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FULL COMMITTEE HEARING ON 

THE STATE OF THE RENEWABLE FUELS INDUSTRY 

IN THE CURRENT ECONOMY 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 4, 2009 

Small Business Committee Document Number 111-007 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

DENNIS MOORE, Kansas 

HEATH SHULER, North Carolina 

KATHY DAHLKEMPER, Pennsylvania 

KURT SCHRADER, Oregon 

ANN KIRKPATRICK, Arizona 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

DAN LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

PARKER GRIFFITH, Alabama 

DEBORAH HALVORSON, Illinois 

SAM GRAVES, Missouri, Ranking Member 

ROSCOE G. BARTLETT, Maryland 

W. TODD AKIN, Missouri 

STEVE KING, Iowa 

LYNN A. WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BLAINE LUETKEMEYER, Missouri 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KAREN HAAS, Minority Staff Director 

(II) 

STANDING SUBCOMMITTEES 

Subcommittee on Contracting and Technology 

GLENN NYE, Virginia, Chairman 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

KURT SCHRADER, Oregon 

DEBORAH HALVORSON, Illinois 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

PARKER GRIFFITH, Alabama 

AARON SCHOCK, Illinois, Ranking 

ROSCOE BARTLETT, Maryland 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

GLENN THOMPSON, Pennsylvania 

Subcommittee on Finance and Tax 

KURT SCHRADER, Oregon, Chairman 

DENNIS MOORE, Kansas 

ANN KIRKPATRICK, Arizona 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

DEBORAH HALVORSON, Illinois 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

VERN BUCHANAN, Florida, Ranking 

STEVE KING, Iowa 

TODD AKIN, Missouri 

BLAINE LUETKEMEYER, Missouri 

MIKE COFFMAN, Colorado 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, Pennsylvania, Chairman 

HEATH SHULER, North Carolina 

BRAD ELLSWORTH, Indiana 

PARKER GRIFFITH, Alabama 

MARY FALLIN, Oklahoma, Ranking 

LOUIE GOHMERT, Texas 

(III) 

Subcommittee on Regulations and Healthcare 

KATHY DAHLKEMPER, Pennsylvania, Chairwoman 

DAN LIPINSKI, Illinois 

PARKER GRIFFITH, Alabama 

MELISSA BEAN, Illinois 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

LYNN WESTMORELAND, Georgia, Ranking 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

Subcommittee on Rural Development, Entrepreneurship and Trade 

HEATH SHULER, Pennsylvania, Chairman 

MICHAEL MICHAUD, Maine 

BOBBY BRIGHT, Alabama 

KATHY DAHLKEMPER, Pennsylvania 

ANN KIRKPATRICK, Arizona 

YVETTE CLARKE, New York 

BLAINE LUETKEMEYER, Missouri, Ranking 

STEVE KING, Iowa 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

(IV) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

Graves, Hon. Sam .................................................................................................... 2 

WITNESSES 

Kimpel, Mr. Nathan, President, New Energy Corp., South Bend, IN ................ 3 

Howe, Mr. John,Vice President of Public Affairs, Verenium Corporation, Cambridge, MA ............................................................................................................ 5 

Feraci, Mr. Manning, Vice President of Federal Affairs, National Biodiesel 

Board ..................................................................................................................... 7 

Litterer, Mr. Ron, Chairman, National Corn Growers Association ..................... 9 

Hurst, Mr. Brooks, Member of Board of Directors, The Paseo-Cargil Biofuels 

Plant, Tarkio, MO, On behalf of the Missouri Soybean Association ................ 11 

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 29 

Graves, Hon. Sam .................................................................................................... 31 

Kimpel, Mr. Nathan, President, New Energy Corp., South Bend, IN ................ 33 

Howe, Mr. John,Vice President of Public Affairs, Verenium Corporation, Cambridge, MA ............................................................................................................ 37 

Feraci, Mr. Manning, Vice President of Federal Affairs, National Biodiesel 

Board ..................................................................................................................... 44 

Litterer, Mr. Ron, Chairman, National Corn Growers Association ..................... 49 

Hurst, Mr. Brooks, Member of Board of Directors, The Paseo-Cargil Biofuels 

Plant, Tarkio, MO, On behalf of the Missouri Soybean Association ................ 54 

Statements for the Record: 

Environmental Working Group .............................................................................. 58 

Society of Independent Gasoline Marketers of America ....................................... 64 

Patrinos, Ph.D., Mr. Aristides A.N., President, Synthetic Genomics Inc. .......... 66 

(V) 

(1) 

FULL COMMITTEE HEARING ON 

THE STATE OF THE RENEWABLE FUELS 

INDUSTRY IN THE CURRENT ECONOMY 

Wednesday, March 4, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 1:00 p.m., in Room 2360 

Rayburn House Office Building, Hon. Nydia Vela ́zquez [chairman 

of the Committee] presiding. 

Present: Representatives Vela ́zquez, Moore, Dahlkemper, 

Schrader, Kilpatrick, Clarke, Ellsworth, Sestak, Griffith, 

Halvorson, Graves, Luetkemeyer, Schock and Thompson. 

Chairwoman VELA ́ ZQUEZ. Good morning. I now call this hearing 

of the Small Business Committee to order. 

In his joint address to Congress last week, President Obama 

made it clear that there can be no economic recovery without energy independence. Entrepreneurs are already leading that charge. 

Small biofuels producers are not only addressing climate change, 

but are helping to end our reliance on foreign oil. Just as importantly, they are creating new jobs and ushering in a stronger, 

greener economy. 

The U.S. is now home to 176 biodiesel plants, up from just 9 in 

2001. Ethanol facilities are also on the rise. Thirty-one new plants 

opened in the last year, with facilities spanning 26 states across 

the country. These businesses are generating jobs for thousands of 

Americans and breathing new life into rural economies. On top of 

that, they are making serious strides in developing cleaner, sustainable oil alter natives. Last year, production for biodiesel alone 

reached 690 million gallons. 

But despite their recent progress and enormous potential, many 

of these businesses are now struggling to survive. With the price 

of oil relatively low, the country has been lulled into a false state 

of complacency. The call for renewable fuels-which once rang loud 

and clear-has since died down. Meanwhile, the growing recession 

has also taken its toll. For biofuels entrepreneurs, the effects have 

been nothing short of devastating. 

Perhaps the greatest problem plaguing the renewable fuels industry is the diminished focus on energy prices. With oil hovering 

around $40 a barrel, demand for renewable fuels has fallen off considerably. Profits are down and, to make matters worse, so are investments. Most of us know it is only a matter of time before gas 

prices go up again. Unfortunately, many venture capitalists now 

2 

view renewable energy as a long-term investment-one that few are 

willing to make in this uncertain economy. 

For the biofuels industry, dwindling investor interest has been 

compounded by the recession. Credit is drying up, and banks are 

not making loans. Even lending through the USDA’s Farms Service 

Agency-traditionally a lender of last resort-has been jeopardized. 

Applications for FSA lending have shot up 200 percent since last 

year. The agency is now worried about meeting demand in the coming fiscal year. 

The results of these drop-offs will be dire. Already, new construction for ethanol plants has slowed dramatically. At the same time, 

more than 25 facilities have closed nationwide, idling almost 2 billion gallons of fuel capacity. Businesses that have managed to survive are straining to meet even basic obligations like feedstock expenses. 

Many biodiesel and ethanol providers committed to these contracts when grain and vegetable costs were at a premium. Though 

prices have plummeted, businesses are still locked in at record 

rates. 

Two weeks ago, President Obama signed the American Recovery and Reinvestment Act into law. That bill includes more than $70 

billion in energy measures. But while provisions within the stimulus will encourage greater use of renewable fuels, they will not 

address every challenge. That is why we are here today-to discuss 

viable fixes to the problem. Already, a number of potential solutions have been raised, from increasing the blend wall for ethanol 

to extending targeted tax incentives. In this afternoon’s hearing, we 

will examine a few of those suggestions. When oil hit $147 a barrel last summer, biofuels looked like the 

best way out of a full blown energy crisis. Today, they are the best 

way out of a dormant energy crisis. These businesses are not only 

creating new jobs, but they are working to ensure we are not 

caught in the crosshairs when gas prices go up again. That’s more 

than energy independence-that’s economic independence, and that’s 

the new energy plan this country needs. 

I would like to take this opportunity to thank all of today’s distinguished witnesses in advance for their testimony and, with that, 

I yield to Ranking Member Graves for his opening statement. 

Mr. GRAVES. Thank you, Madame Chair, and I want to thank 

you again for holding a fantastic hearing as far as I’m concerned 

because this is an issue that affects, very much affects, rural America as well as every citizen in America and you’ve always shown 

a very strong interest in small businesses both in our urban areas 

and in our rural areas. 

Energy is the life blood of our economy. U.S. economic prosperity 

is closely tied to the availability of reliable and affordable supplies 

of energy. This is not a new issue. However, with technology improving exponentially, the energy independence discussion has 

changed greatly over the past few years. 

The stark reality is that we import about 60% of the petroleum 

we currently need. To make our petroleum problem worse, we have 

not built a new refinery in the United States in over 30 years. It 

is stretching our refining capacity to the limit and affecting the volatility of energy prices. 

3 

Efforts to open up the Arctic National Wildlife Refuge and the 

Outer Continental Shelf to oil and natural gas exploration should 

and must continue, but we cannot ignore the fact that we need renewable fuels to help take the strain off of our need for imported 

fossil fuel energy. 

It is not just the United States that is going to need more energy 

in the coming years. Our traditional energy supplies will be increasingly strained by dramatic growth in global demand. We need 

to focus on both short-term and long-term goals. Most certainly, investing in renewable fuels technology is a positive step toward energy independence. We must be forward thinking in our approach 

to meet our current needs and future requirements. These sources 

of energy could hold the key to energy independence in the future. 

