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AGRICULTURE’S ROLE IN

THE RENEWABLE FUELS

MARKET

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 29, 2006

Serial No. 109–34

(

Printed for the use of the Committee on Agriculture

www.agriculture.house.gov
COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

RICHARD W. POMBO, California,

Vice Chairman

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

ROBIN HAYES, North Carolina

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

SAM GRAVES, Missouri

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER, Texas

CHARLES W. BOUSTANY, JR., Louisiana

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

JOHN R. ‘‘RANDY’’ KUHL, JR., New York

VIRGINIA FOXX, North Carolina

K. MICHAEL CONAWAY, Texas

JEFF FORTENBERRY, Nebraska

JEAN SCHMIDT, Ohio

MICHAEL E. SODREL, Indiana

COLLIN C. PETERSON, Minnesota,

Ranking Minority Member

TIM HOLDEN, Pennsylvania

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

JOE BACA, California

ED CASE, Hawaii

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

HENRY CUELLAR, Texas

CHARLIE MELANCON, Louisiana

JIM COSTA, California

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN J. KRAMP, Chief Counsel

JOHN HAUGEN, Communications Director

ROBERT L. LAREW, Minority Staff Director

(II)
(III)

C O N T E N T S

Page

Butterfield, Hon. G.K., a Representative in Congress from the State of North

Carolina, prepared statement ............................................................................. 5

Davis, Hon. Lincoln, a Representative in Congress from the State of Tennessee, prepared statement ................................................................................. 6

Fortenberry, Hon. Jeff, a Representative in Congress from the State of Nebraska, prepared statement ................................................................................ 8

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 2

Salazar, Hon. John, a Representative in Congress from the State of Colorado,

prepared statement .............................................................................................. 13

WITNESSES

Burke, John W., III, forest landowner and president, Virginia Forestry Association, Richmond, VA ......................................................................................... 40

Prepared statement .......................................................................................... 97

Christopherson, Al, chairman of the board, Agricultural Utilization Research

Institute, Crookston, MN ..................................................................................... 38

Prepared statement .......................................................................................... 110

Dinneen, Bob, president and chef executive officer, Renewable Fuels Association, Washington, DC ........................................................................................... 51

Prepared statement .......................................................................................... 72

Dorr, Thomas C., Under Secretary, Rural Development, U.S. Department

of Agriculture ........................................................................................................ 15

Prepared statement .......................................................................................... 104

Frey, William A., global business director, DuPont Biofuels, E.I. DuPont

de Nemours & Company, Inc., Washington, DC ............................................... 57

Prepared statement .......................................................................................... 109

Gaalswyk, Mark K., president, Easy Automation, Welcome, MN ....................... 32

Prepared statement .......................................................................................... 114

Hamilton, Richard W., president and chef executive officer, Ceres, and board

member, Biotechnology Industry Organization, Thousand Oaks, CA ............. 36

Prepared statement .......................................................................................... 92

Passmore, Jeff, executive vice president, Iogen Energy, Ottawa, Ontario, Canada ......................................................................................................................... 53

Prepared statement .......................................................................................... 78

Stanek, Manager, Mary Beth, General Motors Strategic Initiatives, Detroit,

MI .......................................................................................................................... 54

Prepared statement .......................................................................................... 83

Walker, Robert, president and chef executive officer, Bixby Energy Systems,

Rogers, MN ........................................................................................................... 34

Prepared statement .......................................................................................... 107

SUBMITTED MATERIAL

American Sportsfishing Association, et al., statement ......................................... 112

The Fertilizer Institute, statement ........................................................................ 88

National Association of Conservation Districts, statement .................................. 113

Nissen, Jim, president, North Dakota Corn Growers Association, editorial,

submitted by Mr. Pomeroy .................................................................................. 91

Smith, J. Read, co-chair, 25 x ’25 steering committee, statement ....................... 106
(1)

AGRICULTURE’S ROLE IN THE RENEWABLE

FUELS MARKET

THURSDAY, JUNE 29, 2006

HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, Washington, DC.

The committee met, pursuant to call, at 10:05 a.m., in room 1300

of the Longworth House Office Building, Hon. Bob Goodlatte (chairman of the committee) presiding.

Members present: Representatives Lucas, Moran, Gutknecht,

Johnson, Osborne, Bonner, Rogers, King, Neugebauer, Boustany,

Schwarz, Foxx, Conaway, Fortenberry, Schmidt, Sodrel, Peterson,

Etheridge, Baca, Cardoza, Herseth, Cuellar, Costa, Salazar, Barrow, Pomeroy, Boswell, Larsen, Davis and Chandler.

Staff present: Kevin Kramp, Craig Jagger, Ben Anderson, Tobin

Ellison, William B. Farris, Josh Maxwell, Tyler Wegmeyer, Callista

Gingrich, clerk; Lindsey Correa, Chip Conley, and Anne Simmons.

OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review agriculture’s role in the renewable

fuels market will come to order. I would like to welcome our distinguished witnesses to the Committee on Agriculture.

The purpose of today’s hearing is to review the role of the agriculture community in the renewable fuels market. With gasoline

prices consistently hovering around $3 a gallon, I believe it is appropriate to discuss how agriculture commodities, the source of

most ethanol and biodiesel, can make a larger contribution to our

Nation’s energy supply.

Earlier this month I introduced House Concurrent Resolution

424 with Ranking Member Collin Peterson and Representatives

Musgrave, Herseth and a number of other bipartisan original cosponsors. This resolution, also known as 25 x ’25, recognizes the

importance of agriculture in meeting our energy needs and sets a

noble goal for America whereby the year 2025, 25 percent of the

total energy consumed in the United States will be provided by renewable sources from America’s agriculture, forestry and working

lands.

Although corn is often the first commodity that comes to mind

in discussions about ethanol, there are a wide variety of agriculture

products and byproducts that can be converted to clean, renewable

energy sources. For example, the forestry industry in my State has
2

enormous potential to contribute to renewable fuels. Trees are an

abundant resource and are available for conversion into both paper

and biofuels year round. Wood and wood waste could produce

enough electricity to power 43 million households or enough ethanol to increase our domestic supply by almost tenfold. It would be

possible for more than 4 billion gallons of ethanol to be produced

a year from forestry biomass without negatively impacting paper

and packaging production and still ensuring that forest land owners have strong markets for timber.

Like forestry, Virginia’s many agriculture commodities and animal waste products would be an essential and beneficial resource

for renewable fuels.

Today we will hear from the Under Secretary, Tom Dorr, who

will speak about the President’s advanced energy initiative. We

will also hear from General Motors, who has recently initiated a

large public information campaign for flex fuel vehicles, as well as

Iogen, who is about to break ground on one of the first cellulosic

ethanol plants in the United States. We will hear from the research

side of this issue from Al Christopherson, who represents the Agricultural Utilization Research Institute, and finally from agriculture

producer groups who will produce the feed stock for our biofuels.

I would like to also thank our subcommittee chairman, Gil Gutknecht, for his assistance in planning this hearing and providing

several experts from Minnesota.

As energy prices continue to rise and we work to reduce our dependency on foreign oil, it is important to continue to promote the

development of alternative fuels and create new markets for agriculture products in the energy markets. At the same time, we must

also ensure that we continue to have a reliable and affordable supply of feed. The benefit of reduced energy prices and new markets

for agriculture products cannot be replaced by the risk of increased

input costs for livestock producers. While agriculture’s contribution

to renewable fuels has incredible potential, we must ensure it does

not result in unintended economic risks.

I look forward to the testimony and the participation of my colleagues as we discuss this important issue, and I now turn to the

ranking minority member, Congressman Peterson, who is one of

the strongest advocates for renewable fuels in the Congress. The

gentleman is recognized.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman, and thank you for

calling this hearing and for your leadership on this issue as well.

Today’s hearing on agriculture’s role in biofuels is an important

one because it impacts both our domestic and our foreign policy.

With gas prices as the chairman said around $3 a gallon or more

in some places, all the issues that we have in the Middle East, Nigeria and Venezuela, there has been no greater time to utilize renewable fuel technology. Renewable energy provides a great opportunity for U.S. agriculture and for rural America to be leaders in

this new future of energy.
3

My home State of Minnesota has a long tradition in supporting

production and use of renewable energy. We have had a mandate

that 10 percent of our fuel be ethanol. The legislature has raised

that to 20 percent. We have a mandate on biodiesel. We have been

leading the country in that regard and we are the State that has

the most E–85 pumps of any other State in the country. We currently have about 210. We have 16 ethanol plants, 13 of which are

farmed owner, as well as three operating biodiesel plants. Potential

for continued growth in Minnesota and throughout the United

States as I said is tremendous, and the excitement level is high in

farm country and in our small communities.

What we need to do now is to help these renewable industries

such as ethanol gain greater access to the American consumer. We

need to promote expansion of new plants, aid research in improving

industry technology and to encourage gasoline stations to supply

E–85 in their pumps as well as manufacturers continue to increase

the amount of flex fuel vehicles that are available to the American

consumer.

The future of ethanol production technology is evolving as we go

along to meet these energy demands of this country. Currently

there are cellulosic ethanol plants that are up and running or

about to be in Canada and in Spain, and as the chairman said,

hopefully there will be plants here that are going to be started here

shortly in the United States. Currently what they are using, as I

understand, is wheat and barley straw but eventually the cellulosic

technology will allow us to use any kind of biomass and including

switchgrass which the President mentioned in his State of the

Union speech and had a lot of Americans scratching their heads

but folks are learning about it and it has some tremendous potential not only for making fuel but it does a lot of other positive

things for the environment, wildlife and so forth. Cellulosic ethanol

will expand our Nation’s ability to produce more efficient energy

and complement ethanol production. We are going to continue to

make ethanol out of corn. We are going to probably grow more corn

but my position is that we ought to be doing whatever we can to

produce fuel in this country from whatever source it is so we can

get off of this foreign oil.

Commercializing these technologies will lead us to greater production capacity, maybe cheaper energy in the long run and give

us the ability to have a significant inroad to getting energy independent. Brazil as I understand it is probably going to be energy

independent this year and that would be a great thing if we could

do that here in the United States, and that is my goal and I think

a lot of people’s goal.

The future of energy production from agriculture I think is the

most exciting thing that has happened in rural America in a long

time, maybe 100 years. Renewable energy from corn stovers,

switchgrass, wind turbines, animal waste, other biomass will all

contribute to reducing our reliance on foreign oil and providing a

welcome boom to rural America. So I look forward to hearing from

the testimony of our panelists, I thank them all for being here, and

I want to recognize my good friend and constitute, Al

Christopherson, who is going to be testifying on the second panel.

Al has been a long time leader in agriculture, head of the Farm Bu-
4

reau in Minnesota for many years. He retired from that. He is now

the chairman of the board of the Agricultural Utilization Research

Institute, which is a leader in research in this area. We appreciate

him being here all the way from Penock, Minnesota, which is a big

metropolis outside of Willmar, Minnesota.

So again, thank you all for being here and we look forward to

hearing from the witnesses.

The CHAIRMAN. I thank the gentleman for his statement. We

have three panels of witnesses who have very interesting things to

tell us, so without objection, all other opening statements will be

made a part of the record.

[The prepared statements follow:]
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6
7
8
9
10
11
12
13
14
15

The CHAIRMAN. And we will proceed now to welcome our first

witness, the Honorable Thomas Dorr, Under Secretary for Rural

Development of the U.S. Department of Agriculture. Mr. Under

Secretary, we are always delighted to have you with us and pleased

to have your testimony regarding the Department’s involvement in

this very interesting and now very dynamic aspect of American agriculture. Welcome.

STATEMENT OF THOMAS C. DORR, UNDER SECRETARY, RURAL

DEVELOPMENT, U.S. DEPARTMENT OF AGRICULTURE

Mr. DORR. Thank you, Mr. Chairman, members.

It really is a distinct pleasure for me to appear before you today

to discuss USDA’s role in our Nation’s energy strategy. That role

is significant and it is growing. Bottom line, distributed agriculture

or rural-based renewable fuels have a very significant potential for

enhancing our national security, our economic competitiveness as

well as our environment. They are also the biggest new opportunity

for wealth creation to emerge in rural America for many years, and

this is a very high priority and I look forward to working with this

committee to realize that full potential.

But before we get into specifics, I would like to share a story.

Last month I was in Indianapolis for an ethanol event at the Indianapolis Motor Speedway. The 500 is shifting to ethanol, the Indy

Racing League is. The race was run this year on a 10 percent blend

and they are planning on 100 percent ethanol next year. While I

was there I met Tanya Dana, the wife of Paul Dana. Paul is the

younger driver who was killed back in March during practice for

another race, not the 500, but Paul was also the young man who

had the idea and then persuaded Tony George, who is the president and the owner of the speedway, to switch the Indy 500 and

the Indy Racing League to ethanol. Now, Paul was a farm kid from

Missouri. Tanya is a farm girl from North Dakota. They met in college at Northwestern University, where he studied communications

and she studied music. How they got from Northwestern to race

cars is another story for another time. But Paul was driving cars

in 2001 when the September 11 attacks occurred, and as a Midwestern farm kid he knew about ethanol and he connected the

dots. He thought it would be great if racing would make a statement about energy independence, so Paul started working out the

details and lining up the support, and before long he was ready to

approach Tony George, who said yes.

And one of the things that strikes me about this, one of the

things that makes this such a great story is how grass roots all this

still is. Paul and Tanya Dana were a couple of farm kids with an

idea and Tony George runs a family business, and most people

probably don’t think of the Indy 500 that way but it is a third-generation family business. Tony is the grandson of Tony Holman, who

bought the speedway in 1946 right after World War II.

I think of that and then I think of my own father, who was one

of those who worked very hard to pass the first ethanol check-off

back in Iowa over 30 years ago. I think of all the other farms in

co-ops that have invested and keep this moving forward for many

years. Today all that hope and investment and energy is truly paying off. Now, obviously Government has helped. Federal and State
16

incentives kept the ethanol industry alive for many years when low

oil prices were boxing alternative fuels off the market. Today with

oil at $70, that investment is clearly paying off.

In addition, the 2002 farm bill and the 2005 energy bill have

given us significant and important new tools to support renewables

across the board, and as a result from 2001 through 2005, USDA

and USDA’s rural development alone have invested over $350 million in 650 renewable energy projects but that is just the tip of the

iceberg. Biofuels and wind have reached a tipping point and they

are starting to move on their own, assuming the continuation of

the production tax credits, and that is great. The economics of solar

are a little further out but there are exciting things on the horizon

for that as well.

The challenge today is to keep that growth on track. We are

working with the Department of Energy to ensure that our activities complement one another. The President has called for an advanced energy initiative that results in research and development

to make cellulosic ethanol cost-competitive by 2012. We do need to

find ways to move emerging technologies through the proverbial

valley of death into full commercialization, and we of course look

forward to working with Congress to craft a strong farm bill that

takes full advantage of the remarkable new opportunities facing

rural America today.

Thank you all very much, and I look forward to engaging in this

dialog with you.

[The prepared statement of Mr. Dorr appears at the conclusion

of the hearing.]

The CHAIRMAN. Mr. Secretary, thank you for your testimony. I

wonder if you might tell us from the perspective of the Department

of Agriculture what role you think the Secretary and yourself and

others in the Department should play in examining the overall picture of this energy supply from agricultural products. By that I

mean, we are dramatically increasing agricultural production right

now and we have got to make sure that it gets to the consumer,

and in doing that, it has got to be in a way that is usable to the

consumer. So obviously your Department doesn’t have jurisdiction

over automobile manufacturers or the transmission of fuel supplies

and gasoline stations and so on but you also have got to have an

interest in making sure that these products that we are encouraging increased production of make it to the consumer to benefit the

consumer. What is your perspective on that? What role do you view

the Department having in that?

Mr. DORR. Well, clearly the Department has had a historic role

in providing oversight and responsibility for the things as charged

by Congress relative to conservation issues, production issues, food

safety issues and all the other ancillary things that are tied to it.

As you I am sure are well aware, not too long ago there was what

is now known as the billion-ton study that was completed in conjunction with the Department of Energy and USDA. The assessment was made in that study that there was more than an adequate supply of available biomass to provide up to 30 to 40 percent

of the liquid fuels out of biomass without significantly impacting

the levels of food production that were required out of corn or impacting the levels of CRP ground or other things. So I think be-
17

cause this is such a dynamic new and growing effort, that there is

going to be a continual heightened level of evaluation and monitoring to make sure that we do understand what is happening but yet

I hasten to reflect on something that has been obvious to me in all

my years in farming, and that is that very time a potential new

demand came along, we somehow have always managed to not only

meet that new demand but keep commodity prices at levels that

are far below what frequently are viewed as acceptable for an economic survival. So I am pretty optimistic that we are going to be

able to sustain the kind of demand for liquid fuels and the other

requirements that society has for us.

The CHAIRMAN. Thank you. You mentioned the President’s plan

to accelerate research into cellulosic ethanol and to make it costcompetitive. Do you have any perspective on what kind of timeline

we are talking about there? I know we are going to hear from some

of the folks who are in the process of making it right and it is an

infant industry but has tremendous potential. The President mentioned it in his State of the Union address and I am wondering if

you have a perspective on when you think this can be available on

a large scale?

Mr. DORR. Well, obviously the advanced energy initiative as proposed by the President resides with the Department of Energy. We

have had a history of working with them and to the extent that we

have cross-pollinating dialogs and discussions, I am very encouraged with the potential of cellulosic ethanol and I think that technology will evolve in a very reasonable amount of time, and to the

extent that we can be involved in facilitating the commercialization

of that, we fully intend to do that. I do know that there are an ongoing number of research initiatives through the Cooperative Research and Extension Service of the Department of Agriculture and

other areas and so we will be aggressively, I am certain, pursuing

those as well.

The CHAIRMAN. You mentioned in your testimony that fundamentals are driving the need for renewable fuels and I also in

my opening statement mentioned the high oil prices that certainly

are having an impact on this. If these factors are no longer in

place, will there still be a large drive to increase renewable fuel

production in the country?

Mr. DORR. Well, I don’t think any of us really know what those

price structures are that turn things on and turn them off but I

think the consensus has obviously been that the demand for energy, particularly in the developing parts of the world, particularly

in India and China and other places, substantial enough that with

the new energy administration reports that were out recently,

there is going to be substantial growth in energy demand and it my

expectation that with the price levels that we have and the commitments that are obviously being made by major players in this

industry, it has gone now beyond the start-up phase. How it

evolves remains to be seen but I am very encouraged with what I

have seen that there will be strong continued growth in this area

and I think aside from the liquid fuels area, I would expect to see

it in solar and in wind and other areas as well. We are going to

have to recognize that are building out brand new industries.

These are distributed production types of systems. They are going
18

to require new regulatory regimens. They are going to require new

investment strategies, probably new business models and so it is

going to take a concerted effort on all fronts to make sure that we

enhance the smooth build-out of this industry.

The CHAIRMAN. Thank you. The gentleman from Minnesota is

recognized.

Mr. PETERSON. I thank the gentleman.

Following up a little bit on that question, one of the problems

that I am hearing about from the people that are working in the

cellulosic area is the problem that we had some years ago when we

were trying to get the original corn ethanol industry going and that

is finding the financing and getting the comfort level up with the

financing folks to do this, and it is apparently not there. So the

question is, you have brought enough authority under the CCC to

provide operating loan guarantee programs or grant programs to

help us get this cellulosic industry off the ground or do you need

some changes in that area?

Mr. DORR. USDA Rural Development has a fairly extensive loan

guarantee background and program. We also have the ability to

originate direct as well as guaranteed loans. We do not have access

to the Commodity Credit Corporation. That is not in our portfolio.

To the extent that we were given either statutory authority or an

adequate funding, I am certain that we could facilitate doing some

of these things in these areas.

I think it is important to point out that we have a long relationship with Department of Energy, particularly in the implementation of our 9006 portfolio, which is part of the 2002 farm bill. One

of the things I did, and I think I mentioned this to the committee

before, but realizing that we probably didn’t have all the technical

capacity to evaluate all of these applicants that came to us, we

reached out and engaged them to help provide technical assistance

as we were able to then make the grants and now ultimately a

number of these loan guarantees, and that had worked very well.

To the extent that Department of Energy is interested in involving

us in any of this, I am certain that the Secretary and all of us involved would be more than willing to do so.

Mr. PETERSON. That 9006 program, isn’t there some limitation on

how much you can do there or something?

Mr. DORR. Right now I think this fiscal year we have about $175

million in loan guarantee authority, and the regulations were developed back in 2004 and they have a maximum loan guarantee

right now of $10 million. We would have to revisit that regulation

in order to expand the scope of those loans.

Mr. PETERSON. I mean, because if we are going to get these first

couple plants up, there is some DOE money but it is going to take

a lot more than 10 million bucks, so——

Mr. DORR. You are absolutely right.

Mr. PETERSON. So that is something we can look at as we move

ahead with the farm bill. Have you been briefed on the work done,

and this may be a little bit out of your area but I know that you

have been very much interested in the work that is being done on

switchgrass in Lincoln, Nebraska, and I know this is out of your

area again but are there other places where USDA by themselves
19

or in conjunction with a university are doing research on

switchgrass?

Mr. DORR. I have not been briefed on that particular project. I

do know that there was a level of research that was done on this

same issue in Iowa. There are a number of other areas of this going

on but I have not been involved quite frankly in the research side

of this nor recently had any kind of briefings on it. I am aware of

a lot of the literature and I have had some visits from folks who

are indicating that they are making some significant gains in the

breeding programs and ultimately believe that the yields not just

in switchgrass but in other species offer some significant opportunities and I think in the biotech arena in general, there is an elevated level of work going on and I think there are some elevated

expectations of the outcomes that would lead one to think that

there will be cellulosic raw materials available to sustain the kind

of demand that I think we all collectively envision.

Mr. PETERSON. One final thing. Myself and some of my colleagues sent a letter to the President asking him to continue the

CCC bioenergy program for biodiesel. Do you know where the Department is in terms of support for continuing that program? My

folks tell me that they think that is very important and there is

some concern about whether it is going to keep going or not. Do

you know generally where the administration is, the Department

is on that?

Mr. DORR. No, I am not. In all honesty, I am not. I can get back

to you. I can tell you that it was a useful program to ramp up the

industry. I think that we have to internally reflect on when you

have industries that are generating 35, 40, 50 percent rates of return where the line is on how to utilize this. But to the extent that

I can get you an answer, I will try to do so.

Mr. PETERSON. Are you the chair of the USDA Energy Council?

Mr. DORR. Yes, I am.

Mr. PETERSON. Because I met with Keith Collins last week and

we were discussing this, and he had kind of deferred it to you, so

maybe you guys can——

Mr. DORR. I am afraid I am becoming a good bureaucrat.

Mr. PETERSON. But that is something a lot of us are very interested in and we would appreciate knowing where you are at see if

we can get some support to keep this going. Thank you.

The CHAIRMAN. The gentleman from Minnesota, Mr. Gutknecht

is recognized for 5 minutes.

Mr. GUTKNECHT. Thank you, Mr. Chairman. I don’t have that my

questions for Mr. Dorr because he was in my office for over an hour

yesterday and had a fascinating conversation. Let me just first of

all thank the chairman for having this hearing. Great minds work

in the same channel. We were going to have a subcommittee hearing about this time as well on the same subject. I do believe long

term that agriculture and renewable energy play a very important

role.

Let me use a part of my 5 minutes for some shameless self-promotion. I am a big advocate of what the chairman is going with 25

x ’25 but let me just take a minute to explain to my colleagues and

some of the folks who may be here why I think things like 25 x

’25 or my bill, 10 x ’10, which was recently introduced in the Sen-
20

ate by Senator Grassley from Iowa, why that is so important. The

truth of the matter is, we have an enormous ability to produce energy in farm country. The problem is, we don’t have access to market and I believe that success leaves clues and I think part of the

reason we have such a viable renewable energy industry in the

State of Minnesota, and you are going to hear from three Minnesotans today, is because the legislature and the Governor there have

done something that most States have been unwilling to tackle and

that is guarantee that 10 percent of the fuel supply in the State

of Minnesota comes from renewable energy, ethanol, and what it

has done, it has given our farmers access to market, and I think

as we go forward, Mr. Dorr, I think that is going to be one of the

most important things. Hopefully you will stick around. What I

think is incredibly important, you are going to hear from some entrepreneurs today that have some really amazing technologies to

talk about if we can get them to tell their whole story. They are

being a bit protective right now because of patent issues that they

filed for. But I think what you are going to hear, and this is where

Rural Development can play a very important role. There are gaps

right now. I mean, if you want to build a building, we can get some

help from Rural Development. If you want to do certain things,

there are ways that Rural Development can help, but taking a concept that may be a very good concept and finding the capital to get

that concept to a working provable scaled technology is very difficult.

And so as we go forward, I just want to assure you, Mr. Dorr,

that I will work with you and the Department in trying to figure

out ways that we can give you some flexibility, give the Department some flexibility so long as the people involved are willing to

put some skin in the game and we can protect to the maximum extent possible the taxpayers’ dollars.

