STATEMENT OF

ALEXANDER KARSNER

# ASSISTANT SECRETARY FOR ENERGY EFFICIENCY

#  AND RENEWABLE ENERGY

# 

**U.S. DEPARTMENT OF ENERGY**

**BEFORE THE**

**COMMITTEE ON ENERGY AND NATURAL RESOURCES**

**UNITED STATES SENATE**

**June 12, 2008**

Mr. Chairman, Ranking Member Domenici, Members of the Committee, thank
you for the opportunity to appear before you today to discuss the
sustainable contribution that biofuels can make to the Nation's fuel
supply in the context of the U.S. Renewable Fuel Standard (RFS) and the
food versus fuel debate. All of us recognize that high food prices and
high gasoline prices are important "pocketbook" issues for American
consumers. We also recognize the national and economic security
importance of reducing our dependence on oil as well as the urgency of
developing new fuels that will reduce greenhouse gas emissions. Our
biofuels policy makes important contributions to each of these goals.

**Federal Commitment to Sustainable Biofuels Development**

As part of the 2007 State of the Union Address, President Bush called on
Congress to significantly increase the use of advanced biofuels as part
of the Twenty in Ten Initiative. Congress passed and the President
signed into law the Energy Independence and Security Act of 2007 (EISA),
requiring that U.S. transportation fuels contain at least nine billion
gallons of renewable fuels in 2008, growing to 36 billion gallons in
2022. Of the quantity required in 2022, at least 21 billion gallons must
be advanced biofuels (non-corn), and of that 21 billion, 16 billion
gallons must be cellulosic biofuels; ethanol from corn is capped at 15
billion gallons. The Department of Energy is committed to the goal of
developing cost-competitive cellulosic ethanol by 2012. Our efforts will
help spur the resources, technologies, and systems at the rate and scale
needed to enable this mandate to be met, and impact climate change. To
that end, DOE and other federal agencies are working to develop diverse,
non-food feedstocks that require little water or fertilizer, and to
foster sustainable agricultural and forestry practices. The
Administration is also committed to developing a methodology, as
required by EISA, to assess the life-cycle impacts of biofuels
production, from feedstocks to vehicles, and analyze the impacts to land
use and soil health, water use, air quality, and greenhouse gas
emissions. Many of these issues are also being addressed through the
senior-level Biomass R&D Board Sustainability Working Group, which the
Departments of Energy (DOE) and Agriculture (USDA) and the Environmental
Protection Agency (EPA) jointly chair.

Together, DOE, USDA, and EPA continue to be committed to collecting and
presenting accurate data, projecting potential impacts, and initiating
the necessary and appropriate actions to ensure the sustainable growth
of biofuels. To that end, DOE, USDA, and EPA have significantly ramped
up our analytical efforts to ensure that we proceed with caution but
also determination. The agencies will continue to work together as we
undertake our respective responsibilities under Title II of EISA.

DOE is also leveraging other partnerships to support the RFS goals. The
Department is investing up to \$385 million total over four years (FY
2007-FY 2010, subject to appropriation) in cost-shared, integrated
commercial-scale biorefineries that are projected to produce up to 130
million gallons of ethanol from cellulosic biomass in four years when
they are fully operational. In addition, DOE is investing up to \$200
million over five years (FY 2007-FY 2011, subject to appropriation) in
smaller (10% of commercial scale) cost-shared biorefineries that will
demonstrate a wider range of advanced biochemical and thermochemical
conversion technologies and use a wide array of cellulosic feedstocks.

In addition, the Department's Office of Science has recently established
three major new DOE Bioenergy Research Centers---led by the University
of Wisconsin-Madison, Oak Ridge National Laboratory, and Lawrence
Berkeley National Laboratory, respectively---which are bringing together
top scientists and researchers in an effort to accelerate the
transformational breakthroughs in basic science needed to make
next-generation cellulosic biofuels cost-effective. The Department plans
to invest over \$400 million in total in this effort through FY 2012.

**Misconceptions about Biofuels: Environment, Gasoline Prices, and Food
Supply**

Recent press coverage of ethanol and food prices has created a number of
misconceptions about biofuels. The most prominent of these
misconceptions are that ethanol does not improve the energy balance,
that it has a negative impact on the environment, and that it
contributes to rising food prices. We appreciate the opportunity to
address these views. We believe biofuels are not creating a food
security issue and are only a small part of increased food prices. In
addition, biofuels offer a number of important energy and environmental
benefits that will grow as the technology for next generation biofuels
comes online.

