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38–364 PDF 2007

S. HRG. 110–169

RENEWABLE FUELS INFRASTRUCTURE

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY

OF THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

TO

RECEIVE TESTIMONY ON RENEWABLE FUELS INFRASTRUCTURE

JULY 31, 2007

(

Printed for the use of the 

Committee on Energy and Natural Resources 
(II)

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

KEN SALAZAR, Colorado 

ROBERT MENENDEZ, New Jersey 

BLANCHE L. LINCOLN, Arkansas 

BERNARD SANDERS, Vermont 

JON TESTER, Montana 

PETE V. DOMENICI, New Mexico 

LARRY E. CRAIG, Idaho 

LISA MURKOWSKI, Alaska 

RICHARD BURR, North Carolina 

JIM DEMINT, South Carolina 

BOB CORKER, Tennessee 

JOHN BARRASSO, Wyoming 

JEFF SESSIONS, Alabama 

GORDON H. SMITH, Oregon 

JIM BUNNING, Kentucky 

MEL MARTINEZ, Florida

ROBERT M. SIMON, Staff Director 

SAM E. FOWLER, Chief Counsel 

FRANK MACCHIAROLA, Republican Staff Director 

JUDITH K. PENSABENE, Republican Chief Counsel 

SUBCOMMITTEE ON ENERGY

BYRON L. DORGAN, North Dakota, Chairman

DANIEL K. AKAKA, Hawaii 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

ROBERT MENENDEZ, New Jersey 

BERNARD SANDERS, Vermont 

JON TESTER, Montana 

LISA MURKOWSKI, Alaska 

LARRY E. CRAIG, Idaho 

RICHARD BURR, North Carolina 

JIM DEMINT, South Carolina 

BOB CORKER, Tennessee 

JEFF SESSIONS, Alabama 

JIM BUNNING, Kentucky 

MEL MARTINEZ, Florida

JEFF BINGAMAN and PETE V. DOMENICI are Ex Officio Members of the Subcommittee
(III)

C O N T E N T S 

STATEMENTS 

Page

Craig, Hon. Larry, U.S. Senator From Idaho ........................................................ 4

Dorgan, Hon. Byron L., U.S Senator From North Dakota ................................... 1

Drevna, Charles T., Executive Vice-President, National Petrochemical & Refiners Association ................................................................................................. 38

Karsner, Alexander, Assistant Secretary, Energy Efficiency and Renewable 

Energy, Department of Energy ........................................................................... 9

Klobuchar, Hon. Amy, U.S. Senator From Minnesota .......................................... 6

Lampert, Phillip J., Executive Director, National Ethanol Vehicle Coalition, 

Jefferson City, MO ............................................................................................... 54

Lehman, Jonathan Advisor, VeraSun Energy ....................................................... 47

Morrissett, Deborah L., Vice President of Regulatory Affairs, DaimlerChrysler 

Corporation, Auburn Hills, MI ............................................................................ 51

Murkowski, Hon. Lisa, U.S. Senator From Alaska ............................................... 4

Terry, David, Representative, Governors’ Ethanol Coalition ............................... 34

Tester, Hon. Jon., U.S. Senator From Montana .................................................... 5

APPENDIX 

Responses to additional questions .......................................................................... 67

(1)

RENEWABLE FUELS INFRASTRUCTURE 

TUESDAY, JULY 31, 2007

U.S. SENATE, SUBCOMMITTEE ON ENERGY, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The subcommittee met, pursuant to notice, at 2:30 p.m. in room 

SD–366, Dirksen Senate Office Building, Hon. Byron L. Dorgan 

presiding. 

OPENING STATEMENT OF HON. BYRON L. DORGAN, U.S. 

SENATOR FROM NORTH DAKOTA 

Senator DORGAN [presiding]. We’ll call the hearing to order. This 

is the hearing of the Senate Energy Natural Resources Committee, 

the Subcommittee on Energy. Welcome all of you today. 

The hearing today is to address how to overcome the hurdles in 

order to achieve our objectives of reducing our dependence on foreign sources of oil. We do that by developing an infrastructure to 

use our expanding home grown renewable fuels to help meet our 

Nation’s transportation needs. 

Our witnesses today will include Senator Klobuchar, representatives of the Administration, stakeholders dealing with the policy, 

the technical and the implementation of expanding renewable fuels 

infrastructure so that producers of renewable fuels can get their 

products to market and see those products used. 

Now we use about 140 plus billion gallons of fuel each year. Of 

that, 140 billion gallons about 60 percent comes from off our 

shores. From imported oil that comes from unstable regions of the 

country: Saudi Arabia, Kuwait, Nigeria, Venezuela and others. 

Our pathway to reducing that—excessive and I think, dangerous, 

dependence on foreign sources of oil is to use home grown, renewable fuels. However effective action on renewable fuels stands on 

a three legged stool. One is to produce the fuel. A second is to 

produce vehicles that can use the fuel, most notably E85. Third is 

to develop the pumps that can dispense the blends up to E85. 

The bill that we passed in 2005, in which I was one of the authors on the Energy Committee, included the Renewable Fuel 

Standard. At that point, we passed an eight billion gallon standard 

out of this committee, went to conference, and ended up with seven 

and a half billion gallons by 2012. Well, obviously times have 

moved on in a very aggressive and in a very favorable way for renewable fuels. 

This Energy Committee passed legislation this year to increase 

the existing renewable fuel standard to 36 billion gallons by the 
2

year 2022. This committee has done that which is—within just the 

last couple of months, and in June, it was passed by the full Senate. 

Now if we use 140 billion gallons of fuel a year and we blend ethanol, for example, 10 percent of every gallon is ethanol. That 

means we have a market of 14 billion gallons. That’s the total market. Unless you’re using blends of 20, 30, 40, 50 percent or E85, 

in which you have 85 percent of the fuel represented from ethanol. 

The Senate CAFE ́ provisions required an action plan by the Department of Transportation to ensure that by model year 2015, 50 

percent of the new vehicles produced would be alternative fueled 

vehicles. Further the CEOs of the Big Three automakers announced earlier this year a commitment to make 50 percent of 

their vehicle production either E85, flex fuel or capable of running 

on biodiesel by 2012. Well, in order to create new markets for ethanol, in my judgment, we need to pass similar aggressive policies 

dealing, not just with production or renewable fuel standard, but 

also with respect to the development of the infrastructure. 

How do you get this fuel to the vehicles and to the consumers 

who are driving these vehicles? We need a much greater commitment to renewable fuels and the infrastructure, not only from Congress, but also from the Federal agencies, from industry stakeholders, and from State and local governments as well. The recent 

GAO report released in 2007 says DOE lacks a strategic approach 

to coordinate increasing production with infrastructure development in vehicle needs. 

That’s obvious. I agree that is the case. I mean we have a circumstance where we’re rushing headlong to produce a substantial 

amount of renewable fuels and a substantial renewable fuel standard, but you will not find circumstances with respect to the infrastructure that meets what we’re aspiring to do. Now, my State is 

ten times the size of Massachusetts in land mass, but we have only 

about 16,000 flex fuel vehicles in a State ten times the State of 

Massachusetts. There are 23 places in my State where you can pull 

up to some fuel pumps and pump in E85. So you have 16,000 people driving flex fuel vehicles and 23 locations in all of that land 

mass to be able to find E85. Other States have similar circumstances that GAO found, in this report by the way, that California has 250,000 flex fuel vehicles and one publicly accessible refueling station in San Diego. One. 

Is that a failure? It seems to me, it is. We have 170,000 service 

stations in this country and roughly 1,200 of them have E85 

pumps. That’s less than 1 percent of the service stations. I have a 

chart that will show you that, shows that where the service stations exist in the middle part of the country, particularly in Minnesota and a number of other Midwestern States and Northern 

Plains States. That’s not where the flex fuel vehicles are. The 

heaviest concentration of flex fuel vehicles have no relationship to 

where the infrastructure is. 

So, I mean, I think we have a very serious problem. Secretary 

Karsner testified previously before this committee—before rather, 

Appropriations Subcommittee that I held. He said that we have not 

devised sufficient policies with respect to scale and rate that would 

be commensurate with the magnitude of the challenge. He was 
3

talking about this infrastructure issue. He went on to say that we 

went on to installed 450 E85 pumps nationwide last year. 

So if we do 450 pumps a year, that’ll take about 100 years to install at a scale of pumps that would even matter. We don’t have 

100 years. We probably don’t have 10 years because when you see 

all these plants being built to produce this fuel. If we don’t find a 

way to move this fuel through an infrastructure to people who are 

going to use it, we’re going to see a collapse in that market, and 

that’s the last thing that we should want. 

One more point. The oil industry is not helping either. I’ve seen 

reports that the Big Oil companies have recently posted pretty substantial profits, record profits. All of you have seen them. Let me 

describe a few of the barriers that they’re putting in place to discourage retail gas stations from offering E85. 

About 57 percent of the retail gas stations are owned or franchised by the major integrated oil companies. The Wall Street Journal in April had an article titled,‘‘Fill ’er Up with Ethanol? One Big 

Obstacle is Oil.’’ Exxon Mobil and British Petroleum require their 

franchised station to buy fuel exclusively from them, and neither 

company offers E85. If a station owner would wish to purchase 

E85, then they have to apply for an exception to purchase E85. 

Another example is Conoco-Phillips. A memo to their franchisees 

says that the company doesn’t allow E85 sales on the primary island under the cover canopy where the gasoline is sold. Stations 

must find another spot. 

Chevron-Texaco and Conoco-Phillips station owners are not allowed to list E85 on their primary sign listing fuel prices and must 

pay to erect a separate sign if they wish to advertise E85. BP will 

not allow its franchised stations to offer payment by credit card at 

E85 pumps. 

Does this sound reasonable or thoughtful? It doesn’t to me. It’s 

the same old game. Build a fence. Protect your own turf. 

This is about national interest. This is about making this country 

less dependent on oil from troubled parts of the world, and if we 

don’t do this as a team, if we don’t do this together as a country, 

we’re going to be in big trouble. We’re going to build a lot of plants 

right now. We’re on the road to building a lot of plants to produce 

this fuel. If we don’t have the infrastructure to produce that fuel 

for the vehicles in this country, we’re going to see a collapse with 

respect to these markets. 

I’m particularly unhappy to see what the major oil companies are 

doing. It is not new for them to buy quarter page ads in newspapers telling us that producing ethanol was a bad situation. They 

didn’t like it. Well, I’m not surprised they didn’t like it. But what 

does surprise me is that they make record profits, and they spend 

their time trying to figure out how they’re going to keep E85 off 

their gasoline island when they control nearly 60 percent of the 

gasoline stations in this country. That has to change. 

So, the purpose of this hearing is to try to think through what 

are the policy changes that can give us a chance to build the infrastructure so that we have an opportunity to make this successful. 

To make successful the use of renewable fuels in significant quantity and make us less dependent on foreign sources of oil. We’ve got 

to get this right, and we don’t have a lot of time to do it. 
4

I want to call on the ranking member for a brief comment and 

if others want to make comments just for a minute or so, I’d be 

happy to allow them to do that. Then I’ll ask Senator Klobuchar 

to provide her testimony. At which point we will then have Secretary Karsner and then go on to the final panel. 

Senator Murkowski. 

STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR

FROM ALASKA 

Senator MURKOWSKI. Thank you, Mr. Chairman. I didn’t catch 

all of the comments but walked in at the end. It is always interesting to catch the conversation halfway. I do appreciate the hearing this afternoon. 

We all understand the need to avoid unintended consequences in 

all areas. Certainly as we are trying to figure out how we build a 

domestic biofuels industry, we need to focus on the developing technology solutions to address the challenges that this burgeoning 

biofuels industry will face. 

The infrastructure we have today is built around the need of petroleum based fuels. Ethanol has different properties, more corrosive than gasoline, more easily adulterated by water during transport. We certainly hope that as the future unfolds research is going 

to help us address these challenges. Material science may devise 

ways to make automotive components that are compatible with 

higher blends of ethanol. New additives that make ethanol repel 

water molecules are under investigation. 

But I think in the first years of the RFS we can anticipate a 

great deal of ethanol will be needed to be transported by rail or by 

truck. We know that this volume of transport could strain our existing capacity. And of that 168,000 gasoline stations in the U.S. 

today, 1,251 have E85 pumps. Industry and all levels of government will need to coordinate closely to address these problems. 

Now, I want to note in particular, that the RFS in the Senate 

passed bill includes the 48 contiguous States but allows the State 

of Alaska and also Hawaii the option of joining voluntarily. I do believe that we need to continue research on biofuels that specifically 

addresses the unique challenges of using both ethanol and biodiesel 

in our colder environments. 

Mr. Chairman, I know that we’ve got a lot of folks on the panel 

today, and I look forward to hearing from those who are scheduled. 

Senator DORGAN. Thank you. Are there others who wish to make 

a brief opening statement? 

Senator Craig. 

STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR

FROM IDAHO 

Senator CRAIG. Mr. Chairman, thank you for the hearing. 

Today oil is selling for 78 dollars a barrel, the highest in more 

than a year. In Idaho I have 72 alternative fuel stations which include—compressed gas, E85, propane, electricity, biodiesel, hydrogen and liquefied natural gas. Of those 72 stations only four are 

equipped with E85 pumps. According to the National Ethanol Vehicle Coalition, Idaho has only one E85 per 4,500 flex fuel vehicles. 
5

Earlier this year, of course, you and I introduced what I think 

and what you think is a fair and balanced approach in an energy 

compromise that we’re working on. It doesn’t work if the infrastructure doesn’t come behind it. I think it’s going to be extremely important for that to happen. 

We’ve debated in this committee, renewable energy standards, 30 

billion gallons, 15 cellulosic, 15 corn based. We’re talking about 

CAFE ́ for automobiles, first time in 27 years. We’re talking about 

looking for some additional traditional fuel sources off shore. It 

really is about energy security. It really is about us doing everything we can possibly do for our consumers in a very diversified 

portfolio of energy needs. 

Delivery systems are everything. In my State of Idaho the two 

stations that I’m aware of with E85 are 160 miles apart. That 

doesn’t make for a reasonable approach toward these alternatives. 

Now I would be the first to tell you, Mr. Chairman that the infrastructure that now serves our consuming public with a station 

on every corner didn’t happen overnight. But now that it’s there 

and hundreds of billons of dollars have been spent of the private 

sector putting it there. I would hope that the goal of that facility 

is to serve its consuming public and to do so in a way that offers 

all of these alternatives as a part of the energy supply for our 

transportation fleet in this country. So thank you for holding the 

hearing. 

Senator DORGAN. Senator Craig, thank you. Would others wish 

to make a brief comment? 

Senator Tester. 

STATEMENT OF HON. JON TESTER, U.S. SENATOR

FROM MONTANA 

Senator TESTER. Very quickly and very brief, Mr. Chairman—I 

do want to thank you. I think my, the infrastructure that we have 

in my town is very similar to Idaho or maybe a little less. In fact 

I think the only one that I—

Senator CRAIG. In fact Jon would appreciate it. 

Senator TESTER. Yes. 

Senator CRAIG. One station in Sandpoint. 

Senator TESTER. Yes. 

Senator CRAIG. The other one’s in Port Elaine. So you can stop 

in Sandpoint and refuel. No, the other one’s in Lewis. 

Senator TESTER. Yes. 

Senator CRAIG. That’s over 60 miles. 

Senator TESTER. It’s far too few. That’s for sure. I just want to 

make a comparison. 

I’m a farmer. If I can’t get my crops to the shelf, I go broke. If 

we can’t get biofuels to the consumer, it will never work. So it 

needs to happen. No ifs, ands, or buts about it, if we’re going to 

try to achieve some semblance of energy security here. 

Senator DORGAN. Anyone else? 

Senator Klobuchar, thank you for joining us. Minnesota has 

made some significant strides, although even that remains far 

short of where we need to be. But we appreciate your interest in 

coming, and we would ask you to proceed. 
6

We would ask all of the witnesses to limit their comments to 5 

minutes, and we will include their entire testimony as a part of the 

permanent record. 

STATEMENT OF HON. AMY KLOBUCHAR, U.S. SENATOR

FROM MINNESOTA 

Senator KLOBUCHAR. Thank you so much, Chairman, for holding 

this important hearing and for inviting me to testify. 

As you know ethanol and biodiesel, corn based ethanol, soy bean 

based biodiesel and we move and hope to move to the next stage 

with cellulosic ethanol, are near and dear to Minnesota but my interest goes far beyond that. I believe that our ability to produce a 

reliable, low cost, domestic source of energy is also an issue of national security. 

The United States spends more than 400,000 dollars per minute 

on foreign oil. The money is shipped out of our economy adding to 

our enormous trade deficit and leaving us vulnerable to unstable 

parts of the world to meet our basic energy needs. There are those 

who would have us believe that our energy security is decades 

away. But you can ask any Minnesota farmer and there—they’ll 

tell you we’re ready to go today. 

In spite of the clear advantages of renewable fuels, our rural 

economy and our energy security, we really face a chicken and egg 

type problem when it comes to the challenge of making them available to more drivers. The automakers are reluctant to promote flex 

fuel vehicles in areas where there are no E85 pumps, as Senator 

Craig has pointed out. Gas stations don’t want to put any E85 

pumps where there are no flex fuel vehicles. So we need to tackle 

both ends of the problems. 

On the issue of vehicles, Mr. Chairman, I appreciate the work 

that you and the rest of this committee have done in passing the 

energy bill that would require automakers to equip 50 percent of 

their new vehicles with alternative fuel technology by the year 

2015. I particularly remember Senator Craig’s comments when we 

discussed the gas mileage standards. I appreciated the work of everyone on this committee. 

On the other end of the problem, the ability to find gas stations 

that sell E85 and biodiesel. It is crucial that Congress act to provide more American drivers with access to renewable fuels. As you 

know, Mr. Chairman, Minnesota ranks first in the Nation in E85 

infrastructure. Of the 1,251 gas pumps that Senator Murkowski 

mentioned, 320 of them, but who’s counting, are located in Minnesota. 

I know, Mr. Chairman that this is of particular interest to you, 

and that is how did Minnesota come to be a leader in this area? 

The answer I believe comes down to leadership. Leadership in 

State government in setting statewide ethanol standards and providing grants for E20 pumps, leadership of the Minnesota corn 

growers who formed a coalition with the American Lung Association of Minnesota, the National Ethanol Vehicle Coalition and others to promote E85 across the state. Finally leadership on the part 

of the ethanol producers who developed innovative marketing arrangements whereby they sell E85 directly to gas stations and cut 

out the oil company owned middle men. In Minnesota about two-
7

thirds of the gas stations that sell E85 purchase it directly from the 

ethanol producer. That’s why they can afford to sell it at a price 

that’s attractive to customers. 

So, what can we at the Federal level learn from Minnesota’s example? First, wherever possible, we should encourage ethanol producers to sell directly to gas stations. Outside of Minnesota ethanol 

is generally sold under long-term contract to blending terminals 

which are part of the oil company owned pipe line system. The terminals then re-sell the ethanol to gas stations. In essence the price 

that the consumers pay for ethanol is usually set by ethanol’s biggest competitor, the oil companies. 

When ethanol producers sell ethanol directly to gas stations 

without a middle man, drivers get the benefit of low cost fuel. The 

ethanol producers collect the 51 cents per gallon Federal blenders 

credit instead of the oil companies and America’s energy dollars 

come right back to our rural communities. 

We’ve seen this model work in Minnesota pioneered by the Chippewa Valley Ethanol Company in Benson. They currently supply 

roughly 100 gas stations that sell E85 at 60 cents below the price 

of gas. That’s why I’ve introduced a bill that would help other 

states follow Minnesota’s lead. The Ethanol Education and Expansion Act which would provide tax credits for ethanol producers to 

install the type of equipment they need to sell directly to gas stations. I’d like to thank you, Mr. Chairman, for co-sponsoring this 

legislation. 

Second, we should not allow the oil companies to block their franchised gas station from selling renewable fuels. This is what you 

were referring to. I’ve heard from gas stations in Minnesota that 

their franchise contracts make it so difficult to sell ethanol and biodiesel that many of them just can’t do it. They’re not allowed to sell 

renewable fuels under the main canopy that bears the oil company’s brand name. They can’t convert the pumps and tanks they 

already have because of a requirement to sell all three grades of 

gasoline. They’re not even allowed to put up signs to let customers 

know that they have renewable fuels for sale, where the pump is 

or how much it costs. 

I’ve offered a Right to Retail Renewable Fuel amendment to the 

energy bill that would prohibit oil companies from placing restrictions on where and how renewable fuels can be sold at gas stations. 

The third and final thing we can learn from Minnesota’s example 

is that a modest investment of Federal dollars can yield big results 

on the ground. The coalition in Minnesota that raised nine million 

dollars for E85 pumps was started with a grant of just 250,000 dollars from the Department of Energy. 

In closing, I would simply state that the scarcity of pumps 

caused in part by the oil company’s unwillingness to allow for competition is the single greatest factor limiting the positive impact the 

renewable fuels can and should have on our Nation’s energy security. If we are serious about finding alternatives to foreign oil we 

should ensure that drivers in every State have access to E85 and 

biodiesel. Thank you, Mr. Chairman. 

[The prepared statement of Senator Klobuchar follows:]
8

PREPARED STATEMENT OF HON. AMY KLOBUCHAR, U.S. SENATOR FROM MINNESOTA

Thank you, Mr. Chairman, for holding this timely hearing on the topic of renewable fuel infrastructure, and for inviting me to testify. As you know, ethanol and 

biodiesel are near and dear to Minnesota, but my interest in them goes far beyond 

that. Our ability to produce a reliable, low-cost, domestic source of energy has become a question of national security. 

The United States spends more than $400,000 per minute on foreign oil. That 

money is shipped out of our economy, adding to our enormous trade deficit, and 

leaving us vulnerable to unstable parts of the world to meet our basic energy needs. 

There are those who would have us believe that energy security is decades away, 

but any Minnesota farmer can tell you that renewable fuels are here and ready to 

use today. However, in spite of the clear advantages of renewable fuels to our rural 

economy and our energy security, we face a chicken-and-egg type of problem when 

it comes to the challenge of making them available to more drivers. The auto makers are reluctant to promote flex-fuel vehicles in areas where there are no E-85 

pumps, and gas stations don’t want to put in E-85 pumps where there are no flexfuel vehicles. 

So we need to tackle both ends of the problem. On the issue of vehicles, Mr. 

Chairman, I was proud to work with you to include provisions in the Senate-passed 

energy bill that would require automakers to equip 50 percent of their new vehicles 

with alternative-fuel technology by the year 2015. 

On the other end of the problem—the ability to find gas stations that sell E-85 

and biodiesel—it is crucial that Congress act to provide more American drivers with 

access to renewable fuel pumps. 

As you know, Mr. Chairman, Minnesota ranks first in the Nation in E-85 infrastructure—we have 320 pumps out of 1250 in the Nation—far more than any other 

state. And I know, Mr. Chairman, that it’s a question of particular interest to you—

how did Minnesota come to be the leader in this area? The answer, I believe, comes 

down to leadership:

• Leadership in state government in setting statewide ethanol standards and providing grants for E-85 pumps. 

• Leadership of the Minnesota Corn Growers, who formed a coalition with the 

American Lung Association of Minnesota, the National Ethanol Vehicle Coalition, and others to promote E-85 across the state. 

• Finally, leadership on the part of the ethanol producers, who have developed 

innovative marketing arrangements, whereby they sell E-85 directly to gas stations, and cut out the oil company-owned middleman. In Minnesota, about 2⁄3

of the gas stations that sell E-85 purchase it directly from the ethanol producer, 

and that’s why they can afford to sell it at a price that’s attractive to consumers.

So what can we, at the federal level, learn from Minnesota’s example? First, wherever possible, we should encourage ethanol producers to sell directly to gas stations. 

Outside of Minnesota, ethanol is generally sold under long-term contract to blending 

terminals, which are part of the oil company-owned pipeline system. The terminals 

then re-sell the ethanol to gas stations. In essence, the price that consumers pay 

for ethanol is usually set by ethanol’s biggest competitor, the oil companies. When 

ethanol producers sell ethanol directly to gas stations without a middleman:

• drivers get the benefit of a low-cost fuel, 

• the ethanol producers collect the 51 cent-per-gallon federal blender’s credit instead of the oil companies, 

• and America’s energy dollars come right back to our rural communities.

We have seen this model work well in Minnesota, pioneered by the Chippewa Valley Ethanol Company in Benson. They currently supply roughly a hundred gas stations that sell E-85 at 60 cents below the price of gas. That’s why I have introduced 

a bill that would help other states follow Minnesota’s lead—the ‘‘Ethanol Education 

and Expansion Act’’ would provide tax credits for ethanol producers to install the 

kind of equipment they need to sell directly to gas stations, and I would like to 

thank you, Mr. Chairman, for cosponsoring this legislation. 

Second, we should not allow oil companies to block their franchised gas stations 

from selling renewable fuels. I have heard from gas stations in Minnesota that their 

franchise contracts make it so difficult to sell ethanol and biodiesel that many of 

them just can’t do it. They have reported cases where:

• they’re not allowed to sell renewable fuels under the main canopy that bears 

the oil company’s brand name, 
9

• they can’t convert the pumps and tanks they already have, because of a requirement to sell all three grades of gasoline, 

• and they’re not even allowed to put up signs to let customers know they have 

renewable fuel for sale, where the pump is, or how much it costs.

I offered a ‘‘Right to Retail Renewable Fuel’’ amendment to the Energy Bill that 

would prohibit oil companies from placing restrictions on where and how renewable 

fuels can be sold at gas stations. I’m pleased to report that similar language was 

passed by the House Energy and Commerce Committee, which will give us an opportunity to examine this issue in conference. 

The third and final thing we can learn from Minnesota’s example is that a modest 

investment of federal dollars can yield big results on the ground. The coalition in 

Minnesota that raised $9 million for E-85 pumps was started with a grant of just 

$250,000 from the Department of Energy. 

In closing, I would simply state that the scarcity of pumps, caused in part by the 

oil companies’ unwillingness to allow for competition, is the single greatest factor 

limiting the positive impact that renewable fuels can and should have on our Nation’s energy security. If we are serious about finding alternatives to foreign oil, we 

should ensure that drivers in every state have access to E-85 and biodiesel. Thank 

you, Mr. Chairman.

Senator DORGAN. Senator Klobuchar, thank you very much for 

telling us about the Minnesota experience. I think most of us know 

there has been real leadership in Minnesota at the State legislative 

level and local governments and by others and by you. We appreciate that, and I’m going to let you go and call up the Assistant 

Secretary. Your testimony is a very important part of the discussion of what works, what doesn’t and what we still need to do. Senator Klobuchar, thank you very much. 

Senator KLOBUCHAR. Thank you very much. 

Senator DORGAN. Next we will hear from the Assistant Secretary 

of Energy, Mr. Alexander Karsner. He won’t mind if we call him 

Andy. I believe everybody does. 

Andy Karsner, the Assistant Secretary for Energy Efficiency and 

Renewable Energy. I’m just—

Senator CRAIG. This could be a waste of energy. 

[Laughter.] 

Senator DORGAN. My preference is open curtains and open windows. 

Mr. Karsner, Secretary Karsner, thank you very much. You’ve 

testified previously, and we appreciate your being here again today. 

As I indicated your entire statement will be made part of the permanent record, and you may summarize. 

STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, ENERGY EFFICIENCY AND RENEWABLE ENERGY, 

DEPARTMENT OF ENERGY 

Mr. KARSNER. Thank you, Mr. Chairman, and thank you and 

members of the committee for your leadership on this issue of addressing our gasoline dependency, and for the opportunity to provide comments on improving the Nation’s renewable fuels infrastructure. 

As we intensify our national effort to develop renewable energy 

options for transportation, it’s vital that we focus on ensuring the 

retail infrastructure necessary to support our national vision of a 

domestic clean fuels industry. The large scale introduction of 

biofuels into consumer markets poses significant challenges 

throughout the whole supply chain, including of course, retail distribution. These challenges must be effectively addressed to sup-
10

port the successful achievement of the President’s Advanced Energy Initiative launched in 2006 and the 20 in 10 goal for confronting our addiction to oil. 

The 20 in 10 goal aims to reduce our gasoline use by 20 percent 

within the decade. To help achieve this, the President has called 

for an unprecedented alternative fuel standard requiring the equivalent of 35 billion gallons of renewable and alternative technologies 

by 2017. Creating certainty by establishing a durable, predictable, 

alternative fuel standard for the Nation is an important first step 

necessary to stimulate more investment in retail infrastructure. 

To this end, the Department is sharpening its focus on infrastructure issues, which were recently highlighted in a GAO audit 

and in the national Petroleum Council’s report. We are targeting 

barriers to biofuels growth by forging strategic partnerships with 

industry, collaborating with other agencies and working with different regions of our country to bring the promise of large scale 

biofuels distribution to fruition. 

For example, we have developed in the Office of Energy Efficiency and Renewable Energy for the first time a biofuels infrastructure team. The team connects the Vehicle Technologies Program and the Biomass Program to promote a comprehensive and 

coherent approach to the biofuels industry. 

The Department is coordinating its fuel delivery work with the 

Department of Transportation, which has principle responsibility 

for setting standards in developing policy for pipeline transportation infrastructure and ensuring that these products can be safely handled. We are working with the EPA, which has primary responsibility for testing emissions and certifying fuels to examine 

the compatibility of intermediate blends such as E15, E20 and 

other lesser blends than E85 for use in our existing vehicle fleet. 

Finally, we have significantly elevated the level of participation, 

activity and engagement across the Federal Government with our 

Interagency Biomass R and D Board to ensure a comprehensive 

Federal approach to addressing key infrastructure barriers. These 

efforts are focused on reducing duplication, maximizing our efficiency and ensuring an accelerated approach to domestic biofuels 

deployment in a timeframe that is consequential. 

As I have testified many times before, Mr. Chairman, government funding alone will not be sufficient to meet the substantial 

challenges of changing our Nation’s energy portfolio. The deployment of pumps, vehicles and other infrastructure must increase 

rapidly over the next decade so that consumers have readily available options and access to domestic renewable fuel sources. 

As you noted, Mr. Chairman, the latest data indicates there are 

approximately 170,000 fueling stations in the United States of 

which only 1,183 presently offer E85. Assuming E85 is the primary 

preferred pathway, the Department estimates that approximately 

50,000 to 60,000 stations must exist and operate simultaneously to 

fully implement an E85 infrastructure. On average, retrofitting a 

fueling station to offer E85 is estimated to cost 60,000 dollars. The 

2005 Energy Policy Act provided tax incentives that can defray up 

to 30,000 dollars of the total cost per pump. 

In 2006, the Department through its Clean Cities Program announced a selection of alternative fuel infrastructure projects that 
11

will result in 182 pumps installed by the end of 2008. In the last 

12 months there were a record number of E85 pumps installed nationwide, 440. At this rate, as you indicated, it would take at least 

a century to reach critical mass in E85 infrastructure. 

