likely exceeding the
7.5 billion gallon RFS that we set just two years ago, that unless we
help the industry widen its market for ethanol we may well be looking
at a glut of ethanol on the domestic market by next year that could
cause prices to drop and endanger the future of the entire biofuels
industry.
But I want the industry to know that there are clear limits to the
ability of Congress to manipulate markets, to pick ``winning'' and
``losing'' technologies, and this bill, mandating a 36 billion gallon
level of biofuels development within 15 years is clearly near my
personal limit. Hopefully the industry will prove it can be
economically efficient and win willing consumers after reaching this
level of production and the economies of scale that hopefully will thus
result.
I thank the chairman for this hearing and I look forward to the
comments of the witnesses.
______
Prepared Statement of Hon. Richard Burr, U.S. Senator From
North Carolina
I want to thank Chairman Bingaman and Ranking Member Domenici for
the opportunity to hear from the distinguished witnesses visiting this
committee today.
There are many good reasons why this committee is considering the
use of alternative fuels. Our dependence on foreign oil, global
tensions that can have a significant effect on the oil markets, and
concerns with pollution and emissions are issues that I believe must be
addressed by Congress. The Chairman and Ranking Member share these
concerns and have brought us here today to begin addressing them with
legislation. Yet while we share the same concerns, I am not convinced
that this legislation will help us move towards a solution.
The increased use of alternative fuels, and the additional costs,
will not be confined to the oil markets. We agree that finding a
renewable source of energy that can be grown and produced by our
nation's farmers is a priority. However, mandating arbitrary numbers
for biofuel usage before economic and technological feasibility studies
can be conducted on the impact it would have on the entire agriculture
community is unwise. Since Congress mandated the use of 7.5 billion
gallons of ethanol for blending, feed prices have risen 70% in just the
last six months. What this means is that American consumers are paying
more for chicken, turkey, pork, and beef at the grocery store. Soon the
average individual will feel the financial crunch as ethanol mandates
continue to increase food prices.
If we increase the federal mandate on ethanol, farmers will
continue to leverage every acre of land possible to grow corn. Because
of this, the corn market will soon become saturated and prices will
come down drastically. This situation will expose millions of farmers
to serious financial loss, and they will be looking to the federal
government for disaster payments. We have the opportunity to prevent
that scenario from happening by allowing the market to dictate ethanol
use. I am one of the largest proponents of renewable energy and
ethanol, but I cannot allow the federal government to increase the
price of food in this endeavor, nor will I sit back and watch farmers
walk down a disastrous path.
In addition to these problems with commodity prices, the other
benefits of legislation are rather questionable. I am particularly
concerned by the premise that ethanol will help reduce our reliance on
imported oil. There is significant debate whether this will be
achievable if we rely on a significant amount of corn derived ethanol.
Although some of the ethanol production under this legislation will
come from other sources besides corn, a large proportion will be corn-
based ethanol.
Scientists have examined this issue and question whether corn
derived ethanol provides a positive return on energy. The energy return
is seen as negligible by some researchers, and even when scientists
find a positive energy return in their analysis, it is often only a
slight increase. The result is that corn-based ethanol may not help us
achieve a significant reduction of our reliance on foreign oil. In
fact, combined with increased corn production, it may make the
situation worse.
The bill the committee is considering today has noble aims. It is a
step towards addressing our shared concerns regarding a dependence on
imported oil, particularly from countries that have animus towards the
United States. However, I am not convinced that this legislation will
significantly alleviate this problem. Furthermore, the unintended
consequences of this bill will have a dramatic impact on commodity
prices. For these reasons, I have serious concerns regarding this
legislation. I look forward to hearing from our invited witnesses on
this issue.
The Chairman. Thank you very much. I think all Senators are
aware that we have a vote scheduled on the Senate floor at
10:30. So we will proceed and get as far as we can through the
testimony and the questions, and then we'll have to adjourn for
a few minutes to do that vote.
But our first witness today is Andy Karsner, who is the
Assistant Secretary for Energy Efficiency and Renewable Energy
in the Department of Energy, and we appreciate him. He's a
frequent visitor with this committee and we appreciate his
willingness to be here today. So go right ahead and give us
your views on this legislation.
STATEMENT OF ANDREW KARSNER, ASSISTANT SECRETARY FOR ENERGY
EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY
Mr. Karsner. Thank you, sir.
Chairman Bingaman, Senator Domenici and members of the
committee, thank you for the opportunity to present the
administration's views on S. 987 and discuss programs underway
at the Department of Energy to accelerate the development and
use of biofuels.
In his 2007 State of the Union address, President Bush
challenged our country to reduce gasoline consumption by 20
percent within the decade, the Twenty-in-Ten Plan. The
President called for a robust Alternative Fuel Standard,
requiring the equivalent of 35 billion gallons of ethanol in
2017, nearly five times the target that is now in law.
Pursuing Twenty-in-Ten holds the promise of diversifying
the sources, types, and volumes of fuels we use, while reducing
our vulnerabilities and dependence on foreign oil. Only through
transformational technological change, coupled with
unprecedented capital formation and private investment in
alternative fuels, can these urgent goals be achieved.
The very title of S. 987, the Biofuels for Energy Security
and Transportation Act of 2007, encapsulates the critical role
that biofuels must play in transforming the energy future of
our Nation. S. 987 promotes the production and use of biofuels
through a full spectrum of activities, from basic research to
fuel retail delivery, accelerating market penetration of
biofuels.
The President's call for a dramatic shift in domestic
patterns of gasoline consumption and a vision of greater energy
security is reflected in provisions of S. 987, and to that end,
the administration generally supports the vision of the
legislation.
However, the administration believes that we must aim for
an ambitious and manageable timeframe for fuels and
infrastructure deployment and that a 10-year goal is the
appropriate metric.
In addition, the administration supports legislation that
includes a wider variety of alternative fuels than is provided
for in S. 987. The President's goal calls for a substantial
reduction in gasoline consumption and it is important that
more, rather than fewer, options of alternative fuels be
considered for this.
Beyond the modifications to the existing renewable fuels
standard, S. 987 also speaks to a number of infrastructure and
financial issues related to the biofuels industry. While the
Department supports the goal of expanding biofuels
infrastructure, we believe that there are aspects of the
technical language in S. 987 regarding the infrastructure pilot
program that need further review and discussion.
In addition, the Department is concerned about potential
modifications to the title XVII Loan Guarantee Program proposed
in this legislation. Certain provisions appear to be
inconsistent with the Federal Credit Reform Act as it exists
today.
The bill also proposes a 90-day deadline for approval or
disapproval of loan guarantees, which places artificial
constraints on the due diligence that the Department must
perform to prudently assess capital risk and manage taxpayer
dollars. Additionally, changes to definitions or scope of
projects involved could slow the implementation of the Loan
Guarantee Program.
There is clear consensus, however, that legislative action
is urgently needed to substantially reduce our dependence on
oil and deploy new energy technologies into the marketplace at
an unprecedented scale and rate. The administration looks
forward to working constructively with this committee and the
Congress to deliver legislation for the President's signature,
optimally before the summer driving season is underway.
The Department's portfolio of research, development and
commercialization activities supports the Twenty-in-Ten and
longer-term clean energy goals. The Department is particularly
focused on solving technical problems to overcome barriers to
biofuels growth through strategic cost-shared partnerships with
private industry and collaboration across agencies of the
Federal Government.
Together, with financial tools already included in the
Energy Policy Act of 2005, we believe that this multi-pronged
effort will expand the role of domestically produced biofuels
in our Nation's energy supply and for our economic future.
Our biomass program is focused on making cellulosic ethanol
cost competitive by 2012, a target put forth in the President's
2006 Advance Energy Initiative. In fiscal year 2007, including
funds appropriated under the Continuing Resolution, the
Department has allocated approximately $200 million for EERE's
Biomass and Bio-Refinery Systems R&D program to implement key
activities necessary to achieve our 2012 goal for cost-
competitive cellulosic ethanol.
Secretary Bodman recently announced that DOE will invest up
to $385 million for six commercial-scale bio-refinery projects
over the next 4 years, subject to appropriations. In the next
few weeks, the Biomass Program will announce a funding
opportunity for validation of advanced biomass conversion
technologies and feedstocks and bio-refineries at approximately
10 percent of commercial scale. These 10 percent scale
demonstrations have the potential to reduce the overall cost
and risk to industry and accelerate commercialization further
for large-scale facilities.
The development and deployment of a biofuels distribution
infrastructure in the United States is fundamental to providing
for displacement of gasoline and increased consumer choice. To
bring these issues into focus, the Department has developed a
biofuels infrastructure team to support far greater convergence
between our Vehicle Technologies and our Biomass Programs.
As a result, the Department is pursuing a growing number of
infrastructure activities, including analysis of feedstocks,
pipelines, terminal facilities, storage, and advanced vehicle
technologies. In addition to infrastructure and fuels research
within the Department, there are important collaborations with
other Federal agencies and entities, including the Inter-Agency
Biomass Research and Development Board, which I co-chair with
Under Secretary Dorr at the U.S. Department of Agriculture. We
have elevated the importance of this Inter-Agency Board to
provide coordinated, high-level Federal support for biofuels
production and use.
On the financing side, the recently-passed fiscal year 2007
continuing resolution appropriated the first funds for the
Department to implement the title XVII Loan Guarantee Program.
As you know, last year the Department undertook a process to
solicit pre-applications for the first round of loan
guarantees. Biomass technologies represented nearly half of the
pre-applications received, a strong indication of the broad
investor interest in funding commercial cellulosic bio-
refineries.
The President's Twenty-in-Ten goal holds the promise of
accelerating penetration of cellulosic ethanol and other
alternative fuels into the marketplace, alleviating our
addiction to oil and helping to address the serious challenge
of global climate change. The Federal Government's cutting-edge
research, development, deployment, and commercialization
efforts must be supported by long-term, transformational policy
changes--the types of proposals that the President articulated
during the State of the Union, many of which are consistent
with the objectives and directions of this legislation.
The administration looks forward to working with Congress
on a bipartisan basis to shape policies and legislation that
will address the great challenges of our time with the urgency
the situation merits. Mr. Chairman, that concludes my opening
remarks and I'd be happy to answer any questions the committee
may have.
[The prepared statement of Mr. Karsner follows:]
Prepared Statement of Alexander Karsner, Assistant Secretary for Energy
Efficiency and Renewable Energy, Department of Energy
Mr. Chairman, Senator Domenici, and members of the Committee, thank
you for the opportunity to present the Administration's views on S.
987, the Biofuels for Energy Security and Transportation Act of 2007,
and to discuss programs under way in the Office of Energy Efficiency
and Renewable Energy (EERE) at the Department of Energy (DOE) to
accelerate the development and use of biofuels.
In his 2007 State of the Union address, President Bush challenged
our country to reduce gasoline consumption by 20 percent in the next 10
years, the ``Twenty in Ten'' plan. The President called for a robust
Alternative Fuel Standard, requiring 35 billion gallons of renewable
and alternative fuel in 2017, nearly five times the 7.5 billion gallon
renewable fuel target now in law for 2012. Expanding the mandate
established by the Energy Policy Act of 2005 (EPACT 2005) is expected
to decrease projected gasoline use by 15 percent. Another five percent
reduction in gasoline consumption can be achieved through the
Administration's proposal to reform CAFE standards. The ``Twenty in
Ten'' plan holds the promise of diversifying the sources, types, and
volumes of fuels we use, while reducing our vulnerabilities and
dependence on oil. Only through transformational technological change
can these goals be achieved, and we believe that the Administration's
proposals provide the tools to achieve them.
s. 987, the biofuels for energy security and transportation act of 2007
The very title of S. 987 encapsulates the critical role that
biofuels can play in reconfiguring the energy future of our Nation. S.
987 promotes the production and use of biofuels through a full spectrum
of activities, from basic research to fuel pump labeling, moving the
country forward to increased use of biofuels. The President's vision
for a dramatic shift in domestic patterns of gasoline consumption is
reflected in provisions of S. 987, and to that end, the Administration
supports the vision of the legislation. However, the Administration is
continuing to review the bill and looks forward to further discussions
with you and your staff. The following comments represent the
Administration's preliminary views on the bill.
First, I would urge the Committee to adopt the volumetric targets
of 35 billion gallons of renewable and alternative fuel in the next
decade, as established in the President's proposal. The Administration
believes that we must have a manageable timeframe for fuels and
infrastructure deployment, and that a 10-year goal is an ambitious and
appropriate metric. In addition, the Administration supports
legislation that includes a wider variety of fuels than is provided for
in S. 987. The President's goal is substantial and urgent reduction in
gasoline consumption, and it is important that all options for
alternative fuels be considered and that market forces play a central
role in the selection of different renewable and alternative fuels.
Beyond the modifications to the existing Renewable Fuels Standard,
S. 987 also speaks to a number of infrastructure and financial issues
related to the biofuels industry. While the Department supports the
goals of expanding biofuels infrastructure, we believe there are
aspects of the technical language in S. 987 regarding the
infrastructure pilot program that need further review and discussion.
In addition, the Department has serious concerns about the
modifications to the Title XVII Loan Guarantee Program proposed in this
legislation. Certain provisions are inconsistent with The Federal
Credit Reform Act, and the Administration believes it is important that
those policies be maintained. The bill also proposes a 90-day deadline
for approval or disapproval of loan guarantees, which places artificial
constraints on the due diligence that the Department must perform to
prudently manage taxpayer dollars. This arbitrary deadline could result
in meritorious applications being denied because of insufficient time
for the Department to complete its work. The Loan Guarantee Program has
the potential to aggressively deploy emerging technologies for clean
energy, but the very nature of these pre-commercial projects means that
prudent risk management must be integral to the Department's
evaluation. Additionally, changes to definitions or scope of projects
involved may slow implementation of the Loan Guarantee Program. We look
forward to working with the Committee to resolve these issues.
There is clear consensus that legislative action is needed to
substantially reduce our dependence on oil and deploy new energy
technologies into the marketplace at an unprecedented scale and rate.
The Administration looks forward to working constructively with the
Congress to achieve the ``Twenty in Ten'' goal, and deliver legislation
for the President's signature before the driving season is under way.
Supporting the ``Twenty in Ten'' and longer term clean energy goals
is the Department's portfolio of research, development, and
commercialization activities. The Department is particularly focused on
solving technical problems to overcome barriers to biofuels growth,
including infrastructure, through forging strategic cost-shared
partnerships with private industry, collaborating with other agencies,
and working with the different regions of our country to bring the
promise of biofuels to fruition. Combined with the financial tools
already included in EPACT 2005, we believe that this multi-pronged
effort will expand the role of domestically produced biofuels in our
Nation's energy supply and economic future.
bioenergy research and development
EERE's Biomass Program and Vehicle Technologies Program, as well as
other Department programs such as those within the Office of Science,
are working closely together to provide technology pathways to meet the
``Twenty in Ten'' goal. The Office of Science is conducting basic
research for breakthroughs in systems biology to identify new biofuel-
producing organisms or new bioenergy crops that could lead to cost
reductions for cellulosic ethanol and other biofuels. To accelerate the
transformational scientific breakthroughs necessary for cost-effective
production of biofuels and bioenergy, including cellulosic ethanol, the
Office of Science is investing $375 million over five years to support
the establishment and operation of three Bioenergy Research Centers.
These centers, selected by competitive, merit-based scientific review,
will conduct comprehensive, multidisciplinary research programs on
microbes and plants to develop innovative biotechnology solutions to
energy production.
EERE and various U.S. Department of Agriculture (USDA) agencies
conduct the applied research for advancing biomass feedstocks and
conversion technologies for biorefineries. Currently, ethanol is the
renewable fuel with greatest market penetration and potential for both
near and long-term displacement of gasoline. EERE's Biomass Program is
focused on making cellulosic ethanol cost-competitive by 2012, a target
put forth in the President's 2006 Advanced Energy Initiative (AEI). In
Fiscal Year (FY) 2007, including funds appropriated under the
Continuing Resolution, the Department has allocated approximately $200
million for EERE's Biomass and Biorefinery Systems R&D program to
implement key activities necessary to achieve the 2012 goal for cost-
competitive cellulosic ethanol. Additionally, Secretary Bodman recently
announced that DOE will invest up to $385 million for six commercial-
scale biorefinery projects over the next four years, subject to
appropriations. These funds, combined with industry's cost share, could
lead to more than $1.2 billion in public and private sector investment
in these six biorefineries.
The EERE Biomass Program will continue in FY 2007 to support its
cost-shared efforts with industry to develop and demonstrate
technologies to enable cellulosic biorefineries for the production of
transportation fuels and co-products. In the next few weeks the Biomass
Program will announce a funding opportunity for the validation of
advanced biomass conversion technologies and feedstocks in
biorefineries at approximately 10 percent of commercial scale. This
effort will enable industry to resolve remaining technical and process
integration uncertainties and allow for more predictable, less costly
scale up of ``next generation'' biorefinery process technologies. These
10-percent scale demonstrations have the potential to reduce the
overall cost and risk to industry and contribute to the quicker
commercialization of larger-scale facilities.
ethanol and biofuels infrastructure development
The Department is working with other public and private sector
partners to encourage development and deployment of a biofuels
distribution infrastructure in the United States to provide for
displacement of gasoline and increased consumer choice. To support this
effort and help promote growth of the biofuels industry, the Department
has developed a biofuels infrastructure team. This team works to
promote convergence between Vehicle Technologies and the Biomass
Programs to promote a biofuels industry and commercially competitive
alternative fuels and vehicles. Currently, there are more than six
million flexible-fuel vehicles (FFVs) on the road in this country, a
significant number, but still a relatively small percentage of the
approximately 225 million light duty vehicles in the U.S. One goal is
to expand the use of biofuels by increasing the number of FFV owners.
This would be done by improving current biofuels infrastructure and
adding fueling stations to make FFV use more convenient for consumers.
Another goal is to encourage all automobile manufacturers serving the
U.S. market to meet and exceed state voluntary targets and
significantly increase production of FFVs. In support of these goals
the Department is pursuing a number of infrastructure activities,
including analyses of pipelines, water issues, and advanced vehicle
technologies. The biofuels infrastructure team is also assessing the
impacts of higher-level intermediate blends of ethanol (e.g., E15 and
E20), renewable fuels pipeline feasibility and materials research, and
optimization E85 alternative fuel vehicles. This work is being
coordinated with the Department of Transportation, which has
responsibility for setting integrity management standards for pipeline
transportation and ensuring that these products can be safely handled.
These policies are designed to work with the markets, as we believe
markets are best suited in deciding how and which new biofuel
infrastructure is to be deployed.
The Vehicle Technologies Program has embarked on several new
efforts to address vehicle efficiency, beyond ongoing combustion and
fuels research. These new efforts include evaluation of the Biowagon
produced by SAAB, a manufacturing subsidiary of GM, which is sold
exclusively in Europe and has been reported to use ethanol-based fuels
much more efficiently than current U.S. FFVs. Another new effort is
focused specifically on optimizing engine efficiency with biofuels.
These projects are aimed at mitigating the lower energy content of
biofuels. The program is also evaluating other biofuels such as
biodiesel that may contribute to future gasoline displacement. And,
Vehicle Technologies has initiated an effort to engage international
collaborations to address fuel standards, data sharing, and other
common interests.
interagency energy partnerships
In addition to infrastructure and fuels research within the
Department, there are important collaborations with other Federal
agencies and entities, including the Interagency Biomass Research and
Development Board, which I co-chair with USDA. The Board is the
governing body that coordinates biomass R&D activities across the
Federal Government. In November 2006, DOE hosted the National Biofuels
Action Plan workshop in Washington, DC, where representatives from
multiple Federal agencies came together to identify agency roles and
activities, assess gaps and synergies, and begin developing agency
budgets in the area of biofuels. The Federal participants also made
recommendations for improved coordination and collaboration across
Federal agencies. Input from the workshop is currently being collected
into the National Biofuels Action Plan workshop report. Ultimately, the
goal is to improve the Board's ability to provide coordinated Federal
support for biofuels production and use.
To promote the growth of local biorefineries and address biomass
resource availability and feedstock infrastructure, DOE is supporting
the Regional Biomass Energy Feedstock Partnerships with USDA and Sun
Grant Initiative universities, which are funded through the Department
of Transportation. These partnerships will help to identify the
regional biomass supply, growth, and biorefinery development
opportunities. We believe that using regionally available feedstocks,
produced and processed locally, will allow a ``distributed''
transportation fuels approach that should reduce shipping and
transportation issues. These regional partnerships are designed to
collect and store data on a publicly available website.
loan guarantee program
To provide increased incentives for financing a multitude of
innovative energy technologies--including biofuels--EPACT 2005 included
a provision in Title XVII for a DOE Loan Guarantee Program. With its
central focus on innovative technologies to avoid, reduce, or sequester
air pollutants or anthropogenic greenhouse gas emissions, the Loan
Guarantee Program is a tool intended for providing broad authority for
DOE to guarantee loans that support early commercial use of advanced
technologies including cellulosic biorefineries that employ new or
significantly improved energy technologies.
I am pleased to report that the funding contained in the FY 2007
Revised Continuing Appropriations Resolution, which the President
signed on February 15, 2007, is allowing the Department to move forward
in implementing the Loan Guarantee Program and standing up a Loan
Guarantee Office within the Department. We are currently working on a
draft Notice of Proposed Rulemaking to implement the program. Secretary
Bodman has said that our goal is to have a high-quality program, and
the Department is working to do just that. As you know, the Department
undertook a process in FY 2006 to solicit pre-applications for the
first round of loan guarantees. Biomass technologies represented nearly
half of the pre-applications. The Loan Guarantee Program represents an
important tool for transforming the energy portfolio in this country.
conclusion
The President's ``Twenty in Ten'' goal holds the promise of
accelerating penetration of cellulosic ethanol and other alternative
fuels into the marketplace and bringing the benefits of a clean
renewable and alternative energy source more quickly to our Nation. To
meet these challenges, cutting edge research, development, deployment,
and commercialization must be supported by transformational policy
changes--the types of proposals that the President articulated in the
State of the Union, many of which are consistent with the objectives
and direction of this legislation. The Administration looks forward to
working with Congress to shape policies and legislation that will make
this happen. This concludes my prepared statement, and I would be happy
to answer any questions the Committee members may have.
The Chairman. Thank you very much. Why don't we just do 5-
minute rounds on questions? I'll start.
You indicated in your testimony that the bill that we have
drafted does not give you enough time, where we provide 90 days
to do the due diligence involved with these loan guarantees.
What is your view of the right length of time that you would
need to do that due diligence?
Mr. Karsner. It's a challenging question, sir, not because
the Department can't--or the Federal Government can't--develop
an appropriate timeframe for processing and offering due
diligence, but it is largely contingent on what the nature of
the submissions are. So what we're actually looking for is
project maturity. We wouldn't want to foreclose on those that
might be technologically eligible for the loan guarantee
program but for example, might not be sufficiently mature to
have siting, permitting, and other aspects in place that would
enable commercial financing. So the difficulty is, the time
will vary with each submission, depending on that project's
maturity.
The Chairman. Well, I think we've obviously been trying to
address the frustration that many of us feel about the lack of
forward motion on this issue, and we're trying to figure out
how to do something legislatively to prompt the Department to
move out more quickly. If you have concrete ideas about what we
might do along those lines, other than just back off and give
you more flexibility, we'd be anxious to hear it. But as I hear
what you're saying, you want to have flexibility to take
whatever time you need. I can understand that sentiment, but
it's not a satisfactory conclusion for many of us.
Mr. Karsner. I appreciate the underlying motive, and I
think it would be the objective of the Department to develop a
more standardized program for due diligence and evaluation and
ultimately, financial closings, as the program evolves.
The Chairman. We put together a proposal for a renewable
fuel standard. The President's proposal is for an alternative
fuel standard, as I understand it, which is different. Could
you explain to us exactly what portion of the President's 35-
billion-gallon per-year target by 2017--that is the target that
I think he announced in the State of the Union, 35 billion by
2017--what portion of that do you expect to be met from
renewable fuels? What portion do you expect to be met by other
fuels, and could you be specific? I just have always had
difficulty, and I've raised this at a couple of hearings,
understanding how we get to 35 billion gallons by 2017 and our
bill, of course, calls for 36 billion by 2022, but we think
we've got a plan for how we add up to that. I'm not clear what
your plan is.
Mr. Karsner. Part of the reason for that is that it is not
the administration's goal to be prescriptive about how the
market perceives various technology pathways in order to meet
the end state. The goal of the administration's plan is to
mandate the end state and offer force of law into a national
objective that provides certainty and predictability to the
market to perform.
So in that way, if for example, lithium ion batteries and
sources of electricity and plug-in vehicles were to surpass or
have a technological leap ahead of other pathways, we would not
want to preclude or foreclose on that possibility. What we
would like to see is that we apply everything that this Nation
has--from its scientific community, from its farming community,
from its innovative community, from its industrial leaders and
entrepreneurs--that they all have the certainty that their
technology pathways for clean, domestic alternatives will be
included to lower gasoline consumption.
The Chairman. Well, I think that's a grand vision, but
there is bound to be some scenario that you could envision that
gets you to 35 billion gallons equivalent by 2017 and I'm just
trying to understand what that is.
Mr. Karsner. And forgive me because I didn't mean to be
elusive. In my own personal view, based on the latest data that
I have and the portfolio that I manage, I would imagine that
cellulosic ethanol and ethanol in general would make up the
overwhelming majority of that, based on what I know today.
Of course, based on what people knew 10 years ago, I think
they had no idea about what the status of the technology is
today, and so we're trying to be predictive 10 years into the
future. But based on what I know today, I have every reason to
believe that renewable fuels will constitute the overwhelming
majority.
The Chairman. Do you have a figure you could give us as to
how much of the ethanol that you anticipate us using would be
imported? Because we do not contemplate in our bill that any of
the 36 billion by 2022 would be imported. But I gather that you
do contemplate some portion of the 35 billion by 2017 that
would be imported. Could you tell us how much?
Mr. Karsner. I don't think that it would be correct to say
that I necessarily contemplate that any of it would be foreign.
I think the point is that the bill doesn't necessarily preclude
that option in the event that augmentation from foreign sources
is needed after U.S. growth is accounted for.
