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74–836 PS 2001

RENEWABLE FUELS

HEARING

BEFORE THE

SUBCOMMITTEE ON RURAL ENTERPRISES,

AGRICULTURE, AND TECHNOLOGY

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JULY 24, 2001

Serial No. 107–21

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN THUNE, South Dakota

MIKE PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

WILLIAM PASCRELL, New Jersey

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arizona

BRAD CARSON, Oklahoma

ANIBAL ACEVEDO-VILA, Puerto Rico

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE, AND TECHNOLOGY

JOHN THUNE, South Dakota, Chairman

ROSCOE BARTLETT, Maryland

FELIX GRUCCI, New York

MIKE PENCE, Indiana

BILL SHUSTER, Pennsylvania

TOM UDALL, New Mexico

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

DAVID D. PHELPS, Illinois

BRAD CARSON, Oklahoma

BRAD CLOSE, Professional Staff

(III)

C O N T E N T S

Page

Hearing held on July 24, 2001 ............................................................................... 1

WITNESSES

Dinneen, Bob, Vice President, Renewable Fuels Association .............................. 4

Donaldson, Guy, President, Pennsylvania Farm Bureau ..................................... 7

Heck, Ron, American Soybean Association ............................................................ 8

Abnee, Conn, Executive Director, Geothermal Heat Pump Consortium ............. 10

Smith, Megan, Co-Director, American Bioenergy Association ............................. 12

APPENDIX

Opening statements: Thune, Hon. John ................................................................ 35

Prepared statements:

Dinneen, Bob ..................................................................................................... 37

Donaldson, Guy ................................................................................................. 45

Heck, Ron .......................................................................................................... 49

Abnee, Conn ...................................................................................................... 52

Smith, Megan .................................................................................................... 57

(1)

HEARING ON RENEWABLE FUELS

TUESDAY, JULY 24, 2001

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON RURAL ENTERPRISES,

AGRICULTURE, AND TECHNOLOGY,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Subcommittee met, pursuant to call, at 10:15 a.m., in room

2360 Rayburn House Office Building, Hon. John R. Thune [chairman of the Subcommittee] presiding.

Chairman THUNE. Good morning. This hearing will come to

order. I apologize for my tardiness here. We have got a little subject in another committee I am working on, called the farm bill,

which is in the works and something we only do every 5 years. So

we are trying to get that squared away before the end of next

week, and we hope to have it marked up.

Today’s hearing has been called to discuss the issue of renewable

energy and its importance in solving our Nation’s energy crisis. The

subcommittee will explore the ways in which Congress can help to

create a more productive environment for the use of renewable

fuels.

Renewable fuels play a productive role in improving our national

energy security by providing stable, homegrown renewable energy

supplies. Renewable energy can take many forms from ethanol and

biodiesel to wind and hydroelectric power, to power generated by

the Earth and sun.

To promote the increased use and availability of renewable fuels,

I have introduced two bills to make it easier for producers to market renewable fuels.

The first bill, H.R. 2423, the Renewable Fuels for Energy Security Act of 2001 calls for renewable fuels such as ethanol and biodiesel to play a larger role in America’s transportation fuel market.

The bill sets a national fuel standard, not a gallon-by-gallon mandate, and will not force a level of compliance in places where compliance may be difficult.

It is important to note that this bill does not attempt to alter the

Clean Air Act of 1990. The Clean Air Act mandates the use of renewable fuels and requires gasoline to contain cleaner-burning additives, called fuel oxygenates, primarily ethanol or MTBE, a methanol-based additive which has since been found to be harmful to

groundwater. With MTBE now prohibited in 11 States and probably more in the near future, ethanol and biodiesel are the most

viable options for abiding by the mandates of the Clean Air Act.

2

To enhance national security and improve the quality of our air,

H.R. 2423 gradually increases the market share for renewable fuels

to 2 percent by 2008, 3 percent by 2011 and 5 percent by 2016.

The United States Department of Agriculture estimates that for

every gallon of ethanol produced domestically, we displace 7 gallons

of imported oil. Today, ethanol is estimated to reduce our demand

for foreign imported oil by 98,000 barrels per day. A 3 percent market share for ethanol and biodiesel would displace about 9 billion

gallons of gasoline annually or between 500,000 and 600,000 barrels of crude oil a day, the amount we now import from Iraq.

To help promote the use of ethanol as a renewable fuel, I have

introduced H.R. 1636, which would make ethanol cooperatives eligible for the current small producer ethanol tax credit. Under current law, a small ethanol producer is eligible for an income tax

credit of 10 cents per gallon, up to 15 million gallons of production.

H.R. 1636 expands eligibility for the credit to producers whose annual ethanol production capacity is below 60 million gallons.

Current trends in South Dakota indicate that co-ops are building

larger ethanol plants with production capacities of 40 to 60 million

gallons. Through this tax credit, a co-op that produces 15 million

gallons could pass along $1.5 million to its members.

The use of renewable energy sources is crucial to building a

stronger domestic energy policy and will provide a positive economic impact to many rural areas.

I thank the witnesses for attending today’s hearing and very

much look forward to your testimony.

At this point, I will yield to the gentleman from New Mexico, the

ranking member, Mr. Udall.

Mr. UDALL. Thank you, Mr. Thune. At the outset, I want to

thank you, Mr. Chairman, for holding this hearing today on the

topic of renewable fuels and renewable energy policy.

Whether we are talking about rising gas prices or skyrocketing

electricity costs, the problem is proving to be an almost crushing

burden on small business owners. Statistics during the most recent

set of rolling blackouts in California, in May of this past year, show

that small businesses lost an average of $5,000 to $25,000 per day

during that period. I think we can all three agree that the United

States must develop a national energy policy that is mindful of not

only the needs of the environment and the realities of future energy supplies and demands, but also that of small businesses.

As a Washington Post editorial put it, it may now be possible to

discuss energy policy in a calmer way and that should lead to the

acceptance of a principle the administration initially neglected,

that the need to expand supply to keep up with population and economic growth has to be balanced with the needs of the environment.

Today’s hearing focuses on the twin issues of developing renewable energy sources and the necessity for energy conservation. Renewable energy comes in a whole host of forms including ethanol,

wind, geothermal, solar and biomass. To this end, small businesses

play a key role in the production, marketing, conversion and implementation of renewable fuels in their everyday use.

Unfortunately, the administration’s fiscal year 2002 budget contains several cuts to key energy efficiency and renewable programs,

3

which makes no sense at a time when we have to properly plan for

our country’s energy future. For example, funding for renewable

and alternative energy sources, solar research funding, geothermal,

hydrogen and wind research programs have all been cut in the administration’s budget. Despite these cuts, the Appropriations Committee did restore some funds to renewable programs in the fiscal

year 2002 energy and water development funding bill.

Instead of pushing for renewable and alternative energy sources,

the administration has called for the construction of new power

plants over the next 20 years, as well as nearly doubling coal production, more funding for nuclear energy and increased oil exploration and production. Should the administration continue to endorse an energy policy that focuses more on development and less

on renewable energy and conservation, I am afraid that this argument could perpetuate an economic and/or national security crisis

for our country.

There are several bills in the Congress that focus on renewable

energy in one form or another. I have introduced the Small Business and Farm Energy Emergency Relief Act of 2001. My legislation would provide emergency relief through affordable, low-interest Small Business Administration disaster loans and USDA emergency loans to small businesses and small agriculture producers

adversely affected by significant increases in the price of heating

oil, propane, kerosene or electricity. One component of my legislation would allow small businesses to use these loans as capital to

convert their systems from using heating oil or electricity to those

using renewable or alternative energy sources such as fuel cells or

wind energy.

Today’s energy and environmental challenges call for a new and

expanded approach to help address all of these concerns. We need

an energy policy that will help fix our short-term energy needs as

well as prepare us for any long-term energy crises we may face;

and I believe that today’s hearing is a start in helping us tackle

this challenge.

I hope the information obtained at this hearing will serve as an

opportunity to push for a national energy policy and can be supported by small businesses, consumers and industry alike. And I

yield back to Mr. Thune.

Thank you.

Chairman THUNE. The Chair thanks the gentleman from New

Mexico for that statement; and at this time I would also welcome

to the panel today the gentleman from Pennsylvania, Mr. Shuster,

and the gentleman from Illinois, Mr. Phelps, both of whom care a

lot about this subject.

Before we begin receiving testimony from the witnesses, I want

to remind everyone that we would like each witness to keep their

oral testimony to 5 minutes, and in front of you on the table you

can see a little box that will let you know when your time is up.

When it lights up yellow, you will know you have 1 minute remaining, and when 5 minutes have expired, a red light will appear.

Once the red light is on, the Committee would appreciate if you

could begin wrapping up your testimony as soon as you are comfortable doing that.

4

So we will begin by introducing our first witness who is Mr. Robert Dinneen, and he is Vice President of the Renewable Fuels Association.

So, Mr. Dinneen, welcome to the panel today and we look forward to your testimony.

STATEMENT OF ROBERT DINNEEN, VICE PRESIDENT,

RENEWABLE FUELS ASSOCIATION

Mr. DINNEEN. Thank you, Mr. Chairman and members of the

committee. I want to thank you for the opportunity to be here

today to provide comments on the role of renewable fuels such as

ethanol in our Nation’s energy policy.

As you know, small businesses have a prominent role in the production and the marketing of fuel ethanol and, thus, will be critical

to developing a sustainable energy policy for the future. Thus, I

commend you for convening this hearing and for your long-standing

support for farmers, for value-added agriculture and for ethanol,

Mr. Chairman.

The RFA is the national trade association for the domestic ethanol industry. We represent 56 ethanol production facilities operating in 20 different States across the country that, this year, are

going to produce over 2 billion gallons of fuel ethanol. Our industry

is growing at an unprecedented rate, particularly among farmerowned cooperatives, the fastest growing segment of our industry

and an example of small businesses providing jobs and economic

growth throughout rural America.

Mr. Chairman, there are many benefits of fuel ethanol I would

like to discuss today, including the positive impacts on the environment and consumer gasoline prices, but in the limited time that I

have, I want to focus on the specific benefits to small businesses

which are often overlooked in the broader public debates about energy and air quality.

First, the Federal ethanol program has created the most significant value-added market for farmers, perhaps the most significant

small businesses across the country. As the third largest use of

corn, behind feed and exports, ethanol production utilizes nearly 7

percent of the U.S. corn crop or over 600 million bushels of corn,

adding $4.5 billion in farm revenue annually.

USDA has determined that ethanol production adds 25 to 30

cents to each bushel of grain. According to a Midwestern Governors’ Conference report that was completed last year, the economic impact of the demand for ethanol boosts total employment

by over 200,000 jobs, increases State tax receipts, improves the

U.S. balance of trade by $2 billion and results in $3.6 billion in net

savings to the Federal Treasury.

