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FULL COMMITTEE HEARING ON

THE IMPACT OF RENEWABLE ENERGY

PRODUCTION IN RURAL AMERICA

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 3, 2007

Serial Number 110-19

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

Bartlett, Hon. Roscoe ............................................................................................... 3

Jefferson, Hon. William ........................................................................................... 3

WITNESSES 

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

Jobe, Joe, National Biodiesel Board ....................................................................... 7

Urbanchuk, John, LECG, LLC ............................................................................... 8

Graves, Leon C., National Council of Farmer Cooperatives ................................ 10

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 36

Chabot, Hon. Steve .................................................................................................. 38

Altmire, Hon. Jason ................................................................................................. 40

Braley, Hon. Bruce .................................................................................................. 41

Dinneen, Bob, Renewable Fuels Association ......................................................... 43

Jobe, Joe, National Biodiesel Board ....................................................................... 49

Urbanchuk, John, LECG, LLC ............................................................................... 54

Graves, Leon C., National Council of Farmer Cooperatives ................................ 63

Statements for the Record: 

National Cattlemen’s Beef Association .................................................................. 68

(V) 

(1)

FULL COMITTEE HEARING ON 

THE IMPACT OF RENEWABLE ENERGY 

PRODUCTION IN RURAL AMERICA 

THURSDAY, MAY 3, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia Vela ́zquez 

[Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Jefferson, Shuler, Larsen, 

Cuellar, Braley, Clarke, Sestak, Chabot, Bartlett, Heller, Buchanan 

and Jordan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. I now call this hearing to order. 

Today we are going to examine the issue of renewable fuels and 

their impact on small businesses in rural America. Entrepreneurs 

in this country have a huge stake in ensuring access to an affordable energy supply. Their bottom line is affected every time prices 

go up at the pump, natural gas spikes, or the cost of electricity 

rises. Today we will hear that small businesses are not only consumers of energy, but they are also playing a vital role in producing it. 

At a time when this country is facing record energy prices, it is 

critical that we find alternative energy supplies to help reduce 

costs as well as foreign dependence. Today’s panelists will outline 

how rural America is achieving this with the production of biofuels. 

The growth in the renewable fuels industry has been a win-win for 

the U.S. economy. Biofuels have had an enormous impact on rural 

communities while helping provide this nation with another source 

of clean energy. 

It is an industry that small companies are at the forefront. Approximately 70 percent are small firms with most employing less 

than 50 people. These small businesses are not only growing themselves, but they are helping other entrepreneurs in rural America. 

Small farmers are providing the necessary inputs for the production of these fuels. 

For ethanol, farmers provide the 2.5 billion bushels of corn each 

year. In the biodiesel industry, they supply the soybeans, canola, 

and other inputs. And they are also working to develop resources 

in the growing area of cellulosic ethanol. As a result, all of these 

have increased the demand for farmers’ products. 

2

The industry has also had a lasting imprint on the economic picture in rural America. A February 2007 study points out that 

163,000 new jobs were created because of ethanol production. This 

includes more than 20,000 jobs in our manufacturing sector, making biofuel production the single-most important value-added market for farmers. 

But while the growth in this industry has been strong, challenges remain. Because producing biofuels involves high-cost inputs, it has been necessary to have in place federal policies that 

make plans financially viable. These range from tax incentives and 

trade policies to usage requirements and financing assistance. 

Without these incentives and programs the industry would not be 

where it is today. 

With all this success, we still have a long way to go. Though renewable fuels have grown exponentially over the past decade, they 

still make up less than 1 percent of current U.S. production. My 

hope is today’s hearing will focus on ways that this can be increased. 

Whether it be the new and improved energy programs or maintaining existing ones, we need to do what it takes to ensure small 

businesses in these areas will have the chance to thrive. 

The issues discussed today affect every member’s district. While 

it may seem that there is no connection between an ethanol plant 

in Iowa and the price of gas in New York, the economics shows otherwise. Biofuels impact those in urban districts and rural districts 

alike. Today’s hearing will provide the Committee with a better understanding of the biofuel industry from those who understand the 

challenges the most. 

I look forward to hearing about what policies have been successful and if there are additional reforms needed to ensure future 

growth. The success of small companies in this sector can serve as 

a model for other industries. The Committee can draw on this as 

it formulates legislation to improve the overall economic environment for small businesses. 

I appreciate the witnesses coming here to talk about these important issues, and I look forward to today’s discussion. I now yield 

to Mr. Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you, Madam Chairwoman, and I want to 

commend you for holding this timely hearing on renewable energy 

production and its impact on rural America and its impact on the 

entire country. I also want to thank our panel of witnesses for traveling here to Washington to share your views with us. 

In recent years, it has become painfully clear that America is far 

too dependent on foreign oil. We import nearly two-thirds of the oil 

that we consume. With gas prices in my district in Cincinnati and 

throughout the country hovering around $3 a gallon again, it is important for Congress to continue exploring ways that we can 

produce more of our energy domestically rather than relying on oil 

from the volatile Middle East or in other parts of the country, other 

parts of the world. 

In fact, according to the General Accounting Office, GAO, Americans paid $38 billion more for gasoline in the first six months of 

3

2006 than they paid during the first half of 2005. That is just unacceptable, and there is no reason to think that trend won’t continue. 

I believe that America must adopt a diversified and balanced energy strategy to become more self-sufficient, and I have supported, 

as many of us have, policies such as the Energy Policy Act of 2005, 

that took significant steps in that direction. For example, I believe 

we should increase our production of traditional fuels such as oil 

and natural gas and strengthen conservation and efficiency efforts. 

It is also important to provide incentives for the research and development of promising new technologies such as hydrogen fuel 

cells. And, as we will hear today, renewable energy, the vast majority of which is produced in our nation’s rural communities, is serving an important role in meeting America’s energy needs as well. 

Biofuels have the potential to help wean Americans off foreign oil 

and to provide an economic boost to farmers and rural communities. I believe they also have the potential to foster a serious and 

long overdue debate about reforming our nation’s agriculture policy, which, in my view, with its subsidies and tariffs is in dire need 

of reform. 

Again, I thank the chair for holding this hearing and look forward to hearing testimony from our witnesses. And I yield back the 

balance of my time.

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot. 

If there is any other member who wishes to make an opening 

statement? Yes, Mr. Bartlett. 

OPENING STATEMENT OF MR. BARTLETT 

Mr.BARTLETT. Thank you. If I might, I want to thank you very 

much for holding this hearing. There are several groups that have 

common cause in the subject that we are discussing today. Several 

weeks ago T Boone Pickens joined a growing chorus of professionals who believe that the world has reached its maximum production of oil, that it will stabilize for a bit, and then actually really go downhill. It is called ‘‘peak oil.’’

Just recently more than 100 countries agreed that we have global warming, that excessive consumption of fossil fuels is very largely a major contributor to that. A couple of years ago—and this was 

mentioned by the minority member—30 prominent Americans 

wrote to the President saying, ‘‘Mr. President, the fact that we 

have only 2 percent of the known reserves of oil in the world, we 

use 25 percent of the world’s oil, and we import almost two-thirds 

of what we use, is a totally unacceptable national security risk. We 

really have to do something about that.’’

And the subject of this hearing today is front and center in the 

interest of these three groups. So thank you, Madam Chairman, 

very much for holding this hearing. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Jefferson. 

OPENING STATEMENT OF MR. JEFFERSON 

Mr.JEFFERSON. Thank you, Madam Chair, very briefly. And I 

thank you for holding this hearing, and I thank the others who 

have spoken to the issue. 

4

The American people gave us a clear mandate to diversify energy 

resources, reduce our trade balances and—imbalances, I should 

say—and address our environmental challenges and make our 

economy more competitive. We all know that it will not happen if 

we are not serious about using more alternative and renewable 

sources of energy. The only concrete way to do this is to incentivize 

the sector, so that it will create more opportunities for our farmers, 

for our small businesses. 

Many states are experimenting with opportunities in this area, 

and I think there is a need to find some way to harmonize these 

efforts and to make sure that there are opportunities that exist 

throughout the country that are consistent. Our state, for example, 

has a biodiesel mandate that establishes a minimum biodiesel requirement for diesel fuel in the state. Once annualized production 

volume reaches 10 million gallons, 2 percent of the total diesel sold 

by volume in the state must be biodiesel produced from domestically-grown feedstock. 

Louisiana’s first biodiesel plant started operating in April of 2006 

and has produced about 700,000 gallons of biodiesel so far. That 

production is expected to increase to 10 million gallons, or maybe 

15, even in the next few years. Six biofuel projects are underway 

with three ethanol and three biodiesel plants, and this is an example of what states are doing but there is no coherent policy that rewards those investors in various parts of the country. 

And there isn’t any guarantee that—the federal incentives can be 

much deeper than the ones the state can offer in any event. And 

so I would urge that we find some way to harmonize this effort 

across the country and provide opportunities throughout. I think 

the emphasis has to be on rural small businesses, and I thank the 

chairlady for offering this important idea and supporting the hearing. 

ChairwomanVELA ́ ZQUEZ. Any other member? 

Well, now, I want to again welcome all of the witnesses for taking time to come before the Committee and discuss such an important issue with us. Our first witness is Mr. Bob Dinneen. Mr. 

Dinneen is the President and CEO of the Renewable Fuels Association, the national trade association for the U.S. ethanol industry. 

As such, he is the ethanol industry’s lead representative before the 

Congress and administration. 

Mr. Dinneen became President of RFA in July of 2001. In this 

capacity, he has led the association’s effort to build coalitions with 

the industry’s petroleum customer, as well as transportation and 

environmental groups in order to provide for marketplace growth 

for the industry. Welcome, sir. 

STATEMENT OF MR. BOB DINNEEN, PRESIDENT AND CEO, 

RENEWABLE FUELS ASSOCIATION 

Mr.DINNEEN. Thank you, Madam Chairwoman, and thank you 

for holding this hearing. And I want to congratulate you—I am 

sorry. Do you want me to go now, or do you want to finish—

ChairwomanVELA ́ ZQUEZ. No. I just want to say you will have 

about five minutes to make your presentation. 

5

Mr.DINNEEN. Thank you. I want to congratulate you for holding 

this hearing and for recognizing that small business absolutely has 

a very vital role to play in our nation’s energy and economic future. 

The ethanol industry today is a very dynamic industry. It is not 

one that is dominated by large agri-business. It is one, frankly, 

that is driven by small businesses. Today there are 116 ethanol 

plants in operation located across 19 different states, but there are 

81 plants that are currently under construction that will add another six billion gallons of production capacity to the six billion gallons of production capacity we already have, so that within the 

next 18 months our industry will be producing more than 12 billion 

gallons of high-performance, high-octane motor fuel for the nation’s 

public. 

Already today ethanol is blended in 46 percent of our nation’s 

fuel. So we are having a significant impact today. But as you noted, 

renewable fuels, ethanol specifically, is having a growing role and 

is touching virtually every part of our country. 

As I sit here and I look at the panel, Congressman Larsen in 

Washington, there is a plant under construction in your state. Congressman Shuler, there are plans for as many as six ethanol plants 

in North Carolina. And one company, Novozymes, a leader in your 

community, is actually on the cutting edge of technology to produce 

ethanol from cellulosic materials. 