Having said that, there is nothing, again, in today's data
set that would lead us to believe that foreign sources of
imported ethanol might eclipse our own production if industry
were given sufficient policy predictability to grow the
industry at home.
The Chairman. Senator Domenici.
Senator Domenici. Thank you very much, Senator Bingaman.
Let me say, in asking you and listening to your responses
regarding the activity that will take place with reference to
loan guarantees, it's one thing to have you up there going back
to your office and implementing a bill we pass, because
obviously, there is no question that you would be acting on the
basis of trying to get it done.
Our problem is, we've been running into legitimate stop-
over points in the administration where we run into a post that
says, ``Stop Here instead of Proceed.'' It's not you, and
that's what we're wondering about, because this one won't work
to the fullest without loan guarantees, I think. Is that not
true, as you see it?
Mr. Karsner. I absolutely believe loan guarantees and
enabling debt are absolutely fundamental to achieving these
goals.
Senator Domenici. All right. So when we talk highly of this
program, we are at the same time, saying whoever in the
administration wants to make their voices heard, come now.
Right? That's the way I feel and I hope the Chairman does. As
we move through, we've got to be sending out the word and any
cabinet members that are going to oppose this, we want to see
them. We want to hear them. We don't want them to come in after
we've passed the bill and we're back in the same mess we're in
now on loan guarantees from the bill we passed however long
ago--how long ago was it?
So let me ask--change the subject for a minute. As I
understand it, our country does not have a cellulosic ethanol
industry today. Why should we lower tariffs on imported ethanol
that would undercut a new cellulosic ethanol industry just when
we want it to get off the ground?
Mr. Karsner. I'm not in a position to defend lowering
tariffs. To my knowledge, that's not the subject of the current
discussion for the administration.
Senator Domenici. All right, I understand, it's business in
somebody else's shop.
Mr. Karsner. Could be.
Senator Domenici. Maybe. The President's Twenty-in-Ten
Initiative, as you point out, would include alternative fuels
beyond biofuels, including credits for hydrogen vehicles?
Mr. Karsner. Correct.
Senator Domenici. Both hydrogen and biofuel would require
major infrastructure investments up there to make a major
contribution to the transportation sector. In your view, should
we commit to both of these fuel alternatives, each with massive
infrastructure requirements?
Mr. Karsner. In my view, time matters, and that is part of
the reason why we would like to see, from this bill, a greater
focus on a manageable timeframe of a decade so that we can
focus on what is achievable within the decade and measure
ourselves in increments thereof.
I do not think that we take the position that hydrogen will
make a significant enough difference within the decade to
warrant overemphasis on it at this juncture, at the cost of the
other alternative fuels that may make a dent within that
timeframe.
Senator Domenici. Now let me close my questions by asking--
you and your people have gone through this bill. It's a full-
blown bill in all detail, and you've had an opportunity to look
at that, and you come before us today, and you are telling us
the few things that you think need fixing and with those
getting compromised or solved, the bill is ready to go, is that
correct?
Mr. Karsner. We certainly believe that the bill is in the
right direction and the right spirit of the President's call
for action. There is further collaboration that we could do to
tweak elements of the bill to make it more palatable to all
sides.
Senator Domenici. All right. I thank you, Mr. Chairman.
I'll maybe pick one round again, if we have time.
The Chairman. Thank you.
Senator Salazar.
Senator Salazar. Thank you very much, Senator Bingaman and
Senator Domenici, for your leadership on this issue and I too,
look forward to working with all of you on this committee to
develop a robust energy package as we did with the 2005 Energy
Policy Act. I appreciate your leadership, Assistant Secretary
Karsner, on this issue.
I have two sets of questions. The first one has to do with
the RFS that is included in this legislation, and whether or
not we are being too timid with respect to the RFS that has
been proposed here. I ask that question very much with an open
mind and recognizing all the work that has gone into this RFS
by this committee.
But if I look at the numbers that we've included in S. 987,
at 35 billion gallons per year, that's equivalent, as I
understand it, to 1.5 million barrels per day, which
essentially is about 10 percent of our oil consumption a year.
So I ask myself the question then, if I look out at the year
2022, 15 years from now, we will have embraced an agenda that
will essentially move us off of petroleum-based fuels into
biofuels to the extent of 10 percent. So my question to you,
Andy, is whether or not, from your perspective, that's the
right number or whether we have to go higher?
When I look at the Department of Energy Billion-Ton study
that was done in 2005, there the Department of Energy concluded
that there's enough biomass out there that we might be able to
make it to 3.5 million barrels of oil. When I talk to some of
the experts at the National Renewable Energy Lab, they tell me
that we are at a point where within 3 years, we ought to be
able to move forward with the commercialization of cellulosic
ethanol.
Yesterday I had a meeting with the Chairman of the Board of
BP. They've invested $500 million in a research project in
California. They tell me that they are 3 years away from being
able to commercialize their technology with respect to
biofuels.
So one of the things that I think we agree on, on a very
bipartisan basis here--one of the areas where I think we work
closely with the President is this concept that we can get
ourselves to a brighter energy future than we've had for the
last 30 years. How we set this renewable fuel standard
essentially is setting out the vision for how far we think we
can go with respect to this agenda, and if the goal that we
have set at 36 billion gallons by the year 2022 is getting us
only 10 percent of the way there, my question to you from your
personal perspective and your personal knowledge, is whether or
not that is too low of a reach and whether we ought to go
higher?
Mr. Karsner. That's a great question, sir and I think
ultimately time will tell and validate out whether any of these
goals are met. But as we've discussed in this committee before,
I very much believe in stretch targets across our entire
portfolio. Our motto is ``More, Better, Further, Faster'' and
the question is how much we're going to limit ourselves by our
imagination, given what the technological tools are in our
toolkit.
So what we do here to form policy will either be an
accelerant or an impediment to the market attaining those
goals, and it is certainly the case if you cap out the goal
lower, the market will definitely perform lower. So it is our
goal to have reasonable stretch targets mandated in law as an
end-state with enough certainty and predictability to catalyze
the market to perform to the higher level. That higher level,
as we have put forward, is 15 percent through displacement of
alternative fuels within a time period of 10 years, rather than
15 years and meeting another quarter of our national goal
through efficiency--vehicular efficiency, elevating and
reforming CAFE standards. So we think it is important that the
ambition be strong, that it be manageable and that it be in a
tighter timeframe.
Senator Salazar. I want to continue with questions on this
RFS versus the Alternative Fuel Standard, especially as it
relates to liquid coal or coals-to-liquid. But I think this may
take a little longer than the 31 seconds that I have left so
let me just pose the question and then we when come back to the
second round, we can continue the conversation.
It seems to me, and many of the members of this committee
recognize, that we have substantial coal resources here. We say
often that coal is to the United States what oil is to Saudi
Arabia. So if we could find a way of utilizing our coal
resources without doing damage to our environment, then we
ought to move forward with that. We know how we do that. The
technology is already out there, and so one of the questions I
have is whether it would be possible for us to separate the
Renewable Fuel Standards with respect to biofuels from a
separate standard that we might follow with respect to coal-to-
liquids as an avenue of exploration.
My time is up, Mr. Chairman, but I want to explore that
with you in my next round.
Mr. Karsner. Okay, sir.
The Chairman. Senator Thomas.
Senator Thomas. Thank you, sir. I'm going to kind of make a
statement rather than ask a question. So at any rate, I think
the underlying purpose of this bill is good. We need to reduce
our reliance on foreign energy. We have to become better
stewards of the environment. We have to utilize our domestic
resources but I have some concerns with it. It does not include
coal, as just was mentioned. I think over-promoting some of
these fuels can have harmful consequences and our
infrastructure is not adequate to deliver these fuels under the
circumstances that we have now.
So we're considering a bill that says the increased
standard is necessary to ensure there is no ethanol glut in the
near future. If that's the case, then we've only had this bill
for a year and a half. What are going to go by 2009, if that's
a true statement and that information?
The right solution, of course, is people want to exceed the
RFS and they should be allowed to. The right solution is to let
the market work, and we don't simply have to increase a mandate
every time an excessive level of investment takes place.
I think there are some numbers worth looking at. Certainly,
U.S. farmers planted nearly 90 million acres of corn this year.
The amount is up 15 percent from last year and 27 percent of
that corn is going to be used for ethanol. It has higher
prices. Corn is now selling for $4.20, a little tough on our
cattlemen in Wyoming to feed the cattle, and people across the
world using corn as a staple for their diets.
We also want to take a look at the money. The Energy
Department committed $23 million to new processes for
cellulosic ethanol production. This money is in addition to
$385 million given to six companies for cellulosic ethanol
production already. All of this to make sure we produce
something other than corn, and yet the bill authorizes $225
million more to help biofuels. It authorizes over $1 billion
for research and development money as well, and I don't know--
it hijacks six loan guarantees issued for DIO fuels that were
already there.
I voted for the program in 2005 but I have to look at this
spending. I think it's very important. I visited a plant last
week in Wyoming that is planning to produce 1 million gallons a
year from wood chips and forest wood. I wonder why we continue
to research these things. They seem to be done pretty well.
There are 114 ethanol refineries producing 6 billion
gallons a year, more than 80 more plants under construction and
seven extensions. All this progress, we have zero commercial
scale coal-to-liquids prediction that we've had. Why are we not
trying to fix that shortcoming in this bill?
We have zero commercial-scale carbon sequestration
projects. Why are we not trying to fix that shortcoming with
respect to this bill?
So biofuels is not a carbon-neutral approach, entirely. It
takes diesel to run the tractors, it takes natural gas to
provide the fertilizer, it takes more diesel to run the trucks
that deliver. So I just think we have to take a long look at
this. I'm for moving in this direction but I think we are
overlooking some of the things that we already know how to do,
and that can produce a great deal more than we are here. So,
Mr. Chairman, I am just looking for a balance as we move
forward in this, and I just sense that all I hear from the
administration lately is alternative biofuels. Well, I have to
tell you that that's out there a ways before there is enough to
make a great deal of difference. In the meantime, we know how
to do some of these other things where there is a great deal of
fuel available, and we are not moving to do Future Gen. We
haven't done anything on that.
So I just think we need to look at a balance, and this bill
has merit, but I think it also has some troublesome aspects to
it. Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Sanders.
Senator Sanders. Thank you, Mr. Chairman. Welcome, Mr.
Karsner.
Mr. Karsner. Thank you, sir.
Senator Sanders. Mr. Karsner, the President's Alternative
Fuel Standards Act of 2007, which was sent to the Senate but
has not yet been introduced, would require establishment of a
``alternative fuels standard of 35 billion by 2017.'' Now the
President defines ``alternative fuels'' to include biofuels,
natural gas, and liquid coal. It goes without saying that I am
glad that the Bingaman-Domenici bill is more enlightened on
what we should be focusing on.
Why, Secretary Karsner, would the administration promote a
fuel, liquid coal, that according to the EPA has carbon
emissions that are, at best, 3.7 percent worse than
conventional gasoline and at worst, over double the carbon
emissions of conventional gasoline? Does the administration pay
attention to the IPCC reports, the most recent of which came
out last Friday?
Mr. Karsner. Sir, not only does the administration pay
attention to them, we embrace them, we fund them, we support
them, we have the scientists that contribute to them very
deliberately. So of course, the administration pays attention
to the IPCC reports, and with regard to the EPA, they have a
very separate function with regard to regulating and taking
static snapshots in time of what any existing technology
performs. At the Department of Energy, we have a very different
mission, which is dedicated to development of those
technologies for clean, domestic, affordable output of the
energies.
So coal-to-liquids can't be viewed in its current state as
something that we expect to expand and proliferate without the
technologies that we are currently investing in, namely carbon
capture and storage, which would give a very different
emissions profile than the one that you just cited from EPA, by
way of example. We expect that, and of course, the taxpayer is
fully funding those changes as a majority of what's going on in
my colleagues' shop in Fossil Energy. So that is why, when we
talk about the development of this over the next decade or 20
or 30 years, the role of coal, we recognize, I think, some of
the setbacks of coal as we do----
Senator Sanders. Not setbacks, but the understanding that
right now, the fuel you're talking about is a dirty fuel,
correct? It's a polluting fuel.
Mr. Karsner. If the technology is not utilized to give it a
low-carbon profile, then it----
Senator Sanders. Let me reverse--ask you another question
regarding the President's proposal for the importation of
biofuels to meet the targets the President has put forward.
Again, I want to thank the chairman and the ranking member for
understanding that we should be investing here in this country
to meet important energy goals that will improve our
environment, boost our world economies, and enhance our
security, as opposed to looking to imports.
Most specifically, the President's proposal will allow the
importation of palm oil from Southeast Asia, the production of
which is causing incredible deforestation of tropical rain
forests. As we all know and as we cut these tropical forests
down, we release significant amounts of carbon into the
atmosphere. Do you think that this is a good ethic--a good idea
as we attempt to deal with the crisis of global warming?
Mr. Karsner. I understand your concern. I truthfully don't
have enough knowledge with regard to the trade policy as it
applies to importations of palm oil. I think that would only
apply to biodiesel, which of course is a very small
contribution overall, but nonetheless an important one. So to
the extent that palm oil is being used rather than soy or some
of the domestic--I mean, there's a trade issue there that I
wouldn't feel comfortable commenting on, because I don't have
the facts.
Senator Sanders. Well, it does concern me that the
administration is advocating a proposal that will lead to more
carbon emissions. It doesn't make a whole lot of sense.
Mr. Karsner. I disagree with that. I disagree that this
proposal would lead to more carbon emissions.
Senator Sanders. Okay. Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Let's see. Senator Corker is next.
Senator Corker. I appreciate your testimony and again,
thank our chairman and ranking member for their leadership on
this bill. You mentioned the flexibility of not necessarily
knowing into the future which technologies will be the ones
that actually take off and contribute most, and you mentioned
lithium batteries.
How does the administration go about measuring that? I know
that all of these goals have been measured in gallons, if you
will, so we too, obviously want to see that type of technology
take off, and a number of manufacturers around the country are
focused on that. But how do you measure that if you will, as it
relates to these goals that have been laid out, either in the
President's plan or in this bill here?
Mr. Karsner. Well, it's a very good question because it
would be a new technology emerging that we haven't accounted
for with a credit system before in either a renewable fuel
standard or some other pre-existing Energy Policy Act. We would
seek to work together to devise that with Congress.
But presumably you would use it for electricity as a source
of energy that displaces gasoline consumption. You would have
to come up with a means of measuring it to credit it or
conversely, it could be measured in a way that it is now for
efficiency, for displacing gasoline consumption as part of a
vehicle. We'd really have to figure out what is the appropriate
balance. But we're in new territory. It would be a new
technology and we expect that technological pathway to be
fairly prevalent when we expand beyond biofuels. We expect
electricity to be a major contributor. So your question is an
important one. We're working now in our National Labs to try
and get all of the analogs we have in previous policy. But we
would look forward to working with your office and this
committee to devise such a system.
Senator Corker. But I guess the enforcement mechanism here
is really focusing on blenders, right? And how much ethanol
they're using, and these are actual mandates, I suppose. Do you
have any theory about how we might go about doing that? Any
theory? Because the mechanism we're going to use, I guess, is
with the blenders themselves, is that correct?
Mr. Karsner. Well, right. As it stands, if you project an
evolution of the RFS or along the lines of this legislation,
yes. But there is no doubt that this is a holistic conversation
that is going to have to involve the vehicle industry at some
point. That is what the President's proposal has sought to do,
to include efficiency as well as alternative fuels displacement
in a more holistic formula, and we still think that that
formula has to hold together, both the fuel providers and
producers and the car producers.
Senator Corker. I think we'd like to talk with you further
about that as this bill is moving through, because I think it
is something we ought to focus on.
How do you feel about this bill segregating out how much
alternative fuel can be produced by corn and how much cannot?
What is your general sense of that? Just segregates that out
and actually caps corn ethanol at 15 billion gallons?
Mr. Karsner. We don't view that as productive. Again, we
understand what the motive will be but it is definitely a case
where we think that the market will determine the equilibrium
of a supply and demand of corn, as the evolution of the
cellulosic economy builds upon it. Corn will have a natural
ceiling, a natural limit, but we don't really view this as a
competition between grain ethanol and cellulosic ethanol but
rather an evolution of cellulosic ethanol, on top of the
existing grain ethanol market.
Senator Corker. I'm sympathetic to that. Back to the
distinguished Senator's liquid coal issue, are there ways that
you know of today where this availability, which I know is
important to many people--is there a way that we can put in
place standards to actually cause this to be a cleaner fuel,
and is that something that we're working on right now?
Mr. Karsner. We are working on that. I hesitate to speak
for my colleague, the Assistant Secretary for Fossil Energy on
that subject, but being aware of the Department's efforts, of
course the primary focus of the Department with regard to
fossil energy is clean coal and making it a low carbon source.
So there is a heavy technology investment that this committee
has authorized and has been appropriated for that purpose, and
of course, the very same loan guarantee program has as its
condition, reducing, sequestering, avoiding of anthropogenic
greenhouse gas emissions. And so, to qualify for that kind of
financing that would enable large-scale coal-to-liquids,
ultimately, you would need to employ those technologies.
Senator Corker. I'll just close with 7 seconds left saying
that I know we have some bio-research centers. One of those is
in Tennessee, actually, that is doing a great job. I worry
somewhat about having seven scattered around and not having the
funding in place, actually focused appropriately, and I'd love
to have any comments as we move along regarding that, maybe at
a later questioning time.
The Chairman. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman. I'm pleased that
we're starting to move on legislation to address some of the
energy challenges that we have facing the Nation, and this bill
is certainly one step out of many that we'll need to do in
order to put ourselves on the path toward a sustainable and
healthy energy future.
I do have a few concerns with the bill as written, which I
know are shared by some of my colleagues on the committee, such
as making sure that we include appropriate environmental
safeguards. I look forward to working with you, Mr. Chairman
and Senator Domenici in addressing these as we move forward.
But on the whole, I want to commend both of you and your
staffs for putting together an ambitious, forward-looking piece
of legislation, and for taking into account some of the
challenges faced by parts of the country that do not have
robust biofuel production or distributions systems, such as the
northeast. There is one modestly-sized biodiesel plant in New
Jersey, but no ethanol plants, and to my knowledge, no E-85
pumps. So several sections of the bill, such as the additional
bio-research centers and locale transportation grants could, I
believe, be very beneficial for those parts of the country that
don't have enormous fields of corn and switch grass.
So with that as a preface, let me turn to the Secretary.
Mr. Secretary, thank you for your service. At least one of
these provisions that I just referred to was in EPAct, but that
was to be administered by EPA. So Mr. Secretary, do you know
what actions the EPA has taken in this regard, and does the
Department of Energy have any existing initiatives that look at
the specific problems faced by these areas that are outside the
corn and grass belt? Second, what's your opinion of the
provisions in S. 987 that address that challenge? It's like
sections 203, 205, 206.
Mr. Karsner. Just for clarity, sir, what are the provisions
of the EPAct you're referring to for the EPA?
Senator Menendez. The ones that were in fact dealing with
some of the challenges that I think 203, 205, and 206 actually
reflected in this bill.
Mr. Karsner. I'm not comfortable commenting on EPA's
implementation of that. What I can tell you is that EPA, at a
high level of my counterpart, meets and participates in our
Inter-Agency Biofuels Board and so we do coordinate with him on
that. We do very much believe, as you indicate, that regional
diffusion efforts are needed, and that one of the great
benefits of cellulosic ethanol is the availability of the
feedstock across the Nation without a single concentration, as
we have with the grain-based ethanol in the Midwest. So it is a
substantial part of our focus and to that end, we have begun
regional feedstock partnerships that we began funding last year
and will expand upon this year.
With regard to the provisions of this bill, I think you're
largely talking about the E-85 corridor grants?
Senator Menendez. Well, sections 203, 205, and 206, which
deal with bioresearch centers for systems biology programs,
grants for renewable fuel production, research and development
in certain States, grants for infrastructure, for
transportation of biomass to local bio-refineries. There are
parts of the country that don't have the enormous fields of
corn and switch grass. We're called the Garden State of New
Jersey but have cranberry bogs, peach orchards, and great
tomatoes. But it's not going to be accessible to parts of the
country like mine.
So if we are to have a national strategy, obviously we need
to figure out how we incorporate access to biofuels across the
landscape of the country, regardless of what that landscape is.
Mr. Karsner. Right. You shouldn't discount the existing
crops in any one part of the country because----
Senator Menendez. I don't.
Mr. Karsner. Of course, the benefit of the cellulosic is
that it includes also urban waste amongst other feedstocks. So
one of the feedstocks at one of the six bio-refineries that we
are funding is working with Waste Management, by way of
example, to mine local green urban waste, which is available in
every urban center across the country; agricultural residue,
sorghum, etc. So the diversity of the waste streams should
enable every part of the country to----
Senator Menendez. So does the administration support these
provisions of the bill? Do you have problems with those
provisions of the bill?
Mr. Karsner. I think that we have technical comments. I
don't think that they are showstoppers, so to say.
Senator Menendez. Okay.
Mr. Karsner. But we would want to make sure that they are
consistent with market development. I suppose the over-arching
thing for the administration is that scale and rate matter, and
no provision in this should be an impediment to scaling at the
fastest rate that the market will bear over the course of the
decade.
Senator Menendez. One last question. One of the things
that's obviously a big problem in part of the country is
getting the ethanol from plants to consumers. We have a section
in the bill that would look at dedicated ethanol pipelines, and
that's certainly one potential way to address that issue. But
I've been told by the pipeline industry that one of the biggest
problems with ethanol is stress, corrosion, and cracking, both
in pipelines and in tanks, and that they are currently
researching the issue. I'm wondering whether the DOE is
undertaking any research into stress corrosion and cracking due
to ethanol. Do you have any plans to do so? I know you're
coordinating with DOT and the industry on this issue.
Mr. Karsner. We very much appreciate your question. I had
the Acting Deputy Secretary of DOT and his senior team in my
office this week precisely to have that level of coordination
for a full morning, so that we could attack those questions.
That is their domain and of course, the Acting Deputy Secretary
also has the portfolio for pipelines. There is wide interest in
the pipeline community, not just for dedicated E-85 pipeline
transportation where much of those problems occur, but for
other intermediate blends as well, and for the use of
biobutanol and other biofuel blends that might enable more
rapid conversion of their pipeline system.
Senator Menendez. Thank you, Mr. Chairman.
The Chairman. I want to thank you. Let me just advise
folks--there is a vote here at 11 o'clock. So Senator Bunning
still has his 5 minutes of questioning and then we will take
any last minute urgent questions that need to be asked, and
then try to finish with Secretary Karsner before we go to that
vote.
Senator Bunning.
Senator Bunning. Thank you, Mr. Chairman. Secretary, are
you familiar with the Princeton study that has shown that coal-
to-liquids technology with carbon sequestration and biomass
feedstock would have 30 percent less CO2 emissions
compared to fossil fuel?
This is commercially available technology today. Are you
familiar with that study?
Mr. Karsner. I'm not familiar with that particular study,
but I'm familiar with comparable studies with comparable
findings.
Senator Bunning. Okay. Just for the committee's
information, there is a technology available commercially today
that would capture all the carbon as you produced the liquid
fuels from coal and therefore, the disposal of or the use of
that carbon sequestration or the carbon gas form or whatever
form you turn into, whether you put into the ground, or you
ship it to an oil field to reconstitute oil wells that are
depleted, or whatever you use it for, there is 30 percent less
emissions from that than the current fuels that are being used.
One of the things that really bothers me in this bill and
you praised it, is that by the fact that we would kind of pick
out of the air a number like 35 or 38--why didn't we pick 50
billion gallons or whatever--I think a realistic figure, and I
don't think the administration picked a realistic figure, and I
don't think this bill picks a realistic figure.
In fact, the Energy Information Administration forecasts 15
billion gallons of renewable fuel could be produced in the
United States by 2030. Do you think that the Energy Information
Administration is a reasonable agency or forecaster?
Mr. Karsner. They are my colleagues, of course. I think
they are reasonable people doing a very difficult job. You
know, if you go back to the EIA's prognosis 10 years ago about
what the state of biofuels would be in this country today, you
would unlikely find the numbers.
Senator Bunning. We didn't have the 2005 bill either.
Mr. Karsner. I'm sorry?
Senator Bunning. The 2005 bill was not passed.
Mr. Karsner. Exactly, and so without the appropriate policy
stimulus, you cannot expect the market to perform. EIA takes a
snapshot in time without this legislation or the President's
legislation being considered, and that is why we were saying, a
policy stimulus will make the market different and will
certainly impact EIA's forecast.
Senator Bunning. Then you agree that loan guarantees and
incentives in the tax code are absolutely necessary to achieve
the goal, not only in this bill but in your administration
bill?
Mr. Karsner. Loan guarantees--leveraging capital for
capital formation is indispensable to meeting these objectives.
Senator Bunning. That's one of the things I wanted to make
sure of. I'm a lot like Senator Thomas in wondering why this
bill would exclude any form of coal-to-liquids or for that
matter, some other technologies that are available. I think
unless we use the total portfolio of what we know and what we
anticipate learning, that we're not going to be able to make
the gap and get off the Mid-east oil importation that we want
to achieve over a period of 20 years.
Do you and the administration feel the same way?
Mr. Karsner. The administration agrees that it should be
the broadest possible use of all alternative technologies that
can displace gasoline for that objective.
Senator Bunning. Including different types of vehicles and
all the things that go with it?
Mr. Karsner. Yes, sir.
Senator Bunning. Thank you very much.
The Chairman. Thank you very much. I did not have
additional questions at this time.
Let me call on Senator Domenici for any additional
questions he has.
Senator Domenici. Mr. Chairman, I'll try to be brief here.
In your words, tell us specifically why you think the
implementation of loan guarantees is important to our Nation's
energy security.
Mr. Karsner. Thank you, Senator. I view title XVII as one
of the most elegant provisions of the Energy Policy Act of 2005
because it openly and with great simplicity offers the Nation
what we need: clean, domestic affordable supply. For that
supply to take hold--most of which emerges from our portfolio,
in terms of diverse sources--they are all capital cost-
intensive; that is heavy upfront cost with life cycle savings
that give them parity. To recognize the life cycle savings that
are intrinsic in renewable technologies, including cellulosic
bio-refineries, we have to have debt to cover the out-years and
leverage the capital.
