```

[Senate Hearing 110-81]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 110-81 
 
      BIOFUELS FOR ENERGY SECURITY AND TRANSPORTATION ACT OF 2007 
=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   ON

                                 S. 987

   TO ENHANCE THE ENERGY SECURITY OF THE UNITED STATES BY PROMOTING 
                    BIOFUELS, AND FOR OTHER PURPOSES

                               __________

                             APRIL 12, 2007

                       Printed for the use of the
               Committee on Energy and Natural Resources

                     U.S. GOVERNMENT PRINTING OFFICE

36-418 PDF                 WASHINGTON DC:  2007
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Washington, DC 20402-0001 

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    CRAIG THOMAS, Wyoming
TIM JOHNSON, South Dakota            LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana          RICHARD BURR, North Carolina
MARIA CANTWELL, Washington           JIM DeMINT, South Carolina
KEN SALAZAR, Colorado                BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel
              Tara Billingsley, Professional Staff Member
           Kathryn Clay, Republican Professional Staff Member

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     1
Burr, Hon. Richard, U.S. Senator from North Carolina.............     3
Cavaney, Red, President and Chief Executive Officer, American 
  Petroleum Institute............................................    35
Dinneen, Bob, President and Chief Executive Officer, Renewable 
  Fuels Association..............................................    24
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Foody, Brian, President and Chief Executive Officer, Iogen 
  Corporation, Ottawa, Ontario, Canada...........................    40
Karsner, Andrew, Assistant Secretary for Energy Efficiency and 
  Renewable Energy, Department of Energy.........................     4
Lashof, Daniel A., Science Director, Climate Center, Natural 
  Resources Defense Council......................................    29
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................     2

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    53

                              Appendix II

Additional material submitted for the record.....................    57

      BIOFUELS FOR ENERGY SECURITY AND TRANSPORTATION ACT OF 2007

                              ----------                              

                        THURSDAY, APRIL 12, 2007

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. We'll go ahead with the hearing. Thank you 
all for coming. This is a hearing to discuss S. 987, which is 
the Biofuels for Energy Security and Transportation Act. This 
is a bipartisan bill that Senator Domenici and I and several 
other senators here in the committee introduced 2 weeks ago. 
It's intended to increase our use of homegrown biofuels and 
reduce our dependence on imported oil.
    Biofuels are the top priority in this committee. Already, 
S. 987 has six co-sponsors in addition to Senator Domenici and 
myself. Senators Akaka, Dorgan, Cantwell, Salazar, Craig, and 
Martinez have co-sponsored the bill.
    The committee explored key issues on this subject during an 
all-day biofuels conference in early February. Legislation that 
we have before us today is, in large part, the result of what 
we believe we learned from the hundreds of conference 
submissions and the 30-plus conference participants. I've very 
glad that some of our conference participants are back talking 
with us today.
    Today's hearing will help ensure that we're putting the 
right policies in place to expand our biofuels industry in an 
economically and environmentally responsible way. Again, thank 
you all for your interest and participation and I look forward 
to the testimony.
    Senator Domenici.

   STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW 
                             MEXICO

    Senator Domenici. Thank you very much, Mr. Chairman, and 
thanks to all the people who are here. We appreciate the 
witnesses' willingness to come and give of their time today.
    The purpose of this hearing is to receive testimony on S. 
987, Biofuels for Energy Security and Transportation, or BEST 
Act. I'm pleased that we've been joined, as indicated by the 
chairman, by Senators from both sides of the aisle, and he has 
enumerated that. I'm sure there will be more, Senator, before 
this is finished, because this bill is going to pass this 
committee with a large vote in my opinion.
    In the State of the Union Address, the President laid down 
a very ambitious goal. It was ambitious but worthy in my 
opinion, to reduce our consumption of gasoline by 20 percent in 
10 years. I applaud that and hope that we can achieve it.
    Just 2 days ago, Secretary Bodman and EPA Administrator 
Johnson, Mr. Chairman, gave a joint press release announcing 
the rollout of new regulations for the RFS Program. I'm pleased 
that the Department of Energy is moving forward to put this 
program in place as required by the Energy Policy Act.
    The new regulations include compliance and enforcement 
provisions, reporting requirements and various fuel tracking 
mechanisms. These provisions will enable the program to develop 
and deliver the energy security and environmental benefits that 
we envisioned as we crafted the provisions.
    At the time that we were writing the RFS in 2005, we all 
thought that ethanol was a--thought of it as a fuel additive. 
Just 2 years later, we see that ethanol can be a fuel in its 
own right. This is also true for advanced alternatives, such as 
biobutanol.
    I understand that we need to avoid unintended consequences 
as we develop a domestic industry in this area and obviously, 
we have seen some unintended consequences in the ethanol area, 
and we ought to be careful. We must balance the use of cropland 
to produce food and feed and also fuel.
    Today, U.S. ethanol production relies heavily on corn. 
Rapid expansion of ethanol production has caused some rises in 
corn prices. As a result, our farmers must pay more to feed 
their livestock and our exports of corn to nations such as 
Mexico have declined.
    In our bill, we include several provisions to lessen the 
negative impacts, if we can, that relate to various industries.
    I look forward to today's hearing, and to your leadership, 
and to working with you in your leadership capacity to get this 
bill done as soon as possible.
    Thank you very much, Mr. Chairman.
    [The prepared statements of Senators Murkowski and Burr 
follow:]
  Prepared Statement of Hon. Lisa Murkowski, U.S. Senator From Alaska
    Mr. Chairman: Thank you for holding this hearing on the biofuels 
bill that you and Senator Domenici have developed to speed the pace of 
renewable fuel development.
    I support assistance to the ethanol and entire bio-fuels industry. 
I do so since biofuels certainly should cut traditional pollutants like 
smog forming sulfur dioxide and ozone forming nitrogen oxide, should 
cut greenhouse gas emissions, and will lessen our dependence on foreign 
sources of oil. Those are good things.
    But my support for helping get an ethanol industry started does 
have limits and this bill comes very close to reaching those limits.
    In testimony earlier in the year we heard that it is probably not 
possible for the United States to produce more than 15 billion gallons 
of ethanol from corn kernels without having huge impacts on farm land 
allocation, crop selection and having even larger impacts on farm 
prices. I'm glad this bill caps aid at the 15 billion-gallon level for 
traditional corn-kernel-based ethanol production.
    I'm afraid that even at the 15 billion-gallon target we will be 
triggering further increases in the price of corn, hiking the costs of 
everything from meat and milk to breakfast foods, and perhaps 
encouraging farmers to switch to corn from other crops, such as 
soybeans or even wheat, perhaps worsening consumer prices for 
everything from tofu to bread.
    I'm more concerned about the language that ``mandates'' that we 
produce another 21 billion gallons of biofuels either from cellulosic 
ethanol or other substances, from animal fats to fish oils, by 2022. (I 
do like encouraging greater fish oil utilization, however.)
    I am concerned that we are putting the cart before the horse in 
setting the RFS at 36 billion gallons within 15 years, when we don't 
have a single production-scale cellulosic ethanol plant currently in 
full production in this country.
    We know that biofuels, while they help the environment, don't 
currently and may never help the pocketbooks of drivers. Since ethanol 
contains between 20 and 28 percent less energy per unit volume than 
gasoline; all things being equal, motorists will get poorer gas mileage 
and thus will have to buy more fuel than if they used pure gasoline. 
Other fuels, like butanol, apparently contain more energy, but still 
don't equal gasoline on an energy basis.
    I have this nagging concern that once we pass the level of ethanol 
production needed for Clean Air Act additive requirements, 10% or 
perhaps 15% in the future, that ethanol is going to have to stand on 
its own two feet. Detroit should make more E-85 capable vehicles, but 
motorists are still going to have to buy the ethanol to put in their 
tanks, and I have my doubts whether they will do so consistently unless 
the price of the fuel can be made truly competitive with gasoline on an 
energy/mileage basis.
    I would like to thank both Senators Bingaman and Domenici and their 
staffs for meeting some of my concerns in the drafting of this 
legislation. Coming from a cold-climate state like Alaska where 
distribution of fuel is a major logistical and economic concern, I 
appreciate the flexibility this bill contains to help Alaskans deal 
with the issues related to biofuels in cold weather.
    The truth is that I would feel far better about this major 
expansion of our efforts to promote biofuels, if we had a better sense 
that future technological improvements will permit the fuels to be 
priced competitively, on their own, without substantial obvious or 
hidden governmental subsidies.
    I would also feel far better about voting for this, if this 
biofuels initiative was part of a balanced energy package that also 
promoted increased domestic production of both conventional fuels like 
oil and gas, and of other renewables. At mark up I may well attempt to 
partially remedy at least part of that concern.
    Given that this nation uses 180 billion gallons of gasoline and 
diesel fuel a year, this bill will not be putting the petroleum 
industry out of business. It will not be a panacea to offset our 
nation's dependence on foreign oil, since if the RFS target is some how 
met, biofuels will still only be delivering far less than 20 percent of 
our fuel needs in 2022.
    It does send a signal that we want to lessen that foreign oil 
dependency. I just worry about the total cost to consumers and 
government of that signal.
    I also worry about the private investment markets. I know one of 
the reasons we are considering this bill now is because industry 
already has invested in so many ethanol plants, likely exceeding the 
7.5 billion gallon RFS that we set just two years ago, that unless we 
help the industry widen its market for ethanol we may well be looking 
at a glut of ethanol on the domestic market by next year that could 
cause prices to drop and endanger the future of the entire biofuels 
industry.
    But I want the industry to know that there are clear limits to the 
ability of Congress to manipulate markets, to pick ``winning'' and 
``losing'' technologies, and this bill, mandating a 36 billion gallon 
level of biofuels development within 15 years is clearly near my 
personal limit. Hopefully the industry will prove it can be 
economically efficient and win willing consumers after reaching this 
level of production and the economies of scale that hopefully will thus 
result.
    I thank the chairman for this hearing and I look forward to the 
comments of the witnesses.
                                 ______
                                 
      Prepared Statement of Hon. Richard Burr, U.S. Senator From 
                             North Carolina
    I want to thank Chairman Bingaman and Ranking Member Domenici for 
the opportunity to hear from the distinguished witnesses visiting this 
committee today.
    There are many good reasons why this committee is considering the 
use of alternative fuels. Our dependence on foreign oil, global 
tensions that can have a significant effect on the oil markets, and 
concerns with pollution and emissions are issues that I believe must be 
addressed by Congress. The Chairman and Ranking Member share these 
concerns and have brought us here today to begin addressing them with 
legislation. Yet while we share the same concerns, I am not convinced 
that this legislation will help us move towards a solution.
    The increased use of alternative fuels, and the additional costs, 
will not be confined to the oil markets. We agree that finding a 
renewable source of energy that can be grown and produced by our 
nation's farmers is a priority. However, mandating arbitrary numbers 
for biofuel usage before economic and technological feasibility studies 
can be conducted on the impact it would have on the entire agriculture 
community is unwise. Since Congress mandated the use of 7.5 billion 
gallons of ethanol for blending, feed prices have risen 70% in just the 
last six months. What this means is that American consumers are paying 
more for chicken, turkey, pork, and beef at the grocery store. Soon the 
average individual will feel the financial crunch as ethanol mandates 
continue to increase food prices.
    If we increase the federal mandate on ethanol, farmers will 
continue to leverage every acre of land possible to grow corn. Because 
of this, the corn market will soon become saturated and prices will 
come down drastically. This situation will expose millions of farmers 
to serious financial loss, and they will be looking to the federal 
government for disaster payments. We have the opportunity to prevent 
that scenario from happening by allowing the market to dictate ethanol 
use. I am one of the largest proponents of renewable energy and 
ethanol, but I cannot allow the federal government to increase the 
price of food in this endeavor, nor will I sit back and watch farmers 
walk down a disastrous path.
    In addition to these problems with commodity prices, the other 
benefits of legislation are rather questionable. I am particularly 
concerned by the premise that ethanol will help reduce our reliance on 
imported oil. There is significant debate whether this will be 
achievable if we rely on a significant amount of corn derived ethanol. 
Although some of the ethanol production under this legislation will 
come from other sources besides corn, a large proportion will be corn-
based ethanol.
    Scientists have examined this issue and question whether corn 
derived ethanol provides a positive return on energy. The energy return 
is seen as negligible by some researchers, and even when scientists 
find a positive energy return in their analysis, it is often only a 
slight increase. The result is that corn-based ethanol may not help us 
achieve a significant reduction of our reliance on foreign oil. In 
fact, combined with increased corn production, it may make the 
situation worse.
    The bill the committee is considering today has noble aims. It is a 
step towards addressing our shared concerns regarding a dependence on 
imported oil, particularly from countries that have animus towards the 
United States. However, I am not convinced that this legislation will 
significantly alleviate this problem. Furthermore, the unintended 
consequences of this bill will have a dramatic impact on commodity 
prices. For these reasons, I have serious concerns regarding this 
legislation. I look forward to hearing from our invited witnesses on 
this issue.

    The Chairman. Thank you very much. I think all Senators are 
aware that we have a vote scheduled on the Senate floor at 
10:30. So we will proceed and get as far as we can through the 
testimony and the questions, and then we'll have to adjourn for 
a few minutes to do that vote.
    But our first witness today is Andy Karsner, who is the 
Assistant Secretary for Energy Efficiency and Renewable Energy 
in the Department of Energy, and we appreciate him. He's a 
frequent visitor with this committee and we appreciate his 
willingness to be here today. So go right ahead and give us 
your views on this legislation.

  STATEMENT OF ANDREW KARSNER, ASSISTANT SECRETARY FOR ENERGY 
     EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

    Mr. Karsner. Thank you, sir.
    Chairman Bingaman, Senator Domenici and members of the 
committee, thank you for the opportunity to present the 
administration's views on S. 987 and discuss programs underway 
at the Department of Energy to accelerate the development and 
use of biofuels.
    In his 2007 State of the Union address, President Bush 
challenged our country to reduce gasoline consumption by 20 
percent within the decade, the Twenty-in-Ten Plan. The 
President called for a robust Alternative Fuel Standard, 
requiring the equivalent of 35 billion gallons of ethanol in 
2017, nearly five times the target that is now in law.
    Pursuing Twenty-in-Ten holds the promise of diversifying 
the sources, types, and volumes of fuels we use, while reducing 
our vulnerabilities and dependence on foreign oil. Only through 
transformational technological change, coupled with 
unprecedented capital formation and private investment in 
alternative fuels, can these urgent goals be achieved.
    The very title of S. 987, the Biofuels for Energy Security 
and Transportation Act of 2007, encapsulates the critical role 
that biofuels must play in transforming the energy future of 
our Nation. S. 987 promotes the production and use of biofuels 
through a full spectrum of activities, from basic research to 
fuel retail delivery, accelerating market penetration of 
biofuels.
    The President's call for a dramatic shift in domestic 
patterns of gasoline consumption and a vision of greater energy 
security is reflected in provisions of S. 987, and to that end, 
the administration generally supports the vision of the 
legislation.
    However, the administration believes that we must aim for 
an ambitious and manageable timeframe for fuels and 
infrastructure deployment and that a 10-year goal is the 
appropriate metric.
    In addition, the administration supports legislation that 
includes a wider variety of alternative fuels than is provided 
for in S. 987. The President's goal calls for a substantial 
reduction in gasoline consumption and it is important that 
more, rather than fewer, options of alternative fuels be 
considered for this.
    Beyond the modifications to the existing renewable fuels 
standard, S. 987 also speaks to a number of infrastructure and 
financial issues related to the biofuels industry. While the 
Department supports the goal of expanding biofuels 
infrastructure, we believe that there are aspects of the 
technical language in S. 987 regarding the infrastructure pilot 
program that need further review and discussion.
    In addition, the Department is concerned about potential 
modifications to the title XVII Loan Guarantee Program proposed 
in this legislation. Certain provisions appear to be 
inconsistent with the Federal Credit Reform Act as it exists 
today.
    The bill also proposes a 90-day deadline for approval or 
disapproval of loan guarantees, which places artificial 
constraints on the due diligence that the Department must 
perform to prudently assess capital risk and manage taxpayer 
dollars. Additionally, changes to definitions or scope of 
projects involved could slow the implementation of the Loan 
Guarantee Program.
    There is clear consensus, however, that legislative action 
is urgently needed to substantially reduce our dependence on 
oil and deploy new energy technologies into the marketplace at 
an unprecedented scale and rate. The administration looks 
forward to working constructively with this committee and the 
Congress to deliver legislation for the President's signature, 
optimally before the summer driving season is underway.
    The Department's portfolio of research, development and 
commercialization activities supports the Twenty-in-Ten and 
longer-term clean energy goals. The Department is particularly 
focused on solving technical problems to overcome barriers to 
biofuels growth through strategic cost-shared partnerships with 
private industry and collaboration across agencies of the 
Federal Government.
    Together, with financial tools already included in the 
Energy Policy Act of 2005, we believe that this multi-pronged 
effort will expand the role of domestically produced biofuels 
in our Nation's energy supply and for our economic future.
    Our biomass program is focused on making cellulosic ethanol 
cost competitive by 2012, a target put forth in the President's 
2006 Advance Energy Initiative. In fiscal year 2007, including 
funds appropriated under the Continuing Resolution, the 
Department has allocated approximately $200 million for EERE's 
Biomass and Bio-Refinery Systems R&D program to implement key 
activities necessary to achieve our 2012 goal for cost-
competitive cellulosic ethanol.
    Secretary Bodman recently announced that DOE will invest up 
to $385 million for six commercial-scale bio-refinery projects 
over the next 4 years, subject to appropriations. In the next 
few weeks, the Biomass Program will announce a funding 
opportunity for validation of advanced biomass conversion 
technologies and feedstocks and bio-refineries at approximately 
10 percent of commercial scale. These 10 percent scale 
demonstrations have the potential to reduce the overall cost 
and risk to industry and accelerate commercialization further 
for large-scale facilities.
    The development and deployment of a biofuels distribution 
infrastructure in the United States is fundamental to providing 
for displacement of gasoline and increased consumer choice. To 
bring these issues into focus, the Department has developed a 
biofuels infrastructure team to support far greater convergence 
between our Vehicle Technologies and our Biomass Programs.
    As a result, the Department is pursuing a growing number of 
infrastructure activities, including analysis of feedstocks, 
pipelines, terminal facilities, storage, and advanced vehicle 
technologies. In addition to infrastructure and fuels research 
within the Department, there are important collaborations with 
other Federal agencies and entities, including the Inter-Agency 
Biomass Research and Development Board, which I co-chair with 
Under Secretary Dorr at the U.S. Department of Agriculture. We 
have elevated the importance of this Inter-Agency Board to 
provide coordinated, high-level Federal support for biofuels 
production and use.
    On the financing side, the recently-passed fiscal year 2007 
continuing resolution appropriated the first funds for the 
Department to implement the title XVII Loan Guarantee Program. 
As you know, last year the Department undertook a process to 
solicit pre-applications for the first round of loan 
guarantees. Biomass technologies represented nearly half of the 
pre-applications received, a strong indication of the broad 
investor interest in funding commercial cellulosic bio-
refineries.
    The President's Twenty-in-Ten goal holds the promise of 
accelerating penetration of cellulosic ethanol and other 
alternative fuels into the marketplace, alleviating our 
addiction to oil and helping to address the serious challenge 
of global climate change. The Federal Government's cutting-edge 
research, development, deployment, and commercialization 
efforts must be supported by long-term, transformational policy 
changes--the types of proposals that the President articulated 
during the State of the Union, many of which are consistent 
with the objectives and directions of this legislation.
    The administration looks forward to working with Congress 
on a bipartisan basis to shape policies and legislation that 
will address the great challenges of our time with the urgency 
the situation merits. Mr. Chairman, that concludes my opening 
remarks and I'd be happy to answer any questions the committee 
may have.
    [The prepared statement of Mr. Karsner follows:]
Prepared Statement of Alexander Karsner, Assistant Secretary for Energy 
         Efficiency and Renewable Energy, Department of Energy
    Mr. Chairman, Senator Domenici, and members of the Committee, thank 
you for the opportunity to present the Administration's views on S. 
987, the Biofuels for Energy Security and Transportation Act of 2007, 
and to discuss programs under way in the Office of Energy Efficiency 
and Renewable Energy (EERE) at the Department of Energy (DOE) to 
accelerate the development and use of biofuels.
    In his 2007 State of the Union address, President Bush challenged 
our country to reduce gasoline consumption by 20 percent in the next 10 
years, the ``Twenty in Ten'' plan. The President called for a robust 
Alternative Fuel Standard, requiring 35 billion gallons of renewable 
and alternative fuel in 2017, nearly five times the 7.5 billion gallon 
renewable fuel target now in law for 2012. Expanding the mandate 
established by the Energy Policy Act of 2005 (EPACT 2005) is expected 
to decrease projected gasoline use by 15 percent. Another five percent 
reduction in gasoline consumption can be achieved through the 
Administration's proposal to reform CAFE standards. The ``Twenty in 
Ten'' plan holds the promise of diversifying the sources, types, and 
volumes of fuels we use, while reducing our vulnerabilities and 
dependence on oil. Only through transformational technological change 
can these goals be achieved, and we believe that the Administration's 
proposals provide the tools to achieve them.
s. 987, the biofuels for energy security and transportation act of 2007
    The very title of S. 987 encapsulates the critical role that 
biofuels can play in reconfiguring the energy future of our Nation. S. 
987 promotes the production and use of biofuels through a full spectrum 
of activities, from basic research to fuel pump labeling, moving the 
country forward to increased use of biofuels. The President's vision 
for a dramatic shift in domestic patterns of gasoline consumption is 
reflected in provisions of S. 987, and to that end, the Administration 
supports the vision of the legislation. However, the Administration is 
continuing to review the bill and looks forward to further discussions 
with you and your staff. The following comments represent the 
Administration's preliminary views on the bill.
    First, I would urge the Committee to adopt the volumetric targets 
of 35 billion gallons of renewable and alternative fuel in the next 
decade, as established in the President's proposal. The Administration 
believes that we must have a manageable timeframe for fuels and 
infrastructure deployment, and that a 10-year goal is an ambitious and 
appropriate metric. In addition, the Administration supports 
legislation that includes a wider variety of fuels than is provided for 
in S. 987. The President's goal is substantial and urgent reduction in 
gasoline consumption, and it is important that all options for 
alternative fuels be considered and that market forces play a central 
role in the selection of different renewable and alternative fuels.
    Beyond the modifications to the existing Renewable Fuels Standard, 
S. 987 also speaks to a number of infrastructure and financial issues 
related to the biofuels industry. While the Department supports the 
goals of expanding biofuels infrastructure, we believe there are 
aspects of the technical language in S. 987 regarding the 
infrastructure pilot program that need further review and discussion.
    In addition, the Department has serious concerns about the 
modifications to the Title XVII Loan Guarantee Program proposed in this 
legislation. Certain provisions are inconsistent with The Federal 
Credit Reform Act, and the Administration believes it is important that 
those policies be maintained. The bill also proposes a 90-day deadline 
for approval or disapproval of loan guarantees, which places artificial 
constraints on the due diligence that the Department must perform to 
prudently manage taxpayer dollars. This arbitrary deadline could result 
in meritorious applications being denied because of insufficient time 
for the Department to complete its work. The Loan Guarantee Program has 
the potential to aggressively deploy emerging technologies for clean 
energy, but the very nature of these pre-commercial projects means that 
prudent risk management must be integral to the Department's 
evaluation. Additionally, changes to definitions or scope of projects 
involved may slow implementation of the Loan Guarantee Program. We look 
forward to working with the Committee to resolve these issues.
    There is clear consensus that legislative action is needed to 
substantially reduce our dependence on oil and deploy new energy 
technologies into the marketplace at an unprecedented scale and rate. 
The Administration looks forward to working constructively with the 
Congress to achieve the ``Twenty in Ten'' goal, and deliver legislation 
for the President's signature before the driving season is under way.
    Supporting the ``Twenty in Ten'' and longer term clean energy goals 
is the Department's portfolio of research, development, and 
commercialization activities. The Department is particularly focused on 
solving technical problems to overcome barriers to biofuels growth, 
including infrastructure, through forging strategic cost-shared 
partnerships with private industry, collaborating with other agencies, 
and working with the different regions of our country to bring the 
promise of biofuels to fruition. Combined with the financial tools 
already included in EPACT 2005, we believe that this multi-pronged 
effort will expand the role of domestically produced biofuels in our 
Nation's energy supply and economic future.
                   bioenergy research and development
    EERE's Biomass Program and Vehicle Technologies Program, as well as 
other Department programs such as those within the Office of Science, 
are working closely together to provide technology pathways to meet the 
``Twenty in Ten'' goal. The Office of Science is conducting basic 
research for breakthroughs in systems biology to identify new biofuel-
producing organisms or new bioenergy crops that could lead to cost 
reductions for cellulosic ethanol and other biofuels. To accelerate the 
transformational scientific breakthroughs necessary for cost-effective 
production of biofuels and bioenergy, including cellulosic ethanol, the 
Office of Science is investing $375 million over five years to support 
the establishment and operation of three Bioenergy Research Centers. 
These centers, selected by competitive, merit-based scientific review, 
will conduct comprehensive, multidisciplinary research programs on 
microbes and plants to develop innovative biotechnology solutions to 
energy production.
    EERE and various U.S. Department of Agriculture (USDA) agencies 
conduct the applied research for advancing biomass feedstocks and 
conversion technologies for biorefineries. Currently, ethanol is the 
renewable fuel with greatest market penetration and potential for both 
near and long-term displacement of gasoline. EERE's Biomass Program is 
focused on making cellulosic ethanol cost-competitive by 2012, a target 
put forth in the President's 2006 Advanced Energy Initiative (AEI). In 
Fiscal Year (FY) 2007, including funds appropriated under the 
Continuing Resolution, the Department has allocated approximately $200 
million for EERE's Biomass and Biorefinery Systems R&D program to 
implement key activities necessary to achieve the 2012 goal for cost-
competitive cellulosic ethanol. Additionally, Secretary Bodman recently 
announced that DOE will invest up to $385 million for six commercial-
scale biorefinery projects over the next four years, subject to 
appropriations. These funds, combined with industry's cost share, could 
lead to more than $1.2 billion in public and private sector investment 
in these six biorefineries.
    The EERE Biomass Program will continue in FY 2007 to support its 
cost-shared efforts with industry to develop and demonstrate 
technologies to enable cellulosic biorefineries for the production of 
transportation fuels and co-products. In the next few weeks the Biomass 
Program will announce a funding opportunity for the validation of 
advanced biomass conversion technologies and feedstocks in 
biorefineries at approximately 10 percent of commercial scale. This 
effort will enable industry to resolve remaining technical and process 
integration uncertainties and allow for more predictable, less costly 
scale up of ``next generation'' biorefinery process technologies. These 
10-percent scale demonstrations have the potential to reduce the 
overall cost and risk to industry and contribute to the quicker 
commercialization of larger-scale facilities.
            ethanol and biofuels infrastructure development
    The Department is working with other public and private sector 
partners to encourage development and deployment of a biofuels 
distribution infrastructure in the United States to provide for 
displacement of gasoline and increased consumer choice. To support this 
effort and help promote growth of the biofuels industry, the Department 
has developed a biofuels infrastructure team. This team works to 
promote convergence between Vehicle Technologies and the Biomass 
Programs to promote a biofuels industry and commercially competitive 
alternative fuels and vehicles. Currently, there are more than six 
million flexible-fuel vehicles (FFVs) on the road in this country, a 
significant number, but still a relatively small percentage of the 
approximately 225 million light duty vehicles in the U.S. One goal is 
to expand the use of biofuels by increasing the number of FFV owners. 
This would be done by improving current biofuels infrastructure and 
adding fueling stations to make FFV use more convenient for consumers. 
Another goal is to encourage all automobile manufacturers serving the 
U.S. market to meet and exceed state voluntary targets and 
significantly increase production of FFVs. In support of these goals 
the Department is pursuing a number of infrastructure activities, 
including analyses of pipelines, water issues, and advanced vehicle 
technologies. The biofuels infrastructure team is also assessing the 
impacts of higher-level intermediate blends of ethanol (e.g., E15 and 
E20), renewable fuels pipeline feasibility and materials research, and 
optimization E85 alternative fuel vehicles. This work is being 
coordinated with the Department of Transportation, which has 
responsibility for setting integrity management standards for pipeline 
transportation and ensuring that these products can be safely handled. 
These policies are designed to work with the markets, as we believe 
markets are best suited in deciding how and which new biofuel 
infrastructure is to be deployed.