Congressman Jefferson, there is a plant that has been looking to 

build in Louisiana, producing ethanol from cellulosic materials and 

will be one of the leaders in the future industry. Even in New 

York, Madame Chairwoman, there are two plants that are currently under construction and will be in production later on this 

year or early next. 

And, of course, Congressman Chabot in Ohio, there are now five 

plants under construction, steel on the ground, plant going up next 

week, there is going to be another groundbreaking in Ohio, there 

will be six, which will put Ohio among the leaders in terms of 

plants that are currently under construction. Your state is going to 

be one of the leaders. 

Congressman Bartlett, in Maryland, as you know, there is a 

plant that is looking to be sited in Baltimore. There is another 

group out on the Eastern Shore that is looking to produce ethanol, 

and that will have some real synergies because of the poultry market out there and being able to feed the distiller’s dry grain from 

the plant to the vibrant poultry market out there. 

Congressman Heller, I apologize, I have got nothing in Nevada. 

But I will tell you—

[Laughter.] 

I will tell you that Las Vegas uses a heck of a lot of ethanol and 

is one of the reasons Las Vegas is now in attainment for carbon 

monoxide. Again, in Texas actually there are more plants under 

construction in Texas than in Illinois today. That ought to tell you 

something about where our industry is going. And, in fact, in Texas 

they are going to be producing ethanol right on a feed lot, and feeding the distiller’s grain wet, not having to dry it. It will be a very 

integrated operation, and the manure from the feed lot is going to 

run the ethanol plant. 

6

It is absolutely one of the cutting edge technologies in our industry today, and, of course, Congressman Braley, you certainly know 

a lot about—

[Laughter.] 

—the ethanol industry. Iowa is the leader in ethanol production 

today. 

But it is small businesses; these aren’t large. Taken as a whole, 

the single largest ethanol producer in the country is the farmerowned ethanol plant. It is farmers that are driving this industry 

today, and it is having a huge impact on our nation’s economic security. 

The industry last year, which produced five billion gallons of ethanol, added $41 billion to gross output. It was responsible for 

160,000 jobs across the country. That is huge. The Secretary of Agriculture, Johanns, a couple of weeks ago had made a comment 

that, you know, it is relatively easy to create a job in the big cities. 

Comparatively speaking, it is much more difficult to create a job 

in rural America, but that is what our industry is doing today. 

It is creating jobs in small businesses in a very important industry, and it is revitalizing rural communities. I get to see it all the 

time. 

As President of the association, when I have to go out to grand 

openings at ethanol plants—and, believe me, they are happening at 

a fairly rapid pace right now—but I will stand in the middle of a 

field with 1,000 farmers that have seen a new business come to 

their community for the first time in a generation, and they know 

the economic development that is going to occur. And they can feel 

the excitement; it is palpable. 

We have not built an oil refinery in this country in 35 years, but 

in that time we have built 116 ethanol biorefineries, and we are 

going to continue to grow. And small businesses are going to continue to be at the forefront of that effort, because they are the ones 

that are going to embrace the new technologies that are going to 

lead our industry to be able to produce ethanol from things other 

than grain, because we know that has to happen. 

They are also going to be the ones that will move our industry 

toward other markets for ethanol—E-85. It will be the small, independent gasoline marketer willing to take a pump and convert it 

to E-85 as opposed to the major oil companies. So small businesses 

will be at the forefront of this debate, and I appreciate your leadership. 

[The prepared statement of Mr. Dinneen may be found in the Appendix on page 44.]

ChairwomanVELA ́ ZQUEZ. Thank you so much. Quite optimistic 

overview and passionate. 

Mr.DINNEEN. I haven’t gotten started yet. 

[Laughter.] 

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. Joe Jobe. He is 

the CEO for the National Biodiesel Board. The NBB is the national 

trade association representing the biodiesel industry, which serves 

as the coordinating body for biodiesel research and development in 

the United States. Its members include feedstock producers and 

7

processors, soybean commodity boards, biodiesel suppliers, and fuel 

marketers and distributors. 

Mr. Jobe has been with the NBB since 1997 and has served as 

CEO since January 1999. Welcome. 

STATEMENT OF MR. JOE JOBE, CEO, NATIONAL BIODIESEL 

BOARD 

Mr.JOBE. Madam Chairwoman, Ranking Member, members of 

the Committee, thank you very much. It is always a challenge following Mr. Dinneen, and his very enthusiastic and clearly very effective leadership in the ethanol industry. The biodiesel industry is 

considerably less mature than the ethanol industry. The ethanol industry’s tax incentive was passed in 1979. The biodiesel tax incentive was passed in 2004, took effect in January of 2005. 

And I am here today to talk about how effective that tax credit 

has been in stimulating rural development investment in the biodiesel industry. It has been a phenomenon and one that I have 

been very proud to be a part of. We have benefited from the experience of the U.S. ethanol industry, the challenges and successes, 

and we have grown very rapidly. And there is heavy investment 

going on from coast to coast, mostly in rural areas where it is needed most. 

I was very impressed by Mr. Dinneen’s discussion of how ethanol 

plants has impacted virtually every member of the Committee 

present. I will say that biodiesel has as well. Even Nevada—we 

have biodiesel plants going into Nevada. Texas and Iowa, I did a 

speech in Iowa last fall where there are so many biodiesel plants 

either operating or coming online it is absolutely phenomenal. And 

I told the Iowans that I believe that Iowa is becoming the Texas 

of renewable energy. 

Texas has now surpassed Iowa in terms of production capacity, 

and I will be darned if Texas hasn’t become the Texas of renewable 

energy. It is phenomenal. It is not a regional phenomenon. It is one 

that is going on throughout the country. 

One of the things that I want to share with you today—I know 

Mr. Urbanchuk will share with you some of the statistics on the 

economic impact that the biodiesel industry has benefited to the 

country. One statistic—the very first priority—our tax credit that 

has done so much to stimulate—in two years we have built 85 

plants throughout the country. With every plant that goes up this 

adds jobs to those communities, investment in those communities, 

opportunities for agricultural commodities in those regions, and, 

most importantly, it is adding refinery capacity to the nation’s fuel 

supply. 

However, our tax incentive is expiring next year, and it is very 

important that we get it extended this year. One of the statistics 

that is very important that I want to share with you is just the net 

impact just to the U.S. Treasury, not the return on investment to 

the entire economy and to the taxpayers. But assuming the biodiesel tax credit is extended past 2008, the program would cost 

$3.5 billion. 

However, during that time, the industry will generate $8.3 billion in revenue to the Federal Treasury, not in terms of economic 

impact. It is far broader than that. Just to the U.S. Treasury, there 

8

will be a $4.8 billion net positive impact coming into the Treasury. 

It will be a revenue gainer. 

So we urge members of this Committee to do what you can to 

help extend the biodiesel tax credit and help see its benefits multiply. Congressmen Pomeroy and Hulshof have introduced the bipartisan bill H.R. 196, and I hope you will help support that. 

I do want to share with you a very strong concern that we have 

about a development that we believe seriously—could seriously 

threaten our industry. The IRS has recently issued an interpretation of the Energy Policy Act’s renewable diesel tax credit. It was 

a provision that expanded—this interpretation expands the definition of renewable diesel. 

This ruling came as a result of very intense lobbying of the administration to the U.S. Department of Treasury to exploit an ambiguity in the Tax Code to expand that definition, and the net result is that conventional, large, integrated petroleum companies 

can get a dollar per gallon for adding biomass in very small percentages in their conventional petroleum refinery capacities. 

This is very significant, because this has the potential—it effectively results in a subsidy for existing petroleum refinery capacity. 

The reason it is a threat to the biodiesel industry is because the 

volumes that are potentially eligible here for dollar per gallon could 

bid up the price of the feedstock supply and basically strangle off 

the supply to all of these small businesses that are building new 

refinery capacity. 

The reason it is bad policy is because the integrated oil companies already had available to them a tax credit of 50 cents per gallon under the transportation bill for adding biomass to their conventional petroleum refineries. However, this expands it to a dollar 

per gallon, and it amounts to a subsidy of petroleum refinery capacity. So we urge the members of the Committee to please help 

us support finding a more reasonable piece of public policy that will 

address this. 

[The prepared statement of Mr. Jobe may be found in the Appendix on page 50.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Jobe. 

Our next witness is Mr. John Urbanchuk. He is an economist at 

LECG in Pennsylvania. Mr. Urbanchuk specializes in applying economic analysis tools to individual firm and industry problems. This 

includes market analysis, business strategy development, and analysis of the impact of government policy and regulatory changes on 

business and industry. His research specializes in renewable energy, agriculture, and consumer foods. Welcome, sir. 

STATEMENT OF MR. JOHN URBANCHUK, DIRECTOR, LECG, 

LLC, WAYNE, PENNSYLVANIA 

Mr.URBANCHUK. Thank you, Madam Chairman, Ranking Member, members of the Committee. Appreciate the opportunity to 

come and talk with you a little bit this morning about the economic 

contribution that this industry is making to America. It is hard to 

follow these two guys. You have heard them both; they are very impassioned, they are very well informed, and they are doing a masterful job. 

9

Looking at an industry that is a young adolescent in the scope 

of industrial development, the modern-day ethanol industry, as we 

know it today, is about 30 years old. The biodiesel industry, as Mr. 

Jobe said, is less than 10 years old. And we have come a very, very 

long way. 

You have heard some of the statistics with regard to production, 

the number of plants. The numbers are truly impressive. They are 

truly impressive when you think about the amount of distance that 

we have come in a short period of time. And we have had some 

very, very significant impacts resulting from that as well. 

The economic contribution of the biofuels industry, ethanol, and 

biodiesel today is very substantial. Last year alone the ethanol industry spent $6.7 billion on inputs required to make ethanol. The 

biodiesel industry spent over $300 million—an additional $300 million on inputs required. 

Now, a large share of that, the greatest share of that, is corn, 

vegetable oil, fats and oils used as the feedstock. They account for 

somewhere between 60 percent in the case of ethanol to 80 percent 

in the case of biodiesel. And they are largely, as you know, the output of rural communities. 

But in addition to that, small businesses benefit most directly 

from the renewable fuels industry because most of the other goods 

and services that are supplied are provided by small businesses locally owned in or nearby the communities where the biodiesel and 

ethanol production facilities are located. 

These range, as I said, from corn and grains used to make ethanol and vegetable oils and fats for biodiesel, but they also include 

things like business and administrative services and maintenance 

support services, machinery and equipment supplied by local 

firms—the whole wide range of other businesses that support those 

activities, largely locally-owned, locally-operated, small businesses 

in those communities. 

While the direct impact in terms of creating demand is quite 

clear, the indirect impact is also quite clear. That is that every 

time that one of these plants buys something it represents a purchase of an output from another industry and another business, if 

you will. And the dollars that are spent directly create output for 

those other firms, so the dollars that are spent circulate through 

the economy two or three times. 

The wages are paid by the biofuels plant. They get spent, but the 

wages that are paid by their suppliers get spent, and so forth and 

so on, so when you look at the overall economic impacts they are 

quite significant—as Bob Dinneen said, for ethanol about $41 billion of gross output, about $22 billion added to GDP from ethanol 

alone last year, $7 billion of income, household income, 160,000 

jobs supported by the industry, quite significant, and, in addition 

to that, tax revenue—tax revenue both at the federal level and at 

the state level. 

