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37–885 PDF 2007

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THE NEXT GENERATION OF BIOFUELS:

CELLULOSIC ETHANOL AND

THE 2007 FARM BILL

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY, SCIENCE AND 

TECHNOLOGY

OF THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 4, 2007

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

SUBCOMMITTEE ON ENERGY, SCIENCE AND TECHNOLOGY

KENT CONRAD, North Dakota Chairman 

E. BENJAMIN NELSON, Nebraska 

KEN SALAZAR, Colorado 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, Jr., Pennsylvania 

AMY KLOBUCHAR, Minnesota 

JOHN THUNE, South Dakota 

RICHARD G. LUGAR, Indiana 

LINDSEY GRAHAM, South Carolina 

NORM COLEMAN, Minnesota 

CHARLES E. GRASSLEY, Iowa

MARK HALVERSON, Majority Staff Director 

ROBERT E. STURM, Chief Clerk 

MARTHA SCOTT POINDEXTER, Minority Staff Director 

VERNIE HUBERT, Minority General Counsel 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

The Next Generation of Biofuels: Cellulosic Ethanol and the 2007 Farm 

Bill ......................................................................................................................... 1

Wednesday, April 4, 2007

STATEMENTS PRESENTED BY SENATORS 

Thune, Hon. John, a U.S. Senator from South Dakota ........................................ 1

WITNESSES 

Panel I 

Endres, Don, Chairman and Chief Executive Officer, Verasun Energy ............. 7

Fox, Jeff, Vice President, Legal and Governmental Affairs, Poet Energy .......... 9

Jensen, Reid, President, South Dakota Corn Growers ......................................... 11

Kephart, Kevin, Vice President of Research, Dean of the Graduate School, 

and Director, Sun Grant Initiative for the North Central Region, South 

Dakota State University ...................................................................................... 4

Nomsen, Dave, Vice President of Government Affairs, Pheasants Forever ....... 17

Rath, Anna, Director of Business Development, Ceres, Inc. ................................ 14

APPENDIX 

PREPARED STATEMENTS: 

Endres, Don ...................................................................................................... 38

Fox, Jeff ............................................................................................................. 44

Jensen, Reid ...................................................................................................... 54

Kephart, Kevin ................................................................................................. 57

Nomsen, Dave ................................................................................................... 62

Rath, Anna ........................................................................................................ 66

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

American Coalition for Ethanol, prepared statement ................................... 74

Association of Fish and Wildlife Agencies, prepared statement ................... 81

Dakota Rural Action, prepared statement ..................................................... 85

Ducks Unlimited, Inc., prepared statement ................................................... 87

Izaak Walton League of America, prepared statement ................................. 94

KL Process Design Group, prepared statement ............................................. 100

Lake Area Technical Institute, prepared statement ...................................... 102

Nebraska Game and Parks Commission, prepared statement ..................... 104

Northern Great Plains Working Group, prepared statement ....................... 108

South Dakota Cattlemen’s Association, prepared statement ........................ 110

South Dakota Department of Game, Fish and Parks, prepared statement 111

South Dakota Farmers Union, prepared statement ...................................... 115

South Dakota Soybean Association, prepared statement .............................. 118

South Dakota Wheat Inc., prepared statement ............................................. 119

‘‘Pump Games: Fill Up With Ethanol? One Obstacle is Big Oil—Rules Keep 

a Key Fuel Out of Some Stations; Car Makers Push Back,’’ The Wall 

Street Journal ....................................................................................................... 121

(1)

THE NEXT GENERATION OF BIOFUELS: 

CELLULOSIC ETHANOL AND 

THE 2007 FARM BILL 

Wednesday, April 4, 2007

UNITED STATES SENATE, 

SUBCOMMITTEE ON ENERGY, 

SCIENCE, AND TECHNOLOGY

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY, 

Washington, DC 

The Subcommittee met, pursuant to notice, at 10:00 a.m., in the 

Volstorff Ballroom, South Dakota State University, Brookings, 

South Dakota, Hon. John Thune presiding. 

Present: Senator Thune. 

STATEMENT OF HON. JOHN THUNE, A U.S. SENATOR FROM 

SOUTH DAKOTA 

Senator THUNE. Good morning, everyone. As the Ranking Member of the Senate Agriculture Energy Subcommittee, it is my pleasure to call this hearing to order this morning. I want to welcome 

you to spring in South Dakota, the beautiful weather we are having. In the spirit of spring and in the spirit of renewable energy, 

I wore my green tie today, so this is a green energy day here in 

South Dakota. But we are delighted to have all of you here today, 

and I want to thank our witnesses for being with us here today as 

well. We look forward to hearing from them in just a minute. 

But what I want to do today is focus this hearing on issues that 

have to be addressed in the 2007 farm bill to ensure the timely and 

successful development of commercial cellulosic ethanol over the 

life of this bill and beyond. Today’s hearing is the first Senate Agriculture Energy Subcommittee hearing, and it is the first 2007 farm 

bill hearing to focus on cellulosic ethanol production. During the 

2002 farm bill debate, I served on the Agriculture Committee in 

the House of Representatives. 

My colleagues and I included for the first time ever an energy 

title in that bill. Since passage and implementation of the 2002 

farm bill, our agriculture industry has evolved from producing food 

and fiber to producing food, fiber, and fuel. Without a doubt in my 

mind, our expectations for South Dakota’s farmers and ranchers as 

they transition to this new frontier of growing fuel will be met with 

the same spirit, resolve, and innovation they have shown ever since 

ranchers began grazing our prairies and farmers’ plows began turning over South Dakota sod in the 1800s. 

2

South Dakota’s farmers and ranchers will rise to the challenge 

of growing fuel on the Plains, and I want to ensure that they do 

it successfully and in a manner that makes biofuels production sustainable. Sound public policy must keep pace with the innovation 

of our producers and ethanol industry leaders. 

Over the past few months, I worked hard to ensure the sustainability of the ethanol industry. Recently I have taken several steps 

to boost the production and consumption of ethanol. Last month I 

contacted the Environmental Protection Agency and urged them to 

make preparations to begin quickly for EPA approval of E20, a 

blend of 20 percent ethanol and 80 percent gasoline. Our domestic 

ethanol production will soon meet and exceed the demand for E10. 

Therefore, E20 approval and wide spread use is an important stepping stone as we transition away from our Nation’s dangerous dependence on foreign sources of oil. 

In order to lessen U.S. dependence on foreign energy, it is critical 

that our ethanol industry, the auto industry, and the Federal Government work together to expand the production and acceptance of 

gasoline with higher blends of ethanol, such as E20. The delivery 

of E20 and E85 is dependent on increased alternative fuel infrastructure at the retail level. Again in this Congress, I have introduced a bipartisan bill in the Senate that would provide gas station 

owners with financial incentives to install alternative fuel pumps, 

including E85 pumps. 

Last month I joined a bipartisan group of Senators in sending a 

letter to Underwriter Laboratories requesting the approval of ethanol pump components. The lack of such approval allows local regulators to block the installation of E85 pumps, which has led to a 

great deal of uncertainty at the retail level. I have also spoken out 

against the administration’s ethanol compact with Brazil. It is simply bad policy to promote foreign ethanol while our domestic ethanol industry is just getting off the ground. 

Alan Greenspan, former Chairman of the Federal Reserve, has 

publicly stated that South Dakota may be the next energy czar because of our potential for wind energy and renewable fuel production. However, South Dakota will never realize this potential if our 

focus is on foreign sources of biofuels. 

Earlier today I had the opportunity to visit a cellulosic ethanol 

lab here on SDSU’s campus. This afternoon I will be stopping by 

an established field of switchgrass. Additionally, wind farms and 

ethanol plants are now a common feature of our rural landscape. 

Without question, renewable energy has dramatically changed 

South Dakota’s economy, and this is just the beginning. 

I envision a future with South Dakota as a net energy exporter. 

In addition to our existing hydropower generating capabilities and 

the potential for increased wind energy generation, we have a vibrant and rapidly expanding corn-based ethanol industry in eastern South Dakota. Today South Dakota’s ethanol production is 

comprised of 12 existing ethanol plants with five more under construction or expansion. By the end of 2008, we will have the capacity to annually produce over 1 billion gallons of ethanol in South 

Dakota. 

Cellulosic ethanol, which can be made from prairie grasses, crop 

residue, or wood ships rather than corn, represents the next fronVerDate 0ct 09 2002 12:03 Oct 19, 2007 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\37885.TXT SAG2 PsN: SAG2
3

tier of biofuels production. The successful and economic production 

of cellulosic ethanol will complement our Nation’s current corn ethanol production to deliver a robust and sustainable biofuels industry for generations to come. Cellulosic ethanol will potentially yield 

more gallons of ethanol per acre than corn by utilizing commodity 

crop residues as well as crops that are native to particular regions 

across the country. In doing so, ethanol production will extend beyond the Corn Belt as fuel sources such as prairie grasses and 

wood chips become viable ethanol feedstocks. 

One such example is provided by the KL Processing and Design 

Group based in Rapid City, South Dakota. KL Processing has just 

begun producing ethanol from woody biomass, with much of the research that has made their process successful having taken place 

right here in South Dakota. On behalf of the KL Processing and 

Design Group, I will submit their written testimony in the official 

Committee record. 

[The following information can be found on page 100 in the appendix.] 

First on the panel is Kevin Kephart. He is Vice President of Research and Dean of the Graduate School at South Dakota State 

University. Kevin also serves as the Chair of the Sun Grant Initiative. I worked with my colleagues to secure a steady stream of 

funding for the Sun Grant Initiative as part of the 2005 transportation reauthorization bill, and I look forward to coordinating with 

Kevin and his team at SDSU to reauthorize and strengthen this 

program as part of the 2007 farm bill. I want to thank Kevin for 

his work and contributions to our ethanol industry, and I would 

like to give special thanks to Kevin, his staff, and the South Dakota State University for hosting this hearing today. 

Don Endres is the chairman of the board and CEO of VeraSun 

Energy, an exciting company based here in Brookings, South Dakota. Don grew up in Watertown, South Dakota, and is an alumnus 

of South Dakota State University. Don has a distinguished career 

in the ethanol industry and is now the head of the second largest 

ethanol production company in the United States. 

Jeff Fox is the Vice President of Legal and Governmental Affairs 

for Poet Energy, another South Dakota-based ethanol company. 

The Broin family purchased their first ethanol plant located at 

Scotland, South Dakota, in 1987. Later this year, Poet and its partner plants, scattered across the Midwest, will have an annualized 

production capacity of over 1 billion gallons. 

Reid Jensen lives near Burbank, South Dakota, where he operates a stock cow and calf operation and has raised corn and soybeans since 1977. Reid graduated from the University of South Dakota with a degree in business administration. In addition to being 

the President of the South Dakota Corn Growers, Reid is Vice 

President of the South Dakota Corn Utilization Council and is active on the Clay County Extension Board. 

Anna Rath is the Director of Business Development at Ceres, Incorporated. Ceres is at the forefront of transgenic switchgrass development and the sustainable production of energy-dedicated 

crops. Anna has a master’s degree in human genetics from the University of Michigan and her law degree from Yale University. She 

has been researching the development of cellulosic ethanol and proVerDate 0ct 09 2002 12:03 Oct 19, 2007 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\37885.TXT SAG2 PsN: SAG2
4

moting cellulosic ethanol production for the past 3 years at Ceres, 

Incorporated. 

Dave Nomsen is the Vice President of Legislation for Pheasants 

Forever. I have invited Dave here today because I recognize the importance of conservation and sustainable agriculture as we move 

into the next generation of biofuels and because of the critical contribution wildlife, and especially pheasants, make to South Dakota’s economy. Dave has lived and worked in South Dakota, here at 

South Dakota State University—I should say he actually lived and 

worked here in South Dakota, including as a member of the faculty 

at the Wildlife and Fisheries Department here at South Dakota 

State University. He brings considerable knowledge of wildlife and 

conservation issues to this discussion. 

Each panelist has submitted written testimony for the public 

record and will be provided 7 minutes to present their summarized 

statements. After our panelists have presented their opening statements, I expect to have some questions for each of them, after 

which we will open up to the floor for questions from the audience. 