That is right, the reduced farm program costs and increased tax

revenue attributable to ethanol results in $3.6 billion in savings to

the Federal Government. In other words, for every dollar invested

in this program, $7 is returned to the Federal Government.

Second, the Federal ethanol program has been good for small

independent gasoline marketers, those mom-and-pop operations

that do not refine gasolines, do not drill for oil and have no overseas investments to protect. They are the foundation of ethanol

marketing in this country. Years ago they saw the potential of ethVerDate 31-AUG-2001 04:04 Sep 20, 2001 Jkt 074836 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 E:\HR\OC\A836.XXX pfrm01 PsN: A836
5

anol to provide octane and volume to the gasoline pool, giving them

an important tool to compete effectively with their much larger, integrated refinery suppliers.

Consider this statement by the Society of Independent Gasoline

Marketers, which represents those small businesses, quote: ‘‘the

tax benefits afforded ethanol blended fuels constitute an important

means by which independent marketers reduce their cost for product, enhancing independent marketers’ ability to price-compete

with their economically more powerful integrated competitors. Such

price competition has consistently restrained retail market prices

and thereby generated substantial benefits for consumers of gasoline.’’. Mr. Chairman, we are more reliant than ever before on foreign

nations to supply our insatiable and growing appetite for oil, importing 54 percent of our petroleum. At the same time, U.S. production has fallen to the lowest point in 30 years. There has not

been an oil refinery built in this country in 25 years, but there

have been 56 ethanol refineries built during that time, stimulating

rural economies, creating jobs and improving air quality.

In addition to the over 2 billion gallons of current ethanol production capacity, 34 existing ethanol plants are undergoing expansions and 11 new plants are actually under construction today.

Let’s just take one State for an example; I don’t know, South Dakota. There are three ethanol plants in South Dakota today, producing 31 million gallons. But there are another three plants under

construction with a planned production capacity of 95 million gallons, and there are five others that have been proposed that will

have 125 million gallons of production capacity if they are built. All

but one of these new plants are farmer-owned cooperatives.

The ethanol industry expects to have an additional 300 million

gallons of production capacity on line by the end of this year and

a total of 3 billion gallons of production capacity by the end of

2003. Now is the time to extend this important program. For plants

being built today there will be less than 4 years to recoup the investment.

President Bush recommended extending the Federal ethanol program in his energy recommendations to the Congress, and I would

urge each of you to strongly consider such action as energy legislation is contemplated by the Congress in the next several months.

Second, as you know, Mr. Chairman, the existing small producer

tax credit doesn’t work for those smaller farmer-owned cooperatives

that it was intended to help. I commend your efforts to address this

issue through your H.R. 1636. We support it, and we look forward

to working with you to assure its passage this year. Indeed, similar

legislation has already passed the Senate three different times and

was just not included in a final piece of legislation. We hope with

your efforts, and with your commitment and with our help, we will

be able to get it done this year.

Finally, as the Congress contemplates a comprehensive energy

policy, renewable, domestically produced fuels can and should play

a larger role in meeting our Nation’s energy needs.

Mr. Chairman, your bill, H.R. 2423, the Renewable Fuels for Energy Security Act of 2001, which would create a national renewable

fuel standard, is the kind of progressive legislation that must be inVerDate 31-AUG-2001 04:04 Sep 20, 2001 Jkt 074836 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\A836.XXX pfrm01 PsN: A836
6

cluded in national energy legislation. When fully implemented, this

program would reduce the need for more than 600,000 barrels of

oil. That is roughly twice the energy we import each day from Iraq.

America has the resources to address our long-term energy needs

without having to rely on the benevolence of OPEC. We should be

investing here at home, not overseas, to build a sustainable energy

future for our children. America’s farmers and small businesses are

willing and able to help us with our energy needs.

Again, Mr. Chairman, I want to thank you for holding this important hearing, and I want to add my voice to those that have applauded your efforts and those of others that have helped to promote the increased production and use of fuel ethanol. You have

helped create a vitally important domestic renewable energy resource. You can be proud of your accomplishment, and we certainly

thank you for your commitment to value-added agriculture, small

businesses and a sustainable energy future.

I thank you very much and shall be happy to take your questions.

[Mr. Dinneen’s statement may be found in the appendix.]

Chairman THUNE. Thank you, Mr. Dinneen, and we will get a

chance to ask some questions in a moment. But at this time I

would yield to my colleague from Pennsylvania, Mr. Shuster, to introduce our second witness.

Mr. SHUSTER. Thank you, Mr. Chairman, for giving me the opportunity this morning to introduce Guy Donaldson. Guy is the

President of the Pennsylvania Farm Bureau. Although Guy lives in

Gettysburg, Pennsylvania, it is a neighbor to the east of the Ninth

Congressional District which I represent. He clearly understands

the needs of the Pennsylvania farmers, and I am pleased you have

asked him here today to testify.

Guy’s been a fruit grower all his working life, and in fact, today

he and his wife Betty are in a partnership with their children.

They farm over 550 acres of apples, peaches, cherries and vegetables. In addition to farming, the family also operates a retail farm

market from May to October.

Guy has been a long-time leader in farm organizations. He has

served as the President of the Adams County Farmers Association,

was a director of the Pennsylvania Farm Bureau State board of directors, Chairman of the Pennsylvania Farm Bureau Growth Study

Committee and was elected to two 3–year terms representing the

agricultural community on Penn State’s board of trustees.

If that hasn’t been enough, Guy is a member of the Adams County Fruit Association, on the board of directors of the Mount Orchard Cooperative and a member of the Knouse Foods Cooperative.

As the current President of the Pennsylvania Farm Bureau, I

look forward to hearing his testimony today.

Thank you, Mr. Donaldson, for being here. I think it is extremely

important that people such as yourself are here before Congress

testifying. You are out there working the fields, and it is important

we hear your testimony.

Thank you, Mr. Chairman.

Chairman THUNE. Mr. Donaldson, please proceed.

7

Mr. DONALDSON. Good morning, Mr. Chairman. Congressman

Shuster sort of stole my thunder in the opening remarks there, but

that is okay. Let me move on down the page here a bit.

As you know, times are tough in farm country and commodity

prices across the board have been too low for too long. As an industry, we must expand the markets for the crops that we grow. Congress needs to pass trade promotion authority legislation for one

thing, and American farmers and ranchers need open and fair access to foreign markets and to those consumers anxious for the

safe, abundant and affordable food that we produce in this country.

Farm Bureau also supports the use of commodities to produce

goods other than food. Nothing has more potential in this area

than the use of agriculture commodities to produce energy. The potential for our farmers, our consumers, our environment, our economy and our national security is staggering. We are close to realizing this potential and we simply, gentlemen, cannot miss this opportunity.

Mr. Chairman, Farm Bureau strongly supports your legislation,

H.R. 2423, the Renewable Fuels for Energy Security Act of 2001.

This is the type of policy that must be implemented to bring prosperity back to rural America and energy security back to the

United States.

According to a report from the Midwestern Governors’ Association, the economic impact of the demand for ethanol adds $4.5 billion to farm revenue every year; Produces more than 195,000 jobs,

mostly in rural areas; Replaces $2 billion of imported oil, thus improving our balance of trade; and Saves the Federal Government,

as was mentioned before, $3.6 billion.

But the point most important to our membership is that the current use of 600 million bushels of corn for ethanol production adds

another 25 to 30 cents to the price a farmer receives for a bushel

of corn. With the low price of corn, this market is vital and it is

important that it expands.

H.R. 2423 requires that by 2016, 5 percent of the Nation’s fuel

contain renewable energy. It will provide an income to our corn

farmers from the marketplace and not the Federal Government.

And both farmers and government should work toward that goal.

But it is not only corn producers who benefit. The use of soybeanbased biodiesel will receive a tremendous boost as an important

part of our energy mix.

Other commodities will find opportunities under H.R. 2423. Currently there are 26 different feedstocks used in this country to

produce ethanol. Think of that, 26. With the exponential growth in

technology and the ethanol industry, we can anticipate the increased use of those feedstocks and the use of cellulose feedstocks

such as corn stover, rice straw, and waste from processing of agriculture products.

We all gain when we better utilize all the production from our

farms and ranches. The technology to use these sources is now in

the research lab. With a new demand created for biobased energy,

that technology continues to develop and to become economically

viable.

We should also look at other energy production that can occur on

farms and ranches. There is a great deal of interest among our

8

members in siting of wind and solar generators. Some are weighing

the economic return on micro-hydro generation. One area that

holds promise as a source of energy and a solution to a problem is

the capture of methane from the manure that we produce in this

country and that is abundant. Our livestock producers are increasingly concerned as to how they will be able to comply with restrictions on the storage and disposal of animal waste.

We need research in the development of farm-sized facilities that

can store manure and capture the methane therein; and beyond

that, we should look at taking that manure after the methane is

captured and using it as a fuel in the generation of electricity to

provide heat.

Mr. Chairman, farmers and ranchers have long provided safe

and affordable food to this Nation. We will continue to do so. But

as we have produced such an abundance of food, agriculture needs

to provide energy, as well, when we can. But it will take time to

build this industry to the point where that production becomes a

major component of our energy mix.

Some in Congress question a mandate for renewable fuels. They

believe that this is just another subsidy for farmers. Mr. Chairman,

we spend billions of dollars every year to protect our petroleum

sources in the Middle East. American servicemen and women have

lost their lives in a war against Iraq, and we today import more

energy from Iraq than we produce in this country from ethanol.

Our servicemen and women are still risking their lives in an area

where we must have a military presence. Let’s put our faith not in

the benevolence of Saddam Hussein, but in America’s farmers and

ranchers.

Mr. Chairman, we stand ready to work with you to build a domestically based renewable energy industry in America. We should,

and we must; and I thank you, sir, for having the opportunity to

testify.

Chairman THUNE. Thank you, Mr. Donaldson.

[Mr. Donaldson’s statement may be found in the appendix.]

Chairman THUNE. Next the subcommittee will hear from Mr.

Ron Heck, who is a soybean and corn farmer from Perry, Iowa, our

neighbor State.

Where exactly is Perry in Iowa?

Mr. HECK. Central Iowa, 30 miles north of Des Moines.

Chairman THUNE. It is too far away from South Dakota for an

exit then, I suppose; but anyway Mr. Heck is here on behalf of the

American Soybean Association. We welcome you and look forward

to hearing your testimony.

STATEMENT OF RON HECK ON BEHALF OF THE AMERICAN

SOYBEAN ASSOCIATION

Mr. HECK. Thank you, Mr. Chairman and members of the subcommittee. I appreciate the opportunity to come here today and

talk with you regarding the need for a national comprehensive energy policy that includes a meaningful renewable fuel component

for biodiesel and ethanol.

