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ALTERNATIVE FUELS: CURRENT STATUS,

PROPOSALS FOR NEW STANDARDS,

AND RELATED INFRASTRUCTURE ISSUES

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 8, 2007

Serial No. 110–42

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov
COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

(II)
(III)

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

RICK BOUCHER, Virginia, Chairman

G.K. BUTTERFIELD, North Carolina,

Vice Chairman

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

ALBERT R. WYNN, Maryland

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

JOHN D. DINGELL, Michigan (ex officio)

J. DENNIS HASTERT, Illinois,

Ranking Member

RALPH M. HALL, Texas

FRED UPTON, Michigan

ED WHITFIELD, Kentucky

JOHN SHIMKUS, Illinois

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

STEVE BUYER, Indiana

MARY BONO, California

GREG WALDEN, Oregon

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

MICHAEL C. BURGESS, Texas

JOE BARTON, Texas (ex officio)

PROFESSIONAL STAFF

SUE D. SHERIDAN, Senior Counsel

BRUCE C. HARRIS, Policy Advisor

MARGARET HORN, Clerk

DAVID J. MCCARTHY, Counsel

(V)

C O N T E N T S

Page

Hon. Rick Boucher, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Hon. Michael C. Burgess, a Representative in Congress from the State of

Texas, prepared statement .................................................................................. 3

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 4

Hon. Darleen Hooley, a Representative in Congress from the State of Oregon,

opening statement ................................................................................................ 5

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 6

Hon. Joe Barton, a Representative in Congress from the State of Texas,

prepared statement .............................................................................................. 8

WITNESSES

Robert Meyers, Associate Assistant Administrator, Office of Air and Radiation, Environmental Protection Agency ........................................................... 13

Prepared statement .......................................................................................... 16

Answers to submitted questions ...................................................................... 187

Alexander A. Karsner, Assistant Secretary, Energy Efficiency and Renewable

Energy, U.S. Department of Energy ................................................................... 23

Prepared statement .......................................................................................... 25

Answers to submitted questions ...................................................................... 177

Elizabeth A. Lowery, vice president, Environment, Energy and Safety, General Motors Public Policy Center ........................................................................ 66

Prepared statement .......................................................................................... 68

Warren I. Mitchell, chairman of the board, Clean Energy ................................... 70

Prepared statement .......................................................................................... 72

Paul D. Reid, president and chief executive officer, Reid Petroleum Corporation ........................................................................................................................ 76

Prepared statement .......................................................................................... 78

Robert Greco, group director, Downstream and Industry Operations, American Petroleum Institute ...................................................................................... 89

Prepared statement .......................................................................................... 91

Charles T. Drevna, executive vice president, National Petrochemical and Refiners Association ................................................................................................. 107

Prepared statement .......................................................................................... 109

Answers to submitted questions ...................................................................... 172

Daniel A. Lashof, Climate Center science director, Natural Resources Defense

Council .................................................................................................................. 122

Prepared statement .......................................................................................... 124

Letter of March 27, 2007 to Members of Congress ........................................ 167

Bob Dinneen, president, Renewable Fuels Association ........................................ 143

Prepared statement .......................................................................................... 145

SUBMITTED MATERIAL

‘‘Ethanol’s Impact Multifold’’, AP article of May 7, 2007, submitted by Mr.

Shimkus ................................................................................................................ 164

‘‘List of Alternative Fueling Station Total Counts by State and Fuel Type,’’

U.S. Department of Energy, submitted by Mr. Dingell .................................... 170
(1)

ALTERNATIVE FUELS: CURRENT STATUS,

PROPOSALS FOR NEW STANDARDS, AND

RELATED INFRASTRUCTURE ISSUES

TUESDAY, MAY 8, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ENERGY AND AIR QUALITY,

COMMITTEE ON ENERGY AND COMMERCE,

Washington, DC.

The subcommittee met, pursuant to call, at 10:00 a.m., in room

2123 of the Rayburn House Office Building, Hon. Rick Boucher

(chairman) presiding.

Members present: Representatives Butterfield, Melancon, Barrow, Markey, Gonzalez, Inslee, Baldwin, Hooley, Matheson, Dingell, Hastert, Upton, Whitfield, Shimkus, Shadegg, Buyer, Bono,

Walden, Rogers, Sullivan, Burgess, and Barton.

Also present: Representative Green.

Staff present: Bruce Harris, Lorie Schmidt, Laura Vaught, Chris

Treanor, Jonathan Brater, Margaret Horn, C.H. Bud Albright,

David McCarthy, Tom Hassenboehler, and Matthew Johnson.

OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS FROM THE COPMMONWEALTH

OF VIRGINIA

Mr. BOUCHER. The subcommittee will come to order. This morning the Energy and Air Quality Subcommittee is turning its attention to alternative fuel. Increasingly, our Nation’s energy independence is a goal which we all share and given that we currently import approximately 60 percent of the oil which we consume in the

United States, it is appropriate and necessary that we explore and

encourage all possible means of increasing the domestic production

of fuels which will lessen our dependence on foreign sources of oil.

While corn-based ethanol is currently the primary alternative

fuel produced in the United States, other biofuels, including cellulosic-based manufacturing for ethanol and biodiesel holds great

promise for increasing the contribution of domestically produced

fuel. Also promising is the potential of coal-to-liquids, regarding

which we heard testimony at a previous hearing. Today our focus

is on a broader range of alternatives to petroleum other than coalto-liquids.

The Energy Policy Act of 2005 established a mandatory amount

of renewable fuel that must be contained within the United States’

gasoline supply. The amount of the mandate increases over time

with 7.5 billion gallons required in the year 2012. For each year
2

after 2012, the Act requires that EPA determine, in consultation

with the Secretaries of Energy and Agriculture, the mandatory renewable fuels volume amount with a minimum of 250 million gallons of renewable fuel to be derived from cellulosic biomass each

year.

The program started last year with an interim rule. The EPA

issued a final rule for the Renewable Fuel Standard on April 10,

2007, just about 1 month ago. The final rule included a mandate

that 4 billion gallons of renewable fuels be used the first year, but

actual production in that first year was almost 5 billion gallons.

The Department of Energy projects that more than 11 billion gallons of renewable fuels will be used in 2012, a number well above

the 7.5 billion gallons mandated by EPAct 2005.

Today’s hearing we will explore recent proposals to change the

Renewable Fuels Standard by increasing the amount of renewable

fuels that would be required, expanding specific requirements for

renewable fuels using cellulosic feedstock, broadening the mandate

to cover other types of fuels and possibly changing the Renewable

Fuels Standard to a low carpet standard. Increasing the amount

and type of fuels mandated are the two primary components of the

fuels portion of President Bush’s proposed 2010 Initiative to reduce

gasoline consumption by 20 percent by the year 2017.

The President’s proposal would convert the Renewable Fuels

Standard into an Alternative Fuels Standard, expanding both the

volume of fuel to be produced and the type of fuels that would qualify. This proposal would require 35 billion gallons of alternative

fuels by 2017; by most accounts, an aggressive target. One consideration for both current and future fuels mandates is the state of

the renewable fuels infrastructure. Currently, all automakers warranty their vehicle engines to run on ethanol blends up to E–10.

Automakers also produce flexible fuel vehicles that can accept ethanol blends of E–85.

There are more than 6 million flexible fuel vehicles on the road

today and Ford, General Motors and the Chrysler Group have also

pledged to double their annual production by 2010 and to make

one-half of all vehicles that they manufacture biofuel capable by

2012. Although the number of flexible fuel vehicles has increased,

the availability of E–85 at retail outlets has not increased accordingly. There is a wide range of estimates for the cost of converting

existing infrastructure or installing new E–85 infrastructure at all

service stations, with estimates ranging from $5,000 to $20,000 to

convert existing equipment and from $2,500 to $75,000 to install

new equipment, a very wide range of estimates.

The availability of the appropriate infrastructure is necessary for

the wide scale deployment of alternative fuels, so an examination

of the current status, as well as obstacles or opportunities surrounding the alternative fuels infrastructure is clearly appropriate

for this morning. I look forward to hearing from our witnesses regarding the expansion of use of renewable and/or alternative fuels,

as well as the related infrastructure issues.

And we will turn to testimony from our first panel momentarily.

Before I do that, I am pleased to recognize other members for their

opening statements and would note that any member who elects to

waive an opening statement will have the time allotted for that
3

opening statement added to that member’s question period for the

first set of witnesses. I am not pleased to recognize the ranking

member designate for today, my good friend, the gentleman from

Michigan, Mr. Upton, for 5 minutes.

Mr. UPTON. Well, thank you, Mr. Chairman, and I am going to

take the opportunity to defer and as I did not know I was going

to be in this seat, Mr. Hastert is on his way, so I am going to ask

unanimous consent that he may defer, as well.

Mr. BOUCHER. Without objection, so ordered.

Mr. UPTON. Thank you.

Mr. BOUCHER. And I thank the gentleman. The gentleman from

Illinois, Mr. Shimkus, is recognized for 3 minutes.

Mr. SHIMKUS. I will also defer, Mr. Chairman.

Mr. BOUCHER. The gentleman defers his opening statement. The

gentleman from Indiana, Mr. Buyer, is recognized for 3 minutes.

Mr. BUYER. I will defer.

Mr. BOUCHER. The gentleman defers. The gentleman from Oregon, Mr. Walden, is recognized.

Mr. WALDEN. Mr. Chairman, I, too, will defer.

Mr. BOUCHER. Mr. Walden defers. The gentleman from Oklahoma, Mr. Sullivan, is recognized for 3 minutes.

Mr. SULLIVAN. I will defer.

Mr. BOUCHER. The gentleman from Texas, Mr. Burgess, is recognized for 3 minutes.

Mr. BURGESS. Mr. Chairman, I will submit my statement for the

record and save time for questions.

[The prepared statement of Mr. Burgess follows:]

PREPARED STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS

Thank you, Mr. Chairman.

Mr. Chairman, this is probably one of the most crucial issues facing our country

today.

I firmly believe that America’s energy security should be this committee’s top priority.

Home-grown fuels, such as biodiesel, cellulostic ethanol and coal-to-liquids, can

help move the United States towards greater energy independence, and can even

help to clean the environment.

As we begin work on energy independence legislation, I look forward to working

with the chairman to include a provision that I’m working on which would

incentivize clean diesel.

Diesel engines get an average of 30 percent greater fuel efficiency as gasoline engines, so putting more diesel cars on the road instead of a gasoline engine is like

dramatically increasing the CAFE Standard.

Using biodiesel in those diesel engines can further reduce our demand for petroleum.

And, which this is not in our committee’s jurisdiction, I hope that the energy independence legislative package will also include my bill H.R. 927, which would provide

parity for biodiesel produced from recycled restaurant grease—something that we

have in abundance in the Dallas-Fort Worth Metroplex.

There are numerous challenges to be met as we seek to increase our use of alternative transportation fuels—both in terms of technology, biology and chemistry, and

in terms of supporting infrastructure. I appreciate our witnesses appearing before

us today to discuss these issues.

Mr. Chairman, I yield back.

Mr. BOUCHER. The gentleman from Michigan, Mr. Rogers, is recognized for 3 minutes.

Mr. ROGERS. Mr. Chairman, I would defer.
4

Mr. BOUCHER. Well, the Republican side of the aisle gets a blue

ribbon today for perfect consistent performance. The gentleman

from Michigan, Mr. Dingell, the chairman of the full committee, is

recognized for 5 minutes.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr DINGELL. Mr. Chairman, thank you. I commend you for holding yet another important hearing regarding energy security and

climate change. You have been showing extraordinary leadership in

this matter and I think the committee has reason to be very grateful to you.

Today’s examination of alternative fuels is particularly important

to the committee’s ongoing work on these important issues. Consumers deserve to have vehicles capable of operating on alternative

fuels and to have these fuels readily available for their use. Ethanol has already helped clean the air as an additive to gasoline, 10

percent ethanol blended with 90 percent gasoline. It is not as an

additive, however, that ethanol has its greatest potential. Its greatest contribution is improving national security and addressing climate change will be realized when low carbon ethanol is available

at the marketplace as a true alternative, 85 percent ethanol blended with 15 percent gasoline, commonly known as E–85.

I look forward to hearing from our witnesses today what obstacles remain towards achieving this objective and what we can do

to overcome it. In addition to E–85, other biofuels such as biodiesel,

offer unique opportunities to improve efficiency and would consume

less petroleum. Diesel fuel performs more efficiently than gasoline.

These properties make diesel fuel excellent for heavy duty applications both on and off the road. Biodiesel expands upon diesel’s natural efficiency by making a portion of it renewable. Additionally,

biodiesel has fewer pollutants than traditional diesel fuel. Without

a standardized fuel specification for biodiesel, engine and vehicle

manufacturers have been reluctant to warrant their products when

used with bigger concentrations of biofuel.

The potential benefits of biodiesel extend well beyond the light

duty passengers cars and trucks. If biodiesel is standardized and

widely available, it has significant potential to save petroleum and

reduce emissions of carbon dioxide from freight, rail, maritime and

other transportation sectors, which are often overlooked. Establishing a single national specification for biodiesel in concentrations of

20 percent and greater should be part of any package addressing

these issues.

It is also wise to examine longstanding regulations of both fuels

and vehicles in the context of alternative fuels. Government regulations should encourage alternatives to petroleum, not provide disincentives. For example, a corporate average fuel economy program

regulates how efficiently a vehicle burns its fuel. It does not take

into consideration, however, what fuel it is burning or the level of

carbon dioxide it is emitting. Assuming our national objectives are

to consume less petroleum and reduce greenhouse gas emissions, it

is the efficiency with which a vehicle burns non-petroleum based

fuel and emits few greenhouse gases. E–85 is less efficient than
5

gasoline, yet it displaces petroleum and can significantly reduce

greenhouse gas emissions.

We must continue to ask these questions as we proceed with new

legislation and review existing policies. Biofuels are considered in

the context of energy security and climate change and it is important that we continue to examine how they can be made available

to consumers true alternatives to petroleum. Anything short of that

objective will fall short. Thank you, Mr. Chairman. I yield back the

balance of my time.

Mr. BOUCHER. Thank you very much, Mr. Dingell. The gentleman from Massachusetts, Mr. Markey, is recognized for 3 minutes.

Mr. MARKEY. I will waive.

Mr. BOUCHER. The gentleman from Massachusetts waives. The

gentleman from Texas, Mr. Gonzalez, is recognized for 3 minutes.

Mr. GONZALEZ. I will waive.

Mr. BOUCHER. The gentleman from Washington State, Mr. Inslee, is recognized for 3 minutes.

[No response]

Mr. BOUCHER. The gentlewoman from Oregon, Ms. Hooley, is recognized for 3 minutes.

OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON

Ms. HOOLEY. Thank you, Mr. Chairman I would like to welcome

all our witnesses and thank you for being here today. I look forward to your testimony. I won’t take up my full time, but I would

just like to say a couple things regarding biofuels. While I am 100

percent supportive of the pursuit of development of biofuels, I

would like to encourage my colleagues on this committee to not let

it divert us from taking other steps to limit our dependence on foreign oil.

One of the most effective ways we can do this is through production of more fuel efficient vehicles. Biofuels, while worthy of pursuit, and certainly part of the solution, will not be a panacea.

Biofuels need to be viewed as one piece of a bold strategy to begin

to move our country toward our goal of energy independence. In

the President’s State of the Union address, he proposed his 2010

Initiative to reduce gasoline consumption by 20 percent by 2017.

He called for biofuels from ethanol made from wood chips and

switchgrass to be practical and competitive within 6 years. I applaud the President for setting these worthy goals, but I question

how achievable it is. Corn harvests won’t be large enough to meet

either of the President’s 35 billion or 60 billion gallon targets and

alternatives to corn-based ethanol aren’t yet economically viable,

but I hope they will be. As we are going to hear today, the U.S.

currently doesn’t have the infrastructure in place.

While the U.S. continues on its pursuit of alternative energy, I

would like to remind my colleagues of the good we can do and the

gains we can make from simply making our vehicles more fuel efficient. I hope our witnesses today will be able to shed light on the

progress that is being made in relation to biofuels and what we can

do to advance its development in hopes of meeting or exceeding the

President’s goals.
6

Thank you, Mr. Chairman, and I yield back the remainder of my

time.

Mr. BOUCHER. Thank you, Ms. Hooley. The gentlewoman from

Wisconsin, Ms. Baldwin, is recognized for 3 minutes.

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Ms. BALDWIN. Thank you, Mr. Chairman. I am pleased that we

are continuing our alternative fuels discussion that we began a few

weeks ago. Our Nation is producing renewable fuels at record rates

and we now have the ability to expand our projection even more.

It is time for us to take significant advantage of this opportunity

to advance our use of home-grown biofuels and in turn, reduce our

dependence on foreign oil and prepare ourselves for a post-petroleum economy of the future.

Renewable fuels have been good for our environment, our economy and our farmers and our Nation’s energy future. The standard

included in the Energy Policy Act of 2005 has led to significant

growth in the ethanol and biodiesel industries. In my home State

of Wisconsin, we are well on our way to producing more than 500

million gallons of ethanol annually and we will still be producing

more than 70 million gallons of biodiesel. These production levels

have reinvigorated rural Wisconsin and similar production levels

across the country have revived rural America.

But if we are going to use the opportunity presented to us today

and expand on renewable fuels production, we must ensure that it

is done with clean and environmentally friendly transportation

fuels, those that lessen our greenhouse gas emissions and protect

our air, water and natural resources. I have significant concerns

about replacing the Renewable Fuels Standard with an alternative

fuel standard. By altering the standard, we are opening up our Nation’s mandate to an entirely new source of energy production, coalto-liquid. And while coal-to-liquid may be a domestic fuel source, its

greenhouse gas emissions could be as much as twice as high as petroleum based fuels.

At a time when our committee is prepared to take bold action to

reduce the greenhouse gas emissions causing climate change, I am

at a loss for why we would support increased production of a fuel

that would increase CO2 levels. I am hopeful that this hearing will

shine a light on the truth about coals to liquid so that we can move

forward with policies that will promote our environmental stewardship and our energy independence.

I also look forward to hearing from the witnesses about ways in

which we can improve the infrastructure that is supporting the renewable fuels industry. For instance, is our transportation infrastructure, such as rail, able to handle the increased supply of ethanol while providing reasonable shipping rates? What incentives can

we provide to promote consumer awareness about the availability

of clean fuels and what role do Federal, State and local governments play in encouraging the use of flex fuel vehicles and E–85

fuel?

Thank you and I yield back the balance of my time.
7

Mr. BOUCHER. Thank you very much, Ms. Baldwin. The gentleman from Georgia, Mr. Barrow.

Mr. BARROW. Mr. Chairman, I will waive.

Mr. BOUCHER. Mr. Barrow waives.

Any statements for the record will be accepted at thsi time.

[The prepared statement of Mr. Barton follows:]
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Mr. BOUCHER.I am pleased now to recognize our first panel of

witnesses and we welcome to the subcommittee this morning, representing the administration, first, Mr. Bob Meyers, who is the Associate Administrator of the Office of Air and Radiation of the Environmental Protection Agency, certainly no stranger to this committee. And Mr. Meyers, we welcome your return to the committee

this morning. We also welcome Mr. Andrew Karsner, the Assistant

Secretary for Energy Efficiency and Renewable Energy for the U.S.

Department of Energy, who testified before our subcommittee last

week. We enjoyed your testimony so much, we decided to have an

encore this morning and we welcome you, as well.

Without objection, your prepared written statements will be

made a part of the record. We would welcome your oral summaries

and ask that you keep those to approximately 5 minutes. Mr. Meyers, we will be pleased to begin with you.

STATEMENT OF ROBERT MEYERS, ASSOCIATE ASSISTANT ADMINISTRATOR, OFFICE OF AIR AND RADIATION, ENVIRONMENTAL PROTECTION AGENCY, WASHINGTON, DC

Mr. MEYERS. Thank you, Mr. Chairman and members of the subcommittee. I also appreciate the opportunity to come before you

today and testify on how the expanded use of renewable and alternative fuels supports the President’s goals of enhanced energy security and strengthen environmental protection. Your letter of invitation asks three questions and I am going to try to attempt to address each one in the order that they were asked.

First, with regard to the status of the Renewable Fuels Standard,

or RFS, on April 10 Administrator Johnson signed the RFS rule

and the rule published just a few days ago, on May 1. Initial compliance with the RFS rule will be required on September 1, 2008.

This rule implements section 211(o) of the Clean Air Act established by the Energy Policy Act of 2005. Although the rule and its

accompanying analysis run many hundreds of pages, this wideranging rule actually accomplishes a very direct and straightforward result. It essentially provides the rules of the road for our

best implementation, including a credit trading program that

works within existing market structures.

EPA estimates that by 2012, the transition to renewable fuels

will result in reductions of between 2 and 3.9 billion gallons of petroleum consumption per year. In the same year, we estimate that

the RFS and increased use of renewable fuels will achieve reductions in carbon dioxide and equivalent greenhouse gas emissions

between 8 and 13.1 million metric tons. Further effects on the air

quality are detailed in my written statement and included in the

agency’s accompanying regulatory impact statement.

I should note that EPA’s analysis of the rule acknowledges that

renewable fuel use in the transportation sector will very likely exceed the mandates established in the RFS. Experience to date has

warranted this out. However, it should be emphasized that the promulgation of a final rule allows such use to occur with the existence of a flexible credit trading and banking system and with proper verification. In addition, section 211(o) only specifies RF levels

through 2012; years following are subject to administrative determination. Thus, the RFS rule will remain a vital part of the renew-
14

able fuel implementation for the foreseeable future at what volumes are experienced.

You also requested views with respect to proposals to change the

RFS by increasing the amount of renewable fuels required or to expand specific requirements on feedstock will burden the overall

mandate. My written testimony and the testimony of Assistant Secretary Karsner details the administration’s legislation to enact the

Alternative Fuel Standard or AFS. Along with the legislation the

administration has on reformed CAFE, the AFS responds to the

President’s challenge in the State of the Union address to reduce

gasoline consumption by 20 percent in the next 10 years.

The AFS builds off a structure of the RFS and specifies that 35

million gallons of alternative fuel be used in the Nation’s transportation fuel by the year 2017. The AFS would include all fuels that

are currently part of the RFS. It would include fuels currently classified as alternative fuels under the Energy Policy Act, as well as

other fuels that can qualify as alternative fuels.

On a fundamental level, then, this structure should provide additional competition to the alternative fuel marketplace. The AFS defines ethanol, butanol, natural gas, liquefied petroleum gas, hydrogen, coal-to-liquids and electricity among its included fuels. As proposed by the administration, the AFS would replace the RFS in the

year 2010, but would retain the flexible credit and banking and

trading mechanisms pioneered in the RFS. The legislation provides

for an accelerating schedule for AFS requirements in the years

2010 through 2017.

Although different AFS fuels will serve to offset greenhouse gas

emissions by different amounts, increasing the use of fuels under

an AFS program could result in greater greenhouse gas emission

reductions in our current mix of fuels. For example, one advantage

of the longer timeframe provided by the President’s proposal, along

with market incentives it creates, is allowing for commercial development of cost-competitive cellulosic ethanol.

Cellulosic ethanol may achieve very large greenhouse gas reductions, up to 90 percent compared with petroleum based gasoline.

Other fuels like electricity, compressed natural gas and liquefied

natural gas can achieve substantial greenhouse gas reduction. Ultimately, the level of greenhouse gas reductions achieved by the AFS

will depend on the implementation of the program, market forces,

the incentives available for the development of various renewable

and alternative fuels and the mix of fuels used to meet the target.

Finally, you asked about policies that Congress could enact that

would hasten the development and deployment of necessary infrastructure. Obviously, I will point to Twenty in Ten and the legislation the President has put forth and the very real incentives that

this legislation can produce by expanding and building upon the

structure Congress enacted in the RFS. We stand ready to work

with this committee and Congress as you move to consider Twenty

in Ten and related legislation.

In addition, I would be remiss if I also did not note that EPA’s

initiated a voluntary partnership that can lead to greater penetration of the E–85 structure. The initiative is designed to expand our

existing program to promote the introduction of E–85 in transportation quarters and among fleets.
15

Thank you, Mr. Chairman and members of the subcommittee, for

this opportunity. This concludes my prepared statement and I

would be pleased to answer any questions that you might have.

[The prepared statement of Mr. Meyers follows:]
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Mr. BOUCHER. Thank you very much, Mr. Meyers. Mr. Karsner.

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

U.S. DEPARTMENT OF ENERGY, WASHINGTON, DC

Mr. KARSNER. Chairman Boucher, members of the committee,

thank you for the opportunity to present the administration’s views

on its Twenty in Ten goal and to discuss programs under way at

the Office of Energy Efficiency and Renewable Energy, EERE, at

the Department of Energy to accelerate the development and deployment of renewable fuels and alternative fuels that will reduce

our Nation’s dependence on oil and enhance our energy security.

In his 2007 State of the Union address, President Bush challenged our country to reduce gasoline consumption by 20 percent

within the decade, the Twenty in Ten plan. The President called

for a robust Alternative Fuel Standard requiring the equivalent of

35 billion gallons of renewable and alternative fuels. The goal is a

significant expansion of the 7.5 billion gallon target now in law for

2012 under the Renewable Fuels Standard. The Twenty in Ten

plan holds the promise of diversifying our sources, types and volumes of fuels we use, while reducing our vulnerabilities and dependencies on oil. Only through transformational technological

change can these goals be achieved and we believe the administration’s proposals provide the tools to achieve them.

The Department’s portfolio of research, development and commercialization activities support the Twenty in Ten and longerterm clean energy goals. The Department is particularly focused on

solving technical problems to overcome the barriers to biofuels

growth through a strategic cost-shared partnership with private industry and collaboration with other agencies. Together, with the financial tools already included in EPAct 2005, we believe that this

multi-pronged effort will expand the role of domestically produced

biofuels in our Nation’s energy supply and our economic future.

Our biomass program is focused on making cellulosic ethanol cost

competitive by 2012, a target put forth in the President’s 2006 Advanced Energy Initiative. Just last week, Secretary Bodman announced the availability of up to $200 million for cellulosic bio-refineries at 10 percent of commercial scale, subject to appropriations. The 10 percent scale demonstrations have the potential to reduce the overall cost and risk to industry and contribute to the

quicker commercialization of larger scale facilities.