Before we get to that and open it up to their testimony, there are 

a number of other agricultural organizations and ethanol groups in 

South Dakota that I have invited to submit testimony for the official record of this U.S. Senate Agriculture Committee hearing, and 

I am submitting the written testimony for the American Coalition 

for Ethanol—see, we need more renewable energy here. 

[Laughter.] 

Senator THUNE. American Coalition for Ethanol, and that was 

not your cue, Brian Jennings, to turn out the lights. Lake Area 

Technical Institute, which we visited yesterday and which is doing 

some wonderful research on the effect and wear on engines of renewable fuels; South Dakota Wheat, Incorporated; Glacial Lakes 

Energy. Those will all be submitted for the official hearing record. 

And I also have this morning written testimony from Ducks Unlimited that will be made a part of the record, and I understand as 

well that South Dakota Farm Bureau has submitted testimony. So 

all that will be included as a part of the official record, and the 

record will remain open until Monday, April 9, 2007. 

[The following information can be found on pages 74, 102, 119, 

87 and 115 in the appendix.] 

So, with that, I want to, as we say, yield the floor to our panelists. I will start on my right with Kevin Kephart. And as I indicated earlier, Kevin will offer some testimony for about 7 minutes, 

and most of you at South Dakota State University are familiar 

with him, but he is Vice President of Research and Dean of the 

Graduate School here at South Dakota State University. So, Kevin? 

STATEMENT OF KEVIN KEPHART, VICE PRESIDENT OF RESEARCH, DEAN OF THE GRADUATE SCHOOL, AND DIRECTOR, 

SUN GRANT INITIATIVE FOR THE NORTH CENTRAL REGION, 

SOUTH DAKOTA STATE UNIVERSITY 

Mr. KEPHART. Thank you, Senator Thune. And, first of all, I 

want to begin by thanking you especially for having SDSU be the 

venue for this hearing. I do not think you will find a better venue 

or place of excitement than SDSU for this wonderful opportunity 

that agriculture has before it. I see a lot of my colleagues out in 

5

the audience here, and just on behalf of them as well, I want to 

thank you for this opportunity that you have brought to SDSU, and 

your support as well. 

This is a university, and a big part of a university is to serve in 

this function as an open venue for logical discussion, scientific discussion, economic discussion, on issues that are before us. And as 

a university we need to hear both sides of many of the issues, and 

I think this is what we have before us right now. 

My main function here today is to testify on behalf of the Sun 

Grant Initiative. The Sun Grant Initiative calls to implement the 

land grant university system into helping to bring forward this totally new industry to the United States and to American agriculture. We have heard over and over again of the challenges that 

we have before us. Some of them are in regard to national security. 

We have an excessive dependence on imported petroleum in the 

United States. Approximately 60 percent day in and day out of our 

petroleum use is from foreign sources, and people are becoming 

more and more aware of the threat, economic threat and security 

threat, that brings. 

We believe that agriculture is part of the solution. Agriculture is 

not the entire solution to correcting this energy imbalance that we 

have, but agriculture is a big part of the solution that we have before us and the challenges that we have before us. 

Agriculture in the United States leads the world in terms of providing a safe and affordable food supply to not only the United 

States but our friends throughout the world. And we believe that 

agriculture will play a similar role in energy production as well, 

with agriculture being involved. 

We feel that the land grant university system is a component of 

that, and we populate the food production industry and the agricultural industry with our graduates. We pursue not just short-term 

needs in research and development but also long-term needs that 

I will touch upon here in a few moments. And as I have mentioned, 

we are a source of education and outreach into helping to lead the 

policy decisions that need to take place. 

The land grant university system has been involved in agriculture since 1862, and from that we have provided opportunities 

to common people to attend higher education. But from that developed one of the world’s leading research agencies, research development throughout the world. I have been to many countries like Bolivia and Russia and throughout Europe, and they see that this tripartite mission that the land grants have of education, basic research, public research, but then extending the results of that 

knowledge out to the entire community is something that the other 

countries just do not have. And we believe that will offer us 

strength to implement these new industries that we have before us. 

The Sun Grant Initiative has been an effort that we have been 

working on since 2001, January of 2001, and the mission of the 

Sun Grant Initiative is to engage agriculture into national energy 

security, but also diversify agriculture through biological means 

and economic means and also produce other products that will help 

displace imported petroleum in particular and other fossil fuels in 

general. 

6

So with that as being our mission, we will need more than the 

agricultural sciences to be involved in this, but we will need engineers and chemical engineers and other disciplines that have not 

been engaged in agriculture before now. 

I want to point out that the Sun Grant Initiative was authorized 

in 2004 as part of—it is Section 9011 of the existing farm bill, and 

through your help, we have also been authorized in the highway 

bill, the SAFETEA–LU bill, and actually are implementing the Sun 

Grant Initiative with funds that have been appropriated to us 

through the Department of Transportation with your leadership as 

well as the leadership of Senator Bill Frist from Tennessee. 

The Sun Grant Initiative is a consortium that is led on a regional 

basis by South Dakota State University as being the national lead. 

Other universities are Cornell, the University of Tennessee, Oklahoma State University, and Oregon State University. And through 

those land grant universities, we engage with all the other land 

grants in those respective regions. We take a regional approach to 

this because the feedstocks, the agricultural systems, the opportunities are different between the Northeast and the West, for example, or the Upper Midwest and the South Dakota area. 

Some people ask why is South Dakota the lead of this and not 

a bigger school, such as Iowa State. And my answer to that is that 

we have been engaged in this area since the mid–1970s. We are national leaders in research in cellulose, whether it be through starch 

or through cellulosic means. We have a feedstock breeding program. You see some of the materials up here before you. We actually are national leaders in that arena. And, also, we have recent 

investments at the State level on the conversion side through Governor Rounds and his support of a new 2010 center that is jointly 

led by the South Dakota School of Mines and South Dakota State 

University. So I believe that we have national leadership just because of our history and the numerous faculty that we have engaged here. 

Now, if the Sun Grant Initiative through the Department of Agriculture is to be appropriated and reauthorized, our mechanism of 

sharing those funds is that no more than 25 percent of the resulting funds will be used here at SDSU or the other centers. We are 

mandated in that the remaining 75 percent will be provided to 

other land grant universities through a competitive means, which 

we will have a leadership role in but we, nevertheless, have to 

award that through our partners. 

So I would say partnership and engagement with other land 

grants and industry, especially the partners that we see here, other 

members of the panel, will be a very important part of implementing that. 

Recent accomplishments that we have, we are working with the 

Department of Energy. They have formed a regional feedstock partnership effort that is partly Sun Grant Initiative, partly Department of Energy and their labs, and the Regional Governors Associations, and we have been holding workshops through that partnership to gain their input. We have a new Web presences that I 

would like all of you to visit, the Sun Grant Bio Web, which is a 

public resource to help people with policy decisions. 

7

I would like to wrap up by saying what our request is for the upcoming farm bill. Our request is that we be reauthorized. Currently, the Sun Grant Initiative is authorized through 2010, but we 

want to be in synchrony with the existing farm bill as it rolls out. 

And we would also request that our authorization limit be increased from $75 million to $100 million for this nationwide effort 

with the land grant institutions. 

Thank you very much. 

[The prepared statement of Mr. Kephart can be found on page 

57 in the appendix.] 

Senator THUNE. Thank you, Kevin. 

Next up is Don Endres, who is chairman of the board of CEO of 

VeraSun Energy. Don, welcome. 

STATEMENT OF DON ENDRES, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, VERASUN ENERGY 

Mr. ENDRES. Thank you. Senator Thune, I appreciate the opportunity to testify on behalf of VeraSun. Clearly, the expansion of the 

ethanol industry is a success story in terms of helping decrease our 

reliance on foreign oil, reducing greenhouse gases, and creating 

economic development in rural America. But this is just the beginning. We believe the ethanol industry can and will respond to the 

President’s call for 35 billion gallons of renewable fuel by 2017. 

And even though cellulose holds great promise, we believe that 

corn-based ethanol will continue to contribute a significant portion 

to satisfy this goal. 

In order to ensure that the industry continues to expand, we believe the Federal Government should focus on growing demand for 

renewable fuels. Near-term efforts should be focused on increasing 

ethanol’s use as a blend component to support this rapid-growing 

industry, and longer term, we believe we need to transition to E85. 

The Federal Government has succeeded in spurring ethanol production in the United States through the combination of the Renewable Fuels Standard, the Volumetric Ethanol Excise Tax Credit, or VEETC. And we believe that maintaining this blender tax 

credit as well as keeping the secondary tariff in place to offset 

VEETC is important for short-term demand. VeraSun also believes 

that a 20-percent blend of ethanol, or an E20, provides a catalyst 

for the transition from ethanol as an additive to gasoline to ethanol 

as an alternative to gasoline. E20 provides the near-term driver 

that will be critical in achieving the longer-term objectives of E85 

and of robust cellulose ethanol production. 

Today less than 3 percent of vehicles on the road are E85 compatible. In order to for E85 to develop at sufficient pace under today’s law, significant near-term mandates would need to be imposed on automotive companies and fuel retailers. We believe this 

can be more successfully accomplished over a longer period of time 

with incentives rather than mandates if there is support for the development of an E20 market. Specifically, E20 would double potential demand in the current blend market. This change not only 

would foster our energy independence by displacing gasoline, but 

also would provide incentives for the ethanol industry to continue 

to grow while we work to develop a nationwide E85 market. 

8

By transitioning from E10 to E85 through E20, we will also ensure the creation of a vibrant cellulose ethanol industry. This new 

near-term demand in the market would help ensure continued investment in research and early-stage development of cellulosic ethanol. It is interesting that Brazil currently sells blended gasoline 

at 24-percent ethanol as well as a 100-percent blend with their 

flex-fuel vehicles. This is quite similar to what I am proposing here 

today. 

In order to spur the use of E20 in the existing automobile fleet, 

the Federal Government we believe must do two things: first, it 

must fast-track EPA authorization of ethanol blends up to E20 as 

a transportation fuel under the Clean Air Act amendments, and we 

also believe we need to provide assistance for automakers in this 

transition. I would like to thank you, Senator Thune, for your letter 

to the EPA requesting a prompt review of the E20 opportunity. 

By helping create new demand for ethanol through the use of 

E20, the Federal Government will provide additional time for the 

E85 market to develop. As one of the largest producers, we have 

worked to ensure a robust E85 market. In the past 24 months, 

VeraSun has pursued an aggressive strategy in cooperation with 

Ford and General Motors to increase the availability of E85. 

VeraSun’s E85 is available today at over 80 stations across eight 

States. We plan to continue to expand the number of fueling locations throughout the U.S. in 2007. 

From this experience we have gained significant insight on what 

is necessary to develop E85 in the United States. In order to see 

a robust E85 market by 2017, the Federal Government must do the 

following things: first, we must improve the economics of blending 

E85 through an enhanced E85 blenders’ credit; create an incentive 

for the autos to produce ethanol-optimized, flexible-fuel vehicles; 

and then increase pump incentives to expand the number of retail 

stations that offer E85. 

Currently, the market values ethanol more highly for E10 blending than it does for E85. Allow me to explain. FFVs are currently 

not designed to take advantage of E85’s high octane. Since refiners 

are able to take advantage of ethanol’s high octane to increase refinery output and improve the economics of gasoline production, 

the product is more highly valued as a blend component in gasoline. To improve the E85 economics, Congress should create an additional blenders’ credit for E85 within the VEETC system. In addition, VEETC, including the E85 incentive, should be extended. By 

providing additional credit for E85, we will level the playing field 

and increase the supply of E85. 

In addition, the Government should also provide incentives for 

the autos to improve FFV technology. To spur the production of 

more efficient FFVs, Congress should provide tax incentives to 

autos to produce these vehicles. Our experience with VE85 over the 

last 2 years also indicates that more must be done to help retailers 

offer E85. To increase the number of retail stations offering E85, 

the current incentives for retailers to install the pumps, more specifically blender pumps, should be increased. 

I would like to again thank you, Senator Thune, for your leadership on E85 pump legislation, cosponsored by Senator Salazar. 

