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+ - H.R. 547, THE ADVANCED FUELS INFRASTRUCTURE RESEARCH AND DEVELOPMENT ACT
+
+[House Hearing, 110 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+ H.R. 547, THE ADVANCED FUELS INFRASTRUCTURE
+ RESEARCH AND DEVELOPMENT ACT
+
+=======================================================================
+
+ HEARING
+
+ BEFORE THE
+
+ SUBCOMMITTEE ON ENERGY AND ENVIRONMENT
+
+ COMMITTEE ON SCIENCE AND TECHNOLOGY
+ HOUSE OF REPRESENTATIVES
+
+ ONE HUNDRED TENTH CONGRESS
+
+ FIRST SESSION
+
+ __________
+
+ JANUARY 30, 2007
+
+ __________
+
+ Serial No. 110-1
+
+ __________
+
+ Printed for the use of the Committee on Science
+
+
+ Available via the World Wide Web: http://www.house.gov/science
+
+
+ U.S. GOVERNMENT PRINTING OFFICE
+32-612 WASHINGTON : 2007
+_____________________________________________________________________________
+For Sale by the Superintendent of Documents, U.S. Government Printing Office
+Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
+Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
+
+ ______
+
+ COMMITTEE ON SCIENCE AND TECHNOLOGY
+
+ HON. BART GORDON, Tennessee, Chairman
+JERRY F. COSTELLO, Illinois RALPH M. HALL, Texas
+EDDIE BERNICE JOHNSON, Texas F. JAMES SENSENBRENNER JR.,
+LYNN C. WOOLSEY, California Wisconsin
+MARK UDALL, Colorado LAMAR S. SMITH, Texas
+DAVID WU, Oregon DANA ROHRABACHER, California
+BRIAN BAIRD, Washington KEN CALVERT, California
+BRAD MILLER, North Carolina ROSCOE G. BARTLETT, Maryland
+DANIEL LIPINSKI, Illinois VERNON J. EHLERS, Michigan
+NICK LAMPSON, Texas FRANK D. LUCAS, Oklahoma
+GABRIELLE GIFFORDS, Arizona JUDY BIGGERT, Illinois
+JERRY MCNERNEY, California W. TODD AKIN, Missouri
+PAUL KANJORSKI, Pennsylvania JO BONNER, Alabama
+DARLENE HOOLEY, Oregon TOM FEENEY, Florida
+STEVEN R. ROTHMAN, New Jersey RANDY NEUGEBAUER, Texas
+MICHAEL M. HONDA, California BOB INGLIS, South Carolina
+JIM MATHESON, Utah MICHAEL T. MCCAUL, Texas
+MIKE ROSS, Arkansas MARIO DIAZ-BALART, Florida
+BEN CHANDLER, Kentucky PHIL GINGREY, Georgia
+RUSS CARNAHAN, Missouri BRIAN P. BILBRAY, California
+CHARLIE MELANCON, Louisiana ADRIAN SMITH, Nebraska
+BARON P. HILL, Indiana VACANCY
+HARRY E. MITCHELL, Arizona
+CHARLES A. WILSON, Ohio
+ ------
+
+ Subcommittee on Energy and Environment
+
+ HON. NICK LAMPSON, Texas, Chairman
+JERRY F. COSTELLO, Illinois BOB INGLIS, South Carolina
+LYNN C. WOOLSEY, California ROSCOE G. BARTLETT, Maryland
+DANIEL LIPINSKI, Illinois JUDY BIGGERT, Illinois
+GABRIELLE GIFFORDS, Arizona W. TODD AKIN, Missouri
+JERRY MCNERNEY, California RANDY NEUGEBAUER, Texas
+MARK UDALL, Colorado MICHAEL T. MCCAUL, Texas
+BRIAN BAIRD, Washington MARIO DIAZ-BALART, Florida
+PAUL KANJORSKI, Pennsylvania
+BART GORDON, Tennessee RALPH M. HALL, Texas
+ JEAN FRUCI Democratic Professional Staff
+ CHRIS KING Democratic Professional Staff Member
+ SHIMERE WILLIAMS Democratic Professional Staff Member
+ ELAINE PAULIONIS Democratic Professional Staff Member
+ STACEY STEEP Research Assistant
+
+
+ C O N T E N T S
+
+ January 30, 2007
+
+ Page
+Witness List..................................................... 2
+
+Hearing Charter.................................................. 3
+
+ Opening Statements
+
+Prepared Statement by Representative Bart Gordon, Chairman,
+ Committee on Science and Technology, U.S. House of
+ Representatives................................................ 9
+
+Statement by Representative Nick Lampson, Chairman, Subcommittee
+ on Energy and Environment, Committee on Science and Technology,
+ U.S. House of Representatives.................................. 7
+ Written Statement............................................ 7
+
+Statement by Representative Bob Inglis, Minority Ranking Member,
+ Subcommittee on Energy and Environment, Committee on Science
+ and Technology, U.S. House of Representatives.................. 8
+ Written Statement............................................ 8
+
+ Witnesses:
+
+Mr. John Eichberger, Vice President, Government Relations,
+ National Association of Convenience Stores
+ Oral Statement............................................... 10
+ Written Statement............................................ 12
