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**Energy and Natural Resources Committee**

**United States Senate**

**Hearing on\
**

**Oversight on the Energy Market Effects of the**

**Renewable Fuel Standard**

**Testimony of**

**Bob Dinneen**

**President & CEO, Renewable Fuels Association**

# February 7, 2008 

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. I am pleased to be here this morning to
discuss the positive impacts ethanol and other renewable fuels are
having on our economy and environment, and the tremendous role the
Energy Independence and Security Act of 2007 ("2007 Energy Act") will
have in moving renewable fuels forward.

Due to the visionary and invaluable work of this Committee, the 2007
Energy Act represents a remarkable revolution in energy policy in this
country.  By coupling increases in vehicle efficiency and renewable fuel
use, America is taking the most immediate steps available that will have
the greatest impact in securing a more sustainable energy future. The
2007 Energy Act clearly sets forth a path toward greater energy security
and environmental sustainability.

**Background**

Today's ethanol industry consists of 137 ethanol plants nationwide that
have the capacity to turn more than 2 billion bushels of grain into 7.6
billion gallons of high octane, clean burning motor fuel, and more than
14 million metric tons of livestock and poultry feed. There are
currently 62 ethanol plants under construction and 8 plants undergoing
expansions. 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.

America's domestic ethanol producers are providing significant economic,
environmental and energy security benefits [today]{.underline}.

In an overall environment of slowing economic growth, the U.S. ethanol
industry stands out in sharp contrast. According to a report set to be
released in late February from economist John Urbanchuk of LECG, LLC,
the American ethanol industry is a job creating engine. The increase in
economic activity resulting from ongoing production and construction of
new ethanol capacity supported the creation of 238,541 jobs in all
sectors of the economy during 2007. These include more than 46,000
additional jobs in America's manufacturing sector \-- American jobs
making ethanol from grain produced by American farmers.

Ethanol is also helping to stem the tide of global warming, today. The
use of low carbon fuels like ethanol is reducing greenhouse gas
emissions from the more than 200 million cars on American roads. The 9
billion gallons of ethanol we will produce in 2008 will reduce
greenhouse gas emissions by more than 14 million tons, or the equivalent
of taking 2.5 million vehicles off the road.[^1] These benefits will
only increase as new technologies, new feedstocks and new markets for
renewable fuels are created.

**2007 Energy Act -- Energy Security Through Increased Production of
Biofuels**

The 2007 Energy Act provides meaningful incentives for investment in the
production and infrastructure for biofuels in the U.S. Expansion of the
domestic biofuels industry will provide significant economic benefits in
terms of a larger and more robust economy, increased income, new job
creation in all sectors of the economy, and enhanced tax revenues at
both the Federal and State levels. Increased biofuels production and use
stimulated by the expanded RFS will also enhance America's energy
security by displacing imported crude oil. Specifically, expansion of
the U.S. biofuels industry will[^2]:

-   Add more than \$1.7 trillion (2007 dollars) to the gross domestic
    product between 2008 and 2022;

-   Generate an additional \$436 billion (2007 dollars) of household
    income for all Americans between 2008 and 2022;

-   Support the creation of as many as 1.1 million new jobs in all
    sectors of the economy by 2002;

-   Generate \$209 billion (2007 dollars) in new Federal tax receipts;
    and,

-   Improve America's energy security by displacing 11.3 billion barrels
    of crude oil between 2008 and 2022 and reduce the outflow of dollars
    to foreign oil producers by \$817 billion (2007 dollars) between
    2008 and 2022.

Finally, the 2007 Energy Act will greatly enhance the climate change
benefits attributable to today's renewable fuels industry by encouraging
more sustainable technologies and reducing the carbon footprint of
future energy production. An analysis conducted for the RFA using the
U.S. Department of Energy's existing GREET model shows that increasing
the use of ethanol and other renewable fuels to 36 billion gallons
annually by 2022 could reduce greenhouse gas emissions by some 176
million metric tons, equal to removing the annual emissions of more than
27 million cars from the road.[^3] 

**The 2007 Energy Act Stimulates Cellulosic Ethanol Production**

By expanding the Renewable Fuel Standard (RFS), requiring 36 billion
gallons of renewable fuel be used annually by 2022, and specifically
that 21 billion gallons of that goal must come from advanced biofuels,
history will look back upon the enactment of the 2007 Energy Act as the
moment America chose a new energy policy path. And by requiring that
nearly 60 percent of the new RFS be met by advanced biofuels, including
cellulosic ethanol, Congress has provided the necessary assurance for
ethanol producers and investors that a market for their product will
exist. As a result, the commercialization of these important next
generation ethanol technologies will develop far sooner than
conventional wisdom suggests.

