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ALTERNATIVE TRANSPORTATION

FUELS: AN OVERVIEW

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

APRIL 18, 2007

Serial No. 110–31

(

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, Chief Counsel

LORIE J. SCHMIDT, Counsel

BRUCE C. HARRIS, Policy Advisor

DAVID J. MCCARTHY, Minority 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. J. Dennis Hastert, a Representative in Congress from the State of

Illinois, opening statement .................................................................................. 3

Hon. G.K. Butterfield, a Representative in Congress from the State of North

Carolina, opening statement ............................................................................... 4

Hon. John Shimkus, a Representative in Congress from the State of Illinois,

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

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 6

Hon. Charles W. ‘‘Chip’’ Pickering, a Representative in Congress from the

State of Mississippi, opening statement ............................................................. 6

Hon. Jane Harman, a Representative in Congress from the State of California, opening statement ........................................................................................ 7

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

prepared statement .............................................................................................. 9

Hon. Jay Inslee, a Representative in Congress from the State of Washington,

opening statement ................................................................................................ 13

Submitted material .......................................................................................... 15

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

Texas, opening statement .................................................................................... 18

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

opening statement ................................................................................................ 18

WITNESSES

John Ward, vice president, Headwaters Incorporated .......................................... 19

Prepared statement .......................................................................................... 22

Donald W. Maley, Jr., vice president, Leucadia International Corporation ....... 33

Prepared statement .......................................................................................... 35

Brian Foody, chief executive officer, Iogen Corporation ....................................... 49

Prepared statement .......................................................................................... 51

Scott Hughes, director, government affairs, National Biodiesel Board ............... 57

Prepared statement .......................................................................................... 60

Phil Lampert, executive director, National Ethanol Vehicle Coalition ............... 65

Prepared statement .......................................................................................... 67

Alexander E. Farrell, assistant professor of energy and resources, and director, Transportation Sustainability Research Center ......................................... 72

Prepared statement .......................................................................................... 75
(1)

ALTERNATIVE TRANSPORTATION FUELS: AN

OVERVIEW

WEDNESDAY, APRIL 18, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY

AND AIR QUALITY, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC.

The subcommittee met, pursuant to call, at 10:15 a.m., in room

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

(chairman) presiding.

Members present: Representatives Butterfield, Barrow, Waxman,

Wynn, Doyle, Harman, Gonzalez, Inslee, Baldwin, Ross, Hooley,

Matheson, Dingell, Hastert, Hall, Upton, Shimkus, Shadegg, Pickering, Burgess and Barton.

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

Treanor, Margaret Horn, David McCarthy, Tom Hossenbochler,

and Peter Kielty.

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

OF VIRGINIA

Mr. BOUCHER. The subcommittee will come to order.

This morning we begin a series of hearings on ways to achieve

a higher degree of American energy self-reliance. Our goal is to

make a legislative contribution to the Independence Day measures

which the Speaker has announced that the House will consider in

the mid-summer time frame. This committee’s contribution to that

effort will consist of legislation to encourage domestic alternatives

to petroleum for transportation fuels and energy efficiency and conservation measures that will reduce energy consumption.

Until today, the subcommittee has been focused exclusively on a

U.S. response to the challenge of climate change. I would underscore again this morning that we will propose a mandatory control

program for greenhouse gas emissions and later this year report

that measure for consideration by the House during the fall time

frame. The climate change control program will not be a part of the

mid-summer energy independence agenda. Instead, climate change

legislation will be taken up during the period September-October

this year, taken up on the floor during that period.

Today, as we begin our focus on this committee’s contribution to

energy independence, we examine transportation fuels and ways to

develop domestic alternatives. Later hearings in this series will

focus on energy efficiency and conservation.
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Our Nation has an unhealthy reliance on petroleum, 60 percent

of which is imported from other countries and much of that importation comes from some of the least politically stable places in the

world. In my view, our need to protect the flow of petroleum ties

our hands diplomatically and makes it difficult for the United

States to assert its larger national interests in a broad range of

international policies. Our reliance on oil imports involves us in

conflicts that we would be better served to avoid. And so both for

our economic security and for our national security, we must exert

maximum effort to develop domestic alternatives to petroleum for

powering transportation.

Over the long term, we can anticipate that more of transportation will be electrically powered through fuel cells and through

plug-in hybrids. In the near term, ethanol, both in the corn-based

and cellulosic varieties, holds great promise. The future use of biodiesel also holds promise. This morning we will examine this role

this committee can play in advancing those promising alternatives.

We will also focus this morning on another promising alternative.

In the coming days, I will join with our Illinois colleague, Mr.

Shimkus, and other interested members of this subcommittee, our

full committee and the House in introducing legislation to promote

the launch of a domestic industry to produce a liquid fuel derived

from coal. Since the days of World War II, coal-to-liquid processes

have been in use. Today South Africa derives a substantial portion

of its transportation fuels from coal. The technology to convert coal

to a liquid fuel is well understood and the process is commercially

feasible when the world price of oil is at $40 per barrel or higher.

While today’s process is well above $40, there is hesitation in the

investor community about the long-term outlook for oil prices. A

large portion of today’s oil price is political risk. The resolution of

diplomatic differences in the Middle East, for example, could lend

greater assurance to the future export of oil to the world market

and create downward pressure on the world price of oil. This uncertainty about future oil prices has inhibited the investment of private capital in coal-to-liquids facilities in the United States. Legislation which Mr. Shimkus and I will introduce will serve to bolster

investor confidence and pave the way for the launch of a U.S.-based

coal-to-liquids industry.

I want to thank Mr. Shimkus for his partnership with me on this

measure, which is an important step in our effort to achieve a higher degree of energy self-reliance.

This morning we will welcome testimony from our witnesses on

the future of ethanol, coal-to-liquids and biodiesel, and suggestions

for the role of Government policy in order to advance each. President Bush announced, in his State of the Union address, a goal of

consumption in this Nation of 35 billion gallons of alternative fuel

per year by the year 2020. Today we consume approximately 51⁄2

billion gallons of ethanol and so the President’s goal is ambitious

but in my view, it needs to be achieved. Each of the approaches we

will examine this morning can help us to achieve it.

So I want to say welcome to our witnesses. Thank you for joining

us and sharing your views. We will hear from you shortly.

Now it is my privilege to recognize the ranking Republican member of our subcommittee, the gentleman from Illinois, Mr. Hastert.
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OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. HASTERT. Thank you, Chairman Boucher, for holding this

important hearing on the future of alternative transportation fuels.

Let me begin by expressing my condolences to the families and

students of Virginia Tech. That university has certainly suffered.

My thoughts and prayers are with those victims, the families and

all your constituents. Mr. Chairman, I know you will find the

strength and your folks will find the strength as a community to

cope with this horrific event.

I would like to thank again each of these witnesses today for

being here to share their thoughts and insights and increasing our

Nation’s use of alternative transportation fuels. I have always believed good energy policy is good environmental policy and that the

reverse is also true. Good environmental policy should be good energy policy. Increasing the use of alternative transportation fuels

accomplishes just that. It provides our Nation with greater energy

independence while at the same time offering a positive environmental impact.

The key to our future energy security is technological innovation

and commercial deployment. Take coal, for example. There is more

coal underneath Gillette, WY, or southern Illinois or western Virginia or southern Indiana than anywhere in Iran or Saudi Arabia

but that energy happens to be coal. With the abundance of coal in

this country, we need to continue to push the development and deployment of coal-to-liquid technology. And although CTL technology

is not new, there are still uncertainties regarding its economic viability. Most of the uncertainty centers on the fact that the U.S. has

not built a large-scale commercial CTL facility. It is my belief, however, that we can solve this problem and prove the long-term viability of this fuel.

As many of you know, the Air Force is currently testing the use

of CTL fuels in their planes. So far these tests have been successful. Congress should step forward now and allow the Defense Department to enter into a long-term agreement to purchase CTL

fuel. Such an agreement will provide the economic certainty needed

to draw investment into CTL facilities. As these facilities are built,

economies of scale will then work to lower the cost of the fuel and

make it available for others to use in commercial aircraft, trains

and passenger cars. For the long-term security of America, I would

much rather worry about who is the next mayor of Gillette, WY,

instead of who is the next ruler of Iran. Imagine the benefits of

being able to rely on millions of barrels of clean diesel produced

right here at home to meet our transportation needs rather than

oil from an unreliable foreign source.

Like coal, America has an abundant source of renewable clean

bio-based fuels like ethanol and soy diesel. In the past few years

we have made tremendous strides in the use of these fuels yet we

can still do more. In order to make ethanol a larger part of our fuel

mix, we need to continue research into increasing the yield of ethanol from corn, push the development of cellulosic sources of ethanol

and get the infrastructure in place to make the ethanol more widely available. America already has the energy resources it needs for

its future energy security. It is in every cornfield in Illinois and
4

every coal mine in Virginia. The question becomes whether we do

what is necessary in the form of policy to provide the means to

make these sources more widely available and economically viable.

In the long run, Mr. Chairman, energy security is national security. Loan guarantees, long-term purchase agreements, investments

in research and other incentives to increase the sources of domestically produced alternative fuels gives America an opportunity to

claim our energy independence back from the unstable foreign

sources we have become so reliant upon. It refocuses our priorities

on cleaner, safer, less-expensive sources of energy and puts us on

the path of energy independence.

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

Mr. BOUCHER. Thank you very much, Mr. Hastert, and I particularly appreciate your expression of condolence for the loss that we

experienced earlier this week.

I have to go to the floor in order to take part in the passage of

a resolution about that very subject and I am going to ask the vice

chairman of our subcommittee, the gentleman from North Carolina, Mr. Butterfield, to assume the chair and he actually will be

giving the next opening statement and can begin by recognizing

himself.

OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH

CAROLINA

Mr. BUTTERFIELD [presiding]. Thank you very much, Chairman

Boucher, and we wish you well as you go to the floor to pay tribute

to those lives that were lost in the State of Virginia.

I too want to thank the chairman of this committee for convening

this important hearing today. It is absolutely critical that we begin

this discussion and debate. We cannot afford to delay it any longer.

I want to thank the witnesses for coming forward today. I have

looked at each one of your bios and each of you brings a credential

to this committee that is very important. We are committed on this

committee to develop bipartisan legislation that will put us on the

path to energy independence and to do it within the foreseeable future and so I want to thank you for your testimonies. I look forward to what you have to say. We as a government cannot do this

alone. We are going to need the participation of the energy sector

to resolve this problem. Certainly we are going to do our part in

making the resources available and developing the policy that

needs to be developed but we are going to have to depend on each

one of you to help us in this process, and so thank you very much

for coming.

The American people are beginning to pay attention to this issue.

We in this country are 5 percent of the world yet we consume 25

percent of the energy, and in the transportation sector, 28 percent

of transportation fuels are being used or devoted to transportation

fuels and we must reduce this figure and we must do it significantly, so thank you very much for coming.

We are now going to have opening statements from some of the

other members. At this time the chair recognizes Mr. Upton, the

gentleman from Michigan.
5

Mr. UPTON. I am going to defer and claim the 3 minutes later.

Thank you, Mr. Chairman.

Mr. BUTTERFIELD. The gentleman defers.

Mr. Shimkus, and as the chairman mentioned a moment ago, you

are going to see legislation introduced any day now, the BoucherShimkus Act. Is that what we call it?

Mr. SHIMKUS. I hope we get you as an original cosponsor.

Mr. BUTTERFIELD. I look forward to joining with you. The gentleman is recognized.

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. SHIMKUS. Thank you. I hesitate to do an opening statement,

but when I read the committee briefing, the full committee briefing, it really reminded me about how we can as legislators affect

public policy in a very important way. If you believe that we are

over-reliant on imported crude oil, you don’t have to go back very

far in history to see some successes. The 1992 Clean Air Act really

was a segue for ethanol to get its foot in the door. I wasn’t here

then. But I was here in 1997–98 and I think it was 1998 that I

joined with Karen McCarthy, Democrat from this committee, and

we were successful in changing EPACT to include biodiesel as a

credible item for fuel mix, which really changed the dynamics of

that industry and I think have got a long way to go to catch up

with the success we have done in the ethanol area but it is a great

product that we should take great credit. And I wanted to remember Karen in this debate because that was one that President Clinton signed. I remember walking over to the Senate floor with

Karen to lobby an Arkansas Senator to let the bill move and so

that was a success, and I hope that in this world environment

when we are really frustrated with our reliance on imported crude

oil that we can use the same type of work that we have in other

past pieces of legislation and really help make another dent in our

reliance on imported crude oil, and that is why I am honored to be

working with the chairman of the subcommittee who everyone acknowledges is an expert in the field, a diligent legislator and a

good friend. As we move that legislation, we do hope that people

will get a good look at it and that we work with them to help perfect it to a point where we can move it expeditiously to the floor.

I am a supply guy, and the more supply you have, the lower the

cost, and we are just tired of being held hostage by the international community, especially areas of the world. I am a big democracy freedom guy. I talked at a class last night and I said, if

we are going to be all over the world to fight for democracy, freedom and the global war on terror, let us let it be about that issue,

and let us not have another side debate, well, we are really there

for oil, and you all can help us get there. I look forward to your

testimony.

Mr. Chairman, I yield back my time.

Mr. BUTTERFIELD. The gentleman yields back.

At this time the chair is pleased to recognize the chairman of the

full committee, my friend from the State of Michigan, Mr. Dingell.
6

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

Chairman DINGELL. Mr. Chairman, I thank you for your courtesy

and I commend you for holding this important hearing.

Today the committee will turn its attention to alternative transportation fuels, a topic that has frequently been at the center of the

committee’s work on energy issues. Our country’s dependence on

foreign sources of energy is a well-known deficiency in our energy

policy and has been so for decades. According to the Energy Information Agency, EIA, in 2005 the U.S. consumed approximately 20

million barrels of crude oil per day, 60 percent of which was imported. Alternatives to petroleum-based transportation fuel are a

critical component of enhancing our Nation’s energy security.

This committee advanced the cause of alternative fuels in the

Energy Policy Act of 2005 by creating the renewable fuel program

which required that a certain percentage of our retail gasoline supply be comprised of renewable fuel. By most assessments, that program has been a success. For 2006, the program required gasoline

supply to contain a minimum of 4 billion gallons of renewable fuel.

Thanks to the productivity of American agriculture and the ingenuity of the entrepreneurs who joined this emerging market, the

number of gallons actually produced in 2006 was 5 billion gallons.

Most analysts agree that we will meet the 2012 requirement for 7.5

billion gallons much sooner than required by law. All this is good

news. The question now becomes what else should we do to encourage the use of alternative fuels. I note the vast majority of ethanol

produced in the country is derived from corn kernels but there are

other feedstocks that can play an important part in ethanol production such as cellulose. In addition, there are other alternative fuels

that we should examine to see what role they can play in our fuel

mix including biodiesel and liquids fuels derived from coal. We

have witnesses here today who can speak to these issues. Another

witness will examine the various impacts of alternative fuels on climate change, a critical perspective given this committee’s focus on

climate policy, and I look forward to their testimony.

There are other issues that I hope the subcommittee will continue to examine in future hearings. We must find ways to increase

biofuels infrastructure so that more than 6 million consumers who

already own flexible-fuel vehicles can actually purchase the alternative fuel and that the alternative fuel is available in the marketplace. We must also continue to examine ways to increase the number of flexible-fuel vehicles. Any action on these issues must also

account for how they can affect our broader efforts to address climate change and enhance energy security.

I want to thank you again, Mr. Chairman, and I look forward to

the testimony of our witnesses, whom I welcome at this time.

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

Mr. BUTTERFIELD. Thank you very much, Mr. Chairman, and the

gentleman yields back.

At this time the chair recognizes Mr. Pickering from Mississippi.
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OPENING STATEMENT OF HON. CHARLES W. ‘‘CHIP’’ PICKERING, A REPRESENTATIVE IN CONGRESS FROM THE STATE

OF MISSISSIPPI

Mr. PICKERING. Mr. Chairman, I thank you for this hearing and

I look forward to the testimony of the panel.

This is a critical issue of gaining energy independence and security and enhanced supply. In my home State of Mississippi, we are

doing everything from ethanol to clean coal to nuclear to traditional fuels to animal waste, to fish waste, poultry waste, wood

waste. Mississippi State has the leading patent on converting

wastewater, sewage, into a biofuel. This is an exciting time for us

to have a transformation of energy in the country that powers the

way our country runs, our homes, our lives, and I think that this

is a good time to find common ground and consensus on both sides

of the aisle to achieve a very important security and economic objective for the country.