I think that the real opportunity for us long term is to figure out

ways we can help these guys take some very interesting and promising technologies and get them to the next level because the payoffs not only for American agriculture but for America and the

world in general I think are just phenomenal. So I want to thank

you for being willing to work with us and sort of look outside the

box and see where we can go to help Rural Development become

an even more important component in developing what I think will

be the most exciting part of the future of agriculture in the United

States.

That wasn’t so much a question, Mr. Dorr, but you are more than

welcome to respond to it.

Mr. DORR. Well, you have got a long list of witnesses and I will

refrain from responding but I completely concur with you about

these opportunities, and we will work with you.

The CHAIRMAN. I thank the gentleman. The gentleman from

North Carolina, Mr. Etheridge, is recognized for 5 minutes.

Mr. ETHERIDGE. Thank you, Mr. Chairman, and let me thank

you for calling this meeting. I think it is a very important one. It

is very timely for what is happening in our country, and if anyone

follows the price of energy and what the futures look like, the futures dictate what is happening any time there is a shock anywhere around the world. They don’t act like a barometer, they are
21

more like a thermometer and they keep going up, they aren’t coming down, sort of like the temperature in the summertime.

But Mr. Under Secretary, thank you for being here as well and

your work in this area. A couple of questions. My district, as you

probably know, is quite rural and yet in transition to an urban

area. We are adjacent to a lot of pressures and also has an awful

lot of military as well. There are a lot of needs for rural development obviously when you have a rural district in transition as you

can appreciate, but probably one of the greatest strains we are seeing right now is in the very area we are talking about today is in

energy. A lot of our agricultural folks are in the field today. Commodity prices aren’t what they ought to be to compensate for the

cost of energy and energy prices are putting tremendous pressure

on them. They are spending the dollars today hoping the commodity prices will up in the fall, and if they aren’t, there are going to

be some people that may not be in business later on, and the people who commute to work are seeing the energy prices soar and unfortunately their salaries aren’t soaring with the energy prices, so

they are squeezed. And so that gets me to my question, and we

have talked about it. We had a chance to talk earlier about the

USDA, and Congressman Peterson raised part of the question on

section 9006 program, and I am going to give you a chance to comment on that a little more if you would. Can you share with us why

there wasn’t more loans made under the program? I know there

are caps but my recollection is that the loan level last year was

somewhere over $200 million but the actual amount that ended up

being loaned was less than $20 million. Is there a reason for those

numbers? Are there things that we need to change so that obviously as we are talking about development of an energy source,

that can be more flexible? And I know you alluded to it a few minutes ago but I would hope you would expand on it.

Mr. DORR. Certainly. I think it is important when you delve into

a question like that to kind of put in perspective the background

of renewable energy and ethanol and the history of it. It really did

start out back in the 1970s as a supply management program. Over

the years a number of small entrepreneurs began to develop and

build this out but it was frequently always referred to as a sustainable agriculture marketing tool that was focused, and the assumption was it was focused on small producers, giving them other ancillary forms of income. What has happened is, markets have driven this. We now realize that these dry mills, these cellulosic facilities and others are going to be 100 to 150, maybe even $200 million

opportunities. They are substantially larger in scope and size than

I think was originally envisioned 20 years ago certainly and maybe

even 10 or 15 years ago.

When it comes to the 9006 program, it was statutorily authorized

to provide grants and loans and/or loan guarantees. The loan guarantee program was stood up in 2004 and I was not at that time

directly involved with the development of those regulations but apparently the Department at that time thought it wise to the limit

the size of those loans to $10 million. Well, in retrospect, we now

realize that a $10 million loan guarantee that can only equate up

to 50 percent of a total project, which means a $20 million project,

is not an adequate size to build out one of those. So that is No. 1,
22

a limitation on the demand for the program and we are talking

about that and trying to address that now. Number 2, the loan

guarantee program, actually the regulations were published and we

were not ready to begin making loans until about the 1st of August

last year so we really had 2 months in the fiscal year. This year

we have had obviously the program set up the entire year. We have

about $176 million in statutory lending guarantee authority. However, we are running short on loans again there as well because of

the size limitation, and that is what is driving us to revisit that

issue.

Mr. ETHERIDGE. Let me follow that up if I may, Mr. Chairman.

Will that require legislation or can you do that through administrative rules and the timeline?

Mr. DORR. We are looking at that now but I think we can do that

through our regulatory process and the rural development process.

Mr. ETHERIDGE. Any timeline on that?

Mr. DORR. No, but knowing how long it takes to make rules, I

am concerned that it will be longer than I would like to see but

we are trying to hasten it along.

The CHAIRMAN. The gentleman’s time has expired. The gentleman from Nebraska, Mr. Osborne, is recognized for 5 minutes.

Mr. OSBORNE. Thank you, Mr. Chairman, and thank you for

being here, Mr. Dorr. Just one observation. First, we have a lot of

people in universities and other places who are doing peer research. It seems to me that the missing link oftentimes is those

people who can figure out what in the peer research arena is applicable and what isn’t and can make the jump to something that is

going to be profitable, that is going to make a difference, and so

I would like to encourage you to think about that in terms of how

do you identify those people, how do you fund those people. Because we have money for research and then we have money for

projects but getting the two together sometimes is the difficult

part, and those people that can do that are really kind of rare and

anything we can do to fund those people I think would be important.

The second thing is that I am interested in the cellulosic issue

certainly and the State of Kansas, aided by Mr. Moran, is interested in water from Nebraska. It surprises me that they would

take that attitude. But anyway, we are now having to take some

land out of irrigation and we are doing that with a CRP and a

CREP program, and so we have gotten a lot of heat from people

in agriculture who say well, you are using the multiplier factor

idling this land, and so Moran is now talking, I have turned his

switch on. But anyway, what I am concerned about if is we could

go switchgrass, which is allowable on CRP or CREP, the question

is how much can we really harvest how much can we benefit because if we can tell these people in agriculture that we are going

to make those usable, those 70,000 acres is what we are going to

end up with down in the Republican valley, it would certainly ease

the pain, and maybe somebody here can advise me as to how we

do this but I just want to make you aware that if we are going to

make switchgrass a player, if we can involve CRP and CREP in the

process, it will certainly help. I realize that may subvert a little bit

of the—but if you don’t cut it off real short, you still have the bene-
23

fit of cover and you also have the wildlife aspects, and the big problem we have right now with wheat, it used to be a great crop but

now we are cutting it so short that is no longer the cover it once

was.

So anyway, I just thought I would ask you if you had any

thoughts on particularly the issue of the CREP, CRP, and maybe

using some of that land for switchgrass and cellulosic ethanol, and

also the question is, how much money do you feel is available in

grants and loans specifically for cellulosic production?

Mr. DORR. Well, the first thing I would point out, as you may remember the recent front-page article in the Post here a week or so

again about the pile of corn stalks in Imperial, Nebraska, where

they were actually researching the ability to store that cellulosic

material. It wasn’t mentioned, but it was the result of a grant from

our, I am not sure if it was our value-added development or our

9006 program, and that is the kind of thing that we can do that

translates to some on-the-ground research but essentially Rural

Development is not a research vehicle. I mean, our funding is

largely to provide funds for commercialization and so to the extent

that we can do the small things like we did with the grant to the

group of producers at Imperial, we are delighted to try to do it.

Relative to cellulosic, I am not a researcher and quite frankly it

is not my arena. The only thing I do know about cellulosic is what

I had indicated earlier, there is a considerable amount of research

going on both in the public universities and the private sector. I

think there is a lot of excitement that would suggest that then can

perhaps double with the bioengineering work that they are doing.

They can double the yields of switchgrass and manage it in a very

responsible way so that it ultimately ends up being able to yield

somewhere between 600 and perhaps as many as 900 gallons of

ethanol at a very cost-effective number on a per-acre basis and I

think that is what producers in the private sector will strive for.

I am very confident that everyone intends to do this in an environmentally and cost-effective way so I frankly, as I said earlier, am

encouraged that these things will occur probably quicker than we

anticipate but as long as gasoline is $3 a gallon, it will never be

quick enough for any of us.

Mr. OSBORNE. Thank you, Mr. Chairman. I think my time has

expired.

The CHAIRMAN. I thank the gentleman. The gentleman from

North Dakota, Mr. Pomeroy, is recognized for 5 minutes.

Mr. POMEROY. Thank you, Mr. Chairman.

Secretary Dorr, I am pleased with the Department’s enthusiasm

for the biofuels as we are all on the Agriculture Committee. I quote

many times a statement I saw attributed to Dr. Collins that it is

a stunning development for rural America to get such an unequivocal and decided statement out of any economist, much less our

friend Keith. It is a big deal and it shows the depth of our enthusiasm for all of this.

A couple of things. First of all, for farmers to get the most of this

biofuels future, they have got to be in existence. I am going to do

a drought tour over the break and I am terribly worried about the

depth of the drought in areas of North Dakota and I understand
24

we are just more or less at the tip of what is a pretty severe

drought through the Plains. Can you give us information on that?

Mr. DORR. I don’t. I mean, I look at the drought monitors but I

don’t monitor the scope of the drought on a regular basis. I know

that it has kind of ebbed and flow in my home State of Iowa as

well as in Nebraska. I tend to look at rainfall patterns on a regular

basis but the locale and the severity of it, I know in the upper

Great Plains in the west varies considerably from what I am familiar with in the Midwest.

Mr. POMEROY. I reckon we have a third to a fourth of this committee representing farmers pretty severely impacted so I do encourage the Department to monitor this very closely. As one member of the committee, I have been very disappointed that the administration has been completely unsympathetic to the notion of

disaster relief for the farmers from the 2005 production year. It

looks like we are going to have a very serious situation in 2006

once again, and as it develops, I think if the Department at the

highest levels really understands the depth of depletion of subsoil

moisture imperiling this year’s crop, maybe we won’t have such a

difference of opinion when it comes to 2006 disaster response.

Moving to biofuels, and I am pleased to also serve on the Ways

and Means committee and work to make sure that supporting tax

credit structure is in place both for ethanol, for biodiesel. We certainly need in that committee to take the lead I think in extending

those tax credits. But one of the things that I have been interested

in and hopeful for year in and year out here we talk about wanting

to diversify the economy opportunity in rural America. Now we

have, as Dr. Collins said, a stunning change in rural economies

through the biofuels and I just so hope the farmers can get a piece

of the production action.

I have a letter that I will enter into the record from Jim Nissen,

who is the president of the North Dakota Corn Growers Association, which appeared in the Fargo Forum on June 28, and he notes

with all of the enthusiasm in the markets now for biofuels, you are

seeing venture capital come in, you are seeing plants that normally

would have been running around having potential stockholders’

meetings ad nauseam trying to get the farmers to pony up so they

could get a start, now they have got it all funded before they even

have to come to the farmers and the farmers aren’t given a piece

of the production action. I am wondering what strategies USDA is

contemplating, if any, that we might consider as we approach a

new farm bill that would allow this opportunity for farmers, some

kind of loan incentive or loan program or loan guarantee. I rally

don’t know what full array of strategies we might use but I think

it is going to be important and hope to have the Secretary’s leadership in helping our farmers get a piece of the production part of

this whole situation.

Mr. DORR. Well, I think you make an excellent point and it is

one that I have talked about on numerous occasions. Clearly you

have identified the issue. As the technology in these industries

have matured, they are now beyond the point where larger investors and larger firms who have the kind of risk aversion necessary

to invest big chunks of money to do so. It is interesting to note that

last week I was at the third annual renewable energy finance
25

forum in New York. Last year I was there, it was the second annual. There were 570 participants. The organizers said they represented $125 billion of capital interested in investing in renewable

energy. This year there were about 700 participants, and the organizers suggested to me that there was somewhere between $750

billion and $1 trillion of investment capital there.

I will go very quickly, I don’t want to take up too much of your

time, back to the issue at hand. We are building out a new industry. It is a new distributed production energy business, whether is

in liquid fuels, biodiesel, ethanol, wind, solar or whatever. These

new industries will require different kinds of regulatory investment

and business model regimens. Let me give you a very quick example. If you are going to build $150 million ethanol plant, a 100-million-gallon facility, about 5 years ago you would have had to raise

all the money locally, but today you can go to New York or you can

probably go to Fargo and get one check for $60 million or maybe

two If you are going to go out to the rural areas 3 miles down the

road from my place where they have an ethanol plant and raise the

money locally, it takes 3,000 or 4,000 transactions. It is not a limitation of capital. There is $1.75 trillion of rural ranch, farm and

forest lands. Only $1.45 trillion of it is free and clear. There is no

limitation of equity in rural America. We do have to look at how

we can facilitate the development of disclosure, security and other

sorts of things to enable a responsible investment vehicle with

transparency in governance so those seeking equity capital can go

to Fargo and there is a fund there that the barber, the plumber,

the landowner, the tenant farmer has put money into and simultaneously let them stop there and get there one check for $60 million

is to go somewhere else. I don’t believe in all due respect that we

need to develop more levels of subsidies or more levels of guarantees so much as we need to look at how we develop the kinds of

tools that enable people to invest comfortably and redirect some of

this rural equity that is underleveraged I a responsible, serious

way so that they can access these opportunities. That is going to

be as much a State as well as a Federal responsibility to get done.

In Rural Development, I have charged our people to begin doing

some basic studies. We have not let all of those out yet for bid but

we are going to try to begin delving into that to generally frame

up some of those issues.

And finally, I mean, all of this is happening very rapidly and yet

we are only at 4 or 5 billion gallons of ethanol and we are using

140 billion gallons a year. I think we have got a little time to figure

out how to do this. I don’t think it is going to get away from us

but we have to focus on these issues aggressively and quickly if we

are going to make it possible for these rural citizens to participate.

Mr. POMEROY. I know my time is almost expired. In North Dakota, the corn has been all committed so in a way it is moving pretty darn quickly, and your last comment it almost comes to mind

a rural REIT type of thing. Mr. Chairman, these are very interesting ideas. We could have a lot of fun in this committee doing some

constructive work on this topic.

The CHAIRMAN. I thank the gentleman. The gentleman from

Michigan, Mr. Schwarz, is recognized.
26

Mr. SCHWARZ. Mr. Secretary, I am a very strong supporter of ethanol production. In fact, there are two very large, as you noted,

$100 million ethanol plants going up in my district in Michigan,

one in Riga and one in Albion, but it takes energy to make energy,

and ethanol plants will use a great deal of energy, electric, especially natural gas. Tell me how I should with a district that goes

right up to Ann Arbor, which is one of the greenest cities in the

United States, and East Lansing with our two major universities

and many greens in those communities, how should I convince

these people that biofuels, especially ethanol derived from corn but

also soy diesel because that obviously in southern Michigan is a

large crop as well, how is that a good thing understanding that it

looks to me like a zero-sum game in the production of ethanol now

as far as energy usage is concerned? I want to make that argument. I want to make it so people can understand it and be supportive because I believe it is the way to go for our country obviously politically but also for our farm communities, and I have

probably the most intensively agricultural area in the State of

Michigan. How do I make that argument?

Mr. DORR. Well, it is an argument that has been going on rather

aggressively, particularly the last couple, 3 years but I would submit to you that, No. 1, the USDA did some studies recently that

we were involved with that would suggest that we are getting

about 1.25 to 1.35 BTUs out of a gallon of ethanol for every BTU

that we invest with everything from beginning to end. The conversion ratios on virgin oil still is about 2.1 to 1. Those who have had

some difficulty with these energy conversions, I would I guess suggest that are using a considerable amount of old data relative to

the operation of the facilities, the conversion levels, the cost of fuel

and the inputs that are involved in production agriculture. All of

those have changed rather dramatically over the last 20 years and

so subsequently what I think I am seeing is a toning down, a

ratcheting down, a recognition that these technologies have clearly

evolved in terms of their requirements of capital, their requirements of energy, their requirements of labor so that these ethanolbased and bio-based liquid fuel products are clearly coming into

their own. There were a lot of folks, I remember when I was a kid

10 years old there were still some neighbors that were farming

with horses because they were absolutely convinced that oats were

cheaper than diesel fuel, and then about 10 years ago when they

got tired of walking behind the horse they finally got rid of it, so

I don’t know exactly how you convince everybody as quickly as you

would like but it seems to me the numbers are becoming more and

more aggressive in our favor, so I think we will get there.

Mr. SCHWARZ. You believe the efficiencies are going to be there?

Mr. DORR. I believe there are positive efficiencies there today. I

mean, in that same vein, I have read repeatedly a number of numbers that would suggest that you get about 7/10ths of a BTU out

of a BTU of hydrocarbons that it takes to produce a BTU of liquid

transportation fuel so everybody has a set of numbers that they

work for but as long as these things are cost effective and people

are making returns, there obviously is a positive output in them.

Mr. SCHWARZ. So if I make the argument that I am going to get

more than 1 BTU out with ethanol for every BTU put in, the en-
27

ergy to manufacture the ethanol, that is not a specious argument

today?

Mr. DORR. I firmly believe it is not. That is correct.

Mr. SCHWARZ. Thank you, sir. I yield back.

The CHAIRMAN. I thank the gentleman. There is approximately

6 minutes remaining in the first of three recorded votes so the committee will stand in recess.

[Recess]

The CHAIRMAN. The committee will be in order and the chair recognizes the gentleman from Kansas, Mr. Moran, for 5 minutes.

Mr. MORAN. Mr. Chairman, thank you very much. Thank you to

you and the ranking member for this hearing.

There is no brighter spot in agriculture today than our opportunity to help our country meet its energy needs. Although we certainly are suffering from high energy prices in agriculture, it is a

reason that I am anxious to cross the street and speak momentarily on behalf of the opportunity to drill for natural gas in places

that we are not exploring and drilling and producing natural gas.

Mr. Secretary, thank you for your leadership. I am very pleased

with your efforts at the Department of Agriculture and what they

mean to Kansas farmers but perhaps more importantly the rural

economy of our State and States around the country.

I just want to touch base with you, Mr. Secretary, on the issue

of value added. That is a phrase we have used in economic development in rural communities for a long time. What is the policy at

the Department of Agriculture within the administration in regard

to trying to make certain that it is our farmers who benefit in significant ways from increasing production of renewable or biofuels.

I think there is growing evidence that many larger companies, corporations, those in the energy industry, those in large agricultural

businesses are becoming more and more engaged in ethanol, and

I am not one to necessarily try to stop that but I think the goal

ought to be not only do farmers have an additional market for their

agriculture commodities but they enjoy the enhanced value of the

product that they have grown and so is there a policy at USDA and

what incentives need to be in place to try to make certain that

farmers benefit in both ways from the production of ethanol and

soil diesel and other grain-based fuels?

Mr. DORR. Well, the gentleman from North Dakota and I just

had this discussion prior to the recess for the vote, and there is a

recognition, as I indicated earlier, that as these projects become

more financially feasible and the scope of the industry becomes

more mature, that the ability for small investors to involve themselves in a way in which they did when we were trying to build

the industry out has changed, and as I indicated to the gentleman

from North Dakota, it really boils down to this, and that is, that

if you are going to be a $150 million plant and you need 40 percent

equity, today you can go to Wichita or Kansas City or Oklahoma

City and probably get a check or 1 or two checks for $30 or $60

million versus 3,000 or 4,000 transactions required to raise the

same amount of money from constituents in Kansas or any other

rural area. What I think we need to do and what we are doing at

Rural Development is trying to sit down and ascertain the kind of

regulatory business model and investment opportunities that per-
28

haps need to be addressed but I think it is much broader than us

at USDA or Rural Development. I think it is going to be kind of

an overarching issue for discussion to figure out how we enhance

the ability of the small investor to be represented and to have the

opportunity to participate and do it in a way that is responsible,

that there is adequate governance and that there is adequate

transparency so that there is a comfort level. We historically do not

have a reputation of being particularly entrepreneurial and equity

investments in rural America because of the risks inherent in production agriculture. It is incumbent upon all of us and we will do

our part at USDA, but I think on all of us to try to figure out how

to reinvigorate that entrepreneurial investment interest, and if we

do that, I think we can all participate in this.

Mr. MORAN. Mr. Secretary, I apologize if I asked a similar or

identical question to the gentleman from North Dakota, I did not

hear his question, and it is also troublesome to me that Mr. Pomeroy and I may be thinking alike. I will have to express that to

him. But if there are things legislatively, tax incentives, the co-op

effort that we ought to be working on in this Congress in an attempt to try and create greater opportunities for farmers to benefit,

I would like to be involved in that and I encourage USDA to develop policies that continue to cause the—we are anxious for capital in rural America and we will take it from whence it comes but

obviously the better scenario is that our farmers get the benefit of

both the market and the increasing appreciation in their equity investment, and I hope that is a goal at USDA.

I smiled when you said earlier in your testimony that in an effort

to—you were worried about becoming a good bureaucrat and I

want to raise an additional topic in an effort to keep you from becoming a good bureaucrat. We have had ongoing discussions with

rural utility services in regard to another energy issue and an electric company in my district that have been ongoing now for 6

months. I just want to bring this to your attention and see if we

can’t get you to become engaged in trying to resolve some issues

that ultimately would allow a significant investment in rural infrastructure and the generation of electrical capacity in Kansas and

across our region of the country and so this is my opportunity to

try to put this note in your brain and seek the opportunity to discuss it with you further at a later time.

Mr. DORR. I will review that with Mr. Andrews. I am somewhat

familiar with the situation. I know he is doing a yeoman’s job trying to get it resolved. Obviously it has been a difficult issue. I

would like to, Mr. Chairman, if I had just a moment, in response

to your earlier question, also indicate that we are as was announced by both Secretary Johanns and Secretary Bodman planning on sponsoring a renewable energy conference in early October

in St. Louis. I believe the dates are October 10 through the 12th.

And it is going to be specifically focused to identify some of these

key incentives that are required or perhaps missing, elevate the

awareness of the Federal and State regulatory issues that surround

this whole industry as we are talking about, to identify some of the

barriers for these rural communities in their ability to get involved

in and to review ultimately a number of these challenges and ultimately result we hope in advancing a better understanding both in
29

the private and the public sector of what is required to make certain that these sorts of opportunities aren’t missed by these rural

constituents as you have suggested.

Mr. MORAN. Mr. Chairman, thank you for the time. Mr. Dorr,

thank you for being here, and I would also agree that Mr. Andrews

has been very generous in his time with me on this issue. We look

forward to getting it resolved. Thank you.

The CHAIRMAN. I thank the gentleman. The gentleman from

California, Mr. Costa, is recognized for 5 minutes.

Mr. COSTA. Thank you very much, Mr. Chairman. I want to

thank you and the ranking member for drawing attention to this

I think very important issue as we attempt to try to provide a

strategy for our country’s energy use that really reflects the challenges and the realities of this global planet we live in today and

look forward to working with you in this effort, because I think agriculture does have an important role to play as we look at biofuels

and a host of other fuels that are under the purview of American

agriculture.

Mr. Secretary, you spoke of incentives, and I want to ask you,

I believe Secretary Johanns was in my district in the valley earlier

this year and visiting two ethanol plants that are under construction, and my concern that I keep hearing as it relates to not only

those who are involved in the production of these two facilities but

also farmers and ranchers that may be participating in one fashion

or another is the distribution system and it seems to me that there

is a role for the USDA to play as it relates to helping provide incentives or assisting in dealing with the sort of efforts to ensure that

that distribution system comes into place. We got I think a very interesting letter from the presidents of the three automotive companies in the U.S. talking about their desire to produce more flex-fuel

vehicles but as we all know, there is an entire process that has to

be successfully undertaken if we are going to make this work in a

way that makes it convenient and easy for American consumers to

use these fuels. Could you tell me what you think the role ought

to be with the USDA in providing these incentives to especially assist with the distribution system?

Mr. DORR. Well, as you know, that is a very key issue as we go

about building out this industry, and at the risk of being redundant

I go back to comments that I made earlier in the sense that this

is a brand new industry. It is being built, it is being developed, and

there are a number of challenges on refueling infrastructure distribution and a number of other things. My sense is that the Energy Policy Act of 2005 obviously has made available resources to

help facilitate building out the infrastructure requirements for the

refueling side of it. The distribution channels are ones that I think

are going to be probably rapidly surfaced in the context of all of the

players in the area whether they be railroads, whether they be

pipeline companies, whether it be the Department of Transportation. What we will do at USDA is continually monitor and wherever possible using our research capacities and the Department as

a whole and other economic analytical capacities to begin to continually identify where we think bottlenecks are, what we think opportunities are or challenges are that require special attention.
30

Mr. COSTA. Well, identifying those to the committee I think

would be very important. I don’t know if the story was accurate

this morning that I read but it said that there are approximately

700 stations in the country that provide flex fueling. Obviously that

is not nearly enough if we are going to complete the infrastructure

that is necessary to sustain this type of alternative energy use.

Let me ask you, do you think it would be appropriate as we look

at the 2007 farm bill and as we are setting the table as the chairman and the ranking member have attempted to so ably this year

so far in holding hearings around the country if in the 2007 farm

bill we provided a section that really dealt with trying to provide

some incentives or, as you do your fact-finding from the USA, identify those areas where you think the 2007 farm bill might be appropriate in trying to provide kind of the seeds necessary to let this

industry grow?