There is another important factor to keep in mind when we talk 

about the biofuels industry, and that is—that has been alluded to 

by Bob, and I am sure will be talked about by Mr. Graves, and that 

is the contribution of the cooperative sector. We have come a long 

way. And as you indicated Madam Chairwoman, the ethanol industry now represents one of the most significant value-added indusVerDate 0ct 09 2002 08:54 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34831.TXT LEANN
10

tries for agriculture. And, in fact, farmers have looked for a long 

time for ways to participate in the value-added to their raw commodity, and the ethanol industry has provided that. 

If you go to back to 1991, the majority of ethanol plants were corporate-owned and operated. Today about 40 percent of the ethanol 

plants are farmer-owned cooperatives or limited liability corporations, and they represent about half of ethanol production. Those 

are small businesses. 

They are locally owned or locally operated, and work that we 

have done looking at the economic impact suggests that the impact 

on a local community, a local economy from a farmer-owned cooperative or a farmer-owned plant is 40 percent greater than that of a 

plant that is owned by an absentee corporate owner. So it is very 

important for that segment of the renewable fuels industry to continue to operate and continue to grow, and we need policies in 

place that will continue to foster that growth and development. 

Thank you very much. 

[The prepared statement of Mr. Urbanchuk may be found in the 

Appendix on page 55.]

ChairwomanVELA ́ ZQUEZ. Thank you. 

Our next witness is Mr. Leon Graves, who became the Director 

of Industry Affairs for Dairy Marketing Services in January of 

2003, a farmer cooperative. In March of 2007, he assumed the position of the Director of Operations and Regulatory Affairs for DMS. 

Mr. Graves is representing the National Association of Farmer Cooperatives. They are the main entity representing farmer ownership interest in biofuels production. Welcome, sir. 

STATEMENT OF MR. LEON C. GRAVES, DIRECTOR OF OPERATIONS & REGULATORY AFFAIRS, DAIRY MARKETING SERVICES, SYRACUSE, NEW YORK,ON BEHALF OF THE NATIONAL 

COUNCIL OF FARMER COOPERATIVES 

Mr.GRAVES. Thank you, Madam Chairwoman and members of 

the Committee, and thank you for the opportunity to appear here 

today and speak to this very important issue. 

We represent a number of cooperatives, and from a personal perspective we represent a significant amount of the animal livestock 

industry here in the United States being part of the dairy industry. 

Two of the members of the National Council for Farmer Cooperatives that I work for—Dairylea Cooperative out of Syracuse, Dairy 

Farmers of America based out of Kansas City—are dairy cooperatives first and fifth in the country with respect to the amount of 

milk that we produce, representing a lot of the agricultural livestock side of the industry. 

I also have the perspective of having been a farmer many more 

years of my life than doing what I am currently doing now, and 

bring that enthusiasm and passion for the industry and expertise 

to the table relative to the animal agricultural side of this issue 

and the significant potential that I will speak to in a moment of 

the use of animal waste and livestock waste as part of a renewable 

energy stream. 

As you have indicated, today I am here representing the National 

Council of Farmer Cooperatives, NCFC, the national trade associaVerDate 0ct 09 2002 08:54 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34831.TXT LEANN
11

tion representing the nearly 3,000 farm cooperatives across the 

United States. Cooperatives help meet the feed, fuel, and fiber 

needs of consumers at home and abroad and provide farmers with 

the opportunity to improve their income from the marketplace. 

You might be surprised to learn that farmer cooperatives provide 

consumers with many of the brands that they have grown up on—

Sunmaid Raisins, Welch’s Grape Juice, and Sunkist Oranges, just 

to name a few. 

Farmer-owned companies account for nearly half the ethanol production in the United States. It is this farmer ownership and local 

decision-making in the industry that will ensure that rural America, and not just the short-term investors of Wall Street, benefit 

from this country’s new interest in domestically-produced fuels. 

Energy-generating farmer cooperatives are more than just a local 

employer, as has been said a number of times here this morning. 

They are often the hub of the community and the trigger for improvements in infrastructure. Cooperative businesses are based on 

three fundamental operating principles—governance by farmer 

members, ownership of the business by those who use it, and, most 

importantly, the return of earnings to members in proportion to 

their use of their cooperative. 

Because nearly 80 percent of all milk produced in the U.S. is 

marketed through a cooperative, NCFC is investigating opportunities to provide animal agriculture a stake in the renewable fuels 

industry by maximizing the use of manure as a feedstock for renewable energy. As the renewable fuel industry increases profitability for corn farmers, high corn prices have translated to higher 

feed prices for the livestock and poultry sector. 

Federal resources are desperately needed to develop the waste 

energy market in order to restore profitability, deal with waste 

issues, and allow livestock producers to participate in the renewable energy boom. 

NCFC is working with the National Rural Electric Cooperative 

Association to develop a template for the generation of electricity 

from manure including wheeling the electricity onto the grid and 

ensuring dairy producers fair compensation. We will identify needed incentives and hope that Congress will support this effort much 

like you have supported the incentives which helped build the ethanol and biodiesel industries. 

Madam Chairwoman, using just a fraction of the manure generated on this country’s swine and dairy operations we can generate enough electricity to power the homes in New York’s capital 

of Albany for nearly 13 years, or to the homes in the nation’s capital for two years. AgStar’s data shows us that dairy and swine operations in Iowa that could apply methane digester technology 

would produce enough electricity to light all the homes in Congressman Braley’s district for two years. 

If anaerobic digesters were more affordable and applicable to 

smaller operations, the amount of renewable electricity produced 

would have an even greater impact. As cooperatives, we stand 

ready to be an important part of this industry that could add millions of dollars annually to the incomes of U.S. dairy and swine 

producers and to the economies in rural America. 

12

Madam Chairwoman, as you know, the dairy industry is the 

largest agricultural sector in the State of New York, accounting for 

one-half of the state’s total agricultural receipts. As the nation’s 

third leading producer of dairy products, we are anxious to apply 

these technologies to all our farms, maximize environmental benefits, and realize a higher income to dairy producers across the 

state. 

We cannot ignore the fact that by using manure as a feedstock 

to produce gas, fuel, or electricity, we are positively addressing 

many very important issues. First, we will be increasing the country’s ability to produce its own energy. Second, we will be addressing an expensive environmental management issue, which includes 

odor and wastewater concerns. Third, we will be capturing methane gas and decreasing carbon dioxide emissions. This is clearly a 

win-win for livestock and poultry producers and consumers in 

urban areas alike. 

In conclusion, farmer-owned cooperatives are playing a vital role 

in maintaining and strengthening the rural economy, as well as 

local communities, as vital players in this country’s quest for energy self-dependence. The cooperative business structure ensures 

that rural America benefits from this country’s recent interest in 

domestically produced renewable energy. 

We appreciate this Committee recognizing the contribution that 

small businesses in rural America, like farmer-owned cooperatives, 

are having in the renewable energy industry, and look forward to 

working with you in the future, and thank you for the opportunity 

to appear. 

[The prepared statement of Mr. Graves may be found in the Appendix on page 64.]

ChairwomanVELA ́ ZQUEZ. Thank you very much. 

It has been quite an exciting presentation, and I just want to assure you that we are going to be looking at ways where what type 

of role, not only the Federal Government can play to continue to 

address the issue of energy as an important issue, not only economic issue but also a security issue, and what type of tools can 

be provided through the Federal Government from tax incentives 

to the regulatory issues that you have to face, and access to capital. 

There is a role for the Small Business Committee to play, and that 

is exactly what we are doing today. 

So my first question is to Mr. Dinneen. Conventional debt-based 

financing via the SBA’s 7a and 504 loan programs is already available for businesses engaged in renewable energy projects. Could 

you comment on the drawbacks that these forms of debt-based financing, even those guaranteed by the government, have in your 

industry? 

Mr.DINNEEN. Absolutely. I would like to give you a more detailed 

review for the record, but let me just say now—I mean, I think 

generally the Small Business Administration’s loan program has 

not worked very well for renewable energy projects because of the 

limitations in terms of how much can be lent and some other 

issues. But it is going to be critically important, because the grainbased ethanol industry doesn’t need loan guarantees in order to 

continue to grow. That is going to happen. 

13

But one of the most significant challenges that the cellulose industry faces is the increase in capital costs relative to a grainbased facility. And lenders with that new technology are going to 

need to have some kind of loan guarantee from the Federal Government. Quite frankly, the Department of Energy has been somewhat 

slow to get their program up and going. There are some limitations 

to the USDA program, although they are making some changes. 

If SBA could be motivated to create a program or enhance its existing programs to accommodate renewable energy technologies, I 

think that would be a tremendous thing, because it is going to be 

the smaller businesses that are going to be willing to embrace some 

of these new technologies, but there will be risks associated with 

that. 

ChairwomanVELA ́ ZQUEZ. Mr. Dinneen, do you think that the creation of an equity financing program aids the development of new 

technologies in the ethanol industry. 

Mr.DINNEEN. Absolutely, particularly for cellulosic conversion 

technologies. 

ChairwomanVELA ́ ZQUEZ. Do you think that it will be helpful for 

the Small Business Administration to provide counseling and technical assistance to help small businesses develop a strategy to become producers? 

Mr.DINNEEN. I absolutely believe that could happen, should happen. Again, these are indeed small businesses that are engaged in 

these activities, and the small business community is going to have 

a critical role in our future energy system. I don’t see our future 

energy needs being continued to be met by, you know, the current 

infrastructure with really large petroleum refineries. 

As we mature in our energy future, I think you are going to see 

much more localized, smaller production meeting market niches. 

Our industry is going to grow not just in the Midwest. I mean, I 

am not sure we can get any more plants in Iowa. But as the industry grows, it is growing beyond the traditional grain belt to other 

parts of the country, to, you know, areas where woody biomass in 

upstate New York or rice straw in California or agricultural waste 

in Florida—I mean, there are feedstocks for ethanol all over the 

country. 

And as entrepreneurs seize those opportunities, it is going to be 

the small business community that does that, and it will be a different energy infrastructure in the future. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Jobe, in your program you noted—in your testimony you 

noted a federal program that has been critical to the growth of the 

industry, and that is the biodiesel fuel education, which was authorized in the farm bill in 2002. Can you explain why this program has been important to the biodiesel industry? And, please, 

can you provide some example where you think this program has 

worked? 

Mr.JOBE. Yes, absolutely. Thank you. The Biodiesel Education 

Program in the previous farm bill has provided very much-needed 

education and awareness about biodiesel. Before the biodiesel education program came around, less than 10 percent of Americans 

even knew what biodiesel was. 

14

Now over half of Americans can identify that they know what 

biodiesel is and they have some level of awareness about that, and 

so school systems are adopting biodiesel for their school bus use 

and their fleets, which is a perfect application. School boards and 

mayors are hearing about biodiesel and looking to integrate biodiesel into their usage. That education program has been essential 

in helping educate the petroleum industry on how to handle and 

distribute, how to integrate biodiesel into the existing infrastructure, and so there is an effort to extend that program in the next 

farm bill, and we hope that it will get extended. 

ChairwomanVELA ́ ZQUEZ. Mr. Graves, what is the single-most important factor to development of the waste to energy market? And 

why is this technology not yet applicable to smaller operations? 

Mr.GRAVES. Madam Chairwoman, I think the single greatest impediment is the cost. The cost of the technology is still significant. 

We have a number of dairy operations that are spending between 

a million to a million and a half to implement an anaerobic digester on a farm for methane captured just on that farm. 