Fundamentally, this Nation has less of a technological
challenge right now in terms of achieving our goals, and far
more of a capital formation challenge in developing the
marketplace to achieve these enormous goals. So we need to
pivot to have new commercial paradigms. Disruptive technology
requires disruptive policy and institutional and organizational
approaches. That is what the Loan Guarantee Program gives us.
Senator Domenici. Well, what I wanted to say to you, you
have just said in your own way, and I didn't have any idea that
you got it, but you did. If you read section 17 of the Energy
Policy Act, it's pretty obvious that somebody thought instead
of trying to enumerate every way to help leverage capital
during this transition, a great transitionary period, why don't
we just do what we did in this section, and say ``Make it all
available.'' That's what this says. It talks about loan
guarantees and it talks about all the kinds of U.S. Government
tools that are going to be available to the capital markets for
innovators to use during this very difficult time when there
should be plenty of capital leverage, because the price of the
product is so high. But there are other things that cause it to
go amiss and awry and we put these in its place. It is
extremely frustrating to come along and say, now we've got a
new one and we want to do this Bingaman and Domenici bill,
which is going to take another load off of us because of
gasoline use, and then to find everywhere we turn around, that
the thing we say is imperative for the application of capital
has got something wrong with it.
Now, even on ours, you found something wrong with it today.
I urge that we get that out of our way and we get something
that is final. Because if you still have problems with the loan
guarantee and we still have to go to conference, we don't know
where we're going to get language that's right. I think we
ought to use this bill to get the right language on the
subject. Would you agree with that?
Mr. Karsner. We would be happy to help you craft that.
Senator Domenici. If you'd help us and then we could all
say this is it, then all we are waiting for is to finish the
bill, which would lend an urgency to the bill, I would think.
Mr. Karsner. Yes, sir.
Senator Domenici. Mr. Chairman, I had another question but
I'm going to just hand it to him as part of the record and
he'll answer it. It will require a little more work than what
we've done now and I'll submit that now.
Thank you very much. Thank you, Mr. Secretary.
Mr. Karsner. Thank you, sir.
The Chairman. Thank you.
Senator Salazar.
Senator Salazar. Thank you very much, Senator Bingaman.
Secretary Karsner, let me ask you again this question about how
far you think we might be able to go with respect to the
renewable fuel standard? I think back to World War II and the
Manhattan Project, 4 years from the start to the finish of that
project. I think back to John Kennedy's speech on getting a man
to the moon within 10 years and doing it in less than 10 years.
I want us to be as aggressive and robust with our renewable
fuel standard as we possibly can be. I understand that there is
a real calculation that has gone on by staff and my colleagues,
including the chairman, to try to come up with what we consider
to be a realistic standard that is included in this bill, and I
do intend to support this bill.
But my question back again is: if we were to be as
absolutely bold as we could be, could we put this standard at a
higher number than it currently is? Could we, for example, get
the 35 billion gallons by 2017, if we were dependent only on
ethanol and cellulosic ethanol? Could we get to that level of
production by 2017?
Mr. Karsner. I believe we could get to that level of
displacement of gasoline. I'm not so certain that 100 percent
of it would be ethanol exclusively, but I do concur with your
premise that our ambitions will define our level of success.
Senator Salazar. On the coal-to-liquids issue that I raised
with you earlier: that's one of the issues of contention, I
think, that we're going to see as we move forward with this
debate. Is there a way, from your point of view, that we might
be able to separate the coal-to-liquids program from the
biofuels program that we are dealing with in this bill? To set
up goals with respect to coal-to-liquids production, that we
might incorporate into this legislation in the form of some
alternative fuel standard or some other way, and at the same
time, requiring standards in there that also deal with the
carbon emissions issues, which are obviously of concern to many
of our colleagues?
Mr. Karsner. Well, our position is not that it should be
added and separated, but that the focus shouldn't be on any one
specific technology's role but rather on all of the
technologies that Americans can throw at the problem of
gasoline consumption reduction. So of course, we favor the
inclusion of coal-to-liquid technology, which the taxpayer is
heavily investing in, carbon capture storage, IGCC clean coal
and low-carbon coal and of course, we would be open to a dialog
on how to make that best work in a sustainable way.
Senator Salazar. Okay. I know, Mr. Chairman, we have to
leave for this vote but let me just say, despite the
polarization that exists in this city and with the President
today, I think there are many issues that we can work on
together in a bipartisan way and one of those, obviously is
energy, which I think is one of the signature issues of the
21st century. I appreciate your leadership in helping us figure
out the best way to achieve a mutually agreeable goal here.
Mr. Karsner. Thank you, sir.
The Chairman. Thank you very much, Secretary Karsner, for
your testimony. I think it has been very useful and we will
adjourn now and go try and do this vote and return in 10 or 15
minutes for Panel Number 2. Thank you.
Mr. Karsner. Thank you, sir.
[Recess.]
The Chairman. Okay, why don't we get started again. Sorry
for the delay. They had various ceremonies on the Senate floor
that delayed us, but I thank the witnesses on this second panel
for waiting and being here today.
Let me just briefly introduce each of the witnesses, and
then we'll ask them to give us a summary of their testimony and
then we'll have some questions.
First is Bob Dinneen, who is the president and chief
executive officer of the Renewable Fuels Association. Next is
Daniel Lashof, who is the science director with the Climate
Center, the Natural Resources Defense Council. Also here is Red
Cavaney, who is president and chief executive officer for the
American Petroleum Institute, and Brian Foody who is the chief
executive officer with Iogen Corporation in Ottawa, Ontario,
Canada. Thank you very much, all of you, for being here and we
look forward to your testimony. Why don't we just go in the
order I introduced you? Then we will try to have some questions
after you're all finished testifying.
Mr. Dinneen, thanks for being here.
STATEMENT OF BOB DINNEEN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, RENEWABLE FUELS ASSOCIATION
Mr. Dinneen. Thank you, Mr. Chairman. Thank you, Senator
Domenici and Senator Salazar for your collective leadership on
renewable fuels and these issues. It is my pleasure to be able
to testify on behalf of the U.S. ethanol industry in support of
the Biofuels for Energy Security and Transportation Act, and I
can tell you it's not just because of the acronym that we
believe that this the best of the bills that have been
introduced on these issues over the past several months.
We think it strikes the right balance between incentivizing
cellulose while maintaining the growth market for grain ethanol
that has already occurred. And indeed, you really can't talk
about this bill without understanding what you all accomplished
with the Energy Policy Act of 2005, a terrific piece of
legislation that has absolutely worked. It has absolutely done
what you all intended it to do. It sent the refining industry
the message that the future included ethanol and biodiesel. It
sent a strong signal to the financial community to invest in
these new technologies and it certainly sent a clarion call to
the U.S. ethanol industry to expand, and expand we have.
Since August 2005, when President Bush signed the Energy
Policy Act, more than 15 ethanol plants have opened up, but a
number have broken ground, begun construction. Today there are
79 ethanol plants that are under construction. That's steel on
the ground, welders welding, the facilities going up that will
add 6 billion gallons of new capacity to the existing 115
ethanol plants that today have a capacity of 6 billion gallons
that are processing 2 billion bushels of grain, corn and
sorghum into high-value, high-octane fuel components.
The Energy Policy Act of 2005 stimulated the growth in this
industry that we're seeing today, and it has been terrific. The
fact of the matter is, since 2000, 30 percent of the increase
in gasoline consumption has been met with ethanol but if you
look at a shorter timeframe, last year, gasoline consumption
increased by essentially about a billion gallons a year. We
added more than a billion gallons just in ethanol production
capacity.
Today, ethanol is blended in 46 percent of the Nation's
fuel, literally coast-to-coast and border-to-border, and I have
to give great credit to the refineries, the gasoline marketers
across this country that have invested in infrastructure and
made certain that the renewable fuel standard has been
implemented successfully.
I take great pride in the fact that we've worked
extraordinarily well with our customers in the refining
industry to make sure that the renewable fuel standard--that
the regulatory language was actually just finalized yesterday,
but it's already been in place since January 2006 and it has
gone extremely well.
People thought it couldn't be done. People thought that
7\1/2\ billion gallons in 2005 was too big a number, that
there's no way the ethanol industry could build that fast, that
there's no way the infrastructure would expand to allow ethanol
to be shipped all across the country. What we've demonstrated
is, that was not too big a target. What we demonstrated is, the
marketplace was given an important signal and the marketplace
responds.
Indeed, 7\1/2\ billion gallons will be met likely some time
this summer, not in 2012. So I think, in answer to Senator
Salazar's question earlier, the goals that are being set in
this bill--35 billion gallons by 2022 are eminently achievable.
We believe that this bill can do for cellulosic ethanol what
EPAct did for grain-derived ethanol.
We realize that there are limits to how much ethanol we're
going to be able to produce from grain, and that is why every
single ethanol plant that I represent has a very aggressive
cellulose-to-ethanol research program underway today, and this
bill is going to allow that to move forward. By creating a
certain and aggressive market for cellulosic ethanol, you will
inspire the financial community to invest in cellulose with the
same enthusiasm that it has for grain. You will compel research
institutions to attack the remaining technical barriers to
cellulose with more urgency, and you will clearly provide an
important signal to our industry to move with greater speed
toward commercializing these newer technologies.
As important as the car route for cellulose is to ensure
production, it is equally important to ensure that there are
markets for that product. Thus, the RFA is very appreciative of
the focus of S. 987 on studying the potential for higher-level
blends, on creating incentives for E-85 corridors, and
researching the possibilities of optimizing E-85 technology.
S. 987 builds upon the success of EPAct. It builds upon
several legislative initiatives that have been introduced in
this Congress to expand the production and use of biofuels. It
is a thoughtful, constructive, comprehensive and achievable
piece of legislation. The RFA is proud to support it and we
look forward to working with you, Mr. Chairman and this
committee, to iron out the few technical issues that remain and
to move forward with this important piece of legislation. Thank
you.
[The prepared statement of Mr. Dinneen follows:]
Prepared Statement of Bob Dinneen, President and Chief Executive
Officer, Renewable Fuels Association
Good morning, Chairman Bingaman, Ranking Member Domenici, and
Members of the Committee. My name is Bob Dinneen and I am president and
CEO of the Renewable Fuels Association, the national trade association
representing the U.S. ethanol industry.
This is an important and timely hearing, and I am pleased to be
here to discuss the future of our nation's ethanol industry and how the
bipartisan Biofuels for Energy Security and Transportation Act of 2007
(S. 987) can help our country achieve its energy security goals.
Due to the visionary and invaluable work of this Committee in the
109th Congress, the Energy Policy Act of 2005 (EPAct 2005) put our
nation on a new path toward greater energy diversity and national
security through the RFS. EPAct 2005 has stimulated unprecedented
investment in the U.S. ethanol industry. Since January of 2006, when
the RFS went into effect, no fewer than 15 new ethanol biorefineries
have begun operation, representing some 1.2 billion gallons of new
production capacity. These new gallons represent a direct investment of
more than $1.8 billion and the creation of more than 22,000 new jobs in
small communities across rural America.
The RFS has done exactly what Congress intended. It provided our
industry with the opportunity to grow with confidence. It convinced the
petroleum industry that ethanol would be a significant part of future
motor fuel markets and moved them toward incorporating renewable fuels
into their future plans. It persuaded the financial community that
biofuels companies are growth market opportunities, encouraging
significant new investment from Wall Street and other institutional
investors. If a farmer in Des Moines doesn't want to invest in the
local co-op, he can choose to invest in a publicly traded ethanol
company through the stock market. As can a schoolteacher in Boston, or
a receptionist in Seattle. Americans coast-to-coast have the
opportunity to invest in our domestic energy industry, and not just in
ethanol, but biodiesel and bio-products.
In addition to the RFS, many of the other programs authorized by
EPAct 2005, such as the loan guarantee and grant programs, will
accelerate the commercialization of cellulosic ethanol and make the new
goals set forth in S. 987 absolutely achievable. Many of the provisions
included in S. 987 build upon the programs designed by this Committee
and included in EPAct 2005 to further expand the domestic renewable
fuels industry. The Senate Energy and Natural Resources Committee will
have an invaluable role to play in making sure our nation successfully
moves toward increasing the use of domestic, renewable energy sources.
background
Today's ethanol industry consists of 115 biorefineries located in
19 different states with the capacity to process almost 2 billion
bushels of grain into 5.7 billion gallons of high octane, clean burning
motor fuel, and more than 12 million metric tons of livestock and
poultry feed. It is a dynamic and growing industry that is revitalizing
rural America, reducing emissions in our nation's cities, and lowering
our dependence on imported petroleum.
Ethanol has become an essential component of the U.S. motor fuel
market. Today, ethanol is blended in more than 46% of the nation's
fuel, and is sold virtually from coast to coast and border to border.
The almost 5 billion gallons of ethanol produced and sold in the U.S.
last year contributed significantly to the nation's economic,
environmental and energy security. According to an analysis completed
for the RFA, \1\ the approximately 5 billion gallons of ethanol
produced in 2006 resulted in the following impacts:
---------------------------------------------------------------------------
\1\ Contribution of the Ethanol Industry to the Economy of the
United States, Dr. John Urbanchuk, Director, LECG, LLC, December, 2006.
Added $41.1 billion to gross output;
Created 160,231 jobs in all sectors of the economy;
Increased economic activity and new jobs from ethanol
increased household income by $6.7 billion, money that flows
directly into consumers' pockets;
Contributed $2.7 billion of tax revenue for the Federal
government and $2.3 billion for State and Local governments;
and,
Reduced oil imports by 170 million barrels of oil, valued at
$11.2 billion.
In addition to providing a growing and reliable domestic market for
American farmers, the ethanol industry also provides the opportunity
for farmers to enjoy some of the value added to their commodity by
further processing. Farmer-owned ethanol plants account for 43 percent
of the U.S. fuel ethanol plants and almost 34 percent of industry
capacity.
There are currently 79 biorefineries under construction. With seven
existing biorefineries expanding, the industry expects more than 6
billion gallons of new production capacity to be in operation by the
end of 2009. The following is our best estimate of when this new
production will come online.*
---------------------------------------------------------------------------
* Graphic has been retained in committee files.
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feedstocks
To date, the U.S. ethanol industry has grown almost exclusively
from grain processing. As a result of steadily increasing yields and
improving technology, the National Corn Growers Association (NCGA)
projects that by 2015, corn growers will produce 15 billion bushels of
grain. According to the NCGA analysis, this will allow a portion of
that crop to be processed into 15 billion gallons of ethanol without
significantly disrupting other markets for corn. Ethanol also
represents a growing market for other grains, such as grain sorghum.
Ethanol production consumed approximately 26 percent of the nation's
sorghum crop in 2006 (domestic use). Research is also underway on the
use of sweet and forage sorghum for ethanol production. In fact, the
National Sorghum Producers believe that as new generation ethanol
processes are studied and improved, sorghum's role will continue to
expand.
In the future, however, ethanol will be produced from other
feedstocks, such as cellulose. Ethanol from cellulose will dramatically
expand the types and amount of available material for ethanol
production, and ultimately dramatically expand ethanol supplies. Many
companies are working to commercialize cellulosic ethanol production.
Indeed, there is not an ethanol biorefinery in production today that
does not have a very aggressive cellulose ethanol research program. The
reason for this is that today's ethanol producers all have cellulose
already coming into the plant in the form of corn fiber. Producers are
making good use of all parts of the corn kernel--beyond just the
starch. Several ethanol producers are working on technology to turn the
fiber in a corn kernel into ethanol through fermentation. Since fiber
represents 11 percent of the kernel, this could lead to dramatic
increases in ethanol production efficiency. If today's producers can
process these cellulosic materials into ethanol, they will have a
significant marketplace advantage. The RFA believes cellulose ethanol
will be commercialized first by current producers who have these
cellulosic feedstocks at their grain-based facilities. It is essential
to the advancement of the ethanol industry that these ``bridge
technology'' cellulosic feedstocks be included in the definition of
advanced biofuels.
Further, biotechnology will play a significant role in meeting our
nation's future ethanol needs. Average yield per acre is not static and
will increase incrementally, especially with the introduction of new
biotech hybrid varieties. According to NCGA, corn yields have
consistently increased an average of about 3.5 bushels per year over
the last decade. Based on the 10-year historical trend, corn yield per
acre could reach 180 bushels by 2015. For comparison, the average yield
in 1970 was about 72 bushels per acre. Agricultural companies like
Monsanto believe we can achieve corn yields of up to 300 bushels per
acre by 2030. It is not necessary to limit the potential of any
feedstock--existing or prospective. Ultimately, the marketplace will
determine which feedstocks are the most economically and
environmentally feasible.
While there are indeed limits to what we will be able to produce
from grain, cellulose ethanol production will augment, not replace,
grain-based ethanol. The conversion of feedstocks like corn stover,
corn fiber and corn cobs will be the ``bridge technology'' that leads
the industry to the conversion of other cellulosic feedstocks and
energy crops such as wheat straw, switchgrass, and fast-growing trees.
Even the garbage, or municipal solid waste, Americans throw away today
will be a future source of ethanol.
research & development, deployment and commercialization of
new technologies
The ethanol industry today is on the cutting edge of technology,
pursuing new processes, new energy sources and new feedstocks that will
make tomorrow's ethanol industry unrecognizable from today's. Ethanol
companies are already utilizing cold starch fermentation, corn
fractionation, and corn oil extraction. Companies are pursuing more
sustainable energy sources, including biomass gasification and methane
digesters. And, as stated, there is not an ethanol company represented
by the RFA that does not have a cellulose-to-ethanol research program.
These cutting edge technologies are reducing energy consumption and
production costs, increasing biorefinery efficiency, improving the
protein content of feed co-products, utilizing new feedstocks such as
cellulose, and reducing emissions by employing best available control
technologies.
The technology exists to process ethanol from cellulose feedstocks;
however, commercialization of cellulosic ethanol remains a question of
economics. The capital investment necessary to build cellulosic ethanol
facilities remain about five times that of grain-based facilities.
Those costs will, of course, come down once the first handful of
cellulosic facilities are built, the bugs in those ``first mover''
facilities are worked out, and the technology continues to advance. The
enzymes involved in the cellulosic ethanol process remain a significant
cost, as well. While there has been a tremendous amount of progress
over the past few years to bring the cost of those enzymes down, it is
still a significant cost relative to processing grain-based ethanol.
To continue this technological revolution, however, continued
government support will be critically important. The biomass,
bioresearch, and biorefinery development programs included in S. 987
will be essential to developing these new technologies and bringing
them to commercialization. Competitively awarded grants and loan
guarantees that build upon the existing programs authorized in EPAct
2005 and enhanced in S. 987 will allow technologically promising
cellulosic ethanol projects move the industry forward become a reality.
infrastructure
Ethanol today is largely a blend component with gasoline, adding
octane, displacing toxics and helping refiners meet Clean Air Act
specifications. But the time when ethanol will saturate the blend
market is on the horizon, and the industry is looking forward to new
market opportunities. As rapidly as ethanol production is expanding, it
is possible the industry will saturate the existing blend market before
a meaningful E-85 market develops. In such a case, it would be most
beneficial to allow refiners to blend ethanol in greater volumes, e.g.,
15 or 20 percent. The ethanol industry today is engaged in testing on
higher blend levels of ethanol, beyond E-10. There is evidence to
suggest that today's vehicle fleet could use higher blends. An initial
round of testing is underway, and more test programs will be needed. A
study of increased blend levels of ethanol, included in S. 987, will be
an essential and necessary step to moving to higher blend levels with
our current vehicle fleet. Higher blend levels would have a significant
positive impact on the U.S. ethanol market, without needing to install
new fuel pumps and wait for a vehicle fleet to turn over in the next
few decades. It would also allow for a smoother transition to E-85 by
growing the infrastructure more steadily.
Enhancing incentives to gasoline marketers to install E-85
refueling pumps will continue to be essential. There are now more than
1,000 E-85 refueling stations across the country, more than doubling in
number since the passage of EPAct 2005. The RFA also supports the
concept of regional ``corridors'' that concentrate the E-85 markets
first where the infrastructure already exists, which is reflected in S.
987 in the infrastructure pilot program for renewable fuels.
Over the past several years, the ethanol industry has worked to
expand a ``Virtual Pipeline'' through aggressive use of the rail
system, barge and truck traffic. As a result, we can move product
quickly to those areas where it is needed. Many ethanol plants have the
capability to load unit trains of ethanol for shipment to ethanol
terminals in key markets. Unit trains are quickly becoming the norm,
not the exception, which was not the case just a few years ago.
Railroad companies are working with our industry to develop
infrastructure to meet future demand for ethanol. We are also working
closely with terminal operators and refiners to identify ethanol
storage facilities and install blending equipment. We will continue to
grow the necessary infrastructure to make sure that in any market we
need to ship ethanol there is rail access at gasoline terminals, and
that those terminals are able to take unit trains. Looking to the
future, studying the feasibility of transporting ethanol by pipeline
from the Midwest to the East and West coasts, as proposed in S. 987,
will be critical.
As flexible fuel vehicle (FFV) production is ramped up, it is
important to encourage the use of the most efficient technologies. Some
FFVs today experience a reduction in mileage when ethanol is used
because of the differences in BTU content compared to gasoline. But the
debit can be easily addressed through continued research and
development. For example, General Motors has introduced a turbo-charged
SAAB that experiences no reduction in fuel efficiency when E-85 is
used. There is also technology being development that utilizes
``variable compression ratio engines'' that would adjust the
compression ratio depending on the fuel used. Thus, if the car's
computer system recognized E-85 was being used, it would adjust the
compression ratio to take full advantage of ethanol's properties. RFA
supports the further study of how best to optimize technologies of
alternative fueled vehicles to use E-85 fuel as included in S. 987. The
study of new technologies could dramatically improve E-85 economics by
eliminating or substantially reducing the mileage penalty associated
with existing FFV technology.
conclusion
The continued commitment of the 110th Congress, this Committee, and
the introduction of legislation such as S. 987 will all contribute to
ensuring America's future energy security. Chairman Bingaman and
Ranking Member Domenici, you have made clear your commitment to the
hardworking men and woman across America who are today's newest energy
producers.
There have been numerous bill introduced in the first few months of
the 110th Congress to further expand the rapidly growing domestic
biofuels industry that will soon eclipse the current RFS. Many of the
sound provisions included in those bills to move the industry forward
and create new market opportunities for biofuels are incorporated in S.
987. With minimal modifications, S. 987 strikes the right balance
between incentivizing cellulosic ethanol technologies, developing the
necessary infrastructure, moving beyond existing blend markets for
ethanol, and capitalizing on the momentum created by EPAct 2005. The
RFA looks forward to working with you to further develop this important
legislation.
Thank you.
The Chairman. Thank you very much. Before we go on to Mr.
Lashof, I think Senator Domenici wanted to make a statement.
He's going to have to leave. Why don't you go right ahead?
Senator Domenici. Thank you, Mr. Chairman. I'm hoping that
the Senator from Tennessee can spend some time here in my
stead. Can you do that?
Senator Corker. For a little while, yes, sir.
Senator Domenici. For a little while? Thank you. I just
want to say to all the witnesses, we will thoroughly analyze
your statements and also any questions that are asked of you
and any questions that I have, I will just submit in writing.
I would say to you, Red, representing the Independent
Petroleum people, I do hope you are not looking on this bill
unfavorably, because I believe it is good for everybody,
including the independent producers that I represent in one way
and you represent in another way. I just hope that we can work
together and get this done as soon as possible.
Thank you, Senator Bingaman.
The Chairman. Thank you very much. Mr. Lashof, thank you
very much for being here.
STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, CLIMATE
CENTER, NATURAL RESOURCES DEFENSE COUNCIL
Mr. Lashof. This is actually my third opportunity to
testify before this committee this year, which I'm told will
set some kind of record. I don't know if you keep asking me
back because you appreciate my testimony or you hope with
enough practice, I'll get it right. But in any case, I do
appreciate the opportunity.
As you know and as you have exercised a lot of leadership,
U.S. energy policy must address three major challenges:
reducing America's dangerous dependence on oil, first; reducing
global warming and pollution, second; and, providing affordable
energy services that sustain a robust economy, third--not in
order of priority. All three must be addressed together.
Biofuels has the potential to contribute significantly to
all three of these goals. Sustainably-produced biofuels,
processed efficiently and used in efficient vehicles, can
reduce our dependence on oil for transportation, reduce
emissions of heat-trapping pollution, and contribute
significantly to a vibrant farm economy.
Pursued without adequate safeguards and incentives,
however, biofuels production does carry grave risks for our
lands, forests, water, wildlife, public health, and climate.
And while S. 987 addresses some of these concerns, in its
current form, I don't believe that it does have the adequate
standards and incentives that are needed to ensure that
biofuels are part of the solution rather than part of the
problem.
As introduced, the bill distinguishes between conventional
biofuels defined as corn kernels and advanced biofuels
basically defined as anything else. It would limit a portion of
the overall renewable fuel standard that could be satisfied
with corn to 15 billion gallons. Certainly, I think that's
helpful because it ensures the diversification of our
feedstocks for producing biofuels, but it really is not an
adequate substitute for an explicit greenhouse gas performance
standard and sustainable feedstock sourcing requirements.
The reason is that the choice of feedstock is just one of
many factors that really needs to be considered in evaluating
the environmental impact of biofuels on production. Additional
factors include one: the carbon emissions from converting land
from other uses to feedstock production; two, the tillage
method that is used; three, the energy used for irrigation;
four, the fertilizer application rate; five, the source of
thermal energy used and the electricity at the bio-refinery;
six, the overall efficiency of the bio-refinery; and seven,
whether the CO2 produced from fermentation is
sequestered underground or put into the atmosphere.
When you consider all of these factors together, it's
possible to produce corn ethanol that has a very substantial
greenhouse gas benefit or one that has no benefit at all and
similarly, it's possible for cellulosic ethanol to have very
substantial greenhouse gas benefit or actually make emissions
worse.