Over the past few years of substantial growth in the renewable 

fuels industry, many policymakers who might have had legitimate 

concerns about the industry are beginning to see the value and 

positive outcomes that can be associated with renewable fuel 

sources. These positive results are found most immediately in rural 

America where the difficulty in attracting jobs, investments, and 

maintaining the infrastructure can be more complex. 

This hearing presents an excellent opportunity to learn more 

about the renewable fuels industry. Many of these producers are 

classified as small businesses by the Small Business Administration. Not unlike other industries, biofuels producers are facing difficult economic times with little available capital necessary for expansion and job creation. This is especially critical for small producers who do not have the available equity to leverage loans. The 

volatile economic conditions are also having a negative effect on 

this industry and today we hope to detail what, specifically, are the 

biggest impediments to growth, and offer policy options that could 

help the industry continue to grow. 

Again, Madam Chair, I appreciate you having this hearing. It’s 

an issue that I’m intimately familiar with and thank you. 

Chairwoman VELA ́ ZQUEZ. Thank you and I welcome our first witness, Mr. Nathan Kimpel. He’s the President and Chief Operating 

Officer of New Energy Corp. in South Bend, Indiana. New Energy 

Corp. was the first large scaled green field ethanol plant built in 

the United States. It started in 1984. It is scheduled to produce its 

two billionth gallon of fuel this year. Welcome sir. You have five 

minutes to present your testimony. 

STATEMENT OF NATHAN KIMPEL, PRESIDENT, CEO, NEW 

ENERGY CORPORATION, SOUTH BEND, INDIANA 

Mr. KIMPEL. Good afternoon, Madam Chairwoman, and Ranking 

Member Graves and Members of the Committee. My name is Nathan Kimpel and as the Chairwoman said, I’m President and Chief 

Operating Officer of New Energy Corp. New Energy is located in 

South Bend, Indiana and became operational in 1984 and we are, 

in fact, getting ready this year to produce our two billionth gallon. In 2008, New Energy purchased over $180 million worth of corn 

from local farmers, cooperative elevators and commercial grain 

companies. As you’ve already said, this is an important and timely 

hearing and I’m pleased to be here to discuss the unique challenges 

and economic difficulties currently facing New Energy Corp. and 

4 

the U.S. renewable fuels industry. Today’s renewable fuels industry 

consists of 170 bio-refineries located in 26 different states with the 

capacity to produce 12.4 billion gallons of high octane clean-burning motor fuel. In 2008, the renewable fuels industry’s operating 

capacity increased by 2.7 billion gallons, a 34 percent increase. 

The U.S. renewal fuels industry is a dynamic and growing industry that is revitalizing rural America, reducing emission in our nation’s cities and lowering our dependence on imported petroleum. 

Ethanol is becoming an essential component of the U.S. motor fuels 

market. Today ethanol is blended in approximately 70 percent of 

our nation’s fuel and is sold virtually from coast to coast and border to border. Last year the U.S. renewable fuels industry produced 

and sold a record 9.2 billion gallons, contributing significantly to 

the nation’s economic and environmental energy security. 

The U.S. ethanol industry continues to have a positive impact on 

our nation’s economy. U.S. ethanol producers have long been on the 

cutting edge of the green economy helping support more than 

494,000 well-paying jobs in 2008 alone. Importantly, ethanol production provides a critical stimulus for struggling rural economies 

providing farmers the most important value added market for 

grains in more than a generation. 

The economic crisis is significantly impacting sustained, continued growth and development in our industry. Recently, the U.S. renewable fuels industry have been devastated by the scarcity of both 

short-term credit to finance on-going operations much less the longterm capital to finance expansion and new construction. The renewable fuels industry along with all of our small business partners, the American corn farmer, have fallen victim to many of the 

same problems that have affected other industries including high 

raw material costs, but in our case, collapsing oil and gasoline 

prices. 

Ethanol prices are partly driven by gasoline prices which are in 

turn driven by crude oil prices. Many input costs for producing corn 

are as well driven by crude oil prices. Both gasoline and crude oil 

reached record levels in 2008. Crude oil prices skyrocketed to $147 

per barrel before sinking to below $40. According to the Energy Information Agency, gasoline use fell an estimated 3.3 percent in 

2008, the sharpest decline since 1992 as prices hit record levels. 

Oil led the 2008 commodity boom and corn prices followed. Oil 

prices have fallen due in large and part to a weak demand from 

a slowing world economy. Falling gasoline prices have pulled ethanol down as well putting severe pressure on revenue. However, 

gasoline and ethanol prices have fallen much more than corn prices 

over the last year. 

In our company, we look at a concept called The Commodity 

Price Spread. This is essentially the difference between the daily 

market replacement prices of ethanol and corn expressed in a dollar per gallon basis. 

In January of 2008, the Commodity Price Spread was enough to 

cover all production and debt service cost plus make a reasonable 

contribution to return on investment. However, by July the Commodity Price Spread had narrowed to a point where an average or 

model plant was perhaps covering all variable cost and making a 

contribution to semi-variable cost but likely not covering the fixed 

5 

cost of operation much less debt service. Since July, the Commodity 

Price Spread has vacillated between not even covering variable cost 

to making a contribution to fixed cost but rarely if ever making any 

contribution to debt service. 

Our projection for the balance of the year solely based on futures 

market for corn and ethanol show little improvement. Corn input 

costs are established as much as a year before cash sales by the 

farmer actually takes place. Our suppliers tell us at today’s market 

price they are well below their production price. Unless agriculture 

production costs drop substantially this year, the price squeeze between corn and ethanol may well continue into next crop year. 

The RFS for 2009 which is effectively 9.5 billion gallons after imports and prior year credits are taken off is now not only the floor 

of demand but also the ceiling of demand. Today more than 25 ethanol plants have closed nationwide idling nearly two billion gallons 

of capacity. 

The outlook for New Energy Corp. and the U.S. ethanol industry 

will depend on several factors including economic growth which is 

consumer spending and gasoline demand, credit availability, oil 

and gasoline prices. We need to assure the continued viability of 

the industry as it stands today as well as provide for future evolution and innovation while stimulating thousands of green jobs. To 

do this, access to immediate and necessary operating capital is 

critically important to help weather the current economic conditions facing the industry. 

U.S. ethanol producers have answered the challenge to put forth 

in the RFS and are producing enough ethanol to fill the requirements and I might add for both this year and next year. 

Chairwoman VELA ́ ZQUEZ. Mr. Kimpel, time has expired. 

Mr. KIMPEL. Okay. 

[The statement of Mr. Kimpel is included in the appendix at page 

33.] 

Chairwoman VELA ́ ZQUEZ. So you will have an opportunity during 

the question and answer period to add any comments that you 

might want to make. 

Mr. KIMPEL. Very good. Thank you. 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. John Howe. 

He’s Vice President of Public Affairs for Verenium Corporation in 

Cambridge, Massachusetts. Mr. Howe has held leadership roles in 

several organizations including the Coalition for the Commercial 

Application of Super Conductors and the National Association of 

Regulatory Utility Commissioners. Verenium Corporation is a leader in the development and commercialization of cellulosic ethanol. 

Welcome sir. 

STATEMENT OF JOHN HOWE, VICE-PRESIDENT, PUBLIC AFFAIRS, VERENIUM CORPORATION, CAMBRIDGE MASSACHUSETTS 

Mr. HOWE. Thank you very much, Madam Chair and Ranking 

Member Graves. I greatly appreciate your welcoming me here 

today for a critical hearing at a critical time. I’m going to summarize my pre-filed statement with seven fairly brief points. 

First of all, curbing our use of imported fuels is a massive challenge, but it is imperative that we meet it because of a convergence 

6 

of three huge factors. Our country’s monthly outlays for oil imports 

are sapping our economic and competitive strength. We’re coming 

to grips with the reality that a global peak in oil production will 

arrive in a comparatively short time. And we’ve awaken to the fact 

that uncontrolled carbon emissions have thrown our climate into a 

disequilibrium that could threaten much of human civilization in 

the future if we don’t address it soon. 

Low carbon advanced biofuels can help on all of these fronts. 

This is why they’ve turned in a fairly short time from being a niceto-have option to a must have solution. Looking beyond today’s 

anomalous short-term collapse of oil prices, we will need clean liquid fuels for the long haul. Once these new sources are commercially available, it will take years to scale them up to have a meaningful impact. We have no time to lose. 

Second, advanced biofuels will be tremendous engine for small 

business formation and growth. This industry by its nature will 

rely on small scale, geographically diverse production and regionally adapted feedstolks and processes. That means that large numbers of good, non exportable jobs in small businesses all over the 

country will be created as suggested by the map in my prepared 

statement. 

Third, there is solid technical progress to report. Just last month 

my own company, Verenium, finished commissioning one of the nation’s first and indeed one of the world’s largest true demonstration 

scale cellulose-to-ethanol plants. It’s in southwest Louisiana. In 

January, we announced our first commercial plant in Florida that 

will generate hundreds of good jobs. Several competitors are likewise making good progress. 

The naysayers claim that advanced biofuels are a decade away 

and always will be. But it’s simply not true. The ambitious production goals in the RFS can be met if we marshal the sense of urgency that our national situation requires. If we stick to the commitment and don’t turn back, this is truly a case where we hold 

destiny in our own hands. 

Fourth, we must not downplay the obstacles and challenges facing advanced biofuels. Chief among these is financing. Even big established companies selling mature products find it hard to get 

credit in today’s environment. For us, it’s basically impossible. In 

the best of times, private lenders won’t take technology risk on energy projects. 

So we have reached a financing logjam. First of a kind, commercial scale projects are essential to establish the track record upon 

which private capital can lend in the future. There is basically no 

other place to go for funding today except to the government for the 

loans, grants and loan guarantees to make such projects possible. 

Fifth, there are other complex risks in making advanced biofuels 

a commercial reality, the typical challenges of developing complex 

technological processes. We’re having to work with the Ag sector to 

put together a fairly complex new supply chains to plant produce 

harvest and collect new kinds of feedstocks. 