+ Biography.................................................... 15
+
+Mr. Richard Kassel, Senior Attorney and Director of the Clean
+ Fuels and Vehicles Project, Natural Resources Defense Council
+ Oral Statement............................................... 15
+ Written Statement............................................ 17
+ Biography.................................................... 21
+
+Mr. Bob Dinneen, President and CEO, Renewable Fuels Association
+ Oral Statement............................................... 22
+ Written Statement............................................ 23
+ Biography.................................................... 26
+
+Discussion
+ Ethanol Transportation Costs................................... 27
+ Current Subsidies and Tax Incentives........................... 28
+ Biodiesel Fuel Quality Concerns................................ 28
+ Ethanol Infrastructure Concerns................................ 29
+ Fuel Additives................................................. 30
+ Ethanol Source Concerns........................................ 31
+ EPA Involvement................................................ 33
+ Ultra-Low Sulfur Diesel Costs.................................. 35
+ Diesel Performance............................................. 35
+ More Ethanol Production Concerns............................... 37
+ Ethanol Infrastructure and Environmental Impacts in Brazil..... 39
+ The Ethanol Market in the U.S.................................. 41
+ Cellulosic Ethanol R&D......................................... 43
+ Ethanol Fuel Availability...................................... 44
+ More on Cellulosic Ethanol R&D................................. 45
+ More Ethanol Source Concerns................................... 46
+
+ Appendix: Additional Material for the Record
+
+H.R. 547, the Advanced Fuels Infrastructure Research and
+ Development Act................................................ 48
+
+Letter to Bart Gordon from R. Timothy Columbus, Counsel for the
+ Society of Independent Gasoline Marketers of America, dated
+ January 19, 2007............................................... 53
+
+Letter to Bart Gordon from David Gibson, President, X-Ray Optical
+ Systems, Inc., dated January 30, 2007.......................... 55
+
+Letter to Bart Gordon from Gregory M. Scott, Counsel, Coalition
+ of E85 Retailers (CER), dated January 26, 2007................. 57
+
+Letter to Bart Gordon from Darrell K. Smith, Executive Director,
+ National Association of Shell Marketers, dated January 29, 2007 58
+
+Letter to Bart Gordon from John Eichberger, Vice President,
+ Government Relations, National Association of Convenience
+ Stores (NACS), dated January 17, 2007.......................... 60
+
+Letter to Bart Gordon from Sarah R. Dodge, Vice President of
+ Government Affairs, NATSO, Inc., dated January 25, 2007........ 61
+
+Letter to Bart Gordon from Dan Gilligan, President, Petroleum
+ Marketers Association of America, dated January 26, 2007....... 63
+
+Letter to Mark Udall and Bob Inglis from Nancy Colleton,
+ President, Institute for Global Environmental Strategies;
+ Executive Director, Alliance for Earth Observations, dated
+ April 6, 2007.................................................. 65
+
+
+ H.R. 547, THE ADVANCED FUELS INFRASTRUCTURE RESEARCH AND DEVELOPMENT
+ ACT
+
+ ----------
+
+
+ TUESDAY, JANUARY 30, 2007
+
+ House of Representatives,
+ Subcommittee on Energy and Environment,
+ Committee on Science and Technology,
+ Washington, DC.
+
+ The Subcommittee met, pursuant to call, at 2:10 p.m., in
+Room 2318 of the Rayburn House Office Building, Hon. Nick
+Lampson [Chairman of the Subcommittee] presiding.
+
+
+ hearing charter
+
+ SUBCOMMITTEE ON ENERGY AND ENVIRONMENT
+
+ COMMITTEE ON SCIENCE AND TECHNOLOGY
+
+ U.S. HOUSE OF REPRESENTATIVES
+
+ H.R. 547, the Advanced Fuels Infrastructure
+
+ Research and Development Act
+
+ tuesday, january 30, 2007
+ 2:00 p.m.-4:00 p.m.
+ 2318 rayburn house office building
+
+Purpose
+
+ On Tuesday, January 30, 2007 the Subcommittee on Energy and
+Environment of the Committee on Science and Technology will hold a
+hearing to receive testimony on H.R. 547, the Advanced Fuels
+Infrastructure Research and Development Act.