Thank you, Mr. Chairman.

Mr. BUTTERFIELD. Thank you.

At this time the chair recognizes the gentlelady from California,

Ms. Harman.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman, and good morning to

our witnesses. The tragedy at Virginia Tech shows us just how

fragile we are, a campus in a peaceful part of the country could all

of a sudden be the site of a violent massacre.

The subjects we are addressing today may not be as sudden but

surely they show us too how fragile we are, and it is our responsibility, and I hope we will rise to it on a bipartisan basis to do

something about it. I drive hybrid vehicles on both coasts and I applaud the breakthroughs the auto industry has made in recent

years, many of them actually developed at Toyota and Honda facilities in my district.

As my colleagues have pointed out, transportation in the age of

global warming and in the age of terrorism requires a wholly new

approach to how we power our cars and trucks. The automakers

can give us the engines but the fuel producers must meet them

halfway. Bringing alternative fuels to market depends on fuel production and fuel infrastructure. Without more ethanol pumping

stations—presently there are only about 1,100, mostly located in a

handful of midwestern States—we cannot expect to see more flexfuel vehicles on the road. Manufacturers won’t make them and the

public won’t buy them.

We should also explore synergies between transportation fuels

and other clean energy initiatives. In Carson, California, just outside my district, BP and GE are building a carbon capture and sequestration coal power plant that can also produce hydrogen.

Plants like these can produce raw materials for hydrogen fuel cell

vehicles and lay the groundwork for their commercialization years

from now. This kind of creative thinking should color our policymaking. I look forward in the near future to driving my granddaughter Lucy around in a vehicle fueled with cellulosic ethanol
8

and other alternative fuels. I hope that by the time she is old

enough to drive herself, the alternative will be the mainstream.

I yield back.

Mr. BUTTERFIELD. Thank you.

I understand that we have been joined by the ranking member

of this committee, the distinguished gentleman from Texas, Mr.

Barton.

Mr. BARTON. Thank you, Mr. Chairman. I will put my statement

in the record and pass.

I do want to extend my prayers with everybody else’s for Congressman Boucher and his constituents at Virginia Tech.

I yield back.

[The prepared statement of Hon. Joe Barton follows:]
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Mr. BUTTERFIELD. I thank the gentleman for his comments.

At this time the chair recognizes the gentleman from the State

of Washington, Mr. Inslee.

OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Mr. INSLEE. Thank you. I just hope that we look at these hearings with a sense of great optimism. I think it is warranted. The

technological advances are truly remarkable and we are going to be

able to skin this cat of global warming, I believe, with the technologies, some of which we will hear about today.

I think I am the first Congressman to drive on the Hill a plugin hybrid 2 weeks ago. You get 150 miles per gallon on the gasoline

and have electricity for the first 40 miles at a penny a mile, and

that will be commercially available this fall from A–123 Battery

Company, and of course, GM has plans several years from now.

There are just tremendous things going on. But the one caution I

want to note is that all men are created equal but not all fuels are

created equal, and right now we have a renewable fuels standard

that essentially doesn’t distinguish in the global warming characteristics of fuel, and I think that is an enormous loophole that we

have to close. I will be introducing a bill here shortly to introduce

a fuel standard to make sure that our alternative fuels are alternative with a capital A when it comes to global warming. We do

have limited resources to invest in our future and we have to do

it with fuels that will in fact skin the cat of global warming as well

as national security, and I think we will need to have a standard

that recognizes that.

Now, that leads to this discussion of coal-to-liquids, and I hope

that my fellow members will educate themselves about what this

really means because I will be putting into the record a document

from the EPA that shows that coal-to-liquids without sequestration

actually has 118 percent more carbon dioxide, more global warming

gas, comes out from a gallon of coal-to-liquids than gasoline, 118

percent in the wrong direction. If you do sequester the CO2 that

is generated during the process of making a gallon of coal-to-liquid,

you are still, according to this chart, 3.7 percent worse than gasoline on CO2, and I have to tell you, I have great qualms about

spending large amounts of taxpayer dollars to develop a whole new

industry that is going to be worse than gasoline. We have to reduce

our CO2 emissions by 80 percent ultimately by 2050 to avoid distinct problems in our climate, and to start a new industry that will

actually go backwards on carbon dioxide emissions. I have real

qualms about that, and I think we are going to have to have a discussion about that and I hope our members will acquaint themselves. Coal-to-liquids with existing technology, and I stand to be

educated if I am wrong, cannot be considered a green technology.

It can help us with our energy security issues, but to do one but

go backwards in the other, I have great concerns about. That is

even assuming we can sequester all the CO2 during this development, which is an unknown at this point. I am hopeful that we can

but it is still an unknown.
14

So I think that is worthy of discussion. I look forward to the testimony today and get to a point where we can really develop alternative fuels that will deal with global warming.

Thank you.

[The EPA document follows:]
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Mr. BUTTERFIELD. Thank you.

The gentleman from Texas, Mr. Burgess.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BURGESS. Thank you, Mr. Chairman.

It is really exciting to sit on this committee and hear all of the

initiatives that are happening across the country, so I am going to

tell you one that is happening in my backyard in Denton, TX, with

Biodiesel Industries. This is a real exciting time for me because

this small company uses the recovered methane gas from a landfill

to power their heaters that saponifies the fat in the process, and

I don’t completely understand but what a great deal. In Texas, a

well-prepared chicken-fried steak—I am a physician so I can say

this with medical authority but a well-prepared chicken-fried steak

will count as two of our five servings of vegetables on a daily basis

so we do have a lot of restaurant grease to dispose of, and the great

thing about Biodiesel Industries is, they go around to restaurants

around the Dallas-Fort Worth metroplex, collect this restaurant

grease and recycle it and sell it as B–20. The primary customers

are people who want the B–20 biodiesel because of the lubricity

that the bio part of the biodiesel provides in the diesel engines that

are manufactured to run on low-sulfur diesel, so in fact there are

flex-fuel vehicles already coming off the lines and even our

Peterbilt plant there in Denton is starting to use the new Cumins

engine which will accept biodiesel. So this is a great story that is

happening back home. My one concern is that the renewable diesel

is eligible for $1 per gallon tax credit while the biodiesel created

from restaurant grease is only eligible for a 50-cent-per-gallon tax

credit. So I introduced legislation, H.R. 927, that would provide

parity for biodiesel produced from recycled restaurant grease and

of course we have got a lot of that in Texas.

Cellulosic ethanol, I love the concept. Humans ought to be smart

enough to do what a termite can do with its salivary gland. All the

time we start our presidential processes in Iowa. I suspect we are

going to have a starch-based source of ethanol but I am excited

about the prospect of being able to use the more abundant cellulosic feedstock for ethanol production in this country. But it is an

exciting time and it is because of American exceptionalism, it is because of American ingenuity. I applaud the work that you all do.

Mr. Chairman, I will yield back.

Mr. BUTTERFIELD. Thank you, Dr. Burgess.

At this time the chair recognizes the gentlelady from Oregon, Ms.

Hooley.

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

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

my words of sympathy to not only the Members that serve that

area but all the families of the students, the horrible tragedy that

happened.

I would like to thank all of our witnesses for being here today.

There is just really one thing I want to say. As we talk about becoming energy independent for national security reasons, I think it
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is absolutely imperative as we look at new technologies, we look at

new ways of making fuels that we look at not only the upside but

the downside. Right now corn is a hot commodity. We have a lot

of people making a lot of money off of corn, they are turning it into

ethanol. But at what point are we driving up the food prices and

how much land do you have to put in to really provide enough corn

to produce enough fuel so it is a viable source. I just think it is important whether we are looking at coal-to-liquids, we are looking at

ethanol, looking at biomass, we are looking at any of the alternative fuels that we also understand not only the upside of it but

the downside of it, and we understand what the consequences are

and I think it is really important as we go through all of these

issues because not only are we looking at energy independence for

security purposes but we are also looking at global warming and

how to deal with that, and I would hope today that as you testify,

that you talk about not only the great things that can happen with

this but also what some of the downsides are that can happen with

it.

So I look forward to your testimony today. Thank you very much

for being here.

Mr. BUTTERFIELD. I thank the gentlelady.

Are there any other opening statements that we have omitted?

That completes the opening statements. At this time I am

pleased to introduce our panel for this morning. First we are going

to hear from Mr. John Ward, who is the vice president of Headwaters Incorporated, and incidentally, he is also a constituent of

our good friend from Utah, Mr. Matheson. Following Mr. Ward’s

testimony, we will hear from Mr. Donald Maley, Jr., who is the vice

president of Leucadia International. Next will be Mr. Brian Foody.

Mr. Foody is the chief executive of Iogen Corporation. I am from

the South, I may not have pronounced that correctly, but I think

it is Iogen Corporation. We will then hear from Scott Hughes, who

is the director with the National Biodiesel Board. Then we will

hear from Mr. Phil Lampert, who is executive director of the National Ethanol Vehicle Coalition. Finally, we will hear from Dr. Alexander Farrell, who is assistant professor and director of the

Transportation Sustainability Research Center at the University of

California at Berkeley. Gentlemen, your full statements will be

made part of the hearing record and at this time you will each be

recognized for 5 minutes.

Mr. Ward, we will begin with you.

STATEMENT OF JOHN WARD, VICE PRESIDENT, HEADWATERS

INCORPORATED

Mr. WARD. Thank you, Mr. Chairman. Honorable members of the

committee, I am John Ward, vice president of Headwaters on

whose behalf I am testifying today. I also serve as immediate past

president of the American Coal Council and as a member of the

National Coal Council as appointed by the Secretary of Energy.

Headwaters is a member of the Coal-to-Liquids Coalition. This is

a broad group of industry, labor, energy technology developers and

consumer groups. The coalition is interested in strengthening U.S.

energy independence through greater utilization of domestic coal to

produce clean transportation fuels.
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The opening statements have done an excellent job of reminding

us of the hazards of dependence on foreign oil and the abundance

of our own coal here in the United States and also the need to develop future energy resources in an environmentally responsible

way. Coal-to-liquids has an opportunity to help us in all of those

areas. My written testimony includes more detailed information

about the history of coal-to-liquids technology and the types of technologies that exist today.

I will summarize by pointing out that any product that can be

made from oil can be made from coal. Coal-to-liquids technologies

are already proven and they are being deployed at commercial

scale overseas. They are economically competitive when oil prices

are above about $40 a barrel, and oil prices are above $60 a barrel

today. In the United States, potential coal-to-liquids projects are

being discussed in at least 15 different States. From a product perspective, coal-to-liquids refineries make the same range of products

as petroleum-based refineries. This includes gasoline, diesel fuel,

jet fuel and chemical feedstocks. These fuels can be distributed in

today’s pipelines. They can be used directly in today’s cars and

trucks and buses and trains and airplanes without modifications to

the engines. Fuels produced by coal-to-liquids processes are exceptionally clean when compared to today’s petroleum-derived transportation fuels. Coal-to-liquids fuels contain substantially no sulfur

and exhibit lower particulate and carbon monoxide emissions.

These fuels also contribute less to the formation of nitrogen oxide

then the petroleum-derived fuels and they are readily biodegradable. Coal-to-liquids refineries generate carbon dioxide in a highly

concentrated form that allows for carbon capture and storage. Coalto-liquids refineries equipped with carbon dioxide capture and storage can produce fuels with life cycle greenhouse gas emissions profiles that are as good as or better than petroleum-derived fuels.

Although coal-to-liquids projects are economically viable in today’s oil price environment, there are still significant hurdles to get

the first projects built. For the first plants, financial institutions

will be reluctant to fund multi-billion-dollar projects without significant technology and market performance guarantees. This includes some assurance that plants will not be rendered uneconomic

by oil-producing nations or cartels that may seek to artificially reduce oil prices just long enough to prevent the formation of this

new competitive industry.

Other nations are moving forward more aggressively than we are

to deploy coal-to-liquids technologies. In China, for instance, the

government has already committed more than $30 billion to commercialization of coal liquefaction technologies and the construction

of the first plants has already begun.

Now, as long as oil prices remain high or climb higher, market

forces will lead to the development of a coal-to-liquids infrastructure in the United States but that development will come slowly

and in measured steps. If for energy security reasons the United

States would like to speed the development of a capability for making transportation fuels from our most abundant domestic energy

resource, then incentives for the first coal-to-liquids projects are appropriate.
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Now, one example of incentives, Chairman Boucher and Congressman Shimkus have publicly discussed an approach that would

establish a oil-price collar to guide the government’s investment. If

oil prices were to drop below a specified level, the United States

would make payments to coal-to-liquids projects that are participating in the program to ensure their viability, and alternatively,

if oil prices rose above a certain level, those projects would pay

back to the Federal Government. Properly constructed, such a program could have a meaningful impact on addressing the market

risks associated with fluctuating oil prices.

The Coal-to-Liquids Coalition has also identified five specific actions the Federal Government can take to overcome deployment

barriers. More-detailed descriptions are in my written testimony,

but in summary, they include front-end engineering and design assistance, providing purchases of fuels by the Department of Defense and other Federal agencies, extending the excise tax credit

treatment for coal-derived fuels, loan guarantees and investment

tax credits.

The advantages to developing a coal-to-liquids capability in the

United States are numerous. Some of the billions of dollars we now

send overseas to buy oil would be kept at home to develop American jobs using American energy resources. We could expand and

diversify our liquid fuels production and refining capacity using

technologies that are already proven. We would produce cleanburning fuels that can be distributed throughout existing pipelines

and service stations to fuel our existing vehicles with no modifications to their engines and we would take a real and immediate step

towards greater energy security.

Thank you for the invitation to testify and for your interest in

this important topic. I will be happy to answer any questions at the

appropriate time.

[The prepared statement of Mr. Ward follows:]
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Mr. BUTTERFIELD. The witness is thanked.

Mr. Maley.

STATEMENT OF DONALD W. MALEY, JR., VICE PRESIDENT,

LEUCADIA INTERNATIONAL CORPORATION, NEW YORK, NY

Mr. MALEY. Good morning, Mr. Chairman and members of the

committee. My name is Don Maley. I am a vice president at

Leucadia National Corporation based in New York. First of all, I

would like to apologize for my attire. I was in Indianapolis yesterday expecting to fly home to New York last night before coming

down here, and the weather in New York caused a 3-hour delay

and then cancellation of my flight and so here I am today in casual

attire, which is all I had.

Mr. BUTTERFIELD. If there is any group that would understand,

it is this group, so it is alright.

Mr. MALEY. Thank you very much, Mr. Chairman.

Leucadia National Corporation is a holding company with investments in a wide variety of different industries. Energy, mining,

manufacturing, real estate, health care are a few examples of some

of our investments. My background, I have been with Leucadia for

7 years now. I am responsible for our energy investments. Prior to

that time, I spent 22 years as an energy banker working on large

energy projects around the world. For the last 5 years I have been

focused on gasification as a technology that we think holds a lot of

promise. Some of the things that we like about gasification is that

it promotes economic development. When we go into a community,

we see strong support for the development of these kinds of

projects. It is using out natural energy resources in the United

States so it is promoting energy independence and the technology

is doing it in an environmentally advanced way, which we think is

an important part of the puzzle.

Currently, we are in development of four projects around the

United States. One of our projects is a coal-to-liquids project located in Illinois. We are working on a pipeline-quality natural gas

project in Indiana using Indiana coal, that we gasify that coal. We

are working on a similar project in Louisiana. That project, however, would take petroleum coke to make the pipeline-quality natural gas. And then lastly, we are working on a project in Texas that

would again take petroleum coke but use it to make feedstocks for

chemicals for industrial use.

What I would like to address today is, I would really like to differentiate the three other projects we are working on from the coalto-liquids project in terms of the challenges of trying to get these

projects financed, and there are really two key areas to focus on.

One is with coal-to-liquids a perception in the financial community

of a greater technology risk than would be inherent in some of the

other applications of gasification technology. The second area is

what we see currently as the inability to achieve price certainty on

a coal-to-liquids project where on the other hand for some of the

other projects we are finding that there is an opportunity to get

long-term contracts that provide the kind of price certainty that

you need for these projects that are very high capital investment

program that need long-term price stability in order to assure the
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adequate return of the investment, the repayment of the loan and

have a successful project.