There’s the off-take market. You hear a lot today about the ten 

percent blend wall. Between legislation and regulation, our industry needs to get clarity on just how the ramp-up of biofuels to 36 

billion gallons under the RFS squares with a quota under EPA regVerDate Aug 31 2005 15:16 Mar 20, 2009 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\47778.TXT DARIEN
7 

ulations that will max out at about 12 billion gallons of ethanol. 

Lifting the blend limit to 13 or 15 percent will help, but it will 

merely postpone the issue for a couple of years. It offers no certainty at all for advanced biofuels producers who are expected to 

produce the lion’s share of future new capacity. 

And then let’s face it. Global oil markets are not exactly textbook 

Economics 101. They feature extreme volatility, strategic behavior 

and outright manipulation of price and quantity by large actors 

like OPEC whose agenda is to prevent biofuels from being established as a viable alternative source. As an American, I can think 

of few better reasons why we should move aggressively to increase 

our use of biofuels than the fact that OPEC wants us to think it’s 

a bad idea. 

Sixth, let’s not let this long list of challenges deter us. Let’s focus 

on the vast potential inherent in advanced biofuels to renew our 

economy, create jobs, protect our environment, improve domestic 

security and global security for as these technologies go global they 

will democratize the balance of power in energy production and use 

around the world. That potential is real. I’ve included the summary 

of an excellent new report by Sandia and GM that finds that a 

large scale cellulose/ethanol industry meeting about one-third to 

about one-half of our liquid fuel needs is feasible and affordable 

within in a surprisingly compact geographic footprint. The key is 

a sustained, consistent policy commitment. A halfhearted approach 

won’t do. 

If I may ask you for just a moment to close with a seventh point 

and personal observation, our economic calamity arose from many 

complex factors, but I believe the surge in world oil prices over the 

last four years is what triggered the avalanche. It drained our 

economy of $1 trillion of our families’ accumulated wealth. It 

showed us that if we don’t bring our dependency on oil imports 

under control, we will remain weakened for a long time. 

Given the realities of climate change and impending peak oil, 

there is no path to a truly sustainable recovery for our country that 

does not include commercially viable, scalable, environmentally 

sustainable technologies to produce liquid fuels from domestic feedstocks, in other words, advanced biofuels. 

The challenges in getting there are severe, but failure is not an 

option. Thank you very much. 

[The statement of Mr. Howe is included in the appendix at page 

37.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Howe. 

And our next witness is Mr. Manford Feraci. He’s the Vice President of Federal First for the National Biodiesel Board. Mr. Feraci 

runs the Washington, D.C. office spearheading the organization 

federal regulatory efforts. The National Biodiesel Board is national 

trade association representing the biodiesel industry for research 

and development in the United States. 

Welcome. 

STATEMENT OF MANFORD FERACI, VICE PRESIDENT, 

FEDERAL FIRST FOR THE NATIONAL BIODIESEL BOARD 

Mr. FERACI. Madam Chair, Ranking Member Graves, Members of 

the Committee, thank you for holding this important hearing today 

8 

and I appreciate having the opportunity to testify on behalf of the 

National Biodiesel Board. 

As you said in your opening statement, the National Biodiesel 

Board is the national trade association for the U.S. biodiesel industry and we represent everything from biodiesel producers to feedstock providers to fuel marketers to technology providers. So we 

really do represent the whole waterfront, as you would say, of the 

entire industry. 

Biodiesel itself is a diesel replacement fuel. It’s made typically 

from agricultural oils, waste greases such as yellow grease, also 

more commonly known as restaurant grease, and animal fats. It is 

refined to hit an ASTM D67 fuel specification. We comply with Tier 

1 and Tier 2 emission requirements of the Clean Air Act. 

In the marketplace, the fuel is typically used in five percent 

blends in with conventional diesel fuel. But it can be used to the 

levels up to 20 percent. It’s distributed through the mainstream existing petroleum infrastructure that we have right now. We’re in 

about a little over 40 distribution terminals across the country and 

we’re really excited that there’s two major pipeline companies so 

far that have actually run biodiesel through a pipeline and we 

think that this holds a lot of potential to get our fuel distributed 

in the mainstream infrastructure which ultimately is in the nation’s overall policy goals. 

There are significant public policy benefits associated with the 

use of biodiesel, the first being let’s talk about energy security and 

reducing our dependence on foreign oil. With biodiesel production 

what you’re getting is you’re getting additional fuel production capacity and new fuel that’s being added to our overall infrastructure. The 690 million gallons that we produced in 2008 displaced 

38.1 million barrels of petroleum. In addition, it’s also worthwhile 

to mention that biodiesel is an extremely efficient fuel and that you 

get 3.2 units of energy for every one unit of energy it takes to 

produce the fuel. 

We’re good for the environment. We’ve reduced direct carbon 

emissions by 78 percent compared to conventional diesel fuel. 

That’s the equivalent in 2008 of removing 980,000 cars from the 

roadways. 

We have literally no sulfur emissions and if you talk about water 

use the water that was used to produce biodiesel in the United 

States last year was the equivalent that was used to maintain two 

large golf courses. So we are very efficient when it comes to that. 

We’re creating jobs and economic opportunity in rural America. 

In 2008 alone, we supported over 51,000 jobs, added over $4.2 billion to the nation’s economy, generated $866 million in tax revenue 

for state, local and federal government. If we hit our potential 

which we estimate to be about 1.77 billion gallons of production 

we’ll support over 78,000 jobs and add over $6.6 billion to the overall economy. 

The other thing that I always thing is worthwhile to mention is 

that the existence of the U.S. biodiesel industry right now is really 

the driver that is encouraging this investment in some of the next 

generation feedstocks that people have heard about, for example, 

algae which we think holds great potential as a lipid source. 

9 

There’s a lot of research that’s going on in it right now to make 

that commercial. 

Right now, in the advanced biofuels component when you’re talking about biomass based diesels, we’re really the only industry out 

there that is at commercial scale and we are the ones that are the 

ones that are the ones that are driving that research. 

All that said and all the success that we’ve had though is really 

in danger right now because our industry is facing some pretty severe economic hardship right now and it’s a perfect storm of factors, lack of access to capital which is not unique to our industry, 

volatility in commodity markets, and lastly we’ve had uncertainty 

relating to federal policy which signals that the support for biodiesel going forward is tenuous at best. 

Now we’re not asking for new programs. We’re not asking for 

huge new initiatives. What we’re asking for moving forward is the 

maintenance of what we have now because it’s been working. 

The first thing that’s vital to our industry is the biodiesel tax initiative. It achieves the goal of making our fuel price competitive 

with diesel fuel in the marketplace. It’s a dollar per gallon tax incentive. So by making us price competitive, it makes it easier for 

us to market our fuel and get greater infrastructure and I think 

greater penetration in the fuel stream. Unfortunately we were 

pleased that the tax incentive was extended for one year through 

2009, but the very short-term duration of these extensions are really drawing into question whether the commitment to biofuels. 

The second thing to mention real quick is we need a workable, 

renewable fuel standard. The 2007 Energy Bill put in for the first 

time a diesel replacement. It requires the replacement of diesel fuel 

in the marketplace with low carbon fuel. We’re ready to meet that 

requirement. Unfortunately, the process that EPA is going through 

right now could have the effect of making it nearly impossible to 

meet those standards and I’d love to answer a question about that. 

I know my time is almost up here, but I would love to get more 

into that if we have the opportunity during questions. 

Thank you very much for the time. 

[The statement of Mr. Feraci is included in the appendix at page 

44.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Feraci. 

Our next witness is Mr. Ron Litterer. He’s the Chairman and 

past President of the National Corn Growers Association. As a representative of NCGA, Mr. Litterer has advocated development of 

biotechnology, emphasizing the importance of responsible and accountable management. The NCGA is a producer directorate trade 

association headquartered in St. Louis that represents the interests 

of more than 30,000 farmers. 

STATEMENT OF RON LITTERER, CHAIRMAN, NATIONAL CORN 

GROWERS ASSOCIATION 

Mr. LITTERER. Thank you, Madam Chair, and distinguished 

Members of the Committee. Thank you for the opportunity to testify today on behalf of the National Corn Growers Association regarding the state of the renewal fuels industry and the current 

economy. 

10 

My name is Ron Litterer. I’m a farmer from Greene, Iowa where 

I grown corn and soy beans and I also have a hog finishing operation. I appear before you today as a grower and Chairman of the 

NCGA Board representing more than 32,000 growers from across 

the country. 

For more than 20 years, NCGA has worked side by side with 

farmers, industry and government to build the ethanol industry 

from the ground up. Through our efforts corn growers across the 

country and the ethanol industry have helped America move closer 

to energy independence. 

Our industry has been and is currently a major force in the revitalization of rural American by creating green jobs and by stimulating economic activity in our communities. However, the corn ethanol industry along with many others is feeling pressure from the 

current economic downturn in the U.S. and world economies. It is 

imperative that at a time when our country is facing a worsening 

economic crisis we recognize the significant role of the existing 

grain-based ethanol industry has in promoting not only energy 

independence but a more stable and prosperous U.S. economy. 

During these uncertain economic times, corn growers and other 

Ag producers continue to face a number of serious challenges. We 

along with many industries continue to face a very volatile marketplace. Over the past three years, the price of corn has seen dramatic fluctuation. The decrease from record highs in 2008 have 

been dramatic with prices falling by more than 48 percent over the 

past eight months. 

Despite tough economic times, corn production is becoming increasingly more efficient. Today biotechnology enables farmers to 

apply fewer inputs to produce larger crops on the same land. Currently, it takes about 40 percent less land to grow a bushel of corn 

than in 1987 and energy use to produce a bushel of corn has fallen 

by an average of 50 percent. 