So access to capital, the opportunity for technical assistance, 

which has been provided to some degree through USDA and the 

National Resource Conservation Service. Grant resources from that 

agency would definitely be helpful in addition to technical assistance. I also think that technologies need to be geared—we need resources for R&D to gear those technologies to smaller operations. 

We still have a lot of small livestock operations out there that 

really cannot put the capital together, nor have the interest, quite 

frankly, in managing a facility like that. So there is still a lot to 

be done, and I think the opportunity to capture animal waste and 

the animal waste stream is a renewable—for renewable energy, we 

are just beginning to scratch the surface on that, and we are excited about some new opportunities there with the right resources. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Chabot.

Mr.CHABOT. Thank you very much, Madam Chair. 

First of all, let me preface my question by commenting and acknowledging that I do believe that ethanol is one of the keys to resolving our—the fact that we are too reliant upon foreign sources 

of energy, and this is something that we can deal with and handle 

and begin and end with right here in our own country. So it makes 

sense in pursuing it. 

There are some effects, however, and I would ask Mr. Dinneen 

and Mr. Urbanchuk, could you discuss the impact that increasing 

uses of ethanol do have on other foodstuffs and the pricing that 

consumers pay at the markets and that whole issue there? And I 

would ask either one of you to—or both to comment on that. 

Mr.URBANCHUK. Go ahead, Bob. 

Mr.DINNEEN. Let me just start, and you can actually give the 

numbers. I would just say, I mean, first of all, one of the reasons 

why members of Congress and the President have promoted the increased production in the use of ethanol over the years is, in fact, 

to increase the commodity prices, to make sure that farmers are 

15

getting more of their revenue from the marketplace as opposed to 

the Federal Government. And that has absolutely worked. 

I mean, yes, ethanol today is responsible for increasing the price 

of corn, but a lot of people believe that corn had been undervalued 

for quite some time. And the chief economist at USDA earlier this 

year had actually indicated that the increased demand for corn 

used in ethanol production was actually reducing federal farm program costs by more than $6 billion. So it has been a huge winner 

from that perspective. 

In terms of its impact on food prices, I think it is going to be very 

minimal, and the marketplace will work those things out. And Dr. 

Urbanchuk can probably respond more specifically to what some of 

the impacts have been. 

But, you know, I think the marketplace is going to find an equi- librium for corn. You have already seen it. It was up over $4 earlier 

this year. It has come back down. The marketplace worked. Farmers saw the increased demand for grain for ethanol, and what happened? They planted more corn. USDA reports that there may be 

as many as 90 million acres of corn planted this year. That is 15 

percent more than a year ago. It is a tremendous increase. It is a 

real shift in agriculture. So, I mean, I think the marketplaces will 

respond. 

Mr.URBANCHUK. Thanks, Bob. 

It is an excellent question and one that has gotten a tremendous 

amount of attention, particularly in the press, a lot of it not very 

fact-based unfortunately. We have seen a sharp increase over the 

last several years in the use of corn for ethanol production, and 

most of the corn—most of the ethanol made in the United States 

is made from corn. We do use some other grains, and we have the 

ability to use other grains to make corn—to make ethanol, but for 

the most part we use corn. There are other potential feedstocks out 

there. 

The impact that has had, of course, by increasing the demand 

has drawn down stocks and resulted in increased prices that we 

have seen in the marketplace. But as Bob indicated, the market 

has responded and responded quite significantly. 

We have an opportunity now. We have a farm bill structure in 

place that allows farmers to base their planning decisions on the 

signals the market gives them, and they are, in fact, responding 

with 90 or 90.1 million acres of corn scheduled to be planted this 

fall, at least farmers indicated intentions for that. We are going to 

see a large crop come in. 

But there is another aspect of this that is important to keep in 

mind as well, is that with that renewed interest in corn agriculture 

and in grain agriculture we are starting to see technology come 

into place that is going to increase yields as well, which will also 

help increase production. 

We have seen an increase in corn prices, and that has resulted 

in smaller margins and higher prices at wholesale level for a lot 

of meat and poultry prices. But it is important to keep in mind, it 

is instructive to keep in mind when you look at those price increases to look at the increase from where we were a year ago. 

For example, poultry prices at the consumer level declined for 

most of 2006. So you are looking at prices now relative to a—you 

16

know, I won’t say a peak versus a trough, but a high point versus 

a low point. Ag prices have gone up significantly. Again, ag prices 

are up sharply over very, very low prices the early part of 2006. 

We have seen an increase in milk and dairy prices as a consequence of higher feed prices, but most of that isn’t attributable 

to increased demand for corn. Rather, it is attributable to changes 

that have happened in forage conditions and hay prices that have 

been unrelated to the increased demand for corn. 

What I am suggesting to you here is that the market, in fact, is 

sorting itself out. We are looking at a period of prices that I believe 

are going to adjust downward as increased production comes into 

play. But there is also another factor to keep in mind, and that is 

that when we take corn and we turn it into ethanol, we don’t lose 

the full feed value of that grain. 

In fact, what you are doing is you are taking the starch and converting that into alcohol, but you are leaving the fiber, the nutrients, the protein that is in that corn kernel behind. And those nutrients in the form of distiller’s grains of dry mill production or 

corn gluten feed or corn gluten meal from wet mill production can 

be used for—they are widely used as a dairy feed for other ruminant animals like beef cattle and for swine and poultry. 

And as we increase the production of that, you are also going to 

see that take some of the pressure off of higher grains with regard 

to the animal agriculture side. I don’t expect that we are going to 

see significant increases in food prices as a consequence of increased either ethanol production or biodiesel production as we 

move through the next several years. 

Mr.CHABOT. Thank you. 

Mr. Jobe, let me switch to you if I can now. Do you anticipate 

the number of flexible fuel vehicles on the road is going to increase 

with increasing demand for renewable fuels, considering the high 

cost of these vehicles? And what types of new technology or innovations do you see that may be on the horizon for biodiesel? And if 

you could keep that relatively brief, because I want to get one final 

question in to Mr. Graves if I can. 

Mr.JOBE. Sure. We are already seeing a shift. Because of fuel 

economy, the fuel economy increased benefits of diesel fuel in lightduty diesels, we are already seeing a shift to diesel technology in 

light-duty vehicles. Diesel technology is 20 to 50 percent more fuel 

efficient, which is why about half of the light-duty vehicles on the 

road in Europe are diesels. 

We are starting to see that now. Biodiesel blends can be used in 

any diesel engine. Currently, in terms of light duty, only about 3 

percent of the cars on the road in the United States are diesel. We 

are seeing a shift in that now because diesel technology is getting 

cleaner and better, and biodiesel is well-positioned to play a role 

in that. 

Mr.CHABOT. Thank you. 

And finally, Mr. Graves, there is obvious, you know, reduction in 

the fossil fuel consumption when one talks about converting manure, etcetera, to energy sources and that. How environmentally 

friendly is that process? And could you sort of walk us through, 

again relatively briefly, how it works? And you can use as much 

discretion or as little as you need to considering the subject matter. 

17

Mr.GRAVES. Sure. Thank you, Congressman. It is a relatively 

simple technology, fairly old technology. The production of methane 

from animal waste and animal manure, it is a matter of capturing 

the methane gas produced from animal manure in some type of 

containment. It can be as simple as a concrete pit in the ground 

with some type of bladder over the top of it to be able to capture 

the methane gas. 

Normally, the methane gas is then captured and run through 

some type of an internal combustion engine to turn a generator to 

produce electricity, and the technology works—it is basically foolproof, as long as you have the right bacteria, the appropriate mix 

of carbon-based material or the appropriate bacteria in the system 

to start it, and then it automatically produces methane gas and, 

you know, it is a fairly efficient technology. 

From an environmental standpoint, very environmentally friendly. The animal wastes are completely contained. In many instances, 

the animal wastes are then separated. The solids can be used, 

composted, dried, put into other soil amenities and/or used for bedding or, you know, soil amenities back on the farm, the liquid portion being spread. So it works relatively well. 

Mr.CHABOT. Thank you, Madam Chair. I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

We have two votes, but we are going to go to Mr. Larsen, and 

then after that we will take a recess for maybe half an hour. 

Mr.LARSEN. Thank you, Madam Chair. 

Mr. Graves, I want to follow up on that. I am just reading an 

article that was e-mailed to me. It was in my local paper today in 

Lynden, Washington, up on the—if you are from Vermont, just go 

all the way across the border to the other end of the country and 

you will be in Lynden, all the way across, 3,000 miles from where 

you are. 

The headline is ‘‘Lynden Cows Fuel Western Washington University Vehicle.’’ The point is that the Vehicle Research Institute of 

Western Washington University is university-run, but it is a student research-run institute. They just won a $75,000 grant from 

the EPA for their methane—biomethane-powered vehicle. 

And what they are doing is using methane produced at an anaerobic digester at the Vander Haak farm in Lynden, and they are 

scrubbing it because it is dirty. They have got to scrub out the CO2 

and scrub out—I think it is H2S, and then they can use it as a 

compressed gas like natural gas, but they have to scrub it, so their 

technology that they are experimenting with is to scrub this methane so it can be used as a compressed gas in their experimental 

vehicle. And they just won one of six out of 41—only six of 41 universities around the country who recently won a grant from the 

EPA to look at this further. 

So there is—the idea is out there, and I think what you are describing is the idea on paper. There is a little ways to go on this, 

and we are relying on university students to do this research. And 

we probably ought to be relying on more people to do this kind of 

research. 

It also looked at—interestingly enough, what they have calculated is things like cows per mile, and, you know, sort of put it 

in real terms for everyone and how much cows can produce in 

18

terms of methane and how many cars that means and how many 

cars—the equivalent of taking them off the road, in terms of the 

environmental benefit, how much CO2 they are pulling out of the—

emissions they are pulling out of the air. 

So there are things going on that are important, but there are 

challenges in the Vander Haak—Mr. Vander Haak, the farmer on 

this project, is facing serious cost constraints to continue operating 

his anaerobic digester and needs subsidies not just from government subsidies but also from the private utility that is taking the 

electricity that is being generated from the generator that is being 

powered by methane gas as well. 

So there is a lot of little moving parts and a lot of financial moving parts to this as well, and I think that is something worth looking into, especially for folks who have got a lot of dairies in their 

areas. 

A second issue, I will just point out—and maybe someone can address this—we also—if you eat coleslaw, congratulations, it is probably from seeds grown by—from cabbage seeds grown in my district, which produces 75 percent of the cabbage seeds in the country. And they are facing the challenge—it is a $20 million industry 

in one of my counties. They are facing a challenge because people 

want to grow canola for biofuel, but if there is a cross-pollination 

it blows out the cabbage seed production and you can’t grow cabbage. 

So I am wondering if maybe Mr. Dinneen or one of you have 

looked at this—the challenges of growing crops next to other crops 

when you don’t want them to grow next to each other, and how we 

address that issue, so you are not blowing out one ag industry for 

the benefit of another part of the ag industry. 

Mr.URBANCHUK. I think that is relatively—I believe it is relatively rare, where you have got that kind of a cross-pollination I 

guess, or you get one crop damaging another. Typically, what you 

can run into is problems with regard to crop protection chemical 

drift from one crop to another. 

Mr.LARSEN. This is not a crop chemical drift at all. 

