Statement of Alexander Karsner

# Assistant Secretary for Energy Efficiency and Renewable Energy

**U.S. Department of Energy**

**U.S. House of Representatives**

**Committee on Agriculture**

**Subcommittee on Conservation, Credit, Energy & Research**

**March 7, 2007**

Mr. Chairman, thank you for the opportunity to participate in this
hearing on the financing structure of renewable energy sources. I will
discuss initiatives under way in the Office of Energy Efficiency and
Renewable Energy (EERE) at the Department of Energy (DOE), and focus on
activities within our Biomass and Biorefinery Systems program that
provide incentives for ethanol production and support the development of
biofuels.

I would like to say, at the outset, that the Department of Energy shares
an excellent working relationship with the U.S. Department of
Agriculture (USDA). Under Secretary Dorr and I collaborate on a variety
of renewable energy issues, each bringing the unique perspectives of our
agencies to the table in order to achieve the goal of enhancing our
energy independence. This Committee has the weighty charge of
reauthorizing the Farm Bill this year, and there appears to be strong
consensus that a robust energy title is essential. America's farmers and
ranchers have the opportunity to play a historic role in shaping
domestic energy policy, while creating new jobs and stimulating economic
growth in rural America. I look forward to assisting USDA in working
with Congress on these efforts.

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, our "20 in 10" plan. In that plan, the President called for a new
mandatory fuel standard, requiring the equivalent of 35 billion gallons
of renewable and alternative fuels in 2017, nearly five times the target
now in law. Expanding the current Renewable Fuel Standard (RFS)
established by the Energy Policy Act of 2005 (EPACT 2005) should
decrease projected gasoline use by 15 percent. The renewable and
alternative fuels included in the expanded standard are sources such as
corn ethanol, cellulosic ethanol, biodiesel, methanol, butanol,
hydrogen, and other alternative fuels.

President Bush believes our scientists, farmers, entrepreneurs, and
industry leaders will continue to lead the world in developing and
investing in cutting-edge technology, infrastructure, and farming
methods. Advances in many fields will play an important role, such as
continued improvement in crop yields, optimization of crops and
cellulosic materials as fuel feedstock, and cost reduction in the
production of cellulosic ethanol and other alternative fuels. The
increased and expanded fuel standard creates a tremendous incentive for
research, development, and private investment into alternatives to oil.

The Department of Energy is dedicated to helping our Nation develop a
full portfolio of renewable and alternative fuels technologies. Because
biomass is the most viable renewable option for producing liquid
transportation fuels in the near term, conducting research that can help
further grow our biofuels industry is a priority. The Department is
funding research, development, and demonstration (RD&D) programs through
the use of cost-shared partnerships with industry, universities, and the
National Laboratories to advance biofuels technologies.

The Department is funding a biofuels demonstration program authorized in
EPACT 2005, Section 932. Under the commercial-scale biorefineries
solicitation, the Department recently announced selection of awards
worth up to \$385 million over five years to six different companies,
subject to negotiation and future appropriations. These projects are for
the commercial demonstration of near-term technologies in integrated
biorefineries for the production of liquid transportation biofuels,
biobased chemicals and products, and heat and power from cellulosic
biomass feedstocks. While these "first of a kind" facilities will likely
have higher costs of production than subsequent cellulosic
biorefineries, they will initially help identify scale-up issues and
direct further research, and could launch cellulosic ethanol
technologies into the marketplace in the future. Further, many of these
facilities will be located in rural communities, bringing valuable
investment to the backyards of America's farmers and ranchers. Moreover,
the Department is partnering with other Federal Agencies through the
Biomass Research and Development Initiative to guide the Federal
investment effort.

Ethanol is currently the renewable fuel having the most success in the
market, with potential for both near and long-term displacement of
gasoline. The focus of DOE's Biomass Program is to make cellulosic
ethanol cost-competitive by 2012, a target put forth in the President's
2006 Advanced Energy Initiative (AEI). In Fiscal Year (FY) 2007 the
Administration has budgeted approximately \$150 million for EERE's
Biomass and Biorefinery Systems R&D program to implement key activities
necessary to achieve the 2012 "Biofuels Initiative" goal for
cost-competitive cellulosic ethanol.