With existing gasification technology, you have over 100 gasification plans operating around the world. They have been operating

for over 20 years. You have over 300 individual gasifiers or gasification units operating at these different facilities, so as an old

banker I can go around and say I can touch and feel and see these

facilities and get reasonably comfortable that this technology is a

proven technology and is going to work. When you start to look at

coal-to-liquids technology, while it has been around for a long time,

there is really only one large commercial-scale operation in the

world and that is in South Africa. It was constructed over 20 years

ago. And so on Wall Street and the financial community and equity

investors like ourselves, we are quite concerned about building this

next generation of facilities and how we raise the dollars in the financial community to support the construction of these plants. So

I think with this particular risk, we do see the benefits of loan

guarantees and these kinds of programs to help these projects get

through the construction phase, get some of the bugs worked out

and get them into commercial operations. But we don’t really see

that kind of program addressing the question of price certainty and

the lack of price certainty in the transportation fuels markets.

We see many ways that could potentially be addressed but I

agree with my colleague that the legislation introduced last fall by

Chairman Boucher and Mr. Shimkus is an excellent way to promote the development of this technology. It would become a basis

on which not only the Wall Street community could finance these

projects but another key portion of it is that developers like ourselves need to spend $35, $50 million to develop these projects. We

are not going to spend that money unless it is going to lead to a

successful project.

Thank you very much.

[The prepared statement of Mr. Maley follows:]
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Mr. BUTTERFIELD. Thank you very much.

Mr. Foody.

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

CANADA

Mr. FOODY. Good morning, Mr. Chairman and members of the

committee. Thank you for the opportunity to testify, and I will be

talking about cellulosic ethanol.

My name is Brian Foody. I am the CEO of Iogen Corporation. We

are one of the leading companies in cellulosic ethanol. We have

been working in the field since the late 1970’s and have designed,

built and now run a cellulosic ethanol demonstration plant, and it

has been making cellulosic ethanol since April 2004. On the corporate side, we have both Shell and Goldman Sachs as important

strategic investors in our business. Finally, for myself, I have been

working in the field of cellulosic ethanol development for over 25

years, so I have been around some time with this.

Now, in regard to the role of cellulosic ethanol and what it can

play in advancing America’s energy security, my key messages are

first, it is very realistic to expect cellulosic ethanol to make a major

contribution to U.S. energy security, and second, what investors

are looking for is clarity about the future rules. If you want to encourage cellulosic ethanol or other alternative fuels, make sure people in the investment community know what to expect.

Now, one of the important innovations in the Energy Policy Act

of 2005 was the introduction of renewable fuel standards, or the

RFS. There has been a lot of talk about expanding the RFS and

I would like to offer our perspective. First, we believe this type of

approach can and will make a major contribution towards driving

the market forward, establishing the expectations and clarity needed to see significant flows into advanced biofuels and other alternative fuels. A revised Renewable Fuels Standard could play a big

role in helping build the secure domestic fuel supply America is

looking for.

Now, in respect to an expanded RFS, there are several recent

proposals that call for producing roughly 20 billion gallons of advanced biofuels or alternative fuels beyond what is being made

from corn by the 2017–2022 time frame. I believe certainly within

the 15-year time frame these targets are realistic and doable, and

let me explain why. First, I will be speaking principally about cellulosic ethanol. The DoE and USDA recently completed a study

called ‘‘Billion Ton Study’’ that asks the question, ‘‘does America

have the capability to produce enough cellulosic biomass resources

to displace 30 percent of its present petroleum consumption?’’ Now,

that is three times what those targets I told you about were and

the short answer to that question was yes, America has the capacity to deliver on these targets. Second, cellulosic ethanol is not

some far-off esoteric technology. It is real, practical and being made

today. When I drove to the airport, I drove in a car fueled with cellulosic ethanol, the same cellulosic ethanol that fuels our company’s fleet of flex fuel vehicles, so this is a product which is actually

in cars. It is not just theoretical. Now, I have been doing this for

last 3 years, so cellulosic ethanol is real. If anyone doubts this, I
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would be pleased to invite them out to our Ottawa demonstration

plant. We had the pleasure to host Chairman Boucher on a visit

last year.

Finally, if you are concerned about the ability to build these facilities, let me say that the energy industry has an enormous capability to deploy energy technology. Just as one small example to

put this in context, you may have heard about the tar sands in

northern Alberta in Canada. Well, last year over $30 billion was

invested in developing this unconventional resource. The capacity

commitments in 2006 alone would add 10 billion gallons per year

of annual production capacity. Now, I have to say if the energy industry can build 10 billion gallons in northern Alberta in just 1

year, they can certainly build 20 billion gallons in America over a

decade. So cellulosic ethanol really can make a major contribution

and an expanded RFS would be a major impetus for the market.

Now, with respect to crafting legislation for an expanded Renewable Fuel Standard, I would like to make one key point. I believe

it is crucial to establish clarity about what happens if things go

wrong, what are the safety valves. Now, by safety valves I mean,

what do you do if the prices go too high and what do you do if there

is just not enough volume to meet the target. There is a whole

range of approaches that have their advantages and disadvantages.

Take as a specific example the notion that the Secretary of Energy

would have a discretionary waiver. In essence, if things go wrong

he could suspend the program. That will certainly work to protect

against shortages and price gouging but it creates a tremendous

uncertainty in the market and risks robbing any bill of its power

to spur investments. Remember what I said about priority being

crucial. If the rules can change, it is hard to expect investors to

come to the table.

There are a number of ways to tackle this problem and let me

just illustrate one. As to volume, it doesn’t make sense to force people to buy a product that isn’t there. If volume doesn’t materialize,

the safety valve has to adjust to the volume that is there. And as

to price, the safety valve might be in the event some waiver is

needed, permitting the Secretary to sell credits under a pre-established buyout formula. That is simple, it would solve the problem

and would create much more certainty for investors.

Now, as I said, there are many approaches you can take but one

thing you should keep in mind, the more clarity and certainty you

can provide in your policy, the more investments and the more energy security you will be able to get.

Thank you.

[The prepared statement of Mr. Foody follows:]
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Mr. BUTTERFIELD. Thank you.

Mr. Hughes.

STATEMENT OF SCOTT HUGHES, DIRECTOR, GOVERNMENTAL

AFFAIRS, NATIONAL BIODIESEL BOARD, WASHINGTON, DC

Mr. HUGHES. Good morning, Mr. Chairman, Ranking Member

Hastert and members. It is a great pleasure to be here and we

really want to thank you all for holding this, what we think is a

very important hearing.

My name is Scott Hughes and I am the director of governmental

affairs for the National Biodiesel Board. NBB is the national trade

association representing the commercial biodiesel industry as a coordinating body for research and development in the United States.

Our membership encompasses over 400 members and is comprised

of biodiesel producers, fuel marketers and distributors, State and

national feedstock processor organizations and technology providers.

We are here today to examine alternative transportation fuels

and the roles that they can play in helping enhance our Nation’s

energy security, and I would like to focus my comments this morning on the contributions that we see biodiesel making to the national energy pool. Biodiesel is a diesel fuel replacement that is

made from agricultural fats, oils and recycled cooking oils and

meets the specific commercial fuel definition and specifications established by the American Society for Testing and Materials. It is

one of the best tested alternative fuels in the country and the only

alternative fuel to meet all of the testing requirements of the 1990

amendments to the Clean Air Act.

Our industry’s roots are based in agriculture, and to date, farm- ers have invested more than $50 million of their check-off dollars

to conduct research and development on biodiesel. Our industry

has shown slow but steady growth since the early 1990’s. However,

in the past 2 years it has grown exponentially. In 2004, there were

approximately 25 million gallons of biodiesel sales. That increased

to around 250 million gallons this past year. Likewise, we have

seen significant additional investment in production facilities. Back

in 2004, we had 22 biodiesel plants online, and at the end of last

year we had 105 plants currently in operation, and that represents

about 865 million gallons of production capacity, and there are 77

more plants currently under construction or under an expansion

and that growth will account for an additional 1.7 billion gallons

of production capacity.

Biodiesel is marketed primarily as a blended product with conventional diesel fuel and it goes through the existing fuel distribution infrastructure with most of the blending occurring below the

rack by jobbers. We are seeing biodiesel now being offered at petroleum terminals around the country and we have space at about 35

terminals right now. Our industry has committed funds and is

looking at the technical needs required to move biodiesel through

U.S. pipelines. We are seeing biodiesel moving through pipelines in

Europe today in low blends and we believe extending that capability to the U.S. would be substantial.

As far as energy security goes, the National Biodiesel Board has

a vision of the future that by 2015 biodiesel will be viewed as an
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integral component of a national energy policy which increasingly

relies on clean domestic renewable fuels and that will meet 5 percent of the Nation’s demand for diesel fuel. Biodiesel and ethanol

can be the first tools used to reach our goals of energy security because they are liquid renewable fuels that are available right now

and ready for blending into our existing fuel supply and our existing vehicles.

On economic development, biodiesel can add significantly to the

United States economy. A vibrant biodiesel industry will positively

impact the economy in multiple ways. Conservative modeling of

biodiesel growth indicates our industry will add $24 billion to the

U.S. economy over the next decade. Biodiesel production will create

40,000 new jobs in all sectors and additional tax revenues from biodiesel production will more than pay for Federal tax incentives provided to the industry to date. Equally as important, it will keep billions of dollars in America that would otherwise be spent on foreign

oil.

Biodiesel contributes to cleaner air and life cycle reductions of

greenhouse gases. Biodiesel is the only alternative fuel to voluntarily conform to EPA’s Tier 1 and Tier 2 testing requirements to

quantify emissions characteristics and health effects. That study

found that we reduce harmful exhaust pollutants including potential cancer-causing emissions.

We can also help meet the national goals for the net reduction

of atmospheric carbon. As a renewable fuel derived from organic

materials, biodiesel and blends of biodiesel reduce the net amount

of carbon dioxide. A Department of Energy study found that biodiesel production and use in comparison to petroleum diesel produces

78.5 percent less CO2 emissions on a life cycle basis. This makes

biodiesel an extremely positive technology currently available for

heavy-duty diesel applications to reduce atmospheric carbon, and

when you talk about energy balance, that same study noted that

for every one unit of energy that was needed, fossil energy that was

needed to produce a gallon of biodiesel, 3.2 units of energy are

gained. So that high energy balance I think really is in favor of our

ability to help add to our domestic energy security.

On regulatory and public policy, it will play a very strong role,

we think, in the future maturity of the biodiesel industry for years

to come. The volumetric biodiesel tax credit that was put in place

in the Jobs Act of 2004 has really been a primary driver for our

industry’s growth and investment in that industry and so seeing a

long-term extension of that credit is our top priority.

So in closing, Mr. Chairman, rising crude oil prices and political

uncertainties in strategically sensitive regions of the world are focusing the public’s attention on the need to enhance our Nation’s

energy security. Biodiesel is a viable option to begin retaking control of our energy future. Biodiesel can be a substantial tool in the

Nation’s overall move toward security as it adds new net gallons

to the distillate fuel pool, adds new U.S. fuel production capacity,

directly replaces imported finished diesel fuel, utilizes agricultural

products, stimulates rural and urban economies and creates jobs,

and helps potentially create new chemical industry jobs and activities here in the United States.
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So Mr. Chairman, we appreciate you having this hearing and we

appreciate you inviting the biodiesel industry to participate, and I

would be happy to answer any questions.

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

Mr. Lampert, we will be pleased to hear from you.

STATEMENT OF PHIL LAMPERT, EXECUTIVE DIRECTOR, NATIONAL ETHANOL VEHICLE COALITION, JEFFERSON CITY,

MO

Mr. LAMPERT. Thank you, sir. I appreciate the opportunity.

Mr. Chairman, Ranking Member Hastert, members of the committee, my name is Phil Lampert. I am the executive director of

the National Ethanol Vehicle Coalition and we have been doing E–

85 before E–85 was cool. Back in 1993, General Motors produced

272 flexible fuel vehicles, very limited in their distribution. At the

end of this model year, we will have more than 6 million flexible

fuel vehicles on the Nation’s highways. The automakers appeared

with the President in the Rose Garden March 30 and indicated

that if infrastructure was going to be available, that by model year

2012, 50 percent of their total production would be flexible fuel vehicles. A flexible fuel vehicle can run on zero percent alcohol or 85

percent alcohol with no switches to flip, with no characteristics

change for the driver, absolutely transparent to the driver.

The issue today is, there are 168,000 locations in our Nation

where you can purchase unleaded gasoline. As of this morning,

there are 1,182 locations where you can purchase E–85. We obviously need to increase the numbers of E–85 fueling stations. We

believe that the most appropriate way to do that is through the additional provision of incentives, not mandates. We do not believe it

appropriate to require the petroleum industry or the transportation

fuel industry to sell E–85 but rather if we continue to incentivize

the sale of that fuel, the entrepreneurs will make the fuel available

to customers. We like to say that the majors have never innovated

anything, it is the little guys that do, and it is the little guys that

will take advantage of the Federal income tax credits that are

available today and that we would encourage you to consider as we

draft new energy legislation. Today’s tax credit provides 30 percent,

up to $30,000 of the total cost to build an alternative fueling station. We would suggest that that potentially be reviewed up to 50

percent, maybe 75 percent for a very short period of time.

Second, it doesn’t take hundreds of thousands of dollars as many

of our colleagues from the API and others would have you think

to put in an E–85 fueling system. In most cases, last year our organization helped foot the establishment of 569 new E–85 fueling stations. Each of those was a conversion of a mid-grade product or

premium product to use E–85. We assist the vendor with determining whether their equipment can handle E–85. We help them find

an organization that can assist them with cleaning the tank. We

put on some different equipment. We can do that for less than

$5,000. It is not necessary to dig a hole and to build gold-plated

E–85 fueling systems and to spend $200,000. I have never in the

1,182 E–85 fueling systems that I have personally been involved

with—because our organization has supported through Federal appropriations each of those new stations with marketing materials,

with imaging materials, with technical assistance. That is what

needs to be provided to the small entrepreneurs. They are the ones
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who will find this as a new profit center and they will put it in very

voluntary fashion.

Finally, we would believe that additional flexible fuel vehicles

could and should be manufactured by the automakers but we do

need to look at the financial situation of our domestic three or Detroit three, however, we want to characterize those today. We do

not believe that we should require every vehicle to be a flexible fuel

vehicle. There is a cost associated with the upgrade to an FFV. It

is arguable that is $50 or $500. It is somewhere in between. We

believe that additional incentives could and should be made available. I believe the staff provided you some copies of slides.

The last point that I would make, even if we open 15,000 new

E–85 fueling stations this year, we will not do that because we do

not have the resources to do that. If we had all those facilities and

we had all the vehicles, unless the product is priced correctly, a

consumer is not going to use it, and I have I think on the last page

of that handout a photograph of two stations, one that is pricing

E–85 20 percent above the cost of regular unleaded, the other one

a picture of an E–85 fueling station, same date that those photographs were taken, one in Minnesota, one in Missouri, where the

price of E–85 is 20 percent less than regular unleaded, and we

have to acknowledge that there is a BTU deficiency or difference

in ethanol. It is simply the chemistry of it. So to make E–85 a

mainstream transportation fuel rather than an alternative fuel in

the future, we need to address the issue of this BTU differential.

I would be happy to answer any questions, and thank you so

much for the opportunity.

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

Dr. Farrell, we will be pleased to hear from you.

STATEMENT OF ALEXANDER E. FARRELL, ASSISTANT PROFESSOR, ENERGY AND RESOURCES, AND DIRECTOR, TRANSPORTATION SUSTAINABILITY RESEARCH CENTER, BERKELEY,

CA

Mr. FARRELL. Thank you, Chairman Boucher, and Chairman

Boucher, on behalf of myself and UC Berkeley, I extend our condolences to the students and the staff and the faculty at Virginia

Tech.

Chairman Boucher, Ranking Minority Member Hastert and

members of the subcommittee, thank you for the opportunity to

come and talk with you today about alternative fuels. My main

point today is that the United States must act to address all three

challenges in the transportation fuel sector, strategic, economic and

environmental, or it faces the prospect of failing to solve any of

them.

My second point is that by themselves, requirements for alternative or renewable fuels are inadequate and can even make the

problem worse. Strong environmental regulation is required to ensure good environmental performance. As was mentioned earlier,

alternative fuels are not all created equal and they can either improve or degrade the environment. Research from my group shows

that the current set of laws and regulations do not give the private

sector adequate incentive to produce environmentally friendly

fuels. But it is my belief that the American energy and agriculture

industries can do so if properly motivated.

My third and final point is that a sectoral approach to managing

greenhouse gas emissions will be far more successful in addressing

the three challenges in transportation fuels than a single economywide approach. I will mention one such policy, California’s low fuel

carbon standard, and I will invite subcommittee members to attend

an international symposium on this topic at the Lawrence Berkeley

National Laboratory to be held on May 18 to discuss how this policy may be implemented.