Additionally, DOE will invest up to $385 million for as many as

six commercial scale bio-refineries over the next 4 years, subject to

appropriations. The development and deployment of a biofuels distribution infrastructure in the United States is fundamental to providing for displacement of gasoline and increased consumer choice.

To bring these issues into focus, the Department has developed

a biofuels infrastructure team to support greater convergence between our vehicle technologies and biomass program. As a result,

the Department is pursuing a growing number of infrastructure activities, including analyses of feedstocks, pipelines, terminal facilities, storage and vehicle technologies. The President’s Twenty in

Ten goal holds the promise of accelerating penetration of cellulosic

ethanol and other alternative fuels into the marketplace and bring-
24

ing the benefits of a clean, renewable and alternative energy source

more quickly to the Nation.

To meet these challenges, cutting edge research, development,

deployment and commercialization must indeed be supported by

transformational policy changes, the types of proposals that the

President in the State of the Union. The administration looks forward to working with Congress to shape these policies and legislation that can make this happen.

This concludes my prepared statement and I would be happy to

answer any questions the committee may have.

[The prepared statement of Mr. Karsner follows:]
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Mr. BOUCHER. Well, thank you very much, Mr. Karsner, and

thank you, also, Mr. Meyers. My questions are propounded to both

of you or to either who chooses to answer.

The President’s target of 35 million gallons of alternative fuels

by 2017 is certainly an aggressive target and I note that in order

to meet that, the President is proposing to encompass, within the

category of alternatives, both those fuels that are currently part of

the Renewable Fuels Standard and other fuels, as well. I would assume that within the category of the other fuels encompassed

would be coal-to-liquids. Is that correct, Mr. Meyers?

Mr. MEYERS. Yes. The bill uses EPAct definition of alternative

fuel, which currently includes coal-to-liquids.

Mr. BOUCHER. Do you have, within the proposal, any specific targets for each type of fuel that would be covered?

Mr. MEYERS. No, the legislation does not establish specific targets for any one fuel.

Mr. BOUCHER. Cellulosic ethanol will obviously be a large part of

how this new mandate would be fulfilled. Currently, there are no

commercial cellulosic ethanol production facilities, so at what point

do you anticipate that cellulosic ethanol will be commercially viable

and added to the production? And then looking over a 10-year period, to the end point of your mandate, how much do you think cellulosic ethanol will contribute to achieving that 35 billion gallon

per year total? Mr. Karsner.

Mr. KARSNER. Mr. Chairman, I agree with the premise of your

question that cellulosic ethanol can and likely will be amongst the

largest contributors to such a mandate being fulfilled. As Bob indicated, we don’t like to choose what the balance would be between

the technological pathways that would get us there. We have very

deliberate plans at the Department of Energy to stand up competitive commercial-ready cellulosic ethanol facilities by 2012. At that

point the question is at what rate can they be replicated across the

Nation? What is the policy environment? Is it durable and predictable enough for investors to amass sufficient capital to replicate

commercial scale facilities that will matter?

Mr. BOUCHER. And so just picking a number, do you have a sense

of how much contribution to this 35 billion gallon mandate cellulosic ethanol will be?

Mr. KARSNER. I don’t have such a number because it is impossible to isolate exclusively the viability of the technology away from

what the policy environment conditions are that will ultimately

drive the capital market investments. All three of those factors

have to work in harmony. What I can say is that I do believe cellulosic ethanol is sufficiently technologically mature and not requiring technological breakthroughs, that if the policy environment

were correct, it could accelerate much faster.

Mr. BOUCHER. So in order to derive this 35 billion gallon annual

number, you did not assign specific projected volumes to individuals fuels, including cellulosic ethanol or coal-to-liquids. You simply

assume that the combination of all of them could get us to 35 billion gallons. Is that accurate to say?

Mr. KARSNER. I think it is correct to say that rather than taking

any one fuel type, it was the President’s objective to take a top line

objective, which was 20 percent reduction in our gasoline supply
31

within the decade and create as open a platform as possible to enable as many alternatives to gasoline to compete.

Mr. BOUCHER. One of the major problems that we confront is the

adequacy of the infrastructure for alternative fuels in the United

States at the retail level. Service stations don’t have sufficient

availability of ethanol and E–85 pumps in order to satisfy the flexible fuel vehicle demand that is anticipated. There are issues about

the availability of flexible fuel vehicles. Does your proposal encompass any infrastructure upgrades and to what extent have you

treated this obvious need in the recommendations coming from the

administration?

Mr. KARSNER. The alternative fuels proposal does not directly address how to bring about the infrastructure necessary for retail delivery. There is an underlying assumption of market adaptation.

We, of course, have the Clean Cities program that works, really, on

a voluntary basis with mainly downstream independent retailers to

bring on that infrastructure. To give you an idea, last year was a

record year. We added 450 stations on top of the Nation’s 750 stations, so with about a 70 percent growth rate, we are, as of yesterday, at 1,200 stations that can serve E–85. At that record rate,

were we to maintain it, it would still take more than 100 years to

get to critical mass, up to about 50,000 stations that are needed to

make a difference for E–85 infrastructure.

Mr. BOUCHER. So how do we address that challenge? I understand that your initial proposal does not make specific infrastructure improvement recommendations for our consideration, but do

you have recommendations for us or will they be forthcoming from

you?

Mr. KARSNER. I think it is a worthy issue for the Congress to deliberate on, to try to examine what forces will enable either voluntary uptake of E–85 distribution predominantly amongst the majors that have been thus far recalcitrant to bring it on board, or

whether further policy stimulus is necessary. But if E–85 is to be

a primary pathway, we will need a substantially larger growth rate

than current mechanisms provide.

Mr. BOUCHER. OK. Thank you both very much. My time has expired. The gentleman from Illinois, Mr. Hastert, is recognized for

5 minutes.

Mr. HASTERT. Thank you, gentlemen. Thank you, Mr. Chairman,

for having this hearing today.

Mr. Karsner, I just listening to your testimony. You said you assume that the market would be able to readapt, in your statement.

Is there anything that is causing problems, in your mind, that is

causing the market not to readapt?

Mr. KARSNER. Yes. The market is like anything else in society,

it has imperfections. And there are certain imperfections in the scenario of planning the profitability of private corporations that

would not lead them to think in 20- and 30- and 50-year cycles that

the Nation requires for this magnitude of adaptation. And so the

inherent nature of investing and the net present value calculations

needed would lend ourselves towards shorter-term calculations, so

there are just limitations inherent in the marketplace.

Mr. HASTERT. What about the ability for the marketplace to work

has to have kind of free flow supply and really a free flow of de-
32

mand. What if there are actual impediments to the demand side?

What happens?

Mr. KARSNER. I’m not sure I understand the question. What type

of impediments?

Mr. HASTERT. Well, let us say, for something like Underwriters

Laboratory insists on not bringing forward a standard for pumps.

That would impede a gas station, an oil company or a delivery company for gasoline retail can’t get the liability clearance to put in

a pump, so does that impede the market?

Mr. KARSNER. Only nominally, only marginally, if at all. How do

you mean?

Mr. HASTERT. Nominally or marginally. Well, if you can’t buy the

gasoline at the station, how do you deliver the product?

Mr. KARSNER. Well, with regard to that specific example, sir, the

Underwriters Laboratory issue has largely been bypassed by the

State regulators, the fire marshals in the counties and so we

haven’t seen any significant impediment to the growth of E–85 relative to the examination period for UL to certify those pumps.

Mr. HASTERT. I think you are really off base, because I can tell

you, delivery companies won’t put in pumps unless they get legal

liability. If you can’t get legal liability unless they are certified by

Underwriters Laboratory. So you got somebody with a fist around

the pipeline. Aren’t you aware of that?

Mr. KARSNER. Not only are we aware of that, we are working

very closely with our laboratories, with Underwriters Laboratories

to resolve the issues and we would expect it to be resolved and behind us by the end of this year.

Mr. HASTERT. Well, let me ask you a question. If you are going

to resolve the issue and they had every piece of the pump certified

last year, then they completely withdrew all those certifications.

How are you moving forward? I don’t understand that.

Mr. KARSNER. Well, I think it is a question of, as you indicate,

the insurance companies, oil distributors that are interested in installing that infrastructure very much value the Underwriters Laboratory’s seal of approval. Underwriters Laboratory has its own

processes for determining that that seal of approval is. It is not a

governmental process, inherently. They had previously, as you indicated, certified independent parts and components, but the very

growth rate and nature of E–85 compelled them to take another

look at it and say that they wanted to certify the systems holistically. When they did that, we urged them to do that with haste

and opened up the national laboratories in a collaborative way to

try and get on a very deliberate schedule to do this in a timely

manner and we worked with the States and the fire marshals to

assure that growth would continue unabated. I do agree with you

that it is a constraint, but it is a constraint that I was indicating

could be overcome in a very short order.

Mr. HASTERT. Well, Mr. Karsner, if somebody wanted to jigger

the market and make sure that the supply wasn’t available and so

people who manufacture flex fuel cars have no customers because

the customers can’t find a gas pump, don’t you think that is an impediment? Have you looked farther beyond, just the face of this?

Who is holding this up? Why would an institution like Under-
33

writers Laboratory take everything back off the table? That doesn’t

make sense.

Mr. KARSNER. Yes, I agree with your sense of urgency, sir, but

I hesitate to make Underwriters Laboratory a culprit based on

what their own processes for safety inspections, so forth, are. This

is really a question of magnitude, so who it is affecting is the independent downstream retailers that are, in fact, very small participants in the distribution——

Mr. HASTERT. I understand that. What I am saying, have you

ever thought about maybe having the Justice Department look in

at who is doing the funding for Underwriters Laboratory?

Mr. KARSNER. I have not thought of that, sir.

Mr. HASTERT. Well, do you think that might be a good idea?

Mr. KARSNER. I am not sure I am qualified to put an opinion up

for——

Mr. HASTERT. I pass.

Mr. BOUCHER. Thank you very much, Mr. Hastert. The gentleman from Texas, Mr. Gonzalez, is recognized for 8 minutes.

Mr. GONZALEZ. Thank you very much. I just wanted to make

sure that not only am I efficient, but that I have enough fuel here.

Let me ask you, Mr. Karsner, the concern here, in this committee,

we are juggling two considerations. One is going to be oil independence, the other is climate change. I am not sure how you incorporate the climate change elements in your policy. The concerns I

have, and I am going to play the devil’s advocate, but it does not

mean that I don’t believe that we can forge some sort of policy that

will adequately address both of those concerns, but nevertheless, it

appears to me that not necessarily that you are putting in all of

your eggs in one basket with ethanol, but that you are looking to

ethanol as a primary source, as the large or a huge proponent of

the solution when it comes to oil independence.

This is my concern, how you factor all this in. Does ethanol provide you better gas mileage, which should be part of the equation?

The answer is probably no because it is 20 to 30 percent less efficient as far as a power source than gasoline. Does the production

of ethanol increase the use of energies in the production cycle? And

my understanding is that it does, but we, again, we are producing

an alternative, but it is costing us more in investment in other energies to produce that.

Does it provide advantages when it comes to climate change? Yes

and no. My understanding is that, of course, it is one of those

things where the benefits might be with carbon dioxide, but not

necessarily with nitrogen oxide and other pollutants. Does it cost

the Federal Government less in the way of an alternative, that is

ethanol? My understanding is that there is a 51 cent a gallon tax

credit that is extended to those that use and produce.

The question of food versus fuel. And I know it is not all about

corn, but nevertheless, the implications are great. My understanding that, in 2008, half of the United States corn harvest will be directed for ethanol use and of course, we have seen the price increase from $2 a bushel to $4 a bushel.

Taking all that into consideration, how do you balance your policy making?

Mr. KARSNER. Is that for me?
34

Mr. GONZALEZ. Mr. Karsner.

Mr. KARSNER. Yes, sir. You brought up a number of very key

issues and like any fuel source, ethanol will have its characteristics, its advantages, its relative disadvantages and all of those can

be answered one way or—I will start by saying, first and foremost,

it is not selecting ethanol for its endemic characteristics or choosing it as a primary technology pathway, because we don’t like to

choose technology winners. The reason why ethanol appears to significant is because quantitatively, it has the greatest capacity for

volumetric growth relative to displacement of gasoline, so quantitatively rather than qualitatively, it stands out.

With regard to the pricing of ethanol, the energy content question, it is not necessarily the miles per gallon that is really as important, per se, as the price parity for the energy content. In other

words, if the pricing of the ethanol you purchase is relative or

cheaper on a miles per gallon basis, then price parity is demonstrating that the consumers will take it on. There is a lot of mythology, misinformation and disinformation with regard to the energy content and loss with ethanol, in general, and it is mainly

aimed at our conventional ethanol rather than future advanced

generation ethanol, cellulosic ethanol, which has significantly different characteristics through biochemical and thermo-chemical

platforms.

But let me address it even in the conventional ethanol arena, it

will depend on the power source that is used in a conversion process as to what the gains in the energy balance would be, but in all

cases, that energy balance, when compared against the fossil energy or petroleum incumbents, should be better and one could

make the same statement about ethanol versus gasoline on a

greenhouse gas basis and that is, just again, taking the conventional ethanol and comparing it with gasoline, not even going to

where we want to go, which is the cellulosic ethanol, which is substantial improvements across the board in all of these.

I won’t touch on the food versus fuel debate. It is really the domain of the Department of Agriculture and their economists, to a

large degree, except for to say that we are seeing significantly more

crop yields and planting, so there is some degree of adaptation and

year on year adjustment in the market that is yielding more equilibrium, but of course, these things lag in time, so it is always difficult to take a snapshot in time when you have had a record

growth of ethanol on one year and say what is the disparity to corn

plantings. I think we will see more and more equilibrium as the

fuel source grows.

But the bottom line is for all of these reasons, we focus not on

ethanol, but on all technology pathways that are domestic, that are

clean and can be made affordable as alternatives to gasoline because that is what our energy security and our environmental

needs demand.

Mr. GONZALEZ. My concern, the administration is joined with

some Members of Congress in not looking at the overall picture and

that is my concern. We are not taking all facets. My fear is we are

going to be putting out—there is a feel good message and there is

always an inclination to do that and that is a real concern. I wish

that we could look at it holistically. I don’t think that we are really
35

doing that and I understand there is a whole lot of politics at play.

And I have about 2 minutes. And Robert Samuelson posted, on the

24th of January of this year, had an article—you probably read it

and I want you to be able to respond to one of his assertions, which

I don’t know if it is totally accurate.

Let us do some basic math. In 2006, Americans used 7.5 billion gallons of oil. By

2030 that could increase about 30 percent to 9.8 billion barrels projects the Energy

Information Administration. Much of that rise would reflect higher gasoline demand. In 2030, there will be more people, an estimated 365 million versus 300 million in 2006, and more vehicles, 316 million versus 225 million. At most, bond fuels

would address part of the increase in oil demand. It wouldn’t reduce our oil use or

import dependence from current levels.

How do you respond to that?

Mr. KARSNER. I respond by saying that that is a fairly one dimensional mathematical exercise and that I am not sure I agree

with your overall premise that we are not looking at this in a holistic, integrated way. It happens to be the primary focus of the subject again, quantitatively, volumetrically, near-term that ethanol

and biofuels take up a larger piece of the conversation, but it does

not take up a larger priority from the Department of Energy’s perspective and the National Laboratory’s perspective and so Mr.

Samuelson didn’t account for what the advances might in lithium

ion batteries and the capacity to integrate better fuel injection and

compression ratios in our engines and higher efficiency lightweight

composites in our vehicles. And so all of these things combined will

make up a better fuel future and biofuels will be a piece of it. It

is certainly the piece that is nearest on the horizon that we can

clutch and quantify greater, but it is only a piece of it and we are

working on all of these things, not a single silver bullet, but really,

silver buckshot.

Mr. GONZALEZ. And my time is up. Thank you very much and I

yield back the 10 seconds.

Mr. MELANCON [presiding]. Thank you, Mr. Gonzalez. Mr. Upton

for 8 minutes.

Mr. UPTON. Thank you, Mr. Chairman, and Mr. Meyers, welcome

back to the committee. It is good to see you. I have a truck engine

research facility, Eaton, in my district in Michigan, and they have

done just some marvelous work on redesigning diesel engines so

that they don’t have to idle, so whether it is a UPS truck making

deliveries or trucks making repairs on the telephone poles and

truckers idling at night as they pull over; they don’t have to turn

on their engines with the new techniques and I would love to get

you or the administrator out sometime this summer to look at what

they are doing. I may submit a question, for the record, in terms

of some of the difficulties that they are having, but it really is advanced and they think they can save millions of gallons, as we look

down the road and you all, I think, have been helpful, but I would

love to let you kick the tires a little bit. I have driven some of the

trucks around and it would be great to have you come out——

Mr. MEYERS. I would happy to accommodate your request.

Mr. UPTON. I have cosponsored the legislation that is being submitted by Mr. Boucher and Mr. Shimkus which includes carbon sequestration. And with that carbon sequestration there is some pretty good evidence that harmful emissions are actually, maybe even

lower than current fuels. I think the statistics show it is nearly
36

above it. It can show that, in fact, the emissions are less than

today and I am just curious to know, as we look to move this legislation forward, where are we in terms of an update in terms of regulations as it relates to carbon sequestration under the Safe Drinking Water Act?

Mr. MEYERS. Well, Mr. Upton, I am with the Office of Air and

Radiation, so I wouldn’t speak exactly to where we are with regard

to safe drinking water regulations, but we have been working on

that issue and the Office of Water and I would like for them to submit more information, but we worked on guidance for experimental

wells that should allow basic R&D work that is necessary for carbon sequestration to move forward. There are longer-term issues in

the UIC program, the Underground Injection Control program—to

address those longer term—but we are moving forward, as an

agency, on this issue.

Mr. UPTON. Great. Maybe you can provide something for the

record or a comment. I look forward to seeing it. Mr. Karsner, we

all want to help the auto industry, we all want more fuel efficient

vehicles and a number of us are concerned about unfunded mandates in terms of how we get there. I was a supporter of this last

year, of getting the chairman of the big three, actually even more

than that, to come down and meet with the President.

If you will remember, even recently, they had a number of the

vehicles out on the south lawn and I thought we were well on the

way to seeing pretty decent funding for the Advanced Battery Consortium project and as I saw those numbers last November, they

were asking for about $100 million for that fund. And I was very

surprised to see, in the President’s budget, that they didn’t ask for

$100 million, which I thought that he had signed off on, but it was

only $11 million in terms of the President’s budget as it was submitted.

I just wonder if you might comment on that in terms of where

the administration is as we look to fulfilling that goal.

Mr. KARSNER. Yes, sir. I am not sure what component you were

looking at for 11. It is a little bit tricky the way that we have reorganized, in the budgetary lines, the way hybrids, electrification and

plug-ins have been characterized, but I am quite sure it is more

than 11. I would be happy to report back for the record what those

numbers are.

Mr. UPTON. Is it a lot more than 11?

Mr. KARSNER. It was more than doubling from the previous year,

let me say that, and the substantial delta between what the automakers had proposed and what the national program is, is really,

to a large degree, learning, demonstration and early deployment

and manufacturing studies. So we are in general agreement. In

fact, we work very closely with the automakers through our

FreedomCAR and Fuel Partnership and are integrating plug-in and

electrification technologies alongside of the existing hydrogen program.

But we are working out the details and approaches to how we

might work together with regard to manufacturing and demonstrations. We think it is very important that we don’t over-invest in

demonstrations that are very far ahead of their time and focus

more exclusively on concept cars rather than cars that can be
37

placed in people’s garages. And so there isn’t a big difference on the

scope and direction, but maybe on some of the details of the program. But we are very enthusiastic about working together on battery technology.

Mr. UPTON. Mr. Doyle and I have introduced legislation that

would require a 10 percent mandate on ethanol, very much along

the lines of what some States have done. Minnesota has always

been a real leader in that effort. Where is our delivery system, our

pipeline system, in terms of being able to meet such an increase

in renewable fuels mandate? Are they capable of doing that or is

the Department looking at what stress or corrosion might be there?

Where are we in terms of studying the current infrastructure and

what needs to be done——

Mr. KARSNER. It is a great question and an essential part of the

puzzle, is the delivery and transportation infrastructure from the

facilities into wholesale and retail delivery systems. It is predominantly the domain of the Department of Transportation, but I am

please to report that we have worked very closely with them. We

recently had an off-site with the senior leaders, Deputy Secretary

Admiral Barrett, and are going to work together on a program together on the issue of pipeline delivery systems. But as you know,

ethanol is not particularly conducive to sharing that pipe, because

of the water issues, with other fuel sources and that makes it a bit

more difficult and challenging than future alcohols like bio-butanol,

for example. But it is our understanding that the pipeline industry

is very keen and interested in getting into more exclusive investment of ethanol dedicated pipelines.

Mr. UPTON. Thank you. I yield back.

Mr. MELANCON. Thank you, Mr. Upton. Next, Mr. Inslee for 8

minutes.

Mr. INSLEE. Thank you. We were talking about the need to accelerate getting E–85 pumps in for consumers so we have a choice

and I would offer one step forward. Today I will be introducing the

Federal Low Carbon Fuels Act, myself and several other of my colleagues, that will basically set up a requirement that our fuels

meet certain standards for reducing carbon dioxide emissions from

their combustion and we think this is absolutely imperative if we

are going to meet our national goal of reducing the threat of global

warming, by increasing the efficiency of the reduction of CO2 from

our various fuels and I believe it is necessary to have such a standard in addition to an RFS, because we are going to have so many

different types of fuels, including electricity, and which is one of

the things that gets credit in my bill.

This is an approach that I hope you will give some thought to

because one of the things we want to do is allow coal to be burned

cleanly, the CO2sequestered, then the electricity can go through the

wires through our garages into our plug-in vehicles and the coal

fire-fired utilities would be able to earn credits under this standard. Here is a way to incorporate clean coal into our transportation

sector in a way that reduces CO2, rather than increases it if you

don’t sequester the carbon and coal-to-liquid system or make it no

better, marginally better, perhaps 2 percent better.

This is a way to use electricity and get it into our standard. So

I guess I hope that you will give some thought to this and we
38

would like your input, of course, after you have had a chance to

take a look at the bill. This is an approach that is starting to be

used in California and Europe and the bipartisan National Commission on Energy Policy have suggested a low carbon fuel standard in that regard. So what are your thoughts about this idea, that

we should be integrating electricity into our consideration of fuels?

Have you thought about that? Is that in any of your plans at all?

Mr. MEYERS. Well, within the AFS legislation that was submitted, electricity is a qualified fuel, so within the President’s bill,

electricity could participate in the AFS system.

Mr. INSLEE. Now, my understanding, my concern of your proposal for an alternative fuels, my reading of it, it goes backwards

on a CO2 or a global warming provision. And the reason I say that

is, in the original RFS, you essentially have most all the fuels are

going to have some CO2 benefits to them. But then what you essentially opened the door and you said now we are going to give credits to these non-CO2 reducing fuels. You essentially go backwards

from the step forward we took to move forward on CO2 reduction.

How can we think other than it is a step backwards when it comes

to CO2 reduction?

Mr. MEYERS. Well, Congressman, I think first you have to look

at the types of fuels that are in the AFS and if you go down the

list through cellulosic ethanol, biodiesel, electricity, gaseous hybrids

and compressed natural gas, liquefied natural gas, corn ethanol,

liquid bio-petroleum gas, methanol, they are all positive—according

to our most recent estimates. With respect to CTL, I certainly

would acknowledge the issue of carbon emissions from CTL. I think

that is something that is well known. We have analyzed that, also,

and our figures are with carbon sequestration—so you have a small

increase——

Mr. INSLEE. What size?

Mr. MEYERS. 3.7 percent.

Mr. INSLEE. Do you consider that less than small? We certainly

do. We have to get an 80 percent reduction of CO2 by the year

2050. Three percent is nothing. I guess I am going to ask you this

question. If we are serious, if we are serious in this country about

getting to an 80 percent reduction of CO2 by 2050, are you seriously suggesting that a 3 percent reduction, starting a whole industry—instead of going to a technology that can reduce it, which is

ethanol or electricity, burning coal cleanly, creating electricity, putting it in our cars, using coal in a clean way that reduces our CO2

somewhere between 45 and 90 percent, depending on how you

count, wouldn’t you think that the preferable way is to use coal if

we want to reduce CO2 emissions?

Mr. MEYERS. I didn’t mean to suggest it was a small increase.

What I meant to suggest was our currently analysis and the assumptions projected that percentage increase. Under different sets

of assumptions, higher carbon capture rates, it might be possible

for CTL to be actually negative. Regardless of that, the other aspect of this is in terms of where the fuel will be used. If you assume a CTL production which produces a very high quality diesel,

when diesel is used in the market, it expands the diesel market.

Diesel engines inherently are more efficient. So it depends on how
39

you approach the issue—how you look at the mix of the fuels that

are used in transportation——

Mr. INSLEE. Well, let me just ask you about coal. To me, we have

two opportunities in coal. One is to burn it in combined cycle

plants, sequester the CO2, run the energy through our lines into

our garages, put it into our plug-in cars, run them for 40 miles at

1 cent a mile—it costs 9 cents for gas today—1 cent a mile. After

40 miles you use ethanol or gas after that. If you use coal in that

way, which my bill would suggest we should, you can reduce your

net life cycle CO2 emissions by somewhere between 45 and 90 percent, depending on what else you burn with the electricity.

The alternative way to use coal is to make it into a liquid. If you

don’t sequester it, you increase CO2 118 percent. If you do sequester it under the scenario you suggested, maybe we can reduce it by

3 percent. Which of those alternatives would be preferable to reduce our global warming gases? In your opinion.

Mr. MEYERS. Well, Congressman, it accommodates both. And exactly what you just described——

Mr. INSLEE. I would like to direct you to my question. Which of

those two approaches do you think would be better if we have to

solve global warming?

Mr. MEYERS. Congressman, I think the approach to global warming is a complicated issue in terms of the variety of inputs——

Mr. INSLEE. Let me ask you a different question. If one way of

using coal will reduce CO2 by 45 to 90 percent and one way of

using coal will reduce it by 3 percent in the best case scenario, how

could you conclude other than that the better way to use coal is by

turning it into electricity cleanly in running our plug-in hybrids?

How could you conclude anything but that?