Mr.URBANCHUK. No. But that is typically where that kind of a 

problem runs into, but I think it is relatively rare for that circumstance to exist with regard to canola and cabbage seed. I can’t 

remember too many instances that I have—

Mr.LARSEN. Well, it would be rare, since we grow 75 percent of 

the cabbage seed. 

Mr.URBANCHUK. Cabbage seed, yes. 

Mr.LARSEN. It is not grown much anywhere else. 

Mr. Dinneen? 

Mr.DINNEEN. Canola would be grown for biodiesel, not for ethanol. But this would be so far out of my wheelhouse, I just would 

hate to hazard a response. 

Mr.LARSEN. And I don’t mean to be a killjoy on this. I am as enthusiastic as you all are about it. I am just saying that you have 

got to be sure that we are looking at other parts of the ag industry 

to be sure, again, we are not destroying—

Mr.JOBE. This is certainly the first time I have ever heard of 

rapeseed wanting to inappropriately fraternize with cabbage seed, 

19

so we will—we are certainly willing to work with you and figure 

out, you know, if there are solutions. 

Mr.LARSEN. And that is—well, and the state legislature in Washington State is trying to sort that stuff out. And, you know, you can 

laugh, I know it might sound funny, but this is—to farmers who 

are making $20 million a year for a very small industry, it is a 

pretty good deal. 

ChairwomanVELA ́ ZQUEZ. Mr. Larsen, it seems like Mr. Graves 

wants to add—

Mr.LARSEN. Yes. 

Mr.GRAVES. I would actually like to, Congressman Larsen, just 

comment on the research that you referenced at the University of 

Washington. We have a group of—

Mr.LARSEN. Western Washington. 

Mr.GRAVES. Western Washington. We have a group of larger progressive dairy producers north of Syracuse that are contemplating 

a pipeline, either piping it directly into a plant to produce electricity or to scrub the gas and put it right into the natural gas 

pipeline system. So we would certainly welcome access to any of 

that technology and anything that is learned in Western Washington. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Time expires, and the Committee is in 

recess subject to the chair’s call. 

[Recess.] 

ChairwomanVELA ́ ZQUEZ. The Committee is called to order. 

And I now recognize Mr. Jefferson. 

Mr.JEFFERSON. Thank you, Madam Chair. 

I want to ask Mr. Joe, if I might, you made a reference to two 

issues here that relate to what you think may be a misuse and inappropriate interpretations of the federal tax laws we passed regarding the reexporting issue and the issue of the thermal 

depolymerization definition. 

Let me talk about the second one first, rather than have to say 

it twice. 

Mr.JOBE. Yes. 

Mr.JEFFERSON. The ambiguity that you speak of here has led to 

a definition that you say permits a misuse, and that you have here 

some large petroleum industry concerns that are taking advantage 

of this credit without having to meet the same EPA regulatory requirements as those that go directly into the business. Can you explain that further, and tell us what you think the fix is for that? 

Mr.JOBE. Yes. Thank you for asking the question. This problem 

is a result of in the 2005 energy bill there was a tax credit added 

to our biodiesel tax credit extension called renewable diesel, and 

the tax credit was intended to stimulate a class of technology called 

thermal depolymerization that turned waste—animal wastes into a 

boiler fuel, so turkey offal was specifically referenced in the statutory language, turning that into a boiler fuel. 

However, after that was passed, the large integrated oil companies aggressively lobbied the administration to have the definition 

of that process expanded to the point of such a broad interpretation 

that it would include even conventional petroleum refinery capacity. The petroleum companies—and I want to mention that—

20

Mr.JEFFERSON. Well, what is the fix for this, do you think? Because I know my time is going to be short. 

Mr.JOBE. Well, the solution for this—the petroleum industry, we 

are not opposed to the petroleum industry blending biomass into 

their existing refineries. They can already get 50 cents per gallon 

for doing that. 

However, by allowing them to expand the definition and get a 

dollar per gallon, it will have very serious negative unintended consequences to the biodiesel industry and lock up the raw material 

supply for the biodiesel industry and small businesses who have invested in those communities. 

Mr.JEFFERSON. So you would limit the amount of incentive they 

can receive under this? Is that the fix for it or—

Mr.JOBE. Yes, sir. 

Mr.JEFFERSON. Or do you want to redefine the definition of thermal depolymerization more narrowly? 

Mr.JOBE. Correct. If thermal depolymerization were defined so 

that it did not include co-processing biomass with—in conventional 

petroleum refinery capacity, they can—

Mr.JEFFERSON. Well, that is probably the real fix for it, then. 

Okay. Now, are you concerned, as we go through this, you know, 

bit by bit, like in this case, you will have someone come up with 

the notion that, you know what, if we do this—pick this one, we 

can help in this way, without there being a comprehensive look-see 

at all the ways that we might help with biomass and all the rest, 

ethanol, all the rest. 

So the Congress keeps picking winners on this thing, as people 

kind of come up and say, ‘‘Here is what we think we can do.’’ As 

they make some advances, they will come to Congress and say, 

‘‘Let us pick up mine this time, because we can make this a benefit 

to small businesses, to the government, to society in general.’’ How 

do we kind of get at this thing in a comprehensive way where we 

aren’t picking winners, we aren’t picking any narrow little areas, 

and we are addressing the issue of alternative fuels? 

Mr.JOBE. That has been the success of the oil companies who 

have aggressively lobbied for this. That has been their sound byte. 

We can’t pick winners and losers. And the problem is by allowing 

the large integrated oil companies to get this subsidy by exploiting 

an ambiguity in the Tax Code and bypassing the regulatory and 

legislative process, we will indeed pick winners and losers. The 

winners will be the oil companies who will receive windfall profits, 

and the losers will be the small businesses who have invested in 

their communities, and the taxpayers. 

Mr.JEFFERSON. Okay. May I clarify? I meant between those who 

are in the biofuel industries, those who are in the ethanol, those 

who are in the animal waste, all those folks. I am saying there is 

a great panoply, a large panoply of alternatives here. 

And I am trying to figure out how you might suggest this Committee gets after essentially all of them without saying it is—ethanol is this or not—so that we might find a way to incentivize this 

whole alternative energy field as opposed to trying to pick a winner 

here, a winner there, as we did here, and this evolved—then, they 

all attack it and make themselves available for it. 

Is there some way to get at this thing in a general way? 

21

Mr.JOBE. Yes, absolutely. And by making sure that an ambiguity 

in the Tax Code cannot be inappropriately exploited and bypass the 

legislative process. It is the responsibility of Congress to enact 

sound government policy through the regulatory and legislative—

Mr.JEFFERSON. Should we prefer agri-business over fuel from 

other—waste from a restaurant? 

Mr.JOBE. The reason—

Mr.JEFFERSON. And should we prefer, at the end of the day, that 

when it is used for production for electricity, there is a case for 

using it for fertilizer? 

Mr.JOBE. The reason that the agri-biodiesel was given a dollar 

per gallon tax credit, and the yellow grease-based biodiesel was 

given a 50-cent tax credit was because using 20-year historic averages recycled products are about half of the cost of the first use 

animal fats and vegetable oils. 

And so in order to keep the cost of the tax credit program down, 

it was given half of the incentive, because that was what the requirement would be. And so it was to—it was really mainly designed to keep the cost of the program down. 

Mr.JEFFERSON. Yes, I see. That does make it logical, though. 

May I ask one more thing? How can we—we have talked about 

this as a small business opportunity. How can we go about making 

policy here, try to do some things that ensure that the big companies—that it remains a small business opportunity for most folks 

in rural America, or anywhere else, and it isn’t taken over by the 

larger concerns? Can anybody answer? What can we do to keep the 

emphasis in this area on small businesses? 

Mr.JOBE. Well, I will just go first, and I have already made it 

clear that if this renewable diesel tax credit is not further defined, 

it will pick winners and losers, and it will pick the large integrated 

oil companies over the small businesses and will put those investments and assets at risk. And so I urge the Small Business Committee to look at this issue and please urge a more reasonable policy on this matter. 

Mr.GRAVES. Congressman Jefferson, I would also add, if we are 

going to make this a business for small businesses, we have to pay 

attention to access to capital. The regulatory arena has to be fair 

and predictable and affordable, and I think we still have to work 

on the R&D for new, efficient, less expensive technologies that 

work in smaller settings than we normally would see in other 

places. 

ChairwomanVELA ́ ZQUEZ. Time is expired. 

Mr. Chabot, do you have any questions at this point? 

Mr.CHABOT. I have a couple of questions, but I would be happy 

to defer to your members and maybe go last, if you would like. 

ChairwomanVELA ́ ZQUEZ. Okay. Thank you. Yes, sir. 

Mr. Braley? 

Mr.BRALEY. Thank you, Madam Chairwoman. 

There is two things in Iowa that we are very proud of—agriculture and education. My family has been farming and teaching 

in Iowa for about 150 years. And, Mr. Graves, it may interest you 

to know that my great-great-grandfather, George Washington 

Braley, walked to central Iowa from Northfield, Vermont in 1855, 

looking for better farm ground. 

22

My other great-great-grandfather sailed here from Ireland 

around that same time looking for better farm ground. And one of 

the things that I know is that we are going to have to think about 

how we are going to educate the next generation of leaders and 

technicians in the renewable fuels industry or are we going to be 

left with a huge void. 

And that is why I was very proud to introduce as my first bill 

in Congress H.R. 872, the New Era Act, which creates a partnership between community colleges and the renewable fuel industry 

to make sure that the next generation of technicians have the proper education and training to serve this rapidly-expanding industry. 

This is a big concern to me, because I am probably one of the few 

people serving in Congress who took four years of high school shop 

classes. And I am disturbed by the fact that we don’t look holistically at our educational issues, including our rapidly-diminishing 

vocational programs in high schools, and, in fact, not only ag but 

also the technicians of tomorrow. And we have a huge void between 

what is being done in high schools and what is available at community colleges. 

So I would just urge you to pass on to your members that this 

is a great bill to get behind to make sure that we have the proper 

technicians. And I would like to hear from you about what your respective groups are doing to look not just at the production side of 

this but also how we sustain it by having trained people with the 

skill sets that are going to be necessary to continue to crank out 

what I think we all believe is a very appropriate switch in our 

focus from dependence on Mideast oil to what we can grow in the 

Midwest. 

Mr.DINNEEN. Congressman, I would like to thank you for your 

leadership on that bill, because, quite frankly, the workforce needs 

of our industry are tremendous right now. Our industry is going to 

double in the next 24 months, and one of the real challenges that 

we face is finding qualified people, finding welders to build the facilities, finding people that are able to work in the plants and have 

the skill set necessary to help this industry move forward. 

So we are strong supporters of your bill. We are also working 

with the Future Farmers of America. We are partnering with them 

on an education program. We have put a quarter of a million dollars into that just so far this year, and that is going to be an ongoing project. 

We are also working with a group called Skills USA that is looking at workforce issues, and we are just beginning to develop a program with them. And we also have been working with the community colleges, mainly across the Midwest, trying to develop curriculum that will help our industry as we move forward. Your bill 

is going to help all of that, and we appreciate that. 

Mr.JOBE. I will just add real briefly that we also support that initiative. We have also been looking at supporting the FFA education 

initiative that Mr. Dinneen referenced. In terms of the biodiesel industry, there is a shortage of trained technicians, particularly in 

the chemical engineering, the chemistry engineering sector, safety 

is a very important concern in our growing industry. In an industry 

that is growing as fast as our industry is growing, safety is defiVerDate 0ct 09 2002 08:54 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34831.TXT LEANN
23

nitely a concern. So we support what you are doing to try to enhance those measures. 