Today's corn-based ethanol has a positive energy balance---that is, the
energy content of ethanol is greater than the fossil energy used to
produce it---and this balance is constantly improving with new
technologies. According to Argonne National Laboratory, each gallon of
ethanol produced from corn today is estimated to deliver on average 25
percent more energy than would the fossil energy that is used to produce
it.[^1] Over the last 20 years, the amount of energy needed to produce
ethanol from corn has significantly decreased because of improved
farming techniques, more efficient use of fertilizers and pesticides,
higher-yielding crops, and more energy-efficient conversion
technology.[^2] A few scholars have conducted studies that allege a
negative energy balance for ethanol; however, these fail to take into
account the energy use avoided because of the production of co-products
such as Distiller's Grain, a high-protein animal feed.[^3]

DOE's current estimates find that ethanol also results in fewer
greenhouse gas (GHG) emissions than gasoline, and is fully
biodegradable, unlike some fuel additives. DOE's analysis shows that
today, on a life-cycle basis, corn ethanol produces approximately 20
percent fewer GHG emissions than gasoline. According to Argonne National
Laboratory, with improved efficiency and use of renewable energy, this
reduction could reach 52 percent.[^4] The positive energy balance and
the potential GHG reduction from cellulosic ethanol is far greater, as I
will discuss later in this testimony. It is important to note that the
lifecycle greenhouse gas emissions estimates discussed here do not
reflect indirect land use impacts requirements as specified in EISA.
Life-cycle analyses involve a number of complicating factors, such as
direct and indirect land use effects, and DOE is working with EPA as
they develop a lifecycle methodology that meets the EISA definition.

Further evidence of ethanol's environmentally sound contribution to the
fuel supply is that vehicles fueled with the ethanol-blended fuels
currently in the market---whether E10 or E85---must meet EPA's stringent
tailpipe emission standards. Ethanol has proven to be a safe,
high-performance replacement for fuel additives such as MTBE.

Blending ethanol and gasoline has led to questions on its potential
impact on gasoline prices. However, evidence from an Iowa State study
suggests that without ethanol, gasoline prices would be higher.[^5]
According to this analysis, even during the period in which MTBE was
being phased out (2006) and ethanol prices were very high, had ethanol
not been available, gasoline prices would have been even higher.[^6]

Ethanol is currently less costly than the refiner's average mix of
gasoline components. The cost of ethanol to refiners has been lower than
the wholesale cost of conventional gasoline.[^7] In fact, as of the week
of May 26, 2008, the gap was close to a \$1.00/gallon difference; even
adjusting for energy content, ethanol is cost-competitive. According to
EIA, if we had not been blending ethanol into gasoline, gasoline prices
would be between 20 cents per gallon to 35 cents per gallon higher.[^8]

With regard to food price impacts, our preliminary analysis suggests
that current biofuels-related feedstock demand plays only a small role
in global food supply and pricing.[^9] Moreover, the impact of biofuels
on U.S. consumers is even smaller since the farm price of commodities
accounts for less than 20 percent of U.S. consumers' food costs.[^10]

Numerous studies have found that world food prices have increased due to
many factors, including high oil prices (used both in transportation and
production of food); droughts in some key exporting countries, including
Australia; increased demand as emerging economies grow and their
populations consume better diets and eat more meat; a reduction of
global agricultural R&D; and other factors.

In 2007, about a quarter of the U.S. corn crop went to biofuels
production, but this fact can be misleading in isolation. Only the
starch from the corn kernel is used to produce the fuel, leaving the
co-product Distiller's Grain. These Distiller's Grains are used as
animal feed which is valued by its protein content, which is
significantly higher by weight than the protein content of corn. As a
result, almost one-third of each ton of corn used for ethanol production
is recovered as a livestock feed. Thus, in actuality, only about
one-sixth of the U.S. corn crop by mass is used in fuel production.
Moreover, it is important to note that U.S. corn exports have been
stable throughout the past decade, and have, in fact, increased
recently.[^11]

Furthermore, our Nation's enhanced farming techniques and continued
improvement in plants and seeds will likely enable our supply to grow.
Yield increases could enable us to double our corn based ethanol
production over the next ten years while maintaining corn availability
for other uses.[^12]

Finally, increased global food demand as living standards and diets
improve is an important factor in explaining increases in commodity
prices, and is unrelated to biofuels. According to the UN, global
economic growth has driven up prices for all commodities.[^13]

**The Potential for Cellulosic Ethanol and Other Advanced Biofuels**

Evidence suggests that corn ethanol is not the primary driver affecting
worldwide food prices. To help meet our long-term energy needs, the
Department's biomass research and development activities are designed to
move toward non-food feedstocks that have the potential to have an even
greater positive environmental impact.