Mr. MEYERS. Under the parameters of just looking at emissions,

you might make that conclusion. However, I think the issue of climate change has an economic component to it. What is unstated

here is the economics of each avenue. I can’t present you with analysis right now what the economic tradeoffs would be in each avenue of supplying the market. The one thing the AFS tries to do is

not pick winners and losers on the economic marketplace and to

that extent, we strove for economic efficiency in the proposal. But

I am not trying to avoid your question. Obviously, if one method

produces less GHG per gallon per mile, that, on the emissions

standpoint, is something that has better a profile than one that

doesn’t. But the issue of climate change and how to approach it is

much more complicated than just the emissions. You have to look

at the——

Mr. INSLEE. I appreciate your time, gentlemen. We are going to

try to get you more R&D dollars. We have had a 65 percent reduction in your R&D dollars since 1979. We are going to try to do better for you. It is ridiculous when we have this existential threat to

be cutting your R&D budget. Thank you.

Mr. MELANCON. Thank you, Mr. Inslee. Mr. Barton up to 5 minutes.

Mr. BARTON. Thank you, Mr. Chairman. It is always good to see

our two witnesses here, one who used to be counsel to the committee and the other, who is doing a good job in the Department of

Energy.
40

Before I get into questions, I want to make a statement about

something that is not material to this hearing, but I think is material to this Congress. Dr. Michael Burgess, who is a member of this

committee, told me, when I walked in this morning that he had an

appointment just last evening at 4 o’clock to look at the Intelligence bill, which is supposed to be on the floor later this week

and that when he got over to the Intelligence Committee for his

scheduled appointment, he was told by a majority staff person that

he couldn’t look at the bill.

Now, to me that is an outrage. We ought to be able, especially

bills that are scheduled to be on the floor, if you take the time to

make an appointment—now obviously, an Intelligence bill is a little

bit different breed of cat than just a run-of-the-mill bill, but a

Member of Congress in good standing who has an appointment

should be able to look at the bill. And I am going to take this up

with the chairman of this committee, who is a man of honor and

integrity, Mr. Dingell, and then if need be, I am going to ask for

a meeting with the Speaker, but I just think it is an outrage that

this new majority that talked about openness and operated on a

different plane won’t let a member of the minority take the time

to go and have an appointment and actually read a bill, to me it

is just an abomination and I wanted to—that is not the purpose of

this hearing, but I want to put that on the record.

With regard to this hearing, Mr. Boucher is not here, but this is

a good hearing and something that obviously we need to work together on. I would ask the gentleman from the Department of Energy what the prospects are of having technology that is actually

commercially implementable for cellulosic ethanol and how soon we

could hope to have that technology?

Mr. KARSNER. Thank you, Congressman. We take the view that

there is a need for a technological breakthrough right now for cellulosic ethanol in the applied science, research and development

portfolio, where we sit, we are actually working more on standing

it up to be commercial and have a very specific timetable for that

by 2012 and so our focus is on process integration and coming up

with the commercial paradigms that will regularly attract positive

returns for the investors in facilities that can scale at a timeframe

that matters. But 2012 is what we are looking to for that.

Mr. BARTON. What is the chief impediment right now to the scale

of the commercialization? What is it that they haven’t figured out?

Mr. KARSNER. I think right now it is the capital cost. Fundamentally, the capital cost is about three times what conventional ethanol is and that is because each of these is a one-of-a-kind process

that we are standing up. We know how to convert, through biochemical and thermo-chemical platforms into cellulosic ethanol, but

each time you do it, it is standing up an experiment. That is why

we have these two separate solicitations brought to 16 facilities

that will give us a diversification of risk to try and lower that capital cost which the taxpayer is sharing on these first ones, so that

we can reliably replicate these.

Mr. BARTON. Well, what is your expected best case learning

curve to get the cost down? Do you expect to get it comparable to

current cost for corn-based ethanol?
41

Mr. KARSNER. Yes, we do. It is about a third higher right now,

based on both operational and installed cost and our goal is to get

it to a parity with conventional ethanol, $1.31, by 2012.

Mr. BARTON. OK. And Mr. Meyers, I listened, with great interest,

to your answers to my good friend, Congressman Inslee. You obviously didn’t need any help in answering his questions, but I would

like to know, in a similar vein, why the Bush administration feels

like its alternative fuel standard, which does not pick winners and

losers, as you correctly pointed out, why you believe, as the spokesman from EPA, that that is a better approach than some of things

that Mr. Inslee was talking about?

Mr. MEYERS. Congressman Barton, I want to be careful that the

administration has not reviewed Mr. Inslee’s legislation nor taken

a position on the legislation.

Mr. BARTON. I am not accusing you at this point. Jay may, but

I am not.

Mr. MEYERS. With respect to the AFS and the AFS question, I

think what the administration did was adopt what Congress provided as a structure in the RFS. In the RFS, Congress provided an

increased mandate, provided for a cap-and-trade system, but did

not specifically say exactly what fuels were used.

Mr. BARTON. You actually helped put that together, as I recall.

Mr. MEYERS. I had some role.

Mr. BARTON. You did.

Mr. MEYERS. But in any event, the fuels effectively in the RFS

compete in the marketplace. If cellulosic becomes more cost-dependent because of some reason, some feedstock or some breakthrough, some technology side and you can sell it for less than corn

ethanol, it is going to win the race and vice versa for all of the

other types of fuels that qualify—bio-butanol and different fuels. If

they can compete, you measure them on a BTU value and energy

content value, which is a good approximation of petroleum displacement. If they can sell it for less, they win. We adopted that structure in the AFS, where the marketplace really drives the selection

of fuels and we did not adopt a segregated market where we would

have individual mandates or sub-mandates within the overall mandate.

Mr. BARTON. Thank you. And thank you, Mr. Chairman, for

extra time.

Mr. MELANCON. You are quite welcome. Ms. Hooley, 5 minutes.

Ms. HOOLEY. Thank you, Mr. Chair. I am going to start out with

Mr. Meyers. If you had to put together an energy independence

program and taking into account, also, trying to do something

about global climate change, what would that energy independent

program look like, what is the mixture that you see and what areas

would you put additional research dollars into?

Mr. MEYERS. Congresswoman, I am not going to be able to answer the entirety of your question because my role with EPA does

not cover all the energy issues. We certainly have a greater role in

looking at the environmental impacts of energy production and use

and that is the role we play within the Federal Government. But

my first suggestion was just those type of concerns were what led

the administration to try to take a very hard target of 20 percent

reduction in gasoline consumption off of projected use in 2017 and
42

then try and put together a structure of policies that would get us

to make that goal.

I think the obvious answer to all the problems we have with energy dependence over several decades is a complicated problem requiring complicated solutions across a variety of these economic

sectors. In the transportation sector, measuring it as a 20 percent

gasoline consumption reduction, we consider it to be aggressive, but

we thought it was a target which could lead to some very positive

results for the economy and for the development of environmental

fuels.

Ms. HOOLEY. Mr. Karsner, do you want to take a stab at that

question? What would it look like?

Mr. KARSNER. What would it look like? As I mentioned to the

chairman, you cannot isolate exclusively the question of technology

away from policy and away from capital markets. We tend to focus

almost exclusively on the cultivation of technologies when, in fact,

most of the technologies that would increasingly liberate us from

our dependencies or from greenhouse gas emissions are readily

available, but they have insufficient policy that is insufficiently durable with not enough longevity predictability or capital formation

to occur at a rate that matters. And so I would throw all of my

focus on doing what is necessary to offer those technologies and

technology providers preferential access to markets and preferential access to capital rather than continuously focus on the silver bullet nature of one technology over another or its intrinsic

characteristics.

Ms. HOOLEY. I know, that as we look at alternative fuels, that

you have to have a market for it and you have to have capital for

it. What is going to cause someone to invest in alternative energy?

What is it going to take to get the capital to get the markets for

some of these alternatives?

Mr. KARSNER. Well, the simplest answer, putting on my business

hat, would be a higher rate of return that is predictable over a

longer period of time. And right now there are great returns in the

alternative energy space and that is why you are having a substantial aggregation of capital. But people wonder does that mean is it

in the seventh inning, is it in the eighth inning? Is this a boom and

bust? What kind of policies can we put in place to reliably see these

returns over a much more protracted period? So there is no question you can get the returns that make capital flow in that direction, but to make them flow greater, which I think is the essence

of your question, you need the policies that will sustain those market conditions. There is a lot in the Energy Policy Act that can help

that.

Ms. HOOLEY. When you talk about sustaining that policy, what

kind of timeline are we talking about?

Mr. KARSNER. Well, I think it is until it is done. Depending on

how you define energy independence or reduced greenhouse gas

emissions or economic competitiveness, the Nation should have certain measures. That is what really the President’s policy seeks to

do is give us a top line objective of 20 percent gasoline reduction

within a decade, so we have a metric in timeframe and a metric

in size and scope, and so it is not too much of us to focus, as a Nation, for a decade period. I would suggest that it is a reasonable
43

timeframe. That is how most companies measure their long-term

net present value.

Ms. HOOLEY. Thank you. My time is up.

Mr. MELANCON. Thank you, Ms. Hooley. Mr. Shimkus from Illinois.

Mr. SHIMKUS. Thank you, Mr. Chairman. I appreciate the panel

being here and I think one of the big things that I think we are

moving to is diversity in the transportation mix, whether that is

an RFS, alternative fuels, plug-in hybrids and the like, that is the

way our electricity generation today, that helps mitigate the big

swings that you see and I think helps long-range cost projection,

so there is a lot of great discussions back and forth, but I wanted

to key on some of the comments.

First of all, I just want to make a point. In the commodity markets there is always boom and bust. And to my friend from Texas,

Mr. Gonzalez, we both have been here about 10 years. I remember

when a barrel of crude oil was $10 a barrel and I was worried, you

were probably worried about our marginal oil wells that were being

capped because it cost more money to get the oil out of the ground

then you got on return. And now it is at $60, six-fold increase in

10 years. So it is always funny to hear folks worry about corn. Ten years ago, corn was at $2 a bushel. It is at $4 now. Farmers

are pretty resilient. They are used to boom and bust. I would like

to unanimous consent to submit this article into the record from

the AP. Basically, a couple issues. Corn prices had hovered around $2 a bushel for a decade, have

nearly doubled in the last year due to ethanol demand. But others

say prices could sink back to $2 a bushel with a record crop and

could top $5 a bushel if there is a drought. We don’t know what

the price of a bushel of corn will be. They are planting record acres,

but they also have yield. Bio-technology has been made great

strides. So I don’t underestimate the ability of the American farmer

to produce to meet our Nation’s demands both on food and fuel and

I think they are going to be up to the task. I am very excited about

the cellulosic debate, also, and of lot of this AFS, Alternative Fuel

Standard, is predicated on the breakthrough on cellulosics.

The first question I would like to ask is, because you said, Mr.

Karsner, a couple times, it is dependent upon the policy environment initiated, so for us to do that, what should be the policy? That

is what Chairman Boucher is really asking, as we move forward to

move an energy bill. What else can we do? What policy initiatives

do we need to take in this to obviously incentive-ize in this AFS

and the cellulosic debate?

Mr. KARSNER. Well, the easy answer would be the President’s

policy, of course. The why is timeframe, size and scope. It is very

important that we move beyond the aspirational and the rhetorical

when we talk about energy dependencies and greenhouse gas emissions. We have got to, if we want to deal with this with urgency,

put a timeframe to bear that is measurable and even in the Department, we have typically sort of looked at 30 percent within 30

years and the rate of technology flow over too long of a time frame

can also throw us askew if you think of what the technologies were

30 years ago. A Princess phone was a technological breakthrough.

So a 10-year timeframe, for the Nation to wrap itself around, with
44

a very specific metric; in this case, the most ambitious in size and

scope that we have yet asked for with force of law, is what the

President is putting out.

Mr. SHIMKUS. Because we need refineries, cellulosic refineries

built. Now, we were fortunate to have testimony from a company

from Ottawa, Canada that has a pilot plant. He testified driving on

E–85, based upon cellulosic to the airport to get here, but this is

very similar to the coal-to-liquid debate. When Chairman Boucher

and I dropped a bill today, it is intended to incentive-ize the first

six refineries because that is the breakthrough, once you have it.

Let me ask it this way. Either one can answer. What locomotive

engines can be used in plug-in hybrid technology right now? Do you

know of any, Mr. Karsner?

Mr. KARSNER. We don’t really have locomotives in our program,

so——

Mr. SHIMKUS. OK, how about aviation? How about planes? Do we

have any planes that can fly on electricity, plug-in hybrid technology?

Mr. KARSNER. I am now aware of any.

Mr. SHIMKUS. What about our major oceangoing vessels? Can

they use plug-in hybrid technology?

Mr. KARSNER. Again, it is out of my scope.

Mr. SHIMKUS. In Illinois, the great Mississippi River is a great

transportation means to get our crops to the Port of New Orleans

and of course, we have great barges run by boats that push these

automobiles for 40 miles. But you are not going to do interstate

transportation of 16-wheelers with plug-in hybrid technology. So I

want to encourage him to join with us. This doesn’t have to be a

zero-sum game. I continue debate. This is a debate on supply. The

more supply we have with different alternatives, the more competitive markets, the lower prices and our economy survives, especially

in this carbon climate debate we are having here. Why not give the

benefit to coal-to-liquid, on carbon dioxide, and why not give the

benefits of electricity generation on coal-to-liquid by using this new

technology and then sequestering it. Wouldn’t that be a win-win for

all of us?

Mr. KARSNER. Do you want to take that, Bob?

Mr. MEYERS. I think the AFS was structured to, as I think, referenced before, not pick the winners and losers in the fuel debate,

so I think that allows the longer-term competition. The other thing

about the AFS is that we provide a 10-year schedule can help drive

market expectations in the longer term. Right now the RFS is limited at 0.12 and beyond that there is an administrative process to

figure each year, or a series of years after that, what the landscape

is going to look like. That is something that is hard to predict now

in 2007.

Mr. SHIMKUS. Can’t we say that the RFS that we passed in the

EPAct is very successful and really exciting to the renewable fuel

industry?

Mr. MEYERS. I think experience has borne that out and in the

testimony on the second panel, from Mr. Dinneen and others, references the large amount of investment that has occurred.

Mr. SHIMKUS. Yes. And that is something we should take pride

in and I think that is why there is really a bipartisan movement
45

to really ramp it up. I think we have to be cautious and as we

bring more fuels or venues to the bay, I do think we can get to a

higher standard if we don’t try to. I yield back.

Mr. BOUCHER. Thank you, Mr. Shimkus. We appreciate it, Mr.

Karsner. Thank you for reminding me about the Princess phone. I

had long forgotten. I think I have got Ms. Baldwin for 5 minutes.

Ms. BALDWIN. Thank you, Mr. Chairman. Secretary Karsner,

both the Congress and the President are considering the adoption

of very ambitious goals for ethanol production and use in the coming years. Based on reports from my constituents, and articles reported in the media, I have become very concerned about whether

the infrastructure is or will be in place to move significant amounts

of ethanol to our refinery and population centers in the United

States. Since today we cannot use pipelines to move ethanol, we

are dependent upon rail, truck and barge for transportation and

given the location of the many of Nation’s ethanol production facilities, rail is today the primary means of transportation of most of

our Nation’s ethanol. I have been very concerned about rail bottlenecks that are a problem and that rail system constraints may continue to be a problem for some time to come. In fact, I have introduced, along with several of my colleagues, legislation to address

this issue. I wonder what your thoughts are on the adequacy of our

rail system to move ethanol.

Mr. KARSNER. Congresswoman, it is a valid concern. Again, in

our shop where we deal primarily with conversion platforms, we

haven’t deal specifically with that, but like you, we are aware of

that constraint and it is pending nature to potentially become a

bottleneck. We know that the shippers are concerned and so for

that reason, as I said, we recently convened with the Department

of Transportation and for the first time the administration has

really convened, at the presidential appointee level and above, an

interagency biofuels R&D board to take these holistic views at the

supply chain management of ethanol as we grow the system, and

biofuels in general.

And again, of course, I think coal is somewhere in the area of 70

percent of all rail transport and so you have a competitive situation

there of a burgeoning 300-percent growth rate in ethanol that we

currently see, what our aspirations and what our mandate may be

that imminently will bump up against that. And so I know the Department of Energy were also looking at ways to move that coal instead by wire with—clean coal carbon capture and storage and production in the Powder River Basin, by way of example. So the more

of that you can alleviate by transmission modernization, you will

allow for some additional rail capacity. But it is an issue and we

would be happy to work with your office to explore that more.

Ms. BALDWIN. Great. Thank you. And you hinted at the answer

to my second question, in terms of the formation of this task force.

But do you think the Department has, currently, sufficient information on this issue, to avoid rail infrastructure constraints due to

the movement of ethanol at this time?

Mr. KARSNER. Well, I am sort of the school that you can never

have too much information and so it is predominantly the domain

of the Department of Transportation. We are intrigued enough and

interested enough that we are reaching out to them and saying we
46

have to collaborate on this issue, and we have had a very cooperative effort, so there can always be more.

Ms. BALDWIN. Thank you. One of our witnesses, who will be testifying on panel II, indicated in his written testimony, this is Mr.

Reid, that E–85 faces challenges in gaining popularity in the marketplace, primarily because it suffers from the chicken and egg factor. Does E–85 face roadblocks because of the relatively small number of flex-fuel vehicles, or because E–85’s availability is still relatively limited? In encouraging the use of E–85, government fleets

can set a real example for communities. They can help educate the

public about environmentally friendly options that are available

and they can create access to fueling stations that might not otherwise be available. What is the Department of Energy doing to encourage government entities, at the Federal State and local levels,

to make investments in flex-fuel vehicles and E–85 stations?

Mr. KARSNER. Well, specifically, I have a program in my office

called the Federal Energy Management Program. That has responsibility for compliance and reporting of the executive orders. And

the President, of course, has just issued an executive order on this

subject, as well as building efficiency, that succeeded the previous

Clinton era executive order that we had been seeking compliance

with and I am proud to tell you that the Federal Government exceeds its compliance requirements for flexible fuel vehicle procurement across the board. And so to the extent that we are doing that,

we have meant to be a model. That has been in legislation for some

time. It is not proving to be enough to move the market. We will

continue to be in compliance and exceed compliance, but it will not,

in and of itself, resolve that chicken and egg dilemma that you

spoke of.

Ms. BALDWIN. Well, how can farmers provide assistance to your

agency to spur additional support for these vehicles and E–85 stations within governmental entities and beyond the Federal level?

Mr. KARSNER. It really needs to go well beyond the Federal level

because of the critical mass. It matters how much a person has to

look for E–85 before they say, well, I want this to be part of my

life, let alone before you get to price parity. We have 170,000-plus

gas stations in this country. We have 1,200 as of yesterday that are

E–85 capable. At the current record clip, it would take more than

a hundred years to get to a third of gas stations. So unless the majors decide that they want to bring this on board underneath their

canopies and part of their fuel mix, it is unlikely that E–85 will

make a significant dent in the future at the current rate and scale

of it, even though we are moving at a record clip. The car companies will tell you that it is the oil companies and the oil companies

will tell you it is the car companies; that is the chicken and egg.

The truth is we need to understand whether or not we need further

policy stimulus to encourage us to break out of that situation.

Ms. BALDWIN. But if local governments, universities and State

governments were investing in——

Mr. KARSNER. All insufficient relative to the magnitude and the

scale that is required for E–85 to be a substantial, competitive enduse product, which is something that we desire for it to be, commercially available across the Nation.

Ms. BALDWIN. Mr. Meyers, you had a comment on that?
47

Mr. MEYERS. I briefly mentioned in my opening statement regarding EPA’s SmartWay Program and we have used this program

very successfully to work on public private partnerships to encourage use of energy-saving technology in the transportation sector.

Recently last year we expanded that partnership to the Grow and

Go Program, which works with the transportation industry. We are

focus on corridors and we are focused on users and we are trying

to—we have goals of the 20 and 50-percent commitment to expand

use through that marketplace of E–85 and try to get the chicken

and egg program from that angle. Thank you.

Mr. BOUCHER. Thank you. Mr. Walden for 8 minutes.

Mr. WALDEN. Thank you very much, Mr. Chairman. During the

2 weeks that we weren’t in session here, I spent most if of it traveling around my district looking at potential facilities, either under

construction or already developed or planned for various production

compatibilities for ethanol and other biofuels, and there were some

issues that came to light during that period that I would like your

guidance on and your comments on. One, when it comes to ethanol

itself, made from corn, what do you do with the distillers grain that

is left over, both either wet or dry? My understanding is, if you

leave it wet, there is less energy consumed in the production of the

ethanol, but you have to feed it to somebody, cows, pretty quickly

or it begins to distill.

But I was amazed at the volume of distillers grain that was left

and so if you can address that issue, as well as, then, I met in Pendleton, Oregon, grain growers. They have been analyzing and putting together a facility that would make agri-biodiesel out of canola

or other plant seeds and yet to do—I am told, to do 100 million gallons of agri-biodiesel, you would need a million acres to grow the

canola. You would end up with a million gallons of glycerin as a

byproduct and enough distillers grain left over that you would have

to have 570,000 head of cattle to feed it to and you would have to

supplement that with some sort of starch and protein to make up

for what is taken out. But there are these unintended consequences, not to mention the price of corn and wheat that is going

up as well, which I will get into next. But as you analyze the drive

toward these alternative fuels, which I support like you do, what

are we going to do with byproducts that are out there? Who is

doing that analysis?

Mr. KARSNER. My quick answer would be we are going to profit

from it, but I think that the question of how you profit from it, I

will not be in as good a position as Bob Dinneen, on the next panel,

to comment on, mainly because we focus almost exclusively on cellulosic ethanol rather than the conventional paradigms today. But

I know that there is a substantial market for DBG as animal feed

and byproducts on cellulosic ethanol is something that we are encouraging. We would like to have an integrated bio-refinery with

multiple byproducts to allow for profitable income streams to those

facilities.

Mr. WALDEN. But I think the market, and I will look forward to

the testimony from the next panel, but the market for that distillers grain is somewhat limited in some regions of the country, in

terms of we don’t necessarily have huge feedlots out in the west,
48

in some parts like my district. Mr. Meyers, did you have a comment?

Mr. MEYERS. I couldn’t comment specifically on your district and

the distillers grain marketplace. There is general, though, my understanding from several sources, in terms of utilizing more of the

corn plant in the process, and I think that is referenced in the testimony of the second panel. Instead of using some of the stalks,

some of the product—with the corn, that may be the next incremental step here to using more of that resource, the advantages obviously being we already have the transportation structure involved and the plants are already located. But I think I would

agree with Mr. Karsner, that the specific market conditions are

best addressed through the private panel.

Mr. WALDEN. All right. I would just—for you that, in some regions of the country, this may not be as good a solution as others,

even though we are all trying to become more energy independent

and with less emissions. Let me give you one anecdote as well.

When I was down in the southern part of my district, a cattle

rancher, when I raised the issue of ethanol, said let me tell you

what ethanol has meant to me: a hundred thousand dollar higher

feed bill to finish my herd. There are these unintended consequences that I think this committee needs to be aware of.

Second, I have done a lot of work over the years in the Congress

on forestry issues and the cellulosic research that is going on holds

great promise for using woody biomass, which would help us reduce the fire threat in our forests, which, as you know, may burn

a lot of greenhouse gases among other pollutants out there. Tell me

about what efforts you are undertaking that would specifically utilize woody biomass out of the Nation’s forests?

Mr. KARSNER. Well, I completely agree with you. Woody biomass,

wood chips, urban wood waste and forestry residue we see as a primary pathway and many believe will be the predominate pathway

for cellulosic ethanol and so we have sought as much diversification

as we can in those pilot facilities that we have stood up and included that as an attractive pathway. It is a feedstock that we regularly run through our integrated bio-refinery facility at Golden,

Colorado, to test its characteristics for output, but we are very optimistic about its prospects and potential to be a major contributor.

Mr. WALDEN. One of the issues I have run into in some areas

that I chaired last Congress, when it comes to the use of woody biomass for alternative fuel is the lack of ability in the west to get

a long-term commitment of supply out of the Federal Forest Service, which is where most of the forestlands are, sufficient to justify

to the investors a certainty level to cause them to invest in the facility, and the 10-year stewardship contracts are inadequate and

that there really needs to be some longer-term commitment in

order to both do the cleanup we need to do in the forest as well

as provide feedstock to justify the investment in these facilities. I

realize the Forest Service isn’t necessarily in your purview, but as

we work toward these alternative energy sources, this certainly is

a problem we need to address. Do you have any comment on that,

either one of you?

Mr. KARSNER. Yes, I would comment. I was a little bit in neglect

with my comment to Chairman Barton, indicating that capital cost
49

was almost the exclusive factor. Feedstock management utilization

predictability is going to be another very specific gating factor to

the commercialization of cellulosic ethanol. And again, if I put on

a developer’s hat, I would say, obviously the longer-term contract

that would be available for predictability of supply and allowing me

to invest in management systems of that feedstock, the better off

we will be in terms of standing up a commercial cellulosic industry

in general.

Mr. WALDEN. Mr. Meyers, do you have any comments?

Mr. MEYERS. I wouldn’t have any further comment on it.

Mr. WALDEN. Then, finally, let me ask you this. If we implemented fully the President’s recommendations regarding these alternative fuel sources, what percent of our fuel consumption would

that amount to? What we consume today in fossil fuels, if we were

to add this to the mix, what percent would we get to in ethanol cellulosic? I have heard it is very small percentage. Even if we did everything we are proposing today, it still amounts to a fairly small

percentage of what we consume in terms of fuel, is that correct?

Mr. KARSNER. I will let Bob take a hit at it. I think, if I understand your question correctly, what percentage of gasoline are we

displacing with the alternatives, and that is specifically calculated

to be 20 percent. So we are aiming for a reduction of 20 percent

of our gasoline consumption by 2017 through the President’s plan.

Mr. WALDEN. Does that include the E–85, because you have

talked about the distribution issues there. Does that take into account the difficulty in achieving that?

Mr. MEYERS. That is the overall policy goal measure. It is a number—the 2017 projected E–88 gauge for gasoline consumption. In

terms of allocation—5 percent was with regard to reform CAFE

proposal, 15 percent with regard to fuels. So what we are talking

about is reducing the projected level of gasoline consumption,

through our AFS proposal, by 15 percent from what would have

otherwise occurred in 2017. In terms of what fuel mix will be there,

that is based on many considerations. We certainly believe E–85

will be part of the equation and as a higher blend, E–85 fuels have

some distinct advantages in terms of levels of volatility and emissions. And also, further penetration of E–85 allows for better optimization with regard to the vehicles. But we haven’t, again, sort

of predicted or set out a real statement to the market saying this

what E–85 will be in 2017.