If we could put that chart--that shows some of this, and
I'll refer to it in a minute. Let me give you an example. If
you consider a dry mill ethanol plant that is using corn
produced with no-till cultivation, and it uses corn for its
thermal energy rather than fossil fuels, and finally that takes
the CO2 that is produced as a pure stream from
fermentation and injects that underground for sequestration,
using the Argonne National Laboratory GREET Model, which is the
same model that was used by EPA in their Fact Sheet--we
estimate that the life cycle of greenhouse gas emissions from
ethanol produced from such a plant would be 7.5 pounds per
gallon of gasoline-equivalent produced.
That's about 70 percent lower than gasoline. So that's--
starting with corn, it's possible to achieve 70 percent
reductions, while the average for run-of-the-mill plants is
somewhere around 15 to 20 percent, maybe 25 depending on what
study you get. So there is a huge variation depending on the
specifics of how it's produced.
Now, if you consider a cellulosic ethanol plant as an
alternative, cellulosic ethanol generally is assumed to produce
much greater environmental benefits and the potential for that
is certainly there. But it's not necessarily the case. For
example, if the biomass that's used in the cellulosic ethanol
plant comes from converting forests that have been grown on
Conversation Reserve Program lands to go into energy crop
production, then by clearing those forests, you're going to put
the CO2--the carbon that was accumulated in those
forests, say over a 15-year contract life--that's going to go
back into the atmosphere very quickly. You're losing the future
potential for those forests to take additional carbon out of
the atmosphere, and when you take that into account, even
though the cellulosic ethanol itself is producing a climate
benefit, it would take many, many years to make up for the
carbon losses that would occur by converting those forest lands
to mass production.
So to me, that means that we really need to include
explicit standards for life cycle greenhouse gas emissions in
any legislation, that would mandate a substantial increase in
biofuels, both beyond where the current renewable fuel standard
does.
Specifically, I'd suggest that for conventional biofuels,
at least a 15 percent improvement relative to gasoline. That's
certainly achievable. With corn technology today, it's being
done with new plants that are being built all the time, and
it's about what the average for the industry as a whole is
doing.
For advanced biofuels, I think we can do much better, at
least a 50 percent reduction in greenhouse gas emissions
compared with gasoline, and I think we really need to build
incentives into the bill to meet and achieve those standards.
Second, it's really important for the biomass used for
biofuels to be produced from--in a sustainable way and not from
environmentally-sensitive lands.
Third, we need to ensure that the conservation of wetland
reserve programs supported by the farm bill continue to be
managed primarily for those conservation benefits, and not
converted just to energy production and losing those benefits.
Fourth, I believe that there should be certification
standards and incentives established as part of the overall
program to promote best management practices for biomass
production on private lands. It should address protection of
wildlife habitat, prevention of erosion, conservation of soil
and water resources, nutrient management, and selection of
appropriate species as well as biologically-integrated pest
management.
Finally, if I could just close with a few comments on
implementation of the renewable fuel standard. Earlier this
week as you know, the Environmental Protection Agency issued
its final rules to implement the RFS that was passed in the
2005 Energy Policy Act. Congress appropriately assigned the
responsibility to implement the RFS to EPA in the 2005 Act
because EPA has the authority to regulate transportation fuels
under the Clean Air Act, and has the mission to ensure that
this is implemented in a way that protects air quality. I
believe that any expansion of the renewable fuel standard
should also be given to EPA to implement. They can do that by
building on the renewable identification number system that
they establish to implement the existing renewable fuels
standard. EPA has already done a lot of staff work to look at
how that could be expanded to incorporate life cycle greenhouse
gas analysis, to implement a bill of that kind.
So I do urge this committee to work with your colleagues in
the Environmental and Public Works Committee to bring
legislation to the Senate that incorporates appropriate
safeguards and implementation provisions to move us forward on
biofuels.
I do believe that biofuels----
The Chairman. Could you try to summarize the remainder of
your comments?
Mr. Lashof. I'm concluding that biofuels holds great
promise for reducing global warming, pollution and breaking our
dangerous oil addiction, as well as revitalizing rural
economies as long as appropriate standards and incentives are
used to shape the Nation's bio-energy industry to provide those
benefits with a sound and truly sustainable framework. I look
forward to working with you and members of the committee to
achieve those goals. Thank you.
[The prepared statement of Mr. Lashof follows:]
Prepared Statement of Daniel A. Lashof, Science Director, Climate
Center, Natural Resources Defense Council
introduction
Thank you for the opportunity to share my views regarding S. 987,
the Biofuels for Energy Security and Transportation Act of 2007. My
name is Daniel A. Lashof, and I am the science director of the Climate
Center at the Natural Resources Defense Council (NRDC). NRDC is a
national, nonprofit organization of scientists, lawyers and
environmental specialists dedicated to protecting public health and the
environment. Founded in 1970, NRDC has more than 1.2 million members
and online activists nationwide, served from offices in New York,
Washington, Los Angeles and San Francisco.
Mr. Chairman, as you know, U.S. energy policy must address three
major challenges: reducing America's dangerous dependence on oil,
reducing global warming pollution, and providing affordable energy
services that sustain a robust economy. Biofuels have the potential to
contribute significantly to all three of these goals. Sustainably-
produced biomass feedstocks, processed efficiently and used in
efficient vehicles can reduce our dependence on oil for transportation,
reduce emissions of heat-trapping carbon dioxide, and contribute
significantly to a vibrant farm economy. Pursued without adequate
guidelines, however, biofuels production carries grave risk to our
lands, forests, water, wildlife, public health and climate. While S.
987 addresses some of these concerns, in its current form it does not
have adequate standards and incentives to ensure that biofuels are part
of the solution, rather than part of the problem.
Accelerated corn cultivation for ethanol, for example, threatens to
deplete water tables, magnify contamination by fertilizers, pesticides,
and herbicides, and undermine vital conservation programs such as the
Farm Bill's Conservation Reserve Program. On farms and in forests
across the country and abroad, imprudent biomass harvesting would cause
soil erosion, water pollution, and habitat destruction, while also
substantially reducing the carbon sequestered on land. Advancing a
biofuels policy that increases lifecycle greenhouse gas emissions would
be a particularly perverse result for a policy that is intended, at
least in part, to reduce global warming pollution.
the need for performance standards
As introduced, S. 987 distinguishes between ``conventional
biofuel,'' defined as ethanol derived from corn kernels, and ``advanced
biofuels,'' which is essentially fuel derived from any other form of
biomass, other than old growth forests. The bill would limit the
portion of the overall renewable fuels standard that can be satisfied
with conventional biofuels to 15 billion gallons. Structuring the
standard in this way to ensure the diversification of feedstocks used
for biofuels production is very helpful, but is not an adequate
substitute for explicit greenhouse gas performance standards and
sustainable feedstock sourcing requirements.
In structuring an effective biofuels policy it is important to
recognize that the choice of feedstocks is just one of many factors
that influence the environmental impacts of biofuels production. Key
factors to consider in addition to feedstock type are carbon emissions
from converting land from other uses to feedstock production, tillage
method, energy use for irrigation, fertilizer application rate, the
source of thermal energy and electricity at the biorefinery, the
overall efficiency of the biorefinery, and whether CO2
produced during fermentation is sequestered or released into the
atmosphere. Considering all of these factors it is possible to produce
ethanol derived from corn in a way that produces less than half of the
lifecycle greenhouse gas emissions of gasoline (per BTU of delivered
fuel). Conversely it is possible to produce ethanol from cellulosic
feedstocks in a manner that produces far more CO2 than
gasoline.
First consider a dry mill corn ethanol plant. Greenhouse gas
emissions from corn production can be minimized by obtaining the corn
from a farm that practices no-till cultivation. In addition, by
collecting a portion of the corn stover along with the grain the
ethanol plant can meet its thermal energy needs with this biomass
energy source rather than fossil fuels. Finally, fermentation produces
carbon dioxide in a pure stream that can be easily captured for
geologic sequestration. Using Argonne National Laboratory's GREET
model, we estimate that the lifecycle greenhouse gas emissions from
ethanol produced at such a plant would be 7.5 pounds per gasoline
gallon equivalent, or more than 70% lower than gasoline. NRDC has
examined the greenhouse gas emissions from a wide variety of feedstock
and conversion process combinations using the Argonne GREET model (see
Figure 1* and Appendix). EPA conducted a similar analysis for a fact
sheet released in conjunction with its final rule for implementing the
Renewable Fuels Standard enacted in EPACT 2005.\1\ EPA's results are
shown in Figure 2* and are very similar to ours (note that EPA displays
results relative to conventional gasoline, which is set to zero on
their chart.)
---------------------------------------------------------------------------
* Graphics have been retained in committee files.
\1\ http://www.epa.gov/otaq/renewablefuels/420f07035.htm.
---------------------------------------------------------------------------
Now consider a cellulosic ethanol plant. While such plants are
often considered to be environmentally superior to corn ethanol plants,
this is not necessarily the case, depending on how the cellulosic
feedstock is produced. For example, if the biomass for the cellulosic
ethanol plant is obtained by converting to biomass production land that
had been enrolled in the conservation reserve program (CRP), then the
forgone conservation benefits and carbon benefits must be accounted
for. The CRP has enrolled more than 1 million acres in forest cover,
including hardwoods, longleaf pine, and other softwoods. While these
are secondary, rather than old growth, forests, they nonetheless
provide important ecological services and sequester a substantial
amount of carbon. Converting such lands to biofuels production would
not only rapidly return to the atmosphere the carbon sequestered since
the trees were planted, but would also forgo future carbon
sequestration on this land. The net result would be CO2
emissions to the atmosphere many times greater than the annual
greenhouse gas benefits from cellulosic ethanol production on this
land.
Land conversion need not be this direct to undermine the
environmental benefits of biofuel production. Devoting an increased
share of U.S. agricultural output to fuel production rather than grain
exports will result in increased demand for animal feed from sources
abroad. If any significant portion of this additional feed is obtained
by converting mature forests into pasture or cropland the
CO2 emissions from this land use change could greatly exceed
the emission reductions from the use of biofuels.
biofuels environmental performance principles
Fortunately, the benefits of biofuels can be realized, and the
potential pitfalls avoided, through carefully crafted policy. Here I
outline key principles that should be incorporated into S. 987 through
a combination of more robust limitations on what qualifies as a
renewable fuel and incentives to promote voluntary management practices
that protect ecological values. These principles were endorsed by
twelve leading environmental organizations in a letter sent to Congress
on March 27th.
The Use of Bioenergy Must Reduce Greenhouse Gas Emissions
To assure benefits, new incentives and requirements for increased
use of biofuels need to be tied to significant reductions in the
greenhouse gas intensity of these fuels. As discussed above, this
requires explicit greenhouse gas performance standards rather than an
implicit assumption that certain feedstocks will produce greater
benefits than others. I suggest that conventional biofuels be required
to achieve at least a 15% reduction in lifecycle greenhouse gas
emissions compared to conventional gasoline. This level of performance
can easily be achieved with efficient corn ethanol plants as shown in
Figure 1. Advanced biofuels should achieve at least a 50% reduction in
lifecycle greenhouse gas emissions, which can be accomplished through
several different feedstock and conversion process combinations. In
addition to these minimum requirements, incentives for continuous
improvement should also be established by requiring progressive
reductions in the average greenhouse gas emissions of all
transportation fuels.
Biomass Used for Bioenergy Has To Be Renewable
Biomass must be regrown on site, recapturing its released carbon,
so that it is genuinely sustainable--unless it is the by-product of
activity with independent, over-riding social utility (like removal of
vegetation immediately around wildland-interface homes). Greenhouse gas
emissions from land-use change associated with biofuels production,
both directly and indirectly, must be accounted for to ensure that
biofuels are genuinely renewable and produce net environmental
benefits. If wastes are used, care must be taken to prevent combustion
of any toxic materials, such as pressure treated or painted wood
products. In addition, material such as post-consumer waste paper
should be recycled rather than converted to fuel in order to reduce the
pressure on forests for virgin fibers.
Bioenergy Feedstocks Must not Be Grown on Environmentally Sensitive
Lands
The exclusion of biomass from old growth forests in S. 987 is a
start, but this exclusion should be expanded to cover wilderness study
areas; roadless areas on national forests; native grasslands; important
wildlife habitat; ecosystems that are intact, rare, high in species
richness or endemism, or exhibit rare ecological phenomena.
Conversion of Natural Ecosystems Must Be Avoided
Habitat loss from the conversion of natural ecosystems represents
the primary driving force in the loss of biological diversity
worldwide. Activities to be avoided include those that alter the native
habitat to such an extent that it no longer supports most
characteristic native species and ecological processes.
Exemptions and Waivers From Environmental Rules Must not Be Used To
Promote Biomass Production or Utilization
Trading one serious environmental harm for another is poor policy.
Our environmental laws and regulations act as a fundamental system of
checks and balances to guard against just such collateral damage and
the promotion of bioenergy production and utilization must in no way be
exempted.
Conservation and Wetland Reserve Programs Supported by the Farm Bill
Must Be Managed for Their Conservation Benefits
These programs protect marginal lands, water quality, soil, and
wildlife habitat. Enrolled lands need to be managed principally for
these important values, not bioenergy feedstocks.
Independent Certification, Market Incentives, and Minimum Performance
Requirements Are Necessary To Ensure That Bioenergy Feedstocks
Are Produced Using Sustainable Practices
Certification standards for biomass from private lands must address
key environmental and social objectives, such as protection of wildlife
habitat, prevention of erosion, conservation of soil and water
resources, nutrient management, selection of appropriate feedstock
species, and biologically-integrated pest management. New policies are
needed to ensure that producers, refiners and distributors adhere to
minimum performance requirements and have incentives to maximize
environmental performance at each step.
Stringent Safeguards Must Be Established for Bioenergy Production From
Feedstock Derived From Federal Land
Federal lands, including wildlife refuges, BLM lands, national
forests and grasslands, are held subject to the public's interest in
their non-commodity values. They are not appropriate for large-scale,
sustained biomass sourcing.
implementing a renewable fuels standard
Earlier this week EPA issued its final rules to implement the
renewable fuels standard (RFS) enacted as part of the 2005 Energy
Policy Act. Congress appropriately assigned this responsibility to EPA
as it has the authority to regulate transportation fuels under the
Clean Air Act as well as experience with implementing credit trading
programs. Any expansion of the RFS should similarly be implemented by
EPA and should be on the system of Renewable Identification Numbers
(RINs) established by EPA to implement the existing program.
EPA has also already explored how the RIN system could be expanded
to track environmental practices in biofuel feedstock production as
well as lifecycle greenhouse emissions. While some may argue that there
is insufficient information available to implement a program based on
lifecycle greenhouse gas emissions this is not the case. Statewide data
on average yields, energy and fertilizer use for different crops can be
combined with specific information for individual biorefineries to
arrive at reasonable estimates of lifecycle greenhouse gas emissions
for each batch of biofuels. Indeed, although the administration
ultimately rejected it, EPA proposed to use lifecycle greenhouse gas
emissions as the equivalency factor for different biofuels under the
RFS as well as in a labeling program. Hence EPA has already done most
of the policy and methodological development needed to implement an
expanded RFS that includes greenhouse gas performance standards and
incentives for management practices that protect ecological values.
An expanded RFS should also be updated to accommodate renewable
electricity used for transportation in emerging vehicles, such as Plug-
in Hybrid Electric Vehicles (PHEVs). This can be accomplished by
allowing electricity providers to opt into the program as fuel
providers as long as they use smart meters to track separately
renewable electricity supplied for transportation purposes. With the
emergence of PHEVs and other electric vehicles, renewable electricity
can be an important additional option to augment renewable biofuels to
supply non-petroleum, low greenhouse gas fuels for transportation.
conclusion
Biofuels holds great promise as a tool for reducing global warming
pollution, breaking our dangerous oil addiction, and revitalizing rural
economies, as long as appropriate standards and incentives are used to
shape the nascent bioenergy industry to provide these benefits in a
sound and truly sustainable fashion. I look forward to working with the
Committee to improve S. 987 to accomplish this important goal.
The Chairman. Thank you very much. Mr. Cavaney, thank you
for being here.
STATEMENT OF RED CAVANEY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN PETROLEUM INSTITUTE
Mr. Cavaney. Thank you, Chairman Bingaman, Senators Craig
and Corker. API welcomes this opportunity to present the views
of the U.S. oil and natural gas industry on renewable fuels and
S. 987. API supports a realistic and workable renewable fuels
standard. Our industry is the Nation's largest user of ethanol
and is increasing the volume of renewable fuels in America's
transportation fuels portfolio.
The industry significantly exceeded the 2006 RFS
requirement of 4 billion gallons of renewables and according to
EIA estimates, should exceed the 2007 requirement as well.
The existing RFS requirements have attracted substantial
and significant investment capital to increase ethanol
production. At the same time, innovative new approaches to
producing and utilizing biofuels in the transportation arena
are underway. Presently, the most economical and practical use
of ethanol is as a 10 percent blend in gasoline. E-10 is
already used in many parts of the country, as Bob Dinneen
mentioned. It requires no modifications to vehicles, no major
changes to service station pumps and storage tanks and has a
long history of successful use by consumers.
E-85, a transportation fuel containing 85 percent ethanol
and 15 percent gasoline, is an alternative fuel that faces
significant technological and economic hurdles. E-85 requires
specially-built, flexible fuel vehicles, which currently
comprise only 3 percent of our Nation's existing fleet of 220
million vehicles. The EIA estimates that the FFV penetration
will not rise above 10 percent until some time after 2030. E-85
also requires special service station pumps and storage tanks,
which represent a significant expenditure to our Nation's
independent service station dealers that can represent anywhere
from $20,000 to upwards of $200,000. Most service station
owners will need to see significant demand before making such
investments.
Although no one knows the precise ceiling number, at some
point in the not-too-distant future, limits on domestic corn
ethanol production will be reached. Too little attention is
being paid to the transition from that point forward,
especially impacts associated with the delay in mass scale
production of cellulosic ethanol volume.
The Energy Policy Act of 2005 contains language potentially
adaptable to such a circumstance, around which stakeholders may
want to begin discussions in the near future. The consequences
of a failure to be adequately prepared for such a development
could adversely impact millions of Americans, and given the
limited likelihood that cellulosic technologies could begin
providing sizable volumes of ethanol within 5 years, it is
likely that safety valves, will in fact, be needed.
API offers these specific comments on S. 987: First,
restrictions on Federal requirements in EPAct should continue.
A Federal alternative or renewable fuels mandate should not
have a per-gallon requirement and not require any particular
alternative fuel to be used to meet a mandate; not require an
alternative fuel to be used in any particular geographic area;
and not require an alternative fuel to be made from a
particular feedstocks or restrict the use of any feedstock or
processing scheme.
Second, States and their political subdivisions should be
pre-empted from setting State, alternative, or renewable fuel
mandates. There should be an explicit, complete Federal
preemption from setting alternative fuel standards or controls
of any type or in lieu of an explicit exemption, restrictions
on State latitudes should be enacted.
Third, EPA should be provided with additional authority to
grant waivers during supply emergencies. There should be a
Federal preemption of existing State fuel and AFPM performance
regulations when a waiver is issued during a supply emergency,
such as Hurricanes Katrina and Rita. Emergency waiver authority
should be for up to 90 days. A 20-day limit per waiver that is
provided in EPAct is adequate for most situations, but proved
inadequate during Hurricanes Katrina and Rita, and waiver
authority should remain with the EPA Administrator. To change
authority through the President will prevent speedy
implementation, which was intended under EPAct.
Last, all mandates for renewable fuel usage should be
accompanied by a periodic technology feasibility review that
would allow for appropriate adjustments to ensure that energy
companies and consumers alike are not penalized due to an
economic or technical hurdle that might prevent reaching
alternative or biofuels usage, targets, or goals that had been
set. We recognize that S. 987 provides for a National Academy
of Sciences review to address that matter and we appreciate
that attention.
API and its member companies stand ready to work with the
committee to provide additional information or assistance as
needed on both items I've covered, as well as anything else
that may develop during the course of committee deliberations.
Thank you.
[The prepared statement of Mr. Cavaney follows:]
Prepared Statement of Red Cavaney, President and Chief Executive
Officer, American Petroleum Institute
I am Red Cavaney, President and CEO of API, the national trade
association of the U.S. oil and natural gas industry. API represents
more than 400 companies involved in all aspects of the oil and natural
gas industry, including exploration and production, refining, marketing
and transportation, as well as the service companies that support our
industry.
API welcomes this opportunity to present our industry's views on
renewable fuels and S. 987, the proposed Biofuels for Energy Security
and Transportation Act of 2007.
For centuries, energy and food have been the engines that have
given rise to mankind's ascendancy from poverty, particularly in the
developing world. To give a family food, warmth, mobility, and a job is
to progress toward a more stable world and to nurture an improving
standard of living for every man, woman and child.
The International Energy Agency forecasts that world-wide energy
demand will increase by 50 percent between now and 2030. For those of
us steeped in the energy business for well over a century, one stark
conclusion flowing from this forecast stands out--our world, and our
nation, will need all commercially viable energy sources for decades
into the future, including both fossil and alternative energy sources.
Our companies have long been pioneers in developing alternatives
and expanding our utilization of existing sources of energy. From 2000
to 2005, the U.S. oil and natural gas industry invested an estimated
$98 billion in emerging energy technologies, including renewables,
frontier hydrocarbons such as shale, tar sands, and gas-to-liquids
technology. This represents almost 75 percent of the total $135 billion
spent on emerging technologies by all U.S. companies and the federal
government. Our companies are actively investing in second generation
biofuels research in cellulosic ethanol and biobutanol and weekly we
hear of new and exciting approaches to growing and utilizing biomass in
the motor fuels markets.
Given this huge global appetite for energy, energy security, not
``energy independence,'' should be our nation's energy framework going
forward. Today, the U.S. oil and natural gas industry provides two-
thirds of all the energy consumed each year by our nation. However, we
import more than 60 percent of our oil in order to meet consumer
demand.
The United States must do everything it can to access a diversity
of resources around the world. ``Energy independence'' would be at odds
with this objective. For all the talk of the need to wean ourselves
from Arabian Gulf oil, the fact is the amount of Arabian Gulf oil
imported has been substantially unchanged for years. Our real supply
security depends on international trade. Our Arabian Gulf partners
provide important supply--but they are only one source, representing
less than 20 percent of the whole.
As we take steps to meet the energy needs of future generations, we
must focus on three areas: meeting growing demand, improving energy
efficiency and environmental performance, and developing new energy
technologies.
First, we must continue to meet our nation's growing energy
needs through diverse sources of oil and natural gas supplies
both here and around the world, while alternative and renewable
sources continue their rapid rates of growth;
Second, American industry must continue to increase its
energy efficiency and the American public should be encouraged
to become more energy efficient; and
Third, we must develop new technologies to find and produce
increased oil and natural gas supplies, improve energy
efficiency, and develop new economic sources of renewable
energy.
The current Renewable Fuels Standard (RFS) has stimulated
substantial investments to grow biofuels supplies, particularly
ethanol, beyond that required to satisfy the RFS. In addition, research
into advanced production methods and alternative fuels is underway. The
existing RFS has done its job well in stimulating the ethanol industry.
Last year, our industry utilized 25 percent more than the target amount
of ethanol established under the RFS. Additionally, nearly 50 percent
of all gasoline consumed in the U.S. now includes ethanol.
Thanks to the almost seamless transition of huge amounts of ethanol
into our nation's gasoline pool, ethanol is gaining broader consumer
acceptance. From our experience, we know that customer acceptance is
the single most important factor in the success of a product,
especially a transportation fuel. It is ever more essential that we
maintain and build the consumer acceptance of ethanol.
In assessing policy options to further increase alternative fuels
usage, the following should be considered:
Reliance on market forces is the best way to satisfy our
growing fuel requirements to ensure reliable supply and deliver
the greatest value to consumers. Policies should be
performance-based and provide a level playing field for all
energy options, including renewable/alternative fuels, without
favoring one specific technology over another or creating
unsustainable or uneconomic solutions. They should be feedstock
neutral;
Government should not over-promise on the potential for
renewables to reduce petroleum demand. Overestimates create
unrealistic expectations, poor policy and wasted resources;
Government policy should strive to encourage sustainable and
competitive second generation technologies;
The most economic and practical use of ethanol is E-10,
which should be maximized before considering higher ethanol
blends. E-10 requires no modifications to vehicles, no major
changes to service station fueling equipment and tankage, and
has a lengthy history of successful fuel use by consumers.
Consumers will likely be unhappy with the mileage penalty of E-
85;
The existing infrastructure/distribution system should
continue to grow and be utilized to the extent practicable. The
industry was stretched last year in maximizing ethanol
integration into the national gasoline pool, due in part to a
tight wholesale delivery infrastructure, that is, additional
terminals and blending facilities for ethanol, rail cars and
rail spurs. The growth in infrastructure must keep pace with
consumer demand. Greater cooperative work involving
infrastructure among all stakeholders will benefit the
consumer;
Wide-spread use of E-85, however, would require that the
major technological and economic hurdles of cellulosic ethanol
conversion first be overcome. Even with breakthroughs in
cellulosic ethanol production technology, significant
logistical hurdles will need to be addressed. Gathering the
feedstock (biomass such as forestry waste and switch grass),
processing it, disposing of ``waste'' products, and delivering
ethanol to markets at a cost comparable to gasoline has yet to
be demonstrated on a commercial-scale;
E-85 use is also constrained by a number of additional
factors. Corn-based ethanol is not sustainable at levels that
would support widespread use of E-85. Moreover, E-85 requires
flexible-fuel vehicles which currently comprise only 3 percent
of the existing vehicle fleet. EIA estimates that flexible fuel
vehicle (FFV) penetration of the vehicle fleet will not rise
above 10 percent until sometime after 2030. Even in 2030, new
owners of FFVs, like many of the current owners, might fill up
with E-10 rather than E-85. Moreover, E-85 also requires
special service station fueling equipment and storage tanks;
In increasing biofuels usage, the government should address
secondary impacts including the impact on food supplies and the
environment (e.g., water use and water quality degradation,
pesticide use, and increased VOC/NOX emissions).