Hopefully we will see this legislation move forward in Congress in 

9

the very near future. We believe the market must see a path toward E85 in order for cellulose ethanol to evolve. E10 and perhaps 

even E20 could largely be served by corn-based ethanol. In large 

part, the Federal Government’s focus on increasing demand for the 

use of renewable fuels in the near term and the long term will provide confidence to investors to aggressively pursue the commercialization of cellulose ethanol. And we believe the Federal Government could do a couple of things to help support spurring cellulose 

ethanol: one, increase the biomass ethanol research and development program; streamline and increase the availability of Federal 

grants and loan guarantees for investment in cellulose facilities; 

and then offer an additional blenders’ tax credit for ethanol, similar 

to the Commodity Credit Corporation incentive, for a period of 

time. 

In conclusion, we have worked hard to make ethanol and renewable fuels a huge success story here in South Dakota and the 

United States. But no one—not VeraSun nor any one producer—

deserves credit. Our credit really should be given to the American 

farmers. Our American farmers have provided this opportunity 

today. There is such optimism and hope in our industry, both for 

our communities as well as our country, and we look forward to 

working with you to chart a course forward to continue its development. 

Thank you. 

[The prepared statement of Mr. Endres can be found on page 38 

in the appendix.] 

Senator THUNE. Thank you very much, Don. 

Next up is Jeff Fox, who is the Vice President of Legal and Governmental Affairs for Poet Energy, which is another South Dakotabased ethanol company, and in front of him I see a number of canisters here of different things. I am sure this stuff looks like something that you should eat for breakfast, that is very healthy for 

you. But hopefully it can be converted into renewable energy. 

These are a lot of the byproducts of the research that is going on. 

This is endosperm fractionalization process, fiber, germ. These are 

all the different component parts of a kernel of corn that get broken down and made into other things. And so it all starts with this, 

as you all know, and it becomes these particular things. The research and the technology continue to advance, and they are doing 

some remarkable, wonderful things, which both Don’s company and 

Jeff’s company are very much a part of. 

So, anyway, we will turn it over to you, Jeff, and we look forward 

to your testimony. 

STATEMENT OF JEFF FOX, VICE PRESIDENT, LEGAL AND 

GOVERNMENTAL AFFAIRS, POET ENERGY 

Mr. FOX. Thank you very much, Senator and guests here today. 

Senator, I just want to thank you for holding this hearing. It was 

said earlier, but it is appropriate that it is in Brookings, it is in 

South Dakota. When you look at the panel that you have put together, it is reflective of your knowledge of our industry because 

you have worked helping our industry over the years, not just in 

this ag bill but in past ag bills, also with energy bills. Your help 

with regulatory agencies over the years, your staff’s help, has been 

10

very greatly appreciated by the industry. But you have got universities here. You have got growers here. You have got ethanol producers, people that do research. You have got a host of people here 

today that reflect, I think, not only what needs to be talked about 

today but also your knowledge of the industry. 

With that, Senator, I would like to just briefly go over what our 

file testimony is, and it really digs into financing, a lot of it 

through USDA, of grants and loan guarantees and how they can 

change them to help the energy portion of agriculture, which is 

today corn ethanol, and in the future it is going to be cellulose ethanol, because the programs they have—and they are very good at 

administering them—we think need to be changed. And you will 

see kind of our theme throughout our testimony that was filed that 

we think they need to increase those to a larger amount. They need 

to make the grants work a little bit different, and also the loan 

guarantees a little bit different. 

I do not want to go into all that detail here with this group because I think you hit on something very important. Don is right. 

Corn ethanol is here. It has been the backbone. A lot of that has 

come out of South Dakota. A lot of it has come out of the university. And we ought to all be proud of that, as you are. And then 

we would look at the next step. What happens? 

Everybody pretty much agrees that corn ethanol is going to top 

out at 14, 15 billion gallons, maybe more, but that is kind of the 

number everybody is using. So how do we get to the next level? 

And we talk about cellulose. The Senator pulled up some of those 

canisters. What you see there is a result of our company’s investment in research and technology. We currently design/build ethanol 

plants. We manage them and we also market their byproducts. But 

we also do a lot of research. 

The initial plant that the Senator alluded to earlier in Scotland, 

South Dakota, is our research facility. We do a lot of different 

things down there with a lot of different partners. And what you 

see in the canisters he held up is the result of a lot of years—and 

I mean a lot of years—of research that has taken place, assistance 

from the Government in grants. We just got awarded a grant with 

DOE to put together a commercial cellulose facility. And these canisters represent the culmination of that process. We call it internally in our world ‘‘BPX,’’ which is non-cook or raw starch hydrolysis of the endosperm, which is—as you said, we break it into three 

different parts. Endosperm is really the starch, and then we take 

the germ, which is the fat, and we can sell that off in other products. Obviously, you have your DDGs, which is your base product 

that every ethanol plant has, and then the fiber. 

Now, why is fiber important? We do that with BFRAC. Before we 

run it through the plant now, through our BPX process, we take—

what we call we ‘‘FRAC’’ it. It is not something that is brand new, 

but it is fairly new for the ethanol industry. We take that fiber off, 

and in our commercial-scale plant that we proposed to DOE and 

that we are working through the grant process right now, that is 

going to be part of the fiber we are going to turn into ethanol. The 

other part that we are going to take is part of the corn stover of 

the stock, and the combining of those two, we are going to take an 

existing 50-million-gallon plant, turn it into a 125-million-gallon 

11

plant. We are going to expand the corn side of it, but we are also 

going to add the fiber and the stover. And our goal with that size 

of a plant—why did you pick 125 million?—it is a balance of the 

amount of stover that is produced in the area that we can bring 

into the plant almost from the same corn farmer. If we can get the 

corn from the farmer, we would like to get part of the stover from 

the farmer. It provides them another market. 

Why did we pick stover? Why not switchgrass? And I think they 

all have valuable places at the table because it is not going to be 

one product. It is going to be a host of products. We picked that 

because that is what we are most familiar with. That is our business. We deal with corn farmers, as does everybody. They are our 

customers. They are our investors. So it was a natural for our company to go to stover. Some of the other recipients have gone to 

other different sources of cellulose material. 

We think it is very exciting. We think it does open up that next 

level of ethanol production. And, Senator, I know you have got a 

map back there that shows where biomass is produced. If you lay 

that over with corn production, a lot of your biomass almost reflects parallels with corn production. 

So the Midwest we think is going to have a huge opportunity to 

be a player in cellulosic ethanol in the future, but it does not happen overnight. Our project that we are working on, as soon as we 

can get the contract negotiated—which sometimes takes some 

time—we plan on being in the ground, 30 months later have the 

plant operating. We are going to learn a lot, and you do that 

through research with universities, with grant money. And so if it 

would not be for those types of programs, Senator, I do not think 

corn ethanol would be here where it is at today, and I do not think 

cellulose ethanol would be where it is at today. It takes a combination of assistance from the Government, from the universities, and 

then from the people in the industry, and obviously, as Don said 

earlier, corn farmers. 

So we appreciate being here. I look forward to the questions. It 

looks like a great panel. Thank you for having us. 

[The prepared statement of Mr. Fox can be found on page 44 in 

the appendix.] 

Senator THUNE. Thank you, Jeff, and you are absolutely right. It 

does not happen without the growers, and we have got representation from the growers today. Reid Jensen, as I said earlier, in addition to being a stock cow and calf operator, who has raised corn 

and soybeans on his farm since 1977, also serves as President of 

the South Dakota Corn Growers and Vice President of the South 

Dakota Corn Utilization Council. So, Reid, welcome, and we look 

forward to hearing from you. 

STATEMENT OF REID JENSEN, PRESIDENT, SOUTH DAKOTA 

CORN GROWERS 

Mr. JENSEN. Thank you, Senator. I would like to thank you, Senator Thune, for holding this field hearing and for your work and 

commitment on the issues that are important to South Dakota, and 

on behalf of the South Dakota Corn Growers, I thank you for your 

continued commitment and ongoing effort to advance ethanol and 

renewable energy in this country. 

12

Today South Dakota is at the forefront of an emerging biofuels 

industry. South Dakota boasts 13 ethanol plants, with three more 

plants in development stages, and over 50 E85 pumps throughout 

the State. Percentage-wise, South Dakota consumes over half of its 

corn production for ethanol by using over 250 million bushels and 

ranks number four in ethanol production, with nearly 1 billion gallons of capacity expected by 2008. 

Additionally, there are more than 14,000 South Dakotans invested in some form of ethanol production, making us the leading 

State in farmer ownership and equity. For South Dakota, ethanol 

has created economic investment, rural and community development, and unparalleled opportunities in agriculture. For me personally, ethanol has been a great hedge. We have had cheap corn, 

and by investing in ethanol, we have been able to offset that cheap 

corn with our returns in our ethanol investment. Now we are finding a little higher corn price, which is great, and maybe our dividends will not be so good. We do not know yet. But so far they have 

been, but it has been a true hedge against low corn prices and also 

higher energy costs. 

South Dakota Corn Growers are here today to advocate for a national energy policy that continues to support ethanol expansion 

and development and create increased opportunities for South Dakota farmers. As we look toward the future of energy development 

in this country, it is important that farmers and agriculture play 

a key role. From corn-based ethanol to the potential of cellulosic 

fuels, corn will remain a viable feedstock in growing our energy 

independence. 

Currently, nationwide there are 115 ethanol plants in operation 

with nearly 6 billion gallons of capacity and 5 billion gallons of additional capacity under construction. Our current Federal energy 

policy in part is responsible for the growth of this once cottage industry into a $23.1 billion fuels market, displacing nearly 5 percent 

of the petroleum consumption and creating over 150,000 jobs in 

rural America. 

In 2005, Congress passed and signed into law the Energy Policy 

Act of 2005. This legislation established the Renewable Fuel Standard, known as RFS, and included several key provisions vital to developing our robust renewable fuel industry. The establishment of 

the RFS signaled the market to produce more ethanol, grow more 

corn, and provide a safety net for investors. As set in 2005, the 

RFS incrementally mandates ethanol production and consumption 

from 2006 to 2012, peaking at 7.5 billion gallons. Today’s ethanol 

production in this country has exceeded the RFS twofold. We are 

on the verge of meeting this 7.5 billion gallons in the next 18 

months. 

In addition to the RFS, the Volumetric Ethanol Excise Tax Credit, known as VEETC, and the secondary ethanol tariff have been 

extremely critical in the ethanol industry. In 2004, the Jobs Creation Act was passed and signed into law. This landmark legislation extended the ethanol tax incentive, a blenders’ credit at 51 

cents per gallon, to 2010, as well as creating new tax incentives for 

biodiesel, and improved the small ethanol producers’ tax credit to 

allow farmers’ cooperatives to pass a credit along to its farmer owners. This 51-cent blenders’ credit means market access for ethanol 

13

and brings the fuel to the pump. The VEETC stimulates demand 

and encourages more production, which has created a fair market 

price for undervalued commodities. 

As the ethanol industry continues to expand and more renewable 

fuels come online, it is imperative we keep VEETC in place and 

permanent. An offset to the 51-cent tax credit, the secondary ethanol import tariff, places a 54-cent duty on foreign ethanol imported to the U.S. Removing this 54-cent tariff would, in essence, 

be asking the American taxpayers to further subsidize already 

heavily subsidized ethanol and sugar cane production in countries 

like Brazil. U.S. gasoline refiners receive the 51-cent tax incentive 

for every gallon of ethanol they blend into gasoline regardless of 

the ethanol’s origin. Brazil has built its ethanol industry through 

35 years of incentives, production subsidies, mandates, export enhancement, infrastructure and development debt forgiveness, and 

currency devaluation. Brazil does not need U.S. tax dollars to compete effectively, as evidenced by the fact that over 430 million gallons were imported last year, and those volumes are increasing. 

Together, the ethanol tax credit and the secondary tariff are the 

most critical policies behind ethanol development and expansion 

and will continue to play a vital role as cellulosic ethanol comes online. 