    The Vehicle Technologies Program has embarked on several new 
efforts to address vehicle efficiency, beyond ongoing combustion and 
fuels research. These new efforts include evaluation of the Biowagon 
produced by SAAB, a manufacturing subsidiary of GM, which is sold 
exclusively in Europe and has been reported to use ethanol-based fuels 
much more efficiently than current U.S. FFVs. Another new effort is 
focused specifically on optimizing engine efficiency with biofuels. 
These projects are aimed at mitigating the lower energy content of 
biofuels. The program is also evaluating other biofuels such as 
biodiesel that may contribute to future gasoline displacement. And, 
Vehicle Technologies has initiated an effort to engage international 
collaborations to address fuel standards, data sharing, and other 
common interests.
                    interagency energy partnerships
    In addition to infrastructure and fuels research within the 
Department, there are important collaborations with other Federal 
agencies and entities, including the Interagency Biomass Research and 
Development Board, which I co-chair with USDA. The Board is the 
governing body that coordinates biomass R&D activities across the 
Federal Government. In November 2006, DOE hosted the National Biofuels 
Action Plan workshop in Washington, DC, where representatives from 
multiple Federal agencies came together to identify agency roles and 
activities, assess gaps and synergies, and begin developing agency 
budgets in the area of biofuels. The Federal participants also made 
recommendations for improved coordination and collaboration across 
Federal agencies. Input from the workshop is currently being collected 
into the National Biofuels Action Plan workshop report. Ultimately, the 
goal is to improve the Board's ability to provide coordinated Federal 
support for biofuels production and use.
    To promote the growth of local biorefineries and address biomass 
resource availability and feedstock infrastructure, DOE is supporting 
the Regional Biomass Energy Feedstock Partnerships with USDA and Sun 
Grant Initiative universities, which are funded through the Department 
of Transportation. These partnerships will help to identify the 
regional biomass supply, growth, and biorefinery development 
opportunities. We believe that using regionally available feedstocks, 
produced and processed locally, will allow a ``distributed'' 
transportation fuels approach that should reduce shipping and 
transportation issues. These regional partnerships are designed to 
collect and store data on a publicly available website.
                         loan guarantee program
    To provide increased incentives for financing a multitude of 
innovative energy technologies--including biofuels--EPACT 2005 included 
a provision in Title XVII for a DOE Loan Guarantee Program. With its 
central focus on innovative technologies to avoid, reduce, or sequester 
air pollutants or anthropogenic greenhouse gas emissions, the Loan 
Guarantee Program is a tool intended for providing broad authority for 
DOE to guarantee loans that support early commercial use of advanced 
technologies including cellulosic biorefineries that employ new or 
significantly improved energy technologies.
    I am pleased to report that the funding contained in the FY 2007 
Revised Continuing Appropriations Resolution, which the President 
signed on February 15, 2007, is allowing the Department to move forward 
in implementing the Loan Guarantee Program and standing up a Loan 
Guarantee Office within the Department. We are currently working on a 
draft Notice of Proposed Rulemaking to implement the program. Secretary 
Bodman has said that our goal is to have a high-quality program, and 
the Department is working to do just that. As you know, the Department 
undertook a process in FY 2006 to solicit pre-applications for the 
first round of loan guarantees. Biomass technologies represented nearly 
half of the pre-applications. The Loan Guarantee Program represents an 
important tool for transforming the energy portfolio in this country.
                               conclusion
    The President's ``Twenty in Ten'' goal holds the promise of 
accelerating penetration of cellulosic ethanol and other alternative 
fuels into the marketplace and bringing the benefits of a clean 
renewable and alternative energy source more quickly to our Nation. To 
meet these challenges, cutting edge research, development, deployment, 
and commercialization must be supported by transformational policy 
changes--the types of proposals that the President articulated in the 
State of the Union, many of which are consistent with the objectives 
and direction of this legislation. The Administration looks forward to 
working with Congress to shape policies and legislation that will make 
this happen. This concludes my prepared statement, and I would be happy 
to answer any questions the Committee members may have.

    The Chairman. Thank you very much. Why don't we just do 5-
minute rounds on questions? I'll start.
    You indicated in your testimony that the bill that we have 
drafted does not give you enough time, where we provide 90 days 
to do the due diligence involved with these loan guarantees. 
What is your view of the right length of time that you would 
need to do that due diligence?
    Mr. Karsner. It's a challenging question, sir, not because 
the Department can't--or the Federal Government can't--develop 
an appropriate timeframe for processing and offering due 
diligence, but it is largely contingent on what the nature of 
the submissions are. So what we're actually looking for is 
project maturity. We wouldn't want to foreclose on those that 
might be technologically eligible for the loan guarantee 
program but for example, might not be sufficiently mature to 
have siting, permitting, and other aspects in place that would 
enable commercial financing. So the difficulty is, the time 
will vary with each submission, depending on that project's 
maturity.
    The Chairman. Well, I think we've obviously been trying to 
address the frustration that many of us feel about the lack of 
forward motion on this issue, and we're trying to figure out 
how to do something legislatively to prompt the Department to 
move out more quickly. If you have concrete ideas about what we 
might do along those lines, other than just back off and give 
you more flexibility, we'd be anxious to hear it. But as I hear 
what you're saying, you want to have flexibility to take 
whatever time you need. I can understand that sentiment, but 
it's not a satisfactory conclusion for many of us.
    Mr. Karsner. I appreciate the underlying motive, and I 
think it would be the objective of the Department to develop a 
more standardized program for due diligence and evaluation and 
ultimately, financial closings, as the program evolves.
    The Chairman. We put together a proposal for a renewable 
fuel standard. The President's proposal is for an alternative 
fuel standard, as I understand it, which is different. Could 
you explain to us exactly what portion of the President's 35-
billion-gallon per-year target by 2017--that is the target that 
I think he announced in the State of the Union, 35 billion by 
2017--what portion of that do you expect to be met from 
renewable fuels? What portion do you expect to be met by other 
fuels, and could you be specific? I just have always had 
difficulty, and I've raised this at a couple of hearings, 
understanding how we get to 35 billion gallons by 2017 and our 
bill, of course, calls for 36 billion by 2022, but we think 
we've got a plan for how we add up to that. I'm not clear what 
your plan is.
    Mr. Karsner. Part of the reason for that is that it is not 
the administration's goal to be prescriptive about how the 
market perceives various technology pathways in order to meet 
the end state. The goal of the administration's plan is to 
mandate the end state and offer force of law into a national 
objective that provides certainty and predictability to the 
market to perform.
    So in that way, if for example, lithium ion batteries and 
sources of electricity and plug-in vehicles were to surpass or 
have a technological leap ahead of other pathways, we would not 
want to preclude or foreclose on that possibility. What we 
would like to see is that we apply everything that this Nation 
has--from its scientific community, from its farming community, 
from its innovative community, from its industrial leaders and 
entrepreneurs--that they all have the certainty that their 
technology pathways for clean, domestic alternatives will be 
included to lower gasoline consumption.
    The Chairman. Well, I think that's a grand vision, but 
there is bound to be some scenario that you could envision that 
gets you to 35 billion gallons equivalent by 2017 and I'm just 
trying to understand what that is.
    Mr. Karsner. And forgive me because I didn't mean to be 
elusive. In my own personal view, based on the latest data that 
I have and the portfolio that I manage, I would imagine that 
cellulosic ethanol and ethanol in general would make up the 
overwhelming majority of that, based on what I know today.
    Of course, based on what people knew 10 years ago, I think 
they had no idea about what the status of the technology is 
today, and so we're trying to be predictive 10 years into the 
future. But based on what I know today, I have every reason to 
believe that renewable fuels will constitute the overwhelming 
majority.
    The Chairman. Do you have a figure you could give us as to 
how much of the ethanol that you anticipate us using would be 
imported? Because we do not contemplate in our bill that any of 
the 36 billion by 2022 would be imported. But I gather that you 
do contemplate some portion of the 35 billion by 2017 that 
would be imported. Could you tell us how much?
    Mr. Karsner. I don't think that it would be correct to say 
that I necessarily contemplate that any of it would be foreign. 
I think the point is that the bill doesn't necessarily preclude 
that option in the event that augmentation from foreign sources 
is needed after U.S. growth is accounted for.
    Having said that, there is nothing, again, in today's data 
set that would lead us to believe that foreign sources of 
imported ethanol might eclipse our own production if industry 
were given sufficient policy predictability to grow the 
industry at home.
    The Chairman. Senator Domenici.
    Senator Domenici. Thank you very much, Senator Bingaman. 
Let me say, in asking you and listening to your responses 
regarding the activity that will take place with reference to 
loan guarantees, it's one thing to have you up there going back 
to your office and implementing a bill we pass, because 
obviously, there is no question that you would be acting on the 
basis of trying to get it done.
    Our problem is, we've been running into legitimate stop-
over points in the administration where we run into a post that 
says, ``Stop Here instead of Proceed.'' It's not you, and 
that's what we're wondering about, because this one won't work 
to the fullest without loan guarantees, I think. Is that not 
true, as you see it?
    Mr. Karsner. I absolutely believe loan guarantees and 
enabling debt are absolutely fundamental to achieving these 
goals.
    Senator Domenici. All right. So when we talk highly of this 
program, we are at the same time, saying whoever in the 
administration wants to make their voices heard, come now. 
Right? That's the way I feel and I hope the Chairman does. As 
we move through, we've got to be sending out the word and any 
cabinet members that are going to oppose this, we want to see 
them. We want to hear them. We don't want them to come in after 
we've passed the bill and we're back in the same mess we're in 
now on loan guarantees from the bill we passed however long 
ago--how long ago was it?
    So let me ask--change the subject for a minute. As I 
understand it, our country does not have a cellulosic ethanol 
industry today. Why should we lower tariffs on imported ethanol 
that would undercut a new cellulosic ethanol industry just when 
we want it to get off the ground?
    Mr. Karsner. I'm not in a position to defend lowering 
tariffs. To my knowledge, that's not the subject of the current 
discussion for the administration.
    Senator Domenici. All right, I understand, it's business in 
somebody else's shop.
    Mr. Karsner. Could be.
    Senator Domenici. Maybe. The President's Twenty-in-Ten 
Initiative, as you point out, would include alternative fuels 
beyond biofuels, including credits for hydrogen vehicles?
    Mr. Karsner. Correct.
    Senator Domenici. Both hydrogen and biofuel would require 
major infrastructure investments up there to make a major 
contribution to the transportation sector. In your view, should 
we commit to both of these fuel alternatives, each with massive 
infrastructure requirements?
    Mr. Karsner. In my view, time matters, and that is part of 
the reason why we would like to see, from this bill, a greater 
focus on a manageable timeframe of a decade so that we can 
focus on what is achievable within the decade and measure 
ourselves in increments thereof.
    I do not think that we take the position that hydrogen will 
make a significant enough difference within the decade to 
warrant overemphasis on it at this juncture, at the cost of the 
other alternative fuels that may make a dent within that 
timeframe.
    Senator Domenici. Now let me close my questions by asking--
you and your people have gone through this bill. It's a full-
blown bill in all detail, and you've had an opportunity to look 
at that, and you come before us today, and you are telling us 
the few things that you think need fixing and with those 
getting compromised or solved, the bill is ready to go, is that 
correct?
    Mr. Karsner. We certainly believe that the bill is in the 
right direction and the right spirit of the President's call 
for action. There is further collaboration that we could do to 
tweak elements of the bill to make it more palatable to all 
sides.
    Senator Domenici. All right. I thank you, Mr. Chairman. 
I'll maybe pick one round again, if we have time.
    The Chairman. Thank you.
    Senator Salazar.
    Senator Salazar. Thank you very much, Senator Bingaman and 
Senator Domenici, for your leadership on this issue and I too, 
look forward to working with all of you on this committee to 
develop a robust energy package as we did with the 2005 Energy 
Policy Act. I appreciate your leadership, Assistant Secretary 
Karsner, on this issue.
    I have two sets of questions. The first one has to do with 
the RFS that is included in this legislation, and whether or 
not we are being too timid with respect to the RFS that has 
been proposed here. I ask that question very much with an open 
mind and recognizing all the work that has gone into this RFS 
by this committee.
    But if I look at the numbers that we've included in S. 987, 
at 35 billion gallons per year, that's equivalent, as I 
understand it, to 1.5 million barrels per day, which 
essentially is about 10 percent of our oil consumption a year. 
So I ask myself the question then, if I look out at the year 
2022, 15 years from now, we will have embraced an agenda that 
will essentially move us off of petroleum-based fuels into 
biofuels to the extent of 10 percent. So my question to you, 
Andy, is whether or not, from your perspective, that's the 
right number or whether we have to go higher?
    When I look at the Department of Energy Billion-Ton study 
that was done in 2005, there the Department of Energy concluded 
that there's enough biomass out there that we might be able to 
make it to 3.5 million barrels of oil. When I talk to some of 
the experts at the National Renewable Energy Lab, they tell me 
that we are at a point where within 3 years, we ought to be 
able to move forward with the commercialization of cellulosic 
ethanol.
    Yesterday I had a meeting with the Chairman of the Board of 
BP. They've invested $500 million in a research project in 
California. They tell me that they are 3 years away from being 
able to commercialize their technology with respect to 
biofuels.
    So one of the things that I think we agree on, on a very 
bipartisan basis here--one of the areas where I think we work 
closely with the President is this concept that we can get 
ourselves to a brighter energy future than we've had for the 
last 30 years. How we set this renewable fuel standard 
essentially is setting out the vision for how far we think we 
can go with respect to this agenda, and if the goal that we 
have set at 36 billion gallons by the year 2022 is getting us 
only 10 percent of the way there, my question to you from your 
personal perspective and your personal knowledge, is whether or 
not that is too low of a reach and whether we ought to go 
higher?
    Mr. Karsner. That's a great question, sir and I think 
ultimately time will tell and validate out whether any of these 
goals are met. But as we've discussed in this committee before, 
I very much believe in stretch targets across our entire 
portfolio. Our motto is ``More, Better, Further, Faster'' and 
the question is how much we're going to limit ourselves by our 
imagination, given what the technological tools are in our 
toolkit.
    So what we do here to form policy will either be an 
accelerant or an impediment to the market attaining those 
goals, and it is certainly the case if you cap out the goal 
lower, the market will definitely perform lower. So it is our 
goal to have reasonable stretch targets mandated in law as an 
end-state with enough certainty and predictability to catalyze 
the market to perform to the higher level. That higher level, 
as we have put forward, is 15 percent through displacement of 
alternative fuels within a time period of 10 years, rather than 
15 years and meeting another quarter of our national goal 
through efficiency--vehicular efficiency, elevating and 
reforming CAFE standards. So we think it is important that the 
ambition be strong, that it be manageable and that it be in a 
tighter timeframe.
    Senator Salazar. I want to continue with questions on this 
RFS versus the Alternative Fuel Standard, especially as it 
relates to liquid coal or coals-to-liquid. But I think this may 
take a little longer than the 31 seconds that I have left so 
let me just pose the question and then we when come back to the 
second round, we can continue the conversation.
    It seems to me, and many of the members of this committee 
recognize, that we have substantial coal resources here. We say 
often that coal is to the United States what oil is to Saudi 
Arabia. So if we could find a way of utilizing our coal 
resources without doing damage to our environment, then we 
ought to move forward with that. We know how we do that. The 
technology is already out there, and so one of the questions I 
have is whether it would be possible for us to separate the 
Renewable Fuel Standards with respect to biofuels from a 
separate standard that we might follow with respect to coal-to-
liquids as an avenue of exploration.
    My time is up, Mr. Chairman, but I want to explore that 
with you in my next round.
    Mr. Karsner. Okay, sir.
    The Chairman. Senator Thomas.
    Senator Thomas. Thank you, sir. I'm going to kind of make a 
statement rather than ask a question. So at any rate, I think 
the underlying purpose of this bill is good. We need to reduce 
our reliance on foreign energy. We have to become better 
stewards of the environment. We have to utilize our domestic 
resources but I have some concerns with it. It does not include 
coal, as just was mentioned. I think over-promoting some of 
these fuels can have harmful consequences and our 
infrastructure is not adequate to deliver these fuels under the 
circumstances that we have now.
    So we're considering a bill that says the increased 
standard is necessary to ensure there is no ethanol glut in the 
near future. If that's the case, then we've only had this bill 
for a year and a half. What are going to go by 2009, if that's 
a true statement and that information?
    The right solution, of course, is people want to exceed the 
RFS and they should be allowed to. The right solution is to let 
the market work, and we don't simply have to increase a mandate 
every time an excessive level of investment takes place.
    I think there are some numbers worth looking at. Certainly, 
U.S. farmers planted nearly 90 million acres of corn this year. 
The amount is up 15 percent from last year and 27 percent of 
that corn is going to be used for ethanol. It has higher 
prices. Corn is now selling for $4.20, a little tough on our 
cattlemen in Wyoming to feed the cattle, and people across the 
world using corn as a staple for their diets.
    We also want to take a look at the money. The Energy 
Department committed $23 million to new processes for 
cellulosic ethanol production. This money is in addition to 
$385 million given to six companies for cellulosic ethanol 
production already. All of this to make sure we produce 
something other than corn, and yet the bill authorizes $225 
million more to help biofuels. It authorizes over $1 billion 
for research and development money as well, and I don't know--
it hijacks six loan guarantees issued for DIO fuels that were 
already there.
    I voted for the program in 2005 but I have to look at this 
spending. I think it's very important. I visited a plant last 
week in Wyoming that is planning to produce 1 million gallons a 
year from wood chips and forest wood. I wonder why we continue 
to research these things. They seem to be done pretty well.
    There are 114 ethanol refineries producing 6 billion 
gallons a year, more than 80 more plants under construction and 
seven extensions. All this progress, we have zero commercial 
scale coal-to-liquids prediction that we've had. Why are we not 
trying to fix that shortcoming in this bill?
    We have zero commercial-scale carbon sequestration 
projects. Why are we not trying to fix that shortcoming with 
respect to this bill?
    So biofuels is not a carbon-neutral approach, entirely. It 
takes diesel to run the tractors, it takes natural gas to 
provide the fertilizer, it takes more diesel to run the trucks 
that deliver. So I just think we have to take a long look at 
this. I'm for moving in this direction but I think we are 
overlooking some of the things that we already know how to do, 
and that can produce a great deal more than we are here. So, 
Mr. Chairman, I am just looking for a balance as we move 
forward in this, and I just sense that all I hear from the 
administration lately is alternative biofuels. Well, I have to 
tell you that that's out there a ways before there is enough to 
make a great deal of difference. In the meantime, we know how 
to do some of these other things where there is a great deal of 
fuel available, and we are not moving to do Future Gen. We 
haven't done anything on that.
    So I just think we need to look at a balance, and this bill 
has merit, but I think it also has some troublesome aspects to 
it. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman. Welcome, Mr. 
Karsner.
    Mr. Karsner. Thank you, sir.
    Senator Sanders. Mr. Karsner, the President's Alternative 
Fuel Standards Act of 2007, which was sent to the Senate but 
has not yet been introduced, would require establishment of a 
``alternative fuels standard of 35 billion by 2017.'' Now the 
President defines ``alternative fuels'' to include biofuels, 
natural gas, and liquid coal. It goes without saying that I am 
glad that the Bingaman-Domenici bill is more enlightened on 
what we should be focusing on.
    Why, Secretary Karsner, would the administration promote a 
fuel, liquid coal, that according to the EPA has carbon 
emissions that are, at best, 3.7 percent worse than 
conventional gasoline and at worst, over double the carbon 
emissions of conventional gasoline? Does the administration pay 
attention to the IPCC reports, the most recent of which came 
out last Friday?
    Mr. Karsner. Sir, not only does the administration pay 
attention to them, we embrace them, we fund them, we support 
them, we have the scientists that contribute to them very 
deliberately. So of course, the administration pays attention 
to the IPCC reports, and with regard to the EPA, they have a 
very separate function with regard to regulating and taking 
static snapshots in time of what any existing technology 
performs. At the Department of Energy, we have a very different 
mission, which is dedicated to development of those 
technologies for clean, domestic, affordable output of the 
energies.
    So coal-to-liquids can't be viewed in its current state as 
something that we expect to expand and proliferate without the 
technologies that we are currently investing in, namely carbon 
capture and storage, which would give a very different 
emissions profile than the one that you just cited from EPA, by 
way of example. We expect that, and of course, the taxpayer is 
fully funding those changes as a majority of what's going on in 
my colleagues' shop in Fossil Energy. So that is why, when we 
talk about the development of this over the next decade or 20 
or 30 years, the role of coal, we recognize, I think, some of 
the setbacks of coal as we do----
    Senator Sanders. Not setbacks, but the understanding that 
right now, the fuel you're talking about is a dirty fuel, 
correct? It's a polluting fuel.
    Mr. Karsner. If the technology is not utilized to give it a 
low-carbon profile, then it----
    Senator Sanders. Let me reverse--ask you another question 
regarding the President's proposal for the importation of 
biofuels to meet the targets the President has put forward. 
Again, I want to thank the chairman and the ranking member for 
understanding that we should be investing here in this country 
to meet important energy goals that will improve our 
environment, boost our world economies, and enhance our 
security, as opposed to looking to imports.
    Most specifically, the President's proposal will allow the 
importation of palm oil from Southeast Asia, the production of 
which is causing incredible deforestation of tropical rain 
forests. As we all know and as we cut these tropical forests 
down, we release significant amounts of carbon into the 
atmosphere. Do you think that this is a good ethic--a good idea 
as we attempt to deal with the crisis of global warming?
    Mr. Karsner. I understand your concern. I truthfully don't 
have enough knowledge with regard to the trade policy as it 
applies to importations of palm oil. I think that would only 
apply to biodiesel, which of course is a very small 
contribution overall, but nonetheless an important one. So to 
the extent that palm oil is being used rather than soy or some 
of the domestic--I mean, there's a trade issue there that I 
wouldn't feel comfortable commenting on, because I don't have 
the facts.
    Senator Sanders. Well, it does concern me that the 
administration is advocating a proposal that will lead to more 
carbon emissions. It doesn't make a whole lot of sense.
    Mr. Karsner. I disagree with that. I disagree that this 
proposal would lead to more carbon emissions.
    Senator Sanders. Okay. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Let's see. Senator Corker is next.
    Senator Corker. I appreciate your testimony and again, 
thank our chairman and ranking member for their leadership on 
this bill. You mentioned the flexibility of not necessarily 
knowing into the future which technologies will be the ones 
that actually take off and contribute most, and you mentioned 
lithium batteries.
    How does the administration go about measuring that? I know 
that all of these goals have been measured in gallons, if you 
will, so we too, obviously want to see that type of technology 
take off, and a number of manufacturers around the country are 
focused on that. But how do you measure that if you will, as it 
relates to these goals that have been laid out, either in the 
President's plan or in this bill here?
    Mr. Karsner. Well, it's a very good question because it 
would be a new technology emerging that we haven't accounted 
for with a credit system before in either a renewable fuel 
standard or some other pre-existing Energy Policy Act. We would 
seek to work together to devise that with Congress.
    But presumably you would use it for electricity as a source 
of energy that displaces gasoline consumption. You would have 
to come up with a means of measuring it to credit it or 
conversely, it could be measured in a way that it is now for 
efficiency, for displacing gasoline consumption as part of a 
vehicle. We'd really have to figure out what is the appropriate 
balance. But we're in new territory. It would be a new 
technology and we expect that technological pathway to be 
fairly prevalent when we expand beyond biofuels. We expect 
electricity to be a major contributor. So your question is an 
important one. We're working now in our National Labs to try 
and get all of the analogs we have in previous policy. But we 
would look forward to working with your office and this 
committee to devise such a system.
    Senator Corker. But I guess the enforcement mechanism here 
is really focusing on blenders, right? And how much ethanol 
they're using, and these are actual mandates, I suppose. Do you 
have any theory about how we might go about doing that? Any 
theory? Because the mechanism we're going to use, I guess, is 
with the blenders themselves, is that correct?
    Mr. Karsner. Well, right. As it stands, if you project an 
evolution of the RFS or along the lines of this legislation, 
yes. But there is no doubt that this is a holistic conversation 
that is going to have to involve the vehicle industry at some 
point. That is what the President's proposal has sought to do, 
to include efficiency as well as alternative fuels displacement 
in a more holistic formula, and we still think that that 
formula has to hold together, both the fuel providers and 
producers and the car producers.
    Senator Corker. I think we'd like to talk with you further 
about that as this bill is moving through, because I think it 
is something we ought to focus on.
    How do you feel about this bill segregating out how much 
alternative fuel can be produced by corn and how much cannot? 
What is your general sense of that? Just segregates that out 
and actually caps corn ethanol at 15 billion gallons?
    Mr. Karsner. We don't view that as productive. Again, we 
understand what the motive will be but it is definitely a case 
where we think that the market will determine the equilibrium 
of a supply and demand of corn, as the evolution of the 
cellulosic economy builds upon it. Corn will have a natural 
ceiling, a natural limit, but we don't really view this as a 
competition between grain ethanol and cellulosic ethanol but 
rather an evolution of cellulosic ethanol, on top of the 
existing grain ethanol market.
    Senator Corker. I'm sympathetic to that. Back to the 
distinguished Senator's liquid coal issue, are there ways that 
you know of today where this availability, which I know is 
important to many people--is there a way that we can put in 
place standards to actually cause this to be a cleaner fuel, 
and is that something that we're working on right now?
    Mr. Karsner. We are working on that. I hesitate to speak 
for my colleague, the Assistant Secretary for Fossil Energy on 
that subject, but being aware of the Department's efforts, of 
course the primary focus of the Department with regard to 
fossil energy is clean coal and making it a low carbon source. 
So there is a heavy technology investment that this committee 
has authorized and has been appropriated for that purpose, and 
of course, the very same loan guarantee program has as its 
condition, reducing, sequestering, avoiding of anthropogenic 
greenhouse gas emissions. And so, to qualify for that kind of 
financing that would enable large-scale coal-to-liquids, 
ultimately, you would need to employ those technologies.
    Senator Corker. I'll just close with 7 seconds left saying 
that I know we have some bio-research centers. One of those is 
in Tennessee, actually, that is doing a great job. I worry 
somewhat about having seven scattered around and not having the 
funding in place, actually focused appropriately, and I'd love 
to have any comments as we move along regarding that, maybe at 
a later questioning time.
    The Chairman. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. I'm pleased that 
we're starting to move on legislation to address some of the 
energy challenges that we have facing the Nation, and this bill 
is certainly one step out of many that we'll need to do in 
order to put ourselves on the path toward a sustainable and 
healthy energy future.
    I do have a few concerns with the bill as written, which I 
know are shared by some of my colleagues on the committee, such 
as making sure that we include appropriate environmental 
safeguards. I look forward to working with you, Mr. Chairman 
and Senator Domenici in addressing these as we move forward.
    But on the whole, I want to commend both of you and your 
staffs for putting together an ambitious, forward-looking piece 
of legislation, and for taking into account some of the 
challenges faced by parts of the country that do not have 
robust biofuel production or distributions systems, such as the 
northeast. There is one modestly-sized biodiesel plant in New 
Jersey, but no ethanol plants, and to my knowledge, no E-85 
pumps. So several sections of the bill, such as the additional 
bio-research centers and locale transportation grants could, I 
believe, be very beneficial for those parts of the country that 
don't have enormous fields of corn and switch grass.
    So with that as a preface, let me turn to the Secretary. 
Mr. Secretary, thank you for your service. At least one of 
these provisions that I just referred to was in EPAct, but that 
was to be administered by EPA. So Mr. Secretary, do you know 
what actions the EPA has taken in this regard, and does the 
Department of Energy have any existing initiatives that look at 
the specific problems faced by these areas that are outside the 
corn and grass belt? Second, what's your opinion of the 
provisions in S. 987 that address that challenge? It's like 
sections 203, 205, 206.
    Mr. Karsner. Just for clarity, sir, what are the provisions 
of the EPAct you're referring to for the EPA?
    Senator Menendez. The ones that were in fact dealing with 
some of the challenges that I think 203, 205, and 206 actually 
reflected in this bill.
    Mr. Karsner. I'm not comfortable commenting on EPA's 
implementation of that. What I can tell you is that EPA, at a 
high level of my counterpart, meets and participates in our 
Inter-Agency Biofuels Board and so we do coordinate with him on 
that. We do very much believe, as you indicate, that regional 
diffusion efforts are needed, and that one of the great 
benefits of cellulosic ethanol is the availability of the 
feedstock across the Nation without a single concentration, as 
we have with the grain-based ethanol in the Midwest. So it is a 
substantial part of our focus and to that end, we have begun 
regional feedstock partnerships that we began funding last year 
and will expand upon this year.
    With regard to the provisions of this bill, I think you're 
largely talking about the E-85 corridor grants?