Mr. BOUCHER. Thank you, Mr. Walden. The gentleman from

Massachusetts, Mr. Markey, is recognized for 8 minutes.

Mr. MARKEY. Thank you, Mr. Chairman, very much.

Mr. Meyers, the administration has proposed adoption of an alternative fuel standard, mandating that 35 billion gallons of alternative fuels be used by 2017. According to the testimony submitted

by the NRDC witnesses, who appear on our second panel, if half

of this alternative fuels mandate were satisfied with coal-to-liquid

fuels, our Nation’s carbon dioxide emissions would be 175 million

tons higher in 2017 than targeted by the administration. Why is

the administration issuing an alternative fuels proposal that could

make greenhouse pollution even worse?

Mr. MEYERS. Mr. Markey, I have not viewed the analysis behind

the NRDC’s testimony, although I did read it. There must be a
50

chain of assumptions there. One, I would think, perhaps, behind

the number would be that the CTLs produced without carbon sequestration. I think our figures show that, without carbon sequestration, there is a very substantial increase of greenhouse gas emissions, but with carbon sequestration, that that is down into the

range of comparability to ordinary diesel. Secondarily, one misunderstanding of the analysis in the NRDC’s testimony, with respect to how we measure diesel and I think they look at us, in

terms of our GHG analysis, as having measured relative gasoline,

when actually we measured it relative to diesel itself. So again, I

guess to return to my point, that increased diesel use and increased use of diesel equipment——

Mr. MARKEY. How substantial would greenhouse gas emissions

be without carbon sequestration?

Mr. MEYERS. We predict that, comparing diesel to diesel, a 118

percent increase on the CTL without sequestration.

Mr. MARKEY. A 118 percent increase without carbon sequestration?

Mr. MEYERS. Right.

Mr. MARKEY. OK, thank you. So without sequestration, you could

not do this and meet the greenhouse gas emission targets?

Mr. MEYERS. I am not sure what we meant by we can do exactly

what.

Mr. MARKEY. I am saying wouldn’t be wise to pose this as a

greenhouse gas solution if there was no carbon sequestration which

was in place?

Mr. MEYERS. I think that we are working on carbon sequestration with the Department of Energy. My understanding, in terms

of the Air Force, look at CTLs, that they are looking at purchasing

fuel that is derived from facilities with carbon sequestration.

Mr. MARKEY. What if it is not ready, what if carbon sequestration technology was not ready, would it be wise to proceed?

Mr. MEYERS. I think there are many factors with regard to CTL.

One of the factors that I know has drawn a lot of support with respect to the energy balance and national security elements of CTL,

those were part of the President’s policy, as well as greenhouse gas

emissions.

Mr. MARKEY. So you are saying that the administration reserves

the option of moving forward with coal-to-liquids even if it increases by a hundred and eighteen percent greenhouse gas?

Mr. MEYERS. Congressman, we adopted the law that Congress

passed in terms of defining alternative fuels. Congress right now

defines alternative fuels as including carbon coal-to-liquids. That

creates certain advantages for coal-to-liquids in the current marketplace established under law.

Mr. MARKEY. We are in a global warming debate as well. The

NRDC testimony further argues that ‘‘even if coal-to-liquid synthfuels fully deploy carbon capture and storage, fuel cycle greenhouse

gas emissions from using these fuels will be somewhat worse than

conventional gasoline, because the vehicle tailpipe emissions from

liquid coal have the same carbon content as gasoline or diesel.’’

And the ‘‘residual emissions from a liquid coal plant employing

CCS still is somewhat higher than emissions from a petroleum refinery.’’ Do you agree or disagree with that?
51

Mr. MEYERS. In employing carbon sequestration?

Mr. MARKEY. That is right.

Mr. MEYERS. I think that depends on the chain of assumptions

that is involved. When we did our analysis, we assumed essentially

a capture rate of about 85 percent from the CTL facility. I think

you would have to compare that to what would be feasible in the

petroleum refinery and also the indication is that, with regard to

petroleum refineries, you would have to have a suitable geological

repository and I am not sure if that exists for all petroleum refineries.

Mr. MARKEY. OK. So 15 percent is not captured, is that what you

are saying?

Mr. MEYERS. I am saying I cannot give you a relative for a carbon in/carbon out number for petroleum refineries versus coal-toliquids. I think it depends on the assumptions for each facility.

Mr. MARKEY. OK, I think it is important, though, that you submit for the record your assumptions based upon——

Mr. MEYERS. Sure. We would be happy to do that.

Mr. MARKEY. And then we can analyze it to understand what the

administration’s view on that is. See, the problem that I have is

that I think, rather than focusing on that, I think that the administration should be focusing on the deployment of plug-in hybrids,

which would actually allow coal and other forms of electrical generation to contribute to powering our Nation’s cars and SUVs, but

not with a double whammy of carbon emissions in the coal-to-liquids conversion process and then in the vehicle itself. You wind up

actually complicating this problem, because clearly want to increase—the goal is to increase our ability to back out oil from overseas without increasing global warming, while at the same time decreasing the threat of global warming without increasing our dependence upon imported oil. So it has to fit within that formula

and what you have here is something that goes outside the formula, but it seems to me to be unnecessary, since just the burning

in traditional coal plants would help with the plug-in vehicle issue

and help us to solve that problem.

Mr. Karsner, in Massachusetts there are 69,000 E–85 vehicles

driving around, but we have one E–85 pump in Chelsea, so you can

imagine how long that ride is for many people in Massachusetts,

69,000 people with vehicles to get over to that pump. How long

does the DOE think it will take before there will be, say, 500 E–

85 pumps in Massachusetts? Because within 5 or so years, we will

have a half a million of these vehicles in our State. So how long

before you think there will be 500 pumps in Massachusetts?

Mr. KARSNER. That is a very good question, Congressman Markey, and at risk of being redundant with some of my earlier answers, not focusing exclusively on Massachusetts, but the problem

in general for the Nation.

Mr. MARKEY. No, just take Massachusetts. Give me some idea of

the timeframe to have it be an effective system of delivery of E–

85 to the pumps, with the hundreds of thousands of vehicles by

that point in time to have access to it.

Mr. KARSNER. We have 170,000 gasoline stations nationwide.

The Department estimates that we need not less than 50,000 for

E–85 to reach critical mass.
52

Mr. MARKEY. What year is that?

Mr. KARSNER. At the current rate of growth, that is more than

100 years away.

Mr. MARKEY. So that is very helpful to me. Since most of the stations our now centered in the Midwest, we will probably be at the

end of it out here in Massachusetts and as my constituents are

purchasing these vehicles, they still won’t have anyplace to go to

purchase this wonderful fuel, and it is something we would encourage, but we need a system here, if we are going to do it, to make

sure that these pumps are in place, and I think any plan has to

be realistic in talking about that. And the final question is, do you

agree with the number, that even if we planted 70 million acres,

every one of the 70 million acres in which corn is grown in 2006

and it was used for ethanol, that it would only displace 12 percent

of all the gasoline that we consume in the United States?

Mr. KARSNER. We don’t focus at all on corn-based ethanol, almost

exclusively on cellulosic, so I would have to report back to the

record after consulting with colleagues at USDA on that.

Mr. BOUCHER. I thank you, Mr. Markey. The gentleman from

Oklahoma, Mr. Sullivan, is recognized for 8 minutes.

Mr. SULLIVAN. Thank you, Mr. Chairman. And Mr. Meyers, currently, and you touched on this a little bit earlier, but currently the

ethanol component of gasoline cannot exceed 10 percent. Why is

this the limit for ethanol/gasoline blends? Why can’t we have

blends greater than 10 percent? And what problems do we encounter with regard to air quality and engine performance, et cetera?

Mr. MEYERS. Congressman, we are looking at those issues in the

context of Minnesota’s E–20 initiative. First of all, with regard to

E–10, that is our level that we have historically have approved, as

part of our fuel certification program, as the legal fuel in this country. Beyond E–10, and I think our experience has been overwhelmingly good, we have to experienced problems in terms of vehicle

performance, et cetera. With regard to E–20, we have to look carefully at those issues with regard to what is in the incumbent fleet.

Not only do we have look at cars, we also have to look at smaller

engines, small mowers, other types of vehicles that fuel and would

buy it from the gas station down the road. So we have to look at

those types of issues. We are involved a cooperative process now

with the industry, that is both the ethanol industry and the equipment manufacturers, we are looking at those issues and right now

it is too preliminary to tell you exactly what our conclusion would

be as to whether E20 would meet the test that is laid out in the

Clean Air Act.

Mr. SULLIVAN. And Mr. Karsner—oh, go ahead.

Mr. KARSNER. I was just going to agree with our colleague. Of

course, it is a multifaceted question and EPA would be the predominant agency to ultimately determine whether the emissions

characteristics, et cetera, that would allow those limits. I just returned from Brazil where there is no blend at all in the Brazilian

market that is less than E–22. So we, of course, are running

through our vehicle technologies program to understand what higher intermediate blends may need to availability in the growth rate

of ethanol and allowing for a more gradual rise in penetration of
53

the overall Nation’s fuel mix without having to wait that hundred

years.

Mr. SULLIVAN. And also, Mr. Karsner, can you take me through

the supply chain, from feedstock to final consumer, for the average

gallon of ethanol that is consumed today, please?

Mr. KARSNER. I probably couldn’t do that question any justice because, as I said, the Department of Energy almost exclusively focuses on future energy, cellulosic ethanol, rather than the conventional ethanol industry, so we have very little nexus to it, so I am

not in a good position. I could report back to the record and give

you——

Mr. SULLIVAN. But basically the corn is harvested, it is trucked,

it is taken to a plant or a terminal and all of that. What I am getting at is if ethanol could be shipped by pipeline, would the total

cost to consumers be reduced, and how long would it take and how

much would cost to establish an ethanol distribution system that

utilizes pipelines? And maybe, if there are any drawbacks on pipelines, if you could touch on that?

Mr. KARSNER. Well, there are characteristics of the ethanol and

its water absorption issues that affect its capacity to share that

pipe with anything else but ethanol, and so that has been the primary dilemma.

Mr. SULLIVAN. Nothing can be shipped other than ethanol in the

pipe?

Mr. KARSNER. I couldn’t do this justice. It is the Department of

Transportation domain. We have recently begun collaborating with

them, exactly, to go through the supply chain issues and try to figure out, from our side, those skills that we have, what are the possibilities of blending bio-butanol, for example, that would allow for

ethanol shipment more effectively. But it is my understanding

today that you need dedicated pure ethanol pipeline facilities, because it can’t easily share with other fuel sources.

Mr. SULLIVAN. But don’t you think that will reduce the cost if we

had some pipelines in place that we could ship it on?

Mr. KARSNER. It is my understanding that the pipeline industry

is divided on that question. Many of them are ambitious to get into

ethanol delivery by pipeline and many of them are staying away.

I just don’t have sufficient expertise on whether it would lower

cost.

Mr. SULLIVAN. Well, thank you. I yield back the balance of my

time.

Mr. BOUCHER. Thank you, Mr. Sullivan. The gentleman from

Georgia, Mr. Barrow, is recognized for 8 minutes.

Mr. BARROW. Thank you, Mr. Chairman. At least in the area of

transport energy, just the stuff we use to drive our trucks, our cars

and our tractors around, it seems to me that we are dealing with

a three-legged stool here. You have to got to have a supply of fuel,

you have got to have an infrastructure to deliver it and you have

got to have a supply of vehicles that can run on it. And so far, we

have talked about, at least mostly today we are talking about what

little we have gotten involved in this at the Federal level is to be

fooling around with the level of supply of the fuel, and all kinds

of questions arise in all of that. You all haven’t got, for example,

a formula as to how we can reach 35 billion gallons and told how
54

much of it is going to be corn, how much of it is going to be cellulosic, how much of it is going to be coal-to-liquids. We haven’t got

a plan for that. We haven’t got a plan for the infrastructure, when

we talk about the infrastructure.

One of you all testified earlier that we are assuming the infrastructure is going to be in place because the demand is going to be

there down the road. It is a demand fixed by law and a demand

fixed by the conditions that have gotten us where we want to be

so far. You assume we are going to have the right mix of renewable

fuels in the grid, if you will. We are assuming that is all going to

be in response to Ms. Baldwin’s question, it doesn’t seem to me

that the analogy of the chicken and egg does any justice to the situation. We don’t have a chicken and egg problem, we have a chicken, we have a chicken feed, we have a henhouse, we have a rooster

and an egg problem, at least, and that is not even dealing with the

chicken hawks that are out there, that we will deal with with the

next panel of witnesses. We are not even close to describing the

problem.

So the question I have got is, who is running the store? Who is

actually coordinating in the executive branch of government a plan

to not only get us a supply of clean fuel, but an infrastructure that

is capable of delivering it from the producers to the consumers and

making sure that there is a supply of vehicles out there that will

generate the demand for the fuel when it is there? Who is coordinating this? I heard one of you all saying that, earlier on—just the

other day and I don’t want to be sarcastic or anything, but do we

need to talk to who conducted that, in order to find out what the

plan is? I hear you when someone says, ‘‘what should we be doing?’’

You say, well, we are implementing the law as you pass it, Congressman. You make the laws and we are just carrying it out. We

need a little guidance and a little leadership here and I want to

know who is actually heading up the shop in the executive branch

of government in trying to come up with a plan to make sure that

we are not only going to have a supply of fuel, but an infrastructure that is capable of delivering it and a fleet of vehicles that is

actually going to be needing it. Who is heading that up? Who wants

to go first?

Mr. MEYERS. I will take it. I will take a crack. First of all, with

regard to vehicles, most of the fuels we are talking about—E–85

has the E–85-capable vehicle, but the E–10 vehicle does not. Other

fuels that are contemplated here, obviously are going to have some

of the chicken and egg problem. Electric vehicles will have an introduction situation where they have to have consumer acceptance.

Mr. BARROW. Mr. Meyers, I want to make sure I have explained

the problem, though, because here is the problem in a nutshell. We

have got folks back in my district selling trucks and there is an ad

that I hear when I ride around in my district. Are you tired of high

fuel prices? Come on down the road and we have flex-fuel trucks

you can buy. And they are selling flex-fuel vehicles in my district.

There isn’t any E–85 fuel for them to run on, so they are running

on gas and the problem is summed up in that episode. How can we

actually get the E–85 fuel that these trucks are selling—there is

a demand, but that is an itch they can’t scratch down there. That
55

is the problem. Could you help me understand what we are doing

to get that problem solved?

Mr. MEYERS. There have been efforts. The Energy Policy Act provides tax incentives for infrastructure development for E–85

pumps.

Mr. BARROW. Well, is that enough?

Mr. MEYERS. I think, according to my colleagues testimony, there

is a substantial way to go in terms of E–85 penetration under the

current incentives that exist.

Mr. BARROW. So it is not enough?

Mr. MEYERS. Well, I don’t feel qualified to give you an opinion

on how much of a tax incentive——

Mr. BARROW. Well, if my friend down in Vidalia, Georgia is buying a flex-fuel truck and it is going to take a hundred years for us

to get the 50,000 stations that can carry it so that E–85 can carry

it on its own in that marketplace, I guess he is going to be a little

long in the tooth before he can get the benefit of the extra money

he is paying for a vehicle that can’t run on nothing that is there.

Mr. MEYERS. That is correct, although the incremental price on

E–85 vehicles now is not absorbent.

Mr. BARROW. Well, I am glad that he is not paying that much

more for something he can’t use. My point is he is still not getting

what he needs and his problem, I can multiply that 300 million

folks and describe the problem of this country in a nutshell. Now

all I want to know is what effort is being made in the executive

branch to develop a game plan? They cannot deal with this problem

in just one part, one part of a three-legged stool, but is going to

actually try and bring all the pieces together so that it is going to

come in for—because right now, when I hear Mr. Karsner talking

about the market conditions, they need to create access to markets

and access to capital, with respect to the policy we have got right

now, it sounds like what we are doing is we are lying on a train

wreck to create the market conditions to deliver all of this other

stuff. The train wreck is we have got one vital link in the chain,

it is fuel supply, we haven’t got any idea as to how we are going

to get there and what mix is going to be in it, but that is the thing

we are going to mandate and so far, that is the only thing we are

mandating and everything else is going to have to get in line and

respond to that market incentive and what I see coming is something that is not going to be deliverable at the time that is going

to be needed and we are either going to extend or we are going to

basically not get anywhere. I want to know how I answer the folks

back home, about how we are coordinating our response to this

problem.

Mr. KARSNER. Well, we have to do it together. We have greater

coordination than ever before at the administration’s level.

Mr. BARROW. Who is in charge of it?

Mr. KARSNER. Well, I co-chair with Under Secretary Dorr, at the

U.S. Department of Agriculture, something called the Interagency

Biofuels R&D Panel and so that involves the Department of Transportation, EPA——

Mr. BARROW. That is the fuel leg of the three-legged stool. How

about the infrastructure and the vehicle?
56

Mr. KARSNER. And we are taking on all of those issues of supply

chain on board, so feedstock, the transport to facilities. But I think

your pointing to a very real problem, which is we are operating on

legacy systems of organization of government that have emanated

out of World War II and we have 21st century problems with urgency that we need to address by taking down stovepipes——

Mr. BARROW. And I am looking to you guys for leadership. What

is the solution? How do we plan our way out of this?

Mr. KARSNER. Any plan has to got to take into account how you

are going to cultivate the market, because we are a market-based

economy. We are not a politburo, ultimately, so we don’t have 5-

and 10-year plans in that way. So the question is how do you

change the way investments are done for returns into those products and services that we desire that are tantamount to the Nation’s interests? And ultimately, if I am an executive and I have a

fiduciary responsibility to my shareholders to profit, it is unlikely

that I am going to rapidly take aboard products that compete with

my base in order to——

Mr. BARROW. So if you won’t create the market conditions that

we want, how can we incentive-ize the players to invest in what

we want to get at? If we wait for the money, the market will solve

this problem. But I will tell you, my part of the country will dry

up and blow away if we wait for the market to solve the problem

in our part of the country the way it solved it down in Brazil. Well,

we all drive long distances to do our work and to get to and from

our jobs and just to get around and we are energy-dependent. If we

wait for the market, the market will solve our problem, but I don’t

want it to be at the expense of my part of the country.

Mr. KARSNER. Or any part of the country. The bottom line is that

what the President has sought to table and the conversation that

we are now having with Congress on the legislation we hope that

it will be returned to the President to sign, is significantly disruptive policy with enforcement by law. So it is more than disruptive

technology, which has been our focus for a quarter of the century——

Mr. BARROW. It sounds to me, though, Mr. Karsner, and I apologize for interrupting, but my time is running out. Sorry you had

to stop. It sounds to me like you are restating the problem. I want

to know what the solution is and I am still listening. Thank you,

Mr. Chairman. I have to yield now.

Mr. BOUCHER. Thank you very much, Mr. Barrow. The gentleman from Michigan, Mr. Rogers, is recognized for 8 minutes.

Mr. ROGERS. Thank you, Mr. Chairman. I appreciate you having

this hearing. It is so very important. Unlike many, I am a complete

optimist and fairly excited about where we are going on alternative

fuels and when you look at where we have come in the last few

years, it is really nothing short of remarkable, with hybrid buses

in the cities which is reducing the emission and doubling the gas

mileage in many cases. We started that in 2001, to increase the

number of hybrid buses. And I think we if we figured it out, you

replaced 13,000 of them with a hybrid bus in the cities, that is an

equivalent of 600,000 hybrid cars on the road, so that is a big impact and they are making an impact.
57

And if you look at where the car companies are and I hear a lot

of big government solutions to go and tell the car companies what

to do, but I will use General Motors as an example. They just developed something called the Volt. Are you familiar with the GM

Volt? That is pretty exciting technology in that car. Lithium ion

batteries. We still have a little ways to go, but 540 miles on a tank

of gas and the only thing that the fuel, either ethanol or gasoline,

does is charge the batteries, so it has very low emissions, very high

efficiency and we are close. I think they are looking somewhere between a 2010 and 2012 for commercialization of that technology.

When you look at ethanol, the car companies stepped up in a big

way. There are some two million cars out there ready to run on E–

85. I own one and it is great. We happen to have a station in my

hometown, so it is readily available, it is cheaper, cleaner. I have

no problems with the car and I really enjoy driving the car. Great

stuff.

So there has been a lot of progress. It seems to me, if we are

going to have you all, which is the U.S. Government, get involved,

I am not sure I want you all involved in such a huge way. Nobody

told Ford, Chrysler and General Motors to make E–85 cars. You

didn’t mandate that, did you? Was there a mandate to do that?

Mr. KARSNER. There is an incentive to do that.

Mr. ROGERS. But there is no mandate? You didn’t say you are

going to build 2 million E–85 cars?

Mr. KARSNER. Well, indirectly, the CAFE mandate serves as an

incentive for those flexible fuel vehicles to be produced.

Mr. ROGERS. So it is the 0.08 incentive in there that you get

credit for, but you didn’t say E–85. You just gave them the alternative fuel credit, did you not? It is a pretty good way to do it, an

incentive. But we are talking about Cap and Trade, which is a very

big complicated system. It means brokers make a lot of money, it

costs more to build stuff, and I am not sure the environment is

cleaner. My argument is we ought to encourage them to do what

they are doing now and we can do it for a little bit of money, not

a whole bunch of new programs. If we look at the one problem between the farmer part is working. The research part is almost

there in places like Michigan State University, as I am sure you

are aware, right on the cutting edge of cellulosic research. As a

matter of fact, they have extracted sugar on the bench. All as they

need to do is figure out how to produce it in mass quantities. They

are right there. They think, for something like $3 million, they can

get to that next level. Three million bucks. We are talking about

hundreds and hundreds of millions of dollars that are out here frequently. Refineries are being built because we built incentives into

the energy bills. Build it and it will get this thing kick-started.

The one that worries me the most is the distribution because, as

you said, I think, halfway, we inherited a pretty old system. We are

hearing some disturbing things, that large oil companies are saying

you can’t put ethanol under the tarp of which we pay for. Are you

hearing any these stories out there? In other words, and I won’t

give any company name, but the company will go out and we hope

would assist you and build the gas station. So anything under that

footprint, you can’t put an ethanol plant because we don’t sell ethanol. That is a hurdle that wouldn’t be a legal impediment but
58

causes a problem in getting us more ethanol pumps. Are you familiar with the problem?

Mr. KARSNER. We have heard of that. We are familiar with that.

Mr. ROGERS. And what are we doing about that? Or what can we

do about that?

Mr. KARSNER. I am not sure of what the full extent of what we

can do about it. Secretary Bodman did pledge to investigate it and

I am not sure what the extent of that investigation is.

Mr. ROGERS. That is an impediment that we have to get rid of,

don’t you agree?

Mr. KARSNER. It is a very complicated subject area, in the sense

that it involves franchising contractual agreements, of which I am

not an expert. But you know, fundamentally, if the question is

what is necessary for a scale and rate of E–85 access, then it will

involve greater access to the major franchises.

Mr. ROGERS. So this is an important issue and you think that

maybe policymakers might want to a look at. I am not for big government intervention, but we just ought to understand the problem. Fair enough? Just so we know it is a problem. So part of this

problem of distribution isn’t necessarily the system of which we

talked about. As far as the ability to do it, it is a whole set of other

unknown, under-the-radar type of problems that are head-scratchers, hard to get through it.

Mr. KARSNER. I was going to say I think you characterized it

very well, that there is a great reason to be very optimistic about

the technologies that the Nation is invested on and their capacity

to manifest, but there are a lot of very practical impediments.

Mr. ROGERS. We passed a bill in Congress last year and I think

we are taking another run at it for providing CAFE fines, turn that

money around and allow grants to gas stations, independent gas

stations to put in ethanol pumps. The government needs to be very

careful where we intrude in the market, but that probably serves

as a value to kick-start kind of an ethanol economy. Don’t you

think it is important that we get enough pumps out there so that

this takes on an economy of scale? Is it not and don’t you do that

through Clean Cities now to some small degree?

Mr. KARSNER. We do it but as you indicated, it is to a very small

degree and with programs like SmartWay, we chip away at this

giant boulder. The question is can we do it fast enough and in effect, scale enough to make a difference?

Mr. ROGERS. Would the $20 million or so in CAFE fines every

year from companies who don’t meet our CAFE standards and pay

those fines, would that be a better start than what you are doing

now, if we dedicated all of that to increasing the number of pumps?

Mr. KARSNER. It would be a marginally additional chisel. We

have $8.6 million in Clean Cities now and we did 450 gas stations

last year, and so we could continue to invest in it through this way,

through substantial grants, but the key really would be to make it

a profitable proposition for the incumbents to take on board.

Mr. ROGERS. Well, isn’t this back to that horrible chicken and the

egg? But if you can’t buy it at a gas station, it doesn’t become part

of your routine to even to seek that opportunity. It is very difficult

for someone to take the business risk, not knowing where the scale

of ethanol is going to go. It is not like petroleum, where everybody
59

knew the car had to run on it. We are just not sure where this is

going and it is probably in our national interest to encourage more

pumps so that we can at least get some economy to scale, is it not?

Mr. KARSNER. Every bit helps, but that is pumps and flex-fuel

vehicles and we would want substantial critical mass penetration

of both and we would want it also so that we can look at all of the

intermediate blends and what their possibilities may be upon

EPA’s review.

Mr. ROGERS. And I am going to run out of time here, so I want

to switch gears very quickly. I think diversification is the key.

Probably the Midwest is going to be able to head ethanol because

it is close, but maybe the rest of the country is run on something

else. I think that is OK. I don’t think that is necessarily a problem.

But lithium ion batteries, I think, are going to be a very important

part of technology going into the future of alternative fuel vehicles.

There is a patent problem with them now, as I understand it.

Japan tends to hold and their companies to hold most of the patents, so our folks are trying to play catch up. Would it not be a

great investment for us, rather than to do these big mandates, Cap

and Trade, and we are going to tell Americans what kind of cars

they can buy, to actually provide some assistance to companies like

General Motors, who are trying to and desperately working furiously with their intellectual capital, end capital, to get these lithium ion. Isn’t there some value in us doing this, from all of the

problems——

Mr. KARSNER. We do that now and we do it in the very best way

with our FreedomCAR and Fuel Partnership. It has largely been

focused, particularly with General Motors and the other carmakers,

on hydrogen over the last 5 years. We are increasingly more focused on how to move electrons, other than just the protons,

through hydrogen fuel cells. So we see it integrating and growing

in that collaboration, as you described.