The current rate of infrastructure deployment is therefore insufficient to support the national vision of domestic biofuels production, deployment, and use that is consequential within the decade. 

The Department believes that an E85 delivery system is an important goal of an alternative fuels infrastructure, but should not necessarily be the exclusive goal upon which our national strategy is 

built. Intermediate blends may offer an alternative approach to 

balance fuel production and use in parallel in order to enable continuous, uninterrupted growth in domestic fuels production and 

allow more outlets into the marketplace. 

Turning to vehicles, there are currently more than six million 

flexible fuel vehicles FFVs on the road in this country, still a relatively insignificant number representing a small percentage of the 

approximately 225 million light duty vehicles in the United States. 

Domestic auto manufacturers have pledged to the President to 

make half of their products flex fuel capable by 2012, and we are 

hopeful that this pledge will be maintained and even accelerated. 

It is important to note however, that this voluntary pledge is entirely contingent on the potential availability of the physical presence of E85 infrastructure. It excludes foreign manufacturers, who 

constitute approximately half of the U.S. vehicles market. 

During my first week on the job, I traveled with Secretary 

Bodman to Detroit where he addressed the leaders in the automotive industry with a direct challenge, calling for more flex fuel 

vehicles on the market of all vehicle types and all vehicle classes 

from all manufacturers that service the U.S. market. We see no 

technical reason whatsoever why flex fuel vehicles cannot be more 

uniformly ubiquitous across all markets nor do we see any technical reason that at least the option of flex fuel could not be offered 

to all consumers at a relatively low price in the near term. 

The President’s 20 in 10 goal holds the promise of accelerating 

penetration of cellulosic ethanol and other alternative fuels into the 

marketplace and bringing the benefits of clean renewable and alternative energy sources more quickly to our Nation. Providing the 

necessary infrastructure is a critical part of reaching that goal and 

we are mindful throughout our programs of the national security, 

economic and environmental imperatives. 

In order to meet the target of 20 percent gasoline reduction within a 10-year span, it requires a change in the status quo and an 

agile capacity to adopt fuel delivery systems, codes and standards 

and our national vehicle fleet. To the extent that they remain voluntary, market decisions must take place at a rate and a scale that 

is consequential within this timeframe so that it matters. 

This concludes my prepared statement. I’d be happy to answer 

any questions the committee members may have. 

[The prepared statement of Mr. Karsner follows:]

PREPARED STATEMENT OF ALEXANDER KARSNER, ASSISTANT SECRETARY, ENERGY

EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

Mr. Chairman and Members of the Committee, thank you for the opportunity to 

provide comments on improving our Nation’s renewable fuels infrastructure to ac-
12

commodate the increasing volumes of renewable fuels in the transportation sector. 

As we continue to intensify our national effort to develop renewable energy options 

for transportation, it is vital that we focus on ensuring the infrastructure necessary 

to support our national vision of a domestic clean fuels industry. 

The large-scale introduction of biofuels into consumer markets poses significant 

challenges throughout the production, supply, transport, distribution, and utilization 

cycle. These challenges must be effectively addressed to support the successful 

achievement of the President’s Advanced Energy Initiative and the ‘‘Twenty in Ten’’ 

goal for reducing our dependence on oil. The ‘‘Twenty in Ten’’ goal aims to reduce 

our gasoline use by 20 percent within the decade. To help achieve this, the President has called for a robust Alternative Fuel Standard (AFS), requiring the equivalent of 35 billion gallons of renewable and alternative technologies in 2017. Encouraging the broadest range of alternative fuel technologies is critical to the type of 

transformational change necessary to improve our Nation’s energy security. Creating certainty by establishing a durable, predictable AFS for the Nation will be an 

important first step necessary to stimulate more investment in infrastructure. 

Recent developments have strongly accelerated the growth of biofuels in this country, and we recently have been adding more than a billion gallons capacity of ethanol each year (source: Renewable Fuels Association, http://www.ethanolrfa.org). 

Our strong investments into cellulosic ethanol research, development, and demonstration activities will further increase the biofuels growth rate. In the last year, 

the Department has announced the availability of nearly $1 billion for biofuels 

R&D, subject to appropriation, over the next three to five years, including:

• Up to $385 million for the construction of six cellulosic ethanol biorefineries 

over the next four years. Once up and running, the facilities—located in California, Florida, Georgia, Idaho, Iowa, and Kansas—are expected to produce 

more than 130 million gallons per year (mgy) of cellulosic ethanol; • $375 million awarded to three new Bioenergy Centers to advance understanding 

of how to reengineer biological processes to develop new, more efficient methods 

for converting the cellulose in plant material into ethanol or other biofuels serve 

as a substitute for gasoline; • Up to $200 million to support the development of cellulosic biorefineries at ten 

percent of commercial scale that produce liquid transportation fuels such as ethanol, as well as biobased chemicals and bioproducts used in industrial applications; • Up to $23 million in Federal funding for five projects focused on developing 

highly efficient fermentative organisms to convert biomass material to ethanol.

The Department’s investments into cellulosic ethanol research, development, and 

deployment are focused on achieving the goal of cost-competitiveness by 2012. This 

projected increase in ethanol use will challenge our existing liquid fuels infrastructure. We expect the market’s ability to absorb gasoline blended with up to 10 percent ethanol, which can be distributed through existing infrastructure, to reach its 

limits in the near future, possibly even the next 5 years. This reality will require 

multiple pathways to continue growing our domestic renewable fuels industry. 

These pathways need to be immediately addressed in parallel. 

While much of the national debate has focused on the production of renewable 

fuels, much less public attention has been directed to the challenges of infrastructure. To address the important link between biofuels production and biofuels distribution and consumption, a recent report by the Government Accountability Office 

called on the Department of Energy to develop a strategic approach that coordinates 

the expansion of biofuels production with distribution infrastructure and vehicle 

needs. The National Petroleum Council’s July 18 draft report, ‘‘Facing the Hard 

Truths about Energy,’’ similarly highlights transportation infrastructure as a concern for biofuels—constrained capacity on our roads, rail, pipelines, and waterways 

pose a substantial barrier to encouraging alternative fuels. 

The Department is sharpening its focus on the issues highlighted by GAO and the 

National Petroleum Council and is targeting infrastructure barriers to biofuels 

growth by forging strategic cost-shared partnerships with private industry, collaborating with other agencies, and working with the different regions of our country 

to bring the promise of large-scale biofuels distribution to fruition. 

Mr. Chairman, I am pleased to report to you that the Department’s focus on enabling the development of a domestic biofuels industry is already showing results. We 

have developed, in the Office of Energy Efficiency and Renewable Energy (EERE), 

a biofuels infrastructure team. This team connects, for the first time, the Vehicle 

Technologies Program and the Biomass Programs to promote a comprehensive and 

coherent approach to the biofuels industry. DOE recently completed testing on the 

BioPower sedan produced by SAAB (a subsidiary of GM) to validate E85 engine op-
13

timization technology, confirming the ability to meet EPA emissions standards and 

increased performance. 

The Department is coordinating pipeline work with DOT, which has responsibility 

for setting standards for pipeline transportation and ensuring that these products 

can be safely handled, and working to examine the compatibility of intermediate 

blends (such as E15, E20, and other lesser blends than E85) on the existing vehicle 

fleet with the EPA, which has responsibility for testing the emissions impacts of 

fuels and vehicles, and registering and certifying fuels and fuel additives before they 

can be used in the transportation system. Finally, we have elevated the level of activity and engagement of the Interagency Biomass R&D Board, an interagency coordinating group, to ensure a comprehensive approach to addressing key infrastructure barriers, such as feedstock availability and infrastructure development. These 

efforts, both internal to the Department and externally throughout the Executive 

Branch, are focused on reducing duplication, accelerating research, development, 

and commercialization activities, and ensuring a comprehensive approach to domestic biofuels deployment in a timeframe that is consequential. 

As I have testified many times before, Government funding alone will not be sufficient to meet the substantial challenges of changing our Nation’s energy portfolio. 

The deployment of pumps, vehicles, and other infrastructure must increase rapidly 

over the next decade, so that consumers have access to domestic renewable fuel 

sources. 

There are approximately 170,000 fueling stations in the U.S., of which only 1,183 

offer E85. In order to make E85 readily available, the Department estimates that 

approximately 50,000-60,000 stations must exist and operate simultaneously to fully 

implement an E85 infrastructure (similar to the current number of diesel stations). 

On average, retrofitting an existing fueling station to offer E85 is estimated to cost 

$60,000. The 2005 Energy Policy Act provided tax incentives that can defray up to 

$30,000 of the total cost. While it is not the Department’s role to pay for the installation of biofuels infrastructure, the Department can provide technical assistance, 

training, and small grants that can be leveraged by State, local, and private sector 

funds. In 2006, the Department, through its Clean Cities program, announced selection of alternative fuel infrastructure projects that will result in 182 pumps installed by the end of 2008. In the last 12 months, there were a record number of 

E85 pumps installed nationwide: 440. At this rate, it will take 110 years to reach 

critical mass in E85 infrastructure. The current rate of deployment is insufficient 

to support our national vision of domestic biofuels production, deployment and use. 

The Department believes that an E85 delivery system is an important goal of an 

alternative fuels infrastructure, but that intermediate blends (e.g., E15, E20) may 

offer an alternative approach to balance fuel production and use in parallel in order 

to enable continuous uninterrupted growth in production. In fact, intermediate 

blends may provide for more rapid absorption of renewable fuels into consumer markets in the near-term. 

Flexible fuel vehicles can readily and easily accommodate any biofuel blend up to 

and including E85. Currently, there are more than six million flexible-fuel vehicles 

(FFVs) on the road in this country, but still a relatively insignificant number representing a small percentage of the approximately 225 million light duty vehicles 

in the U.S. Domestic auto manufacturers have pledged to the President to make 

half of their products flex-fuel capable by 2012, and we are hopeful that this trend 

will be maintained and even be accelerated. It is important to note that this commitment is contingent of the availability of the physical presence of E85 infrastructure. 

During my first week on the job, I traveled with Secretary Bodman to Detroit, 

where he addressed the leaders in the automotive industry with a direct challenge, 

calling for more flex-fuel vehicles on the market for all vehicle types and classes, 

available from all manufacturers who serve the U.S. market. We see no technical 

reason why flex-fuel vehicles can not be more uniformly ubiquitous across all markets. Nor do we see any technical reason that at least the option of flex-fuel could 

not be offered to all consumers at a relatively low price. 

CODES AND STANDARDS

The widespread deployment and use of biofuels will depend in large part on the 

harmonization of existing codes, standards, and regulations, and the development 

and promulgation of new codes and standards where they are deemed necessary. 

This will ensure consumer confidence, safety, environmental protection, and the integrity of our Nation’s fuel supply, distribution, and utilization infrastructure. 

EERE has initiated an effort to engage international collaborations to address fuel 

standards, data sharing, and other common interests. Establishing harmonized 
14

codes and standards is critical and time sensitive since the market is expanding 

rapidly. For example, a standard that addresses fuel quality would directly affect 

production plant design and cost. 

The Department has been working with industry to sponsor work in codes and 

standards development for many years. These efforts have helped to accelerate the 

development of codes and standards for alternative fuels and establish mechanisms 

to distribute information to relevant stakeholders. Similar efforts are now underway 

to work with industry stakeholders and other Federal agencies to promote biofuels 

codes and standards. 

The Department is working with automotive manufacturers and E85 dispenser 

manufactures to establish Underwriters Laboratory (UL) safety certification procedures for E85 fueling equipment on an accelerated schedule. DOE provides technical 

guidance and coordinates with standards organizations such as the American Society of Testing and Materials (ASTM), the National Fire Protection Association 

(NFPA), the American Petroleum Institute (API), the American Society of Mechanical Engineers (ASME), and the Society of Automotive Engineers (SAE). We also 

work with the National Institute of Standards and Technology (NIST) and the Internal Revenue Service (IRS) on metering issues. It is worth noting that all pumps are 

tested and certified to accommodate up to E15. Variable pumps that allow consumers to select the most appropriate blends will soon be available to allow more 

choices and a more rapid absorption of biofuels in the marketplace. 

OUTREACH

Our vehicle technology deployment efforts, including Clean Cities’ activities, facilitate training of state and local public safety officials (e.g., local fire departments, 

construction and permitting officials, fire marshals, and first responders) which is 

critical to assuring the smooth and continuous expansion of biofuels markets. 

Though ethanol, either as E85 or as a blendstock in gasoline, garners most of the 

publicity these days, DOE also works on infrastructure issues which are associated 

with other current biofuels, such as biodiesel, and monitors the development of 

other biofuels which may be important in the future. 

In the biodiesel arena, DOE is engaged, along with our partners in the National 

Biodiesel Board, in important revisions to that fuel’s ASTM standard. This work has 

enabled broader application of biodiesel and increased the confidence of Original 

Equipment Manufacturers (OEMs) and vehicle owners that the use of biodiesel 

blends are compatible with existing engines. 

CONCLUSION

The President’s ‘‘Twenty in Ten’’ goal holds the promise of accelerating penetration of cellulosic ethanol and other alternative fuels into the marketplace and bringing the benefits of a clean renewable and alternative energy source more quickly 

to our Nation. Providing the necessary infrastructure is a critical part of reaching 

that goal, and we are mindful throughout our programs of that imperative. A comprehensive effort is underway to meet the challenges of a growing renewable fuels 

industry in transportation. 

In order to meet the target of 20 percent gasoline reduction in a ten-year span, 

it will require change in the status quo and agile capacity to adopt fuel delivery systems, codes and standards, and the national vehicle fleet. The President’s ‘‘Twenty 

in Ten’’ initiative outlines how this would be achieved through pursuit of technology 

advancements and policy incentives. In addition, voluntary market decisions must 

take place at a rate and scale that is consequential within a timeframe that matters. The Department appreciates the interest and support of the Committee in this 

critical area. This concludes my prepared statement, and I would be happy to answer any questions the Committee members may have.

Senator DORGAN. Secretary Karsner, thank you very much. Let 

me ask. Do you think the marketplace will solve this problem? 

Mr. KARSNER. Provided with the correct policy stimulus the marketplace is the delivery mechanism that will ultimately solve the 

problem. I suppose the question is do we have the appropriate policy stimulus to enable that outcome? 

Senator DORGAN. You’ve heard me describe what the major integrated oil companies are doing to prevent this from being solved. 

Will that prevention or will those prevention activities interrupt it 

if you think the marketplace is to solve the problem potentially? 
15

Mr. KARSNER. I certainly think that those impediments need to 

be addressed with respect to E85 delivery. 

Interestingly I just had lunch with Governor Pataki last week 

who had introduced legislation in New York to address those issues 

very specifically. So, on a State-by-State basis those issues are 

being addressed with regard to E85 under the canopy and exclusions on the gas stations. With regard to E85, I think we have a 

need to address it more comprehensively. 

Senator DORGAN. Should we address them on a national basis? 

For example, Chevron-Texaco and Conoco-Phillips station owners 

are not allowed to list E85 on their primary sign listing fuel prices 

and must pay to erect a separate sign. Is that something that restrains E85 in your judgment? 

Mr. KARSNER. I can’t speak for the position of the franchise 

owner itself. But I would say that the New York model, if it is not 

overly disruptive to the marketplace and handles the liabilities appropriately, may be something that we need to examine with regards to those impediments to E85. 

I would further add though, that the other pathways, E15 for example, where the pumps are already certified and exist may provide for more immediate penetration across all of these stations. 

Senator DORGAN. I’m going to ask you about that in a moment. 

But at the moment I’m asking you about the actions of the major 

oil companies to thwart the ability to have the infrastructure. Conoco-Phillips memo to franchisee says that it will not allow E85 

sales on the primary island under the covered canopy. Should we 

do something about that or should we just wait for the states to 

try to do something about that? 

Mr. KARSNER. It’s a little bit of a challenge, Senator, for me to 

address it because it’s really a contractual law issue between the 

parties of the franchisee and the franchisor. The reason I brought 

up the New York example is because I think it’s an example that 

has been tested that if it bears out could be an example to that. 

But I’m not an expert in the contract law. 

Does it represent an impediment to the distribution in and of 

itself? I think the answer to that is obviously, yes. 

Senator DORGAN. BP will not allow its franchised stations to 

offer payment by credit card at E85 pump. Is that an impediment, 

do you think to the sale of E85? 

Mr. KARSNER. If I were a station owner who wanted to sell E85, 

I would think that. 

Senator DORGAN. So, the reason I’m asking these questions—Do 

you think there’s something for us to do here when we see this 

kind of restraint on the sale of E85 or should we say, you know 

that’s happening in the marketplace. If the Big Oil companies want 

to decide to thwart the marketing of E85, so be it. We’ll just wait. 

Do nothing. What’s your impression? 

Mr. KARSNER. The first part of your question, do I think something needs to be done. The answer to that is yes. 

Senator DORGAN. By whom. 

Mr. KARSNER. I think policy stimulus is clearly necessary for the 

market to deliver that outcome. I don’t start with the premise that 

the oil companies are necessarily an adversary to the outcome. I 
16

think the policy stimulus needs to ultimately guide them to that 

outcome and hopefully guide them there profitably. 

Senator DORGAN. You don’t think this—these actions are detrimental to the right outcome? 

Mr. KARSNER. No, no. 

Senator DORGAN. It seems to me that the oil companies are doing 

exactly what you would expect them to do, if they have the power 

to make it stick. 

Mr. KARSNER. I mean to say they’re not necessarily adversarial 

to the solution. It may be that their interpretation of their contractual engagement with their franchisees at the present represents 

an impediment. I’m not sure that that impediment couldn’t be overcome and overcome profitably for them. 

Senator DORGAN. It appears to me their actions are adversarial 

to the sale of E85. 

Mr. KARSNER. In the present context I can see where you might 

interpret it that way. 

Senator DORGAN. Would you interpret it that way? 

Mr. KARSNER. Were I a franchisee and wanting to distribute E85 

and being denied to do so under my canopy for sale and for profit, 

I likely would. 

Senator DORGAN. How about as opposed to a policy maker. In 

terms of a franchisee, I understand. As a policy maker, would you 

look at these and believe that. Let me tell you why I’m asking the 

question. 

I don’t think that we have a ghost of a chance of solving this 

problem if we have those who control 60 percent of the service stations in this country deciding they’re going to do everything they 

can to try to prevent people from having free access, or I should 

say reasonable access to E85. This could be by keeping it off the 

island where you have the other pumps, not allowing credit cards, 

not allowing advertisement on the price, and so on. 

I don’t think we can solve this. I just don’t. Unless both as 

franchisees and as policy makers we say, wait a second. You can’t 

do this. So, I’m sorry—

Mr. KARSNER. I understand your meaning. I mean, fundamentally, there is a misalignment of the national objectives with the 

current laws and profitability in between the relationship for the 

franchisor and the franchisee. The complexity as a policy maker is 

this does involve a private contractual relationship to which both 

parties have consented. 

So, that is why I’ve said, again, going back to the New York 

model, they seemed to have threaded that needle in a way that 

bears examination. 

Senator DORGAN. My point of this hearing is that we have to 

change that relationship. In fact, we’re trying to change the relationship by which 60 percent of our oil comes from off our shore. 

One other question, others here need to be able to ask questions. 

You say on page four, you seem to suggest to me that, and you alluded to it a moment ago, the intermediate blends may provide for 

more rapid absorption of renewable fuels. I assume there you’re 

talking about blend pumps at 20, 30, 40, 50 percent blend, and I 

believe we really need to get to that point as well. 
17

But I—and while I think that that’s something that we should 

move toward, I think still hanging on to the notion of substantial 

widespread marketing of E85 is essential to making successful our 

goal of 36 billion gallons of renewable fuel. Would you agree with 

that? 

Mr. KARSNER. I would, but I would say that intermediate blends 

as low as anything above E10. As all pumps in this country are 

presently certified ready and enabled to use E15, in theory you 

could aggressively pursue E85 and at the same time pursue an intermediate blend of E15 and substantially accelerate your probability of meeting those goals in a shorter timeframe. 

Senator DORGAN. Mr. Karsner, you’re a good Assistant Secretary. 

You and I have traveled together. 

Mr. KARSNER. Yes, sir. 

Senator DORGAN. I like your work. This is one of those cases, on 

this issue where we as a country have pledged that we are moving 

in this direction. We’re going to head toward 36 billion gallons. We 

have to find a way to market it, or we’re going to fail. This will 

collapse. On some policies we can sit around somewhere between 

daydreaming and thumb sucking and nothing much will come of it. 

Nobody cares much because we just don’t do this or that or the 

other thing. 

In this case, if we don’t solve this infrastructure problem, this 

whole issue of producing renewable fuels and being less dependent 

on foreign sources of energy will not matter. We will fail as a country. So that’s why this is so unbelievably important. We have to get 

the infrastructure right. It’s not even a very sexy subject, having 

a hearing on infrastructure on E85. But it has profound consequences for this country. I’m going to send you this list of questions, and I hope we can work together. 

Again, I appreciate your work. I don’t mean to badger you about 

this. But I just feel so strongly that the policy issues here are just 

too important. We’ve just got to deal with them. They’re just of 

paramount importance. 

Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. Mr. Karsner, 

appreciate your being here, your testimony. I guess I’m listening to 

your comments, listening to what the chairman of the committee 

here has indicated and it just strikes me as we’re having this committee meeting after the horse has already left the barn or whatever the expression is. 

Senator Klobuchar mentioned the kind of the chicken and the 

egg situation that you can’t make this happen unless you’ve got the 

infrastructure in place where you know you can fuel up and you’re 

not going to buy the car unless you—we need to know that the infrastructure is there. We have signed on to a policy. The Administration has endorsed it very rigorously. Here we are. Now we’re 

trying to figure out how we make it work. 

It seems to me that many of these questions should have been 

asked before we committed to the policy. If we couldn’t make the 

policy work, perhaps we shouldn’t have gone down this road. We’re 

out the barn door so we’re making it happen. 

You have mentioned in the wording that you have used a couple 

of different times the current rate being insufficient here in terms 
18

of the number of filling station pumps that are out there, the rate 

that we are on and just the reality that we’re not going to be able 

to achieve our goal unless we improve the rate and scale in terms 

that are consequential, to use your terms. What does that really 

mean? What are we going to have to do in order for it to be consequential in order for us to meet the goal that we here in Congress have set? 

Mr. KARSNER. Ok. First let me say that I do believe we can do 

those things. So it is a reality that we can design and include the 

appropriate policy stimulus. If you’re talking about some of what 

the core elements are to get to a rate that is consequential, we 

have already done and addressed the most important core element, 

which is can we enable the conversion technologies to produce domestic clean fuels supply? Can we do that economically in a timeframe that’s consequential? The answer to that is, yes, from the 

technology point of view, the capital formation point of view, and 

the growth rates that are currently existing in the market. 

The question that we’re discussing today is then what do we do 

with all of this fuel? Where does it go? We know that where we 

know it needs to go is in our vehicle fleet. The amount of our vehicle fleet that can handle both intermediate blends in cars that are 

warranted or E85 is much too small. 

So at a cost of 45 to 200 dollars to modify our vehicle fleet and 

make it flex fuel ready, we need to get to that state where we uniformly have traffic predictably in terms of the cars that we have. 

On a comparable basis this is like having the option to buy mats 

or even maybe mud flaps, but with a larger more significant national security implication. That’s the car side of it. Those cars 

need someplace to go and a fuel to get. 

E85 is an important strategy, one that we will continue to pursue 

and to maximize, but it is constrained by locality and by distribution of the fuels. So we are looking into other, lower intermediate 

blends that have already accessed infrastructure such as E15. That 

will require a certification process by EPA and other blends like 

E20 that the state of Minnesota is petitioning for. 

So the very things that we’re talking about today, retail delivery 

structure, the pumps and retail availability of the modification of 

the vehicles, really are the enabling and negating factors for the 

piece, the most difficult piece that we’ve already covered, which is 

the production. 

Senator MURKOWSKI. Mr. Chairman, my time’s up. Thank you. 

Senator DORGAN. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. Mr. Secretary, 

there are 129,000 flex fuel vehicles in New Jersey, absolutely no 

E85 ethanol pumps in the State. So, I look at that and I look at 

our national strategy and I say to myself that this may be ethanol, 

a success story for rural development in the Midwest. But if we 

don’t create the infrastructure necessary to transport these fuels 

nationwide there’s a real threat that biofuels can be viewed as a 

regional issue rather than the national one that we expect it to be. 

I have been supportive of the pursuit of ethanol, but that support 

can’t be just for regional purposes at the end of the day. It’s about 

a national strategy. So it runs a risk of losing support if it only can 

be confined to a part of the country. 
19

One solution to this problem has been discussed has been to 

transport ethanol to the coast via pipelines. But I also understand 

that ethanol has a tendency to corrode and crack traditional fuel 

pipelines. Earlier this year, on April 12, you were before the committee. That’s about three and a half months ago. I asked you then, 

specifically, about ethanol infrastructure and whether the Department was working in conjunction with the DOT, the Department 

of Transportation to solve the problem of transporting ethanol via 

the pipeline. I think you told me at the time that you were just 

having meetings. So my question is has the work begun? What 

progress has been made? Let’s start there. 

Mr. KARSNER. Yes, the work has begun. 

Senator MENENDEZ. When did it start? 

Mr. KARSNER. I think shortly after that hearing to be honest 

with you or immediately before it, so maybe three or 4 months ago. 

I don’t recall when our hearing took place. 

Senator MENENDEZ. What type of progress has been made? 

Mr. KARSNER. I’m less comfortable speaking for the progress and 

the milestones because it is the Department of Transportation that 

does the work. We play a supporting and facilitating role. So, we 

meet not less than monthly at the highest levels with the Department of Transportation to discuss that issue. 

But I would add again, that you’re in a dynamic developing environment. So some things relative to pipelines are really based on 

corn based ethanol, which is conventional ethanol, which we have 

no investments in through the Department of Energy because it is 

already commercial at market. We anticipate for New Jersey, for 

the Northeast, for the Southeast, for other regions of the country 

to break out of the regionalism of the conventional ethanol and 

that we will see cellulosic ethanol on line and at commercial scale 

by 2012. So it is as likely in our mind that you would get a long 

distance transportation corridor from the Midwest for pipeline as 

it is that local producers would begin within the same timeframe. 

Senator MENENDEZ. Why is this such a technical challenge that 

the Brazilians have been pipelining ethanol for years? 

Mr. KARSNER. I’m not sure that it is a technical challenge. You 

know the Brazilians have a monopoly on their pipeline system. 

Petrobas has had that mandated for three decades, as you indicate. 

I think it is a question of our private pipeline companies getting 

comfortable with the proposition. 

I understand that many of them are, and that many of them are 

pursuing it and others of them are quite skeptical. What they 

would like the Federal Government to do, and what we are pursuing, is that material science based on the corrosion and the 

cracking that you mentioned as a current impediment. 

Senator MENENDEZ. Let me ask you this. I also understand that 

you are all working with the EPA to test whether traditional gasoline cars can use ethanol concentrations as high as E25, similar to 

what cars use in Brazil. In your testimony you referenced the testing was completed for one model of car, but when will the Department and the EPA finally have done the work necessary to put 

blends above E10 in regular gasoline cars? 

Mr. KARSNER. To my knowledge sir, not having gone through the 

process before, I am told that with the present statutory process, 
20

public comment periods etc, about the fastest that we could expect 

that to be completed would be 36 months, with the majority of time 

focused on the studies and technology validation that would precede fuel certification. 

Senator MENENDEZ. Thirty-six months. You know, GM and Ford 

together account for over 30 percent of the vehicles sold in Brazil 

and many of those cars are not flex fuel, yet they run on E25. Why 

can’t those same cars run on E25 here in the States? 

Mr. KARSNER. I think this is a great question for the automakers. 

That’s precisely what the Federal Government means to use our 

testing processes to validate. I mean some of—now most of those 

cars, I think, what you’ve been told are different models and different engine blocks than are sold in this country. That is, in fact, 

true. There are some common models that are sold in Brazil and 

sold in the United States which begs that precise question. But 

that is why we are embarking on studying that in a very methodical way, so that we can validate that answer. 

Senator MENENDEZ. I will certainly ask the questions. I hope the 

Department’s asking questions too. You’re ultimately in charge 

with promoting the energy security of the country at the end of the 

day. 

I’m going to ask you to submit for the record the timelines on 

some of this work that I’ve been asking you about. 

Mr. KARSNER. Sure. 

Senator MENENDEZ. When it began? What steps need to be completed and when this work will bridge the technical hurdles to 

allow for some of this to take place? I look forward to your responses in writing. 

Senator DORGAN. Thank you very much. 

Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman. Thank you again for 

testifying before our committee. I want to say if we come from a 

State—or I come from a State in Tennessee that is working on a 

continuum, if you will, as it relates to especially cellulosic ethanol 

but other ethanols. I have actually spent a good deal of time talking with people about E85 pumps. 

While there may be certain marketing constraints that our chairman referred to, there is also just the issue of the chicken and egg. 

That is I know of one particular facility that put in an E85 pump 

and it’s more of a novelty, if you will. There just aren’t that many 

vehicles out there to utilize it and they want to be part of solving 

our problem. 

I do think that what you have said about the blend piece is the 

way for us to maximize if you will the use of alternatives in this 

way. At the same time hear from people who market petroleum 

around the country that the various state standards that exist is 

one of the most complicating issues they deal with. I wonder if you 

could speak to that for just one moment? Apparently every State 

has a different formula and that too, if you will, creates additional 

issues, if you will, for people who won’t actually use ethanol as part 

of their mix. 

Mr. KARSNER. Thank you, Senator. 

I think that really refers to this idea of this balkanized boutique 

fuel market that we have across this country and the need for sim-
21

plification for greater efficiency. So, while that’s not unique to the 

question of ethanol, it certainly affects it when you start talking 

about different states with different blends and different certifications. For example, Minnesota is putting forward its own petition 

and sees a need to get to a higher intermediate blend to augment 

its E85 outlets which lead the Nation right now. That should serve 

as a bellweather we think we need this solution nationwide. 

So what we are seeking, together with EPA, is to understand and 

examine and determine whether or not these intermediate blends 

can be proactively certified so that we have nationwide standards. 

Senator CORKER. As we look at the limited resources and I know 

that at some point we’re going to be looking more fully I guess at 

the infrastructure needs both at the retailer but certainly at the 

pipelines. A few have mentioned that. What sort of sequence of priorities is most important for us to look at from the standpoint of 

the actual capital deployed and maybe the Federal Government’s 

role in that? What sequence? 

Mr. KARSNER. This is a great question in terms of whether it is 

the chicken or the egg. To the extent that you separate them and 

say what could come first, I suppose this is more of a personal than 

a professional assessment. But I would always say go with the 

least costly, least pain, first. 

In other words, if modification of the flex fuel vehicles creates the 

market or the repository where all the fuels ultimately go, one 

would say why are we not coming up with a policy where the automakers could do that profitably and not linking it to their CAFE ́

obligations. So once we understand, once anybody understands, including the majors, that vehicular traffic is more predictable in 

terms of consumers who can choose, then you immediately lift the 

incentive for this to get beyond independent, downstream retailers 

and to get it into the majors. 