For reference, I am an assistant professor of energy and resources at the University of California Berkeley and director of the

Transportation Sustainability Research Center. I published over

two dozen peer-reviewed papers and journals such as Science, Energy Policy and Environmental Science and Technology. While

most of my recent work is on energy and climate change policy, as

a graduate of the U.S. Naval Academy and former submariner, I

can assure you that I take national security very seriously. My

background is why I find current policy so disappointing. Two important goals of the United States, national security and economic

growth, are frustrated by failing to act responsible on environmental protection and in particular on climate change. Let me be

clear: failing to adequately address climate change increases the

national security and economic risks facing America.

A transition in transportation energy has begun. This transition

involves a shift to alternative fuels as substitute for conventional

petroleum and it is critical to understand and manage the three

risks that this transition will bring. Importantly, this is an inte-
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grated problem. As we act to achieve one goal, we unavoidably affect our prospects in dealing with the others.

Some aspects of the security implications of alternative fuels are

obvious. Energy security is enhanced by diversifying both the types

of resources we use and the geographic locations they come from.

However, there is more to it. Developing alternative fuels without

a strong climate change policy brings additional strategic risk. Specifically and directly, this is because climate change itself presents

strategic risk as has been noted recently by CNA Corporation study

and others. In addition, continuing to ignore climate change will

make the national consensus on energy policy more difficult to

achieve, delaying any policies that might reduce our strategic risks.

And finally, the current path also tends to encourage disrespect for

international processes and disrespect for international agreements

on common problems which lessens the security of all countries,

United States included. Regarding the economic risks, many of

these have been mentioned. They are largely complementary. In

my view the key economic policy of alternative fuels is how to manage the complementary risks to consumers and investors.

Environmental risks posed by the production and use of alternative fuels are, has been mentioned, quite many. This includes

water use, soil erosion, land disturbance such as mountaintop removal, air pollution, land use and many other issues. In this testimony, I will focus only on the risks of climate change due to greenhouse gas emissions. All alternative fuels entail tradeoffs among

positive and negative environmental effects and amongst cost and

convenience as well. I believe you were distributed a color copy of

figure 1, which is on page 3 of the written testimony. This provides

some representative values for the life cycle greenhouse gas emissions of three categories of fuels: fossil-based liquid hydrocarbons,

which are on the left, biofuels in the center, and electricity on the

right. To focus on the fuel qualities themselves, these values hold

vehicle technology constant so the same vehicle is using the fuels.

In this figure, emissions from different sites of activities are shown

differently. So for instance, you can see that gasoline made from

petroleum, upstream emissions which are caused by crude oil production, transport and refining are equal to about 50 grams per

mile while tailpipe emissions are over 180 grams per mile, and I

would also note in passing there are a number of caveats and notes

to this figure. What figure 1 most importantly illustrates is that

there is no automatic relationship between any particular fuel and

greenhouse gas emissions. It all depends on how the fuel is made.

Gasoline produced from tar sands, for instance, has emissions

about 25 percent higher than gasoline made from ordinary petroleum and coal-to-liquids have emissions that are about 75 percent

higher. As has been noted, greenhouse gas emissions made from

tar sands and coal-to-liquids could be about the same as those from

conventional gasoline production if much of the upstream emissions

were captured and sequestered using CCS technology but they

would not get much better than ordinary petroleum.

Therefore, the use of fossil-based alternative fuels in a way that

addresses all three challenges, strategic, economic and environmental, will require careful consideration and balancing. For instance, the requirement that all fossil-based alternative fuels use
74

CCS and have in addition their greenhouse gas emissions accounted for in a mandatory planet policy would enhance domestic

energy production——

Mr. BOUCHER. Dr. Farrell, if you could wrap up in just a bit. You

are well over your 5 minutes.

Mr. FARRELL. I apologize.

Mr. BOUCHER. Thank you.

Mr. FARRELL. Encourage technological innovation and signal to

other countries that the United States is taking its area in this responsibility seriously.

Thank you very much.

[The prepared statement of Mr. Farrell follows:]
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Mr. BOUCHER. Thank you, Dr. Farrell, and the committee thanks

each of the witnesses for joining us here. Mr. Maley, we particularly thank you for your presence, given your difficulty in making

all of our flight connections, and even though you are a little differently attired from the rest of us, we very much welcome you

here today.

Let me begin my questions with you, if I may. I think you are

generally familiar with the price guarantee legislation that Mr.

Shimkus and I will be introducing very shortly for coal-to-liquids

technology.

Mr. MALEY. Yes, I am.

Mr. BOUCHER. I know that your company is interested in building a coal-to-liquids facility in the United States. Our price guarantee is designed to give confidence to the investor community that

if the price of petroleum declines below the benchmark of about $40

per barrel, that facilities that are constructed to manufacture coalto-liquids would not be stranded. Would our legislation in your

mind achieve that result, and would it create the confidence necessary for you to go forward and construct a coal-to-liquids facility

in the U.S.?

Mr. MALEY. Yes, it would. I believe the volatility, the historic volatility of oil prices is a major impediment to investment, and being

able to—but over time, when you see the long-term price trend, we

believe that between the lows and the highs that you have a viable

project and the legislation allows that project to survive those good

times as well as the bad times.

Mr. BOUCHER. Are you aware of other companies that might be

considering making coal-to-liquids facility investments in the U.S.?

Mr. MALEY. Yes, I am.

Mr. BOUCHER. Have you had any conversations with them about

any reluctance that they have today borne of uncertainties about

the future price of oil and whether or not the passage of our price

guarantee provision would give them the confidence they are seeking?

Mr. MALEY. Yes. We have had conversations with a number of

major U.S. industrial companies and investment companies and

they view that as the major impediment to developing this technology.

Mr. BOUCHER. And our legislation would overcome that impediment?

Mr. MALEY. Yes, I believe it would.

Mr. BOUCHER. Thank you, Mr. Maley. Those were great answers.

Mr. MALEY. Thank you.

Mr. BOUCHER. Mr. Ward, you probably are aware of the backand-forth competing statements, controversy, if you will, over

whether or not a gallon of liquid fuel created from coal has a carbon content that is any greater than a gallon of traditional diesel.

The research that I have seen suggests that there is certainly no

greater carbon content in a gallon of coal-to-liquids fuel than there

is in traditional diesel and some of the studies even suggest that

the coal-to-liquid variety has a lower carbon content than does traditional diesel. I know you have looked at this subject and you have

some expertise on it. Can you enlighten us about the relative carbon content of coal-to-liquids fuel versus traditional diesel?
91

Mr. WARD. Yes, sir. Thank you, Mr. Chairman. We have looked

at that, and one of the things to preface the answer would be also

to remind the members that the fuel itself in terms of all the other

criteria pollutants far exceeds the standards that have been set by

petroleum fuels. So when you are talking about sulfur and nitrogen

oxides and particulates and all the other things that come out

when you burn fuel in an automobile, from that perspective the

coal-to-liquids fuels are much, much cleaner. From a carbon perspective, in my testimony on page 7, I refer to a Department of Energy study that looks at it from a life cycle assessment perspective,

from the well to the wheels all the carbon emissions that go into

producing the fuel and then using it in different products. If you

look at that on a life cycle basis, the coal-to-liquids fuels are going

to be—and if you capture the carbon in the manufacturing process,

the coal-to-liquids fuels are going to be no worse and probably a little better than petroleum-derived fuels. Depending on the type of

coal-to-liquids technology that you use, you can actually end up

with a more energy-dense fuel from the coal-to-liquids projects that

will give you more power when you use it in the engine and that

is also in effect where you are getting more power for approximately the same amount of carbon.

Mr. BOUCHER. Thank you very much, Mr. Ward.

Let me ask a question of Mr. Foody about Iogen and its plans.

I know that you have under consideration the construction of a

commercial-scale cellulosic ethanol manufacturing facility, I believe

in the State of Idaho. Is that correct?

Mr. FOODY. Yes, that is right.

Mr. BOUCHER. Can you give us a sense of where you are in the

development of that plan and at the same time talk about your potential interest in building other commercial-scale cellulosic facilities in the U.S.? And finally—and I will turn the balance of the

time over to you to answer these questions—what do you think the

overall capacity in the United States for the creation of cellulosic

ethanol is measured in number of gallons per year that could be

produced?

Mr. FOODY. OK. Let me first of all talk about where we are at

with our project in Idaho. We are developing a site based upon the

development work at our demonstration facility. We have acquired

the site. We have already got contracts with farmers to supply all

the feedstock that is necessary. We have undertaken a significant

engineering program. As you might be aware, we were selected by

the U.S. Department of Energy for an award of up to $80 million

in support of that facility. We also have filed a pre-application for

a loan guarantee for another portion of the financing with the Department of Energy. We have begun negotiations on the grant and

look forward to hearing back about the state of the loan guarantee.

We anticipate that within a period of about 30 months from the

time at which we have full clarity of our funding we will be able

to have a project up and running. So that is a quick picture of the

situation in Idaho. Following on that, it is our company’s intent

and plan to be the leading supplier of cellulosic ethanol in America.

We are committed to doing a large-scale deployment of technology

in North America and we believe we can build a significant industry.
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As to America’s overall capacity, I would point to the Billion Ton

Study conducted by the U.S. Department of Energy and USDA that

estimated that America has the capacity to produce about 30 percent of its total petroleum resources from cellulosic biomass on a

continuing basis. That is roughly 60 billion gallons a year. During

my testimony, I outlined that there are a number of proposals to

increase the Renewable Fuel Standard to a range of something like

20 billion gallons that would point to cellulosic ethanol, and I believe that that 20 billion gallons is very doable and very realistic.

Mr. BOUCHER. Thank you very much, Mr. Foody. My time has expired.

The gentleman from Illinois, Mr. Hastert.

Mr. HASTERT. I thank the chairman, and I have more questions

here than I think I am going to have time for answers, but let me

just say, Mr. Lambert, last August I went out and bought a flex

fuel vehicle, a pickup truck. I thought that was a good thing to do.

My problem is, I have to drive 40 miles round trip to fill it up, and

if you start to look at the numbers, sometimes that doesn’t pay. A

recent Wall Street Journal article highlighted certain policies and

practices that are making it more difficult for franchise service stations to install E–85 pumps. Are you aware of these practices, and

if so, what is the impact and what we can do about it, briefly?

Mr. LAMPERT. We have certainly been made aware of franchise

issues and how they have prohibited—just very quickly as an example, if I were to own the corner gas station, my personal family

owned the canopy, owned the equipment, owned the tanks and I

was supplying a major brand for purposes of credit card receipts

and marketing, et cetera, in most cases I would not be able to install an alternative fueling system even if I paid for all of it and

if I wanted to because of the franchise restrictions. So yes, Congressman, that has been a great burden to overcome. The State of

New York and the State of Iowa have addressed that in franchise

laws within their——

Mr. HASTERT. So you are saying the big guys, the big three or

big four, big five, whatever, if you are—and I will use names. If you

have a Shell or a BP or whatever station, you can’t sell this stuff?

Mr. LAMPERT. That is correct.

Mr. HASTERT. OK. Let me ask you another question. What

about—here is something that I have experienced. If you go out

and talk to the Wal-Mart people or if you talk to the Circle K or

if you talk to 7–Eleven folks, they are very reticent about putting

these pumps in because they haven’t got UL certification and there

is a liability issue. Have you found that to be true?

Mr. LAMPERT. Yes, sir, absolutely, and you are well aware of

that. We have worked on this issue for a year and a half. For the

members of the committee, Underwriters Laboratory rescinded the

previous certifications that we had received for E–85 fueling equipment on October 5 of last year. Underwriters Laboratory indicated

that there was no evidence of failure, no evidence of corrosion, no

anecdotal evidence, but, however, the certifications were rescinded

and we now expect to have a new process in place by the end of

the year. I still do not believe that we will have any E–85 equipment available until mid–2008.

Mr. HASTERT. Do you know why that rescinding took place?
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Mr. LAMPERT. No, sir, I have not been able to determine that.

Mr. HASTERT. Let me ask you another question. I had a meeting

with Underwriters Laboratory and the head of Underwriters Laboratory said that they weren’t even asked to do an E–85 discovery

or certification until last June. Do you know who asked them to do

that?

Mr. LAMPERT. Well, CleanFuel USA, one of our members, along

with Gilbarco and Dresser Wayne had been working with UL for

some period of time.

Mr. HASTERT. But prior to June, right?

Mr. LAMPERT. Oh, absolutely, yes, sir, and our organization,

through Federal appropriations actually provided financial resources to assist that effort.

Mr. HASTERT. Do you know of many major oil companies that

made contributions to Underwriters Laboratory to redo this study?

Mr. LAMPERT. Not to my knowledge.

Mr. HASTERT. Would that be possible if somebody didn’t ask

them until June that this June date became a request by a major

oil company?

Mr. LAMPERT. I suppose that is possible. It is certainly coincidental.

Mr. HASTERT. Wouldn’t it be strange that we were promised to

have Underwriters Laboratory certification by June of this year, a

new request came in and then all of a sudden this stuff is rescinded?

Mr. LAMPERT. It is quite unusual.

Mr. HASTERT. Is there a skunk in the woodpile someplace?

Mr. LAMPERT. That is—I will leave that to your nose, sir.

Mr. HASTERT. In your testimony, you mentioned that leading

U.S. car manufacturers made a commitment to have 50 percent of

their vehicles flex fuel by 2012, the infrastructure is there. Besides

issues surrounding E–85 pump certification, what other barriers

exist to meeting this infrastructure demand? Do you believe you

have appropriate steps to removing these barriers?

Mr. LAMPERT. The primary issue is lack of technical support. The

Department of Energy has provided large numbers of grants. There

are funds available through competitive processes. We applied for

money last year. Our project did not rank high enough. We applied

with the States of Illinois, Iowa, Wisconsin, Minnesota in a corridor

project. Our program did not rank high enough. Michigan was included in that. Technical support, marketing materials, education,

promotional materials, when you drive to that station, sir, we want

to be able to have one sign, and when Mr. Boucher drives to a station we want him to see the same sign so there is consistency

there, and that is lacking.

Mr. HASTERT. Thank you.

Mr. Foody, very quickly, my time is running out, but I want to

ask you a question. The new cellulosic plant, and I am in support

of cellulosic ethanol, but the new cellulosic plant that you are talking about is in Idaho. Is that correct?

Mr. FOODY. That is right.

Mr. HASTERT. There happens to be a growing season in Idaho,

and while I was in Idaho in the wintertime, it is pretty cold, not
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a lot of grass is growing. So you have to have a feedstock that is

continuous, right, to keep these plants running 12 months a year?

Mr. FOODY. No, actually in most cases we are targeting on using

agricultural residue that is harvested just at one time in the year

so——

Mr. HASTERT. So you didn’t actually put hay or silage-type materials——

Mr. FOODY. We put hay or silage—in the case of Idaho, it will

be weed and barley straw, or if it was in Illinois, it would be corn

stocks and corn stover. We collect after harvest season, store at a

central location and then use throughout the year.

Mr. HASTERT. And you can take like saw grass and store that

and make hay out of it whatever?

Mr. FOODY. Yes, absolutely. I think the big vision for cellulosic

ethanol includes using corn stover as well as switchgrass as a

major energy source.

Mr. HASTERT. Thank you.

Mr. BOUCHER. Thank you very much, Mr. Hastert.

The gentleman from Georgia, Mr. Barrow, is recognized for 5

minutes.

Mr. BARROW. I waive.

Mr. BOUCHER. The gentleman waives.

The gentleman from Utah, Mr. Matheson, is recognized for 5

minutes.

Mr. MATHESON. Thank you, Mr. Chairman.

Mr. Ward, in your testimony at the end you list several possible

incentives to help with the development of coal liquefaction. In a

constrained world, what would be your priority out of those incentives? What do you think is the most important for us to be looking

at from a public policy perspective?

Mr. WARD. Well, clearly we have already discussed the pending

bill coming from Chairman Boucher and Congressman Shimkus

which if it is administered correctly—the key to that bill will be

where the price collar is set, and if the price collar is set in such

a way and the program is administered, that could be a very powerful incentive. Another of the incentives that is on the table is the

extension of the Excise Tax Credit, which was given to coal-to-liquid fuels as part of the SAFETEA-LU Act in 2005 but it expires

in 2009. This is a very powerful incentive. It addresses the market

price risk associated with fluctuating oil prices and there is a minimal amount of opportunity for what you might call bureaucratic

impediments that may be able to creep into the program. So I

think those would be the two top priorities.