+ H.R. 547 directs the Department of Energy (DOE) and the National
+Institute of Standards and Technology (NIST) to initiate a research,
+development, and demonstration program to make alternative bio-based
+fuels more compatible with present-day infrastructure. H.R. 547 also
+directs these agencies to develop technologies and methods to provide
+low-cost, portable, and accurate measurements of sulfur in fuels, and
+to develop a physical properties database and Standards Reference
+Materials for alternative fuels.
+ Science and Technology Committee Chairman Bart Gordon introduced
+H.R. 547 on January 18, 2007. This bill was originally introduced in
+the 109th Congress as H.R. 5658. The language from H.R. 5658 was
+included as Section 17 of H.R. 5656, the Energy Research, Development,
+Demonstration and Commercial Application Act of 2006, which was later
+passed by the House under suspension of the rules as H.R. 6203.
+ To date, H.R. 547 is expressly endorsed by the following
+organizations:
+
+ National Association of Convenience Stores (NACS)
+
+ Renewable Fuels Association (RFA)
+
+ Society of Independent Gas Marketers of America
+ (SIGMA)
+
+ National Association of Truck Stop Owners (NATSO)
+
+ Coalition of E-85 Retailers
+
+ Petroleum Marketers Association of America (PMAA)
+
+ The hearing will seek to address the following questions related
+H.R. 547:
+
+ 1. What infrastructure challenges currently hinder wide scale
+ marketplace distribution of alternative fuels?
+
+ 2. What are the limitations in the current testing equipment
+ and protocols for verification of the sulfur content of diesel
+ fuel?
+
+Witnesses
+
+ Mr. John Eichberger is the Vice President of the
+ National Association of Convenience Stores (NACS) and will also
+ testify on behalf of the Society of Independent Gasoline
+ Marketers of America (SIGMA).
+
+ Mr. Bob Dinneen is the President and CEO of the
+ Renewable Fuels Association, the trade association for the U.S.
+ ethanol industry and advocate for the increased production and
+ use of fuel ethanol.
+
+ Mr. Richard Kassel is the Senior Attorney and
+ Director of the Clean Fuels and Vehicles Project at the Natural
+ Resources Defense Council which advocates for cleaner diesel
+ fuels and increased use of bio-based alternative fuels.
+
+Background
+
+Alternative Fuels and Infrastructure
+ Rising oil prices and concern about our nation's dependence upon
+foreign fuel sources have increased interest in diversifying our fuel
+supply through the development of alternative, domestic sources of
+fuel.
+ The development and production of alternative bio-based fuels is
+increasing and there is great interest in expanding the use of these
+fuels. There are approximately 101 ethanol refineries online today,
+with many more in various stages of planning. However, due largely to
+ethanol's hydrophilic properties, ethanol is not compatible with the
+existing distribution pipeline infrastructure. Therefore it must be
+transported by tanker truck and rail, making long-distance shipping
+extremely expensive.
+ According to the National Ethanol Vehicle Coalition there are
+already approximately six million E-85-compatible Fuel Flexible
+Vehicles (FFV) on American roads, with auto manufacturers adding
+several new FFV models to their product lines. The Department of Energy
+counts over 900 stations to date selling E-85, concentrated primarily
+in the Upper Midwest. While the number of stations is expanding, it is
+still less than one percent of the approximately 167,000 retail fuel
+outlets in the U.S. For example, despite being the Nation's largest
+auto market, California currently has one public E-85 station. The lack
+of service stations selling E-85 means that in the near-term a very
+small proportion of compatible vehicles will actually utilize E-85.
+ Ethanol is currently blended with approximately 40 percent of the
+Nation's fuel supply, mostly at concentrations of approximately 10
+percent of the fuel by volume. It is at higher concentrations of
+ethanol, such as in E-85, where technical issues arise. Alternative
+fuels like E-85 and biodiesel have different physical and chemical
+properties that make them incompatible with existing transportation,
+distribution, and retail infrastructure. These fuels may be associated
+with a variety of technical issues relating to corrosion of tank and
+pipeline materials, increased sediment buildup, filter clogging,
+electrical conductivity, water and microbial contamination, varying
+flow rates, and thermal and oxidative instability. Unfortunately, even
+with federal assistance grants, the cost of replacing or building new
+infrastructure is simply not feasible for many fuel retailers and
+distributors, most of whom are small businesses.
+ Evidence suggests that it may be possible to develop additives and
+blendstocks that would avoid the need for expensive modification and
+replacement of existing infrastructure. It may also be possible to
+develop safer and less destructive infrastructure refurbishment methods
+and technologies. H.R. 547 directs the Secretary of Energy, in
+consultation with the National Institute of Standards and Technology to
+develop additives, blendstocks, technologies and methods to address
+these concerns.