Over the next two years, the Department, together with a number of our
key strategic partners in government, including USDA and the
Environmental Protection Agency (EPA), will undertake five key activity
areas to accelerate the development, production, and deployment of
cellulosic ethanol.

FINANCING

EPACT 2005 created the Title XVII Loan Guarantee Program. This program
seeks to facilitate financing for commercial projects that avoid,
reduce, or sequester air pollutants or anthropogenic emissions of
greenhouse gases while employing advanced technologies. Under Section
1703 of EPACT, renewable energy systems, such as advanced biofuels
projects are eligible for Title XVII loan guarantees.

To continue advancing cellulosic ethanol technologies, DOE's Biomass
Program is planning a solicitation in support of biorefinery processing
technologies at 10 percent of commercial scale this year. Many industry
leaders have expressed the need for biorefinery technology
demonstrations at this less costly scale, which is roughly a 1.5 million
gallon per year size facility, in order to resolve remaining technical
and process integration uncertainties for the "next generation" of
biorefinery process technologies. Ultimately, such demonstrations reduce
the overall cost and risk to both DOE and the industry, while improving
the likelihood of obtaining financing for larger, commercial-scale
facilities.

DOE is also working to implement Section 942 of EPACT 2005 which directs
the establishment of a reverse auction incentive program in consultation
with USDA, the Environmental Protection Agency, and the Department of
Defense for the production of cellulosic biofuels. The FY 2008 budget
request includes \$5M to establish this incentive program. This program
is authorized to provide a production incentive for cellulosic ethanol
production on a per-gallon basis, and could help to accelerate
deployment and commercialization of biofuels, facilitate the delivery of
billions of gallons of biofuels, and ensure that small feedstock
producers and rural small businesses are full participants in this
industry.

BIOENERGY RESEARCH AND DEVELOPMENT

DOE continues to work on reducing enzyme costs, which are currently too
high for cost-competitive cellulosic ethanol production. The Department
has already invested approximately \$35 million in a cost-shared project
with Novozymes, Genencor, and the National Renewable Energy Laboratory
(NREL) that led to a 2004 R&D 100 Award for "Enzymatic Hydrolysis of
Biomass Cellulose to Sugars." On February 22, President Bush toured
Novozymes' plant in North Carolina to see firsthand this important
enzyme research. Until the advent of this breakthrough technology, other
methods of hydrolyzing cellulose to sugars were inefficient, expensive,
and had low sugar yields. By improving the pretreatment process,
engineering new enzymes that are exceptional at breaking down cellulose,
and optimizing enzyme production, NREL and its partners developed a
technology that dropped the cost of cellulose hydrolysis by 20-fold. We
believe that improvements in enzymes and pretreatment technologies have
the potential to decrease the pretreatment cost by another order of
magnitude or more, so the Department will run another industry
cost-share solicitation in this important area.

A major cost component within the "conversion" cost category for
producing cellulosic ethanol is developing fermentation organisms to
convert multiple sugars found in biomass for ethanol production. While
there are some organisms that have this capability, they have not
reached commercial readiness. To address this challenge, DOE issued a
solicitation for development of fermentation organisms. Awards could be
valued as much as \$37.4 million over four years, subject to
appropriations, for cost-shared projects leading to commercial- ready
organisms for cost-competitive cellulosic ethanol.

DOE efforts in the Biomass Program also include gasification and
pyrolysis technology development that can process biomass resources
better suited to these "thermochemical" technologies, such as forest
resources and lignin-rich process residues. The funding to develop these
technologies has almost quadrupled from the FY 2006 appropriated level
to the FY 2008 request. DOE plans on running a solicitation on
integrated gasification fuels synthesis cost-shared projects.

In recognition of the complementary goal of improving the
characteristics of plant biomass feedstocks for conversion to biofuels,
DOE\'s Office of Science, Office of Biological and Environmental
Research (OBER), and the USDA, Cooperative State Research, Education,
and Extension Service (CSREES), National Research Initiative (NRI) have
jointly initiated a fundamental research program in Plant Feedstock
Genomics for Bioenergy to facilitate the use of woody plant tissue,
specifically lignocellulosic materials, for bioenergy or biofuels. In FY
2006, the joint program awarded \$4 million for genomics research on a
variety of plant feedstocks, including poplar, alfalfa, sorghum, wheat
and other grasses; an additional \$4 million is expected to be awarded
in FY 2007.