Farmers are small business owners and much of current biodiesel production is by small businesses and cooperatives. There

9

are two farmer cooperatives in Iowa that are producing biodiesel

now.

These are times when the prices for our commodities are very

low and the prices of our energy input costs are very high. This

causes great concern across the countryside, and producers are reviewing options for both reducing input costs and also opportunities

for increasing prices of what we grow.

While in the short term there is little we can do to completely

alleviate this situation, the American Soybean Association believes

the development of a comprehensive national energy plan would

help avoid these crisis situations in the future. We feel strongly

that a national energy plan should include a renewable fuels component and include both biodiesel and ethanol, and that is why we

strongly support the renewable energy legislation you, Chairman

Thune, introduced last month, H.R. 2423. We commend you for this

bold and innovative step in moving our country to homegrown energy sources.

As you know, Mr. Chairman, for the last 8 to 10 years, U.S. soybean growers have invested in the research, development and commercialization of biodiesel. Biodiesel is a cleaner burning fuel produced from renewable resources such as soybean oil. It contains no

petroleum, but can easily be blended with petroleum. Biodiesel is

typically blended at the 20 percent level with diesel or at 2 percent

or lower levels.

It can be used in compressed ignition diesel engines with little

or no modifications. Biodiesel in its neat or pure form is biodegradable and nontoxic and is the first and only alternative fuel to meet

EPA’s Tier I and Tier II health effects testing standards. Biodiesel

has the highest BTU content of any alternative fuel similar to

Number 1 diesel.

This year EPA finalized regulations that require a reduction in

sulfur content of highway diesel fuel of over 97 percent from its

current level of 500 parts per million. Current industry methods to

decrease sulfur in diesel also negatively impact the fuel’s lubricity

and, therefore, engine life. Biodiesel has no sulfur or aromatics,

and tests have documented its ability to increase fuel lubricity significantly when blended with petroleum diesel fuel even at blends

as low as 1 percent.

According to Department of Energy tests, biodiesel has an 80

percent life cycle reduction of CO2 compared to petroleum diesel.

This means that it offers the best opportunity for greenhouse gas

reduction of any heavy duty vehicle and equipment application.

Biodiesel also has the highest energy balance of any alternative

fuel, which means that it offers some of the most promising benefits for conservation efforts. Additionally, biodiesel offers significant

reductions in virtually all regulated emissions and a 90 percent reduction in EPA-targeted air toxics.

With the chairman’s permission, I will include additional information regarding the environmental benefits of biodiesel for the

record.

Soybean growers began to invest in biodiesel almost a decade ago

with our own money, not because we wanted to have our own ethanol. Instead, we were driven by the economics in the soybean industry.

10

Soybeans are widely produced for the protein source in the soybean meal. It is the plant protein of choice in the pork and poultry

industries, leaving soybean oil as a valuable but too abundant coproduct. Because of large supplies of vegetable oils in the world

market, we have a surplus of soybean oil, which depresses the price

of the oil and, thus, the whole soybean.

While biodiesel offers environmental energy security and economic development benefits, it is not competitive in the U.S. on a

pure cost comparison. Public support will be necessary to help the

industry develop.

Our culture and our policies are focused on petroleum products,

most of which are imported. I did not want to imply that soybean

growers are opposed in any way to the use of petroleum products.

In fact, agriculture is a major user of petroleum-based products.

However, I would make the challenge that our country needs to

have an aggressive energy policy that includes clean, renewable

fuels as well as significant domestic production of both oil and gas.

The current biodiesel market is growing rapidly from 500,000 2

years ago to 5 million gallons last year, with an expected target of

25 million gallons in 2001. Just last week the USDA released a

study that shows biodiesel production can have significant economic benefits for producers, rural consumers and the overall U.S.

trade balance.

The study shows an increase of 200 million gallons of biodiesel per year would boost total crop cash receipts by $5.2 billion, cumulative, by 2010, resulting in an average net farm income increase

of $300 million per year. The price for a bushel of soybeans would

rise by as much as 17 cents a bushel and also increase more than

13,000 jobs in the production and distribution. New jobs are created in the farm sector, food processing, manufacturing and service.

Just this weekend, our industry, along with the ethanol industry,

learned the results of an economic analysis conducted by John

Urbanchuk of AUS consultants. The report shows that if your bill,

Mr. Chairman, is enacted, soybean prices and farm income will increase and result in direct benefits to American consumers. We will

be happy to share this report with you when the details become

more available.

We think the timing is right for these major proposals to promote

the use of biodiesel. We look forward to working with you on this

agenda and other issues of interest.

I will answer questions at the appropriate time. Thank you.

Chairman THUNE. Thank you, Mr. Heck.

[Mr. Heck’s statement may be found in the appendix.]

Chairman THUNE. Next, the Subcommittee will hear from Mr.

Conn Abnee, who is the Executive Director of the Geothermal Heat

Pump Consortium.

Mr. Abnee, welcome.

STATEMENT OF CONN ABNEE, EXECUTIVE DIRECTOR,

GEOTHERMAL HEAT PUMP CONSORTIUM

Mr. ABNEE. Thank you. Mr. Chairman, members of the subcommittee, let me thank you for the opportunity to testify this

morning. My name is Conn Abnee. I am the Executive Director of

11

the Geothermal Heat Pump Consortium. The consortium is based

in DC, was established in 1994 by the Department of Energy and

the Environmental Protection Agency to promote the use of energyefficient and environmentally friendly heating and cooling technology. We are a nonprofit organization.

Geothermal heat pump technology is a renewable technology that

uses the relative constant temperature of the Earth below the frost

line to heat and cool buildings and heat water with a savings of

25 to 40 percent for the owner of the building, home or institutional facility. It is the world’s most efficient way to heat a commercial or an institutional building.

Geothermal heat pumps are not standard or conventional heat

pumps nor do they use the geothermal resources from deep reservoirs. Rather, geothermal heat pumps take advantage of the constant temperature of the subsurface Earth to provide an energy-efficient and environmentally friendly means to heat and cool buildings and homes.

Geothermal heat pump technology relies on the fact that the

Earth remains at a constant temperature throughout the year. It

is warmer in the winter than the outside air; and cooler in the

summer than the outside air.

In winter, geothermal systems bring the Earth’s natural warmth

up to a building through polyethylene heat exchange piping buried

in the ground, then transfers it to each room of your home or your

building via heat pump. In the summer, to cool the house, this

process is simply reversed. The system can work in any climate,

any geographical location, coast to coast, border to border.

For example, in South Dakota, the St. Thomas Catholic Church

in DeSmet saw a dramatic reduction in energy costs after installing

a geothermal system. Its energy bill dropped from $13,900 a year

to only $2,000 a year after the installation of geothermal heat

pumps.

In Wilmot, an addition to a school uses geothermal heat pumps;

the original structure uses a conventional system. The electric bill

for the older half of that building was $18,000 just for heating. The

electric bill for the new half of the building was only $3,100, and

that includes heating and cooling.

Mr. Chairman, the General Accounting Office has studied geothermal heat pumps and concluded in a report that the Federal

Government has the responsibility and the authority to promote

geothermal heat pump technology as a tool to meet our national

energy goals. The EPA has recognized the technology for its efficiency, and its ability to reduce greenhouse gas emissions.

President Bush has installed a system in his new home in Waco,

Texas—right outside of Waco.

Here at the consortium, we are working to jump-start the technology. Let me mention those now: research and development, demonstration programs across the country, training for designers and

installers, and implementing a design assistance program where

the engineering community is not aware of our technology.

Mr. Chairman, this technology can make a real contribution now

to energy savings and energy efficiency in both urban and rural

America. Currently, we are not included in the national energy policy, but let me offer our help to working with the Small Business

12

Administration to help overcome what you earlier mentioned were

high energy costs to small businesses across the country.

I appreciate the opportunity to testify this morning and tell you

about the technology, and will welcome any questions that the subcommittee might have.

Thank you very much.

Chairman THUNE. Thank you Mr. Abnee.

[Mr. Abnee’s statement may be found in the appendix.]

Chairman THUNE. And finally we will turn to our last witness,

who is Megan Smith, and she is Codirector of the American Bioenergy Association.

Ms. Smith, thank you for being here.

STATEMENT OF MEGAN SMITH, CODIRECTOR, THE AMERICAN

BIOENERGY ASSOCIATION

Ms. SMITH. Mr. Chairman and distinguished members of the

Subcommittee, thank you for allowing me this opportunity to testify on behalf of the members of The American Bioenergy Association of which I am Codirector.

The United States is at a critical time for the development of alternative energy sources, particularly for transportation, where the

majority of our precious oil is used. Our dependence on foreign oil

has put our economy and national security at great risk. These two

issues—increased energy demand and the need for reducing our dependency on foreign oil—have put us at a crossroads today, where

creating a win-win situation is more than just possible.

Low-value, high-quantity cellulosic biomass is widely available

throughout the U.S. and is found in virtually every State, particularly in rural communities. However, any plan regarding the use

of cellulosic biomass for conversion to ethanol is going to take a

large commitment on the part of key decision-makers. At the same

time, an increased use of corn for ethanol production will also require a large amount of support, especially to reach the production

goals contained in various legislation now before Congress.

Biomass is any matter composed of the two sugars, cellulose and

hemicellulose, and lignin, which is the high-energy glue holding

these two sugar chains together. Examples of biomass include wood

waste, agriculture residues, fast-growing grasses and trees and the

paper component of solid waste. Low-value biomass can be converted to several high-value products such as electricity, ethanol

and chemicals. Markets will determine which of these three is the

highest value in that particular situation, and industry will adapt

these biorefineries accordingly.

In using biomass as an energy resource, we are essentially

weaning ourselves from a hydrocarbon or oil economy and, instead,

creating a robust carbohydrate economy, or one relying on sugars

in the form of starch and cellulose.

The current corn-based ethanol industry converts to ethanol only

part of the available sugar in the corn plant, the remainder being

mostly cellulose. Industry’s new, highly efficient technology for bioethanol has shown conservative estimates for energy efficiencies at

four to one, that is, four energy units and output compared to energy used during production. This is largely due to the use of

lignin’s high-energy content.

13

The world’s first biomass ethanol plant with expected start-up in

2002 will be located in Jennings, Louisiana, and will use sugar

cane bagasse as its feedstock. Other plants under development include ones using waste feedstocks, such as rice straw, sawmill

waste and small diameter trees, which are largely responsible for

Western catastrophic fires.

Benefits of biomass ethanol include job creation with a job multiplier for a 20-to-25-million-gallons-per-year ethanol plant creating

about 500 jobs, both direct and indirect. Most importantly, these

jobs are largely in the poor rural communities of the U.S.

The area of biomass conversion to chemicals may provide the

largest market potential in the future. This November, Cargill Dow

will start up a plant that will make polylactic acid, or PLA, from

corn. From PLA ‘‘beads,’’ Cargill Dow will be able to produce such

products as carpet, clothing and plastic cups which are all biodegradable and renewable.