So you need both, but in terms of least cost, modifying the fleet 

for flex fuel capability across the Nation, I think is quite important. 

It is important that we remove it from a selective exercise and not 

knowing where the cars in New Jersey or in California match up 

with the stations because it’s going to take 17 years to turn the 

fleet. So it’s something we need to get on with in a hurry. 

Senator CORKER. Thank you, Mr. Chairman. I know my time is 

up. 

Senator DORGAN. Senator Corker, thank you very much. 

Senator Tester. 

Senator TESTER. Yes, thank you, Mr. Chairman. Thank you for 

being here. The E10 can be burnt basically as gasoline right now 

without any modification in any vehicle, right? 

Mr. KARSNER. Correct. 

Senator TESTER. Do you have any idea how many pumps are 

pumping E10 or E15 right now? 

Mr. KARSNER. I couldn’t give you a number. But I would say it’s 

probably on the order of about half the Nation’s pumps right now 

doing E10. I think if you said an ethanol blend, any blend up to 

E10, it would probably be on the order of 80 percent of the pumps 

in the Nation. 

Senator TESTER. Ok. 
22

Mr. KARSNER. That’s a rough guess. I’d like to report back for the 

record. 

Senator TESTER. That would be good. That would be fine. If you 

would, I would appreciate that. 

E10, if it goes above E10 than there is some question as to 

whether it can be burnt? Where’s the line at? Senator Menendez 

talked about 25. Is that the 25? 

Mr. KARSNER. The question above E10 is what the vehicle manufacturers will warrant their performance in this country for. So it 

really is not a technical question in its entirety. It’s really a question of voiding the engines warranties. 

Senator TESTER. I’ll save that for the car manufacturers then. 

The Chairman talked pretty extensively in his questions. I’m just 

curious. Do you think, I mean you listed—the Chairman listed a 

lot of major oil companies there, many. Do you think that they are 

maybe obstructing the usage of ethanol? 

Mr. KARSNER. I think the oil companies have a fiduciary responsibility to maximize profitability for their shareholders. The idea of 

eroding that profitability with something that doesn’t belong in 

their market of fuels is probably against their interests. 

Senator TESTER. Does that trump national security? 

Mr. KARSNER. From whose perspective? From their shareholders? 

From our perspective clearly, we need 20 percent displacement of 

gasoline and ethanol has to be a priority for national security. 

Senator TESTER. Do you agree that if it never makes it to the 

pump, never makes it to the marketplace its chance for survival is 

slim to none? 

Mr. KARSNER. I agree that the ethanol must have outlets to the 

marketplace. Not only do we need it to achieve our goals, we need 

it to avoid the industry falling off a cliff relative to the growth 

rates that we have induced in industry. So we can keep it growing 

continuously or we can find an abrupt stop. 

Senator TESTER. Is it a position of the Department of Energy or 

do they have a position that our reliance on foreign oil is a problem? 

Mr. KARSNER. We do have a position that our reliance on foreign 

oil is a severe problem and it is a priority of our mission to address 

it. 

Senator TESTER. Do you see any conflict there at all? Do you see 

any conflict over the priority and ethanol not being able to be 

pumped at the pumps because they have agreements, I think, and 

from my perspective, they have agreements intentionally so that it 

makes a consumer depend upon foreign oil production. 

Mr. KARSNER. Who has agreements intentionally set up? 

Senator TESTER. The major oil companies. 

Mr. KARSNER. I see. 

Senator TESTER. With their franchises. 

Mr. KARSNER. Yes. It may be the case that their incentives are 

not aligned with the national security imperative. 

Senator TESTER. Ok, that’s fine. Information. Do you think that 

there’s adequate information going out to the consumer about ethanol, E85 or even the lesser percentage blends? 

Mr. KARSNER. No. 
23

Senator TESTER. Does the Department of Energy have a plan for 

that? 

Mr. KARSNER. We do have a plan. In fact we have institutional 

programming to get communication out. 

Senator TESTER. How will you do that? 

Mr. KARSNER. We have a Clean Cities Program by one example, 

which has offices in 85 different cities across the country to disseminate information, education, website access. But you asked me 

was it adequate or is it sufficient and relative to the amount of 

disinformation—

Senator TESTER. Yes. 

Mr. KARSNER. No, it is not sufficient relative to the rise in 

disinformation on ethanol. 

Senator TESTER. So you’ve just brought up a conflict. You’ve just 

brought up a problem. Is there some action proactivity planned to 

solve that problem from the Department of Energy standpoint? 

Mr. KARSNER. As with any communication campaign, persistence 

and refining your message and getting out in the outlets is your 

best available tool. But it’s not a one sided story. 

Senator TESTER. You know sometimes I wished I was an attorney, but oftentimes I’m glad I’m not too. 

So, I just find it interesting. I think that there is an information 

drought out there. I don’t know if there’s a lot of misinformation 

about ethanol. I know there’s not a lot of information about it, 

about its advantages, about national security, about energy security. My take is that maybe we ought to be more proactive on that. 

As far as the blends and as far as the taking 36 months to figure 

out what percentage will work in a vehicle. I think that’s unacceptable to be quite honest with you. Government tends to run slow, 

but there’s plenty of studies out there that deal with this issue. 

Mr. KARSNER. With all due respect, Senator, it’s not something 

we can do by just adopting a study. It’s not whether we understand 

whether the engine can perform that way. We could do that tomorrow. 

Senator TESTER. Yes. 

Mr. KARSNER. Whether we can certify it, whether the EPA can 

issue its certification according to statutory processes that it has is 

the issue. So we are dealing with the process that was given as a 

matter of the law and 36 months would be a record pace. 

Senator TESTER. Could you present some things that we could do 

to the statute to make that process more simple? 

Mr. KARSNER. We’d be happy to go to the EPA and report back 

to the record or work with your office. 

[The information follows:]

Statutory changes are likely not necessary. Based on our most recent experience, 

the majority of the time consumed in the current process for certifying new fuels 

is focused on the studies and analysis that are the basis for certification. The Department has been working with national laboratories and private contractors to 

conduct an extensive data collection effort and analyze performance, environmental, 

materials, and other issues associated with intermediate blends. EPA has been very 

helpful in reviewing DOE’s test design and methodology to ensure that our data collection and analyses will satisfy their requirements for determination of fuel certification. DOE has put this testing on a fast track and plans to share data with EPA 

throughout the process in order to inform their regulatory activities.
24

Senator TESTER. That would be great. Thank you very much. 

Thank you, Mr. Chairman. 

Senator DORGAN. Senator Tester, thank you very much. 

Senator Martinez. 

Senator MARTINEZ. Thank you, Mr. Chairman. Secretary, thank 

you for being here. I represent the State of Florida. We have over 

17 million people. The third largest consumer of petroleum products in the country and currently we have only 359,000 vehicles 

that are E85. But to compound the problem even more we only 

have one commercially available E85 pump available for that whole 

State of Florida. We are also way downstream from where most of 

the ethanol is produced. 

So, a couple of questions arising from that. We’re not producing 

ethanol in Florida that we can utilize and it would be likely not 

to be done for some period of time. Although I’m very hopeful that 

in the future Florida will play a very big role in that. But in the 

meantime do you think it would advance the national security interest of our country if we were to lift the tariff on Brazilian or on 

ethanol from any foreign source, but more specifically from Brazil 

and import ethanol to a place like Florida where we can then utilize it readily by bringing it in from off shore as opposed to importing oil from a country like Venezuela? 

Mr. KARSNER. It’s a great question, Senator. I’m not an expert 

in trade law or in the matter of the tariffs. Let me give a little bit 

of context. First of all, Florida is one of our six winners for cellulosic ethanol bio- refinery grants that we’ve invested up to a billion dollar in cost shares this year. So, we’re very hopeful about the 

future of citrus waste for cellulosic ethanol and some of the good 

work of Dr. Lonnie Ingram at the University of Florida has been 

instrumental. 

We see the southeast as a key area for ethanol growth on cellulosic that will be affected if other cheap ethanol were to flood into 

the market from Brazil. But even if it were that cheap, given its 

tropical advantages and growth rate of sugar, it’s questionable 

whether the Brazilians would have sufficient output even if there 

were a tariff lifted. Because of their own requirements, the Brazilians are actually short in meeting their own requirements and are 

having to scale back the amount of ethanol blends they have in 

their own systems. 

So I think that there is an extraordinary amount of excess optimism about what a tariff change would do relative to Brazilian outputs. We are heavily engaged with the Brazilians, in terms of the 

partnership, signed and agreed to by Presidents Lula and Bush on 

technical R and D collaboration and policy development. So, there 

might be, 1 day, when we see a greater globally commoditized ethanol market. At present that is a lower priority than getting to a 

more universally commoditized domestic market on the back of 

scaling infrastructure through the new R and D and cellulosic 

pathways. 

Senator MARTINEZ. I’m excited about the future research as well 

and I think there is a lot of hope coming out of the University of 

Florida’s research. But more specifically to what we can do in the 

meantime if the Brazilian option might not be—it certainly isn’t 
25

practical because even though we profess that we want ethanol 

there’s not the wherewithal here to do away with the tariff. 

So let me move away from that. The business of the infrastructure being there and the pipelines being utilized could also be a 

way in which Florida could benefit. I’m not sure I understood earlier, when you were asked about this existing infrastructure, 

whether it could be utilized or not. But I believe Senator Menendez 

had asked you something along these lines and I wonder if you 

might address it for me as to how can we get the existing pipeline 

infrastructure to be available to be utilized for ethanol so that we 

might be able to transport it to places like Florida. 

Mr. KARSNER. Again I think the Department of Transportation is 

working with pipeline operators who are interested in the subject. 

I understand there is a great deal of interest in new dedicated 

pipeline infrastructure. Actually retrofitting the use of a pipeline I 

understand to be slightly more complicated in terms of being able 

to flush that system and ensure that you minimize the corrosive 

nature of the oxygenates. 

So, those things are under the auspices of the Department of 

Transportation. We are conducting the technical tests to them for 

the private sector participants that are interested. But again, 

something much more in our portfolio is developing regionalized 

feed stock solutions and regionalized cellulosic future. So if you 

look at the same timeframe for planning, it’s a question of which 

happens first. 

Senator MARTINEZ. So for Florida’s future we’re more likely to 

find the solutions to our own problems closer in the neighborhood 

than we would be shipping it in pipelines across the country. 

Mr. KARSNER. We’re working to make that at least as likely, if 

not more likely. 

Senator MARTINEZ. My time is up, but let me just, as a comment, 

tell you that I know you don’t mean to sound like your protecting 

the oil industry from their failure to provide outlets for ethanol. So 

I would just add to the other comments that you heard that I think 

it’s vital that they be pressured, that they be pushed or they be bypassed, as we try to get ethanol to the consumer in an equally, fair 

playing field regardless of the current contractual obligations because those contractual obligations can also be changed by the mutual consent of the parties. 

I think the other relation of government is to push in that direction for the sake of our national security, for the sake of our energy 

security and also to help consumers find lower prices. 

Mr. KARSNER. Sure. 

Senator MARTINEZ. Thank you. 

Senator DORGAN. Thank you, Senator Martinez. Senator Cantwell. 

Senator CANTWELL. Thank you, Mr. Chairman. Secretary 

Karsner, is biodiesel still an R and D priority for the agency? 

Mr. KARSNER. Biodiesel is still something the agency works on. 

It is, relatively speaking, volumetrically far less available than the 

alcohol-based alternatives that we look at. So it is prioritized accordingly. 

Senator CANTWELL. So are we still spending resources there? I 

mean I have information—
26

Mr. KARSNER. We are, predominately on codes and standards 

and acceptability. I believe you’re going to have a witness from 

Chrysler Corporation, for example, and so when they talk about the 

reintroduction of the diesel engines we’re moving with them to certify higher levels of biodiesel blends. B5 is already certified and upward to B20. 

So, there’s less of a technological challenge and the technical 

work that we do for biodiesel is really about using other and better 

future feed stocks for it. 

Senator CANTWELL. But don’t we have to keep driving down 

costs? Isn’t that part of R and D is to technology breakthroughs 

that will help us drive down the costs particularly by using the by 

products of—I mean I think we know a lot already about crushing 

seed. That’s not the challenge. The challenge is figuring out what 

you can do to add value to that byproduct that’s produced and are 

we doing work on that? 

Mr. KARSNER. I can report back to you for the record on precisely 

what the biodiesel program—

Senator CANTWELL. I think we’re moving away from it. My point 

is that I don’t think we should be. So, but happy to hear—

Mr. KARSNER. Happy to work with your office and brief on that. 

[The information follows:]

The Biomass Program does Products R&D to make high-value chemicals and materials in biorefineries, including biodiesel facilities. Specifically, for glycerol, a byproduct of biodiesel production derived from plant and seed oils, the Program is 

working with the Pacific Northwest National Laboratory to develop enabling technologies that will lead to an integrated process for the production of propylene glycol 

(PG) from glycerol. PG is currently fossil-based and is used in a wide variety of applications including detergents, food, paints, functional fluids (antifreeze, deicers), 

and polymers. The goals of this project are to expand the market for glycerol from 

biodiesel production, displace fossil-based PG production, and increase the profitability of biodiesel production. This project expands the focus of the Biomass Program’s portfolio beyond cellulosic ethanol to accelerate the Program’s efforts toward 

reaching the President’s ‘‘Twenty in Ten’’ goals.

Senator CANTWELL. Happy to hear that the Administration may 

be changing its mind on that. 

On this issue I think my colleagues are obviously trying to get 

your comments and thoughts obviously because your title is the Assistant Secretary for Energy Efficiency and Renewable Energy. We 

have set, at least out of the Senate a goal; I mean a mandate, as 

you mentioned, of reducing by 20 percent at least even the Federal 

fleet efficiency and a 10 percent mandate by 2015 every year of use 

of alternative fuels. So, if that ends up becoming law the Federal 

Government in and of itself will have a challenge. 

But let me ask you specifically, do you think that—would you 

support legislation that says that the oil companies can’t, in contract nature, prohibit franchisees from making alternative plans for 

alternative fuel on their sites? 

Mr. KARSNER. Senator, we just have to review the legislation 

that you’re contemplating. 

Senator CANTWELL. My colleague, Senator Klobuchar talked 

about it. I’m saying do you think that the franchisees should be 

able to, just because they buy gasoline from Chevron or Shell, do 

you think they also should be prohibited from purchasing a product 

from an alternative fuel source? I’m just asking your opinion on 

whether you think they should be prohibited? 
27

Mr. KARSNER. You know, you’re asking me about a relationship, 

a specific legal relationship, between franchisor and franchisee. I’m 

just not nearly knowledgeable enough. I’ve never owned a gas station. I’ve never owned an oil company. In terms of the end outcome 

you seek, accessibility and penetration beyond independent downstream retailers amongst our majors clearly that is something the 

Administration would like to work to occur. Asking a very specific 

detailed question on how we would affect the franchise contract is 

just something we would have to see in detail. 

Senator CANTWELL. I think because you point out in your testimony in order to meet the 20 percent gasoline reduction in a 10 

year span will require a change in the status quo, an agile capacity 

to adopt fuel delivery systems, codes, standards and the national 

fleet. So, I think you’re pointing it out. 

Mr. KARSNER. But not to exclusively toward E85. We’re pointing 

it out in the context of E15 and E20 by way of example, were they 

certified, would go further and faster and would likely be acceptable to—

Senator CANTWELL. I love that you can go over to the Pentagon 

and get gasoline there and you have your traditional sources. But 

right next to it are E85, biodiesel and even the use of natural gas. 

Now it’s at a separate island, separate station, everything. 

The question though is does the Administration—if we’re going 

to meet this goal than obviously the Administration has to have a 

plan. That’s what everybody is dancing around here trying to get 

an answer from you as to what does the Administration want to 

do on that infrastructure issue. I get that it’s not all your portfolio, 

some of this area is probably some other committees. 

But you mention delivery systems and codes and standards and 

so I’m assuming by that you believe that we should actually pass 

legislation about codes and standards. Is that correct? 

Mr. KARSNER. I’m not at all sure that legislation is what’s required. 

Senator CANTWELL. But who would adopt, in your testimony, you 

say codes and standards. Who would adopt that then? 

Mr. KARSNER. I think that there are many means already in statute to develop the necessary codes and standards. For example, the 

B5 and B20 that I just referred to doesn’t require new legislation; 

it requires the appropriate testing and certification. With regard to 

the infrastructure that we’re dancing around in terms of a plan, let 

me say, that we’re being clear. We do not believe a plan, exclusively based on E85 penetration is a plan that can be consequential 

within the timeframe being discussed. 

Therefore alternative intermediate blends must be part of the 

conversation. There is infrastructure in place now without any 

modifications, without any need to address codes and standards for 

E15 that would go a very long way toward that objective. 

Senator CANTWELL. I think you’re answering the question in a 

different way. I’m glad to hear that you’re thinking beyond E85 because frankly the northwest was over 70,000 flex fuel cars and in 

most alternative fuel stations we have, 50 are biodiesel. So we have 

next, in less than 10 days the largest biodiesel facility in the 

United States opening with 100 million gallons of biodiesel hadn’t 
28

even been produced in all of the United States. So we’re definitely 

on a different path. 

But my point is this, does the Department of Energy, particularly 

your job on renewable fuels, believe that we need to adopt further 

codes and standards as it relates to infrastructure? Yes, no? 

Mr. KARSNER. I think I prefer to report back to the record comprehensively because it could be a very wide range of lists. 

Senator CANTWELL. In general do you think that the Federal 

Government needs to—

Mr. KARSNER. With regard to biodiesel I would say yes. With regard to the other alcohol blends I would say I need to give you a 

more extensive answer on whether or not the codes are necessary. 

[The information follows:]

The Department of Energy has been collaborating with the American National 

Standards Institute (ANSI), the recognized administrator and coordinator of private 

sector voluntary standardization in the U.S., to identify barriers to large scale market entry of biofuels. This collaboration includes other Federal Agencies, such as the 

Department of Transportation, National Institute of Standards and Technology 

(NIST) and the Environmental Protection Agency, to determine how the Federal 

Government can facilitate and accelerate the development and adoption of voluntary 

standards that are necessary for the emerging biofuels infrastructure. The Department has also been collaborating with the manufacturers of dispensing equipment, 

automotive manufacturers, and Underwriters Laboratory to complete the certification of E85 dispensers and other fueling equipment on an accelerated schedule. 

The Department provides technical guidance and coordinates with standards organizations such as the American Society of Testing and Materials (ASTM), the National 

Fire Protection Association (NFPA), the American Petroleum Institute (API), the 

American Society of Mechanical Engineers (ASME), and the Society of Automotive 

Engineers (SAE). DOE also hosts public/private sector workshops to discuss relevant 

issues. The Biomass Program will continue to work with its partners toward the development of a biofuels infrastructure that will ensure consumer confidence, environmental protection, and the integrity of our Nation’s fuel supply, distribution, and 

utilization infrastructure.

Senator CANTWELL. Thank you, Mr. Chairman. 

Senator DORGAN. Senator Bunning. 

Senator BUNNING. Thank you very much, Mr. Chair and I apologize for being here a little late because I was on the floor offering 

an amendment on SCHIP. 

Mr. Karsner, ethanol has grown rapidly in recent years and has 

been praised for decreasing our dependency on oil, improving our 

trade deficit, cleaning up our environment and providing investment for American communities rather than the Middle East. As 

you may know I have been a leading proponent to the effort to develop coal to liquid fuels. I believe that coal to liquid fuels have all 

the benefits of biofuels but can be used in existing infrastructure 

and blended in current fuels. If we hold them to the same environmental standards do you see any reason the United States should 

not use corn cellulose and coal to make secure domestic fuels? 

Mr. KARSNER. If all of them are held to precisely the same environmental standards? 

Senator BUNNING. That’s correct. 

Mr. KARSNER. So I would assume you would include emission 

standards, tailpipe emissions and that? 

Senator BUNNING. Exactly what I said. 

Mr. KARSNER. Ok. If it includes the same emissions standards, 

which one would assume includes carbon capture and storage, I 

would say the answer to that is yes. 
29

Senator BUNNING. I don’t think we have carbon capture and storage on regular gasoline, do we? 

Mr. KARSNER. No, but you would need that to get to the same 

emissions standards for coal to liquids. The coal to liquids cannot 

meet the same emissions standards as the other fuels you mentioned without carbon capture and storage. 

Senator BUNNING. That’s a matter of opinion, sir. 

Mr. KARSNER. Ok. 

Senator BUNNING. If you do some scientific research you might 

find it differently. 

Mr. KARSNER. Yes, sir. 

Senator BUNNING. You mentioned several of the 2005 energy programs that DOE is working on. Could you tell us if there are any 

programs that have not gone as you hoped and could be refined by 

Congress, specifically could you also provide an update about the 

loan guarantee program? 

Mr. KARSNER. I would be happy to do that and report back for 

the record, sir. 

Senator BUNNING. You don’t have that on hand? 

Mr. KARSNER. Our office has no auspices or oversight on the loan 

guarantee program. But I’d be happy to get that from DOE and report back to your office on it. 

[The information follows:]

EERE does not have management responsibility for the DOE Title XVII loan 

guarantee program. However, I am pleased to provide the following update on the 

program’s status. On August 14, 2006, the Department published a set of Guidelines 

(Guidelines) and an initial solicitation for Pre-Applications for the first round of loan 

guarantees authorized by Title XVII of the Energy Policy Act of 2005 (Title XVII 

or the Act) (42 U.S.C. 16511-16514). (71 FR 46451). The deadline for submission of 

Pre-Applications in response to the first solicitation was December 31, 2006, and 

DOE received 143 Pre-Applications which are currently being reviewed. 

On February 15, 2007, President Bush signed into law Public Law 110-5, the Revised Continuing Appropriations Resolution, 2007 (CR or Public Law 110-5) which 

authorizes DOE to issue guarantees under the Title XVII program for loans in the 

‘‘total principal amount, any part of which is to be guaranteed, of $4,000,000,000.’’ 

Section 20320(b) of the CR further provides that no loan guarantees may be issued 

under the Title XVII program until DOE promulgates final regulations that include 

‘‘programmatic, technical, and financial factors the Secretary [of Energy] will use to 

select projects for loan guarantees, policies and procedures for selecting and monitoring lenders and loan performance, and any other policies, procedures, or information necessary to implement Title XVII of the Energy Policy Act of 2005.’’

On May 16, 2007, DOE published a Notice of Proposed Rulemaking (NOPR) and 

opportunity for comment (72 FR 27471) to establish permanent regulations for the 

implementation of the loan guarantee program. DOE held a public meeting concerning the NOPR on June 15, 2007, in Washington, D.C. The Department is currently developing its final regulations for the loan guarantee program. The Administration’s 2008 Budget proposes that DOE may guarantee up to $4 billion in loans for central power generation facilities (for example, nuclear facilities 

or carbon sequestration optimized coal power plants); $4 billion in loans for projects 

that promote biofuels and clean transportation fuels; and $1 billion in loans for 

projects using new technologies for electric transmission facilities or renewable 

power generation systems. 

Regarding particular provisions in the Energy Policy Act of 2005 that concern 

EERE programs and that have been problematic from our perspective, I would call 

the Committee’s attention to section 942, the reverse auction for cellulosic biofuels 

production incentives. Industry has expressed limited interest in this provision, and 

implementation has been hampered by ambiguities in the legislation. The Department believes this section could be beneficial to industry, if some technical and clarifying changes were made. I would be happy to work with Committee staff to address 

these concerns. 

Additionally, under Title III of the Energy Policy Act of 1992, Federal agencies 

continue to strive to achieve alternative fuel vehicle requirements, while still reduc-
30

ing petroleum consumption. It is difficult, however, to meet those goals, because 

automakers do not make sufficient quantities of alternative fuel vehicles in the models needed by the Federal agencies. In many cases, Federal agencies are purchasing 

alternative fuel vehicles to meet statutory EPACT requirements, specifically flexible-fuel E85 vehicles (FFVs), that are larger, less efficient, and more expensive than 

the vehicles needed to meet the Federal mission requirements. 

For example, agencies would prefer to purchase four-cylinder, efficient, compact 

sedans for many applications. FFVs are not offered in that size, and agencies have 

to purchase six-cylinder, less efficient, mid-size sedans or even light-duty trucks in 

order to comply with EPACT. Automakers are incentivized to make FFVs in larger 

vehicles in order to maximize their ability to receive credits towards CAFE compliance. It is troubling that Federal agencies striving to achieve the goals of EPACT 

and increase the use of alternative fuels are stymied in that effort due to lack of 

availability of FFVs from the automakers, when the technology to make every vehicle flex-fueled is proven, widely available, and low-cost.

Senator BUNNING. You mentioned that we will need harmonized 

existing codes and procedures. This has been brought up for ethanol. You know before biodiesel our diesel fuel became used across 

the country we had a devil of a time in finding a station in Kentucky that delivered diesel fuel. Until all of a sudden the major oil 

companies and others and some major independents for that matter started to put diesel pumps in their delivery system. 

Do you see, other than the other fuels that you mentioned, any 

ability other than E85 which has a corridor now from Chicago to 

St. Louis and to Kansas City which has quite a few E85 pumps, 

the expansion of that into other areas? For the simple reason we 

are developing ethanol plants, biodiesel plants and as my good 

friend from Florida said, they would like to see the same type of 

availability in Florida and many other States feel the same way. 

Do you see that happening? 

Mr. KARSNER. I see it happening but not at a rate that will bear 

fruit relative to the end State. 

Senator BUNNING. How about by 2015? 

Mr. KARSNER. By 2015 at the present rate we will not have had 

sufficient—

Senator BUNNING. It won’t impact us. 

Mr. KARSNER. On E85. Again E15 we already have 100 percent 

penetration of the infrastructure we just have to only use it up to 

E10. 

Senator BUNNING. Yes, I know. I use it in my car. 

Mr. KARSNER. Right. But your example about the diesel is a very 

good one in the sense that about half of our stations have diesel 

access now. It’s a useful analog, in terms of work on promulgating 

the ultra low sulfur diesel standard that we have just adopted and 

the oil companies are now distributing through those pumps. 

Senator BUNNING. The Secretary—or the Senator from Washington talked about the availability and use of diesel fuel in the far 

west. In Owensboro, Kentucky, I’m going to cut the ribbon for a 

plant that will make a million barrels of biodiesel a year. Now, 

they’ve got to distribute that somewhere. This is an independent 

expenditure. 

My time has expired. But this is an independent company that 

is not connected with any major oil companies so they have to have 

the distribution capability of getting it to places that will sell it. If 

we don’t have that capability or the Department of Energy doesn’t 

care about that capability than we are not going to have any impact on reducing our dependency on Middle Eastern oil. 
31

So, is the Department of Energy interested or aren’t they? 

Mr. KARSNER. With regard to that specific Owensboro plant I’d 

be happy to get in touch with your office and in touch with the people who are behind that plant and discuss with them their capacity 

to get to market. So we are interested and we do care. 

Senator BUNNING. A million barrels is not a drop in the bucket. 

It’s a pretty big outfit. 

Mr. KARSNER. I’d be happy to follow up with your office, sir. 

Senator BUNNING. Please do. Thank you very much. I’m over my 

time. 

Senator DORGAN. Thank you. Senator Sessions. 

Senator SESSIONS. Thank you. Just briefly, Mr. Secretary. My 

thoughts about E15, E85 and ethanol sort of run to a common 

sense approach, I think. I definitely support ethanol. I think it provides tremendous potential for our agricultural community. It 

keeps wealth at home. When we purchase a gallon of fuel from 

abroad that’s a transfer of American wealth which I would prefer 

it stay in our own economy. So I favor that and have supported the 

ethanol requirements. 

But it seems to me that when we draw and if we draw regulations, should not those regulations common sensically say that if 

the ethanol is produced in a certain area of the country that we 

ought to emphasize that E85 pumps in that area of the country 

and not 2,000 miles away where it’s got to be hauled to there. If 

we’re trying to achieve the lowest possible cost for our consumers 

and have you given much thought to precisely how the most economical way to handle the distribution of ethanol is and what kind 

of mandates might be required? 

Mr. KARSNER. Yes, sir. I think you’ve framed a very good question. Of course, our current programming through Clean Cities, for 

example, is nationwide and we would like to see E85 be a nationwide fueling option. But logically it is at lower cost where it is colocated with the conventional industry today. That is why the State 

of Minnesota has about half the Nation’s pumps. Then you can 

take a handful of other states again co-located with the conventional corn based ethanol economy. 

Senator SESSIONS. Now what do you mean by that? Meaning 

Minnesota produces a lot of ethanol so that’s why they have the 

most ethanol pumps? 

Mr. KARSNER. We think there’s a relationship there. 

Senator SESSIONS. Alright. Do you know how much it costs to 

move it to Oregon? 

Mr. KARSNER. It costs much more than if you got it in Minnesota. 

Senator SESSIONS. Now wouldn’t it be better to emphasize greater encouragement to the Midwest where most of our ethanol is 

being produced than to do it nationwide in one fell swoop? 

Mr. KARSNER. I think your final phrase is the right one. Do you 

do it in one fell swoop or is this evolutionary through time? It certainly makes more sense to have more economical co-location earlier with production when the challenges are with delivery, 

teminalling and transport. 

But, your State, for example has amongst the most promising futures in cellulosic ethanol, and as you know, many of the leading 

scientists that have been contributing to our efforts. So, when and 
32

if we scale cellulosic ethanol and if co-located in other areas then 

we would anticipate and we would be hopeful, that we have a regime that enables E85 pumps without impediments nationwide. 

Senator SESSIONS. Do we have—my time is up. What kind of 

rules do we have now nationwide that applies to gasoline pumps 

and ethanol? 

Mr. KARSNER. I think that’s the dilemma we’re here discussing 

is that really these are State-by-State rules presently and so, for 

example, some of the issues that have been addressed here today 

have been addressed in New York with legal and regulatory action. 

Other States haven’t addressed them at all. But I’m not sure that 

we have a nationwide approach as of yet. 

Senator SESSIONS. Thank you. 

Senator DORGAN. Mr. Secretary Karsner, let me go through 

something with you quickly. The President in his State of the 

Union address said he wants to get to 35 billion gallons of ethanol 

by the year 2017. That’s 10 years from now. You indicated that one 

half of the gasoline we use in this country is blended with 10 percent ethanol. We use about 140 billion gallons of gas, means 70 billion gallons are blended with 10 percent ethanol. That’s a seven billion gallon market for ethanol at the moment. 

Ten years from now we want to be at 35 billion according to the 

President’s State of the Union speech and you’re talking now about 

going to 15 percent blend because you can do that without dealing 

with the other issues. My great concern about what I heard here 

today is that if we’re not running full speed to try to figure out how 

do you market through vehicle carburetors and fuel injectors this 

new fuel that we’re going to create. If we don’t find a way to market that in significant quantities, and I’m not talking about 10 percent or 15 percent, then we’re headed toward failure. We’re headed 

toward a cliff with respect to ethanol markets. 