Mr. DORR. I think all of those things ultimately are helpful. I reflect back again on some things that I mentioned earlier but it was

USDA and DOE’s ability and willingness to work together in implementing the section 9006. We have also under the guidance and

the counsel of the Secretary, we appointed an energy council, and

in the course of those council and internal meetings we have taken

the opportunity to visit with some of the folks with the Department

of Transportation. There is a large focus within the administration

and direction by the Secretary to reach out wherever there is expertise and to the extent that these things are outside of our jurisdiction, we are more than willing to do whatever is necessary to

foster these debates, these discussions and ultimately developing

solutions for these issues.

Mr. COSTA. Well, Mr. Chairman, I have exceeded my time, but

I do think it would be appropriate, we may exceed our jurisdiction

as well but if the three departments were to propose where you

think we could play the appropriate role before the 2007 farm bill

gets underway, that would be helpful. Thank you very much, Mr.

Chairman.

Mr. DORR. Thank you.

The CHAIRMAN. I thank the gentleman. The gentleman from

Texas, Mr. Conaway, is recognized for 5 minutes.

Mr. CONAWAY. Thank you, Mr. Chairman. A point on, Mr.

Costa’s anecdotes are difficult to make policy off of but the market

does work. There is a large regional grocery store chain in Texas

based out of San Antonio called HEB, and they have announced

that they are putting E–85 tanks in every one of their stores across

their distribution area so the market does work, does respond, and

I am always cautious about the relatively indelicate touch the Federal Government has on any program it every touches so the market does work.

Mr. Dorr, I apologize if you have already answered this question

but in terms of the natural market competitions for the uses of

corn between ethanol and feedstocks for cattle, should we just leave

that alone and let the market drive those decisions, or how do you

see that tension being resolved?

Mr. DORR. Well, in response to those questions, they are probably

best deferred to Under Secretary Penn or Chief Economist Keith

Collins but I will reflect simply from the standpoint that as a farm-
31

er until about 5 years ago, I spent my entire life looking for the

proverbial silver bullet that was going to take No. 2 yellow corn to

a level that looked like it was profitable without Government subsidies and we have never yet attained it on a very consistent basis.

It never ceases to amaze me that whenever we create a new market whether it is an export market or some other additive market

for agriculture commodities in this country, we continually seem to

be able to produce more of it in a more environmentally sound way

and we never seem to be able to elevate the price to where we

farmers think we ought to have it, so I guess my tendency is to

concur with your observation that the market will probably deal

with most of these issues in a very effective manner. I have a lot

of faith in the market.

Mr. CONAWAY. Thank you, Mr. Dorr. Mr. Chairman, I yield back.

The CHAIRMAN. I thank the gentleman. The gentleman from

Texas, Mr. Cuellar, is recognized for 5 minutes.

Mr. CUELLAR. Thank you very much.

Could you tell me if there are any researchers there at the USDA

that are doing anything to develop crops such as growing sorghum

that farmers or ranchers could use to expand this for renewable

fuel?

Mr. DORR. I can’t give you a specific answer. I am sure there is

research being done in this area but we will try to get some information on that and get it back to you.

Mr. CUELLAR. Could you just, if you don’t mind, Mr. Chairman,

copies to the members and a copy to myself?

The CHAIRMAN. Certainly.

Mr. CUELLAR. Thank you.

The CHAIRMAN. I thank the gentleman.

Mr. Secretary, you have been with us almost 2 hours now and

we thank you very much for your contribution. We are very interested in this and we are very interested in the role of Rural Development in trying to connect farmers with this exciting new business prospect, and I agree with much of what has been said here

and we look forward to working with you as we move in that direction.

Mr. DORR. Thank you very much. On behalf of the Secretary, we

look forward to working with you as well.

The CHAIRMAN. Thank you, Mr. Secretary.

We would now like to welcome our second panel to the table. Mr.

Mark Gaalswyk, president of Easy Automation from Welcome, Minnesota; Mr. Robert Walker, chairman and CEO of Bixby Energy

Systems from Rogers, Minnesota; Dr. Richard Hamilton, president

and CEO of Ceres and board member of the Biotechnology Industry

Organization from Thousand Oaks, California; Mr. Al

Christopherson, chairman of the board of the Agricultural Utilization Research Institute from Crookston, Minnesota; and Mr. John

Burke, forest landowner and president of the Virginia Forestry Association from Richmond, Virginia. We are pleased to welcome all

of you as witnesses. We will remind you that your full testimony

will be made a part of the record and ask you to limit your oral

testimony to 5 minutes, and this time is my pleasure to recognize

the gentleman from Minnesota, Mr. Gutknecht, to welcome our

first two witnesses.
32

Mr. GUTKNECHT. Well, I will welcome two of the first three from

Minnesota. First of all, Mr. Mark Gaalswyk is from a very friendly

little town in southern Minnesota by the name of Welcome, and

Mark has been extremely helpful to USDA on a number of fronts.

He has a company called Easy Automaton which has a combination

of hardware and software technology for mixing and blending feeds,

and through that has really in sort a back-door way, and then I

will tell the story of how I got to know him. I was out campaigning

actually and visited his operation in Welcome and he told me about

the feed mixing and blending operation. I was very excited about

that. But then he took me in the back room and he showed me a

piece of technology and I got very excited about that and what he

has and is working on and perfecting is essentially a new way to

make ethanol, and it has enormous application and I hope he will

tell a little more about it because I have been like a priest. I have

been walking around carrying these secrets with me now for almost

2 years.

Let me also welcome Mr. Bob Walker. Bob came into my office

a few years ago and introduced himself and said he wanted to talk

about renewable energy, and before he did, to sort of establish that

he had some level of business credibility, he told me that about 20

years ago he started a little mattress company on the west side of

Minneapolis called Select Comfort. Now, I sleep on a Select Comfort bed both here and in Washington. I am one of their best salesmen. And so he had my interest immediately, and then he began

to talk about renewable energy and some of the technologies that

he is now working on. So Bob brings with him an enormous

amount of expertise in business, in marketing and now has become

one of the leading spokesman in the United States for new technologies in renewable energy, and he has got a great story to tell

as well.

And finally, let me welcome Mr. Christopherson. Let me correct

the pronunciation slightly, Mr. Chairman. Al has been a leader in

Minnesota agriculture for as long as I can remember. I think I remember listening to farm broadcasts when I was in high school and

Al Christopherson was talking about agricultural issues and perhaps the ranking member, Mr. Peterson, may want to say more

when it is his turn to speak. But we are just delighted to have

these entrepreneurs here to talk about some of the things that they

are working on because I think the news about renewable energy

is good but I think when they finish their presentations, I hope all

of us will recognize that the news is not only good today, it is getting better in the future, so I want to thank them for coming out

to testify today and I hope the committee and the staff and others

who hear this will be as excited as I am about the future of renewable energy.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman. Mr. Gaalswyk, we are

pleased to have you and your testimony. Welcome.

STATEMENT OF MARK GAALSWYK, PRESIDENT, EASY

AUTOMATION

Mr. GAALSWYK. Mr. Chairman, members of the committee, thank

you for having me here today.
33

Just to give you a 10-second background, I am a farm boy. I attended St. Olaf College for physics, math, computer science, went

a couple years and came back farming. I got bored and started developing a way of making animal feed software and automation for

that. I started selling them out of the back of my pickup traveling

around the country, and things grew. You should have gotten an

enclosure. I currently have 3,000 feed mills that we have done

around the U.S., and kind of in a nutshell, my goal is to turn every

one of those customers also into an ethanol plant by linking those

two technologies together.

The last few years we have been quietly working on some innovative really two forms of technology for improving the usage of renewable fuels. Our patent pending process, I don’t know what the

right phrase is to call it. You can call it gas in a box, but what it

is, it is a complete self-contained ethanol plant about the size of a

shipping container. It is all pre-wired, all pre-plumbed. All the software and automation is all part of it, and what the idea is that

these can be dropped in any unused facility across rural America

and start making ethanol. A small unit will make 750,000 gallons

a year or you can put a bunch of them together and make a 200-

million-gallon plant. These can all be connected through the Internet and monitored in our offices back in Welcome.

Some of the advantages of this technology is our feeling is to

really make this renewable fuels technology utilized, it needs to be

built in a factory kind of like Henry Ford made the automobile and

so that is what we are gearing up to do. Another advantage is that

it enables the value-added to be moved much closer to the producer

themselves. Now, most of our customers are large farmers, they are

rural cooperatives that have been kind of standing on the side and

watching this renewable fuels things come and like to be a part of

it and so our philosophy is that these systems will be able to be

financed almost like trailer houses that you can just set them in

place and get started small, make sure you are doing it right and

then keep adding more of them together.

We expect this decentralized approach to making ethanol to be

fought by many of the agriculture conglomerates who prefer more

of a centralized business model than a decentralized business

model, and part of the reason for pushing for the centralized model,

they would tend to try to create a certain amount of magic, if you

will, of making ethanol. It is not that tough. And so what our goal

is, is to take any magic or things involved in the process and

embed it in the software and distribute those units.

So in addition to the modular technology, we have also been

working on the process of making ethanol itself, and what we have

done there is, we have been playing around and stumbled on some

different technologies, if you will, and what we are playing with is,

think of it as beaming energy at the mixtures and stimulating

greater molecular activity, which greatly reduces the use of energy

in making the ethanol and also reduces the pollution-related emissions. A byproduct, and you will say, how does this fit in, you are

a feed company. It improves the feed byproduct by not cooking off

many of the nutrients, they are not polluting and they are staying

in the feed so it can work with a feed mill.
34

Our initial patent pending on this process and research related

to it, it looking like we can drive the conversion ratio from the industry standard of 2.8 gallons per bushel to 3.2 gallons per bushel,

and our costs, we are driving them down to 70 percents per gallon

of ethanol produced. That is compared to a current industry standard of about a dollar. And so our goal is to improve efficiencies, reduce impact on the environment and put that technology back in

the farmers and rural cooperatives.

On the environmental side, because we need to bring the temperatures up to the level, we are not needing these big steam

plants. We don’t need to burn natural gas. We don’t have to use

as much water, which is an issue, and so we are excited about that.

Also by locating these ethanol plants next to our feed mill customers, and again, that is our end goal to turn every feed mill into

an ethanol plant, is that corn can be grown, ethanol produced and

feed byproduct consumed without ever leaving the farm. Otherwise

you expend a lot of energy just shipping it all back and forth, drying it, and right before you feed it to the animals you mix water

with it again and so that is what we are working on.

So I guess in conclusion, the ethanol industry is going through

a rapid transition in improving technologies. I appreciate your support of that, and we ask for your support in supporting the ethanol

industry. Thank you.

[The prepared statement of Mr. Gaalswyk appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you very much.

Mr. Walker, welcome.

STATEMENT OF ROBERT WALKER, CHAIRMAN AND CEO,

BIXBY ENERGY SYSTEMS

Mr. WALKER. Thank you. Chairman Goodlatte, Congressman Peterson, committee members, thank you for allowing me to speak

here today. My apologies in advance because I have so many good

things to tell you, I am afraid I couldn’t get it down to less than

about 6 minutes. So please beg my forgiveness in advance.

I am the founder, chairman and CEO of Bixby Energy Systems,

a Minnesota-based alternative energy company. Bixby is in the

business of creating energy from the waste products of the world.

We figured out to make engineered fuels from agricultural materials, municipal solid waste, sewage, wood waste and even rubber

tires. We have developed furnaces and energy systems designed to

extract the maximum amount of energy possible from these fuels

and we are building a delivery system nationwide so that we can

provide our fuels dependably to our customers.

I realize this committee’s interest is with agriculture’s role in the

renewable market so let me focus on that part of our business. Biomass, of course, is the generic name for anything that grows, and

there are more than 10,000 biomass materials in the U.S. alone.

Everything from grape waste, rice stocks and olive pits in the

West, sugar beet waste, turkey litter and cranberry waste in the

Midwest, peanut shells, tobacco waste and cotton gin trash in the

South. And talk about fast renewables, most grow in less than 6

months and some like grass grow in as a little as a week. Compare

that to fossil fuels that take 70 million years to develop and you
35

begin to appreciate the alternative energy opportunity that exists.

When you add wood waste, municipal solid waste, sewage and rubber tires, we have an enormous materials base to draw from. To

convert these fuels to heat energy, we developed the Max Fire

Stove with an incredible 99.7 percent combustion efficiency. Since

there has been a large surplus of dry shell corn and it is cheap,

we have been using that as our flagship fuel. Last winter, using

corn as the fuel source, thousands of our customers were able to

heat their homes very economically. Here is an example. Customers in our home State of Minnesota with cold winters heated

2,500-square-foot homes for about $1.50 a day. That is a savings

of about 70 percent over fuel oil and propane.

Bixby Energy continues to develop compelling products. In 2

years we will be introducing the Omni system to American consumers. It is designed to be your furnace, your hot water heater, your

air conditioner and it will also generate your electricity, all from

biomass or other non-fossil fuel sources. It will provide these benefits for 50 percent less than what consumers are currently paying.

Working with the University of Minnesota, Bixby Energy is also

commercializing a revolutionary pyrolysis process that is simply to

operate and could literally turn every farmer’s barn into a miniature oil well. Imagine the possibilities.

Prior to starting Bixby Energy, I founded a company that today is NASDAQ traded with $1 billion market cap so I believe I can

speak with some authority when I say that I know opportunity

when I see it. Developing alternative energy solutions for the world

is one of the most compelling business opportunities of the future.

Agricultural materials can be a significant contributor to this exciting new business sector.

Now, I would like you to believe that Bixby Energy has all the

answers to America’s energy problems but that simply isn’t true.

Bixby has been able to develop its technology because it was able

to raise $22 million from the private investors in the United States.

However, there are literally hundreds of people in companies in

America with great ideas and great products of great potential who

don’t have the capital or other resources necessary to commercialize them. What is critically needed is a system for locating,

qualifying and funding these technological gems that are waiting

to be discovered. Great ideas have no political boundaries. They are

neither Republican or Democrat. America’s energy situation is not

a partisan issue. We are all in this together. I can tell you from

personal experience that the biggest hurdle to any entrepreneur’s

success is being undercapitalized. Even at Bixby Energy where we

have successfully raised funds, we now need additional investment

to support rapid growth and the commercialization of our technologies.

The President has turned talk into action by establishing the advanced energy initiative. Congress has pending before it H.R. 4435,

a bill that would create an innovative energy research technology

develop into an employment program. It is called ARPA and represents a venture capital-like approach to this process. Its focus is

on out-of-the-box private energy research that currently isn’t supported by other Federal programs. It is designed to assist those

small companies where many great ideas are born. I urge you to
36

support this legislation which will allow the ARPA staff to act like

venture capitalists by going out into the private sector to find the

individuals, the struggling start-up businesses, the researchers in

universities. If they prove to have compelling potential solutions to

our energy problem, fund them to support their development. Give

them the assistance they need, help them provide us with domestically based solutions to ensure this country’s energy independence.

The President and this Congress won’t find solutions to the problems that the advanced energy initiative seeks if they stick to the

tired Governments approaches in place today. Our energy needs

are daunting and require a bold approach. The high-risk, high-payoff approach of Incutel and ARPA has produced results and failures

too but the road to success has never been a straight one.

Now, I am not here today just to tell you about the great technologies we have developed or how an ARPA venture capital-type

program could benefit not only Bixby but the other compelling

ideas that are out there. I am also here to suggest that the playing

field we are trying to work in needs to be leveled. We are not here

like everyone else that comes to you with their hands out. We are

playing the game with people who have an advantage. Have you

ever figured out why we are paying the oil companies subsidies?

Can you tell me that they need it at $70 a barrel? And what about

the subsidies that—I am sorry. Let us make it fair. Let us remove

these subsidies. Let us both benefit. Don’t give them a subsidy and

don’t give me one either. We, you and the American people all win

when free market prevails.

Mr. Chairman, I hope I have effectively described to you and

your committee members the challenges we face on the front lines

of alternative energy development. I also you that you, this committee and other Members of Congress will explore creative ways

in which those of us in the private sector can form partnerships

with the Federal Government to advance this country’s goal of energy independence. Thank you all for your attention.

[The prepared statement of Mr. Walker appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you Mr. Walker. Dr. Hamilton, welcome.

STATEMENT OF RICHARD HAMILTON, PRESIDENT AND CEO,

CERES, AND BOARD MEMBER, BIOTECHNOLOGY INDUSTRY

ORGANIZATION

Mr. HAMILTON. Thank you. Good afternoon, Mr. Chairman, members of the committee. Thank you for having me here to appear before you.

I am here representing my company, Ceres, as well as the Biotechnology Industry Organization, where I am a member of the

board of directors. The Biotechnology Industry Organization, or

BIO, believes in the future of biofuels from all sources. Our Nation’s cornfields, soybean fields, forestlands and future fields of

switchgrass and other crops will all combine to help make America

less dependent on foreign sources of oil. BIO believes that agriculture is key to further reducing our foreign petroleum needs by

utilizing and expanding current and future sources of renewable

energy.
37

Ceres is a plant genomics company with several commercial interests, one of which is the development of dedicated energy crops

such as switchgrass and miscanthus to serve as cellulosic feedstocks that can be digested and fermented into biofuels such as

ethanol and butanol.

As many of you already know, most of the ethanol produced in

the world today is produced from either sucrose or starch. However, most of the carbohydrate in the plant is in the form of cellulose and hemicellulose, which is found primarily in the leaves,

stems and stalks of plants. Because plants can generate much more

cellulose per acre than starch or sucrose, cellulosic feedstocks have

a much greater potential to make a significant contribution to our

overall fuel supply. Cellulosic ethanol has the potential to generate

a substantial fraction of our transportation fuel supply, over 100

billion gallons, while creating new jobs to build an operate biorefineries and increasing farm income.

One barrier to this future has been the historical difficulty to

break down or digest cellulose in an economically attractive way.

Through research funded by the Department of Energy, biotechnology has successfully addressed this bottleneck by dramatically reducing the costs of producing cellulose-processing enzymes.

As biorefineries are commercialized, it is likely that they will be

initially fueled in part by currently available crop residues such as

wheat straw or corn stover. To achieve the full potential of cellulosic biorefining technologies, improved feedstocks will need to be

developed to maximize the amount of fuel that can be generated on

each acre of land. While many people have suggested that agricultural residues and forest thinnings will be the preferred feedstock

used to supply cellulosic biorefineries, I would like to suggest that

high-density energy crops will be in many geographies a superior

choice of feedstock.

What is Ceres doing to develop dedicated energy crops? We are

taking technology such as high throughput DNA sequencing and

microarray technologies that were developed for deciphering the

human genome and applying them to plants. During the past 8

years we have discovered and characterized more plant genes, over

70,000, than in the whole of human history. Recently we entered

into a long-term collaboration with the Noble Foundation of Ardmore, Oklahoma, the world’s premiere research institute for perennial grasses such as switchgrass. By combining our leading

genomics capabilities with the Noble Foundation’s breeding and agronomic expertise, we will significantly accelerate the development

of high-yielding, low-input optimized energy crops. We also have

collaborations with the USDA for sequencing switchgrass greens

with the National Renewable Energy Labs for the compositional

analysis of energy crops, and with the Department of Energy to

study carbon sequestration by enhanced poplar trees.

What kind of traits are we developing to improve the characteristics of energy crops such as switchgrass? There are several important characteristics that will improve the economic competitiveness

of energy crops as feedstocks for biofuels.

However, if there is one thought that I leave you with today, it

is the importance of yield density. Yield density, or tons per acre,

is the single most important characteristic a biofuel feedstock can
38

have. Feedstock costs at the refinery gate is the single largest cost

element in biofuel production and harvesting and transportation

costs are the single largest component of feedstock cost. Imagine a

10,000-ton-per-day biorefinery using a 2-ton-per-acre agricultural

residue as a feedstock. It would require a 5,000-acre-per-day footprint which would expand every day. The cost of transporting lowdensity biomass to the biorefinery quickly becomes prohibitively expensive.

At Ceres we are using genomics to impact yield density by improving plant physiology, plant architecture and photosynthetic efficiency, amongst other things. Preliminary results indicate that we

can achieve biomass yield increase of over 300 percent in some

grass species, making the goal of a 15- to 20-ton-per-acre feedstock

well within the realm of feasibility. This would mean that the radius of cropland needed to supply a cellulosic biofuel refinery could

be reduced by as much as 90 percent.

There are many other valuable characteristics of energy crops including the ability to grow on marginal acreage such as land that

is too dry, to require lower amounts of fertilizer, to have enhanced

carbohydrate content and to have superior processing characteristics. At Ceres we are developing traits for all these characteristics

and deploying them into energy crops such as switchgrass,

miscanthus and poplar.

How might public policy support the development of a domestic

cellulosic biofuel industry? One, we could support programs for the

construction of commercial cellulosic biorefineries including appropriating legislation that has already been approved. It is imperative that we get the first few commercial biorefineries built as

quickly as possible so that we can begin riding the learning curve

associated with operating them. We could establish pilot programs

to encourage farmers to plant small acreages of energy crops so

that the yield potential for various geographies can be established

and biorefineries attracted to those geographies. We should consider extending programs like crop insurance and other farmer protection programs to dedicated energy crops and we should support

programs at the USDA to establish agronomic best practices for the

planting, harvesting and storage of dedicated energy crops.

In summary, high-yielding energy crops have the potential to

provide a significant fraction of our domestic transportation fuel

supply while reducing carbon dioxide emissions, increasing farm income and stimulating rural economies. How quickly this future is

realized will depend on Federal policy that can either slow down

or speed up our transition to a more secured energy future.

This concludes my remarks. Thank you.

[The prepared statement of Mr. Hamilton appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Dr. Hamilton. Mr. Christopherson,

welcome. We are delighted to have you with us.

STATEMENT OF AL CHRISTOPHERSON, CHAIRMAN OF THE

BOARD, AGRICULTURAL UTILIZATION RESEARCH INSTITUTE

Mr. CHRISTOPHERSON. Thank you very much. Good afternoon.

My name is Al Christopherson. I am chairman of the board of directors for Ag Utilization Research Institute, which is a nonprofit
39

corporation formed to improve the economy of Minnesota through

the development of new and value-added uses for agricultural commodities. I certainly appreciate the opportunity to appear before

you at a time when tremendous strides can be made in the way we

produce and consume energy in this country.

As outlined by the President’s advanced energy initiative, there

are numerous opportunities for advancement. AURI knows that agriculture can play a leading role in the development of new sources

for transportation of fuel and power generation. To make that happen, a national focus and policy supporting the development of renewable energy is necessary to develop clear goals but more importantly consolidated by implementation. Policy development is often

necessary to create the change in the President’s initiative provides

vision. What is needed now is the implementation.

For nearly 20 years AURI has provided scientific technical expertise to projects utilizing agricultural commodities in new and rather innovative ways including facilitating the development of new

renewable energy enterprises. This includes significant work in

ethanol, biodiesel, biomass energy advancement. AURI also works

in areas such as biogas production from anaerobic digesters, gasification of agricultural biomass, turbine fuel assessment and wind

and biodiesel hybrid applications.

Minnesota has been a proactive leader in the advancement of renewable energy. Minnesota entered the ethanol industry in 1983

with the opening of the first farmer-owned plant. In 1997 we became the first State that required 10 percent ethanol to be added

to gasoline year round statewide. As a result of these opportunities,

Minnesota now has 16 operating ethanol plants with more in development, all totaled currently producing more than 550 million gallons per year. In 2005 we became the first State to mandate 2 percent biodiesel be added to every gallon of diesel fuel. Now we have

four biodiesel refineries operating in the State producing over 60

million gallons annually.

Recognizing the opportunity created by forward-thinking policies

on renewable energy, the AURI created the Minnesota Center for

Producer Owned Energy. Now, this center was established through

USDA’s Agricultural Innovations Center’s demonstration program

which, as you probably know, is a part of the 2000 farm bill. The

Center serves as a ready working for implementation model for

spurring ag-based renewable energy production in the U.S. and

provides a roadmap for supporting the President’s initiative. The

Center facilitates the development of farmer-owned enterprises

that utilize agricultural commodities, biomass and coal products for

energy production. The Center establishes partnerships with commodity groups, public and private organizations, universities and

other agencies. These partnerships result in maximized impact, access to resources and expertise and encourage the leveraging of additional funds.

The key to success is AURI’s development of a solid implementation plan to carry out that effort. In concert with the scientific technical resources of AURI, the Center has successfully implemented

17 projects impacting more than 9,000 producers in the last 2

years. Activities include the formation of several corn-based ethanol plants in underserved areas, the development of possibly the
40

Nation’s first commercial cellulose-based ethanol plant and the gasification of agricultural biomass for electrical power, and we have

additional projects on the drawing board as well.

In addition to strong commodity and grower support groups, Minnesota Center for Producer Owned Energy has established a strong

relationship with the Bio Business Alliance of Minnesota linking

agriculture with organizations such as 3M, the Mayo Clinic and

Metronic. These relationships will move agricultural commodities

into new nontraditional markets and in some cases supplant petrochemicals. Associations that we have with Bemidji State University

and Southwest Minnesota State University will result in the Nation’s first advanced degree in renewable energy management, promoting best practices and quality in energy production. The Center

for Producer Owned Energy and AURI are Minnesota-based but

the framework could be replicated elsewhere. Providing feasibility

analysis and scientific technical expertise coupled with a sound implementation plan is vital to realizing a successful enterprise.