Mr. MATHESON. Mr. Hughes, I was going to ask you, what do you

think about the importance of fuel specification standards? Is the

National Biodiesel Board working with any engine manufacturers

to assure reliable operation of today’s ultra-low-emission diesel engines and biodiesel?

Mr. HUGHES. Congressman, that is a great question, and the answer is absolutely. We see full quality as, in the words of Ford, job

one, and we have been working since day 1 to provide industry

with the ASTM, the American Society of Testing Materials, with

the engine makers, automakers, petroleum industry in the development of a fuel specification and ASTM standard for biodiesel. There
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is one in place. It is ASTM D6751. That is for B100, used as a

blend stock with conventional diesel fuel. We are continuing to

work with all of those entities under the ASTM umbrella for a finished fuel specification for finished blends and are moving that ball

forward as quickly as is absolutely possible.

Mr. MATHESON. Do you have a sense what the time frame might

be on that?

Mr. HUGHES. Well, sometimes they say ASTM moves at a glacial

pace but that is a good thing because all of the stakeholders that

are involved look at the issue from many various angles. I would

say probably maybe within the next year you might see a finished

spec for a finished blend of biodiesel up to B–20.

Mr. MATHESON. Dr. Farrell, we have had a lot of climate change

hearings before this subcommittee and most witnesses that come

before us from different sectors and whatnot have discussed the

need for economy-wide action and your testimony says the opposite.

Can you expand on why you think we shouldn’t be doing it economy-wide?

Mr. FARRELL. I do think we should do an economy-wide approach. That is correct. But a unified, single economy-wide approach is probably not appropriate, and the reason is that the U.S.

economy is very diverse, and one of the key things that we need

is technological innovation across the entire continent, and a single

approach that has, for instance, put a cap on the entire economy

essentially would put the same price on the transport sector, the

electricity sector, manufacturing sector. Because of differences in

cost structure, in the ability for fuels to compete head-on-head on

tax structure and regulation, you get very differential responses

and most likely very little technological innovation in some sectors

of the economy and particularly possibly in the transport sector,

which would in the long run lead to the detriment of achieving the

goals of both energy security and climate policy.

Mr. MATHESON. We also had the previous question from the

chairman about the conflicting information we are getting about

potential carbon emissions from fuel derived from coal-to-liquids.

You put out a table here that really shows it being exceptionally

high. How do we resolve these differences we are hearing about of

carbon emissions from coal-to-liquids?

Mr. FARRELL. Thank you, Mr. Matheson. I am pleased to try and

resolve this. I don’t think there is that much of a difference. In the

figures that I show, the top half of the figures were this fossilbased fuels are the upstream emissions, and I would agree. If those

are largely captured and sequestered, then you will end up with

the tailpipe emissions that are essentially the same as gasoline.

Mr. MATHESON. So you would submit that with that caveat, that

the DoE information referred to earlier is consistent with what you

are talking about?

Mr. FARRELL. That is correct.

Mr. MATHESON. That is real helpful.

Thanks, Mr. Chairman.

Mr. BOUCHER. Thank you, Mr. Matheson, and thank you for obtaining that clarification.

The gentleman from Texas, Mr. Barton, the ranking member of

the full committee, is recognized for 5 minutes.
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Mr. BARTON. Thank you, Mr. Chairman. I don’t think I will take

that much time.

I am obviously, as all of us are, a supporter of alternative fuels

and I think debate and let the marketplace determine the best ones

or the multiples of ones is good, but I just read something this

morning that I didn’t know, and I am a little bit troubled by it so

I am just going to ask the panel this question. This is an AP story.

It is from the Washington—it is reprinted in the Washington Post

this morning, and the headline is ‘‘Study: Ethanol May Cause More

Smog Deaths,’’ and I will just read the top paragraph

Switching from gasoline to ethanol, touted as a green alternative at the pump,

may create dirtier air, causing slightly more smog-related deaths, a new study

says . . . it is not green in terms of air pollutant, said study author Mark Jacobson,

a Stanford University civil and environmental engineering professor. If you want to

use ethanol, fine, but don’t do it based on health grounds. It is no better than gasoline, apparently slightly worse.

His study based on a computer model is published in Wednesday’s online edition of the peer-reviewed Journal of Environmental

Science and Technology and adds to the messy debate over ethanol.

Mr. Lampert, what is your take on that?

Mr. LAMPERT. Thank you so much for the question. We were

aware of that study, Congressman, and had been working with the

author for some period of time. The first couple paragraphs makes

a notation if 100 percent of the Nation’s automobiles operated on

E–85, then these next steps may occur. We have no more interest

in having 100 percent of the Nation’s vehicles operate on E–85. We

don’t believe that any more prudent than we believe it is prudent

today to have our Nation depend on one form of transportation

fuel. So I think that the prerequisite there is that if all of our Nation operated on E–85, that is not going to happen, so I just—

frankly, I think that it is a very nice research analysis and will

leave it at that.

Mr. BARTON. Does anybody else want to comment?

Mr. FOODY. I would like to just say something from the perspective of people developing cellulosic ethanol. We are generally of the

view that the growth of this industry shouldn’t result in a stepping

back on environmental standards, and to the extent that the massive studies which go on in all sorts of different directions point to

certain revisions in the regulations for fuels, we would support

those.

Mr. FARRELL. Mr. Barton, I had a chance—thank you for the

question. I had a chance to read that paper carefully. The very end

of the paper, in my opinion, is the most important part where he

observed that—the author notes that he has done one study and

that over time regulations change, technologies change, and he

says as you quoted, that ethanol will be probably no better than

gasoline and I think that the processes that we have, whether they

are sips or standards for new catalysts for flex fuel vehicles can ensure that we develop, whether they are biomass-based or fossilbased or whatever that we can assure that the health of the American public is maintained.

Mr. BARTON. My last question goes to the gentleman that is the

cellulosic ethanol expert. Let us assume that we get your technology in full production and we work out all the kinks and we get
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it down the learning curve, however long that takes. Once we get

to that great day, what is the price per gallon of cellulosic ethanol

most likely to be?

Mr. FOODY. Well, first I would say we don’t talk about our own

technology cost but I would call your attention to the U.S. Department of Energy’s studies through National Renewable Energy Laboratories. They projected that the technology target by 2012 about

$1.10 a gallon. Reflecting as a person developing the technology——

Mr. BARTON. That is a wholesale cost or retail cost?

Mr. FOODY. That would be a plant gate cost.

Mr. BARTON. OK.

Mr. FOODY. Reflecting on this as a developer of technology

though, I would say that ultimately the price that you will see for

these products will be linked to what the price of oil and how energy markets develop and that to the extent that the price is higher than the absolute cost, you will see greater investment in the

technology and greater reduction in the consumption of petroleum

and better energy security.

Mr. BARTON. So a good round number 5 years from now is $1 a

gallon wholesale?

Mr. FOODY. I think that is the price that the DoE estimated. I

think though you really have to keep in mind, if the wholesale

price of gasoline is $2 a gallon, that will probably determine the

ultimate selling price.

Mr. BARTON. I understand how a market works. You are not

going to give your product away. OK. But it is not going to be $4?

Mr. FOODY. No, it is not going to be $4.

Mr. BARTON. Thank you, Mr. Chairman.

Mr. BOUCHER. Thank you very much, Mr. Barton.

The gentleman from Washington State, Mr. Inslee, is recognized

for 5 minutes.

Mr. INSLEE. Thank you. I appreciate your testimony. Thanks for

being here all of you, and I missed some of it. We have another

global warming hearing over there in another building I have been

sitting in so there are a lot of places to deal with global warming.

I wanted to ask you particularly, Mr. Ward, about some of the

things I talked about earlier about coal-to-liquids and I am looking

at a chart and I will try to get a copy to you, but basically it is

an EPA evaluation of percent change in global warming gas emissions from a variety of fuels, and it shows for cellulosic ethanol

there would be a 90 percent reduction in global warming gas reductions per unit. For biodiesel, there would be a 67.7 percent reduction. For corn ethanol, and this is an average, there would be a 20

percent reduction. For coal-to-liquids without carbon sequestration,

there would be 118 percent increase, and with sequestration there

would be a 3.7 percent increase compared to today’s operating situation which is basically gasoline. So the first question I have, are

those number real? Are those the best assessment that we have at

the moment? And second, if they are and if we do have a limited

resource base to invest in new technologies, why would we—assuming you accept the premise that there is a problem with global

warming, why would we go with a technology that without sequestration almost doubles or more than doubles CO2 and goes up a lit-
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tle bit with sequestration when as an alternative, and I think a

probably successful alternative, to burn coal cleanly, sequester the

CO2, produce electricity and feed our plug-in hybrids that I drove

a few weeks ago—you get 150 miles a gallon of gasoline and a

penny a mile for electricity in non-peak hours—why would that not

be a better use of our coal, a cleaner use of our coal and more sensible use for our coal as opposed to coal-to-liquids?

Mr. WARD. I will answer the second question first and then go

back to the first one. Plug-in hybrid vehicles are a cleaner solution.

They are absolutely a good technology and it is a technology that

this country needs to pursue. The challenge with plug-in hybrid vehicles is that you need to build a new infrastructure and a new

fleet of vehicles in order to get that done. What coal-to-liquids does

for you is produces a fuel that works in the existing fleet of vehicles

and can serve as a bridge for us to whatever future vehicle economy it is whether it is plug-in hybrids or hydrogen economy or

whatever that future is.

Mr. INSLEE. Can I stop for you for a second because I want to

understand your answer. You said plug-ins would require a new infrastructure. What are you referring to?

Mr. WARD. You are going to have to make the plug-in vehicles

themselves. You are going to have to get them into the market and

distributed. I don’t think we can do plug-in airplanes. I don’t think

we can do plug-in locomotives. I don’t know that we can do plugin over-the-road trucks. There is going to be an existing fleet of petroleum-fueled vehicles on the roads for a very long time. As the

inventory wears out, coal-to-liquids fuels will work in all of those

vehicles as well. So coal-to-liquids is not the end solution but it is

a very important strategic bridge to be able to fuel the fleet we

have using the resources that we have in the United States.

Mr. INSLEE. So you are saying there would be some segment that

we couldn’t get to with electrification basically. So I think I understand what you are saying. Assuming that that is true and assuming that we have a limited amount that the Federal Government

has, and there are limits even here on what we can spend, thankfully, if we had $100 to spend and if we could spend $100 developing cellulosic ethanol that reduces CO2 emissions by 90 percent or

on biodiesel which reduces emissions 67 percent, why would we

spend that limited Federal investment on a technology that bestcase scenario increases CO2 emissions by 3 percent, worse-case scenario doubles it? Why should we use our limited resources for a

technology that goes backwards when we have these other alternative fuels that can almost cut CO2 emissions by 90 percent? Why

would we do that? Other than there is—well, anyway, go ahead.

Mr. WARD. Well, I would make a couple of comments with regard

to that. Number 1, I think the dollars that we are looking to spend

on coal-to-liquids are not to develop the technology, the technology

is ready to go, and in my testimony I point out in some more depth

in the written testimony that we will likely have a coal-to-liquids

infrastructure in this country whether we provide incentives for it

or not. It will just happen—it will respond to market forces. It will

happen slowly. The plants will come on slowly. The reason for

spending Federal dollars on coal-to-liquids technologies now is to

build that bridge that we need to get us through the energy secu-
99

rity issues of bringing that capability of using coal-to-liquids fuels

up faster. So, we don’t need incentives to improve the technology

and I would also point out in my testimony that we got Department of Energy studies that would indicate that if you do capture

carbon from your process making coal-to-liquids fuels, you can actually improve——

Mr. INSLEE. Just in closing, my time is up. I want to make closing comments. As far as speed, we are building the largest biodiesel plant in the western hemisphere. It is under construction right

now in Grays Harbor, Washington. We are ready to go. We don’t

have to wait. As far as speed, we got six cellulosic ethanol plants

that are going to start construction now that the loan guarantees

are going. I do question your argument that somehow this would

be faster when we have two industries up and running now, at

least the first steps of it. Thank you very much.

Mr. BOUCHER. Thank you very much, Mr. Inslee. Just for your

information, in a second round I am going to come back to this

question that you have raised, and in fairness to you I thought I

would let you know that in case you want to stay and take part

in that conversation.

The gentleman from Michigan, Mr. Upton, is recognized for 8

minutes.

Mr. UPTON. Thank you. That second round will start about what,

3 p.m.?

Mr. BOUCHER. A little sooner, I think.

Mr. UPTON. Thank you, Mr. Chairman, and I want to say to Mr.

Maley too, I liked your answers as well to Chairman Boucher and

I think that I will likely add my name as a cosponsor to that legislation when you introduce it, which I know is in the next couple

of days, so please keep me in mind. Mr. Ward, you indicated that China is spending $30 billion on a

coal-to-liquid plant and I am just wondering if you can elaborate

on that a little bit, how many facilities and where are they in

terms of development, and what level of assistance do we have

other than perhaps Mr. Boucher’s bill in terms of the Department

of Energy looking for that same type of assistance?

Mr. WARD. In China there are over a dozen projects that are in

the active stage that I would classify as doing front-end engineering, design or putting them into construction. Probably the farthest

along plant is the world’s first commercial-size direct coal liquefaction plant. We have licensed our direct coal liquefaction technology to Shenwa Corporation, which is the largest coal producer

in China, the first 20,000-barrel-per-day direct coal liquefaction

train, and that plant will be coming online in 2008. China has

made a strategic decision to invest in coal-to-liquids technologies.

They can either spend billions of dollars to build pipelines from the

coasts to their interior to make them more dependent on foreign

oil, as we are, or they can build facilities to rely on their domestic

resources, which is what they have chosen to do.

Mr. UPTON. And as they proceed on that path, are they intending

to use carbon sequestration?

Mr. WARD. Not to my knowledge.

Mr. UPTON. Myself and Mr. Doyle have introduced legislation in

the last Congress as well as in this one that would require a 10
100

percent renewable mandate by the year 2012. We have a number

of Republican and Democratic cosponsors on that legislation and I

just wonder, Mr. Ward, Mr. Foody, Hughes and Lampert, do you

think that we can actually—if we are able to pass that legislation,

do you think that it is actually achievable by 2012 to reach 10 percent renewable mandate?

Mr. LAMPERT. Well, Congressman, I certainly think that is capable. We have last year burned about 140 billion gallons of unleaded

gasoline. As you know, every motor vehicle in the United States

today can run on 10 percent ethanol so we could hit that threshold

pretty quickly with the 6 million flexible fuel vehicles we have on

the road today. We could use another 5 to 6 billion gallons should

the infrastructure be available to fuel those vehicles. So I would respond in a very positive manner, yes, that would be possible.

Mr. UPTON. Mr. Hughes, I am glad to say that we have got a biodiesel plant in my district now that is operating and it is online

now.

Mr. HUGHES. Great. That is fantastic. I echo Mr. Lampert’s comments. I think that would be optimistic to be able to do that and

the biodiesel industry has set a vision for ourselves to be 5 percent

of the diesel fuel by 2015. We look to be a very substantial player

and actually are working with the trucking industry. We are looking at the idea of maybe coming forward to you all in the Congress

with some kind of a standard for biodiesel in the diesel pool and

that would be something on the order of around 1 billion gallons

by 2012.

Mr. UPTON. Mr. Foody?

Mr. FOODY. I would say we believe that a 10 percent renewable

fuels by 2012 is very doable. However, cellulosic ethanol by that

time probably will not be a major contribution to that number. Cellulosic ethanol—by 2012, that is about 15 billion gallons. That will

be about the time that we are ready to build very large projects

and within the next 10 years cellulosic ethanol could deliver another 10 percent or another 15 percent on top of that number

again.

Mr. UPTON. I talked to Mr. Barton before he left after his questions. I too was a little bit surprised to see that report availed in

the Washington Post yesterday or today, and one of my thoughts,

perhaps, and I wonder if you might comment on this, Mr. Lampert,

was it is because of the transportation of ethanol, not being able

to go into a pipeline so you have actually got to put it on rail or

send it by truck, that perhaps that factor might have been one of

the reasons why in fact the pollution would be the same or perhaps

higher because you are not able to take advantage of what I think

would be otherwise lower emissions.

Mr. LAMPERT. Well, lower emissions and certainly lower cost.

Shipping transportation fuel by pipeline is certainly the cheapest.