Here is one such example. The material in this shirt was about,

1 year ago, carbon dioxide in a farmer’s cornfield. PLA can greatly

help to displace petroleum now used as feedstock for these products.

The ABA applauds Congressman Bartlett’s Bioenergy Act of 2001

which builds upon the Lugar-Udall biomass bill of last year. The

Bartlett bill will fill a void by doubling authorization over a period

of 5 years for biomass research conducted by the Department of

Energy. In addition, moneys are authorized for the biorefinery concept developed by DOE.

Regarding the bills that would increase the ethanol market by

three to ten times the current market, ABA would like to point out

that no analysis above a threefold increase has yet been carried out

by USDA. The repercussions of a larger increase than threefold on

the corn community is, therefore, unknown. We would like to point

out also that the ABA supports the inclusion in these bills of a leverage for biomass of 1.5 to 1, as contained in S. 670, the DaschleLugar legislation.

Thank you, Mr. Chairman and members of the subcommittee, for

allowing me to speak on behalf of the many benefits of biomass

conversion to energy and chemicals for a cleaner and stronger nation for future generations to come.

Chairman THUNE. Thank you, Ms. Smith, for that testimony.

And we are all trying to figure out who fits that shirt here.

Ms. SMITH. You can each have one.

[Ms. Smith’s statement may be found in the appendix.]

Chairman THUNE. Let me also welcome to the committee Mr.

Carson from Oklahoma and Mr. Bartlett from Maryland. Do either

of you have comments you would care to make before we go to

questions?

All right.

I appreciate all your testimony. Obviously, this is an issue which

I think has great importance not only to agriculture—which is obvious, I guess—but also in terms of the impact that it has on our energy security as we move into the future. And I really believe that

the use of renewables and providing incentives encouraging production and use of renewable energy sources is going to be profoundly

important in making sure that we diversify our energy supplies as

14

we move into the future, and that is why I think hearings like this

are so important.

I guess one of the questions I would like to pose to the panel is,

what do you think is the greatest obstacle in terms of increasing

public acceptance and use of renewable fuels as a legitimate energy

source? I mean, are there things out there that perhaps we are not

doing in trying to educate and make the public more aware of the

value of these types of energy sources?

Mr. Dinneen.

Mr. DINNEEN. Mr. Chairman, I am not sure that there are barriers out there to the public. I think every survey that has ever

been done of public attitudes towards renewable fuels wants to see

a great deal more ethanol, for example, used.

I know that the Sustainable Energy Coalition a year or so ago

had conducted a rather extensive voter poll to determine the receptivity to the use of ethanol, and overwhelmingly, about eight in ten

wanted to see the increased use of ethanol fuels.

I think the barriers, to the extent that they are there, are that

we don’t necessarily sell to the public. We are selling to oil refineries or refineries that are not in the business of through-putting

renewable fuel products. They are in the business of through-putting hydrocarbons, and to the extent that you are able to look at

incentives that would create the market pull for refiners to act in

the public interest, as opposed to their own self-interest, would be

very helpful.

That is why the legislation that you have proposed, which would

create a standard that would require the use of renewable fuels in

a very sound way, makes so much sense.

Chairman THUNE. Does anybody else care to comment on that?

Mr. ABNEE. With the geothermal heat pump technology, our

technology is known to be very efficient, very environmentally

friendly; but we are facing an awareness issue. We have less than

1 percent of the marketplace for heating and cooling and waterheating devices. Consequently, it is not an accepted technology, and

we are looking for an advantage, some way to help us increase that

awareness among the engineering and architectural communities,

so we can build awareness of this technology now to provide an energy-efficient process for our society. In schools, commercial buildings and for small businesses across the country.

Chairman THUNE. Go ahead, Mr. Heck.

Mr. HECK. Yes. Although I am here for biodiesel, I want to point

out the market acceptance of ethanol gasoline in Iowa is very high;

over half of our gasoline is sold with ethanol in it. There is not significant resistance among consumers. And I say that to highlight

my second point, where it is an infrastructure problem.

Our manufacturers are supposed to know that there will be a

market for their biofuels. After they are produced, will there be

regulations or resistance from the industry that is already there?

As I said in my testimony, we have a culture in our society based

on oil, and before you can make the investment to venture into

these wonderful products, there has to be some assurance that

there will be a market available for product that is produced.

Chairman THUNE. Ms. Smith.

15

Ms. SMITH. I would agree with Mr. Dinneen that if left to the oil

companies, they probably won’t be blending a whole lot of ethanol;

so something like a renewable fuel standard is necessary, particularly if they get rid of the oxygenate standard that is now in place.

Also, for biomass ethanol, incentives are needed early on to stabilize the market and for when the people go in to get—the entrepreneurs go in to get loans from the bank, they can point to something that is already enforced in law or whatever.

Also, the DOE authorization, appropriations such as Mr. Bartlett

introduced about a month ago, will help stabilize research dollars.

Chairman THUNE. It just seems to me that part of it—and I was

asking the question, and you mentioned on geothermal—I asked

Mr. Udall—of course, he was much more knowledgeable on the

subject than I was.

But it was interesting for me to hear about the Catholic church

in DeSmet, too, because that is a technology I am not familiar

with. But there are many types of those technologies out there that

I think could really be useful in terms of meeting our energy needs.

Let me ask, and I think in terms of Iowa, South Dakota, I think

we are about 50 percent, too, use of ethanol; but my assumption

is that that is not something that when you get out of our part of

the country, people are as well acquainted with.

Question for—I guess, for perhaps Mr. Dinneen.

One of the questions that is always raised with me when I talk

about ethanol—as you note in your testimony, we have a number

of plants that are coming on line—is, if we begin to produce and

we have the supply of ethanol to meet, for example, California’s demands, which, with the denial of the request for a waiver from the

Clean Air Act, will become a bigger market for ethanol, getting it

there, is the infrastructure in place? Are we going to be able to supply the demand that exists, or will exist, we hope, in the future for

ethanol?

That is one of the questions that is often posed, and the transportation of it and that sort of thing. What is your response to

that?

Mr. DINNEEN. Well, there is absolutely the infrastructure to get

the product to wherever it needs to go.

Take California, for example. I mean, it is often suggested that

because ethanol is not shipped via pipeline today that there is just

no way to get all this product there. Well, that argument sort of

misses the fact that 90 percent of the MTBE that is currently being

used in California and polluting their groundwater is imported.

California is getting their MTBE from Saudi Arabia and from the

Gulf Coast. Well, there are no pipelines that go from Saudi Arabia

to California, frankly, there are no pipelines that go from the Gulf

Coast to California.

The MTBE that is shipped to California today is shipped via vessel. That is exactly the same way that ethanol will be shipped to

the State of California, by vessel. And Mr. Chairman, because ethanol has twice the oxygen content of MTBE—I like to say it is

twice as good as MTBE—we only need half as many vessels.

We actually in the past week have gotten letters from the American Waterways Operators, which represent all the barge and vessel operators across the country, that have said with no reservaVerDate 31-AUG-2001 04:04 Sep 20, 2001 Jkt 074836 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 E:\HR\OC\A836.XXX pfrm01 PsN: A836
16

tion, there are absolutely enough vessels, enough barges, to get the

product to California. There are also letters from Union Pacific and

other railroads that say we can ship product to California or the

Northeast or wherever it needs to go that way as well.

So there is absolutely no question in our minds or in the minds

of the industries that would actually move the product that we will

be able to get it there.

Chairman THUNE. I yield to Mr. Udall.

Mr. UDALL. Thank you, Mr. Thune.

My first question is for Ms. Smith, on this issue that you mentioned in your testimony about using fuels from the forest. As you

are probably aware, we have had a huge buildup in the West over

the last 100 years—because of overgrazing and fire suppression

and clear-cutting, we have an overgrowth of smaller trees, and we

are seeing these catastrophic wildfires. And in order to get the forest back in a healthy situation, we are going to need to do some

significant thinning of smaller trees, 12 inches in diameter and

under; and you mention in your testimony that one of the things

that is needed—and you highlight this, you say, ‘‘If long-term reliable feedstock contracts, at least 5 to 10 years, are not put in place,

biomass energy plans will not multiply anytime in the future in

great numbers that is enough to make a difference in the forest fire

abatement plan.’’

What specifically are you talking about there that needs to be

done in order to grow this industry to the point where we make a

real impact?

Ms. SMITH. I was talking about basically, the Forest Service

needs to put into place long-term feedstock contracts. I am not sure

they have. I think they are looking into that, if they could—their

legal department was looking in to see if they could do that; but

they have stewardship contracts which are long term, but were

looking to possibly expand that, so they have the authority to do

5 to 10 years.

Without biomass, the biomass putting a plant in without contracted feedstock supply is—you know, again, when they go to their

banks for loans, unless they have that in hand, it is very difficult

for them to get the loans that they need.

Mr. UDALL. What we are really talking about is creating a market for these plants and then allowing them to develop and grow.

Ms. SMITH. Right, it is a chicken-egg thing.

Mr. UDALL. You talk about, on some of these renewable fuels

that they are carbohydrate-based versus carbon. I didn’t hear any

of the panel do any comparisons of CO2 emissions. I mean, we are

all very aware of this climate change, global warming situation.

Are any of you aware of—what are the comparisons there in

terms of, if you are talking combustion between carbohydrate

versus carbon? And any of you.

Mr. DINNEEN. Congressman Udall, Argonne National Laboratories had done a comprehensive national analysis late last fall in

which they took a look at the greenhouse impacts relative to gasoline to determine that there was a 12 to 19 percent reduction in

greenhouse gases. Other studies have shown higher levels of reductions. A previous DOE study had suggested 35 percent.

17

But there is just no question, because you are taking carbon out

of the atmosphere in the production of the crops, that there is a

cycle there that is very beneficial to the environment.

One environmental group in California, after the President had

announced his decision on the California waiver, issued a news release saying that that one decision was responsible for taking

580,000 tons of carbon out of the air. So from the standpoint of

global warming, that one decision was incredibly important.

But anything that is encouraging the increased production and

use of renewable fuels, like ethanol, biodiesel, whether it is from

crops that are being used today, like corn or the cellulose and

lignin that Megan Smith has talked about in her testimony, is

going to have tremendously positive greenhouse gas benefits.

Mr. ABNEE. Mr. Udall, I draw your attention to our submitted

testimony, on page 2, where we quote, ‘‘Geothermal heat pumps

lower electricity demand by 1 kilowatt per ton of capacity.’’ This

would mean that a conventional, average-size home would reduce

the KW demand on that home by 3 KW. ‘‘If 100,000 homes began

using geothermal heat pumps, the United States would reduce annual electric consumption by 799 million kilowatt hours and reduce

carbon dioxide emissions by 588,000 metric tons. Those numbers

are equal to converting 129,000 cars to zero-emission vehicles or

planting 38.4 million trees.’’ Mr. HECK. The Department of Energy study showed that biodiesel reduces CO2 emissions by 80 percent compared to petroleum

diesel.