Mr. ROGERS. But you didn’t even come close. I guess what wor- ries me and Mr. Upton mentioned it, the $100 million that we

thought was agreed on to get us to that point where we could have

robust research on something that we could commercialize as soon

as 2010, with the right resources, that helps America out of a problem. We got, to your words, $11 million. Was that yours? So maybe

it is even double that. So $20 million, which is 80 percent short of

where we need to be, but I would hope that the administration

would hold true to what we all believe was a commitment to meet

that demand and I think they are going to help us solve a problem

versus EPA and the Department of Energy sitting around a table

trying to figure out it. I would rather have research and development at General Motors and Ford actually getting their hands on

some science to work it out. Thank you very much, Mr. Boucher.

Mr. BOUCHER. Thank you. The gentleman from Louisiana, Mr.

Melancon, is recognized for 5 minutes.

Mr. MELANCON. Thank you, Mr. Chairman, I appreciate it. I

guess, since I am from Louisiana, I am associated with the sugar

industry and I want to talk about cellulosic ethanol or ethanol from

sugar, but I have heard about hybrids, I have heard about coal, cellulosic, corn ethanol. I haven’t heard anything about natural gas

for vehicles and I know that the buses in the city run on natural
60

gas. I don’t know whether it is LNG or whether it is just regular,

the gas, natural gas itself. Do we have numbers on efficiencies,

costs and other items, that it is not become a topic of conversation,

at least not in here today and I haven’t heard it before anywhere.

Mr. MEYERS. We did do calculations with regard to greenhouse

gas on CNG. I think, between the Department of Energy and the

EPA, we could probably find some numbers on vehicles and distribution. I am not sure exactly what data sets we have to draw

from, but we could work and provide that to the committee.

Mr. MELANCON. Has there not been a lot of discussion about either compressed natural gas or LNG?

Mr. MEYERS. Well, no. CNG has been very helpful in a lot of the

situations. We have had situations where, for example, it was California where, in order to offset power plant construction emissions,

investment was made in CNG vehicles for garbage trucks and that

type of shortfall, urban environment. So the emission reductions occurred in the urban center and certainly the experience with regard to emission profiles with the CNG vehicles has been very

good, so we don’t have a qualms with the technology or the emissions from CNG vehicles.

Mr. MELANCON. And the only thing I understand is your population difference and actually, I believe you could run one or the

other, and I don’t know which one, whether it is gasoline or the

compressed natural gas carburetion and vice versa. So if that is the

case, you could have a tank of regular gas and a tank of compressed natural gas back there, and wouldn’t it be more efficient?

Mr. MEYERS. I think there are some factory vehicles. I don’t

know the extent of that technology, but we would be happy to——

Mr. MELANCON. Yes, I am just curious because I keep hearing everything about ethanol and coal. and I don’t hear anything about

it. I had an uncle and he has been dead for 12 years and probably

for 35 years before that was running his tractors on compressed

natural gas, which as a kid I thought that is great. Why aren’t we

doing it?

Mr. MEYERS. Well, I think we are doing it in certain contexts. I

think it is a market-driven situation. We referred earlier to E–85

chicken and egg problem. With some respect, some of that problem

has occurred with regard to the fueling infrastructure for CNG and

historically, I think that has been an issue. So it has been used in

fleet applications where you have central refueling. And again, I

think, within the context of our programs, we have funded some

through the Clean School Bus Program. So again, the market sort

of decides those issues in our current structure.

Mr. MELANCON. We are talking about natural gas and we are

talking ethanol and the problem of delivery systems, pipelines,

tank trucks, whatever, and Mr. Markey made the comment about

not getting his market. Mr. Barrow, the same thing. I think maybe

I heard it on the Republican side. There is CNG in every part of

this country I have ever been to. There are distributors of CNG in

every part of this country I have been to. Is there not some incentive that we ought to be giving maybe instead of to Ford Motor and

the oil companies and all, to the local distributors to start putting

up at their convenience stores, because they are the jobbers, they

are the ones that own those facilities, the CNG and encourage the
61

auto manufacturers to starting moving to it? Is there a downside

that I am not understanding?

Mr. MEYERS. I don’t see a downside, Congressman, and in fact,

I think that is one of the goals of the AFS. The AFS gives CNG

an incentive by making it qualified as an alternative fuel, which is

subject to 35 billion mandated in the bill. So I think if you are looking for incentives, I think that is a very big incentive for CNG. The

testimony you have from the second panel references certain costs

of engines for the fuel, with respect to gasoline and gasoline prices

and the combination of price, and the mandate, I think, could provide some significant incentives for the industry. Going back for a

second to your question with regard to your vehicles using both,

our role here would be with regard to the CNG conversions, that

we have to ensure that those meet Clean Air Act requirements, so

we see a number of conversion kits going to market and we are

right now in the context of working with those issues with industry. So I think, as a whole, the EPA has tried to work these issues

out and as a whole, I think we have seen emission benefits from

CNG technology in the marketplace.

Mr. MELANCON. And I am running out of time. I didn’t mean to

pick on you, Mr. Meyers. I kind of threw it out for both of you all,

but since you chose to take the ball and run with it.

I thank you, Mr. Chairman.

Mr. BOUCHER. Thank you very much, Mr. Melancon. The gentleman from Arizona, Mr. Shadegg, is recognized for 5 minutes.

Mr. SHADEGG. Thank you, Mr. Chairman. And I want to follow

up on that series of questions. As I understand the current definition of renewable fuel, it would include natural gas produced from

landfills or sewage treatment facilities but not any other type of

natural gas. And I share the gentleman’s interest in the issue and

I guess I want to make sure that, am I correct about that understanding, that it would not include other natural gas? And if so, is

there a reason for that?

Mr. MEYERS. Well, I think the reason was that in the Energy

Policy Act of 2005, the mandate that was constructed dealt with renewable fuels, so the renewable fuel definition comes to a number

of different types of fuels, but sort of a bottom-line analysis, if it

is derived from plant or animal waste and other renewable feedstocks, it can pretty much qualify as renewable fuel. If not, if it is

still a fossil fuel, Congress did not incorporate that.

Mr. SHADEGG. The point we made earlier, that we were faced

with policy choices, now one option would be to define alternative

fuel as any fuel that reduces the use of petroleum-based fuels, rather than using the definition of something that comes from something renewable, at least in the short term. As the gentleman

pointed out, there is a lot of potential for natural gas, in moving

vehicles, that has already been proven and natural gas is already

widely available in homes and there are small compressors that

you can get. That market seems to be some degree down the road.

Is there a cogent argument why that shouldn’t be considered as

an——

Mr. MEYERS. No, the administration agrees with that argument

and we specifically adopted natural gas as a fuel qualifying for

AFS. Additionally, within the definition of alternative fuel in the
62

bill, there is a provision that would allow non-crude oil-based fuels

to qualify also as alternative fuels in the future, subject to determination by the Department of Energy.

Mr. SHADEGG. Mr. Karsner, do you have any objection to that?

Mr. KARSNER. No, I agree completely.

Mr. SHADEGG. Mr. Karsner, I briefly met with Daniel Yergin and

he had just been to Japan and he made the comment that the Japanese are as obsessed with battery technology as we are with ethanol. I have concerns about corn-based ethanol, some of the concerns

about the corn market and the things it will do to our cost of food.

I have fewer concerns about cellulosic ethanol. But I guess my

question of you is are we doing enough, in this country, on battery

technology, and are there things that this Congress should do to

push us further down that road?

Mr. KARSNER. It is a great question, Congressman. I believe that

electricity should become a primary pathway, a technological pathway and it is available under the Alternative Fuel Standard, just

as natural gas would be. And so we would like to see as much upside as we can. Of course, this country took a different bend on our

history with electrifying vehicles and electrifying trains and we are

at somewhat of a competitive disadvantage. There are people on

the second panel that can address this better than I. But as we restart our efforts towards electrification and first, we need to think

in terms of what does it take to cultivate that industry here in the

United States? We need much broader hybridization of the fleet in

general, as a step-stone to plugging in a hybrid fleet in general and

we need it for far more than just the luxury of feeling green with

niche cars. We really need to hybridize efficiency across all of the

vehicles that people want to buy and so we have doubled our investment in that. I think there are ideas out there about how we

could go further and we are in emerging dialog with the car companies right now.

Mr. SHADEGG. I appreciate your suggestions perhaps as—I am

running out of time and I want to ask another series of questions.

I am aware of damage that has been done by fuel containing as little as 5 percent ethanol to the existing infrastructure and a lot of

money being spent on that damage that has been done, ethanol levels of 5 to 10 percent doing damage to fuel tanks and fuel lines and

lots of things. I am concerned that we are not studying the infrastructure issue enough. I believe it is Minnesota that is trying to

go to a 20 percent standard and I asked a witness before this committee sometime back about that and the witness essentially mislead the committee and said no, they are not going to go to a 20

percent standard, when in fact they are. I believe there are serious

issues with generators, chainsaws, lawn tools, motorcycles, the marine industry, ATVC.

At a 20 percent mandate, my question of you is two things: one,

is there any warning that is being given, because the stories I have

heard indicate there has been no warning given of the potential for

damage. And second, has anybody ever given any thought to the

creation of an unanticipated consequences fund? We all are aware

that MTBE, when it was brought on line to clean our air, we

thought was a good idea. Then we discovered it has an unanticipated consequence of damaging our water supply and so we had to
63

fix that and we had to come up with the money to fix it. I would

suggest there are a lot of unanticipated consequences of higher proportions of content of ethanol and nobody’s kind of looking down

the road and saying, well, how are we going to fund dealing with

those problems? And I would appreciate comments from both of

you, if I could.

Mr. MEYERS. Sure, I can start. First, with regard to E–5 or E–

10 problems, I am not personally aware—would be happy to receive—in terms of information. We would obviously be concerned if

there are some issues there. Our experience, as I said earlier, generally has been that E–10 has been very successful in the marketplace and we have car standards now that were improved through

the Mobile Source Air Toxics Rule, which even with the permeation

standards, are applicable there. It will even reduce further some of

the volatility emissions. But on a going-forward basis, I think we

and EPA, in terms of looking at these fuel issues, take them very

seriously and take the investigation and the analysis that is required very seriously and needs to occur.

And with reference to what I said earlier with regard to Minnesota, we are trying to work now with the parties involved and

try to look at that issue closely to make sure we have the type of

information that is necessary. We certainly recognize that the moment that an E–20 blend would be legal, then it would be legal to

use in a lawn mower, legal to use in a snowmobile, legal to use in

all types of equipment. So those are factors that we have to take

into account, as well as obviously the performance of the emission

control system and our fundamental authority is with regard to

emissions and interference with the emission control systems. So

those would be all factors in our review.

Mr. BOUCHER. Thank you very much, Mr. Meyer. And Mr. Shadegg, thank you. The gentleman from Utah, Mr. Matheson, is recognized.

Mr. MATHESON. Thank you, Mr. Chairman. In the development

of the Alternative Fuel Standard list, can you share with me what

the thinking was behind including natural gas as one of the alternative fuels?

Mr. MEYERS. Well, I think our initial cut, as I explained, was to

try to adopt those fuels that Congress has defined as alternative

fuels. With regard to natural gas, and I think we referenced earlier

that, when the President announced this in the State of the Union

address, we were talking about the energy security benefits as well

as the environmental and greenhouse gas benefits that could be associated with use of the fuels. Most natural gas is much more domestic, I guess I would say, than our oil supply system, domestic

and within North America.

Mr. MATHESON. Yes, you just hit the point I wanted to ask you

about and that is I understand the environmental, but it is on the

energy security benefits, based on the supply and demand dynamic

we face today and looking forward. Did you consider the Department of Energy’s projections about future increasing imports of

LNG to meet our natural gas needs in this country, in terms of including it as one of the Alternative Fuel Standards for energy security purposes?
64

Mr. MEYERS. Not in my memory did we consider imported LNG

specifically, but I don’t think, in terms of the definitions that are

applicable to the AFS right now and the fuels that are mentioned,

that would be excluded.

Mr. MATHESON. I just want to get to the point that energy security was one of the rationales for adding it.

Mr. MEYERS. Sure.

Mr. MATHESON. And we are facing an future with increasing imports to meet our natural gas needs. I think that is something we

ought to be talking about and figure out if that would make sense

or not to have that included, the other fuels. One other question

I wanted to ask about is fuel specification standards. Do you think

these should be negotiated in the marketplace or should the government set standards?

Mr. MEYERS. We exert authority under the Clean Air Act to certify fuels, so we have current existing authority within 211(c) of the

Clean Air Act. And so in terms of anything being sold for use in

a motor vehicle, we need to make that determination consistently

to law, so it is decided by government.

Mr. MATHESON. OK. Thanks, Mr. Chairman.

Mr. GONZALEZ [presiding]. The chair recognizes Mr. Green from

Texas.

Mr. GREEN. Thank you, Mr. Chairman, for allowing me to participate in the hearing on fuels and as you know and the committee

knows, I represent a lot of employees who manufacturer gasoline

at our refineries and so it is very important that we do not do anything to put those jobs in jeopardy, particularly since we need that

refined product. Gasoline has its drawbacks, but it is also the

cheapest and most efficient fuel that we produce today, so if you

disrupt that supply and production of gasoline to a significant degree, the consequences will be felt by every American.

Mr. Karsner, what effect on food prices and other economic consequences if we continue or further increase our Renewable Fuel

Standards to require greater and greater levels of ethanol, such as

20 to 60 billion gallons per year figures in some pieces of legislation?

Mr. KARSNER. Well, I am not an agricultural economist, sir, but

what I could say is that we don’t expect grain-based ethanol that

competes in the food and feed market to take us substantially beyond 10 percent. There are people on the next panel more qualified

to talk to that. So we expect the bulk of things to come from nonfood edible feedstocks, like agricultural residues and woody biomass and urban green waste, for example.

Mr. GREEN. Thank you. It is my understanding that the President’s policy is assuming that cellulosic ethanol is going to supply

that increase, as you mentioned just now, and it seems the President’s proposal is pretty aggressive. It appears as a very complicated market rather than assurance of success. Instead of taking

a leap and requiring more ethanol, when cellulosic ethanol is not

yet ready, why would it be a more prudent course to wait until the

current ethanol mandate is done in 2012, then decide whether to

increase it further, if cellulosic ethanol is ready to market? Are we

to that point now where we can pick up that 90 percent from cellulosic ethanol?
65

Mr. KARSNER. I would say we are certainly past the point where

policy is required for future projections and installation of infrastructure that takes many years to erect and prove out. So you

need a lead time, a substantial lead time for the market to react

to invest the money that maybe 36 to 48 months later would

produce the product.

Mr. GREEN. OK. So any bills we consider, we need to make sure

we build in that lead time so investors and the market can adjust?

Mr. KARSNER. Well, in fact, I think that the President has tabled

it now in 2007. We expect a working towards commercially competitive cellulosic ethanol by 2012. That is only one component, as

are lithium ion batteries and the other technologies. So we think

there is sufficient lead time right now built in if Congress were to

act and give the President legislation he could sign.

Mr. GREEN. Mr. Meyers, a later witness from the National Resource Defense Council will testify that biodiesel produces much

less greenhouse gas emissions than corn-based ethanol. Do you

agree with that assessment? And so is there a valid reason promoting biodiesel standards within the Renewable Fuel Standard?

Mr. MEYERS. Yes. In terms of GHG emissions, we certainly agree

that our current analysis shows biodiesel creates more benefits

than corn-based ethanol, given the assumptions we did in our analysis, which, with respect to corn-based ethanol, was based on an

average plan.

Mr. GREEN. Would that be a reason for promoting biodiesel as a

Renewable Fuel Standard?

Mr. MEYERS. Yes, and Congress recognized that in the RFS and

we recognize that in the AFS.

Mr. GREEN. OK. What is the EPA’s latest view on the relative

emissions from biodiesel, ethanol and gasoline for smog and air

toxics? Will any of these new fuels be an improvement over gasoline? Is ethanol, as we know it today, clean fuel and will cellulosic

ethanol be different to a greater degree?

Mr. MEYERS. Our impact analysis that accompany the RFS rule

indicate what we thought would be our current assessment of the

air emissions effects of ethanol blended fuels. What they showed

essentially was that some emissions go up and some emissions go

down. Emissions that go down include carbon monoxide and benzene as well as, obviously, our analysis of the GHG benefits. With

regard to emissions that go up in areas that are not using ethanol

blended fuels right now, there will be increases in—but when we

did further analysis based on computer modeling of air quality impact, we showed that to be essentially less than one-half of part per

billion on a standard of 84 PPB. So in other words, there are some

issues we have to look at in the future. There could be some ozone

effects with use of ethanol and I think our opinion is that there are

ways to address those.

Mr. GREEN. It seems like our problem may be, and I know I am

almost out of time, that if we want renewable fuels, it again limits

our need to import hydrocarbons and at the same time, the committee’s goal and the Congress’ goal and I think we are getting

there, is to deal with global warming. So it sounds like those are

two goals that we can’t match, using ethanol or even cellulosic

technology.
66

Mr. KARSNER. I would say the overwhelming majority of all the

alternative fuels available to meet our requirements would in fact

be beneficial to greenhouse gas emissions, particularly if you consider the cellulosic ethanol will make up a substantial portion of

that. We calculate, and Bob is in a better position to comment than

I, but in excessive of 80 percent decline in greenhouse gas emissions from the tailpipe, based on the use of cellulosic ethanol. I will

oil the wheels.

Mr. GREEN. Thank you, Mr. Chairman.

Mr. GONZALEZ. Thank you, Mr. Green. Mr. Meyers, Mr. Karsner,

I want to go ahead and extend the thanks of the subcommittee for

your testimony this morning. Please understand that Members

may be submitting questions in writing and we would really appreciate a prompt response to those written inquiries. Again, thank

you for your service.

Mr. KARSNER. Thank you.

Mr. MEYERS. Thank you.

Mr. GONZALEZ. We will proceed now with the seating of the second panel We extend a welcome to the second panel.

The witnesses on our second panel, let me make sure I have

them in the proper order, Elizabeth A. Lowery, vice president for

Environment, Energy and Safety, General Motors Public Policy

Center; Mr. Warren I. Mitchell, chairman of the board, Clean Energy; Mr. Paul D. Reid, president and chief executive officer, Reid

Petroleum Corporation; Mr. Robert Greco, group director, Downstream and Industry Operations; Mr. Charles T. Drevna, executive

vice president, National Petrochemical and Refiners Association;

Daniel A. Lashof, Climate Center science director, National Resources Defense Council; and Mr. Bob Dinneen, president, Renewable Fuels Association.

I think I have got everyone. I will caution everyone to please

keep your testimony to the 5 minutes. Your written statements

have been submitted and will become part of the record. But if you

would keep to those 5 minutes so that—I know we will have Members coming in and out that will have questions. We will start off

with the first witness and that is Ms. Lowery.

STATEMENT OF ELIZABETH A. LOWERY, VICE PRESIDENT, ENVIRONMENT, ENERGY AND SAFETY, GENERAL MOTORS PUBLIC POLICY CENTER, DETROIT, MI

Ms. LOWERY. Good afternoon. Thank you, Mr. Chairman and

members of the subcommittee. My name is Elizabeth Lowery, vice

president for Environment, Energy and Safety at General Motors

and I am pleased to be able to speak to you today regarding GM’s

plans for expansion of vehicle offerings capable of using E–85 ethanol fuel and the need for ramping up the availability of this fuel

and the infrastructure needed to make it available to American

consumers.

Today’s automotive industry provides more in the way of opportunities and challenges than we have seen in its entire history. On

the challenge side, there is serious concerns about energy supply,

energy availability, sustainable growth, the environment, and even

national security issues that collectively have been called energy

security. For the global auto industry, that means that we must,
67

as a business necessity, develop alternative sources of propulsion,

based on alternative sources of energy in order to meet the world’s

growing demand for our products. The key is energy diversity,

which can help us displace substantial quantities of oil that are

consumed by U.S. vehicles today.

This is a huge assignment, but it is also an extraordinary opportunity. But developing alternative sources of energy and propulsion, we have the chance to mitigate many of the issues surrounding energy availability. We will be able to better cope with future

increases in global energy demand. We will minimize the environmental impact of the automobile.

This means we must continue to improve the efficiency of the internal combustion engine, as we have for decades. But it also

means we need to dramatically intensify our efforts to displaced petroleum-based fuels by building more vehicles that run on alternatives and accelerating our commitment to the development of

electrically-driven vehicles.

Today, I want to focus on our activities to accelerate the availability and use of alternative fuels. We believe that the biofuel with

the greatest potential to displace petroleum-based fuels and provide carbon dioxide emission reductions in the U.S. is ethanol. As

a result, we have made a major commitment to produce vehicles

that run on E–85 ethanol. We believe there are many benefits of

using E–85: it is renewable, it helps reduce greenhouse gas emissions, it helps reduce smog-forming emissions, and can help support the domestic agriculture industry in the United States.

GM has produced more than 2 million E–85-capable vehicles that

are on the road today. For the 2007 model year, we have 16 flexfuel models, from pickups and SUVs to full-size vans and minivans

to our best selling Impala and Monte Carlo midsize family cars.

But that is just the start. Along with DaimlerChrysler and Ford,

we announced in June 2007 that America’s three domestic auto

companies will double our production of vehicles capable of running

on renewable fuels by 2010. And later last year we were prepared

to make fully half of our annual production biofuel-capable by

2012, provided there is ample availability and distribution as part

of an overall national energy strategy. If all of the E–85-capable vehicles on the road today, along with those that GM, Ford and

DaimlerChrysler are committing to produce over the next 10 years,

were to run on E–85, we could displace 22 billion gallons of gasoline annually by 2017. Furthermore, if all the manufacturers made

the same commitment, we could increase this displacement of gasoline to 37 billion gallons annually.

So the potential biofuels, like E–85, to significantly displace petroleum is within our grasp today. The vehicles are on the road or

in the works, but they are not being fully utilized because of the

constraints on E–85 supply and distribution. To help address these

constraints, we are partnering with government, fuel providers and

fuel retailers across the United States. to help grow the E–85 ethanol fueling station infrastructure. In 2006, there were 600 E–85 refueling stations. Today, the number of stations has more than doubled to over 1200. Since May 2005, GM has helped to add 240 E–

85 fueling stations in 13 States, with more to come.
68

In addition to our partnerships, GM is heavily engaged in the

promotion and education side of developing the ethanol marketplace. We launched a national advertising campaign in February

2006, beginning with the ads during the 2006 Super Bowl. The visibility and viewership presented by the Super Bowl offered a great

opportunity for us to launch a major marketing and advertising

campaign that focuses on key energy diversification issues. Web

traffic to our livegreengoyellow.com Web site was in the millions as

consumers investigated E–85, flex-fuel vehicles and station locations.

In addition, GM has partnered with the Governors’ Ethanol Coalition to loan E–85 flex-fuel vehicles to 28 States and organizations

so that they may use them to educate the public and promote the

benefits of using ethanol. This partnership has been extended

through 2007. We have also provided $1,000 E–85 fuel coupon

available with a new vehicle purchase in Chicago and Minneapolis

areas. And across the country, flex-fuel vehicle owners that are

equipped with OnStar can simply press the blue OnStar button

and get directions to the nearest E–85 pump.

We are also equipping our E–85-capable cars and trucks with

yellow fuel caps and exterior flex-fuel badging. This will help consumers know that their vehicle is flex-fuel capable. This yellow cap

will also be a regular reminder that these consumers have a fuel

choice each time they go to fill up their tank.

Importantly, as we pursue expansion of biofuel to the market,

there are steps the government can take to help. First, we need a

strong and sustained push from Congress and the administration

to support biofuel production, including next-generation cellulosic

ethanol. Second, the biofuels infrastructure should be significantly

expanded. The market response to renewable fuels is encouraging,

but it needs to reach a self-sustaining level that is not lessened

when gasoline prices fall.

Mr. BUTTERFIELD [presiding]. We are going to have to ask you to

conclude, please.

Ms. LOWERY. Sure. Steps to increase the availability of biofuels

should help increase its use. And third, government purchasing

should set the example. Government fleets should be using E–85

ethanol.

In summary, we believe tomorrow’s automobiles must be flexible

enough to accommodate many different energy sources, and part of

that flexibility will be enabled by the continued focus on E–85.

Thank you and I look forward to your questions.

[The prepared statement of Ms. Lowery follows:]

TESTIMONY OF ELIZABETH LOWERY

Good morning. My name is Elizabeth Lowery and I am Vice President for Environment, Energy, and Safety Policy at General Motors. I am pleased to be able to

speak to you today regarding GM’s plans for expansion of vehicle offerings capable

of using E–85 ethanol fuel and the need for ramping up the availability of this fuel

and the infrastructure needed to make it available to American consumers.

Today’s automotive industry provides more in the way of opportunities—and challenges—than we have seen in its entire history. On the challenge side, there are

serious concerns about energy supply, energy availability, sustainable growth, the

environment, and even national security issues that, collectively, have come to be

called ‘‘energy security.’’ And the fact of the matter is that it is highly unlikely that

oil alone is going to supply all of the world’s rapidly growing automotive energy re-
69

quirements. For the global auto industry, this means that we must—as a business

necessity—develop alternative sources of propulsion, based on alternative sources of

energy in order to meet the world’s growing demand for our products. The key is

energy diversity, which can help us displace substantial quantities of oil that are

consumed by U.S. vehicles today.

This is a huge assignment. But it’s also an extraordinary opportunity.

By developing alternative sources of energy and propulsion, we have the chance

to mitigate many of the issues surrounding energy availability. We will be able to

better cope with future increases in global energy demand. We will minimize the

automobile’s impact on the environment.

This means that we must continue to improve the efficiency of the internal combustion engine, as we have for decades. But, it also means we need to dramatically

intensify our efforts to displace petroleum-based fuels by building more vehicles that

run on alternatives, such as E–85 ethanol, and, very importantly, by significantly

expanding and accelerating our commitment to the development of electrically driven vehicles.

Today I want to focus on our activities to accelerate the availability and use of

alternative fuels. We believe that the biofuel with the greatest potential to displace

petroleum-based fuels and provide carbon dioxide emissions reductions in the U.S.

is ethanol. As a result, we have made a major commitment to produce vehicles that

can run on E–85 ethanol.