+
+Ultra-Low Sulfur Diesel (ULSD)
+ In 2000 the U.S. Environmental Protection Agency (EPA) instituted a
+program to lower the emissions of diesel fuels by approximately 95
+percent. Federal regulations mandated that after an initial phase-in
+period, beginning June 1, 2006, all diesel fuel refined and sold in the
+U.S. must be Ultra-Low Sulfur Diesel (ULSD). ULSD is diesel fuel
+containing less than 15 parts per million (ppm) of sulfur.
+ Prior to this time retailers sold Low Sulfur Diesel (LSD)
+containing up to 500 ppm of sulfur. The reduction in the sulfur content
+of diesel fuel served to mitigate the acid rain-causing effects of
+sulfur compounds and also allowed for the introduction in 2007 of
+advanced diesel engine technologies that would otherwise foul with high
+concentrations of sulfur. These new engine technologies reduce the
+emissions of particulate matter and nitrogen oxides, or NOX, which
+exacerbate respiratory ailments and react with oxygen to produce ozone.
+This allows for the introduction of a wide range of clean diesel trucks
+and passenger vehicles into the U.S. market.
+ ULSD introduction also presented some challenges at various points
+of the distribution chain. As ULSD moves from the refinery through the
+pipelines, tanks, trucks and related infrastructure it can absorb
+residual sulfur left by other, high-sulfur fuel products. Products such
+as Low Sulfur Diesel with up to 500 ppm sulfur, Jet Fuel with 3,000
+ppm, and even Heating Oil with up to 5,000 ppm may be moved through the
+same infrastructure as ULSD. The fuel industry feared that this
+contamination would result in diesel fuel arriving at fueling stations
+with sulfur contents that exceeded 15 ppm, thus exposing ``downstream''
+retailers and distributors to liability for sale of non-compliant
+fuels. Current protocols and equipment for verifying the sulfur content
+of fuel are expensive and inaccessible to fuel retailers and others
+along the distribution chain. While the transition to ULSD has gone
+smoothly by most all accounts, the development of less expensive and
+more robust testing methods would enable more frequent testing of fuel
+sulfur content to assure that regulated limits are not exceeded and to
+quickly identify any contamination problems that may occur along the
+distribution chain.
+ The need for advances in testing equipment is not limited to ULSD.
+Evolution in sulfur analysis technologies may lead to advances in
+testing for other fuel contaminants. For instance, current standards
+for biodiesel (ASTM standard D6751) lay out the critical specifications
+and set limits for manufacturers on maximum allowed concentrations for
+various contaminants, including sulfur. The biodiesel industry is
+pushing for strict adherence to these specifications. Because of the
+low concentrations and narrow tolerances needed to meet these
+standards, the measurements are difficult to perform accurately,
+especially in the smaller production facilities that tend to
+characterize the biofuels industry.
+ Further steps that can be taken to improve measurement accuracy for
+diesel fuels involve working with analytical instrument manufacturers
+and commercial suppliers of calibration materials to transfer the
+inherent accuracy of Standard Reference Materials developed by NIST to
+working calibration standards used for field testing instrumentation.
+Section 4 of H.R. 547 directs DOE and NIST to develop these portable,
+low cost, and accurate technologies for testing sulfur content of
+diesel fuels, and begin demonstrations of such technologies within one
+year.
+
+Standard Reference Materials (SRMs)
+ NIST prepares SRMs for three main purposes: (1) to help develop
+accurate methods of analysis; (2) to calibrate measurement systems used
+to facilitate exchange of goods, institute quality control, determine
+performance characteristics, or measure a property at the state-of-the-
+art limit; and (3) to ensure the long-term adequacy and integrity of
+measurement quality assurance programs.
+ Industry, academia, and government use NIST SRMs to facilitate
+commerce and trade and to advance research and development. For
+example, State governments use SRMs for fuels to certify station pumps
+and other dispensing equipment.
+ Market acceptance of any fuel requires a reliable supply of the
+fuel that consistently meets certain specifications needed to ensure
+quality and compatibility with engines and infrastructure. Section 5 of
+H.R. 547 directs NIST to compile a database of physical properties for
+alternative fuels, and use these data to develop Standard Reference
+Materials (SRMs) such as those NIST develops for conventional fuels.
+
+Section-by-Section Description of H.R. 547
+
+Section 1. Short Title
+
+ The Advanced Fuels Research and Development Act
+
+Section 2. Findings
+
+ The Nation should have a diverse fuel supply which includes
+alternative fuels, but incompatibility of some fuels with existing
+infrastructure presents significant and costly barriers to market
+penetration. Fuel additives or other technologies may allow such
+alternative fuels to be distributed and dispensed in existing
+infrastructure. Fuel retailers and distributors do not have ready
+access to technologies that verify fuels are in compliance with federal
+regulations for diesel fuels.