    Senator Menendez. Well, sections 203, 205, and 206, which 
deal with bioresearch centers for systems biology programs, 
grants for renewable fuel production, research and development 
in certain States, grants for infrastructure, for 
transportation of biomass to local bio-refineries. There are 
parts of the country that don't have the enormous fields of 
corn and switch grass. We're called the Garden State of New 
Jersey but have cranberry bogs, peach orchards, and great 
tomatoes. But it's not going to be accessible to parts of the 
country like mine.
    So if we are to have a national strategy, obviously we need 
to figure out how we incorporate access to biofuels across the 
landscape of the country, regardless of what that landscape is.
    Mr. Karsner. Right. You shouldn't discount the existing 
crops in any one part of the country because----
    Senator Menendez. I don't.
    Mr. Karsner. Of course, the benefit of the cellulosic is 
that it includes also urban waste amongst other feedstocks. So 
one of the feedstocks at one of the six bio-refineries that we 
are funding is working with Waste Management, by way of 
example, to mine local green urban waste, which is available in 
every urban center across the country; agricultural residue, 
sorghum, etc. So the diversity of the waste streams should 
enable every part of the country to----
    Senator Menendez. So does the administration support these 
provisions of the bill? Do you have problems with those 
provisions of the bill?
    Mr. Karsner. I think that we have technical comments. I 
don't think that they are showstoppers, so to say.
    Senator Menendez. Okay.
    Mr. Karsner. But we would want to make sure that they are 
consistent with market development. I suppose the over-arching 
thing for the administration is that scale and rate matter, and 
no provision in this should be an impediment to scaling at the 
fastest rate that the market will bear over the course of the 
decade.
    Senator Menendez. One last question. One of the things 
that's obviously a big problem in part of the country is 
getting the ethanol from plants to consumers. We have a section 
in the bill that would look at dedicated ethanol pipelines, and 
that's certainly one potential way to address that issue. But 
I've been told by the pipeline industry that one of the biggest 
problems with ethanol is stress, corrosion, and cracking, both 
in pipelines and in tanks, and that they are currently 
researching the issue. I'm wondering whether the DOE is 
undertaking any research into stress corrosion and cracking due 
to ethanol. Do you have any plans to do so? I know you're 
coordinating with DOT and the industry on this issue.
    Mr. Karsner. We very much appreciate your question. I had 
the Acting Deputy Secretary of DOT and his senior team in my 
office this week precisely to have that level of coordination 
for a full morning, so that we could attack those questions. 
That is their domain and of course, the Acting Deputy Secretary 
also has the portfolio for pipelines. There is wide interest in 
the pipeline community, not just for dedicated E-85 pipeline 
transportation where much of those problems occur, but for 
other intermediate blends as well, and for the use of 
biobutanol and other biofuel blends that might enable more 
rapid conversion of their pipeline system.
    Senator Menendez. Thank you, Mr. Chairman.
    The Chairman. I want to thank you. Let me just advise 
folks--there is a vote here at 11 o'clock. So Senator Bunning 
still has his 5 minutes of questioning and then we will take 
any last minute urgent questions that need to be asked, and 
then try to finish with Secretary Karsner before we go to that 
vote.
    Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman. Secretary, are 
you familiar with the Princeton study that has shown that coal-
to-liquids technology with carbon sequestration and biomass 
feedstock would have 30 percent less CO2 emissions 
compared to fossil fuel?
    This is commercially available technology today. Are you 
familiar with that study?
    Mr. Karsner. I'm not familiar with that particular study, 
but I'm familiar with comparable studies with comparable 
findings.
    Senator Bunning. Okay. Just for the committee's 
information, there is a technology available commercially today 
that would capture all the carbon as you produced the liquid 
fuels from coal and therefore, the disposal of or the use of 
that carbon sequestration or the carbon gas form or whatever 
form you turn into, whether you put into the ground, or you 
ship it to an oil field to reconstitute oil wells that are 
depleted, or whatever you use it for, there is 30 percent less 
emissions from that than the current fuels that are being used.
    One of the things that really bothers me in this bill and 
you praised it, is that by the fact that we would kind of pick 
out of the air a number like 35 or 38--why didn't we pick 50 
billion gallons or whatever--I think a realistic figure, and I 
don't think the administration picked a realistic figure, and I 
don't think this bill picks a realistic figure.
    In fact, the Energy Information Administration forecasts 15 
billion gallons of renewable fuel could be produced in the 
United States by 2030. Do you think that the Energy Information 
Administration is a reasonable agency or forecaster?
    Mr. Karsner. They are my colleagues, of course. I think 
they are reasonable people doing a very difficult job. You 
know, if you go back to the EIA's prognosis 10 years ago about 
what the state of biofuels would be in this country today, you 
would unlikely find the numbers.
    Senator Bunning. We didn't have the 2005 bill either.
    Mr. Karsner. I'm sorry?
    Senator Bunning. The 2005 bill was not passed.
    Mr. Karsner. Exactly, and so without the appropriate policy 
stimulus, you cannot expect the market to perform. EIA takes a 
snapshot in time without this legislation or the President's 
legislation being considered, and that is why we were saying, a 
policy stimulus will make the market different and will 
certainly impact EIA's forecast.
    Senator Bunning. Then you agree that loan guarantees and 
incentives in the tax code are absolutely necessary to achieve 
the goal, not only in this bill but in your administration 
bill?
    Mr. Karsner. Loan guarantees--leveraging capital for 
capital formation is indispensable to meeting these objectives.
    Senator Bunning. That's one of the things I wanted to make 
sure of. I'm a lot like Senator Thomas in wondering why this 
bill would exclude any form of coal-to-liquids or for that 
matter, some other technologies that are available. I think 
unless we use the total portfolio of what we know and what we 
anticipate learning, that we're not going to be able to make 
the gap and get off the Mid-east oil importation that we want 
to achieve over a period of 20 years.
    Do you and the administration feel the same way?
    Mr. Karsner. The administration agrees that it should be 
the broadest possible use of all alternative technologies that 
can displace gasoline for that objective.
    Senator Bunning. Including different types of vehicles and 
all the things that go with it?
    Mr. Karsner. Yes, sir.
    Senator Bunning. Thank you very much.
    The Chairman. Thank you very much. I did not have 
additional questions at this time.
    Let me call on Senator Domenici for any additional 
questions he has.
    Senator Domenici. Mr. Chairman, I'll try to be brief here. 
In your words, tell us specifically why you think the 
implementation of loan guarantees is important to our Nation's 
energy security.
    Mr. Karsner. Thank you, Senator. I view title XVII as one 
of the most elegant provisions of the Energy Policy Act of 2005 
because it openly and with great simplicity offers the Nation 
what we need: clean, domestic affordable supply. For that 
supply to take hold--most of which emerges from our portfolio, 
in terms of diverse sources--they are all capital cost-
intensive; that is heavy upfront cost with life cycle savings 
that give them parity. To recognize the life cycle savings that 
are intrinsic in renewable technologies, including cellulosic 
bio-refineries, we have to have debt to cover the out-years and 
leverage the capital.
    Fundamentally, this Nation has less of a technological 
challenge right now in terms of achieving our goals, and far 
more of a capital formation challenge in developing the 
marketplace to achieve these enormous goals. So we need to 
pivot to have new commercial paradigms. Disruptive technology 
requires disruptive policy and institutional and organizational 
approaches. That is what the Loan Guarantee Program gives us.
    Senator Domenici. Well, what I wanted to say to you, you 
have just said in your own way, and I didn't have any idea that 
you got it, but you did. If you read section 17 of the Energy 
Policy Act, it's pretty obvious that somebody thought instead 
of trying to enumerate every way to help leverage capital 
during this transition, a great transitionary period, why don't 
we just do what we did in this section, and say ``Make it all 
available.'' That's what this says. It talks about loan 
guarantees and it talks about all the kinds of U.S. Government 
tools that are going to be available to the capital markets for 
innovators to use during this very difficult time when there 
should be plenty of capital leverage, because the price of the 
product is so high. But there are other things that cause it to 
go amiss and awry and we put these in its place. It is 
extremely frustrating to come along and say, now we've got a 
new one and we want to do this Bingaman and Domenici bill, 
which is going to take another load off of us because of 
gasoline use, and then to find everywhere we turn around, that 
the thing we say is imperative for the application of capital 
has got something wrong with it.
    Now, even on ours, you found something wrong with it today. 
I urge that we get that out of our way and we get something 
that is final. Because if you still have problems with the loan 
guarantee and we still have to go to conference, we don't know 
where we're going to get language that's right. I think we 
ought to use this bill to get the right language on the 
subject. Would you agree with that?
    Mr. Karsner. We would be happy to help you craft that.
    Senator Domenici. If you'd help us and then we could all 
say this is it, then all we are waiting for is to finish the 
bill, which would lend an urgency to the bill, I would think.
    Mr. Karsner. Yes, sir.
    Senator Domenici. Mr. Chairman, I had another question but 
I'm going to just hand it to him as part of the record and 
he'll answer it. It will require a little more work than what 
we've done now and I'll submit that now.
    Thank you very much. Thank you, Mr. Secretary.
    Mr. Karsner. Thank you, sir.
    The Chairman. Thank you.
    Senator Salazar.
    Senator Salazar. Thank you very much, Senator Bingaman. 
Secretary Karsner, let me ask you again this question about how 
far you think we might be able to go with respect to the 
renewable fuel standard? I think back to World War II and the 
Manhattan Project, 4 years from the start to the finish of that 
project. I think back to John Kennedy's speech on getting a man 
to the moon within 10 years and doing it in less than 10 years. 
I want us to be as aggressive and robust with our renewable 
fuel standard as we possibly can be. I understand that there is 
a real calculation that has gone on by staff and my colleagues, 
including the chairman, to try to come up with what we consider 
to be a realistic standard that is included in this bill, and I 
do intend to support this bill.
    But my question back again is: if we were to be as 
absolutely bold as we could be, could we put this standard at a 
higher number than it currently is? Could we, for example, get 
the 35 billion gallons by 2017, if we were dependent only on 
ethanol and cellulosic ethanol? Could we get to that level of 
production by 2017?
    Mr. Karsner. I believe we could get to that level of 
displacement of gasoline. I'm not so certain that 100 percent 
of it would be ethanol exclusively, but I do concur with your 
premise that our ambitions will define our level of success.
    Senator Salazar. On the coal-to-liquids issue that I raised 
with you earlier: that's one of the issues of contention, I 
think, that we're going to see as we move forward with this 
debate. Is there a way, from your point of view, that we might 
be able to separate the coal-to-liquids program from the 
biofuels program that we are dealing with in this bill? To set 
up goals with respect to coal-to-liquids production, that we 
might incorporate into this legislation in the form of some 
alternative fuel standard or some other way, and at the same 
time, requiring standards in there that also deal with the 
carbon emissions issues, which are obviously of concern to many 
of our colleagues?
    Mr. Karsner. Well, our position is not that it should be 
added and separated, but that the focus shouldn't be on any one 
specific technology's role but rather on all of the 
technologies that Americans can throw at the problem of 
gasoline consumption reduction. So of course, we favor the 
inclusion of coal-to-liquid technology, which the taxpayer is 
heavily investing in, carbon capture storage, IGCC clean coal 
and low-carbon coal and of course, we would be open to a dialog 
on how to make that best work in a sustainable way.
    Senator Salazar. Okay. I know, Mr. Chairman, we have to 
leave for this vote but let me just say, despite the 
polarization that exists in this city and with the President 
today, I think there are many issues that we can work on 
together in a bipartisan way and one of those, obviously is 
energy, which I think is one of the signature issues of the 
21st century. I appreciate your leadership in helping us figure 
out the best way to achieve a mutually agreeable goal here.
    Mr. Karsner. Thank you, sir.
    The Chairman. Thank you very much, Secretary Karsner, for 
your testimony. I think it has been very useful and we will 
adjourn now and go try and do this vote and return in 10 or 15 
minutes for Panel Number 2. Thank you.
    Mr. Karsner. Thank you, sir.
    [Recess.]
    The Chairman. Okay, why don't we get started again. Sorry 
for the delay. They had various ceremonies on the Senate floor 
that delayed us, but I thank the witnesses on this second panel 
for waiting and being here today.
    Let me just briefly introduce each of the witnesses, and 
then we'll ask them to give us a summary of their testimony and 
then we'll have some questions.
    First is Bob Dinneen, who is the president and chief 
executive officer of the Renewable Fuels Association. Next is 
Daniel Lashof, who is the science director with the Climate 
Center, the Natural Resources Defense Council. Also here is Red 
Cavaney, who is president and chief executive officer for the 
American Petroleum Institute, and Brian Foody who is the chief 
executive officer with Iogen Corporation in Ottawa, Ontario, 
Canada. Thank you very much, all of you, for being here and we 
look forward to your testimony. Why don't we just go in the 
order I introduced you? Then we will try to have some questions 
after you're all finished testifying.
    Mr. Dinneen, thanks for being here.

    STATEMENT OF BOB DINNEEN, PRESIDENT AND CHIEF EXECUTIVE 
              OFFICER, RENEWABLE FUELS ASSOCIATION

    Mr. Dinneen. Thank you, Mr. Chairman. Thank you, Senator 
Domenici and Senator Salazar for your collective leadership on 
renewable fuels and these issues. It is my pleasure to be able 
to testify on behalf of the U.S. ethanol industry in support of 
the Biofuels for Energy Security and Transportation Act, and I 
can tell you it's not just because of the acronym that we 
believe that this the best of the bills that have been 
introduced on these issues over the past several months.
    We think it strikes the right balance between incentivizing 
cellulose while maintaining the growth market for grain ethanol 
that has already occurred. And indeed, you really can't talk 
about this bill without understanding what you all accomplished 
with the Energy Policy Act of 2005, a terrific piece of 
legislation that has absolutely worked. It has absolutely done 
what you all intended it to do. It sent the refining industry 
the message that the future included ethanol and biodiesel. It 
sent a strong signal to the financial community to invest in 
these new technologies and it certainly sent a clarion call to 
the U.S. ethanol industry to expand, and expand we have.
    Since August 2005, when President Bush signed the Energy 
Policy Act, more than 15 ethanol plants have opened up, but a 
number have broken ground, begun construction. Today there are 
79 ethanol plants that are under construction. That's steel on 
the ground, welders welding, the facilities going up that will 
add 6 billion gallons of new capacity to the existing 115 
ethanol plants that today have a capacity of 6 billion gallons 
that are processing 2 billion bushels of grain, corn and 
sorghum into high-value, high-octane fuel components.
    The Energy Policy Act of 2005 stimulated the growth in this 
industry that we're seeing today, and it has been terrific. The 
fact of the matter is, since 2000, 30 percent of the increase 
in gasoline consumption has been met with ethanol but if you 
look at a shorter timeframe, last year, gasoline consumption 
increased by essentially about a billion gallons a year. We 
added more than a billion gallons just in ethanol production 
capacity.
    Today, ethanol is blended in 46 percent of the Nation's 
fuel, literally coast-to-coast and border-to-border, and I have 
to give great credit to the refineries, the gasoline marketers 
across this country that have invested in infrastructure and 
made certain that the renewable fuel standard has been 
implemented successfully.
    I take great pride in the fact that we've worked 
extraordinarily well with our customers in the refining 
industry to make sure that the renewable fuel standard--that 
the regulatory language was actually just finalized yesterday, 
but it's already been in place since January 2006 and it has 
gone extremely well.
    People thought it couldn't be done. People thought that 
7\1/2\ billion gallons in 2005 was too big a number, that 
there's no way the ethanol industry could build that fast, that 
there's no way the infrastructure would expand to allow ethanol 
to be shipped all across the country. What we've demonstrated 
is, that was not too big a target. What we demonstrated is, the 
marketplace was given an important signal and the marketplace 
responds.
    Indeed, 7\1/2\ billion gallons will be met likely some time 
this summer, not in 2012. So I think, in answer to Senator 
Salazar's question earlier, the goals that are being set in 
this bill--35 billion gallons by 2022 are eminently achievable. 
We believe that this bill can do for cellulosic ethanol what 
EPAct did for grain-derived ethanol.
    We realize that there are limits to how much ethanol we're 
going to be able to produce from grain, and that is why every 
single ethanol plant that I represent has a very aggressive 
cellulose-to-ethanol research program underway today, and this 
bill is going to allow that to move forward. By creating a 
certain and aggressive market for cellulosic ethanol, you will 
inspire the financial community to invest in cellulose with the 
same enthusiasm that it has for grain. You will compel research 
institutions to attack the remaining technical barriers to 
cellulose with more urgency, and you will clearly provide an 
important signal to our industry to move with greater speed 
toward commercializing these newer technologies.
    As important as the car route for cellulose is to ensure 
production, it is equally important to ensure that there are 
markets for that product. Thus, the RFA is very appreciative of 
the focus of S. 987 on studying the potential for higher-level 
blends, on creating incentives for E-85 corridors, and 
researching the possibilities of optimizing E-85 technology.
    S. 987 builds upon the success of EPAct. It builds upon 
several legislative initiatives that have been introduced in 
this Congress to expand the production and use of biofuels. It 
is a thoughtful, constructive, comprehensive and achievable 
piece of legislation. The RFA is proud to support it and we 
look forward to working with you, Mr. Chairman and this 
committee, to iron out the few technical issues that remain and 
to move forward with this important piece of legislation. Thank 
you.
    [The prepared statement of Mr. Dinneen follows:]
   Prepared Statement of Bob Dinneen, President and Chief Executive 
                  Officer, Renewable Fuels Association
    Good morning, Chairman Bingaman, Ranking Member Domenici, and 
Members of the Committee. My name is Bob Dinneen and I am president and 
CEO of the Renewable Fuels Association, the national trade association 
representing the U.S. ethanol industry.
    This is an important and timely hearing, and I am pleased to be 
here to discuss the future of our nation's ethanol industry and how the 
bipartisan Biofuels for Energy Security and Transportation Act of 2007 
(S. 987) can help our country achieve its energy security goals.
    Due to the visionary and invaluable work of this Committee in the 
109th Congress, the Energy Policy Act of 2005 (EPAct 2005) put our 
nation on a new path toward greater energy diversity and national 
security through the RFS. EPAct 2005 has stimulated unprecedented 
investment in the U.S. ethanol industry. Since January of 2006, when 
the RFS went into effect, no fewer than 15 new ethanol biorefineries 
have begun operation, representing some 1.2 billion gallons of new 
production capacity. These new gallons represent a direct investment of 
more than $1.8 billion and the creation of more than 22,000 new jobs in 
small communities across rural America.
    The RFS has done exactly what Congress intended. It provided our 
industry with the opportunity to grow with confidence. It convinced the 
petroleum industry that ethanol would be a significant part of future 
motor fuel markets and moved them toward incorporating renewable fuels 
into their future plans. It persuaded the financial community that 
biofuels companies are growth market opportunities, encouraging 
significant new investment from Wall Street and other institutional 
investors. If a farmer in Des Moines doesn't want to invest in the 
local co-op, he can choose to invest in a publicly traded ethanol 
company through the stock market. As can a schoolteacher in Boston, or 
a receptionist in Seattle. Americans coast-to-coast have the 
opportunity to invest in our domestic energy industry, and not just in 
ethanol, but biodiesel and bio-products.
    In addition to the RFS, many of the other programs authorized by 
EPAct 2005, such as the loan guarantee and grant programs, will 
accelerate the commercialization of cellulosic ethanol and make the new 
goals set forth in S. 987 absolutely achievable. Many of the provisions 
included in S. 987 build upon the programs designed by this Committee 
and included in EPAct 2005 to further expand the domestic renewable 
fuels industry. The Senate Energy and Natural Resources Committee will 
have an invaluable role to play in making sure our nation successfully 
moves toward increasing the use of domestic, renewable energy sources.
                               background
    Today's ethanol industry consists of 115 biorefineries located in 
19 different states with the capacity to process almost 2 billion 
bushels of grain into 5.7 billion gallons of high octane, clean burning 
motor fuel, and more than 12 million metric tons of livestock and 
poultry feed. It is a dynamic and growing industry that is revitalizing 
rural America, reducing emissions in our nation's cities, and lowering 
our dependence on imported petroleum.
    Ethanol has become an essential component of the U.S. motor fuel 
market. Today, ethanol is blended in more than 46% of the nation's 
fuel, and is sold virtually from coast to coast and border to border. 
The almost 5 billion gallons of ethanol produced and sold in the U.S. 
last year contributed significantly to the nation's economic, 
environmental and energy security. According to an analysis completed 
for the RFA, \1\ the approximately 5 billion gallons of ethanol 
produced in 2006 resulted in the following impacts:
---------------------------------------------------------------------------
    \1\ Contribution of the Ethanol Industry to the Economy of the 
United States, Dr. John Urbanchuk, Director, LECG, LLC, December, 2006.

   Added $41.1 billion to gross output;
   Created 160,231 jobs in all sectors of the economy;
   Increased economic activity and new jobs from ethanol 
        increased household income by $6.7 billion, money that flows 
        directly into consumers' pockets;
   Contributed $2.7 billion of tax revenue for the Federal 
        government and $2.3 billion for State and Local governments; 
        and,
   Reduced oil imports by 170 million barrels of oil, valued at 
        $11.2 billion.

    In addition to providing a growing and reliable domestic market for 
American farmers, the ethanol industry also provides the opportunity 
for farmers to enjoy some of the value added to their commodity by 
further processing. Farmer-owned ethanol plants account for 43 percent 
of the U.S. fuel ethanol plants and almost 34 percent of industry 
capacity.
    There are currently 79 biorefineries under construction. With seven 
existing biorefineries expanding, the industry expects more than 6 
billion gallons of new production capacity to be in operation by the 
end of 2009. The following is our best estimate of when this new 
production will come online.*
---------------------------------------------------------------------------
    * Graphic has been retained in committee files.
---------------------------------------------------------------------------
                               feedstocks
    To date, the U.S. ethanol industry has grown almost exclusively 
from grain processing. As a result of steadily increasing yields and 
improving technology, the National Corn Growers Association (NCGA) 
projects that by 2015, corn growers will produce 15 billion bushels of 
grain. According to the NCGA analysis, this will allow a portion of 
that crop to be processed into 15 billion gallons of ethanol without 
significantly disrupting other markets for corn. Ethanol also 
represents a growing market for other grains, such as grain sorghum. 
Ethanol production consumed approximately 26 percent of the nation's 
sorghum crop in 2006 (domestic use). Research is also underway on the 
use of sweet and forage sorghum for ethanol production. In fact, the 
National Sorghum Producers believe that as new generation ethanol 
processes are studied and improved, sorghum's role will continue to 
expand.
    In the future, however, ethanol will be produced from other 
feedstocks, such as cellulose. Ethanol from cellulose will dramatically 
expand the types and amount of available material for ethanol 
production, and ultimately dramatically expand ethanol supplies. Many 
companies are working to commercialize cellulosic ethanol production. 
Indeed, there is not an ethanol biorefinery in production today that 
does not have a very aggressive cellulose ethanol research program. The 
reason for this is that today's ethanol producers all have cellulose 
already coming into the plant in the form of corn fiber. Producers are 
making good use of all parts of the corn kernel--beyond just the 
starch. Several ethanol producers are working on technology to turn the 
fiber in a corn kernel into ethanol through fermentation. Since fiber 
represents 11 percent of the kernel, this could lead to dramatic 
increases in ethanol production efficiency. If today's producers can 
process these cellulosic materials into ethanol, they will have a 
significant marketplace advantage. The RFA believes cellulose ethanol 
will be commercialized first by current producers who have these 
cellulosic feedstocks at their grain-based facilities. It is essential 
to the advancement of the ethanol industry that these ``bridge 
technology'' cellulosic feedstocks be included in the definition of 
advanced biofuels.
    Further, biotechnology will play a significant role in meeting our 
nation's future ethanol needs. Average yield per acre is not static and 
will increase incrementally, especially with the introduction of new 
biotech hybrid varieties. According to NCGA, corn yields have 
consistently increased an average of about 3.5 bushels per year over 
the last decade. Based on the 10-year historical trend, corn yield per 
acre could reach 180 bushels by 2015. For comparison, the average yield 
in 1970 was about 72 bushels per acre. Agricultural companies like 
Monsanto believe we can achieve corn yields of up to 300 bushels per 
acre by 2030. It is not necessary to limit the potential of any 
feedstock--existing or prospective. Ultimately, the marketplace will 
determine which feedstocks are the most economically and 
environmentally feasible.
    While there are indeed limits to what we will be able to produce 
from grain, cellulose ethanol production will augment, not replace, 
grain-based ethanol. The conversion of feedstocks like corn stover, 
corn fiber and corn cobs will be the ``bridge technology'' that leads 
the industry to the conversion of other cellulosic feedstocks and 
energy crops such as wheat straw, switchgrass, and fast-growing trees. 
Even the garbage, or municipal solid waste, Americans throw away today 
will be a future source of ethanol.
      research & development, deployment and commercialization of 
                            new technologies
    The ethanol industry today is on the cutting edge of technology, 
pursuing new processes, new energy sources and new feedstocks that will 
make tomorrow's ethanol industry unrecognizable from today's. Ethanol 
companies are already utilizing cold starch fermentation, corn 
fractionation, and corn oil extraction. Companies are pursuing more 
sustainable energy sources, including biomass gasification and methane 
digesters. And, as stated, there is not an ethanol company represented 
by the RFA that does not have a cellulose-to-ethanol research program. 
These cutting edge technologies are reducing energy consumption and 
production costs, increasing biorefinery efficiency, improving the 
protein content of feed co-products, utilizing new feedstocks such as 
cellulose, and reducing emissions by employing best available control 
technologies.
    The technology exists to process ethanol from cellulose feedstocks; 
however, commercialization of cellulosic ethanol remains a question of 
economics. The capital investment necessary to build cellulosic ethanol 
facilities remain about five times that of grain-based facilities. 
Those costs will, of course, come down once the first handful of 
cellulosic facilities are built, the bugs in those ``first mover'' 
facilities are worked out, and the technology continues to advance. The 
enzymes involved in the cellulosic ethanol process remain a significant 
cost, as well. While there has been a tremendous amount of progress 
over the past few years to bring the cost of those enzymes down, it is 
still a significant cost relative to processing grain-based ethanol.
    To continue this technological revolution, however, continued 
government support will be critically important. The biomass, 
bioresearch, and biorefinery development programs included in S. 987 
will be essential to developing these new technologies and bringing 
them to commercialization. Competitively awarded grants and loan 
guarantees that build upon the existing programs authorized in EPAct 
2005 and enhanced in S. 987 will allow technologically promising 
cellulosic ethanol projects move the industry forward become a reality.
                             infrastructure
    Ethanol today is largely a blend component with gasoline, adding 
octane, displacing toxics and helping refiners meet Clean Air Act 
specifications. But the time when ethanol will saturate the blend 
market is on the horizon, and the industry is looking forward to new 
market opportunities. As rapidly as ethanol production is expanding, it 
is possible the industry will saturate the existing blend market before 
a meaningful E-85 market develops. In such a case, it would be most 
beneficial to allow refiners to blend ethanol in greater volumes, e.g., 
15 or 20 percent. The ethanol industry today is engaged in testing on 
higher blend levels of ethanol, beyond E-10. There is evidence to 
suggest that today's vehicle fleet could use higher blends. An initial 
round of testing is underway, and more test programs will be needed. A 
study of increased blend levels of ethanol, included in S. 987, will be 
an essential and necessary step to moving to higher blend levels with 
our current vehicle fleet. Higher blend levels would have a significant 
positive impact on the U.S. ethanol market, without needing to install 
new fuel pumps and wait for a vehicle fleet to turn over in the next 
few decades. It would also allow for a smoother transition to E-85 by 
growing the infrastructure more steadily.
    Enhancing incentives to gasoline marketers to install E-85 
refueling pumps will continue to be essential. There are now more than 
1,000 E-85 refueling stations across the country, more than doubling in 
number since the passage of EPAct 2005. The RFA also supports the 
concept of regional ``corridors'' that concentrate the E-85 markets 
first where the infrastructure already exists, which is reflected in S. 
987 in the infrastructure pilot program for renewable fuels.
    Over the past several years, the ethanol industry has worked to 
expand a ``Virtual Pipeline'' through aggressive use of the rail 
system, barge and truck traffic. As a result, we can move product 
quickly to those areas where it is needed. Many ethanol plants have the 
capability to load unit trains of ethanol for shipment to ethanol 
terminals in key markets. Unit trains are quickly becoming the norm, 
not the exception, which was not the case just a few years ago. 
Railroad companies are working with our industry to develop 
infrastructure to meet future demand for ethanol. We are also working 
closely with terminal operators and refiners to identify ethanol 
storage facilities and install blending equipment. We will continue to 
grow the necessary infrastructure to make sure that in any market we 
need to ship ethanol there is rail access at gasoline terminals, and 
that those terminals are able to take unit trains. Looking to the 
future, studying the feasibility of transporting ethanol by pipeline 
from the Midwest to the East and West coasts, as proposed in S. 987, 
will be critical.