Today grain-based ethanol continues to increase its capacity and 

expand its reach, and soon we will see cellulosic ethanol enter the 

fuel market. Together, grain and cellulosic feedstocks can displace 

potentially 20 percent of the Nation’s petroleum usage and increase 

our reliance on homegrown fuels. However, cellulosic ethanol is 

still some time away, with transportation, storage, and economic 

obstacles in its path. As we wait for cellulosic ethanol to join the 

market, grain will continue to meet the needs of food, feed, and fuel 

across this country. Although we are making great strides in ethanol production and advances in cellulosic technologies, infrastructure problems could stunt our growth as an industry. 

Currently, 85 percent of the ethanol is shipped via rail, and the 

remaining 15 percent relies on trucks and barges. As we increase 

ethanol capacity over the next 10 to 20 years, we will need greater 

railroad capacity, access, and expansion in order to meet the needs 

of a booming biofuels industry. Combine rail and road constraints 

with the need for more pumps and more cars, ethanol could hit a 

wall. Without these infrastructure improvements and addressing 

head-on these obstacles, ethanol will hit a saturation point, a blend 

wall near 15 billion gallons. At 15 billion gallons, yes, we will be 

blending 10 percent of all gasoline; however, we cannot pass this 

law without investment in renewable fuel infrastructure as well as 

getting more pumps at the station, more flex-fuel vehicles on the 

road, and higher blends to the market, like E20. We appreciate 

greatly Senator Thune’s efforts to get E20 online and his work with 

the EPA on this matter. In the end, these limitations could stunt 

any progress on key issues that need to be looked at as we push 

forward our domestic energy security agenda. 

Lastly, South Dakota Corn Growers are extremely proud to lead 

the country in farmer ownership when it comes to ethanol plants. 

We believe farmer investment brings great returns to local communities, supports rural development, and creates economic growth 

14

throughout the country. It is imperative we continue to foster farmer ownership throughout the State and continue to take ownership 

of American agriculture. Our future is in the farm. 

In conclusion, I would like to thank Senator Thune for his fantastic work in Washington and his effort on behalf of the great 

State of South Dakota. He has truly been a leader for agriculture 

and a staunch advocate for the needs of South Dakota Corn Growers and the future of renewable energy in this country. If I could 

leave you with one last thing, I want to say that good things do 

come from USD. 

[Laughter.] 

Mr. JENSEN. Thank you. 

[The prepared statement of Mr. Jensen can be found on page 54 

in the appendix.] 

Senator THUNE. We do not hear too many boos and hisses out 

here. 

[Laughter.] 

Senator THUNE. Thank you, Reid. 

Next up is Anna Rath, and as I said, she is the Director of Business Development at Ceres, Inc. And I think what is important, her 

company and others like it are doing some remarkable things in increasing yields, and a lot of the research and technology is yielding 

some phenomenal results. And so, Anna, welcome. It is nice to have 

you here, and we look forward to hearing from you. 

STATEMENT OF ANNA RATH, DIRECTOR OF BUSINESS 

DEVELOPMENT, CERES, INC. 

Ms. RATH. Thank you. Good morning, and thank you, Senator 

Thune, for inviting me to testify. As you said, I am here representing Ceres. We consider ourselves to be a leading developer of 

dedicated energy crops, so my comments this morning will describe 

some of our efforts towards development and commercialization of 

dedicated energy crops, as well as some of what we think are important policy priorities for the farm bill in order to help get cellulosic ethanol going. 

We believe that dedicated energy crops, such as switchgrass and 

miscanthus, will be essential to realizing the scale currently envisioned for biofuels. For this reason, Ceres is rapidly developing and 

scaling up commercial varieties of energy crop species. Over the 

past 70 years, corn yields have improved more than fivefold. This 

is due to the development of a variety of technologies, including 

marker-assisted breeding and creation of hybrids and transgenics. 

We now have all of these same technologies readily available for 

deployment in energy crops and should be able to use them to 

produce multiple-fold increases in energy crop yields within the 

coming decades. 

Ceres is establishing the necessary partnerships and large-scale 

breeding programs to accomplish this. In addition, improvements 

in composition and structure of dedicated energy crops will enable 

more gallons of biofuel per ton of biomass and bring down the costs 

of processing. Ceres has a leading program in understanding energy crop composition and its implications for different processing 

technologies. 

15

We also have an extensive field trialing program, including trials 

in conjunction with what will be some of the first commercial-scale 

biorefineries at their plant locations. These trials are for the purpose of understanding which are the optimal species and varieties 

to grow at particular locations, what growing practices should be 

employed, and what grower economics will be in the particular locations. Ceres anticipates that large-scale planting of dedicated energy crops to support some of these initial biorefineries will begin 

in 2009. We are rapidly scaling up seed of leading energy crop varieties to meet this need. At the same time, Ceres is developing the 

next generations of dedicated energy crops using marker-assisted 

breeding and creation of hybrids and transgenics. We project that 

improved varieties from our breeding programs will be ready for 

commercial launch by 2012 and that the first transgenic varieties 

of dedicated energy crops will be ready for commercial launch by 

2015. 

So now I will transition to some of our policy priorities aimed at 

the farm bill. 

Because we see the cellulosic biofuels industry as one that is 

ready for commercialization, our policy priorities are aimed at providing the necessary opportunities and incentives to enable this 

commercialization. Some of these are feedstock-specific policy priorities while some are more general. The reason for the feedstockspecific priorities and the reason I want to emphasize those today 

is because within the area of commercialization specific policies, we 

think the feedstock end of the value chain has been somewhat 

overlooked. 

So in the category of feedstock-specific priorities, the first is feedstock pilot or demonstration programs. Most growers as of today 

have not had much, if any, experience growing dedicated energy 

crops. Of course, there are some notable exceptions here in South 

Dakota. But for this reason, we propose pilot or demonstration 

scale programs aimed at providing farmers with the opportunity to 

become familiar with growing these crops. There are many existing 

proposals for what this kind of program could look like, so we have 

not chosen to put forth yet another; rather, we would simply offer 

the guidance that these programs will be most effective if the farmers being given the opportunity to grow dedicated energy crops are 

farmers that are likely to be called on by some of the first biorefineries to actually provide feedstock to those biorefineries. 

The impact of these programs could also be optimized by having 

enough feedstock grown in a sufficiently concentrated area to allow 

the study of harvest, transport, and storage logistics for that area, 

as these logistics will vary substantially by region and by choice of 

crops. For these reasons, we would recommend that these programs 

be done in areas where a biorefinery company has expressed an interest in siting a biorefinery. 

The second program I want to mention is something we call transitional assistance. For perennial crops such as switchgrass and 

miscanthus, growers will not achieve a full yield in their first year 

of cultivation. Depending on what region of the country the grower 

is located in, the first-year yield achieved may or may not be sufficient to warrant harvesting. The issue for the grower, therefore, is 

the year of lost revenue on those acres. In order to facilitate adopVerDate 0ct 09 2002 12:03 Oct 19, 2007 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 C:\DOCS\37885.TXT SAG2 PsN: SAG2
16

tion of dedicated energy crops, we, therefore, propose a program 

that would provide transitional assistance to these growers in the 

form of compensating them for their year of lost revenue. This is 

a program that we would envision existing as the industry is getting started. We expect that our breeding programs will continuously improve first-year yields so that this opportunity cost declines over time. 

The third thing we would recommend is a crop insurance pilot 

program. As the cellulosic biofuels industry develops, we believe it 

is of critical importance that dedicated energy crops not be disadvantaged relative to other crops in terms of the safety net that 

the Government provides for these crops. This safety net can come 

in a form similar to existing crop programs, or it could be substantially different. The goal must be to allow growers to make decisions about which crops to grow based on market forces, not based 

on which crops are or are not supported by Government programs. 

Toward this goal, we suggest a pilot program to begin collecting the 

data that will be necessary to enable a program like crop insurance 

for dedicated energy crops. The objective of this pilot program 

would be that by the 2012 farm bill the necessary data will have 

been collected to enable the rollout of a crop insurance program for 

dedicated energy crops. 

So now I will switch over to some of our more general policy priorities. The first of these has already been mentioned by a couple 

of the panelists, which are grant programs and loan guarantees related to cellulosic biorefineries. We are supportive of these programs, and we think that they will really help to foster the construction of the first commercial-scale biorefineries, and we would 

hope that additional programs of this nature will be forthcoming to 

help hasten the growth of this industry. 

The second thing, which was also referred to earlier, is the Commodity Credit Corporation’s Bioenergy Program. So we support the 

proposal that was made by the USDA that a program similar to 

the CCC program that existed in the early days of the starch ethanol industry be created for the cellulosic biofuels industry. As with 

the starch version, this program would help make biorefinery startup and expansion more affordable and easier to finance by covering 

the cost of initial feedstock in the first year of biorefinery operation 

and incremental feedstock used to increase capacity in subsequent 

years. 

The final thing I am going to talk about is one of our most unusual ideas for getting this industry going which we call ‘‘renewable reserves.’’ So as was demonstrated by Shell’s restatement of 

reserves in 2004 and the resulting decline in their share price, the 

market capitalization of the oil majors is determined, at least in 

part, by their proved reserves, the oil that they can show that they 

have the right to take out of the ground. This provides an incentive 

for these companies to continue to invest in exploration because 

their share price should increase with any new fines. As of today, 

there is no equivalent incentive for these companies to invest in development of renewable fuels, nor is there a good metric for them 

to be able to measure themselves against one another in terms of 

how aggressively they are pursuing biofuels. We, therefore, suggest 

that the SEC be asked to convene the necessary experts and proVerDate 0ct 09 2002 12:03 Oct 19, 2007 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\37885.TXT SAG2 PsN: SAG2
17

mulgate a definition of ‘‘renewable reserves’’ which would exist 

alongside the definition of ‘‘proved reserves.’’ From our perspective, 

long-term contracts with growers around a biorefinery that give the 

biorefinery the right to purchase biomass feedstock from those 

growers are not substantially different from long-term leases that 

oil companies have on oil fields that give them the right to extract 

oil from those fields. Creating this definition would have negligible 

cost and would provide a market-based incentive for oil majors to 

invest significantly in the development of this industry. 

Together, we believe that these policy priorities will greatly accelerate the growth of the industry, so thank you again for providing me with the opportunity to discuss our efforts and policy priorities. We look forward to working with you to help ensure the 

rapid and successful development of this industry. 

Thank you. 

[The prepared statement of Ms. Rath can be found on page 66 

in the appendix.] 

Senator THUNE. Thanks, Anna. 

And last up is Dave Nomsen, and Dave, as I said before, is Vice 

President of Legislation for Pheasants Forever, and this afternoon, 

as part of our sort of Energy Week activities, we are going to go 

out into a switchgrass field. And I told my staff when they put that 

on the agenda this morning that I do not walk into a switchgrass 

field without a 12-gauge in my hand in most cases. 

[Laughter.] 

Senator THUNE. But one of the reasons that we have so many 

good opportunities at recreation in South Dakota is the good work 

that is done by Pheasants Forever and other organizations like 

Dave’s, and they also have an important part and role to play in 

this next farm bill and making sure that we have a good, strong 

conservation title and making sure that the energy and the conservation parts of our next farm policy complement each other and 

do not work at odds with each other. 

So, Dave, it is nice to have you here. Welcome. 

STATEMENT OF DAVE NOMSEN, VICE PRESIDENT OF 

GOVERNMENT AFFAIRS, PHEASANTS FOREVER 

Mr. NOMSEN. Thank you, Senator. If you are looking for a few 

extra friends to come along this afternoon, perhaps we could join 

you. 

[Laughter.] 

Mr. NOMSEN. But perhaps better yet, perhaps next fall at some 

time. 

Senator THUNE. There you go. It would be legal then. 

Mr. NOMSEN. Yes, it would. For the record we should point that 

out, yes. 

Senator I am very pleased to be here today representing Pheasants Forever, and I thank you so much for your starting point 

where you talked about conservation and wildlife as a critical element, as part of the dialogue, as we do move forward in this area, 

as the science behind this points out, of biofuels, South Dakota’s 

next frontier. 

A few weeks ago, a group called the Great Plains Institute released a report, and let me just read the brief conclusion in that. 