According to Keystone Center’s Field to Market Report released 

January 2009, the production of corn in the U.S. has made significant measurable improvements and reducing energy, water, land 

use, and carbon emissions. In order to maintain our sustainability, 

improvements at that production level is imperative that the corn 

ethanol industry continue to grown and prosper. 

There is no doubt that rural America along with the rest of the 

country is undergoing a time of tremendous economic challenge. It 

is for this reason we would like to highlight the important impact 

that farmer-owned, homegrown fuel production has in bringing opportunity to the main streets of rural America. 

The role of the American farmer is changing, growing to encompass providing food, fiber, feed and fuel for our country. With the 

help of the U.S. biofuels industry our nation’s rural economy is providing more opportunities for farmers through homegrown, renewable energy development. 

However, the well-being of our industry is threatened today by 

the declining state of our national economy. NCGA feels strongly 

that the continued economic vitality of the U.S. renewable fuels industry is crucial for attracting the investment in research and development of second generation, renewable feedstocks. For that reason, it is imperative that the existing grain-based ethanol industry 

11 

and the accompanying infrastructure that has been built around 

that industry continue to prosper and remain viable in order to 

serve as a bridge for the next generation of biofuels. 

In conclusion, NCGA sees the grain-based ethanol industry as a 

critical part of the domestic energy security. It’s inclusion as part 

of the nation’s energy policy has strengthened and further diversified our nation’s fuel supply in a time of global volatility and increasing demand for energy. Finally, despite these trying times, 

corn growers will continue to meet the growing demands of food, 

feed and fuel in an economical and environmentally responsible 

manner. 

I would like to thank the Committee for its time and look forward to any questions you may have. 

[The statement of Mr. Litterer is included in the appendix at 

page 49.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Litterer. 

And now I recognize a gentleman, Mr. Graves, for the purpose 

of introducing our next witness. 

Mr. GRAVES. Thank you, Madam Chair. Our next witness is and 

by the way you have a very distinguished group of witnesses today. 

Our next witness is Brooks Hurst. Brooks and his family farm 

in northwest Missouri, 3,000 acres and their family is very active 

in biodiesel and ethanol production. Brooks himself serves on the 

board of directors for the Missouri Soy Bean Association and also 

on the board of directors of the Paseo-Cargill Biofuels Plant which 

produces 30 million gallons of biodiesel a year and 40 million 

pounds of edible food grade glycerin. 

So, Brooks, thanks for being here. 

STATEMENT OF BROOKS HURST, BOARD MEMBER, MISSOURI 

SOY BEAN ASSOCIATION AND PASEO-CARGILL BIOFUELS 

PLANT 

Mr. BROOKS. Thank you, Mr. Graves, and I would also like to 

thank Madam Chair and Ranking Member Graves and all the 

other distinguished Members of the Committee for allowing me this 

opportunity to talk to you today about the biofuels industry. 

As Mr. Graves stated, I’m a farmer from northwest Missouri and 

I am a board member of a biodiesel production facility in Kansas 

City, Missouri and then I’m also a member and investor in a small 

ethanol plant in the town of Craig. So I’ve seen the great benefits 

that it brings to the small rural communities, close to home. The 

Craig ethanol facility, for instance, is about a 20 million gallon 

plant. So it’s a really small plant. It has 300 farmer investors and 

so it’s very important to the farmers around their markets. 

I also want to thank Madam Chair and Ranking Member Graves 

for your opening statements, the depth and understanding that you 

have of the situation that we’re facing and so I will kind of just hit 

a few highlights of my written testimony since you obviously understand a lot of the problems we’re facing. 

One of the things that I would like to say is that we would like 

to extend as Mr. Feraci pointed out the biodiesel fuels blenders 

credit. One of the issues that is facing us right now is in a volatile 

market which we’ve all heard about the volatile markets. It really 

helps to be able to lock in prices. As we go forward into the uncerVerDate Aug 31 2005 15:16 Mar 20, 2009 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\47778.TXT DARIEN
12 

tainty of not knowing whether there’s going to be a blenders credit 

in the year 2010 it makes it really hard in order for our facilities 

to lock in contracts that we can lock in at a profit. 

Another advantage I would like to point out the renewal fuels industry is that it is small producer owned plants scattered out 

across the country and one of the benefits this gets you is a catastrophic weather event like Hurricane Katrina doesn’t affect biodiesel or ethanol production. We still go on producing renewable 

fuels for our country to use. 

I would also like to reiterate Mr. Feraci an issue or urge the 

speedy implementation of the Renewal Fuel Standard that Congress passed in the latest energy bill. I realize there are a lot of 

details to be worked out, but I think it’s very crucial that we have 

a domestic impetus for demand. As everyone is well aware right 

now, the EU has embargoed biofuels, biodiesel, going into the European Union and we’re working on trade talks to get that resolved, 

but there were several shiploads of biofuel sitting in the coast not 

being able to be exported. So not only do we need to work that 

trade issue out, but the renewal fuel standard would really help increase our demand domestically and making that important. 

I would also like to say that we have a byproduct of biodiesel 

which is glycerin and Mr. Graves mentioned that we have refining 

capacity in the Paseo-Cargill facility in Kansas City, but there are 

a lot of biodiesel production facilities that do not have the capability to refine glycerin. But it can be used as a fuel. In fact, there’s 

been tests that it’s a very effective fuel additive in No. 4 diesel and 

if we could establish, get the Energy Department to establish it as 

a fuel eligible for the biodiesel fuel credit I believe that would help 

set a floor for one of the critical byproducts of the biodiesel production. 

And with that, I’d like to say that we as a nation stand at a 

crossroads. The decisions that are made today will impact the country for years to come. It’s my hope that my testimony will help 

demonstrate the importance of the biofuels industry and your Committee will consider my recommendations. It’s crucial that we work 

together to ensure the U.S. biofuels industry continues to play an 

important role in rural development and growing our fuel supply. 

And with that, I’d again like to thank you, Madam Chair, Ranking Member Graves and all the other Members of the Committee 

for this opportunity to testify before you today and if you have 

questions, I’d be glad to answer. 

[The statement of Mr. Hurst is included in the appendix at page 

54.] 

Chairwoman VELA ́ ZQUEZ. Thank you. Thank you, Mr. Hurst. 

I would like to address my first question if I may to Mr. Howe. 

President Obama reaffirmed his commitment to renewable fuels 

and energy security in his address to Congress last week and while 

there is tremendous opportunity from ethanol production from biomass we are not there yet. So can you talk to us about given the 

present economic situation that we’re in, what will it take to get 

cellulosic ethanol to the marketplace? 

Mr. HOWE. Madam Chair, I believe the key step that we have to 

take is to achieve some successful I would call proto-commercial facilities. That is full commercial scale, first of a kind. These projects 

13 

have not been built at commercial scale yet in this country. Our 

company has undertaken a significant private investment of $80 

million to demonstrate a demonstration scale that’s about on a log 

chart halfway from pilot to commercial. That was a major commitment that we made with our own shareholder funds. 

But to get to full commercial scale which we believe is in the 

range of 30-40 million gallons per year, we’re talking investments 

of $200-$300 million if we can achieve success. I think we can’t 

have a halfhearted approach. We need to decided we’re going to 

make a full commitment to a handful of proto-commercial facilities, 

establish the track record of reliability, identify what the problems 

are and then I’m confident as the economy returns private lenders 

will be able to step in and help the scale up. 

Chairwoman VELA ́ ZQUEZ. With the new provisions that are in 

place in the Farm Bill, how long will it take before we can achieve 

full scale commercialization? 

Mr. HOWE. Well, as I think about the Farm Bill, I think of three 

provisions that were especially important. There is a cellulosic-ethanol producer tax credit of $1.01 per gallon, very helpful. Unfortunately it expires in 2012 and given the time frame that’s really not 

going to be an effective inducement for new capital investment. So 

I would recommend that expiration date be extended for five-six 

years for example to really provide an incentive to attract some 

new investment. 

A second program that I think offers tremendous promise is the 

Biomass Crop Assistance Program. This will provide an inducement for agricultural producers, growers, landowners, who are by 

and large a fairly conservative lot. They may not want to move 

away from existing growing programs where they have subsidies, 

insurance programs, into a brave new world where those programs 

don’t exist. 

So we need to get the BCAP program up and moving. I know 

there has been some concern about it, requests for an environmental impact statement that could delay it. Again, I think we 

need to make a commitment to do this at some significant scale. 

The third is the Loan Guarantee Program which the USDA is 

putting in place and that program needs to be funded robustly and 

the rules need to be looked at in order to make it feasible for private lenders to get behind projects. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Howe. 

Mr. Kimpel, you mentioned the immediate need for financing to 

cover daily operating expenses. As part of the Economic Recovery 

Bill, this Committee created a stabilization program to address 

those challenges and that initiative will allow small firms to take 

interest-free loans, those helping the businesses that you talk 

about whether the recession and pay down existing debt. Would 

you agree that this kind of program will be useful for the ethanol 

industry? 

Mr. KIMPEL. Yes. Absolutely, it would. But while we are still considered small business, the scale of our business is mammoth. To 

build a 100 million gallon ethanol plant today, if anyone would 

build an ethanol plant today, is probably someplace in the neighborhood of $200 to $250 million. Operating cost today in our indusVerDate Aug 31 2005 15:16 Mar 20, 2009 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\47778.TXT DARIEN
14 

try is probably someplace between $300 to $400 million. So the 

numbers are absolutely massive. 

We also have as John had referred to here the availability of loan 

guarantees. One of the interesting things about loan guarantees at 

65 or 75 or 80 percent is that you can’t even get a bank to look 

at you unless you have somehow a 100 percent. So even areas that 

have the capacity to take advantage of loan guarantees are going 

untapped simply because nobody will loan anybody anything. 

Chairwoman VELA ́ ZQUEZ. I guess that we need to talk to some 

of the banks who are taking TARP money and see if they will be 

willing. 

Mr. KIMPEL. Yes. 