Because of the potential for widespread effects on the
environment, regulatory agencies will need to develop metrics
for assessing the relative life-cycle impacts and benefits from
potential large-scale increases in biofuels use;
Government policy should encourage the utilization of the
existing national refinery infrastructure for the co-processing
of renewable feedstocks that can result in products with a
renewable content that is compatible with the existing fuel
distribution infrastructure;
State-by-state ethanol mandates create additional boutique
fuels, interfering with the reliable supply of fuels during
times of supply disruptions and increasing distribution costs.
State-by-state mandates also conflict with the flexibility and
efficiencies provided in the Energy Policy Act of 2005
(EPACT05) with respect to where biofuels are supplied and
product type. Just last week, for example, an eighth state
passed another, different biofuels mandate. One state law
allows and encourages the mixing of clear gasoline and ethanol-
blended gasoline in the same retail tank. When this occurs, not
only are emissions actually increased but the fuel violates
federal environmental regulations. Congress recognized the
potential problems from the proliferation of boutique fuels in
gasoline and eliminated their expansion in the EPACT05. In that
same legislation, the Renewable Fuels Standard stresses maximum
fuel flexibility;
Another example of restrictive state requirements can be
found in the Southeastern U.S., where most states currently
fail to provide exceptions or modifications to their gasoline
standards to accommodate ethanol's impact on fuel volatility.
As a result, refiner/marketers face potential non-compliance
with state gasoline standards if they blend ethanol with
fungible conventional gasoline. Tailoring the base fuel at the
refinery to assure compliance by the finished blend would
reduce gasoline supplies and increase fuel cost, thereby
removing any incentive to blend ethanol;
All mandates for increased renewable fuel usage should be
accompanied by periodic technology/feasibility reviews that
would allow for appropriate adjustments so that energy
companies are not penalized due to the economic and technical
hurdles that might prevent reaching biofuels usage targets or
goals. All mandates for increased renewable fuel usage should
also include contingency provisions that suspend requirements
for increased biofuels usage in the event of significant supply
or distribution disruptions.
While we have made progress over the past year, important questions
remain. These must be addressed if we are to build on our joint
progress and ultimately realize the full potential for ethanol within
our nation's transportation fuels portfolio.
API also offers these specific comments concern S. 987, the
proposed Biofuels for Energy Security and Transportation Act of 2007:
Restrictions on Federal Requirements in Energy Policy Act of 2005
(EPACT05) Should Continue
A federal alternative or renewable fuel mandate should not:
--Have a per-gallon requirement;
--Require any particular alternative fuel to be used to meet a
mandate;
--Require an alternative fuel to be used in any particular
geographic area; and
--Require an alternative fuel to be made from particular feedstocks
or restrict the use of any feedstock or processing scheme.
States (and Political Subdivisions Thereof) Should Be Preempted From
Setting State Alternative or Renewable Fuel Mandates
There should be an explicit, complete federal preemption of
states from setting standards/controls of any type for
alternative fuels.
An alternative would be to set out restrictions on the
states in lieu of an explicit preemption.
EPA Should Be Provided With Additional Authority To Grant Temporary
Waivers During Supply Emergencies--EPACT05 Section 1541(a)
There should be federal (EPA) preemption of existing state
fuel and ASTM performance regulations when a waiver is issued
during a supply emergency. During Hurricanes Katrina and Rita,
EPA waived certain federal fuel requirements promptly to
increase fuel supplies. However, in many cases state action was
also required and frequently the state responses were not
prompt. The result was unnecessary delays in increasing fuel
supplies. EPA should be provided with authority to waive both
federal and state environmental and product quality (situations
where a state adopts its own product quality regulations and
situations where states adopt ASTM specifications) fuel
requirements during ``an event of national significance.''
There should be emergency waiver authority for up to 90
days. The 20-day limit for waivers provided in EPACT05 is
adequate for most situations but proved inadequate during
Hurricanes Katrina and Rita. Thus, the timeframe for waivers
should be increased to ``up to 90 days'' for an event of
``national significance'' so designated by the President. This
increased time will provide much needed flexibility in terms of
arranging for additional fuel supplies, particularly longer
lead time product imports.
Waiver authority should remain with the EPA Administrator.
EPACT05 language should be retained so that the EPA
Administrator--not the President--has authority for fuel
waivers and preemption of state regulations. To change
authority to the President would prevent speedy implementation
of waivers, which is what was intended.
Additional adjustments should be made to the emergency
waiver language in EPACT 2005. EPA interpretation of the waiver
language has caused some confusion and concern regarding
supplying waived fuel. Several changes to the waiver language
would help to correct these problems.
Alternative Fuel Technology Review Should Be Required With Report to
Congress and Adjustment of Alternative Fuel Standard and Phase-
In Schedule
All mandates for increased renewable fuel usage should be
accompanied by periodic technology/feasibility reviews that
would allow for appropriate adjustments so that energy
companies and consumers are not penalized due to the economic
and technical hurdles that might prevent reaching alternative
or biofuels usage targets or goals. We recognize that S. 987
provides for a National Academy of Sciences review of this
type.
In summary, the U.S. oil and natural gas industry continues to make
good progress in meeting our nation's growing energy needs and
improving environmental performance. Looking ahead, we need to develop
all economically viable energy sources including fossil and renewable
fuel sources. By relying, to the greatest extent possible, on market
forces, understanding consumer impact and preferences, encouraging
development of new technologies, and addressing secondary impacts of
expanded renewable fuel usage, I am confident that our industry and the
nation will meet the energy challenges in the years ahead.
API and its member companies stand ready to work with the Committee
and to provide whatever additional information or assistance we can on
the issues I have addressed, as well as other related issues that may
arise during the course of Committee deliberations.
The Chairman. Thank you very much. Mr. Foody, go right
ahead.
STATEMENT OF BRIAN FOODY, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, IOGEN CORPORATION, OTTAWA, ONTARIO, CANADA
Mr. Foody. Thank you. Good morning, Mr. Chairman and
members of the committee, and thank you for the opportunity to
comment on S. 987. My name is Brian Foody. I am the CEO of
Iogen Corporation. We're one of the leading companies making
cellulose ethanol. We've been working in the field since the
late 1970's and we've designed and built and now run a
cellulosic ethanol demonstration plant. We've been making
cellulosic ethanol since April 2004.
Now, in the course of our development, we've established a
number of important partnerships, including both with Shell and
Goldman Sachs. I, myself, have been working in the field of
cellulosic ethanol now for over 25 years. So we hold a long-
held commitment to this area.
In regard to S. 987, we believe it is an excellent bill and
we fully support its passage. We'd like to congratulate the
committee on its work in offering a concrete and realistic
vision for the future of American energy and economic security.
We believe it can and will make a contribution toward driving
the markets forward, establishing the expectations and the
clarity that are necessary to see significant investment flows
into the production of biofuels, and building the secure,
domestic renewable fuel supply America is looking for.
I'd like to specifically address the bill's volume targets
for advanced biofuels, the 21 billion gallons by 2022. I
believe these targets are realistic and doable, and let me
explain why. First, with respect to the volume, the DOE and
USDA recently completed a study called the Billion-Ton Study
that asked the question, ``Does America have the capability to
produce enough cellulosic biomass resources to displace 30
percent of its present petroleum consumption? That's three
times more than your present target.'' And the short answer
was, ``Yes, America has the capacity to deliver on your
targets.''
Second, cellulosic ethanol technology is not some far-off
esoteric technology--it's real, practical and being made today.
When I drove to the airport yesterday, I drove in a car fueled
with cellulosic ethanol, the same cellulosic ethanol that fuels
our company's fleet of flexible fuel cars, and I've been doing
this for the last 3 years. So cellulosic ethanol is very real.
If anyone doubts this, I'd be pleased to invite them out to
see our demonstration plant in Ottawa, about a 1-hour flight
from here.
Now, Secretary Karsner, in testifying, talked about the
targets for 2012, the technology development targets. It's very
important to realize that those targets are essentially aiming
at what I believe is a cost, something like $1.10 a gallon.
Very cost-effective, but keep in mind, we're talking about a
world now where our gasoline is $2.00 a gallon wholesale and
ethanol is $2.50 a gallon. The DOE's own estimates would
suggest that cellulosic ethanol technology can be competitive
today. Clearly, there are hurdles we have to have for the
initial rollout of the technology, but this is very real.
Finally, if you're concerned about the ability to build
these facilities and deliver this volume, let me say that the
energy industry has enormous capability to deploy energy
technology. Just as one small example to put this in context,
you may have heard of the Tar Sands in Northern Alberta in
Canada. Well, last year, over $30 billion was invested in
developing this unconventional resource, and the capacity
commitments in 2006 alone would add 10 billion gallons per year
of annual production capacities. Now, I have to say that if the
energy industry can do this, they can certainly meet the much
less ambitious objectives set out in your bill.
Now, with respect to the bill, I'd like to make just three
brief points. First, I believe there is a real value in fine-
tuning the bill's safety valves. Now, by safety valves, I mean
what do you do if the price goes too high, or what do you do if
there isn't enough volume to meet the targets? S. 987 now
provides for essentially a discretionary waiver. That, I think,
will protect against the problem, but it creates tremendous
uncertainty and risks, robbing the bill of its power to spur
investments.
Essentially, we don't want a situation where people can sit
on the sidelines, betting that the discretionary waiver will
get them off the hook for contributing and working on America's
energy security. It's not fair to the country. It's certainly
not fair to those who are committing to the business, and it
won't get you what you hope to achieve.
Now, as I said, there are many approaches you can take, but
one thing you should keep in mind--the more clarity and
certainty you have, you can provide, the better and the more
investment you'll take.
I think in terms of the way to tackle this--I can
illustrate just one simple approach: as to volume, it doesn't
make sense to force people to buy product that isn't there. If
the volume doesn't materialize, the safety valves should simply
adjust to the volume that is there. And as to price: you might
ensure that prices don't go too high by setting a buy-out
price, say $1 a gallon, for the advanced biofuel credits.
That's simple. It would solve the problem and would create much
more certainty for investors.
My second point is managing the dual structure of the
market. S. 987 provides for two kinds of ethanol--regular
ethanol and advanced biofuels. This would create two markets
and two prices, even though in your gas tank, ethanol is
ethanol. We think the dual structure you propose makes sense,
but that you need to be very careful to ensure that it can be
practically implemented. We might suggest, for example, that
you set up a system to certify advanced biofuel production
facilities and issue the advanced biofuel credits to them.
Then, as the ethanol leaves the plant gate, you can let ethanol
be ethanol in a single market.
My third point is infrastructure. The automobile industry
is a critical part of the transition that is envisioned by this
legislation. It's critical that they be given equally clear and
reliable signals about what fuel their products will be
expected to run on, and they will need to have sufficient time
to allow transition to new fuel blends. No matter whether
Congress decides to pursue main grade blends of ethanol, like
E-15 or E-20, to achieve your targets, or alternative blends
like E-85. If the cars can't accept them, the refining and
blending industry won't be able to deliver them.
So I would urge members of this committee to give these
three issues their attention--first, setting safety valves;
second, managing the dual nature of the market; and, third, the
vehicle infrastructure. Thank you.
[The prepared statement of Mr. Foody follows:]
Prepared Statement of Brian Foody, President and Chief Executive
Officer, Iogen Corporation, Ottawa, Ontario, Canada
Good morning to you Mr. Chairman and to the Members of the
Committee. Thank you for the invitation to appear before you this
morning. I appreciate the opportunity both to comment on the tremendous
potential of cellulose ethanol and to offer our thoughts on S. 987.
My name is Brian Foody and I am the President and CEO of Iogen
Corporation. Iogen Corporation is one of the world leaders in the
cellulose ethanol field. We are proud to have been selected as one of
the winners of the recent Department of Energy cellulose ethanol grant
solicitation and look forward to a successful completion of our
negotiations with the DOE.
At Iogen, we have been producing cellulose ethanol in our
demonstration plant in Ottawa since 2004. To attend this hearing, I
drove to the airport in a cellulose fuelled E85 flexible fuel Chevy
Impala. In fact, we have been producing sufficient volumes of cellulose
ethanol--primarily from wheat straw--to fuel our own fleet of FFVs as
well as the fleets of two Canadian government Departments.
Before commenting on S. 987, let me say a few words about the
benefits of cellulose ethanol and its potential to help America achieve
several important policy objectives.
There are at least three important government policy objectives
that cellulose ethanol can help achieve.
Energy security
New economic opportunities for rural communities
Reduced greenhouse gas emissions associated with operating
our cars and trucks
Of these, the most pressing is energy security. So the question
many of us are asking is, how much can the emerging cellulose ethanol
industry really deliver on its potential, and how quickly can it be
done?
In order to answer that, we need to start with the feedstock
opportunity. The Department of Energy and the Department of Agriculture
worked together on a study of this issue. Their findings, published in
an April 2005 report now known as the ``Billion Ton Study'', found that
even with conservative assumptions about yields from crop residues and
dedicated energy crops, the United States can annually produce in
excess of one billion tons of cellulose feedstock for conversion to
ethanol and other bio-refinery products. That study is available online
at http://feedstockreview.ornl.gov/pdf/billion_ton_vision.pdf.
At the current state of demonstrated efficiency, cellulose ethanol
production facilities could convert that material into 30 billion
gallons of ethanol. Now there are obvious hurdles between here and
there that will greatly effect how much and how quickly ethanol can be
produced from that feedstock material.
The first issue is commercial demonstration of the technology. This
Committee's work in EPACT established both a grant and a loan guarantee
program to accelerate the demonstration of conversion technologies, and
likely you are familiar with the state of implementation of those
programs.
Next will be the challenges of building large-scale production
facilities--as large as or larger than current starch ethanol
facilities--in the feedstock basins around America. These challenges
are common to any new production facility. Sites will have to be chosen
and permits obtained. Feedstock supply contracts will have to be
entered into and delivery programs will have to be established. Offtake
contracts will have to be reached, and the transportation of the
finished product will have to be arranged.
These challenges are not insignificant, but neither are they likely
to prevent the rapid deployment of any robust cellulose conversion
technology that has been proven to the satisfaction of likely
investors. Investors are eager for opportunities to diversify energy
holdings when there is an opportunity for sustained profitability.
One illustration of investor interest in new energy technologies is
in the recent, steady expansion of integrated oil sands operations.
That sector has been adding roughly 10 billion gallons per year of
addition capacity with few signs of slowing.
In short, cellulose technology continues to face important business
challenges, but I have every confidence that each challenge is
manageable, and that ethanol from cellulose feedstocks will be a
significant component in this nation's fuel mix.
Regarding S. 987, first let me say that it is an excellent bill and
we fully support its passage. We congratulate the Committee on its work
in producing this vision for the future of American energy and economic
security.
The bill creates a system that will allow cellulose ethanol
producers to join the market in a way that does not undermine or
conflict in any way with the established starch ethanol producers. That
is critical because starch ethanol will remain the bedrock of the
biofuels industry for some time to come. Without starch ethanol, the
country would simply not be able to achieve the policy goals of this
legislation.
Additionally, the bill sends a clear signal that the government is
serious about a steady expansion of its commitment to cellulose
ethanol. The goals of 3 billion gallons of advanced biofuels by 2016
and 21 billion gallons by 2022 are both ambitious and achievable. These
targets set the fundamental precondition to the development of an
advanced biofuels industry by establishing a clear market demand for
the product.
Establishing these targets will further energize the industry to
complete the commercial demonstration of its technologies and begin
deploying them. Furthermore, these targets will establish a basis for
confidence among all participants in the value chain that business
opportunity of cellulose ethanol is very real. That confidence is an
essential precursor to the preparations, planning, negotiations, and
other business activities needed to grow this industry.
If S. 987 is enacted, farmers will begin to think seriously about
the possibilities of selling their residues for profit, and managing
their crops to enable them to do that. When the time comes for farmers
to consider planting dedicated energy crops such as switchgrass, absent
a clear signal that the market opportunity exists, they would be crazy
to take such a leap. This legislation squarely addresses that need by
creating clear targets for growth in the market.
The same is true of the capital markets that will be needed to
support the deployment of cellulose ethanol production technologies.
Investors will not risk capital if there is not confidence that the
market will sustain adequate returns. This bill also squarely addresses
that need.
Now some of your colleagues might ask why you need to offer market
guarantees in this free-market system. My answer would be simply, that
this is a case where we do not want the market to dictate the outcome
unaided. The clear policy objective of this legislation is to secure
for America the myriad benefits of a more diverse, and domestically
produced, fuel supply. Left to its own, the market will not accomplish
that outcome because absent a policy signal--such as S. 987--there is
no means of valuing energy security in the marketplace.
Equally important, S. 987 will provide the key to unleashing market
forces that will otherwise lay dormant. Once the industry has
confidence that a sustained market demand has been established,
business will engage aggressively to not only supply that market, but
to do so better, faster and cheaper than anyone else.
But if there is one message I would like to leave you with this
morning it is that there are some key areas where added clarity and
certainty could enhance the Bill and improve the likelihood that the
fuel program it would create will be a thorough success.
It seems clear that to deliver on 21 billion gallons of cellulose
ethanol--a number, by the way, that we think is quite achievable--there
is going to be a need for assurances and predictability going forward.
For example, the government needs to concern itself about over-
committing to cellulose ethanol. Some of your colleagues will ask what
will happen if the technology cannot deliver the desired volume. But
not only will you and your colleagues want assurances that the
cellulose ethanol industry can deliver, that delivery must come at
reasonable cost. Nobody wants to commit the nation to buying ethanol at
unreasonably high prices.
By the same token, the cellulose ethanol industry and its investors
will need to know that, the significant investments needed to deliver
the anticipated volume will not be stranded by future changes in
policy. The private sector will need confidence that the Program can be
relied upon not to disappear or change radically.
Some might expect that setting ambitious targets for cellulose
ethanol will be sufficient incentive for capital formation. But
mandates alone still carry risk to investors. Investors will ask, for
example, how would policy makers respond if only 80% of the expected
capacity can be on-line by the target dates in the bill? There is a
waiver in the bill, but it leaves a great deal of discretion to the
Secretary of Energy. Would there be pressure in such a case that would
cause the Secretary to reduce the mandate below the level of already
constructed capacity? Might the level of gasoline prices in the future
lead to entirely suspending the mandate for cellulose ethanol? What
happens if your appropriately ambitious goals cannot be fully satisfied
for any reason?
In the investment community, these uncertainties will translate
into risk premiums. That will drive up the cost of supplying the
ethanol to meet your targets. Conversely, greater certainty will enable
lower costs and, therefore, make the policy not only more durable, but
also more popular.
So how do we manage these concerns? What mechanisms would we
propose to ensure we can deliver 21 billion gallons of certifiable
cellulose ethanol at reasonable price, and achieve the Senate's policy
objectives?
Let me start by saying that we have given this question a lot of
thought and we do not presume to have it all figured out. Having said
that, it seems that enhancing the current safety valve in the bill--the
Secretary's waiver authority--you could easily provide the certainty
and confidence that both the government and the investors will require.
What we want to avoid is a situation similar to the California zero
emission vehicle experience where laudable policy objectives were never
achieved because the necessary safety mechanisms were not in place. In
that case, there was clearly progress toward the goal, but not enough
to sustain the program as originally envisioned. Those who invested
based on the established public policy ultimately looked foolish, while
those that chose not to invest in the new policy direction ultimately
looked wise. Instead, public policy should reward and protect even
incremental progress toward ambitious goals. At the same time policy
should not hold the economy hostage when initial ambitions prove
unreachable, because that creates political pressure to scrap the
policy entirely.
Instead, it is important to create a safety valve that sustains the
incentive to reach the overall goal--in this case 21 billion gallons of
advanced biofuel--while at the same time temporarily backing off the
target only to the extent that it is beyond reach. If the cellulose
ethanol industry were to succeed only in producing 80% of your
ambitious targets by a given date, that should not precipitate a
crisis. Instead, appropriate--and predictable--adjustments should be
made that reward the progress and sustain the overall goal.
While exploring possible safety mechanisms to ensure success we
have landed on some basic principles that could guide us. For example,
we do not want to suspend market conditions within the market supplying
the demand for advanced biofuels. We also believe that waivers should
not reduce the Renewable Fuel Standard below current and planned
production volumes unless additional volume can not come online at
reasonable costs. Any safety mechanism should be both transparent and
predictable. The waiver authority proposed in S. 987 should be enhanced
along these lines. Doing so would improve the certainty offered
potential producers and investors. It would also make the overall goal
more sustainable and less subject to future changes in political moods
and priorities.
Another area where more clarity would assist concerns how grain
derived ethanol and cellulose derived ethanol will be differentiated.
That becomes a concern because once ethanol is ``out the door,''
ethanol is ethanol. So it will be important to create a mechanism that
allows the market to treat all ethanol the same, no matter the
feedstock that was used to produce it, but at the same time, will
enable certainty as the government attempts to track compliance with
the dual ethanol requirements for blenders. This might most easily be
accomplished by certification of individual cellulose production
facilities as they come on-line and assigning specialized tracking
numbers to the tradable credits generated by those certified
facilities.
There is one other important topic I wish to touch on. The auto
industry is a critical part of the transition that is envisioned by
this legislation. It is critical that they be given equally clear and
reliable signals regarding what fuel their products will be expected to
run on. And there will need to be sufficient time to allow the fleet to
transition to accept new fuel blends. No matter whether the Congress
decides to pursue maingrade blends of ethanol like E-15 and E-20, or
alternative blends like E-85, if the cars cannot accept it, the
suppliers will not be able to sell it. I would urge the Members of this
Committee to give that issue the attention it deserves.
But let me conclude by going back to my theme of certainty. Clearly
the more certainty in the Bill, the less risk to the private sector and
hence the lower will be the price of delivering the 21 billion gallons.
Conversely, uncertainty creates greater risk and higher prices.
The Iogen team would welcome the opportunity to work with the
Committee to explore possible safety mechanisms to achieve the Senate's
desired outcome.
Again, thank you for the opportunity to address this Committee.
The Chairman. Thank you very much. Thank you all for your
testimony. It's obvious that a lot of effort has gone into
trying to analyze ways that this bill could be improved, and we
appreciate your suggestions. Let me just ask a few questions,
and then we'll call on Senator Corker and Senator Craig, also
for their questions.
Mr. Dinneen, let me start with you. One of the driving
forces behind trying to set a higher renewable fuel standard is
the concern that some have expressed about us winding up with
an ethanol supply that has outpaced demand in the next few
years. Could you give your view as to whether this is a real
possibility, or whether you think that's just not going to
happen? If we fail to enact something like what we're talking
about here, are we in danger of seeing supply outpace demand?
Mr. Dinneen. There is a great deal of angst throughout the
industry that that may, indeed, be the case, because we don't
always control the marketplace in terms of getting our product
to the consumer. I will tell you that I think the refiners have
recognized ethanol's value as an octane component. They've
recognized ethanol's value in terms of being able to meet clean
air standards and are indeed, utilizing ethanol in more and
more markets across this country.
We have 140 billion gallon gasoline market. Currently, EPA
limits ethanol blend use to 10 percent. That implies that you
could saturate the potential market in this country when you
reach 14 billion gallons of ethanol produced. We see that much
ethanol production on the horizon, which is why I think your
bill contemplates doing research to look at whether or not that
10 percent blend level could be raised without harming the
existing fleet and doing programs and incentivizing greater E-
85 use. Those are critically important components. You have to
have the market as well as the production.
The Chairman. Let me ask Mr. Lashof: in your testimony, you
talk about how plug-in hybrid electric vehicles powered by
renewable electricity could qualify for renewable fuel standard
credits--I believe you have that suggestion. I certainly
strongly favor trying to incentivize more production and use of
plug-in hybrids, but I'm just not clear how that dovetails with
the renewable fuels standard. I guess one of the questions was,
do you envision that this renewable electricity that would
receive RFS credits would also be counted as under the
renewable portfolio standard? If so, are we essentially paying
utilities to fulfill their renewable portfolio standard
requirements?
Mr. Lashof. That's an excellent question and I think I
should have probably expanded a little bit more on the proposal
in my testimony. The idea here is that if electricity is being
used for transportation purposes, then it could be treated as a
fuel. There is a conversion factor that EPA has actually
developed that is actually one aspect of the administration
proposal that I think makes sense. I think it's 6.4 kilowatt
hours is equivalent to 1 gallon, so you have a conversion
factor that you can rely on for doing that.
The idea, though, would not be to allow double counting. It
would be an opt-in for the electricity providers, and they
could choose to credit their renewable electricity generation
either to the renewable fuels standard, or to the renewable
electricity standard, which we certainly also very, very
strongly support.
So it's possible that the value of the credit might be
higher in the fuels market than in the electricity market, and
I think it would make sense to allow electricity producers to
make that option. They would be required to use a smart meter
to do that, so that you could track the electricity and be sure
that it was actually being used for transportation, and that it
was only renewable electricity that counted.
I think there is a way to integrate these that provides
potentially some more incentive for renewable electricity, but
you certainly want to avoid double counting.
The Chairman. Okay. Since my time is nearly over here, let
me ask Mr. Cavaney a question about--we always are talking
about E-10 and then E-85. What about E-15? Is it your view that
there are significant barriers to moving to E-15, if the
judgment were made that we could produce enough biofuels to
accomplish that? Is there some significant problem with doing
that as you see it?
Mr. Cavaney. Mr. Chairman, we've looked through EPA and the
auto manufacturers and their willingness to warranty amounts of
ethanol beyond 10 percent in a regular, non-FFD car. But from
our perspective and there's not a challenge at this particular
point, we see the blend market as a much more attractive way to
increase volumes of ethanol than we do leaping all the way to
mandating E-85. We think E-85 fits in certain areas in certain
conditions, and those ought to be individual owner's choices,
but higher blends are being looked at. We're actually studying
them with the State of Minnesota and others, and so there is an
opportunity there.
The Chairman. My time is up.
Senator Corker.
Senator Corker. Thank you, Mr. Chairman and to Mr. Dinneen
and Cavaney, the goals that were laid out in this bill are very
different than the goals that were laid out by the
administration. I just wondered if you'd give brief editorial
comments about the attainment of either, and what you feel is
more productive from the standpoint of moving toward these
alternatives.