Mr.URBANCHUK. Briefly, from the economic side, as you are all 

aware—and it is not just limited to the renewable fuels industry 

but all small business and large business—but, largely, our competitive advantage is hinged to our quality of our labor force at all 

levels. And the approach that you have taken, the legislation you 

have taken, I think is going to be a tremendous step in helping us 

maintain that competitive advantage. 

We have for a long time been moving jobs offshore, and one of 

the obvious reasons for that has been labor, access to labor, not 

just price but quality as well. And it is very important to keep in 

mind that what we are talking about here, this is the manufacturing sector industry. We have been losing manufacturing sector 

jobs in the United States for a long period of time. 

You are looking at an industry here that is creating manufacturing sector jobs, and is helping to revitalize rural communities 

and allow those job opportunities to bring young people back into 

communities in Iowa and in other areas in the Midwest. In central 

Pennsylvania where I come from, okay, we are seeing opportunities, and that is a very, very important aspect of maintaining that 

competitiveness to allow us to help reverse that trend. 

Mr.GRAVES. Congressman Braley, just very quickly, my youngest 

brother drove to Iowa State in search of better farmland, graduated, and now farms about 4,000 acres of your finest land, so I 

am still back farming the land in Vermont. 

So, but on a more serious note, we appreciate your efforts and 

your leadership on this. Many of the cooperatives are developing 

staff expertise. We need to develop that expertise, so that we can 

be good ambassadors and help educate and provide good information to our members. That is, we think, a very critical step. 

We also have in many of our cooperatives young cooperator 

groups where we foster leadership, young folks that come through 

the industry, through 4-H and FFA and this is the next logical step 

where they will gain some expertise and have access to good information. And so we believe very strongly in what you are doing, and 

we thank you for your efforts. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Ms. Clarke? 

Ms.CLARKE. Thank you very much, Madam Chair, and thank you 

to all of you. 

I am from New York City, so we will use your products; we won’t 

manufacture them. But I am glad to have you here in what I call 

the dawning of the next phase or the new era in terms of where 

we are moving as a nation to produce fuel that will take us into 

the 21st century. I wanted to raise an issue that I think is very 

important in the context of the growth and development of this industry, and I wanted to examine the federal policies that focus on 

renewable fuels but take on a global perspective. 

I wanted to raise the issue of imported duties on ethanol fuel, 

and the global implications and impact of renewable fuels given 

where we are, and the availability of resource and production and 

demand. 

24

We have currently in place the Caribbean Basin Initiative, also 

known as the CBI, which was created in 1983 to promote stable political and economic climate in the Caribbean region. It granted 

duty-free status to many products from these countries, including 

ethanol under certain conditions. 

I wanted to ask Mr. Dinneen and Mr. Urbanchuk—I know that 

duty-free treatment for CBI ethanol has raised some concerns, especially, as you both stated in your testimony, that U.S. demand 

for ethanol has been growing. However, historically, imports played 

a relatively small role in the U.S. ethanol market. Last year, for 

example, the ethanol from CBI countries represented only 3.4 percent, yet many critics contend that duty-free imports from the CBI 

would undermine the domestic U.S. ethanol industry. 

Can you give us basically what your position would be on the duties for imported ethanol fuel? 

Mr.DINNEEN. Absolutely, Congresswoman, and thank you for the 

question. Before I get there, don’t discount the fact that New York 

City may one day be in the production business of ethanol as well, 

because there is a company in California, BlueFire Energy, that is 

looking to produce ethanol from waste products, from municipal 

solid waste, and they are setting up a facility right at a landfill in 

Los Angeles. And there is no reason the same technology could not 

be used at landfills all across the country, so New Yorkers may one 

day find a market for the ticker-tape parade material. 

Ms.CLARKE. Madam Chair, we have got to take note of that. 

[Laughter.] 

Mr.DINNEEN. With respect to the duty, let me clarify. The Renewable Fuels Association was part of the coalition that supported 

the CBI agreement in 1990, and we continued to support it today. 

We do think that there are important policy objectives of allowing 

that region to grow in industry, and we have not been at all concerned about the imports from that region at all. 

Where we do have concerns about the secondary tariff, those people that would seek to lift the secondary tariff have characterized 

it as a barrier to entry when, in fact, the secondary tariff is not 

a barrier to entry at all. We imported 650 million gallons from 

Brazil last year. 

Brazil has built a heck of an ethanol program through 35 years 

of production incentives, mandates, vehicle tax incentives, infrastructure development, export enhancement, all things that I think 

make sense. They have built a great industry, just as we are trying 

to do here, but they don’t need our tax dollars. We don’t need to 

incentivize them as well. 

And the reason I say that is refiners get a tax incentive when 

they blend ethanol whether that product is imported or domestic. 

So if you remove the secondary tariff, what that means is that imported product is now being subsidized. It gets the same incentive 

that is intended for encouraging domestic production. And we welcome competition from Brazil; we just don’t think that U.S. taxpayers need to subsidize that product at all. 

Mr.URBANCHUK. And that is really one of the key components to 

this issue, and I want to come back also to the issue of competitiveness as well. As I indicated to you, we make most of our ethanol 

from grains, with corn being the primary one. Let us be honest. In 

25

America, that is one of the things that we do best. We grow corn 

better than anybody else on the face of the earth. God has given 

us the resources to do it, and we have got the technology to do it, 

and the farmer know-how, and we do it very, very well. 

If you go south of the equator and you go to Brazil, their corn 

is sugar. And they have got a sugar—we have a sugar program 

that effectively keeps sugar as a feedstock uncompetitive in the 

United States. If you remove that secondary tariff and you allow 

a Brazilian exporter to enjoy the tax benefit that we give the blender, you are going to provide an incentive for companies to take 

their investment and move it from rural America south of the border. 

And you are going to essentially end up doing what we have done 

to other manufacturing sector industries. You are going to provide 

an incentive to take that investment and those jobs and move them 

out of the United States. 

As Mr. Dinneen indicated, there is no problem in competing head 

on head with Brazil. We can compete with Brazil, but we want to 

compete fairly. And I think we have to be very, very mindful of 

what the potential ramifications of lifting an embargo are. 

The CBI—I think, again, from the perspective of providing the 

exemption or, excuse me, the tariff-free status of CBI is an excellent program, works very, very well. Brazil is an whole other kettle 

of fish. 

Ms.CLARKE. Thank you, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. I am going to take this just one second, 

because you raised the issue of Brazil. Why are you—when we talk 

about CBI, you raised the issue of Brazil? 

Mr.URBANCHUK. The United States is the world’s largest producer of ethanol. The world’s second-largest producer of ethanol is 

Brazil. If you take all of the other countries in the world together, 

they don’t produce as much ethanol as the U.S. and Brazil do. 

ChairwomanVELA ́ ZQUEZ. I understand that. But CBI doesn’t 

cover Brazil. 

Mr.DINNEEN. It doesn’t. But let me—the question was asked in 

the context of the secondary tariff. And currently under the Caribbean Basin Initiative, the secondary tariff does not apply to Caribbean product. It would apply to Brazil. And people have talked 

about removing that secondary tariff, and the first people that will 

be hurt by that will be those that are currently producing under 

the CBI. 

Mr.URBANCHUK. There’s another aspect of it, too, that is important, and that is that if you look historically at the development 

of the Brazilian ethanol industry, they produced a form of ethanol 

that contains water. It is called hydrous ethanol. That can’t be 

blended into gasoline. It has to be processed. They would ship that 

to the—largely to the Caribbean countries—

ChairwomanVELA ́ ZQUEZ. I know. Yes. 

Mr.URBANCHUK. —right, and that provided an industrial base, 

which is very, very important for economic development. Brazil 

now is producing more and more anhydrous ethanol that can be directly used. So essentially what happens, they can bypass the Caribbean countries and come directly to the United States, so not 

26

only are domestic producers adversely affected but so are producers 

in industry in the Caribbean Basin. 

ChairwomanVELA ́ ZQUEZ. Mr. Shuler? 

Mr.SHULER. Thank you, Madam Chair. We have had some really 

great panels, but without a doubt this is the best panel we have 

had here at the Committee. 

As a freshman coming in, you have a lot of diversity within—certainly within our own caucus, but diversity throughout from different regions, different ideologicals, different areas. But there was 

one thing that our freshman class certainly had, and I have two of 

my colleagues here from the freshman class. 

We all had one thing in common, and that was sustainable renewable energies. And so regardless of differences we may have in 

other subjects, sustainable renewable energy is at the top of all of 

our lists. 

And so I just want to commend you, Madam Chair, for putting 

such a great panel together today. 

And also, Mr. Dinneen, I mean, thank you for using the technologies, the distillery process which we helped create in the mountains in western North Carolina. We appreciate you thinking of us 

and just remember us folks in the mountains of North Carolina 

when you use that distillery process every day. 

Mr.DINNEEN. Drink the best, drive the rest, Congressman. 

[Laughter.] 

Mr.SHULER. Well, thank you. Mr. Dinneen, while I am—let us 

talk about the diversity. I mean, you know, so often in my district, 

I mean, a farm in my district is 10 acres. The topography, 10 to 

50 acres, you know, if you find 50 acres that is tillable in western 

North Carolina, and that is a very flat piece of property. Talk about 

the ways that our farmers can diverse—and maybe this is open to 

all—both in the ethanol and, Mr. Jobe, in the biodiesel. 

You know, what more can we do? How can we continue to put 

our—we want to put our farmers back in the economic structure 

they have been for decades, and we have been losing that certainly 

in our area. How do we encourage? And also, what are some other 

things that they can grow? Obviously, no one in west North Carolina—I mean, apples is a big part, so it kind of gives you a little 

idea of what—we do grow corn, tobacco. 

Mr.DINNEEN. Well, indeed, one of the great things about ethanol 

is that you can produce it from such a wide variety of agricultural 

feedstocks. I mean, yes, today corn is king, but we are also producing ethanol from sorghum today, which is grown in the southeast in much dryer climates. Sorghum is also a grain. We used 

about 20 percent of the sorghum crop last year. 

In your state, in North Carolina, there have been people that 

have been looking to produce ethanol from sweet potatoes, something that can grow quite well in that area. North Carolina also 

has an awful lot of woody biomass. 

And I think as our industry grows, and as new capital is coming 

into the industry, new intellectual capital is coming into the industry as well, and they are looking at a range of new technologies, 

a range of new feedstocks, and I think areas of the country are 

going to soon recognize that they have got renewable energy feedstocks right there. 

27

And it doesn’t need to necessarily be a transition. They can take 

advantage of the value-added benefits of ethanol by processing the 

agricultural abundance that may already be in their area. 

Mr.SHULER. Very good. 

Mr.JOBE. Congressman, in my written testimony, I did point 

out—I had to pare it down, but I did point out that there is a small 

business in Asheville, North Carolina—Blue Ridge Biofuels—that 

is a small producer of biodiesel. They produce it from recycled cooking oil. 

They collect cooking oil from 150 local area restaurants. They 

have expanded their capacity to two million gallons a year. They 

now employ 10 people. They plan to hire five more. This is an excellent example of how ingenuity, entrepreneurship, and small 

businesses have benefited by this tax policy and this good, sound, 

public policy. They are supplying fuel to the Asheville Municipal 

Airport, the University of North Carolina in Asheville, they are 

helping to provide the city’s electrical power, and it is creating a 

lot of just good positive benefits throughout the community. 