Merging technology with markets, best manufacturing and quality

practice with a train renewable energy workface creates a strong

foundation for energy development and business success.

Now, this country was formed as an agrarian society but moved

to an industrial focus. We are now in an era where ideas and innovation are driving our economy. We have seen how this innovation

is linking the past with the future. Innovative technology is providing opportunity for strong agricultural activities which leads to industrial development. Nowhere is this cycle more evident than in

the promise of renewable energy.

If I might make one additional comment, we are very proud of

what we have accomplished in Minnesota as a State and certainly

as the AURI but we are not so naive as to believe that Minnesota

can do this alone for an infrastructure to develop that will make

all this work in the long term. It is obviously something that has

got to spread all the way across the Nation and we are hopeful that

we have had a little part of developing part of that template to do

just that. Thank you.

[The prepared statement of Mr. Christopherson appears at the

conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Christopherson. Mr. Burke,

pleased to have your testimony.

STATEMENT OF JOHN W. BURKE, FOREST LANDOWNER AND

PRESIDENT, VIRGINIA FORESTRY ASSOCIATION

Mr. BURKE. Thank you for this opportunity to testify on behalf

of the role of America’s forest resources in providing renewable

fuels and energy.

Mr. Chairman and other members of the House Committee on

Agriculture, my name is John Burke. My professional life is focused on technology, intellectual property and business law. In particular, I assist companies in putting cutting-edge technology to

work. In my private life, I manage forestland in Caroline County,

Virginia. I am also active in a number of forest-related organizations and currently have the privilege of serving as the president

of the Virginia Forestry Association.
41

As is evidenced by the Energy Policy Act of 2005, renewable energy is a concept whose time has come. We are all told by our financial planners that we should balance our portfolios. It is time

for this Nation to balance its energy portfolio by including in that

portfolio more energy from bio-based renewable sources. The solutions to the renewable energy puzzle are factually and geographically complex and the solutions must be analyzed and addressed on

a customized basis tailored to each locality and to each specific situation.

I will utilize a three-part framework in my discussion. First, it

is feedstocks; second, processes and technology; and third, commercial scale and profitability. To succeed in a renewable energy

project, the feedstocks must be available in sufficient quantities

and on a consistent basis 7 days a week, 52 weeks a year rain or

shine. The feedstocks must be available without excessive transportation costs and must be relatively easy to store. Further, successful feedstocks must be available over a long period of time on a sustainable basis and without damage to our environment.

Now, let me focus specifically on the forest resource and its role

in that feedstock. Forest-based cellulosic feedstock as an energy

crop will typically take the form of small wood. Small wood is a

term that is used for the smaller wood that tends to be thinned out

and serves as good feedstock for two reasons. First, the thinning

or removal of that small wood is important to the management of

forest stands, whether hardwood or pine, because that removal

takes the less competitive trees away, allowing the crop trees to

mature for higher value. The second reason is obvious, and that is,

the small wood is not a food source. In addition, our forest resources can play a role in providing a hedge in connection with

other types of feedstock. For example, certain annual energy crops

like wheat straw or switchgrass can be subject to seasonal drought.

A forest-based feedstock typically will develop over a 7- to 18-year

period and harvesting or thinning those stands will provide the balance in the feedstock supply.

Moreover, this country’s pulp and paper industry has one of the

world’s best fiber procurement systems. A renewable energy economy balanced to include more biomass would provide additional

markets and additional uses for that available wood fiber and the

bio-based waste materials from the manufacture of forest-related

projects.

Part 2 involves processes and technology. The ingenuity of scientists in our colleges and universities, within our companies and

at governmental agencies is simply amazing. These technologies

and processes must, however, be staged in various levels one after

the other to maximize the yield of energy and products from that

biomass. The conversion of biomass from our forests will be a key

component to the renewable energy solutions. Interconnected processes and technologies must be identified, licensed and fit together

in a cohesive fashion to meet this need, thus allowing the conversion of various bio-based feedstocks to a renewable food source.

The third component, commercial scale and profitability, is key.

There are many different embodiments for a renewable fuel initiative. The full spectrum should be explored and encouraged. In addition to greenfield activities, our pulp and paper industry has exist-
42

ing facilities, labor and infrastructure that can be expanded and refocused to produce in addition to paper other consumer products,

biofuels, bioenergy and other carbohydrate-based products. The

paper mill of the future should be a fully integrated, side-by-side

operation including pulp procurement, paper production, a biorefinery producing renewable fuels, energy and other bio-based products. These new capabilities will require financial investments, the

development and sharing of technology, facility construction and

other infrastructure coordination.

I will end where I started. The renewable energy is a concept

whose time has come. Biomass is a key element to that renewable

energy initiative, and America’s forest resources can and should

play a major role in the supply of that biomass. It is my request

that this committee and Congress continue to encourage and to

incentivize the production of renewable fuels. Thank you.

[The prepared statement of Mr. Burke appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Burke. I will start the questioning with you, Mr. Gaalswyk. Are you expecting your smaller customers, those who may just buy only one unit and place it on their

farm or other facility, to use the gasoline themselves, the ethanol

blend themselves or do you expect them to be distributors as well?

Mr. GAALSWYK. From our research, we would see a close relationship with the rural cooperatives so many of the rural cooperatives

have many convenience stores that they would use. I could imagine

the local rural cooperative buying ethanol from the farmers in their

immediate area, using them in their own convenience stores, but

them also if you study these convenience stores, they are hauling

the gasoline now back from a central facility and they are interested in having a back haul for the ethanol back to the blender.

The CHAIRMAN. And so who will be the blender? The individual

producer or——

Mr. GAALSWYK. I am a firm believer in rural co-ops scattered

across the country so I see the rural co-ops being really the blenders, and if you think a little bit about the dairy industry, they run

all their trucks and bring it to the local co-op. I see the same thing

happening in ethanol.

The CHAIRMAN. And can other grains be used in your unit such

as sorghum or is it only corn?

Mr. GAALSWYK. No, any grain.

The CHAIRMAN. How long does it take to produce the ethanol

from the time the grain is poured in at one end and ethanol is

ready for use for sale at the other end?

Mr. GAALSWYK. It is kind of fun to watch. I don’t know if you

ever looked at a corn dryer. You don’t really get it until you watch

it sitting there and then the little corn heel, the auger is coming

out of the corn bin and ethanol is pouring out a hose on the other

end, and total process is probably about 44 hours, something like

that.

The CHAIRMAN. Less than 2 days. Mr. Burke, I hear concerns occasionally that the demand for wood fiber as a feedstock or biomass

energy could wind up driving up fiber costs for other traditional

uses that currently convert wood fiber to paper and other uses.

What is your view of that?
43

Mr. BURKE. Well, I think that the stimulation of additional markets will be good for the industry generally. I submit that the

paper industry should embrace the concept of having a biorefinery

coupled with paper production and this will allow it to be a participant in that. There may be limited areas where there is not enough

feedstock to support existing fiber-based industries and new fuel

industries, and I suspect that the industry will just not locate their

facilities there. Virginia, for example, has underutilized tobacco

lands that would be great locations for a combination of

switchgrass and for hybrid poplars. I think this underutilized land

could be put to work and those new green fibers utilized. Residual

fibers are also very important to any biomass renewable energy

process and today there are many residual fibers that are left in

the forest, the tops, the limbs. In many instances there is not a viable market to encourage those to be brought out of the forest and

a biofuels market would encourage and provide a market for that

material, that biomass material to find its way to market as well.

The CHAIRMAN. I am inclined to agree with you. In fact, when

I have traveled around many parts of the country, particularly further south, I have heard lots of complaints from lots of woodlot

owners that there just isn’t a market for the abundance of trees,

of wood fiber that they have available and it is not an economically

very viable product right now. So it would seem to me that there

is a pent-up supply, if you will, for this.

Mr. BURKE. I think that is true in many areas where landowners

have been encouraged to plant and grow trees and they can’t maintain that forest resource properly without a market, and in many

instances the thinning of those forest resources to encourage higher

value products to be grown, that thinning cannot occur without a

market and biomass would provide that market, as you have observed.

The CHAIRMAN. Very good. Mr. Hamilton, in your opinion, would

high-yield-density feedstocks grown within close proximity to a biomass ethanol facility prevent the need for our CRP land to be harvested for biomass ethanol production?

Mr. HAMILTON. Essentially, sure. There is a lot of debate about

whether or not you should use CRP land. I would say that some

CRP land can be used if you develop the appropriate agronomic

practices for doing so, and we talked about it earlier, about leaving

sufficient stock residue on the ground so that you can do that in

a sustainable way.

The CHAIRMAN. Thank you. And Mr. Walker, who are you marketing your home heating products to and who are the people who

are buying them?

Mr. WALKER. Well, currently we are marketing our product to

just the average homeowner but our target market are those people

who are already heating their homes using propane or fuel oil, so

it is essentially the rural market.

The CHAIRMAN. Does this have potential in urban areas, and

what would you need to do to be able to expand into those areas?

Mr. WALKER. It has great potential in urban areas. As a matter

of fact, if we looked at what we did last year, 80 percent of our

market was in the rural areas in the Midwest. This year our early

orders, to give you an example, last year our goal was to do $3 mil-
44

lion in sales. Our fiscal year ended May 31 because we are really

a winter business. We didn’t do $3 million. We did $8.3 million.

And as I said, 80 percent of that was in the Midwest. This year

we have already in one month had orders of $20 million or $23 million for our stove product and 90 percent of that is in the East

Coast. That is because they have discovered us and because they

heat with oil. We are moving into the urban markets in that area

very rapidly.

The CHAIRMAN. What are the environmental implications? How

does your product compare with people who are using traditional

oil products for——

Mr. WALKER. Actually, we burn cleaner fuels. Our engineered

fuels burn much cleaner in our stoves and our furnaces because we

achieve a 99.7 percent combustion, we absolutely, positively burn

just about all the energy there is to get out of it so we have a very

emissions. We actually come in two-thirds under EPA’s emission

requirements.

The CHAIRMAN. Very good. Is there an additional environment

benefit that the product that you are using is a CO2 consumer,

pulling things out of the atmosphere before it ever gets through,

your product as opposed to some of the more traditional petroleumbased products?

Mr. WALKER. Well, the real advantage is, we have a net gain because the agricultural materials that we are using are producing

oxygen in the beginning and of course when we burn it, we are putting carbon dioxide back in, but it is a canceling effect as opposed

to fossil fuels which only put the carbon or CO2 out into the atmosphere.

The CHAIRMAN. Very good. Thank you. The gentleman from Minnesota, Mr. Peterson, is recognized.

Mr. PETERSON. Thank you, Mr. Chairman. Following up on your

question, when I was in California they were telling me California

EPA won’t let them sell them in California or something. Is that

true, Mr. Walker? The corn stoves are not approved by the California EPA and you can’t sell them there? Is that true?

Mr. WALKER. Some of the corn stoves are not approved.

Mr. PETERSON. But yours is?

Mr. WALKER. Ours is approved.

Mr. PETERSON. In California?

Mr. WALKER. Yes.

Mr. PETERSON. Oh, OK. Mr. Gaalswyk, how many of these units

are operating and what is the cost of producing a gallon of ethanol

with these? FAPRI did a study for me and said it is $1.09 for the

country average ethanol cost production. What is the cost production with your units and how many do you have operating?

Mr. GAALSWYK. We have a couple of test units running currently

gearing up for mass production of them, and the cost looks like

with the combination of the technologies, we can drive our cost

down to 70 cents per gallon.

Mr. PETERSON. That would be after everything is worked out, but

do you have any idea what it is now?

Mr. GAALSWYK. I feel like we will get to the 70.

Mr. PETERSON. Well, if you did, you would sell a lot of them, I

would think.
45

Mr. GAALSWYK. I hope so.

Mr. PETERSON. Mr. Hamilton, you guys are doing some kind of

big deal down in Oklahoma, right? There are about 1,700 farmers

I heard, or——

Mr. HAMILTON. The Noble Foundation has cooperation with

about 1,200 surrounding farmers but it is not limited to Oklahoma.

We have got fuel trials going in about 12 different States.

Mr. PETERSON. But are these field trials then? You are not getting these farmers into big-scale production or——

Mr. HAMILTON. Not yet.

Mr. PETERSON. So that you are just kind of testing it. The same

FAPRI study that I had done, they said that the average yield from

an acre of corn is 440 gallons of ethanol per acre. What kind of

yield will you get out of switchgrass?

Mr. HAMILTON. Well, again, it depends on the tons per acre and

the gallons of ethanol that you can get per ton but let us just assume 80 gallons of ethanol per ton of biomass. Currently we are

seeing switchgrass yields—biotype switchgrass will yield about 5

tons an acre. We have taken that already to about 9 and think we

can get closer to 15 or 20. So if you get it all the way to 20 tons

per acre, that is 1,600 gallons of ethanol per acre. It is significant.

Mr. PETERSON. So even at 5, you are going to be about equivalent

with corn. If you can get it to 10, you will be twice what corn is

basically.

Mr. HAMILTON. Yes. Again, I am pedantic on this point so I am

going to correct you on it. When you say corn, what you mean is

corn starch.

Mr. PETERSON. Yes, corn starch. I know you can get it out of the

corn stover, yes.

Mr. HAMILTON. Yes, the corn make stovers as well. If you combine the corn stover and the corn starch——

Mr. PETERSON. What I was talking about was what we are doing

today.

Mr. HAMILTON. Yes. Let us talk about starch and cellulose, not

corn versus something else.

Mr. PETERSON. Right. So you are doing this in 12 different

States?

Mr. HAMILTON. Yes, we have 12 locations in eight States, I think

it is right now, but we are really expanding that.

Mr. PETERSON. And you are doing some bioengineering that is

going to significantly increase this apparently?

Mr. HAMILTON. Yes.

Mr. PETERSON. Mr. Christopherson, kind of following up on that,

I was at a briefing that your people did for me like a year ago

maybe where they took all these different biomass and so forth and

did a study of what they produce in energy. They look at methane

digesters and corn stover. Are you familiar with that study that

Mike Sparby did?

Mr. CHRISTOPHERSON. Not in great detail. I am aware of the

study that you are talking about and——

Mr. PETERSON. Is that available to the public, or not?

Mr. CHRISTOPHERSON. I would guess it would be, yes.

Mr. PETERSON. Could you make that available to the committee?

I think that would be something that would be useful for the com-
46

mittee to see some of the work, because it was useful to me to kind

of just sort out what the economics were and one of the things I

think we are all trying to do here is get up to speed. We are not

chemical engineers but I think we need to be, given the meetings

I have been having for the last 2 months, all the technical stuff everybody is throwing at you all the time. But your folks have been

doing some good work, and has been said earlier by Mr. Gutknecht,

we are proud of Minnesota. We have been doing what a lot of

States wish they were doing, and we look forward to continue to

work with you, so thank you all very much for your testimony. It

was very good.

Mr. GUTKNECHT [presiding]. The gentleman’s time has expired. It

is my turn, and returning to my theme of shameless self-promotion,

I will let everybody know that there is a supply of these DVDs that

Bob Walker has provided about Bixby Energy. It is called ‘‘Our

Story.’’ I haven’t seen it yet, but Members will have it, and I think

there are some out there to talk a little bit about what his company

is doing, so we will continue to promote you, Bob, every chance we

get.

Someone raised the point about a market for sawdust. Mr. Walker, would you describe for us potentially what the market is for

sawdust just in the State of Minnesota?

Mr. WALKER. We have heard, because I am so closely related to

the wood pellet industry, that there is a shortage of approximately

430,000 tons of sawdust in the United States but just 2 days ago

I was trekking through the forest in northern Minnesota and because of the technology that we have and how we can utilize it,

there is a lot of waste material that is cut off that is left in the

forest because when they are doing the clearing, that is immediately available and we can use in that business. Interestingly

enough, just in northern Minnesota alone, there is a half a million

tons of sawdust available. So we are not utilizing our resources as

much we could think, and I think as we advance this alternative

technology, we are going to find resources out there that we didn’t

know was there and it is going to allow us to maximize the potential of this alternative energy that is available everywhere in the

United States.

Mr. GUTKNECHT. But now, Mr. Walker, you had to run through

your presentation awfully fast. I am wondering, could you tell us

a little more about the business model that you envision, especially

I am extremely interested in this new combination furnace. Can

you talk a little bit about that and maybe share with us a little

bit about what you see the future being?

Mr. WALKER. Well, as you know, Congressman Gutknecht, I am

an old marketing guy and whenever I put a company together, I

look at three things. First of all, who is my customer, why do they

buy my product and how do I get it to them, and actually the third

is the most important. If I can’t figure out how to get it to them,

I haven’t got a business. So as we created Bixby Energy, our concept was to create a system as well as technologies, and we call it

the 3-legged stool approach. In other words, we create a fuel that

we can burn or pyrlosize or gasify. We create a furnace that can

burn it to its maximum potential or consume the energy to its maximum potential and we develop a delivery channel to get it to our
47

end consumer, and several years ago we acquired a rather novel little company that had a concept of delivering salt to the consumer

for their water conditioning systems.

People don’t like to carry 40-pound bags of salt down in the basement and put it in their water softener so they had developed a

system that allowed them to by using a plastic pipe that ran from

the outside of the house, a rather unobtrusive cap on the outside,

ran down to the brine tank. They put a 600-pound tank down

there. Our truck would drive up, pull out a 220-foot hose and in

a matter of minutes blow 400 pounds of salt into that container.

It was unobtrusive into the house. Customers loved it and the business grew rapidly.

Several years ago that CEO of that company came to us and

made an investment in our company and then suggested that we

acquire the company, and we were quite surprised because here we

were, a startup development company bleeding cash. Here was a

nice little company delivering salt and making a good business out

of it, and so I asked them, why were you interested in being acquired by Bixby and he said when we see what you are doing and

you are building a delivery system around the country, when you

begin delivering your pelleted fuels or your engineered fuels, you

will dwarf what we do in the salt business and then you will begin

to notice us and wonder why we are doing what we are doing and

you will notice that we buy salt at 2 cents a pound and sell it for

13 cents a pound and you are going to say those are nice margins,

let us get into the salt business too and we will be yesterday’s

newspaper.

So while we had the opportunity, we think we ought to come and

talk to you about enhancing your delivery system, moving it forward a lot quicker than you would because frankly if we started

out just using a loss leader delivery system, we would deliver with

one truck in north Minnesota on Monday, western Minnesota on

Tuesday and so on and so forth and lose money for several years

until we built up a delivery system that could support that. Today

we have a very profitable salt delivery system and are expanding

it through the entire State of Minnesota in what we call our Minnesota model, building this microcosm energy and delivery channel

throughout the State, and when we begin delivering our engineered

fuels, we will already have a profitable business that we are just

adding profitability to.

Mr. GUTKNECHT. Well, unfortunately, my time has expired. I did

want to get back to Mr. Gaalswyk because I want to reinforce a

couple of points that he made, that my colleague from Minnesota,

Mr. Peterson, picked up on. But what you are really talking about,

Mr. Gaalswyk, is a modular unit. In fact, it looks a little like a

space landing craft, will fit inside a shipping container so it can be

shipped anywhere in the world and basically you plug it in, you

feed it corn and out one side comes feed and the other side comes

ethanol, and based on the prototype that you now have built and

hope to start delivering commercially later this year, you believe

you will be able to make ethanol in this unit for about 70 cents a

gallon. Am I exaggerating anything there?

Mr. GAALSWYK. No, that is correct.
48

Mr. GUTKNECHT. This really is revolutionary, and it is revolutionary for agriculture. It is revolutionary for the United States. It

is revolutionary for the world because ultimately what that really

means is, we will be able to produce in small batches ethanol here

in the United States or anywhere in the world at a cost that will

be competitive with sugarcane or anything else in the world, and

incidentally, I am told that with $70-a-barrel oil, it now costs about

$2 a gallon to produce unleaded gasoline. So, I mean, we are starting to see the future and it works, and the technology is coming

that really—we are very competitive right now with renewable energy and we are going to becoming increasingly more competitive,

so as I say, this is a good story that only gets better. I have more

than used up my time. The gentleman from Nebraska is recognized

for 5 minutes.

Mr. OSBORNE. OK. Thank you very much. I would like to follow

up a little further with Mr. Gaalswyk. You mentioned in your testimony that your units would be practical for large farms or cooperatives, and when we are talking about large farms, about what size

farm would be the minimum size, I mean in terms of acres planted

in the corn? What would be viable economically?

Mr. GAALSWYK. The technology could be built for any size but the

size that we are thinking, a 750,000-gallon-per-year module. At 3,

that would be about 250,000 bushels of corn and probably about a

1,000-acre farmer. A farmer with 1,000 acres growing all corn

would produce about 750,000 gallons a year of ethanol.

Mr. OSBORNE. Which isn’t real big and——

Mr. GAALSWYK. No, it doesn’t have to be huge but it is not—I

don’t want to—we could build them for the hobby farmers but I

think that is not our first market. And then the other part of it is,

is that I am a big believer in the tying the feed mill in with that

because that is where you get part of your gain is improving the

process of improving the feed quality and use more of the feed.

Mr. OSBORNE. And you are saying the unit would produce about

750,000 gallons——

Mr. GAALSWYK. Yes, one unit, and you can keep plugging them

together and they all work as a big system.

Mr. OSBORNE. If you had a cooperative, you might put six or

seven of them together.

Mr. GAALSWYK. Yes, put 20 of them in and——

Mr. OSBORNE. OK. And this may be information you don’t want

to divulge but do you have a rough target price per unit?

Mr. GAALSWYK. Yes, I think it going to be around $1 million, and

then the issue there, it is a financing issue is part of it, trying to

make them easily financed so it is kind of like financing trailer

houses where if they don’t make their payments, you can just pick

it up and bring it to the next farm and plug it back in again.

Mr. OSBORNE. That is interesting. You are like a used car lot or

something. Well, thank you. Mr. Walker, you mentioned H.R. 4435.

I had not heard about this particular bill. Do you know how much

money this authorizes and who the author of the bill is?

Mr. WALKER. I do not. I don’t know too much about it. I just

learned about it in the last couple days from my lobbyist, but I believe Hillary Clinton is the author of that over in the Senate. But
49

what I understand is, it is a concept that will allow the Government to basically run a DARPA type of operation.

Mr. OSBORNE. It is a venture capital stimulator?

Mr. WALKER. Yes, that is correct.

Mr. OSBORNE. OK. I would like to move on then with Dr. Hamilton. I know it probably varies area by area geographically but I

kind of sense from your testimony that you feel that switchgrass

may be in many cases the optimal source of biomass. Is that correct?

Mr. HAMILTON. Switchgrass is one of several what we call perennial grasses, so they are grasses, they form deep root structures

and you cut them once and they grow back the following year without having to resow and seed. Another example of a grass that is

native to Asia that produces a lot of biomass is something called

miscanthus gigantus, which will also put out the equivalent of

quite a bit of biomass per acre.

Mr. OSBORNE. And apparently you are working to optimize the

tonnage of these types of material?

Mr. HAMILTON. Amongst other characteristics.

Mr. OSBORNE. OK. And I know you have already talked about

this but it seems we have got a lot of numbers floating around

here. What would you say when you are talking about cellulosic

ethanol production using something like switchgrass, what would

be sort of a target or an average gallons per acre production that

you think you might be able to achieve?

Mr. HAMILTON. Again, depending on the acre you are going to

use and I use a target of sort of 15 to 20 tons of biomass per acre,

I think on some, if you use very prime agricultural land, you can

get more than that, but let us say if you used 20 tons per acre,

make the math easy, and then 80 gallons per ton of ethanol, you

get 1,600 gallons. Obviously we are not at 20 tons per acre today.

We are at about 9 or 10. But we think we can get there.

Mr. OSBORNE. And the last question is, I know that cellulosic

ethanol production is sort of an emerging technology. Do you feel

that it is right now economically viable or do you feel it is still in

an experimental stage or do you feel there are plants that are actually up and running that are going to be able to be profitable?

Mr. HAMILTON. Well, as was pointed out at the beginning, I

think there are plants now operating on a pilot scale in Canada

and in Spain and we are trying to get the first few cellulosic biorefineries built in the United States and so let us build them and

then we will be able to calculate exactly the economics of operating

them, but I think a number of people think they are sufficiently

close to making economics competitive, that is time to start putting

these in the ground.

Mr. OSBORNE. But the technology is there as far as you are concerned?

Mr. HAMILTON. Yes, it is.

Mr. OSBORNE. Thank you. I yield back. Chairman, thank you.

Mr. GUTKNECHT. The gentleman’s time has expired. The good

doctor from Michigan, Dr. Schwarz.

Mr. SCHWARZ. Dr. Hamilton, will you explain to me, I think I

pretty well understand how you get little C2H5OH from sucrose

and from starch. The process to extract ethanol from plant cellulose
50

or wood cellulose, I assume it is a thermal process and you just

break down the molecular structure of the cellulose and one of the

products is ethyl alcohol?

Mr. HAMILTON. Yes, there is a couple different ways to do it.