The biomass feedstocks of today include grains (corn, sorghum, wheat),
as well as oilseeds and plants (such as soybeans). The feedstocks of
tomorrow will come from a variety of sources such as wastes and residues
and fast-growing energy crops. These future feedstocks will consist of
agricultural residues like stalks, stems, and other crop wastes, as well
as forest resources such as wood waste, forest thinnings, and
small-diameter trees. Examples of energy crops include switchgrass,
miscanthus, and hybrid poplar trees, in addition to oilseeds and oil
crops like algae and jatropha. Some of these promising energy crops can
grow on marginal soils, and they can actually sequester carbon. Forest
resources, green wastes, and sorted municipal solid waste will also play
a role.

As I noted earlier, research to date suggests that today's ethanol has a
positive energy balance---that is, the energy content of corn ethanol is
greater than in the fossil energy used to produce it. In the future,
cellulosic ethanol is expected to improve upon this by delivering four
to six times as much energy as needed to produce it.[^14] Additionally,
DOE research has shown that cellulosic feedstocks can reduce life-cycle
greenhouse gas emissions by 86 percent compared to gasoline.[^15]

A number of market and technical barriers to advanced biofuel production
exist. Fortunately, Congress and the Administration have taken steps to
diminish these obstacles, and we are poised to make even more progress.
Market barriers include a lack of cellulosic feedstock market and high
capital costs. The main technical barriers are a lack of
cost-competitive conversion technologies, a lack of feedstock collection
equipment, the absence of standard cellulosic biofuels production
blueprints, and the lack of fully integrated large-scale systems. As
part of the effort to overcome these hurdles, EISA helps establish a
market demand for cellulosic biofuels. EISA also provides grants for
research and development projects; and demonstration and commercial
application of biofuel production technologies, including important
research on plants, enzymes, and microbes. These efforts are working
toward cost reductions in conversion technologies, and cost-shared
biorefinery projects will help validate approaches.

We have made significant advances, but there is more that would be
helpful to support the development of biofuels---for example, expansion
of the use of woody biomass and increased penetration of flex-fuel
vehicles into the market. Additionally, when developed in parallel to
E85 infrastructure, intermediate ethanol-gasoline blends (those between
E10 and E85) could also help enable continuous uninterrupted growth in
production. The research we are supporting today to produce advanced
biofuels beyond ethanol and biodiesel may also eventually help the
industry. With continued technological advances at all levels, ethanol
can help our Nation reap greater benefits in the future, complementing
the President's bold energy initiatives, which seek to increase our
Nation's energy and economic security.

**Conclusion**

The food and fuel pricing issues about which you have raised questions
are important and complex. We would again caution, therefore, against
hasty judgments. Many analysts both within and outside of Government are
currently working to analyze these issues and the one certainty is that
our data will improve substantially in the months ahead.

Mr. Chairman, thank you again for holding this important hearing. I
appreciate your leadership in this matter as well as this opportunity to
address the current debate over the role of biofuels in our Nation's
energy portfolio. This concludes my prepared statement, and I would be
happy to answer any questions the Committee Members may have.

[^1]: Source: Wang et al, "Life-cycle energy and greenhouse gas emission
    impacts of different corn ethanol plant types," *Environmental
    Research Letters*, May 2007.

[^2]: Source: May Wu, Center for Transportation Research, Argonne
    National Laboratory, "Analysis of the Efficiency of the U.S. Ethanol
    Industry 2007."
    http://www.ethanolrfa.org/objects/documents/1656/argonne_efficiency_analysis.pdf.

[^3]: See metaanalysis supportive of this statement: Farrell et al,
    "Ethanol Can Contribute to Energy and Environmental Goals," *Science
    Magazine*, January 2006.

[^4]: Source: Wang et al, "Life-cycle energy and greenhouse gas emission
    impacts of different corn ethanol plant types," *Environmental
    Research Letters*, May 2007.

[^5]: Source:
    <http://www.card.iastate.edu/publications/DBS/PDFFiles/08wp467.pdf>.

[^6]: Historical spot conventional regular gasoline data from EIA
    2003-2007, Spot ethanol prices at Chicago Board of Trade 2003-2007,
    Oil Price Information Services (OPIS).

[^7]: Based on Oil Price Information Service data for spot prices of
    ethanol (after rebate) and conventional gasoline.

[^8]: This estimate relies on data on the current price difference
    between ethanol and gasoline and the elasticity of supply for
    petroleum. Consequently, a range is presented.

[^9]: Source:
    <http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2008/05/0130.xml>,
    <http://www.afpc.tamu.edu/pubs/2/515/RR-08-01.pdf>.

[^10]: Source: USDA's Economic Research Service.

[^11]: Source: USDA National Agricultural Statistics Service.

[^12]: Source: Historical Trend data from USDA.

[^13]: Source: UNCTAD database:
    http://www.unctad.org/Templates/Page.asp?intItemID=1584&lang=1.

[^14]: Source: Wang et al, "Life-cycle energy and greenhouse gas
    emission impacts of different corn ethanol plant types,"
    *Environmental Research Letters*, May 2007.

[^15]: Ibid.