    As flexible fuel vehicle (FFV) production is ramped up, it is 
important to encourage the use of the most efficient technologies. Some 
FFVs today experience a reduction in mileage when ethanol is used 
because of the differences in BTU content compared to gasoline. But the 
debit can be easily addressed through continued research and 
development. For example, General Motors has introduced a turbo-charged 
SAAB that experiences no reduction in fuel efficiency when E-85 is 
used. There is also technology being development that utilizes 
``variable compression ratio engines'' that would adjust the 
compression ratio depending on the fuel used. Thus, if the car's 
computer system recognized E-85 was being used, it would adjust the 
compression ratio to take full advantage of ethanol's properties. RFA 
supports the further study of how best to optimize technologies of 
alternative fueled vehicles to use E-85 fuel as included in S. 987. The 
study of new technologies could dramatically improve E-85 economics by 
eliminating or substantially reducing the mileage penalty associated 
with existing FFV technology.
                               conclusion
    The continued commitment of the 110th Congress, this Committee, and 
the introduction of legislation such as S. 987 will all contribute to 
ensuring America's future energy security. Chairman Bingaman and 
Ranking Member Domenici, you have made clear your commitment to the 
hardworking men and woman across America who are today's newest energy 
producers.
    There have been numerous bill introduced in the first few months of 
the 110th Congress to further expand the rapidly growing domestic 
biofuels industry that will soon eclipse the current RFS. Many of the 
sound provisions included in those bills to move the industry forward 
and create new market opportunities for biofuels are incorporated in S. 
987. With minimal modifications, S. 987 strikes the right balance 
between incentivizing cellulosic ethanol technologies, developing the 
necessary infrastructure, moving beyond existing blend markets for 
ethanol, and capitalizing on the momentum created by EPAct 2005. The 
RFA looks forward to working with you to further develop this important 
legislation.
    Thank you.

    The Chairman. Thank you very much. Before we go on to Mr. 
Lashof, I think Senator Domenici wanted to make a statement. 
He's going to have to leave. Why don't you go right ahead?
    Senator Domenici. Thank you, Mr. Chairman. I'm hoping that 
the Senator from Tennessee can spend some time here in my 
stead. Can you do that?
    Senator Corker. For a little while, yes, sir.
    Senator Domenici. For a little while? Thank you. I just 
want to say to all the witnesses, we will thoroughly analyze 
your statements and also any questions that are asked of you 
and any questions that I have, I will just submit in writing.
    I would say to you, Red, representing the Independent 
Petroleum people, I do hope you are not looking on this bill 
unfavorably, because I believe it is good for everybody, 
including the independent producers that I represent in one way 
and you represent in another way. I just hope that we can work 
together and get this done as soon as possible.
    Thank you, Senator Bingaman.
    The Chairman. Thank you very much. Mr. Lashof, thank you 
very much for being here.

   STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, CLIMATE 
           CENTER, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Lashof. This is actually my third opportunity to 
testify before this committee this year, which I'm told will 
set some kind of record. I don't know if you keep asking me 
back because you appreciate my testimony or you hope with 
enough practice, I'll get it right. But in any case, I do 
appreciate the opportunity.
    As you know and as you have exercised a lot of leadership, 
U.S. energy policy must address three major challenges: 
reducing America's dangerous dependence on oil, first; reducing 
global warming and pollution, second; and, providing affordable 
energy services that sustain a robust economy, third--not in 
order of priority. All three must be addressed together.
    Biofuels has the potential to contribute significantly to 
all three of these goals. Sustainably-produced biofuels, 
processed efficiently and used in efficient vehicles, can 
reduce our dependence on oil for transportation, reduce 
emissions of heat-trapping pollution, and contribute 
significantly to a vibrant farm economy.
    Pursued without adequate safeguards and incentives, 
however, biofuels production does carry grave risks for our 
lands, forests, water, wildlife, public health, and climate. 
And while S. 987 addresses some of these concerns, in its 
current form, I don't believe that it does have the adequate 
standards and incentives that are needed to ensure that 
biofuels are part of the solution rather than part of the 
problem.
    As introduced, the bill distinguishes between conventional 
biofuels defined as corn kernels and advanced biofuels 
basically defined as anything else. It would limit a portion of 
the overall renewable fuel standard that could be satisfied 
with corn to 15 billion gallons. Certainly, I think that's 
helpful because it ensures the diversification of our 
feedstocks for producing biofuels, but it really is not an 
adequate substitute for an explicit greenhouse gas performance 
standard and sustainable feedstock sourcing requirements.
    The reason is that the choice of feedstock is just one of 
many factors that really needs to be considered in evaluating 
the environmental impact of biofuels on production. Additional 
factors include one: the carbon emissions from converting land 
from other uses to feedstock production; two, the tillage 
method that is used; three, the energy used for irrigation; 
four, the fertilizer application rate; five, the source of 
thermal energy used and the electricity at the bio-refinery; 
six, the overall efficiency of the bio-refinery; and seven, 
whether the CO2 produced from fermentation is 
sequestered underground or put into the atmosphere.
    When you consider all of these factors together, it's 
possible to produce corn ethanol that has a very substantial 
greenhouse gas benefit or one that has no benefit at all and 
similarly, it's possible for cellulosic ethanol to have very 
substantial greenhouse gas benefit or actually make emissions 
worse.
    If we could put that chart--that shows some of this, and 
I'll refer to it in a minute. Let me give you an example. If 
you consider a dry mill ethanol plant that is using corn 
produced with no-till cultivation, and it uses corn for its 
thermal energy rather than fossil fuels, and finally that takes 
the CO2 that is produced as a pure stream from 
fermentation and injects that underground for sequestration, 
using the Argonne National Laboratory GREET Model, which is the 
same model that was used by EPA in their Fact Sheet--we 
estimate that the life cycle of greenhouse gas emissions from 
ethanol produced from such a plant would be 7.5 pounds per 
gallon of gasoline-equivalent produced.
    That's about 70 percent lower than gasoline. So that's--
starting with corn, it's possible to achieve 70 percent 
reductions, while the average for run-of-the-mill plants is 
somewhere around 15 to 20 percent, maybe 25 depending on what 
study you get. So there is a huge variation depending on the 
specifics of how it's produced.
    Now, if you consider a cellulosic ethanol plant as an 
alternative, cellulosic ethanol generally is assumed to produce 
much greater environmental benefits and the potential for that 
is certainly there. But it's not necessarily the case. For 
example, if the biomass that's used in the cellulosic ethanol 
plant comes from converting forests that have been grown on 
Conversation Reserve Program lands to go into energy crop 
production, then by clearing those forests, you're going to put 
the CO2--the carbon that was accumulated in those 
forests, say over a 15-year contract life--that's going to go 
back into the atmosphere very quickly. You're losing the future 
potential for those forests to take additional carbon out of 
the atmosphere, and when you take that into account, even 
though the cellulosic ethanol itself is producing a climate 
benefit, it would take many, many years to make up for the 
carbon losses that would occur by converting those forest lands 
to mass production.
    So to me, that means that we really need to include 
explicit standards for life cycle greenhouse gas emissions in 
any legislation, that would mandate a substantial increase in 
biofuels, both beyond where the current renewable fuel standard 
does.
    Specifically, I'd suggest that for conventional biofuels, 
at least a 15 percent improvement relative to gasoline. That's 
certainly achievable. With corn technology today, it's being 
done with new plants that are being built all the time, and 
it's about what the average for the industry as a whole is 
doing.
    For advanced biofuels, I think we can do much better, at 
least a 50 percent reduction in greenhouse gas emissions 
compared with gasoline, and I think we really need to build 
incentives into the bill to meet and achieve those standards.
    Second, it's really important for the biomass used for 
biofuels to be produced from--in a sustainable way and not from 
environmentally-sensitive lands.
    Third, we need to ensure that the conservation of wetland 
reserve programs supported by the farm bill continue to be 
managed primarily for those conservation benefits, and not 
converted just to energy production and losing those benefits.
    Fourth, I believe that there should be certification 
standards and incentives established as part of the overall 
program to promote best management practices for biomass 
production on private lands. It should address protection of 
wildlife habitat, prevention of erosion, conservation of soil 
and water resources, nutrient management, and selection of 
appropriate species as well as biologically-integrated pest 
management.
    Finally, if I could just close with a few comments on 
implementation of the renewable fuel standard. Earlier this 
week as you know, the Environmental Protection Agency issued 
its final rules to implement the RFS that was passed in the 
2005 Energy Policy Act. Congress appropriately assigned the 
responsibility to implement the RFS to EPA in the 2005 Act 
because EPA has the authority to regulate transportation fuels 
under the Clean Air Act, and has the mission to ensure that 
this is implemented in a way that protects air quality. I 
believe that any expansion of the renewable fuel standard 
should also be given to EPA to implement. They can do that by 
building on the renewable identification number system that 
they establish to implement the existing renewable fuels 
standard. EPA has already done a lot of staff work to look at 
how that could be expanded to incorporate life cycle greenhouse 
gas analysis, to implement a bill of that kind.
    So I do urge this committee to work with your colleagues in 
the Environmental and Public Works Committee to bring 
legislation to the Senate that incorporates appropriate 
safeguards and implementation provisions to move us forward on 
biofuels.
    I do believe that biofuels----
    The Chairman. Could you try to summarize the remainder of 
your comments?
    Mr. Lashof. I'm concluding that biofuels holds great 
promise for reducing global warming, pollution and breaking our 
dangerous oil addiction, as well as revitalizing rural 
economies as long as appropriate standards and incentives are 
used to shape the Nation's bio-energy industry to provide those 
benefits with a sound and truly sustainable framework. I look 
forward to working with you and members of the committee to 
achieve those goals. Thank you.
    [The prepared statement of Mr. Lashof follows:]
   Prepared Statement of Daniel A. Lashof, Science Director, Climate 
               Center, Natural Resources Defense Council
                              introduction
    Thank you for the opportunity to share my views regarding S. 987, 
the Biofuels for Energy Security and Transportation Act of 2007. My 
name is Daniel A. Lashof, and I am the science director of the Climate 
Center at the Natural Resources Defense Council (NRDC). NRDC is a 
national, nonprofit organization of scientists, lawyers and 
environmental specialists dedicated to protecting public health and the 
environment. Founded in 1970, NRDC has more than 1.2 million members 
and online activists nationwide, served from offices in New York, 
Washington, Los Angeles and San Francisco.
    Mr. Chairman, as you know, U.S. energy policy must address three 
major challenges: reducing America's dangerous dependence on oil, 
reducing global warming pollution, and providing affordable energy 
services that sustain a robust economy. Biofuels have the potential to 
contribute significantly to all three of these goals. Sustainably-
produced biomass feedstocks, processed efficiently and used in 
efficient vehicles can reduce our dependence on oil for transportation, 
reduce emissions of heat-trapping carbon dioxide, and contribute 
significantly to a vibrant farm economy. Pursued without adequate 
guidelines, however, biofuels production carries grave risk to our 
lands, forests, water, wildlife, public health and climate. While S. 
987 addresses some of these concerns, in its current form it does not 
have adequate standards and incentives to ensure that biofuels are part 
of the solution, rather than part of the problem.
    Accelerated corn cultivation for ethanol, for example, threatens to 
deplete water tables, magnify contamination by fertilizers, pesticides, 
and herbicides, and undermine vital conservation programs such as the 
Farm Bill's Conservation Reserve Program. On farms and in forests 
across the country and abroad, imprudent biomass harvesting would cause 
soil erosion, water pollution, and habitat destruction, while also 
substantially reducing the carbon sequestered on land. Advancing a 
biofuels policy that increases lifecycle greenhouse gas emissions would 
be a particularly perverse result for a policy that is intended, at 
least in part, to reduce global warming pollution.
                   the need for performance standards
    As introduced, S. 987 distinguishes between ``conventional 
biofuel,'' defined as ethanol derived from corn kernels, and ``advanced 
biofuels,'' which is essentially fuel derived from any other form of 
biomass, other than old growth forests. The bill would limit the 
portion of the overall renewable fuels standard that can be satisfied 
with conventional biofuels to 15 billion gallons. Structuring the 
standard in this way to ensure the diversification of feedstocks used 
for biofuels production is very helpful, but is not an adequate 
substitute for explicit greenhouse gas performance standards and 
sustainable feedstock sourcing requirements.
    In structuring an effective biofuels policy it is important to 
recognize that the choice of feedstocks is just one of many factors 
that influence the environmental impacts of biofuels production. Key 
factors to consider in addition to feedstock type are carbon emissions 
from converting land from other uses to feedstock production, tillage 
method, energy use for irrigation, fertilizer application rate, the 
source of thermal energy and electricity at the biorefinery, the 
overall efficiency of the biorefinery, and whether CO2 
produced during fermentation is sequestered or released into the 
atmosphere. Considering all of these factors it is possible to produce 
ethanol derived from corn in a way that produces less than half of the 
lifecycle greenhouse gas emissions of gasoline (per BTU of delivered 
fuel). Conversely it is possible to produce ethanol from cellulosic 
feedstocks in a manner that produces far more CO2 than 
gasoline.
    First consider a dry mill corn ethanol plant. Greenhouse gas 
emissions from corn production can be minimized by obtaining the corn 
from a farm that practices no-till cultivation. In addition, by 
collecting a portion of the corn stover along with the grain the 
ethanol plant can meet its thermal energy needs with this biomass 
energy source rather than fossil fuels. Finally, fermentation produces 
carbon dioxide in a pure stream that can be easily captured for 
geologic sequestration. Using Argonne National Laboratory's GREET 
model, we estimate that the lifecycle greenhouse gas emissions from 
ethanol produced at such a plant would be 7.5 pounds per gasoline 
gallon equivalent, or more than 70% lower than gasoline. NRDC has 
examined the greenhouse gas emissions from a wide variety of feedstock 
and conversion process combinations using the Argonne GREET model (see 
Figure 1* and Appendix). EPA conducted a similar analysis for a fact 
sheet released in conjunction with its final rule for implementing the 
Renewable Fuels Standard enacted in EPACT 2005.\1\ EPA's results are 
shown in Figure 2* and are very similar to ours (note that EPA displays 
results relative to conventional gasoline, which is set to zero on 
their chart.)
---------------------------------------------------------------------------
    * Graphics have been retained in committee files.
    \1\ http://www.epa.gov/otaq/renewablefuels/420f07035.htm.
---------------------------------------------------------------------------
    Now consider a cellulosic ethanol plant. While such plants are 
often considered to be environmentally superior to corn ethanol plants, 
this is not necessarily the case, depending on how the cellulosic 
feedstock is produced. For example, if the biomass for the cellulosic 
ethanol plant is obtained by converting to biomass production land that 
had been enrolled in the conservation reserve program (CRP), then the 
forgone conservation benefits and carbon benefits must be accounted 
for. The CRP has enrolled more than 1 million acres in forest cover, 
including hardwoods, longleaf pine, and other softwoods. While these 
are secondary, rather than old growth, forests, they nonetheless 
provide important ecological services and sequester a substantial 
amount of carbon. Converting such lands to biofuels production would 
not only rapidly return to the atmosphere the carbon sequestered since 
the trees were planted, but would also forgo future carbon 
sequestration on this land. The net result would be CO2 
emissions to the atmosphere many times greater than the annual 
greenhouse gas benefits from cellulosic ethanol production on this 
land.
    Land conversion need not be this direct to undermine the 
environmental benefits of biofuel production. Devoting an increased 
share of U.S. agricultural output to fuel production rather than grain 
exports will result in increased demand for animal feed from sources 
abroad. If any significant portion of this additional feed is obtained 
by converting mature forests into pasture or cropland the 
CO2 emissions from this land use change could greatly exceed 
the emission reductions from the use of biofuels.
             biofuels environmental performance principles
    Fortunately, the benefits of biofuels can be realized, and the 
potential pitfalls avoided, through carefully crafted policy. Here I 
outline key principles that should be incorporated into S. 987 through 
a combination of more robust limitations on what qualifies as a 
renewable fuel and incentives to promote voluntary management practices 
that protect ecological values. These principles were endorsed by 
twelve leading environmental organizations in a letter sent to Congress 
on March 27th.
The Use of Bioenergy Must Reduce Greenhouse Gas Emissions
    To assure benefits, new incentives and requirements for increased 
use of biofuels need to be tied to significant reductions in the 
greenhouse gas intensity of these fuels. As discussed above, this 
requires explicit greenhouse gas performance standards rather than an 
implicit assumption that certain feedstocks will produce greater 
benefits than others. I suggest that conventional biofuels be required 
to achieve at least a 15% reduction in lifecycle greenhouse gas 
emissions compared to conventional gasoline. This level of performance 
can easily be achieved with efficient corn ethanol plants as shown in 
Figure 1. Advanced biofuels should achieve at least a 50% reduction in 
lifecycle greenhouse gas emissions, which can be accomplished through 
several different feedstock and conversion process combinations. In 
addition to these minimum requirements, incentives for continuous 
improvement should also be established by requiring progressive 
reductions in the average greenhouse gas emissions of all 
transportation fuels.
Biomass Used for Bioenergy Has To Be Renewable
    Biomass must be regrown on site, recapturing its released carbon, 
so that it is genuinely sustainable--unless it is the by-product of 
activity with independent, over-riding social utility (like removal of 
vegetation immediately around wildland-interface homes). Greenhouse gas 
emissions from land-use change associated with biofuels production, 
both directly and indirectly, must be accounted for to ensure that 
biofuels are genuinely renewable and produce net environmental 
benefits. If wastes are used, care must be taken to prevent combustion 
of any toxic materials, such as pressure treated or painted wood 
products. In addition, material such as post-consumer waste paper 
should be recycled rather than converted to fuel in order to reduce the 
pressure on forests for virgin fibers.
Bioenergy Feedstocks Must not Be Grown on Environmentally Sensitive 
        Lands
    The exclusion of biomass from old growth forests in S. 987 is a 
start, but this exclusion should be expanded to cover wilderness study 
areas; roadless areas on national forests; native grasslands; important 
wildlife habitat; ecosystems that are intact, rare, high in species 
richness or endemism, or exhibit rare ecological phenomena.
Conversion of Natural Ecosystems Must Be Avoided
    Habitat loss from the conversion of natural ecosystems represents 
the primary driving force in the loss of biological diversity 
worldwide. Activities to be avoided include those that alter the native 
habitat to such an extent that it no longer supports most 
characteristic native species and ecological processes.
Exemptions and Waivers From Environmental Rules Must not Be Used To 
        Promote Biomass Production or Utilization
    Trading one serious environmental harm for another is poor policy. 
Our environmental laws and regulations act as a fundamental system of 
checks and balances to guard against just such collateral damage and 
the promotion of bioenergy production and utilization must in no way be 
exempted.
Conservation and Wetland Reserve Programs Supported by the Farm Bill 
        Must Be Managed for Their Conservation Benefits
    These programs protect marginal lands, water quality, soil, and 
wildlife habitat. Enrolled lands need to be managed principally for 
these important values, not bioenergy feedstocks.
Independent Certification, Market Incentives, and Minimum Performance 
        Requirements Are Necessary To Ensure That Bioenergy Feedstocks 
        Are Produced Using Sustainable Practices
    Certification standards for biomass from private lands must address 
key environmental and social objectives, such as protection of wildlife 
habitat, prevention of erosion, conservation of soil and water 
resources, nutrient management, selection of appropriate feedstock 
species, and biologically-integrated pest management. New policies are 
needed to ensure that producers, refiners and distributors adhere to 
minimum performance requirements and have incentives to maximize 
environmental performance at each step.
Stringent Safeguards Must Be Established for Bioenergy Production From 
        Feedstock Derived From Federal Land
    Federal lands, including wildlife refuges, BLM lands, national 
forests and grasslands, are held subject to the public's interest in 
their non-commodity values. They are not appropriate for large-scale, 
sustained biomass sourcing.
                implementing a renewable fuels standard
    Earlier this week EPA issued its final rules to implement the 
renewable fuels standard (RFS) enacted as part of the 2005 Energy 
Policy Act. Congress appropriately assigned this responsibility to EPA 
as it has the authority to regulate transportation fuels under the 
Clean Air Act as well as experience with implementing credit trading 
programs. Any expansion of the RFS should similarly be implemented by 
EPA and should be on the system of Renewable Identification Numbers 
(RINs) established by EPA to implement the existing program.
    EPA has also already explored how the RIN system could be expanded 
to track environmental practices in biofuel feedstock production as 
well as lifecycle greenhouse emissions. While some may argue that there 
is insufficient information available to implement a program based on 
lifecycle greenhouse gas emissions this is not the case. Statewide data 
on average yields, energy and fertilizer use for different crops can be 
combined with specific information for individual biorefineries to 
arrive at reasonable estimates of lifecycle greenhouse gas emissions 
for each batch of biofuels. Indeed, although the administration 
ultimately rejected it, EPA proposed to use lifecycle greenhouse gas 
emissions as the equivalency factor for different biofuels under the 
RFS as well as in a labeling program. Hence EPA has already done most 
of the policy and methodological development needed to implement an 
expanded RFS that includes greenhouse gas performance standards and 
incentives for management practices that protect ecological values.
    An expanded RFS should also be updated to accommodate renewable 
electricity used for transportation in emerging vehicles, such as Plug-
in Hybrid Electric Vehicles (PHEVs). This can be accomplished by 
allowing electricity providers to opt into the program as fuel 
providers as long as they use smart meters to track separately 
renewable electricity supplied for transportation purposes. With the 
emergence of PHEVs and other electric vehicles, renewable electricity 
can be an important additional option to augment renewable biofuels to 
supply non-petroleum, low greenhouse gas fuels for transportation.
                               conclusion
    Biofuels holds great promise as a tool for reducing global warming 
pollution, breaking our dangerous oil addiction, and revitalizing rural 
economies, as long as appropriate standards and incentives are used to 
shape the nascent bioenergy industry to provide these benefits in a 
sound and truly sustainable fashion. I look forward to working with the 
Committee to improve S. 987 to accomplish this important goal.

    The Chairman. Thank you very much. Mr. Cavaney, thank you 
for being here.

    STATEMENT OF RED CAVANEY, PRESIDENT AND CHIEF EXECUTIVE 
             OFFICER, AMERICAN PETROLEUM INSTITUTE

    Mr. Cavaney. Thank you, Chairman Bingaman, Senators Craig 
and Corker. API welcomes this opportunity to present the views 
of the U.S. oil and natural gas industry on renewable fuels and 
S. 987. API supports a realistic and workable renewable fuels 
standard. Our industry is the Nation's largest user of ethanol 
and is increasing the volume of renewable fuels in America's 
transportation fuels portfolio.
    The industry significantly exceeded the 2006 RFS 
requirement of 4 billion gallons of renewables and according to 
EIA estimates, should exceed the 2007 requirement as well.
    The existing RFS requirements have attracted substantial 
and significant investment capital to increase ethanol 
production. At the same time, innovative new approaches to 
producing and utilizing biofuels in the transportation arena 
are underway. Presently, the most economical and practical use 
of ethanol is as a 10 percent blend in gasoline. E-10 is 
already used in many parts of the country, as Bob Dinneen 
mentioned. It requires no modifications to vehicles, no major 
changes to service station pumps and storage tanks and has a 
long history of successful use by consumers.
    E-85, a transportation fuel containing 85 percent ethanol 
and 15 percent gasoline, is an alternative fuel that faces 
significant technological and economic hurdles. E-85 requires 
specially-built, flexible fuel vehicles, which currently 
comprise only 3 percent of our Nation's existing fleet of 220 
million vehicles. The EIA estimates that the FFV penetration 
will not rise above 10 percent until some time after 2030. E-85 
also requires special service station pumps and storage tanks, 
which represent a significant expenditure to our Nation's 
independent service station dealers that can represent anywhere 
from $20,000 to upwards of $200,000. Most service station 
owners will need to see significant demand before making such 
investments.
    Although no one knows the precise ceiling number, at some 
point in the not-too-distant future, limits on domestic corn 
ethanol production will be reached. Too little attention is 
being paid to the transition from that point forward, 
especially impacts associated with the delay in mass scale 
production of cellulosic ethanol volume.
    The Energy Policy Act of 2005 contains language potentially 
adaptable to such a circumstance, around which stakeholders may 
want to begin discussions in the near future. The consequences 
of a failure to be adequately prepared for such a development 
could adversely impact millions of Americans, and given the 
limited likelihood that cellulosic technologies could begin 
providing sizable volumes of ethanol within 5 years, it is 
likely that safety valves, will in fact, be needed.
    API offers these specific comments on S. 987: First, 
restrictions on Federal requirements in EPAct should continue. 
A Federal alternative or renewable fuels mandate should not 
have a per-gallon requirement and not require any particular 
alternative fuel to be used to meet a mandate; not require an 
alternative fuel to be used in any particular geographic area; 
and not require an alternative fuel to be made from a 
particular feedstocks or restrict the use of any feedstock or 
processing scheme.
    Second, States and their political subdivisions should be 
pre-empted from setting State, alternative, or renewable fuel 
mandates. There should be an explicit, complete Federal 
preemption from setting alternative fuel standards or controls 
of any type or in lieu of an explicit exemption, restrictions 
on State latitudes should be enacted.
    Third, EPA should be provided with additional authority to 
grant waivers during supply emergencies. There should be a 
Federal preemption of existing State fuel and AFPM performance 
regulations when a waiver is issued during a supply emergency, 
such as Hurricanes Katrina and Rita. Emergency waiver authority 
should be for up to 90 days. A 20-day limit per waiver that is 
provided in EPAct is adequate for most situations, but proved 
inadequate during Hurricanes Katrina and Rita, and waiver 
authority should remain with the EPA Administrator. To change 
authority through the President will prevent speedy 
implementation, which was intended under EPAct.
    Last, all mandates for renewable fuel usage should be 
accompanied by a periodic technology feasibility review that 
would allow for appropriate adjustments to ensure that energy 
companies and consumers alike are not penalized due to an 
economic or technical hurdle that might prevent reaching 
alternative or biofuels usage, targets, or goals that had been 
set. We recognize that S. 987 provides for a National Academy 
of Sciences review to address that matter and we appreciate 
that attention.
    API and its member companies stand ready to work with the 
committee to provide additional information or assistance as 
needed on both items I've covered, as well as anything else 
that may develop during the course of committee deliberations. 
Thank you.
    [The prepared statement of Mr. Cavaney follows:]
   Prepared Statement of Red Cavaney, President and Chief Executive 
                 Officer, American Petroleum Institute
    I am Red Cavaney, President and CEO of API, the national trade 
association of the U.S. oil and natural gas industry. API represents 
more than 400 companies involved in all aspects of the oil and natural 
gas industry, including exploration and production, refining, marketing 
and transportation, as well as the service companies that support our 
industry.
    API welcomes this opportunity to present our industry's views on 
renewable fuels and S. 987, the proposed Biofuels for Energy Security 
and Transportation Act of 2007.
    For centuries, energy and food have been the engines that have 
given rise to mankind's ascendancy from poverty, particularly in the 
developing world. To give a family food, warmth, mobility, and a job is 
to progress toward a more stable world and to nurture an improving 
standard of living for every man, woman and child.
    The International Energy Agency forecasts that world-wide energy 
demand will increase by 50 percent between now and 2030. For those of 
us steeped in the energy business for well over a century, one stark 
conclusion flowing from this forecast stands out--our world, and our 
nation, will need all commercially viable energy sources for decades 
into the future, including both fossil and alternative energy sources.
    Our companies have long been pioneers in developing alternatives 
and expanding our utilization of existing sources of energy. From 2000 
to 2005, the U.S. oil and natural gas industry invested an estimated 
$98 billion in emerging energy technologies, including renewables, 
frontier hydrocarbons such as shale, tar sands, and gas-to-liquids 
technology. This represents almost 75 percent of the total $135 billion 
spent on emerging technologies by all U.S. companies and the federal 
government. Our companies are actively investing in second generation 
biofuels research in cellulosic ethanol and biobutanol and weekly we 
hear of new and exciting approaches to growing and utilizing biomass in 
the motor fuels markets.
    Given this huge global appetite for energy, energy security, not 
``energy independence,'' should be our nation's energy framework going 
forward. Today, the U.S. oil and natural gas industry provides two-
thirds of all the energy consumed each year by our nation. However, we 
import more than 60 percent of our oil in order to meet consumer 
demand.
    The United States must do everything it can to access a diversity 
of resources around the world. ``Energy independence'' would be at odds 
with this objective. For all the talk of the need to wean ourselves 
from Arabian Gulf oil, the fact is the amount of Arabian Gulf oil 
imported has been substantially unchanged for years. Our real supply 
security depends on international trade. Our Arabian Gulf partners 
provide important supply--but they are only one source, representing 
less than 20 percent of the whole.