What you just described——

Mr. SCHWARZ. Go ahead, fire away, because this is terra incognita to me. I need to know——

Mr. HAMILTON. What you described is a thermal chemical process for breaking down cellulose. I think what folks like my friends

at Iogen are talking about is actually a technology where you are

going to break down the cellulose using enzymes produced through

biotechnology. Sucrose is a disaccharide of fructose and glucose.

You know that starch is a polymer of glucose. Cellulose is also a

polymer of glucose but the linkages between the glucose molecules

are different and so it makes it a little bit more recalcitrant to digest. Now, there are organisms, fungi and microorganisms, for example, found in the guts of termites that can break down cellulose

into the component sugars and so companies like Iogen,

Novozymes, Genencorp, Diversa have used biotechnology to go in

and isolate the genes for those enzymes and then overproduce them

in a very inexpensive way so that we now use these enzymes to

break down the cellulose to simple sugars that can be fermented

into ethanol.

Mr. SCHWARZ. If you find an efficient enzymatic key to breaking

down cellulose, that becomes almost a power-free, in other words,

you are using natural gas, you are not using electricity, you are not

using anything. You are using a natural enzymatic process to

break it down which would seem to me to be unbelievably efficient.

As far as the process goes, how about volume?

Mr. HAMILTON. In terms of——

Mr. SCHWARZ. You are talking about high density in producing

the cellulosic plant, whatever it is, so if you have got your high

density, you have got your fields out there growing high-density

cellulose, switchgrass and some of the other genuses and species

that you just mentioned that I have never heard of before, which

is not unusual. There are lot of genuses and species I have never

heard of before. And then you break it down to produce ethanol

with an enzyme. That seems to be unbelievably efficient, and am

I correct in assuming that is precisely where you want to go? You

want the most efficient, obviously the cheapest way to do it but the

most efficient way to do it and so you are energy plus in producing

the ethanol. You are not using a lot of existing energy derived

from, for example, natural gas or derived from electricity which

probably was produced from natural gas or petroleum or coal.

Mr. HAMILTON. That is absolutely——

Mr. SCHWARZ. Am I on the right track here or am I wandering

around somewhere in the woods?

Mr. HAMILTON. No, no, no, no. Pardon the pun, you are not wandering around in the woods, but no, the net energy, or as I prefer

to think of it, the net fuel savings around using dedicated energy

crops and cellulose conversion technologies are—people talk about

corn starch being whatever it is, 1.25 or 1.6. When you start talking about cellulosic conversion technologies and dedicated energy
51

crops, you are up around 8 times more energy and fuel than you

are getting out than what you have to put in.

Mr. SCHWARZ. Thank you. I yield back.

Mr. GUTKNECHT. Wow, that is interesting. Well, we are not going

to have a second round of questions, we do have another panel, but

I just want to thank all of you. I wish we had more time. You will

be available. In fact, I will take the chairman’s prerogative here.

We will keep the record open for 5 days. If Members have other

questions they would like to submit to you, we would ask you to

consider responding to those questions in writing. Again, one of the

points that came up, and I will mention this, was what we can do

both through Rural Development and the Department of Agriculture to fill some of the gaps out there in terms of the basic research and importantly of taking concepts and being able to move

to proof of concept, and I think those are two areas right now

where we are a bit delinquent and frankly I think those are two

areas that whether we can do it yet this year or as we go into the

next farm bill, we need to work with the Department of Agriculture

and with entrepreneurs and researchers like yourselves to make

certain that we fill those holes because the rewards I think not

only to agriculture but to the American economy will be enormous

with some of these developments we are hearing about today, so

thank you very much for coming. We really appreciate your testimony. And with that, I will dismiss this panel and will bring the

third panel up.

I would like to thank the third panel for coming today. Let me

just briefly introduce them. First of all, Mr. Bob Dinneen, who is

the president and CEO of Renewable Fuels Association here in

Washington, DC, and a welcome and frequent guest of ours here

on this committee; Mr. Jeff Passmore, who is the executive vice

president of Iogen Energy. We have read and heard a lot about

Iogen and we are very excited to have you here from Ottawa, Canada. Dr. Mary Beth Stanek, who is not new to my subcommittee.

We were delighted to have her testify before us when we were in

Detroit about a month ago. She is a manager of General Motors

Strategic Initiatives Program in Detroit, Michigan. And finally Mr.

William Frey, who is the global business director of DuPont

Biofuels here in Washington, DC. So we are delighted to have all

of you with us. Mr. Dinneen, perhaps you could start. Thank you.

STATEMENT OF BOB DINNEEN, PRESIDENT AND CEO,

RENEWABLE FUELS ASSOCIATION

Mr. DINNEEN. Thank you, Mr. Chairman, Congressman Peterson.

I appreciate the opportunity to be here today.

It is a privilege and a pleasure for me to be amongst friends who

have worked so hard and advocated so effectively for ethanol and

for value-added agriculture. With your work, you have helped to

create the fastest growing renewable energy industry in the world,

fuel ethanol. In 2005 alone, the industry produced some 4 billion

gallons of ethanol from about 1.7 billion bushels of grain. We produced 9 million metric tons of distilled feed used in cattle and poultry markets across this country. The industry has become a very

important and ubiquitous component of the U.S. motor fuel market

and it is critically important to our nation’s economy. The 4 billion
52

gallons of ethanol that were produced and sold in 2005 alone created more than $32 billion in gross output. It created more than

$5.7 billion to household income, created 153,000 jobs across this

country. It created about $1.7 billion in increased Federal tax revenues, another $1.2 billion in State and local tax revenues. I can tell

you, Mr. Chairman, the ethanol industry has become a critically

important component of our U.S. motor fuel market and you gentlemen certainly know that from the great State of Minnesota. You

know what it has done for your State and it happening increasingly

all across the country.

Today there are 101 ethanol biorefineries in operation across 19

different States that have the capacity to produce 4.8 billion gallons of ethanol but we are not done yet. There are 34 plants that

are currently under construction, another 7 plants that are expanding their capacity. They will add another 2.2 billion gallons of production capacity, and by this time a year from now, the U.S. ethanol industry will be producing about 7 billion gallons of clean-burning renewable fuel. It is a tremendous achievement for our industry

and for this country.

We have had this tremendous growth in large part because of

your efforts to pass the Energy Policy Act last year. That bill for

the very first time created a requirement for refiners to utilize renewable fuels like ethanol and biodiesel in increasing percentages.

The program began this year at 4 billion gallons. We will sell more

than 5 billion gallons this year. It ramps up to 71⁄2 billion gallons

by 2012 but quite frankly the RFS was intended to be a floor, not

a ceiling, and we will meet that standard far earlier than that and

it is because of the signal that the RFS sent to the marketplace a

year ago. It was a clarion call to our industry to expand production

and indeed 24 plants have broken ground since August 8 when

President Bush signed that law into effect.

The other reason there is a great deal of growth right now obviously is because refiners have made the decision to get out of

MTBE. Our industry has greatly expanded production and the

transition from MTBE to ethanol in those areas where MTBE was

still being used in the mid-Atlantic and the Northeast and in Texas

is now largely complete, and as the transition from MTBE to ethanol in New York and California previously, it was indeed largely

successful.

As the industry has grown, it has changed as well. As you gentlemen both know and Congressman Salazar as well, the industry

now is largely farmer owned. The single largest ethanol producer

in the country today taken as a whole is the farmer-owned ethanol

plant. More than 40 percent of our Nation’s ethanol today is produced by farmer owners.

Change is also occurring in technology. Just recently in Benson,

Minnesota, Chippewa Valley Ethanol broke ground on an expansion of their plant but also creating biomass gasification. It is a

revolutionary change in the industry that is going to make us more

efficient but it is indicative of the spirit in our industry to become

more efficient producers of fuel ethanol. We are looking at corn

fractionization. We are looking at corn oil extraction. We are looking at an awful lot of things. The fact of the matter is, our industry

will be unrecognizable 5 years from now from what it is today and
53

it is because of the new capital, the new intellectual capital coming

into the industry. We will not be a corn-derived ethanol industry

forever. Clearly we are going to be looking at cellulosic ethanol

technology as the evolution of our industry continues, and I look

forward to working with this committee and your continued leadership to make sure that happens. Thank you.

[The prepared statement of Mr. Dinneen appears at the conclusion of the hearing.]

Mr. GUTKNECHT. Bob, you are a pro. You took exactly 5 minutes,

so thank you. Mr. Passmore.

STATEMENT OF JEFF PASSMORE, EXECUTIVE VICE

PRESIDENT, IOGEN ENERGY

Mr. PASSMORE. Thank you very much, Mr. Chairman, and thank

you for the opportunity to appear here today. With all the talk

about cellulose ethanol and Iogen, I hope I can live up to the expectations of the committee.

I am here today to talk about Iogen’s interest in commercialization of cellulose ethanol. We have been active for the last 30 years

and we have spent a lot of money, about $175 million, on bringing

us to the point where we are ready to go and I guess if I have got

two messages for you, one of them is, we are ready to go. We are

ready to go commercial. We have partners, as you know, like Shell

and Goldman Sachs, and have built the only demonstration facility

that is operating in the world. We have been operating now for 2

years making ethanol from wheat and barley straw but we can also

use corn stover and of course many of the dedicated perennials that

you have heard talked about this morning such as switchgrass.

There has been a lot of attention paid to cellulose ethanol over

the last little while and most recently of course in today’s Wall

Street Journal but based on our experience, we are ready to get the

shovel in the ground in 2007, in other words, next summer, so we

would like to get going and break ground on a plant in Idaho. We

have selected southeast Idaho as the location for the first facility

because it is one of the best wheat straw and barley straw basins

in North America but the fact that we are starting on cereal straws

of course doesn’t mean that we can’t—I mean, as I said, we can use

corn stover and other forms of cellulose.

What is the size of the opportunity? There is a lot of that question being asked and you heard Under Secretary Dorr talk about

that this morning when he talked about what has euphemistically

become known as the billion-ton study. That is talking about 60 billion gallons. I mean, it is remarkable. I was at a conference in Chicago about 2 weeks ago where members of the financial community

were saying this time last year the House and the Senate were

having a discussion about whether it should be a 5 billion or an

8 billion gallon RFS and it turned out to be 7.5. Well, now everybody is looking at 71⁄2 billion gallons and saying wow, that is just

too small and when we are talking about 30, 40, 60 billion gallons.

And the other thing I want to make real to you is, how does that

translate in terms of an individual farmer. Well, everybody said to

us, are you really sure you are going to be able to sign up the feedstock material. So in Idaho, we have signed up 320 growers for

about 356,000 tons of straw. That is in 14 different counties. And
54

assuming—we have structured the price we will pay, I have kind

of been a little creative there and structured it to flow with the

world price of oil, and assuming $50 a barrel of oil and a yield of

about 2 tons of straw per acre, a farmer would get $24 an acre just

before they did anything, just for the straw lying in the windrow.

If you then say well, I want to get involved in the baling and trucking to the field, about a 700-ton-a-day plant would bring $9 million

a year into the community without looking at the construction of

the facility or the jobs created.

This same story can be repeated in rural communities across

America. I have attached some maps to my testimony that you can

see those are USDA maps that indicate where the corn stover and

the barley straw is.

So why don’t we just build the plants? Well, basically it is because cellulose ethanol is unproven at commercial scale, and if you

imagine a facility being built through a combination of equity and

debt, we have the equity players in the Shells of the world and the

Goldman Sachs and others who are willing to come to the table and

put equity into the facility but you cannot do conventional project

financing of new technology that has never been built at that scale

before, and this is not unique to cellulose ethanol. It is true of a

whole bunch of new technologies. Congress recognized in the Energy Policy Act of 2005 that there was that market failure so they

put in place loan guarantee provisions for gold to liquids, new nuclear, integrated gas combined cycle and cellulose ethanol so my

second main message is, if my first one was cellulose ethanol is

ready to go, my second key message today is, let us just get going

on and implement what has already been passed by Congress.

It has been almost a year since the loan guarantee provisions

were put in place in the Energy Policy Act and yet it is not possible

for Iogen or any other company to apply under any existing framework for a U.S. Government loan guarantee. So the private sector

has invested a lot of money. We want to share the risk of commercialization with the Government and we are ready to get going, and

I look forward to your questions.

[The prepared statement of Mr. Passmore appears at the conclusion of the hearing.]

Mr. GUTKNECHT. Dr. Stanek, I gave you a little introduction, and

some in this committee and others have been a bit critical in the

past of our auto manufacturing business being a little slow to respond to the availability of renewable fuels but let me just assure

all of them, based on the testimony we heard in Detroit, you are

not lagging behind the curve anymore, and we welcome you and we

are delighted that you are here, and on behalf of the subcommittee,

I want to again thank you for your testimony in Detroit and all you

did to make certain that our subcommittee had a great hearing, so

welcome.

STATEMENT OF MARY BETH STANEK, GENERAL MOTORS

STRATEGIC INITIATIVES

Ms. STANEK. Thank you very much, Mr. Chairman and members

of the committee. I want to thank you for the opportunity to speak

on behalf of General Motors today.
55

I am Mary Beth Stanek and I am manager of GM’s Strategic Initiatives and I am leading several aspects of General Motors’ biofuel

campaign, especially in the area of E–85 partnership. I am also

very supportive of our national ‘‘Live Green, Go Yellow’’ campaign

and we will talk about that in a little bit.

This afternoon I want to cover a couple of aspects of the renewable fuel market including the benefits of E–85, our current model

offerings, national and regional marketing efforts, and our infrastructure partnerships today. We live in a period of unprecedented

change in the automobile industry. Today we are bringing to market a range of advanced technologies that include hybrids, flex fuel,

active fuel management, and they are improving fuel efficiency and

also providing great fuel diversity. But we believe it is hydrogen ultimately that will get us off our oil addiction. That will come about

in the next decade. Today we can do something about it with

biofuels. We believe E–85 is a very important component of that.

The main tenets of that are ethanol is a renewable fuel, it helps

reduce greenhouse gas emissions, it helps reduce our dependence

on foreign oil but more importantly gives us true fuel diversity at

the pump. It helps reduce smog-forming emissions and also helps

grow the domestic agricultural industry and also new jobs.

Because of the very successful cafe programs, as you know, there

are over 5 million flex fuel products on the market and registration. Of those, 2 million are General Motors and 400,000 are produced annually by GM. We have a broad lineup, and I think it is

important to know that we have gone from 9 product offerings to

this year a total of 17 models. So that is very good growth. That

includes the Chevrolet Tahoe, Suburban, Silverado, Avalanche, Impala, Monte Carlo, GMC Yukon, Yukon XL and Sierra. The new

additions include our Chevrolet Uplander, our Express, our Pontiac

Montana SV-6 for Canada, GMC Savannah, Saturn Relay and

Buick Teraza.

In addition, General Motors believes that the flex fuel vehicles,

the renewable fuels like ethanol are poised to drive a fundamental

shift in the transportation energy sector. That is why we along

with Ford and Daimler Chrysler have endorsed the vision of the 25

x ’25, and we will increase our total flex fuel offerings on an

annualized basis to 2 million but we can’t reduce the Nation’s dependence on oil simply by having these vehicles on the road. We

need the ethanol and fueling network to make it available to consumers. We believe the country should aim to give most Americans

reasonable access to E–85. To us, this means having E–85 pumps

at at least 20 percent of stations nationwide. We think this could

happen within the next few years.

While General Motors is not in the fuel business, we believe that

we play a valuable role in developing the E–85 market. One of the

ways we are doing this is by supporting the Governors Ethanol Coalition. You may or may not know that General Motors provides vehicles to 26 membering States as part of the educational effort on

renewable fuels. We have renewed this partnership and are in the

process of changing out the vehicles with the governor States.

In addition, General Motors, as you know, launched a major campaign during the Super Bowl hosted in our hometown of Detroit

and amplified it during the Winter Olympics. It is known as ‘‘Live
56

Green, Go Yellow.’’ During this campaign we had millions of viewers come to our Web site to not only learn about our products offerings, to learn about ethanol, renewable fuel and to see if a station

was located near them. On average during the Olympics we had 3

million hits a day during that week.

Most importantly, we are changing our products. I brought some

exhibits here today. We are now badging our vehicles with a rear

badge that says flex fuel E–85 ethanol and we are also putting a

very visible yellow cap on all our flex fuel products. This will remind consumers every time they fill up that they have a fuel

choice. It is very powerful and a high touch point for consumers.

We are also pleased to announce that Chrysler is joining us and

will also be using and adapting the yellow cap.

Later in the third quarter of this year we will be notifying our

flex fuel owners who have ownership of our products for more than

the last year to let them know that they have a flex fuel product.

We believe there is a certain percentage of our owners who don’t

know that they do. We will encourage them to come in, get a yellow

cap and exterior badge and also create more of a thrust around E–

85 and flex fuel.

In addition, we are working on several regional campaigns that

I will talk about in a little bit but it is important to know that we

are working on enhanced labeling, dealer and consumer education.

We are collaborating with all the State and Federal agencies and

we are supporting many industry events. Right now we are currently working with Weekly Reader on a student education program for middle school students that will reach 9,000 schools in

our nation. In the area of partnership where I spend most of my

day, we are addressing the E–85 refueling shortage. We have been

working with special interest groups, producers and E–85 retailers.

Our most recent announcements include the State of Michigan and

Indiana working with both the States, Myers and Clean Fuel USA

to get E–85 in 40 locations in those two States, but prior to that

we have announced partnerships in California with Chevron and

Pacific Ethanol, in Illinois, with Verisun and Gas City and a soonto-be pilot with Shell, in Minnesota with Verisun again and

Erickson Oil; also in the State of Texas with Kroger and Appengo

Bioenergy. In 2005, GM also worked with Verisun in Sioux Falls,

South Dakota.

I think it is also important to note today that General Motors

will be announcing two additional partnerships in the next 2 weeks

in two more States, so that will be a total of 9 States with the addition of probably close to 160 pumps that General Motors has helped

to be a catalyst in the process of. This will not only help get E–

85 available to our consumers, it will support local economies and

increased use of E–85.

Ethanol pricing. There is a great deal of discussion today regarding ethanol and gasoline-blend pricing. We recognize because of the

high value of the blending agent to gasoline, the current price of

ethanol is at a record high. In many parts of this country this has

driven up the price of E–85 to the point where drivers may not

have economic incentives to buy it. However, we also believe that

this is a very temporary situation created largely by the need to

replace MTBE. I think the congressional incentives and market
57

forces are causing ethanol capacity and supply to increase rapidly

which will in turn cause supply and demand to come more into balance. U.S. ethanol plants, as Bob cited earlier, are growing rapidly.

According to Jim Jordan Associates, we can easily see over 6 billion

by the end of next year and 10 billion by 2010. I have attached an

attachment in my testimony for your review from Jim Jordan. Ethanol supply that exceeds demand will help grow the E–85 market

and also get it at a price where it is competitive. This is where we

need to get so that we have true fuel diversity in our country.

In summary, GM is working to develop a host of advanced vehicle technologies to diversify our energy supply with more alternative fuel choices. GM believes these actions can significantly reduce our dependence on oil and has endorsed the 25 x ’25 vision

to replace imported oil with homegrown renewable energy. GM is

committed to expanding the availability of flex fuel vehicles and is

working actively to bring out a wider range of flex fuel vehicle offerings. GM recognizes that it has a role to play in expanding the

E–85 infrastructure and is partnering with, as I mentioned, ethanol producers, special interests and retailers all across the country

to bring more pumps on line. We recognize the current price of ethanol represents a challenge to the E–85 market but believe fully

that in the not too distant future, the market forces will create

more demand for E–85 and flex fuels. We think this suggests a

healthy future for the ethanol industry and more fuel diversity and

choice for our customers.

Thank you very much, Mr. Chairman.

[The prepared statement of Ms. Stanek appears at the conclusion

of the hearing.]

Mr. GUTKNECHT. Thank you, Dr. Stanek. Next we have Dr. William Frey. He is the global business director for DuPont Biofuels.

Welcome.

STATEMENT OF WILLIAM A. FREY, GLOBAL BUSINESS

DIRECTOR, E.I. DUPONT DE NEMOURS & COMPANY, INC.

Mr. FREY. Thank you, Mr. Chairman and members of the committee.

I am particularly happy to be here with you today to share with

you some of the work that we are doing to apply DuPont’s science

to helping grow the biofuels value chain. DuPont starts in the field,

as many of you know, where our Pioneer corn and soybean seeds

developed specifically for biofuels applications help to maximize the

yield of ethanol and biodiesel from those crops. For eight decades

Pioneer has been helping its customers succeed in the marketplace

where renewable fuels are just one route to that success in today’s

market. In addition, our environmentally sensitive crop protection

chemicals help farmers to ensure high rates of productivity. With

135 seed corn varieties designated as high ethanol hybrids, crop

seeds and crop protection products represent the first step in

DuPont’s biofuels vision of meeting energy needs from the field to

the pump.

From this foundation we have been bringing our biotechnology

expertise to bear to convert these agricultural crops into high-value

products for the marketplace. For example, DuPont was recently

awarded the President’s Green Chemistry Award for the develop-
58

ment of our Sorona fiber, whose unique properties include stain

protection, brilliant colors and wear resistance. This year we will

start up a world-scale fermentation facility in Loudon, Tennessee,

producing the raw material for Sorona, propanedio, or PDO, from

corn rather than petroleum. So very soon the carpet you walk on

and the clothes you wear will come from the farmer’s field.

We are also working with the Department of Energy and partners including John Deere and Diversa to develop an integrated

corn-based biorefinery that will convert the entire corn plant, both

the grain and the corn stalk and leaves, into cost-effective ethanol

and bio PDO. We believe this new development will improve earnings for farmers and ethanol producers. It will also open the door

to significant expansion of biofuels production from plants, allowing

for the expansion of their development without potential pressure

on food crops and improving even further the environmental performance of these materials.

I would like to spend the rest of my time focusing on our newest

development that we announced just last week. DuPont and BP

have formed a partnership to develop and bring to market next

generation biofuels that will help to speed the development of this

important market in ways that will benefit farmers and biofuel

producers including ethanol producers. The first of these new products to market will be biobutanol. Biobutanol will be produced from

the same feedstocks from which ethanol is produced today in essentially the same type of production facilities. One of the things that

makes biobutanol exciting is its ability as a co-blending agent with

ethanol and gasoline to enhance the performance of the fuel blends

in way that can speed the growth of the biofuels market and the

agricultural markets that support it. Biobutanol packs more energy

per gallon than does ethanol, so when biobutanol is added to an

ethanol-gasoline blend, the resulting fuel provides greater fuel

mileage. In addition, biobutanol is less volatile than ethanol and a

co-blend of the two results in reduced vapor emissions, reducing

the potential for smog formation. This will expand the geographic

areas in which ethanol-blended fuels can be used year round, California being a particular example of where that might apply.

Butanol is not a new thing. What is new is the application of our

biotechnology expertise that we have developed through our experience with bio PDO and with our biorefinery efforts to the development of a cost-effective process to produce butanol from agricultural produces. Also new is the partnership between DuPont’s biology and production expertise and BP’s fuel expertise and market

presence. The partnership will begin biofuel or biobutanol production in the U.K. in 2007 in conjunction with British Sugar using

existing technology in order to get the product to the market rapidly. We are starting in the U.K. in order to have an early presence

in a newly developing biofuels market and will use sugar beets to

produce biobutanol.

Here in the U.S. we anticipate biobutanol will be produced from

corn with sugar beets or sugarcane also potential feedstocks. In the

future, the cellulosic technologies you have heard about today will

be a natural fit for biobutanol. Where we do have specific plans at

this moment for U.S. production, the U.S. is obviously an impor-
59

tant market for us and we fully intend for biobutanol production

in the U.S. when our next generation technology is available.

One factor that will be important for U.S. market entry is a level

playing field and incentives for biofuels, be they in tax policy or

elsewhere, and we believe biobutanol should receive the same

treatment as other biofuels.

In conclusion, DuPont is excited to partner with BP to bring biobutanol and other advanced biofuels to market. We think these developments will be good for agriculture, good for national security,

good for the environment and good for our shareholders. I appreciate the opportunity to share these developments with you and I

look forward to your questions.

[The prepared statement of Mr. Frey appears at the conclusion

of the hearing.]

Mr. GUTKNECHT. Thank you, Dr. Frey. First I will go to you, Bob.

We have heard a lot of really interesting testimony today but I

want to come back to the basic point. See, I happen to believe success leaves clues, OK, and I think Minnesota does have a sort of

success story in terms of the development of the renewable fuels

industry. But my own view, and I want to get your impression of

this. My own view is one of the most important things we did was

to have this 10 percent requirement. Would you want to respond

to that?

Mr. DINNEEN. Well, there is no question that Minnesota has been

a leader on ethanol issues for more than a decade and certainly

began with the requirement in the State for statewide ethanol use.

In 1994 Minnesota had one ethanol plant. It passed the statewide

requirement. It created some other incentives for ethanol use.

Today there are 15 ethanol plants in operation in the State. Every

gallon of gasoline sold in Minnesota is blended with 10 percent ethanol. As you noted earlier, more than half of the Nation’s E–85 refueling stations are located in Minnesota and the most active E–

85 market is in Minnesota. It has been a tremendous success, one

for which you should be very proud and one that should be emulated in other States across the country.