Ms. SMITH. And for biomass, depending on how large you draw

the box, if you take a green field, say, with just grass growing on

it, and plant trees, you are going to absorb more carbon. So it can

be upwards of 80 to 90 percent for greenhouse gas reduction.

Mr. UDALL. Mr. Abnee, you talk about geothermal, and the one

geothermal project I am familiar with is up in my district near Los

Alamos National Laboratory, and they drill down 3 miles into the

Earth and they hit what they call hot dry rock; and the theory is

to inject water, or something along that line, that then takes advantage of the heat, and then transfer it back up in order to generate power.

Is this the same technology you are talking about, more or less?

Mr. ABNEE. In theory, it is the same technology, but we only use

the top 150 to 300 feet of the Earth’s surface, which allows us to

use this technology across our country. You don’t have to go to the

hot reservoir to get the power production.

We are not generating power; we are only using the thermal

mass of the Earth to heat and cool commercially. It is a heat transfer process.

Mr. UDALL. And this hot dry rock phenomenon is also one that

could be very effective, I think, in terms of producing power on a

renewable basis; couldn’t it?

Mr. ABNEE. The hot dry rock process is very efficient in producing power, but there again what our technology is—in theory,

we are using the same principles, but we are only using the top

surface of the Earth, bringing that technology to everyone’s use,

not only in your part of the country, but all over the country where

they don’t have the hot reservoirs.

18

Mr. UDALL. That is great. Thank you.

I yield back, Mr. Chairman.

Mr. SHUSTER [presiding]. Thank you.

Mr. Bartlett, do you have any questions?

Mr. BARTLETT. Thank you very much.

I want to make sure I understand the geothermal heat pump.

What you are doing in your geothermal heat pump is simply working against the relevant constant temperature of the Earth, rather

than working against the hot summer and cold winter?

Mr. ABNEE. That is correct, Mr. Bartlett. What we are looking at

are the efficiencies that are derived from—geothermal heat pumps

based on the fact that the Earth has a constant temperature below

the frost line, and in the summertime, the Earth is cooler than the

ambient air that you are trying to cool within your home, business

or school; and in the winter, the Earth is warmer than the ambient

air, and that is where you get the 25 to 40 percent efficiency for

the customer.

Mr. BARTLETT. If you really think of—what we do with the standard heat pump is, you are trying to heat up the outside air in the

summer and you are trying to cool down the frigid outside air in

the winter.

Mr. ABNEE. That is exactly correct, and you are defying the law

of physics by doing that. And this way, we are using the constant

55°F to 60°F degree Earth to our benefit. The heat transfer is

much more efficient; and consequently, you get the efficiency of our

technology.

Mr. BARTLETT. Yes. There is also the potential advantage of storing heat during the summer so that you can now reclaim it in the

winter?

Mr. ABNEE. That is essentially what we do, because you are adding heat in the summer that is actually drawn back out of the

Earth in the winter. So the process is a reversible process and that

is what makes it efficient. That is correct.

Mr. BARTLETT. Thank you.

Just spend a couple of moments on the biomass energy bill. To

kind of put this in context, we have in this country 2 percent of

the known reserves of oil in the world, 2 percent. We use 25 percent of the world’s oil. We now import 56 percent of our oil, compared to 34 percent during the Arab oil embargo. This is a critical

national security concern in addition to an economic concern.

I am opposed to rushing out and finding that measly 2 percent

and pumping it. I think that we need to husband that. This may

be a rainy day; I think there is going to be a rainier day, and so

I am very supportive of these alternate technologies.

Ultimately, essentially all of the energy that we use except the

bit of geothermal, true geothermal where you drill down to the hot

core and nuclear, just about all the rest of the energy we use came

from the sun, or comes from the sun—whether it is photovoltaic or

whether it is the corn and the soybeans that you grow, whether it

is the rain that the sun lifts and drops on the mountain and runs

down through our turbines, whether it is the wind that blows as

a result of differential heating and cooling on the Earth’s surface,

produced by the sun—essentially, all of our energy came from the

sun in the form of our fossil fuels, or comes from the sun today.

19

There are about 1,000 gigabarrels of oil remaining in the world.

At the current use rate, that is about 30 years. Now, we are going

to find more, but we are also going to use more. So if you can make

the assumption that the more that we will find is going to match

the more that we are going to use—if the Third World is going to

industrialize and if we are going to continue to grow—then we have

got about 30 years of readily accessible oil available in the world.

By the way, ever since 1970 in this country—a little blip with

Prudhoe Bay—every year since 1970 we have found less oil and

pumped less oil than we did the year before. As a matter of fact,

in 1982, we spent more energy drilling for oil than we will ever get

from all the oil that we found in 1982.

A question was asked, how do we get the message out to the

American people that bioenergy and all these other alternative

sources of energy are very important? I think the average American understands the statistics that I just went through. And they

are really understandable; when you present them to the people,

they will be more than supportive of what you all want to do and

what we want to do.

How do we get this message out? High gas prices help us. You

know, that is a very regressive way to help us. That hurts the poorest of the poor the most. If it didn’t hurt them, I would pray for

higher gas prices because it gets the message home. But I don’t

want to hurt those that can least afford to be hurt.

How do we get that message out, so that we get support to do

what we really need to do for our national security, as well as for

the environment?

Mr. ABNEE. Mr. Bartlett, I think your example of higher fuel

prices, higher energy prices is an excellent one; and the analogy I

make to that is, no one likes to go to the dentist, but you always

go when you have a toothache. And as energy prices go up, people

continue to look for alternative ways to heat and cool their buildings—to alternative fuels and so forth.

Working in this particular setting with the Small Business Administration, hand-in-hand, in developing ways that we can help

reduce those energy cost is one way to do that. Make people aware,

develop some way to get this technology—whether it is nontraditional fuel, as you have heard today, or a technology such as geothermal heat pump technology—we have to get that message and

awareness out; and the way we do that is working with alliances,

working together. And one is with the Small Business Administration, helping to work hand-in-hand, developing ways to deploy that

type of technology and that type of alternative fuels.

Mr. BARTLETT. Even if you don’t think there is an environmental

threat to using fossil fuels the way we do—and I think there is, but

even if you don’t believe that, you still have to be concerned about

the national security and the economic impacts of our having only

2 percent of the oil and using 25 percent of the oil.

Anything you all can do to help us get that message out helps

all of us to move more quickly from a fossil fuel economy to a renewable fuel economy. Thank you very much.

Thanks, Mr. Chairman.

Chairman THUNE [presiding]. Thank you Mr. Bartlett.

Mr. Phelps.

20

Mr. PHELPS. Thank you, Mr. Chairman. Thank you for this hearing and valuable discussion that we all find important.

And thank you, Panel, for your testimony.

Mr. Donaldson, you alluded to some portion of your testimony

about the handling of manure. I know you came to the right place.

You know we are experts in that up here.

Mr. DONALDSON. I didn’t mean it that way.

Mr. PHELPS. You had mentioned that the connection between renewable fuel development and eventually reducing farm subsidies

as an item. How do you believe that should be?

Mr. DONALDSON. Well, it has got to work through the marketplace. There is a demand for the products that the farmer produces

out there, whether it is manure or whether it is the crops that he

grows.

As I said, the use of corn could increase that price 25 to 30 cents

a bushel if it was used for ethanol production.

The farmers today are not looking for a handout from you folks.

They are looking for a helping hand. So if we can gather our income in the marketplace, that is where we want to get it. And I

think that the things that I have talked about, if it is developed,

if the technology is there and everything develops as all the panel

has talked about, there is an opportunity for agriculture to receive

from the marketplace the income that we are looking for.

Mr. PHELPS. Thank you. I believe that, too.

In your testimony, you had mentioned that you would suggest

that we have a stronger partnership between the oil industry and

ethanol industry. How do you suggest that would be accomplished?

Mr. DINNEEN. Well, the biggest problem with energy markets

today, quite frankly, is indeed a lack of refining capacity. Refineries

are operating at 96, 97 percent of capacity today. So you can get

more crude oil from wherever, and it does not make any difference

if they can refine that product into gasoline for consumers.

Indeed, last year when the Administration had released some

product from the petroleum reserve, that product actually had to

be exported to European refineries to make gasoline and then reimported back into the United States.

Ethanol offers a way of adding volume, adding clean octane to

the liquid gasoline pool without having to go through that refinery

bottleneck. So, in that way, I think finally refiners are recognizing

that ethanol may not be quite the threat that they may have

thought it was; and we are working very closely with refiners today

to try to figure out a way, how we can work with them to continue

to provide high performance, high quality fuels for the driving public.

Mr. PHELPS. Thank you very much.

Mr. Heck, in your testimony, you had mentioned that including

the combination of clean renewable fuels and domestic oil and gas

would be the way to go. Do you feel that the administration’s budget proposal includes enough of that for your support or encourage

our support?

Mr. HECK. We are encouraged by the support that is in the President’s proposal, but there is no specific mention of what specifically

could be done for biodiesel, so we believe we need to go further. In

the chicken-and-egg market concept, there is a problem because we

21

have millions of individual buyers, but we have bulk distributors.

And there is no way for our customers to go to the store and buy

one unit of biodiesel. It has to be introduced through the distribution system and that requires legislation such as you are considering.

Mr. PHELPS. Hopefully, before the debate is over, maybe it will

include some of those items. We hope so.

Finally, Ms. Smith, you mentioned increase in the ethanol market by nearly 10 times may be actually detrimental to the corn

market. Why do you think this to be the case?

Ms. SMITH. I am not absolutely positive, but I just know that

USDA has not studied anything larger than a three-time growth

factor. Anything larger than that, until—it is not studied extensively. Anytime you get involved with a commodity such as corn,

which is volatile because of—you know, just because of atmospheric—you know, things going on in the atmosphere, the weather

patterns, et cetera, I think you just have to study it extensively.

Ten times market growth over 15 years is very large. Not that I

don’t support the premise of the bill, I do; but it is just very large.

Mr. PHELPS. So you don’t think it is worth the risk in stabilizing

our investment in lieu of the energy crises we are facing?

Ms. SMITH. I do if we are sure of the path that we are going

down, that it is not going to be detrimental to something else, if

you push here, something else is not going to push out in the other

direction. I would hate to see us go down that path.

Mr. DINNEEN. Congressman, could I just add to that real quick?