    As we take steps to meet the energy needs of future generations, we 
must focus on three areas: meeting growing demand, improving energy 
efficiency and environmental performance, and developing new energy 
technologies.

   First, we must continue to meet our nation's growing energy 
        needs through diverse sources of oil and natural gas supplies 
        both here and around the world, while alternative and renewable 
        sources continue their rapid rates of growth;
   Second, American industry must continue to increase its 
        energy efficiency and the American public should be encouraged 
        to become more energy efficient; and
   Third, we must develop new technologies to find and produce 
        increased oil and natural gas supplies, improve energy 
        efficiency, and develop new economic sources of renewable 
        energy.

    The current Renewable Fuels Standard (RFS) has stimulated 
substantial investments to grow biofuels supplies, particularly 
ethanol, beyond that required to satisfy the RFS. In addition, research 
into advanced production methods and alternative fuels is underway. The 
existing RFS has done its job well in stimulating the ethanol industry. 
Last year, our industry utilized 25 percent more than the target amount 
of ethanol established under the RFS. Additionally, nearly 50 percent 
of all gasoline consumed in the U.S. now includes ethanol.
    Thanks to the almost seamless transition of huge amounts of ethanol 
into our nation's gasoline pool, ethanol is gaining broader consumer 
acceptance. From our experience, we know that customer acceptance is 
the single most important factor in the success of a product, 
especially a transportation fuel. It is ever more essential that we 
maintain and build the consumer acceptance of ethanol.
    In assessing policy options to further increase alternative fuels 
usage, the following should be considered:

   Reliance on market forces is the best way to satisfy our 
        growing fuel requirements to ensure reliable supply and deliver 
        the greatest value to consumers. Policies should be 
        performance-based and provide a level playing field for all 
        energy options, including renewable/alternative fuels, without 
        favoring one specific technology over another or creating 
        unsustainable or uneconomic solutions. They should be feedstock 
        neutral;
   Government should not over-promise on the potential for 
        renewables to reduce petroleum demand. Overestimates create 
        unrealistic expectations, poor policy and wasted resources;
   Government policy should strive to encourage sustainable and 
        competitive second generation technologies;
   The most economic and practical use of ethanol is E-10, 
        which should be maximized before considering higher ethanol 
        blends. E-10 requires no modifications to vehicles, no major 
        changes to service station fueling equipment and tankage, and 
        has a lengthy history of successful fuel use by consumers. 
        Consumers will likely be unhappy with the mileage penalty of E-
        85;
   The existing infrastructure/distribution system should 
        continue to grow and be utilized to the extent practicable. The 
        industry was stretched last year in maximizing ethanol 
        integration into the national gasoline pool, due in part to a 
        tight wholesale delivery infrastructure, that is, additional 
        terminals and blending facilities for ethanol, rail cars and 
        rail spurs. The growth in infrastructure must keep pace with 
        consumer demand. Greater cooperative work involving 
        infrastructure among all stakeholders will benefit the 
        consumer;
   Wide-spread use of E-85, however, would require that the 
        major technological and economic hurdles of cellulosic ethanol 
        conversion first be overcome. Even with breakthroughs in 
        cellulosic ethanol production technology, significant 
        logistical hurdles will need to be addressed. Gathering the 
        feedstock (biomass such as forestry waste and switch grass), 
        processing it, disposing of ``waste'' products, and delivering 
        ethanol to markets at a cost comparable to gasoline has yet to 
        be demonstrated on a commercial-scale;
   E-85 use is also constrained by a number of additional 
        factors. Corn-based ethanol is not sustainable at levels that 
        would support widespread use of E-85. Moreover, E-85 requires 
        flexible-fuel vehicles which currently comprise only 3 percent 
        of the existing vehicle fleet. EIA estimates that flexible fuel 
        vehicle (FFV) penetration of the vehicle fleet will not rise 
        above 10 percent until sometime after 2030. Even in 2030, new 
        owners of FFVs, like many of the current owners, might fill up 
        with E-10 rather than E-85. Moreover, E-85 also requires 
        special service station fueling equipment and storage tanks;
   In increasing biofuels usage, the government should address 
        secondary impacts including the impact on food supplies and the 
        environment (e.g., water use and water quality degradation, 
        pesticide use, and increased VOC/NOX emissions). 
        Because of the potential for widespread effects on the 
        environment, regulatory agencies will need to develop metrics 
        for assessing the relative life-cycle impacts and benefits from 
        potential large-scale increases in biofuels use;
   Government policy should encourage the utilization of the 
        existing national refinery infrastructure for the co-processing 
        of renewable feedstocks that can result in products with a 
        renewable content that is compatible with the existing fuel 
        distribution infrastructure;
   State-by-state ethanol mandates create additional boutique 
        fuels, interfering with the reliable supply of fuels during 
        times of supply disruptions and increasing distribution costs. 
        State-by-state mandates also conflict with the flexibility and 
        efficiencies provided in the Energy Policy Act of 2005 
        (EPACT05) with respect to where biofuels are supplied and 
        product type. Just last week, for example, an eighth state 
        passed another, different biofuels mandate. One state law 
        allows and encourages the mixing of clear gasoline and ethanol-
        blended gasoline in the same retail tank. When this occurs, not 
        only are emissions actually increased but the fuel violates 
        federal environmental regulations. Congress recognized the 
        potential problems from the proliferation of boutique fuels in 
        gasoline and eliminated their expansion in the EPACT05. In that 
        same legislation, the Renewable Fuels Standard stresses maximum 
        fuel flexibility;
   Another example of restrictive state requirements can be 
        found in the Southeastern U.S., where most states currently 
        fail to provide exceptions or modifications to their gasoline 
        standards to accommodate ethanol's impact on fuel volatility. 
        As a result, refiner/marketers face potential non-compliance 
        with state gasoline standards if they blend ethanol with 
        fungible conventional gasoline. Tailoring the base fuel at the 
        refinery to assure compliance by the finished blend would 
        reduce gasoline supplies and increase fuel cost, thereby 
        removing any incentive to blend ethanol;
   All mandates for increased renewable fuel usage should be 
        accompanied by periodic technology/feasibility reviews that 
        would allow for appropriate adjustments so that energy 
        companies are not penalized due to the economic and technical 
        hurdles that might prevent reaching biofuels usage targets or 
        goals. All mandates for increased renewable fuel usage should 
        also include contingency provisions that suspend requirements 
        for increased biofuels usage in the event of significant supply 
        or distribution disruptions.

    While we have made progress over the past year, important questions 
remain. These must be addressed if we are to build on our joint 
progress and ultimately realize the full potential for ethanol within 
our nation's transportation fuels portfolio.
    API also offers these specific comments concern S. 987, the 
proposed Biofuels for Energy Security and Transportation Act of 2007:
Restrictions on Federal Requirements in Energy Policy Act of 2005 
        (EPACT05) Should Continue
   A federal alternative or renewable fuel mandate should not:

    --Have a per-gallon requirement;
    --Require any particular alternative fuel to be used to meet a 
            mandate;
    --Require an alternative fuel to be used in any particular 
            geographic area; and
    --Require an alternative fuel to be made from particular feedstocks 
            or restrict the use of any feedstock or processing scheme.
States (and Political Subdivisions Thereof) Should Be Preempted From 
        Setting State Alternative or Renewable Fuel Mandates
   There should be an explicit, complete federal preemption of 
        states from setting standards/controls of any type for 
        alternative fuels.
   An alternative would be to set out restrictions on the 
        states in lieu of an explicit preemption.
EPA Should Be Provided With Additional Authority To Grant Temporary 
        Waivers During Supply Emergencies--EPACT05 Section 1541(a)
   There should be federal (EPA) preemption of existing state 
        fuel and ASTM performance regulations when a waiver is issued 
        during a supply emergency. During Hurricanes Katrina and Rita, 
        EPA waived certain federal fuel requirements promptly to 
        increase fuel supplies. However, in many cases state action was 
        also required and frequently the state responses were not 
        prompt. The result was unnecessary delays in increasing fuel 
        supplies. EPA should be provided with authority to waive both 
        federal and state environmental and product quality (situations 
        where a state adopts its own product quality regulations and 
        situations where states adopt ASTM specifications) fuel 
        requirements during ``an event of national significance.''
   There should be emergency waiver authority for up to 90 
        days. The 20-day limit for waivers provided in EPACT05 is 
        adequate for most situations but proved inadequate during 
        Hurricanes Katrina and Rita. Thus, the timeframe for waivers 
        should be increased to ``up to 90 days'' for an event of 
        ``national significance'' so designated by the President. This 
        increased time will provide much needed flexibility in terms of 
        arranging for additional fuel supplies, particularly longer 
        lead time product imports.
   Waiver authority should remain with the EPA Administrator. 
        EPACT05 language should be retained so that the EPA 
        Administrator--not the President--has authority for fuel 
        waivers and preemption of state regulations. To change 
        authority to the President would prevent speedy implementation 
        of waivers, which is what was intended.
   Additional adjustments should be made to the emergency 
        waiver language in EPACT 2005. EPA interpretation of the waiver 
        language has caused some confusion and concern regarding 
        supplying waived fuel. Several changes to the waiver language 
        would help to correct these problems.
Alternative Fuel Technology Review Should Be Required With Report to 
        Congress and Adjustment of Alternative Fuel Standard and Phase-
        In Schedule
   All mandates for increased renewable fuel usage should be 
        accompanied by periodic technology/feasibility reviews that 
        would allow for appropriate adjustments so that energy 
        companies and consumers are not penalized due to the economic 
        and technical hurdles that might prevent reaching alternative 
        or biofuels usage targets or goals. We recognize that S. 987 
        provides for a National Academy of Sciences review of this 
        type.

    In summary, the U.S. oil and natural gas industry continues to make 
good progress in meeting our nation's growing energy needs and 
improving environmental performance. Looking ahead, we need to develop 
all economically viable energy sources including fossil and renewable 
fuel sources. By relying, to the greatest extent possible, on market 
forces, understanding consumer impact and preferences, encouraging 
development of new technologies, and addressing secondary impacts of 
expanded renewable fuel usage, I am confident that our industry and the 
nation will meet the energy challenges in the years ahead.
    API and its member companies stand ready to work with the Committee 
and to provide whatever additional information or assistance we can on 
the issues I have addressed, as well as other related issues that may 
arise during the course of Committee deliberations.

    The Chairman. Thank you very much. Mr. Foody, go right 
ahead.

    STATEMENT OF BRIAN FOODY, PRESIDENT AND CHIEF EXECUTIVE 
      OFFICER, IOGEN CORPORATION, OTTAWA, ONTARIO, CANADA

    Mr. Foody. Thank you. Good morning, Mr. Chairman and 
members of the committee, and thank you for the opportunity to 
comment on S. 987. My name is Brian Foody. I am the CEO of 
Iogen Corporation. We're one of the leading companies making 
cellulose ethanol. We've been working in the field since the 
late 1970's and we've designed and built and now run a 
cellulosic ethanol demonstration plant. We've been making 
cellulosic ethanol since April 2004.
    Now, in the course of our development, we've established a 
number of important partnerships, including both with Shell and 
Goldman Sachs. I, myself, have been working in the field of 
cellulosic ethanol now for over 25 years. So we hold a long-
held commitment to this area.
    In regard to S. 987, we believe it is an excellent bill and 
we fully support its passage. We'd like to congratulate the 
committee on its work in offering a concrete and realistic 
vision for the future of American energy and economic security. 
We believe it can and will make a contribution toward driving 
the markets forward, establishing the expectations and the 
clarity that are necessary to see significant investment flows 
into the production of biofuels, and building the secure, 
domestic renewable fuel supply America is looking for.
    I'd like to specifically address the bill's volume targets 
for advanced biofuels, the 21 billion gallons by 2022. I 
believe these targets are realistic and doable, and let me 
explain why. First, with respect to the volume, the DOE and 
USDA recently completed a study called the Billion-Ton Study 
that asked the question, ``Does America have the capability to 
produce enough cellulosic biomass resources to displace 30 
percent of its present petroleum consumption? That's three 
times more than your present target.'' And the short answer 
was, ``Yes, America has the capacity to deliver on your 
targets.''
    Second, cellulosic ethanol technology is not some far-off 
esoteric technology--it's real, practical and being made today. 
When I drove to the airport yesterday, I drove in a car fueled 
with cellulosic ethanol, the same cellulosic ethanol that fuels 
our company's fleet of flexible fuel cars, and I've been doing 
this for the last 3 years. So cellulosic ethanol is very real.
    If anyone doubts this, I'd be pleased to invite them out to 
see our demonstration plant in Ottawa, about a 1-hour flight 
from here.
    Now, Secretary Karsner, in testifying, talked about the 
targets for 2012, the technology development targets. It's very 
important to realize that those targets are essentially aiming 
at what I believe is a cost, something like $1.10 a gallon. 
Very cost-effective, but keep in mind, we're talking about a 
world now where our gasoline is $2.00 a gallon wholesale and 
ethanol is $2.50 a gallon. The DOE's own estimates would 
suggest that cellulosic ethanol technology can be competitive 
today. Clearly, there are hurdles we have to have for the 
initial rollout of the technology, but this is very real.
    Finally, if you're concerned about the ability to build 
these facilities and deliver this volume, let me say that the 
energy industry has enormous capability to deploy energy 
technology. Just as one small example to put this in context, 
you may have heard of the Tar Sands in Northern Alberta in 
Canada. Well, last year, over $30 billion was invested in 
developing this unconventional resource, and the capacity 
commitments in 2006 alone would add 10 billion gallons per year 
of annual production capacities. Now, I have to say that if the 
energy industry can do this, they can certainly meet the much 
less ambitious objectives set out in your bill.
    Now, with respect to the bill, I'd like to make just three 
brief points. First, I believe there is a real value in fine-
tuning the bill's safety valves. Now, by safety valves, I mean 
what do you do if the price goes too high, or what do you do if 
there isn't enough volume to meet the targets? S. 987 now 
provides for essentially a discretionary waiver. That, I think, 
will protect against the problem, but it creates tremendous 
uncertainty and risks, robbing the bill of its power to spur 
investments.
    Essentially, we don't want a situation where people can sit 
on the sidelines, betting that the discretionary waiver will 
get them off the hook for contributing and working on America's 
energy security. It's not fair to the country. It's certainly 
not fair to those who are committing to the business, and it 
won't get you what you hope to achieve.
    Now, as I said, there are many approaches you can take, but 
one thing you should keep in mind--the more clarity and 
certainty you have, you can provide, the better and the more 
investment you'll take.
    I think in terms of the way to tackle this--I can 
illustrate just one simple approach: as to volume, it doesn't 
make sense to force people to buy product that isn't there. If 
the volume doesn't materialize, the safety valves should simply 
adjust to the volume that is there. And as to price: you might 
ensure that prices don't go too high by setting a buy-out 
price, say $1 a gallon, for the advanced biofuel credits. 
That's simple. It would solve the problem and would create much 
more certainty for investors.
    My second point is managing the dual structure of the 
market. S. 987 provides for two kinds of ethanol--regular 
ethanol and advanced biofuels. This would create two markets 
and two prices, even though in your gas tank, ethanol is 
ethanol. We think the dual structure you propose makes sense, 
but that you need to be very careful to ensure that it can be 
practically implemented. We might suggest, for example, that 
you set up a system to certify advanced biofuel production 
facilities and issue the advanced biofuel credits to them. 
Then, as the ethanol leaves the plant gate, you can let ethanol 
be ethanol in a single market.
    My third point is infrastructure. The automobile industry 
is a critical part of the transition that is envisioned by this 
legislation. It's critical that they be given equally clear and 
reliable signals about what fuel their products will be 
expected to run on, and they will need to have sufficient time 
to allow transition to new fuel blends. No matter whether 
Congress decides to pursue main grade blends of ethanol, like 
E-15 or E-20, to achieve your targets, or alternative blends 
like E-85. If the cars can't accept them, the refining and 
blending industry won't be able to deliver them.
    So I would urge members of this committee to give these 
three issues their attention--first, setting safety valves; 
second, managing the dual nature of the market; and, third, the 
vehicle infrastructure. Thank you.
    [The prepared statement of Mr. Foody follows:]
   Prepared Statement of Brian Foody, President and Chief Executive 
          Officer, Iogen Corporation, Ottawa, Ontario, Canada
    Good morning to you Mr. Chairman and to the Members of the 
Committee. Thank you for the invitation to appear before you this 
morning. I appreciate the opportunity both to comment on the tremendous 
potential of cellulose ethanol and to offer our thoughts on S. 987.
    My name is Brian Foody and I am the President and CEO of Iogen 
Corporation. Iogen Corporation is one of the world leaders in the 
cellulose ethanol field. We are proud to have been selected as one of 
the winners of the recent Department of Energy cellulose ethanol grant 
solicitation and look forward to a successful completion of our 
negotiations with the DOE.
    At Iogen, we have been producing cellulose ethanol in our 
demonstration plant in Ottawa since 2004. To attend this hearing, I 
drove to the airport in a cellulose fuelled E85 flexible fuel Chevy 
Impala. In fact, we have been producing sufficient volumes of cellulose 
ethanol--primarily from wheat straw--to fuel our own fleet of FFVs as 
well as the fleets of two Canadian government Departments.
    Before commenting on S. 987, let me say a few words about the 
benefits of cellulose ethanol and its potential to help America achieve 
several important policy objectives.
    There are at least three important government policy objectives 
that cellulose ethanol can help achieve.

   Energy security
   New economic opportunities for rural communities
   Reduced greenhouse gas emissions associated with operating 
        our cars and trucks

    Of these, the most pressing is energy security. So the question 
many of us are asking is, how much can the emerging cellulose ethanol 
industry really deliver on its potential, and how quickly can it be 
done?
    In order to answer that, we need to start with the feedstock 
opportunity. The Department of Energy and the Department of Agriculture 
worked together on a study of this issue. Their findings, published in 
an April 2005 report now known as the ``Billion Ton Study'', found that 
even with conservative assumptions about yields from crop residues and 
dedicated energy crops, the United States can annually produce in 
excess of one billion tons of cellulose feedstock for conversion to 
ethanol and other bio-refinery products. That study is available online 
at http://feedstockreview.ornl.gov/pdf/billion_ton_vision.pdf.
    At the current state of demonstrated efficiency, cellulose ethanol 
production facilities could convert that material into 30 billion 
gallons of ethanol. Now there are obvious hurdles between here and 
there that will greatly effect how much and how quickly ethanol can be 
produced from that feedstock material.
    The first issue is commercial demonstration of the technology. This 
Committee's work in EPACT established both a grant and a loan guarantee 
program to accelerate the demonstration of conversion technologies, and 
likely you are familiar with the state of implementation of those 
programs.
    Next will be the challenges of building large-scale production 
facilities--as large as or larger than current starch ethanol 
facilities--in the feedstock basins around America. These challenges 
are common to any new production facility. Sites will have to be chosen 
and permits obtained. Feedstock supply contracts will have to be 
entered into and delivery programs will have to be established. Offtake 
contracts will have to be reached, and the transportation of the 
finished product will have to be arranged.
    These challenges are not insignificant, but neither are they likely 
to prevent the rapid deployment of any robust cellulose conversion 
technology that has been proven to the satisfaction of likely 
investors. Investors are eager for opportunities to diversify energy 
holdings when there is an opportunity for sustained profitability.
    One illustration of investor interest in new energy technologies is 
in the recent, steady expansion of integrated oil sands operations. 
That sector has been adding roughly 10 billion gallons per year of 
addition capacity with few signs of slowing.
    In short, cellulose technology continues to face important business 
challenges, but I have every confidence that each challenge is 
manageable, and that ethanol from cellulose feedstocks will be a 
significant component in this nation's fuel mix.
    Regarding S. 987, first let me say that it is an excellent bill and 
we fully support its passage. We congratulate the Committee on its work 
in producing this vision for the future of American energy and economic 
security.
    The bill creates a system that will allow cellulose ethanol 
producers to join the market in a way that does not undermine or 
conflict in any way with the established starch ethanol producers. That 
is critical because starch ethanol will remain the bedrock of the 
biofuels industry for some time to come. Without starch ethanol, the 
country would simply not be able to achieve the policy goals of this 
legislation.
    Additionally, the bill sends a clear signal that the government is 
serious about a steady expansion of its commitment to cellulose 
ethanol. The goals of 3 billion gallons of advanced biofuels by 2016 
and 21 billion gallons by 2022 are both ambitious and achievable. These 
targets set the fundamental precondition to the development of an 
advanced biofuels industry by establishing a clear market demand for 
the product.
    Establishing these targets will further energize the industry to 
complete the commercial demonstration of its technologies and begin 
deploying them. Furthermore, these targets will establish a basis for 
confidence among all participants in the value chain that business 
opportunity of cellulose ethanol is very real. That confidence is an 
essential precursor to the preparations, planning, negotiations, and 
other business activities needed to grow this industry.
    If S. 987 is enacted, farmers will begin to think seriously about 
the possibilities of selling their residues for profit, and managing 
their crops to enable them to do that. When the time comes for farmers 
to consider planting dedicated energy crops such as switchgrass, absent 
a clear signal that the market opportunity exists, they would be crazy 
to take such a leap. This legislation squarely addresses that need by 
creating clear targets for growth in the market.
    The same is true of the capital markets that will be needed to 
support the deployment of cellulose ethanol production technologies. 
Investors will not risk capital if there is not confidence that the 
market will sustain adequate returns. This bill also squarely addresses 
that need.
    Now some of your colleagues might ask why you need to offer market 
guarantees in this free-market system. My answer would be simply, that 
this is a case where we do not want the market to dictate the outcome 
unaided. The clear policy objective of this legislation is to secure 
for America the myriad benefits of a more diverse, and domestically 
produced, fuel supply. Left to its own, the market will not accomplish 
that outcome because absent a policy signal--such as S. 987--there is 
no means of valuing energy security in the marketplace.
    Equally important, S. 987 will provide the key to unleashing market 
forces that will otherwise lay dormant. Once the industry has 
confidence that a sustained market demand has been established, 
business will engage aggressively to not only supply that market, but 
to do so better, faster and cheaper than anyone else.
    But if there is one message I would like to leave you with this 
morning it is that there are some key areas where added clarity and 
certainty could enhance the Bill and improve the likelihood that the 
fuel program it would create will be a thorough success.
    It seems clear that to deliver on 21 billion gallons of cellulose 
ethanol--a number, by the way, that we think is quite achievable--there 
is going to be a need for assurances and predictability going forward.
    For example, the government needs to concern itself about over-
committing to cellulose ethanol. Some of your colleagues will ask what 
will happen if the technology cannot deliver the desired volume. But 
not only will you and your colleagues want assurances that the 
cellulose ethanol industry can deliver, that delivery must come at 
reasonable cost. Nobody wants to commit the nation to buying ethanol at 
unreasonably high prices.
    By the same token, the cellulose ethanol industry and its investors 
will need to know that, the significant investments needed to deliver 
the anticipated volume will not be stranded by future changes in 
policy. The private sector will need confidence that the Program can be 
relied upon not to disappear or change radically.
    Some might expect that setting ambitious targets for cellulose 
ethanol will be sufficient incentive for capital formation. But 
mandates alone still carry risk to investors. Investors will ask, for 
example, how would policy makers respond if only 80% of the expected 
capacity can be on-line by the target dates in the bill? There is a 
waiver in the bill, but it leaves a great deal of discretion to the 
Secretary of Energy. Would there be pressure in such a case that would 
cause the Secretary to reduce the mandate below the level of already 
constructed capacity? Might the level of gasoline prices in the future 
lead to entirely suspending the mandate for cellulose ethanol? What 
happens if your appropriately ambitious goals cannot be fully satisfied 
for any reason?
    In the investment community, these uncertainties will translate 
into risk premiums. That will drive up the cost of supplying the 
ethanol to meet your targets. Conversely, greater certainty will enable 
lower costs and, therefore, make the policy not only more durable, but 
also more popular.
    So how do we manage these concerns? What mechanisms would we 
propose to ensure we can deliver 21 billion gallons of certifiable 
cellulose ethanol at reasonable price, and achieve the Senate's policy 
objectives?
    Let me start by saying that we have given this question a lot of 
thought and we do not presume to have it all figured out. Having said 
that, it seems that enhancing the current safety valve in the bill--the 
Secretary's waiver authority--you could easily provide the certainty 
and confidence that both the government and the investors will require.
    What we want to avoid is a situation similar to the California zero 
emission vehicle experience where laudable policy objectives were never 
achieved because the necessary safety mechanisms were not in place. In 
that case, there was clearly progress toward the goal, but not enough 
to sustain the program as originally envisioned. Those who invested 
based on the established public policy ultimately looked foolish, while 
those that chose not to invest in the new policy direction ultimately 
looked wise. Instead, public policy should reward and protect even 
incremental progress toward ambitious goals. At the same time policy 
should not hold the economy hostage when initial ambitions prove 
unreachable, because that creates political pressure to scrap the 
policy entirely.
    Instead, it is important to create a safety valve that sustains the 
incentive to reach the overall goal--in this case 21 billion gallons of 
advanced biofuel--while at the same time temporarily backing off the 
target only to the extent that it is beyond reach. If the cellulose 
ethanol industry were to succeed only in producing 80% of your 
ambitious targets by a given date, that should not precipitate a 
crisis. Instead, appropriate--and predictable--adjustments should be 
made that reward the progress and sustain the overall goal.
    While exploring possible safety mechanisms to ensure success we 
have landed on some basic principles that could guide us. For example, 
we do not want to suspend market conditions within the market supplying 
the demand for advanced biofuels. We also believe that waivers should 
not reduce the Renewable Fuel Standard below current and planned 
production volumes unless additional volume can not come online at 
reasonable costs. Any safety mechanism should be both transparent and 
predictable. The waiver authority proposed in S. 987 should be enhanced 
along these lines. Doing so would improve the certainty offered 
potential producers and investors. It would also make the overall goal 
more sustainable and less subject to future changes in political moods 
and priorities.
    Another area where more clarity would assist concerns how grain 
derived ethanol and cellulose derived ethanol will be differentiated. 
That becomes a concern because once ethanol is ``out the door,'' 
ethanol is ethanol. So it will be important to create a mechanism that 
allows the market to treat all ethanol the same, no matter the 
feedstock that was used to produce it, but at the same time, will 
enable certainty as the government attempts to track compliance with 
the dual ethanol requirements for blenders. This might most easily be 
accomplished by certification of individual cellulose production 
facilities as they come on-line and assigning specialized tracking 
numbers to the tradable credits generated by those certified 
facilities.
    There is one other important topic I wish to touch on. The auto 
industry is a critical part of the transition that is envisioned by 
this legislation. It is critical that they be given equally clear and 
reliable signals regarding what fuel their products will be expected to 
run on. And there will need to be sufficient time to allow the fleet to 
transition to accept new fuel blends. No matter whether the Congress 
decides to pursue maingrade blends of ethanol like E-15 and E-20, or 
alternative blends like E-85, if the cars cannot accept it, the 
suppliers will not be able to sell it. I would urge the Members of this 
Committee to give that issue the attention it deserves.
    But let me conclude by going back to my theme of certainty. Clearly 
the more certainty in the Bill, the less risk to the private sector and 
hence the lower will be the price of delivering the 21 billion gallons. 
Conversely, uncertainty creates greater risk and higher prices.
    The Iogen team would welcome the opportunity to work with the 
Committee to explore possible safety mechanisms to achieve the Senate's 
desired outcome.
    Again, thank you for the opportunity to address this Committee.

    The Chairman. Thank you very much. Thank you all for your 
testimony. It's obvious that a lot of effort has gone into 
trying to analyze ways that this bill could be improved, and we 
appreciate your suggestions. Let me just ask a few questions, 
and then we'll call on Senator Corker and Senator Craig, also 
for their questions.
    Mr. Dinneen, let me start with you. One of the driving 
forces behind trying to set a higher renewable fuel standard is 
the concern that some have expressed about us winding up with 
an ethanol supply that has outpaced demand in the next few 
years. Could you give your view as to whether this is a real 
possibility, or whether you think that's just not going to 
happen? If we fail to enact something like what we're talking 
about here, are we in danger of seeing supply outpace demand?
    Mr. Dinneen. There is a great deal of angst throughout the 
industry that that may, indeed, be the case, because we don't 
always control the marketplace in terms of getting our product 
to the consumer. I will tell you that I think the refiners have 
recognized ethanol's value as an octane component. They've 
recognized ethanol's value in terms of being able to meet clean 
air standards and are indeed, utilizing ethanol in more and 
more markets across this country.
    We have 140 billion gallon gasoline market. Currently, EPA 
limits ethanol blend use to 10 percent. That implies that you 
could saturate the potential market in this country when you 
reach 14 billion gallons of ethanol produced. We see that much 
ethanol production on the horizon, which is why I think your 
bill contemplates doing research to look at whether or not that 
10 percent blend level could be raised without harming the 
existing fleet and doing programs and incentivizing greater E-
85 use. Those are critically important components. You have to 
have the market as well as the production.