Mr. GUTKNECHT. Well, we actually just want to share the goodness. I mean, we want more States to do that and that is part of

the reason that I have been a strong advocate of the concept of 10

x ’10, and I believe in 25 x ’25 but I think it was the Chinese philosopher, Lao Tzu, said a journey of a thousand leagues begins with

a single step, and we have got to keep moving that ball forward.

I think we are going to get way ahead of that RFS standard that

we passed last year.

Mr. Passmore, I am very intrigued with, and I think everyone

here on the committee and everyone here today is very intrigued

with your technology. We heard some of the other people talk, because at the end of all of this, it is about cost per gallon or it really

is cost per BTU. Can you talk a little more about how cost-effective

you believe your plant, the new plant will be in—it is in Idaho, the

one that you hope to construct?

Mr. PASSMORE. Yes. The plant is to be built in southeast Idaho for the first plant and our target costs are $1.30 a gallon. One

would have to build a biorefinery that would—that is the USD we

model essentially that you are not just producing ethanol, you are
60

producing a number of associated co-products and taken together

as a whole the facility can produce ethanol at $1.30 a gallon.

Mr. GUTKNECHT. Dr. Stanek, I want to come back to you and

again congratulate you and the American auto manufacturing people because you really have moved a long ways in relatively short

period of time to encourage people to at least examine the possibility. But I want to reinforce something that we learned while we

were in Detroit and perhaps you can want to comment on this. I

am a big believer in E–85 vehicles, and I think Mr. Dinneen is correct that half of the E–85 pumps in the United States are in Minnesota today and I think over half of those E–85 pumps that are

in Minnesota are in my district, and so we are a strong proponent

of E–85 and we have probably a disproportionate percentage of all

of the E–85 vehicles that you make are in Minnesota and in my

district. But one of the issues that came up was, it is hard to force

people to buy E–85 vehicles in areas where they don’t have pumps.

I wonder if you would talk a little bit about this whole idea of the

vehicles you make today, how many of them today can easily burn

at least a 10 percent blend. Maybe you can talk about that.

Ms. STANEK. All of our vehicles are E–10 capable so that is true

of all the domestic OEMs and also the foreign OEMs so that is OK,

an E–10. With E–85, you mentioned something about trying to get

folks to buy flex fuel vehicles if the fuel is not near them. We are

not seeing that. We are seeing that people are coming in sort of in

a readiness purchasing mode—I want a flex fuel vehicle because I

know it is coming. So we are seeing through our educational awareness brought about new sales as a result of E–85—we will call it

E–85 preparedness planning. In fact, they are up significantly. I

think most people really about a year, year and a half ago simply

just did not know about the technology or really didn’t have a full

understanding. So we are seeing more traffic. Our dealers are seeing a lot more discussion and a lot more purchase decision based

around flex fuel in hopes that it is coming.

Mr. GUTKNECHT. Well, let me just say on my own behalf, I am

actually looking for an E–85 vehicle and so far I haven’t found the

one that I really like but I am delighted that more and more are

coming out that may fit the kind of car that I want to drive, so I

want to thank you for that, and I will yield back the balance of my

time and I will yield to my colleague from Minnesota, Mr. Peterson.

Mr. PETERSON. Thank you, Mr. Chairman. Following up on that,

how big of a problem, Dr. Stanek, is this EPA requirement that you

guys have? We were in Brazil, Senator Grassley and myself, they

are making all the cars down there, but apparently they can just

decide that they are going to do it and they don’t have to go

through the EPA testing and whatever, but is that a problem that

you—I mean, what is it that you have to do to? You have to get

engine certified and go through some lengthy process? They are

burning 25 percent ethanol down there, blended in Brazil, which I

firmly believe we can burn here. Why is the EPA doing this on

every engine? I mean, it doesn’t seem like a sensible thing. Is there

something we can to do short-circuit that or get them out of the

process, or what?

Ms. STANEK. Well, I don’t know that the EPA would like to be

cut out of the process but I think there is a number of things that
61

are occurring. First of all, if you look at our model lineup in Brazil,

it is true, 95 percent of our product portfolio in Brazil is flex fuel.

But it is also a very simple model lineup. In other words, compared

to 78, 80 model offerings here, 9 or 10. So that first of all, simplicity is very important. The other thing is of course, it is not only

just in the area of emissions and auto certification and other aspects. As you know, each region of the world has very different requirements so Brazil’s requirements are far simpler than they are

in the U.S. are in Europe so it is much harder to develop and certify a vehicle in both the EU and the United States but all for good

reason, because it affects air quality and safety and all the right

things. The other thing that I think we need to factor into this is

that no two systems are really alike. If you look at the way a certain engine is configured, if you look at the way a gas tank is configured and everything in between, we have quite a few varieties

of systems, so it is not as simple as changing out corrosive parts.

We have all sorts of additional parts that may have to come on and

then we get into what we call engine calibration. When you put the

resources on a new study of a configuration to calibrate for flex

fuel, you are increasing engineering workload about 30 percent,

OK, so you are taking a very constrained part of the business, and

this is true for all the OEMs, and you are asking to get a lot of

throughput, so between the variation of the systems, the model

complexity, the regulations, it is just a little harder to get at this.

I think a lot of folks try to make it as simple as a box of parts,

and if it was, we would already be there. What we are trying to

do though as we go through what we call our own product life cycle

planning which is about 3 to 5 years of a product life, as we begin

to start the new product, we will bake in these changes from the

start so that what you will see is the evolution of the products

being compatible with flex fuel. So we will do it in a way where

it makes the most, we will call it affordable engineering sense right

from the new life cycle.

Mr. PETERSON. Thank you. Mr. Dinneen, I have two questions.

I will put them together, otherwise I will run out of time. First, I

think we keep hearing that in the next farm bill we should be

doing more research. I assume you agree with that.

Mr. DINNEEN. Absolutely.

Mr. PETERSON. I would like to know where you think that research should be focused, where it is needed, and secondly, can you

explain to us in like a minute how the ethanol is marketed in relation to gasoline and why it is doing what it is doing in terms of

price? I mean, you can do that in a minute, right?

Mr. DINNEEN. Oh, yes, that is easily done. Thank you, Congressman. All right. I will take the second part first. Ethanol is sold

under long-term contracts. About 95 percent or more of the ethanol

sold across this country is sold under 6-month or yearlong contracts. Those contracts generally are tied to the price of gasoline or

are fixed price but certainly——

Mr. PETERSON. Why are they tied to the price of gasoline? That

is the question I keep getting from people that don’t know much

about this. Is it because they are marketing through the oil company marketing structure, or why is it?
62

Mr. DINNEEN. Because the value to a refiner is based on its use

in gasoline, and ethanol——

Mr. PETERSON. Well, why would it be—if you get less mileage,

why would it be higher price than gasoline sometimes?

Mr. DINNEEN. Well, it has higher value. It is not just a question

of BTUs. It is a question of octane. It is a question of its cleanburning characteristics. It is a question of volume. Ethanol today

is a very valuable blend component with gasoline, and as an octane

enhancer. It is marketed against things like toluene or benzene or

xylene, and those are components that are far more expensive than

ethanol today. The reason you have so much ethanol being used to

replace MTBE today when there is no oxygen requirement that

would require refiners to do so is because it is the most cost-effective octane replacement for MTBE and so ethanol does have significant value as a blend component and it will continue to grow as

a blend component with gasoline. The prices that people are talking about today, the spot prices, I wish our industry was actually

able to take advantage of some of those but we have sold all our

product. The market is tight and it is tight because some of the imported product that some refiners had contracted for isn’t showing

up as expected. It is tight because virtually every drop of MTBE

has been eliminated from this country. There was some expectation

that some would remain; it hasn’t. It is all gone. So, I mean, indeed

there is no additional ethanol at our plants to satisfy some of that

increased demand. We are bringing on plants faster than I can get

out there to give the speed to open them up. Congressman Herseth

the other day was at yet another groundbreaking for another plant.

We are doing everything we can to bring more product on and the

spot prices that you are seeing today will come down but they really reflect refiner-to-refiner sales, not ethanol producer sales, because our product is already done.

Mr. PETERSON. What about the research, just briefly?

Mr. DINNEEN. I certainly agree we ought to be doing a lot more

research. As the industry continues to evolve, you are going to see

ethanol being produced from additional feedstocks, cellulose and

additional research into those feedstocks, those enzymes, the

pretreatment would all be extraordinarily helpful.

Mr. PETERSON. That would be the top priority you think in that

cellulosic area?

Mr. DINNEEN. We can get to 14, 15, 16 billion gallons of ethanol

from grain today. We can do that. In fact, it is going to happen,

but if we are going to be the 30-, 40-, 50-, 60-billion-gallon industry

that we want to become and that the Department of Energy has

established as a goal and is going to be necessary in order for there

to be enough ethanol to satisfy a meaningful E–85 market, you

have to have cellulose production. There is not an ethanol company

that I represent that doesn’t have a really aggressive cellulose-toethanol research program underway today but certainly more

needs to be done.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. GUTKNECHT. The gentleman’s time has expired. The gentleman from Michigan, Dr. Schwarz.

Mr. SCHWARZ. Dr. Stanek, welcome to a fellow Michigander. You

mentioned, and it was the shortest time span that I had heard that
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you hope that General Motors will be producing at least partial hydrogen-consuming automobiles in a decade. Did I understand that

correctly?

Ms. STANEK. Yes, certainly there will be specialized fleets in the

very near future. As far as volume, we will have to see based on

the affordability but we are getting close.

Mr. SCHWARZ. As you do your futuring at GM and the auto industry in general does its futuring, what percentage of the fleet

would you think in 20 or 25 years or go out 30 years would be at

least partial hydrogen-consuming automobiles, maybe 100 percent?

Ms. STANEK. I really don’t want to speculate on that. That is just

not my area that I am involved in so I would just I guess try to

package that by saying the fleet 20 years from now will be very different than the fleet we have now. It will be a little bit of everything. You will have a wide variety of flex fuel, the hybrids and hydrogen all together as equal participants in that fleet.

Mr. SCHWARZ. Is there general agreement in the R & D sectors

of the auto industry, whether GM or Ford or Daimler Chrysler or

your other non-American competitors, that fuel X is going to be hydrogen, nothing else out there on the horizon that might displace

our thinking about hydrogen? Have you heard any of the scientists

in R & D in GM say well maybe it is not going to be hydrogen,

maybe there is something else out there we really haven’t come up

with yet.

Ms. STANEK. Everyone is on point for hydrogen.

Mr. SCHWARZ. Everyone is point for hydrogen? Good. Thank you

very much. I guess I am not on point for hydrogen quite yet. I don’t

believe that we are going to be able to produce enough of it in a

small enough container safely enough and economically enough to

do what we would all like to do with it so I am from Missouri,

there is——

Ms. STANEK. So we need to show you then, right?

Mr. SCHWARZ. That is right.

Ms. STANEK. Well, I will make sure you get a call.

Mr. SCHWARZ. All right. You do need to show me. All right. Let

me go to Dr. Frey. Tell me about the reason that you are going to

the CH90H instead of the CH50H. Why are you going to butanol?

Why is butanol a good fuel? What advantage does it have as a gasoline-butanol or gasoline-ethanol-butanol mix? Give me a little bit

of the technical reason for that.

Mr. FREY. Sure. Let me put it in the context of the investment

we have been making for the last 10 years, if it is OK, to look at

how we might move away from petroleum to agricultural products.

So when I talked earlier about our Sorona fiber and our plant that

is coming up in Loudon, Tennessee, to produce PDO to make carpets and clothing, all of that is part of a decision we made almost

10 years ago to say how are we going to take our science and move

to where the future will be, and the future having a lot less in

terms of petroleum. We have looked at that in the materials world

because in the materials world we were looking for high-value

products, no one thinking that some day down the road fuels would

be high-value products but of course the situation has changed over

the past years. We looked and we have gotten together with many.
64

We first got together with the Department of Energy and asked

questions about where can we take our science to help to improve

the future of biofuels and that is when we started out effort with

the Department of Energy around cellulosic conversion technologies. We are very excited about where we are and we are excited that Iogen is planning to build its plant. We are looking forward to taking our next steps to do that as well. As we got involved

with that, of course, we were looking at fuels at the same time. We

started dialogs with different oil companies talking about where

there are areas that the science that we can bring might benefit

the biofuels industry of the future, and as we had those dialogs we

recognized that in different places of the world, Brazil being in the

lead, the U.S. probably is second to only Brazil in terms of its commitment to biofuels and ethanol as a biofuel. Other places of the

world have yet to make those kinds of decision and those kinds of

conversions, the European Union being one of those, and the questions were, are there things that we could do with our science in

the biofuel area that would bring value and provide more flexibility

and more options. Butanol is clearly one of those molecules. It is

an alcohol. It is very similar to ethanol, four carbons, not two carbons. It has lower volatility. It is more dense, has higher energy

content.

Mr. SCHWARZ. That would have been my question. Does it have

a higher energy content, and the answer apparently is yes.

Mr. FREY. Yes, on a per-gallon basis. Blended with fuels, particularly blended with—one of the surprises as we looked at this is, if

you blend butanol with ethanol-gasoline blends, it tends to reduce

some of the problems that ethanol blends create, so we have looked

at it in markets where there is ethanol. Butanol is another option

to help in markets where there is a decision that needs to be made

as to what fuel would be the fuel of choice from a biofuel perspective. Butanol is clearly a competitor for that decision.

Mr. SCHWARZ. It would not be unfair then to say we are really—

the whole business of biofuels is in its nascence right now and we

know about ethanol. We have known about it for a long time. You

are working your way up the chain, and it looks like some of the

ones up higher on the chain might have equal value as well and

you are working with butanol.

Mr. FREY. Yes, because we think we can bring our science to help

to make that cost-competitive. As we have all said here, cost-competitiveness is the real key to any of these really having that

biofuel be an option of choice and we do not view it as some have

said it as if it is competitive with ethanol. These are complementary. They provide very flexibility. We think that to achieve the

kinds of percentages of incorporation that people are talking about

in fuel blends, you are going to need more than just one biofuel in

order to make that successful.

Mr. SCHWARZ. Thank you, sir. Thank you, Mr. Chairman.

Mr. GUTKNECHT. The chair would just state that he is not alone

in his skepticism about how long it is going to take us to convert

to a hydrogen-powered vehicle fleet here in the United States. I

think we are a ways away from that, but that is an editorial point

of view. I will now recognize the gentle lady from South Dakota,

Ms. Herseth.
65

Ms. HERSETH. Thank you, Mr. Chairman. I want to thank the

ranking member for his leadership on this issue for so many years.

I want to thank each of you. Dr. Stanek, nice to see you again, and

Mr. Dinneen, and nice to hear from Mr. Frey and Mr. Passmore.

Let me start with you, if I might. Mr. Passmore, what cellulosic

feedstocks do you think are most promising?

Mr. PASSMORE. Well, we are starting with agricultural residues

because that is what is available. I mean, farmers aren’t going to

go out and start growing dedicated perennial grasses on spec so

fundamentally we are starting with wheat and barley straw because baling technology is available to bale that material. We very

quickly go into corn stover because there is several hundred thousand tons of corn stover available, and then get into dedicated perennial grasses like switchgrass.

Ms. HERSETH. And what hurdles do you think are remaining? In

other words, for example, tell me how important it is to you that

the Department of Energy move forward in some of what we

passed in the Energy Policy Act of last summer like the loan guarantee program? How important is that to your long-term plans?

Mr. PASSMORE. Well, that is absolutely essential. As I was indicating in my testimony, the problem with the commercialization of

emerging technologies, and again, this is not unique to cellulose

ethanol, the problem associated with commercialization of emerging technologies is that you can’t raise conventional project finance

debt unless that debt is guaranteed by a strong credit rating such

as the Government. Now, governments obviously want to protect

themselves and make sure they are making prudent decisions and

so you want to set up a loan guarantee program that is smart and

makes sure that taxpayers’ money is being well allocated, but a lot

of people ask us that question. They say well, you have got Shell

as a partner, why don’t they just build the plant and Shell has

amazing demands on its capital and they need to make the same

type of competitive returns on that capital that they can make on

any other investment, and so they are prepared to put in the equity

and the debt will only come to the table when you can guarantee

a strong credit rating. So we need the DOE, we need the legislation

that was passed in 2005 to move forward ASAP.

Ms. HERSETH. I agree with you, and not only on that issue in

terms of the loan guarantee program but also the question that Mr.

Peterson posed to Mr. Dinneen, I don’t think we are doing enough

yet and I think even this most recent round in the appropriations

process. I mean, with a lot of us on this committee on both sides

of the aisle supporting the Energy Policy Act because it has the renewable fuels standard which the RFA helped promote for a number of years to finally get it enacted. We also supported making

these significant investments in research and yet we are continuing

to not fully fund them, and the longer we wait, the more we run

the risk that other countries are going to get ahead of us on this

technology. So Mr. Dinneen, let me ask you, because of the predominance of corn ethanol in the current renewable fuels supply,

do you see a need for separate incentives, say, for biodiesel whether

that is reconciling how far out we extend the tax credits or a separate renewable fuels standard for biodiesel, and what are your

thoughts on a carve-out for cellulosic ethanol within a more aggres-
66

sive renewable fuels standard, and do you have any thoughts on

biobutanol?

Mr. DINNEEN. OK. There are about four to five questions there.

Biodiesel already has a tax incentive and clearly I think extending

that incentive and the incentives for renewable fuels generally

makes a great deal of sense. Congressman Pomeroy, Congressman

Hulshof have introduced legislation to do that and we certainly

support that. I think in terms of a separate carve-out for a renewable diesel standard separate and distinct from the renewable fuel

standard. If it would be possible to do that, that would certainly

simplify the implementation of this program and would make some

sense as well and perhaps create an important market opportunity

for biodiesel that does not exist today because the RFS is being not

just met but exceeded with ethanol alone, so I think that would indeed be extraordinarily important also.

Your comments about appropriations are absolutely true. We

need to be doing more in terms of appropriating money for research. I would note that the House appropriation for EPA also

eliminated funding for EPA’s implementation of the RFS, presumably because they didn’t think the agency needed money for that

but the agency believes that it does and I think that was a mistake. I believe the Senate is trying to restore some of that funding

and I hope in conference that occurs because implementation of the

renewable fuel standard is going to be extraordinarily important to

the future growth of the industry.

Ms. HERSETH. Thank you. My time is almost up. Let me just post

a quick question to Dr. Stanek. There were a few questions here

about hydrogen technology but has GM considered—what other

steps are you taking in the direction of more efficiencies either

through manufacturing a flex fuel hybrid or a flex fuel plug-in hybrid? Is that also on the radar screen of our manufacturers?

Ms. STANEK. Because of the size of the company, obviously we

look into everything so everything is being evaluated. In particular,

we are very focused right now on expanding flex fuel technologies.

We have a lot of focus on improving internal combustion engines.

With our new Tahoe, we have a 20 percent savings in fuel economy, and in fact, of all the auto makers, we have more models that

get over 30 miles per gallon than anyone else. So we have a lot of—

we will call it a lot of muscle and emphasis behind trying to get

our internal combustion engines improved. We have active fuel

management. It is going on several of our vehicles right now, and

to just not to get into too much technical conversation but essentially when you are driving down the highway on eight cylinders,

it will go down to four. So we have a lot of things covering the

whole landscape that we are looking into. In particular with flex

fuel, right now you can purchase an Impala that has both active

fuel management and flex fuel, so we are looking at interesting

combinations. Without giving you the specifics of what we are

working on, but right now you can get them right now and you will

see more in the future.

Ms. HERSETH. A final comment. I just signed a lease for an E–

85 Impala.

Ms. STANEK. Thank you very much. Congratulations on your Impala.
67

Ms. HERSETH. Thank you.

The CHAIRMAN [presiding]. I thank the gentlewoman. The gentleman from California is recognized for 5 minutes.

Mr. BACA. Thank you very much, Mr. Chairman. The question is

for Dr. Stanek. What are some of the challenges since we just

talked about the E–85, what are some of the challenges you see for

the E–85 in California, which is question No. 1. And then you can

follow up, are there a lot of conflicting reports there about whether

or not you can use E–85 in warmer climate like California, and

what is your understanding of this issue if there is a challenge or

a problem there?

Ms. STANEK. Well, first of all, I want to say that we are in California quite a bit and your agencies have very good leadership. We

work with all the folks at CARB and all the other agencies and

they have been working very hard to get E–85 to California. There

are some specific challenges that we are working on, not only with

your EPA in California but also at the Federal level with stage 2

recovery and dispensing. As you know, most of the auto makers

have had onboard vapor recovery for a long time now and that

means that you are not having problems with some of the gaseous

fuel, and what is happening now is in the retail market in California, there is a rule that you have to have stage 2, and that requires

kind of breaking it down at the bottom line for retailer, a pretty

significant investment because it is sort of testing and certification

and it can run into the hundreds of thousands of dollars.

Mr. BACA. But that is where the opposition then would come

then from retailers because of the high cost for them?

Ms. STANEK. Well, one of the opposition areas. In mean, in particular if it is going to cost that much, that requires someone to

help fund it because if they are small, they are just not going to

take that on with what they believe is a fuel that has to be proven,

OK, just——

Mr. BACA. And yet produces clean air though, right?

Ms. STANEK. Oh, the emissions and even the VAP tailpipe, they

are fantastic on——

Mr. BACA. Because we have the highest form of smog in our area

in the Inland Empire because we get it all from the L.A. area. It

is the mountains and basins in the Inland Empire, both San

Bernardino and Riverside counties.

Ms. STANEK. The environmental improvements are really why we

need to keep pursuing this but I just want you to know, Dean

Simeroth and others were all active on this and we are trying to

make this happen. We have an enormous amount of California registrations of flex fuel owners. It is a very important market to us.

We are not letting up, so we will be there. We will work with everyone, both private investors, the agencies, both State and Federal, and we have our dealers ready on point to get engaged in this

so we are going to hope to see E–85 retailed by the end of the year

in California.

Mr. BACA. What incentives can be created to help in this endeavor?

Ms. STANEK. I think the incentives are very similar to some of

the things we have seen in other States. I don’t know how it is

done because California funding is a little bit different than others
68

but we have seen in States where there is anywhere from $300,000

to $500,000 set aside for infrastructure by the State that we can

begin to move things pretty quickly. We also have to make sure

that permitting can be done in a reasonable time frame and

that——

Mr. BACA. So that means the State then has to approve it in

their budget?

Ms. STANEK. Right.

Mr. BACA. They just voted for the budget yesterday or the day

before. We should have had that in there.

Ms. STANEK. Yes, I know, because then you lose another cycle.

And then there is also the permitting process must be expedient in

all States. We have to be able to move fuel by rail, by barge, by

truck without having ethanol producers and we will call it the folks

involved in all the movement of the goods kind of burdened with

that, and it must be affordable. Certification is a very expensive

process and often a distraction, so we also need to make sure that

automakers like ourselves once the fuel is in will market to those

stations so the station provider feels that they will get enough volume, and so that is what we are committing ourselves to do is assuming it goes in, whether through private or governmental funding, or through sort of a consortia approach which we are trying

to work on, that we will make sure that all these registrants in

your State will go to those stations.

Mr. BACA. Thank you. Mr. Dinneen, can you tell us why E–85

is selling at a price below the regular gasoline in some markets and

well above in others?

Mr. DINNEEN. It depends on what marketing agreements they

have. In many areas again if the E–85 marketer has secured a contract with an ethanol producer on a long-term basis, he likely has

a very competitive price and is able to price the fuel accordingly.

If for whatever reason the gasoline marketer did not secure a longterm contract and has to go to the spot market, there is just not

that much out there and he is going to be paying a much higher

price. There are also situations today where ethanol marketers,

ethanol producers are marketing E–85 directly. That is as a result

of tax changes that occurred in late 2004 that made the ethanol tax

incentive program far more flexible, and in those cases, you have

got a number of ethanol producers that have committed to selling

ethanol as E–85 in markets at a significant discount to gasoline.

That occurs throughout the State of Minnesota where there is a

great deal of competition and interest in E–85 and you have producers that are aggressively pursuing that market for its future opportunity. In South Dakota there is a real leader in the industry,

Verisun, who has been marketing VE–85 as a branded product and

they are also committed to developing that market and are pricing

it accordingly, but if you are a gasoline marketer in an area where

there is not a great deal of E–85 sold, in this marketplace, for example, I have got my GM Avalanche, a terrific vehicle, E–85 fueled.

I drove here to this hearing today in it, but when I have got to go

to the only E–85 station in this metropolitan area, the Citgo station

right by the Pentagon where there is no competition, where the

marketer hasn’t engaged in a long-term contract, the E–85 is

priced typically more than gasoline and it is usually priced 40 or
69

50 cents below gasoline, so it is a personal frustration but it doesn’t

reflect the way most E–85 is sold across the country.

Mr. BACA. Thank you. I know that my time has run out. If I may

ask one final question. How much is ethanol selling for at a wholesale level and what is the average cost of producing ethanol?