To accelerate the transformational scientific breakthroughs necessary to
advance the development of new approaches to cost-effective production
of biofuels and bioenergy, including cellulosic ethanol, DOE's Office of
Science is investing \$375 million over five years to support the
establishment and operation of three Bioenergy Research Centers. These
centers, to be selected in FY 2007, will conduct comprehensive,
multidisciplinary research programs on microbes and plants to develop
innovative biotechnology solutions to energy production. The centers
will concentrate appropriate technologies and scientific expertise and
focus research on areas spanning genomics to integrated systems
understanding of the metabolic pathways and internal structures of
plants and microbes most relevant to steps required to develop bioenergy
compounds. The centers will serve as catalysts for the broader bioenergy
research program of OBER. The research and technology development of
these centers may also help overcome some key scientific and technical
bottlenecks necessary advance DOE's R&D goals.

REGIONAL BIOMASS ENERGY FEEDSTOCK PARTNERSHIPS

To address biomass resource availability and feedstock infrastructure,
DOE will continue to support the Regional Biomass Energy Feedstock
Partnerships with USDA and its Sun Grant Initiative universities as
identified in the 2002 Farm Bill. These partnerships are integral in
order to unlock the potential biomass resource base and to identify the
regional biomass supply, growth, and biorefinery development
opportunities across the country. Using regionally available feedstocks,
produced and used near where they are grown, will allow a "distributed"
transportation fuels approach that will minimize shipping and
transportation issues.

ETHANOL AND BIOFUELS INFRASTRUCTURE DEVELOPMENT

In addition to basic research for breakthroughs in systems biology to
identify new biofuel-producing organisms or new bioenergy crops that
will reduce the cost of producing cellulosic ethanol and other biofuels
and applied research advancing biomass conversion technologies, the
Department is working with other public and private sector partners to
encourage the development and deployment of the biofuels distribution
infrastructure which will be necessary for displacement of petroleum
transportation fuels and increased consumer choice. To foster and
sustain growth of the ethanol industry, DOE has also developed a
biofuels infrastructure team comprised of staff from our Vehicle
Technologies/Clean Cities programs and the Biomass Program to resolve
fueling issues and encourage automobile manufacturers to significantly
increase the production of E-85 vehicles. Activities include analysis of
pipelines, water issues, and support of vehicle technology improvements.
The infrastructure team may be expanded to include other agencies.

INTERAGENCY BIOMASS COLLABORATIVE EFFORTS

The Interagency Biomass Research and Development Board, which I co-chair
with Under Secretary Dorr is the governing body that coordinates biomass
R&D activities across the Federal Government, pursuant to the Biomass
R&D Act of 2000. Under the auspices of the Biomass R&D Board, 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 establish agency budgets in the area of biofuels. The
Federal participants also made recommendations for improved coordination
and collaboration of Federal agencies. The input collected at the
meeting is currently being combined to form the National Biofuels Action
Plan workshop report. Ultimately, the plan aims to improve the Board's
ability to bring coherence to Federal strategic planning for biofuels
production and use to meet the President's goals.

CONCLUSION

In conclusion, I believe that the President's Advanced Energy Initiative
and "20 in 10" goal hold the promise of accelerating the penetration of
cellulosic ethanol into the marketplace and bringing the benefits of a
clean, renewable energy source more quickly to our Nation. The
Department of Energy is investing in RD&D to overcome barriers to market
entry of cellulosic biofuels, forging strategic cost-share partnerships
with private industry, collaborating with other agencies of the Biomass
R&D Board, and working with the different regions of our country to
bring the promise of biofuels to fruition. Combined with the financial
tools and tax credits included in EPACT 2005, this multi-pronged effort
will help biofuels made from agriculture, forestry, and other domestic
biomass resources to become an increasingly important contributor to our
Nation's energy supply and economic future.

This concludes my prepared statement and I would be happy to answer any
question the Subcommittee members may have.