We believe there are many benefits of using E–85:

• Ethanol is a renewable fuel

• Using E–85 helps reduce greenhouse gas emissions

• Using E–85 helps to reduce smog forming emissions

• Using E–85 can help to support the domestic agriculture industry in the U.S.

and support new job growth

GM has produced more than 2 million E–85 capable vehicles that are on the road

today. For the 2007 model year, we have 16 flex fuel models, from pickups and

SUVs to full-size vans and minvans, to our best selling Impala and Monte Carlo

midsize family cars. But that is just a start. Along with DaimlerChrysler and Ford,

we announced in June of last year that America’s three domestic auto companies

will double our production of vehicles capable of running on renewable fuels by

2010. That’s more than two million E–85 and biodiesel-capable vehicles a year by

the end of the decade—the single largest commitment to renewable fuels in our nation’s history. And then, later last year—in a meeting with President Bush—GM,

Ford and Daimler Chrysler announced that America’s domestic auto companies were

prepared to make fully half of our annual vehicle production biofuel capable by

2012, provided there is ample availability and distribution, as part of an overall national energy strategy.

Let me put the significance of these announcements in perspective. If all of the

E–85 capable vehicles on the road today—along with those that GM, Ford, and

DaimlerChrysler have already committed to produce over the next 10 years—were

to run on E–85, we could displace 22 billion gallons of gasoline annually by 2017.

Furthermore, if all manufacturers made the same commitment, we could increase

this displacement of gasoline to 37 billion gallons annually.

So, the potential of biofuels like E–85 to significantly displace petroleum is within

our grasp today. The vehicles are on the road or in the works, but they are not being

fully utilized because of constraints on E–85 supply and distribution.

To help address these constraints, we’re partnering with government, fuel providers, and fuel retailers across the U.S. to help grow the E–85 ethanol fueling station

infrastructure. In 2006, there were 600 E–85 refueling stations, today the number

of stations has more than doubled to over 1200. Since May of 2005, GM has helped

add 240 E–85 fueling stations in 13 states—with more to come. Some highlights include:

• In 2005, GM co-marketed fuel coupons and owner awareness in Sioux Falls,

South Dakota.

• The Department of Energy awarded a grant to a team from GM, CALSTART,

Pacific Ethanol, CleanFUEL USA, Community Environmental Council, and others

to add 15 E–85 pumps in California.

• GM has partnered with Kroger—in Texas and we’ve helped E–85 outlets grow

from 1 to 27 in the past year.

• Through our partnership with Kroger pumps are in operation in Ohio with comarketing events including a dealer breakfast.

• GM is supporting the state of Colorado with the recently announced opening of

40 additional stations including ‘‘85 cent fuel days’’ promotions.
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• We have partnered with Meijer, CleanFuelUSA, the State of Michigan and the

State of Indiana to introduce approximately 40 new retail outlets. • We have similar partnerships in Illinois that launched 20 stations with

VeraSun, Gas City and Shell; and in Minnesota with VeraSun and Erickson Oil accounting for 10 additional stations.

We need to do more of this—and we will.

In addition to our partnerships to enhance availability and distribution, GM is

heavily engaged in the promotion and education sides of developing the ethanol

marketplace. We launched a national advertising campaign in February of 2006—

beginning with an ad during the 2006 Super Bowl hosted in Detroit. The visibility

and viewership presented by the Super Bowl offered a great opportunity for us to

launch a major marketing and advertising campaign that focuses on key energy diversification issues. After the Super Bowl, the campaign continued through the 2006

Winter Olympics. Web traffic to our Livegreengoyellow.com website was in the millions as consumers investigated E–85, GM flex fuel vehicles, and station locations.

In addition, GM has also partnered with the Governors’ Ethanol Coalition to loan

E–85 flex fuel vehicles to 28 states and organizations so that they may use them

to educate the public and promote the benefits of using ethanol. This partnership

has been extended through 2007. We have also provided a $1000 E–85 fuel coupon

available with a new vehicle purchase in the Chicago and Minneapolis areas. And

across the country, flex fuel vehicle owners of vehicles equipped with OnStar need

to simply press the blue OnStar button and get directions to the nearest E–85

pump.

We are also equipping our E–85 capable cars and trucks with yellow fuel caps and

exterior flex fuel badging. This will help consumers know that their vehicle is flex

fuel capable. The yellow cap will also be a regular reminder that these consumers

have a fuel choice each time they fill up their tank.

So, overall, technology, biofuels and energy diversity are the best answers to oil

security concerns. And, as we pursue these technologies—and more energy diversity—there are steps the government can take to help.

• First, we need a strong and sustained push from Congress and the Administration to support biofuel production, including next-generation cellulosic ethanol.

• Second, the biofuels infrastructure should be significantly expanded. The market

response to renewable fuels is encouraging, but it needs to reach a self sustaining

level that is not lessened when gasoline prices fall. Steps to increase the availability

of biofuels should help increase its use. Government should continue incentives for:

the manufacture of biofuel-capable flex fuel vehicles and increased support for

broad-based infrastructure conversion.

• Third, government purchasing should set the example. Government fleets can

help lead the way to bringing new automotive technology to market and bringing

down the cost of new technologies. The government should continue to purchase flex

fuel vehicles, require maximum utilization of E–85 in the government flex fuel fleets

and use Federal fueling to stimulate publicly accessible pumps.

Before concluding, let me note the importance of the Underwriter’s Laboratory

process of certifying the safety of the dispensing equipment for E–85. Certification

of the dispensing systems is critical for widespread development of E–85 infrastructure. Since the use of E–85 here and in other parts of the world is well established

at this point, we are optimistic that this process can be completed quickly. Our technical experts are assisting UL and we know that UL is working hard on this project.

We urge the Committee to stay abreast of this process as well—to make sure that

no artificial hurdles arise to needlessly slow the UL approval process.

In summary, we believe tomorrow’s automobiles must be flexible enough to accommodate many different energy sources. A key part of that flexibility will be enabled

by the continued focus on getting E–85 fuel and vehicles capable of using that fuel

into the market quickly. We look forward to working with the Congress and the Administration to make this even more of a reality.

Mr. BUTTERFIELD. Thank you very much. Mr. Mitchell, you are

recognized for 5 minutes.

STATEMENT OF WARREN I. MITCHELL, CHAIRMAN OF THE

BOARD, CLEAN ENERGY, SEAL BEACH, CA

Mr. MITCHELL. Thank you, Mr. Chairman and honorable members of the Energy and Air Quality Subcommittee. I am Warren
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Mitchell, chairman of Clean Energy, which provides natural gas infrastructure and fuel to fleets and consumers. I am also retired

chairman and president of Southern California Gas Company. I

look forward to amplifying on some of the questions that were

raised during the first panel.

I believe that the 35 billion gallon goal for petroleum reduction

for 2017 is certainly a stretching goal but it is one that I believe

is achievable if we use renewables as well as alternative fuels. Because of declining oil production and our view that production and

demand have hit peaks, at least production at 85 million barrels

a day, and we are consuming worldwide about 85 million barrels

a day. There is a real need to meet this 35 billion goal by 2017.

Primarily because of the growth in China and India for oil demand,

we believe oil prices will continue to increase, which will place

greater pressure on gasoline and diesel prices.

Ethanol and biodiesel, we agree, are good solutions to contributing to the 35 billion goal, but we think that they are capable of

meeting about 18 billion gallons a year reduction by 2017. Therefore we believe alternative fuels need to be included as part of the

solution and we believe that natural gas is especially an important

fuel for that consideration. It is clean, it is domestic, it is economic,

there is a major infrastructure in place and it can make a strong

contribution and I think, with some of the things that I cover in

a few minutes, you will understand that we are not confronted with

the chicken and the egg issue. When I said clean, light-duty vehicles meet near-zero emission standards and heavy-duty vehicles

will meet the 2010 standards this year. They produce 27 percent

fewer of greenhouse gases when compared to gasoline, and 21 percent fewer greenhouse gases when compared to diesel. So they

make a strong contribution to our global warming concerns.

When I mentioned domestic, 98 percent of the natural gas demand in the United States is met by gas produced in North America. Seventy-seven years of resources remain in the United States,

based on current usage and I want to put the utilization of natural

gas for transportation in perspective. If 11 million vehicles were

powered by natural gas, there would only be a 4 percent increase

in our national throughput, but we would displace 8 billion gallons

of imported petroleum.

When I talk about infrastructure, you have a national pipeline

system that reaches nearly every community in the United States.

Now Clean Energy, my company, builds refueling infrastructure for

fleets on a no-capital cost basis to the fleet operator. Because we

have such a competitive fuel advantage, we can absorb the capital

cost in the cost that we charge to the fleet owner. We are confident

about the price of natural gas as we move forward and we offer

fleet operators 3- to 5-year fixed price contracts for their fuel. And

this is a major concern when you have the types of spikes we have

when you look at gasoline and diesel. These infrastructures that we

build for centralized refueling for fleets are also made available for

public access so we can have smaller consumers utilize those as a

place to refuel. Now the real breakthrough that hasn’t been mentioned in the past very much is that there is a home refueling appliance that can be installed in any garage that has a gas piping

system and 110-volt electrical plug to fill it in and it can slow fill
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a vehicle overnight with about 8 or 10 gallons. So the consumer

that wants a natural gas vehicle doesn’t even have to go to a refueling station.

When I talk about economics, we are talking about $1.95 cents

a gallon, currently, for fleet operators, which covers all costs, including fuel. And we are talking about $2.17 equivalent costs for

diesel. If you look at the home refueling unit, it provides natural

gas to the consumer for $1.36 a gasoline gallon equivalent.

Current gas prices are $3.00 for gasoline and $2.95 for diesel. So

what I want to say is we have a proven technology here with ample

supply that can meet the air quality standards. What we need, we

need the Renewable Resource Initiative to be including an alternative fuel component, we need to extend the current energy and

highway bill benefits through 2017, and then natural gas can be

a real player. We also would support incentives for automakers in

the United States to build more natural gas vehicles, although

there are about 180 vehicles in light, medium and heavy-duty applications available today.

Thank you and I look forward to your questions.

[The prepared statement of Mr. Mitchell follows:]

TESTIMONY OF WARREN I. MITCHELL

Good morning Chairman Boucher and Honorable Members of the Subcommittee

on Energy and Air Quality. My name is Warren Mitchell and I currently serve as

the Chairman of Clean Energy - North America’s leading clean transportation fuel

provider. Before I joined Clean Energy’s board, I served as Chairman and President

of the Southern California Gas Company. I want to thank you for having me before

you today to share my thoughts on this very timely national issue.

Clearly, the country is facing an impending transportation fuel crisis, and it is appropriately challenging itself to fill a 35 billion gallon per year renewable fuel goal

by 2017. The country is also coming to the realization that there is no one ‘‘silver

bullet’’ that can solve our country’s over dependence upon oil. More to the point,

many alternatives that the nation has focused on to date can carry a premium, face

significant air quality challenges with uncertain climate change benefits, require

significant subsidies or have yet to even be produced at any substantive scale. This

is why it is imperative that Congress widen its focus on renewable fuels to include

other alternatives that can help promote greater energy independence, advance

clean air and climate change goals, and bridge this country toward both a renewable

and zero emission future.

Although it is often overlooked, downplayed or misunderstood, there is a fuel that

is largely domestic, low in carbon, historically exceeds vehicle emissions standards,

and can be produced from a renewable feedstock. The fuel that I speak of also is

price-competitive with petroleum, enjoys an existing national infrastructure that can

fuel vehicles at stations or in the convenience of your own home, provides a bridge

to a hydrogen future, and currently fuels cars, school and transit buses, refuse and

port trucks by the thousands; displacing hundreds of millions of gallons of petroleum today. What is this miracle fuel you ask? It’s natural gas, and yes, it’s the

same fuel that powers the range that you cook with, your water heater, and possibly

generates electricity for your local utility.

Today, Clean Energy fuels over fourteen thousand vehicles daily with clean, affordable, and domestically produced natural gas. Our company, with an annual

growth rate of 28 percent over the past three years, operates over 170 fueling stations nationwide, and is on track to sell approximately 82 million gallons of natural

gas in 2007. Unlike some fuels, natural gas can provide our nation with an immediate solution to foreign oil dependency, mounting urban air pollution challenges,

and global climate change, while providing a direct bridge to a hydrogen future.

Natural gas is in many ways an ideal transportation fuel solution and will remain

so well into the future.
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GLOBAL OIL SUPPLY

Clean Energy is no longer alone in the camp that believes that high oil prices are

here to stay. The world recognizes that it is looking straight into a looming supplydemand problem. Oil is a finite and dwindling resource and the world’s demand for

it keeps on growing. There is no question that the world will continue to face stubbornly climbing oil prices for the long term.

Let’s take a look at the facts. In the Arab embargo back in the 1970s, we were

importing approximately 25 percent of our oil. In the first Gulf War, we were importing 42 percent of our oil. Today we are importing 64 percent and we can only

expect to be worse off if we fail to diversify our transportation fuels in the near

term. We’ve been pumping oil out of the ground since 1859. The last time a world

class oil field was found was in the Caspian Sea in the late 1990s. The easy oil has

been found. There are no surprises out there. We’ve either peaked as far as oil production goes, or it’s right around the corner.

Demand is growing globally. China used 3.4 million barrels of oil per day a decade

ago. Today they are currently over 6.7 million barrels per day. There are forecasts

showing them using 11 million barrels per day a decade from now. Wait until they

really start buying automobiles. We are using more than 30 billion barrels of oil a

year worldwide. The last time we found as much oil in a year as we consumed was

1985. Production worldwide remains steady at 84-85 million barrels a day. Current

demand is about 85 million barrels a day and demand projections for 2008 are easily

north of that given China and India’s increasing demand.

The treadmill is getting faster and faster. The decline curve for oil production is

steady. Saudis say they can produce 10.8 million barrels per day, but they’re only

producing 8.6 million barrels per day. We all heard talk three years ago of Iraq production reaching 3 million barrels per day. They are producing roughly 2 million

barrels. To make matters worse, we’ve also got some serious geopolitical problems:

Iran, Venezuela, Nigeria, and Russia. They are all wild cards.

ALTERNATIVES TO OIL

We, as a nation, must look at all solutions and we need to get serious about fuel

diversity now. We all have known that an oil shortage was coming. Even assuming

optimistic new production sources coming on line, balanced with estimated production decline curves, the demand-production gap could be as high as 30 million barrels per day in 2020. Clean Energy agrees with many energy experts that there is

no one ‘‘silver bullet’’ alternative that can solve our petroleum dependence. All renewable and alternative fuels must be encouraged because farm fuels, i.e., ethanol

and biodiesel, cannot by themselves achieve the petroleum displacement goals that

Congress and the President are considering today. Assuming that ethanol and biodiesel achieve their greatest forecasted production targets, they would fall 18 billion

gallons short of a 35 billion gallon a year displacement goal for 2017. Even with

a five year extension to 2022, it is unlikely that these fuels alone will reach Congressional targets. Therefore, we urge the Committee to expand the ‘‘Renewable’’

Fuel Standard to an ‘‘Alternative’’ Fuel Standard, and allow natural gas to play a

significant role in displacing petroleum in the transportation market.

NATURAL GAS IS DOMESTIC, ABUNDANT AND RENEWABLE

Natural gas is a domestic source of transportation fuel with an estimated 77 years

of additional supply or 30 years extra supply over oil. Over 98 percent of our current

use of natural gas is produced in North America, which helps protect us from unstable geopolitical situations and helps our energy independence by not importing as

much foreign oil. Over time, we believe natural gas will be moved out of the power

generation business by coal, nuclear, and other renewables, further increasing the

availability of domestic natural gas supplies for our country’s transportation needs.

Regardless, natural gas use in the transportation sector would have a negligible impact on supply. To put this into perspective, if we powered 11,000,000 light-duty vehicles or 5 percent of the U.S. light-duty fleet with natural gas today, it would only

account for 4 percent of the country’s current natural gas fuel usage. Further, with

the advancements in pyrolysis to convert coal and biomass to methane, an already

abundant national supply of natural gas could be augmented by a source capable

of providing extraordinary climate change benefits.

NATURAL GAS IS CLEAN

Natural gas burns clean and efficiently. Natural gas vehicles meet near-zero emission levels for passenger car applications and already meet or exceed 2007 heavy-
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duty emission standards with some truck engines targeted to certify to the 2010

standard as early as this year. Not only is natural gas inherently cleaner than gasoline or diesel, it also provides a readily available low carbon alternative that can

be implemented today. In fact, a recent California Energy Commission ‘‘well to

wheels’’ analysis found that natural gas provides roughly a 27 percent reduction in

greenhouse gases for light-duty vehicles and up to a 21 percent reduction for

medium- to heavy-duty vehicles when compared to their petroleum counterparts.

NATURAL GAS IS ECONOMIC

Natural gas is economic. The price for natural gas as a transportation fuel is very

competitive with today’s gasoline or diesel fuels. In fact, natural gas was very competitive with oil at $30 a barrel, let alone at the market’s current price of $64 a

barrel. Clean Energy views natural gas as a commodity tracking at a discount to

oil, especially when compared to diesel. For example, if you assume a natural gas

price at $7.61 per thousand cubic feet and $1.01 to cover transport, compression,

taxes, and capital recovery costs, you can achieve a very competitive $1.96 gasoline

gallon equivalent or a $2.17 diesel gallon equivalent. As of Thursday, national gasoline averages ranged from $2.99 to $3.29 per gallon and diesel averaged at $2.92

per gallon.

Historically, the overall market has suffered over a dozen global oil supply disruptions over the past half century lasting 1 to 44 months in duration with supply

shortfalls of one to 14 percent of world demand, adding to the volatility of oil prices.

Despite the reality of volatile oil prices and unlike any energy provider we know,

our company is able to guarantee a fixed price per gallon of natural gas to our fleet

customers below today’s gasoline and diesel prices for up to five years on a energy

equivalent gallon basis.

In addition to the comparatively low cost of natural gas as a transportation fuel,

Congress took an important step in passing the energy and highway bills two years

ago. As the cost of uncertain diesel technology increases in an effort to meet new

federal clean air emission standards, the 2005 energy bill provides up to a $32,000

tax credit for medium and heavy-duty trucks that can serve our refuse, transit, and

goods movement industry sectors. This tax credit is helping to narrow the incremental cost differential between diesel and natural gas vehicles. When fuel price and

operational maintenance savings are factored in, natural gas vehicles become even

more cost-effective than their diesel counterparts. Because some of the incentives

put in place are going to take awhile to have a real impact, we need Congress to

continue to provide long-range policies that promote alternative fuels in the marketplace through 2017.

NATURAL GAS INFRASTRUCTURE

Perhaps the greatest challenge for any alternative to oil is the ability to distribute

product to the end user. Natural gas, unlike other alternative fuels, enjoys the advantage of possessing a vast nationwide network of existing gas pipelines capable

of delivering natural gas product to nearly every American community. Clean Energy has developed a strategic business model enabling the cost-effective development of a natural gas station network. This revolutionary approach creates a secondary station infrastructure to gasoline and diesel by leveraging private and public-private partnerships to create an extensive network. These turn-key partnerships

enable high-volume fleet users to benefit from privately financed refueling stations

while providing smaller volume users with public access at these stations. Further,

consumers can immediately take advantage of natural gas as a transportation fuel

with the simple installation of a low cost home refueling system that is currently

on the market. Moreover, natural gas stations can provide an early introduction of

hydrogen by using a 10 to 30 percent blend, reducing the immediate need for highcost fuel cells to achieve near-zero air emissions.

NATURAL GAS VEHICLE AVAILABILITY

Natural gas vehicles are currently available, proven, and tested in transit, refuse,

shuttle, taxi, police, airport and municipal fleet applications throughout the United

States. These applications were primarily driven by the clean air benefits inherently

derived from the use of natural gas. However, for years, American and foreign auto

manufacturers have produced an ever increasing selection of natural gas vehicle

products in Europe, Asia and Central and South America—both dedicated and bi

fuel—for natural gas vehicles to address concerns over high oil prices. These OEMproduced vehicles are fully integrated providing consumers the mileage range and

conveniences of gasoline vehicles. Congress should join other world leaders by
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strongly encouraging auto manufacturers through incentives or mandates to produce

a greater range of natural gas vehicles for the American consumer.

NATURAL GAS MARKETS

Like all alternative fuels, natural gas as a transportation fuel satisfies several key

niche markets that can provide significant petroleum displacement. As of December

31, 2006, Clean Energy had over 200 fleet customers operating over 14,000 vehicles,

including 3,000 transit buses, 1,200 taxis, 800 shuttles and 790 refuse trucks. With

the expansion of America’s goods movement system, the San Pedro Bay Ports have

already signaled an interest in purchasing over 5,300 liquefied natural gas class 8

trucks within the next five years, displacing approximately 80 million gallons annually of petroleum alone. If Congress were to require transit, refuse and taxi fleets

to adopt alternative fuels into their portfolios, the benefits could be as great as 4.3

billion gallons displaced annually.

NATURAL GAS BRIDGE TO HYDROGEN

Natural gas is also viewed as a bridge fuel to hydrogen as it continues to be the

most cost-effective way to produce hydrogen and provides invaluable experience and

knowledge to users on how to handle gaseous fuels. In addition, natural gas infrastructure can be leveraged to provide hydrogen as well as blended hydrogen/natural

gas dispersing. In fact, the blending of hydrogen and natural gas, similar to our station in Vancouver, Canada, provides even lower near zero emission performance at

the tailpipe. If the US possessed fully integrated OEM produced natural gas vehicles, these vehicles can operate on natural gas, hydrogen, and blended hydrogen/natural gas fuels.

POLICY RECOMMENDATIONS

Achieving the production goals of 35 billion gallons annually by 2017 and 50 billion gallons per year by 2030 requires the addition of fuels beyond the renewable

portfolio and the inclusion of alternative fuels to this portfolio is critical for the

country’s security and economic and environmental health. Clean Energy urges Congress to transform the Renewable Fuel Standard enacted under the Energy Policy

Act of 2005 into an Alternative Fuel Standard to help avoid a potential 18 billion

gallon production shortfall in 2017. Furthermore, and whenever possible, Congress

should assure the public that all fuels within this portfolio do no harm to air quality

or cause air quality backsliding prior to their implementation. Congress should also

recognize and provide more research, development and deployment dollars toward

biogas projects as pyrolysis and other advancements can certainly further our country’s renewable and climate change goals. Congress should extend the tax credits

for alternative fuels and vehicles established under the Energy Policy Act through

2017 in an effort to provide added certainty to fleet owners who lead in early alternative fuel adoption. Further, we believe federal action requiring key public and private fleets to adopt and implement alternative fuel strategies will help foster the

alternative fuel penetration required to achieve the nation’s alternative fuel goals

for 2017 and beyond.

Natural gas vehicles offer a proven solution in light-, medium-, and heavy-duty

vehicles that are ready for wide-scale implementation today. Our resources of natural gas can play a critical role in diversifying our nation’s transportation fuel needs.

Natural gas is a clean, inexpensive, and a potential renewable fuel that is domestically abundant and helps reduce greenhouse gases. In leveraging natural gas as a

transportation fuel we not only take advantage of existing pipeline infrastructure

but also foster the production of cleaner vehicles for our children’s future. The societal experience of operating a natural gas vehicle is likely the only realistic approach to achieving a hydrogen economy. Clearly, Congress must enact more national policies like the 2005 Energy and Highway bills to help natural gas and other

alternative fuels penetrate the marketplace and be made available to the public.

One thing to do right now would be to extend the tax credits and other benefits to

2017 and require certain niche markets (i.e., transit, refuse, port, and taxi cabs) to

use alternative fuels. Without the firm support of the Congress behind all petroleum

alternatives, our nation’s ability to free itself from its current oil dependence will

most certainly put our nation’s economy, security, and overall public health at risk.

Clean Energy urges the expansion of the current Renewable Fuels Standard toward

a broader Alternative Fuels Standard that includes clean, domestic and affordable

natural gas as a transportation fuel.
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Mr. BUTTERFIELD. Thank you very much. Mr. Reid, 5 minutes.

STATEMENT OF PAUL D. REID, PRESIDENT AND CHIEF EXECUTIVE OFFICER, REID PETROLEUM CORPORATION, LOCKPORT, NY

Mr. REID. Thank you, Mr. Butterfield and members of the subcommittee, for holding this hearing today and inviting me to testify. I serve as the chief executive officer of the Reid Group based

in Lockport, New York. The Reid Group distributes Mobil, Sunoco,

Citgo, Coastal and unbranded motor fuels throughout upstate New

York and northwest Pennsylvania.

I appear today on behalf of the Society of Independent Gasoline

Marketers of America, SIGMA, where I serve as president, and the

National Association of Convenience Stores, NACS, of which I am

a member. Together, SIGMA and NACS members sell approximately 80 percent of all motor fuels in the United States.

At the outset, I would like to correct the record concerning some

statements made regarding the composition of the retail motor fuel

market during the subcommittee’s hearing on April 18, 2007. A

witness at that hearing mentioned that only 18 to 20 percent of the

retail motor fuel locations are independently owned and operated.

In fact, the composition of the retail marketplace is much more diverse than this. Of the more than 165,000 motor fuel retail locations in the Nation, 95 percent are operated by independent businesses. Therefore, as the Nation transitions toward the sale of

more renewable fuels, independently-owned businesses will be

leading the charge.

Congress should be pleased that the market is proceeding to offer

renewable fuels ahead of the federally-mandated schedule. There is

no reason to believe that this will not continue in the absence of

increased mandate. SIGMA and NACS do not oppose the transition

to a renewable fuel economy, however, we urge Congress, in its decisions, to be fully cognizant of the economic and consumer consequences associated with continuing mandates on the motor fuel

business.

To this end we recommend Congress: (1) make any increased

mandate contingent upon a finding that there is enough supply and

sufficient infrastructure to deliver this product; (2) that any Federal promotion of an alternative fuel focused on compatibility with

existing infrastructure; and (3) that Federal policies represent the

best interests of your constituents’ economic welfare.

To illustrate the complexities associated with non-compatible alternative fuels, let me talk for a moment about the challenges our

industry is having with E–85. Although alternative fuel proposals

under consideration may present even more complex compatibility

issues, but we think the E–85 experience serves as a good benchmark. Because E–85 is more corrosive than regular gasoline or fuel

for the lower concentrations of ethanol such as E–10, it requires vehicles and equipment that are compatible with the fuel. The least

expensive approach to sell E–85 is the retrofit of a pump system

that are already has the compatible tank. Many older tanks are not

compatible. This requires replacement of several components. For

all of these conversions, including tank cleaning, I estimate the cost
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to be between $8,000 and $9,000. And again, this is still using the

same pump or dispenser.