Mr. DINNEEN. Well, Tom Dorr indicated earlier that the average price of ethanol is probably about $1.09 in terms of production

costs, and then there is shipping costs on top of that. At the wholesale price again, ethanol is sold under long-term contracts typically

in relation to gasoline but usually far below that of gasoline. There

are spot market prices out there today that suggest a price of $4

or $5 in the New York Harbor but those typically reflect refinerto-refiner sales of product because one refiner may not have secured all the ethanol he needs, another refiner may have more, and

those are the type of sales that are going on. Sometimes they are

done on exchange. But by and large, most ethanol today is being

sold far below the price of gasoline and is providing a significant

savings for gasoline marketers and consumers.

Mr. BACA. How much would the consumer then actually pay because I know that in California, they are really outraged in terms

of our gas prices, and we are higher than almost every other State

in terms of our costs. What would be the average cost?

Mr. DINNEEN. Well, there are all kinds of reasons why California’s gasoline prices are typically much higher than the rest of the

country but generally ethanol-blended gasolines will be lower in

price. The Consumer Federation of America——

Mr. BACA. How much? Can you give an estimate, because the

consumer always wants to know how much.

The CHAIRMAN. And you need to bring it to a close.

Mr. BACA. Yes. Thank you very much, Mr. Chairman.

Mr. DINNEEN. The Consumer Federation of America did a study

a year ago suggesting that consumers would save about 8 cents a

gallon on gasoline if it was blended with ethanol. Now, that was

a year ago. It was a picture in time. It is a little bit hard to transfer that in today’s marketplace but generally ethanol blended gasolines are always going to be less expensive than non-blended gasolines.

Mr. BACA. But we don’t know the price other than 8 cents less?

Mr. DINNEEN. It depends on the market.

Mr. BACA. OK. Thank you.

The CHAIRMAN. I thank the gentleman. Let me follow up on that

line of questioning that Mr. Baca has pursued. Unlike Congresswoman Herseth, who has been able to lease an E–85 vehicle, I

looked into this. The first question I had was, are they sold in the

area of southwest Virginia, not very much, No. 1. Number 2, the

reason of course is, as Bob Dinneen has pointed out, I went online

to see what kind of stations were providing E–85 gasoline in my

area. There is not a single one in a 100-mile radius of Roanoke,

Virginia, and if you do a 200-mile radius, which encompasses this

area, then you are going to find in the entire region, the mid-Atlantic region of the country, maybe 20 stations, so it seems to me that

this is very much tied to the production and the distribution, and

I guess my question for you, Bob, is, do you believe that there is

the ability to be cost-effective and ship these great distances when
70

you are competing with people who are shipping oil through pipelines? Roanoke is near a major storage and storage distribution facility. We enjoy very low comparatively gasoline prices but I just

wonder whether you can compete with that at great distances or

do we have to see a lot of regionalized, localized production of ethanol and other alternative fuels to be competitive in an area like

mine?

Mr. DINNEEN. Well, Mr. Chairman, I do think that you are going

to see more localized production of ethanol as the industry continues to grow but let me bifurcate your question. Ethanol today is

a blend component in gasoline. As such, it is blended virtually

coast to coast and border to border. Forty percent of the Nation’s

fuel today is blended with ethanol. There is indeed ethanol in Roanoke, in Norfolk, in Washington, in Baltimore and in the Northeast

and it is shipped via what I have referred to as a virtual pipeline

through rail and barge, some truck, but we are able to get ethanol

from the Midwest where it is produced to any market in the country very effectively, very economically via the rail lines and we are

doing it today. Now, ethanol ultimately will become a fuel as E–

85. That infrastructure will develop. It will develop as there are

more vehicles on the road. It will develop as there is more ethanol

available, and the infrastructure will continue to grow as well. We

don’t have E–85 available in Roanoke today but there is ethanol

there now and the fact that there is ethanol there now, there may

be a gasoline marketer that will see the opportunity with the tremendous commitment that GM and the other automakers have

made to those flexible fueled vehicles and I think the infrastructure

will follow the market.

The CHAIRMAN. Very good. Let me ask Dr. Stanek a related question. One of the issues that we deal with, with trying to compare

E–85 vehicles with gasoline-powered vehicles is that the mileage

tends to be better with the gasoline-powered vehicles but I am told

that isn’t necessarily something that is a given, that research could

be done and new engines developed that burn the E–85 ethanol

product more efficiently, and I wonder if you might comment on

that. Is such research going on, and is there the possibility of improving the mileage for E–85 vehicles?

Ms. STANEK. Well, first I want to answer a couple questions. I

think you need to know, we are in talks with the great State of Virginia with regard to E–85 partnerships so Roanoke may not be

such a desert of E–85, OK?

The CHAIRMAN. Bring them on.

Ms. STANEK. So just so you know, we have a good group, the

Governor’s staff we are working with. With regard to engine and

engine development, Saab biopower of course has received a lot of

rave reviews around the world because it is flex fuel and it does

not lose as much energy as some of the other flex fuel products. It

is because it is turbo charged. Turbo charging does kind of give you

back a little bit more energy because it boosts it. There is still a

reduction there. Now, the question becomes, is there technology

where you can wipe this issue out and it becomes zero sum. That

is very much down the road. It would not be truthful to say that

this is something that is imminent. However, these types of technologies where we can boost the fuel, reduce the range loss are
71

definitely being studied and explored. Turbo charging is one method. There is other ways that can be achieved. It will require university work. It will require important labs to get on it, not just the

automakers. So it is going to require again a consortia approach for

that improvement.

The CHAIRMAN. Mr. Passmore, what has been the learning curve

on your operation of your demonstration plant? How much maintenance is involved with that plant? How replicable do you think it

is? Will we see a lot of them in the near future?

Mr. PASSMORE. Well, there is a number of steps we have gone

through over the course of the last 25 years. I mean, we started

off with fundamental research in test tubes and then went to applied research, bench testing and beakers, and then we did two $7

million pilots, on in the 1980s and one in the 1990s, kind of in 500-

liter tanks, batch process, and what we have now and what you see

pictures of in my testimony is kind of step 4, which we consider to

be the last step before going full scale commercial and that is the

demonstration plant, so instead of 500-gallon tanks batch process,

you are looking at 50,000-gallon tanks and it is a continuous process, and the purpose of a demonstration plant is to do exactly what

the nature of your question is, which is to teach us what works and

what doesn’t and what is scalable and what isn’t. We have learned

a lot as a result of the demonstration plant and we have had to

make some changes in it as a result of saying well, this is great

for a million-gallon-a-year plant but we want to build something a

lot larger than that so we have to make some adjustments. We are

at the stage now where we have made those adjustments, and

when we build the plant in Idaho, the idea is, it will be a modular

plant and it would have replicability across America, absolutely,

probably in larger plants the one we would build in southeast

Idaho is a size that is responding to a DOE solicitation right now

of about 22 million gallons a year but that would then be able to

be replicated, two times, four times, six times.

The CHAIRMAN. Very good. Well, as you hear all these buzzers

going off, that is an indication that we have some votes on the floor

and I think all the members of the committee who have desired to

do asked questions. Let me end by apologizing for missing your testimony but I can tell you that just hearing a part of the questions

asked, this has been a great panel, and I really appreciate your

participation here today. We are going to pursue this issue very aggressively as we move towards writing the next farm bill. There

are a lot of issues related to that including jurisdictional issues

with other committees and so on but we think this is a great future

in American agriculture and we will be staying in touch with you.

Please stay in touch with us as well and we will look forward to

hearing of greater progress as we move forward.

Without objection, the record of today’s hearing will remain open

for 10 days to receive additional material and supplementary written responses from witnesses to any question posed by a member

of the panel. The hearing of the House committee on Agriculture

is adjourned.

[Whereupon, at 2:10 p.m., the committee was adjourned.]

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STATEMENT OF THOMAS C. DORR

Mr. Chairman, it is a distinct pleasure for me to appear before you today to discuss USDA’s role in our nation’s energy strategy.

That role is significant. Agriculture has long been a major consumer of energy. It has more recently become a major producer as well. With oil at $70 a barrel and

expected to remain high, emerging technologies in both energy conservation and renewable energy production offer significant opportunities for higher profits, investment, jobs, and wealth creation in rural America. As the agency with lead responsibility for rural development issues, USDA has a major role to play in bringing

these new technologies to market.

USDA’s activities are, however, part of a much broader effort. The President’s Advanced Energy Initiative (AEI) sets clear goals: developing better ways to fuel our

cars and power our homes and businesses and reducing our dependence on imported

oil. This effort is the responsibility of the Department of Energy. While not a direct

recipient of the increased DOE research funding proposed by the AEI, USDA nonetheless supports these objectives in many ways.

USDA’s role in national energy policy is in fact longstanding and varied.

•USDA has been in the electricity business since the1930’s. Today, USDA Rural

Development’s electric borrowers deliver 10 percent of the nation’s kilowatt hours

and serve 75 percent of the nation’s landmass. We anticipate significant demand

growth and are working with rural utilities to expand generation and transmission

capabilities. We also work with rural utilities to apply the highest environmental

and safety standards to this effort, and we look forward to the advances projected

under the AEI in clean coal, nuclear, and renewable energy technologies for electrical generation. • As a major provider of rural housing, USDA is committed to residential energy

efficiency. Our new housing standards conform to HUD’s high standards and our

energy efficiency requirements for existing homes exceed market standards. On

June 6, 2006, we announced the Home Energy Advantage program to provide certain low and moderate income families, who might not otherwise qualify for homeownership, additional incentive to purchase an energy efficient home. We also provide assistance to low- and very-low income rural homeowners for critical home improvements including weatherization, insulation, and new heating systems. • USDA has supported ethanol for many years; as a t-shirt slogan might put it,

we were ethanol before ethanol was cool. This commitment has contributed to the

significant increases in production efficiencies achieved by the ethanol industry. It

has also helped create the preexisting customer base and production and marketing

infrastructure on which the current growth of the industry is based. USDA clearly

has been instrumental in nurturing the industry to its present point of liftoff. • More recently, the Farm Security and Rural Investment Act of 2002 created the

Federal Biobased Products Preferred Procurement System, which USDA is implementing now. Up to 4,000 products have been identified for possible inclusion in this

system and will be the subject of rulemakings over the next two years. Many of

these biobased products can be used instead of petroleum-based products. The longterm potential for feedstock substitution is significant. • The Farm Security and Rural Investment Act of 2002 also gave USDA Rural

Development broad new authorities in the areas of biomass research, the commercialization of renewable energy technologies, and energy efficiency. From Fiscal

Years 2001 through 2005 (including energy-related investments made through pre–

2002 programs), USDA Rural Development invested more than $356 million in 650

renewable energy and energy efficiency projects. Renewable energy technologies

funded include biofuels, methane gas recovery, biomass, wind, solar, and geothermal. The direct USDA investment in these projects leveraged more than $1.26

billion in additional private funds.

Biofuels are leading this effort. From Fiscal Years 2001 through 2005, USDA Rural Development invested approximately $107 million (leveraging an additional

$624 million in private funding) in 147 ethanol and biodiesel projects. This remains

a high priority in the years ahead. Just last week, in fact, Secretary Johanns announced a grant and loan guarantee combination totaling $3.75 million for a 10 million gallon per year biodiesel plant in Iowa—a 10 percent increase in the nation’s

biodiesel production base in just one plant. At the same time, Secretary Johanns

and Secretary Bodman announced a joint USDA-Department of Energy renewable

energy conference, which will be held October 10–12, 2006, in St. Louis, to create

partnerships and strategies to accelerate the commercialization of renewable energy

sources across the board.

The biofuels growth potential is high. U.S. consumption of ethanol last year

reached nearly 4 billion gallons, more than doubling the level of 2000. The Energy
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Policy Act of 2005 established a Renewable Fuels Standard of 7.5 billion gallons per

year by 2012, a goal which now seems likely to be reached well ahead of schedule.

The President and Congress have also extended the ethanol tax incentive, doubled

the size limitation for the small producer tax credit, and provided a tax credit of

up to $30,000 for the installation of clean fuel infrastructure, such as storage tanks

and pumps.

Looking a bit further down the road, President Bush has proposed an accelerated

program of research to make cellulosic ethanol cost competitive by 2012. When this

is achieved, the production base for ethanol production will be multiplied many

times over and will include feedstocks drawn from every region of the country. This

is one of the most promising mid-term possibilities for displacing a large fraction

of our imported oil, and it is therefore a research agenda to which the Administration is fully committed. While the Department of Energy has the lead R&D role,

USDA also supports research on cellulosic ethanol through our biomass R&D program, and we coordinate closely with the Department of Energy to ensure that our

activities are complementary.

The ‘‘other biofuel’’—biodiesel—is in fact an old idea just now coming into its own.

At the turn of the last century, Rudolph Diesel himself originally used peanut oil

to power his engines—while Henry Ford powered his first car with ethanol—but

cheap oil shelved that idea until now. Today, however, high cost oil has changed

the equation. From two million gallons in 2000, biodiesel usage in the United States

soared to 28 million gallons in 2004 and 91 million gallons in 2005 and is on track

to double again in 2006.

Like ethanol, biodiesel is a domestic, value-added agricultural product offering exciting opportunities for investment and wealth creation in rural America. The Energy Policy Act of 2005 provided Federal tax credits for biodiesel production. As we

have done for many years with ethanol, USDA Rural Development supports the development of biodiesel production facilities through our Business and Cooperative

programs.

Ethanol and biodiesel are simply two of many technologies in play for reducing

oil use. Their impact, however, may be very substantial. One Department of Energy/

USDA study suggests that biofuels could displace as much as 30 percent of current

U.S. gasoline consumption, or up to 60 billion gallons a year, while still meeting our

food and export goals. This would be a very significant contribution towards meeting

the President’s targets on transportation fuels.

Changing the ways we power our homes and businesses is another priority.

Through our partnership with rural electric cooperatives and our support for renewable energy sources through our renewable energy program, USDA has an important role to play in commercializing new opportunities in this area as well. • Since 2001, through our Rural Utilities programs, Value-Added Producer

Grants, and Section 9006 programs, we have helped fund 130 wind, 22 solar, 4 geothermal, 2 hydrogen, and 11 hybrid projects.

• We have funded 92 anaerobic digesters and 7 landfill gas recovery systems,

through five different Rural Development programs.

• We recognize that a kilowatt saved is as important as a kilowatt produced. From

2001 through 2005, we funded 168 energy efficiency projects through our High Energy Cost Grant and Section 9006 programs.

To sum up, rising oil and natural gas prices—painful as they are for American

consumers—are opening the door to a wide range of alternative energy. It is clear

that a new energy economy is being born. It is also clear that renewable fuels, many

of them rural or agricultural based, will play a key role in this evolution.

Let me conclude, then, with three brief observations about the broader implications of these developments for rural America.

First, the changes we are facing are driven by fundamentals. Oil prices are high,

not only in the United States but around the world. Sources of oil are becoming

ever-more concentrated in unstable regions. At the same time, since the fall of the

Berlin Wall in 1989, between two and three billion people have joined the world

market system. China and India are achieving strong growth rates and have

emerged as major oil importers. The world is a much more productive, prosperous,

and competitive place than it was 20 or even 10 years ago.

The rising price of oil reflects these new realities. Oil will continue to fluctuate

in the short term in response to market and political factors, but very few analysts

expect a return to the very low prices to which we have been historically accustomed.

Second, it is useful to remember that since the beginning of the industrial age,

America’s energy economy has not been static. From the mid–19th through the late

20th century, for example, earlier generations of Americans transitioned from animal, wind, wood, and water power to coal, oil, natural gas, and nuclear. The chal-
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lenges we are facing today are neither unique—the rest of the world faces them as

well—nor unprecedented. We have managed such transitions before, and we will do

so again.

Finally, from the vantage point of USDA Rural Development, the emergence of

a viable market for renewable energy represents an historic opportunity for job and

wealth creation in rural America. Ethanol, biodiesel, wind, and solar are distributed

resources. Small and mid-sized producers are able to compete. We are acutely interested, therefore, in focusing our resources on products that encourage a high degree

of local ownership and control.

The scale of this opportunity is enormous. Displacing a billion barrels of imported

oil at a current world oil price ranging around $70 a barrel represents a savings

to America’s balance of payments of approximately $70 billion dollars. That is an

amount roughly equivalent to net farm income in the United States in the all-time

record years of 2004–05—and it significantly exceeds the long-term averages.

This is a remarkable opportunity for rural America and for our nation as a whole.

The development of safe, domestically produced renewable energy is good for our national security. It is good for our economic competitiveness and balance of trade. It

is good for the environment. And it is an unprecedented opportunity for creating

ownership, wealth, and economic opportunity in rural America.

The President’s energy policy supports all of these objectives. It is indeed a privilege for us at USDA Rural Development to support the President’s vision. As the

President has emphasized, America has a costly addiction to imported oil. But we

can kick that addiction if we make up our minds to do so. The American free market

system has an unmatched capacity to innovate, to create new technologies and markets, and to turn challenges into opportunities. That is what we are doing today.

The United States will, in the long run, deal from strength, not weakness. This has

been since 2001, and is still today, a core commitment of this administration.

Thank you. That concludes my prepared statement. I will be happy to address any

questions you may have.

STATEMENT OF J. READ SMITH

Mr. Chairman and members of the committee:

All it takes is one stop at the fuel pump to realize that Americans are confronting

one of their biggest challenges in decades. Soaring energy prices are impacting all

sectors of our economy, whether you are, like me, a farmer trying to fuel up to plant

or harvest a crop, a truck driver hauling goods across the country or an office worker who commutes to work every day.

Almost two years ago, a group of agricultural leaders joined forces to discuss how

they could proactively address this growing energy challenge. This Work Group

spent about six months exploring questions like:

• What role can the farm sector play in producing renewable energy?

• How large of a contribution can the sector make?

• What will it take for agriculture and forestry to become major producers of energy?

• How could a broad-based alliance be established to support a common renewable

energy goal for the country?

As you might imagine, we came away from this discussion with probably more

questions than answers. But we also believed that, in the great tradition of American ingenuity and entrepreneurship, we could find solutions to our energy problems. Throughout our nation’s history, America’s farmers have proudly enhanced

our national security by providing a safe, abundant food and fiber supply. In the

future, we believe agriculture will be repositioned in the eyes of the American public-—providing multitudes of food, feed, fiber and fuel.

We felt that the time has come for the agriculture and forestry communities to

come together to define ‘‘our’’ vision for the role we can play in this area and then

work collectively to bring this vision to life. After extensive dialogue with a wide

range of stakeholders and energy advocates, this working group became convinced

that agriculture and forestry can play a key role in helping the Nation move toward

energy independence.

We looked at the energy potential from a wide range of sources: wind, solar, methane, ethanol, biodiesel. We became convinced that America’s farms, ranches and forests can become suppliers for a new generation of clean, alternative fuels and energy feedstocks. At the same time, we’ll contribute to a cleaner environment and enhanced rural economic development. As a result, we adopted a simple, but bold goal:

25 percent of the nation’s energy supplies from renewable sources by 2025.
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How do we reach this ambitious outcome? Let’s keep in mind that the technologies that could turn this vision to reality are rapidly emerging and providing

new solutions that we might not have even dreamed of five years ago. In the past

decade, there have been great strides in ethanol technology, substantially improving

the efficiency of this fuel source. Seed companies are producing hybrids specifically

bred for their enhanced ability to produce ethanol and yields are steadily improving.

Similar advancements have been made with soy diesel, wind turbines, and methane

digesters.

Just imagine the economic impact if every farm, ranch and forestry operation in

our vast nation were contributing energy in one form or another. Landowners who

produce grain, wood or livestock would have a second crop to sell—energy. Jobs

would be created in rural America through the processing of agricultural products

and the maintenance of equipment for producing electric power. These increased domestic energy supplies would help reduce the price Americans pay to drive their

cars and cool their homes.

The 25 x ’25 Work Group has dramatically expanded in scope and size since its

inception and has attracted the endorsements from over 160 organizations, 11 Governors and four state legislatures. We were pleased to recently join Chairman Goodlatte and Ranking Member Collin Peterson in the House Agriculture Committee

hearing room, along with other members of the House and Senate to unveil concurrent congressional resolutions establishing 25 x ’25 as a vision for the nation. We

look forward to seeing this resolution passed by both the House and Senate.

To further advance the 25 x ’25 vision, we have asked all of our endorsing organizations to come together next month and help us start drafting an implementation

plan. We don’t anticipate that this will be an easy process, but we know it’s the

right goal at the right time. We look forward to discussing this implementation plan

with you and working to turn this vision into a reality.

Thank you for the opportunity to submit this testimony.

STATEMENT OF ROBERT WALKER

Chairman Goodlatte, Congressman Peterson, and Committee Members, my name

is Robert Walker. I am the founder, Chairman, and CEO of Bixby Energy Systems,

a Minnesota-based alternative energy company.

Bixby Energy is in the business of making energy using the waste products of the

world. In other words, we have figured out how to make engineered fuels from agricultural materials also known as Biomass, municipal solid waste, sewage, wood

waste, and even rubber tires. But making these fuels is only the beginning of what

we do. We have also developed furnaces and energy systems designed to extract the

maximum amount of energy obtainable from these fuels. Last, and equally important, we are building a delivery system nationwide with which to provide our fuels

economically and dependably to our customers.

That is a quick overview of what our company does and I realize that this committee’s interest is with agriculture’s role in the renewable fuels market. So, let me

focus for a moment on that part of our business. Biomass, of course, is the generic

name for anything that grows and there are more than 10,000 different kinds of biomass materials in the U.S. alone. Everything from grape waste, rice stocks, and

olive pits in California, sugar beet waste, turkey litter, and cranberry waste in the

Midwest, and peanut shells, tobacco waste, and cotton gin trash in the south.

And talk about fast renewables, most grow in less than six months, and some like

grass grow in as little as a week. Compare that to fossil fuels that take 70 million

years to develop and you begin to appreciate the alternative energy opportunity that

exists with these materials. When you add the wood waste, municipal solid waste,

sewage, and rubber tires, we have an enormous materials base from which to create

our fuel products.

To convert these fuels to heat energy, we have developed the MaxFire burn system, a state-of-the-art multi-fuel stove which has an incredible 99.7 percent combustion efficiency. However, because dry shelled corn has maintained a large surplus

for the last 8 to 10 years and it is inexpensive and available everywhere, we have

been using it as our primary bio-fuel. Last winter, using corn with about 7,000 Btu’s

of heat value per pound, thousands of our customers were able to heat their homes

very economically. Our stoves are sold in more than 21 states but let me use one

example. Customers in our state of Minnesota where winters can be very cold were

heating homes 2500 sq. ft. in size for about $1.50 a day. That’s a savings of about

70 percent over fuel oil or propane.

Alternative energy from agricultural materials is a real business opportunity that

can provide jobs in rural America in addition to energy independence. In case you
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should think that these are the notions of a well meaning but novice entrepreneur,

I should tell you that several years ago I invented a product and founded a company

to market it. Today, it is a billion dollar plus market cap, Nasdaq traded company.

I know opportunity when I see it and the ability to develop alternative energy in

this country is one of the most compelling business opportunities of the future.

Is the American consumer interested in energy saving alternative energy products? I can only tell you from my own experience. We introduced the MaxFire stove

just 2 years ago to modest sales. Our goal the next year was to do $3 million in

sales. Our fiscal year ended May 31 and we actually posted sales of $8.3 million.

Our goal this coming year which started June 1st is to do an ambitious $40 million

in sales. With only a month into the new season I am pleased to tell you that we

already have orders for $23 million. People are looking for good solutions to their

high energy costs!

In two years, we will be offering the Omni System to American consumers. It is

designed to be a furnace to heat your home, your hot water heater, your air conditioner, and it will also generate your electricity. All from biomass or other non-fossil

fuel sources. It will provide these energy services at 50 percent less than what consumers are currently paying for them.

Working with the University of Minnesota, Bixby Energy is also commercializing

a revolutionary pyrolisis technology developed there that solves a big problem inherent with some agricultural waste. Wheat straw for example, has high energy value

of about 9,000 Btu’s per pound but is so light that shipping it to a processing facility

is akin to shipping smoke. The freight costs to deliver this material to one of our

facilities would eliminate any potential energy savings. Now, we will be able to install these systems in a farmer’s barn. He can put his cattle manure, his corn stalks,

grass clippings, and that wheat straw into this bin. It will be simple to operate. He

simply adds water and flicks a switch. In two hours, using heat derived from the

units low energy consuming microwave system, it will turn that 40’ trailer of wheat

straw into approximately 31⁄2 barrels of bio-crude. It can now be shipped economically in its liquid state for refinement. This is an already proven technology we are

commercializing and expect to have in market within 4 years. Imagine the possibilities! This would literally turn every farmer’s barn into a miniature oil well!

Now as much as I would like you to believe that Bixby Energy has all the answers

to America’s energy problems, that simply is not true. Bixby has been able to advance its technology development because it was able to raise more than $22 million

from the private investment community. What I can tell you is that there are literally hundreds, maybe thousands of people and companies in America with great

ideas that can be turned into great products with great potential, but they either

don’t have capital or the other resources necessary to bring them to commercialization. What is critically needed is a system for locating, qualifying, and funding those

technological gems that exist out there and are waiting to be discovered.