And that is an example of how, you know, we grow—we grown 

corn here. This is what we grow. We also grow soybeans. That is 

our primary oil seed crop. It will remain a predominant commodity 

for oil seeds in the United States, but in addition to that all oil 

seeds—corn oil, canola, as well—all of the vegetable oils, as well as 

animal fats that can and are being used for biodiesel production, 

and it is having dramatic positive benefits throughout the livestock 

industry and the entire agricultural sector. 

Mr.SHULER. Very good. Smoky Mountain Biofuels is obviously a 

competitor of Blue Ridge Biofuels. And they are different sections 

of my district, both have done incredible—I mean, just absolutely—

of all of my tour in the district, Smoky Mountain Biofuels have actually taken it to another step. And there actually they have contracted with the local municipalities. They have taken the—a condemned piece of property that was a landfill. 

They are extracting the methane gas to work through the distillery process. And with that excess methane that they are pulling 

from there, they are totally self-sufficient, and they are actually 

put in an ironworks or a blacksmith shop, in addition to what they 

have been able to do. 

Are you seeing a lot more of that, of people using some of the 

methane and almost getting to the point of almost self-sufficient? 

In our district, I mean, they have done an incredible job, and that 

can be open to almost any of you. 

Mr.JOBE. I will just mention real briefly we have a number of 

new—we get approximately two new members a week in terms of 

new small businesses that are putting—making investments in biodiesel production. Many of them, like the one you mentioned, are 

utilizing renewable resources. 

There was a new plant in Denton, Texas, that went in as a joint 

venture with the city of Denton. They located their biodiesel plant 

at their landfill, and they are running—they are powering the 

plant off of landfill gas, and they are producing—they are taking 

in the city’s recycled cooking oil. They are using the landfill gas to 

produce it in the biodiesel, and then they are fueling their vehicles 

28

and it is very much a closed loop system. And we are seeing more 

and more examples of that throughout. 

Mr.SHULER. And this same group actually teamed up with one 

of the larger petroleum gas companies in our district. And the gentleman who—the CEO, the owner of the company, his statement 

was, just as our ranking member says, we have to lessen our dependence upon petroleum. And here is a guy that is in the fuel industry. 

And I think that is great leaps and bounds, and I want to commend you all. Continue your hard work and dedication to—because 

what you are doing today is going to—it is going to help my children and their children’s lives in time to come. So thank you. 

Madam Chair, I yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Chabot? 

Mr.CHABOT. Thank you, Madam Chair. Just a couple of final 

questions. 

In the President’s State of the Union address a while back, he 

put forth the idea of expanding the nation’s supply of biofuels from 

five billion gallons in this year, 2007, to 35 billion in—10 years 

from now in 2017. Is that a realistic goal? Should it higher or lower 

or just any comments you have? If you could keep it relatively 

brief, because I think we are getting ready to wrap up here. 

Mr.DINNEEN. The President’s plan was for alternative fuels, not 

just renewable fuels. And I think in that context it is an imminently achievable goal, because it could be biodiesel, ethanol, cellulosic ethanol, coal to liquids, electricity, other natural gas fuel. So 

in that context, I think it is absolutely a very achievable goal. 

Mr.JOBE. In terms of the biodiesel industry, we believe that we 

can realistically achieve about 5 percent of that goal. On the diesel 

side of the ledger, considering that we are a gasoline nation, that 

makes a huge difference. If we could achieve 5 percent penetration 

of replacement of our diesel fuel by 2015, it would be very significant. 

Give you an example—of the 37 billion gallons of on-road diesel 

fuel we use today, if we are to replace that with 5 percent, it would 

be 1.85 billion gallons. That happens to be the exact same amount 

of diesel fuel that we refine from all of the crude oil we import currently from the nation of Iraq. It also represents one-fourth of all 

of the diesel fuel that we refine from all of the crude oil we import 

from the entire Persian Gulf region. So from the diesel side of the 

ledger, we can make very big energy security gains. 

Mr.URBANCHUK. Absolutely achievable. Again, keeping in mind 

that we are talking about alternatives, which transcend the 

biofuels side, you are going to see tremendous growth in the 

biofuels, in biodiesel, in new feedstock, cellulose, for ethanol. But 

you are also going to see the emergence of other alternatives such 

as coal to liquid, which, you know, we—in Pennsylvania we consider ourselves the Saudi Arabia of coal. I know the guys in Montana tend to think that they are, but we know we are. 

There are a lot of opportunities, and we are going to see those—

that growth take place. And, again, look at this industry as a prototype. You see tremendous growth, and an industry that was an infant is now becoming a young adolescent, and still has a long way 

to go before it matures. 

29

And the policies that you all consider and put forth that stimulate this are also stimulating investment, and those new technologies are going to help us get to that and help ensure our energy 

security and our economic vitality in the United States. 

Mr.CHABOT. Thank you. 

I have time for one more? As the minimum requirement for renewable fuel content increases over, say, the next five years, could 

you comment on how this would affect the cost at the pump to the 

American consumer who is filling up his or her tank there? It probably goes back and forth, actually, but there is—it is a little multifaceted, but anybody like to—

Mr.DINNEEN. Well, you are referring to the renewable fuel standard that passed as part of the Energy Policy Act of 2005 that required 7-1/2 billion gallons to be used in motor fuels by 2012, as 

sort of indication as well to just how achievable a 35-billion gallon 

mark might be in 2017. 

Given the market’s signal, boy, the industry has sure responded, 

because we have doubled in size and we are going to double in size 

again over the next 18 months. We will hit 7-1/2 billion gallons not 

by 2012 but by sometime this year, far ahead of the schedule that 

was included in the 2005 bill. 

So what that means is you are adding more and more domestic 

renewable fuel to the motor fuel supply and you are absolutely 

driving down the cost of gasoline. Since the year 2000, 30 percent 

of our increased gasoline consumption has been met with ethanol, 

by ethanol, increased ethanol use. 

Taking a shorter timeframe, last year gasoline consumption increased about a billion gallons. But ethanol production increased 

1.2 billion gallons, so we are outpacing gasoline consumption in 

this country, which means we have not just stemmed the tide of 

increased gasoline imports, we are beginning to reverse it. And 

when you are adding that much additional supply to the marketplace when you are replacing imports, you are absolutely having a 

significant beneficial impact to consumers. 

Mr.URBANCHUK. Absolutely. It is a stabilizing factor, and it is 

helping keep gasoline prices and petroleum prices from being higher than they otherwise would be. Keep in mind, we are importing 

about 60 percent, a little bit more than 60 percent of our energy 

requirements. 

When we can replace those imports with domestically produced 

products, the money that we spend on that stays in this economy 

rather than going abroad, and that, again, has those impacts that 

we talk about. But very clearly, the growth of this industry is going 

to be a phenomenally important stabilizing effect, and I think will 

eventually force down petroleum prices. 

Mr.JOBE. If I may, the American Trucking Association has 

passed a resolution that they strongly support the increased capacity and production of biodiesel. They see it for a number of reasons. 

First of all, with every plant that goes up, biodiesel plant that goes 

up, you are growing the fuel supply. You are actually providing the 

country with more fuel, creating downward pressure on prices, and 

they have realized—they have come to the realization we are a gasoline nation. 

30

And because there is more gasoline refined in the United States 

than diesel fuel, supply disruptions from climate and other things, 

the hurricanes, other shocks in crude oil prices, it hurts diesel fuel 

prices more and you can see that in recent years. And the trucking 

industry, which uses diesel, has said that biodiesel and biodiesel 

plants going up decentralized in rural America is helping grow refineries and grow our refinery capacity, something the petroleum 

industry has not done. 

Mr.CHABOT. Thank you very much. I yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Graves, for a long time farmer cooperatives have provided value-added opportunities to farmers. 

That is something that needs to continue. 

So I would like to hear from you, what is it that your organization is doing regarding the Farm Bill 2007 to make sure that continues? 

Mr.GRAVES. The National Council—thank you for your question. 

The National Council of Farmer Cooperatives is in the process of 

finalizing its position relative to specific requests in the renewable 

energy title. We do have some members within the National Council, though, that have some very specific requests that, if I might, 

I would share that with you, Madam Chairwoman. 

I think the first issue that we would like to see—we would like 

to see tax credits and tax credits for renewable investments by our 

farmer members of our cooperatives, probably retroactive. And I 

think there is a specific request by one organization to go back at 

least five years, to recognize that investment, to begin to recapture 

some of that value to farms. 

We would also like to see greater implementation, grant money, 

access to capital, primarily through USDA, the Natural Resource 

Conservation Service, improved technical assistance, and access to 

capital would definitely be very, very helpful. And then, finally, 

more money into the research and development for new, maybe 

more efficient agricultural waste-to-energy technologies, and more 

affordable technology and technology that is more applicable to 

smaller operations. Those are some specific things we would like to 

see. 

Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Braley? 

Mr.BRALEY. We have been focusing on fuels, because that is obviously the subject of this hearing. But I want to move in a slightly 

different direction, because we know that businesses in general, 

and small businesses in particular have derived enormous economic benefits from petroleum-based products. 

And what I want to talk about is what some of the renewable 

fuels derivative potential spillover effect into the economy is. I will 

give you a couple of starting points for discussion. The city of Waverly in my district has long been a leader in moving toward more 

sustainable forms of energy supply to the members that it serves. 

They partnered with Cargill to come up with an environmentallyfriendly electrical transformer, replacing PCB-based lubricants 

with a soy-based lubricant that can be used, and at the end of the 

capacity of that transformer in theory you could crack open the 

case of the transformer and pour it on your salad and eat it. 

31

Another thing that is going on in my district is the national AgBased Lubricants Center is doing great things in terms of coming 

up with non-petroleum-based lubricants used in the rail and trucking industries. And as someone who spent a lot of time working for 

the Poweshiek County Road Department building creosote-treated 

bridges on farm-to-market roads, and seeing my face be burned off 

from the fumes coming off of that creosote on 100-degree days, I 

am very excited by some of the things they are doing in addition 

with impregnation and preservatives of wood using renewable fuels 

as the additive. 

So I would the four of you to try to address some of the things 

that we can see in the future from renewable fuels that would provide benefits in other areas as we have seen from petroleum-based 

products. 

Mr.DINNEEN. Well, Congressman, I think you have tapped into 

something that is very important here, and that is there is nothing 

that is produced today out of a petroleum refinery that could not 

be produced out of a biorefinery. Today the focus is absolutely on 

fuels, as you say, but as the industry continues to grow and mature 

and is utilizing new technologies, you are going to see more bioplastics and biochemicals and a range of bioproducts. 

USDA has had a program in place, and we are just starting to 

identify what some of those other market opportunities might be, 

but I think you have to look at this industry as really being at its 

foundation. And we are building it today, and I have said in the 

past our industry already is unrecognizable from what it was five 

years ago. It will be unrecognizable five years from now, and those 

companies that are able to succeed are the ones that are able to 

diversify and identify additional markets beyond just fuel to be 

most competitive. 