To convert with a new dispenser specially manufactured to sell

E–85, I would be facing an expense of something in the range of

$20,000 to $25,000. Of course, that is a bargain compared to the

installation of an entirely new system for E–85, with a new tank,

for which I was recently quoted a price of $75,000. Other members

have quoted much higher prices. As Mr. Hastert pointed out earlier, currently there are no systems that have UL approval, although we expect that in fairly near future.

Also please keep in mind that the annual pretax operating profit for a convenience store in 2006 was a mere $33,000. The infrastructure cost to install alternative fuel systems, therefore, are so substantial that, ultimately, consumers will pay the price. And price

is another very important factor for this committee to consider, as

few other issues attract as much attention from consumers, the

media and Congress as does the price of gasoline.

NACS recently fielded a survey to assess consumer sensitivity to

gasoline prices. This survey found that more than one-quarter of

consumers will turn left across a busy intersection to save one

penny per gallon, and half of consumers will do so for three pennies

per gallon. What the NACS survey further revealed, however, is

that while consumers want to promote a green economy, when they

go to fuel their vehicles, the only green that truly matters is either

the green in their wallets on their charge cards. Because more and

more consumers are using their credit cards to buy gas, our marketing costs are rising dramatically; but we can leave credit card

discussions for another day.

In closing, as Congress considers policies to accelerate the market’s transition, SIGMA and NACS urge you to keep in mind the

nature of the retail marketplace and to remember the economic interests of your constituents. Government mandates are often antithetical to a free motor fuels marketplace and will typically wind

up harming consumers in the short run and beyond. Thank you for

the invitation to testify. I will be happy to answer any questions

my testimony may have raised.

[The prepared statement of Mr. Reid follows:]
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Mr. BUTTERFIELD. Thank you, Mr. Reid. Mr. Greco, I believe it

is your turn for 5 minutes.

Mr. GRECO. Thank you, Mr. Butterfield.

Mr. BUTTERFIELD. Mr. Greco.

STATEMENT OF ROBERT GRECO, GROUP DIRECTOR, DOWNSTREAM AND INDUSTRY OPERATIONS, AMERICAN PETROLEUM INSTITUTEWASHINGTON, DC

Mr. GRECO. Mr. Butterfield and members of the subcommittee,

API welcomes this opportunity to present the views of the U.S. oil

and natural industry on renewable fuels. We have also welcomed

working with both the subcommittee and the full committee on

global climate change. As research on the policy debate continue,

our member companies have taken action now to reduce greenhouse gas emissions and are investing and developing technologies

that will reduce them further in the future. API supports voluntary

technology-based approaches that have produced substantial

progress toward reducing emissions.

Concerning renewable fuels, API supports a realistic and workable RFS. Our industry is the Nation’s largest user of ethanol and

is increasing the volume of renewable fuel in America’s transportation fuel mix. The industry significantly exceeded the 2006 RFS

requirement of four billion gallons of renewables and according to

EIA estimates, should exceed the 2007 requirement as well. The

existing RFS requirement have attracted substantial and significant investment capital to increase ethanol production. At the same

time, innovative new approaches to producing and utilizing biofuels

for transportation are underway.

The most economical and practical use of ethanol is as E–10, a

10 percent blend in gasoline. E–10 is already used in many parts

of the country. It requires no modification to vehicles, no major

changes to service station pumps and storage tanks, and has a long

history of successful use by consumers. E–85, which contains 85

percent ethanol and 15 percent gasoline, is an alternative fuel that

faces significant technological and economic hurdles. E–85 requires

specially built flexible fuel vehicles, or FFVs, which currently comprise only 3 percent of the existing fleet of 220 million vehicles.

EIA estimates that FFV penetration will not rise about 10 percent

of the entire vehicle fleet until sometime after 2030. E–85 also requires special service station pumps and storage tanks, as Paul

mentioned, which represent a significant expenditure for our Nation’s independent service station dealers that can range from

$20,000 to as high $200,000.

These small businessmen and women are in the best position to

evaluate consumer demand for E–85 at their service stations. Currently there are over 1,200 retail outlets nationwide, located principally in the Midwest, that are equipped to distribute E–85. The

number appears to be growing rapidly on its own, as we heard this

morning, absent any government mandate. Contrary to the false

claim by some industry critics, oil companies are not preventing the

installation and use of E–85 pumps and storage tanks.

Although no one knows the precise amount, at some point in the

not too distant future, limits on domestic corn ethanol production

will be reached. Too little attention is being paid to the transition
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from that point forward, especially on impacts associated with a

delay in mass-scale production of cellulosic ethanol. Given the limited likelihood that cellulosic technologies can begin producing sizeable volumes of ethanol in 5 years, contingency provisions will likely be needed to avoid the potential for wasted resources and increased costs.

API offers these specific comments concerning possible renewable

fuels by—first, restrictions on Federal requirements in the Energy

Policy Act of 2005, or EPAct, should continue. A Federal alternative or renewable fuels mandate should not have a per gallon requirement, it should not require any particular alternative fuel to

be used to meet that mandate, it should not require an alternative

fuel to be used in any particular geographic area, and should not

require an alternative fuel be made from a particular feedstock or

restrict the us of any feedstock or processing speed.

Second, States and localities should be preempted from setting

alternative or renewable fuels mandates. There should be an explicit and complete Federal preemption of States from setting alternative fuel standards or controls of any type. Or in lieu of an explicit preemption, restrictions on State latitudes could be enacted.

Third, EPA should be provided the additional authority to grant

temporary waivers during supply emergencies. There should be

Federal preemption of existing State fuel and ASTM performance

regulations when a waiver is issued during a supply emergency,

such has happened during the Hurricanes Katrina and Rita. There

should be emergency waiver of authority for up to 90 days. The 20-

day limit for waives provided in EPAct is adequate for most situations, but proved inadequate during Hurricanes Katrina and Rita.

Waiver authority should also remain with the EPA Administrator.

To change authority to the President would prevent speedy implementation of waivers, as was intended under EPAct.

Lastly, any mandates for increased alternative ore renewable

fuel usage should get accompanied by periodic technology and feasibility reviews that would allow for appropriate adjustments to ensure that energy companies and consumers are not penalized if economic and technical hurdles prevent us from reaching alternative

or biofuels usage targets.

In conclusion, API and its member companies stand ready to

work with the subcommittee to provide additional information or

assistance on the issues I have addressed. Thank you and I look

forward to your questions.

[The prepared statement of Mr. Greco follows:]
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Mr. BUTTERFIELD. Thank you very much. I am going to expedite

this. We have three votes coming up in a few minutes. Mr. Drevna.

STATEMENT OF CHARLES T. DREVNA, EXECUTIVE VICE PRESIDENT, NATIONAL PETROCHEMICAL AND REFINERS ASSOCIATION, WASHINGTON, DC

Mr. DREVNA. Congressman Butterfield and members of the committee, thank you for the opportunity to testify. I am Charlie

Drevna, executive vice president of NPRA.

NPRA believes it imperative that Congress and the administration and all stakeholders work in a determined but nevertheless cooperative effort to develop policy that achieves the desired results

of a balanced fuel supply and demand ratio that enforces necessary

environmental protections. At the same time, these policies must

ensure the continued economic growth and security of the country.

These goals are not and cannot be deemed mutually exclusive.

NPRA therefore pledges to do our part in developing a full understanding of all factors surrounding these issues.

If members of this committee are experiencing some sense of deja

vu, it would be understandable. Only two summers ago the Energy

Policy Act of 2005 was signed into law. The Renewable Fuel Standard in that law won’t even begin implementation until September

2007—weeks ago. But it is still too early to evaluate the 2005 law.

That policy was years in the making and was consensus-based.

While we have surpassed initial legislative targets for renewable

fuels use, that is not bad news. It simply means that the market

has worked. It shouldn’t be used as a basis for readjust fuel policy

even before final implementation.

Now we are confronted with new initiatives to expand renewable

fuel substantially. While a diverse fuel mix may enhance security,

the energy content of ethanol, one-third less that than conventional

fuels it replaces, greatly reduces ethanol’s impact on foreign dependency. Our experience with the fuel market tells us that 6 billion gallons of ethanol is both necessary and complimentary to fuel

supply. Mandates, and I stress the word mandates, beyond that

level become problematic.

While it is no secret that my industry, and especially my association, has a history of proposing fuel mandates. We would ask that

further changes to policy be limited by a form of the Hippocratic

oath: first do no harm. Mandates for alternative fuels do not exist

in a vacuum. The time and expense dedicated to implementing new

mandates directly competes with the ability of our industry to

make investments in refinery expansions. The industry has responded by adding capacity to existing refineries. In fact, we have

added the equivalent of one new world-class refinery each of the

past years, each of the years for past decade. However, additional

mandates may suppress such expansion significantly.

While NPRA supports research into a broad array of renewable

inputs, the foreseeable future for alternative fuel seems to be dominated by traditional starch-based ethanol, especially by corn and

corn has a significant head start over its competitors. Even if corn

only meets half of the President’s 35 billion target, that would require dedication of about 40 percent of the crop to fuel. We wonder

whether trading some increased fuel diversity for a fuel supply de-
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pendent upon good weather and reasonable fuel prices really

makes sense.

And of course, even as the U.S. gets the production economics

just right, there is still a question of distributing fuel to market.

Ethanol distribution is bedeviled by problems in using our existing

infrastructure pipelines that provide a cost-effective mechanism to

get fuel to market. Talk of a virtual pipeline system really means

no pipeline system at all. Further, even assuming perfect distribution to the market, the current vehicle base is not equipped to handle the type of volume that is being discussed. In order to consume

the 35 billion gallons, we would need rapid replacement of some

237 million vehicles currently on our roads that are not flex-fuel

vehicles.

There are additional infrastructure constraints and time—I want

to move on here so we will probably have some questions on those.

But NPRA would leave the committee with one request. If Congress does proceed with mandates beyond those contemplated in

the 2005 Act, let us make sure we have one fair Federal policy and

not a patchwork quilt of State and Federal mandates. As it did in

the Clean Air Act Fuels Program, Congress should preempt State

efforts that interfere with the cost-effective distribution of clean

fuels.

In short, the refining industry is the conduit through which alternative fuels may get to market. The industry is working hard

to meet the 2005 program and so far, it has so far met with success. But we would ask that you not use that success as the basis

for massive expansions and mandates. We ask instead that policymakers tread carefully, realizing that good fuels policy must balance supply, price, infrastructure and yes, even food concerns.

While we realize that is a tall order, the American consumer deserves no less. Thank you and I will be happy to answer any questions that you may have.

[The prepared statement of Mr. Drevna follows:]
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Mr. BUTTERFIELD. Dr. Lashof.

STATEMENT OF DANIEL A. LASHOF, CLIMATE CENTER

SCIENCE DIRECTOR, NATURAL RESOURCES DEFENSE COUNCIL, WASHINGTON, DC

Mr. LASHOF. Thank you very much, I am Daniel Lashof. I am the

science director of the Climate Center at the Natural Resources Defense Council. I appreciate the opportunity to share my views with

the committee.

As you know, U.S. energy policy must address three major challenges. We have to reduce our dependence on foreign oil, we have

to reduce global warming and we have to support a robust economy

through our policies. I believe that biofuels has the potential to

contribute substantially to all three of those goals, but we have to

do it right in order to achieve those goals. Sustainably produced

biofuels used in efficient vehicles will reduce global warming pollution and it will reduce our oil dependence and will enhance our

rural economies. But there is danger, a severe danger, in our view,

to our forests, our public lands, our ecosystems, if we pursue

biofuels on a large scale without appropriate guidelines and I want

to share some views about the guidelines that I think are needed.

And in summarizing my testimony, I would like to make four

points and I think have about a minute for each.

First, any expansion of the Renewable Fuel Standard should incorporate explicit environmental performance standards. There is a

lot of justifiable excitement about cellulosic ethanol, but it is very

important to recognize that the choice of feedstock is just one factor

that goes into the overall environmental impact of a particular

biofuel production process. If you look at my exhibit in my testimony, or the A chart that is also in my testimony, you can see a

variety of greenhouse gas impacts for different fuels. It is possible

to use corn as a feedstock and with efficient processing and biomasses to energy source, achieve substantial greenhouse gas benefits from a corn-based system. Conversely, although normally we

think of cellulosic ethanol as preferable, if you clear a mature forest in order to get the cellulose that you put into ethanol, you put

so much CO2 in the atmosphere, it would take many, many decades

to get that back for the benefits of the fuel. So it is possible to do

corn right and it is possible to do cellulosic ethanol wrong. So if you

want to have greenhouse benefits for biofuels, you need to explicitly

incorporate into the program a requirement to achieve those benefits. That is a way to get that. And a low carbon fuel standard that

Mr. Inslee talked about earlier, in our view is the best way to do

that.

Second, turning to the administration’s proposal, as Mr. Markey

brought up earlier, there is a real risk that that proposal could increase rather than decrease global warming emissions. The administration cites it as contributing to reductions in global warming

emissions, but nothing in their policy actually guarantees that result and that is because they open the door to alternative fuels that

could have much higher greenhouse gas emissions than conventional fuel. They also claim some benefits from improving vehicle

fuel economy standards, but again, their proposal there doesn’t actually require an increase. It provides for—which they have al-
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ready, but doesn’t require an increase. In fact, I calculated that if

half the alternative fuel mandate proposed by the administration

was satisfied with coal-derived liquid fuel, which were produced

without CCFs, without carbon capture, the CO2 emissions would be

175 million tons higher than the emissions targeted by the administration. And to offset that, if you were to offset that by higher

fuel economy standards, you would have to raise fuel economy

standards by more than 8 percent per year rather than the 4 percent per year suggested by the administration.

Third, my third point is that electricity for plug-in hybrid vehicles is the best way to use coal as a substitute for gasoline. I believe there is even better alternatives than coal, but if coal is to be

used, plug-in hybrid vehicles can displace twice as much gasoline

per ton of coal used and produce one-tenth the greenhouse gas

emissions per mile as using that same coal to produce liquid fuels.

So I believe that we ought to start with where we could use coal,

if we are going to use it, to have the natural benefits and that is

in the production of electricity at plants that capture carbon dioxide and put it under ground.

Fourth and my final point is that EPA should be directed to protect air quality as it implements any expansion of the Renewable

Fuel Standard. As we heard in previous testimony from Mr. Meyers, when you put ethanol in a vehicle, some emissions go up and

some go down. There is no reason to allow a trade-off here. EPA

should be directed with a very clear, very simple no backsliding

rule that when alternative fuels are used in a vehicle, emissions

that contribute to air quality degradation should not increase compared with conventional fuel.

So in summary, Mr. Chairman, I do believe that biofuels hold

great promise as a tool for reducing global warming pollution,

breaking our dangerous addiction to oil and revitalizing rural

economies, as long as appropriate standards and incentives are

used to shape the Nation’s bioenergy industry. Thank you very

much.

[The prepared statement of Mr. Lashof follows:]
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Mr. BUTTERFIELD. All right, Mr. Dinneen.

STATEMENT OF BOB DINNEEN, PRESIDENT, RENEWABLE

FUELS ASSOCIATION, WASHINGTON, DC

Mr. DINNEEN. Thank you, Mr. Chairman. Please, you will have

to excuse me. I am having a serious deja vu experience here today,

because I can remember not too long ago when I was testifying before this very committee with some of the same organizations testifying along side me that were very concerned about the 3 billion

gallon Renewable Fuel Standard that this committee was at that

time considering, and they were testifying with great passion about

how much that was going to disrupt the marketplace and how the

ethanol industry certainly couldn’t produce that much ethanol and

even if they could they wouldn’t be able to distribute it across the

country and what a disaster it was going to be for our Nation’s gasoline infrastructure.

Well, Mr. Chairman and members of the committee, we are now

a few years later. This committee wisely put in place the Renewable Fuel Standard that imposed a 71⁄2 billion gallon RFS by 2012,

and as the testimony you have already heard today suggests, we

have not only met it, we have exceeded it. Given the market signal

that the Renewable Fuel Standard is providing, our industry began

a rapid expansion. Wall Street recognized that this was a place to

put their investment dollars. The refining community recognized

that ethanol was a part of their future and I frankly give them

great credit for working with our industry to build the infrastructure, to make the transition to an RFS such a success as it has

been. But look at what you have today. We now have 116 ethanol

plants in operation all across the country. Ethanol is blended in 46

percent of our Nation’s fuel. But we are not done yet. There are no

less than 81 ethanol plants that are under construction all across

the country, in areas far outside of the typical Midwest grain belt.

We have got plants under construction today in California, in Arizona, Mr. Shadegg, in Florida, in Georgia. There are actually more

plants under construction today in Texas than in Illinois. The industry is growing and growing rapidly and it is providing tremendous benefits and it is revitalizing rural communities all across this

country. That is what this Congress foresaw; that is the reality

that the RFS has been.

The industry is evolving, it is changing as it grows. As new capital comes into the industry, new intellectual capital is coming into

the industry as well, looking at new ideas and new feedstocks and

new technologies. There is not an ethanol company that I represent

that does not have a cellulose-to-ethanol research program underway today. Why? Because they already have cellulose coming into

the facility and they recognize that that is going to be a significant

part of the future, not as a replacement to grain, but certainly as

an additional component of what we are able to get from our abundant agricultural and waste products across this country.

Recently the Department of Energy, under grant program that

the Energy Policy Act of 2005 provided, gave six different grants

to six different companies in six different parts of the country,

using six different technologies on cellulose. It ranges from processing ethanol from municipal solid waste with acid hydrolysis to
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processing ethanol from woody biomass using gasification to processing ethanol from corn stover and other waste off the corn field

using intermatic conversion. Cellulosic ethanol production is far

closer to a reality than conventional wisdom believes and it is going

to happen soon. And that is a good thing, because our industry is

going to continue to grow and we need to be able to look to other

resources beyond just grain.

As the industry grows, as our production base expands, the marketplace is also evolving. You now see ethanol largely being sold as

a blend component in gasoline, but thanks to the leadership of U.S.

automakers like General Motors and Ford, that have made a very

real commitment to flexible fuel technology that will allow ethanol

to be used as E–85 all across the country, we see an opportunity

to grow beyond a blend market and to grow into those E–85 markets. The oil industry has certainly wrapped themselves around

ethanol as a blend component in gasoline and I give them great

credit for that. They continue to resist ethanol as a replacement

fuel in E–85 and I guess if they did anything else, I would be somewhat confused. But that is the reality. That is where we need to

be moving if we are indeed going to address our energy and environmental issues with the intensity and the focus that I believe

this country and this Congress wants us to do. The oil industry will

continue to oppose that, but that is a dog fight farmer story. I am

intent on working with this committee to make sure that we move

beyond that and we get to a future that is far more sustainable.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Dinneen follows:]
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Mr. BUTTERFIELD. Thank you very much. Well, all the time has

expired for the testimonies. We are going to start the questioning.

The problem is we have three votes on the House floor at this moment. It looks about 10 minutes and 15 seconds remaining for us

to get to the House floor. That means that we will reconvene in

about 30 to 45 minutes. That would be 10 minutes after the last

vote. At this time, the committee is in recess.

[Recess]

Mr. BUTTERFIELD. I thank all of you for your patience. We are

now ready to resume the committee hearing. At this time it is my

pleasure to recognize the distinguished chairman of the committee,

the gentleman from Michigan, for questions.

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy.

Gentlemen of the panel, these questions will be asked so that you

can answer yes or no because of the great limitation on time. First

question, Ms. Lowery, if you please, approximately how many vehicles are already on the road today capable of operating on alternative fuels such as E–85?

Ms. LOWERY. It is more than 6 million on the road today, 2 million from General Motors.

Mr. DINGELL. Now in June, Ms. Lowery, General Motors announced and Ford announced and the Chrysler group announced

that they would double their production of vehicles capable of operating on renewable fuels by 2010 and have committed to making

half of all vehicles production biofuel-capable by 2012, is that correct?

Ms. LOWERY. Yes, it is.

Mr. DINGELL. Now, Mr. Greco, if you please, is it not true that

E–85 accounted for only 1 percent of the alternative fuel consumption in the United States in 2004?

Mr. GRECO. I don’t know the number.

Mr. DINGELL. You don’t know the number?

Mr. GRECO. No.

Mr. DINGELL. Would I be incorrect if I said 1 percent?

Mr. GRECO. Or less, maybe. I don’t know.

Mr. DINGELL. OK. Now, the Congressional Research Service so

advised us and the committee. Mr. Greco, another question. Is it

not true that out of 165,000 retail outlets selling motor fuels to consumers, there are only approximately 1,000 which offer E–85 to

consumers?

Mr. GRECO. DOE mentioned 1,200 this morning, I guess about a

70 percent increase.

Mr. DINGELL. All right.

Mr. GRECO. About 1,200 this morning that DOE mentioned, yes.

Mr. DINGELL. OK.

Mr. GRECO. About 1,200.

Mr. DINGELL. Twelve hundred. I will deal with the correction.

And out of these 1,000 or 1,200 stations, approximately 100 of

these stations are branded by a company generally recognized as

one of your members, so I would suspect that out of this number,

only 10 percent of those affiliated with your member companies are

included in the numbers, is that a correct statement?

Mr. GRECO. I don’t know. I am not sure which brands are involved or what the market arrangements are for those companies.
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Mr. DINGELL. Now, I will insert in the record a list of stations

available in the United States and I ask unanimous consent, Mr.

Chairman, that that be done.

Mr. Greco, have your association or your member companies

made a commitment comparable to that of Ford, GM or Chrysler,

to facilitate the installation of E–85 pumps?

Mr. GRECO. We have made a commitment to use ethanol in gasoline to a maximum extent, as by law and that is what we are focused on.

Mr. DINGELL. So you are telling me you have not made a commitment of that kind?

Mr. GRECO. Our focus is on using E–10 in every gallon of gasoline that can be used by every vehicle on the road today. That is

the focus of the membership.

Mr. DINGELL. I guess you are telling me your answer then, sir,

is no. Now, Mr. Drevna, if you please, has your association or your

member companies made a comparable commitment to facilitate

the installation of E–85 pumps?

Mr. DREVNA. No, sir, we haven’t made any commitment like that,

but I will stand by the same response of Mr. Greco. We look at the

market and what the market demands these days and——

Mr. DINGELL. So the answer is?

Mr. DREVNA. The answer would be no, sir.

Mr. DINGELL. The answer is no. Now, Mr. Greco and Mr. Drevna,

in the interest of solving the problem here which we have of the

chicken and the egg, for once and all, if the Congress mandated

that automakers produce flex-fuel vehicles, would you or your organizations support a corresponding mandate, accompanied by corporate financial support for small, independent retail outlets, to install E–85 pumps so that consumers can buy and use this alternative to petroleum? Would you please, first, Mr. Greco.

Mr. GRECO. No, our members are focused on E–10 and when the

consumer wants E–85, the demand will drive the availability of

that.

Mr. DINGELL. So the answer is you would not make that commitment.

Mr. GRECO. No.

Mr. DINGELL. Mr. Drevna, what do you have to say about this

matter?

Mr. DREVNA. Basically the same, Mr. Chairman.

Mr. DINGELL. Thank you. So you are telling us that your organization would not make that commitment, either. Gentlemen, thank

you, and Mr. Chairman, for your courtesy, thank you.

Mr. BUTTERFIELD. All right, thank you, Mr. Chairman. At this

time, the gentleman from Oklahoma is recognized for 5 minutes.

Mr. SULLIVAN. Thank you, Mr. Chairman. Mr. Dinneen, my understanding is that the current Federal tax incentives for ethanol

fuels is provided to the producer of the gasoline, which includes

some big oil companies. Can you explain how, if the tax incentive

is provided to the producer of the gasoline, this incentive program

has helped corn farmers and ethanol producers?

Mr. DINNEEN. We find that the gasoline marketers of blended

ethanol are indeed given a tax incentive to allow them to pay more

for the ethanol that they are buying. Now, how much of the tax in-
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centives filters down to the producer is a discussion that the ethanol producer would have with their refiner or gasoline marketer or

customer.

Mr. SULLIVAN. OK. And Mr. Drevna, you suggest in your statement that substantially expanded the renewable fuels mandate

could suppress refining expansion. Could you elaborate on that

statement? Could the U.S. end up becoming a net exporter of gasoline if all of these proposals were to take effect?

Mr. DREVNA. I am glad you asked that question, Mr. Sullivan,

because, first of all, any mandate, an increase of a mandate over

today’s EPAct 2005 volumes, it wouldn’t actually give pause to refinery executives as to whether they should continue with capacity

expansions. If we could talk for a moment, sir, about what the

world would look like in 2017. And again, there has been a lot of

ifs here. If cellulosic comes into play, if all of these other technologies come into play and we are required, as an industry, to reduce gasoline consumption 20 percent below projected 2017 levels,

that equates to a figure that is below gasoline production today. So

it would make little or no economic sense for refineries to expand.

Now, in the same thing and a good thing I would suggest is that

diesel demand continues to rise, which means the economy is chugging along fairly well. To illustrate, we can do a lot of things in the

refinery business, but it is very difficult for us to make diesel without making gasoline. So what will happen in 2017, again, assuming

all of these things, all of these ifs come into play, and those are

big ifs, sir, the first thing we would do is we back out all imports

of gasoline, because the United States would end up being a net

exporter of gasoline. Now, I asked if that is the public policy we

are attempting to achieve here, if we are producing domestic gasoline that we can’t use here because we would be saddled with a 20

percent reduction figure. And then in the case of weather disasters

such as we witnessed 2 years ago with Katrina and Rita, what

saved the supply in this country was the imports. Baking out imports and having the U.S. be a net exporter of gasoline, again, I

think those are questions that have to be looked at, the long-term

impacts, the unintended consequences of these massive mandates.

Mr. SULLIVAN. Thank you, sir. And Mr. Reid, is it true that oil

companies are blocking wider use of E–85 by forbidding gas station

owners to put in pumps? Are there any current legal impediments

that prevent them from doing so?

Mr. REID. To the best of my knowledge, there is no blocking or

preventing. There are legal impediments, in the sense that the retailers who are selling a branded motor fuel are required to identify their pumps with the trade name, trade address of their brand

supplier. So if they are offering a product for sale at the outlet that

is not supplied by their franchise contract supplier, they are obligated to protect the intellectual property rights of their supplier

and ensure that the—let us just use as an example an E–85

pump—to make sure the consumer understands that the product

they are selling is not a branded product of their supplier refiner

company.