    The Chairman. Let me ask Mr. Lashof: in your testimony, you 
talk about how plug-in hybrid electric vehicles powered by 
renewable electricity could qualify for renewable fuel standard 
credits--I believe you have that suggestion. I certainly 
strongly favor trying to incentivize more production and use of 
plug-in hybrids, but I'm just not clear how that dovetails with 
the renewable fuels standard. I guess one of the questions was, 
do you envision that this renewable electricity that would 
receive RFS credits would also be counted as under the 
renewable portfolio standard? If so, are we essentially paying 
utilities to fulfill their renewable portfolio standard 
requirements?
    Mr. Lashof. That's an excellent question and I think I 
should have probably expanded a little bit more on the proposal 
in my testimony. The idea here is that if electricity is being 
used for transportation purposes, then it could be treated as a 
fuel. There is a conversion factor that EPA has actually 
developed that is actually one aspect of the administration 
proposal that I think makes sense. I think it's 6.4 kilowatt 
hours is equivalent to 1 gallon, so you have a conversion 
factor that you can rely on for doing that.
    The idea, though, would not be to allow double counting. It 
would be an opt-in for the electricity providers, and they 
could choose to credit their renewable electricity generation 
either to the renewable fuels standard, or to the renewable 
electricity standard, which we certainly also very, very 
strongly support.
    So it's possible that the value of the credit might be 
higher in the fuels market than in the electricity market, and 
I think it would make sense to allow electricity producers to 
make that option. They would be required to use a smart meter 
to do that, so that you could track the electricity and be sure 
that it was actually being used for transportation, and that it 
was only renewable electricity that counted.
    I think there is a way to integrate these that provides 
potentially some more incentive for renewable electricity, but 
you certainly want to avoid double counting.
    The Chairman. Okay. Since my time is nearly over here, let 
me ask Mr. Cavaney a question about--we always are talking 
about E-10 and then E-85. What about E-15? Is it your view that 
there are significant barriers to moving to E-15, if the 
judgment were made that we could produce enough biofuels to 
accomplish that? Is there some significant problem with doing 
that as you see it?
    Mr. Cavaney. Mr. Chairman, we've looked through EPA and the 
auto manufacturers and their willingness to warranty amounts of 
ethanol beyond 10 percent in a regular, non-FFD car. But from 
our perspective and there's not a challenge at this particular 
point, we see the blend market as a much more attractive way to 
increase volumes of ethanol than we do leaping all the way to 
mandating E-85. We think E-85 fits in certain areas in certain 
conditions, and those ought to be individual owner's choices, 
but higher blends are being looked at. We're actually studying 
them with the State of Minnesota and others, and so there is an 
opportunity there.
    The Chairman. My time is up.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman and to Mr. Dinneen 
and Cavaney, the goals that were laid out in this bill are very 
different than the goals that were laid out by the 
administration. I just wondered if you'd give brief editorial 
comments about the attainment of either, and what you feel is 
more productive from the standpoint of moving toward these 
alternatives.
    Mr. Dinneen. I think the goal that is at the centerpiece of 
both proposals is the same, and that is to displace petroleum. 
I give great credit to the President for moving this debate 
forward and recognizing that we have to reduce our dependence 
on imported petroleum and to move forward with programs that 
will, indeed, incentivize domestic renewable and other 
alternatives. But I would think, honestly looking at the Energy 
Policy Act of 2005 is pretty instructive, because it had a very 
specific requirement for renewable fuels. It provided the kind 
of clarity and certainty that has been discussed here. While I 
understand the desire to take a more ecumenical approach and to 
encourage all kinds of different alternatives--and that's a 
laudable goal and one that should be pursued--I'm not certain 
that doing it in an ecumenical alternative fuel standard 
provides the kind of certainty to the marketplace that the 
renewable fuel standard does.
    Perhaps another way of looking at it would be, if you want 
to incentivize coal-to-liquids or you want to incentivize 
electricity or other alternatives, I think quite frankly, 
that's great. But you ought not try to do it in the framework 
of an alternative fuel standard. Doing it in terms of focusing 
on renewables has proven to be a very effective motivator to 
the investment community, and I think is the more effective 
approach.
    Senator Corker. Mr. Cavaney.
    Mr. Cavaney. Senator, looking at both of these proposals, 
there is a lot in 987 that we like, particularly the study 
efforts that are there to try and answer some of the big 
questions that need to be answered before you're going to get a 
reliable supply to the consumer on a consistent basis going 
forward. Both plans rely, in large part, on being able to 
provide massive amounts of scale for cellulosic ethanol. If 
that doesn't materialize on a timetable that is set forth, a 
lot of time needs to be spent understanding what those pathways 
are. This proposal, S. 987 acknowledges that with the study by 
the National Academy of Sciences to take a look at this issue. 
That's one of the key things we think we can help bring to the 
table. While we don't know a lot about a first generation 
foreign ethanol manufacturer, we know a great deal about what's 
needed to be able to reliably get fuel around this entire 
Nation, particularly fuel under different kinds of conditions.
    So we look forward to working with the committee on this. 
We think there are a number of items here, which can be further 
refined, and we think the timetable here is a little better 
than the timetable the administration set forward, because it 
calls for many, many large volumes of cellulosic at a timetable 
that we're not absolutely convinced can be delivered.
    At the end of the day, what all of us need to remember, 
whether we have a fossil fuel or renewables in the field that 
we deliver, is customers want it reliably. They want it 
inexpensively, and they want a quality fuel, and if we don't 
meet those three things, we're all going to fail the test. 
That's what we hope to be able to work on with the committee, 
and with my colleagues on the panel, to deliver.
    Senator Corker. Do you agree with Mr. Dinneen in the fact 
that this is a more narrow bill? It isn't as broad at bringing 
lithium and coal-to-gas and all that. Do you agree with the 
statements that he just made?
    Mr. Cavaney. Well, I agree certainly that it's a narrower 
bill. Our industry's perspective, since we provide energy 
broadly, including natural gas, is when we look at any global 
or even U.S. demand forecast into the future, we need all the 
energy that we can get. Whether or not it's all done in one 
bill or whether it's done in several, we think all of the 
elements that can deliver viable energy to the consumer are 
going to be pathways that this Congress and the administration 
and the next administration ought to pursue. So we look to you 
all and we'll take our guidance and work with you in that 
regard.
    Senator Corker. Mr. Lashof, as far as the coal-to-liquid 
technology, I look over here and see a big, black bar on the 
scale. Are there technologies out there today that you see on 
the horizon, that would allow us to use those technologies in a 
way that you would find environmentally friendly?
    Mr. Lashof. Senator, unfortunately the problem is, if you 
take a fossil fuel and whatever process you do, even if you 
capture all the CO2 in the processing plant and you 
put that fuel in the tank, there is no way to capture 
CO2 that comes out of the tailpipe of 200 million 
vehicles. That's fossil carbon and it goes into the atmosphere. 
There really is no way to avoid those emissions.
    There was a discussion earlier about a Princeton study that 
I am familiar with, that talks about the potential to get a 30 
percent benefit. That benefit really comes from the biomass 
blending. So the greenhouse gas reduction in that analysis 
comes from the biomass component of the fuel. If you're using 
just coal and making a liquid fuel, there's just not--there's 
just no feasible method that exists or that really could be 
imaged to do that.
    Now, the situation is a little bit different if you make 
electricity. If you make electricity from coal and are 
capturing the CO2 at the electricity plant, the 
electricity that goes into the vehicle, when you say a plug-in 
hybrid, obviously there's no CO2 emissions at the 
point of use for that electricity. So there is an opportunity 
to use coal, if it's produced in an environmentally sustainable 
way and converted to electricity in a plant that captures 
CO2 in a way that would be compatible with our 
climate goals, but I really don't think that's the case with 
liquid fuels.
    Senator Corker. Mr. Chairman, thank you for your testimony 
and Mr. Foody, I thank you for your great work. I appreciate 
it.
    The Chairman. Before calling on Senator Salazar for his 
questions, Senator Craig had a statement or question that he 
wanted to ask.
    Senator Craig. Well, I wanted to ask questions. Ken has 
been sitting here very patiently waiting to do so. Mr. 
Chairman, let me thank both you and Senator Domenici for this 
bill. Senator Dorgan and I introduced a similar bill earlier 
that has a couple of other components, and we are eagerly co-
sponsoring your bill. I don't think there is any energy 
security pathway that does not include this bill, in my 
opinion, and that's why I think it is tremendously important. 
I'm pleased to hear the testimony that is before us today.
    Senator Dorgan and I also agree that a balanced approach 
has to still include some offshore production. I think it has 
to include a CAFE standard that I've been slow to come to but 
I'm now there. I think these are also very, very critical as we 
look across the spectrum in doing so. But I thank both you, Mr. 
Chairman and the ranking member for the approach. It's clearly 
a step in the right direction. It augments EPAct in a way that 
broadens it toward our energy security. Obviously, we dealt 
primarily with, as you know, electrical production there, and 
now we're dealing with transportation. That is a critical 
component that expands the overall capacity in this country.
    I'll simply add that maybe we want to look at, if we can't 
get cellulosic up to the level we hope we can get it, that I 
know the bar doesn't look as appropriate as it should, as it 
relates to coal-to-liquids. Maybe we can offset that production 
volume with coal to liquids in the short-term. But I would hope 
that we can get cellulosic where we think we can get corn-based 
as quickly. Thank you.
    The Chairman. Thank you very much and Senator Salazar, go 
right ahead.
    Senator Salazar. Thank you very much, Senator Bingaman. I 
want to follow up on the questions that I asked Secretary 
Karsner in terms of how far we ought to go. Let me preface my 
question, and I'd like Bob Dinneen and Brian Foody to respond 
to this question.
    I'll preface my question this way. When we in 2005 said 
we're going to have an RFS at 7\1/2\ billion gallons, I think a 
lot of people thought it was realistic and it was, indeed 
realistic. In fact, as you were saying, Bob, it's been 
significantly surpassed.
    I know in Colorado--not dealing with this part of the 
renewable energy equation but when we looked at an RPS--several 
years ago, I was the lead signature on a RPS for Colorado that 
was citizen-initiated. We said there that we were going to 
produce 10 percent of our electricity from renewable resources 
by 2015. We are on the pathway to surpass that significantly. 
In fact, the legislature just adopted a new RPS in Colorado 
with the support of industry, our utilities, that is going to 
get us to 20 percent by the year 2020.
    So we set these goals and we are good in terms of getting 
there and surpassing them. My fundamental question here is 
whether or not we are being bold enough with this 36 billion 
gallon RFS by 2022. If I look at 2022, we're going to see the 
Presidential election of 2008, 2012, 2016, 2020 and I don't 
know whether that's as bold or as courageous as we ought to be 
doing, given the new technology that is unfolding here. Yet at 
the same time, I realize that staff and others have worked very 
hard to come up with a goal here that is realistic.
    So my question to you is simply this--do you think that it 
would be a wise thing for this Congress to establish an RFS of 
say, 35 billion with respect to biofuels, just biofuels, okay? 
Thirty-five billion by the year 2017. Could we achieve that 
goal? Let me start with you, Bob and Brian, you're doing the 
cellulosic ethanol piece, so go ahead.
    Mr. Dinneen. Well, part of me wants to say, ``Never say 
never.'' But 35 billion gallons of biofuels by 2017, I think, 
would be awfully ambitious. I know what we can do with grain-
based ethanol. I have a pretty good sense of where we will be 
in that timeframe. I don't know where we might be with respect 
to biodiesel, or cellulosic ethanol, or biobutanol, or some of 
the other renewable fuels. I think, quite frankly that the 
targets that are established in this bill are realistic and 
achievable, and I think while there is always going to be 
uncertainties with respect to just how fast cellulosic ethanol 
can come along, 3 billion gallons of cellulose by 2015, I 
think, is certainly realistic.
    It is also ambitious. But what it does is, it sends a 
strong signal to folks to do the research, to invest in the 
technology, to commercialize the product and get it moving 
quickly. I think the timeframes, the timetable, and the carve-
outs that are in this bill, are achievable and realistic and 
can be met.
    Senator Salazar. So these goals, you think, are achievable 
and can be met, but might they also be surpassed in the same 
way that our 2005 RFS was?
    Mr. Dinneen. They certainly might be.
    Senator Salazar. Mr. Foody, with respect to the 
contribution of cellulosic ethanol to this whole program, you 
are one of the lead companies in terms of the research in this 
issue. What's the contribution that cellulosic ethanol can make 
in terms of getting us to this goal and perhaps surpassing the 
goal? And go back to my original question that I asked Bob, can 
we go for 35 billion by the year 2017?
    Mr. Foody. If I think about the 35 billion by 2017, that 
would roughly equate to something like 20 billion gallons of 
cellulosic ethanol by 2017. America has the tremendous capacity 
to do new things, but that's a heck of a big step. It's really 
aggressive. I think the bill that is before us with 3 billion 
gallons in 2016 is as Bob said, achievable, realistic, but 
still aggressive. I think that things you could consider might 
be to advance and say, in 2015, have a target that might be 1 
billion gallons and see a ramp-up at that time.
    I certainly think, though, in the latter periods, if the 
cellulosic ethanol industry is capable of delivering 3 billion 
gallons a year, it will be capable of delivering 5 billion 
gallons a year, each year, in new added capacity.
    I think what you've worked out in your bill is essentially 
a straight line of 3 billion gallons per year, each year as you 
move forward and I think naturally, you would expect the 
industry to be able to see a ramp-up phase and then to grow 
very rapidly. Remember my example of the Tar Sands in Alberta? 
They're actually adding 10 billion gallons per year as we 
speak, in annual capacity. So I think if you were thinking 
about it, you might adjust your targets in that fashion.
    Senator Salazar. My time is up, Mr. Chairman.
    The Chairman. I did not have questions. If you have any 
additional questions, why don't you go ahead? Then we'll 
conclude the hearing.
    Senator Salazar. If I may just, with your indulgence, Mr. 
Chairman, ask one more question, and that is of Mr. Cavaney, 
and that is with respect to the distribution. One part is a 
production side with respect to what we do relative to the goal 
that we aim for, and hopefully uncovering the technology that 
will get us there. The other is the distribution part of it, 
and that is very much addressed in the Chairman's mark here, 
and I very much appreciate the work that has been done there.
    One of the concepts that several of us have talked about is 
the possibility of creating additional incentives for gas 
station owners to come in and to put in tanks that actually 
carry biofuels and incentivize them, putting in the kinds of 
pumps that would deliver the biofuel ethanol or whatever it 
might be.
    Do you have any ideas on how we might be able to enhance 
that distribution capacity beyond what's already included in 
this bill?
    Mr. Cavaney. Senator, I feel the fact that you've 
acknowledged in the bill and put some things in there is very, 
very helpful. One of the things that most people overlook is 
that while the brands and the stations are very commonly known 
to everyone, you take the 170,000 retail gasoline outlets that 
are out there and about 5 percent of them are owned by the 
industry, the refiners. The rest are owned by independent 
businessmen and women who, whether they own a McDonald's or a 
family store, capital is very hard to come by. So 
acknowledgements and assistance and credits and however it's 
done is one way to approach that.
    Another way is to provide some economic certainty, and to 
provide stable and reliable supplies, because that gives the 
owner the confidence that they are going to get a steady stream 
of business. They can forecast what their outcomes are going to 
be, and that's why the one thing we hope to bring to this 
debate is to try and, from our experience, help people 
understand how important it is to make sure the infrastructure 
is in place so when the production comes up, we can move this 
stuff very clearly.
    We're very concerned about State mandates. For example, 
there are eight States that have mandated ethanol contents up 
to 10 percent. Of those eight States, no two are the same. It's 
like the boutique fuel problem we had with gasoline. One of 
those States, Missouri, actually has a regulation in place that 
if we comply with it, we'll be in violation of the Federal 
regulations. The point I'm trying to make here is if we can get 
the distribution and give those small business owners the 
confidence, I think the things that you proposed here are going 
to go a long way toward helping them.
    Senator Salazar. I appreciate that. Mr. Chairman, I'd like 
to ask one more question of Mr. Lashof, if I can and that is: 
with respect to the coal-to-liquids concepts that have been 
talked about in this committee, is there an approach here that 
would allow us to move forward with promoting a coal-to-liquids 
program that would ensure that we might be able to keep from 
adding to the problem of global warming and greenhouse gases? 
That would be by creating some kind of a standard with respect 
to the CO2 emissions from coal to liquid fuel as it 
is burnt.
    Mr. Lashof. Well, Senator I do believe that a greenhouse 
gas performance standard for fuels generally, for renewable 
fuels, and for any other fuels that might be entered in the 
market, is the best approach to ensure that we achieve the 
outcome we're looking for, which is lower global warming 
pollution. I think the current bill tries to get at this by----
    Senator Salazar. Let me focus you on coal-to-liquids.
    Mr. Lashof. On coal-to-liquid.
    Senator Salazar. Coal is such a huge natural resource that 
we have in the West and we have in this country, in Kentucky 
and Virginia and a whole host of other places. So with respect 
to coal, is there a way in which we might be able to move 
forward with that program and yet, maintain some carbon 
neutrality with respect to the use of that fuel in our 
portfolio?
    Mr. Lashof. Well, as I said in response to Senator Corker's 
question, I think that the best way to use coal to help meet 
our transportation needs is through an electricity pathway. But 
if coal-to-liquids were to be used, which is not something that 
I would support, but were it to be used, it would certainly be 
much more reassuring if it was subject to a greenhouse gas 
performance standard that ensured that it was making--Senator 
Bunning talked about the possibility, with appropriate 
technology and blending of biomass, you'd make at least a 30 
percent--if you get a 30 percent reduction in greenhouse gases 
relative to gasoline.
    Again, I don't support modifying this bill to allow coal-
to-liquids in, but were coal-to-liquids to be part of any kind 
of fuel program, if there was a performance standard that said 
you had to make a reduction in global warming pollution at 
least as large as what can be obtained through ethanol, then I 
think that would certainly be somewhat reassuring.
    Senator Salazar. Okay. Thank you very much, Mr. Chairman.
    The Chairman. Well, thank you, and thank all of you for 
your good testimony. I think this has been helpful to us and we 
appreciate your input we'd be glad to hear and any other 
thoughts you have. Thank you very much.
    [Whereupon, at 12:25 p.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

    Responses of the American Petroleum Institute to Questions From 
                              Senator Burr
    Question 1. Due to the increased corn demand for ethanol, feed 
prices have tremendously increased over the last two years, has anyone 
analyzed the effect on corn prices is this bill becomes law?
    Answer. While the API is not aware of any completed studies 
concerning the potential impact on corn prices of the ``Biofuels for 
Energy Security and Transportation Act of 2007,'' other models, based 
on similar scenarios, have shown increased corn prices with higher 
renewable fuels standards (RFS). The Agricultural and Food Policy 
Center (AFPC) of the Texas A&M University System released a report in 
August of 2006 that showed the effects of various policies on the price 
of corn. One of the examined policies was an increased RFS, based on S. 
2817, the ``Biofuels Security Act of 2006'' introduced by Sen. Harkin 
in May of 2006, where corn ethanol would reach 20 billion gallons by 
2015. Under the AFPC study, the price of corn increases by about 60% 
between 2007 and 2012, when production of ethanol from corn begins to 
exceed 14 billion.\1\
---------------------------------------------------------------------------
    \1\ Bryant, H. and J. Outlaw, ``U.S. Ethanol Production and Use 
Under Alternative Policy Scenarios.'' Agricultural and Food Policy 
Center, Department of Agricultural Economics, Texas A&M University, 
August 2006.
---------------------------------------------------------------------------
    Question 2. By some estimates, about 30% of the U.S. grain harvest 
is likely to be devoted to ethanol production by 2008, up from 16% in 
2006. What will be the percentage of grain harvest devoted to ethanol 
production under the mandate required by this bill?
    Answer. Using a conversion rate of 2.77 bushels of corn per gallon 
of ethanol, based on data projections from the USDA, 15 billion gallons 
of ethanol produced from corn in 2015 would require 39% of the total 
projected corn harvest. However, this percentage could vary 
significantly from year to year given factors affecting corn supply 
such as weather.
    Question 3. Due to the increase of corn prices, farmers are 
electing not to enroll high maintenance farmland into the national 
Conservation Reserve Program. Will this bill be harmful to protecting 
farmland which is environmentally sensitive?
    Answer. While the API is not aware of any completed studies 
regarding corn ethanol and the Conservation Reserve Program (CRP) in 
direct connection with this bill, it is clear that increased production 
of ethanol from corn would have a negative impact on the CRP and the 
environmentally sensitive land protected by the program. As corn prices 
increase, farmers will have greater incentive to move land back into 
grain production. A recent study of the impact of corn prices on CRP 
acreage in Iowa indicated significant increases in sediment, nitrogen 
and phosphorous losses as farmers move CRP acreage back into production 
in response to higher corn prices. The study also suggests that the 
impacts of returning CRP acreage to crop production could be 
substantial for some wildlife populations in Iowa (e.g., the wild 
turkey).\2\ According to Clayton Ogg of the U.S. EPA, increased corn 
ethanol production could present challenges to the CRP--``corn ethanol 
production could reduce enrollment in the CRP.''\3\ Also, corn farmers 
could move from a corn-soybean rotation to continuous corn planting 
that would lead to increased fertilizer use and nutrient runoff that 
could adversely impact water supplies.
---------------------------------------------------------------------------
    \2\ Deccchi, S. and Babcock, B., Iowa State University, Impact of 
High Crop Prices on Environmental Quality: A Case of Iowa and the 
Conservation Reserve Program, Working Paper 07-WP447, May 2007.
    \3\ Ogg, C., ``Environmental Challenges Associated with Corn 
Ethanol Production.'' National Center for Environmental Economics, 
April 2007.
---------------------------------------------------------------------------
    Question 4. Given that in the near term much of the ethanol will be 
derived by corn, how much, if any, imported oil will be displaced?
    Answer. The AEO 2007, published by the Energy Information 
Administration of the U.S. DOE, projects that net crude oil imports 
will reach 10.5 million barrels per day, or 160.7 billion gallons per 
year, by 2015.\4\ Adjusting the legislation's corn ethanol mandate to 
an energy equivalent basis with crude oil, 15 billion gallons of 
ethanol is equivalent to roughly 8.4 billion gallons of crude oil, or 
approximately 5% of U.S. crude oil imports. However, this percentage 
does not represent the amount of crude oil that could be displaced as 
there are several offsetting factors. Significant amounts of fossil 
fuels are required to produce ethanol and would have to be factored 
into any displacement estimate. An additional offsetting factor is the 
likelihood that product slates and product imports would change with 
increasing ethanol use. Each refiner, acting independently, could be 
expected to make adjustments to maintain efficient refinery operations. 
Making these adjustments would result in a lower percentage than that 
given above.
---------------------------------------------------------------------------
    \4\ USDOE/EIA, Annual Energy Outlook 2007 Table 11. Liquid Fuels 
Supply and Disposition.
---------------------------------------------------------------------------
    Question 5. What will be the overall environmental benefits of corn 
based ethanol, given the increased use of environmentally sensitive 
cropland?
    Answer. Corn is by far the largest single field crop in the US, and 
USDA estimates that increased ethanol production will encourage the 
planting of about 90 million acres to corn in 2007--an increase of over 
10 million acres from 2006 and about 33% more planted land than any 
other field crop.\5\ Collectively, corn cultivation uses more 
pesticides and nitrogen fertilizer than any other U.S. crop.\6\ 
Additionally, more soil erosion occurs in the Corn Belt than in other 
parts of the U.S., much of this from corn acres.\7\ In 2006, about 20% 
of the corn crop was used for corn ethanol production, and USDA 
projects that 27% of the 2007-08 corn crop will be used for ethanol.\8\ 
It is well-documented \9\ \10\ that corn production is responsible for 
significant environmental impacts to soil and water resources because 
of:
---------------------------------------------------------------------------
    \5\ USDA NASS. Projected Plantings, April 2007. http://
usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1136; 
and USDA March 30 2007 Press Release. Corn Acres Expected to Soar in 
2007, USDA Says--Ethanol, Export Demand Lead to Largest Planted Area in 
63 Years. http://www.nass.usda.gov/Newsroom/2007/03_30_2007.asp.
    \6\ USDA. Agricultural Chemical Usage, 2005 Field Crops Summary. 
May 2006 http://usda.mannlib.cornell.edu/usda/nass/AgChemUsDistRate//
2000s/2005/AgChemUsDistRate-12-23-2005.pdf.
    \7\ USDA NRCS. Total water and wind erosion, 1997. http://
www.nrcs.usda.gov/TECHNICAL/land/meta/m5112.html.
    \8\ USDA Agricultural Projections to 2016, February 2007. http://
www.ers.usda.gov/publications/oce071/.
    \9\ Powers, Susan E. Quantifying Cradle-to-Farm Gate Life Cycle 
Impacts Associated with Fertilizer Used for Corn, Soybean, and Stover 
Production. Clarkson U. Technical Report U.S. DoE NREL/TP-510-37500. 
May 2005 http://www1.eere.energy.gov/biomass/pdfs/37500.pdf.
    \10\ Beyond the RFS: The Environmental and Economic Impacts of 
Increased Grain Ethanol Production in the U.S. WRI Policy Note, 
September 2007. http://www.wri.org/climate/pubs_
description.cfm?pid=4185.

   Soil erosion that degrades land quality and also pollutes 
        surface water sources with sediments (one reasonable estimate 
        is that 20 pounds of soil loss occurs for each gallon of 
        ethanol produced;\11\ and
---------------------------------------------------------------------------
    \11\ DeLuca, Tom. On Ethanol: Conservation Shou.ld Precede Biofuels 
Mania, Guest Writer, Feb. 28, 2007. http://www.newwest.net/index.php/
topic/article/on_ethanol_conservation_
should_precede_biofuels_mania/C73/L38/.
---------------------------------------------------------------------------
   Surface and ground water quality reduced by runoff or 
        infiltration of fertilizers and pesticides, which can also have 
        deleterious effects on aquatic organisms and ecology.\12\
---------------------------------------------------------------------------
    \12\ Powers, Susan E. Quantifying Cradle-to-Farm Gate Life Cycle 
Impacts Associated with Fertilizer Used for Corn, Soybean, and Stover 
Production. Clarkson U. Technical Report U.S. DoE NREL/TP-510-37500. 
May 2005 http://www1.eere.energy.gov/biomass/pdfs/37500.pdf.

    Life cycle assessments of corn ethanol cited as evidence of its 
environmental and greenhouse gas benefits typically fail to include 
soil erosion and water quality impacts in their evaluations5, and those 
studies do not include environmental impacts associated with possible 
land use changes such as returning Conservation Reserve Program (CRP) 
acres to production, or increased corn acreage in other countries.\13\ 
USDA estimates that as much as 4.6 million acres or more could be lost 
from the Conservation Reserve Program (CRP) during the next several 
years,\14\ much of that expected to be put into corn cultivation, or 
into production of other crops whose current acreage is being converted 
to corn. The limited potential benefits of corn ethanol regarding 
greenhouse gas emissions that are shown in those studies may further 
diminish because of the use of less productive and erosion-susceptible 
land to grow corn, and the use of less sustainable, more fossil energy 
intensive crop management practices like continuous corn production, or 
corn-corn-soybean rotation.\15\
---------------------------------------------------------------------------
    \13\ EPA. Summary and Analysis of Comments for Regulation of Fuels 
and Fuel Additives: Renewable Fuel Standard Program. http://
www.epa.gov/otaq/renewablefuels/420r07006-sections.htm. Section X: 
Environmental Impacts http://www.epa.gov/otaq/renewablefuels/
420r07006chp10.pdf.
    \14\ USDA. USDA Announces Results of Intentions to Re-Enroll and 
Extend CRP Contracts. March 2007 http://www.usda.gov/wps/portal/!ut/p/
_s.7_0_A/7_0_1OB?contentidonly=
true&contentid=2007/03/0058.xml.
    \15\ Secchi, S. and Babcock, B., Iowa State University, Impact of 
High Crop Prices on Environmental Quality: A Case of Iowa and the 
Conservation Reserve Program, Working Paper 07-WP447, May 2007. http://
www.card.iastate.edu/publications/synopsis.aspx?id=1046.
---------------------------------------------------------------------------
    As it is unlikely that cellulosic ethanol will contribute even 10% 
as much as expected corn ethanol production for at least 7 years or 
more, these large environmental corn ethanol impacts will continue to 
occur year after year. Collectively these ``unintended consequences'' 
are severe environmental impacts that should be fully assessed.