We do send ethanol by barge as well, but I think in this particular

study, what we are looking at is toxicity. Clearly, when you consume ethanol in a motor vehicle, you increase the aldehyde emissions that come from tailpipe, acid aldehyde, acetyl aldehyde, other

forms of aldehyde. Those are toxic chemicals. What you are doing,

however, is reducing the benzene, the xylene, the toluene, the other

very harmful chemicals. It is an issue of toxicity and with our re-
101

spect to the author, we believe as does EPA and the California Resources Board that some of these toxicity levels that the author has

characterized may be misplaced.

Mr. UPTON. Now, doesn’t Brazil send most of their ethanol to

their distribution facilities by pipeline?

Mr. LAMPERT. A large amount of it is, and that is not to say, sir,

that we cannot send ethanol by pipeline but typically a pipeline is

owned and operated by a major petroleum company so they don’t

have a great deal of incentive to assist with that, first. Second, a

pipeline is used to ship crude oil, propane, kerosene, et cetera, and

you have got a lot of distillates that are going to be left in there.

If you wanted to clean the inside of that petroleum, you would use

ethanol to do so. And thirdly, there are some metallurgical characteristics that may not allow some of the older pipelines, but that

is not to say that we cannot do so.

Mr. UPTON. Mr. Hughes, with the transportation of biodiesel, is

there the same trouble as there is with ethanol in terms of water

and therefore pipeline distribution problems?

Mr. HUGHES. In Europe right now, you have biodiesel moving

through pipelines and it is moving primarily at a low blend, about

like a 5 percent biodiesel blend. Our industry has committed some

significant resources to working with the pipeline companies to explore the issue, any kind of technical issues that might be associated with moving biodiesel through the pipe here in the U.S. So

some of the preliminary reports that we have gotten show that it

is likely to happen, favorable and, just stepping through some of

those hurdles, but our intent is to eventually have biodiesel moving

through the pipes here in the United States.

Mr. UPTON. The last question I have as my time is expiring is,

I am just interested from Mr. Foody, Hughes and Lampert in terms

of your association with the auto industry. Has there been good coordination? I know that every vehicle can take the 10 percent ethanol. I know that E–85 obviously needs a different engine, which is

not all that much more expensive and actually I think it is the

same price at least for General Motors, but has the coordination

been good between the auto industry and your fuel?

Mr. LAMPERT. Well, Congressman, our organization, National

Ethanol Vehicle Coalition, our board of directors is composed of

General Motors, Daimler Chrysler, Nissan and Ford Motor Company along with the National Corn Growers, ethanol producers, et

cetera, so yes, our coordination is outstanding.

Mr. UPTON. Mr. Hughes?

Mr. HUGHES. We have a wonderful working relationship with the

automakers, and in fact some of them, Daimler Chrysler is using

biodiesel to factory fill some of their vehicles coming off the lines

here in the United States so we have a very positive relationship

with them.

Mr. UPTON. Mr. Foody?

Mr. FOODY. If I might say, we have worked with a number of

automakers as well and have a good relationship with them. I

would give you a quick caveat though. We also have Shell as a

major investor in our firm and certainly as we look towards increasing the total amount of alternative fuels in the pool, one sees

a different vision of the future sometimes coming from the oil com-
102

panies than you do from the car companies. I recently heard a fellow from API testify that the oil industry could see increasing the

amount of renewable fuels from a 10 to a 15 percent as at least

for them a lower-cost way of wrapping up alternative fuels content

and I am not really sure where the automakers stand on that.

Mr. UPTON. I yield back.

Mr. BOUCHER. Thank you very much, Mr. Upton.

The gentleman from Texas, Mr. Gonzalez, is recognized for 5

minutes.

Mr. GONZALEZ. Thank you very much, Mr. Chairman. I am trying to limit the discussion on oil independence because I think

there are other considerations of the climate change and how we

get those basically to benefit one another when we are looking at

different alternative fuels.

I cut this article out and it says Texas is top State for alternative

fuels. Now, what do you think of that? And California is second.

I hate to tell you, the alternative fuel is diesel, and you know what

we drive in Texas. This question is—let me see. I think the best—

Mr. Lampert, it will be directed to you. And not setting aside but

recognizing some considerations, because I am going to read from

an article that was written by Mr. Robert Samuelson in the Washington Post on the 24th of January, because ethanol seems to be

getting all the attention. There are considerations. One of course

is transportation of the materials to produce ethanol, and by rail—

I mean, it really is a significant consideration. The transportation

of the fuel itself, ethanol, and I think Mr. Upton has touched on

that, and then the fueling stations, we have talked about that.

The cost of producing the alternative fuel, ethanol, and there has

been some discussion about the added cost per unit, and then the

energy or the fuel economy, the energy value of ethanol which my

understanding is less than gasoline. You get less miles, less power

and so on. All that into consideration. This is Mr. Samuelson’s article, Blindness on Biofuels, and then I want your opinion on his deductions or his comments.

Let’s do some basic math. In 2006, Americans used 7.5 billion barrels 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, biofuels

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

import dependence from current levels. Suppose we reach the administration’s ultimate target of 60 billion gallons in 2030? That would offset less than half of the

projected increase in annual oil use. Here is why. First, it is necessary to convert

the 60 billion gallons into barrels because there are 42 gallons in a barrel. That

means dividing by 42. Further, ethanol has only about two-thirds of the energy

value of an equal volume of gasoline. When you do all the arithmetic, 60 billion gallons of ethanol displaced just under 1 billion barrels of gasoline. If that merely offsets increases in oil use, it won’t cut existing important dependence or greenhouse

gases.

And I guess what I am asking, Mr. Lampert, do you dispute the

deductions reached by Mr. Samuelson?

Mr. LAMPERT. I don’t have those available, sir, for close review.

I would only respond by saying that our organization supports all

forms of alternative fuels—compressed natural gas, propane, biodiesel, electricity, plug-in hybrids. We don’t believe that we want

to be any more dependent on just E–85 or just biodiesel but that
103

my grandchildren I hope drive into the fuel station in the future,

not the gas station but the fuel station and they may get a quick

charge on their little electric vehicle or they may buy E–85 or they

might buy biodiesel. So I think we are going to have a vast mixture

of different forms of fuels, and I would be happy to review the article and provide a response to you in regard to Mr. Samuelson’s

statements but I am not available to do that this point, sir.

Mr. GONZALEZ. I think what it is with Mr. Samuelson is that if

we have legislative mandates and the President is talking about

targets regarding the use of alternative fuels, especially ethanol, in

his State of the Union that those numbers may be totally off and

not realistic, and this committee of course needs to work with real

numbers and real facts, and I think that is the point made by this

particular columnist. That is the reason that I would ask that

question. I understand, and I think I have about 9 seconds but I

believe that—is it Mr. Foody?

Mr. FOODY. Yes. If I may, I would like to just respond to those

points very briefly. I think that it is certainly true that there is a

potential for substantial growth in petroleum use in America. If we

had 60 billion gallons of alternative fuels being used in America by

2030, that would mean we would have less imports than if we

didn’t. It is simply by nature going to be beneficial. I think another

point that was mentioned in the article was that that wouldn’t reduce greenhouse gas emissions. It is very important to ask the

question about what the type of alternative fuel there is. We just

heard testimony earlier that said if it is corn-based ethanol, it is

something like a 20 percent reduction in greenhouse gas emissions.

With cellulosic ethanol, there is something like a 90 percent reduction in greenhouse gas emissions. But there is a potential for that

large volume of alternative fuels to help on the greenhouse gas

emissions front as well.

Mr. GONZALEZ. My time is up. Thank you very much.

Mr. BOUCHER. Thank you very much, Mr. Gonzalez.

The gentleman from Illinois, Mr. Shimkus, is recognized for 5

minutes.

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

testimony here, and just to follow up on Mr. Lampert’s comments.

Those of us who have been pushing renewable fuels and alternatives, we want everybody at the table.

We want the more, the merrier, and I think as we move in this

debate, that would help us all and we want—hopefully the market

will push all the players to be more efficient and competition and

I like that. I also want to mention, as I mentioned Karen McCarthy

and biodiesel, I want to clarify, when we talk about biodiesel, of

course, my initial interest was soy, soybeans and crushing, and

that is what brought me to that debate, but how we were able to

move to pass legislation was, we said reformulate a cooking oil—

beef tallow, and another colleague who was helpful is recently deceased, Patsy Mink from Hawaii, was very involved in this, and it

is that bipartisan nature, and as we do on the cellulosic debate, the

benefit—and you talk about ethanol transportation issues.

That is the benefit of the cellulosic debate. Let us get these refineries in the local areas where you can have local refineries with

local products and then just transport it for that regional market.
104

We are in a great age of really addressing this reliance on imported

crude oil and the public is itching for it for the reasons I said in

my opening statement.

Let me ask—what is fun here is because I have also been working with the chairman on the coal-to-liquids legislation, Mr. Ward,

Mr. Maley, you both have mentioned it and I appreciate your

strong comments. I want to give you a minute to address—and I

had to step outside for some meetings—again let us take a few

minutes and talk about our big opposition will be the environmental community and I think they should not be for the reasons

you have already highlighted. Can you briefly tell two or three

things each why the environmental community should look at this

more positively than we seem to be hearing? Mr. Ward?

Mr. WARD. The fuel that comes from a coal-to-liquids refinery is

exceptionally clean compared to the fuel that comes from a petroleum refinery today in terms of those criteria pollutants.

In terms of carbon, if we capture and store the carbon that comes

out of the production process, these fuels are about as good or possibly a little better than the fuels that come from petroleum-based

refineries.

Mr. SHIMKUS. And the ability to capture the carbon is easier or

harder under our coal-to-liquids refinery?

Mr. WARD. In coal-to-liquids refineries, the carbon comes off in

a concentrated stream and it is relatively easy to capture. I would

point out that carbon capture and storage is going on today in large

scale. Just down the road from the North Dakota coal-to-liquids

project we are working on is Dakota Gasification. They capture

their carbon dioxide, they put it in a pipeline, they send it to western Canada where it is used for enhanced oil recovery and stored

in that method. We have studies coming from western Canada

where they have been looking at this process over the years and

it is being done safely. The carbon is staying in the aquifers and

not escaping. So while there is a lot of issues still to work out about

carbon capture and storage and the different modalities for that,

clearly it is already going on on a large scale and it is something

we can do.

Mr. SHIMKUS. Mr. Maley?

Mr. MALEY. I guess my reaction is that when we look at the estimates on global carbon emissions over the next 20 or 30 years, it

is almost regardless of what we do. If we do a great job here, global

carbon emissions are going to grow dramatically and so our view

is that the United States should be taking the lead in developing

the capture technology, the storage technologies, the other maybe

potential benefit use technologies to deal with this problem because

it is a global problem, we can’t just solve it here.

Mr. SHIMKUS. So if we are going to move on two bills, one an energy security bill, the other one on global warming, climate change,

and those of us who really are supportive of this, if we had to as

part of the negotiated compromise move to carbon capture and carbon sequestration in advancing coal-to-liquid capabilities, you think

that would be a risk that the financial people and the association

would, I would say grudgingly accept?

Mr. MALEY. Yes. I think on the four projects we are developing,

we are anticipating that we will up front capture a pure stream of
105

CO2 in our projects. We expect in some markets where in Texas or

Louisiana, there may be a beneficial use, enhanced oil recovery. In

other markets, say in the Midwest, we would be looking to use our

pure stream of CO2, which there are not many of today, to work

on projects, demonstration projects or other alternatives, to help to

advance the technology that will ultimately provide some solutions.

Mr. SHIMKUS. And being from a part of the country that also has

a lot of marginal wells, central and southern Illinois, the west

Texas experience is that using carbon capture in enhanced oil recovery, they are recovering more oil than they did in the initial

find. I think we are going to be able to do that in the oil fields of

Illinois and we look forward to using that technology, but they

have to be located and be able to be piped, so this is a great time

and I appreciate the hearing, and thank you, Mr. Chairman. My

time has expired.

Mr. BOUCHER. Thank you very much, Mr. Shimkus.

The gentlelady from Wisconsin, Ms. Baldwin, is recognized for 5

minutes.

Ms. BALDWIN. Thank you, Mr. Chairman.

Just a quick question for Mr. Lampert. I know you have been

asked a lot about—and I am very struck by the image here, and

being from Wisconsin, of course, I have significant constituent access to E–85 but we would of course like to see a lot more. But

there has been a lot of questions directed to you about how do we

ramp up the fewer than 1 percent stations nationwide to greater

percentages. I am interested in hearing a little bit more about the

geographical distribution and obviously the population centers of

the country, many of which are not served, and what sort of discussions and leadership are you hearing from the States in that regard?

Mr. LAMPERT. Excellent question, and a number of States, Wisconsin for one, have really done a lot in the last several months to

advance E–85 and different forms of alternative fuels, biofuels, and

this has not necessarily just been a Midwest phenomenon. The

State of New York is very active. The State of California obviously

very active. The State of Washington has been active in alternative

fuels. If you look at that map where E–85 stations are, we very intentionally identified Chicago, Minnesota and the front range of

Colorado to learn to determine what the success would be, what

the failure rate would be of the E–85 fueling stations, and now we

are ready to take that out across the country and I believe we do

have stations in 41 States across the country. So we think that the

next step with that is not the largeness of the Federal grants but

rather the Federal income tax credits and the support that again

an entrepreneur will choose to utilize rather than is made to utilize

because we feel like a mandate is going to result in poor pricing,

poor marketing, poor performance and ultimately poor customer

satisfaction.

Ms. BALDWIN. Thank you.

Dr. Farrell, a couple of questions for you. I know your testimony

got cut off a little bit and there is one aspect I would like you to

address at least briefly and then I have a larger question on sort

of research and development and sort of how we should attack

that, but on the quick one, you mentioned in your written testi-
106

mony sort of a combination of coal-to-liquids with carbon capture

and sequestration and advanced biofuels is a new concept. I would

like to hear just a little bit more about what you are hinting at

there, and then the larger question that I would like to hear, as

we try to incentivize innovation both near term and long term, how

do we set that up? Do we do an NIH-like creation in the energy

sector? How do we make sure there is peer review going on in both

public and private sector research and innovation? I think we have

to do it right, and I would love to hear your thoughts on that bigger

question.

Mr. FARRELL. Thank you very much. The first question you

asked was about the possibility of using both coal and biomass as

the feedstocks for the gasification process. This has been done. It

has been done for some years in the Netherlands in the Burgenhem

project, and the interesting thing is that it is now hypothesized and

there is some data which are in the beginning parts of the scientific

process. It is just you can actually grow biomass, grasses most likely, that not only produce biomass but actually improve the soil

quality by putting carbon into the soil, and by doing so you would

actually be able to produce fuels with this biomass that have either

zero or slightly negative carbon content.

If you were to combine that biomass with coal and then capture

and sequester the CO2 stream from the process, you could get significantly large quantities of domestically produced fuels very much

like the fuels we have today at potentially a very low carbon footprint, potentially negative but rather slightly, and this is an area

I think in which to go to your second question, R&D is very necessary. One of the things that is most important about research in

this area is that there are a myriad of different technologies and

a myriad of different possibilities. I mentioned in the written testimony that we really need across the board, across the entire economy approach to incentivizing innovation, and in my view, strict or

tough environmental goals as well as performance goals like we

have begun to introduce in California with our low-carbon fuel

standard would incentivize the private sector where the bulk of the

research is often done as well as programs that would be appropriate whether is through the Department of Energy or the EPA

for the university sector as well. But I do think that a sectoral approach is the best way to go after the innovation question.

Mr. BOUCHER. Thank you very much, Ms. Baldwin and Dr.

Farrell.

The gentleman from Arizona, Mr. Shadegg, is recognized for 5

minutes.

Mr. SHADEGG. Thank you, Mr. Chairman, and thank you again

for holding this hearing. I think these series of hearings have been

very helpful and I applaud you for conducting them.

Mr. Foody, let me begin with you. I would like you to give me

a straightforward and simple explanation if you can on the, I will

use the word efficiency differences between cellulosic ethanol and

let us say corn ethanol or ethanol produced from a fermentation

process. Is there a substantial differential in the cost involved and

in the energy produced?

Mr. FOODY. First of all, let me address the basic technology for

cellulosic ethanol. Corn ethanol has been around for many, many
107

years. Cellulosic ethanol is new technology. There are relatively

small commercial operations but it is new technology moving forward. It is in some ways intrinsically more complex and at least

more capital intense at the factory although you are working with

much lower cost feedstock. You are working with agricultural residues or waste. That is why there is potential for very cost-effective

production. When people talk about the greenhouse gas balance difference between the two, one of the fundamental reasons for that

is that when you power a facility, a cellulosic ethanol facility, most

designs actually use some of the residue from the biomass itself. So

no fossil fuels actually come into the process. It is entirely renewable. Not only is the molecules in the fuel themselves so to speak

renewable but also the manufacturing process is entirely renewably

fuel. The actual ethanol that you get out at the end is the same

fuel, used in the same cars. It couldn’t be told apart.