Mr. SULLIVAN. Thank you, sir. And Mr. Mitchell, how does the

fuel costs of natural gas compare to the price of gasoline or diesel

fuel?
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Mr. MITCHELL. Well, currently, using $7.61 for the price of natural gas and adding the amount to compress the fuel, transport it,

collect margin and capital recovery, it is about $1.95. The average

gasoline price as of last week ran between about $3.00 and $3.20

cents, depending on whether it was standard or super leaded fuel,

or unleaded. And with diesel, diesel is about $2.95 and because of

the BTU conversion, a natural gas equivalent gallon would be

about $2.17. I also mentioned that, through the home refueling device, since there is no capital recovery component for the homeowner, or essentially none, there is no margin. Then they would receive the natural gas at a gasoline gallon equivalent of about $1.35,

because that would be a home refueling unit installed in their garage.

Mr. SULLIVAN. Thank you, Mr. Mitchell, and thank you panelists.

I yield back.

Mr. BUTTERFIELD. Thank you. The gentleman yields back. At this

time, the chair recognizes the gentleman from Georgia, Mr. Barrow.

Mr. BARROW. Thank you, Mr. Chairman. I want to follow up on

Representative Sullivan’s questions just for a second. These questions might be most directed to you, Mr. Greco, and Mr. Drevna,

if you want to chime in, that would be fine.

I heard Mr. Reid say earlier in his testimony that independent

businesses are going to be leading the charge and I guess one of

the questions is just how independent are businesses that are tied

up in franchise agreements that end up constraining their choices

and their options. For example, I heard you, Mr. Greco, talk about

the importance of brand name protection, product ID and the importance of, I believe it was your, Mr. Reid, avoiding the problem

of mis-fueling.

You want to make to sure that all of these things are tied up and

yet the article that I just mentioned talks about things like

ExxonMobil Corp’s standard contract with its Exxon stations, it

bars them from buying fuel from anyone but itself and they don’t

make E–85, so it essentially bars them from getting any E–85 fuel.

ConocoPhillips, a number of the franchisees says the company

doesn’t allow E–85 sales on the primary island. BP guidelines for

stations that carry the company name bar any mention of E–85 on

the gasoline dispensers, on the perimeter signs of the light poles.

These are the sorts of things that franchisees encounter, so in

addition to the problems we talked earlier about, just creating a

sufficient supply of this stuff, we have franchise agreements which

could effectively be getting in the way of people who might want

to try and avail themselves of that option, so how independent can

folks be if they are constrained in this way and basically what I

am getting at is should Congress play a role in this? I am making

the suggestion before—sometimes it is the best thing if the government is the heavy in the picture.

You represent all of your members you have got to address the

interests of your members, as a whole. But sometimes, like Harry

Truman said, we spend 95 percent of our time up here trying to

persuade folks to do what is in the best interest to do, anyway. And

sometimes government can play that role. If you were to come in

and sort of make it plain that agreements cannot constrain or re-
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strict folks in certain ways. Might that help solve the problem? One

of your members want to go first, but be constrained by being put

at a competitive disadvantage vis-a-vis others pull back. Is there a

constructive role for us to play getting everybody onto the same

playing field in clearing away these impediments which pop up in

one form or another, these agreements?

Mr. REID. Can I respond to that?

Mr. BARROW. Yes, sure.

Mr. REID. As I mentioned, I don’t believe that it is an issue,

meaning there are contractual provisions. The Gasohol Competition

Act of 1980 precludes the enforcement of those contractual provisions. As a business owner, I have the freedom to move forward

with those opportunities if I so choose.

Mr. BARROW. But if you are contracting with a big guy and you

are using their name, you are a franchisee, you have got to play

by the rules of the franchisor.

Mr. REID. I am obligated to eligible property rights.

Mr. BARROW. Sure, but I am saying it goes beyond eligible property rights. If you say you can’t buy anything from anybody else

and they don’t make it, it is not beyond the eligible property rights

to make sure it can’t be sold on a primary island. It has to be put

somewhere. It is not allowing folks to get what they need if you tie

it up in a contract. There may be no legal impediments in the sense

that there is a statute prohibiting you from doing something, but

if it is a contract that we enforce in a court of law, that ends up

being a legal impediment.

Mr. REID. My point being that those contractual provisions are

not enforceable in a court of law.

Mr. BARROW. Why not? Who says?

Mr. REID. It is under the Gasohol Competition Act of 1980.

Mr. BARROW. Well, if I am the owner of this independent business, I am not going to be able to fight that out in a court of law

with Exxon. Mr. Dinneen, can you respond to this? Can you shed

some light on this?

Mr. DINNEEN. I think there are some impediments to the marketplace moving toward E–85. There are some issues—pointed out to

many of them. The suggestion that the Gasohol Competition Act of

1980 provides—wanting to go down this route some protection, I

think is just not accurate. The Gasohol Competition Act of 1980

was very narrow. It only addressed credit cards exclusively and it

didn’t talk about prohibitions against putting an E–85 pump under

the canopy.

Mr. BARROW. I don’t think there is any statute about that, is

there?

Mr. DINNEEN. No.

Mr. BARROW. OK.

Mr. DINNEEN. It might be something to look at, is how you could

amend the Gasohol Competition Act to address some of these marketplace realities.

Mr. BARROW. Well, it is a sensitive subject, but it really is a

friendly suggestion and talked about how maybe Congress can play

a role in being the heavy in the picture, where everybody wants to

go their own way, but it is in their best interest for everybody to
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go the same way, but they are at a competitive disadvantage in

going first. I have to yield, Mr. Chairman. Thank you.

Mr. BUTTERFIELD. Thank you, Mr. Barrow. The gentleman yields

back. Looks like we have no more members on the Minority side

or the Majority side. I will conclude, ladies and gentlemen, with

just a few questions.

Let me start with Ms. Lowery. Ms. Lowery, Dr. Lashof has testified that the administration’s Alternative Fuel Standard could increase greenhouse gas emissions, rather than decrease them. Do

you agree that that is possible?

Ms. LOWERY. Actually, I think what is important is to look at the

whole diversity of energy sources and look at the various streams

and what the greenhouse gas emissions would be from those fuel

sources. But from the Renewable Fuels Standards and the Alternative Fuel Standards, there could be great improvement in greenhouse gas emissions, so we need to look at all the different pathways.

Mr. BUTTERFIELD. Thank you. Dr. Lashof, my understanding is

that the maximum feasible amount of corn-based ethanol is 14 to

17 billion gallons of ethanol per year by 2017. Do you agree with

that number?

Mr. LASHOF. I have heard that number cited. I don’t think I am

in a good position to say whether that is true.

Mr. BUTTERFIELD. What do you think is the maximum feasible

amount?

Mr. LASHOF. I think it is a somewhat elastic issue. I think that

there is a potential to grow additional corn. I do think if you hit

those lines, you are clearly going to be starting to diversify away

from corn into other feedstocks, if you can expand much beyond

that. It doesn’t mean that I don’t know that there is an absolute

maximum that the market can produce.

Mr. BUTTERFIELD. Mr. Dinneen, do you want to take a stab at

that?

Mr. DINNEEN. Yes, I think those analyses have been done and

USDA has agreed with some of that, is looking at today’s technology. But the fact of the matter is technology is evolving and

there are companies working on biotechnology today that could potentially provide significantly increased yields on existing acreage

that would allow that number to increase. But looking at today’s

technology where we are, yes, about 14 to 17 billion gallons of ethanol from grain is about the upper balance of what you could responsibly achieve.

Mr. BUTTERFIELD. Thank you. Mr. Greco, do you believe that it

is reasonable to expect that the United States could meet a 35 billion gallon per year alternative fuel standard by 2017?

Mr. GRECO. As I think I pointed out in my testimony, we are

very concerned about this transition phase where we are talking

10, 15 billion gallons that is realistic from corn. But beyond that,

we are talking about billions of gallons from technologies that have

not produced, commercially or economically, viable amounts yet. So

if you are talking about doubling or tripling the known production

capability of corn, which is a longstanding proven technology, it is

hard to see us getting there in the next 5 years based on these assumptions and then ramping up as quickly as some of these pro-
157

posals would suggest, which is why we are supportive of technology

reviews. So if Congress decides to go down that route, they can

take a step back and check periodically to see is the technology

where we think it is and if not, we need to adjust accordingly.

Mr. BUTTERFIELD. All right. Mr. Dinneen, let me go back to you

for a moment. At our last hearing on alternative fuels, which was,

I suppose, 2 or 3 weeks ago, a man by the name of Brian Foody,

the president and CEO of Iogen, testified that the goals of 3 billion

gallons of advanced fuels by 2016 and 21 billion gallons by 2022,

which are both included in the Senate version, are both ambitious

and achievable. Do you agree or disagree with him?

Mr. DINNEEN. Mr. Foody is a member of Renewable Fuels Association, so I wouldn’t be so foolish as to disagree with him. But seriously, yes, you can certainly get those numbers. As I indicated in

my testimony, I think the movement towards cellulosic ethanol is

coming fast and furious. It will be commercialized far sooner than

conventional wisdom suggests and those are numbers that would

be achievable. You have seen dramatic in the grain-based ethanol

industry just since the Energy Policy Act of 2005 was enacted. We

doubled in size since then. We are going to double in size in another 18 months. Once the marketplace understands there is technology out there that has a marketplace for the product, the marketplace can respond very quickly.

Mr. BUTTERFIELD. Mr. Drevna, let me ask you a yes or no question. The Senate Energy Committee just voted on a provision that

would require new—facilities to reduce the life cycle for greenhouse

gas emissions from their fuel by 20 percent compared to conventional gasoline. Should all transportation fuels have to meet this

standard?

Mr. DREVNA. Congressman, again, NPRA, we are oppose mandates. We think that on a going forward basis, as the technology

is developed, as the right incentives, not giveaways, but the right

incentives for individual companies, individual processes, technologies, feedstocks, it should be a level playing field for all. And

if that happens, we believe we are going to get to where we should

collectively want to go, as a nation, but to force feed things early

on, and in all candor, without having the technologies available

today, doesn’t make any sense.

Mr. BUTTERFIELD. Thank you. I believe my time has expired. At

this time, I am going to recognize the gentleman, my friend from

the State of Washington, who announced to this committee a few

weeks ago that he, himself, has an alternative flex fuel vehicle. Am

I remembering that correctly, Jay?

Mr. INSLEE. Thankfully, you are right. No, I do. I have a car, it

is a Toyota Prius and it has been a very great car and this fall,

A123 battery company is offering a conversion kit with a lithium

ion battery. You plug it into a plug-in vehicle, it will get 150 miles

a gallon, run it for 1 cent a mile for somewhere between 20 and

40 miles and it is available this fall. You have got to put some cash

down to get the conversion, but we are hoping our manufacturers

really follow through with their efforts to really come up with production models.

I wanted to ask Dr. Lashof, my concern about going for a Renewable Fuels Standard to an alternative standard, it essentially al-
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lows you to swallow, if possible, if I understand the administration

proposal, to swallow the fuels that would be CO2 reducers and go

to fuels that were possibly even CO2 increased. As I understand

their proposal, they could have 90 percent of the entire requirement filled by coal versus liquid that is non-sequestered and end

up with an 118 percent increase for every gallon they sell. Is that

your understanding?

Mr. LASHOF. Yes, it is, Mr. Inslee. If you actually look at the legislation—it is 35 billion gallons wide open, there is no environmental performance standard associated with it, there is no requirement that that fuel by renewable. We heard the testimony

from the first panel that that was their intent and that they would

sort of let the marketplace sort it out and although they have expressed the expectation that cellulosic ethanol would play a role,

there is no environmental performance or other incentives built

into the proposal that would ensure that result.

And this juncture here is that they released an analysis when

the President made his announcement of his policy, suggesting that

their policy would reduce greenhouse gas emissions by about 170

million tons relative to the business-as-usual forecast, return gasoline based emissions to their current levels by 2017, so that is their

projection. And the problem is that their policy doesn’t really contain the performance standards that would in any way assure that

you would actually achieve those numbers.

Mr. INSLEE. And I think you said something gracious about my

bill that would plug that standard, so if you did, great. If you

didn’t, I hope you will put it in the record.

Mr. LASHOF. I did and thank you very much for your leadership

in introducing that. I do think that if the goal is to get greenhouse

gas reductions, the most effective and efficient way to do that is to

actually have performance standard that requires that outcome

and that is what your bill would do, so I think that is a very important way to——

Mr. INSLEE. Thank you. I appreciate that. I wanted to ask Mr.

Drevna and Mr. Greco, what percentage of pumps today are controlled by companies, either by ownership or franchise agreements?

What percentage of our pumps today are controlled by entities that

do not distribute E–85? The number service stations today, what

number of them, just percentage, ballpark figure, controlled by

companies, refiners or distributors or whoever they are, who do not

sell E–85?

Mr. DREVNA. I am going to defer to——

Mr. REID. I noted that approximately 95 percent of the motor

fuel outlets in this country, of which there are approximately

165,000, are operated by independent businesses, not by vertically

integrated major oil companies.

Mr. INSLEE. So you would say, you were saying 95 percent of

these service stations are legally free to sell anything they want?

Mr. REID. That is correct.

Mr. INSLEE. So there are no franchise restrictions prohibiting

them from selling E–85 or a competitor’s product?

Mr. REID. Actually, 100 percent of these stations are free to sell

what they want as long as it meets the EPA specifications.
159

Mr. INSLEE. I am really sorry I don’t know the answer to this,

because I should because I tried a case involving this at one time,

but if I have a service station and I have a franchise from one of

the big companies, let us just call it Acme Oil, there is nothing to

prevent me from selling E–85 distributed to me by Acme Oil’s competitor in those franchise agreements?

Mr. REID. With respect, we covered this territory a few minutes

ago.

Mr. INSLEE. I am sorry.

Mr. REID. And there is some confusion, apparently, about the affability of the Gasohol Competition Act of 1980 and my counsel has

generously offered to provide the committee with a memo that

fleshes out the provisions of that act and how it applies to the more

modern environment.

Mr. INSLEE. OK, is there anything you can tell me, just generally, whether there is any——

Mr. REID. There are no legal impediments.

Mr. INSLEE. I see. OK. Thank you.

Mr. BUTTERFIELD. I thank the gentleman. Looks like our final

witness is the gentleman from Texas, Mr. Gene Green.

Mr. GREEN. Mr. Drevna, following up on the questions earlier

from my colleague from Oklahoma, he talked about expansion

projects, refinery expansion projects being cancelled. Will we see, if

we mandate other uses, whether it is E–85 or something else, do

you see any concerns that these refineries will be cancelled?

Mr. DREVNA. Congressman Green, clearly—and I would be naive

to sit here and say that the refining industry of 2007 is going to

be the same refining industry that we are going to see in 2017. We

are constantly evolving, we are constantly changing. However,

given the fact that we have yet to, for lack of a better term, swallowed the 7.5 million gallons, which we will. We will surpass that,

simply because it is needed. Ethanol is fine blend stock and it is

wet, so we need all the blend stock we can get, given the supply

situation we are in.

But if you are a refinery executive or sitting in the board room

of a major refiner, you have to take pause and think what am I

going to look like in 5, 10, 15, 20 years from now? Those decisions

have to be made today. And given the debate going on in Congress

and other places these days, you would have to consider that these

folks are going to take great pause before they commit huge capital

to refinery expansion projects when we are being told on the other

hand in 10 years from now, we want you to reduce gasoline consumption by 20 percent. So it is just a dichotomy of messages being

sent to my industry.

Mr. GREEN. One of the concerns I have is the impact on pricing.

We are already hearing complaints from all over the country about

the high price of gasoline right now. What impact would either cancellation of those expansion plans or additional closing of refineries

have, even though we may have an alternative product coming on,

whether it be ethanol, whether it be E–85, whether it be coal-toliquids, do you see even more volatility in the price structure for

what people pay at the pump?

Mr. DREVNA. Congressman, it with some trepidation that I even

talk about what we think prices are going to be, because histori-
160

cally, not in my industry, but I think the rest of the country, has

been very good at predicting anything like that. But given the fact

that—and I only know what I know today and today and—if you

look at where prices of gasoline, where the price of ethanol is and

as more ethanol plans come on line, I think those margins are

going to—that cost price should come somewhere soft. But who

knows where? It is one of those things we are hearing—it is just

around the corner, it is just around the corner. All this technology

is just around the corner but again, that gives no great solace to

refinery managers who have to make significant investments.

The other thing we are talking about is E–85. On a unit-per-unit

basis, right now ethanol is selling a heck of a lot higher than gasoline. That is just on a volumetric basis. When you compound the

fact that it is a 25 to 30 percent fuel penalty, we are going to have

to see ethanol come way down before it becomes a competitor in

price to gasoline. Then you are going to have all these ethanol

plants out there who are going to be coming back to Congress saying we are in financial straits here because we are not meeting our

investment strategies. So these are the concerns that we have, as

refiners. And again, I think it goes back to what Congressman Barrow said, it is just not a chicken and a egg thing, it is the whole

barnyard.

Mr. GREEN. Mr. Chairman, I have a number of other questions.

I know I am almost out of time, but I would just if we could submit

questions in writing. Let me follow up with that. Mr. Dinneen——

Mr. BUTTERFIELD. Let me offer a suggestion to you. We are going

to have a second round of 1-minute questions, so why don’t you go

ahead and take your 1 minute now?

Mr. GREEN. OK, great.

Mr. BUTTERFIELD. If that meets the approval of the committee.

So you have an additional minute.

Mr. GREEN. Mr. Dinneen, let me be brief. I have a very urban

district and I don’t hear from agriculture groups very often, but

now that the farm bill has come around I am hearing more and

more about agricultural interest in energy policy that are not ethanol producers. Livestock producers are having increasing feed

prices and increasing—should we avoid further increases in renewable fuels mandate until we fully develop cellulosic ethanol so that

we are not Peter’s pantry to pay for Paul’s gas tank?

Mr. DINNEEN. Congressman, thank you. Actually, I think the

marketplace is already responding. You saw corn prices being reduced as soon as the Crop Intention Report came out last month,

showing that farmers have responded to the market signal that

was given and increased the corn planted or acres intended to be

planted by more than 15 percent. The marketplace will respond,

but I think you can’t just look at this in a vacuum. My good friend,

Mr. Drevna, just indicated that somehow that ethanol pricing today

was significantly higher than gasoline on a volume basis and that

is just flat out not true. Indeed, ethanol is significantly cheaper

than is gasoline today, even before the taxes, but——

Mr. GREEN. Dr. Lashof, you testified that without adequate

guidelines, large scale biofuels production carries great risk to our

lands, forests, et cetera, and I want to focus on that on the climate.

Your testimony includes a chart that shows ethanol production ac-
161

tually produces more greenhouse gases than gasoline and that the

amount of greenhouse gas emissions for ethanol in part depend on

the source of the power used, coal, natural gas, et cetera. Do you

think that the fact that using all natural gas in corn ethanol production raises natural gas prices—it is driving utilities to pursue

new coal plants, such as the former TXU proposal and have major

environmental organizations factored in their thinking on ethanol

on this?

Mr. LASHOF. Well, thank you for the question. I do show one case

where an ethanol plant is producing more greenhouse gases than

gasoline. It is a coal fired plant that uses corn that was grown in

a very energy intensive way. The other cases we see benefits relative to gasoline that varies depending on what energy source is

used for the feedstock, so we would like to see the ethanol industry

move away from natural gas as its process energy source. If it

moves to biomass, which could be collected along with the corn,

then there is an opportunity for much greater greenhouse gas benefits and we could avoid that negative impact on natural gas prices,

so I think, again, the type of greenhouse gas performance standard

that Mr. Inslee has proposed would create an incentive to move toward more efficient processes——

Mr. BUTTERFIELD. The gentleman’s time has expired. The gentleman from Oklahoma is recognized for 2 minutes.

Mr. SULLIVAN. Thank you, Mr. Chairman. This question is directed to Mr. Greco, Mr. Drevna. If you would both answer this,

please. Many States and even localities have implemented or are

considering proposals to create their own biofuels mandates. What

is wrong with letting States and localities implement their own renewable fuels mandates? If you could both comment.

Mr. GRECO. Well, thank you for the question. Individual State

mandates fracture and reduce the flexibility of our fuel supply system. One of its strengths is the flexibility to move fuel around to

meet needs, both anticipated and unanticipated and when you start

having individual local biofuels or ethanol mandates, you are now

creating localized markets that have their own requirements that

are restricting the flow of commerce and are, in effect, a problem,

particularly when you talk about a larger mandate. If you are focusing on a national fuels mandate, you really don’t need the individual State ones, because they are just restricting the flow of fuel

and an increase in price volatility.

Mr. DREVNA. I agree with everything that Bob has said there,

Congressman, and in addition, what would we have to do, as refiners, depending upon individual States, we have a pretty sophisticated fuel distribution, supply and distribution network throughout

the country and even as we saw and have seen, with the implementation of the ultra low sulfur diesel, it was a concern how we were

going to add another product into an already, pretty constrained

pipeline system.

If we, as refiners, have to make different blend stocks for different States or different localities, that is going to put a major

strain on the refinery system and be a real strain on the delivery

system to these things. And it is going to be an X product going

here, a Y product going there and it is just going to cost more to

make. It is going to cost more to ship and it is an affront to a na-
162

tional policy, if indeed, a national policy is renewable fuels, again,

NPRA says let the marketplace dictate where those fuels should be

used in the best way possible.

Mr. BUTTERFIELD. The gentleman’s time has expired. The gentleman from Washington has 2 minutes.

Mr. INSLEE. Thank you, Mr. Chairman. Mr. Reid, I want to make

sure I understood your answer about this issue. I understood you

to say there was no legal impediment for the stations selling E–

85 and I was just looking at a Wall Street Journal article of April

2, 2007 and it says, ‘‘For instance, franchises sometimes are required to purchase all the fuel they sell from the oil companies.

Since oil companies generally don’t sell E–85, the stations can’t either, unless the company grants an exception and lets them buy

from another supplier.’’

It moves on to say, ‘‘ExxonMobil Corporation’s standard contract

with Exxon stations bars them from buying fuel from anybody but

itself and it doesn’t’ sell E–85. A spokesman for ExxonMobil says

it makes exceptions case by case.’’ Now, I don’t mean any disrespect to Exxon, they just happen to be the one they quote in the

article. Is that the situation that, in fact, the contracts bar these

franchisees from selling unless they get specific approval? Is that

generally the situation in the industry?

Mr. REID. I would submit that the Wall Street Journal reporter

is incorrect in his story.

Mr. INSLEE. In what regard?

Mr. REID. OK, the Gasohol Competition Act of 1980 prohibits the

enforcement of those types of contractual provisions. It is that simple.

Mr. INSLEE. How this story gets out that an Exxon spokesman,

according to the Wall Street Journal, says they make exceptions to

their contracts case by case?

Mr. REID. We have offered to prepare a memo which we will submit to the committee and hopefully, that will provide ample explanation.

Mr. INSLEE. Thank you very much.

Mr. BUTTERFIELD. I thank the gentleman. The gentleman from

Georgia, 2 minutes.

Mr. BARROW. Thank you, Mr. Chairman. Ms. Lowery, I want to

turn to the commitment that your firm has made to make sure

that—I think that your testimony, you are prepared to make fully

half of your annual vehicle production biofuel capable by 2012 provided there is ample availability and distribution as part of an

overall national energy strategy. What is the tripping point, what

do you need in order to be able to meet your commitment?

Ms. LOWERY. Well, what we need, we are doubling our production through 2010, so that is making sure there——

Mr. BARROW. Yes, but that is not half your vehicles.

Ms. LOWERY. Right.

Mr. BARROW. It is doubling the small amount to twice the small

amount.

Ms. LOWERY. Right.

Mr. BARROW. What are you going to need out there in the economy, in the infrastructure world in order to be able to follow

through and make half your production biofuel ready?
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Ms. LOWERY. What we need is the E–85 infrastructure developed,

so we need more E–85 readily accessible to our flex fuel——

Mr. BARROW. How much is enough in the absence of a mandate—

I am not proposing that, but in the absence of a mandate, how

much is enough for you all to go ahead and do it on your own?

Ms. LOWERY. We don’t have a specific number. What we think

is important is that our customers that are driving that are driving

those flex fuel vehicles today should have——

Mr. BARROW. Do you have a general number? A percentage of a

penetration in the market? We have heard 50,000 out of 170,

165,000. Is that what you are going to have to have?

Ms. LOWERY. Well, right now what we have is we definitely made

progress with the 1,200 stations. We certainly have to have certainly more than that. I don’t have a specific number.

Mr. BARROW. Mr. Reid, you represent an awful lot of people who

are very important to the folks I represent, so I want to ask you,

in following up on what Ms. Lowery said, what can we do in Congress to help you and your members make E–85 infrastructure

more available? What is the most important thing we can do to

help you all deliver on that so General Motors can turn and can

deliver on their commitment?

Mr. REID. In my opinion, before E–85 is widely available, there

needs to be more supply. Even if we had E–10 available in every

gallon of gasoline that sold in this country, we would need triple

the current amount of ethanol that is being produced. That is 10

percent ethanol, 90 percent gasoline. E–85, 85 percent ethanol, 15

percent gasoline. I think we are just a little bit ahead of the power

curve today.

Mr. BARROW. You are waiting for the supply before you will build

the infrastructure to deliver it, it sounds to me like.

Mr. REID. We need supply. We need vehicles that can utilize the

supply, if you are focused on E–85. The flex fuel vehicles, even producing at the increased pace that they are projecting, will still only

be, in 10 years, maybe 20 percent of the total vehicle pool. It takes

time to turn over 140, 50 million vehicles.

Mr. BARROW. I just wanted to know what we can do to help and

you can amplify later on. Thank you, Mr. Reid. Mr. Chairman, I

yield.

Mr. BUTTERFIELD. Thank you, Mr. Barrow. I believe that completes the testimony today. I want to thank each one of you for

coming forward and I apologize for the inconvenience this afternoon, but that is just the way the House works. Let me say to you

that any follow-up questions that any of the members of the committee might have may be presented to you in writing and I would

ask your courtesy in responding to each one of those questions. All

right. I am a former judge, I will say court is in recess.

[Whereupon, at 3:00 p.m., the subcommittee was adjourned.]

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