Great ideas know no political boundaries. They are neither republican nor democrat. President Clinton said, ‘‘America needs to do much more to develop energy conservation, alternative energy technologies and we’d eventually create jobs, have

more wealth and save the planet, and we’d make ourselves more independent of foreign oil.’’

President Bush has said, ‘‘This congress must act to encourage conservation, promote technology, build infrastructure and it must act to increase energy production

at home so America is less dependant on foreign oil.’’ The President has turned talk

into action by establishing the Advanced Energy Initiative.

America’s energy situation is not a partisan issue. We are all in this together. I

can tell you from experience that the biggest impediment to an entrepreneur’s success is undercapitalization. Even at Bixby where we have successfully raised funds,

we now need additional investment to support our rapid growth and finish the commercialization of our technologies.

Congress has pending before it H.R. 4435 and S. 2196, a bill that would create

an innovative energy research, technology development and deployment program.

It’s called ARPA and represents a venture capitalist like approach to research and

technology transfer. It has the capacity to find and fund those great technologies

out there in America that could help secure our energy independence. Its focus is

on ‘‘out of the box’’ private energy research that currently isn’t supported by other

Federal programs. It assists those small companies where great ideas are born, but

too often falter because of lack of capital. The beauty of this legislation is that it

creates a nimble tool within the Department of Energy without the bureaucratic

barriers that can be an obstacle to success.

Congress has witnessed the success of this type of model at In-Q-Tel, DARPA, and

HSARPA. These agencies constantly meet the challenge of high risk and high pay-
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off technologies that have not only transformed our military but, improved homeland security and central intelligence.

I urge the support of this legislation and in doing so allow the ARPA staff to act

like venture capitalists by going out into the private sector to find the individuals,

the struggling start-up businesses, the researchers in universities and if they prove

to have compelling, potential solutions to our energy problem, fund them to support

their development. Give them the assistance they need that will allow them to provide us with domestically based solutions to insure this country’s energy independence. The President and this congress won’t find solutions to the problems that the Advanced Energy Initiative seeks to resolve by sticking to the tired government approaches in place today. Our energy needs and independence goals are bold and require a bold approach. The high risk, high pay-off approach of In-Q-Tel, DARPA,

and HSPARA have produced results and yes, there have been failures too, but the

highway to success has never been a straight line.

In the meantime there are other steps that can be implemented to stimulate the bio-fuel markets with tax incentives. Today ethanol producers receive a $.51 Federal

tax exemption for every gallon of production. Why just ethanol producers? Why not

extend that same $.51 benefit to other liquid bio-fuels or on a per ton basis for

pelletized fuels for non-agricultural based fuels produced from trash, recycled oils

or grease? Ethanol and alcohol fuels currently receive this exemption through 2010. Biodiesel fuels today receive a $1.00 tax credit through 2008. Why not extend this

same income and excise tax credit to agricultural based fuels such as those made

from Corn Stover, switch grass or other food stocks or wastes?

In conclusion, Mr. Chairman, I hope that I have imparted to you and your committee members the challenges faced by the entrepreneurial world in bringing innovative technologies to commercialization. I hope that you, this committee and the

other members of congress will continue to explore and seek ways in which those

of us in the private sector can form partnerships with the Federal Government to

advance our nation’s goal of complete energy independence.

Thank you all for your attention.

STATEMENT OF WILLIAM A FREY

Good morning Chairman Goodlatte, ranking member Peterson and members of

the committee. Thank you for the opportunity to testify before the committee today.

My name is Bill Frey. I am the global business director for DuPont’s biofuels business, and I am pleased to be able to tell you about our efforts to bring DuPont

science to bear to add value throughout the biofuels value chain.

We start in the field, where our Pioneer corn and soybean seeds, developed specifically for biofuels applications, help to maximize the yield of ethanol and biodiesel

from those crops. For eight decades Pioneer has been helping its customers succeed

in the marketplace. With 135 seed corn varieties designated as high ethanol hybrids, renewable fuels are just one route to that success in today’s market. Crop

seeds represent the first step in DuPont’s biofuels vision of meeting energy needs

from the field to the pump.

Our highly environmentally sensitive crop protection chemicals help farmers to

ensure high rates of productivity from these crops. And we have been bringing our

biotechnology expertise to bear to convert those agricultural products to high value

products for the marketplace. After two hundred years of using chemistry and materials science to produce products ranging from the invention of Nylon and Kevlar

to high quality automotive paints, we are increasingly using biology as the tool to

create similarly high value products from agricultural materials.

DuPont was recently awarded the President’s Green Chemistry Award for the development of our Sorona fiber, whose unique properties include natural stain protection, brilliant colors and high wear resistance. This year we will start up a world

scale fermentation facility in Louden, TN producing the raw material for Sorona,

propane diol or PDO, from corn. In developing our bio-PDO process we used biology

to improve the yield of PDO by a factor of 500 fold, resulting in a cost competitive

polymer raw material from corn, rather than petroleum. So very soon the carpet you

walk on and the clothes you wear will come from the farmer’s field.

We are also working with the Department of Energy and partners including John

Deere and Diversa to develop an integrated corn-based biorefinery that will convert

the entire corn plant, both the grain and the corn stalk and leaves, into cost effective ethanol and bio-PDO. We are nearing the stage where we will demonstrate this

new technology on the way to full-scale commercial status. We believe this new development will help improve earnings for farmers and ethanol producers. It will also
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open the door to significant expansion of biofuels production from plants, allowing

for the expansion of their development without potential pressure on food crops, and

improving even further the environmental performance of these materials.

I’d like to spend the rest of my time focusing on our newest development that we

just announced last week. DuPont and BP have formed a partnership to develop and

bring to market next generation biofuels that will help to speed the development

of this important market in ways that will benefit farmers and biofuels producers,

including ethanol producers.

The first of these new products to market will be biobutanol. Biobutanol will be

produced from the same feedstocks from which ethanol is produced, in essentially

the same type of production facilities. One of the things that make biobutanol exciting is its ability, as a co-blending agent with ethanol and gasoline, to enhance the

performance of the fuel blend in ways that speeds the growth of the overall biofuels

market and the agricultural markets that support it.

Biobutanol packs more energy per gallon than does ethanol, so when biobutanol

is added to an ethanol-gasoline blend the resulting fuel provides greater fuel mileage. In addition, biobutanol is much less volatile than ethanol, and a co-blend of the

two results in reduced volatile vapor emissions versus ethanol-gasoline blends, reducing the potential for smog formation. This will expand the geographic areas in

which ethanol blended fuels can be used year round.

Butanol is not a new thing, but the ability to produce it cost effectively is. That

is the power of DuPont’s biology expertise brought to bear. Butanol’s performance

as a transportation fuel has long been recognized. It was, for example, used to fuel

vehicles during World War II. However, until now butanol produced from petroleum

or by known fermentation technologies has not been cost competitive with other

transportation fuels. What is new is the application of the biology expertise we have

developed through our experience with bio-PDO and the biorefinery efforts to the

development of a cost effective process to produce butanol from agricultural products.

Also new is the partnership between DuPont’s biology and production expertise

and BP’s fuel expertise and market presence. The partnership will begin biobutanol

production in the UK in 2007 in conjunction with British Sugar, using existing technology, in order to get product to market rapidly. We are starting in the UK in order

to have an early presence in a newly developing biofuels market, and will use sugar

beets to produce biobutanol. By 2010 we expect to be producing with our new generation technology, including at a new UK plant based on wheat. This feedstock

flexibility is one of the beauties of biobutanol. Here in the US we anticipate biobutanol will be produced from corn, with sugar beets or cane also potential feedstocks.

In the future the cellulosic technology we are developing in the biorefinery project

will be a natural fit with bio-butanol.

While we don’t yet have specific plans for US production, the US is obviously an

important market and we fully intend for biobutanol production in the US when our

next generation technology is ready. One factor that will be important for US market entry is a level playing field in incentives for biofuels, be they in tax policy or

elsewhere. Biobutanol will be good for farmers, good for ethanol producers, and good

for the environment, and should receive the same treatment as other biofuels.

DuPont is excited to partner with BP to bring biobutanol and other advanced

biofuels to market. We think these developments will be good for agriculture, good

for national security, good for the environment, and good for our shareholders. I appreciate the opportunity to share these developments with you, and look forward to

your questions.

STATEMENT OF AL CHRISTOPHERSON

Good afternoon. My name is Al Christopherson. I am chairman of the board for

the Agricultural Utilization Research Institute (AURI), a Minnesota nonprofit corporation that works to improve the economy of our state through the development

of new and value-added uses for agricultural commodities.

I appreciate the opportunity to appear before you today because I believe we are

at a moment in time when tremendous strides can be made to change the way we

produce and consume energy in this country.

As outlined by the President’s Advanced Energy Initiative, there are numerous

opportunities for those advancements to be made. AURI is convinced there are areas

where agriculture can play a leading role in the development of new sources for

transportation fuel, home heating and power generation. In addition, a national

focus and policy supporting the development of renewable energy is needed to develop clear goals consolidated by implementation.
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Policy development is often a necessary precursor to change. The President’s Initiative provides the vision, what is needed now is implementation.

For nearly 20 years, AURI has provided scientific technical assistance to projects

that utilize agricultural commodities in innovative ways. AURI’s mission supports

the President’s Initiative in a number of areas.

AURI facilitates the development of new renewable energy enterprises, increasing

the overall capacity for renewable energy production. This includes significant work

in ethanol, biodiesel development and biomass energy advancement. AURI has also

expanded well beyond those areas to include biogas production from anaerobic digesters, gasification of agricultural biomass, turbine fuel assessment, and wind and

biodiesel hybrid applications to name a few.

In addition to energy development, AURI fosters the development of new products

that displace petroleum-based materials. We have successfully assisted in the development of ag-based polymers, functional foods, fertilizers, lubricants and dozens of

other food and industrial products.

Renewable energy from agricultural sources has generated significant interest in

recent years as opportunities arise and technology advances. Implementing an advanced energy plan to support further development will help to sustain that surge

both on a consumer and industrial level. We know this because it is happening right

now. Minnesota has been a proactive leader in the advancement of renewable energy.

Much of this activity began long before high crude oil prices caught the nation’s collective attention and renewed calls for alternative energy development. Rather,

growers, ranchers and AURI recognized the opportunity bio-based businesses presented for adding value, sustaining strong rural economies and promoting energy

independence.

Minnesota entered the ethanol industry in 1983 with the opening of a farmerowned ethanol plant in Marshall. In 1997, Minnesota became the first state to have

10 percent ethanol added to gasoline sold year round throughout the state. As a result of legislation and growing market opportunities, the state now has 16 operating

ethanol plants with several more in various stages of development. These plants are

currently producing more than 550 million gallons of ethanol annually. Further,

Minnesota has over 220 operating E–85 fuel pumps. Ethanol is not only being produced here, it is also being used here. The distribution network, utilization and interest in ethanol grows stronger every day.

In 2005, Minnesota also became the first state to mandate 2 percent biodiesel to

be added to every gallon of diesel fuel sold. There are now four biodiesel refineries

operating in the state, producing over 60 million gallons each year.

Recognizing the opportunity created by our state’s forward thinking policies on renewable energy, AURI created the Minnesota Center for Producer-Owned Energy.

This Center was established through USDA’s Agricultural Innovation Center Demonstration Program. The Center serves as a working, ready for implementation

model for spurring ag-based renewable energy production in the U.S. and provides

a road map for supporting the President’s Initiative.

The Center facilitates the development of farmer-owned enterprises that utilize

agricultural commodities, biomass and coproducts for the production of energy.

The Center established partnerships with commodity groups, public and private

organizations, universities and other agencies. These partnerships result in maximized impact, access to resources and expertise from outside AURI. They also

produce broad-based support for the development of renewable energy projects in

Minnesota and encourage the leveraging of additional funds.

The policy that created the Center for Producer-Owned Energy originated in the

2002 Farm Bill. The key to success is AURI’s development of a solid implementation

plan to carry out the policy. In concert with the scientific technical resources of

AURI, the Center has successfully implemented 17 projects impacting more than

9,000 producers in the past 2 years. Activities include the formation of several cornbased ethanol plants in underserved areas, the development of what could become

the nation’s first commercial cellulose-based ethanol plant and the gasification of agricultural biomass for electrical power. Additional projects range from testing a biodiesel-powered ATV to examining the feasibility of using biodiesel in working riverboats.

These renewable energy enterprises are all in rural areas utilizing locally-produced commodities. They are adding jobs to the region and are reducing consumption of petroleum. Many of these facilities are producer-owned, assuring that accumulated wealth stays in the rural environment.

In addition to strong commodity and grower group support, the Minnesota Center

for Producer-Owned Energy has established a strong relationship with the Bio-Business Alliance of Minnesota, linking agriculture with organizations such as 3M, the
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Mayo Clinic and Medtronic. These relationships will help to move agricultural commodities into new, non-traditional markets. In some cases, they could supplant petrochemicals as source ingredients.

Associations with Bemidji State University and Southwest Minnesota State University will result in the nation’s first advanced degree in renewable energy management, promoting best practices and quality in energy production.

While the Center for Producer-Owned Energy and AURI are Minnesota based, the

framework could be replicated elsewhere. It has been our experience that providing

feasibility analysis and scientific technical experience coupled with a sound implementation plan during the developmental stage is vital to realizing a successful enterprise.

Merging technology with markets, best manufacturing and quality practices with

a trained, renewable energy workforce, creates a strong foundation for energy development and business success.

This country was formed as an agrarian society and later moved to an industrial

focus. We are now in an era where ideas and innovation are driving our economy.

We have seen how this innovation is linking the past with the future. Innovative

technology is providing opportunity for strong agricultural activities, which are leading to industrial development. Nowhere is this cycle more evident than in the promise of renewable energy.

STATEMENT OF AMERICAN SPORTFISHING ASSOCIATION, ASSOCIATION

OF FISH & WILDLIFE AGENCIES, BASS/ESPN OUTDOORS, BEAR

TRUST, BERKLEY CONSERVATION INSTITUTE, CAMPFIRE CLUB OF

AMERICA, DUCKS UNLIMITED, IZAAK WALTON LEAGUE OF AMER- ICA, NATIONAL WILD TURKEY FEDERATION, NATIONAL WILDLIFE

FEDERATION, THE NATURE CONSERVANCY, NORTH AMERICAN

BEAR FOUNDATION, NORTH AMERICAN GROUSE PARTNERSHIP, PHEASANTS FOREVER, QUALITY DEER MANAGEMENT ASSOCIATION, QUAIL FOREVER, ROCKY MOUNTAIN ELK FOUNDATION, SAFARI

CLUB INTERNATIONAL, TEXAS WILDLIFE ASSOCIATION, THEODORE

ROOSEVELT CONSERVATION PARTNERSHIP, TROUT UNLIMITED, WILDLIFE MANAGEMENT INSTITUTE, THE WILDLIFE SOCIETY

As organizations representing wildlife and conservation interests in all 50 states,

we are writing to express our concern about proposals that have surfaced recently

which call for using lands enrolled in USDA conservation programs, especially the

Conservation Reserve Program (CRP), for the production of biofuels. Our organizations represent millions of hunters, anglers and other conservationists who care

deeply about our Nation’s energy supplies and our fish and wildlife resources. We

share your concerns and those of nearly every American that the thirst for the

world’s shrinking supply of fossil fuels is pushing the United States dangerously

close to economic harm and dependency on often volatile foreign sources of energy.

The organizations listed above believe in and support the use of biofuels in diminishing the Nation’s dependency on fossil fuels. America has nearly 400 million acres

of cropland and some of the world’s most productive farms. Furthermore, we are

confident America’s farmers are ready and willing to produce biofuels crops to meet

the needs of this emerging market. But, we are concerned that in the rush to

produce biofuels crops, we may inadvertently sacrifice many of the natural resource

conservation victories achieved over the past two decades.

The certainty of rapidly expanding biofuels development and increased biofuels

crop production means that potentially millions of acres of privately owned land

may be utilized for biomass production. Options for biomass production are as diverse as the American landscape, ranging from native grasses, corn stover, wheat

straw, forestry products, and other materials. Careful selection of appropriate lands

for biomass production is critical if you are to craft a successful alternative energy

policy that ensures we sustain our current economical food supply, positive balance

of agricultural trade, gains in quality habitat and wildlife numbers, and improving

water and soil quality. Accordingly, as you seek ways to promote biofuels and

biofuels production, we urge you to carefully consider the impacts of increased stubble removal and diminished vegetative cover as they relate to wildlife, soil, water,

and air quality; and investigate all proposals and facts regarding the use of land

enrolled in conservation programs as a source of crops grown for biofuels production.

We look forward to being included as a part of the ‘‘energy solution’’ and respectfully
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request that you utilize our wildlife-, habitat-, and conservation-based technical expertise and research-based data; and consult with us in future biofuels discussions

and policy decisions.

Of significant concern to us is the future of the highly successful 20-year-old CRP

because of the numerous proposals that are surfacing that suggest CRP-enrolled

land be used for biofuels production.

The purpose of the CRP is clearly specified by Congress in the 2002 Farm Bill,

(P.L. 107–424) according to Sec. 1231 (a) which provides:

‘‘The Secretary shall formulate and carry out a conservation reserve program

under which land is enrolled through the use of contracts to assist owners and operators of land specified. to conserve and improve the soil, water, and wildlife resources of such land.’’

CRP is the most successful conservation program in history; and is credited with

conserving more of our nation’s soil, water, and wildlife than any other program.

Since its inception in 1986, CRP has helped reduce soil erosion by more than 40

percent and restored 1.8 million acres of critical wetlands. Since enactment of the

2002 Farm Bill, CRP has increased enrollment by 2.6 million acres, conserving a

total of more than 36 million acres of environmentally sensitive land for wildlife

habitat, riparian buffers, and soil protection. Altering the existing CRP priorities on

millions of acres of enrolled land could dramatically reverse many of the gains realized to date in protecting our environment, improving water quality, and enhancing

wildlife. Most at risk, are the wildlife benefits of CRP, which to a great extent, are

simply not compatible with frequent harvesting. Risking wildlife benefits also jeopardizes the 67.5 billion dollars and 575,000 jobs that hunting and related activities

annually add to the U.S. economy. Furthermore, the amount of water required for

biofuels production should be carefully considered to ensure that our citizens, agricultural industry, fish, and wildlife have the aquatic resources necessary in perpetuity.

Although we believe that biofuels production will provide a viable alternative income source and an additional revenue stream for American agriculture, accurate

research-based determinations of where and how the most beneficial and cost-effective methods of biofuels production can be achieved are not complete. Accordingly,

we concur that it is premature at this point in the biofuels discussion to conclude

that land enrolled in CRP should be considered as a source of land for biofuels production.

We look forward to engaging in a joint effort with production agriculture interests,

especially as we develop policy for the 2007 Farm Bill, to constructively craft a balanced and effective ‘‘agricultural energy policy’’ that lessens U.S. dependence on foreign oil, enhances rural economies, and provides sound environmental and wildlife

benefits.

In summary, the organizations listed above strongly support the position that utilization of CRP enrolled land for the purpose of biofuels production is premature at

this stage of the alternative energy/biofuels debate—simply because adequate research does not exist that proves utilization of CRP for biofuels production is the

best available option. We also believe that altering the CRP without careful study

would unravel the documented benefits CRP currently provides.

Thank you for your consideration.

STATEMENT OF NATIONAL ASSOCIATION OF CONSERVATION

DISTRICTS

On behalf of the nation’s 3,000 conservation districts, the National Association of

Conservation Districts (NACD) is pleased to provide comments to the Committee on

Agriculture’s role in the renewable fuels market. Established under state law, conservation districts are local units of government charged with carrying out programs

for the protection and management of natural resources at the local level.

NACD supports the development and use of renewable fuels from agriculture and

forestry products to help stretch our nation’s energy supplies and reduce the amount

of imported oil by millions of barrels each day. Our members help landowners implement conservation practices such as no-till that can save farmers over 200 million gallons of fuel and up to $480 million per year. We are also interested in the

use of crop acreage in conservation programs for the production of biofuels—corn

ethanol, biodiesel and biomass ethanol. In looking toward the future many conservation programs can serve several purposes of soil and water quality benefits, habitat

improvement, reduced energy inputs and contribute to biofuel production through
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crop and grass production, however we must ensure that these lands continue to

be managed to protect natural resource conservation benefits.

One example of the Conservation District’s commitment to biofuels is the Spokane

County Conservation District’s ‘‘BioBug’’. This Clean Green Bio Machine, a 2003

Volkswagen Beetle is fueled with 100 percent biodiesel. The BioBug is part of the

District’s educational efforts to increase awareness of biodiesel and its positive impacts on our environment and our economy. The District is coordinating the efforts

of several public agencies, private industry and agricultural producers to develop

the biodiesel industry in Eastern Washington. These efforts include the production

of agricultural feedstocks, building oilseed processing facilities, developing biodiesel

processing plants, and increasing demand for the fuel.

With energy prices at all-time highs and little expectation of change in the near

future, there is a great opportunity for the development and use of renewable fuels

and alternative energy sources made from biomass. Many conservation practices actually save energy while also benefiting the environment. Farmers can help solve

America’s energy problems by producing clean, renewable energy sources.

NACD encourages support for policies and programs that provide incentives for

the development and use of renewable fuels and biomass including conservation

practices that reduce energy use and the USDA Bioenergy Program. We look forward to continuing to work with the Committee on these programs and working at

the state and local level to increase the awareness and use of renewable fuels.

STATEMENT OF MARK GAALSWYK

EASY AUTOMATION, INC.—BACKGROUND

• Easy Automation, Inc. (EAI) is an industry leader in innovative agriculture

technologies.

• EAI is the largest provider of Feed Software and Automation in North America.

• EAI has over 3,000 customers.

ETHANOL

• For the past few years EAI has been quietly developing a new innovative process for making ethanol.

• EAI’s patent pending process enables factory built, pre-wired, pre-plumbed ethanol plant modules to be built in a size that will fit in a shipping container.

• These shipping container sized ethanol modular plants can be pre-built in a factory and shipped all over the world.

• All one needs to do is set them on floor plug them in and begin making ethanol.

• Each unit will produce approximately 750,000 gallons of ethanol per year.

• To make a larger plant, simply plug more of these units together. All of the individual units will then function together as one complete larger plant.

• The units can all be connected to the Internet and monitored and serviced by

EAI’s staff in Welcome, Minnesota.

• EAI has built a couple of test units and is now gearing up for mass scale production of these systems.

•

ADVANTAGES

• EAI believes that its factory built modular ethanol plants will change the renewable fuels industry the way that Henry Ford’s factory built automobiles led to

rapid expansion of the auto industry.

• Because they can be assembled to make any size plant from 750,000 gallons up

to a 200 million gallon plant, EAI believes many of the units will be installed by

larger farmers and existing rural ag cooperatives.

• Some of the advantages of the ethanol plants being owned by large farmers and

rural ag cooperatives is that the ‘‘value added’’ benefit will be more closely tied to

the producers themselves. The approach will also provide for a greater utilization

of existing infrastructure of grain elevators and feed mills. This in turn will lead

to a more rapid deployment of renewable fuels systems throughout the country.

• Simply put, EAI’s goal is to place an add-on ethanol plant module at each of

its 3,000 existing customer sites represented on the customer map.

• EAI expects this ‘‘Decentralized’’ approach to ethanol production to be fought by

many of the large Ag conglomerates who favor a more ‘‘Centralized’’ business model

and thus a larger barrier to entry.
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TECHNOLOGY

• In addition to its innovative modular technologies, EAI is also testing and improving the process of making ethanol.

• This process includes a method of making ethanol that replaces the cook process

with a different means of exciting the molecular activity and thus improving the

conversion process. These processes can greatly reduce the use of other forms of energy and also reduce pollution related emissions.

• In addition to a better conversion process, this process improves the nutritional

content of the feed by-product.

• Initial research on the patent pending process has indicated that the combination of EAI’s technologies can create ethanol without burning any natural gas, with

no emissions, and a conversion efficiency of 3.2 gallons per bushel of corn. The industry standard is 2.8 gallons of ethanol per bushel of corn. The end result will be

the production of ethanol at a cost of production approaching 70 cents per gallon

as compared to the current industry standard of approximately $1 per gallon.

ENVIRONMENTAL BENEFITS

• The decentralized model better distributes any negative environmental impact

that may be present.

• With the ethanol plants located closer to the place of production, the costs and

environmental aspects of transportation are reduced. Corn can be grown, ethanol

produced and the feed by-product consumed—all without ever leaving the farm.

• Because the systems do not need to use steam for the cook process, the usage

of water is reduced and large steam stacks can be eliminated.

• Because the systems will often be tied directly to a Feed Mill, the feed by-product can be mixed in with the animal feed and consumed immediately. This eliminates much of the drying process that is often associated with traditional ethanol

plants that dry the by-product to create dried distillers grain (DDG). This drying

process improves shelf life as the material is transported back as animal feed. It

is this drying process that creates many of the air emissions problems the industry

traditionally faces.

CONCLUSION

• The ethanol industry is going through a rapid improvement in technologies.

• EAI asks for your continued support as we and other companies continue to improve technologies and build the Nation’s production of renewable fuels.

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