Mr.JOBE. Just very briefly, I agree with everything he said and 

give you an example of what is going on in the biodiesel industry, 

about—there is a co-product, a byproduct of biodiesel production, 

the primary one of which is glycerin. And as biodiesel has become 

more—we have produced more and more biodiesel, glycerin stocks 

have become more and more abundant, and so it is—and with 

crude oil prices going up, those compounds are competing more 

competitively with their petroleum counterparts. 

And as an example, glycerin we have already demonstrated 

makes an excellent replacement for propylene glycol, and that is a 

primary chemical used in antifreeze, although it is biodegradable 

and it is nontoxic, and, more importantly, it is non-corrosive. And 

so de-icers for airplanes use propylene glycol. These can be used, 

and it has been demonstrated with a glycerin-based compound. 

More research needs to be done in this area, and we are excited 

to continue to try to promote that. 

Mr.URBANCHUK. There has been a fairly substantial long-standing effort on the part of the corn industry and the soybean industry 

to promote the development of industrial uses of their product. 

That is non-fuel industrial uses. 

One of the things that the growth in the renewable fuels industry has done is it has devoted or attracted more attention to how 

we better utilize that raw material and that raw resource, so that 

we can take a kernel of corn or we can take a soybean and we can 

32

get a far greater range of products from that which don’t necessarily compete with one another but supplement one another. 

And that has, again, drawn the attention of people in the research 

and development community to develop new varieties of product 

that can be produced that do more than one thing and do them 

very, very effectively. 

And I think as both Mr. Jobe and Mr. Dinneen have indicated, 

you are looking at an industry that really is in its infancy with regard to the development of this whole notion of biorefineries and 

where we can go. I think you will see over the next 10 or 20 years 

a tremendous growth in those products and their commercial applications, and that is going to provide a tremendous amount of opportunity. 

Mr.GRAVES. Congressman, I would only add that the National 

Council and its members would agree with the positions already 

stated, that biorefineries have the opportunity to produce a lot of 

primary and secondary products that will be of great benefit to the 

agricultural industry. 

A couple that come to mind, in addition to equipment lubricants 

and—that are in high demand, in need, there are a lot of plastics 

that are used. There are a lot of pesticide products on farms, herbicides, that are derived from petroleum-based products that we 

think have some real opportunity as secondary products coming out 

of the biorefinery process. 

So we would be very supportive of anything that we could do as 

an organization to help move that forward as well. 

Mr.URBANCHUK. And we can do it without jeopardizing the food 

supply. 

Mr.BRALEY. Well, as a student at Iowa State University, I took 

classes in Carver Hall, named for one of our most distinguished 

alumni, George Washington Carver, who really started us down 

this road of exploring innovative uses of how we can produce things 

from plants. And I would hope that as we move forward in this important industry we remember the legacy he left us and continue 

to push the envelope in providing business opportunities and innovative research and science in areas that everyone in this country 

can benefit from. So thank you for your testimony. 

ChairwomanVELA ́ ZQUEZ. Mr. Jordan? 

Mr.JORDAN. Thank you, Madam Chair. I apologize for missing. I 

was in the Judiciary Committee. 

But I wanted to talk a little bit about Ohio, and the Ranking 

Member has said that there has been some comments about our 

state. I think I represent the best district in the country. These 

folks might argue with me, but the Fourth District in Ohio is—actually, of the 18 Congressional districts in Ohio, it is number 2 in 

agriculture, but also number 2 in manufacturing, so it is a great 

district and big ag interest there. 

I think we have like six ethanol plants coming online, several in 

the Fourth Congressional District. I am also getting it from both 

sides, as I am sure Mr. Braley in Iowa understands, the—my old 

State Senate District, we had more large livestock operations in 

that Senate District than the rest of the state combined. So I am 

hearing from our poultry producers, pork producers, etcetera, on 

the price of corn. 

33

But talk to me a little bit about Ohio. And I happen to think we 

are kind of uniquely positioned as sort of the gateway to the west 

and where the ag belt kind of starts, and also give me your 

thoughts. And I think Mr. Dinneen had commented on that. I know 

that is a general question, but fire away if you can. 

Mr.DINNEEN. I did indeed. I mentioned that there are five plants 

currently under construction, and I think there is going to be a 

groundbreaking next week that will add to that. Ohio is sort of the 

new frontier for where many of the ethanol producers are looking 

as fertile ground for existing grain-based ethanol production. 

I mean, it is putting a—or having some impacts on the livestock 

and poultry markets, but, as we talked about earlier, the marketplace is going to find an equilibrium. It is going to allow for sufficient quantities of grain to meet the needs for food, feed, and fuel 

uses in this country. 

You have already seen that start to occur with 90 million acres 

planted this year in corn, and you have seen the corn price already 

start to drop. But one other point. 

Mr.JORDAN. Excuse me one second. Ninety million acres. How 

much additional acreage is that compared to last year? 

Mr.DINNEEN. That is about a 15 percent increase over last year, 

the single-largest increase—

Mr.JORDAN. That is what I heard, 10 to 12 acres, yes, or 10 to 

12 million. 

Mr.DINNEEN. Right. But one of the real benefits of ethanol production, we just take the starch from the corn. And I am sort of 

the poster child for, you know, we don’t this much starch in our 

diet as we have today. And the same can be said for animal feed 

as well. And what we leave behind is a very high-protein, highmineral content, high value feed product that then is sold to the 

livestock market and is sold to the poultry markets, and they are 

using it in their feed today and will use it increasing rations in the 

future. 

So it is not we are just taking corn and taking it completely out 

of the food supply. We are not. 

Mr.JORDAN. And some livestock groups can use it. The beef—the 

cattle industry can use it more than poultry or—

Mr.DINNEEN. Well, again, it is going to be an example of the 

marketplace responding. And today’s distillers’ dried grains—

Mr.JORDAN. Right. 

Mr.DINNEEN. —have some oil content remaining in it. That oil 

content makes it a less desirable feed for pork, but there are plants 

that are today, with centrifuges, extracting the oil, using the oil to 

produce biodiesel, and then you have a higher value, higher protein 

content feed, that is even better for pork. And so instead of being 

limited to 10 or 12 percent feed rations today, with that kind of a 

feed product, they can feed significantly more. 

That is just an example of how the marketplace is going to respond to the signals it is getting today in a most of different ways. 

Mr.JORDAN. Thank you. 

If any of the others want to comment, go ahead. 

Mr.JOBE. Just real briefly. Ohio is real—has been a pioneer and 

a leader in biodiesel production. It was a little known small business called Procter & Gamble that first produced the first specialty 

34

manufactured biodiesel for demonstration purposes in Cincinnati 

about 15 years ago. 

But now Ohio is blossoming with a number of small business investments throughout the state. Of course, it is—Ohio is one of the 

leading soybean production states, and that is creating some very 

significant benefits for Ohio soybean growers. 

Mr.JORDAN. Thank you. 

Mr.URBANCHUK. A benefit from geographic location as well. You 

are closer to the major east coast markets where a lot of the reformulated gasoline is being used, where ethanol has a significant 

share and a growing potential. You have got those lakes up there. 

It is very ideal. 

See, I am a Pennsylvanian, so, you know—

Mr.JORDAN. No, you are right. You—

Mr.URBANCHUK. —I can’t say too much bad about Ohio. 

Mr.JORDAN. You start in Columbus, Ohio, and draw a 500-mile 

radius around Columbus, and you get the 60 percent of the people 

in the country. 

Mr.URBANCHUK. That is right. 

Mr.JORDAN. So it is uniquely positioned, so that has always been 

helpful. 

Mr.URBANCHUK. But technology has also been an important 

thing. Joe mentioned Procter & Gamble. They are also one of the 

leaders in developing some of the plastics from soybeans and from 

other products as well and looking at industrial—other industrial 

applications. So there is tremendous opportunity. 

Mr.JORDAN. Great. Thank you, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Any other questions? 

I just have one more question. You know, I come from New York, 

New York City, and in this whole discussion I just—I am here asking myself, what is there for New York City to become a leader in 

the biodiesel production side? And having so many thousands of 

restaurants, can you talk to me, Mr. Jobe, about the recycled cooking oil and how much biodiesel is made from the secondary use? 

Mr.JOBE. Yes. Thank you very much for the question. We actually have a number of members in New York City and around the 

metropolitan area that are actually producing biodiesel right now 

from recycled cooking oil and from other products. Yes, there are 

a lot of restaurants in that city, and it is being utilized currently. 

The city is utilizing that production right now for boiler fuel and 

for heating oil and also in the municipal transport trucks. It is 

small usage, but it is growing enthusiastically. And one of the 

major petroleum distributors in the country, and certainly in the 

northeast, is Sprague Energy. They were the—they are a major distributor of heating oil and other oil components in the northeast, 

and they provide the city—they supply the city with biodiesel. They 

blend it, and they are using it currently. So New York City has 

massive potential. 

The northeast, in general, has about 90 percent of the heating oil 

usage in the country, and bioheat is now just really burgeoning in 

the northeast. B5 blends in New York City and throughout New 

England are really going in a very powerful way. 

Mr.URBANCHUK. Several years ago, I think about three years 

ago, we did a feasibility study for NYSERDA, looking at the feasiVerDate 0ct 09 2002 08:54 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\34831.TXT LEANN
35

bility of a statewide biodiesel industry in New York. And we looked 

at really the middle Atlantic and New England states, but structured on New York. And when you look at biodiesel, particularly 

New York City has got a tremendous opportunity largely because 

of the access of non-virgin vegetable oils, used cooking grease, trap 

grease, a number of other factors that will support that industry. 

And, in fact, there is biodiesel production, if not necessarily in 

the five boroughs, and I think there is actually one in one of the 

boroughs, but in the immediate area surrounding New York City. 

And, again, the access to feedstocks is there. 

And as Bob said, for future development, the use of municipal 

solid waste and other factors, again, of which there is a significant 

amount, it makes a tremendous amount of sense to consider ethanol production in those urban areas. And New York City is a 

prime candidate for that. 

Mr.JOBE. If I could just add one more thought. In addition to biodiesel production, and the expansion and the growth of the biodiesel industry, it has also expanded the service industries. We 

have a number of members—tank manufacturers, centrifuge manufacturers, chemical manufacturers—in the New York City area that 

are servicing the biodiesel industry. And it has really created cottage industries that are also very much growing. 

One of those cottage industries is—emanates from your area, and 

that is Wall Street. Virtually all of the major investment companies 

are benefiting by the growth and investment throughout the country in these small businesses. 

ChairwomanVELA ́ ZQUEZ. Any other comments from the witnesses? If not, Mr. Chabot, would you like to—well, let me just 

thank all of you. This has been a fascinating panel. Thank you for 

the insight that you have provided to us. 

And this is an issue that we will continue to explore and see how 

this Committee can play a significant role in making sure that we 

provide to the members that you represent the tools that will help 

you to continue to grow and expand. 

Thank you very much. And let me just say that I ask unanimous 

consent for the members to have five days to enter statements into 

this record, and this hearing is now adjourned. 

Oh, Mr. Braley, I am sorry. 

Mr.BRALEY. I just want to add one thing—this is the Des Moines 

Register’s April 29, 2007 edition—to reinforce the point that Mr. 

Jobe just made. The title is ‘‘Biofuels Industry Branches Out, Outside Investors Flow In, Wall Street and the World has Discovered 

Ethanol and Iowa.’’ I think that is why it is relevant in your district. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

[Whereupon, at 12:33 p.m., the Committee was adjourned.]

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