Mr. Dinneen. I think the goal that is at the centerpiece of
both proposals is the same, and that is to displace petroleum.
I give great credit to the President for moving this debate
forward and recognizing that we have to reduce our dependence
on imported petroleum and to move forward with programs that
will, indeed, incentivize domestic renewable and other
alternatives. But I would think, honestly looking at the Energy
Policy Act of 2005 is pretty instructive, because it had a very
specific requirement for renewable fuels. It provided the kind
of clarity and certainty that has been discussed here. While I
understand the desire to take a more ecumenical approach and to
encourage all kinds of different alternatives--and that's a
laudable goal and one that should be pursued--I'm not certain
that doing it in an ecumenical alternative fuel standard
provides the kind of certainty to the marketplace that the
renewable fuel standard does.
Perhaps another way of looking at it would be, if you want
to incentivize coal-to-liquids or you want to incentivize
electricity or other alternatives, I think quite frankly,
that's great. But you ought not try to do it in the framework
of an alternative fuel standard. Doing it in terms of focusing
on renewables has proven to be a very effective motivator to
the investment community, and I think is the more effective
approach.
Senator Corker. Mr. Cavaney.
Mr. Cavaney. Senator, looking at both of these proposals,
there is a lot in 987 that we like, particularly the study
efforts that are there to try and answer some of the big
questions that need to be answered before you're going to get a
reliable supply to the consumer on a consistent basis going
forward. Both plans rely, in large part, on being able to
provide massive amounts of scale for cellulosic ethanol. If
that doesn't materialize on a timetable that is set forth, a
lot of time needs to be spent understanding what those pathways
are. This proposal, S. 987 acknowledges that with the study by
the National Academy of Sciences to take a look at this issue.
That's one of the key things we think we can help bring to the
table. While we don't know a lot about a first generation
foreign ethanol manufacturer, we know a great deal about what's
needed to be able to reliably get fuel around this entire
Nation, particularly fuel under different kinds of conditions.
So we look forward to working with the committee on this.
We think there are a number of items here, which can be further
refined, and we think the timetable here is a little better
than the timetable the administration set forward, because it
calls for many, many large volumes of cellulosic at a timetable
that we're not absolutely convinced can be delivered.
At the end of the day, what all of us need to remember,
whether we have a fossil fuel or renewables in the field that
we deliver, is customers want it reliably. They want it
inexpensively, and they want a quality fuel, and if we don't
meet those three things, we're all going to fail the test.
That's what we hope to be able to work on with the committee,
and with my colleagues on the panel, to deliver.
Senator Corker. Do you agree with Mr. Dinneen in the fact
that this is a more narrow bill? It isn't as broad at bringing
lithium and coal-to-gas and all that. Do you agree with the
statements that he just made?
Mr. Cavaney. Well, I agree certainly that it's a narrower
bill. Our industry's perspective, since we provide energy
broadly, including natural gas, is when we look at any global
or even U.S. demand forecast into the future, we need all the
energy that we can get. Whether or not it's all done in one
bill or whether it's done in several, we think all of the
elements that can deliver viable energy to the consumer are
going to be pathways that this Congress and the administration
and the next administration ought to pursue. So we look to you
all and we'll take our guidance and work with you in that
regard.
Senator Corker. Mr. Lashof, as far as the coal-to-liquid
technology, I look over here and see a big, black bar on the
scale. Are there technologies out there today that you see on
the horizon, that would allow us to use those technologies in a
way that you would find environmentally friendly?
Mr. Lashof. Senator, unfortunately the problem is, if you
take a fossil fuel and whatever process you do, even if you
capture all the CO2 in the processing plant and you
put that fuel in the tank, there is no way to capture
CO2 that comes out of the tailpipe of 200 million
vehicles. That's fossil carbon and it goes into the atmosphere.
There really is no way to avoid those emissions.
There was a discussion earlier about a Princeton study that
I am familiar with, that talks about the potential to get a 30
percent benefit. That benefit really comes from the biomass
blending. So the greenhouse gas reduction in that analysis
comes from the biomass component of the fuel. If you're using
just coal and making a liquid fuel, there's just not--there's
just no feasible method that exists or that really could be
imaged to do that.
Now, the situation is a little bit different if you make
electricity. If you make electricity from coal and are
capturing the CO2 at the electricity plant, the
electricity that goes into the vehicle, when you say a plug-in
hybrid, obviously there's no CO2 emissions at the
point of use for that electricity. So there is an opportunity
to use coal, if it's produced in an environmentally sustainable
way and converted to electricity in a plant that captures
CO2 in a way that would be compatible with our
climate goals, but I really don't think that's the case with
liquid fuels.
Senator Corker. Mr. Chairman, thank you for your testimony
and Mr. Foody, I thank you for your great work. I appreciate
it.
The Chairman. Before calling on Senator Salazar for his
questions, Senator Craig had a statement or question that he
wanted to ask.
Senator Craig. Well, I wanted to ask questions. Ken has
been sitting here very patiently waiting to do so. Mr.
Chairman, let me thank both you and Senator Domenici for this
bill. Senator Dorgan and I introduced a similar bill earlier
that has a couple of other components, and we are eagerly co-
sponsoring your bill. I don't think there is any energy
security pathway that does not include this bill, in my
opinion, and that's why I think it is tremendously important.
I'm pleased to hear the testimony that is before us today.
Senator Dorgan and I also agree that a balanced approach
has to still include some offshore production. I think it has
to include a CAFE standard that I've been slow to come to but
I'm now there. I think these are also very, very critical as we
look across the spectrum in doing so. But I thank both you, Mr.
Chairman and the ranking member for the approach. It's clearly
a step in the right direction. It augments EPAct in a way that
broadens it toward our energy security. Obviously, we dealt
primarily with, as you know, electrical production there, and
now we're dealing with transportation. That is a critical
component that expands the overall capacity in this country.
I'll simply add that maybe we want to look at, if we can't
get cellulosic up to the level we hope we can get it, that I
know the bar doesn't look as appropriate as it should, as it
relates to coal-to-liquids. Maybe we can offset that production
volume with coal to liquids in the short-term. But I would hope
that we can get cellulosic where we think we can get corn-based
as quickly. Thank you.
The Chairman. Thank you very much and Senator Salazar, go
right ahead.
Senator Salazar. Thank you very much, Senator Bingaman. I
want to follow up on the questions that I asked Secretary
Karsner in terms of how far we ought to go. Let me preface my
question, and I'd like Bob Dinneen and Brian Foody to respond
to this question.
I'll preface my question this way. When we in 2005 said
we're going to have an RFS at 7\1/2\ billion gallons, I think a
lot of people thought it was realistic and it was, indeed
realistic. In fact, as you were saying, Bob, it's been
significantly surpassed.
I know in Colorado--not dealing with this part of the
renewable energy equation but when we looked at an RPS--several
years ago, I was the lead signature on a RPS for Colorado that
was citizen-initiated. We said there that we were going to
produce 10 percent of our electricity from renewable resources
by 2015. We are on the pathway to surpass that significantly.
In fact, the legislature just adopted a new RPS in Colorado
with the support of industry, our utilities, that is going to
get us to 20 percent by the year 2020.
So we set these goals and we are good in terms of getting
there and surpassing them. My fundamental question here is
whether or not we are being bold enough with this 36 billion
gallon RFS by 2022. If I look at 2022, we're going to see the
Presidential election of 2008, 2012, 2016, 2020 and I don't
know whether that's as bold or as courageous as we ought to be
doing, given the new technology that is unfolding here. Yet at
the same time, I realize that staff and others have worked very
hard to come up with a goal here that is realistic.
So my question to you is simply this--do you think that it
would be a wise thing for this Congress to establish an RFS of
say, 35 billion with respect to biofuels, just biofuels, okay?
Thirty-five billion by the year 2017. Could we achieve that
goal? Let me start with you, Bob and Brian, you're doing the
cellulosic ethanol piece, so go ahead.
Mr. Dinneen. Well, part of me wants to say, ``Never say
never.'' But 35 billion gallons of biofuels by 2017, I think,
would be awfully ambitious. I know what we can do with grain-
based ethanol. I have a pretty good sense of where we will be
in that timeframe. I don't know where we might be with respect
to biodiesel, or cellulosic ethanol, or biobutanol, or some of
the other renewable fuels. I think, quite frankly that the
targets that are established in this bill are realistic and
achievable, and I think while there is always going to be
uncertainties with respect to just how fast cellulosic ethanol
can come along, 3 billion gallons of cellulose by 2015, I
think, is certainly realistic.
It is also ambitious. But what it does is, it sends a
strong signal to folks to do the research, to invest in the
technology, to commercialize the product and get it moving
quickly. I think the timeframes, the timetable, and the carve-
outs that are in this bill, are achievable and realistic and
can be met.
Senator Salazar. So these goals, you think, are achievable
and can be met, but might they also be surpassed in the same
way that our 2005 RFS was?
Mr. Dinneen. They certainly might be.
Senator Salazar. Mr. Foody, with respect to the
contribution of cellulosic ethanol to this whole program, you
are one of the lead companies in terms of the research in this
issue. What's the contribution that cellulosic ethanol can make
in terms of getting us to this goal and perhaps surpassing the
goal? And go back to my original question that I asked Bob, can
we go for 35 billion by the year 2017?
Mr. Foody. If I think about the 35 billion by 2017, that
would roughly equate to something like 20 billion gallons of
cellulosic ethanol by 2017. America has the tremendous capacity
to do new things, but that's a heck of a big step. It's really
aggressive. I think the bill that is before us with 3 billion
gallons in 2016 is as Bob said, achievable, realistic, but
still aggressive. I think that things you could consider might
be to advance and say, in 2015, have a target that might be 1
billion gallons and see a ramp-up at that time.
I certainly think, though, in the latter periods, if the
cellulosic ethanol industry is capable of delivering 3 billion
gallons a year, it will be capable of delivering 5 billion
gallons a year, each year, in new added capacity.
I think what you've worked out in your bill is essentially
a straight line of 3 billion gallons per year, each year as you
move forward and I think naturally, you would expect the
industry to be able to see a ramp-up phase and then to grow
very rapidly. Remember my example of the Tar Sands in Alberta?
They're actually adding 10 billion gallons per year as we
speak, in annual capacity. So I think if you were thinking
about it, you might adjust your targets in that fashion.
Senator Salazar. My time is up, Mr. Chairman.
The Chairman. I did not have questions. If you have any
additional questions, why don't you go ahead? Then we'll
conclude the hearing.
Senator Salazar. If I may just, with your indulgence, Mr.
Chairman, ask one more question, and that is of Mr. Cavaney,
and that is with respect to the distribution. One part is a
production side with respect to what we do relative to the goal
that we aim for, and hopefully uncovering the technology that
will get us there. The other is the distribution part of it,
and that is very much addressed in the Chairman's mark here,
and I very much appreciate the work that has been done there.
One of the concepts that several of us have talked about is
the possibility of creating additional incentives for gas
station owners to come in and to put in tanks that actually
carry biofuels and incentivize them, putting in the kinds of
pumps that would deliver the biofuel ethanol or whatever it
might be.
Do you have any ideas on how we might be able to enhance
that distribution capacity beyond what's already included in
this bill?
Mr. Cavaney. Senator, I feel the fact that you've
acknowledged in the bill and put some things in there is very,
very helpful. One of the things that most people overlook is
that while the brands and the stations are very commonly known
to everyone, you take the 170,000 retail gasoline outlets that
are out there and about 5 percent of them are owned by the
industry, the refiners. The rest are owned by independent
businessmen and women who, whether they own a McDonald's or a
family store, capital is very hard to come by. So
acknowledgements and assistance and credits and however it's
done is one way to approach that.
Another way is to provide some economic certainty, and to
provide stable and reliable supplies, because that gives the
owner the confidence that they are going to get a steady stream
of business. They can forecast what their outcomes are going to
be, and that's why the one thing we hope to bring to this
debate is to try and, from our experience, help people
understand how important it is to make sure the infrastructure
is in place so when the production comes up, we can move this
stuff very clearly.
We're very concerned about State mandates. For example,
there are eight States that have mandated ethanol contents up
to 10 percent. Of those eight States, no two are the same. It's
like the boutique fuel problem we had with gasoline. One of
those States, Missouri, actually has a regulation in place that
if we comply with it, we'll be in violation of the Federal
regulations. The point I'm trying to make here is if we can get
the distribution and give those small business owners the
confidence, I think the things that you proposed here are going
to go a long way toward helping them.
Senator Salazar. I appreciate that. Mr. Chairman, I'd like
to ask one more question of Mr. Lashof, if I can and that is:
with respect to the coal-to-liquids concepts that have been
talked about in this committee, is there an approach here that
would allow us to move forward with promoting a coal-to-liquids
program that would ensure that we might be able to keep from
adding to the problem of global warming and greenhouse gases?
That would be by creating some kind of a standard with respect
to the CO2 emissions from coal to liquid fuel as it
is burnt.
Mr. Lashof. Well, Senator I do believe that a greenhouse
gas performance standard for fuels generally, for renewable
fuels, and for any other fuels that might be entered in the
market, is the best approach to ensure that we achieve the
outcome we're looking for, which is lower global warming
pollution. I think the current bill tries to get at this by----
Senator Salazar. Let me focus you on coal-to-liquids.
Mr. Lashof. On coal-to-liquid.
Senator Salazar. Coal is such a huge natural resource that
we have in the West and we have in this country, in Kentucky
and Virginia and a whole host of other places. So with respect
to coal, is there a way in which we might be able to move
forward with that program and yet, maintain some carbon
neutrality with respect to the use of that fuel in our
portfolio?
Mr. Lashof. Well, as I said in response to Senator Corker's
question, I think that the best way to use coal to help meet
our transportation needs is through an electricity pathway. But
if coal-to-liquids were to be used, which is not something that
I would support, but were it to be used, it would certainly be
much more reassuring if it was subject to a greenhouse gas
performance standard that ensured that it was making--Senator
Bunning talked about the possibility, with appropriate
technology and blending of biomass, you'd make at least a 30
percent--if you get a 30 percent reduction in greenhouse gases
relative to gasoline.
Again, I don't support modifying this bill to allow coal-
to-liquids in, but were coal-to-liquids to be part of any kind
of fuel program, if there was a performance standard that said
you had to make a reduction in global warming pollution at
least as large as what can be obtained through ethanol, then I
think that would certainly be somewhat reassuring.
Senator Salazar. Okay. Thank you very much, Mr. Chairman.
The Chairman. Well, thank you, and thank all of you for
your good testimony. I think this has been helpful to us and we
appreciate your input we'd be glad to hear and any other
thoughts you have. Thank you very much.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
Responses of the American Petroleum Institute to Questions From
Senator Burr
Question 1. Due to the increased corn demand for ethanol, feed
prices have tremendously increased over the last two years, has anyone
analyzed the effect on corn prices is this bill becomes law?
Answer. While the API is not aware of any completed studies
concerning the potential impact on corn prices of the ``Biofuels for
Energy Security and Transportation Act of 2007,'' other models, based
on similar scenarios, have shown increased corn prices with higher
renewable fuels standards (RFS). The Agricultural and Food Policy
Center (AFPC) of the Texas A&M University System released a report in
August of 2006 that showed the effects of various policies on the price
of corn. One of the examined policies was an increased RFS, based on S.
2817, the ``Biofuels Security Act of 2006'' introduced by Sen. Harkin
in May of 2006, where corn ethanol would reach 20 billion gallons by
2015. Under the AFPC study, the price of corn increases by about 60%
between 2007 and 2012, when production of ethanol from corn begins to
exceed 14 billion.\1\
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\1\ Bryant, H. and J. Outlaw, ``U.S. Ethanol Production and Use
Under Alternative Policy Scenarios.'' Agricultural and Food Policy
Center, Department of Agricultural Economics, Texas A&M University,
August 2006.
---------------------------------------------------------------------------
Question 2. By some estimates, about 30% of the U.S. grain harvest
is likely to be devoted to ethanol production by 2008, up from 16% in
2006. What will be the percentage of grain harvest devoted to ethanol
production under the mandate required by this bill?
Answer. Using a conversion rate of 2.77 bushels of corn per gallon
of ethanol, based on data projections from the USDA, 15 billion gallons
of ethanol produced from corn in 2015 would require 39% of the total
projected corn harvest. However, this percentage could vary
significantly from year to year given factors affecting corn supply
such as weather.
Question 3. Due to the increase of corn prices, farmers are
electing not to enroll high maintenance farmland into the national
Conservation Reserve Program. Will this bill be harmful to protecting
farmland which is environmentally sensitive?
Answer. While the API is not aware of any completed studies
regarding corn ethanol and the Conservation Reserve Program (CRP) in
direct connection with this bill, it is clear that increased production
of ethanol from corn would have a negative impact on the CRP and the
environmentally sensitive land protected by the program. As corn prices
increase, farmers will have greater incentive to move land back into
grain production. A recent study of the impact of corn prices on CRP
acreage in Iowa indicated significant increases in sediment, nitrogen
and phosphorous losses as farmers move CRP acreage back into production
in response to higher corn prices. The study also suggests that the
impacts of returning CRP acreage to crop production could be
substantial for some wildlife populations in Iowa (e.g., the wild
turkey).\2\ According to Clayton Ogg of the U.S. EPA, increased corn
ethanol production could present challenges to the CRP--``corn ethanol
production could reduce enrollment in the CRP.''\3\ Also, corn farmers
could move from a corn-soybean rotation to continuous corn planting
that would lead to increased fertilizer use and nutrient runoff that
could adversely impact water supplies.
---------------------------------------------------------------------------
\2\ Deccchi, S. and Babcock, B., Iowa State University, Impact of
High Crop Prices on Environmental Quality: A Case of Iowa and the
Conservation Reserve Program, Working Paper 07-WP447, May 2007.
\3\ Ogg, C., ``Environmental Challenges Associated with Corn
Ethanol Production.'' National Center for Environmental Economics,
April 2007.
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Question 4. Given that in the near term much of the ethanol will be
derived by corn, how much, if any, imported oil will be displaced?
Answer. The AEO 2007, published by the Energy Information
Administration of the U.S. DOE, projects that net crude oil imports
will reach 10.5 million barrels per day, or 160.7 billion gallons per
year, by 2015.\4\ Adjusting the legislation's corn ethanol mandate to
an energy equivalent basis with crude oil, 15 billion gallons of
ethanol is equivalent to roughly 8.4 billion gallons of crude oil, or
approximately 5% of U.S. crude oil imports. However, this percentage
does not represent the amount of crude oil that could be displaced as
there are several offsetting factors. Significant amounts of fossil
fuels are required to produce ethanol and would have to be factored
into any displacement estimate. An additional offsetting factor is the
likelihood that product slates and product imports would change with
increasing ethanol use. Each refiner, acting independently, could be
expected to make adjustments to maintain efficient refinery operations.
Making these adjustments would result in a lower percentage than that
given above.
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\4\ USDOE/EIA, Annual Energy Outlook 2007 Table 11. Liquid Fuels
Supply and Disposition.
---------------------------------------------------------------------------
Question 5. What will be the overall environmental benefits of corn
based ethanol, given the increased use of environmentally sensitive
cropland?
Answer. Corn is by far the largest single field crop in the US, and
USDA estimates that increased ethanol production will encourage the
planting of about 90 million acres to corn in 2007--an increase of over
10 million acres from 2006 and about 33% more planted land than any
other field crop.\5\ Collectively, corn cultivation uses more
pesticides and nitrogen fertilizer than any other U.S. crop.\6\
Additionally, more soil erosion occurs in the Corn Belt than in other
parts of the U.S., much of this from corn acres.\7\ In 2006, about 20%
of the corn crop was used for corn ethanol production, and USDA
projects that 27% of the 2007-08 corn crop will be used for ethanol.\8\
It is well-documented \9\ \10\ that corn production is responsible for
significant environmental impacts to soil and water resources because
of:
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\5\ USDA NASS. Projected Plantings, April 2007. http://
usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1136;
and USDA March 30 2007 Press Release. Corn Acres Expected to Soar in
2007, USDA Says--Ethanol, Export Demand Lead to Largest Planted Area in
63 Years. http://www.nass.usda.gov/Newsroom/2007/03_30_2007.asp.
\6\ USDA. Agricultural Chemical Usage, 2005 Field Crops Summary.
May 2006 http://usda.mannlib.cornell.edu/usda/nass/AgChemUsDistRate//
2000s/2005/AgChemUsDistRate-12-23-2005.pdf.
\7\ USDA NRCS. Total water and wind erosion, 1997. http://
www.nrcs.usda.gov/TECHNICAL/land/meta/m5112.html.
\8\ USDA Agricultural Projections to 2016, February 2007. http://
www.ers.usda.gov/publications/oce071/.
\9\ Powers, Susan E. Quantifying Cradle-to-Farm Gate Life Cycle
Impacts Associated with Fertilizer Used for Corn, Soybean, and Stover
Production. Clarkson U. Technical Report U.S. DoE NREL/TP-510-37500.
May 2005 http://www1.eere.energy.gov/biomass/pdfs/37500.pdf.
\10\ Beyond the RFS: The Environmental and Economic Impacts of
Increased Grain Ethanol Production in the U.S. WRI Policy Note,
September 2007. http://www.wri.org/climate/pubs_
description.cfm?pid=4185.
Soil erosion that degrades land quality and also pollutes
surface water sources with sediments (one reasonable estimate
is that 20 pounds of soil loss occurs for each gallon of
ethanol produced;\11\ and
---------------------------------------------------------------------------
\11\ DeLuca, Tom. On Ethanol: Conservation Shou.ld Precede Biofuels
Mania, Guest Writer, Feb. 28, 2007. http://www.newwest.net/index.php/
topic/article/on_ethanol_conservation_
should_precede_biofuels_mania/C73/L38/.
---------------------------------------------------------------------------
Surface and ground water quality reduced by runoff or
infiltration of fertilizers and pesticides, which can also have
deleterious effects on aquatic organisms and ecology.\12\
---------------------------------------------------------------------------
\12\ Powers, Susan E. Quantifying Cradle-to-Farm Gate Life Cycle
Impacts Associated with Fertilizer Used for Corn, Soybean, and Stover
Production. Clarkson U. Technical Report U.S. DoE NREL/TP-510-37500.
May 2005 http://www1.eere.energy.gov/biomass/pdfs/37500.pdf.
Life cycle assessments of corn ethanol cited as evidence of its
environmental and greenhouse gas benefits typically fail to include
soil erosion and water quality impacts in their evaluations5, and those
studies do not include environmental impacts associated with possible
land use changes such as returning Conservation Reserve Program (CRP)
acres to production, or increased corn acreage in other countries.\13\
USDA estimates that as much as 4.6 million acres or more could be lost
from the Conservation Reserve Program (CRP) during the next several
years,\14\ much of that expected to be put into corn cultivation, or
into production of other crops whose current acreage is being converted
to corn. The limited potential benefits of corn ethanol regarding
greenhouse gas emissions that are shown in those studies may further
diminish because of the use of less productive and erosion-susceptible
land to grow corn, and the use of less sustainable, more fossil energy
intensive crop management practices like continuous corn production, or
corn-corn-soybean rotation.\15\
---------------------------------------------------------------------------
\13\ EPA. Summary and Analysis of Comments for Regulation of Fuels
and Fuel Additives: Renewable Fuel Standard Program. http://
www.epa.gov/otaq/renewablefuels/420r07006-sections.htm. Section X:
Environmental Impacts http://www.epa.gov/otaq/renewablefuels/
420r07006chp10.pdf.
\14\ USDA. USDA Announces Results of Intentions to Re-Enroll and
Extend CRP Contracts. March 2007 http://www.usda.gov/wps/portal/!ut/p/
_s.7_0_A/7_0_1OB?contentidonly=
true&contentid=2007/03/0058.xml.
\15\ Secchi, S. and Babcock, B., Iowa State University, Impact of
High Crop Prices on Environmental Quality: A Case of Iowa and the
Conservation Reserve Program, Working Paper 07-WP447, May 2007. http://
www.card.iastate.edu/publications/synopsis.aspx?id=1046.
---------------------------------------------------------------------------
As it is unlikely that cellulosic ethanol will contribute even 10%
as much as expected corn ethanol production for at least 7 years or
more, these large environmental corn ethanol impacts will continue to
occur year after year. Collectively these ``unintended consequences''
are severe environmental impacts that should be fully assessed.
Response of the American Petroleum Institute to Question From Senators
Bingaman and Domenici
Question 6. Some parties advocate that the Renewable Fuel Standard
should include a ``price trigger.'' The price trigger would allow a
blender or importer to pay a $1 penalty per gallon in lieu of
fulfilling its renewable fuel obligation under the RFS. From your
industry's perspective, how would this approach affect the
implementation of the RFS?
Answer. The ``price trigger'' is an unfair penalty because a
shortfall is likely to occur, regardless of the best efforts by
industry. Moreover, the means to comply are beyond the control of the
refiner. This would be a penalty against refiners for not finding the
renewable or alternative fuels available in the marketplace. A penalty
is supposed to deter future violations. Penalizing the refiner would
not meet this objective because the refiner has no control over
production or the availability of biofuels.
The penalty serves no beneficial purpose and in fact would be
counterproductive in light of the tremendous capital investment the oil
and natural gas sector needs to meet future U.S. energy demand. This
penalty, as a cost of doing business, would ultimately likely be
reflected either in the price paid by consumers for a company's
products or in reduced returns to shareholders.
Instead of a penalty, any mandates for renewable fuel usage should
be accompanied by periodic technology/feasibility reviews that would
allow for appropriate adjustments to ensure that energy companies and
consumers are not penalized due to the economic and technical hurdles
that might prevent reaching alternative or biofuels usage targets or
goals.
Appendix II
Additional Material Submitted for the Record
----------
Statement of the Clean Fuels Development Coalition
The Clean Fuels Development Coalition (CFDC) appreciates the
opportunity to provide testimony to the Senate Energy Committee on S.
987 (Biofuels for Energy Security and Transportation Act of 2007).
CFDC is a broad based organization supporting the development of
domestic and renewable transportation fuels with a particular emphasis
on ethanol. The organization is a true coalition with membership that
includes ethanol producers, research and development groups, design-
build companies, and automobile manufacturers. Now in its 20th year of
operation, CFDC has witnessed firsthand the phenomenal growth of the
biofuels industry and has had a direct hand in the formation of many of
the federal programs that have been a catalyst for this growth.