18

The research outlined in that report, they suggested that 

sustainably produced biomass, particularly native prairie grasses, 

well adapted to the Great Plains, can make a significant contribution to our country’s energy and material needs, and I certainly 

concur with that recommendation, and we look forward to being 

part of the dialogue as we develop and enhance and take a look at 

the new road that we are going down in terms of cellulosic biofuels. 

It all started in perhaps January of 2006 when the President 

said the word ‘‘switchgrass’’—and you must have great staff because it is close and it is right here, and I thought about those 

roosters that are busting out of this. But the President mentioned 

the word ‘‘switchgrass’’ as part of the State of the Union address, 

and a lot of people kind of scratched their head and said, ‘‘What 

is the world is that?’’ But about 2.5 million pheasant hunters 

around the country knew exactly what he was talking about, and 

switchgrass is an incredible native grass that does have tremendous opportunities to produce both wildlife habitat and energy 

needs. So it is an exciting time to move forward here. 

I would like to think that we have gone a little further than—

Paul Harvey the next day called it ‘‘weeds’’ on his particular show, 

but since then we have had great discussion about the opportunities, and it is great to see all of the different native grasses around 

the room here this morning. 

I had an opportunity last Friday to present some of the conservation priorities to Secretary Johanns while in Washington, and I 

would like to attach a copy of that particular letter that we gave 

him to my testimony for the record. There were a number of elements on there. As you might suspect, the conservation community 

is very anxious to reauthorize and continue 20 more years of the 

successful Conservation Reserve Program. It has been an incredibly 

successful program, and we certainly want to see that continue as 

one of our top priorities. 

In the area of biofuels and renewable energy, we talk about research and development funding and how that should promote the 

next generation of biofuels and renewable energy technologies. 

Based upon sustainable polycultures that are consistent with fish 

wildlife, soil nutrient management, water conservation goals, the 

taxpayer investment in conservation and wildlife gains that we 

have accomplished in the last 20 years should not be compromised 

or sacrificed as we go through this process. 

We also talk about a number of elements in our testimony, Senator, that talk about things that perhaps the wildlife community 

can offer as we do develop planting and harvest and management 

strategies for these biofuels. If you look to the wildlife community, 

and particularly the State wildlife management agencies, groups 

like Pheasants Forever and Ducks Unlimited, groups like that have 

decades and decades of expertise on planting switchgrass and other 

native grasses, how to establish them and how to manage them appropriately for wildlife. So we really think we have something to 

offer at the table as we talk about this particular area. 

Native grasses have an incredible deep-root system that can protect and enhance soil productivity while protecting and improving 

water quality. Wildlife benefits, of course, are going to depend upon 

the species planted, the different harvest and management sceVerDate 0ct 09 2002 12:03 Oct 19, 2007 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 C:\DOCS\37885.TXT SAG2 PsN: SAG2
19

narios that are put in place, and landowners can potentially benefit 

from revenue from the sale of biomass, carbon credits, recreational 

opportunities associated with those habitats, seed sales. Certainly 

entire communities can benefit from sustainable next-generation 

biofuels if wildlife objectives are built into those particular programs. 

So on behalf of Pheasants Forever and our entire community, I 

want to thank you again for asking us to join you on this panel at 

this hearing this morning, and we look forward to continuing the 

dialogue so that we can move forward in a positive manner that 

has new generations of biofuels that are very much compatible 

with soil, water, and wildlife objectives. 

Thank you very much. 

[The prepared statement of Mr. Nomsen can be found on page 62 

in the appendix.] 

Senator THUNE. Thank you, Dave. 

What I am going to do now is I am going to ask a couple of questions of some of our panelists for purposes of building the record, 

and also to get a little discussion going, and then what we will do 

is open it up at some point here to some questions and some interaction with those of you in the audience that would like to ask 

questions. And I think they have microphones. If not, the room is 

not all that big. We should be able to hear from you. I see we do 

have microphones in the back. 

But let me just start by posing a question that I think I can 

maybe start by directing to Kevin, and then anybody else on the 

panel that would like to respond to it. But you have done a lot of 

research already with the Sun Grant Initiative, and I guess I 

would like to know what is the potential, South Dakota’s potential, 

for producing cellulosic ethanol, what are the biggest obstacles to 

reaching that potential, as just sort of a general question. And I do 

not know, maybe this is not a fair question to ask at this point, 

but perhaps Don or Jeff or somebody could take a shot at this, too. 

But if current law is unchanged, how much cellulosic ethanol 

would be produced by, say, the year 2012? What is our capacity? 

We talked about corn, sort of the cap is somewhere around 15 or 

so billion gallons annually. We could very quickly approach and 

reach that. Cellulosic we hope is online by then. But just generally 

speaking, I guess, how does South Dakota fit into this? What is our 

capacity? What are the biggest obstacles to reaching our potential? 

And how much is realistic if we look down the road another 5 or 

6 years? Kevin, do you want to start? 

Mr. KEPHART. Well, Senator Thune, you have made comments in 

the past that you feel South Dakota is the Saudi Arabia of cellulosic energy, and I guess I would agree with that. The basis for 

me to say that is we are in the heart of what was once the Tall 

Grass Prairie. So we talk about these native grasses that we have 

here before us; the greatest production potential was exhibited here 

in eastern South Dakota, western Minnesota, much of Iowa, as you 

move toward the Jim River and the Missouri River drainage. So I 

believe that we are in the heart of what the country has as a potential resource for feedstock production. 

I do not have an answer for you specifically for South Dakota for 

what our tonnage production might be. A lot of that would be just 

20

forecasting, because what was once the Tall Grass Prairie is largely 

into small grains, row crops, agricultural production now. But a 

number that has been forecasted by our friends in the National 

Corn Growers Association—they have done some forecasting for the 

region. They feel that from a combination of starch, oilseed, and 

cellulosic feedstocks, in the North Central Region alone we have 

the capability in a few years of producing 65 billion gallons of renewable fuel, just from our crop resources, our crop residue resources, potential for where grasses are grown, and you say 

switchgrass or marginal land, CRP or marginal lands, as well as 

biodiesel production from agriculture. 

So that might be a high-limit potential that we have before us 

from, I would say, Indiana and Illinois, going over to Montana, in 

that area, 65 billion gallons, and it would be significantly higher 

than that as we look at the Southeast and the South Central Regions. 

Senator THUNE. For those of you who cannot see this, this is corn 

stover ground up, this is switchgrass ground up, and this is bluestem grass ground up. And I guess with reference to that, in your 

research are there any of these particular biomass products that 

work better for cellulose? Do we have enough data now to be able 

to determine which is going to yield the biggest result and return? 

Mr. KEPHART. Well, as we work on feedstocks, we do not believe 

that any single species is going to be a silver bullet or any single 

resource will be a silver bullet as we help to make this industry 

grow. Certainly some of our strengths are going to be on crop residues, particularly from small grains such as wheat and from corn 

stover. Those are going to be valuable resources for us to use carefully because as we remove those annual residues from the soil 

base, we have to be mindful of the impact that will have on conservation and soil organic matter. 

As far as these perennial resources go, if we think about, once 

again, the Tall Grass Prairie and the productivity that that resource had, it came from—it evolved as a mixture. I believe that 

mixtures are going to be important for this, especially from a sustainability point of view. If we have a mixture of grasses out there, 

much like how the CRP evolved, you are going to see years where 

the switchgrass component is going to be dominated in years that 

are favorable to it. But if you do not have that big blue-stem out 

there to take advantage of those years where big blue-stem could 

dominate, then you are losing out in production capability and actually putting the industry at risk. So to help minimize risk in the 

system for perennial feedstocks, I believe that mixtures are going 

to be a very important component to that. 

One other component I want to touch upon that we need more 

effort here at SDSU but is being done elsewhere at other land 

grants are trees. There are research programs in hybrid poplars, 

hybrid willows, and with that, we have heard mention of a concern 

that I share of delivery of feedstock to the industry. One thing we 

can do with trees is store them on the stump. We can store trees 

and harvest them as needed and deliver to the processing facility 

year-round and not be reliant on a single-year harvest system. 

Senator THUNE. Jeff or Don, any comment on your research? I 

know you all are very much into the middle of this as well. And 

21

then the second question, limitations or barriers that you see out 

there that would limit our ability to take full advantage of what 

cellulosic ethanol might mean for us. 

Mr. ENDRES. Sure, I will give a shot at the capacity, and then, 

Jeff, we will see how we compare notes. 

I think in the next 24 months we will see successful pilots producing cellulosic ethanol, so kind of 2008 and 2009 will be piloting 

years. And then I think we start construction, so I think within the 

next 5 years you will see commercial-scale facilities running. I am 

just estimating today maybe there are ten companies that get 

there, and I think those first plants will be—you know, and this 

is all just guesstimating—25 to 50 million gallon facilities to start 

off with, again, thinking back the way the ethanol industry has developed. So that gets you in the 250 million to 500 million gallons 

per year operating. 

Beyond 2012, though, I think what is most important will be the 

direction, so the number of facilities then that are under construction. So we pilot, we build, and once those are built and perfected, 

then I think you are going to see an exponential ramp. That is 

where it gets very interesting. That is where I think we could see 

very large amounts of biomass, ethanol be produced. So that is just 

a guesstimate. 

Jeff? 

Senator THUNE. The facilities initially, though, you are thinking 

25 to 50 million gallon——

Mr. ENDRES. Yes, that is kind of where I see it, today at least. 

Senator THUNE. All right. 

Mr. FOX. Thank you, Senator. It is very interesting because I do 

not think any of us in the corn ethanol business today, 5 years ago 

thought we would be where we are at. How quickly it develops is 

going to be very interesting. I agree with Dr. Kephart. It is going 

to be a combination. It is not going to be just one feedstock. 

I spoke earlier in my testimony about cellulose from corn stover 

because that is what we are familiar with. There are other companies that got the DOE grant, and there are a variety of different 

materials that they are using, which I think is good. It is geographically spread out. It is different species of biomass that they 

are going to use. 

I just pulled this. This is an estimate of what is available. You 

will not be able to see this, but, Senator, I have got the slides. I 

will submit them to your staff with the testimony. 

Senator THUNE. Okay. 

Mr. FOX. But I will just read it to you really quickly. Corn stover 

is 75 percent. This is the biomass from agriculture production. I do 

not think this includes switchgrass, but it is everything else you 

could pull off: wheat straw, 11 percent; other small grains, 6; other 

crop residue, which may be—I do not know their definition on that. 

It says 21 percent. And then corn fiber, which we talked a little bit 

earlier about, taking off corn, is another 6 percent. 

It is kind of a pie chart, and then they have another one that 

we have pulled together that shows stover being number two, hemp 

being number one, switchgrass being number three, and we will 

put that into our testimony. It is going to be a challenge. Today, 

right now, and as we refine our techniques and other companies 

22

are doing the same thing, and universities, to get better at it, if you 

had to make it today, it is not competitive. We have got some work 

to do. We have got to increase our efficiencies, and I think we will. 

I think you see that in the corn starch to ethanol production. We 

have all gotten more efficient. Plants have gotten bigger. The technology has gotten better. We are just kind of starting—I do not 

want to say we are just starting. I know our company has been at 

it for 7 years. The universities may have been at it longer than 

that in trying to get the breakthrough on cellulose. But I think 

with things like the grant, Senator, that you and your staff worked 

hard on, and others, I think with the things that are coming together, ethanol has come of age. 

I think there was one that was brought up by Anna, a very good 

point, and we struggle with it and we are still struggling with it, 

and that is, the collection, storage, and delivery, be it corn stover 

or be it switchgrass. That is a huge amount of material to even get 

25 million gallons produced from a plant. 

So that is going to be a challenge for us. We have been working 

with the likes of John Deere and other manufacturers, and I know 

others are doing it. But I think it is one that not only this industry 

is up to, but if you look at the people who helped put this industry 

together, Senator, with Government, with ingenuity of their own, 

we will figure it out. We think we will get there. 

Senator THUNE. Let me ask you as a follow-up, because you in 

your testimony had indicated that the Federal Government ought 

to provide like a $50 incentive per dry ton of biomass delivered to 

the gate of a biorefinery. I do not know if there was any—how you 

arrived at that number, why that is significant in terms of making 

this thing go. And you just alluded to some of the issues of storage 

and transportation and that sort of thing, but how did your company come up with that number? 