Chairwoman VELA ́ ZQUEZ. Since those loans are guaranteed by 65 

to 70 percent in the case of USDA and up to 85-90 percent under 

SBA. I guess that we need to bring the banks to talk to us and see 

what else it will take. 

Mr. Litterer, less than two years ago, this Committee held a 

hearing on renewable fuels. At that time, we learned about the 

small business boom in ethanol and biodiesel production. We also 

learned about the rural rejuvenation taking place as a result of 

that boom. Clearly, the picture has changed dramatically. What 

will it take for small producers to overcome these challenges and 

do you believe that the result build-up in capacity was too rapid? 

Mr. LITTERER. First of all, I think we have to recognize that right 

now the most limiting factor to small producers is access to capital. 

That is an overriding issue and it’s not just this industry. It’s a lot 

of industries in our country. So if we could get that problem fixed, 

I think that would help a lot of producers. 

The other part of that is the pricing between gasoline and ethanol. If that would change, that would dramatically change the outcome for ethanol producers. 

As far as the build-up of capacity, I don’t think any of us had 

a crystal ball to see what was going to happen with our economy. 

There’s no question we were trying to meet a demand for phasing 

our MTBE. We met the challenges. We expanded. We believe we 

have a product that needs to be here long term for replacing imported crude oil and I think if we all had a crystal ball maybe we 

would have done some things differently, but looking at it at the 

time we think we did the right thing and I think the industry can 

rebound from this if we can get our credit situation solved. 

Chairwoman VELA ́ ZQUEZ. Okay. Thank you. 

Mr. Feraci, I know that your board has been supportive of the 

renewal fuel standard two and we all know that they are still in 

its regulatory phase and the good thing about it is that it will recognize biodiesel fuel for the first time. In the context of the recession, what will be the proper implementation of RFS 2? What will 

that mean for your industry? 

Mr. FERACI. Thanks for the question. The Renewal Fuel Standard, proper implementation of this, to have a program that is going 

to be workable, is absolutely vital to our industry. It really could 

be a make or break for us right now and given the way things are 

out in the economy and the way the market conditions are. 

RFS 2 the thing about it that was—From our industry’s perspective, it was so groundbreaking. For the first time you have a reVerDate Aug 31 2005 15:16 Mar 20, 2009 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\47778.TXT DARIEN
15 

newal requirement in U.S. diesel fuel that you didn’t have before 

and it’s a component of the advanced biofuel schedule and you 

ramp up from 500 million gallons in 2009 to one billion gallons in 

2012 and one of the requirements of that fuel is that fuel to qualify 

for that component of the program it has to reduce greenhouse gas 

emission by 50 percent. 

Now we have well-founded data that’s over a decade old and has 

been refined consistently that shows when you look at direct emissions associated with biodiesel you get a 78 percent reduction. 

What our concern is right now is that the entire advanced biofuel 

schedule, the first component of it to roll out which is this biomass 

based diesel component, could be in jeopardy if the EPA doesn’t implement this in a correct way. What we’re concerned about is that 

due to some of the additions that they’re throwing in with the calculation of greenhouse gas emissions you could have the effect of 

essentially disqualifying all vegetable oil from being used as a feedstock to meet what is the very first component of the biomass 

based diesel schedule and if you do that just quite frankly you simply don’t have the feedstock to meet the program and the first component of the advanced biofuel schedule that rolls out is a failure. 

So it’s imperative to us that this be done correctly. 

Chairwoman VELA ́ ZQUEZ. Do you have an ideas as to when EPA 

will implement it? 

Mr. FERACI. By statute, they were supposed to have a final rule 

in place by January 1 of this year. Now they clearly haven’t done 

that. Based on conversations, we assume that we’re going to see 

the NOPR here maybe within the next couple weeks and we certainly want to see that process move forward because getting a program up and running and that’s workable is absolutely vital to us. 

But it has to be done in a correct way. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Graves. 

Mr. GRAVES. Thank you, Madam Chair. 

I want to kind of-I guess for everyone’s interest-point out that 

the nice thing about biofuels whether it’s ethanol or biodiesel, 

they’re products that work and we have them right now. These are 

products that have to be further developed. These aren’t products 

that have to be dreamed up or come up with. These are products 

that work right now and every gallon of biodiesel or ethanol that 

we use is a gallon of petroleum we don’t have to find somewhere 

else. 

Ethanol can be produced from anything. It can be produced from 

corn. It can be produced from sugar. It can be produced from cellulose, anything that ferments. If it ferments, you can make ethanol out of it. And biodiesel is vegetable oil. That’s what it is which 

kind of brings me to the environmental impact of biofuels. 

If you crack open a shipload of petroleum in the ocean some 

place you have a major environmental problem. If you crack open 

a shipload of ethanol, it’s completely water soluble because it’s alcohol or vegetable oil. You have a much, much different issue on your 

hands. That’s the reason these products are so good. 

But we have an industry that is struggling and we have a lot of 

small plants out there. The vast majority of them as of recently 

we’ve had private investment in them, but for the most part they’re 

16 

farmer owned cooperatives. It’s just a bunch of farmers getting together to raise capital and now they’re caught up in the credit 

crunch because there’s not a lot of credit available out there. 

So now I’ve made my soapbox pitch. But I do want to ask about 

the blenders wall that we have out there because right now it’s ten 

percent of an ethanol blend and in our farm I know we run about 

30 percent ethanol blend. What we do is go out and buy E85 which 

is an 85 percent blend. We bring it back. We blend it out in our 

own fuel tanks and get about a 30 percent blend which my mother 

uses in her car all the way to the trucks on the farm that we use. 

Biodiesel we’ve used as much as a 50 percent blend in our tractors 

with no horse power loss whatsoever. So you can go much, much 

higher without any modifications to the system. 

But my question is how much impact is it going to have if we 

can make that jump to say 15 percent and I just think, Mr. 

Litterer, you may have mentioned it or somebody mentioned it but 

the question is actually for all of you. How much impact is that 

going to make when it comes to demand and helping out if we 

make the jump, say, to 15 percent ethanol blend and why can’t do 

that? What is the reason for the 10 percent wall that we have? 

The same thing in biodiesel. If we set the bar higher. There is 

no reason why we shouldn’t be able to do that. And again every 

gallon of biofuels that we use is a gallon of petroleum we don’t 

have to find and I would rather be dependent on U.S. farmers than 

I would Saudi Arabia for our fuel any day. My question is what can 

we do and how big a challenge is that going to be to move that 

blenders wall up the scale for all those products and I’ll start with 

you, Mr. Kimpel. 

Mr. KIMPEL. Mr. Graves, we need to take you along on our next 

visit to see the automobile companies. 

There are obviously regulatory issues, but one of the issues that 

has been brought up to us every time that we talk to the automobile companies is exactly what you have talked about and that’s 

the warranty issues and perhaps there are some legitimate issues 

there. 

But it is critical, absolutely critical, that we solve the blend wall 

and perhaps we’re going to do it in steps. Perhaps it’s going to be 

12 percent and then 15 percent and then 20 percent and whatever 

it takes to get us to the 35 to 36 billion gallons that we so desperately need to solve these issues that we’ve been talking about 

here today. 

But there are a number of initiatives that are going on as we 

speak. We have our partners in the industry, the Ag community, 

the Department of Energy, Environmental Protection Agency, 

USDA, all are actively involved in this. But taking that first leap 

and getting off the arbitrary limit that was established years ago 

at ten percent is critical. 

Several years ago, we had 140 billion gallons of spark ignition 

motor fuel in the United States. Ten percent of that if you get 100 

percent market penetration doesn’t even get us to where we need 

to be at the end of the conventional renewal standard much less 

get into the cellulosic and advanced biofuels. It is critical and it’s 

critical also in the sense that we don’t have to rail the stuff to 

every single corner of the country. 

17 

Mr. GRAVES. Mr. Howe. 

Mr. HOWE. Thank you very much, Mr. Graves. 

I’ll pick up where Mr. Kimpel was just speaking about. We absolutely should go forward. We should push this limit as far as the 

science will justify. I know there have been concerns expressed by 

auto manufacturers about warranty on legacy vehicles, small engine manufacturers, boat operators and so forth. Those considerations need to be taken into account, but I’m not sure that they 

should dominate the issue. If there’s a way that we can provide 

fuel that is a higher fraction of gasoline for the lawnmowers and 

weedwackers of the country most of the auto fleet will be able to 

use richer blends I think over time or can be designed to use richer 

blends. 

But ultimately down the road we can get a few more percentage 

points that will accommodate growth in grain ethanol in the next 

five, six, seven years. The RFS schedule calls for much higher use 

which is to be from cellulosic sources. So I believe that that fix does 

not really address the long-term challenge that we face. 

As I see it, there are only two other options. One is a complete 

change of chemistry to other kinds of molecules such as biobutanol, 

the problem being that the chemists have not determined that we 

can produced biobutanol that has as favorable an energy balance 

or a carbon balance as ethanol does. And the other alternative is 

E85. If we can make the kind of commitment to E85 that Brazil 

has made to all ethanol vehicles we can have essentially limitless 

growth or dramatic growth in the use of biofuels in the future of 

this country. 

I see this as an issue of standards. This is Windows and Mac. 

You can’t say that Mac is inferior to Windows. In fact, a lot of people think it’s a better operating system. But the problem is one of 

compatibility. So we need to look at how we can accommodate this 

new fuel for the future rather than necessarily adjust to the legacy 

fuel. 

Mr. GRAVES. Mr. Feraci. 

Mr. FERACI. From the biodiesel perspective, the issue is a little 

bit different because they’re different fuels and different spaces in 

the economy. But overall as an industry our overall goal is to try 

to get five percent displacement in the overall U.S. diesel pool and 

from the macro sense the first real tangible step we can take is get 

the RFS 2 implemented in a successful way. 