We are conducting a comprehensive analysis of the interrelated

agricultural impacts of the bill that is being discussed. We don’t believe that there is going to be a negative impact. We think that

there is going to be a tremendous farm income impact as a result

of increase in the demand for ethanol in this fashion. I mean, 16

billion gallons of ethanol sounds like a heck of a lot, and it is, but

not all of that is going to be corn. We think probably about half

of it is likely to be cellulose.

The next generation of ethanol production facilities that are

going to be built are going to use a variety of different feedstocks,

new technologies. This is still relatively an infant industry, and as

the industry grows, you are going to see expanded feedstocks, expanded technologies.

Ms. Smith mentioned some of the new cellulose technologies that

are likely to come on line in the very next year. Sixteen years from

now, who knows what is going to be possible, what is going to be

economic. We know there is tremendous expansion in our industry

today.

Mr. Phelps, you happen to represent a state and indeed a congressional district where more ethanol is produced than any other

district in the country.

But, Mr. Carson, you probably don’t recognize that the second

largest ethanol producer is a Tulsa-based company, Williams Energy, which operates two different ethanol facilities in other States.

And the State of Oklahoma is looking at trying to promote the increased production and use of ethanol right there in the State.

Mr. Udall, the third largest ethanol producer operates a facility

in Portales, New Mexico.

22

There are also planned facilities in York, Pennsylvania.

I have been working with the Maryland Corn Growers, Lynne

Hoot, Mr. Bartlett, you are probably very familiar with.

I mean, the planned expansions and the excitement in our industry, you know, goes from coast to coast, and we don’t see any difficulty at all in meeting the demand that is created by the bill. And

we believe it is going to be done in a way that is very beneficial

to farmers across the country.

Mr. PHELPS. Thank you for that valuable information. And that

is why we sit here as a team.

Chairman THUNE. Even though we would like to see South Dakota get to the top of that list.

Mr. Shuster.

Mr. SHUSTER. Thank you, Mr. Chairman. I would also like to

thank all the panels for being here today. I appreciate your testimony. My question is a two-part question.

First, the cost of ethanol-blended gasoline and biodiesel versus

standard gasoline, typical gasoline we use in Pennsylvania? And

also what does it do to the efficiency of the vehicle that is using

it to operate?

Mr. DINNEEN. Mr. Shuster, the cost is very competitive with gasoline as a result of the Federal Tax Incentive Program. But if you

look at the cost of ethanol versus other octane components in gasoline, be they MTBE or benzene or toluene or any of the other aromatic components that refiners might use for octane in place of

ethanol, we are very competitive today.

The fact of the matter is, though, they are going to use those refinery-based products if they can despite the cost impacts.

Second part of your question was——

Mr. SHUSTER. What does it do to the efficiency of the vehicle?

Mr. DINNEEN. Adding ethanol to gasoline is going to increase the

octane 3 percentage points. So if refiners want to, they could

produce at lower cost a lower octane base fuel, 86 octane or 84,

blend it with ethanol and have an 87 or 89 midgrade.

The performance of ethanol fuels is exceptional, and that is why

many marketers today are using ethanol in markets where it is not

required to be used.

Mr. SHUSTER. Mr. Heck, do you care to talk about biodiesel?

Mr. HECK. For biodiesel efficiency in its 100 percent pure or neat

form, which is not generally the way it is commonly used, the efficiency is the same as it is for number 1 diesel fuel—not marginally

better or worse—just approximately the same.

The most exciting use for the biodiesel is, in a low blend, at a

1 or 2 percent level, where it improves the lubricity, improves the

quality of the petroleum diesel fuel that it is blended with. And in

that case, it does improve the performance of the engine marginally, not by a lot, but it does extend the life of the engine quite a

bit because of the improved lubricity.

However, on the cost question, we don’t yet have biorefineries

like the oil company refineries, so our cost is higher. It is a new

industry; we have not gotten the cost economies of scale going. And

we definitely need some help, through a excise tax exemption, so

we can get this industry started.

23

Mr. SHUSTER. You mentioned that some vehicles need modification. What kind of modification would they require?

Mr. HECK. At a 1 or 2 percent blend, there is absolutely no modification required. Your engine will just run better and you will

hardly know that it is in there; there is no change.

If you choose to run 100 percent biodiesel, perhaps because you

are in a pristine wilderness area, for example, and you do not want

to risk a fuel spill on a lake or you are in an enclosed mine or

something and you do not want any toxic exhausts, the engine will

still run. But if you want to keep your fuel efficiency up, you will

have to have a timing change, which means—on a modern diesel

engine means going in and reprogramming the computer.

Mr. SHUSTER. Mr. Abnee, could you tell us what the cost differential is between installing a geothermal system versus in a

house, for instance?

Mr. ABNEE. In a conventional, normal-sized house, you are looking at a premium cost of—between $4,500 and $7,500 for the geothermal heat pump versus conventional heating and cooling.

Mr. SHUSTER. I am not quite sure I am clear on that.

Mr. ABNEE. A conventional home of 1,800 to 2,000 square feet,

typically, a 3 to 31⁄2, or 4-ton system depending on the geographical

location—the premium cost for the geothermal heat pump, is essentially the cost of the heat exchanger loop that is buried in your

yard or under your parking lot or driveway. That will cost an additional $4,500 to $7,500.

Mr. BARTLETT. How quickly do you get that back in decreased

energy costs?

Mr. ABNEE. We are looking at somewhere between 31⁄2 to 5 years

on a conventional home.

On a commercial building, you have a wash as far as the capital

investment is concerned. So it is the same investment cost up front

on a commercial or large-scale building. You have a payback from

day one. You immediately get the savings.

But on a home, we are typically seeing 3 to 5 years.

Mr. BARTLETT. And the system will last very much longer than

3 to 5 years?

Mr. ABNEE. The system historically will last longer than conventional systems because you are working that equipment at lower

stress than you do with conventional equipment, because you are

using the 50 to 55 degree Earth’s temperature as the temperature

transfer medium, so the equipment works at its optimum level.

So you are extending the life over 22 years of that heating and

cooling system versus around 17 years for conventional systems.

Mr. BARTLETT. Thank you for yielding.

Mr. SHUSTER. One final question. Compared to the rest of the

world, where do we stand with renewable fuels?

Do any of you care to comment?

Mr. DINNEEN. In terms of ethanol, we are growing at a pretty

rapid pace, but we are still far behind Brazil, which has a very aggressive ethanol fuel program. Indeed, 50 percent of the vehicles

that operate in Brazil run on a 22 percent ethanol blend. The other

50 percent of the vehicles run on a 100 percent ethanol blend. So

they produce about 4 billion gallons of ethanol from sugar cane in

that country.

24

But aside from Brazil, while there is a lot of activity in many

countries around the globe, ethanol in the United States is probably—still produces more and uses more than most other countries

as well.

Mr. HECK. For the biodiesel, it would be easy for me to say more

than I know for certain. I believe the market share in Europe is

around 4 percent. And I am not certain of that, but we are certainly behind what Europe is doing.

South America has not been involved in biodiesel to any large extent yet.

Mr. SHUSTER. Thank you, Mr. Chairman.

Chairman THUNE. Mr. Carson.

Mr. CARSON. Thank you so much, Mr. Chairman.

And thank you all for being here. Mr. Bartlett and Mr. Shuster

touched on a couple of questions I have about geothermal energy.

You said right now, it is a premium of $4,500 to $7,500 for a

home?

Mr. ABNEE. For a typical home, that is correct.

Mr. CARSON. What are the energy efficiencies that you gain from

installing that versus a conventional——

Mr. ABNEE. It is 41⁄2 to 1. That means for every unit of energy

that you purchase, in exchange, you will receive 41⁄2 units of energy—using the Earth as well as the technology that is in the box

for the heating and cooling device. So it is 41⁄2 to 1.

Mr. CARSON. A question to the rest of the panel.

One of the big criticisms about ethanol, biodiesel, biomass fuels

is that many times it costs as much energy to produce them as it

does—as, in fact, they might save for us.

I would like you to comment on that. And I guess the key metric

would seem to be the cost per BTU of energy or watt of energy or

however you want to measure energy production, if you could talk

about what the production costs per BTU are going to be for the

various alternative sources we are talking about here today.

Mr. DINNEEN. Mr. Carson, I will get myself into trouble if I try

to start quickly doing the math in my head of the cost per BTU,

but I will supply that to you and the committee.

Generally speaking, however, there is just no question that ethanol provides far more energy as a fuel than is used to produce it.

In 1980, when some of the first reports were used—and the oil industry continues to cite—that may have been the case, but our industry has been getting far more sophisticated in terms of how it

uses energy.

The energy input now in terms of ethanol is probably about

32,000 BTUs for a gallon of ethanol that produces 76,000 BTUs

when used as a fuel. So we are very energy efficient in that regard,

which is why Argonne National Labs, when it is doing greenhouse

gas emission studies, has determined that we have such a positive

global warming benefit. Because if we were a negative energy user,

we would not have that kind of a benefit.

The industry is getting more energy efficient all the time. Again,

we are a relatively young industry. And the next generation of ethanol production facilities is going to be more energy efficient than

the last, using the most up-to-date technologies. So as the industry

25

grows, those economic benefits, those efficiencies are just going to

expand.

Mr. CARSON. Did you say it takes 32,000 BTUs to create a gallon

of ethanol?

Mr. DINNEEN. That is correct.

Mr. CARSON. For 76,000 BTU payout. How does that compare to

gasoline?

Mr. DINNEEN. Gasoline has about 111,000 BTUs, but it takes

gasoline or takes petroleum products to make it. So its energy efficiency is not anywhere near as good.

Mr. CARSON. How about biodiesel?

Mr. HECK. Biodiesel made from soybean oil, I believe the energy

balance is 3.24 to 1. An even more important point is that we raise

soy beans for the protein and the oil is the leftover by-product.

As far as the production costs go, we are behind the ethanol industry in our time frame and in developing the industry. We really

do not know what the price is going to be. We know that there are

valuable products within the soybean oil, but without the biorefinery, we do not know what the eventual price would be. We

know that we are in the early development stage, and the price has

been dropping sharply over the last few years; without the necessary infrastructure, we do not know what the net cost will be.

We are certain it will be coming down. We are certain that

biotech will allow us to make the oil source more readily available.

Any answer I would give you would be tend to be misleading.

But it is a positive energy balance and a by-product of our primary

product, which is protein.

Mr. CARSON. Before going to Ms. Smith on this, let me come back

over here. Do you have a cost per BTU for ethanol? How much are

we talking about per BTU—the cost of the product?

Mr. DINNEEN. The production costs of ethanol are probably be- tween 95 cents and $1.05, depending on the facility and the current

price of corn.

Mr. CARSON. Per gallon?

Mr. DINNEEN. Per gallon.

Mr. CARSON. Ms. Smith, just for a housekeeping measure, oftentimes you use the term ‘‘biomass.’’ do you consider biodiesel, when

we are talking about ethanol, a type of biomass fuel?