We were among the first supporters of the oxygen standard in
reformulated gasoline and testified before this committee in 1989. We
were part of the regulatory negotiation for the fuel provisions of the
Clean Air Act Amendments and later worked with the House and Senate as
part of the industry negotiating team to craft the first renewable
fuels standard. Our support for the oxygen standard some 18 years ago
was based on our firm belief that the market certainty provided by that
provision was the perfect compliment to the tax incentive and would be
the catalyst for the domestic ethanol industry to significantly expand.
While the emergence of the non-renewable oxygenate MTBE stunted ethanol
growth to some degree, the combination of tax and market incentives was
effective. As the oxygen standard gave way to the RFS, renewables have
finally been given the clear path to growth they have needed, and
responded accordingly.
We believe S. 987 embodies the fundamental principles of providing
market certainty that will overcome the institutional barriers ethanol
and other renewable fuels have faced.
Ethanol is faced with an obstacle unlike any other commodity in the
world in that it is sold into a market controlled by its competitors.
Ethanol is not sold directly to consumers but rather sold to the
petroleum industry whose product is being displaced. It is practically
a conflict of interest for petroleum companies to voluntary purchase
ethanol, which is the reason for the creation of the partial excise tax
credit. This credit is designed to make ethanol more attractive
financially which is a key factor in overcoming this unusual and
difficult situation. The other key part of this puzzle lies in the
legislation before your Committee and that is essentially to continue
to require renewable fuels, such as ethanol, to be part of our fuel
mix.
From 1990 to 2000, even though ethanol was in part required for
clean air programs, it took 10 years for production to double, due to
the uncertainty of the market those programs provided. As the RFS began
to develop and expectations were that it would indeed pass, U.S.
production doubled again over just the next four years (1.65-3.3BGPY).
When the RFS did become certain, counting ethanol capacity under
construction the industry doubled again from 2004-2007, with more than
6 billion gallons coming on line. The next doubling of the industry is
likely to take place sometime in 2009 or 2010 with another 6 billion
gallons ready to enter the fuel market. Can any one question that the
RFS was clearly the catalyst for this growth? We have had a tax
incentive in place for 25 years and it never drove the market like this
provision.
There are numerous precedents we can look at from all facets of our
society that draw comparisons to the RFS, whether it be Buy American
provisions for U.S. content in defense acquisition; small business
preference or minority business set-asides; equal employment
opportunity programs; and handicapped provisions. These are all
adjustments the Congress has made because if left to their own devices,
the free market would not have done these things which Congress deemed
to be in the public interest. Continuing and expanding a program under
which renewable fuels would have the certainty needed for private
investment dollars to flow is justified and necessary and the results
are undeniable.
There are some insightful and innovative provisions in this bill
that we fully support. The studies to address pipeline issues with
ethanol are long overdue. Studies to advance the use of higher blends
of ethanol could have a profound impact on the demand for ethanol. But
the heart of the bill, the very core, is the schedule of increased use
that would continue to provide the benefits achieved over the past
several years. Given our modest history, some might call it
unrealistic. Yet others question if it is aggressive enough. The answer
will be determined by how the program is finally designed and
implemented. CFDC is an ardent and long time supporter of the RFS but
we respectfully offer the following suggestions as to how this bill
could me modified.
Percentage Based Requirement.--We have some concerns with the basic
approach of being so prescriptive with respect to the annual
requirements. We would recommend that rather than such specific annual
requirements the legislation would establish that a percentage of the
gasoline and diesel pool be required to be renewable fuels by a certain
time. In what could be considered as the first phase of the program
from 2008-2012, that requirement would be 10%, or approximately 15
billion gallons. As a renewable requirement this could be met with
ethanol, biodiesel, or higher alcohols as long as they were derived
from renewable feedstocks. This would allow for the market to either
front load the requirement if it made economic sense, or let some
periods go by to allow for delays in construction, fabrication,
financing or any number of other related areas. We know this level is
attainable, we are within sight of it today. For every year after
(until the 2023 end date this bill would authorize) the renewable
requirement would increase by 2%. At projected fuel consumption levels
in the U.S. it would be close to the 3 billion gallons called for in
the legislation from 2015 to 2023, but again would have a carry forward
type allowance with the intent of providing maximum flexibility so that
the total is achieved within the time period. This type of approach
also would not give any cause to suspend or need to open up the program
if something were to cause a delay in a single year. The diesel market
should have its own renewable requirement from 2012 on. We do not have
a position on the exact numbers for that requirement but the biodiesel
industry would certainly have the best feel for a growth rate that is
achievable. By separating the two, the diesel market will have its own
clear path and will not be limited if ethanol exceeds the floor of the
RFS. We have members who can make a biomass-based diesel (not
biodiesel) and this represents a tremendous opportunity, particularly
for clean air purposes.
Elimination of Feedstock Restrictions or Caps.--CFDC believes the
definition of advanced biofuels that does not include corn, is
unnecessary and restrictive. Current concerns over the use of corn
often fail to reflect the dramatic increases in yield from both the
amount of corn produced per acre as well as the amount of ethanol yield
per bushel. By the year 2015 there may be dramatic improvements in both
and to cap the most effective feedstock we have at this time seems
unnecessarily restrictive. Certainly as we get closer to the limits of
corn that can be used other feedstocks will become more economically
feasible. Increased corn demand will provide the incentive to look
beyond corn and accelerate the development of these feedstocks. The
market will determine the pace of that transition from corn. Previous
legislation and the tax code clearly define what is renewable. Picking
losers and in effect forcing technology is not the answer.
Re-Direction of Financial Resources from Capital to Market.--
Looking at the success of the original ethanol partial excise tax
exemption, providing financial rewards when fuel actually reaches the
market has been a proven approach. The accelerated depreciation
provision for biomass ethanol property passed in the 2006 tax bill--if
expanded to all cellulosic technologies--is a helpful capital
incentive. The compliment to that would be an increased tax credit or
payment for these advanced biofuels at some significant level. All
renewable ethanol would be eligible for the excise tax credit, but
these advanced biofuels would be eligible for payments. There are
several advantages to this approach. First of all the federal
government, and the American taxpayer, only pay out if the project
actually produces fuel. Secondly, as an incentive for renewable fuels,
it would not be tied to the tax base and would promote the development
of a wide range of biofuels beyond just ethanol. There is a generation
of renewable fuels on the horizon. Bio fuels, bio oils, hybrids,
biomass derived diesel, and even a green gasoline is under development
by one of our member companies. Lastly, it would obviate the need for
specific technologies to be chosen by the federal government which is a
process that to date has not yielded a gallon of cellulosic fuel on the
market. Rather than authorize and appropriate money for capital
projects, funds could be appropriated for a biofuel fund. We believe
this would provide more results for our money. Ultimately it could be a
CO2 reduction program since all of these fuels, by virtue of
their renewable feedstock, would be displacing fossil fuels.
Mr. Chairman, the benefits of the RFS are clear. By virtue of the
fact that you and Senator Domenici have introduced legislation to
expand it shows you recognize that fact. We implore you to provide
direction, but at the same time be as flexible as possible in how we
approach this issue.
A final thought for the Committee's consideration with regard to
talking the lead in expanding the RFS is that knowing demand is out
there will continue to drive technology. Industry and government alike
will look harder, develop further, and go faster when it comes to
demonstrating feedstocks and technologies. If the perception settles in
over the industry that requirements have been met and we will enter a
period of detente, it is quite likely the current interest we are
seeing in renewable technologies will slow down considerably, if not
stop all together. For that reason we also believe it is critical to
clearly maintain the definition of renewable fuels, rather than a
broader alternative fuel category as has been proposed by the Bush
Administration. Fossil fuel-based alternatives to importing oil and
gasoline from hostile and unstable regions should be a complement to a
renewable requirement, but never should it replace renewables. Clearly
the carrot on a stick approach of having identifiable programs and
objectives out in front will continue to drive American agriculture and
many other industries to maximize all of its available resources to
produce ethanol and other biofuels to the benefit of the entire
country.
On behalf of our members, we thank you again for the opportunity to
submit these comments and look forward to working with Congress and the
Department of Agriculture on these very important subjects.
______
Joint Statement of Defenders of Wildlife, Environmental Working Group,
Friends of the Earth, Institute for Agriculture and Trade Policy, The
Minnesota Project, National Environmental Trust, Natural Resources
Defense Council, Sierra Club, Sustainable Agriculture Coalition, U.S.
PIRG, Western Organization of Resource Councils, World Wildlife Fund
On behalf of our millions of members and activists we urge you to
support sustainably produced bioenergy as a key component of a
comprehensive strategy to reduce America's dangerous dependence on oil
and to help solve global warming. Done right, bioenergy holds great
potential to advance essential environmental and energy security goals.
Pursued without adequate guidelines, however, bioenergy production
carries grave risk to our lands, forests, water, wildlife, public
health and climate. We therefore urge you to support the energy
efficiency policies and performance standards that will ensure
bioenergy meets its promise while avoiding collateral environmental
damage.
The starting point for any constructive bioenergy policy, from
increasing the size of the renewable fuel standard to enhanced biofuels
programs in the Farm Bill, has to be much greater end-use energy
efficiency. Efficiency policies such as raising Corporate Average Fuel
Economy standards for vehicles and promoting smart growth in our cities
are essential to reduce oil demand and ensure that our lands are not
put under excessive pressure to produce biofuel feedstocks.
If not carefully managed, increased production of biofuels has the
potential to cause widespread environmental devastation. Accelerated
corn cultivation for ethanol, for example, threatens to deplete water
tables, magnify contamination by fertilizers, pesticides, and
herbicides, and undermine vital conservation programs like the
Conservation Reserve Program. On farms and in forests across the
country and abroad, imprudent biomass harvesting would cause soil
erosion, water pollution, and habitat destruction, while also
substantially reducing the carbon uptake of land. Advancing a biofuels
policy that leads to conversion of land into a type that lowers its
carbon uptake potential is a particularly perverse result for a policy
that is intended to reduce global warming pollution.
Fortunately, we can manage and mitigate these bioenergy impacts
through thoughtful legislation. Developing a sustainable bioenergy
industry will require low carbon and other environmental performance
standards. Attached, we respectfully include a set of guiding
principles that provide the basis for such standards.
New policies are also needed to accelerate the transition to
bioenergy produced from feedstocks such as cellulosic crops grown in
sustainable systems. These policies include research and development on
feedstocks such as native perennials, incentives for bioenergy
production facilities with a preference for local ownership, and
programs that help farmers make the transition to growing feedstocks in
sustainable agronomic systems.
Again, bioenergy holds great promise as a tool for reducing global
warming pollution, breaking our dangerous oil addiction, and
revitalizing rural economies, as long as we shape the nascent bioenergy
industry to provide these benefits in a sound and truly sustainable
fashion. We look forward to working with you on this important and
challenging issue.
bioenergy feedstock guiding principles
The use of bioenergy must reduce greenhouse gas emissions.--
Depending on how it is produced, bioenergy can significantly
lower or increase greenhouse gasses. Key factors include the
amount and sources of energy used to produce biofuels, and the
potential direct or indirect conversion of carbon-sequestering
forests and grasslands to lower carbon bioenergy feedstocks. To
assure benefits, new incentives and requirements for increased
use of biofuels need to be tied to significant reductions in
the greenhouse gas intensity of these fuels. Practices that
negate the greenhouse gas benefits of biofuels include
conversion of native grasslands to produce biofuel feedstocks,
loss of old growth forests, intensified tillage, and use of
coal to power ethanol plants.
Biomass used for bioenergy has to be renewable.--Biomass
must be regrown on site, recapturing its released carbon, so
that it is genuinely sustainable--unless it is the by-product
of activity with independent, over-riding social utility (like
removal of vegetation immediately around wildland-interface
homes).
Bioenergy feedstocks must not be grown on environmentally
sensitive lands.--Such lands include: old growth forests;
wilderness study areas; roadless areas on national forests;
native grasslands; important wildlife habitat; ecosystems that
are intact, rare, high in species richness or endemism, or
exhibit rare ecological phenomena.
Conversion of natural ecosystems must be avoided.--Habitat
loss from the conversion of natural ecosystems represents the
primary driving force in the loss of biological diversity
worldwide. Activities to be avoided include those that alter
the native habitat to such an extent that it no longer supports
most characteristic native species and ecological processes.
Exemptions and waivers from environmental rules must not be
used to promote biomass production or utilization.--Trading one
serious environmental harm for another is poor policy. Our
environmental laws and regulations act as a fundamental system
of checks and balances to guard against just such collateral
damage and the promotion of bioenergy production and
utilization must in no way be exempted.
Conservation and Wetland Reserve Programs supported by the
Farm Bill must be managed for their conservation benefits.--
These programs protect marginal lands, water quality, soil, and
wildlife habitat. Enrolled lands need to be managed principally
for these important values, not bioenergy feedstocks.
Independent certification, market incentives, and minimum
performance requirements are necessary to ensure that bioenergy
feedstocks are produced using sustainable practices.--
Certification standards for biomass from private lands must
address key environmental and social objectives, such as
protection of wildlife habitat, prevention of erosion,
conservation of soil and water resources, nutrient management,
selection of appropriate feedstock species, and biologically-
integrated pest management. New policies are needed to ensure
that producers, refiners and distributors adhere to minimum
performance requirements and have incentives to maximize
environmental performance at each step.
Stringent safeguards must be established for bioenergy
production from feedstock derived from federal land.--Federal
lands, including wildlife refuges, BLM lands, national forests
and grasslands, are held subject to the public's interest in
their non-commodity values. They are not appropriate for large-
scale, sustained biomass sourcing.
______
Statement of Dave Heineman, Governor, State of Nebraska, and Chairman,
Governors' Ethanol Coalition
Mr. Chairman and members of the Committee, my name is Dave
Heineman, Governor of Nebraska and Chairman of the Governors' Ethanol
Coalition. The Coalition represents thirty-five of the nation's
governors and is committed to expanding the environmental, economic,
and security benefits of ethanol production and use to all regions of
the nation. We greatly appreciate the opportunity to provide this
testimony in support of key provisions of the Biofuels for Energy
Security and Transportation Act of 2007--S. 987.
This legislation's core elements build upon and include many of the
governors' recent and past policy recommendations to Congress and the
President. Our recommendations were developed because of the governors'
concern for the serious security, economic, and environmental risks
associated with the United States' dependence on oil from unreliable
and unstable nations. We believe we must transform the nation's
transportation fuel system and the vehicle fleet so that the fuel we
use does not threaten our way of life. Consider the following:
Oil is the largest contributor to our trade deficit,
accounting for more than $1 billion a day in funds that are
largely sent--not to the shareholders of major publicly owned
oil companies--but to increasingly unstable oil exporting
countries;
Oil accounts for more than 32 percent of U.S. carbon dioxide
emissions--with each gallon of gasoline burned producing 28
pounds of carbon dioxide from the combination of tailpipe
emissions and the refining and distribution of gasoline; and,
Oil supply and price volatility have demonstrated repeatedly
a capacity for worldwide economic disruptions.
Recognizing the seriousness of this matter, the governors worked
with Congress and the President to pass the Energy Policy Act of 2005,
which established the Renewable Fuels Standard (RFS) and dramatically
expanded biofuels research and demonstration. The result is
unprecedented growth in ethanol production and the beginning of a shift
in our oil dependency. For example, the production of 4 billion gallons
of ethanol in 2005 resulted in the United States importing 170 million
fewer barrels of oil--this means that $8.7 billion was not transferred
to oil-producing nations from our nation that year.
In a matter of months, we will exceed the 2012 goal of 7.5 billion
gallons of ethanol a year set by the RFS contained in the Energy Policy
Act of 2005. This seemingly overnight achievement is a modest
demonstration of what the nation can achieve with sound policy signals
and adequate resources.
However, our continued oil dependency suggests the need for a far
greater response. Production of 10 or 15 billion gallons of ethanol a
year can aid in mitigating these risks and is a goal that can be met
with existing feedstocks and technologies. Nevertheless, such a goal
falls short of both our potential and the challenge we face. Instead,
the Coalition members believe we must establish far more ambitious
goals than those envisioned only a few years ago.
In order to assess the potential for adopting such an expansion,
the Coalition commissioned the University of Tennessee to conduct a
study of the economic, environmental, and agricultural impacts of
increasing levels of ethanol production and use. The results of the
study show that further expansion of production--10 billion gallons in
2010, 30 billion gallons in 2020, and 60 billion gallons in 2030--is
well within the capability of the industry and farmers under
conservative grain yield improvement assumptions, and use of modest
amounts of cellulosic derived ethanol production by 2012, growing to
far greater quantities over time.
Emboldened by both the study results and the need to address the
nation's and the states' energy policies, the governors' consulted a
group of environmental, energy, agricultural, and biofuel experts to
aid them in developing a new set of policy recommendations. The
governors adopted these recommendations four months ago in a report
entitled Ethanol From Biomass: How to Get to a Biofuels Future. The
recommendations include:
Expanding the RFS.--The RFS should be expanded to a short-
term target of 12 billion gallons a year of ethanol and
biodiesel use by 2010, and a longer-term BTU-based target of 25
percent of total motor fuels consumption by 2025, or about 60
billion gallons.
Assigning a value to the RFS cellulosic ethanol trading
credit.--This non-financial credit should be converted to a
Cellulosic Ethanol Production Tax Credit.
Establishing a timetable for delivering higher blend ethanol
infrastructure--expanding from several major metropolitan areas
to entire regions within five years.--This expansion would be
synchronized with the production of not less than 70 percent of
new vehicles sold being flex-fuel capable within 10 years.
Providing adequate funding for the Energy Policy Act of 2005
authorized biofuel research, demonstration, and incentive
programs.--Critical efforts must be fully supported on a range
of cellulosic feedstocks. This support is key to the
development of advanced ethanol production, the launch of plug-
in hybrid flex fuel capable vehicles, and the expansion of
higher blend ethanol infrastructure. Support for these efforts
will cost less than one-half of what America spends in one day
for imported oil.
The combination of the above actions aim to achieve a goal of
providing 25 percent of our transportation fuel, about 60 billion
gallons, from renewable, domestically produced ethanol by 2030.
support for s. 987 complementary provisions
The Governors' Ethanol Coalition supports components of the
Biofuels for Energy Security and Transportation Act of 2007 (S. 987).
In particular, we believe the legislation's expansion of the RFS and
emphasis on stimulating rapid cellulosic biofuel production are
essential to addressing the nation's energy challenges. Moreover, the
bill's attention to regional differences, which recognizes the need to
support ethanol production and feedstock development in all areas of
the nation, is a key principle of the governors' policy
recommendations.
However, the Coalition believes S. 987 could be strengthened in
several important ways and we respectfully request your consideration
of the following additional elements derived from the governors' policy
recommendations:
RFS Expansion
S. 987's RFS targets are excellent, but would benefit from greater
near-term expansion of cellulosic derived ethanol. The current RFS
includes a requirement for the utilization of 250 million gallons of
cellulosic derived ethanol by 2013. Since enactment of the RFS,
cellulosic ethanol research and development efforts are making rapid
progress. Commercial scale demonstrations are being constructed around
the nation and smaller scale production is already underway at a few
sites. In Nebraska, we have 13 ethanol plants in operation and 10 under
construction and, I am proud to say, we are home to a state-of-the-art
bioplastics production facility--a key to the biorefinery concept that
is a part of our vision for the future of ethanol. Following are a few
examples of the exciting development underway around the nation:
Georgia Governor Sonny Perdue announced that Georgia would
be the site for a cellulosic ethanol plant that will use wood
waste as a feedstock. The plant will have the capacity to
produce over 1 billion gallons of ethanol a year and employ 70.
New York announced that two companies have been selected to
develop and construct pilot commercial cellulosic ethanol
facilities in New York.
Oklahoma Governor Brad Henry announced creation of a world-
class $160 million Bioenergy Center to be created over the next
four years at the Universities of Oklahoma and Oklahoma State.
Tennessee Governor Phil Bredesen announced a $72 million
alternative fuels initiative that included the construction of
a $40 million pilot biomass plant.
Kansas Governor Kathleen Sebelius, last year's Coalition
chair, announced that she would make cellulosic ethanol a
priority and make Kansas a national leader in biofuels research
and production.
Wisconsin Governor Jim Doyle announced plans to make
Wisconsin home to the first cellulosic ethanol plant in the
United States.
Governor Arnold Schwarzenegger announced a low-carbon fuel
standard for California that will drive biofuel production and
use by setting a far-reaching goal and relying on the private
sector to deliver clean renewable fuels and innovative vehicle
technologies.
It appears that the 2012 RFS cellulosic goal could easily be
exceeded. Thus, the governors recommend an expanded cellulosic ethanol
goal of 500 million gallons a year beginning in 2012. The addition of
this language to the RFS expansion provisions of S. 987 should lead to
a dramatic expansion of private sector investment in cellulosic ethanol
production facilities.
Cellulosic Ethanol Production Tax Credit
Providing a cellulosic production tax credit, built upon the
existing RFS cellulosic trading credit, would immediately advance
cellulosic and potentially other ``low carbon'' ethanol production.
Congress included a 2.5:1 trading credit for cellulosic ethanol when it
approved the RFS in the Energy Policy Act of 2005. The trading credit
meant that each gallon of cellulosic ethanol would count as 2.5 gallons
for purposes of meeting the RFS requirements. Because the expansion of
conventional ethanol production far exceeded expectations, there is no
financial incentive for ethanol blenders to pay more for cellulosic
ethanol, and therefore the trading credit has no financial value.
Monetizing this credit is one of the principles envisioned by Congress
and the President in passage of the RFS, but not realized because of
the volume of conventional ethanol produced.
This monetization goal can be achieved with a simple policy
modification. The Coalition recommends that a value be assigned to the
trading credit by converting the trading credit to a ten year
Cellulosic Ethanol Production Tax Credit that would be worth an
additional $0.765 a gallon compared to conventional ethanol, or $0.765
plus the value of the regular ethanol Volumetric Ethanol Excise Tax
Credit. This approach differs from the current credit for conventional
ethanol in that it would be available to producers. The current tax
credit for conventional ethanol accrues primarily to the petroleum
blender. Properly structured, these measures incentivize a range of new
ethanol production technologies that reduce fossil fuel inputs and
increase the competitiveness of domestically produced ethanol.
Infrastructure Development
S. 987's provisions expanding higher blend ethanol infrastructure
development are extremely important. The corridor approach provides
consumers with more biofuel retail options, is consistent with the
successful infrastructure actions of many states and cities, and is
supported by the governors. Nevertheless, the Coalition believes that
Congress must take extraordinary steps to overcome the ethanol
infrastructure-vehicle stalemate and enable real competition among
transportation fuels. The governors find no evidence that the current
entrenched fuel system will afford a timely transition to a more
dynamic and resilient system that includes higher blend renewable
fuels. Federal, state and private actions are needed to open the door
for new market entrants and create a more vibrant domestic biofuels
industry.
The governors recommend adding a regional approach to S. 987 to
address the infrastructure challenge. The city-to-region strategy
should be used that includes the adoption of performance standards for
major gas station owners and branders (e.g., owners of 100 or more
fueling stations, high-volume stations) that would provide at least one
higher blend ethanol pump at 95 percent of their stations in at least
one region over five years. This should be synchronized with the
adoption of a timetable for the transition to uniform flexible-fuel
vehicle requirements that not less than 70 percent of new light duty
vehicles sold in the United States be fuel flexible within 10 years.
Modest tax incentives (e.g., $100 for each vehicle) would be provided
to aid auto manufacturers in transitioning to this standard.
As a part of this strategy, the Coalition also recommends the
addition of a market-oriented ``kick start'' for this city-to-region
approach that would create a partnership among our states, cities,
industry, and the federal government that concentrates higher blend
ethanol efforts in key markets. This concentrated effort would maximize
private, state, and local investments in marketing and infrastructure
and would provide evidence of the potential of a flexible-fuel system.
Moreover, this approach would allow other state and private efforts of
a similar nature to occur throughout the nation.
Expand Blend Study
The Coalition recommends that Section 302 of S. 987, which direct
the U.S. Department of Energy to study the feasibility of nationwide
consumption of a range of ethanol blends, be expanded from the indicted
levels of E15 through 25, to E10 through E85. The modest additional
cost of this work would provide policy makers at the state, local, and
federal levels with important data on a range of blends and offer the
market place and consumers a greater range of blend solutions.
Loan Guarantees and Low Carbon Fuel
The legislation's Section 204 Loan guarantee provision is an
important refinement of the current U.S. Department of Loan guarantee
program. The governors believe structuring these guarantees in ways
that encourage both low carbon biofuel development and low carbon
options for all the alternative energy projects eligible under the
program is essential. This approach ensures that taxpayer funded
federal support for clean energy options will benefit our states
economies and environment.
Ethanol Expansion Impacts
The Governors' Ethanol Coalition recognizes the temporary but real
problem that has emerged regarding food and fuel tensions due to higher
corn prices. For example, in Nebraska, which has a large and vibrant
livestock industry, high corn prices are affecting profitability, even
though byproducts of the grain ethanol refining process can substitute
for some corn in livestock diets. While the results of the growing
season and harvest will not be known for some time, there is reason for
optimism. Secretary of Agriculture Mike Johanns addressed this issue
recently, saying:
The U.S. Department of Agriculture's economists calculate
that ethanol production could rise to 10 billion gallons by
2010 without forcing us to choose between corn for food or for
fuel. We believe that corn-based ethanol will be a part of our
ethanol future. But the next generation is cellulosic ethanol.
We are also conducting research, as is the private sector, to
make Distiller's Dried Grain a better source of feed. Right now
on one bushel of corn used for ethanol creates about 17 pounds
of that byproduct. The goal is to develop a way to fracture the
kernels before processing so that both high value feed and
ethanol can be produced from the same corn.
The other thing I would say is the market works. The interest
in corn for ethanol production is spurring research into
increasing corn yields at seed companies . . . We also believe
that most cellulosic materials that will be used for ethanol
production in the future will not compete for good pasture.