Response of the American Petroleum Institute to Question From Senators 
                         Bingaman and Domenici
    Question 6. Some parties advocate that the Renewable Fuel Standard 
should include a ``price trigger.'' The price trigger would allow a 
blender or importer to pay a $1 penalty per gallon in lieu of 
fulfilling its renewable fuel obligation under the RFS. From your 
industry's perspective, how would this approach affect the 
implementation of the RFS?
    Answer. The ``price trigger'' is an unfair penalty because a 
shortfall is likely to occur, regardless of the best efforts by 
industry. Moreover, the means to comply are beyond the control of the 
refiner. This would be a penalty against refiners for not finding the 
renewable or alternative fuels available in the marketplace. A penalty 
is supposed to deter future violations. Penalizing the refiner would 
not meet this objective because the refiner has no control over 
production or the availability of biofuels.
    The penalty serves no beneficial purpose and in fact would be 
counterproductive in light of the tremendous capital investment the oil 
and natural gas sector needs to meet future U.S. energy demand. This 
penalty, as a cost of doing business, would ultimately likely be 
reflected either in the price paid by consumers for a company's 
products or in reduced returns to shareholders.
    Instead of a penalty, any mandates for renewable fuel usage should 
be accompanied by periodic technology/feasibility reviews that would 
allow for appropriate adjustments to ensure that energy companies and 
consumers are not penalized due to the economic and technical hurdles 
that might prevent reaching alternative or biofuels usage targets or 
goals.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

           Statement of the Clean Fuels Development Coalition
    The Clean Fuels Development Coalition (CFDC) appreciates the 
opportunity to provide testimony to the Senate Energy Committee on S. 
987 (Biofuels for Energy Security and Transportation Act of 2007).
    CFDC is a broad based organization supporting the development of 
domestic and renewable transportation fuels with a particular emphasis 
on ethanol. The organization is a true coalition with membership that 
includes ethanol producers, research and development groups, design-
build companies, and automobile manufacturers. Now in its 20th year of 
operation, CFDC has witnessed firsthand the phenomenal growth of the 
biofuels industry and has had a direct hand in the formation of many of 
the federal programs that have been a catalyst for this growth.
    We were among the first supporters of the oxygen standard in 
reformulated gasoline and testified before this committee in 1989. We 
were part of the regulatory negotiation for the fuel provisions of the 
Clean Air Act Amendments and later worked with the House and Senate as 
part of the industry negotiating team to craft the first renewable 
fuels standard. Our support for the oxygen standard some 18 years ago 
was based on our firm belief that the market certainty provided by that 
provision was the perfect compliment to the tax incentive and would be 
the catalyst for the domestic ethanol industry to significantly expand. 
While the emergence of the non-renewable oxygenate MTBE stunted ethanol 
growth to some degree, the combination of tax and market incentives was 
effective. As the oxygen standard gave way to the RFS, renewables have 
finally been given the clear path to growth they have needed, and 
responded accordingly.
    We believe S. 987 embodies the fundamental principles of providing 
market certainty that will overcome the institutional barriers ethanol 
and other renewable fuels have faced.
    Ethanol is faced with an obstacle unlike any other commodity in the 
world in that it is sold into a market controlled by its competitors. 
Ethanol is not sold directly to consumers but rather sold to the 
petroleum industry whose product is being displaced. It is practically 
a conflict of interest for petroleum companies to voluntary purchase 
ethanol, which is the reason for the creation of the partial excise tax 
credit. This credit is designed to make ethanol more attractive 
financially which is a key factor in overcoming this unusual and 
difficult situation. The other key part of this puzzle lies in the 
legislation before your Committee and that is essentially to continue 
to require renewable fuels, such as ethanol, to be part of our fuel 
mix.
    From 1990 to 2000, even though ethanol was in part required for 
clean air programs, it took 10 years for production to double, due to 
the uncertainty of the market those programs provided. As the RFS began 
to develop and expectations were that it would indeed pass, U.S. 
production doubled again over just the next four years (1.65-3.3BGPY). 
When the RFS did become certain, counting ethanol capacity under 
construction the industry doubled again from 2004-2007, with more than 
6 billion gallons coming on line. The next doubling of the industry is 
likely to take place sometime in 2009 or 2010 with another 6 billion 
gallons ready to enter the fuel market. Can any one question that the 
RFS was clearly the catalyst for this growth? We have had a tax 
incentive in place for 25 years and it never drove the market like this 
provision.
    There are numerous precedents we can look at from all facets of our 
society that draw comparisons to the RFS, whether it be Buy American 
provisions for U.S. content in defense acquisition; small business 
preference or minority business set-asides; equal employment 
opportunity programs; and handicapped provisions. These are all 
adjustments the Congress has made because if left to their own devices, 
the free market would not have done these things which Congress deemed 
to be in the public interest. Continuing and expanding a program under 
which renewable fuels would have the certainty needed for private 
investment dollars to flow is justified and necessary and the results 
are undeniable.
    There are some insightful and innovative provisions in this bill 
that we fully support. The studies to address pipeline issues with 
ethanol are long overdue. Studies to advance the use of higher blends 
of ethanol could have a profound impact on the demand for ethanol. But 
the heart of the bill, the very core, is the schedule of increased use 
that would continue to provide the benefits achieved over the past 
several years. Given our modest history, some might call it 
unrealistic. Yet others question if it is aggressive enough. The answer 
will be determined by how the program is finally designed and 
implemented. CFDC is an ardent and long time supporter of the RFS but 
we respectfully offer the following suggestions as to how this bill 
could me modified.
    Percentage Based Requirement.--We have some concerns with the basic 
approach of being so prescriptive with respect to the annual 
requirements. We would recommend that rather than such specific annual 
requirements the legislation would establish that a percentage of the 
gasoline and diesel pool be required to be renewable fuels by a certain 
time. In what could be considered as the first phase of the program 
from 2008-2012, that requirement would be 10%, or approximately 15 
billion gallons. As a renewable requirement this could be met with 
ethanol, biodiesel, or higher alcohols as long as they were derived 
from renewable feedstocks. This would allow for the market to either 
front load the requirement if it made economic sense, or let some 
periods go by to allow for delays in construction, fabrication, 
financing or any number of other related areas. We know this level is 
attainable, we are within sight of it today. For every year after 
(until the 2023 end date this bill would authorize) the renewable 
requirement would increase by 2%. At projected fuel consumption levels 
in the U.S. it would be close to the 3 billion gallons called for in 
the legislation from 2015 to 2023, but again would have a carry forward 
type allowance with the intent of providing maximum flexibility so that 
the total is achieved within the time period. This type of approach 
also would not give any cause to suspend or need to open up the program 
if something were to cause a delay in a single year. The diesel market 
should have its own renewable requirement from 2012 on. We do not have 
a position on the exact numbers for that requirement but the biodiesel 
industry would certainly have the best feel for a growth rate that is 
achievable. By separating the two, the diesel market will have its own 
clear path and will not be limited if ethanol exceeds the floor of the 
RFS. We have members who can make a biomass-based diesel (not 
biodiesel) and this represents a tremendous opportunity, particularly 
for clean air purposes.
    Elimination of Feedstock Restrictions or Caps.--CFDC believes the 
definition of advanced biofuels that does not include corn, is 
unnecessary and restrictive. Current concerns over the use of corn 
often fail to reflect the dramatic increases in yield from both the 
amount of corn produced per acre as well as the amount of ethanol yield 
per bushel. By the year 2015 there may be dramatic improvements in both 
and to cap the most effective feedstock we have at this time seems 
unnecessarily restrictive. Certainly as we get closer to the limits of 
corn that can be used other feedstocks will become more economically 
feasible. Increased corn demand will provide the incentive to look 
beyond corn and accelerate the development of these feedstocks. The 
market will determine the pace of that transition from corn. Previous 
legislation and the tax code clearly define what is renewable. Picking 
losers and in effect forcing technology is not the answer.
    Re-Direction of Financial Resources from Capital to Market.--
Looking at the success of the original ethanol partial excise tax 
exemption, providing financial rewards when fuel actually reaches the 
market has been a proven approach. The accelerated depreciation 
provision for biomass ethanol property passed in the 2006 tax bill--if 
expanded to all cellulosic technologies--is a helpful capital 
incentive. The compliment to that would be an increased tax credit or 
payment for these advanced biofuels at some significant level. All 
renewable ethanol would be eligible for the excise tax credit, but 
these advanced biofuels would be eligible for payments. There are 
several advantages to this approach. First of all the federal 
government, and the American taxpayer, only pay out if the project 
actually produces fuel. Secondly, as an incentive for renewable fuels, 
it would not be tied to the tax base and would promote the development 
of a wide range of biofuels beyond just ethanol. There is a generation 
of renewable fuels on the horizon. Bio fuels, bio oils, hybrids, 
biomass derived diesel, and even a green gasoline is under development 
by one of our member companies. Lastly, it would obviate the need for 
specific technologies to be chosen by the federal government which is a 
process that to date has not yielded a gallon of cellulosic fuel on the 
market. Rather than authorize and appropriate money for capital 
projects, funds could be appropriated for a biofuel fund. We believe 
this would provide more results for our money. Ultimately it could be a 
CO2 reduction program since all of these fuels, by virtue of 
their renewable feedstock, would be displacing fossil fuels.
    Mr. Chairman, the benefits of the RFS are clear. By virtue of the 
fact that you and Senator Domenici have introduced legislation to 
expand it shows you recognize that fact. We implore you to provide 
direction, but at the same time be as flexible as possible in how we 
approach this issue.
    A final thought for the Committee's consideration with regard to 
talking the lead in expanding the RFS is that knowing demand is out 
there will continue to drive technology. Industry and government alike 
will look harder, develop further, and go faster when it comes to 
demonstrating feedstocks and technologies. If the perception settles in 
over the industry that requirements have been met and we will enter a 
period of detente, it is quite likely the current interest we are 
seeing in renewable technologies will slow down considerably, if not 
stop all together. For that reason we also believe it is critical to 
clearly maintain the definition of renewable fuels, rather than a 
broader alternative fuel category as has been proposed by the Bush 
Administration. Fossil fuel-based alternatives to importing oil and 
gasoline from hostile and unstable regions should be a complement to a 
renewable requirement, but never should it replace renewables. Clearly 
the carrot on a stick approach of having identifiable programs and 
objectives out in front will continue to drive American agriculture and 
many other industries to maximize all of its available resources to 
produce ethanol and other biofuels to the benefit of the entire 
country.
    On behalf of our members, we thank you again for the opportunity to 
submit these comments and look forward to working with Congress and the 
Department of Agriculture on these very important subjects.
                                 ______
                                 
Joint Statement of Defenders of Wildlife, Environmental Working Group, 
 Friends of the Earth, Institute for Agriculture and Trade Policy, The 
  Minnesota Project, National Environmental Trust, Natural Resources 
 Defense Council, Sierra Club, Sustainable Agriculture Coalition, U.S. 
  PIRG, Western Organization of Resource Councils, World Wildlife Fund
    On behalf of our millions of members and activists we urge you to 
support sustainably produced bioenergy as a key component of a 
comprehensive strategy to reduce America's dangerous dependence on oil 
and to help solve global warming. Done right, bioenergy holds great 
potential to advance essential environmental and energy security goals. 
Pursued without adequate guidelines, however, bioenergy production 
carries grave risk to our lands, forests, water, wildlife, public 
health and climate. We therefore urge you to support the energy 
efficiency policies and performance standards that will ensure 
bioenergy meets its promise while avoiding collateral environmental 
damage.
    The starting point for any constructive bioenergy policy, from 
increasing the size of the renewable fuel standard to enhanced biofuels 
programs in the Farm Bill, has to be much greater end-use energy 
efficiency. Efficiency policies such as raising Corporate Average Fuel 
Economy standards for vehicles and promoting smart growth in our cities 
are essential to reduce oil demand and ensure that our lands are not 
put under excessive pressure to produce biofuel feedstocks.
    If not carefully managed, increased production of biofuels has the 
potential to cause widespread environmental devastation. Accelerated 
corn cultivation for ethanol, for example, threatens to deplete water 
tables, magnify contamination by fertilizers, pesticides, and 
herbicides, and undermine vital conservation programs like the 
Conservation Reserve Program. On farms and in forests across the 
country and abroad, imprudent biomass harvesting would cause soil 
erosion, water pollution, and habitat destruction, while also 
substantially reducing the carbon uptake of land. Advancing a biofuels 
policy that leads to conversion of land into a type that lowers its 
carbon uptake potential is a particularly perverse result for a policy 
that is intended to reduce global warming pollution.
    Fortunately, we can manage and mitigate these bioenergy impacts 
through thoughtful legislation. Developing a sustainable bioenergy 
industry will require low carbon and other environmental performance 
standards. Attached, we respectfully include a set of guiding 
principles that provide the basis for such standards.
    New policies are also needed to accelerate the transition to 
bioenergy produced from feedstocks such as cellulosic crops grown in 
sustainable systems. These policies include research and development on 
feedstocks such as native perennials, incentives for bioenergy 
production facilities with a preference for local ownership, and 
programs that help farmers make the transition to growing feedstocks in 
sustainable agronomic systems.
    Again, bioenergy holds great promise as a tool for reducing global 
warming pollution, breaking our dangerous oil addiction, and 
revitalizing rural economies, as long as we shape the nascent bioenergy 
industry to provide these benefits in a sound and truly sustainable 
fashion. We look forward to working with you on this important and 
challenging issue.
                 bioenergy feedstock guiding principles
   The use of bioenergy must reduce greenhouse gas emissions.--
        Depending on how it is produced, bioenergy can significantly 
        lower or increase greenhouse gasses. Key factors include the 
        amount and sources of energy used to produce biofuels, and the 
        potential direct or indirect conversion of carbon-sequestering 
        forests and grasslands to lower carbon bioenergy feedstocks. To 
        assure benefits, new incentives and requirements for increased 
        use of biofuels need to be tied to significant reductions in 
        the greenhouse gas intensity of these fuels. Practices that 
        negate the greenhouse gas benefits of biofuels include 
        conversion of native grasslands to produce biofuel feedstocks, 
        loss of old growth forests, intensified tillage, and use of 
        coal to power ethanol plants.
   Biomass used for bioenergy has to be renewable.--Biomass 
        must be regrown on site, recapturing its released carbon, so 
        that it is genuinely sustainable--unless it is the by-product 
        of activity with independent, over-riding social utility (like 
        removal of vegetation immediately around wildland-interface 
        homes).
   Bioenergy feedstocks must not be grown on environmentally 
        sensitive lands.--Such lands include: old growth forests; 
        wilderness study areas; roadless areas on national forests; 
        native grasslands; important wildlife habitat; ecosystems that 
        are intact, rare, high in species richness or endemism, or 
        exhibit rare ecological phenomena.
   Conversion of natural ecosystems must be avoided.--Habitat 
        loss from the conversion of natural ecosystems represents the 
        primary driving force in the loss of biological diversity 
        worldwide. Activities to be avoided include those that alter 
        the native habitat to such an extent that it no longer supports 
        most characteristic native species and ecological processes.
   Exemptions and waivers from environmental rules must not be 
        used to promote biomass production or utilization.--Trading one 
        serious environmental harm for another is poor policy. Our 
        environmental laws and regulations act as a fundamental system 
        of checks and balances to guard against just such collateral 
        damage and the promotion of bioenergy production and 
        utilization must in no way be exempted.
   Conservation and Wetland Reserve Programs supported by the 
        Farm Bill must be managed for their conservation benefits.--
        These programs protect marginal lands, water quality, soil, and 
        wildlife habitat. Enrolled lands need to be managed principally 
        for these important values, not bioenergy feedstocks.
   Independent certification, market incentives, and minimum 
        performance requirements are necessary to ensure that bioenergy 
        feedstocks are produced using sustainable practices.--
        Certification standards for biomass from private lands must 
        address key environmental and social objectives, such as 
        protection of wildlife habitat, prevention of erosion, 
        conservation of soil and water resources, nutrient management, 
        selection of appropriate feedstock species, and biologically-
        integrated pest management. New policies are needed to ensure 
        that producers, refiners and distributors adhere to minimum 
        performance requirements and have incentives to maximize 
        environmental performance at each step.
   Stringent safeguards must be established for bioenergy 
        production from feedstock derived from federal land.--Federal 
        lands, including wildlife refuges, BLM lands, national forests 
        and grasslands, are held subject to the public's interest in 
        their non-commodity values. They are not appropriate for large-
        scale, sustained biomass sourcing.
                                 ______
                                 
Statement of Dave Heineman, Governor, State of Nebraska, and Chairman, 
                      Governors' Ethanol Coalition
    Mr. Chairman and members of the Committee, my name is Dave 
Heineman, Governor of Nebraska and Chairman of the Governors' Ethanol 
Coalition. The Coalition represents thirty-five of the nation's 
governors and is committed to expanding the environmental, economic, 
and security benefits of ethanol production and use to all regions of 
the nation. We greatly appreciate the opportunity to provide this 
testimony in support of key provisions of the Biofuels for Energy 
Security and Transportation Act of 2007--S. 987.
    This legislation's core elements build upon and include many of the 
governors' recent and past policy recommendations to Congress and the 
President. Our recommendations were developed because of the governors' 
concern for the serious security, economic, and environmental risks 
associated with the United States' dependence on oil from unreliable 
and unstable nations. We believe we must transform the nation's 
transportation fuel system and the vehicle fleet so that the fuel we 
use does not threaten our way of life. Consider the following:

   Oil is the largest contributor to our trade deficit, 
        accounting for more than $1 billion a day in funds that are 
        largely sent--not to the shareholders of major publicly owned 
        oil companies--but to increasingly unstable oil exporting 
        countries;
   Oil accounts for more than 32 percent of U.S. carbon dioxide 
        emissions--with each gallon of gasoline burned producing 28 
        pounds of carbon dioxide from the combination of tailpipe 
        emissions and the refining and distribution of gasoline; and,
   Oil supply and price volatility have demonstrated repeatedly 
        a capacity for worldwide economic disruptions.

    Recognizing the seriousness of this matter, the governors worked 
with Congress and the President to pass the Energy Policy Act of 2005, 
which established the Renewable Fuels Standard (RFS) and dramatically 
expanded biofuels research and demonstration. The result is 
unprecedented growth in ethanol production and the beginning of a shift 
in our oil dependency. For example, the production of 4 billion gallons 
of ethanol in 2005 resulted in the United States importing 170 million 
fewer barrels of oil--this means that $8.7 billion was not transferred 
to oil-producing nations from our nation that year.
    In a matter of months, we will exceed the 2012 goal of 7.5 billion 
gallons of ethanol a year set by the RFS contained in the Energy Policy 
Act of 2005. This seemingly overnight achievement is a modest 
demonstration of what the nation can achieve with sound policy signals 
and adequate resources.
    However, our continued oil dependency suggests the need for a far 
greater response. Production of 10 or 15 billion gallons of ethanol a 
year can aid in mitigating these risks and is a goal that can be met 
with existing feedstocks and technologies. Nevertheless, such a goal 
falls short of both our potential and the challenge we face. Instead, 
the Coalition members believe we must establish far more ambitious 
goals than those envisioned only a few years ago.
    In order to assess the potential for adopting such an expansion, 
the Coalition commissioned the University of Tennessee to conduct a 
study of the economic, environmental, and agricultural impacts of 
increasing levels of ethanol production and use. The results of the 
study show that further expansion of production--10 billion gallons in 
2010, 30 billion gallons in 2020, and 60 billion gallons in 2030--is 
well within the capability of the industry and farmers under 
conservative grain yield improvement assumptions, and use of modest 
amounts of cellulosic derived ethanol production by 2012, growing to 
far greater quantities over time.
    Emboldened by both the study results and the need to address the 
nation's and the states' energy policies, the governors' consulted a 
group of environmental, energy, agricultural, and biofuel experts to 
aid them in developing a new set of policy recommendations. The 
governors adopted these recommendations four months ago in a report 
entitled Ethanol From Biomass: How to Get to a Biofuels Future. The 
recommendations include:

   Expanding the RFS.--The RFS should be expanded to a short-
        term target of 12 billion gallons a year of ethanol and 
        biodiesel use by 2010, and a longer-term BTU-based target of 25 
        percent of total motor fuels consumption by 2025, or about 60 
        billion gallons.
   Assigning a value to the RFS cellulosic ethanol trading 
        credit.--This non-financial credit should be converted to a 
        Cellulosic Ethanol Production Tax Credit.
   Establishing a timetable for delivering higher blend ethanol 
        infrastructure--expanding from several major metropolitan areas 
        to entire regions within five years.--This expansion would be 
        synchronized with the production of not less than 70 percent of 
        new vehicles sold being flex-fuel capable within 10 years.
   Providing adequate funding for the Energy Policy Act of 2005 
        authorized biofuel research, demonstration, and incentive 
        programs.--Critical efforts must be fully supported on a range 
        of cellulosic feedstocks. This support is key to the 
        development of advanced ethanol production, the launch of plug-
        in hybrid flex fuel capable vehicles, and the expansion of 
        higher blend ethanol infrastructure. Support for these efforts 
        will cost less than one-half of what America spends in one day 
        for imported oil.

    The combination of the above actions aim to achieve a goal of 
providing 25 percent of our transportation fuel, about 60 billion 
gallons, from renewable, domestically produced ethanol by 2030.
              support for s. 987 complementary provisions
    The Governors' Ethanol Coalition supports components of the 
Biofuels for Energy Security and Transportation Act of 2007 (S. 987). 
In particular, we believe the legislation's expansion of the RFS and 
emphasis on stimulating rapid cellulosic biofuel production are 
essential to addressing the nation's energy challenges. Moreover, the 
bill's attention to regional differences, which recognizes the need to 
support ethanol production and feedstock development in all areas of 
the nation, is a key principle of the governors' policy 
recommendations.
    However, the Coalition believes S. 987 could be strengthened in 
several important ways and we respectfully request your consideration 
of the following additional elements derived from the governors' policy 
recommendations:
RFS Expansion
    S. 987's RFS targets are excellent, but would benefit from greater 
near-term expansion of cellulosic derived ethanol. The current RFS 
includes a requirement for the utilization of 250 million gallons of 
cellulosic derived ethanol by 2013. Since enactment of the RFS, 
cellulosic ethanol research and development efforts are making rapid 
progress. Commercial scale demonstrations are being constructed around 
the nation and smaller scale production is already underway at a few 
sites. In Nebraska, we have 13 ethanol plants in operation and 10 under 
construction and, I am proud to say, we are home to a state-of-the-art 
bioplastics production facility--a key to the biorefinery concept that 
is a part of our vision for the future of ethanol. Following are a few 
examples of the exciting development underway around the nation:

   Georgia Governor Sonny Perdue announced that Georgia would 
        be the site for a cellulosic ethanol plant that will use wood 
        waste as a feedstock. The plant will have the capacity to 
        produce over 1 billion gallons of ethanol a year and employ 70.
   New York announced that two companies have been selected to 
        develop and construct pilot commercial cellulosic ethanol 
        facilities in New York.
   Oklahoma Governor Brad Henry announced creation of a world-
        class $160 million Bioenergy Center to be created over the next 
        four years at the Universities of Oklahoma and Oklahoma State.
   Tennessee Governor Phil Bredesen announced a $72 million 
        alternative fuels initiative that included the construction of 
        a $40 million pilot biomass plant.
   Kansas Governor Kathleen Sebelius, last year's Coalition 
        chair, announced that she would make cellulosic ethanol a 
        priority and make Kansas a national leader in biofuels research 
        and production.
   Wisconsin Governor Jim Doyle announced plans to make 
        Wisconsin home to the first cellulosic ethanol plant in the 
        United States.
   Governor Arnold Schwarzenegger announced a low-carbon fuel 
        standard for California that will drive biofuel production and 
        use by setting a far-reaching goal and relying on the private 
        sector to deliver clean renewable fuels and innovative vehicle 
        technologies.

    It appears that the 2012 RFS cellulosic goal could easily be 
exceeded. Thus, the governors recommend an expanded cellulosic ethanol 
goal of 500 million gallons a year beginning in 2012. The addition of 
this language to the RFS expansion provisions of S. 987 should lead to 
a dramatic expansion of private sector investment in cellulosic ethanol 
production facilities.
Cellulosic Ethanol Production Tax Credit
    Providing a cellulosic production tax credit, built upon the 
existing RFS cellulosic trading credit, would immediately advance 
cellulosic and potentially other ``low carbon'' ethanol production. 
Congress included a 2.5:1 trading credit for cellulosic ethanol when it 
approved the RFS in the Energy Policy Act of 2005. The trading credit 
meant that each gallon of cellulosic ethanol would count as 2.5 gallons 
for purposes of meeting the RFS requirements. Because the expansion of 
conventional ethanol production far exceeded expectations, there is no 
financial incentive for ethanol blenders to pay more for cellulosic 
ethanol, and therefore the trading credit has no financial value. 
Monetizing this credit is one of the principles envisioned by Congress 
and the President in passage of the RFS, but not realized because of 
the volume of conventional ethanol produced.
    This monetization goal can be achieved with a simple policy 
modification. The Coalition recommends that a value be assigned to the 
trading credit by converting the trading credit to a ten year 
Cellulosic Ethanol Production Tax Credit that would be worth an 
additional $0.765 a gallon compared to conventional ethanol, or $0.765 
plus the value of the regular ethanol Volumetric Ethanol Excise Tax 
Credit. This approach differs from the current credit for conventional 
ethanol in that it would be available to producers. The current tax 
credit for conventional ethanol accrues primarily to the petroleum 
blender. Properly structured, these measures incentivize a range of new 
ethanol production technologies that reduce fossil fuel inputs and 
increase the competitiveness of domestically produced ethanol.
Infrastructure Development
    S. 987's provisions expanding higher blend ethanol infrastructure 
development are extremely important. The corridor approach provides 
consumers with more biofuel retail options, is consistent with the 
successful infrastructure actions of many states and cities, and is 
supported by the governors. Nevertheless, the Coalition believes that 
Congress must take extraordinary steps to overcome the ethanol 
infrastructure-vehicle stalemate and enable real competition among 
transportation fuels. The governors find no evidence that the current 
entrenched fuel system will afford a timely transition to a more 
dynamic and resilient system that includes higher blend renewable 
fuels. Federal, state and private actions are needed to open the door 
for new market entrants and create a more vibrant domestic biofuels 
industry.
    The governors recommend adding a regional approach to S. 987 to 
address the infrastructure challenge. The city-to-region strategy 
should be used that includes the adoption of performance standards for 
major gas station owners and branders (e.g., owners of 100 or more 
fueling stations, high-volume stations) that would provide at least one 
higher blend ethanol pump at 95 percent of their stations in at least 
one region over five years. This should be synchronized with the 
adoption of a timetable for the transition to uniform flexible-fuel 
vehicle requirements that not less than 70 percent of new light duty 
vehicles sold in the United States be fuel flexible within 10 years. 
Modest tax incentives (e.g., $100 for each vehicle) would be provided 
to aid auto manufacturers in transitioning to this standard.
    As a part of this strategy, the Coalition also recommends the 
addition of a market-oriented ``kick start'' for this city-to-region 
approach that would create a partnership among our states, cities, 
industry, and the federal government that concentrates higher blend 
ethanol efforts in key markets. This concentrated effort would maximize 
private, state, and local investments in marketing and infrastructure 
and would provide evidence of the potential of a flexible-fuel system. 
Moreover, this approach would allow other state and private efforts of 
a similar nature to occur throughout the nation.
Expand Blend Study
    The Coalition recommends that Section 302 of S. 987, which direct 
the U.S. Department of Energy to study the feasibility of nationwide 
consumption of a range of ethanol blends, be expanded from the indicted 
levels of E15 through 25, to E10 through E85. The modest additional 
cost of this work would provide policy makers at the state, local, and 
federal levels with important data on a range of blends and offer the 
market place and consumers a greater range of blend solutions.
Loan Guarantees and Low Carbon Fuel
    The legislation's Section 204 Loan guarantee provision is an 
important refinement of the current U.S. Department of Loan guarantee 
program. The governors believe structuring these guarantees in ways 
that encourage both low carbon biofuel development and low carbon 
options for all the alternative energy projects eligible under the 
program is essential. This approach ensures that taxpayer funded 
federal support for clean energy options will benefit our states 
economies and environment.
Ethanol Expansion Impacts
    The Governors' Ethanol Coalition recognizes the temporary but real 
problem that has emerged regarding food and fuel tensions due to higher 
corn prices. For example, in Nebraska, which has a large and vibrant 
livestock industry, high corn prices are affecting profitability, even 
though byproducts of the grain ethanol refining process can substitute 
for some corn in livestock diets. While the results of the growing 
season and harvest will not be known for some time, there is reason for 
optimism. Secretary of Agriculture Mike Johanns addressed this issue 
recently, saying:

          The U.S. Department of Agriculture's economists calculate 
        that ethanol production could rise to 10 billion gallons by 
        2010 without forcing us to choose between corn for food or for 
        fuel. We believe that corn-based ethanol will be a part of our 
        ethanol future. But the next generation is cellulosic ethanol.