+
+Section 3. Alternative Fuel and ULSD Infrastructure and Additives
+Research and Development.
+
+ Directs the Department of Energy (DOE) and the National Institute
+of Standards and Technology (NIST) to conduct research and development,
+demonstration and commercial application of additives for bio-based
+alternative fuels (and ULSD) to address infrastructure compatibility
+issues such as: corrosion of infrastructure materials, dislodging of
+storage tank sediment, water and microbial contamination, increased
+emissions, temperature-sensitivity. The program should also investigate
+various methods for infrastructure refurbishment and cleaning, and
+other infrastructure-related problems as identified by DOE and NIST.
+
+Section 4. Sulfur Testing for Diesel Fuels
+
+ Directs the Department of Energy (DOE) and the National Institute
+of Standards and Technology (NIST) to conduct research, development,
+demonstration and commercial application of portable, low cost, and
+accurate technologies for testing sulfur content of diesel fuels, and
+begin demonstrations of such technologies within one year.
+
+Section 5. Standard Reference Materials and Data Base Development
+
+ Instructs the National Institute of Standards and Technologies
+(NIST) to collect data on the physical properties of various
+alternative fuels, and develop the Standard Reference Materials (SRM)
+such as are available for conventional petroleum-based fuels.
+ Chairman Lampson. Good afternoon. This is the first hearing
+of the Subcommittee on Energy and Environment.
+ I would like to take the opportunity to welcome all our new
+Members. Representative Inglis, I look forward to working with
+you over the next two years, and I will call this meeting to
+order, and tell you that our hearing this afternoon is on H.R.
+547, the Advanced Fuel Infrastructure Research and Development
+Act, introduced by Chairman Gordon.
+ Energy is on everyone's mind these days. The price of fuels
+has been rising, and awareness of the extent to which we are
+dependent upon foreign sources of oil has grown. At the same
+time, in an effort to reduce emissions of air pollution, we are
+also transitioning to cleaner burning fuels. The good news is
+that we have developed and are continuing to develop
+alternative fuels, and cleaner burning versions of our current
+petroleum-based fuels. But it is not enough simply to develop
+these new alternatives. We also must ensure the availability of
+infrastructure and equipment for transporting, distributing,
+and utilizing these new fuels at a reasonable cost.
+ And that is where H.R. 547 comes in. This bill authorizes
+research programs to address two specific issues. The first
+will seek cost-effective methods for making our current fuel
+distribution system compatible with biofuels. The second will
+initiate a program to develop less expensive, easier to use
+testing methods and equipment for verifying the sulfur level of
+fuels. I understand from recent reports that transition to new
+Ultra-Low Sulfur Diesel fuel mandated by the Environmental
+Protection Agency, is going well. I believe several of our
+witnesses will speak to that, to that effort briefly this
+afternoon.
+ And I look forward to hearing the views of our panel of
+witnesses on H.R. 547, and I thank all of you for participating
+today. And now, I will yield my remaining time to the author of
+this--is he not here yet? Okay.
+ Let us--I will hold on to that, and at this time, I would
+like to recognize our distinguished Ranking Member, Mr. Inglis,
+of South Carolina, for his opening statement.
+ [The prepared statement of Chairman Lampson follows:]
+
+ Prepared Statement of Chairman Nick Lampson
+
+ Good afternoon.
+ This is the first hearing of the Subcommittee on Energy and
+Environment. I would like to take this opportunity to welcome all of
+our Members. Rep. Inglis, I look forward to working with you over the
+next two years.
+ Our hearing this afternoon is on H.R. 547, the Advanced Fuels
+Infrastructure Research and Development Act, introduced by Chairman
+Gordon.
+ Energy is on everyone's mind these days. The price of fuels has
+been rising and awareness of the extent to which we are dependent upon
+foreign sources of oil has grown. At the same time, in an effort to
+reduce emissions of air pollution we are also transitioning to cleaner
+burning fuels.
+ The good news is that we have developed and are continuing to
+develop alternative fuels and cleaner burning versions of our current
+petroleum-based fuels. But it is not enough simply to develop these new
+alternatives. We also must ensure the availability of infrastructure
+and equipment for transporting, distributing, and utilizing these new
+fuels at a reasonable cost.
+ That is where H.R. 547 comes in. This bill authorizes research
+programs to address two specific issues. The first will seek cost-
+effective methods for making our current fuel distribution system
+compatible with biofuels. The second will initiate a program to develop
+less expensive, easier to use testing methods and equipment for
+verifying the sulfur level of fuels.