I understand why you would say let’s try to go from 10 to 15 because you don’t need modifications and so on. But if we’re not running full speed to try to figure out how you get E85 pumps on those 

islands on gas stations all across this country. If we don’t do that, 

we can’t succeed. So that’s my concern at the moment from what 

I’ve heard here today because you’ve mentioned on several occasions well, we can go to 15. We can go to 15. 

This hearing is about blend pumps. When I’m talking about 

blend pumps, I’m talking about 20, 30, 40, 50 percent blend pumps, 

and I’m especially talking about E85 pumps. 

Mr. KARSNER. I want to be clear, because it sounds like I haven’t 

been clear through the hearing. I don’t believe any of these are mutually exclusive or sequential. I think that you can maximize the 

possibilities at E15 and maximize the greater penetration of E85 

and that we should be looking at blend pumps for everything in between. 

So the question is multiple pathways versus an exclusive pathway. I think we should be preserving multiple pathways. So that’s 

what we’re doing is testing E15, E20, higher blends where possible 

and trying to maximize routes for E85. 

Senator DORGAN. One final question. The June GAO report titles 

the conclusion page, ‘‘DOE Lacks a Strategic Approach to Coordi-
33

nate Increasing Production with Infrastructure Development and 

Vehicle Needs,’’ Speaking of biofuels, is it fair or unfair? 

Mr. KARSNER. We responded to that as generally a fair criticism 

of the Department’s past and it’s characteristic of the rate of evolution in the Department’s thinking. So we are approaching that 

report with the need for action. 

Senator DORGAN. If a year from now the GAO is asked to do a 

similar report you think that is—

Mr. KARSNER. That will not be their finding. 

Senator DORGAN. There will not be the lack of a strategic approach. 

Mr. KARSNER. I would agree. They will not find a lack of a strategic approach if they did a year from now or a month from now. 

Senator DORGAN. Mr. Karsner, as I indicated you know a lot 

about these subjects. I appreciate that you come to government and 

are lending us your thoughts and your abilities. The fact is that I 

want you to succeed, but as I started by talking about the major 

oil companies, I don’t suggest that there are villains with respect 

to these issues. I think there are some interest who have their own 

self interest that is at odds with the national interest, and I will 

talk a little bit about that I guess with a couple on the next panel. 

But when that is the case, when self interest is big enough to 

have a significant national impact and that self interest is at odds 

with the national interest then public policy must prevail in my 

judgment. So, I appreciate very much your coming here today. 

Senator Corker, did you have another comment? 

Senator CORKER. Mr. Chairman, I noticed that I had about 30 

seconds left on my time before. I would, I do think that this testimony has been most helpful and I think there are a number of 

things that we can do incrementally to make a huge difference and 

I really appreciate you having this hearing. 

I’m wondering if based on all the questions that have been asked 

today and certainly your testimony if you might send back to us 

some legislative proposals. 

Mr. KARSNER. If they’re cleared by OMB, I’d be happy to do that, 

sir. 

Senator CORKER. Forget OMB. I found them to be the hicky in 

all these things. I hope that OMB is present. But could you send 

back to us some policy changes that you think the Balkanization 

issue, some of the other things we talked about that we might consider and very near legislation to really address a number of these 

issues. All of which are incremental, but added up together might 

make a huge difference. 

Mr. KARSNER. Yes, sir, per the Secretary’s advice we are working 

on a bipartisan basis for technical drafting assistance for any legislation that the President might have the capacity to sign to address 

this problem. 

Senator DORGAN. Secretary Karsner, if you do and I expect you 

do have to run all of these things through the Office of Management and Budget, would you send us a copy of what you send to 

the Office of Management and Budget? 

Mr. KARSNER. I’ll endeavor to do whatever the process requires. 

Senator DORGAN. Thank you very much. 

[Laughter.] 
34

Senator DORGAN. You will not do that. I understand. 

[Laughter.] 

Senator DORGAN. Secretary Karsner, thank you very much for 

being with us. 

Mr. KARSNER. Thank you, sir. 

Senator DORGAN. The third panel today, and I will ask them to 

come up as Secretary Karsner takes his leave, is going to be Mr. 

David Terry, Project Coordinator of the Governors’ Ethanol Coalition; Mr. Charles Drevna, the Executive Vice President of the national Petrochemical and Refiners Association; Mr. Jonathon Lehman, Advisor of VeraSun Corporation; Ms. Deborah Morrissett, 

Vice President of Regulatory Affairs Product Development at the 

Chrysler Technology Center in Auburn Hills, Michigan; and Mr. 

Phillip Lampert, Executive Director of the national Ethanol Vehicle 

Coalition in Jefferson City, Missouri. 

We appreciate all of you coming today. Some of you have traveled 

some ways to be with us, and you are aware from the questions 

and the testimony that you’ve heard previously that this is of great 

interest to us. We’re trying to understand what is happening and 

what should happen in order to advance good public policy. 

Mr. David Terry, you are testifying on behalf of the Governors’ 

Ethanol Coalition. As I indicated all of your complete statements 

will be made part of the record. We ask that you summarize. 

Mr. Terry, you may proceed. 

STATEMENT OF DAVID TERRY, REPRESENTATIVE, 

GOVERNORS’ ETHANOL COALITION 

Mr. TERRY. Thank you, Mr. Chairman and distinguished members of the subcommittee. I, representing the Governors’ Coalition 

today and on behalf of Nebraska Governor, Dave Heineman, and 

Illinois Governor, Rod Blagojevich, Chairman and Vice Chairman 

of the Governors’ Ethanol Coalition, we appreciate the opportunity 

to present our views today. 

The Governors’ Ethanol Coalition includes 36 of the Nation’s 

Governors focused on the use of ethanol based fuels to decrease the 

Nation’s dependence on imported energy, improve the environment 

and stimulate the national economy. The Coalition was formed in 

1991 by then Senator Ben Nelson when he invited other Governors 

interested in promoting the increased use of ethanol. 

Two years ago the Coalition delivered to Congress and the President a set of national policy recommendations that were adopted 

as a part of the energy policy after 2005. These policies and others 

resulted in the dramatic expansion of ethanol use and production 

and accelerating the delivery of a new generation of advanced 

biofuels such as cellulosic ethanol. 

Because of the rapid pace of growth in the biofuels market and 

the opportunity to do more to address the serious energy challenge 

facing the Nation, the Governors prepared a new set of recommendations this year. These recommendations were focused on 

a combination of robust research and demonstration coordinated 

with the States, expanded renewable fuel standards and a strategic 

approach to increases ethanol infrastructure. Collectively these recommendations are an essential part of the solution to our energy 

crisis. 
35

In the infrastructure area the Coalition recommends encouraging 

the Department of Energy and other relevant Federal agencies to 

partner with states and industry to work through transitional infrastructure issues such as storage sighting, rail access, pipeline 

potential and other logistical issues. But our greatest concern in infrastructure remains in building a higher—a larger market for 

higher blend ethanol such as E85 and other 20 to 85 percent blends 

in order to offer consumers a choice in the fuels they use. 

To address this issue we recommend continued support of ongoing national program efforts such as those of the National Ethanol 

Vehicle Coalition, represented by Phil Lampert here today. Also the 

Clean Cities Program at the Department of Energy. While we think 

these infrastructure programs are extremely important and should 

be expanded, we think other more aggressive and creative solutions 

are needed as well. 

In that regard, we think we need to view infrastructure in a new 

way to reflect the fundamental changes that have occurred in the 

biofuels market in the last couple of years. In particular to keep 

pace with the historic commitment offered by the domestic auto 

manufacturers to produce 50 percent of their vehicles as flex fuel 

capable provided the infrastructure commitment also rises to that 

occasion. We think this is too historic of a commitment to miss as 

a way to break the long standing stalemate of too few vehicles and 

too few pumps. 

We think the vehicle side of this equation is changing, and we 

think we need to change our approach as well and be more strategic, more aggressive in that regard. Nine months ago the Coalition convened. A group of experts led by Senators Daschle and Dole 

to examine an approach to infrastructure that would complement 

these ongoing national efforts. 

The result was determination that it was a very complex issue, 

would be very difficult to transform markets on a national basis 

without concentrating on such a strategic manner first on major 

metropolitan areas. We think of major metropolitan areas as being 

modest sized cities as well as larger cities. We dubbed this approach city to region initiative. The Coalition recommended that 

initiative to Congress and the President earlier this year and to the 

Department of Energy. 

The idea would be for—to concentrate the efforts of vehicle manufacturers, distributors, fuel retailers, producers, States and cities 

to transform the transportation and fuel markets of at least three 

major metropolitan cities. The initiative would propose cost shared 

competitive Federal funding for three State led teams to bring 

higher blend ethanol fueling pumps, vehicles, incentives, education 

and marketing to those areas. The result, we hope, of the program 

would be to bring higher blend ethanol pumps to at least 25 percent of the stations in those metropolitan areas. The Coalition believes that the Department of Energy should be encouraged to undertake the city to region initiative as well as other creative approaches that can move higher blend ethanol forward more quickly. 

Today’s focus on ethanol infrastructure is in part a result of the 

success we are witnessing in greater ethanol production and the 

advances in cellulosic and other biofuels technologies. The Governors’ Ethanol Coalition believes that we must act now to expand 
36

infrastructure in a manner that prepares the way for this important domestic fuel to become part of the mainstream choice for 

American consumers. 

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

the opportunity to present our views. 

[The prepared statement of Mr. Terry follows:]

PREPARED STATEMENT OF DAVID TERRY, REPRESENTATIVE, GOVERNORS’

ETHANOL COALITION

Chairman Dorgan and distinguished members of the Energy Subcommittee, my 

name is David Terry and I serve as representative of the Governors’ Ethanol Coalition. On behalf of Nebraska Governor Dave Heineman and Illinois Go vernor Rod 

R. Blagojevich, Chairman and Vice Chairman of the Governors’ Ethanol Coalition 

(http://www.ethanol-gec.org), I thank you for the opportunity to appear before you 

today and greatly appreciate your effor ts to bring attention to the need to improve 

our nation’s renewable fuels infrastructure. 

The Governors’ Ethanol Coalition includes thirty-six of the nation’s governors and 

is focused on the use of ethanol-based fuels, to decrease the nation’s dependence on 

imported energy resources, improve the environment, and stimulate the national 

economy. The Coalition was formed in 1991 when Nebraska Governor Ben Nelson 

invited other governors interested in promoting the increased use of ethanol to work 

together. Since then, the Coalition has grown to 36 governors plus international representatives from Brazil, Canada, Mexico, Australia, Sweden, and Thailand, all 

working to expand the opportunities brought by the production and use of clean, renewable, domestic biofuels. 

Two years ago, the Coalition delivered to Congress and the President sweeping 

national policy recommendations that were adopted by Congress in the Energy Policy Act of 2005. The result of these policies was the dramatic expansion of the production and use of ethanol and the accelerated delivery of a new generation of advanced biofuels. These recommendations were driven by the governors’ concern for 

the threat presented by our dependence on oil, which has diminished the Nation’s 

leverage in foreign affairs and resulted in an enormous and continual transfer of 

the Nation’s wealth to other countries. 

Because of the rapid pace of growth in the biofuels market and the opportunity 

to do more to address the serious energy challenge facing our Nation, the governors 

prepared a new set of recommendations this year. These new policies stress a combination of robust federal research and demonstration coordinated with the states, 

an expanded Renewable Fuels Standard (RFS), and a strategic approach to increased ethanol infrastructure. Collectively these recommendations are an essential 

part of the solution to our energy crisis. We are pleased with the Subcommittee’s 

focus on the longstanding infrastructure challenge and as Congress considers energy 

legislation we urge an approach that is consistent with the Coalition’s recommendations, Ethanol from Biomass: How to Get to a Biofuels Future (http://www.ethanolgec.org/information/biomasstoethanol2006.htm). 

The Coalition recommends a set of infrastructure policies that encourage the U.S. 

Department of Energy and other relevant federal agencies to partner with the states 

and industry to work through transitional infrastructure issues such as storage 

siting, rail access, pipeline potential, and other logistical issues. However, the governors’ greatest concern is building a market for higher blend ethanol (i.e., E30 - 

E85) in order to offer consumers a choice in the fuels they purchase and to diminish 

the use of imported oil. To address this issue, we recommend continued support for 

the Clean Cities program’s ethanol efforts, and strongly urge support for the work 

of the National Ethanol Vehicle Coalition—a unique organization that employs a 

practical, market-oriented approach that is producing results across the Nation. 

While the above core ethanol infrastructure development efforts are essential, the 

governors believe infrastructure must be viewed in a new light to reflect the f 

undamental changes that have occurred in the marketplace over the past two years. 

A range of creative solutions are needed to keep pace with the rapidly growing supply of ethanol and the historic commitment from our domestic auto manufacturers 

to produce 50 percent of their vehicles as flex fuel capable by 2012. There are even 

signs that foreign automakers are taking similar steps. We must use this commitment from the automakers since it is the most dramatic opportunity in years to 

break the longstanding stalemate of too few vehicles and too few pumps. The vehicle 

side of this equation is changing and is poised to change in far more dramatic ways 

over the next five years. We must change our approach as well. 
37

The Coalition recommends overcoming the vexing infrastructure challenge by calling on states, cities and industry to bring innovation through a City-to-Region approach. The Coalition recommended City-to-Region initiative would focus the efforts 

of vehicle manufacturers and distributors, fuel retaile rs and producers, states, and 

cities to transform the transportation fuel markets of three or more major metropolitan areas. The model offers consumers a new biofuel choice in the vehicles they purchase and the fuels they buy. The initiative would provide cost-shared, competitive 

federal funding for three state-led teams that aim to provide a significant number 

of higher-blend ethanol fueling pumps, flex-fuel vehicles, incentives, education, and 

marketing. The result would be an offering of higher-blend ethanol at 25 percent 

of refueling stations in three major metropolitan areas—a market transforming level 

that could spread throughout a region. The Coalition is convinced that the costshared resources to implement this initiative are available within the Department 

of Energy’s available funding. They should be encouraged to work with the governors to launch this $8 million initiative immediately, and to provide $2 million 

for ongoing national ethanol infrastructure development efforts. 

BACKGROUND AND ANALYSIS

The Nation’s farmers, ethanol producers, and others have worked for years to 

achieve the recent increases in ethanol production. Moreover, in the next two years 

the industry will likely double production to as much as 12 billion gallons a year, 

presenting both an opportunity to fuel more vehicles and a need to find long-term 

markets. Data suggests that the ethanol industry is moving quickly toward a saturation point of the 10 percent blend market for ethanol (its highest value use as an 

octane enhancing additive), leaving additional production capacity as it comes on 

line with an unclear market and an uncertain future. This is a concern of the governors and federal policy makers as we attempt to move the Nation away from 

unsustainable imports of oil and refined petroleum products and toward a more secure, efficient, and clean energy future. 

The Governors’ Ethanol Coalition recognized this challenge in late 2006 and 

sought advice on the deployment of higher blend ethanol fuels from an expert gr 

oup assembled by former Senate Majority Leaders Bob Dole and Tom Daschle. The 

group included senior officials representing domestic auto manufacturers, fuel retailers and producers, and environmental advocates. The sense among these experts 

was a need to focus resources—human, financial, marketing, product, policy—in key 

markets that offer the best economic and environmental advantage for sustained 

growth in the use of the fuel. They concluded that absent coordinated state, federal, 

and private efforts to provide a ‘‘demonstration effect’’ boost, the existing market 

would not change in ways that would offer consumers fuel choice in the foreseeable 

future. 

The Coalition found that the complexity of market transformation and commercialization would be too difficult if initially approached on too large a scale, such 

as an entire region. Rather, success in a single concentrated market—an approach 

that mirrors and supports typical retail market introduction of products—would be 

most efficient and expedient. The approach allows the local interests to determine 

if they have the potential to transform their own market and provides a modest and 

sustained support system for that to occur. 

One market analysis reviewed by the Coalition in developing this appr oach suggested that growing ethanol production in the western, southern, and eastern 

United States could, over time, satisfy a portion of the blend market in those areas, 

leaving a large portion of Midwest production for local consumption. The logistical 

efficiencies suggested in the analysis pointed to an opportunity for local market 

players to build on this advantage and sell much of their product in local high blend 

markets rather than shipping it long distances. Similarly, emerging local production 

in the south, northeast, and west may also present opportunities to move directly 

to higher blends in key markets. 

DETAILS OF THE GOVERNORS’ RECOMMENDED CITY-TO-REGION STRATEGY

The extremely limited availability of higher-blend ethanol (i.e., E30 - E85) at retail gasoline outlets in most states and cities and the limited availability of flex-fuel 

capable vehicles in any one area are the most challenging barriers to transforming 

the transportation fuel marketplace in the United States. However, rapidly evolv 

ing policies at the state and federal levels, increased manufacture of flex fuel vehicles, and dramatic increases in ethanol production present the Nation with a new 

opportunity to break this stalemate through a strategic ethanol market transformation effort—The City-to-Region Initiative. 
38

The recommended $8 million, three-year City-to-Region initiative, should be implemented by the Department of Energy in partnership with the governors, and 

would focus the efforts of vehicle manufacturers and distributors, fuel retailers and 

producers, states, and cities to transform the transportation fuel markets of three 

or more major metropolitan areas and offer consumers a new biofuel choice in the 

vehicles they purchase and the fuels they buy. The initiative would provide costshared, competitive federal funding for three state-led teams that aim to provide a 

significant number of higher blend ethanol fueling pumps, flex-fuel vehicles, incentives, education, and marketing. The result would be an offering of higher-blend ethanol at 25 percent of refueling stations in three major metropolitan areas—a market 

transforming level that could spread throughout a region. 

The City-to-Region Initiative would begin with the creation of a plan that includes 

specific goals, schedules, and measures for success. The Department of Energy 

would develop the plan in partnership with the governors, and in coordination with 

other stakeholders and implement the program on an expedited basis moving from 

plan development to issuing the solicitation within six months. The initiative should 

include a significant outreach effort aimed at engaging state and local leaders, private sector interests, and other interests (e.g., environmental, agricultural) and motivating them to assemble proposal teams, devise complementary fuel and/or vehicle 

incentives, conduct market research, and gain commitments. 

In addition, the Department of Energy must provide for stakeholder input on the 

development of the solicitation to ensure that barriers are addre ssed and important 

‘‘on the ground’’ ideas are included in the initiative. The solicitation should require 

proposing teams to demonstrate substantive involvement and commitments from 

the following: both state and local governments vehicle manufacturers and sellers, 

fuel producers and distributors, relevant local non-governmental organizations, and 

interested environmental community stakeholders. Additional important requirements of the solicitation include: 1) teams being led by, and proposals to be submitted by, state government entities; 2) teams include a senior city government official from the target metropolitan area; 3) teams commit to achieving a market 

transformation goal for their defined metropolitan area of at least one higher-blend 

fueling pump at 25 percent of retail fueling outlets within three years. 

Finally, the Department of Energy should dedicate adequate resources to disseminate the results and lessons learned from the selected projects as they are implemented. This is an important step that will inform other biofuel infrastructure development efforts and spur states and cities to replicate the approach of the initiative. 

CONCLUSION

Our focus on ethanol infrastructure at today’s hearing is in part the result of the 

increasing success we are witnessing in increased ethanol production and advances 

in cellulosic and other biofuel technologies that will produce ethanol from a range 

of feedstocks in every region of the Nation. The Governors’ Ethanol Coalition believes that we must act now to expand the ethanol retail infrastructure in a manner 

that prepares the way for this important domestic fuel to become a mainstream 

choice for American consumers. We respectfully urge you to consider our recommendations as you deliberate this important energy legislation in the coming 

weeks.

Senator DORGAN. Mr. Terry, thank you very much for being with 

us. Next we will hear from Mr. Charles Drevna the Executive Vice 

President of the National Petrochemical and Refiners Association. 

Mr. Drevna, welcome. 

STATEMENT OF CHARLES T. DREVNA, EXECUTIVE VICE-PRESIDENT, NATIONAL PETROCHEMICAL & REFINERS ASSOCIATION 

Mr. DREVNA. Thank you, Chairman Dorgan, Senator Murkowski 

and members of the subcommittee. My name is Charlie Drevna and 

I am EVP of NPRA, the National Petrochemical and Refiners Association. 

Let me start out by saying that the domestic refining industry 

is one of the most competitive and heavily regulated industries in 

the Nation. Perhaps the only industry where both the facility and 
39

the product are heavily regulated. Today’s refinery is really a highly sophisticated, complex facility that in essence produces high purity chemicals. 

These requirements add to the complexity of the facility and require more barrels of crude to produce an equivalent amount of 

product. The industry has accomplished this task while at the same 

time increasing capacity. As a matter of fact if you look at the capacity gains over the last 14 years it’s equivalent to the addition 

of one new oil class refinery per year. We always talk about no new 

refineries being built. But in essence over the last 14 years on 

equivalent volume basis, we’ve built 14 new ones. 

This year despite unplanned and planned outages that have 

made—that made headlines across the country and in this Congress, we produced record amounts of gasoline. More than we’ve 

ever produced. Again, given the fact that we still have to make the 

product specifications very stringent with ultra low sulfur diesel, 

with ultra low sulfur gasoline and all the other specifications come 

with it. 

Our concern, one of our concerns, Senator, is the mixed signals 

we continually get from policy makers. Market forces do indeed 

imply a need for expansion of domestic refinery capacity while policy often times discourages it. For example, let’s talk about the Administration’s desire to reduce gasoline usage in 2017 by 20 percent. What does that mean in real terms? 

That means that we will be using and producing less gasoline in 

2017 than we are today. Now if that’s the goal, fine. However, what 

does that—again what does that really mean. While diesel demand 

is going to go up, we can’t make diesel without making gasoline. 

So, if we’re going to meet the needs of the American truckers and 

others we’re going to have to keep producing gasoline. That gasoline will end up being exported. 

Now exporting domestically produced gasoline, I question whether that is in the national security interest. The other thing that’s 

going to happen is that it will limit imports. If we would have had 

this policy in position two summers ago, when the awful events in 

the Gulf occurred. The marketplace wouldn’t have been able to 

send a signal to the importers to bring in fuel to supply our needs. 

So these are all the kinds of things that we just say, let’s sit 

down and question. There are a lot of dependent variables in this 

equation and again they’re dependent variables. We have to know 

and understand each of them. You know—let me state clearly. We 

do, NPRA and its members support the use of biofuels but we need 

to know the volumes that Congress has asked—required or may require are actually going to be there on the dates that they’re supposed to be. 

We can say that by 2012 there will be cellulosic ethanol available 

because the technology will be there. Unfortunately, we can’t make 

capital commitments on a hope. We have to know that it’s going 

to be there. After the fact labors which are usually used for temporary waivers, which are usually used for upsets in the systems, 

whether it’s a pipeline outage or refinery problem. Those are temporary things. If we make the investment that says we expect x 

millions of gallons of cellulosic ethanol by such and such a date we 

hope it will be there. Temporary waivers won’t solve the problem. 
40

I guess I’d be remiss if I didn’t talk a little bit about the E85 that 

we—that has been talked so much about so far in the hearing. It 

is a chicken and an egg thing. With the limited amount of vehicles 

out there, right now it doesn’t make economic sense to put more 

in for each individual station. The Petroleum Marketing Practices 

Act dictates what can and can’t be done in contractual obligations. 

So while states can do their own thing. There is national law. 

The last thing, Senator is E85; it may be a good product. It is 

a good product, but it’s not our product. We can’t vouch for it. 

That’s why our—some gasoline producers are hesitant to allow it 

under their canopies because of potential liability issues. Once 

those things are solved and they can be solved over time. But we 

can’t expect something that is not our product and we can’t vouch 

for to be placed under our canopies. 

Thank you and I look forward to answering your questions. 

That’s a lot. Let me explain. We’re dedicated to working cooperatively with everyone to ensure a stable and effective fuels policy. 

Again, we need to know and understand all the variables so we’re 

all pushing in the same directions, Senator. Thank you very much. 

[The prepared statement of Mr. Drevna follows:]

PREPARED STATEMENT OF CHARLES T. DREVNA, EXECUTIVE VICE-PRESIDENT, NATIONAL PETROCHEMICAL & REFINERS ASSOCIATION, WASHINGTON, DC 

Chairman Dorgan, Ranking Member Murkowski, and members of the Subcommittee, I am Charles T. Drevna, Executive Vice President of NPRA, the National 

Petrochemical & Refiners Association. Thank you for the opportunity today to provide our perspective on biofuels and infrastructure needs relative to the proposed 

increases in the federal biofuels mandate. NPRA is a national trade association with 

more than 450 companies, including virtually all U.S. refiners and petrochemical 

manufacturers. Our members supply Americans with more than 90% of the nation’s 

gasoline. They also provide them with a wide variety of products used in their 

homes and businesses. These products include gasoline, diesel fuel, home heating 

oil, jet fuel, lubricants and the chemicals that serve as ‘‘building blocks’’ for everything from plastics to clothing to medicine to computers. 

A. INADEQUATE RENEWABLE AND ALTERNATIVE FUELS INFRASTRUCTURE CREATES

SIGNIFICANT PRODUCTION AND ENVIRONMENTAL CHALLENGES

NPRA supports U.S. energy policies that improve the security of our nation, assist 

our consumers, and protect our environment. There is universal agreement that alternative fuels will continue to be a strong and growing component of the nation’s 

transportation fuel mix. NPRA supports the sensible and workable integration of renewable and alternative fuels into the marketplace based on market principles and 

demands. As we have stated in the past, we do not support the mandated use of 

renewable and alternative transportation fuels. However, existing fuels mandates 

require refiners, blenders and importers to blend significant quantities of renewable 

fuel with petroleum to create America’s gasoline supply. The lack of adequate renewable and alternative transportation fuel infrastructure creates significant production and environmental challenges. This situation, coupled with the uncertainty 

of a guaranteed supply of affordable renewable fuels—especially when considering 

the massive amounts being discussed—will only lead to more market instability and 

consumer impacts. 

Congress passed the Energy Policy Act of 2005 (EPACT) that includes a Renewable Fuel Standard (RFS) which increases to 7.5 billion gallons in 2012. Domestic 

refiners are already among the largest users of ethanol and the marketplace has signaled the blending of more ethanol than required by this new mandate. Besides extending the fuel supply, ethanol increases octane, has dilution benefits that help 

meet reformulated gasoline (RFG) specifications, and limits carbon monoxide emissions. Today, ethanol is used in all RFG year-round even though oxygenates are no 

longer required, and in approximately 25 percent of all other gasoline produced in 

the U.S. (‘‘conventional’’ gasoline). As a result, ethanol is in about 50 percent of all 

U.S. gasoline. Clearly, even without the original RFS mandate, refiners will continue to rely on ethanol as a vital gasoline blendstock. 
41

1 U.S. Government Accountability Office, ‘‘Biofuels: DOE Lacks a Strategic Approach to Coordinate Increasing Production with Infrastructure Development and Vehicle Needs,’’ GAO-07-

713, June 2007, pp. 6 and 23. 2 NPC, Facing the Hard Truths about Energy, July 18, 2007, Chapter Two: Energy Supply, 

Section II. Prospects for Energy Supply, E. Biomass, page 16. 3 Ibid., Chapter Two: Energy Supply, Section III. Analysis of Energy Outlooks, D. Biomass, 

4. Infrastructure, page 1.

Ethanol, however, has a lower energy content than gasoline and may create ozone 

emission problems, especially in warm weather. Creating artificial demand for 

biofuels places unwarranted strain on other industries that compete for the same 

feedstocks. Recent reports indicate that ethanol demand has raised corn prices, thus 

impacting food and other commodity prices. Projected ethanol demand is likely to 

further exacerbate the problem and create food price increases across the economic 

spectrum. Just as importantly, the use of ethanol raises significant transportation 

and logistical issues, as this hearing intends to explore. 

Unlike gasoline or diesel, renewable fuels such as ethanol cannot be distributed 

through pipelines because of problems with water contamination or corrosion. Due 

to its water solubility, for example, ethanol separates from fuel during shipment 

through pipelines and results in noncompliant or substandard fuel. In addition, due 

to ethanol’s corrosive properties, it degrades the strength of pipeline valves and 

joints. Consequently, ethanol must be blended with gasoline or the appropriate 

blendstock as near to the consumer as possible, usually at the delivery terminal. 

Ethanol delivery and distribution, therefore, must be done through more expensive 

means such as truck, rail car, barge or ship before it is blended at the terminal. 

Terminals must either invest in new ethanol storage tank and blending equipment 

or dedicate existing storage tanks. This reduces the quantity and diversity of onhand inventory. Clearly, any significant increase in the production of ethanol will 

only result in more stress to the distribution system, creating additional impacts on 

supply and market stability. 

A recent GAO study evaluated the biofuels distribution infrastructure and found:

The biofuel distribution infrastructure has limited capacity to transport 

the fuels and deliver them to consumers, and significant growth in the distribution system faces a variety of impediments. Biofuels are primarily 

transported by rail, but also by truck and barge, and limited capacity in 

this distribution system has led to supply disruptions and concerns about 

the system’s ability to effectively transport greater amounts of biofuels if 

production significantly increases. The key challenges to meeting biofuel 

transport needs are potential capacity limitations in the freight rail system 

and the cost of developing a dedicated ethanol pipeline system if one is 

needed.... The current biofuel transport system is also more costly than 

for petroleum fuels. According to NREL, the overall cost of transporting 

ethanol from production plants to fueling stations is estimated to range 

from 13 cents per gallon to 18 cents per gallon, depending on the distance 

traveled and the mode of transportation. In contrast, the overall cost of 

transporting petroleum fuels from refineries to fueling stations is estimated 

on a nationwide basis to be about 3 to 5 cents per gallon.1

The July 18th National Petroleum Council report entitled ‘‘Facing the Hard 

Truths About Energy’’ also provides an instructive perspective:

As with any large-scale energy source, technical, logistical and marketing 

requirements will need to be met for biofuels to achieve their potential. 

Milestones along this development path will include: investments in rail, 

waterway and pipeline transportation; scale-up of ethanol distribution; and 

technology deployment for cellulosic ethanol conversion. The timeframes required in many cases to move technology from concept to full-scale application may make such sources available only later in the outlook period.2 . . . Much of the infrastructure needed to increase biomass use does 

not exist today, limiting the growth rate of biomass, much as with any new 

energy source.3 ...

• Energy forecasts generally do not explicitly account for specific energy infrastructure requirements, such as capital requirements, return expectations, construction schedules, resources, and perm itting processes. 

• Uncertainty relating to energy demand outlooks may restrict or delay infrastructure investment. 
42

4 Ibid., Chapter Two: Energy Supply, Section III. Analysis of Energy Outlooks, F. Energy Conversion and Delivery Infrastructure, 1. Key Observations—Energy Infrastructure, page 1. 5 Ibid., Chapter Two: Energy Supply, Section III. Analysis of Energy Outlooks, F. Energy Conversion and Delivery Infrastructure, 3. Analysis of Refining Forecasts, page 6.