Ms. SMITH. It is a type of biofuel. Biomass, we define as cellulosic.

Mr. CARSON. Same questions I asked earlier about, kind of the

cost per BTU and the energy required to produce a unit of energy

from biomass fuels.

Ms. SMITH. The energy efficiency is about 4 to 1 and that is

largely due to the lignin that is contained, holding the cellulose and

the hemicellulose together. It is like a clean coal. It has the same

BTU content. It is 4 to 1, so it is pretty efficient; and that is conservative.

As far as cost, it is about the same as the first plant—it is going

to cost about the same as a corn ethanol plant. And from there, as

they develop these enzymes called cellulase to break down the cellulose, it should ratchet down the cost of the ethanol production.

And we hope to be competitive with gasoline in 10 years’ time.

Mr. CARSON. Very good.

26

I yield back the remainder of my time, Mr. Chairman.

Chairman THUNE. Just a couple more questions and then I will

yield back to the panel to see if anybody else has additional questions they would like to ask.

I would like to come back, Mr. Dinneen, to the whole question—

the problem in the petroleum market. Obviously, one of the problems is refining capacity. They are max’d out or close to it. How

does that compare with the number of ethanol refineries, and is refinery capacity going to be a problem with ethanol in the same

fashion as it would be with—and I do not know how the different—

the refineries differ in terms of——

Mr. DINNEEN. We are operating closer to the norm in terms of

all manufacturing industries. We are operating at about 84, 85 percent of our production capacity today. We have got a production capacity of about 120,000 barrels per day. We are producing about

110,000 barrels per day. We think we can grow more, even with existing capacity. But we are putting steel in the ground because we

want to continue to grow this industry.

Chairman THUNE. It just seems to me they have got to go on parallel tracks, because you have got to have the refinery capacities—

we continue to get more production, obviously—so we do not run

into the same problem that they run into.

Mr. DINNEEN. Absolutely. And we have seen our demand grow

tremendously over the past several years. That is why you have

seen the growth in our industry.

I was telling somebody earlier today, I started with the Renewable Fuels Association a few years ago—14 years ago, but we were

producing about 600 million gallons at that time. We are going to

produce over 2 billion gallons this year. I mean, it has grown exponentially in the last 5 years, and as I said in my testimony, primarily in farmer-owned cooperatives, as farmers across the country

have recognized that this is an opportunity for them to seize the

economic benefits of ethanol production more directly.

Take a $2.50 bushel of corn, and rather than just giving that to

a grain silo for that amount of money, having ownership in that

ethanol-production facility, producing ethanol out of that plant, as

well as food and feed by-products, you have got $4 or $5 worth of

product coming out of those facilities. They are economic engines

across rural America, and that is the model that is going to continue to be followed in many States across the country.

Chairman THUNE. It really has been the only bright spot in the

ag economy in the last few years, if you think about it. And it really is not just—obviously, it puts more dollars in farmers’ pockets,

but it also creates economic activity in rural areas. That is one

thing we have seen with all the out-migration, and that is one of

the issues that we were discussing with this new farm bill. Production agriculture is one aspect of it, but also how do we support and

continue to keep our rural economies going? That is a broader,

broader issue. And that is where value-added industries like ethanol have been successful.

A question for Mr. Heck on biodiesel, and you have mentioned

that it is not yet competitive in the U.S. necessarily on a pure cost

comparison. What, in your mind, needs to be done to make it comVerDate 31-AUG-2001 04:04 Sep 20, 2001 Jkt 074836 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 E:\HR\OC\A836.XXX pfrm01 PsN: A836
27

petitive—I should say, the question of making it an affordable alternative?

Mr. HECK. That is the correct question, affordable alternative.

Within the renewable standards legislation, we also would have

to have a excise tax exemption, so our fuel would be one of the

fuels of choice in competition with the other renewable fuels.

And another answer that is also relevant here: The impact on

consumers for the low blends of biodiesel is very slight. At a 0.5

percent or 1 percent blend, the cost doesn’t matter as much because

we are talking about pennies per gallon or less. And in exchange

for that, their engines last longer. They get slightly better economy.

It makes petroleum diesel a better fuel.

So we are not trying for the whole market. We do not have that

much. We are not trying to be competitive on a gallon-for-gallon

basis. We are going for the lubricity qualities in regular petroleum

diesel.

Chairman THUNE. How is the trucking industry accepting biodiesel as a fuel additive?

Mr. HECK. The people who make the engines for the truckers are

enthusiastic about it. And Stanadyne, the largest fuel injector manufacturer, has written a letter to the EPA endorsing the low blends

as an aide for longer diesel fuel injector and engine life. Among the

trucking industry, they have a great many concerns about any type

of a local program, because of the ease with which their competitors can cross State lines and buy a different kind of fuel. It is really a situation that is tailor-made for a Federal regulation of some

type to introduce the renewable fuel standard and all the diesel

fuel at the same time.

Chairman THUNE. Thank you. Mr. Udall.

Mr. UDAL. Thank you, Mr. Chairman.

Mr. Bartlett, you mentioned earlier this figure of 1,000—is it a

1,000 gigabarrels? The Chairman and I—— Mr. BARTLETT. 1,000 gigabarrel. A gigabarrel is a billion barrels.

And somehow, they do not go to a trillion; It is 1,000 gigabarrels.

If you want to talk about gigatons, it is about 295 gigatons of oil.

This is the general consensus from a number of authoritative

sources. We had a hearing on this in our Energy Subcommittee on

Science. And there is general agreement it is about 295 gigatons,

or 1,000 gigabarrels, of oil remaining in the world.

Mr. UDAL. So about a 30-year supply?

Mr. BARTLETT. Roughly. We use almost 20 million gallons a day.

The rest of the world uses about 60. If you multiply those—say

that the year has roughly 400 days, it comes out to be 30 years

more or less.

Mr. UDAL. And one of the other crucial factors in this whole

equation is when we peak in terms of oil production in the world,

isn’t it? I mean, it seems to me we peak in the United States. That

is why our imports are going up, as you mentioned, 57 percent.

But when world oil production peaks, which I think many experts are saying is 7 to 10 years, the price impact is going to be

enormous, because the control of the price will be from outside the

United States, from those producers. And small businesses and others that can’t weather these ups and downs, I think, are going to

be impacted severely.

28

Would you—— Mr. BARTLETT. It is beyond our control. We believe in about 7 to

10 years, and maybe earlier than that, we will have pumped about

half of all the oil there is in the world.

And Hubbard suggested a number of years ago what turned out

to be true. In this country, when we reach the midpoint of our oil

pumping, which is about 1970, try as hard as we might after that,

we would not pump more oil, and we have not.

So whatever they would like to do when we have reached that

midpoint, it will probably be impossible to meaningfully increase

oil production beyond that. And since the oil demands are going to

keep going up, we can expect meaningfully higher prices in oil, and

nobody will be able to do anything about that. It is the marketplace

that determines that supply and demand.

Mr. UDAL. Thank you. And the reason why I wanted to ask those

questions is that I think it emphasizes once again the importance

of renewables at this point in time in our history, and how we have

to move forward very quickly on this renewable front.

Do any of you have any thoughts on how we could use, in addition to the testimony you have already given, use the government

to create markets in these areas? I mean, there are always ideas

in terms of government fleets and government buildings and for

geothermal. Are there any ideas out there and any thoughts on

using government as an entity to create markets?

Ms. SMITH. I think consideration of an E85 vehicle that uses 85

percent ethanol—they have got a chicken-and-egg problem also.

You probably know about the CAFE standard trade-off with the

85s. And the vehicles are out there, but there are no filling stations

with ethanol to put into the vehicles. So if the government could

help straighten that out, that would help in creating a market for

the ethanol.

Mr. ABNEE. As far as geothermal heat pump technology, first of

all, we would love to see it in a national energy policy and point

out that this is a way to reduce energy costs across the board.

Other ways we are finding to be beneficial, if we can get memorandums of understanding with GSA, the military installations, the

United States Postal Service, where we have been very effective in

pushing that technology—having them review the technology and

giving us an honest assessment or letting us show them that we

can compete and beat not only on, first, cost in some cases, but also

energy efficiency, I think that would be a help.

Mr. HECK. The bioindustry has been helped a great deal by the

Ag Research Service, using biodiesel B20 blends in all of their motors that they run that are diesel, 143 motors, from portable diesel

generators to combines and trucks and vans to transport visitors

around. So we would appreciate very much if this was extended

and more government agencies were asked to burn B2 or B20 or

any biodiesel blend.

We are currently working on and asking for CMAQ legislation to

be modified to allow for the purchase of biodiesel as a way to negate air quality in cities.

And there is also been some talk of legislation to allow more

EPACT credits for biodiesel use. Currently you can only satisfy half

of your credit for EPACT and perhaps that could be extended.

29

Mr. UDALL. Thank you. Just a final comment.

I note in the March blueprint of the administration’s plan for a

national energy policy, they link renewable tax credits to drilling

in the Arctic National Wildlife Refuge. So the proceeds from leasing

of ANWR would be used for extended tax credits for renewable

fuels and, in particular, to fund and expand the tax credit for the

purchase of hybrid or electric vehicles.

It just seems to me that linking those to such a controversial activity is not the direction we should head. I think those should be

decoupled, and we should be looking at those kinds of tax credits

as standing on their own, and find another source for them.

And with that, I yield back, Mr. Chairman.

Chairman THUNE. Mr. Bartlett.

Mr. BARTLETT. Thank you very much. I just would like to return

for a moment to the geothermal heat pumps. There is no reason

that every government facility shouldn’t be using these because it

is going to ultimately save money and be easier on the environment. And that is something we ought to be—we can do that—the

government needs to be a leader here. The average homeowner has

no idea of the savings that would accrue to them as a result of

using a geothermal heat pump. Somehow we have to get the architects and builders familiar with this so that they will be encouraging that.

What can we do to promote this in the private sector so that the

people understand that they really will be many dollars ahead and

also be very much kinder to the environment if they do this?

Mr. ABNEE. One of the things that comes to mind is some kind

of a tax incentive. If we can get some type of a tax incentive for

the customer, for the homeowner, that shows the benefit of this, as

well as working with us and giving us some opportunity to do an

awareness campaign for the general public to show them this technology is the most efficient, is the renewable example that we need

to employ—to deploy for the masses. It is efficient and environmentally friendly.

I would say, a tax credit is one of the things I would encourage

for homeowners.

Mr. BARTLETT. All we need to do to get this started. Once people

understand that if you are going to make money—it is like making

an investment that is going to pay dividends in 3 years and continue ever after that, as long as the system lasts, to pay dividends,

just education alone, if we can get it out there, should be effective.