+ I understand from recent reports, that transition to new Ultra-Low
+Sulfur Diesel fuel mandated by the Environmental Protection Agency
+(EPA) is going well. I believe several of our witnesses will speak to
+that effort briefly this afternoon.
+ I look forward to hearing the views of our panel of witnesses on
+H.R. 547, and I thank all of you for participating today.
+
+ Mr. Inglis. Thank you, Chairman Lampson, and thank you to
+the witnesses for appearing.
+ Now, since this is my first time to speak as the Ranking
+Member of the Energy Subcommittee, I would say this. I am very
+grateful for the opportunity to be at this subcommittee. There
+are other people, including, I see down here, Mr. Bartlett, who
+probably could do an even better job as the Ranking Member, and
+then, we have got Vernon Ehlers, and some other people. That
+hasn't caused me to want to give up the slot, however, I would
+point out, but in any event, I am grateful for the opportunity
+to be here, and Chairman Lampson, I would say to you that this
+is a remarkable opportunity we have, I think, as Republicans
+and Democrats, to work together to accomplish good things for
+the country.
+ The President says he is for alternative energy. He called
+on us to take action in the State of the Union. Democrats are
+clearly for alternative energy. A good number of Republicans
+are concerned about this, and so, there is no reason not to
+take action, and so, I am very excited about serving with you,
+and I think that the other Members of--on our side of the panel
+are also vitally interested in this topic. It is--we have
+opportunities in alternative energy to win the triple play, to
+create jobs with new technologies, to clean the air, and then,
+third, and maybe of more--most general application for
+everybody in the country, to improve the national security of
+the United States.
+ So, it really is the triple play opportunity for us, in
+this Congress, and so, I am excited about that, and hope that
+we can work together to move ideas forward that will help
+advance this cause, of breaking our addiction to oil, and
+finding new sources of energy.
+ And this bill before us certainly fits that bill, and so, I
+am very happy that we are having this hearing, and I join in
+support of this bill put forward by the Chairman, and there are
+some interesting questions for our panelists today, and I look
+forward to those, and I look forward to working with you in
+making this a very productive Congress.
+ [The prepared statement of Mr. Inglis follows:]
+
+ Prepared Statement of Representative Bob Inglis
+
+ Thank you, Mr. Chair, for your remarks. I am excited to be working
+with you as we seek to tackle the energy and environmental challenges
+in the first Energy and Environment Subcommittee hearing of the 110th
+Congress.
+ I am pleased to see the Subcommittee addressing this legislation
+early in the Congress. The promise of fuels of the future to reduce our
+dependence on foreign oil is one that both Republicans and Democrats
+support. Americans don't care which party gets the credit; they want to
+see solutions.
+ I am also excited about the possibilities to improve our energy
+security, create jobs by retooling the car, and clean the air through a
+hydrogen economy. The scope of the challenge requires many solutions.
+America will benefit from the successes of its inventors, scientists
+and engineers. The government can help by harnessing the energy of its
+citizens through funding basic research. During my tenure on the Budget
+Committee ('93-'98), I learned the difference between simple spending
+and thoughtful investing. Investing in the research and development of
+fuels of the future makes sense. If we invest wisely, we can find
+economic growth through innovation.
+ We can reap the benefits of biodiesel made from renewable
+agricultural products instead of buying it from foreign oil companies
+in unstable countries--and produce less pollution.
+ A Department of Energy study showed that the production and use of
+biodiesel, compared to petroleum diesel, resulted in a 78.5 percent
+reduction in carbon dioxide emissions. For every unit of energy needed
+to produce a gallon of biodiesel, we gain 3.24 units of energy, giving
+it a positive energy balance.
+ I understand that biodiesel is chemically and physically different
+than petroleum based diesel. These differences present some problems of
+compatibility with the existing infrastructure. I hope that the
+witnesses today can help us better understand this challenge and how
+H.R. 547 can help address other challenges related to moving Ultra-Low
+Sulfur Diesel through our existing infrastructure.
+ I commend the Chairman of the Science Committee, Mr. Gordon, for
+introducing this bill and taking quick steps to further its passage.
+H.R. 547 is an example of a clear step that will both improve energy
+security and help clean the air.
+ Democrats are for alternative energy; Republicans are for
+alternative energy. Congress is ready; the President is ready. So let's
+hear from the witnesses how we may best begin.
+
+ Chairman Lampson. Thank you very much, Mr. Inglis.
+ I totally agree. I think there is a magnificent opportunity
+for us here, and I look forward to working with all of you, and
+there are some awfully bright people on this subcommittee, so I
+hope that neither of us is intimidated by their knowledge. But
+I think that we will grow because of what they bring to this
+committee.