For example, last November, Range Fuels, Inc. broke ground on a
commercial cellulosic ethanol plant located in Treutlen County, Georgia.
The facility will use wood and wood waste from Georgia's pine forests
and mills as its feedstock. Verenium is operating a cellulosic ethanol
pilot plant and research and development facility in Jennings,
Louisiana, and expects to complete a demonstration-scale facility using
plant matter and farm scraps like sugarcane bagasse and wood chips as
feedstock to produce cellulosic ethanol in 2008 at the same site.
Abengoa Bioenergy operates a cellulosic biomass-to-ethanol pilot plant
in York, Nebraska that will research and test proprietary technology for
use in commercial-scale conversion of biomass into ethanol. POET Energy
with expand an existing corn-based ethanol facility in Emmetsburg, Iowa
into a bio-refinery that will include production of cellulosic ethanol
from corn cobs and stover. And [Iogen](http://www.iogen.ca/) plans to
build a cellulosic ethanol facility utilizing wheat and barley straw in
Shelley, Idaho.

A recent report by the U.S. Department of Commerce's Bureau of
Manufacturing and Services, *Energy in 2020: Assessing the Economic
Effects of Commercialization of Cellulosic Ethanol,* noted the
commercial viability of cellulosic ethanol will strengthen the
competitiveness of many domestic industries and have a positive effect
on the U.S. economy. In fact, the report found that annual benefits for
American consumers would total \$12.6 billion if cellulosic ethanol
production increased; U.S. crude oil imports would fall 4.1 percent if
20 billion gallons of cellulosic ethanol were produced in 2020, which is
approximately 40 percent of current crude oil imports from Venezuela;
and, the global price of oil and the domestic U.S. fuel price would be
1.2 percent and 2.0 percent, respectively, lower than projected.

In addition to the RFS, many of the other biofuels programs authorized
by the 2007 Energy Act make the expanded RFS absolutely achievable. The
2007 Energy Act moves ethanol and renewable fuels beyond being just a
blending component in gasoline, and guarantees that sufficient volumes
of ethanol will be available to support the meaningful expansion of E-85
and flexible fuel vehicle technology.

**The 2007 Energy Act Encourages Greater Investment in Renewable Fuel
Infrastructure**

As the demand for fuel ethanol grows, the infrastructure available to
transport, store and blend ethanol into gasoline has expanded as well.
The U.S. ethanol industry has been working 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.

A new ethanol trading and distribution center recently opened in Manley,
Iowa, for example, that will help the industry distribute ethanol more
efficiently. There will be more than 75 ethanol plants within 275 miles
of the Manley terminal in operation by the end of 2009 -- representing
approximately 5.1 billion gallons. The Manley Terminal LLC will have
storage capacity for 20 million gallons of renewable fuels. The facility
will improve the efficiency of ethanol distribution by consolidating
shipment in larger 70 to 95-car unit trains, and by improving
utilization of ethanol suppliers' tank cars.

Today, there is limited shipment of ethanol via pipeline. However,
several major pipeline owners are considering various ethanol pipeline
shipment scenarios. And the U.S. Department of Transportation has
initiated a project to work with the industry to overcome barriers to
pipeline shipments. Looking to the future, completion of a study on the
feasibility of transporting ethanol by dedicated pipeline, as was
included in the 2007 Energy Act, from the Midwest to the East and West
coasts will be critical.

**Technical Corrections\
**\
As with any new law, there will be technical corrections and other
adjustments necessary to allow renewable energy markets to function as
intended under the 2007 Energy Act. The RFA respectfully offers for your
consideration the following modifications to provisions in the 2007
Energy Act that will allow the markets to work as effectively as
possible.

-   The 2007 Energy Act provides for public notice and comment in other
    determinations by the Administrator regarding lifecycle greenhouse
    gas emission, except for those provided in the definitions for
    "cellulosic biofuel" and "lifecycle greenhouse gas emissions."
    Notice and comment should be required for all lifecycle emissions
    determinations.