Mr. FOX. My title is ‘‘Legal and Governmental Affairs.’’

[Laughter.] 

Mr. FOX. That $50 a ton was the number we came up with almost a year ago. Look, we are going to be asking in our process—

and I am sure in others—corn farmers for the first time ever—their 

fathers did not do it, their grandfathers did not do it. We are going 

to be asking them to do something they have never done before at 

a very, very busy time in their farming operation, and that is, handle another material. They are going to have to make some investments in equipment. They are going to have to make some other 

investments in storage and transportation. 

So we are asking in our plant—and I can only refer to that because that is what we have been doing the research on. We are 

asking them to change the way they do some things, add some capital investment—to do what? To deliver a material to a plant that 

is the first of its kind. And so how long is that investment good for? 

So we suggested in our testimony—and we testified earlier in 

D.C.—$50 a ton. We have looked at that as being $100 total. That 

gets the incentive for the farmer to invest in his equipment, invest 

in the transportation and storage, and make the delivery to the 

plant. They do that better than we do. We know how to make ethanol, but we do not know how to deliver that material and handle 

23

it like they do. They have done it their whole life. It is just a different way of doing it. 

We have looked at it since, Senator, and what we are looking at 

is maybe it is a match with a $50 cap. We do not think it needs 

to be there forever. We think once the pioneers, those that first do 

it, get better at it, the cost will come down. There will be some stability in the market so that they know that if they do make this 

investment, the plants will be there to use it so it does not become 

a short-term painful experience but a long-term beneficial one for 

both the producer and the plant. 

Now, we may be wrong on that, but our numbers showed early 

on it would take $100 a ton to get them to do the investment, deliver it, get it there. We have backed off that. We are looking 

maybe at changing our position on the $50 to maybe cap it and 

make it a match with the plant. The plant pays $30, the Government would pay $30, for the first couple years, maybe for the first 

few plants, not just corn stover but other plants. Once you get 

through that, you can then assess it after a couple years of operation. The reason we looked at this ag bill is because it would be 

for 5 years. 

Senator THUNE. Right. 

Mr. FOX. We think we will be up and running in 2 to 3 years. 

That will give our client 2 years. We think others are going to have 

some of those same time constraints. So this is a good vehicle to 

do it. And maybe it is a match so that they are sharing it with the 

Government and you are getting the producer interested in and introduced to a new system. 

I can get you the number, the breakdown. We have got that. It 

is changing a little. It may be 80, it may be 60. 

Senator THUNE. Let me ask, as a farmer, Reid, if Congress 

through this next farm bill were to create a Federal program that 

encourages farmers to transition to energy-dedicated crops, what 

minimum payment rate would it take to ensure adequate producer 

participation? Along the lines of sort of a follow-up to the last question, from an on-the-farm perspective you want to get people to 

plant blue-stem or switchgrass or even from that standpoint, what 

is the corn stover worth to you and the effort that would be involved with obviously removing it from the field, storing it, transporting it, all those sorts of things? I know that is probably a hard 

question to ask, and you are probably going to have to ballpark it 

a little bit, but it is clearly an issue as we look at this next farm 

bill and how energy ties into it and making—if we want to go down 

this road to cellulosic ethanol, we have got to make sure that the 

incentives are in place to make that happen. And I guess I am—

from a farmer’s standpoint, what is your sort of take on Jeff’s number? 

Mr. JENSEN. Well, Senator, I think Jeff is probably in the ballpark pretty close at $100 a ton. If you look at what the value of 

the stover is as far as the fertility value, we have seen the numbers 

around $16 a ton on the stover for the NP&K, and then you put 

baling and transportation on that, pretty soon you are up to $50 

to $60 a ton pretty quick. 

The concerns we have as far as South Dakota Corn Growers are 

concerned is how much stover are we going to take off. I think we 

24

are concerned about future generations. We do not want to be mining our soils. I think it is going to depend on the rotation the farmer is in. If he is in a corn-soybean rotation, I do not know if he will 

take any stover off. If he is in a corn-corn rotation where he continues corn, he probably could see maybe 40 percent. 

Mr. FOX. Senator, if I could, and it fits with what Reid is talking 

about, our proposal in our plan is to take 25 percent of the stover. 

We kind of got that number from USDA working with them and 

trying to make sure that we did not take everything off. They claim 

if you go corn on corn, you could probably take more. But Reid is 

right. You have got to make sure your soil stays stable. In some 

areas it may be more, in some areas it may be less. That is the 

number we have put into our proposal, and we think that is—it 

will not be maybe a universal number, but that is a pretty solid 

number. 

Mr. JENSEN. And fertility, I mean, just because you take $16 an 

acre worth of fertility off or fertilizer off of that in the form of stover does not mean you can go back and just put $16 worth of 

NP&K out there and replace it. It is like Kevin was talking, it is 

organic matter that you are concerned about. 

The other thing I would say as far as comparing switchgrass 

versus corn stover, whatever we are doing, I think the market has 

got to dictate what we are doing, not the Government payment. 

Senator THUNE. How much ethanol can you produce from a dry 

ton of biomass? 

Mr. KEPHART. The general rule of thumb when the technology 

matures, it will be 100 gallons per ton. 

Senator THUNE. A hundred gallons per ton. 

Mr. KEPHART. A dry ton. I do not think we are there quite yet, 

but a lot of that will hinge upon whether we are taking a fermentation approach or there are other approaches that are being worked 

on by industry and universities using gasification of pyrolysis techniques. The advantage of that is that we can utilize the lignin that 

is part of this, and with fermentation we cannot. 

I want to join in on some of this discussion about value of the 

feedstock, and that is dominating a lot of the discussion that we 

are having with the Department of Energy, and I want you to be 

aware of that, Senator Thune. The Department of Energy and 

OMB and the White House, their target figure for feedstock value 

is $35 a ton, and I am not really sure where they got the value, 

but they break that down as $10 of expected profit to the producers 

and then an overhead charge of delivery and other overhead costs 

of $25 as it is delivered to the processing gate. 

So their target that they are struggling with to help get the industry up and going from their point of view is $35. Then after 3 

or 4 years——

Senator THUNE. And you said that is USDA? 

Mr. KEPHART. Department of Energy. 

Senator THUNE. Oh, DOE, okay. 

Mr. KEPHART. The Department of Energy’s target is $35, and 

after 4 or 5 years of maturation in the industry and creation of demand for feedstock, then it will rise from there. 

Senator THUNE. One of the questions that—or Dave Nomsen, I 

should say, in his testimony raised the issue of mixed stands of 

25

grasses, and I think you alluded to this, too, Kevin, or someone did, 

about rather than a monoculture of one type of grass, what would 

be better in terms of benefiting wildlife and preventing soil erosion, 

and I guess the question—and maybe, Anna, you could take a stab 

at this. But when you are producing ethanol from a mixture of 

prairie grasses, is there a concern about the quality and the consistency of ethanol produced from this type of a feedstock, if you 

have got those all integrated in a typical field like you would find 

them in their natural state in South Dakota. 

Ms. RATH. Sir, once you get to the ultimate fuel molecule, that 

fuel molecule will be the same, regardless of the feedstock that it 

came from. The question is how will you affect the conversion efficiency of the process by having a mixed feedstock rather than a 

more homogeneous feedstock. 

And so what we would suggest is that, as with all things in cellulosic ethanol, there is not going to be a single answer here. On 

more environmentally sensitive lands where having a mixed stand 

can really provide benefits for the kinds of wildlife that inhabit 

those lands, that may absolutely be the right choice. On lands 

where what you want to do is absolutely maximize your yield of 

biomass tons per acre in order to maximize the farmer revenue 

from that and minimize the transport distance around your biorefinery, over time the industry will improve some of these crops 

more than it will improve others. And eventually you will see 

three-, fourfold yield in some crops, and it just will not make sense 

in most cases when you are going for this high-intensity cultivation 

to try to mix those very intensively cultivated crops with others. 

Having said that, we do research together with the Noble Foundation in Ardmore, Oklahoma, where we look at a number of different intercropping strategies, including nurse crops, using other 

crops along with switchgrass to get them started, and including 

intercropping with legumes to provide a little bit more nitrogen to 

switchgrass. 

So there may be some applications, but as a general matter, we 

think you move towards high-yielding, individual dedicated energy 

crops on the highly cultivated lands. 

Senator THUNE. And as a sort of follow-up to that, your company 

is currently producing transgenic switchgrass seed that would substantially boost the biomass per acre. 

Ms. RATH. Sir, transgenics are a ways away. 

Senator THUNE. Okay. 

Ms. RATH. Transgenics are about 10 years away, but we are 

working on increasing yields, initially through breeding, and then 

eventually through transgenics. 

Senator THUNE. Through transgenics. What is the potential for 

that kind of an increase in a semiarid area like the Northern Great 

Plains? What you are talking about doing, is that—and is that 

level, if you increase those levels through that technology and eventually through transgenics, is that sustainable over a long period 

of time? 

Ms. RATH. It should be sustainable, yes, as long as over the 

course of your breeding program and over the course of your 

transgenic development program you are not using sort of nitrogen 

as your crutch to get to your increased yields. In fact, some of the 

26

leading traits being developed for second-generation biotech in corn 

include things like nitrogen use efficiency and drought tolerance, 

and a lot of these kinds of traits are things that Ceres has helped 

to develop. 

So we expect that as we are improving yields of these dedicated 

energy crops, we are also, in fact, improving some of the agronomic 

traits alongside of that, and so hopefully at least maintaining the 

same kind of environmental footprint, and perhaps even improving 

that footprint. 

In terms of yield potential, I would say the sky is the limit, but 

I think the thing that we can do is look back at the history of corn 

yield improvements where we have seen, since the creation of the 

first hybrids, fivefold improvements in corn grain yield over the 

past 70 years. And so what we see is we have now got all of the 

technology that was used to do that ready to apply to these dedicated energy crops, so there is no reason why we cannot do similarfold improvements in yield in an even sort of shorter time horizon 

by deploying these technologies that we now have. 

Senator THUNE. Let me ask, and, again, this is probably just directed at the panel generally, and maybe Dave could take the first 

whack at this, but there has been some discussion—and I have 

asked this question at hearings in Washington of Department of 

Energy and USDA officials about the CRP program, because the 

CRP program already we have over 1 million acres in South Dakota. We have been as high as 1.8 million. I think we are down to 

about 1.5 million now, and there is a concern that people are going 

to be pulling acres out of CRP and putting them into corn production for ethanol because you now have a corn price that is pretty 

favorable for the economics of that. 

But if you have got a CRP program that has been effective and 

working in terms of wildlife production and conservation and preventing a lot of the erosion, the environmental benefit that comes 

with it, if you were going to look at harvesting for energy production, some of these CRP acres, can the energy production objective 

of that complement or coincide with the conservation benefit? Can 

you accomplish both of those so that a lot of the—and I guess what 

I am thinking is, you know, you want to keep a certain amount of 

base acres in that CRP program for wildlife production and all the 

other things. There is a lot of land in South Dakota that should be 

in CRP and probably should not be in production. But would either 

upping that and providing a farmer who perhaps maybe does not 

have land in CRP today, increasing the acreage limit on CRP, to 

put into CRP to increase their overall tonnage that could then be 

used for—certainly some of it would be used for harvest. Do you 

still get the conservation benefit from that? And I know it is always 

when you get into increasing CRP acreage, it cuts both ways here 

in South Dakota. A lot of your small-town Main Street businesses 

do not like talking about additional CRP acres. I understand that. 

But I guess I am trying to ask this in sort of a macro sense about 

that program and its application to the growth in cellulosic ethanol 

and how those might interact. 

Mr. NOMSEN. Senator, let me start by just saying that we think 

CRP is part of the solution—it is not part of the problem—to all 

of this. For example, as I listened to some of my colleagues talk 

27

about removing corn stover and raising concerns about protecting 

soil productivity, in my mind I was thinking about, Gee, I wonder 

what it would look like if we had a native grass buffer around each 

of those fields and grass waterways, and that we were doing things 

that perhaps could be very strong for water quality but also potentially provide a biofuel. 