+ I will, at this time, in the interest of time, ask
+unanimous consent that all additional opening statements, with
+the exception of Mr. Gordon when he comes, submitted by
+Subcommittee Members, be included in the record.
+ Without objection, so ordered.
+ [The prepared statement of Chairman Gordon follows:]
+
+ Prepared Statement of Chairman Bart Gordon
+
+ Thank you Mr. Lampson.
+ I am happy to be with the Subcommittee today to discuss my bill
+H.R. 547, the Advanced Fuels Infrastructure Research and Development
+Act.
+ I appreciate the witnesses providing testimony on the bill. I would
+also like to thank the many groups that are supporting this
+legislation. Your endorsements will be included in the record.
+ When I took the reigns of this committee I made a promise that this
+would be a Committee of ``Good Ideas'' and ``Consensus.'' We are here
+to solve problems.
+ This bill is a prime example of how we can identify problems big
+and small, and leverage the resources and expertise of the Committee to
+develop creative ways to bridge technological gaps through research and
+development.
+ It is clear that fueling our country solely on conventional fuels
+threatens our economic well-being and environmental health. The public
+wants and deserves clean and reliable fuel choices.
+ But, if this country is serious about reducing our dependence on
+foreign oil, we need to get serious about mobilizing the infrastructure
+necessary to distribute and dispense the newest generation of fuels.
+ For a number of reasons alternative fuels such as ethanol and
+biodiesel are often incompatible with many components of the present-
+day infrastructure.
+ Fuel distributors and retailers are left to bear the considerable
+burden and cost of refurbishing, replacing, or constructing entirely
+new infrastructure if they want (or are ever required) to carry such
+fuels.
+ At $30,000 to $200,000 per station, a nationwide change in
+infrastructure could cost $5 to $30 billion.
+ Instead, my bill instructs the Department of Energy and the
+National Institute of Standards and Technology to research fuel
+additives and other technologies that could mitigate many of these
+problems, and make bio-based fuels more compatible with the country's
+petroleum-based infrastructure.
+ In addition, the bill addresses potential challenges as suppliers
+transition to significantly cleaner fuels by instructing DOE and NIST
+to develop portable, low-cost, and accurate methods suppliers can use
+to test sulfur content in fuels.
+ Since infrastructure is used for various fuel products with sulfur
+content ranging from 15 to 5000 ppm, there is a concern that
+distributors and retailers may sell fuel with levels of sulfur beyond
+what is safe for the newest generation of highway diesel engines.
+ It should be noted that this section is not meant to interfere with
+the role of the Environmental Protection Agency in what has been a very
+successful market transition to Ultra Low Sulfur Diesel. It simply
+seeks to provide easier access to testing and verification for all
+participants. I encourage DOE and NIST to coordinate these activities
+with EPA.
+ I hope this bill also illustrates that solving problems does not
+require years of wrangling over major omnibus legislation that in the
+end fails to meet everyone's expectations.
+ Here we took a good idea, turned it into a good bill, and with the
+support of our Members we will pass it out of Committee tomorrow and
+send it to the Floor next week.
+ I look forward to hearing testimony. Thank you.
+
+ Chairman Lampson. It is my pleasure to introduce the
+excellent panel of witnesses that we have with us this
+afternoon. Mr. John Eichberger is the Vice President of the
+National Association of Convenience Stores, NACS. This
+afternoon, he is also testifying on behalf of the Society of
+Independent Gasoline Marketers of America. Mr. Richard Kassel
+is the Senior Attorney and Director of the Clean Fuels and
+Vehicles Project at the National Resources Defense Council; and
+Mr. Bob Dinneen is the President and CEO of the Renewable Fuels
+Association, the trade association representing the U.S.
+ethanol industry.
+ I want to welcome each and every one of you. You will each
+have five minutes for your spoken testimony. Your written
+testimony will be included in the record if you choose to
+submit anything in the record for the hearing.
+ And when all three of you have completed your testimony, we
+will begin with questions. Each Member will have five minutes
+to question the panel.
+ Mr. Eichberger, would you please begin.
+
+ STATEMENT OF MR. JOHN EICHBERGER, VICE PRESIDENT, GOVERNMENT
+ RELATIONS, NATIONAL ASSOCIATION OF CONVENIENCE STORES
+
+ Mr. Eichberger. Mr. Chairman, Ranking Member Inglis,
+Members of the Committee, thank you very much for inviting me
+here to testify. My name is John Eichberger. I am Vice
+President, Government Relations, for the National Association
+of Convenience Stores, also known as NACS.
+ On behalf of the convenience and petroleum retailing
+industry, which sells approximately 80 percent of the motor
+fuels in the Nation, I appear today in support of H.R. 547, the
+Advanced Fuels Infrastructure Research and Development Act.