• Data collection and analysis of energy transportation infrastructure is inadequate for evaluating infrastructure capacity, throughput and future 

needs.... • Infrastructure requirements of many alternative energy sources at scale are not 

well understood and may be significant.4

(emphasis in the original).

The increasing integration of biofuels into the refined products distribution system can complicate distribution logistics, increase transportation 

costs, and reduce supply reliability. The requirements for transporting 

biofuels have led to large shipments by rail and truck from bio-refineries 

to product distribution terminals. This represents a shift in the fuels transportation system from large, cost efficient, bulk shipments by reliable and 

dedicated pipelines, barges, and ships to small, less cost efficient shipments 

by non-dedicated railroads. The shift may reduce supply reliability while increasing transportation costs. Efforts to incorporate biofuels into existing 

pipelines or construct new, dedicated pipelines for biofuels at significant 

cost are directed at overcoming such hurdles.5

GAO also believes that the Department of Energy, the Agency responsible for implementing energy policy, does not currently have ‘‘a comprehensive strategic approach to coordinate the expansion of biofuel production with biofuel distribution infrastructure development and vehicle production, and has not evaluated the effectiveness of biofuel tax credits.’’ Further, GAO also found ‘‘DOE has not yet developed a comprehensive strategic approach to coordinate the significantly larger volume of biofuel production that could result from the Biomass Program with distribution infrastructure development and vehicle production. DOE officials told us [GAO] 

they recognize the importance of developing a strategic approach and have taken 

an initial step in that direction.’’

B. TRANSPORTATION OF BIOFUELS

The most notable economic challenge to the development of a viable, stand-alone 

biofuels transportation industry is the seemingly constant push for an ever-increasing mandate of these fuels. As the transportation biofuels sector grows, its expansion will have a direct impact on those industries that use and transport its products and those industries that compete with it for the same resources. A significant 

increase in biofuels consumption complicates the entire transportation fuel production, supply and distribution network. As previously mentioned, ethanol production 

occurs primarily in the Midwest and relies on truck, rail and barge infrastructure. 

The strain biofuels place on the nation’s rail infrastructure and tank-car capacity 

is of particular concern. During the spring of 2006, some federal RFG areas that 

required ethanol for blending faced real product shortages due to the inability of the 

rail infrastructure to handle the increased volume of ethanol. It remains to be seen 

whether transportation capacity growth will keep pace with biofuels production, particularly after factoring the significant increases in the government mandate that 

are being proposed. As the biofuels industry expands, it will monopolize increasing 

amounts of truck, rail and barge traffic. All industries reliant on these modes to distribute products will face increased competition for limited resources. 

A free market-based fuel transportation system is the best mechanism to ensure 

development of the requisite infrastructure to support increased use of biofuels. The 

appropriate signals to producers and the investment community that infrastructure 

development is warranted will be sent by that market, not by mandates. There is 

universal agreement, and the marketplace has indeed proved, that biofuels will continue to be a strong and growing component of the nation’s transportation fuel mix. 

As relatively new biofuels enter the market, increased transportation and 

logistical issues are likely to arise. The market should be given ample opportunity 

to resolve these infrastructure and logistical complications. 

C. ECONOMICS OF E-85 INFRASTRUCTURE

E-85 is an alcohol fuel mixture typically containing up to 85 percent ethanol with 

the remaining volume being gasoline or another hydrocarbon. E-85 is not currently 

compatible with fuel dispensing equipment at most retail gasoline stations. Furthermore, due to ethanol’s corrosive nature, Underwriters Laboratories (UL), in October 
43

6GAO, Op.Cit., pp. 5 and 6.

7GAO, Op.Cit., p. 28.

2006, suspended authorization to use UL Markings on components for fuel dispensing devices that will dispense any alcohol blended fuels containing over 15 percent alcohol (such as E-85). 

E-85 also has a substantially lower energy content per gallon than gasoline (only 

about 70 percent of gasoline’s energy content) that results in a significant fuel economy penalty for E-85. In order for retail consumers to cover the same distance they 

would using gasoline at the same cost, the retail price of E-85 must be 25-30 percent 

lower than the price of gasoline. The use of E-85 is limited to flexible-fuel vehicles 

(FFVs), which currently represent a very small percent of today’s vehicle fleet. 

Therefore, E-85 is incompatible with most vehicles and the near-term potential market for E-85 is constrained. 

GAO examined the infrastructure costs for using ethanol:

The key challenge to increasing biofuel production is making biofuels 

cost-competitive with petroleum-based transportation fuels... the average wholesale price of ethanol per gallon in 2006 was about 33 percent 

higher than the average wholesale price of gasoline. Since ethanol contains 

one-third less energy than gasoline, the price differential is even more significant than this comparison indicates... For example, because ethanol 

is corrosive, E85 requires separate storage tanks, pumps, and dispensers at 

fueling stations. It can cost a fueling station operator around $3,300 to 

minimally modify existing equipment or about $60,000 to install new equipment—which may be a significant impediment for many potential retailers.6

Additionally, GAO also examined the economics of E-85:

High demand for ethanol in low blends as an oxygenate and fuel extender 

has contributed to wholesale ethanol prices that are significantly higher 

than the wholesale price of gasoline. An additional incentive to selling ethanol in blends of 10 percent or lower, according to one major fuel blender 

with whom we spoke, is that the fuel economy reduction at that level is too 

small for consumers to notice; hence, the fuel can be sold at the same price 

as conventional gasoline at fueling stations. On the other hand, to attract 

customers, fueling stations must generally sell E85 at a discount to conventional gasoline to offset the noticeably lower miles per gallon that drivers 

experience when using the fuel. For example, in 2006, according to DOE’s 

Alternative Fuel Price Reports, E85 sold for 11 percent less on average than 

regular gasoline at a sample of fueling stations nationwide. However, few 

producers are willing to discount ethanol so that fueling stations can price 

E85 lower than gasoline. Consequently, EIA projects that use of ethanol for 

E85 will continue to be limited until the market for blends of 10 percent 

and under is nearly saturated.7

Given these perceptions of the economics, will a rational, orderly, and marketdriven E-85 infrastructure be developed? I believe so only when the economics warrant this investment. 

D. REFINERY CAPACITY EXPANSION PROJECTS

Leadership on this Committee and elsewhere in Congress has stressed the need 

to maximize refining capacity in the United States, and our members have risen to 

the challenge, principally by adding hundreds of thousands of barrels of capacity at 

existing refineries. In fact, on the aggregate over the last 14 years, our companies 

have essentially built the equivalent of one new world-class refinery each year. But 

continued success in this area requires legislative and regulatory certainty that attracts capital investment to refining. We know that the Committee recognizes the 

need for such certainty. 

It should be clearly understood that requirements to substantially increase the 

volume of ethanol and other renewables could essentially supplant a significant portion of the need and desire for additional domestic refining capacity. I must note 

that U.S. refiners are generating record amounts of refined product. According to 

EIA, production was at an all-time weekly high from June 22—June 29, averaging 

about 9.4 million barrels a day. Despite the unplanned refinery outages and regularly scheduled maintenance, production for the first half of the year is at an alltime high (9 million barrels a day), about 700,000 barrels a day higher than the 

same period four years ago (8.3 million barrels a day). 
44

But refiners must make their independent re-investment decisions today on what 

they believe to be the longer-term (10-15 years or more) outlook. The domestic refining industry is likely to look upon rapidly rising ethanol and other biofuels requirements in the coming years as adding significantly more risk to investments in capacity expansions. As recently as 2006, the Department of Energy forecast that domestic refiners were likely to add 1.5 million barrels per day of capacity between 

2006 and 2010. These decisions are being re-visited in boardrooms across the refining sector as the anticipated surge in ethanol requirements and mandates in the 

near future will pressure domestic, and undoubtedly some foreign refiners currently 

supplying the U.S. market to postpone or cancel new investments in petroleum refining capability. 

To illustrate the point further, the President’s proposal, which calls for the use 

of 35 billion gallons per year of renewable and alternative transportation fuels by 

2017, primarily ethanol, also aspires to a 20-percent reduction in the use of gasoline 

by the same time. EIA projects that U.S. gasoline demand in 2017 will be 161 billion 

gallons. A 20-percent reduction of this figure would result in 129 billion gallons of 

gasoline. In 2006, U.S. production of gasoline was 136 billion gallons and net imports of finished gasoline equaled 7 billion gallons. Therefore, the Administration’s 

target for gasoline use in 2017 is below today’s U.S. production levels, sending a signal to the refining industry to reconsider expanding domestic refining capacity. The 

U.S., currently a net importer of gasoline, could become a net exporter of gasoline. 

The U.S. is also currently a net importer of diesel, jet fuel and other petroleum 

products. In the next 10 years, demand for diesel, jet fuel and other non-gasoline 

petroleum products will grow. The demand for diesel may grow faster than biodiesel 

production. Current diesel demand is about 3.5 million barrels/day and biodiesel 

production last year was only about 15,000 barrels/day. If U.S. refining capacity is 

not expanded, the U.S. could require a significant increase in imports of diesel, jet 

fuel and other non-gasoline petroleum products to meet growing demand. 

NPRA questions if this unbalanced future is the better alternative in terms of 

U.S. energy security. We believe that U.S. refining capacity expansions should be 

encouraged, not discouraged, to ensure the nation’s our energy security. 

E. STATE BIOFUELS MANDATES SHOULD BE PREEMPTED

The present enthusiasm for renewable fuels has resulted in several states and 

even municipalities adopting local mandates. Local mandates will impose additional 

strain on the transportation fuels distribution system and increase costs for shipping and storage. While it still creates many problems, the existing federal Renewable Fuels Standard mandate with its credit-trading provisions contains a degree of 

freedom that allows the distribution system to operate at a low-cost optimum by 

avoiding infrastructure bottlenecks (such as lack of storage or rail capacity). Mandating ethanol or biodiesel usage in specific areas forces a distribution pattern that 

is less flexible, and therefore has less capability to minimize costs. These additional 

costs will be borne by consumers. 

Public policy should focus on preventing the proliferation of state biofuels mandates that will have negative consequences for the motor fuel supply and will interfere with the smooth implementation of the federal RFS. EPACT includes a renewable content requirement for motor vehicle fuels, the RFS provision (see Section 

1501). The RFS is administered by EPA and requires the increased use of ethanol 

or biodiesel in motor fuels. Although this is a federal mandate for biofuels consumption, it does not currently preempt similar state mandates. There are several recent 

state biofuels mandates since EPACT was enacted, including those in Louisiana, 

Missouri, Oregon, and Washington. It is difficult for regulated parties to reconcile 

different state and federal biofuels mandates (e.g., credit trading, averaging, banking credits, identifying liable or obligated parties). Inconsistencies will lead to instability in the marketplace. Further, these mandates create boutique markets requiring special fuel formulations and transportation logistics, thereby balkanizing the 

national fuel market. 

If Congress wishes to allow for as diverse a supply of alternative fuels as possible, 

and to promote as much flexibility in the system as possible, state and local biofuels 

mandates should be preempted. 

F. SEVERAL STUDIES WILL INFORM CONGRESS

Biofuels should be developed with complete analysis and full realization of economic and environmental impacts. This would include energy security, public health 

and the environment, infrastructure, job impacts, and economic development. 

One known environmental impact of increased ethanol use is related to ozone 

emissions. When blended into gasoline, ethanol increases the Reid Vapor Pressure 
45

8 ‘‘EPACT Section 1541(c) Boutique Fuels Report To Congress,’’ DOE and EPA, EPA 420-R06-901, December 2006. 

(RVP) of the fuel, resulting in higher volatile organic compound (VOC) emissions, 

an ozone precursor, in the summer months. These higher VOC emissions come from 

the combustion exhaust in the tailpipe as well as permeation from the gasoline tank 

of a vehicle sitting in the sun on a hot day. Although many areas of the country 

allow gasoline blended with ethanol to have a higher summer RVP than unblended 

gasoline, some do not (i.e., California, federal RFG covered areas, El Paso, TX and 

Pittsburgh, PA). Others areas may also restrict higher RVP in the future in response to a potential new ozone NAAQS. 

The Fuel Harmonization Study (‘‘the Study’’) required under Section 1509 of 

EPACT requires EPA and DOE to jointly study the effect of federal, state, and local 

motor vehicle fuel requirements on the supply, quality, and price of fuels available 

to the consumer. In addition, the Study will examine the effects of the various requirements on the achievement of air quality goals, the impact on refiners and the 

fuel distribution system. Plans for this analysis, due June 1, 2008, are discussed in 

the EPA/DOE boutique fuels report released on January 5, 2007.8 According to the 

Section 1541(c) Boutique Fuels Report, the Study will cover gasoline volatility 

(RVP), oxygenated gasoline, vehicle emissions and the effects on air quality of the 

RFS established under Section 1501 of EPACT. Furthermore, EPA and DOE suggest 

that in order to ‘‘ultimately assess the air quality and associated fuel supply and 

price impacts of future strategies, new vehicle and engine emission factors that represent the current fleet must first be established.’’ As there is uncertainty over the 

relationship between motor fuel specifications and vehicle emissions for the current 

fleet, the full realization of the air quality impacts of biofuels is not understood. 

Section 1505 of EPACT requires EPA to study the effects on public health, air 

quality, and water resources of increased use of substitutes for MTBE in gasoline. 

This is to be completed by next month, August 2007. This report to Congress will 

include ethanol. 

Section 1506 of EPACT requires EPA to analyze changes in air emissions and air 

quality due to the use of motor vehicle fuel and fuel additives resulting from the 

energy bill; a draft report is due by August 2009 and a final report by August 2010. 

The California Air Resources Board (CARB) is conducting three areas of research 

on biodiesel: an emissions study, a NOX formation and emissions study, and a multimedia evaluation of the impact of biodiesel on the environment and human health. 

The environmental benefits of biodiesel are of concern because biodiesel may increase NOX emissions. 

It is encouraging that several studies are underway, but others are also necessary, 

and they certainly must be conducted and their results known and fully understood 

before Congress enacts any additional fuel mandates. 

G. RECOMMENDATIONS

1. The Congressional Budget Office should conduct a comprehensive environmental 

impact analysis 

Senate legislation passed last month mandates an expanded RFS of 36 billion gallons by 2022. Congress should consider energy security, public health and environment, transportation, infrastructure, job impacts, and rural economic development 

impacts. Legislation should not promote an extensive expansion of renewables without giving any consideration to the environmental or economic consequences to the 

U.S. We should only promote large changes in the mix of energy types with our eyes 

open and a full understanding of all consequences. 

As previously stated, E-85 has a significantly lower energy content than gasoline. 

Therefore, consumers will need more frequent trips to E-85 pumps, and the fuel distribution industry must schedule more frequent delivery trips to retail stations with 

E-85 pumps. This will result in more delivery trips per week from terminals to retail stations with an increase in diesel fuel demand. Further, the overall environmental consequences of such a large increase in E-85 production and delivery need 

to be understood. Ethanol production depends on large volumes of water; each gallon of ethanol requires the consumption of three gallons of water. Also, associated 

environmental and other impacts of a large increase in corn ethanol manufacturing 

plant capacity on water supplies and quality must be quantified. Given that the 

scope of the environmental studies listed in section F. above is not based on 35-36 

billion gallons per year, they will be informative when completed, but insufficient. 

NPRA recommends a comprehensive environmental impact analysis conducted by 

the Congressional Budget Office. 
46

2. Congress should consider preempting state and local biofuels mandates 

New state biofuels mandates are not currently subject to the requirement that 

they be examined by EPA or DOE for their impact on air quality, fuel production, 

and the fuel distribution system. NPRA believes that they should be. If there is no 

mechanism to assess the impact of these state mandates on air quality, fuel supply 

and distribution, the result will undoubtedly be a proliferation of state biofuels mandates with negative consequences on motor fuel supply and considerable interference with implementation of the federal RFS. Congress, therefore, should strongly consider amending the Clean Air Act to include an explicit provision that preempts state and local biofuels mandates. 

3. We strongly encourage Congress to further review and consider the five core strategies recommended in the recent National Petroleum Council report requested by 

Energy Secretary Bodman 

NPC recommends the following five core strategies:

• Moderate the growing demand for energy by increasing efficiency of transportation, residential, commercial, and industrial uses. 

• Expand and diversify production from clean coal, nuclear, biomass, other renewables, and unconventional oil and natural gas; moderate the decline of conventional domestic oil and gas production; and increase access for development of 

new resources. 

• Integrate energy policy into trade, economic, environmental, security, and foreign policies; strengthen global energy trade and investment; and broaden dialogue with both producing and consuming nations to improve global security. 

• Enhance science and engineering capabilities and create long-term opportunities for research and development in all phases of the energy supply and demand system (including studying energy infrastructure needs). 

• Develop the legal and regulatory framework to enable carbon capture and sequestration (CCS). In addition, as policymakers consider options to reduce CO2 

emissions, provide an effective, global framework for carbon management, including establishment of a transparent, economy-wide cost for CO2 emissions 

(market-based, visible, applicable to all fuels, predictable over the long term for 

a stable investment climate; to allow the marketplace to find the lowest cost 

combination of steps to achieve a carbon reduction).

Congress can and should take appropriate action to help refiners meet the transportation fuel needs of the American public. The simple fact remains that supply 

and demand for refined products are in an extremely tight balance. Necessary and 

prudent actions include the following: 

4. Make increasing the nation’s supply of oil, oil products and natural gas a number 

one public policy priority 

Now, and for many years in the past, increasing oil and gas supply has often been 

only a secondary concern of policymakers. Oil and gas supply concerns have rarely 

been factored into policy goals focused on environmental or other concerns. Refineries and other important onshore facilities have been welcome in limited areas 

throughout the country, including the Gulf Coast. However, policymakers have restricted access to much-needed offshore oil and natural gas supplies in the eastern 

Gulf and off the shores of California and the East Coast. These areas must follow 

the example of Louisiana and many other states in sharing their energy resources 

with the rest of the nation. This additional supply is sorely needed. Policymakers 

should pay special attention to the timing and sequencing of any changes in product 

specifications. Failing such action, adverse fuel supply ramifications may result. 

5. Resist tinkering with market forces, including imposition of ‘‘windfall profits’’ 

taxes, LIFO repeal, elimination of foreign tax provisions or ‘‘price gouging’’ legislation 

Market interference that may initially be politically popular leads to market inefficiencies and unnecessary costs. Policymakers must resist turning the clock backwards to the failed policies of the past. Experience with price constraints and allocation controls in the 1970s demonstrates the failure of price regulation, which adversely impacted both fuel supply and consumer cost. The state of Hawaii cancelled 

its less than one-year old gasoline price regulation because it led to higher prices 

and supply uncertainty. A windfall profits tax would discourage investment in refineries, which is needed to expand domestic production capacity and produce cleaner 

fuels. 
47

H. CONCLUSION

NPRA members are dedicated to working cooperatively with government at all 

levels to ensure an adequate supply of clean, reliable and affordable transportation 

fuels. We stand ready to work with you to ensure a stable and effective fuels policy 

that utilizes a diversity of resources to improve our national security, assist our consumers and protect our environment. I appreciate this opportunity to testify today 

and welcome your questions.

Senator DORGAN. Thank you very much. Mr. Jonathon Lehman 

who is here representing VeraSun Corporation. 

Mr. Lehman. 

STATEMENT OF JONATHON LEHMAN, REPRESENTATIVE, 

VERASUN ENERGY 

Mr. LEHMAN. Good afternoon, Mr. Chairman and members of the 

subcommittee. My name is Jonathon Lehman and I’m testifying 

today on behalf of VeraSun Energy. VeraSun is one of the Nation’s 

leading producers of renewable fuels. By the end of 2008, VeraSun 

will have an annual production capacity of approximately 1 billion 

gallons at nine plants in six States. Additionally VeraSun markets 

E85 for use in flexible fuel vehicles directly to fuel retailers under 

the brand VE85. 

I want to thank members of the committee for your continued efforts to promote increasing usage of renewable fuels. VeraSun appreciates the committee’s leadership in developing the Senate 

passed Renewable Fuels Consumer Protection and Energy Efficiency Act of 2007 which calls for the expansion of the renewable 

fuel standard to 36 billion gallons by 2022 including a significant 

call for ethanol production from cellulosic sources. We believe that 

this is a very achievable goal but one that will require widespread 

E85 usage if higher blends of 15 to 20 percent are not adopted 

quickly. 

When all the ethanol plants currently under construction are 

completed the United States will produce nearly 13 billion gallons 

per year, up from five billion gallons per year last year. Their market will need to see a path for E85 in order for cellulosic ethanol 

to evolve. Without additional demand the market may not support 

the early stages of development that is necessary to unlock the potential that cellulosic ethanol holds. Simply put, the Federal Government must now focus efforts on growing ethanol demand beyond 

the 10–percent blend market. 

As one of the largest biofuel producers we assume a large responsibility to ensure that the market development occurs. VeraSun has 

pursued an aggressive strategy in cooperation with GM and Ford 

to increase the availability of E85. In early 2005, VeraSun 

launched the Nation’s first brand of E85, VE85. We began the program in May 2005 with the conversion of 35 pumps at seven stations in Sioux Falls, South Dakota. At the same time we launched 

a marketing program to raise awareness of the benefits of FFV 

ownership and E85 use and elicited the support of GM to assist 

with the rollout of the program. As a result local E85 awareness 

increased, E85 sales rose and the demand for FFVs increased in 

the local market. 

In early 2006, we replicated this effort in conjunction with GM 

to bring VE85 to Chicago and Minneapolis. In mid 2006 we worked 

with Ford to create an E85 corridor from Chicago to St. Louis and 
48

with GM to announce the first retail availability of E85 in Pittsburgh at the Major League All Star baseball game. Just last month 

we announced with GM the first public E85 refueling station in the 

District of Columbia. All totaled VeraSun’s branded E85 is available at more than 90 retail locations across eight states and in DC 

and we have more on the way. We plan to continue to work to expand the number of fueling stations from coast to coast. 

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, VeraSun believes the Federal Government 

must improve E85 economics in the creation of an E85 blender’s 

credit, create an auto incentive for the production of advanced 

FFVs and address terminal infrastructure issues. 

As VeraSun works to expand a number of fueling stations offering VE85, one of the most significant issues we face is blender economics. Allow me to explain. FFVs are currently not designed to 

take advantage of E85’s high octane. As a result FFV owners see 

fewer miles per gallon running on E85 than on conventional gasoline. This direct impact on—with consumers requires that E85 be 

sold at a discount to gasoline for it to be competitive. This has led 

to fewer gallons of E85 being produced. For fuel retail owners to 

install E85 infrastructure they must have confidence that E85 will 

be priced appropriately and that there will be sufficient consumer 

demand. 

To improve E85 economics and spur rapid expansion of E85 

pumps. Congress should create a blenders credit for ethanol blended into E85 within the existing VEETC system. This credit would 

compensate for the discount resulting from the loss in the miles per 

gallon. Establishing this incentive will lead to additional E85 production. It will help ensure that E85 is priced properly at the pump 

for consumers. As well as make fuel retailers decisions to offer E85 

much easier. 

In addition to increasing the supply of E85 we must also increase 

the number of FFVs on the road. Today, less than 3 percent of vehicles on the road are E85 compatible. Without a significant ramp 

up in the production E85 will remain relatively small. 

To this point we very much appreciate GM and Ford Daimler 

Chrysler’s increasing in production to 50 percent by 2012. But this 

commitment by the automakers is conditional on having sufficient 

E85 refueling infrastructure to meet this demand. Therefore it is 

paramount that we act now to rapidly build our E85 refueling capabilities. 

We also believe the automakers must work to approve FFV technologies to better take advantage of E85’s high octane. To spur the 

production of more fuel efficient FFVs, Congress should provide incentives for automakers that produce FFVs with E85 fuel economy 

comparable to conventional vehicles. Additionally our experience 

over the last 2 years with our VE85 initiative indicates that more 

must be done to help retailers offer E85. 

Beyond addressing E85 blending economics there are several 

achievable hurdles that must be addressed including retrofitting 

terminal infrastructure, UL pump certification and ASTM fuel 

specifications for E85. Clearly the ethanol industry is a success 

story. Given all this it is critical that we take the steps necessary 
49

to create nationwide demand for E85. E85 infrastructure is the 

lynch pin to this effort. Thank you. 

[The prepared statement of Mr. Lehman follows:]

PREPARED STATEMENT OF JONATHON LEHMAN, REPRESENTATIVE, VERASUN ENERGY

Good afternoon, Mr. Chairman and Members of the Subcommittee. My name is 

Jonathon Lehman, and I am testifying today on behalf of VeraSun Energy. 

VeraSun Energy is one of the nation’s leading producers of renewable fuels. The 

company has three operating ethanol production facilities located in Aurora, SD, 

Fort Dodge, IA, and Charles City, IA. Two facilities are currently under construction 

in Hartley, IA, and Welcome, MN, and an additional plant is under development 

in Reynolds, IN. VeraSun is in the process of acquiring another three biorefineries 

currently under construction in Albion, NE, Bloomingburg, OH and Linden, IN. 

Upon completion of the new facilities and those being acquired, VeraSun will have 

an annual production capacity of approximately one billion gallons by the end of 

2008. The Company also has plans to extract oil from dried distillers grains, a coproduct of the ethanol process, for use in biodiesel production. 

Additionally, the Company markets E85, a blend of 85 percent ethanol and 15 

percent gasoline for use in Flexible Fuel Vehicles (FFVs), directly to fuel retailers 

under the brand VE85(TM). VeraSun’s branded E85 is now available at more than 

90 retail locations including the first E85 fueling location in the District of Columbia. 

DEMAND FROM E85 NEEDED TO FOSTER DRIVE TO CELLULOSIC ETHANOL

I want to thank members of the Committee for your continued efforts to promote 

increasing usage of renewable fuels. VeraSun appreciates the committee’s leadership 

in developing the Senate passed Renewable Fuels, Consumer Protection, and Energy 

Efficiency Act of 2007, which calls for the expansion of the Renewable Fuels Standard to 36 billion gallons by 2022 including a significant call for ethanol production 

from cellulosic sources. 

We believe that this is a very achievable goal, but one that will require widespread adoption of E85 usage. Because of the successful growth of the ethanol industry, some reports indicate that we will meet the demand of the current 10 percent blend market with corn-based ethanol within the next three to four years. 

When all of the ethanol plants currently under construction are completed, the U.S. 

will produce nearly 13 billion gallons per year, up from five billion gallons per year 

last year. 

We believe the market must see a path toward E85 in order for cellulous ethanol 

to evolve. Without E85 demand, the market may not support the early stage development that is necessary to unlock the potential that cellulosic ethanol holds. 

Simply put, the Federal Government must now focus efforts on growing ethanol 

demand beyond the 10% blend market. A strong commitment to E85 will ensure a 

market for cellulosic ethanol production in the United States. 

BUILDING AN E85 MARKETPLACE

As one of the largest biofuels producers, we assume a large responsibility to insure that market development occurs. VeraSun has pursued an aggressive strategy 

in cooperation with GM and Ford to increase the availability of E85. Today only 

1,251 of the nearly 180,000 (or 6⁄10 of 1%) retail gasoline stations in the United 

States offer E85. We must do better. 

In early 2005, VeraSun launched the nation’s first branded E85, VeraSun E85 or 

VE85 for short. We began the program in May 2005 with the conversion of 35 

pumps at seven stations in Sioux Falls, South Dakota. At the same time, we 

launched a marketing program to raise awareness to the benefits of flexible fuel vehicle (FFV) ownership and E85 use, and enlisted the support of General Motors to 

assist with the rollout of the program. As a result of the program, local E85 awareness increased, E85 fuel sales rose, and the demand for flexible fuel vehicles increased in the local market. 

In early 2006, we replicated this effort in conjunction with GM to bring VE85 to 

Chicago and Minneapolis. In June 2006, we worked with Ford to create an E85 corridor from Chicago to St. Louis. In July 2006, we announced with GM at the Major 

League Baseball All-star Game the first retail availability of VE85TM in Pittsburgh. 

Just last month, we announced with GM the first public E85 refueling station in 

the District of Columbia. All told, VeraSun’s branded E85 is available at more than 

90 retail locations across eight states and the District of Columbia and we have 
50

more on the way. We plan to continue to work to expand the number of fueling stations offering VE85 from coast to coast. 

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 in the United 

States, VeraSun believes the Federal Government must address the following items:

1. Improve E85 economics through the creation of an E85 Blenders Credit; 

2. Create an auto incentive for the production of advanced FFVs; and 

3. Address terminal infrastructure issues.

As VeraSun works to expand the number of fueling stations offering VE85, one 

of the most significant issues we face is blender economics. Allow me to explain; 

FFV’s are currently not designed to take advantage of E85’s high octane. As a result, FFV owners receive fewer miles per gallon running on E85 than on conventional gasoline. This direct impact on consumers requires that E85 be sold at a discount to gasoline for it to be competitive in the marketplace. This has led to fewer 

gallons of E85 being produced. 

For fuel retail owners to install E85 infrastructure, they must have confidence 

that E85 will be priced appropriately and that there will be sufficient consumer demand. 

To improve E85 economics and spur rapid expansion of E85 pumps, Congress 

should create a blenders credit for ethanol blended into E85 within the existing 

VEETC system. This credit would compensate for the discount resulting from the 

loss in miles per gallon efficiency. Establishing this incentive will lead to additional 

E85 production and will help ensure that E85 is priced properly at the pump for 

consumers. This will help make a fuel retailers decision to offer E85 much easier. 

In addition to increasing the supply of E85, we must also increase the number 

of FFVs on the road. Today, less than three percent of the vehicles on the road are 

E85 compatible. Without a significant ramp up in the production of FFVs, E85 use 

will remain relatively small. To this point, we very much appreciate GM, Ford, and 

DaimlerChrysler’s commitment to increasing production of E85 and biodiesel capable vehicles to 50% by 2012. This is a significant step forward. But this commitment 

by the automakers is conditional on having sufficient E85 refueling infrastructure 

to meet this demand. Therefore, it is paramount that we act now to rapidly build 

out E85 refueling capabilities. 

We also believe the automakers must work to improve FFV technologies to better 

take advantage of E85’s high octane. To spur the production of more fuel-efficient 

FFVs, Congress should provide incentives for automakers that produce FFVs with 

E85 fuel economy comparable to conventional vehicles. Additionally, Congress 

should provide a consumer tax credit for the purchase of these more fuel efficient 

FFVs. 

Further, our experience over the last two years with our VE85 initiative indicates 

that more must be done to help retailers offer E85. Beyond addressing E85 blending 

economics, there are several achievable hurdles that must be addressed including 

retrofitting terminal infrastructure to better handle E85, UL pump certification, and 

ASTM fuel specifications for E85. 