The challenge that we have is to do it, if you are going to do this 

within the CRP program, I think very strongly that you have to 

protect the soil, water, and wildlife objectives of the program. 

Now, having said that, we do try and do mid-contract management on CRP acres, and CRP acres, like any other crop out there, 

need to be managed to effectively maintain its productivity. 

But my main answer to your question is we do not know yet, and 

we need to take a look at where the possibilities are for compatibility here and additional benefits into the program. 

Let me finish. I would like to build upon a comment that Dr. 

Kephart mentioned when he talked about mixtures and encouraged 

moving toward mixtures of grasses. That is exciting to the wildlife 

community when we hear that type of statement because not only 

do we think it can potentially provide a more stable, sustainable 

system for the grower, the minute you move to a more mixed-grass 

stand of grasses and perhaps flowers, different forms that are in 

there, all of a sudden you are talking about much better wildlife 

habitat than you would with any type of a monoculture. 

Senator THUNE. Okay. I want to—go ahead. 

Ms. RATH. Could I just build on that? As it relates to the CRP 

program, two things. First is we want to make sure that everybody 

thinks of the CRP program as a possible piece of the answer to 

where we get all this biomass from and not as the answer to where 

we get all this biomass from, because if you are out to build a biorefinery, what you want to do is put it in the location where you 

are going to be able to get as much biomass as possible within as 

small a radius as possible. And so it is very unlikely that that is 

going to turn out to be an entirely CRP area, right? You are probably going to want some very productive land in mind to get some 

very high biomass yields for your biorefinery. 

Having said that, we have actually submitted an earmark proposal together with Ducks Unlimited this season to try to do a 

large-scale, a large-acreage switchgrass study in North and South 

Dakota to look at whether, in fact, you can sort of have your cake 

and eat it, too, whether it is possible to harvest biomass for biorefineries, but still maintain wildlife benefits and carbon sequestration benefits. And so as part of that we would look at different harvesting practices and measure all of these, measure the wildlife impact and measure the carbon sequestration impact to try to actually come up with a good understanding of how this should all look. 

Senator THUNE. Well, if you hire SDSU to do it, then we will 

support that grant request. 

[Laughter.] 

Senator THUNE. This would be, I suppose, probably—I know that 

the corn growers and both VeraSun and Poet have submitted a lot 

of policy—actually, everybody on the panel I think has submitted 

policy suggestions for the 2007 farm bill. But I guess I would like 

to ask this question, and, again, I know that this is probably a fairVerDate 0ct 09 2002 12:03 Oct 19, 2007 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\37885.TXT SAG2 PsN: SAG2
28

ly difficult question to answer because there are a lot of things that 

tie into successful policy initiatives that lead to further advancement and growth of the ethanol industry. But if you could rank or 

prioritize what is the most important thing to see this industry 

really continue to grow—because we have talked—there are lot of 

things that have been mentioned today—E20, maybe E30. I mean, 

we went to Watertown yesterday, and they have got E20 and E30. 

We filled up with E30 at the station up there in Watertown. And, 

actually, some of the work that has been done by Lake Area Tech 

shows that you get better fuel efficiency at a higher blend than you 

do at E10. And they have done a lot of analysis of that, which I 

found fascinating yesterday. 

I guess, you know, going to E20 is one thing. Increasing the Renewable Fuel Standard has been talked about as another thing, 

and the President talked about 35 billion gallons of alternative energy as a goal; of course, the tax credit, tax incentives that are currently in law, the tariff on foreign imports, that sort of thing. So, 

again, it is not entirely—I would think it is a difficult question to 

answer, but I guess if you could sort of narrow that down, Don and 

Jeff, as to what you see as the most important policy priority for 

the Congress, for people in Washington who want to see this industry continue to take off and explode to that next level, your 

thoughts about what we ought to be doing? 

Mr. ENDRES. Sure. Well, we think about this a lot. In fact, we 

are convinced that increasing the blend is the most important thing 

we need to accomplish. As you look—and this is important for cellulose; it is important for corn-based ethanol. With 6 billion gallons 

under construction, with 5.6 to 6 in operation, that gets you to 12; 

with the 10-percent blend, 140 billion gallons of gasoline, you can 

see very quickly within a couple of years we are going to satisfy 

that demand. So changing that blend allowance is very big, and, in 

fact, it is not even a legislative function. We find it is really a regulatory function of the EPA, and the EPA, with obviously thorough 

analysis on emissions, we think the data will be on our side, with 

the thorough analysis of the safety systems and the fuel management system, and the vapor pressures, I think as we analyze this, 

we will find that the EPA really with the stroke of a pen can, in 

fact, allow for a larger blend, whether it be 15 or 20 or 30. 

Then I think the free market takes hold here, and the market 

will help drive this. As we see in Watertown, a significant number 

of consumers are willing to fuel with a higher blend, and obviously 

we believe that over the long haul we would see an economic advantage for refiners because they can produce a sub-octane, even 

a lower-octane fuel blend, a higher rate of ethanol, that will get 

them to finished-grade gasoline. That dilutes some of the lowervalue blend components that they have, so refiners actually are 

embracing this higher-blend concept. 

So we think if there is one thing we could change, if we only had 

one opportunity for legislative change—and, in fact, this is more a 

regulatory change—it would be to figure out how to increase the 

allowable blend. 

Senator THUNE. Okay. Jeff? 

Mr. FOX. We would probably encourage the VEETC credit being 

made permanent. Some of us have worked in ethanol since we were 

29

very young. Tax credits, tax policy for any energy source, be it ethanol, be it wind, be it oil, has always been the backbone. And you 

can attract financing. You can help fund to do the things we need 

to do if you have tax credit in place or tax policy in place that supports that type of energy source. 

Sometimes I think we get a little apologetic and we say, well, you 

know, we have got a tax credit, like that is a bad thing. That is 

your Government’s direction of what they want to see developed, be 

it wind, be it ethanol. That is how oil got started. 

So I do not think we need to be apologetic about it, but if we had 

to pick one thing in our industry from our company’s standpoint, 

it would be making that tax credit—extend it, make it permanent, 

because we can build off everything else if we have solid tax policies. 

Senator THUNE. Reid, do you have the Corn Growers’ thought on 

that? 

Mr. JENSEN. I would agree with what Don and Jeff said. I think 

what would do more for agriculture would be being able to go to 

the 20-percent blend and creating more demand. One thing we 

have as a position, whether it be cellulosic ethanol or grain-based 

ethanol, is keeping that blenders’ credit the same for either one of 

those, because we just want to consider ethanol as ethanol and not 

give one an advantage over the other one. 

Senator THUNE. Well, one of the things that I have always—you 

talk about the tax incentive and people who complain about that. 

You are absolutely right. I mean, the oil industry benefited enormously from those types of incentives and has over time. And I also 

think that, you know, when you talk about—is it important as a 

national priority to become energy independent or isn’t it? And if 

it is, we need to steer our policies in the direction that will develop 

homegrown energy sources. And to me, when you pay $60 or $70 

a barrel for oil to a country like Iran or Saudi Arabia or Venezuela, 

you are essentially paying a terrorism tax, because they can make 

money at $30 a barrel. And so we send them an inflated rate for 

our energy so that they can fund organizations that turn around 

and attack us. That to me makes absolutely no sense, and so I do 

not think we have to be apologetic at all for the things that we are 

trying to do to promote and advance the growth of an industry that 

will make South Dakota and America more energy independent. 

So what I would like to do right now is open it up to those audience members who perhaps have questions or comments. If you 

would, I would like to try and make sure there is a question there, 

and I know that there are folks here who probably have strong 

opinions, and we welcome those two. But we would like to, if we 

can, get some questions for our panel of experts here. 

Mr. JENSEN. Could I just say one more thing? 

Senator THUNE. Yes. Hold one. One comment before we do that. 

Mr. JENSEN. One other thing we have not talked about is identity theft in the Midwest, and we all know you have been working 

to help get the DM&E Railroad through, and we all talk about energy independence in this country. But we need that railroad infrastructure to help that come to pass, and we want to thank you for 

the work you have done on that, and hopefully that will get done 

sometime. 

30

Senator THUNE. Thank you, and I am sure that is a statement 

which meets with a mixed reaction in this room. 

[Laughter.] 

Senator THUNE. Nevertheless, infrastructure is important. It is 

important to ethanol because ethanol moves on rail, and so you are 

absolutely right. 

Right here. 

Mr. JONES. Thank you. I am Owen Jones from Britton, South 

Dakota. We are the home of one of the first blended pumps put into 

use. 

Senator THUNE. That is right. 

Mr. JONES. We have been in operation for 12 months. I would 

just like to share, before I ask a question, we have 12 months of 

a spread sheet of the ethanol sales that we have made. The consumer that has a choice prefers 30 percent. That is being documented. And there is a good indication that he may, in fact, like 

a higher blend. We are selling 40 percent now. We have been in 

operation for 12 full months. We have sold an additional 24,000 

gallons of ethanol by having that blended pump in place. 

I think that the blender pumps in the E85 distribution system 

that will be in the current farm bill need to play a role in that distribution system. And I would urge that Congress give tax credits 

to get those blender pumps in place. 

My question would be: Why do we need to stop at 20 percent? 

Why not go for a little higher? Or do we need to do this in a stepby-step process? 

Senator THUNE. Good question. 

Mr. JONES. But the distribution system has to be in place to 

move our ethanol. Thank you. 

Senator THUNE. Well, thank you for sharing your experience. I 

am familiar with your—I know you guys were the first ones up 

there in Britton, and it is interesting to get the evidence and the 

documentation about what people’s preferences are and how it is 

working, so thank you. 

Would you want to answer that? 

Mr. ENDRES. Yes, I would just comment first of all to say I applaud you in your efforts. I think it is leading edge to move forward 

and do courageous things, and we are going to have great data 

back. Anecdotally, at least, we are finding that consumers love it 

and they want more of it. Whether or not there are issues longer 

term, we are going to find out. Anecdotally, again, we do not see 

anything, at least on the horizon. 

The reason that 20 percent has been kind of the number that has 

been most talked about is there is actually data that will become 

available fairly soon from work going on with the State of Minnesota. The Renewable Fuels Association, with the University of 

Minnesota, and North Dakota State University have been working 

on research to provide data to the EPA to show that the emissions 

are okay—or actually, we believe now they will be improved; that 

vapor pressure is not a problem. So we need the data, and we have 

data at the 20-percent blend. We probably should initiate research 

to look at these higher blends almost immediately. In fact, the industry is working on kicking one off fairly soon that would go to 

these higher blends as well. But we need data in order—the EPA 

31

will need that information in order to make a fact-based decision 

versus kind of a ‘‘shoot from the hip.’’ But we believe you are on 

track, that we probably could go to higher levels. 

Mr. FOX. Very quickly, Owen, thanks for your documentation. I 

think now you have been a proponent of that. I think you are on 

the right track. Blender pumps make sense, because when this 

issue got looked at—and the American Coalition for Ethanol is 

doing a study on 10, 20, 30, and then also on flex-fuel vehicles to 

see which blend works best so maybe we do not lose that mileage 

in the current engines. This is going to be a combination of working 

with automobile manufacturers. We have got to get their warranties up. So I think the blender pump makes a huge amount of 

sense. 

When we started looking at this back when Governor Pawlenty 

brought up 20-percent blends for Minnesota, we started looking for 

their data for 10 and 85. There wasn’t any. So look what we have 

done as an industry without data backing those two types of fuel 

up from the inception. If we have got studies like Don has talked 

about over in Minnesota or ACE’s study that is being done up in, 

I think, North Dakota, if we get data behind it, where the bill 

today says 20, or we can switch to 30 or something in between, like 

Don said, the higher blends, that is a number you can change in 

the bill. I think the fact that the efforts being made to get EPA to 

start looking at higher blends is just a start, and I think we are 

going to get there. But I think these studies Don talked about are 

important. We may have to do more. 

That is part of what we get when our industry builds itself and 

gets strong, because nobody else is doing this. And as we get better 

at what we do and we bring more people into industry and we 

make more of our product, we can help fund some of that. The Government can help you so much, but you sometimes have got to step 

up to the plate, as you know, and put some money in and help. I 

think it has been a great complement of what we are working on 

as an industry. 