Let me ask you a question about the potential for energy from

agricultural products, a couple of different sources of ethanol, the

biodiesel, the biomass, these are all potential sources of energy. We

have been encouraging farmers for the last number of years to cut

back on production. If we stop doing that and farmers could just

produce what they could produce, how much of our energy needs

could be met with energy from ag products? This is really beneficial

to farmers.

We now have a farm economy which is in real trouble, because

they are too efficient. They produce too much in the marketplace.

The supply and demand has driven prices down so the average

farmer is barely meeting expenses. If a rain doesn’t come this week

in our state, they won’t be meeting expenses this year.

30

How much of our energy could we ultimately produce from agriculture products if farmers weren’t discouraged from growing, if

they could get a reasonable price for their product?

Mr. DONALDSON. I do not know how much. I can’t give you an

accurate answer to that. But I know if there is profit in it for the

farmer, he will produce it.

The ag economy, as you said, and as I alluded in my testimony,

as a fruit grower, it is the worst I have seen in the last 12 years.

Our input costs continue to escalate at about 5 or 6 percent a year.

The price for the product that we sell has declined. Now that can

only go on so long.

I think if there is profit in ethanol and in renewable energy

sources, farmers are very innovative; they will find ways in which

to do that. But there has to be that carrot out there to entice them

to do it.

Our production problem right now is worldwide. It is not necessarily just here in this country. You look at the soybean—and

Mr. Heck can talk about the soybean situation in Brazil and South

America. I do not know if this will enter into this picture or not.

I am no economist there. But the farmers in this country, if they

see an opportunity here—and we have talked about farmer cooperatives to generate ethanol—there is one being proposed in New

Jersey, close to your neck of the woods.

So there is interest there. And it will depend on what the profitability is, whether farmers are going to really get involved in this

and go all out and do it.

Mr. BARTLETT. Megan, is chicken litter a good biomass feed

stock? If it is, we are rich on our Eastern Shore.

Ms. SMITH. Actually, it is. I went and visited Fibrowatt’s chicken

plant over in England, and it was fascinating. It was very pungent,

but it was functioning and it works. It works for electricity.

Mr. DINNEEN. Congressman, ethanol is actually important to

both ends, because a by-product, corn gluten, is used as a feed

product for poultry. There is a rather large chicken producer, Purdue, that uses corn gluten extensively in its feed mix; and I am told

that is what gives the Purdue chickens that yellow coloring. So

whatever end you want to talk about with the chicken, we can help

you out.

Mr. DONALDSON. To follow up on what Megan said, I saw a segment on television Sunday evening about the Eastern Shore and

the poultry manure being generated down there. And I think it is

a British—and maybe that is the same one you saw—a British outfit has a process by which they can make methane out of that

chicken manure and then burn the chicken manure after they have

reduced that for heating energy.

Mr. BARTLETT. Our landfills make methane, don’t they?

Mr. DONALDSON. Maybe we ought to be looking at that to generate.

Mr. BARTLETT. If you just set it aside and try to ignore it—out

of sight, out of mind—you are going to get methane from it, aren’t

you?

Thank you very much, Mr. Chairman.

Chairman THUNE. That, as they say, is the smell of money. And

I think, to seize on a term of the gentleman from Maryland—and

31

you referenced it, Mr. Donaldson, too—with the prices we have had

and the costs and the farm economy in the last few years, that we

have a gigaproblem with the ag economy which is only going to be

corrected by, hopefully, a turnaround in the economic conditions.

Mr. Carson.

Mr. CARSON. Just a couple of follow-up questions on that, and a

note of skepticism as well. I mean, it seems like in this whole debate and the whole larger debate about renewable sources, we have

gotten about two different policy objectives, one of which is to provide better, more efficient energy to our country, which is a serious

problem. Mr. Bartlett has talked about some of the long-term problems we face on that.

The second is, how are we going to help the rural economy.

I am a strong supporter of ethanol, for research for these programs, because they are great programs to our rural economy. The

chairman outlined the jobs, the dollars, that will be created for the

rural economy.

If we are talking about energy policy where our goal is to provide

a more efficient energy, which means higher BTU, lower cost energy for us, I remain a bit skeptical about it. For example, on the

geothermal side, you know, we typically provide tax incentives or

we tax activities or products that the market itself will either generate too much of or generate not enough of—where the social costs

differ from the private costs. We have a situation of these geothermal heat pumps, a great program, where it pays for itself over

4 to 5 years, as you said. You know, that doesn’t seem to be typically the kind of activities that we are providing tax incentives for.

I wonder if we could talk not about the rural issues and how it

will help rural America. I have a reason to support it. Our rural

economy is in serious trouble. But the economics of biodiesel or ethanol or geothermal and why the market is not driving increased

production of these or why government, from a pure energy perspective, should be trying to step in through subsidies and credits

and programs like that to encourage more production of them.

Mr. ABNEE. Let me address the geothermal heat pump technology issue. And your comments are well founded.

The tax incentive that I alluded to or the subsidies that I alluded

to are nothing more than to stimulate or jump-start the market.

We are still less than 1 percent in the marketplace in the heating

technology; this is not a mature industry. In order for us to benefit

from the energy efficiency that this technology can deliver, we have

to get more and more utilization and usefulness out of the technology.

I would not be a proponent of or suggest that we continue tax

incentives or subsidies for any longer than to where we can become

a mature technology, and then let the marketplace and the private

sector begin to take over.

Mr. CARSON. By mature technology, you mean have greater penetration in the marketplace?

Mr. ABNEE. That is correct. The technology itself, the research

and development is there. It is completed. It is done. This is a deployment activity to utilize the benefits of the technology that we

have today.

32

The private sector industry will more than keep up the pace to

be competitive and continue to advance and become more and more

efficient. But the utilization of the technology is where we think we

need some stimulant.

Mr. CARSON. Would you not agree that advertising would be an

effective private market substitute for a tax credit in that situation?

Mr. ABNEE. You have to keep in mind that the majority of these

companies that are building these boxes and this equipment are

small companies. They are very small and some people would say,

actually in their infancy, although we have been doing this for over

15 to 18 years.

But keep in mind the heating and air conditioning industry has

a tendency to rely on what has occurred and what has happened

20, 30 and 40 years ago. They are reluctant to make changes or

to have a paradigm shift from one technology to another, much

similar to what we are hearing here with alternative fuels.

It is not a case where we can just tell someone how great this

is and they do it.

Mr. CARSON. Let me ask two technical questions about how the

geothermal heat pumps work. Is it a substitute for, is it supplemental to conventional heating and cooling units?

Mr. ABNEE. And it is a substitute for; It is not a supplement. We

take the technology of the heat pump itself and couple that with

the Earth, instead of the outside air as Mr. Bartlett had discussed.

So this is a substitute for heating and air conditioning.

Mr. CARSON. And can it be installed in existing homes or does

it have to be new construction?

Mr. ABNEE. Yes, it can. It can be installed in buildings such as

this. It can be installed in retrofitted applications of schools, and

homes. It is not just for the new building market.

Mr. DINNEEN. Congressman, in terms of the renewable fuel side,

I think you sort of need to look at gasoline that has a BTU content

of 111,000 BTUs. There are 200 or so different hydrocarbons that

will form that blended gasoline, some of which will have higher

BTU content than ethanol. Others that would have a lower BTU

content than ethanol. All we are suggesting is that there are, as

you mentioned, externalities that are important in terms of public

policy, health, environment and energy security, that are helpful to

make sure that at least a component of that gallon of gasoline is

domestically produced renewable fuels like ethanol. When compared against other important octane enhancers like toluene or

benzene, ethanol has tremendous benefits to society and, frankly,

to the refiner in meeting clean air objectives under the current law

and other things.

I mean, I am not sure I am quite getting at what your question

was, but I think ethanol has significant vale.

Mr. CARSON. Clarify for me, what is ethanol aspiring to be a substitute for, other gasoline additives or as a primary source of fuel

in and of itself?

Mr. DINNEEN. The ethanol industry doesn’t think we are actually

going to replace gasoline. Our future is likely as a blend component

with gasoline, to boost octane, to provide cleaner fuels, high performance fuels for the public. If you were to blend 10 percent ethVerDate 31-AUG-2001 04:04 Sep 20, 2001 Jkt 074836 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HR\OC\A836.XXX pfrm01 PsN: A836
33

anol in every gallon of gasoline, I think you would be making a

pretty bold statement in terms of energy security.

The State of Minnesota has a tremendously aggressive ethanol

blend program. And actually in that State, every gallon of gasoline

is blended with 10 percent ethanol. It is the only State in the country meeting its EPACT goals, because it has replaced 10 percent

of its fuel with an alternative.

That ought to be our goal as a Nation; it is certainly our goal as

an industry.

Mr. CARSON. Does anyone else care to respond?

Mr. HECK. The world and the United States made the decision

to go to an oil-based economy 100 years ago, and it was a good decision that has served us very well in quite a few areas, and not

served us quite as well in other areas.

But if we could take time out today to rethink the whole process

and decide which way we were to go if we were starting from

scratch, would we decide to go with an oil-based economy with an

uncertain energy supply from foreign countries or would we decide

to grow our own energy? I think the answer is obvious that if we

could just call a time out and start over, if we made that decision

today for energy security, for environmental and for economic development, we would decide to use our own fuel and our own products that are made from biomaterials. But we have an energy industry and oil industry that is firmly entrenched with 100 years of

experience and billions of dollars of research and great production

facilities, all of which I am grateful for.

But to make this transition to where we should be 50 years from

now or 100 years from now, we need government help to facilitate

this change as rapidly as possible.

Ms. SMITH. If you look at the history of energy subsidies, every

conventional energy source has had lots of government funding in

the form of subsidies put behind it before it becomes commercial.

We are just starting out, as Bob Dinneen said. We are the new kid

on the block as far as being market-driven.

I am not sure that the technologies, such as nuclear and coal,

just went on their own; oil is still getting all types of subsidies that

are hidden.

Ms. CARSON. Thank you very much. Thank you all.

Chairman THUNE. Mr. Shuster. I believe we have exhausted our

questions, so we appreciate your patience, panel, and your great

testimony and your responses.

As I said earlier, I think this is an issue which bears strongly

not only on the issue of agriculture, but on the future of our energy

security in this country. And we welcome your input as we continue to have a dialogue and discussion on energy policy. In my

mind, it is very, very important that renewable sources be a part

of our energy mix as we head into the future.

Mr. Donaldson.

Mr. DONALDSON. The question was raised or discussed here

awhile ago about the acceptance by the public. That is important.

You fellows sitting up there and the rest of the Congress, political

leadership is going to be key if it is going to move ahead.

The time is now. The time is critical. Gentlemen, do not let it

pass by.

34

Chairman THUNE. You can count on that in South Dakota. The

one member from South Dakota agrees with you.

With that, the hearing is adjourned. Thank you.

[Whereupon, at 12:00 noon, the subcommittee was adjourned.]

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