Currently, many terminals are not set up to quickly dispense E85. These terminals were designed to quickly fill trucks with E10, not E85. As a result, what is 

a twenty-minute fill time for E10 turns in to a two-hour fill time for E85 because 

of the plumbing configuration of the terminal. Terminals won’t allow this as it backs 

up their entire operation, which is already busy. We are currently trucking in E85 

from Ohio to our Washington D.C. station because the Manassas terminal needs to 

be retrofitted. In many cases, this can be done for a cost of fifty to one hundred 

thousand dollars. The federal government should provide these terminal owners 

with assistance in converting terminals to offer E85. This could be achieved by making terminal owners eligible for the E85 infrastructure tax incentive. 

Additionally, it is critical that UL certify both E85 conversion kits and new pumps 

quickly. The fire marshals we have dealt with support E85, but they must make 

sure of the safety of the equipment. The lack of proper UL certification required us 

to spend 30 days working with a very supportive D.C. Fire Marshal to get approval 

for the first pump in the District of Columbia. UL certification will significantly 

streamline that process. 

Finally, if we want to have an immediate impact on air quality and open up major 

markets for renewable fuels we need to have ASTM create a separate E85 fuel specification for conventional markets; which have conventional unleaded available for 

blending E85; and reformulated gasoline markets, which have RBOB available for 

blending with ethanol to make E85. Without it our nation’s cities that endure the 

poorest air quality will have a hard time developing a meaningful E85 footprint. 
51

CONCLUSION

Clearly, the ethanol industry is a success story. We’re exceeding the levels of the 

current Renewable Fuels Standard, we’re shipping ethanol to major U.S. markets 

in Unit Trains, and we’re ready to help our nation start to turn off the valve of foreign oil. Further, cellulosic ethanol holds great promise to expand ethanol production from coast to coast. Given all of this, it is critical that we take the steps necessary to create nationwide demand for E85. E85 infrastructure is the linchpin to 

this effort. 

For the first time in the last 100 years we are ready to decrease our dependence 

on foreign oil, reduce greenhouse gases, and create economic development in America. We look forward to working with you to chart the course for years to come. 

Thank you.

Senator DORGAN. Mr. Lehman, thank you very much. Finally, I 

shouldn’t say finally, we have two additional witnesses. Ms. Deborah Morrissett will testify next.She is Vice President of Regulatory 

Affairs of Product Development, Chrysler Technology Center in Auburn Hills, Michigan. 

Ms. Morrissett, thank you very much for being with us. You may 

proceed. 

STATEMENT OF DEBORAH L. MORRISSETT, VICE PRESIDENT, 

REGULATORY AFFAIRS, DAIMLERCHRYSLER CORPORATION, 

AUBURN HILLS, MI 

Ms. MORRISSETT. Mr. Chairman and members of the subcommittee thank you for inviting me to testify before you today on 

the subject of alternative fuels. 

Automakers are committed to developing new, advanced technology vehicles capable of efficiently using energy and running on 

alternative fuels. Doing so will help America reduce petroleum consumption, greenhouse gases and our dependence on foreign oil. We 

believe that the extraordinary task now before the transportation 

sector is to reduce the use of petroleum based fuels. To do that requires maximizing the energy efficiency of all vehicles, substantial 

production of alternative fuel vehicles and a market that has sufficient amount of alternative fuels and a demand for that fuel. 

To make this happen will require unprecedented efforts from all 

stakeholders. Broad based policies addressing the production, distribution and consumer use of alternatives to petroleum need to be 

explored. To be successful the goal of reducing petroleum consumption must be viewed as a shared responsibility. We’re committed to 

maximizing the efficient use of energy in our vehicles. 

Efforts such as the development of new power trains and reducing vehicle weight, aerodynamic drag and various loads and losses 

have led to an average improvement of vehicle efficiency of one and 

a half percent year over year during the past 30 years and must 

continue at an accelerated rate. In the past consumers have demanded that we allocate those gains to inefficiency to improve vehicle utility, performance and safety. The market has changed and 

consumers are now calling for the efficiency gains to be applied to 

improving fuel economy. 

As we discuss the challenge of reducing petroleum use in the 

transportation with the Congress and the Administration. The target of a 20 percent reduction in petroleum use is relatively common. Using government projections to fuel use in 2017, the target 

in petroleum reduction turns equals about 35 billion gallons per 

year. Chrysler, General Motors and Ford have promised that 50 
52

percent of our respective vehicle fleets will be capable of using alternative fuels such as ethanol and biodiesel by 2012. This is critical. Our calculations show that the vehicles resulting from our 

commitment would use all and more of the alternative fuel if it 

were available and affordable. 

The evidence that automakers are doing the part is already on 

the road. There are currently more than five million flexible fuel 

vehicles on U.S. roads. Daimler Chrysler has produced more than 

a million and a half vehicles capable of running on E85, more than 

10 percent of our total production over the last 9 years. 

While getting to the goal of significant reductions in petroleum 

consumptions is inherently complex. The message is more direct. If 

all gasoline was blended with E10 all diesel fuel replaced with a 

B20 blend and all flexible fuel vehicles capable of running on E85 

did so, petroleum use would drop by about 35 billion gallons per 

year. While achieving all of these goals may not be easy, they illustrate the importance of alternative fuels and the resulting reduction in petroleum use. 

But the question remains where’s the alternative fuel? We believe that consumers want to use and will embrace alternative 

fuels if the impediments to their use is eliminated. Today those impediments are primarily price and availability. Simply stated, the 

price at the pump for renewable fuels must be less than conventional gasoline or diesel on an energy equivalent basis or consumers will not buy it. 

Consider the internet, cell phones and iPods. These products rapidly overcame cost and distribution issues because of unprecedented consumer demand for products that do more and cost less. 

All stakeholders must commit to accomplishing this task. In the 

short term we all need to rely on incentives to prime the pump for 

alternative fuel producers and distributors. In the long term as 

technology, such as cellulosic ethanol and biomass to liquid become 

viable, we believe that the market will resolve how to make alternative fuel prices competitive on an energy equivalent basis. If alternative fuels are priced competitively or better, the retail distribution system will rush to answer consumer demand. 

In conclusion, auto manufacturers commit to the continued development and commercialization of vehicle technologies that maximize the efficient use of energy and give consumers the option of 

using alternative fuels. Fuel providers and government need to 

focus on alternative fuel technology development, availability and 

price at the pump. Short term incentives coupled with free market 

forces will result in a long term success of alternative fuels and the 

successful achievement of the government’s and the Nation’s energy goals. Thank you. 

[The prepared statement of Ms. Morrissett follows:]

PREPARED STATEMENT OF DEBORAH L. MORRISSETT, VICE PRESIDENT, REGULATORY

AFFAIRS, DAIMLERCHRYSLER CORPORATION, AUBURN HILLS, MI 

Mr. Chairman and members of the subcommittee, thank you for inviting me to 

testify before you today on the subject of alternative fuels. Automakers are committed to developing new, advanced technology vehicles capable of efficiently using 

energy and running on alternative fuels. Doing so will help America reduce petroleum consumption, greenhouse gases and our dependence on foreign oil. 

We believe that the extraordinary task now before the transportation sector is to 

reduce the use of petroleum-based fuels. To do that requires maximizing the energy 
53

efficiency of vehicles, substantial production of alternative fuel vehicles and a market that has a sufficient amount of alternative fuels. 

To make this happen will require unprecedented efforts from all stakeholders. 

Broad based policies addressing the production, distribution and consumer use of alternatives to petroleum need to be explored. To be successful, the goal of reducing 

petroleum consumption must be viewed as a shared responsibility. 

We are committed to maximizing the efficient use of energy in our vehicles. Efforts such as the development of new powertrains and reducing vehicle weight, aerodynamic drag and various loads and losses, have led to an average improvement in 

vehicle fuel efficiency of 1-1.5 percent year-over-year during the past 30 years. 

In the past, consumers have demanded that we allocate these gains in efficiency 

to improve vehicle performance and safety. The market has changed, and customers 

are now calling for the efficiency gains to be applied to improving fuel economy. 

Work currently under way in the Senate, House and Administration will result in 

a program that will ensure our technical performance. We estimate that this work 

will result in offsetting more than 5 billion gallons of petroleum per year within 

about 10 years. 

As we discuss the challenge of reducing petroleum use in transportation with the 

Congress and the Administration, the target of a 20-30 percent reduction in petroleum use is relatively common. Using government projections of fuel use by 2017, 

the target in petroleum terms calculates to about 35-45 billion gallons. Chrysler, 

General Motors and Ford have promised that 50 percent of our respective vehicle 

fleets will be capable of using alternative fuels such as ethanol and biodiesel by 

2012. This is critical. Our calculations show that the vehicles resulting from our 

commitment would use all and more of that alternative fuel, if it were available and 

affordable. 

The evidence that automakers are doing their part is already on the road. There 

are currently more than 5 million flex fuel vehicles on U.S. roads. DaimlerChrysler 

has produced more than 1.5 million vehicles capable of running on E85—more than 

10 percent of our total production over the past nine years. 

While getting to the goal of significant reductions in petroleum consumption is inherently complex, the message is more direct: If all gasoline was blended with E10 

(10 percent ethanol), all diesel fuel replaced with a B20 blend (20 percent biodiesel) 

and all flex-fuel vehicles capable of using E85 did so, petroleum use would drop by 

about 30-35 billion gallons. While achieving all of these goals may not be easy, they 

illustrate the importance of alternative fuels, and the resulting reductions in petroleum use in the transportation sector. 

But the question remains... where is the alternative fuel? We believe that customers want to use and will embrace alternative fuels if the impediments to their 

use are eliminated. Today, those impediments are primarily price and availability. 

Simply stated, the price at the pump for renewable fuels must be less than conventional gasoline or diesel, on an energy equivalent basis, or consumers will not buy 

it. 

Consider the internet, cell phones and iPods. These products rapidly overcame 

cost and distribution issues because of unprecedented consumer demand for products that do more and cost less. 

All stakeholders must commit to accomplishing this task. In the short term, we 

will need to rely on incentives to ‘‘prime the pump’’ for alternative fuel producers 

and distributors. In the long term, as technologies such as cellulosic ethanol and biomass-to-liquid become viable, we believe that the market will resolve how to make 

alternative fuels price competitive on an energy equivalent basis. If alternative fuels 

are priced competitively or better, the retail distribution system will rush to answer 

consumer demand. 

Automakers, specifically Chrysler, will continue to do our part to maximize the 

energy efficiency of our products and produce large volumes of vehicles capable of 

using alternative fuels. Congress could assist by assuring that adequate research is 

properly funded; which would result in properly priced fuel at the pump. 

In conclusion, automobile manufacturers commit to the continued development 

and commercialization of vehicle technologies that maximize the efficient use of energy and give consumers the option of using alternative fuels. All of us need to focus 

on alternative fuel technology development, availability and price at the pump. 

Short term incentives, coupled with free market forces, will result in the long-term 

success of alternative fuels and the successful achievement of the nation’s energy 

goals. 

Thank you.

Senator DORGAN. Ms. Morrissett, thank you very much. Finally 

we will hear from Mr. Phillip Lampert, who is the Executive Direc-
54

tor of the National Ethanol Vehicle Coalition, Jefferson City, Missouri. 

Mr. Lampert, thank you for being here. You may proceed. 

STATEMENT OF PHILLIP J. LAMPERT, EXECUTIVE DIRECTOR, 

NATIONAL ETHANOL VEHICLE COALITION, JEFFERSON 

CITY, MO 

Mr. LAMPERT. Thank you very much, Mr. Chairman. My name 

is Phil Lampert. Distinguished members of the committee we’re 

pleased to be here today on behalf of the NEVC. We’d like to thank 

you for the opportunity. 

I have three of my members here today: Daimler Chrysler, Governors’ Ethanol Coalition and VeraSun. Including in our membership is General Motors, Ford and the Nissan Corporation. We’re a 

group that is composed of automakers, farmer cooperatives, others. 

Mr. Chairman, with all due respect, I’d like to add that we’ve been 

doing E85 long before E85 was cool. We’ve been doing E85 since 

1993 and we’ve done a lot of it up in Minnesota. We’ve done a lot 

in the front range of Colorado. We’ve done a lot in Illinois in the 

Chicago area. Many comments Senator Klobuchar, my dear friend 

commented on in the leadership in Minnesota here today. 

It’s no accident that Minnesota is a leader in E85. That has been 

planned for a long time. It’s no accident there’s over 150 stations 

in Illinois or close to 40 now in the front range of Colorado. We set 

those, our goals, our members, with Daimler Chrysler, with the 

Governors’ Ethanol Coalition, with the Department of Energy’s 

input to learn from those models. To learn from the failures and 

the successes and we think we have. I would like just to respond 

to a couple questions that have been made here today. 

Our organization is under no—I’ve been characterized as being 

delusional many times, but we’re under no illusion that every vehicle is ever going to run on E85. But if every vehicle could be manufactured as a flexible vehicle, than we could run on the E12 or the 

E20 or the E40. We might use E10 in New Jersey or we might use 

zero in Alaska because of cold weather or we might use E30 in 

North Dakota. 

I think that we’re past, Mr. Chairman, the chicken and the egg 

routine. I believe that we’re into the ham and egg routine. Where 

the chicken is involved but the pig has commitment. I think what 

we need now from this Congress and others and from the Department of Energy is commitment to take the project to the next step. 

We believe that the next step includes the following five items: 

First, Federal support should continue for the next several years 

in the form of small grants to continue to assist with infrastructure. I don’t believe and our organization, sir, doesn’t believe that 

it takes 75,000 to 100,000 dollars to open an E85 fueling station. 

I’ve opened a number of them in Bismarck and Fargo for less than 

5,000 dollars. We can modify that pump. We can do the clean up 

on the underground storage tank. We can provide the technical 

support and that we can have E85 in there in a matter of 2 weeks. 

Second, included with that is our need to have a basic program 

of education of the industry, technical assistance, marketing support and supply coordination. Second, we want to indicate our complete support for what my colleague, Mr. Lehman indicated that 
55

the Congress should consider adoption of new short term Federal 

income tax credits that would reduce the price of E85 to ensure the 

consumers are able to purchase fuel at a gasoline gallon equivalent 

basis. That is going to be the key. 

Third, the Congress should consider expanding and extending 

the existing Federal income tax credit that provides 30 percent, up 

to 30,000 dollars to support the establishment of alternative fuel 

infrastructure. 

Fourth, we agree 100 percent that we should end arbitrary restrictions that some petroleum companies enforce which prohibit a 

franchise operator from installing and operating renewable fuel dispensing system. We assisted Governor Pataki and his administration with writing that law that is actually based on the State of 

Iowa, who is the only other State in the country that has such legislation. 

Last then we believe that the Congress should continue to provide incentives to all of the automakers to continue to build flexible 

fuel vehicles. So with that, Mr. Chairman, again, I’d like to thank 

you for your leadership and the committee for the hearing and look 

forward to answering any questions. 

[The prepared statement of Mr. Lampert follows:]

PREPARED STATEMENT OF PHILLIP J. LAMPERT, EXECUTIVE DIRECTOR, NATIONAL

ETHANOL VEHICLE COALITION, JEFFERSON CITY, MO 

Good morning, Chairman Dorgan and distinguished members of the Energy Subcommittee, my name is Phillip Lampert and I serve as the Executive Director of the 

National Ethanol Vehicle Coalition (NEVC). On behalf of the NEVC, I would like 

to thank you for the opportunity to appear before you this afternoon. 

The NEVC is the nation’s primary advocate of the use of 85% ethanol as a form 

of alternative transportation fuel. Our membership includes four of the globes top 

five automakers; state and national corn grower associations; ethanol producers; 

equipment manufacturers and suppliers; ethanol marketers; the 37 states that comprise the Governors’ Ethanol Coalition; farmer cooperatives; chemical and seed companies; petroleum marketers; and individuals. The objective of our organization 

from its inception in 1995 has been to promote the use of high level blends of ethanol in flexible fuel vehicles (FFVs). The following testimony deals solely with the 

infrastructure issue as it relates to the sale of E85 at the retail level and does not 

address transportation infrastructure issues such as rail terminals, pipeline issues, 

etc. 

All motor vehicles sold in the nation today have been designed, engineered and 

produced to allow the use of up to 10% ethanol. However, the use of blends of ethanol exceeding 10% are now limited to FFVs. FFVs can operate on any amount of 

ethanol up to 85%. These vehicles are designed, engineered, and produced by the 

original equipment manufacturers and made available to consumers at no extra 

cost. As the Congress considers an expansion of the renewable fuels standard, it is 

important to note that with today’s conventional vehicles, the maximum amount of 

ethanol that can legally be consumed approaches 14 billion gallons nationally in a 

10% blend. While the potential use of E12 and E15 in existing vehicles is being debated, we know that a flexible fuel vehicle can operate on E15, E30, or E85, absent 

adjustments or modifications. Thus, the automotive technology exists to use these 

higher level blends of ethanol and that is in the form of FFVs. 

In 1995, the nation had less than 5,000 such flexible fuel vehicles on its highways. 

The NEVC anticipates that by the end of 2007, more than 6 million FFVs will be 

operating in the United States. On March 27, 2007, the CEOs of General Motors, 

DaimlerChrylser, and Ford jointly appeared with the President and Transportation 

Secretary Peters and publicly stated their company’s commitment to, (a) double production of FFVs from 2007 to 2010, and (b) produce 50% of their entire fleet as 

FFVs by model year 2012. Such production would exceed 4 million vehicles annually. The caveat to that pledge was that ‘‘adequate E85 fueling infrastructure be 

available to service the potential demand of those vehicles.’’

At the present time, the NEVC data base lists a total of 1,251 E85 fueling sites 

in the United States. This compares with approximately 168,000 gasoline fueling 
56

stations serving the 241,000,000 registered vehicles in the United States. Thus, 

there is one public gasoline station for each 1,435 vehicles. In comparison, currently 

there is one E85 fueling station for each 4,820 flexible fuel vehicles. While this number is striking, it is further unbalanced when you consider the following statistics:

• Alabama has 106,000 FFVs and one E85 fueling site. • California, the largest user of motor fuels in the nation, has 328,000 FFVs and 

only one E85 fueling site. Statistics of other states and the numbers of FFVs 

and E85 fueling stations follow:

State # of FFVs # of E85 Stations # of FFVS/Stations 

New Jersey .......................... 129,000 0 

Oregon ................................. 50,500 6 8,400

North Dakota ...................... 16,190 23 740

South Dakota ...................... 21,000 62 

Louisiana ............................. 112,000 0 

Washington .......................... 71,400 6 11,900

Vermont ............................... 9,100 0 

Montana ............................... 18,000 1 18,000

New Mexico ......................... 37,000 5 7,400

Alaska .................................. 9,900 0 

Idaho .................................... 18,073 4 4,500

North Carolina .................... 146,000 14 10,400

South Carolina .................... 77,000 42 1,800

Florida ................................. 359,000 1 359,000

Kentucky .............................. 61,000 3 20,000

Minnesota ............................ 124,000 320 390

Tennessee ............................ 108,000 9 12,000

Only 18 months ago, there were less than 500 E85 stations nationally. During 

2006, the NEVC, in partnership with a broad range of groups, added 569 new sites. 

While this growth has been interrupted to an extent by our lack of financial resources and the rescission by Underwriters Laboratory of previously approved 

equipment standards, we do expect to have added 1,000 new E85 sites from January 

of 2006 to January of 2008. These small successes have been a collaborative effort 

of the NEVC and our partners. Particularly, these efforts have centered on programs coordinated with state commodity organizations such as the Minnesota, Illinois, Missouri, Kansas, and other corn grower groups. Several Clean Cities Coalitions have also been active including those in North and South Carolina, Indiana, 

and Ohio. Ford and General Motors have each also been active in expanding E85 

fueling infrastructure. 

That said, the 1,251 E85 fueling stations operating today in 41 states across the 

nation pale in comparison to the number of sites needed to satisfy the demands of 

the motoring public and the nation’s automakers. 

In order to advance the establishment of additional public E85 fueling locations, 

the NEVC has adopted the following public policy statements:

1. Federal financial support should continue for the next several years in the form 

of small grants to assist with infrastructure development. As important as such a 

basic grant program may be, it is our belief that the need to educate the industry, 

provide technical assistance, marketing support, supply coordination, and promotional support to vendors is even more important. Federal funds should be made 

available to non-profit entities with demonstrated experience in supporting new E85 

fueling location development in order to provide vendors the necessary E85 technical, marketing, and promotional support. 

An example of such program is S. 1491 that would provide $20 million to farmerowned ethanol producers to install E85 fueling stations and $5 million for an E85 

education program. This bill has been introduced by Senator Klobuchar as part of 

the Energy Title of the Farm Bill. Chairman Dorgan is a co-sponsor. 

While clearly appropriate and necessary, it is simply not enough to provide outright grants to vendors to assist with offsetting the costs of new E85 equipment. 

More than 90% of the 1,251 existing E85 fueling stations are the result of conversions of exiting gasoline equipment. Such conversions can be undertaken for less 

than $5,000. Of significant importance to sites that wish to convert, is the provision 

of technical assistance to ensure that proper fuel handling and dispensing is practiced. Such technical support is also a key element in maintaining an E85 site once 

it is opened. The establishment of a ‘‘retail technical and marketing assistance’’ effort as a companion to any equipment grant program would be key to ensuring that 
57

new vendors are able to market and offer E85 at a gasoline equivalent basis to regular unleaded, that equipment standards are being maintained, that promotional 

materials are available, and that a central clearinghouse is available to respond to 

questions from consumers. The addition of such a sub-program to the basic DOE 

grant effort is critical and we encourage the Committee to consider adoption of such 

an effort. 

2. The Congress should consider expanding and extending the existing federal income tax credit that provides 30% up to $30,000 to support the establishment of alternative fueling systems. The NEVC suggests that the credit should be extended 

to the end of 2012 and increased to 50% or $50,000. 

This federal income tax credit was established as part of the 2005 Energy Bill and 

has been very helpful in offsetting the costs of installation of E85 fueling systems. 

As a new form of transportation fuel, many entrepreneurs are hesitant to make the 

needed investments in infrastructure while they wait on the automakers to produce 

FFVs. Increasing the incentive to 50% up to $50,000 would serve to assuage much 

of this reluctance and assist in breaking the so called ‘‘chicken and egg’’ syndrome. 

3. The Congress should consider the adoption of new short-term federal income 

tax credits that would reduce the price of 85% ethanol to ensure that consumers 

are able to purchase the fuel at a cost 20% less than that of regular unleaded gasoline. 

The chemistry of ethanol is that as a fuel it contains less latent heat content than 

motor gasoline. On an arithmetic basis, E85 contains 27% less BTUs than unleaded. 

Mileage loss in FFVs operating on E85 ranges from 5% to 25%. Thus, E85 must be 

priced at least 20% less than that of regular unleaded. Consumers will not tolerate 

a loss in mileage absent an equivalent reduction in fuel price. E85 must be priced 

on a gasoline gallon equivalent basis per mile driven. Unfortunately, in many of our 

1,251 existing stations, this pricing standard is not being adopted and these locations are moving very little fuel. Clearly our mutual goal is to advance the use of 

renewable fuels and not just build infrastructure. If the fuel is not properly priced, 

no fuel will be consumed. 

4. End the arbitrary restrictions that some petroleum companies enforce which 

prohibit a franchise operator from installing and operating a renewable fuel dispensing system. 

Over the past several weeks, testimony has been provided by representatives of 

the petroleum industry to the Senate Judiciary Committee and in response to direct 

questions from Senator Grassley, Senator Obama and others, stating that there are 

no restrictions on the sale of alternative fuels by so called ‘‘branded’’ operations. 

While not wishing to debate that matter, it is the recommendation of the NEVC 

that the Congress consider adopting language that will serve to clarify the previous 

statements made by those representatives and address this issue. An owner/operator of a fueling station should have the right to sell any form of transportation fuel 

on his or her property without recrimination or objection from the franchise management. Unfortunately, in our experience, some owners of fueling stations have 

been denied the option to install E85 fueling equipment. 

The NEVC urges the Congress to consider adoption of language that would clarify 

the right of fueling station proprietors to store and dispense any form of transportation fuel own property they own regardless of the nature of the ‘‘branded product’’. 

5. The Congress should continue to provide incentives to the nation’s automakers 

to encourage the production of flexible fuel vehicles. 

The impetus for today’s production of alternative fuel vehicle was provided by the 

2nd Session of the 100th Congress via passage of the Alternative Motor Fuels Act 

(AMFA) of 1988, extended by the 2005 Energy Bill. The ‘‘CAFE Credit’’ incentives 

have encouraged the production of motor vehicles capable of operating on any form 

of alternative fuel. These credits allow the automakers to offset the additional 

equipment, research, certification, and warranty costs associated with the production of an FFV. This incentive has been tremendously valuable and successful in 

that prior to 1988 there were zero alternative fuel vehicles on the nation’s highways. 

As a result of AMFA, today, there are more than 6 million E85 vehicles and a number of electric, CNG, and LPG cars and trucks across the nation. The NEVC recommends that the Congress consider other incentive based mechanisms that would 

continue production of FFVs by the domestic automakers and broaden the program 

so that foreign automakers find financial benefit in the manufacture of FFVs. 

MANDATORY INFRASTRUCTURE PROGRAMS

The development and promulgation of incentives to further advance alternative 

fuel infrastructure may sound burdensome, time consuming, and costly in terms of 

federal investments. An option that might immediately address the lack of E85 and 
58

* Graphics retained in committee files. 

other alternative fueling stations would be to simply ‘‘mandate’’ that the major oil 

companies install and sell such fuel by a certain date. For example, on July 26, 

2007, ExxonMobil reported quarterly profits exceeding $10 billion. It would seem 

reasonable to assume that ExxonMobil could easily absorb the costs of installing 

10,000 new E85 fueling stations across the nation. 

It is the position of the NEVC that there is little benefit in the promulgation of 

federal law which mandates the installation of alternative fueling infrastructure. In 

our 14 years of experience in advocating the introduction of renewable fuels, the key 

to successfully selling E85 and any other form of alternative fuel is proper pricing, 

marketing, and the provision of educational resources. While consideration of the establishment of federal mandates requiring the establishment of E85 fueling stations 

is admirable, we continue to believe that the marketplace is the mechanism most 

appropriate to ensure such E85 fueling sites are installed during this critical development stage. 

It is our observation that mandating E85 fueling facilities may result in placement of the sites in poor locations, arbitrarily high prices for E85, and lack of customer outreach and marketing. While unlikely, it would be possible that opponents 

of alternative fuels could use high pricing of fuel at sites they were forced to establish to confirm a lack of demand and establish an ‘‘I told you so’’ prophecy of failure 

of the site. See the following photograph (The following photographs illustrate the 

potential impact of the mandate of E85 infrastructure in the market).* 

The photographs above were each taken on September 14, 2006. The station in 

the photograph on the right is selling E85 for 20% more than the price of unleaded. 

The station in the photo on the left is selling E85 for 20% less than the price of 

unleaded. While there is a 14 cent difference in the base price of unleaded in these 

two photos, there is a difference of $1.20 in the price of E85. Both of these sites 

are Midwest locations and situated in states with existing ethanol production facilities. 

The station on the right, selling E85 for 20% more than unleaded, averaged less 

than 600 gallons per month of E85 sold. Du to small volume sales, the station permanently terminated all E85 sales shortly after this photo was taken. 

The station on the left in the photo above, selling E85 for 20% less than unleaded, 

averages more than 20,000 gallons per month of E85 sold. This operator has expanded to more than 45 stations selling E85 at the 20% less than unleaded price 

margin and is extremely pleased with sales and margins. It is also important to 

note that the total federal investment in these profitable facilities is less than 

$2,500 each. 

It is also important to note that the 20,000 gallons per month of E85 dispensed 

from the two nozzles at the Break Time station represents the equivalent of 170,000 

gallons of E10. Very few fueling stations are able to claim that type of volume. 

Without question, mandating the establishment of E85 fueling stations would be 

simple. Mandating the sale of fuel at certain price points in order to offset the lower 

latent energy content would be extremely difficult. 

Another point that should be considered in a discussion regarding mandatory E85 

fueling systems is that of the 168,000 fueling locations across the nation, that less 

than 11,000 of these sites or approximately 6.5% of the total fueling stations, are 

actually owned by the ‘‘branded’’ integrated petroleum companies. (Source: National 

Petroleum News, Market Facts 2006). While some 56% of all stations are ‘‘branded’’ 

in the sense that they may handle ExxonMobil, BP, Shell, Valero, Sinclair, and 

other products; these companies only own a small percentage of the sites. Mandates 

would simply place another layer of financial burden on the small businessmen and 

women that own the 93.5% of all fueling stations. 

In the future, vendors choosing not to sell E85 will be facing the loss of a significant new revenue stream and potential profit center. As in the sale of other commodities, vendors who do not rapidly respond to market demands are those that 

rapidly exit the marketplace. We believe this will also be true in the sale of alternative fuel. The NEVC supports the market in this endeavor and continues to resist 

embracing such mandatory programs. It may be necessary to re-evaluate this position in the future, but presently we oppose such mandates. 

In summary, in order to advance the establishment of renewable fuel infrastructure for the purpose of dispensing E85 as a form of alternative transportation fuel, 

we believe the following actions are needed:

• Continue the provision of federal financial incentives to assist with offsetting 

the cost of new or converted infrastructure. Such financial support may be pro-
59

vided in the form of grants or as an increase in the existing federal income tax 

credit. 

• The Congress and the Department of Energy should place a much stronger emphasis on the provision of technical support, marketing support, and promotional assistance to new and existing E85 vendors. 

• Maintain and enhance incentives that assist automakers in offsetting the costs 

of FFV equipment so that they may proceed with the massive introduction of 

FFVs into the nation’s auto and light duty truck markets. 

• Elimination of any and all franchise restrictions on owners of fueling sites to 

allow them the choice to dispense any form of transportation fuel, and finally, 

• A short-term increase in the existing incentive that is available for ethanol to 

offset the lower BTU value of the product and ensure that it is available to consumers on a gasoline gallon equivalent basis.

Mr. Chairman and Members of the Committee, we appreciate the work that you 

are doing on behalf of the American people to address our nation’s growing dependence on imported petroleum. The NEVC thanks you for the opportunity to provide 

these comments and we are available to respond to questions at your convenience. 

ATTACHMENT.—NATIONAL ETHANOL VEHICLE COALITION

BACKGROUND

The National Ethanol Vehicle Coalition is the nation’s primary advocacy group 

promoting the use of 85% ethanol as a form of alternative transportation fuel. The 

NEVC supports the production of ethanol from corn based technology available 

today and also supports the production of ethanol from new technology using perennial crops, biomass, and waste materials. 

FUNCTIONS OF THE ORGANIZATION

• Advocate the use of E85 as a form of alternative transportation. 

• Educate consumers, organizations, public policy officials and the media as to 

benefits of the use E85. 

• Serve as a technical consultant to transportation fuel providers, ethanol producers, policy makers. 

• Promote the use of E85 in the political arena. 

• Provide information regarding tax incentives available to reduce price of E85. 

• Sometimes—provide financial assistance to build fueling systems. 