Senator THUNE. I would just add to that sometimes, in Washington especially, things kind of happen incrementally, and I agree 

with you. I think we ought to shoot for as high a blend as we can 

get. EPA and the car companies, the auto manufacturers, are pushing back a little bit against it. And Don is right about the clean 

air. I think that we will find that is not going to be an issue. 

The car companies are concerned about warranties and liability, 

but the more data we present them that demonstrates that the 

wear on an engine from a higher blend is minimal or perhaps even 

better than it is on a traditional, I think we are going to win that 

argument. But I know that they are—we have been pushing EPA 

to go to 20. Minnesota is going to make a request for a waiver, and 

we want to build on that. But I do not think we need to stop there. 

No question about that. 

Yes, over here in the corner. 

Mr. MITCHELL. My name is John Mitchell, and our big problem 

is getting the oil companies to accept E85. 

Senator THUNE. Right. 

Mr. MITCHELL. And I do not know what you can do, but that is 

where a big problem is, and this is to Kevin Kephart. Can you hear 

32

me? South Dakota State out at the research farm has got to do 

more research on developing corn that can grow west of Highway 

281. That is what we can do something about. 

Mr. KEPHART. Well, I can happily say that we are going to be 

doing exactly that. Actually, we got a phone call last year from 

Governor Rounds in the height of our drought here saying SDSU 

needs to focus more on drought. And Governor Rounds, working 

with the College of Agriculture and Biological Sciences, is setting 

up a new 2010 center on drought research, working with companies 

such as Monsanto and other biotech companies, to marry our 

knowledge of agricultural production and their tools and techniques 

and biotechnology to do just that. Actually, the dean of the College 

of Agriculture is in here, and he can elaborate. We are headed exactly in that direction. 

Senator THUNE. We need an ethanol plant in Murdo, so I am 

working on that. 

[Laughter.] 

Senator THUNE. But your first point is right, and I want to come 

back, and if you have not seen this Wall Street Journal story—this 

is, I guess, Monday’s issue—you ought to take a look at this. This 

is what the oil companies are doing to block the installation of E85 

pumps at gas stations across this country. Contractually, they are 

preventing fuel retailers from doing it. They have all kinds of leverage that they apply, and this is part of our problem right here. 

Mr. KEPHART. I met with a Vice President of Chevron a couple 

weeks ago at a meeting I was at, and we talked quite a bit about 

this. At least in that visit, he was saying he was favorable to moving E10 across the country, but that they were resistant to higher 

blends. 

I have a Ford F150, a 1997, so it is not flexible-fuel, and I am 

running about 35 percent ethanol in it right now. It has 100,000 

miles. He did not seem to be interested in that. He just wanted to 

go E10 across the country. 

Mr. ENDRES. I would comment on where the oil companies are 

at. Clearly, the integrated oil companies are going to have a tough 

time with E85. It is 85 percent not their product. If you put yourself in their shoes, it would be pretty hard for you to support a 

product like that. But I believe they will support this bridge concept of higher blends because they actually can benefit the refineries. So I think we get to the blender pumps out there. They will 

benefit because they get better production through the refineries 

with using sub-octane gasoline, and the ethanol industry benefits 

because we give the consumer the option. So I think we will get 

there. 

By the way, the independent gasoline marketers are a great opportunity for our industry. We probably will not go sell E85 to the 

integrates, but we can sell it to the independent marketers out 

there because they are just selling fuel and they just want to make 

money, and they work for us. 

Senator THUNE. We have Orrie and Bill, a couple here, right here 

and then a couple there. 

Audience Member. I would hope that we do not get into debates 

of E20 or E30. I think we need to——

Senator THUNE. Orrie, why don’t you use that microphone? 

33

Audience Member. I think we need to agree that a blender pump 

infrastructure has to be in place to deliver whatever that higher 

blend is. And if it is just E20—because E10 is not going to go away. 

And no retailer is going to put in an extra pump to sell E20. 

Senator Craig has legislation—Senator Craig and Senator Dorgan have legislation to increase the incentive for E85 pumps if they 

are blender pumps. And that incents getting the new E85 structure 

everybody wants to be blender pumps. And that will be more key 

to getting cellulosic ethanol into the marketplace than anything, 

because it will allow the free market to work. 

Mr. ENDRES. Orrie, I could not agree more, and what we are 

finding is it is a great synergy, actually a lower-cost method for 

rolling out multiple blends, because if you put a blender pump in 

place, you can use the existing tanks, and the majority of the costs 

to convert a station is on the tank side, because most of these stations have two gasoline tanks, so what you do is you dedicate one 

to ethanol, E95, if you will, and the other to 87 octane gasoline. 

And then you can blend any blend. You can sell a premium. You 

know, there are a number of blends all with multiple buttons. 

So we think that is a lower-cost approach, and we think that incentive should be only for blender pumps. 

Audience Member. Yes. I think that is what I am saying. 

[Laughter.] 

Mr. ENDRES. I am agreeing. I am agreeing. 

Senator THUNE. Orrie, I think you may want to sit down while 

he still agrees with you. 

Bill, right here, the front row. 

Audience Member. Thank you for hosting this, Senator. It is a 

great time for agriculture right now. My question relating to cellulosic ethanol is related to what anticipated byproducts will be 

generated from that process. And what are some of the uses that 

could add value to reduce the cost of the ethanol produced by it? 

Mr. FOX. A great question. I will indicate what we have at liberty, and then maybe let Dr. Kephart speak to it. We are going to 

take in our plant—and, you know, this is our first commercial. We 

have done it out in Scotland, but this will be our first commercial. 

We look at using 84 percent less natural gas. We are going to take 

the lignin that is left over from the cellulose process, put some stover with it, and burn it in a solid fuel burner. We are using anaerobic digesters. We will use about 24 percent less water. So we 

think those two things will be a big plus. 

From that process of taking the fiber off the corn and taking the 

stover off, you will increase your yield about 11 percent of ethanol 

per bushel by taking fiber and use it. Right now fiber is a pass 

through. It becomes an environmental footprint because it does not 

get digested an it moves on. 

So we think those will be some of the things that we see as a 

benefit in our process. Different byproducts, a little bit different 

dried distiller’s grain when you go through a fractionation. We call 

it—what do we call it?—critical HP, which is high protein, because 

you have taken a lot of things out of it, you leave more protein in 

it, in your end product. There will be others. There are people 

working on polymers and some other things that you can do. Oil, 

taking oil off with it. It is at the front of the process or at the back. 

34

So there are a number of things I think you are going to see out 

of it. I do not think it is all done yet. 

Mr. KEPHART. I think that we are at the very beginning of an 

evolution that is going to entail different types of conversion processes, and, of course, that impacts the answer to your question. 

Right now, clearly, the emphasis is going down a fermentation 

track, so if we think about that track and you look at materials 

such as this, what you are after in this material, as the title of our 

session entails, is cellulose. The three main fractions that you have 

to work with here are lignin, which is wood, and that is not fermentable. Those of you that are cattle producers have been in the 

cellulose fermentation industry for centuries. And the hemicellulose 

is another one that also has limited fermentation characteristics. 

So a liability in this whole thing, and as a co-product that will 

be coming off, is lignin. There is a well-renowned scientist at Michigan State University, Bruce Dale, and he says you can make anything out of lignin except money. 

[Laughter.] 

Mr. KEPHART. So I view lignin as a liability in a fermentation 

track, although you can take advantage of it by combusting it to 

try to capture heat and use that heat or that energy to power other 

segments of your fermentation process. 

As we look down the road, however, as I mentioned earlier, there 

are processes that are called gasification or fast pyrolysis. Fast pyrolysis will take material such as this, or rubber tires or other organic material such as that—it shot timber there—and it creates 

a liquid. And I am excited about that because we could have—if we 

can develop these liquification facilities across the landscape at low 

cost, low capital cost, actually we can be transporting that liquid 

to biorefineries, high-capital, more centralized biorefineries, rather 

than transporting just large round bales or big square bales of biomass to those facilities. 

So a liquid approach takes care of two things: it captures value 

out of the lignin fraction, and it helps with this huge, huge transportation issue that we have to deal with to get this industry going. 

From that point, we can make all kinds of things, just like we 

can make all kinds of things out of petroleum right now. There is 

some of that liquid that is fermentable. Some of it we could be 

making plastics out of or lubricants, the whole host of things that 

we can do with petroleum right now. And that is much further 

down the road, but I am especially excited about that as an approach. 

Ms. RATH. Can I just mention that, in addition to the co-products 

that can come out of the process themselves, since Ceres was the 

recipient of two of the 17 joint DOE–USDA biomass R&D grants 

this year, one of those was simply to double switchgrass yields, but 

the other one was a grant that we submitted together with one of 

the major specialty chemical companies to actually work on producing one of their major monomers directly in switchgrass as 

something that could be extracted at the beginning of the process 

in order to improve the overall economics. 

So I think you will see co-products that are generated both from 

the process, from fermenting to other molecules or from refining to 

35

other molecules, and also the engineering of some co-products right 

into the plant material itself. 

Mr. ENDRES. I would just say one of the benefits of the 

thermochemical route, which is this gasification approach, is this 

will literally break down material to its very basic components, carbon monoxide and hydrogen, and then you can reform that into all 

kinds of different chemicals, including fuels. 

So I think there are a number of tracks even within the biological approach and thermochemical approach and we are just too 

early. What we need to do is evaluate what the best economic 

paths are, best returns on investment. And we just do not know. 

We do not know yet. We have to run some models, do some tests 

before we know what the right product mix should be. 

Senator THUNE. Okay. Maybe one more question. Back here, yes? 

Audience Member. Thanks very much for having Brookings as 

your venue. 

Anna, I was interested in the testimony that you provided on extending the oil reserve credit to renewable fuels, and I was wondering if you could maybe just talk a little bit about how that 

might affect the politics of the situation with biofuels and bioenergy. 

Ms. RATH. Well, the hope is that what you would do is turn ethanol into something that is, in fact, a product of the oil majors 

rather than something that is not their product, and by doing so 

put them on the right side of the battle of promoting ethanol. And 

so the idea here is that you would—you know, they have an incentive to invest in fossil fuel resources because they have this thing 

called proved reserves and they get credit for that in the form of 

their stock price. The idea would be to give them an equivalent incentive to invest in renewable reserves. And so the concept here is 

if you have a contract with the growers around your biorefinery 

that lets you take the biomass from—buy, let’s you purchase the 

biomass from those growers and bring it to your biorefinery, from 

our perspective that is not very different from having a lease on an 

oil field that lets you take the oil out of the ground. So we see no 

reason, especially in the world that we are in today, where people 

are thinking about expanding the definition of proved reserves to 

include non-traditional fossil fuel sources, like tar sands and oil 

shale, we see no reason why we should be, you know, expanding 

the incentive for the oil majors to invest in fossil fuels but not creating an equivalent incentive to invest in renewable resources. So 

that is the concept. 

Senator THUNE. I really like that idea. Another 20 or 30 years, 

we will probably get it through Congress. 

[Laughter.] 

Senator THUNE. Well, I want to thank you all for attending, and 

I appreciate your participation, your input, and your leadership on 

this issue. I particularly want to thank our panelists and South 

Dakota State University and Dr. Kephart and his team for allowing us to be here today. 

As you can see, there is, I think, a lot of interest and a lot of 

opportunity for South Dakota in the renewable energy area. We did 

not even talk about wind today, but there are some good things 

happening with wind technologies as well. But the folks up here 

36

are very much at the forefront of what is happening nationally, and 

like you said before, this is good for South Dakota, but it is good 

for America. It is the right thing to do for our country and our national interest, our national security interests, our energy security 

interest. 

And so if you have additional comments or input that you would 

like to provide, feel free to do that. As I said before, we have received testimony from organizations that are not up here in front 

today but, nevertheless, want to have their statements on the 

record as we begin deliberations on the 2007 farm bill. But we welcome all that input, and we will keep the hearing record open until 

April 9th of 2007. 

With that, this hearing of the Energy Subcommittee is adjourned. Thanks. 

[Applause.] 

[Whereupon, at 11:57 a.m., the Subcommittee was adjourned.] 

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