These grasses and other biomass products do well on marginal
ground.
Renewable energy is changing the face of agriculture and that
involves a period of adjustment but it also creates
opportunities for ranchers and rural America.
The Secretary's views mirror those of the many energy,
agricultural, and environmental experts from around the nation that the
governors consulted in developing our recommendations.
In closing Mr. Chairman, the Coalition believes that S. 987
includes many of the key elements needed to achieve a biofuels future
for America. We also urge your consideration of the governors'
recommended additions to the bill as a means to more rapidly meet the
important goals set forth by Senators Bingaman and Domenici. Thank you
for the opportunity to provide the governors' input and ideas today. We
look forward to working with Congress and the President to advance the
opportunities of biofuel production and use in all regions of the
nation.
______
Statement of H2Diesel
overview
S. 987 is a strong proposal that moves in the right direction, but
it focuses largely on unproven technologies that may address U.S.
energy dependency problems. In fact, American companies are already
producing the next generation of bio fuels that have many advantages
over traditional biodiesel. However, these companies cannot compete on
a level playing field due to the narrowly defined energy tax incentives
that only encourage the production of tradition biodiesel.
S. 987 does an excellent job of recognizing that the current
definition of biodiesel has limited use, and does not encourage new,
innovative technology that can truly address U.S. energy needs, reduce
U.S. dependence on foreign oil, support America's rural economy,
significantly reduce harmful environmental emissions, and encourage
domestic, 100 percent renewable energy resources. H2Diesel applauds the
inclusion of ``Advanced Biofuels'' and ``Renewable Fuel'' definitions
in S. 987 that will encourage U.S. technologies and production
techniques for the next generation of bio fuels that can meet the
policy objectives identified by S. 987. However, unless this broadened
definition is translated into the energy tax policy area, the updated
definitions may have limited impact where it truly matters--in the
marketplace and for U.S. consumers.
h2diesel
H2Diesel is a U.S. company (Boca Raton, Florida and Houston, Texas)
that holds an exclusive license for North America, Central America and
the Caribbean to proprietary technology for the manufacture of an
alternative ``bio-fuel'' from domestically produced vegetable oils and
animal fats that can be used for power generation, heavy equipment,
marine use and as a heating fuel. H2Diesel's product is the result of a
blending--or emulsion--process in making a proprietary bio-fuel that
provides a cheaper, 100 percent renewable alternative energy source
with significantly lower emissions than traditional fuels and a cleaner
and more efficient alternative to heating oil.
major aspects of current bio diesel technology production
Requires a complex and energy-intensive production method
that is very expensive
Produces chemical by-products that must be handled and
disposed of, which adds cost to production and creates
potential environmental problems
Has limited use and is not suitable for all climates,
especially in colder climates
Can only be used in fuel blends up to 20%
When blended, results in a product that is still 80% foreign
oil and still emits some harmful pollution
h2diesel has significant advantages over traditional bio diesel
Proprietary manufacturing process results in dramatically
lower production costs and no harmful by-products
Produced from any number of vegetable feedstocks, animal
fat, and renewable oilseed crops, including soybeans, canola,
plamatic, sunflower, GMO, cotton seed, mustard seed, and
restaurant waste oil
Is a domestic fuel that reduces our nation's dependence on
foreign oil, improving energy security
Improves the rural economy by creating farming jobs
Can be used as heating oil, power generation fuel, and as a
motor fuel
Produces approximately 80% less carbon dioxide emissions and
almost 100% less sulfur dioxide than traditional petroleum
diesel
Is a renewable ``carbon neutral'' fuel, which results in no
net emissions of harmful CO2
Contains virtually no sulfur; reduces emissions that can
cause acid rain; eliminates formation of sulfates which cause
particulate pollution
Emits significantly less nitrogen oxides than either
traditional bio diesel or petroleum diesel. Nitrogen oxides are
a significant component of urban smog and have been linked to
asthma
Small production plant footprint allows for less
environmental impact
Can be used by any conventional diesel engine at 100%
strength and extends the life of diesel engines because it is
more lubricating than petroleum diesel fuel
Facilitates process automation that results in reduced labor
and energy costs
However, H2Diesel and other innovative U.S. companies face
significant barriers to competing on a level playing field because
current law and tax policy designed to encourage companies to explore
renewable energy technologies is too narrowly focused to allow true
innovation and fully encourage new technologies that can break the
United States' continuing dependence on foreign energy suppliers.
For example, the current tax code definition of ``biodiesel'' is
limited to products that are methyl esters that meet the requirements
of ASTM specification 6751. The tax code also has a fairly limited
definition that excludes many other domestically produced, renewable,
vegetable oil-based products that have equivalent or superior
properties to the narrowly defined ``Biodiesel.''
Current tax policy focuses heavily on encouraging the production of
``biodiesel,'' principally a $1.00 per gallon blenders income tax
credit. Without this credit, the cost of producing biodiesel would be
prohibitive.
U.S. companies have and are continuing to develop new technologies
to create new bio fuels that hold great promise to more fully address
U.S. energy needs, which go well beyond just motor vehicle fuel
consumption (home heating oil, power generation), today and in the
future.
These bio fuels are potentially far superior to traditional
biodiesel, with greater applications, lower production cost, greater
environmental benefits (cleaner burning product) and can be produced
from a wide range of agricultural products.
U.S. law and tax policy should acknowledge this reality and
encourage greater innovation in U.S. technology by creating a new
definition of ``bio fuels'' that will help speed new technologies and
production techniques into the market place while supporting America's
rural economy.
S. 987 does a good job in this respect, especially the new
definitions for ``Advanced Biofuels'' and ``Renewable Fuel.'' However,
these definitions need to be included in U.S. energy-related tax law to
truly encourage U.S. innovation and level the playing field for all bio
fuels producers. Moreover, U.S. tax law should be revised to ensure
that a revised definition is carefully tailored to make certain that it
benefits those innovative companies that truly can make a difference.
______
Statement of the National Biodiesel Board
Good morning Mr. Chairman, Ranking Member Domenici, and committee
members. On behalf of the National Biodiesel Board (NBB), we appreciate
the committee holding this hearing on S. 987--the Biofuels for Energy
Security and Transportation Act of 2007--and the opportunity to provide
comments on this important piece of legislation. The NBB is supportive
of the aim of S. 987 to enhance national energy security through
increased utilization of renewable fuels; development of new
technologies and working through potential barriers to renewable fuels
entering the marketplace. Our comments will focus on several primary
components of the legislation where NBB is supportive, as well as areas
where we'd appreciate the opportunity to work further with the
committee as this process moves forward.
industry background and overview
The NBB is the national not-for-profit trade association
representing the commercial biodiesel industry as the coordinating body
for research and development in the United States. The NBB was founded
NBB in 1992 and since that time has developed into a comprehensive
industry association, which coordinates and interacts with a broad
range of stakeholders including industry, government, and academia.
NBB's membership encompasses over 400 members and is comprised of
biodiesel producers; fuel marketers and distributors; state, national,
and international feedstock and feedstock processor organizations; and
technology providers.
Biodiesel is a cleaner burning, renewable diesel fuel replacement
made from agricultural fats and oils meeting a specific commercial fuel
definition and specification. Soybeans are the primary oilseed crop
grown in the United States, and soybean oil makes up about half of the
raw material available to make biodiesel. The other half consists of
all other vegetable oils and animal fats. Biodiesel is made utilizing a
chemical reaction process where the oil/fat is reacted with an alcohol
to remove the glycerin in order to meet specifications set forth by the
American Society for Testing and Materials (ASTM), D 6751. Biodiesel is
one of the best-tested alternative fuels in the country and the only
alternative fuel to meet all of the testing requirements of the 1990
amendments to the Clean Air Act.
title 1: renewable fuel standard
The applicable volumes for the Renewable Fuel Standard (RFS)
outlined under Title 1 of S. 987 are aggressive and will have a
dramatic positive impact on our nation's energy security, while
additionally providing needed environmental and economic development
benefits. The NBB views the concept of a Renewable Fuel Standard (RFS)
as a piece of public policy that can provide a solid foundation for the
introduction of new renewable fuels. Equally important, a RFS can
dramatically assist in the sustainable growth of existing, emerging
domestic renewable fuels, such as biodiesel.
The biodiesel industry has shown slow but steady growth since the
early 1990's, however, in the past two years, it has grown
exponentially. In 2004 there was approximately 25 million gallons of
biodiesel sales. That increased to approximately 250 million gallons in
2006. Likewise, we went from 22 biodiesel plants in 2004 to 105
biodiesel plants currently (865 million gallons of production
capacity). There are 77 more plants currently under construction and
expansion (estimated additional 1.7 billion gallons of production
capacity). We are encouraged the legislation incorporates alternatives
in the diesel sector; and feel biodiesel should play a significant,
specific role in meeting the overall Standard.
From our industry's perspective, confidence in the fuel by
consumers and engine and vehicle manufacturers is essential to the
success of renewable fuels in the marketplace. Development of
appropriate ASTM fuel standards for new fuels entering the marketplace
will be important. Undergoing proper in-use testing and evaluation
needed to secure an appropriate ASTM fuel standard provides a
significant level of confidence to engine and vehicle companies that
the use of these fuels will operate properly in their equipment.
title 2: renewable fuels infrastructure
Title 2 addresses several critical needs that can help further
develop the infrastructure necessary to enhance the production and
distribution of renewable fuels, including the Infrastructure Pilot
Program for Renewable Fuels. The need exists for the development of
renewable fuel corridors as envisioned under the Pilot Program. As an
example, the National Biodiesel Board is fielding numerous inquiries
from consumers, particularly in the trucking industry, regarding
fueling locations that offer biodiesel. In response to this demand, the
NBB has established a 24 hour service to provide such information.
Development of these corridors we feel will help enhance availability
of renewable fuels in a strategic manner.
Additionally, the provision establishing Loan Guarantees for
Renewable Fuel Facilities will provide needed security to encourage
development of new technologies in the ethanol sector. Extending these
guarantees for biodiesel production facilities would also provide added
security for our emerging industry, particularly in times of
fluctuating market fundamentals.
title 3: studies
A key factor in the development of renewable fuels will be
efficient distribution. The most efficient means of moving large
volumes of fuel is via pipeline. We are seeing biodiesel moving through
pipelines in Europe today. Extending that capability in the U.S. would
be substantial. However, significant work remains to be done in this
area before it is a reality domestically. The National Biodiesel Board
and biodiesel industry have committed funds to study the technical
needs required for moving biodiesel through U.S. pipelines. Additional
support from the federal government could be significant in helping
complete needed research and tackling potential technical barriers.
In conclusion Mr. Chairman and committee members, support for
advancing renewable fuels is critical to enhancing our nation's energy
security and provide needed environmental and economic development
benefits. S. 987 proposes aggressive policies that would substantially
increase the development and utilization of renewable fuels. Biodiesel
can and should play a significant role in helping to enhance our
nation's energy security. While biodiesel has proven itself with
consumers, our industry remains an emerging industry. Biodiesel's
ability to play a specific, realistic role in achieving the targets
identified under the Renewable Fuel Standard can dramatically assist in
the sustainable growth of our promising industry. Additionally, many of
the bill's provisions regarding infrastructure and studies to address
technical barriers could significantly benefit the biodiesel industry
and its development.
Again, we appreciate the introduction of S. 987 and the opportunity
to provide these comments to you. We look forward to continue working
with the committee and staff.
______
Statement of the NGVAmerica
introduction
NGVAmerica appreciates the Committee's initiative to include biogas
as a renewable fuel in S. 987, and we appreciate the opportunity to
provide the Committee with some additional comments and suggestions
concerning that bill.
NGVAmerica is a national organization of over 100 member companies,
including: vehicle manufacturers; natural gas vehicle (NGV) component
manufacturers; natural gas distribution, transmission, and production
companies; natural gas development organizations; environmental and
non-profit advocacy organizations; state and local government agencies;
and fleet operators. NGVAmerica is dedicated to developing markets for
NGVs and building an NGV infrastructure, including the installation of
fueling stations, the manufacture of NGVs, the development of industry
standards, and the provision of training.
recommendations
NGVAmerica proposes the following changes to S. 987. The changes in
Section A below concern broadening the types of biogas that are
encouraged by the bill. There are three primary biofuels: bio-ethanol,
biodiesel and biogas (which can be purified to make a natural gas-
substitute called biomethane). The proposed changes offered here would
broaden the language of the bill to include biogas and more
specifically, biomethane, in all the incentives and programs of the
bill. Section B below requests that the Committee expand portions of S.
987 to include the alternative fuels recognized under section 301(2) of
the Energy Policy Act of 1992.
Biogas-related Recommendations
NGVAmerica proposes the following changes to S. 987 (noted in red
and italics below). The results of the changes would be to treat all
renewable biogas technologies and sources the same as other renewable
biofuels:
Definition of ``Advanced Biofuels''
Page 3, lines 8-9
``Advanced biofuels'' is currently defined as
follows: (v) biogas produced by anaerobic digestion or
fermentation of organic matter from renewable biomass;
and
Proposed language: (v) biogas produced by anaerobic
digestion, fermentation, or pyrolysis of organic matter
from renewable biomass; and
Rationale:
Pyrolysis is a form of thermal treatment that reduces
waste volumes and produces a methane-rich fuel as a
byproduct. While most organic materials can be
converted to biogas using anaerobic digestion or
fermentation, cellulosic materials require the use of a
pyrolysis process. Since it is hoped that cellulosic
materials will be an increasingly important feedstock
for energy production, pyrolysis should be added here.
Definition of ``Renewable Biomass''
Page 4, line 17
This line describes ``renewable biomass'' as
including: (IV) municipal solid waste.
Proposed language: (IV) municipal solid waste and
sewage.
Rationale:
Disposal of sewage sludge accumulated in wastewater
treatment facilities is costly and energy-intensive.
Sewage sludge is also an excellent biogas feedstock.
Sewage, however, was omitted from the definition of
renewable biomass and should be included. Note that
sewage is included in the final rule for the Renewable
Fuel Standard just issued by EPA. See Renewable Fuel
Standard (Final Rule; definition of renewable fuel; to
be codified at 40 CFR 80.1100(a)(1)(i)(B); (http://
www.epa.gov/otaq/renewablefuels/rfs-regulations.pdf).
Definition of ``Renewable Fuel''
Page 5, lines 3-7
The definition of ``renewable fuel'' includes the
following: (ii) used to replace or reduce the quantity
of fossil fuel present in a fuel mixture used to
operate a motor vehicle, boiler, or furnace that would
otherwise operate using fossil fuel.
Proposed language: (ii) used to replace or reduce the
quantity of fossil fuel present in a fuel or fuel
mixture used to operate a motor vehicle, boiler, or
furnace that would otherwise operate using fossil fuel.
Rationale:
In the past, regulatory agencies (e.g., the IRS) have
interpreted the term ``fuel mixture'' as excluding
fuels that are 100 percent non-petroleum fuels (i.e.,
neat or dedicated fuels). Neat fuels include B100,
E100, renewable hydrogen and renewable biogas. It was
probably not the intention of the Committee to exclude
fuels that are 100 percent renewable but not a ``fuel
mixture.'' Clarifying that dedicated or neat renewable
fuels qualify as renewable fuels also is consistent
with the approach taken by EPA in the final regulations
issues for the Renewable Fuel Standard.
Focus on Cellulosic Biomass Ethanol Only
Page 3, lines 13-14; Page 12-13, lines 24-25 and 1-4;
Page 33, lines 2324; Page 37, line 14
In these lines, S. 987 refers to ``cellulosic biomass
ethanol.'' All these references should be changed to
``cellulosic biomass biofuels.''
Rationale:
As discussed above, in addition to ethanol,
cellulosic biomass can also be converted to biogas. In
addition, it may be possible for a cellulosic process
to also produce a renewable diesel substitute.
Producing ethanol from cellulosic materials may turn
out to be the most economical and efficient use of
these materials. But, until this becomes clearer, the
production of other fuels from these materials also
should be encouraged and supported by federal
assistance. Congress should provide as much flexibility
as possible in this program to convert cellulosic
biomass into useful energy and not just limit it to
cellulosic ethanol.
Infrastructure Pilot Program for Renewable Fuels
Page 21, lines 1-5
These lines define the scope of the grant program as
follows: (b) GRANT PURPOSES.--A grant under this
section shall be used for the establishment of
refueling infrastructure corridors, as designated by
the Secretary, for gasoline blends that contain at
least 85 percent renewable fuel or diesel fuel that
contains at least 10 percent renewable fuel . . .
Proposed language: (b) GRANT PURPOSES.--A grant under
this section shall be used for the establishment of
refueling infrastructure corridors, as designated by
the Secretary, for gasoline blends that contain at
least 85 percent renewable fuel, diesel fuel that
contains at least 10 percent renewable fuel or natural
gas (both compressed and liquefied) that contains at
least 10 percent biogas . . .
Rationale:
The addition of biogas-related fueling infrastructure
would allow biogas distributors to be treated the same
as bio-liquid distributors.
Loan Guarantees of Renewable Fuels Facilities
Page 30, lines 10-15
These lines define the minimum production volume for
biofuels plants in order to qualify for a loan
guarantee: (4) PROJECT DESIGN.--A project for which a
guarantee is made under this subsection shall have a
project design that has been validated through the
operation of a continuous process pilot facility with
an annual output of at least 50,000 gallons of ethanol.
Proposed language: (4) PROJECT DESIGN.--A project for
which a guarantee is made under this subsection shall
have a project design that has been validated through
the operation of a continuous process pilot facility
with an annual output of at least 50,000 gallons of
ethanol-equivalent of renewable fuel.
Rationale:
As currently stated, loans guarantees would only be
available for ethanol production facilities. Biodiesel,
biogas and other biofuels facilities would not qualify.
This change would treat all renewable fuels equally.
Add: Sec. 306. Study of Biogas/Biomethane Potential and
Technologies
Add at end of the bill
Add a new National Academy of Sciences study on the
production potential of biogas (including biomethane)
from landfills, sewage waste treatment facilities,
animal waste, crop waste, and cellulosic biomass
sources.
The scope of this biogas/biomethane study could be as
follows: SCOPE--In conducting the study, the Academy
shall----
(1) evaluate the potential of producing
biogas/biomethane in the U.S. from landfills,
sewage waste treatment facilities, animal
waste, crop waste, and cellulosic biomass
sources.
(2) include an assessment of the maturity of
biogas/biomethane production technologies and
the potential for technical and economic
improvements in these technologies;
(3) consider the technical, economic,
regulatory and other barriers to increased
production of biogas/biomethane;
(4) evaluate the potential of and barriers to
using biomethane as a transportation fuel--both
as 100 percent biomethane and as a natural gas/
biomethane blend;
(5) make policy recommendations to accelerate
the development of biogas/biomethane
technologies, commercial production of biogas/
biomethane and the use of biomethane as a
transportation fuel.
Rationale:
Several studies have looked at the feasibility of
producing biogas/biomethane from readily available
renewable sources. However, there is no current
comprehensive national assessment of the production
potential of biogas (including biomethane) from
landfills, sewage waste treatment facilities, animal
waste, crop waste, and cellulosic biomass sources. Some
existing studies are very targeted (e.g., biogas from
dairy farm manure in California). Others are old or
have other limitations. For instance, the U.S.
Department of Energy did a cursory study in 1998 that
concluded that it would be feasible to produce 1.25
quadrillion Btus (about 10 billion gasoline gallon
equivalent) from landfills, animal waste and sewage.
However, that study did not investigate the potential
of crop waste and cellulosic biomass sources. Further,
biogas/biomethane technologies have evolved
significantly during the past nine years. The new
section would call for a study by the National Academy
of Sciences on the production potential of biogas/
biomethane as well as an evaluation of the conversion
technologies currently being used in the U.S. and
around the world and the potential for technology
improvement. This study could be included in the
advanced biofuels study detailed in Section 301. That
study currently is worded broadly enough to include
such a review. But given the current national focus on
liquid fuels and cellulosic ethanol, the potential of
biogas/biomethane likely would not be given the same
priority as a separate study.
Alternative Fuels Versus Just Renewable Fuels
A number of experts have argued that it would be very difficult (if
not impossible) for America to produce the amount of renewable fuels
domestically to achieve the petroleum displacement goals called for in
S. 987 or that the President called for in his 2007 State of the Union
address. The President has submitted to Congress a petroleum
displacement proposal built on both renewable and alternative fuels. At
the April 12 Senate Energy & Natural Resources Committee hearing,
representatives from the coal industry advocated that coal-to-liquid
(CTL) fuels should be included in S. 987--despite the fact that coal
obviously is not a renewable fuel. This recommendation received support
from some members of the Committee. In addition, U.S. DOE Assistant
Energy Secretary for Energy Efficiency and Renewable Energy Alexander
Karsner said at that hearing that the Administration ``generally
supports the vision'' of S. 987, but the White House would like to see
the bill apply to fuels and technologies other than biofuels.
NGVAmerica believes that adding only one non-renewable alternative
fuel would be inappropriate. Rather, NGVAmerica recommends that the
Committee expand the scope of S. 987 to include all renewable and
alternative fuels--especially natural gas.
As is well known, natural gas is primarily a domestic fuel, which,
when used to power vehicles, reduces urban air pollution. What is less
widely appreciated is that, on a well-to-wheel basis, natural gas
vehicles produce 15 to 20 percent less greenhouse gases than comparable
gasoline and diesel vehicles. This is comparable--or in some cases
better--than some renewable fuels on a well-to-wheels basis.
Importantly, natural gas vehicles can make a major impact in the
high fuel-use commercial urban fleet market--a market that is often
over-looked in discussing petroleum displacement. America uses about 50
billion gallons of petroleum in diesel vehicles. While there has been
some effort to use ethanol as a substitute for diesel fuel, it is
expected that ethanol will be used almost exclusively as a gasoline
substitute. Biodiesel can be used when blended in low percentages with
petroleum diesel. However, because of engine and production
limitations, it is expected that biodiesel could displace not more than
2 or 3 billion gallons of petroleum diesel by 2017. According to The
U.S. Energy Information Administration's 2007 Annual Energy Outlook,
NGVs displaced about 350 million gallons of the 177 billion gallons of
petroleum used for on-road vehicles in the U.S. last year. However,
with proper incentives and government support, NGVs could displace up
to 10 billion gallons of petroleum by 2017. Note that, if the changes
proposed in Section A (above) are adopted and enacted into law, a
significant percentage of this could be renewable biomethane.
______
Statement of the Soap and Detergent Association
The Soap and Detergent Association (SDA) appreciates the
opportunity to submit comments on S. 987 on behalf of the United States
oleochemical industry. SDA is a 110 member national trade association
representing the formulators of soaps, detergents, general household
and institutional cleaning products as well as the suppliers of
ingredients and finished packaging for those products. Among these
suppliers are the manufacturers of oleochemicals made from animal fats
and oils.
The United States oleochemical industry is primarily based on
tallow, an animal fat. The viability of the industry is, in fact, based
on the fact that tallow is competitively priced against foreign palm
oil. Because of the substitutability of palm oil for tallow, if
tallow's advantageous price differential is lost; the future of a
United States based oleochemical industry, and its customers, becomes
tenuous.
Unlike corn and soybeans for which plantings can be expanded to
accommodate new biofuel applications, tallow production is relatively
fixed, usually fluctuating less than 2% from year to year. There is no
real elasticity in the tallow supply. Cattle herds are not expanded to
produce tallow; it is a by-product, not a crop. Consequently, biofuel
subsidies disadvantage the oleochemical industry not only by creating
upward price pressures on tallow, but by diverting it from a, non-
expandable, finite raw material pool. The issue is supply availability
itself, not just price.
Existing biofuel subsidies, including those for ethanol, have
created a series of economic incentives that divert tallow from
traditional uses to fuels. The cascade of incentives began with the tax
credits for tallow-based biodiesel in the VEETEC provisions of the
American Jobs Creation Act of 2004. These were followed by a subsidy
for direct burning of tallow as a fuel and finally the ``renewable
diesel'' incentives found in Section 1346 of the ``Energy Policy Act of
2005.'' In guidance issued earlier this month, the Internal Revenue
Service held that so-called ``coproduced fuel,'' where animal fats are
mixed directly with crude oil going to a cracking tower, was considered
to be ``renewable diesel'' produced by the thermal depolymerization
(TDP) process and therefore was available for subsidies.
These three credits create direct economic incentives to divert
tallow away from oleochemical production. The oleochemical industry
receives no subsidies. It has historically purchased its tallow in a
classic free market, supply and demand environment. Those traditional
conditions no longer exist, however.
The situation is further complicated by the fact that ethanol
incentives have served to divert corn from traditional livestock
feeding operations. This has caused an additional draw down of the
tallow pool as tallow, in part, is substituted for the diverted corn in
animal feed. Currently, tallow prices are in the $0.22-$0.23 range.
Traditionally, tallow prices have been in the low to mid teens. This
represents a nearly 50% increase and has every indication of being a
sustainable price given the current subsidy structure.
The conditions in the corn market which have led to this new tallow
price level are generally viewed as attributable to the confluence of
the long standing ethanol subsidy combined with an enhanced renewable
fuels standard. This was the perfect biofuels storm, the effects of
which have been widely felt and publicized.
Consequently, the exemption of corn-based fuels from S. 987 is no
surprise. In fact, it is an important recognition of the impact on food
and feed prices of biofuel subsidies. And, while the threat of biofuel
subsidies to the American oleochemical industry is less public and well
known, it is no less dire and deserving of redress.
In our view, based on the experience with corn prices, the
renewable fuel standards proposed in. S. 987, will, when combined with
the commodity incentives already in place, significantly threaten the
oleochemical production in the United States and create the conditions
for its demise.
SDA recognizes that the potential benefit of biofuels to the nation
is significant. However, that benefit should not be purchased at the
cost of driving a well established, traditional industry either out of
business or overseas. There must be a balance and the impacts on
related industries must be understood before decisions of the magnitude
contemplated in S. 987 are made.
Based on the foregoing, we respectfully urge that all references to
animal fats be removed from S. 987 for the same reason that corn is
excluded. S. 987 should, instead, take the first steps to reestablish a
balanced approach to the incentivization of the American biofuels
industry.