But as an industry and this has been going on for some time we 

work pretty closely with engine manufacturers to try to get these 

higher level blends that you’re talking approved for engine warranties. Right now, B5, everyone warranties B5 now and as a matter 

of fact we went through the process as an industry at ASTM to 

have a change in the D975 diesel fuel spec which is just conventional diesel fuel that if you have spec biodiesel up to B5 blend 

that’s blended in with conventional diesel fuel it’s just deemed to 

be D975. It’s not some other sort of designation. So if you pair that 

with pipelines and other sorts of fuel infrastructure that’s going to 

give you a significant amount of penetration into the fuel infrastructure. 

But getting up to B20, some manufacturers warranty. Some 

don’t. We’re constantly working with them to try to get them to do 

18 

it because like you we agree. We think you can do it and have no 

detrimental impact on engines at all. 

Mr. GRAVES. Mr. Litterer. 

Mr. LITTERER. I am not going to repeat what our first participants have said, but just to add to, I think that we have to address 

this very shortly and EPA is going to be key in this because that’s 

where the science is going to be researched and they need to prove 

it. It’s going to take maybe up to two years to get it implemented 

once the decision is made. So it’s something that we need to work 

on immediately. It’s one that if we’re ever going to go to second 

stage ethanol production, the cellulosics, we have to get this issue 

resolved. 

Mr. GRAVES. Mr. Hurst. 

Mr. HURST. Thank you, Mr. Graves. 

I also wanted to state the Underwriters Laboratory came out two 

weeks ago and basically said that they, which is an independent 

third party verification, could see no problem with 12, 15 percent 

blend in any of the pipelines, in any of the infrastructure we have 

currently in introducing a 15 percent blend. So I thought that was 

important factor. 

And I also wanted to touch a little bit on biodiesel. One of the 

attributes of biodiesel is since we have eliminated sulfur, even a 

two percent blend increased the lubricity for your engine. So actually biodiesel, if you put a little bit of biodiesel, it’s better than petroleum diesel right now for the lubricity. 

Mr. GRAVES. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I would just like to ask you a question. What will be the maximum amount and you are suggesting to increase it from 10 to 12, 

15, that will make it compatible with today’s cars and infrastructure? 

Mr. HOWE. We need to defer to testing to determine that number. I don’t—We don’t have expertise. 

Chairwoman VELA ́ ZQUEZ. Okay. Mr. Sestak. 

Mr. GRAVES. It’s 30 percent on our farm. We know that. 

Mr. SESTAK. Thanks, Madam Chairwoman. 

Could I ask you, sir? Go back to RFS. What do you see as the 

purpose of RFS? Its policy purpose? 

Mr. FERACI. I would say it’s multi-faceted. From our perspective, 

you obviously get the energy security goal of displacing petroleum 

with renewable fuel. In our case, that would be biodiesel and increasing the amounts that you’re getting on that side as well. Another stated goal of it is to have not only you’re displacing petroleum but you’re addressing the whole issue of climate change as 

well. 

Mr. SESTAK. With that in mind, with what you said in your concerns, are you all right with a life cycle cost approach of it? I mean, 

was that what your problem was with the life cycle cost or is it the 

discount rate that they’re trying to use? 

Mr. FERACI. It relates more to the whole idea of indirect land use 

changes and here’s what our specific concern is. 

Mr. SESTAK. In short, you don’t do soybeans. Somebody else is 

going to soybeans and you have to take that cost in. 

19 

Mr. FERACI. Yes, the idea that U.S. agricultural in particular has 

been pretty stable and it’s extremely sustainable. It’s somehow attributed with having deforestation in South America for example. 

Mr. SESTAK. But if the goal as you said is climate, shouldn’t we 

take that into account? 

Mr. FERACI. We should take it. 

Mr. SESTAK. Up until now, ethanol has by and large not been 

performance-based criteria. The more you build the more subsidy 

you get. I was taken with RFS because it’s the first time we’ve 

have a performance-based criteria. But part of that performancebased criteria is climate change. 

Mr. FERACI. Right. 

Mr. SESTAK. So why not take an indirect land use? 

Mr. FERACI. We don’t have an issues with taking into consideration indirect. By statute, you have to. In the RFS, it says that you 

have to account for significant indirect land use changes. 

Mr. SESTAK. But your problem is thatMr. FERACI. Our issue relates to the science of it. Right now, we 

know how to measure direct emissions. 

Mr. SESTAK. Right. 

Mr. FERACI. We have a great model that’s been out there for 10 

years now and that model has been refined over time to show a 

pretty definitive result across the board. The science of indirect 

land use change is so inexact right now that you could really put 

some false attributes on some fuels that aren’t accurate. As a matter of fact, the Europeans in their renewables directive took a close 

look at this issue and they decided just to push it down the road 

in terms of having to do the indirect land use change calculations. 

We have no problems with that because we think at the end of 

the day that you’re going to have a positive attribute and we’re not 

going to have a negative impact on it. But what we do have an 

issue with is a science that’s very undefined, unreliable and inexact 

at this moment attributing something negative to a biofuel that’s 

really not there. 

Mr. SESTAK. We had looked at the RFS. It’s not a cap in trade. 

It’s more of a floor in trade. But my question I guess then is what 

did you think about the discount rate and trying to trade off bad 

action today for bad action in the future. 

Mr. FERACI. We’re not sure. I mean we haven’t seen the rule yet 

in terms of what we’re talking. They had a stakeholder briefing, 

EPA, with various groups. We haven’t seen what they’re going to 

do on the discount rate. By statute you’re going to have to be compared to, our fuel is going to be compared to, 2005 emissions associated with diesel fuel and we’re going to have to just play in the 

statute. 

Mr. SESTAK. I agree that-Yes sir. 

Mr. LITTERER. Could I just add a comment about the land use 

issue? 

Mr. SESTAK. She’s real tough on my time. No, go ahead. 

Mr. LITTERER. That’s all right. 

Mr. SESTAK. I’m only kidding. 

Mr. LITTERER. Just simply that in corn production our production 

is not static and it never has been. If you go back historically, 

we’ve about a two percent growth rate in corn production per acre 

20 

per year. So in other words we can meet the growing demand for 

corn without adding a lot of additional acres and that is a key that 

I think a lot of fundamental of this research that is being left out 

of the picture and the equation that needs to be really considered. 

In fact, if you look at the tech providers in producing seed corn 

today, they say that we’re even going to accelerate the rate of that 

growth because of the technology going into seed. So that goes to 

the science and the accuracy of the formulas they use in land use. 

Mr. SESTAK. That’s a good point. The reason I asked is I’ve always kind of felt that as valuable as ethanol and particularly now 

as we get into advanced fuels are that the lack of having a performance-based criteria although it helped economically it was 

about you billed more, you get more. It wasn’t about does one of 

your plants use coal or natural gas. I mean there’s a difference and 

you get the same tax subsidies for both. I’m not sure we-So that’s 

why I was taken with RFS. But I understand it’s the science of the 

ones that you have, not the concept. 

Chairwoman VELA ́ ZQUEZ. Time expired. 

Mr. SESTAK. Thank you. 

Chairwoman VELA ́ ZQUEZ. Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

I just have one quick question for Mr. Howe. You made a comment awhile ago with regards to you had some suggestions with regards to SBA lending that you think would be able to help facilitate some of the loans to some of the plants. Could you elaborate 

on it just a little bit? 

Mr. HOWE. I did mention the USDA loan guarantee program. 

The concern I was alluding to is there are restrictions in the terms 

of that program that limit the rate at which a lender for the balance of the non guaranteed portion that limits the rate that the 

lender can charge and also, of course, that balance is 

unguaranteed. The results of those conditions in the rule is we 

have found, and we’ve extensively tested the market, that there’s 

very little appetite to participate in this program right now, certainly under today’s conditions. So we believe there either needs to 

be a guarantee of a higher fraction or 100 percent of the loan and 

some relaxation on the conditions on what the lender can charge 

for the balance of the loan. Because right now, it’s a program that 

it’s like we’re 200 feet offshore and we’re getting thrown a 100 foot 

rope. It’s just not going to do the job. 

Mr. LUETKEMEYER. Okay. So what you’re saying is if the lender 

had the ability to have a higher rate of guarantee or could receive 

a higher rate of guarantee he would more inclined to lend. Is that 

what you’re saying? 

Mr. HOWE. That would help. However, I think it’s the fact, the 

notion, of having to bear risk for projects for which there’s not a 

technology track record. That itself is problematic. This is why our 

community has been saying that for the first projects of a kind the 

highest possible fraction of guaranteed loan is essential. 

We’re only talking a handful of projects here so that we can establish that track record and then get off to the races. Private lenders have financed tremendous expansion of proven technologies like 

independent power, wind power, solar installations. But we have to 

get that fire started. We’ve got to do the first few projects. I think 

21 

it’s a good public investment for the government to get behind 

these first projects. 

Mr. LUETKEMEYER. Okay. Which first projects are you referring 

to? Are you referring to cellulosic or are you referring to some other 

technology? 

Mr. HOWE. This program is for biorefineries, advanced fuel biorefineries. So I think we are talking certainly about cellulosic, ethanol and other technologies that qualify under the RFS, in other 

words, that achieve significantly higher carbon reductions. So 

that’s certainly our interest in it. 

Mr. LUETKEMEYER. Very good. Thank you, sir. 

Thank you, Madam Chairwoman. I’m give you back my time. 

Chairwoman VELA ́ ZQUEZ. Mr. Griffith. 

Mr. GRIFFITH. Thank you, Madam Chair. I am taken number one 

by the technology and the information and the expertise of the 

panel and thank you for being here. 

As a business man, there’s something wrong here when we are 

not attracting private capital. Cargill, the largest privately owned 

company in the world should be a source of capital. Exxon should 

be a source of capital. Microsoft and many, many others and hedge 

funds and venture capital funds that look for opportunities that 

they see with great potential in the future and would love to invest 

in. Why do you think they are reluctant to invest in this area of 

energy production? 