• Support all forms of alternative fuels. 

GOVERNANCE

Governed by a 10-20 member Board of Director’s, the NEVC employees five full 

time staff in an office located in Jefferson City, MO. The NEVC also maintains contract staff in New York, Michigan, Illinois, Iowa, Tennessee, Montana, and Minnesota. Legislative functions are carried out by two firms engaged via retainer located in Washington, D.C. 

Operational functions are overseen by the Executive Committee which is comprised of the Chairman, Vice-Chairman, Secretary-Treasurer, Immediate Past 

Chairman, and the Executive Director. The NEVC holds two meetings annually of 

the Board of Director’s and one general membership meeting. 

MEMBERSHIP

The groups, organizations, companies, and individuals that comprise the membership of the NEVC represent an exceptionally broad range of interests and objectives 

from across the nation. Some of the members include:

• 37 Governors comprising the Governors’ Ethanol Coalition 

• General Motors Corporation 

• Ford Motor Company 

• DaimlerChrysler 

• Nissan North America 

• 18 Clean Cities Coalition Across the Nation 

• National Agricultural Organizations 

—National Corn Growers Association 

—National Sorghum Producers Association 

• State Agricultural Organizations 

—Colorado Corn Growers Association 

—Corn Marketing Program of Michigan 
60

—Kansas Corn Commission 

—Kentucky Corn Growers Association 

—Missouri Corn Growers Association 

—Minnesota Corn Growers Association 

—New York Corn Growers Association 

—North Dakota Corn Growers Association 

—Ohio Corn Growers Association 

—Texas Corn Producers Board 

• Petroleum Marketers 

• Ethanol Producers/Marketers 

• Consumer Groups 

• Individuals 

SIGNIFICANT ACCOMPLISHMENTS

• Have been engaged with the establishment of every single E85 fueling station 

in the United States. 

—Have provided grants to most and a standard ‘‘imaging package’’ to all. This 

imaging package contains consistent information to allow a motorist identify 

an E85 station in California or Florida. 

• Printed and distributed more than 250,000 copies of the E85 Purchasing Guide, 

fielded more than 4,000 average calls per month to our toll free line, maintained 

a website that average more than 30 million hits per month, and opened more 

than 800 E85 fueling stations in 38 states. 

• Have received appropriations from the U.S. Congress to support the establishment of public and private E85 fueling systems. 

• Have established the ‘‘Handbook for Handling, Storing, and Dispensing E85’’ to 

maintain high fuel quality. 

• Have been successful in establishing a federal income tax credit to assist with 

offsetting 30% of the total cost, up to $30,000, of an E85 fueling facility. 

• Established relations with the Steel Tank Institute, Petroleum Equipment Institute, Petroleum Marketers Association of America, National Association of Convenience Stores, and other industry groups and organizations in an effort to 

promote E85 use. 

• Have been successful in extending the CAFE credits that were originally established in 1988 so that automakers are provided incentives to continue to 

produce FFVs through model year 2014. 

• Have been successful in encouraging the automakers to build FFVs in their 

most popular line of vehicles such as the Silverado, F150, Taurus, Town and 

Country minivan, Ranger, Explorer, Tahoe, Yukon, Sebring, Grand Cherokee 

and others.

Senator DORGAN. Mr. Lampert, thank you very much. I think a 

number of witnesses have talked about the chicken and the egg 

and which comes first. It’s a fair question. I don’t think we know 

the answer, but I think we have to do things concurrently in order 

to be successful. 

Ms. Morrissett, I notice—I went to the internet to Chrysler’s site, 

and it says build my own options. You have the capability quite 

easily actually to build your own options. But it doesn’t have an option for a flex fuel vehicle. Why is that the case and is that usual? 

Ms. MORRISSETT. When Chrysler decides to build a flex fuel vehicle we do it across the whole engine. So if you pick an engine, it’s 

not as easy as I would like a flex fuel option. It’s every vehicle with 

that particular engine. When you pick the engine, you get the alternative fuel. 

A lot of folks think that it’s—when we start talking about alternative fuel vehicles it’s simply changing some tubes and changing 

a pipe, but it really—a pump, but it really is inside the engine. We 

have different valves and valve seats so it’s not easy to simply pick 

an option. 

Senator DORGAN. You know, obviously one of the goals here is to 

have more flex fuel vehicles on the streets and the roads. We want 
61

consumers to have easy access to order a flex fuel vehicle if they 

wish. My hope is the industry will be aggressively moving in that 

direction. I know that your testimony suggests that that’s what you 

want to do. 

Mr. Drevna, you indicated in your testimony that with oil, I believe my colleague said at 70—is it 78 dollars a barrel today? That 

seemed high to me. Seventy-eight dollars a barrel. You indicated 

that decisions are being revisited in board rooms with respect to 

the investment in refineries because if we’re going to use less gasoline in the future, you want to build—you have less refinery capacity perhaps. 

But it is the case that profits are at a record high at the moment 

and part of the bottleneck is refining capability. I—you talked 

about the President’s goal of 35 billion gallons by 2017, which 

would aspire to a 20 percent reduction in the use of gasoline which 

would get you to 129 billion gallons of gasoline. It seems to me that 

would be a laudable goal for this country if we could possibly 

achieve. One I fully support. One I fully sign up to have happen. 

I recognize that some in your industry probably would say that’s 

not in our interest. But you heard me suggest earlier that what 

might be in your self interest is not in the national interest. 

Do you believe it is in the national interest to reduce our reliance 

on foreign sources of oil? 

Mr. DREVNA. Absolutely Senator. I think we’re all in this game 

together, but, I think the rules have to be firmly established and 

the play book understood. What we’re looking at is, again, I’ll go 

back. If this policy were in place in the summer of 2005 after 

Katrina and Rita ran through the Gulf, there would not have been 

a market signal for importers to help bail us out of our production 

problems. That is what a 20 percent reduction in gasoline use will 

do. 

We are already at a capacity level in the United States, domestic 

refiners that surpass that 20 percent reduction. What would we do 

with that extra, extraneous capacity if we continue to expand capacity today? These are the concerns we have as far as the mixed 

messages. 

We believe, as an industry that and I think it must—maybe it 

was Senator Craig that mentioned it. We’re going to need a vast 

array, a vast menu of fuels, transportation fuels, fuels that generate electricity, fuels that drive this Nation. You can’t just pick or 

choose one or the other. I know you’re not trying to do that but 

when you talk about a 35 billion gallon over a very short timeframe. When you talk about limiting gasoline production below to 

what we’re making today. Any fiscally minded refinery executive 

will have to take a long, hard pause and see where he or she will 

put that capital. 

Senator DORGAN. Mr. Drevna, that will be true if we are successful in trying to reduce the quantity of gasoline that we use and replace it with renewable fuel, that’s an inevitable consequence. That 

puts your testimony with respect to the self interest of those you 

represent at odds with the national interest. Does it not? 

Mr. DREVNA. No, sir. I don’t think it’s at odds. I think, again, 

we—I think we all have to figure out on a going forward basis 

where we want to be. 
62

Senator DORGAN. What about 129 billion gallons of gasoline? 

What if that’s where we want to be? 

Mr. DREVNA. Ok. Then we have to understand—

Senator DORGAN. Then we’re at odds. 

Mr. DREVNA. What we have to understand as a Nation what the 

consequences, the unintended consequences of that may be. As I 

said, you know, we are going to be expected as an industry to 

produce ever increasing amounts of diesel. While making diesel we 

have to make gasoline. That’s the nature of the beast. 

Senator DORGAN. We are always going to use fossil fuels. I support the use the production of gasoline. I support the exploration 

of oil. I’m one of the few on my side that want to open up more 

in the Gulf of Mexico which is substantial when you evaluate Alaska, the West Coast and the Gulf. The Gulf of Mexico has the greatest potential. So I understand we’re always going to do that. 

The key national interest question here is our over reliance on 

foreign sources of oil from very troubled parts of the world. So, 

that’s why we’re trying to develop a renewable fuels infrastructure 

and renewable fuels capability. Frankly, I chafe when I see in the 

paper the oil industry say well, you start moving in this direction 

we’ll start messing with you with respect to refinery investment 

and so on. It seems to me like, we’re obviously all not on the same 

page. We need to figure out where the self interest is, where the 

national interest is and try to find out how we move through that. 

This hearing is not about whether we’re going to move in this direction. We are. We’ve already decided that as a matter of public 

policy. The President and the Congress in various iterations have 

said we’re moving toward much more development of fossil fuels. 

No one can say that this country hasn’t been very hospitable to the 

petroleum industry. I mean, they are making record amounts of 

money in this country. Thanks to people driving up to the gas 

pump and almost getting a second mortgage to fill up. 

So, it’s been a wonderful time for that industry. But it seems to 

me that as we try to evaluate with this President and this Congress and I think the country wanting to do this. How do we become less dependent on foreign oil? The proposition of producing 

more renewable fuels and creating an infrastructure by which we 

distribute that is just incredibly important for us. We’re going to 

have to work through all these issues. 

You heard at the front end of this discussion, my angst about 

how the gasoline islands are managed by the majors and so on. I 

think all of you on this panel have added to the various chapters 

to this book that we’re trying to write about renewable fuels and 

the development of this new industry. I appreciate that a lot. I 

don’t know what the exact answer is yet or the exact construct, but 

it’s going to require policy change. It’s going to require leadership. 

It’s going to require cooperation by the private sector. It’s going to 

require public sector initiatives and incentives in my judgment. 

So, it’s going to require a lot of things. We’ve got to do it right. 

We can’t wait for 10 or 15, or 20 years. We need to run, not walk. 

But you’ve all made a point in similar ways that there has to be 

a consistent policy that most of our country understands that we’re 

aspiring to achieve. I fully agree with that. 
63

I’m supposed to be offering an amendment over on the floor at 

4:30. So, I’m not going to ask additional questions. I would like to 

be able to send additional questions to the witnesses if I might because you represent five disciplines. All of which we wanted to hear 

from on this subject. Let me recognize my colleague, Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. As I listen to 

not only the panelists, but those of us up here at the dias talking 

about the way to—national energy security and how we reduce our 

dependence on foreign sources of oil. I just have one word and it’s 

ANWR. I know that’s not today’s hearing, but I just can’t help myself. It is about renewables today and I will stick to the subject. 

I want to ask a little bit of a parochial question. Coming from 

Alaska and recognizing that Alaska is now exempt from the ethanol requirements. But I want to understand how ethanol is working in the colder regions. Senator Klobuchar is from Minnesota, 

they’ve got some cold weather. Mr. Chairman from North Dakota, 

you certainly have some cold weather up there. 

Senator DORGAN. That is simply not the case. 

Senator MURKOWSKI. No, not cold there? 

Senator DORGAN. We have no cold weather in North Dakota. 

[Laughter.] 

Senator MURKOWSKI. That’s good. I’d be delighted to come up 

and visit you then. 

Senator DORGAN. Don’t do it in January then. 

Senator MURKOWSKI. Yes, yes. But let me ask recognizing that 

you have a tendency for the ethanol fuels to attract the moisture 

and the problems that are inherent with the moisture in the fuel 

lines when you have very cold temperatures. Can any of you, Mr. 

Lampert, or perhaps, Mr. Drevna speak about the properties of ethanol in cold temperatures and how that it is actually working out? 

Mr. LAMPERT. Thank you, Senator. The flexible fuel vehicles that 

are manufactured by the automakers are designed to operate on 

E85 in a manner similar to which they would operate on unleaded 

gasoline. That is if it’s 40 below in Anchorage and your car won’t 

start on gasoline. It’s not going to start on E85. That said, if your 

car is operating on regular gasoline your car should start at whatever temperature at E85. 

We have a testing facility in International Falls. I think if you 

see the weather maps in the winter that’s the coldest in the country. I believe we have two E85 fueling stations there. U.S. post office operates about 80 delivery vehicles that operate on E85. They 

have great success with them. So, we do modify our fuel like gasoline from winter to summer. When we follow those regulations—

Mr. DREVNA [continuing]. Powered by biodiesel. There are some 

ASTM standards, but there also being some extra standards being 

investigated. We’re not quite there yet. Again I go back to the fact 

that, you know, before we—I don’t think it’s any secret that NPRA 

does not support mandates. 

Senator MURKOWSKI. Let me ask you. 

Mr. DREVNA. We’re not going to put that on the official record 

though, but when you mandate something that doesn’t pass the 

test yet. That doesn’t exist yet. We have a problem. 
64

Senator MURKOWSKI. Let me ask you, Mr. Drevna. Do you have 

any estimate on what fuel mandates have cost the industry and 

what the impact of the mandates potentially are on the consumer? 

Mr. DREVNA. Senator, you have to separate environmental mandates from production mandates. If you’re talking about what the 

industry has capital expenditures to meet, all forms of fuel specifications, including reformulating gasoline one and two in the nineties, MSATs, mobile source air toxics, ultra low sulfur diesel, the 

tier two diesel for automobiles. You’re talking of almost 50 billion 

dollars of requirements. 

Now, just last—two years ago to get the MTBE and the ethanol 

in over that short timeframe. That was a two to three billion dollar 

effort. So, what it costs the industry depends upon what the mandate is. If it’s an E10 nationwide mandate then you have to retool 

the refinery to make a blend stock that will take the E10 without 

harming air quality. If you have individual states doing their own 

thing, one state’s an E10, one state’s an E15, one state’s an E20. 

My friends in the pipeline industry will not—will have a difficult 

time handling the different blend stocks that have to be shipped to 

various locations for that—for those specific products to make. 

That’s why we are calling for a congressional legislation that 

would pre-empt State mandates. Because if it indeed is supposed 

to be a national program of whatever billion gallons is ultimately 

decided. It should be indeed a national program that individual 

states and one of the—I guess it was Mr. Karsner was talking 

about boutique fuels. Well, if you start adding various every state 

and sometimes even locals have their own biofuels or ethanol mandate. It would be a nightmare for us to make the various blend 

stocks needed to blend and it would be a nightmare for the pipelines to try to deliver that blend stock to the terminals. 

Senator MURKOWSKI. Let me just ask you, Mr. Lampert, very 

quickly and wrap up. In your written testimony you state that the 

Federal Government should engage non-profit entities for promotion of E85. Can you elaborate a little bit more in terms of how 

non-profits could be participants in this effort? 

Mr. LAMPERT. Senator, I refer to the national Ethanol Vehicle 

Coalition, the Governors’ Ethanol Coalition, others. 

Senator MURKOWSKI. These that are represented here. 

Mr. LAMPERT. Not the two in the middle. Although, I think 

they’ve had some issues with that. 

The NEVC, we have the technical capabilities. We don’t charge 

overhead. Oakridge national Laboratory or national Renewable Energy Laboratory has a tremendous overheard. I’m not saying that 

they don’t do great work. They do. They’re super people. They’re 

my friends. We think that when you take that technical support 

out of the bureaucracy for one, that the—we’re dealing with gas 

station owners and operators. The statement, hi, I’m here from the 

Federal Government. I’m here to help, doesn’t always set real well 

with those people. 

So, I think when we send people out from the central part of the 

United States and we employ folks for New York and in the south 

that they’re a little more well received. So that’s why we suggest 

that that particular statement is made, Ma’am. 
65

Senator MURKOWSKI. Thank you. I appreciate that. Thank you, 

Mr. Chairman. That’s all I have for right now. 

Senator DORGAN. Senator Murkowski, thank you very much. 

Let me thank all five of the witnesses in this panel. We appreciate your attendance and your statements today. We think this is 

an important issue. We intend to continue to work with Secretary 

Karsner and all of you and others to see if we can find policy initiatives that will address these issues in a satisfactory way. 

This hearing is adjourned. 

[Whereupon, at 4:38 p.m. the hearing was adjourned.] 

(67)

1To view the latest EIA ‘‘Monthly Energy Review’’ please reference http://www.eia.doe.gov/

emeu/mer/prices.html. 

APPENDIX 

RESPONSES TO ADDITIONAL QUESTIONS

RESPONSE OF CHARLES T. DREVNA TO QUESTION FROM SENATOR MENENDEZ

Question 1. Mr. Drevna, I want to ask you about the economics of the refining 

industry. While consumers are being forced to pay more than $3.00 a gallon for gasoline, oil companies continue to reap record profits. In 2005, refineries increased 

their prices 255 percent. And whenever there is a spike in gasoline prices experts 

seems to lay the short term blame at the feet of the refineries. 

In your testimony you say that we should let the market decide the price of gasoline, but apparently the market is not working. Earlier this year many of the oil 

companies who are members of your organization blamed the expansion of biofuels 

for the high price of gasoline. 

How can this possibly make sense? Biofuels represent the first real competitor to 

petroleum in nearly a century. Why would this competition cause prices to rise? 

Isn’t the real answer that since the late 1990’s—mergers between the giant oil 

companies, like Exxon and Mobil, Chevron and Texaco and Conoco and Phillips—

have left us with only 10 major oil companies controlling 80 percent of our domestic 

refining capacity? 

Isn’t it the exercise of that market power that is one of the real causes of high 

gas prices and not the expansion of biofuels such as ethanol? Why else wouldn’t 

these companies invest their record profits into new refineries or properly maintain 

existing refineries that are constantly breaking down? 

Answer. The primary reasons for changes in the price of gasoline are the price 

of crude oil, the feedstock for the production of gasoline, and the demand for gasoline both in the United States and abroad. As in any commodity business, such as 

this one, demand affects supply and, therefore, affects price. 

The Energy Information Administration (EIA) collects and reports average gasoline prices, both refiner and retail. The July 2007 issue of EIA’s ‘‘Monthly Energy 

Review’’ includes average gasoline prices, none of which reflect the alleged ‘‘255 percent increase’’ that you cite.1 I would be happy to sit down with you or your staff 

to discuss these statistics and am very interested in understanding the source of 

your statistics that you reference in your question. 

NPRA believes that the U.S. refining industry is diverse and competitive; 54 refining companies, hundreds of wholesale and marketing companies, and more than 

165,000 retail outlets compete in the U.S. market. The largest U.S. refiner accounts 

for just 13 percent of the nation’s total capacity, and large integrated companies 

own and operate only approximately 10 percent of retail outlets. 

By way of background, beginning in the late 1990’s several large mergers occurred 

in the domestic petroleum industry. The Federal Trade Commission (FTC) reviewed 

mergers and acquisitions. In testimony presented before the Judiciary Committee on 

February 1, 2006 the FTC reiterated its long standing position regarding the oil industry and merger enforcement saying, ‘‘No other industry is so carefully scrutinized by the FTC’’ and ‘‘concentration for most levels of the United States petroleum 

industry has remained low to moderate.’’

In 2004, the FTC published an FTC Staff Study ‘‘The Petroleum Industry: Mergers, Structural Change, and Antitrust Enforcement.’’ In this study the FTC concluded: . . . mergers have contributed to the restructuring of the petroleum industry in the past two decades but have had only a limited impact on industry concentration. The FTC has investigated all major petroleum mergers and required relief when it had reason to believe that a merger was likely to lead to competitive 

harm . . .’’ Furthermore, over the past ten years, the FTC intervened in thirteen 
68

proposed mergers or acquisitions requiring significant divestitures to maintain competitive markets. 

I would also like to highlight a 2005 Federal Trade Commission (FTC) report entitled Gasoline Price Changes: The Dynamic of Supply, Demand and Competition 

which states that ‘‘the vast majority of the FTC’s investigations [into the petroleum 

industry] have revealed marked factors to be the primary drivers of both price increases and price spikes.’’ The same report states at least nine studies concluded, 

‘‘retail [gasoline] prices tend to be lower if one company owns both refining and retailing operations than if they are owned separately.’’

Mergers and acquisitions in the refining industry have actually maintained and 

even increased refining capacity; without such consolidation some of the individual 

refineries involved might not have been economically viable. One such example is 

Sunoco’s refinery complex in the metropolitan Philadelphia area which now has over 

550,000 barrels/day of capacity. If Sunoco were unable to operate these facilities as 

a unit, this production might not be available for consumers. Phillips Petroleum’s 

(now ConocoPhillips) acquisition of the Tosco refinery system increased capacity and 

maintained refinery viability on a nation-wide basis. Additionally, Valero Energy 

Corporation has increased the productive capacity of the refineries it has acquired 

by an aggregate of nearly 400,000 barrels per day over the past several years and 

plans more expansion in the future. Examinations of other mergers and acquisitions 

tell the same story: refineries are kept operating and oftentimes are expanded. 

Ethanol prices are available. See 

http://www.energy.ca.gov/gasoline/graphs/ethanoll10-year.html. 

http://www.energy.ca.gov/gasoline/graphs/ethanoll18-month.html. 

http://www.mda.state.mn.us/news/publications/renewable/ethanol/marketnews 

report.pdf 

These sources document that ethanol prices are volatile and ethanol is not uniformly a very low-cost gasoline additive. Because ethanol is in half of all U.S. gasoline, ethanol price volatility can contribute to changes in gasoline prices. 

Refiners have made significant investments in expansions of refining capacity. 

The fact is that we have added hundreds of thousands of barrels/day of capacity at 

existing refineries, the equivalent of a new refinery each year for the last 14 years. 

That is a remarkable investment in the U.S. refining industry. 

RESPONSES OF CHARLES T. DREVNA TO QUESTIONS FROM SENATOR CANTWELL

Most of the hearing discussion focused on ethanol, somewhat overlooking the second most significant biofuel in the U.S., biodiesel. Our experience in Washington 

state is the biodiesel is a particularly promising alternative fuel, both because we 

are able to grow oilseed feedstocks like canola in Eastern Washington, and we have 

strong demand in our population centers around Puget Sound. 

Biodiesel is also a key tool in tackling vehicle emissions, which in our state 

blessed with abundant hydropower is our greatest source of air pollution. And since 

many public and private fleet vehicles use diesel fuel, biodiesel is also a good way 

for municipalities to meet their climate change and air quality reduction goals. Biodiesel also has about the same energy density as petroleum diesel, so there is not 

the miles per gallon reduction we have been discussing when it comes to ethanol. 

Question 2. Could you comment on ways that we can help ensure more biodiesel 

production and its associated infrastructure? How does the infrastructure need for 

biodiesel distribution differ from those for ethanol? 

Answer. The Environmental Protection Agency (EPA) has concluded that biodiesel 

increases NOX emissions and reduces fuel economy because of its lower energy content. See http://www.epa.gov/otaq/models/analysis/biodsl/p02001.pdf. In addition, certain quantities of biodiesel have a tendency to gel in cold weather. 

The most notable economic challenge to the development of a viable, stand-alone 

biofuels transportation industry is the seemingly constant push to an ever-increasing mandate of these fuels. So long as sound, open and free marketplace dynamics 

and discipline are ignored through imposition of artificial and inefficient mandates, 

distortion of basic economic realities will continue. The goal of the biofuels industry 

should be economic parity, or better, with that of refined petroleum products. This 

situation will never be realized so long as the imposition of mandates over-rides 

basic economic fundamentals. Energy policy based on mandates is not a recipe for 

success. We believe the best possible future for the biofuels industry rests on allowing the market to operate freely because open markets permit supply and demand 

to be balanced in an equitable fashion benefiting both producers and consumers. 

Question 3. Section 130(c) of the Senate passed energy bill contains legislation I 

authored that would create a national biodiesel fuel quality standard. While maintaining biomass feedstock and process neutrality, this provision is intended to pro-
69

vide certainty for interested parties like truckers who want to use biodiesel but cannot risk using substandard biodiesel that could harm their engines. Do you support 

this language as written and a national biodiesel fuel quality standard more generally? 

Answer. Section 130(c) of the Senate energy bill passed last June would require 

the Administration to ‘‘ensure that each diesel-equivalent fuel derived from renewable biomass and introduced into commerce is tested and certified to comply with 

applicable standards of the American Society for Testing and Materials.’’ NPRA supports enforcement of motor fuel quality standards and Section 130(c) as written. 

NPRA supports the development of motor fuel quality standards at the American 

Society for Testing and Materials. Many states currently enforce these standards. 

Question 4. Are there measures that Congress should take focused specifically on 

biodiesel, as opposed to the more general legislation we have been discussing here 

today? 

Answer. Congress should amend the Clean Air Act to preempt state and local 

biofuels (including biodiesel and ethanol) mandates. Local mandates will impose additional strain on the transportation fuels distribution system and increase costs for 

shipping and storage. While it still creates many problems, the existing federal Renewable Fuels Standard (RFS) mandate with its credit-trading provisions contains 

a degree of freedom that allows the distribution system to operate at a low-cost optimum by avoiding infrastructure bottlenecks (such as lack of storage or rail capacity). Mandating ethanol or biodiesel usage in specific areas forces a distribution pattern that is less flexible, and therefore has less capability to minimize costs. These 

additional costs will be borne by consumers. 

Although the federal RFS is a federal mandate for biofuels consumption, it does 

not currently preempt similar state mandates. There are several recent state 

biofuels mandates since the Energy Policy Act of 2005 was enacted, including those 

in Louisiana, Missouri, Oregon, and Washington. It is difficult for regulated parties 

to reconcile different state and federal biofuels mandates (e.g., credit trading, averaging, banking credits, identifying liable or obligated parties). Inconsistencies will 

lead to instability in the marketplace. Further, these mandates create boutique markets requiring special fuel formulations and transportation logistics, thereby balkanizing the national fuel market. 

Public policy should focus on preventing the proliferation of state biofuels mandates that will have negative consequences for the motor fuel supply. If Congress 

wishes to allow for as diverse a supply of alternative fuels as possible, and to promote as much flexibility in the system as possible, state and local biofuels mandates 

should be preempted. 

Question 5. According to the Agriculture Department, U.S. ethanol from corn costs 

about $1.05 per gallon to produce. While I understand that ethanol distribution 

costs are about 10 cents higher per gallon then regular gasoline, why is E-85 selling 

at about three times its production cost? 

Answer. A member of the National Association of Convenience Stores (NACS) and 

the Society of Independent Gasoline Marketers of America (SIGMA) testified on 

June 7, 2007 before the Subcommittee on Energy and Air Quality of the House 

Committee on Energy and Commerce. I want to reiterate the following statements 

from this testimony:

The primary impediment to retailers converting a dispenser to E-85 is 

equipment compatibility. Because E-85 is more corrosive than regular gasoline or E-10, it requires equipment that is certified compatible with the 

fuel. In preparation for this hearing, I inquired of my equipment supplier 

to determine what would be required to convert one of my newer stations 

to sell E-85. These stations have the newest equipment and, therefore, hold 

the best chance for existing equipment compatibility. I learned that my new 

steel tanks and my fiberglass tanks were certified compatible with E-85. 

Our automatic tank gauges were listed compatible as were our fiberglass 

piping systems. However, we would have to replace several of the ancillary 

fittings, including the submersible turbine pump, the overfill drop tube and 

others like flexible hoses, spill buckets, ball valves, etc. In addition, our 

hanging hardware, which includes conventional nozzles, swivels, breakaways and curb hoses would have to be replaced with nickel plated units 

at an increased cost. For all of these conversions, including tank cleaning, 

we estimated the cost to be between $6,000 and $7,000. However, this does 

not include the dispenser itself. The two dispenser manufacturers each 

charge an additional fee for a new E-85 compatible dispenser—$8,000 for 

Dresser-Wayne and $7,300 for Gilbarco. Thus, a typical E-85 dispenser can 

cost upwards of $17,000 per unit. And this cost is for equipment that has 
70

2 U.S. General Accountability Office, ‘‘Biofuels: DOE Lacks a Strategic Approach to Coordinate 

Increasing Production with Infrastructure Development and Vehicle Needs,’’ GAO-07-713, June 

2007, p. 28.

not yet been certified compatible with E-85 by Underwriters Laboratories. . . . We have spoken with several retailers who lament their decision to install E-85 equipment because they have been unable to generate 

sufficient sales from these fueling positions to support their overall business 

model.

Additionally, GAO also examined the economics of E-85:

High demand for ethanol in low blends as an oxygenate and fuel extender 

has contributed to wholesale ethanol prices that are significantly higher 

than the wholesale price of gasoline. An additional incentive to selling ethanol in blends of 10 percent or lower, according to one major fuel blender 

with whom we spoke, is that the fuel economy reduction at that level is too 

small for consumers to notice; hence, the fuel can be sold at the same price 

as conventional gasoline at fueling stations. On the other hand, to attract 

customers, fueling stations must generally sell E85 at a discount to conventional gasoline to offset the noticeably lower miles per gallon that drivers 

experience when using the fuel. For example, in 2006, according to DOE’s 

Alternative Fuel Price Reports, E85 sold for 11 percent less on average than 

regular gasoline at a sample of fueling stations nationwide. However, few 

producers are willing to discount ethanol so that fueling stations can price 

E85 lower than gasoline. Consequently, EIA projects that use of ethanol for 

E85 will continue to be limited until the market for blends of 10 percent 

and under is nearly saturated.2

Question 6. Congress has decided to provide an incentive of 51 cents per gallon 

for ethanol, do you believe that consumers are seeing a commensurate value for this 

subsidies? What does this incentive translate to if the metric was $/barrel of oil? 

Answer. The corn ethanol industry has received significant government support. 

In examining the continued feasibility of the 51 cents per gallon ethanol subsidy, 

Congress should consider the maturity of the ethanol industry, ethanol’s cost competitiveness with other additives and fuels and potential price implications of changing the subsidy. 

As the question states, the current subsidy is 51 cents per gallon. 51 cents/gallon 

times 42 gallons/barrel of oil = $21.42/barrel. However, the energy content of ethanol is 30% lower than the energy content of gasoline, therefore 21.42/0.7 = $30.60 

(note: 0.7 is used in the calculation, because ethanol has only 70 percent of the energy content of gasoline). 

Question 7. Given that producing corn ethanol is a mature industry and cost competitive, while producing other advanced biofuels is not, do you believe limited government tax dollars be better spent on incentives and policies that focus more on 

advanced biofuels and biodiesel than corn? 

Answer. NPRA believes in the free market. NPRA supports the sensible and 

workable integration of renewable and alternative fuels into the marketplace based 

on market principles and demands. NPRA does not advocate financial incentives for 

advanced biofuels and biodiesel. 

The most notable economic challenge to the development of a viable, stand-alone 

biofuels transportation industry is the seemingly constant push to an ever-increasing mandate of these fuels. So long as sound, open and free marketplace dynamics 

and discipline are ignored through imposition of artificial and inefficient mandates, 

distortion of basic economic realities will continue. The goal of the biofuels industry 

should be economic parity, or better, with that of refined petroleum products. This 

situation will never be realized so long as the imposition of mandates over-rides 

basic economic fundamentals. Energy policy based on mandates is not a recipe for 

success. We believe the best possible future for the biofuels industry rests on allowing the market to operate freely because open markets permit supply and demand 

to be balanced in an equitable fashion benefiting both producers and consumers. 

Question 8. The current renewable fuels standard created in the 2005 Energy Bill 

has proven largely irrelevant because market forces have lead to production rates 

exceeding the RFS. However, the Senate passed energy bill contains a substantial 

increase in the RFS. What value to you estimate a creditable RFS compliance credit 

will have in 2012, 2015, 2020, and 2022? 