          We are also conducting research, as is the private sector, to 
        make Distiller's Dried Grain a better source of feed. Right now 
        on one bushel of corn used for ethanol creates about 17 pounds 
        of that byproduct. The goal is to develop a way to fracture the 
        kernels before processing so that both high value feed and 
        ethanol can be produced from the same corn.
          The other thing I would say is the market works. The interest 
        in corn for ethanol production is spurring research into 
        increasing corn yields at seed companies . . . We also believe 
        that most cellulosic materials that will be used for ethanol 
        production in the future will not compete for good pasture. 
        These grasses and other biomass products do well on marginal 
        ground.
          Renewable energy is changing the face of agriculture and that 
        involves a period of adjustment but it also creates 
        opportunities for ranchers and rural America.

    The Secretary's views mirror those of the many energy, 
agricultural, and environmental experts from around the nation that the 
governors consulted in developing our recommendations.
    In closing Mr. Chairman, the Coalition believes that S. 987 
includes many of the key elements needed to achieve a biofuels future 
for America. We also urge your consideration of the governors' 
recommended additions to the bill as a means to more rapidly meet the 
important goals set forth by Senators Bingaman and Domenici. Thank you 
for the opportunity to provide the governors' input and ideas today. We 
look forward to working with Congress and the President to advance the 
opportunities of biofuel production and use in all regions of the 
nation.
                                 ______
                                 
                         Statement of H2Diesel
                                overview
    S. 987 is a strong proposal that moves in the right direction, but 
it focuses largely on unproven technologies that may address U.S. 
energy dependency problems. In fact, American companies are already 
producing the next generation of bio fuels that have many advantages 
over traditional biodiesel. However, these companies cannot compete on 
a level playing field due to the narrowly defined energy tax incentives 
that only encourage the production of tradition biodiesel.
    S. 987 does an excellent job of recognizing that the current 
definition of biodiesel has limited use, and does not encourage new, 
innovative technology that can truly address U.S. energy needs, reduce 
U.S. dependence on foreign oil, support America's rural economy, 
significantly reduce harmful environmental emissions, and encourage 
domestic, 100 percent renewable energy resources. H2Diesel applauds the 
inclusion of ``Advanced Biofuels'' and ``Renewable Fuel'' definitions 
in S. 987 that will encourage U.S. technologies and production 
techniques for the next generation of bio fuels that can meet the 
policy objectives identified by S. 987. However, unless this broadened 
definition is translated into the energy tax policy area, the updated 
definitions may have limited impact where it truly matters--in the 
marketplace and for U.S. consumers.
                                h2diesel
    H2Diesel is a U.S. company (Boca Raton, Florida and Houston, Texas) 
that holds an exclusive license for North America, Central America and 
the Caribbean to proprietary technology for the manufacture of an 
alternative ``bio-fuel'' from domestically produced vegetable oils and 
animal fats that can be used for power generation, heavy equipment, 
marine use and as a heating fuel. H2Diesel's product is the result of a 
blending--or emulsion--process in making a proprietary bio-fuel that 
provides a cheaper, 100 percent renewable alternative energy source 
with significantly lower emissions than traditional fuels and a cleaner 
and more efficient alternative to heating oil.
       major aspects of current bio diesel technology production
   Requires a complex and energy-intensive production method 
        that is very expensive
   Produces chemical by-products that must be handled and 
        disposed of, which adds cost to production and creates 
        potential environmental problems
   Has limited use and is not suitable for all climates, 
        especially in colder climates
   Can only be used in fuel blends up to 20%
   When blended, results in a product that is still 80% foreign 
        oil and still emits some harmful pollution
    h2diesel has significant advantages over traditional bio diesel
   Proprietary manufacturing process results in dramatically 
        lower production costs and no harmful by-products
   Produced from any number of vegetable feedstocks, animal 
        fat, and renewable oilseed crops, including soybeans, canola, 
        plamatic, sunflower, GMO, cotton seed, mustard seed, and 
        restaurant waste oil
   Is a domestic fuel that reduces our nation's dependence on 
        foreign oil, improving energy security
   Improves the rural economy by creating farming jobs
   Can be used as heating oil, power generation fuel, and as a 
        motor fuel
   Produces approximately 80% less carbon dioxide emissions and 
        almost 100% less sulfur dioxide than traditional petroleum 
        diesel
   Is a renewable ``carbon neutral'' fuel, which results in no 
        net emissions of harmful CO2 Contains virtually no sulfur; reduces emissions that can 
        cause acid rain; eliminates formation of sulfates which cause 
        particulate pollution
   Emits significantly less nitrogen oxides than either 
        traditional bio diesel or petroleum diesel. Nitrogen oxides are 
        a significant component of urban smog and have been linked to 
        asthma
   Small production plant footprint allows for less 
        environmental impact
   Can be used by any conventional diesel engine at 100% 
        strength and extends the life of diesel engines because it is 
        more lubricating than petroleum diesel fuel
   Facilitates process automation that results in reduced labor 
        and energy costs

    However, H2Diesel and other innovative U.S. companies face 
significant barriers to competing on a level playing field because 
current law and tax policy designed to encourage companies to explore 
renewable energy technologies is too narrowly focused to allow true 
innovation and fully encourage new technologies that can break the 
United States' continuing dependence on foreign energy suppliers.
    For example, the current tax code definition of ``biodiesel'' is 
limited to products that are methyl esters that meet the requirements 
of ASTM specification 6751. The tax code also has a fairly limited 
definition that excludes many other domestically produced, renewable, 
vegetable oil-based products that have equivalent or superior 
properties to the narrowly defined ``Biodiesel.''
    Current tax policy focuses heavily on encouraging the production of 
``biodiesel,'' principally a $1.00 per gallon blenders income tax 
credit. Without this credit, the cost of producing biodiesel would be 
prohibitive.
    U.S. companies have and are continuing to develop new technologies 
to create new bio fuels that hold great promise to more fully address 
U.S. energy needs, which go well beyond just motor vehicle fuel 
consumption (home heating oil, power generation), today and in the 
future.
    These bio fuels are potentially far superior to traditional 
biodiesel, with greater applications, lower production cost, greater 
environmental benefits (cleaner burning product) and can be produced 
from a wide range of agricultural products.
    U.S. law and tax policy should acknowledge this reality and 
encourage greater innovation in U.S. technology by creating a new 
definition of ``bio fuels'' that will help speed new technologies and 
production techniques into the market place while supporting America's 
rural economy.
    S. 987 does a good job in this respect, especially the new 
definitions for ``Advanced Biofuels'' and ``Renewable Fuel.'' However, 
these definitions need to be included in U.S. energy-related tax law to 
truly encourage U.S. innovation and level the playing field for all bio 
fuels producers. Moreover, U.S. tax law should be revised to ensure 
that a revised definition is carefully tailored to make certain that it 
benefits those innovative companies that truly can make a difference.
                                 ______
                                 
               Statement of the National Biodiesel Board
    Good morning Mr. Chairman, Ranking Member Domenici, and committee 
members. On behalf of the National Biodiesel Board (NBB), we appreciate 
the committee holding this hearing on S. 987--the Biofuels for Energy 
Security and Transportation Act of 2007--and the opportunity to provide 
comments on this important piece of legislation. The NBB is supportive 
of the aim of S. 987 to enhance national energy security through 
increased utilization of renewable fuels; development of new 
technologies and working through potential barriers to renewable fuels 
entering the marketplace. Our comments will focus on several primary 
components of the legislation where NBB is supportive, as well as areas 
where we'd appreciate the opportunity to work further with the 
committee as this process moves forward.
                    industry background and overview
    The NBB is the national not-for-profit trade association 
representing the commercial biodiesel industry as the coordinating body 
for research and development in the United States. The NBB was founded 
NBB in 1992 and since that time has developed into a comprehensive 
industry association, which coordinates and interacts with a broad 
range of stakeholders including industry, government, and academia. 
NBB's membership encompasses over 400 members and is comprised of 
biodiesel producers; fuel marketers and distributors; state, national, 
and international feedstock and feedstock processor organizations; and 
technology providers.
    Biodiesel is a cleaner burning, renewable diesel fuel replacement 
made from agricultural fats and oils meeting a specific commercial fuel 
definition and specification. Soybeans are the primary oilseed crop 
grown in the United States, and soybean oil makes up about half of the 
raw material available to make biodiesel. The other half consists of 
all other vegetable oils and animal fats. Biodiesel is made utilizing a 
chemical reaction process where the oil/fat is reacted with an alcohol 
to remove the glycerin in order to meet specifications set forth by the 
American Society for Testing and Materials (ASTM), D 6751. Biodiesel is 
one of the best-tested alternative fuels in the country and the only 
alternative fuel to meet all of the testing requirements of the 1990 
amendments to the Clean Air Act.
                    title 1: renewable fuel standard
    The applicable volumes for the Renewable Fuel Standard (RFS) 
outlined under Title 1 of S. 987 are aggressive and will have a 
dramatic positive impact on our nation's energy security, while 
additionally providing needed environmental and economic development 
benefits. The NBB views the concept of a Renewable Fuel Standard (RFS) 
as a piece of public policy that can provide a solid foundation for the 
introduction of new renewable fuels. Equally important, a RFS can 
dramatically assist in the sustainable growth of existing, emerging 
domestic renewable fuels, such as biodiesel.
    The biodiesel industry has shown slow but steady growth since the 
early 1990's, however, in the past two years, it has grown 
exponentially. In 2004 there was approximately 25 million gallons of 
biodiesel sales. That increased to approximately 250 million gallons in 
2006. Likewise, we went from 22 biodiesel plants in 2004 to 105 
biodiesel plants currently (865 million gallons of production 
capacity). There are 77 more plants currently under construction and 
expansion (estimated additional 1.7 billion gallons of production 
capacity). We are encouraged the legislation incorporates alternatives 
in the diesel sector; and feel biodiesel should play a significant, 
specific role in meeting the overall Standard.
    From our industry's perspective, confidence in the fuel by 
consumers and engine and vehicle manufacturers is essential to the 
success of renewable fuels in the marketplace. Development of 
appropriate ASTM fuel standards for new fuels entering the marketplace 
will be important. Undergoing proper in-use testing and evaluation 
needed to secure an appropriate ASTM fuel standard provides a 
significant level of confidence to engine and vehicle companies that 
the use of these fuels will operate properly in their equipment.
                title 2: renewable fuels infrastructure
    Title 2 addresses several critical needs that can help further 
develop the infrastructure necessary to enhance the production and 
distribution of renewable fuels, including the Infrastructure Pilot 
Program for Renewable Fuels. The need exists for the development of 
renewable fuel corridors as envisioned under the Pilot Program. As an 
example, the National Biodiesel Board is fielding numerous inquiries 
from consumers, particularly in the trucking industry, regarding 
fueling locations that offer biodiesel. In response to this demand, the 
NBB has established a 24 hour service to provide such information. 
Development of these corridors we feel will help enhance availability 
of renewable fuels in a strategic manner.
    Additionally, the provision establishing Loan Guarantees for 
Renewable Fuel Facilities will provide needed security to encourage 
development of new technologies in the ethanol sector. Extending these 
guarantees for biodiesel production facilities would also provide added 
security for our emerging industry, particularly in times of 
fluctuating market fundamentals.
                            title 3: studies
    A key factor in the development of renewable fuels will be 
efficient distribution. The most efficient means of moving large 
volumes of fuel is via pipeline. We are seeing biodiesel moving through 
pipelines in Europe today. Extending that capability in the U.S. would 
be substantial. However, significant work remains to be done in this 
area before it is a reality domestically. The National Biodiesel Board 
and biodiesel industry have committed funds to study the technical 
needs required for moving biodiesel through U.S. pipelines. Additional 
support from the federal government could be significant in helping 
complete needed research and tackling potential technical barriers.
    In conclusion Mr. Chairman and committee members, support for 
advancing renewable fuels is critical to enhancing our nation's energy 
security and provide needed environmental and economic development 
benefits. S. 987 proposes aggressive policies that would substantially 
increase the development and utilization of renewable fuels. Biodiesel 
can and should play a significant role in helping to enhance our 
nation's energy security. While biodiesel has proven itself with 
consumers, our industry remains an emerging industry. Biodiesel's 
ability to play a specific, realistic role in achieving the targets 
identified under the Renewable Fuel Standard can dramatically assist in 
the sustainable growth of our promising industry. Additionally, many of 
the bill's provisions regarding infrastructure and studies to address 
technical barriers could significantly benefit the biodiesel industry 
and its development.
    Again, we appreciate the introduction of S. 987 and the opportunity 
to provide these comments to you. We look forward to continue working 
with the committee and staff.
                                 ______
                                 
                      Statement of the NGVAmerica
                              introduction
    NGVAmerica appreciates the Committee's initiative to include biogas 
as a renewable fuel in S. 987, and we appreciate the opportunity to 
provide the Committee with some additional comments and suggestions 
concerning that bill.
    NGVAmerica is a national organization of over 100 member companies, 
including: vehicle manufacturers; natural gas vehicle (NGV) component 
manufacturers; natural gas distribution, transmission, and production 
companies; natural gas development organizations; environmental and 
non-profit advocacy organizations; state and local government agencies; 
and fleet operators. NGVAmerica is dedicated to developing markets for 
NGVs and building an NGV infrastructure, including the installation of 
fueling stations, the manufacture of NGVs, the development of industry 
standards, and the provision of training.
                            recommendations
    NGVAmerica proposes the following changes to S. 987. The changes in 
Section A below concern broadening the types of biogas that are 
encouraged by the bill. There are three primary biofuels: bio-ethanol, 
biodiesel and biogas (which can be purified to make a natural gas-
substitute called biomethane). The proposed changes offered here would 
broaden the language of the bill to include biogas and more 
specifically, biomethane, in all the incentives and programs of the 
bill. Section B below requests that the Committee expand portions of S. 
987 to include the alternative fuels recognized under section 301(2) of 
the Energy Policy Act of 1992.
Biogas-related Recommendations
    NGVAmerica proposes the following changes to S. 987 (noted in red 
and italics below). The results of the changes would be to treat all 
renewable biogas technologies and sources the same as other renewable 
biofuels:
            Definition of ``Advanced Biofuels''
                Page 3, lines 8-9
                  ``Advanced biofuels'' is currently defined as 
                follows: (v) biogas produced by anaerobic digestion or 
                fermentation of organic matter from renewable biomass; 
                and
                  Proposed language: (v) biogas produced by anaerobic 
                digestion, fermentation, or pyrolysis of organic matter 
                from renewable biomass; and
                Rationale:
                  Pyrolysis is a form of thermal treatment that reduces 
                waste volumes and produces a methane-rich fuel as a 
                byproduct. While most organic materials can be 
                converted to biogas using anaerobic digestion or 
                fermentation, cellulosic materials require the use of a 
                pyrolysis process. Since it is hoped that cellulosic 
                materials will be an increasingly important feedstock 
                for energy production, pyrolysis should be added here.
            Definition of ``Renewable Biomass''
                Page 4, line 17
                  This line describes ``renewable biomass'' as 
                including: (IV) municipal solid waste.
                  Proposed language: (IV) municipal solid waste and 
                sewage.
                Rationale:
                  Disposal of sewage sludge accumulated in wastewater 
                treatment facilities is costly and energy-intensive. 
                Sewage sludge is also an excellent biogas feedstock. 
                Sewage, however, was omitted from the definition of 
                renewable biomass and should be included. Note that 
                sewage is included in the final rule for the Renewable 
                Fuel Standard just issued by EPA. See Renewable Fuel 
                Standard (Final Rule; definition of renewable fuel; to 
                be codified at 40 CFR  80.1100(a)(1)(i)(B); (http://
                www.epa.gov/otaq/renewablefuels/rfs-regulations.pdf).
            Definition of ``Renewable Fuel''
                Page 5, lines 3-7
                  The definition of ``renewable fuel'' includes the 
                following: (ii) used to replace or reduce the quantity 
                of fossil fuel present in a fuel mixture used to 
                operate a motor vehicle, boiler, or furnace that would 
                otherwise operate using fossil fuel.
                  Proposed language: (ii) used to replace or reduce the 
                quantity of fossil fuel present in a fuel or fuel 
                mixture used to operate a motor vehicle, boiler, or 
                furnace that would otherwise operate using fossil fuel.
                Rationale:
                  In the past, regulatory agencies (e.g., the IRS) have 
                interpreted the term ``fuel mixture'' as excluding 
                fuels that are 100 percent non-petroleum fuels (i.e., 
                neat or dedicated fuels). Neat fuels include B100, 
                E100, renewable hydrogen and renewable biogas. It was 
                probably not the intention of the Committee to exclude 
                fuels that are 100 percent renewable but not a ``fuel 
                mixture.'' Clarifying that dedicated or neat renewable 
                fuels qualify as renewable fuels also is consistent 
                with the approach taken by EPA in the final regulations 
                issues for the Renewable Fuel Standard.
            Focus on Cellulosic Biomass Ethanol Only
                Page 3, lines 13-14; Page 12-13, lines 24-25 and 1-4; 
                Page 33, lines 2324; Page 37, line 14
                  In these lines, S. 987 refers to ``cellulosic biomass 
                ethanol.'' All these references should be changed to 
                ``cellulosic biomass biofuels.''
                Rationale:
                  As discussed above, in addition to ethanol, 
                cellulosic biomass can also be converted to biogas. In 
                addition, it may be possible for a cellulosic process 
                to also produce a renewable diesel substitute. 
                Producing ethanol from cellulosic materials may turn 
                out to be the most economical and efficient use of 
                these materials. But, until this becomes clearer, the 
                production of other fuels from these materials also 
                should be encouraged and supported by federal 
                assistance. Congress should provide as much flexibility 
                as possible in this program to convert cellulosic 
                biomass into useful energy and not just limit it to 
                cellulosic ethanol.
            Infrastructure Pilot Program for Renewable Fuels
                Page 21, lines 1-5
                  These lines define the scope of the grant program as 
                follows: (b) GRANT PURPOSES.--A grant under this 
                section shall be used for the establishment of 
                refueling infrastructure corridors, as designated by 
                the Secretary, for gasoline blends that contain at 
                least 85 percent renewable fuel or diesel fuel that 
                contains at least 10 percent renewable fuel . . . 
                  Proposed language: (b) GRANT PURPOSES.--A grant under 
                this section shall be used for the establishment of 
                refueling infrastructure corridors, as designated by 
                the Secretary, for gasoline blends that contain at 
                least 85 percent renewable fuel, diesel fuel that 
                contains at least 10 percent renewable fuel or natural 
                gas (both compressed and liquefied) that contains at 
                least 10 percent biogas . . . 
                Rationale:
                  The addition of biogas-related fueling infrastructure 
                would allow biogas distributors to be treated the same 
                as bio-liquid distributors.
            Loan Guarantees of Renewable Fuels Facilities
                Page 30, lines 10-15
                  These lines define the minimum production volume for 
                biofuels plants in order to qualify for a loan 
                guarantee: (4) PROJECT DESIGN.--A project for which a 
                guarantee is made under this subsection shall have a 
                project design that has been validated through the 
                operation of a continuous process pilot facility with 
                an annual output of at least 50,000 gallons of ethanol.
                  Proposed language: (4) PROJECT DESIGN.--A project for 
                which a guarantee is made under this subsection shall 
                have a project design that has been validated through 
                the operation of a continuous process pilot facility 
                with an annual output of at least 50,000 gallons of 
                ethanol-equivalent of renewable fuel.
                Rationale:
                  As currently stated, loans guarantees would only be 
                available for ethanol production facilities. Biodiesel, 
                biogas and other biofuels facilities would not qualify. 
                This change would treat all renewable fuels equally.
            Add: Sec. 306. Study of Biogas/Biomethane Potential and 
                    Technologies
                Add at end of the bill
                  Add a new National Academy of Sciences study on the 
                production potential of biogas (including biomethane) 
                from landfills, sewage waste treatment facilities, 
                animal waste, crop waste, and cellulosic biomass 
                sources.
                  The scope of this biogas/biomethane study could be as 
                follows: SCOPE--In conducting the study, the Academy 
                shall----

                          (1) evaluate the potential of producing 
                        biogas/biomethane in the U.S. from landfills, 
                        sewage waste treatment facilities, animal 
                        waste, crop waste, and cellulosic biomass 
                        sources.
                          (2) include an assessment of the maturity of 
                        biogas/biomethane production technologies and 
                        the potential for technical and economic 
                        improvements in these technologies;
                          (3) consider the technical, economic, 
                        regulatory and other barriers to increased 
                        production of biogas/biomethane;
                          (4) evaluate the potential of and barriers to 
                        using biomethane as a transportation fuel--both 
                        as 100 percent biomethane and as a natural gas/
                        biomethane blend;
                          (5) make policy recommendations to accelerate 
                        the development of biogas/biomethane 
                        technologies, commercial production of biogas/
                        biomethane and the use of biomethane as a 
                        transportation fuel.

                Rationale:
                  Several studies have looked at the feasibility of 
                producing biogas/biomethane from readily available 
                renewable sources. However, there is no current 
                comprehensive national assessment of the production 
                potential of biogas (including biomethane) from 
                landfills, sewage waste treatment facilities, animal 
                waste, crop waste, and cellulosic biomass sources. Some 
                existing studies are very targeted (e.g., biogas from 
                dairy farm manure in California). Others are old or 
                have other limitations. For instance, the U.S. 
                Department of Energy did a cursory study in 1998 that 
                concluded that it would be feasible to produce 1.25 
                quadrillion Btus (about 10 billion gasoline gallon 
                equivalent) from landfills, animal waste and sewage. 
                However, that study did not investigate the potential 
                of crop waste and cellulosic biomass sources. Further, 
                biogas/biomethane technologies have evolved 
                significantly during the past nine years. The new 
                section would call for a study by the National Academy 
                of Sciences on the production potential of biogas/
                biomethane as well as an evaluation of the conversion 
                technologies currently being used in the U.S. and 
                around the world and the potential for technology 
                improvement. This study could be included in the 
                advanced biofuels study detailed in Section 301. That 
                study currently is worded broadly enough to include 
                such a review. But given the current national focus on 
                liquid fuels and cellulosic ethanol, the potential of 
                biogas/biomethane likely would not be given the same 
                priority as a separate study.
Alternative Fuels Versus Just Renewable Fuels
    A number of experts have argued that it would be very difficult (if 
not impossible) for America to produce the amount of renewable fuels 
domestically to achieve the petroleum displacement goals called for in 
S. 987 or that the President called for in his 2007 State of the Union 
address. The President has submitted to Congress a petroleum 
displacement proposal built on both renewable and alternative fuels. At 
the April 12 Senate Energy & Natural Resources Committee hearing, 
representatives from the coal industry advocated that coal-to-liquid 
(CTL) fuels should be included in S. 987--despite the fact that coal 
obviously is not a renewable fuel. This recommendation received support 
from some members of the Committee. In addition, U.S. DOE Assistant 
Energy Secretary for Energy Efficiency and Renewable Energy Alexander 
Karsner said at that hearing that the Administration ``generally 
supports the vision'' of S. 987, but the White House would like to see 
the bill apply to fuels and technologies other than biofuels.
    NGVAmerica believes that adding only one non-renewable alternative 
fuel would be inappropriate. Rather, NGVAmerica recommends that the 
Committee expand the scope of S. 987 to include all renewable and 
alternative fuels--especially natural gas.
    As is well known, natural gas is primarily a domestic fuel, which, 
when used to power vehicles, reduces urban air pollution. What is less 
widely appreciated is that, on a well-to-wheel basis, natural gas 
vehicles produce 15 to 20 percent less greenhouse gases than comparable 
gasoline and diesel vehicles. This is comparable--or in some cases 
better--than some renewable fuels on a well-to-wheels basis.
    Importantly, natural gas vehicles can make a major impact in the 
high fuel-use commercial urban fleet market--a market that is often 
over-looked in discussing petroleum displacement. America uses about 50 
billion gallons of petroleum in diesel vehicles. While there has been 
some effort to use ethanol as a substitute for diesel fuel, it is 
expected that ethanol will be used almost exclusively as a gasoline 
substitute. Biodiesel can be used when blended in low percentages with 
petroleum diesel. However, because of engine and production 
limitations, it is expected that biodiesel could displace not more than 
2 or 3 billion gallons of petroleum diesel by 2017. According to The 
U.S. Energy Information Administration's 2007 Annual Energy Outlook, 
NGVs displaced about 350 million gallons of the 177 billion gallons of 
petroleum used for on-road vehicles in the U.S. last year. However, 
with proper incentives and government support, NGVs could displace up 
to 10 billion gallons of petroleum by 2017. Note that, if the changes 
proposed in Section A (above) are adopted and enacted into law, a 
significant percentage of this could be renewable biomethane.
                                 ______
                                 
            Statement of the Soap and Detergent Association
    The Soap and Detergent Association (SDA) appreciates the 
opportunity to submit comments on S. 987 on behalf of the United States 
oleochemical industry. SDA is a 110 member national trade association 
representing the formulators of soaps, detergents, general household 
and institutional cleaning products as well as the suppliers of 
ingredients and finished packaging for those products. Among these 
suppliers are the manufacturers of oleochemicals made from animal fats 
and oils.
    The United States oleochemical industry is primarily based on 
tallow, an animal fat. The viability of the industry is, in fact, based 
on the fact that tallow is competitively priced against foreign palm 
oil. Because of the substitutability of palm oil for tallow, if 
tallow's advantageous price differential is lost; the future of a 
United States based oleochemical industry, and its customers, becomes 
tenuous.
    Unlike corn and soybeans for which plantings can be expanded to 
accommodate new biofuel applications, tallow production is relatively 
fixed, usually fluctuating less than 2% from year to year. There is no 
real elasticity in the tallow supply. Cattle herds are not expanded to 
produce tallow; it is a by-product, not a crop. Consequently, biofuel 
subsidies disadvantage the oleochemical industry not only by creating 
upward price pressures on tallow, but by diverting it from a, non-
expandable, finite raw material pool. The issue is supply availability 
itself, not just price.
    Existing biofuel subsidies, including those for ethanol, have 
created a series of economic incentives that divert tallow from 
traditional uses to fuels. The cascade of incentives began with the tax 
credits for tallow-based biodiesel in the VEETEC provisions of the 
American Jobs Creation Act of 2004. These were followed by a subsidy 
for direct burning of tallow as a fuel and finally the ``renewable 
diesel'' incentives found in Section 1346 of the ``Energy Policy Act of 
2005.'' In guidance issued earlier this month, the Internal Revenue 
Service held that so-called ``coproduced fuel,'' where animal fats are 
mixed directly with crude oil going to a cracking tower, was considered 
to be ``renewable diesel'' produced by the thermal depolymerization 
(TDP) process and therefore was available for subsidies.
    These three credits create direct economic incentives to divert 
tallow away from oleochemical production. The oleochemical industry 
receives no subsidies. It has historically purchased its tallow in a 
classic free market, supply and demand environment. Those traditional 
conditions no longer exist, however.
    The situation is further complicated by the fact that ethanol 
incentives have served to divert corn from traditional livestock 
feeding operations. This has caused an additional draw down of the 
tallow pool as tallow, in part, is substituted for the diverted corn in 
animal feed. Currently, tallow prices are in the $0.22-$0.23 range. 
Traditionally, tallow prices have been in the low to mid teens. This 
represents a nearly 50% increase and has every indication of being a 
sustainable price given the current subsidy structure.
    The conditions in the corn market which have led to this new tallow 
price level are generally viewed as attributable to the confluence of 
the long standing ethanol subsidy combined with an enhanced renewable 
fuels standard. This was the perfect biofuels storm, the effects of 
which have been widely felt and publicized.
    Consequently, the exemption of corn-based fuels from S. 987 is no 
surprise. In fact, it is an important recognition of the impact on food 
and feed prices of biofuel subsidies. And, while the threat of biofuel 
subsidies to the American oleochemical industry is less public and well 
known, it is no less dire and deserving of redress.
    In our view, based on the experience with corn prices, the 
renewable fuel standards proposed in. S. 987, will, when combined with 
the commodity incentives already in place, significantly threaten the 
oleochemical production in the United States and create the conditions 
for its demise.
    SDA recognizes that the potential benefit of biofuels to the nation 
is significant. However, that benefit should not be purchased at the 
cost of driving a well established, traditional industry either out of 
business or overseas. There must be a balance and the impacts on 
related industries must be understood before decisions of the magnitude 
contemplated in S. 987 are made.
    Based on the foregoing, we respectfully urge that all references to 
animal fats be removed from S. 987 for the same reason that corn is 
excluded. S. 987 should, instead, take the first steps to reestablish a 
balanced approach to the incentivization of the American biofuels 
industry.

                                    

      
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