Mr. HOWE. I believe we are confronting a problem of public good. 

This is a classic public good problem that warrants government 

intervention. If we look at the benefit that the ethanol program has 

created for the country here was an excellent analysis done by Merrill Lynch about eight or nine months ago showing that the mere 

presence of the nine or ten billion gallons of ethanol in the nation’s 

fuel mix helped to keep fuel prices, gasoline prices, about 15 percent lower than they would otherwise have been last year when we 

had that shocking episode of nearly $150 oil. What DOE has found 

is the American consumers saved $20 to $40 billion which I think 

is a tremendous payback on the $5 billion or whatever that was 

paid to the oil companies as subsidy for using ethanol. 

This is one of these instances. It’s a tragedy of the commons 

problem where the benefit cannot be captured by the private investor. There is a critical need for the government to participate to facilitate these new technologies. 

Mr. GRIFFITH. If the CAFE standards were raised to 47 to 50 

miles per gallon per average for a manufacturer, would you have 

a viable industry? 

Mr. HOWE. I think we need to do everything we can looking out 

into the future. This is not either or. This is a both and situation. 

We need to conserve. We need to become efficient. We need to electrify. We need to do everything, you know, reconfigure our communities. But at the end of the day there will be a significant residual 

demand for liquid fuel that today is provided by petroleum that in 

the future needs to be provided by cleaner fuels as our petroleum 

supplies play out and as we come to grips with the necessity to reduce carbon emissions. 

Mr. GRIFFITH. And if we have a two year drought that reduces 

the baseline product, what would we be looking at as far as our inVerDate Aug 31 2005 15:16 Mar 20, 2009 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\47778.TXT DARIEN
22 

dustry is concerned if we became dependent for 20 percent of our 

fuel on biofuel or biodiesel? 

Mr. LITTERER. You know, we haven’t had a major drought in this 

country sinceMr. GRIFFITH. Last year. 

Mr. LITTERER. No, we really haven’t. If you go back in history, 

we have not really had a major drought affecting crop production. 

We’ve had isolated regional droughts. But we have not had a major 

drought that has impacted production. We had problems a couple 

years ago but we have still produced in the last two years 13 billion 

and 12 billion respectively, the two highest corn production years 

in history and, sure, there are going to be some ups and downs. 

But to say we’re going to have two years back to back major 

drought, if you look back historically, that just has not happened. 

Mr. GRIFFITH. I see. 

Mr. LITTERER. It hasn’t. 

Mr. GRIFFITH. I guess my question to you is what are the objections of private capital investing in this. I see such great potential 

for it and I’m sure there are people a lot smarter than I am that 

you’re pitching this to in the private markets and they’re not coming forward. 

Mr. FERACI. If you-there are a variety of things right now. I’m 

speaking from biodiesel perspective. There are a variety of things 

right now that are causing harm to the industry and making it difficult to attract that capital. The one thing that we-some of that we 

can control. Some of that we can’t. I mean the one that would be 

helpful is that you have to have this stable policy framework that 

is reliable, that sends a signal that biofuels are not just a flash in 

the pan, that it’s something that’s going to be there for a while to 

draw this sort of investment in the terminal infrastructure and 

things like that that you really need to get infrastructure. 

Mr. GRIFFITH. That makes perfect sense. Thank you all. 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Mr. Schock. 

Mr. SCHOCK. Thank you, Madam Chairwoman. First, let me say 

I agree with the comments that have just been made and that is 

that we have to provide some level of consistency to the biofuel 

markets so that investors will want to continue to invest. Lenders, 

banks, financial institutions, venture capital firms will feel safe 

about making an investment in these plants and we as policymakers I think need to do what we can to shore up the market so 

that there is some consistency for those that are doing what it is 

we’ve asked them to do which is provide an alternative fuel for our 

country. 

Specifically, I’m concerned with our ethanol industry right now 

as they have taken a hit and I think it’s extremely important not 

only for that industry but every other industry thereafter whether 

it be cellulosic or others that we hope to have that industry be successful not only for the jobs that they’ve created but also for the 

psychological benefit that it has as we mentioned with the investors and entrepreneurs wanting to invest in the next greatest, latest invention, if you will, when it comes to biofuels. 

With that said, I’m pleased that in my area, a group called 

Biofuels Manufacturers of Illinois, BMI, is in the process of starting 

23 

a biodiesel plant right in my district. Currently, they’ve obtained 

all the necessary permitting, the land rights and are ready to build 

the plant. They actually have contracted already with an enduser 

for their products. So it’s not pie in the sky, trust us if we build 

it, if we produce it, someone will buy it. But actually the Farmer 

Cooperative GrowMart has agreed to buy their biofuel once it is 

produced. 

I’m equally pleased that unlike some of the others that have 

come and gone in terms of the new biofuels they have partnered 

with the USDA lab in Peoria. Peoria, Illinois is home to one of four 

USDA Agricultural Utilization Centers and the researchers there 

have discovered a new crop which is currently termed a weed, 

pennycress, which has 36 percent oil in it, nearly twice as much 

of soybean, which is very exciting. Equally exciting I think is the 

fact that it’s a winter crop which means it can be grown right now 

when the land is dormant and not being used, thus adding a second shift if you will to crop production into the agriculture industry. 

With all that being, they’ve had their hurdles if you will in getting that plant online and getting this idea to be not just an idea 

or a dream but actual reality and I’m just interested in hearing 

from Mr. Feraci what your organization specifically with biodiesels 

can do for a group of entrepreneurs and individuals who have gone 

a long way in terms of the work and the investment to help make 

that a reality. 

Mr. FERACI. Congressman, I know you’ve expressed a lot of interest in that project and we applaud your leadership on that. The 

National Biodiesel Board, we’re a feedstock-neutral organization 

and the sort of research that you’re talking about where they’re 

looking at pennycrest as a potential oil seed crop is something that 

we’re excited about. We encourage that going on. 

And as you look at the industry has it has grown to commercial 

scale, with each passing year, you’re seeing increased diversity in 

the feedstock that we’re using to produce fuel. Yes, soybean oil is 

still a very important feedstock to us, but you’re seeing more restaurant grease and animal fat and now you’re seeing things like 

camelina and pennycrest that are coming on list as viable feedstocks that you can use to produce a spec biodiesel that will be accepted in the marketplace. So we’re extremely excited about that. 

Our organization with some of the things that you’re, among 

some of the these that these enterprising individuals are probably 

going to run into is eventually at some point they’re going to run 

into an issue with crop insurance and our organization does outreach with that to help them so that they get covered underneath 

that program. 

There is also going to be a grower outreach component to it as 

well because like you said they’re rotating and I believe those will 

be acres competing with winter wheat. So again we do grower outreach. We talk about the benefits of it and there is clearly going 

to be a demand for this feedstock out there if the price is competitive and going forward we would be more than happy to work with 

you to make this project a success. 

24 

Mr. SCHOCK. Great. Thank you. What kind of help do you provide in helping? I know the other issue, of course, is our loan guarantees. 

Mr. FERACI. Right. In terms of just pointing them, we’d be more 

than happy to visit with them, see exactly what they’re doing, what 

their needs are and see if we can’t point them in the right direction 

in terms of programs they should be applying for. 

Mr. SCHOCK. Okay. Great. Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Halvorson. 

Ms. HALVORSON. Thank you, Madam Chairman, and thank you, 

panel. 

It’s great to see you and this is an issue that’s near and dear to 

my heart. First of all, let me tell you I drive a flexfuel vehicle. I 

buy E85 everywhere I go because I believe if each and every one 

of us takes responsibility for ourselves and talk about it that’s a 

big help because we need to buy American wherever we go and we 

should be doing this not only when gas is $4 a gallon, but even 

when it’s lower. 

I just want to tell a story. I’m sure that everybody has a story 

to tell and you hear many of them. But I have a company in my 

district called Nova Biosource Fuels. It’s in Seneca, Illinois and it’s 

a renewable fuels business that’s having financial trouble due to 

the economic crisis that we’re in and it’s probably no different than 

anybody else and it’s a producer of biodiesel. It buys leftover grease 

from the fast food restaurants and turns that waste product into 

useable energy. 

Now I toured it a couple of weeks ago and now last Thursday 

they have announced that they will be ceasing production because 

they’re unable to identify a lender to give them credit while they’re 

waiting for money to come in. They need to buy their feedstock so 

that they can turn it around. They have the capacity to annually 

produce 230 million gallons of biodiesel which is equal to 55 million 

fewer barrels of crude oil if only they had the funds to be available 

to them. When oil is valued at $40 a barrel, it means over $2 trillion of U.S. wealth transfers out of this country. 

Now this is probably no different than anybody else and I’ve 

heard for the last hour and a half some of the different challenges 

and what’s going on. We’ve heard about loan guarantees. We’ve 

heard about different challenges. They need $20 million. Now 

that’s not something that’s easily gotten and they’ve talked to several creditors. 

Now as a panel and whoever wants to answer this, if there was 

one thing you as a group would ask Congress, how would you ask 

Congress right now to help with this credit crisis because that is 

the problem? Simple, one thing and I shouldn’t use the word ‘‘simple.’’ Nothing is simple when it comes to Congress, but everybody’s 

having trouble getting credit and it’s a vicious cycle and this is our 

problem. If they can get credit, they could keep their employees or 

their people employed and go out and get their product. What 

would you say to Congress on what you would need to get help for 

to keep these businesses going? 

Mr. FERACI. I’ll take a stab at it. 

Ms. HALVORSON. Thank you, Mr. Feraci. 

25 

Mr. FERACI. You know, Nova Biosources are one of our members. 

They produce a quality fuel. They’re a great company. I mean 

you’ve really put a face on what is a larger issue in our overall industry right. I know I’m sounding like a broken record here, but 

I would go back to you’re talking about drawing in capital and having people have faith that there’s going to be a long-term commitment to displacing petroleum with domestic renewable fuels. 