-   The 2007 Energy Act excludes the possibility for plants using corn
    starch, which is defined as "conventional biofuel," to qualify as
    "advanced biofuel." Advanced biofuels must meet a 50 percent
    reduction in greenhouse gas emissions. However, one pathway for the
    use of cellulosic feedstocks is for corn stover and other cellulosic
    material to be co-processed with corn starch. The existing provision
    could be interpreted as precluding the ethanol produced from such a
    facility from being considered advanced biofuel. Moreover, with new
    more sustainable technologies, it is quite possible that
    corn-derived ethanol may one day meet the 50 percent reduction in
    greenhouse gas emissions benchmark of advanced biofuels. Corn starch
    ethanol plants should be incentivized to reduce their greenhouse gas
    emissions, and reaching the targets established for other processes
    should be rewarded. One option is to delete the term "conventional
    biofuel" and the exceptions for corn ethanol from the definition of
    advanced biofuels. Given the strict requirements in the 2007 Energy
    Act, there is no reason to preclude any facilities from the benefits
    otherwise provided for achieving a 50 percent reduction in
    greenhouse gas emissions.

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-   To address potential supply issues of cellulosic and biomass-based
    diesel to meet the required volumes, the 2007 Energy Act includes
    specific waivers of their required volumes. However, the 2007 Energy
    Act also states that the Administrator may reduce the overall
    renewable fuel and advanced biofuel volume requirements, potentially
    solely in light of the reductions of these particular biofuels.
    These provisions arguably conflict with the criteria for such
    waivers under Section 211(o)(7)(A) and appear to be without regard
    to whether other renewable fuel or advanced biofuels are available
    to make up the difference. Under these provisions as written,
    interested parties may also lose the ability to participate in the
    process. There is no policy reason to allow for reductions of the
    overall advanced biofuel or renewable fuel requirements if there is
    more than adequate supply of other renewable fuels or advanced
    biofuels.

> Any reductions of the advanced biofuel and renewable fuel requirements
> should be limited to the criteria under Section 211(o)(7)(A) and any
> amounts of cellulosic biofuel or biomass-based diesel that are waived
> should be made up with other advanced biofuels or renewable fuels. In
> other words, any necessary waivers of cellulosic biofuel or
> biomass-based diesel should not reduce the required volumes for
> advanced biofuel or renewable fuel if other biofuels can make up the
> difference. This preserves the incentives for cellulosic biofuels, but
> accounts for the potential that the industry cannot keep pace, while
> preserving the overall goal of the 2007 Energy Act to require a
> specific amount of renewable fuel be sold each year to reduce
> greenhouse gas emissions and dependence on foreign oil.

-   In recognition of the need and importance of E-85, the 2007 Energy
    Act included an expansion of the Petroleum Marketing Practices Act
    ("PMPA") to ensure that E-85 infrastructure could be installed at
    stations run by franchisees, if they chose to. Specifically, the
    amendment prohibits restrictions by franchisors on franchisees or
    any affiliate of the franchisee related to the installation of
    renewable fuel infrastructure and advertising and sale of such
    renewable fuel. However, renewable fuel is defined in the amendment
    to the PMPA to include only E-85 and certain biodiesels. Thus, the
    2007 Energy Act's amendments to the PMPA do not address mid-level
    blends of ethanol.

> In addition to E-85, fuels with lower ethanol content, such as E-15 or
> E-20, may play an important and key role in meeting the new renewable
> fuel standard requirements. As such, this amendment should be expanded
> to include all fuels that utilize renewable fuels in any form.

**Conclusion**

The enactment of the 2007 Energy Act is a testament to what we can do
when we work together toward a shared vision of the future. By
increasingly relying on domestically produced renewable fuels, including
next generation technologies such as cellulosic ethanol, we can begin
the hard work necessary to mitigate the impact of global climate change,
reduce our dependence on foreign oil, and leave a more stable and
sustainable future for generations that follow.

The Senate Energy and Natural Resources Committee will continue to have
an invaluable role to play in making sure our nation successfully
increases the use of domestic, renewable energy sources. Without
question, more work will be needed and the U.S. ethanol industry stands
ready to work with you to assure the journey you embarked upon with
passage of the 2007 Energy bill is realized.

Thank you.

[^1]: Air Improvement Resources, Inc., February 2008.

[^2]: *Economic Impact of the Energy Independence and Security Act of
    2007*, Renewable Fuel Standard, by John M. Urbanchuk, Director, LECG
    LLC (January 2008).

[^3]: Air Improvement Resources, Inc., February, 2008.