Answer. NPRA does not have a projection on the value of future RFS compliance 

credits. 
71

Question 9. As Senator Klobuchar mentioned, one of the pieces of legislation we 

have been working on would prevent oil companies from blocking installation of 

biofuel infrastructure at their franchised stations. Could you comment on this problem and whether the measures Congress is currently considering will help overcome 

this barrier? 

Answer. This issue was discussed extensively at a hearing on May 8, 2007 before 

the Subcommittee on Energy and Air Quality of the House Committee on Energy 

and Commerce. During the question and answer period, Paul Reid (witness for the 

Society of Independent Gasoline Marketers of America and the National Association 

of Convenience Stores) explained several times that new legislation was not necessary because of the current provisions of the Petroleum Marketing Practices Act. 

The Petroleum Marketing Practices Act (PMPA) was established to ensure stability and reasonable expectations in the franchise relationship. Therefore, PMPA 

does not invalidate existing contracts. Under existing contract law, franchisors and 

franchisees are free to negotiate for the sale of a range of products, including conventional, reformulated, and renewable fuels. Should the Congress adopt a policy 

that disrupts this relationship by forcing the sale of certain products outside of existing contractual relationships, then we believe Congress must hold refiners harmless for any of the adverse consequences related to these products. 

Question 10. Section 511 of the Senate passed energy bill is derived from an 

amendment I offered and would increase consumer awareness of flex fuel vehicle capabilities by including a badge on the outside of the car, information in a car owner’s manual, and a clearly labeled fuel cap. Do you support this language as written 

and consumer awareness programs for biofuels more generally? 

Answer. The retail price of E85 must be 25-30 percent lower than the retail price 

of gasoline in order for consumers to travel the same distance. Given this situation, 

I think it is wise to educate consumers about the diminished energy content of E85 compared to gasoline and what price differentials between the two products economically justifies the use of E-85. Such information is crucial for avoiding a public 

backlash against E-85. 

Brazil has reduced their use of oil by approximately 200,000 barrels per day by 

using a mix of ethanol and gasoline at their gas pumps. They now mandate that 

at least 10% ethanol be mixed with their gasoline, although most places contain 

around 40%, which is possible due to the amount of flex fuel vehicles they produce. 

The use of ethanol has saved Brazil over $120 billion in imported oil over the last 

22 years, decreased air pollution in the big cities, and created a stronger economy 

along with an increase in jobs. 

Question 11. Brazilian ethanol from sugar cane costs 81 cents per gallon to 

produce (compared to $1.05 for U.S. ethanol from corn), and Brazilian ethanol production from sugarcane, yields about 590 gallons per acre. Given this potential 

value for American drivers, especially compared to record high gasoline prices, does 

it make sense to continue to impose a tariff on importing Brazilian ethanol? 

Answer. NPRA supports the elimination of the tariff on imported ethanol. See 

NPRA’s testimony before the Senate Commerce, Science and Transportation Committee on May 23, 2006: http://commerce.senate.gov/public/lfiles/slaughter052306

.pdf 

RESPONSE OF JONATHON LEHMAN TO QUESTION FROM SENATOR MENENDEZ

Question 1. What steps can we take to create better access to ethanol in the 

Northeast and specifically my home state of New Jersey? I noticed that an E85 

pump was recently installed in Georgetown here in Washington DC, but the citizens 

of New Jersey are anxious to help reduce our dependence on oil and reduce our 

greenhouse gas emissions by using biofuels. Right now there are 129,000 cars in 

New jersey that can run on E85, but people do not have access to pumps. I was 

pleased to support a provision in the Energy Bill we just passed here in the Senate 

to incentivize further market penetration of E85 pumps by establishing a pilot grant 

program to create renewable fuel corridors. But will this program be enough? 

Answer. VeraSun has pursued an aggressive strategy to increase the availability 

of E85 across the country and were extremely pleased to be the first to offer E85 

to our Nation’s capitol. VeraSun is committed to helping develop a robust E85 market across the United States. 

From our experiences, the most critical thing needed to quickly build a robust E85 

market in the United States is to improve E85 economics through the creation of 

an E85 Blenders Credit. Fuel retail owners must know that E85 will be priced appropriately and that there will be sufficient consumer demand to install E85 infrastructure. Because Flexible Fuel Vehicles (FFVs) are currently not designed to take 
72

advantage of E85’s high octane, FFV owners receive fewer miles per gallon running 

on E85 than on conventional gasoline. This direct impact on consumers requires 

that E85 be sold at a discount to gasoline for it to be competitive in the marketplace. 

To address this economic disincentive to install E85 pumps, Congress should create a blenders credit for ethanol blended into E85 within the existing VEETC system. This credit would compensate for the discount resulting from the loss in miles 

per gallon efficiency. We believe that establishing this incentive will lead to additional E85 production and will help ensure that E85 is priced properly at the pump 

for consumers. This will help make a fuel retailers decision to offer E85 much easier 

and lead to much quicker expansion of E85 across the United States. 

RESPONSES OF JONATHON LEHMAN TO QUESTIONS FROM SENATOR CANTWELL

Question 2. According to the Agriculture Department, U.S. ethanol from corn costs 

about $1.05 per gallon to produce. While I understand that ethanol distribution 

costs are about 10 cents higher per gallon then regular gasoline, why is E-85 selling 

at about three times its production cost? 

Answer. Wholesale ethanol prices tend to follow petroleum prices because ethanol 

is most commonly used as a gasoline additive in the E10 market and is bought and 

sold through the nation’s petroleum distribution system through long-term contracts 

(six to 12 months) between ethanol producers and marketers and petroleum companies. Because the lion’s share of ethanol is sold into the E10 market, the price that 

petroleum companies are willing to pay for ethanol as an additive sets the price for 

ethanol purchased at the wholesale level for use in E85. Until E85 usage increases 

significantly in the United States, wholesale ethanol price will continue to be driven 

by what petroleum companies are willing to pay for the product. 

That being said, VeraSun believes that E85 must be priced fairly at the pump for 

consumers to choose to adopt it. As part of its E85 initiative, VeraSun sells E85 directly to willing retail stations at a discount to gasoline. On a public policy level, 

VeraSun believes that the creation of an E85 blenders credit will create market conditions that will lead to additional E85 production and will help ensure that E85 

is priced properly at the pump for consumers 

Question 3. Congress has decided to provide an incentive of 51 cents per gallon 

for ethanol; do you believe that consumers are seeing a commensurate value for 

these subsidies? What does this incentive translate to if the metric was $/barrel of 

oil? 

Answer. The 51-cent Blenders Tax Credit is an incentive to the petroleum industry to blend ethanol into their gasoline and is an effective policy tool to ensure that 

this occurs. This incentive translates to 5.1 cents per gallon of E10 sold to consumers, and is typically passed on to motorists in the form of lower prices at the 

pump for higher octane, ethanol-enriched fuel. 

Question 4. Given that producing corn ethanol is a mature industry and cost competitive, while producing other advanced biofuels is not, do you believe limited government tax dollars be better spent on incentives and policies that focus more on 

advanced biofuels and biodiesel than corn? 

Answer. In the near term, Government policies should focus on expanding demand for ethanol—regardless of its feedstock origins. Because ethanol made from 

corn will saturate the 10% ethanol market in the coming years, it is critical that 

we create new ethanol demand through E85 and higher blends in order for cellulosic 

ethanol to be successful. This is the most significant means by which to foster the 

development of advanced biofuels. 

Question 5. The current renewable fuels standard created in the 2005 Energy Bill 

has proven largely irrelevant because market forces have lead to production rates 

exceeding the RFS. However, the Senate passed energy bill contains a substantial 

increase in the RFS. What value do you estimate a creditable RFS compliance credit 

will have in 2012, 2015, 2020, and 2022? 

Answer. The Renewable Fuels Standard, passed as part of the Energy Policy Act 

of 2005, was one of the most important factors in the rapid expansion of the ethanol 

industry. Ethanol production will double from 2005 levels in the next 24 to 48 

months because the RFS provided certainty to investors that ethanol demand will 

grow. 

Importantly, the Senate passed increase in the RFS schedule will create additional demand that will further expansion of renewable fuel usage across the country. The ethanol industry will produce enough ethanol meet the new RFS targets 

of 13.2 billion gallons by 2012 and 15 billion gallons by 2015 with corn-based ethanol, and it is our hope and expectation that we will be able to meet the 2020 and 

2022 targets with a combination of corn and cellulosic ethanol. The value of any 
73

RFS credit will depend on who quickly cellulosic ethanol technologies become cost 

competitive and widespread cellulosic ethanol production comes on line. 

Question 6. As Senator Klobuchar mentioned, one of the pieces of legislation we 

have been working on would prevent oil companies from blocking installation of 

biofuel infrastructure at their franchised stations. Could you comment on this problem and whether the measures Congress is currently considering will help overcome 

this barrier? 

Answer. We believe that fuel retailers should be free of artificial encumbrances 

to sellE85 and that the legislative efforts being discussed would help to do so. 

Question 7. Section 511 of the Senate passed energy bill is derived from an 

amendment I offered and would increase consumer awareness of flex fuel vehicle capabilities by including a badge on the outside of the car, information in a car owner’s manual, and a clearly labeled fuel cap. Do you support this language as written 

and consumer awareness programs for biofuels more generally? 

Answer. VeraSun supports efforts like this to increase consumer awareness. When 

VeraSun launched its E85 initiative in 2005, one of the fundamental premises of 

the program was that an aggressive marketing program to raise awareness to the 

benefits of FFV ownership and E85 use would be critical to its success. At that time, 

research indicated that a significant number of FFV owners were unaware that 

their vehicles could run on E85. As part of our efforts, we worked with GM and Ford 

to help raise FFV awareness. 

Progress is being made. In announcing its Live Green, Go Yellow campaign, GM 

has equipped all new FFVs with a yellow gas cap indicating that it is E85 compatible. Additionally, Ford and Chrysler have also started to include more badging of 

FFV vehicles. We appreciate these efforts. 

Question 8. Brazil has reduced their use of oil by approximately 200,000 barrels 

per day by using a mix of ethanol and gasoline at their gas pumps. They now mandate that at least 10% ethanol be mixed with their gasoline, although most places 

contain around 40%, which is possible due to the amount of flex fuel vehicles they 

produce. The use of ethanol has saved Brazil over $120 billion in imported oil over 

the last 22 years, decreased air pollution in the big cities, and created a stronger 

economy along with an increase in jobs. 

Brazilian ethanol from sugar cane costs 81 cents per gallon to produce (compared 

to $1.05 for U.S. ethanol from corn), and Brazilian ethanol production from sugarcane, yields about 590 gallons per acre. Given this potential value for American 

drivers, especially compared to record high gasoline prices, does it make sense to 

continue to impose a tariff on importing Brazilian ethanol? 

Answer. The secondary ethanol tariff is critical to U.S. energy and national security policy goals of energy independence. In order to spur the development and 

growth of the domestic ethanol industry, the Federal government has provided important tax incentives such as the Blender’s tax credit to spur use of ethanol in our 

nation’s fuel supply. The secondary tariff was imposed in 1980 after the Internal 

Revenue Service ruled that all ethanol, regardless of country of origin, is eligible for 

the tax incentives. Because of this ruling, all ethanol blended by petroleum companies in the United States receives a tax credit of 51 cents per gallon. The secondary 

tariff ensures that U.S. taxpayer funds are not used to subsidize foreign ethanol 

production that is already subsidized. For example, Brazil has provided billions in 

tax and loan incentives to build their domestic ethanol production facilities while 

imposing a 20% tariff on ethanol imported into Brazil. 

That being said, the secondary ethanol tariff does not prevent foreign ethanol 

from being imported into the United States. In 2006, the U.S. imported 653.3 million gallons of ethanol. Of that total, 433.7 million gallons was imported from Brazil. 

The tariff simply ensures that the tax incentives put in place to spur the development of the domestic ethanol industry do not subsidize foreign production. 

[Responses to the following questions were not received at the 

time the hearing went to press:]

QUESTIONS FOR ALEXANDER KARSNER FROM SENATOR CANTWELL

I understand that today there are about 6 million flex fuel vehicles on the road 

today. However, that is only about 3% of the vehicles in the United States and only 

about 1% of that number ever ends up using flex fuels during its lifetime. 

Most of the hearing discussion focused on ethanol, somewhat overlooking the second most significant biofuel in the U.S., biodiesel. Our experience in Washington 

state is the biodiesel is a particularly promising alternative fuel, both because we 
74

are able to grow oilseed feedstocks like canola in Eastern Washington, and we have 

strong demand in our population centers around Puget Sound. 

Biodiesel is also a key tool in tackling vehicle emissions, which in our state 

blessed with abundant hydropower is our greatest source of air pollution. And since 

many public and private fleet vehicles use diesel fuel, biodiesel is also a good way 

for municipalities to meet their climate change and air quality reduction goals. Biodiesel also has about the same energy density as petroleum diesel, so there is not 

the miles per gallon reduction we have been discussing when it comes to ethanol. 

Brazil has reduced their use of oil by approximately 200,000 barrels per day by 

using a mix of ethanol and gasoline at their gas pumps. They now mandate that 

at least 10% ethanol be mixed with their gasoline, although most places contain 

around 40%, which is possible due to the amount of flex fuel vehicles they produce. 

The use of ethanol has saved Brazil over $120 billion in imported oil over the last 

22 years, decreased air pollution in the big cities, and created a stronger economy 

along with an increase in jobs. 

Question 1. You testified that DOE sees ‘‘no technical reason why flex-fuel vehicles can not be more uniformly ubiquitous across all markets, or that flex fuel vehicles could not be offered to all consumers at a relatively low price.’’ What is your 

technical basis for that assessment? What is the Administration’s estimate of the 

cost of the making a vehicle flex fuel capable? Why do think there has been so few 

flex fuel cars produced to date in the U.S.? 

Question 2. I understand that unlike other biofuels, biodiesel R&D is no longer 

a priority for the Energy Department. Can you explain your reasoning for this decision and when was it made? 

Question 3. With the large budget increases Congress has appropriated for your 

office for continued biofuels R&D, will biodiesel work be revived? 

Question 4. Would more R&D into uses for biodiesel production by-products help 

drive down the cost of biodiesel? 

Question 5. What is DOE currently doing to research the potential for diesel 

equivalent fuel derived from wood waste using such processes such as gasification? 

QUESTIONS FOR DEBORAH MORRISSETT FROM SENATOR CANTWELL

Question 1. You testified that producing a flex fuel vehicle is considerably more 

complicated then most people realize. Please describe in detail the actual technical 

changes needed to the component parts of a typical car that enable it capable of 

using any mix of biofuel. Are the necessary component changes different for a gasoline versus a diesel powered engine? 

Question 2. What is the marginal cost of producing a flex fuel vehicle, I have 

heard estimates range from $30 to $150? 

Question 3. Do domestic automakers have more expertise in producing flexible 

fuel vehicles than some of their international counterparts? If this is true, how long 

do you think it would take for international automakers to catch up? 

Question 4. I understand that every car on the road today can utilize up to 10% 

ethanol, and many are doing so right now probably without their customers knowing it. Did automakers need to do anything special to their vehicles to allow this 

E10 capability? If yes, do these changes allow blends of up to 12 or 15% ethanol? 

Question 5. What warranties do automakers provide for flexible fuel vehicles and 

how do they compare to warranties for non-flex fuel vehicles sold in the U.S.? 

Question 6. How many of the 6 million vehicles on the road today received the 

duel fuel CAFE credit? How many flex fuel vehicles do you think would have been 

manufactured without the duel fuel CAFE credit? 

Question 7. I understand there are ways to make up for ethanol’s lower energy 

density to take advantage of ethanol’s inherently higher octane level? In fact, GM’s 

Saab introduced last year a Saab 9-5 that produced 14% more maximum power and 

11% more torque, while cutting fossil COXemissions by up to 70% when running on 

E85 than on gasoline. What lessons can we learn from this vehicle in terms of increased E85 use? 

Question 8. I understand that a majority of vehicles in Brazil sold in Brazil are 

now flexible fuel vehicles. Many of these cars are manufactured by American automakers. What changes did you need to make to the vehicles you are selling in Brazil 

to make them flex fuel capable as compared to vehicles sold here in the U.S. What 

is the marginal production cost, if any, to those flex fuel vehicles sold in Brazil? Do 

automakers provide warranties for biofuel use for flex fuel cars in Brazil? 
75

QUESTIONS FOR DAVID TERRY, CHARLES DREVNA, JONATHAN LEHMAN, AND PHILLIP

LAMPERT FROM SENATOR CANTWELL

Question 1. Could you comment on ways that we can help ensure more biodiesel 

production and its associated infrastructure? How does the infrastructure need for 

biodiesel distribution differ from those for ethanol? 

Question 2. Section 130(c) of the Senate passed energy bill contains legislation I 

authored that would create a national biodiesel fuel quality standard. While maintaining biomass feedstock and process neutrality, this provision is intended to provide certainty for interested parties like truckers who want to use biodiesel but cannot risk using substandard biodiesel that could harm their engines. Do you support 

this language as written and a national biodiesel fuel quality standard more generally? 

Question 3. Are their measures that Congress should take focused specifically on 

biodiesel, as opposed to the more general legislation we have been discussing here 

today? 

Question 4. According to the Agriculture Department, U.S. ethanol from corn costs 

about $1.05 per gallon to produce. While I understand that ethanol distribution 

costs are about 10 cents higher per gallon then regular gasoline, why is E-85 selling 

at about three times its production cost? 

Question 5. Congress has decided to provide an incentive of 51 cents per gallon 

for ethanol, do you believe that consumers are seeing a commensurate value for this 

subsidies? What does this incentive translate to if the metric was $/barrel of oil? 

Question 6. Given that producing corn ethanol is a mature industry and cost competitive, while producing other advanced biofuels is not, do you believe limited government tax dollars be better spent on incentives and policies that focus more on 

advanced biofuels and biodiesel than corn? 

Question 7. The current renewable fuels standard created in the 2005 Energy Bill 

has proven largely irrelevant because market forces have lead to production rates 

exceeding the RFS. However, the Senate passed energy bill contains a substantial 

increase in the RFS. What value to you estimate a creditable RFS compliance credit 

will have in 2012, 2015, 2020, and 2022? 

Question 8. As Senator Klobuchar mentioned, one of the pieces of legislation we 

have been working on would prevent oil companies from blocking installation of 

biofuel infrastructure at their franchised stations. Could you comment on this problem and whether the measures Congress is currently considering will help overcome 

this barrier? 

Question 9. Section 511 of the Senate passed energy bill is derived from an 

amendment I offered and would increase consumer awareness of flex fuel vehicle capabilities by including a badge on the outside of the car, information in a car owner’s manual, and a clearly labeled fuel cap. Do you support this language as written 

and consumer awareness programs for biofuels more generally? 

Question 10. Brazilian ethanol from sugar cane costs 81 cents per gallon to 

produce (compared to $1.05 for U.S. ethanol from corn), and Brazilian ethanol production from sugarcane, yields about 590 gallons per acre. Given this potential 

value for American drivers, especially compared to record high gasoline prices, does 

it make sense to continue to impose a tariff on importing Brazilian ethanol? 

QUESTIONS FOR ALEXANDER KARSNER FROM SENATOR DORGAN

The Senate Energy bill will increase the renewable fuels standard to 36 billion 

gallons of renewable fuels by 2022. Most expect we are on pace to produce about 

14-15 billion gallons of ethanol in the next 8-10 years. If our country uses about 140 

billion gallons of gasoline per year and the current market for ethanol is primarily 

used as a 10 percent blend with gasoline, that market will be saturated in the next 

8-10 years. I believe we need a much more aggressive policy approach to install 

biofuels infrastructure at more than the current 1% of the nation’s retail gas stations. We also need to dramatically expand the number of flex fuel vehicles on our 

roads. 

Question 1. Earlier this year, you testified in front of my Energy & Water Appropriations Subcommittee that we are not developing infrastructure at ‘‘rate’’ and 

‘‘scale’’ significant enough to be consistent with the amount ethanol we are on track 

to produce. Can you talk more about this? Is the current rate of investment in infrastructure sufficient to support a domestic biofuels industry? If not, what needs to 

change? 

Question 2. What is your best estimate of when the production of ethanol will surpass the amount needed for octane enhancement in gasoline (E-10)? How do we pre-
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vent the market from collapsing so there is not a revolt against these production 

requirements? 

Question 3. Your testimony mentions that the Department and other federal agencies are examining intermediate fuel blends. Can you describe in greater detail what 

activities the Department of Energy is pursuing with other agencies to make intermediate blends more widely available to consumers, and what the potential role of 

intermediate blends might be? 

Question 4. How do we make sure that we get the renewable fuels pumps in the 

right locations near heavy concentrations of vehicles so that they will be utilized? 

We want to make sure that we get them in the right locations. Does the Administration have an implementation plan for this? What can we, as policymakers, do to better help you expand renewable fuels infrastructure? 

QUESTIONS FOR JONANTHAN LEHMAN FROM SENATOR DORGAN

Question 1. EPACT 2005 made available a 30% investment tax credit for installing E-85 pumps. Also, we have put in place various grant and public education programs for E-85. However, at this point, the U.S. has less than 1% renewable fuels 

infrastructure installed nationwide. Given the pace of infrastructure implementation 

at this point, and the dramatic expansion of ethanol production do you believe it’s 

necessary for the federal government to send a stronger signal to the market as we 

anticipate more fuels and vehicles being produced?μ What other market signals 

would be beneficial? 

Question 2. Earlier this year, I introduced the SAFE Energy Bill (S. 875) with 

Senator Craig. Title II of that bill called for increasing the alternative fuel vehicle 

refueling property credit from 30% to 35% for E-85 pumps and 40% for blender 

pumps. It also called for a study to determine the market penetration of renewable 

fuels infrastructure by 2013. If 10% market penetration had not been achieved by 

2013, the Sec. of Energy would do a rulemaking to achieve 10% market penetration 

by 2020. Do you see this as reasonable yet aggressive approach? Do you have any 

other legislative ideas that might help this along? 

QUESTIONS FOR DAVID TERRY FROM SENATOR DORGAN

Question 1. You heard Senator Klobuchar earlier speak about some of the visionary programs Minnesota has utilized to install hundreds of E-85 pumps in their 

state. My home state of North Dakota has 16,000 FFVs and only 23 E-85 pumps. 

Can you give further examples of some of the more aggressive state programs to 

develop E-85 infrastructure? Would any of those programs accelerate development 

if implemented on a national scale? 

Question 2. Earlier this year, I introduced the SAFE Energy Bill (S. 875) with 

Senator Craig. Title II of that bill called for increasing the alternative fuel vehicle 

refueling property credit from 30% to 35% for E-85 pumps and 40% for blender 

pumps. It also called for a study to determine the market penetration of renewable 

fuels infrastructure by 2013. If 10% market penetration had not been achieved by 

2013, the Sec. of Energy would do a rulemaking to achieve 10% market penetration 

by 2020. Do you see this as reasonable yet aggressive approach? Do you have any 

other legislative ideas that might help this along? 

QUESTIONS FOR PHILLIP LAMPERT FROM SENATOR DORGAN

Question 1. The NEVC works with station owners around the country to install 

E-85 pumps. Roughly 57% of retail gas stations around the country are franchisees 

of a major integrated oil company. Earlier this year, the Wall Street Journal (4-2-

07) reported about hurdles and barriers that oil companies like ChevronTexaco, BP 

and ExonMobil have put in place to make it more difficult for their franchisees to 

sell E-85 to consumers. In terms of working with station owners to install E-85 

pumps, what kind of resistance have you experienced from the oil companies? Would 

a national policy to remove many of these barriers significantly impact the widespread installation of renewable fuels infrastructure? 

Question 2. Could you rank the barriers to entry in the marketplace for expanded 

infrastructure needed to deliver more and more biofuels to the market? 
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QUESTIONS FOR CHARLES DREVNA FROM SENATOR DORGAN

The oil industry has become incredibly consolidated and vertically integrated over 

the years. From exploration, production, refining and even owning a couple thousand retail gas stations around the country. And once again, this week major integrated oil companies are reporting some of the largest corporate profits in U.S. history. It’s no secret that the oil industry has not been ethanol’s biggest cheerleader. 

However, many refiners currently work well with several ethanol producers around 

the country to blend E-10. 

Question 1. Can you further describe how maximizing profit for shareholders at 

oil companies are not at odds with the increased development of renewable fuels 

and ultimately the national goal of reducing our dependence on imported petroleum? 

Question 2. The Wall Street Journal (4-2-07) documented instances of major oil 

companies putting up barriers for their franchisees to sell E-85. Why not allow the 

franchise gas station owners the right to sell E-85 as they please at their own stations? 

Question 3. WalMart, one of the nation’s largest retailers, announced last year 

that they are interested in selling E-85. While I understand they have not yet begun 

selling E-85 at their roughly 380 gas stations nationwide. Regardless, if a company 

such as WalMart, CostCo, etc. were to seek a fuel agreement with some major integrated Oil Company, would that oil company put up these same barriers for a retailer like WalMart to sell E-85? 

QUESTIONS FOR DEBORAH MORRISSETT FROM SENATOR DORGAN

The Big Three, including Chrysler, Ford and GM, made a pledge earlier this year 

that by 2012, 50% of each of your vehicle fleets would be flex-fuel capable. This was 

welcome news. I hope we can push to make 100% of our vehicles flex fuel capable 

in the years to come. 

Question 1. In terms of the extra costs from converting a regular engine to a flex 

fuel engine in a vehicle, I have heard a wide range of estimates from $45 to $400. 

Can you put an industry wide average on the cost of differential between manufacturing a regular engine versus a flex fuel engine capable of running at E-85? 

Question 2. Currently, an automaker can receive 1.2 credits toward their CAFE ́

requirements if they produce a flex fuel vehicle. How much of a driver is the push 

by the Big Three, or Chrysler, to produce more FFVs on the road related to the auto 

industry’s desire to get CAFE credits in their fleets rather than focus on other efficiency increases? 

QUESTIONS FOR ALEXANDER KARSNER FROM SENATOR MENENDEZ

Question 1. Mr. Karsner, we discussed the technical difficulties of transporting 

ethanol via pipeline at a hearing before our committee on April 12th of this year. 

I appreciate your hard work in coordinating with the Department of Transportation 

to solve the technical problems of transporting ethanol via pipeline. Please provide 

me a timeline of when this work began, the progress that has been made thus far 

and when you anticipate these technical issues being overcome for potential commercial application. Please also provide details on how many people comprise the 

team looking into these problems and who they are partnering with in the private 

sector. I would also appreciate you detailing any efforts of Department of Energy 

to work with Brazil (either directly or through the State Department) to license 

technologies used in Brazil to pipeline ethanol. As you know the United States and 

Brazil have agreed to work jointly to share technology on biofuels. 

Similarly, could you provide me a timeline detailing Department of Energy’s work 

with the EPA to test whether traditional gasoline engines can use ethanol concentrations as high as E25—similar to what cars use in Brazil? During your testimony you said this testing would take 36 months. Please explain why this will take 

so long and why the work was not started before now. Please also provide details 

on how many people comprise the team looking into this issue and who Department 

of Energy and EPA are partnering with in the private sector. I would also appreciate you detailing any efforts of Department of Energy to work with Brazil (either 

directly or through the State Department) to secure any testing for ethanol use in 

Brazil. 

Question 2. You indicated that the problems were not technical in nature but had 

more to do with automobile manufacturers not willing to warranty their engines for 

ethanol use above E10. What efforts has the Department of Energy made to work 
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with auto manufacturers to address these concerns? Will these concerns be addressed by the planned testing by the EPA? 

QUESTIONS FOR DEBORAH MORRISSETT FROM SENATOR MENENDEZ

Question 1. Ms. Morrissett, I noticed in your testimony that Chrysler has committed, by 2012, to have 50% of the cars it manufactures be flex-fuel cars, and I 

commend you on that. But I’m wondering, how many flex-fuel cars would you be 

producing if there was no CAFE credit provided? As you know, from 1993 through 

2004, every flex fuel vehicle produced by a manufacturer provided a 1.2 mpg credit 

towards meeting CAFE standards. From 2005 through 2008, the credit is 0.9 mpg. 

Would Chrysler oppose efforts to eliminate that credit or is Chrysler just using the 

manufacture of these cars as a way to meet your CAFE obligations? 

Question 2. Ms. Morrissett, Assistant Secretary Karsner just testified and he said 

that running E25 in gasoline burning cars (as they do in Brazil) is not really a technical hurdle, but is instead a question of whether car companies will allow customers to use higher ethanol blends without violating their engine warranty. So I 

ask you, what needs to be done for Chrysler to allow E20 or E25 to be used in its 

vehicles without breaking the engine warranty? Is Chrysler doing any of its own 

testing? Is Chrysler working with the Environmental Protection Agency and the Department of Energy to test these higher blends? 

QUESTIONS FOR CHARLES DREVNA FROM SENATOR MENENDEZ

Question 1. Mr. Drevna, I want to ask you about the economics of the refining 

industry. While consumers are being forced to pay more than $3.00 a gallon for gasoline, oil companies continue to reap record profits. In 2005, refineries increased 

their prices 255 percent. And whenever there is a spike in gasoline prices experts 

seems to lay the short term blame at the feet of the refineries. 

In your testimony you say that we should let the market decide the price of gasoline, but apparently the market is not working. Earlier this year many of the oil 

companies who are members of your organization blamed the expansion of biofuels 

for the high price of gasoline. How can this possibly make sense? Biofuels represent 

the first real competitor to petroleum in nearly a century. Why would this competition cause prices to rise? 

Question 2. Isn’t the real answer that since the late 1990’s—mergers between the 

giant oil companies, like Exxon and Mobil, Chevron and Texaco and Conoco and 

Phillips—have left us with only 10 major oil companies controlling 80 percent of our 

domestic refining capacity? 

Question 3. Isn’t it the exercise of that market power that is one of the real causes 

of high gas prices and not the expansion of biofuels such as ethanol? Why else 

wouldn’t these companies invest their record profits into new refineries or properly 

maintain existing refineries that are constantly breaking down? 

QUESTION FOR PHILLIP LAMPERT AND JONATHON LEHMAN FROM SENATOR MENENDEZ

Question 1. Mr. Lambert, Mr. Lehman—This question is for both of you. What 

steps can we take to create better access to ethanol in the Northeast and specifically 

my home state of New Jersey? I noticed that an E85 pump was recently installed 

in Georgetown here in Washington DC, but the citizens of New Jersey are anxious 

to help reduce our dependence on oil and reduce our greenhouse gas emissions by 

using biofuels. Right now there are 129,000 cars in New Jersey that can run on E85, 

but people do not have access to pumps. I was pleased to support a provision in the 

Energy Bill we just passed here in the Senate to incentivize further market penetration of E85 pumps by establishing a pilot grant program to create renewable fuels 

corridors. But will this program be enough?

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