Mr. SHADEGG. Mr. Lampert, would you agree with that statement?

Mr. LAMPERT. Absolutely. You bet.

Mr. SHADEGG. In most corn ethanol plants, a natural gas is used

to process the plant?

Mr. LAMPERT. That is the majority. We have a plant in Nebraska

now that is actually using livestock manure going into a digestion

system to produce almost 95 percent of the total energy needed for

the facility.

Mr. SHADEGG. Mr. Foody, you would say that there is no net energy gain through cellulosic ethanol opposed to corn ethanol. It is

just that the fuel stock is a biofuel stock, or is there a net energy

differential?

Mr. FOODY. The finished product is the same.

Mr. SHADEGG. So then you are looking at the amount of energy?

Mr. FOODY. You might look at the amount of fossil-fuel energy

that goes into the production, either into the production of the feed

stock itself, the fertilizers for making corn or whatever, or that go

into the manufacturing operations. So when people talk about wellto-wheels studies and particular carbon that is emitted during the

production process, they try to effectively capture or identify all the

sources by which fossil carbon goes into the process, and because

cellulosic ethanol creates residue that itself has energy and that

can be used, most of the balances that have been done around this

process work as well. I might also say just a brief addition to this.

Both cellulosic ethanol and conventional ethanol processes also

produce concentrated CO2 process streams coming off their fermentation and the numbers that you have heard about haven’t incorporated the potential for capture of that CO2.

Mr. SHADEGG. Mr. Ward, coal gasification has been around for a

very long time, hasn’t it? Wasn’t it in fact used by Germany in

World War II?

Mr. WARD. Yes. Actually the coal gasification portion goes back

even farther than that. That is how they made the lamps in Dickens’ London. But the use of gasified coal to make liquid fuels goes

back to—the original work was done in the late 1920’s in Germany

and then it was implemented during World War II.

Mr. SHADEGG. Because I serve on both this committee and on the

Select Committee on Global Climate Change and Energy Independ-
108

ence, I spent a lot of the break trying to look at some of these

issues, and it is my understanding that there is not—I think people

think of coal gasification as a single process but a point of fact is,

there are lots of different processes that are being used, that the

process used by, say, Germany in World War II to create fuel for

its war machine has been improved upon dramatically since then

and we are still doing improvements since that point in time. Is

that correct?

Mr. WARD. That is correct. There are two basic ways of doing

coal liquefaction. There is either indirect coal liquefaction where I

take the solid gas, I turn it into a gas version and then recombine

the gas into a liquid so it is indirect, or direct coal liquefaction

where I take the solid coal and convert it directly into a liquid that

I can then refine. Germany used both of those technologies back in

the 1940’s and actually one of our predecessor companies was

founded by a scientist from the Manhattan Project, who was dispatched by the United States Government to Germany to learn

how they did these things, and those technologies both direct and

indirect coal liquefaction have been improved greatly over the last

several decades. Where we are now is not needing more research

and development. What we need now is to overcome the phenomenon of everyone wants to be the first person to build the fifth plant.

So if we can get the first few plants in and get it commercially accepted, then the market can take over and finance the construction

of these things like any other kind of refinery.

Mr. SHADEGG. My time has expired, but briefly, with coal gasification being done by different mechanisms, do you have any argument with statistics that are cited here for its greenhouse gas emissions as opposed to other technologies not necessarily being precise

or correct or would you say they are pretty accurate regardless of

which technology is used?

Mr. WARD. Well, I think the key thing for coal-to-liquids is that

the—-if you deal with the carbon in the process whether you are

doing gasification or you are doing direct goal liquefaction, if you

deal with it by taking the concentrated stream that comes out of

the process and you store that carbon or you use it for a specific

purpose, it pretty clearly shows you that you can make liquid fuels

with the same kind of carbon signature or less than what we are

doing right now with petroleum, which is what we are trying to replace.

Mr. SHADEGG. Thank you.

Mr. BOUCHER. Thank you, Mr. Shadegg.

The gentleman from California, Mr. Waxman, is recognized for 5

minutes.

Mr. WAXMAN. Thank you very much, Mr. Chairman.

It seems to me that we have two overriding energy concerns.

First our dependence on oil poses a tremendous national security,

economic and environmental challenge, but second, perhaps even

more importantly, uncontrolled emissions of greenhouse gases

threaten the very stability of the planet’s climate and ecosystems.

So it seems to me we should do is, Congress should establish policies that address our oil dependence but would not reduce our

greenhouse gas emissions. This could result in wasted public expenditures and failed government policies. I think it is critical to
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address both of these issues with any energy legislation considered

during this Congress. Otherwise we could adopt policies that could

make our job of addressing global climate change more difficult.

The effect would be to increase pressure, perhaps unfairly, on other

sources of emissions such as electric utilities and the automakers.

One way to reduce greenhouse gas emissions while reducing oil use

is to ensure that the emissions from transportation fuels decline

over time. With this type of constraint in place, all fuels could compete on a level playing field. I would like to get the views of each

of the witnesses to whether they would support a declining cap on

carbon emissions from transportation fuels. We will start with Mr.

Ward and go down the table.

Mr. WARD. As we deal with coal-to-liquids commercialization

issues, our company as a developer and all the other companies

that I know of are only evaluating projects where carbon capture

and storage is capable. What the regulatory framework looks like

in terms of how Congress decides to deal with the regulation is

something that we are going to respond to but we are not taking

a position on it at this time.

Mr. WAXMAN. So you are not advocating or opposing a cap on

carbon emissions in transportation fuels?

Mr. WARD. My company is not. We are focused on trying to process the commercialization gap and deal with the energy security

associated with where our fuels come from.

Mr. WAXMAN. Next gentleman.

Mr. MALEY. I guess as a company, we are committed to doing

what is technically feasible in the marketplace, and as the technologies advance we are committed to implementing those new regimes so we are always at the state of the art of what is technically

and economically possible and we would certainly encourage public

policy that would support a sensible development of those regimes.

Mr. FOODY. Let me just say, I start from the perspective of representing a company who is producing a fuel that people describe

as leading to a 90 percent reduction in greenhouse gas emissions

and we are very happy about being able to contribute to that. I

think the question of whether one sets targets on the overall fuel

declining amount of greenhouse gases or alternatively sets targets,

for instance, for the nature of what advanced fuels might be I think

depends upon the specific, most efficient way of implementing legislation and we wouldn’t have a view, and I am sure you have

heard much more learned testimony about all the different options

than we have.

Mr. WAXMAN. Thank you.

Mr. HUGHES. Congressman, I represent the National Biodiesel

Board. In our trade association, we have fuel producers that make

a fuel that DoE has demonstrated as 78.5 percent reduction, life

cycle reduction in greenhouse gases and so that is what we are focused on is just getting that out there and reducing those emissions. As an association, we have not as a matter of policy, discussed how the various carbon options, carbon reduction policy options, so we don’t have a position for it.

Mr. WAXMAN. Do either of the last two of you have a position one

way or the other?
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Mr. FARRELL. Yes, sir, I do. Thank you for the question, Congressman Waxman. I think that you are quite right, that not only

are these linked but in fact failing to adequately address climate

change increases the security risk and increases the economic risk.

I think that a declining cap does the crucial task, which is it focuses our attention on identifying what we are care about in this

particular domain, which is concentration of greenhouse gases in

the atmosphere, and it sends a signal that those values will go

down in the right direction, and that is the crucial task.

Mr. WAXMAN. Thank you. While carbon capture and sequestration appears very promising for coal-based electricity generation,

the technology for coal-to-liquids doesn’t seem ready for a carbonconstrained world. Maybe there is a coal-to-liquids technology that

can really deliver low-carbon fuels but so far, I don’t know that

anyone appears to be discussing that technology. Do we have any

response whether we are dealing with both of those issues from the

coal technology side?

Mr. WARD. Yes, sir. I would point out that the gasification technology at the core of an IGCC plant that we talk about for capturing and sequestering carbon for power generation is the exact same

technology that is employed in a coal-to-liquids plant so to the degree that we are able to make coal-fueled power stations through

gasification cleaner from a greenhouse gas perspective, the coal-toliquids refinery is exactly the same.

Mr. WAXMAN. And you think we accomplish the lower carbon

fuels as well as displacement of oil for fuel?

Mr. WARD. There are a number of strategies that we can do. As

my testimony points out, if we capture the carbon and store it from

the production process, we can produce a fuel that on a life cycle

basis is equal to or a little better than the petroleum fuels that we

are replacing. As Dr. Farrell pointed out, there are additional technological improvements that will come into play over time such as

the co-gasification of biomass to give us the opportunity to lower

those carbon emissions even farther.

Mr. WAXMAN. Thank you.

Thank you, Mr. Chairman.

Mr. BOUCHER. Thank you very much, Mr. Waxman.

We will embark now on a second round of questions, and given

the fact that there is relatively limited attendance of Members at

this stage, it should go rather quickly.

I want to come back to the question that Mr. Inslee raised about

whether or not a gallon of coal-to-liquids fuel has a carbon content

that is any greater than a gallon of traditional diesel. The EPA has

released a study that contains a chart which Mr. Inslee refers to

that shows that even with carbon capture and sequestration, the

coal-to-liquids technology results in a 3.7 percent greater carbon

content in the fuel than would be true for a petroleum-based fuel.

I don’t know where that number comes from. That information is

at odds with what Mr. Ward has said based on his extensive examination. It is at odds with what Dr. Farrell has testified to here

today, both of whom have said that the fuel coming from coal-toliquids has no greater carbon content than the petroleum and potentially, according to Mr. Ward, could have a lower carbon content, and so my first question is this: Does anyone know why the
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discrepancy between this EPA study showing a 3.7 percent differential with the greater carbon content for the coal-to-liquid product and what you, Mr. Ward and Dr. Farrell, are saying? Dr.

Farrell, you are nodding your head. Would you like to take an attempt at that?

Mr. FARRELL. Thank you, Mr. Chairman. I would suggest, I

would offer that the value of 3.7 percent, given the wide range of

various technologies that Mr. Ward referred to and the fact that

technologies are advancing so when we build the second, third,

fourth of these plants, they will be different than what we are

thinking about today, and our comments that the emissions if the

carbon is captured from these processes are approximately the

same that those are all within the range of these potential studies

so I think there is no conflict among these three.

Mr. BOUCHER. So you are saying there is really no conflict, this

is kind of an average of the technologies that we know about?

Mr. FARRELL. I would say this is one study, this EPA study. They

have made some assumptions in doing their analyses. You could

make slightly different assumptions and come up with a number

that would be slightly different, maybe plus two or minus three,

and all those are within the range of what we can do with this type

of analysis.

Mr. BOUCHER. That is a good answer.

Mr. Ward, would you like to supplement that?

Mr. WARD. Yes. I think the thing to keep in mind when you are

looking at any of these kind of analyses, particularly the life cycle

analyses, is the assumptions that go into what externalities you include in your studies have a lot to do with where the studies come

out. I am not familiar with this particular study. I don’t know if

they are taking into account the relative energy densities of the different fuels that are being included here. I don’t know if this is a

study that looks at the well-to-wheels perspective of how far do I

have to transport my raw materials to do this stuff, what type of

oil feedstock going into the refining and then comparing to all of

those variables shift around. That is why in my testimony we try

to say that if you capture and store the carbon, you are going to

be about the same or a little better than the petroleum fuels you

are trying to replace.

Mr. BOUCHER. Thank you very much. Let me simply say that the

legislation that Mr. Shimkus and I will soon put forward that will

provide a Federal price guarantee for coal-to-liquids facilities will

contain a requirement that in order to participate in the price

guarantee program, any applicant for a price guarantee must agree

to capture the carbon that comes from the process and permanently

sequester it, and so there will certainly be no greater carbon contribution from the manufacturing process, and if what you are saying is accurate and there is no greater carbon contribution from the

fuel itself, then we should have the confidence that the coal-to-liquids technology as facilitated by the new price guarantee program

once our bill passes will not increase the greenhouse gas burden.

So let me thank you for these very helpful answers, and I would

recognize the gentleman from Illinois, Mr. Hastert, for 5 minutes.
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Mr. HASTERT. I thank the chairman. I was a little bit perplexed

by some of the testimony and some of the answers. I am glad we

have this last round.

One of the questions was, I think either to you, Mr. Ward or Mr.

Maley, that when you are talking about the efficiency of liquidized

coal or gasified coal, that fuel, and whether it had more carbon

than gasoline or some of these other fuels we talked about, I think

when you look at it and even take this list even though the EPA

study—the different fuels that we have, the question and the answer is there is no one fuel that is going to supply or replace petroleum in this country but there are two things that we want to do.

We want to have cleaner air, a better environment and at the same

time relieve ourselves on the dependability of petroleum that comes

from overseas, not only coming off from offshore but also the manipulation of prices and cartels and those types of things, that if

we have this production domestically, we have a better supply of

quote, unquote, fuel, and not only better but we have a better cost

focus and not we hope manipulated and I want to say to you, Mr.

Foody, that I think one of the things that we need to really look

at is to working together in a North American energy strategy and

certainly you folks would be a very important part of that.

That being said, one of the questions was I think to you, Mr.

Ward, and discussion that hybrid vehicles are better because basically you plug in and it is much more efficient than the fuel that

you are talking about. I question, I think most hybrid fuel vehicles

when you plug them it, that is electricity, right? That is the basic

fuel of that. And my question is, where does electricity come from.

Well, it can come from nuclear energy. We are about our limit of

nuclear capacity right now and we haven’t built a nuclear plant in

this country for 25 years. That is fairly clean. It could come from

natural gas, which is fairly clean too but we have a shortage of natural gas and that is why we need to look at other fuels. And then

we go back to where 50 percent of our electricity is generated from

and it is coal, isn’t it, and that is just coal-fired plants, so it seems

to me that what you are talking about is a clean plug-in hybrid basically when that energy comes from coal-fired plants. Maybe it

isn’t as clean as some people purport it to be. Do you want to comment on that?

Mr. WARD. Well, clearly my boss doesn’t pay me to promote plugin hybrid vehicles but the advantage to doing them is that you are

using—yes, you are probably using coal-fired power to do that but

you are using coal-fired power generally being recharged in the offpeak hours when it is most efficiently produced and at the least

cost, and the vehicle itself while you are operating on the batteries

has essentially zero emissions so——

Mr. HASTERT. So the vehicle side is clean?

Mr. WARD. Correct, but there are emissions associated with it.

Mr. HASTERT. The coal-fired emissions, whether you are for it or

against it, aren’t any less on off-peak than they are on peak, are

they?

Mr. WARD. Well, you have moved some of the emissions profile

back to the generating plant. Overall it is probably a cleaner approach. But the limitation with those vehicles though is that works
113

for passenger cars and those of us who drive a few miles a day but

it doesn’t work for trucks and plants.

Mr. HASTERT. I understand that. Thank you.

Mr. Lampert, again we got into the discussion of transportation

of ethanol and the pollution that you use to transport. If you blend

ethanol at the refinery, wherever that refinery would be, move it

through the pipes, you still have to transport the ethanol to the refinery, right? So you have this whole issue. Isn’t the issue of ethanol, the efficiency of it, part of the cleanness of it, is that you

produce ethanol in a lot of different places and so when you have

to splash-blend ethanol, there is going to be an ethanol plant very,

very close to where you are splash-blending? Isn’t that a fact?

Mr. LAMPERT. I believe of the 106 or 107 operating ethanol facilities that are located in over 33 or 34 States with facilities coming

online in Washington, Oregon, Louisiana, planned in Florida, Vermont, Connecticut, New Jersey, et cetera, I think it is not only

that, but a national security issue as well to have these refineries

spread out across the Nation.

Mr. HASTERT. But the essence of the ethanol refineries when you

spread them are close to the splash-blending places as well?

Mr. LAMPERT. Yes, sir.

Mr. HASTERT. The second part of that question, if I could, where

is the blend mix if you know it? Right now we are at 10 percent

ethanol, and I know when I put the E–85 into my truck and drive

it, I probably get maybe 50 miles less or 30 miles less mileage than

I get when I put pure gasoline in it—I think it is pure gasoline at

least, or 10 percent blend is what it is. So what is the difference?