So I would give you two answers and you’ve heard me say them 

previously. You have to have a long-term extension of the tax incentive and you have to have a workable RFS 2 that’s going to create a domestic market for these fuels. That sends a signal to creditors and investors that these industries are going to be around, 

these companies are going to be around, and there’s going to be a 

marketplace for them to meet a demand in. I think that would go 

further than anything in terms of keeping companies like Nova 

Biosource around and we should. 

Ms. HALVORSON. And how soon could we do that? I mean how 

quickly then could we help them stay in business, turn things 

around, so that they could do what they do best and that we could 

send the message and educate people out there that we’re going to 

do everything we can here in Congress to help them because what 

we’ve done in the stimulus package is to help those who haven’t 

gotten to this point. You know they’re already up and running. 

They don’t need that feed money or that seed money to get started. 

Mr. FERACI. If you look at the stimulus bill and there are some 

parallels to be drawn from it the idea of doing multi-year extensions on Section 45 on the renewable energy electricity production 

side is going to have the effect that you’re talking about. The idea 

was that you’re going to draw that capital in. The sooner that you 

can move on a longer term extension of biodiesel the better off 

we’re going to be. The same thing on the renewable fuel side. 

I mean Congress has acted. The program was supposed to be up 

and running on January 1 of this year. The sooner that’s implemented in a workable fashion the better off that they’re going to 

be. 

Ms. HALVORSON. Great. Thank you so much. 

Chairwoman VELA ́ ZQUEZ. Time expired. 

Ms. HALVORSON. I guess we have to go vote. Thank you so much. 

Chairwoman VELA ́ ZQUEZ. Mr. Schrader. 

Mr. SCHRADER. Thank you, Madam Chair. We’re competing with 

votes I guess here pretty shortly. I come from Oregon and very interested in the woody biomass. We’re experimenting with other alternative, canola and other more convenient, if you will, alternatives to corn and biofuels. But I’m interested in the woody biomass, in particular, in the advance. So while a lot of the questions 

I know some of the answers will be similar. But how in particular 

can we help or what are the first steps for making woody biomass? 

And by that I mean particularly the forest woody mass. Over 50 

percent of my state is Federal forest and I would like to use that 

to advantage. 

Mr. HOWE. If I may take a crack at that, Mr. Schrader. 

With the stroke of the pen, Congress could alter the definition of 

eligible woody biomass which as you’ll recall in the Energy Independence and Security Act something like 24 percent of the availVerDate Aug 31 2005 15:16 Mar 20, 2009 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\47778.TXT DARIEN
26 

able biomass was ruled ineligible for conversion to cellulosic biofuel 

and I think we have come to recognize that that needs to be 

changed in order to open up the kinds of feedstocks that you’re 

talking about. 

We see tremendous potential for the conversion of woody biomass, the pulp and paper mills, residues. We can make our remaining paper industry and lumber industry more viable enabling them 

to produce co-products. So I would say that is probably the most 

important thing you could do. I think the technology would come 

along to meet that need fairly quickly. 

Mr. SCHRADER. Very good. Brazil has been very successful in promoting ethanol and biodiesel production. What have they done 

that’s so different? Why is their circumstance, I’m not talking about 

the current economic crisis we’re facing, but what’s been their approach and why have they gone that route and we have not? 

Mr. LITTERER. Well, I think they, of course, got started much 

sooner than we have. They’ve also made their automobiles so they 

can all use ethanol. I mean they’ve made that decision a long time 

ago. They can burn all levels of ethanol. They have capability with 

their automotive fleet and that’s probably the biggest difference. 

Mr. SCHRADER. I go a different route than some of the other 

members here. I also have some small independent gasoline dealers 

in my district and there’s a lot of concern and there was a point 

at which they had trouble getting ethanol this past winter. Some 

of the larger brand name oil companies are frankly hoarding it to 

make sure that their stations had opportunity. 

So how do I juxtapose that against the discussion there’s plenty 

of ethanol out there in this crisis and stuff? How do we make sure 

the independents are guaranteed access to ethanol at five, ten, fifteen, pick a number, blend? 

Mr. HOWE. Over time, we need to develop the infrastructure. We 

need to disabuse ourselves of the falsehood that ethanol can’t be 

moved by pipeline. It can. It is. It’s just that we’re not doing it yet. 

In fact, it has started in Florida, pipeline infrastructure development. We need to maintain a good rail network obviously. But I 

think what we’re talking about is not a shortage of production capacity. It really is distribution bottlenecks that have created those 

problems. 

Mr. SCHRADER. Okay. That’s probably the area. The last quick 

question and I don’t know if you can answer it. What’s the price 

point for oil or barrel of oil or gallon of gas where it becomes optimum for investment in biofuel/biodiesel technology? 

Mr. LITTERER. I’m not sure there’s one price point that you can 

point to because you have crude oil, you have corn price, you have 

all these input that go into it. So I don’t know that you could come 

up with one price. 

Mr. SCHRADER. What’s the range? I guess I’ll refine. 

Mr. LITTERER. Body, I don’t know. I think if we were at today’s 

corn price probably and a $60 to $70 oil, we probably could be pretty competitive. But I really hesitate to throw too many numbers 

around here because it’s a moving target. 

Mr. HOWE. I think one important idea to throw in here is the long-term replacement cost for oil is probably in the range of $70. 

When prices went below $70, we saw oil companies, state-owned oil 

27 

companies, and private developers worldwide start to pull back on 

development. So we are no longer replacing the oil that we are 

using up. Remember last year when oil was $80-$100 and rising and there 

was polling of American consumers. Would you be willing to live 

with an oil price that doesn’t go below $70 if that provides the assurance for a renewable fuels industry to take root and develop, a 

lot of the Americans at that time would have been very happy to 

say, ‘‘I’ll sign up for $70 if I know that’s my hedge.’’ Now that oil 

went down to $36 to $40, where is that commitment? That’s what 

we need. 

Mr. SCHRADER. Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Dahlkemper. 

Ms. DAHLKEMPER. Thank you, Madam Chairwoman. I thank you 

for bringing forward to us this timely and critical meeting. I think 

there are few of us who are not concerned about our dependence 

on foreign oil and know the implications certainly on our domestic 

economy and our foreign policy. 

In my district, we have Lake Erie Biofuels and, Mr. Feraci, I 

guess I wanted to address you on a couple questions here, having 

sat down and talked to them a number of times about what’s going 

on in that industry and Pennsylvania, I’m from Pennsylvania, and 

I think we’re the fourth state I believe now that is going to be 

working towards a two percent blend. Is that correct? Four states? 

Mr. FERACI. Yes, you’re definitely towards the front end. 

Ms. DAHLKEMPER. Yes. So obviously we’re a long way. We have 

46 other states out there. 

But I guess my question is, first of all, I wanted to ask how many 

plants have closed recently because my understanding is there’s a 

number of biodiesel that have closed or are very close to closing at 

this point. 

Mr. FERACI. Right. As well as we can-I mean the last survey of 

our members that we did there is 176 plants out there right now. 

Again, doing these surveys, we estimate that about one-third, 

maybe even less, are actually operating and producing fuel right 

now. 

Ms. DAHLKEMPER. The others were all producing fuel at some 

point. 

Mr. FERACI. At some point, yes. It’s still in the ground. They’re 

operating biodiesel plants. They’re just not running right now. 

Ms. DAHLKEMPER. And these are all over the country. 

Mr. FERACI. These are all over the country, yes. 

Ms. DAHLKEMPER. Okay. So my question is I guess because Lake 

Erie Biofuels, 80 percent of their production goes to Europe. Right 

now, they’re in just kind of temporary issue with Europe stockpiling thinking they were going to go to a ten percent blend I believe, but they’re still at 5.75 because of the economy. But they 

would like to sell domestically. 

Is the issue more of a blend requirement issue, you know, having 

a customer base here within our country or a capital issue in terms 

of why two-thirds of these plants have closed down? 

Mr. FERACI. We kind of tern it a ‘‘perfect storm’’ of a confluence 

of events that have come together that are all to the detriment of 

the industry, be it you have an unfavorable feedstock pricing 

28 

versus the price of petroleum. You mentioned Europe. That’s the 

world’s premium diesel market that the Europeans are taking protection steps in our opinion to close that market down. 

But long term what we want to do and what we think is important and what was envisioned in the RFS2 is to create a domestic 

marketplace and a domestic draw to get fuel used in here in the 

U.S. so that Lake Erie Biofuel can sell their fuel here and that’s 

what the RFS2 is all about. 

We’re behind schedule on implementation of that. It has to be 

implemented in a workable way so that they’re going to have a demand, a built-in demand, in this marketplace to replace petroleum 

diesel fuel with their product. 

Ms. DAHLKEMPER. So I guess that goes back to Mr. Griffith’s 

question regarding investment and this all needs to come together 

to make this happen. 

Mr. FERACI. Absolutely and the one, a stable policy framework, 

something that’s reliable that the private sector knows is going to 

be there for the long term is what you need to draw in this investment capital and provide the certainty that these guys need. If you 

look around the world where they’ve had successful implementation of renewables policy, Europe, we talked about Brazil. The one 

commonality is that they made a commitment and it was a longterm commitment and it was reliable and people knew that it was 

going to be there and we need to have the same thing here. 

Ms. DAHLKEMPER. Okay. Thank you very much. Appreciate it. I 

yield back my time, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Thank you. Let me just thank all the 

witnesses for your incredible contribution in the discussion of this 

important issue and, Mr. Feraci, regarding EPA and RFS2, I’m 

going to be looking into that issue and we’re going to see as a committee what can we do to make sure that it is done and it is done 

properly without jeopardizing any of the industries. 

With that, I ask unanimous consent that Members will have five 

days to submit a statement on supporting materials without objections. So ordered. 

This hearing is now adjourned. Thank you. Off the record. 

[Whereupon the Committee adjourned.] 

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