Could you go to 25 percent blend or 15 percent blend or a 30 percent blend or a 40 percent blend and not lose efficiency?

Mr. LAMPERT. Yes, sir, absolutely. If we put a gallon of diesel

fuel and a gallon of gasoline and a gallon of alcohol here on the

table, the BTU, the energy latent heat content is 135,000 for the

diesel. That is why all our farmers now operate diesel tractors. It

is 114,000 for gasoline, 87,000 BTUs for ethanol. It is just the

chemistry of it. So as we use 85 percent of this, obviously if you

go down to 50 percent ethanol you are going to have a reduction

in the reduction of BTU content. Clearly we could use E–50, E–40.

We are very supportive of blending pumps in the future. But to answer your earlier question, ethanol is denatured or poisoned, if you

will, at the production facility and then it is shipped in a 98 percent pure form to the terminal, to the big tank farms where it is

mixed at that point.

Mr. HASTERT. I understand. Thank you for your answer. I yield

my time back.

Mr. BOUCHER. Thank you very much, Mr. Hastert.

The gentleman from Washington State, Mr. Inslee, for 5 minutes.

Mr. INSLEE. Thank you. I just wanted to tell the committee, I

checked on this EPA report of April 2007. It does consider the life

cycle costs as far as this analysis. It also does take into consideration various energy equivalents of BT units, so those were important questions and I think it does handle both of those issues for

us. I just want to tell you, looking at this report, listening to Dr.

Farrell, listening to Mr. Ward, the sort of conclusion I come out to

is that we have some biofuels that have potential for very signifi-
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cant savings from a CO2 perspective and I am going to define

under the Janesely rule significant as being 30 percent, let us just

figure, and there are several biofuels that have that capacity. I

don’t think coal-to-liquid has that capacity to have a significant

CO2 improvement whereas other biofuels do. Do people agree with

that? Does anybody disagree with that at the table?

Mr. FARRELL. If I might, Mr. Inslee, thank you for the question.

I think technologies that include coal-to-liquids but also use biomass as the input to the gasification process and so they would be

combined biomass and coal-to-liquids could reach this 30 percent

reduction but I would have to bend your rule a little bit in order

to do that.

Mr. INSLEE. And how would you bend the rule?

Mr. FARRELL. By defining the coal-to-liquid process as a process

that was a gasification process that used both coal and biomass as

the feedstock, not coal by itself.

Mr. INSLEE. Mr. Ward, is that anywhere in anybody’s thinking

at the moment?

Mr. WARD. Yes, sir. In fact, there is a great deal of work going

on in that area in Europe and that is a capability. If you get to that

point, what that would have the effect of doing would be to greatly

increase the volumes of fuels you would be able to produce because

you are able to use the coal——

Mr. INSLEE. I would be interested in reading any of that material

you could provide me. I would be very interested in that.

Mr. Lampert, I wanted to ask you about mandates on pumping

stations. I talked to a gentleman who is sort of the majordomo of

the Brazilian ethanol program over 30 years and what he told me

was, you will have to do something very strong to get the oil and

gas industry to put in ethanol E–85 pumps, and the reason is, they

are competing with the E–85 industry, if you will. They have no

interest in sort of helping their competitor to get going by making

those services available, and he says the one piece of advice I will

give you is, you will have to do something very strong to change

that dynamic, and so I want to—you suggested not to have a mandate but to increase the tax advantage but I am concerned that

even that will not inspire those oil and gas distributors, who are

not in the ethanol business, to go help their competitors sell a product to break their domination in the industry right now and I think

it is a pretty small percentage of service stations that are truly

independent from the oil and gas refining industry so why should

we think that increased tax incentive will be enough to really inspire a timely industrialization of this, put these pumps in?

Mr. LAMPERT. Congressman, we hear a lot about the Brazilian

example, if you will, and just anecdotally speaking, the Brazilian

ethanol program was implemented under the auspices of a military

dictatorship and in that sense it was much easier to establish public policy. Well, obviously we don’t have an interest in that here but

we think that profit is a very strong motivator for the petroleum

industry and I would use another example of the bottled-water industry of 20 years ago, and I try to characterize myself as a bottled-water salesman, come into a gas station and say let us have

5 feet of your refrigerator space to put in bottled water. Well, the

major oil companies laughed the bottled-water salesman out of the
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door 20 years ago and the independents saw that as a new profit

center and today indeed it is a very a valuable profit center and

we feel like as this profit center is established that again the petroleum industry, the majors are not the innovators, it is that little

guy, that they will see the loss of profit. Their shareholders may

force them into doing that at some point.

Mr. INSLEE. And just real quickly because I want to ask another

question. What percentage of distributors are independent from the

refining industry roughly?

Mr. LAMPERT. Eighteen to 20 percent.

Mr. INSLEE. I will just tell you, I am still troubled by that. If we

only have 18 to 20 percent of the independents, is that really going

to be enough. I wanted to ask Mr. Foody, there was a question

asked about production of cellulosic ethanol and I am not sure the

answer and the question matched. My understanding, I have been

told there is hope for cellulosic on an energy-per-acre basis can increase productivity of BTUs per acre, if you will, once we go to cellulosic as opposed to corn. Could you comment on that?

Mr. FOODY. Sure, although if you don’t mind, I would like to

spend 30 seconds addressing that earlier question. I had a very interesting discussion with the CEO of one of Brazil’s largest ethanol

companies and he offered me effectively this free advice for America. He said look, the first thing you need to do is have a lot of ethanol in the system, permit people to increase their blend levels to

20 percent or something like that and then he said if there is ethanol in the marketplace and there are flexible fuel vehicles around,

all of the people distributing fuel will see that money in flexible

fuels. With respect to the question of, can we see rises in the energy density per acre, I think the answer is yes. Numbers of people

are developing crops that will grow faster, essentially capture the

energy from sunlight better and I think there are great prospects

in pushing up the land efficiency so to speak by which cellulosic

ethanol would operate.

Mr. INSLEE. Thank you.

Mr. BOUCHER. Thank you very much, Mr. Inslee.

The gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. I wanted to stay just

to follow my friend Jay Inslee and be prepared to rebut, but he was

kind in his series of questions.

You mentioned the profit word and that is kind of a tough thing

to do in Washington, DC, these days because profit is kind of defined as being bad. I think profit is good. I think it encourages us

to invest and take risks and get a return on the investment. The

other thing is, opponents like to have this divide-and-conquer strategy. I want to put on the table, the corn guys are not in opposition

with the cellulosic guys. In fact, we want them, we want to encourage them in. In all honestly we get a two-for. We can sell the corn

and we can sell the stover. So we are looking forward to this advancement.

Let me go to Mr. Foody first. When we started working on this

bill on energy security, I think a lot of us have been hearing stuff

about well, we are 10 years away from cellulosic development. If

we put in a lot of money in research in development, maybe we can

speed that up to 5 years, and I think that has been part of our
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thought process. I think part of your testimony says we should be

able to go faster than that. Is that correct?

Mr. FOODY. Yes, that is absolutely true. I drive on cellulosic ethanol. It is manufactured at a significant scale.

Mr. SHIMKUS. So what we will want to do is get encouragement

and information from the associations of what we need to do. I will

tell you, 18 to 20 percent of the retailers being independents—I

have, as many of you have heard through these hearings year in

and year out, I have over 22 stations that sell E–85. I can guarantee that 20 of them are independents. They are the ones that take

the risks. They are the ones concerned about the local community

and they are the ones that are putting them in and for a very

nominal cost. So I love the independents and I see the large retailers starting to because there is a demand there. The market is

pushing that. I think the water example is a perfect example, especially in southern Illinois. People are looking for it. We are trying

to know where the stations are and we drive off the intersection

just to get there. So again, I want to applaud my independent retailers.

The other issue is, we do not have the ability, or maybe correct

me if I am wrong, either in corn or in cellulosic to produce aviation

fuel. Is that correct?

Mr. FOODY. I think that is generally true. I would like to respond

to something you said at the start of your discussion though and

just say I believe the corn guys support the cellulosic ethanol and

the cellulosic ethanol guys support corn. I think that the advance

of ethanol in the marketplace generally is a positive thing.

Mr. SHIMKUS. Again, that reminds me on the RFS standard.

When we did the EPAct, which I am glad in the committee print

it gave credit to the energy bill we passed, and if you remember

the debate, we were struggling on this committee for a 5 billion

RFS standard and we had to get our Senators to help and they proposed an 8 billion and we settled in conference to 7.5 billion. That

has been really the key legislative movement to now us having this

debate and to have the President come with an RFS standard and

have everybody—it is a great time. People are tripping all over

themselves to be renewable-fuel folks and we like that, and that is

why I am not going to let anybody divide anybody up at this panel,

especially from the supply end, because if we want to decrease import of crude oil and meet our environmental challenges for the future and the future demand, we need all of you at the table and

we are going to try very diligently not to disincentivize, which you

all are doing based on policies that we establish here.

So the last question I have, I wanted to just highlight, because

there is an issue, because I also, like my colleague and friend, Mr.

Hastert, have been driving around in flexible fuel vehicles for a

long time and there is a decreased miles per gallon issue and I believe technology, science and research will address that. Mr.

Lampert, can you give us an example of Brazil and a GM product

that might be addressing the miles per gallon issue?

Mr. LAMPERT. Not necessarily in Brazil. We do have some evidence of a turbo charged Saab, which is a General Motors product

in Sweden that actually increases the turbo charge or the compression ratio to take advantage of the high octane. E–85 has been
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around 100 octane and very high-compression-ratio engines could

take advantage of that much better so we do have that product

available. I believe the Department of Energy actually flew a Saab

into the U.S. to get some testing done at Oak Ridge recently but

there is technology available. We can get the same mileage out of

that gallon of ethanol if we want to spend the money for it.

Mr. SHIMKUS. And Mr. Chairman, that might be another issue

that we want to address and how to work with DoE and the research. I can defend my use of the E–85 because it is pretty much

like 30 cents cheaper a gallon so just the offset ratio of cost makes

it doable but if we really address the miles per gallon issue and see

what we can do at the Federal level to help incentivize that research and develop and that technology, I think that is another

good addition to the energy security bill.

I yield back.

Mr. BOUCHER. Thank you very much, Mr. Shimkus. It was a very

interesting set of questions.

The gentleman from Arizona, Mr. Shadegg, is recognized for 5

minutes.

Mr. SHADEGG. Thank you, Mr. Chairman.

I want to begin, Dr. Farrell, with you. You said something very

interesting earlier and I think you got a brief amount of time to

explain it but not enough. I would like to hear it a little bit more

clearly. And that is, it was pointed out that you do not believe that

a single across the entire economy mechanism for dealing with carbon emissions is the correct way to go. I hear a lot of discussion

in this committee and all the hearings we have heard about cap

and trade. I see a lot of abuses of cap and trade. I see a lot of government involvement in setting the initial caps and trying to set

these trade values and I think a part of the problem that I see with

cap and trade has to do with the diversity of the economy. In Europe, for example, I don’t believe their cap and trade addressed mobile sources which are a major contributor. And so I was interested

in, as an alternative to that, I have looked at well, maybe the simpler mechanism would be a carbon tax. Now, of course politicians

are never supposed to the word ‘‘tax’’ but if that makes the distribution of whatever societal price we have to pay in this area to

address climate change fairer and more transparent, then perhaps

that is the right way to go. But you threw a whole new dynamic

in saying that you kind of think we should—and your testimony

about it was contradictory to what we have heard here so far, that

we should be looking at, well, for electricity generation it is one set

of calculations, for transportation it is perhaps another, for industrial use it is perhaps another. I would like to give you a chance

to extend on that.

Mr. FARRELL. Thank you very much, Congressman. I am happy

to do so. For those of you who are interested, I am going to use

some figures that are on page 8 of my testimony. What this table

does is, what if we put a policy in place across the economy that

we could model as a $25 tax? What would happen to the price of

generating electricity in various ways, what would happen to the

price of gasoline. A $25 tax on the per ton of CO2, because there

is fuel-on-fuel competition in the electricity sector and because carbon capture and storage begins at $25 or $30 to become economical
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just from a straight cost basis, we would begin to see in that sector

very big changes. That same tax or a cap that resulted in the same

would result in increasing gasoline prices of about 24 cents, and if

all you wanted was to reduce greenhouse gases to some lower value

and some nominal value without requiring much change in the rest

of the economy, without also requiring at the same time technological innovation and change across the entire economy, that

would be fine, but we do want technological innovation and a

change across the entire economy. So a single tax or a single cap

across the entire economy is unlikely to induce change and significant innovation across the entire economy. I will remain agnostic

for the moment about whether a cap or a tax would be right but

I think there may be some role for dividing up the economy into

sectors and I suggest that at least the transportation sector may

be a place where you would do that. The low carbon fuel standard

that has been discussed a little bit already has this property. It can

be designed in a way that will induce innovation in the transportation sector without raising costs necessarily a great deal and also

be compatible with a cap for electricity and stationary sources.

Mr. SHADEGG. Thank you. I appreciate that.

Now, for the both conventional and cellulosic ethanol representatives, there have been some problems with ethanol. Ethanol has destroyed fiberglass fuel tanks. There are some reports of dissolution

of resin in the fiberglass. There is some question about its effect

on all types of other engine parts. I believe some industries, the

motorcycle industry and others, are concerned about mandated

higher quantities of ethanol. I believe Minnesota or one of the other

States in the Midwest is trying to go right now to an E–20 standard. That is being opposed. I think it being opposed by the marine

industry, the motorcycle industry. How do you propose to address

that and would you in the world you envision since we have to embrace all of these alternatives, and I certainly support that including ethanol, how do you envision dealing with some subsets, aircraft being one that has been mentioned so far, but others that

don’t believe they can adapt to higher concentrations of ethanol.

Would you envision that other fuels also remain in the market and

that the extra cost for that be there, Mr. Lampert and Mr. Foody?

Mr. LAMPERT. Congressman, I have been very involved with the

Minnesota program, and specifically what it calls for is that 20 percent of their fuel use will be a renewable fuel, not for 20 percent

ethanol in their fuel. Today they have a 10 percent mandate. All

the fuel in Minnesota other than those used for marine and aviation and antique vehicles has 10 percent ethanol in it. They want

to take that to the next step but it is not use of 20 percent ethanol,

they want to bring in more E–85 vehicles and use more alcohol in

total rather than in each vehicle, if you will.

Mr. SHADEGG. Before you comment, Mr. Foody, I have heard directly from the motorcycle and marine industries that they are concerned that they are not going to be able to get fuels that don’t

have higher concentrations of ethanol. You believe that is not accurate?

Mr. LAMPERT. No. The president of General Motors last week at

the New York auto show—I don’t want to misquote him. I believe

his statement was that the use of E–20 in a vehicle designed and
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engineered to operate on E–10 only will cause catastrophic damage

to the engine. So we do not support the use of any level blend of

alcohol in any form of machinery other than that which has been

designed for.

Mr. SHADEGG. Mr. Foody?

Mr. FOODY. I think if one sets a target as people have to see renewable fuels or ethanol go beyond the 10 percent level, you need

to take the question of infrastructure very seriously, and we have

essentially before us a number of examples of routes that people

have taken. Brazilians, for instance, basically stepped up the concentration in their main grade of fuel up to 20 percent and the vehicle makers made the modifications in the cars that allowed that

to be workable. Alternatively, one could go for E–85, keep E–10

and have E–85 in the distribution channel. I think it is an open

question about which would be more effective. Clearly, there are

people on each side of the fence saying it will be more costly for

me to do one thing or the other. I know from the oil industry, they

believe it will be more costly for them and more difficult to set up

E–85 pumps and less likely to succeed than moving ethanol up in

the main grade of gasoline. On the other hand, one has to work

with assuring that consumers have vehicles and vehicles are on the

road that actually can handle that because we don’t want to have

a problem of a fuel that causes catastrophic destruction of people’s

vehicles. I think that it is an important question you should consider as you look at the issues of moving renewable fuel use up.

It is a question that has been addressed though in at least Brazil

and there is probably substantial experience to be gathered there.

Mr. SHADEGG. Thank you.

Mr. BOUCHER. Thank you very much, Mr. Shadegg, and again

the committee’s thanks to our witnesses today. This has been an

extremely interesting conversation and we appreciate your contributions to it. We may have some follow-up questions for you as

we continue our examination in which case we will communicate

with you and pose those questions. For today though, let me just

express our thanks for your very valuable information. This hearing stands adjourned.

[Whereupon, at 1:00 p.m., the subcommittee was adjourned.]

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