+ This legislation comes at an appropriate time. Today, the
+motor fuels industry is experiencing a significant transition
+to the next generation of fuels, and as Congress contemplates
+policies to accelerate this transition, H.R. 547 represents a
+welcome effort to address two of the many challenges facing the
+retailers.
+ With regards to alternative fuel, let me be clear.
+Petroleum retailers don't really care which fuels they sell,
+provided there is sufficient supply and consumer demand for
+those products. However, converting to new fuels can present
+challenges to many retailers. For some, converting to a fuel
+like E-85 or B-100 can be relatively simple. If they are
+fortunate, all of the equipment at their facility is already
+certified as compatible with these fuels. And all they need to
+do is simply make sure--begin the transition to those new
+fuels.
+ Other retailers, however, are not as fortunate. Much of the
+equipment commonly found at a retail location is not certified
+for use with these fuels, typically because of concerns with
+corrosion and material degradation. Such equipment must be
+replaced, and in some cases, at significant cost. Sample
+invoices on the Department of Energy's website range from about
+$17,000 to $60,000 per location. But NACS' members inform us
+that if they had to replace the entire tank system, costs can
+be significantly higher. To put this in perspective, in 2005,
+the convenience stores reported an average pretax profit of
+only $42,000 per location.
+ Compounding this issue is the fact that Underwriters
+Laboratories last fall suspended certification for all
+dispensers to sell E-85, due to concerns about corrosion. While
+many E-85 retailers continue to operate under agreements with
+local officials, this does not absolve them from any potential
+liability associated with a release from one of these non-
+certified dispensers. Until UL decides to certify dispensers
+for E-85 sales, the number of retailers interested in
+converting to E-85 will be greatly diminished.
+ Clearly, equipment compatibility is a serious issue. The
+research in H.R. 547, if successful, will hopefully address
+these challenges in a more cost-effective way, and mitigate the
+significant barrier to entry. But I must caution this committee
+and the Congress that resolving the issue of incompatibility
+alone will not result in automatic widespread availability of
+alternative fuels. Retailers must assess the impact of
+alternate fuel on their overall business model.
+ For example, is there sufficient demand to justify
+replacing a gasoline or diesel fuel dispenser with an
+alternative fuel? Does the retailer have a tank available to
+convert to alternative fuel, or the physical space to install
+an additional tank? Are supplies in the market sufficient to
+enable the alternative fuel to compete for price-sensitive
+customers with gasoline? And most importantly, will switching
+to an alternative fuel increase or decrease customer traffic
+inside the store, where the retailer makes most of their money?
+ Mr. Chairman, these are real issues. Yes, H.R. 547 could
+substantially improve the economic calculations for retailers,
+but installation decisions will be based upon a balancing of
+various market forces involved, and Congress should be
+sensitive to these issues.
+ With regards to Ultra-Low Sulfur Diesel, NACS strongly
+supports research to develop an accurate and affordable sulfur
+test. So far, the transition to ULSD has gone relatively
+smoothly, much more so than anybody could have anticipated.
+However, consistent compliance is critical. Drivers must be
+able to rely upon the integrity of ULSD, and retailers face
+fines up to $32,500 if they are found to violate the 15 parts
+per million sulfur standard. If a retailer is found violating
+15 ppm, the regulations provide them a three part defense. One,
+they must demonstrate that the ULSD delivered to their location
+was certified by their distributor as compliant. They must
+demonstrate that the contamination was not caused by their
+actions. And third, they must demonstrate that they have
+implemented a credible quality assurance program to ensure
+continued compliance.
+ This third defense is the primary challenge. The only way
+to completely ensure continued compliance is to test every
+batch. However, there is no accurate, prompt--no accurate way
+to measure sulfur and get prompt results. Right now, you have
+to take a sample, send it to a lab, and wait 48 hours for a
+response. It is impractical to hold a load of diesel aside
+until those results come back. Therefore, currently, quality
+assurance programs are based upon a specific process of
+inventory management supported by evidentiary testing results.
+They figure out what they need to do to manage inventory, and
+test early on to see if it is working, then they continue that
+process throughout the system.
+ While this is a defensible method to ensure compliance, it
+is not perfect. H.R. 547 seeks to develop an accurate and
+affordable sulfur test. If successful, retailers and others
+throughout the distribution system will be able to conduct
+quality assurance tests more frequently, thereby increasing the
+confidence of their customers that all ULSD meets the sulfur
+level, the 15 parts per million.
+ Mr. Chairman, these conclude my remarks, and I look forward
+to your questions.
+ [The prepared statement of Mr. Eichberger follows:]
+
+ Prepared Statement of John Eichberger
+
+ Mr. Chairman, Ranking Member Inglis, and Members of the Committee.
+My name is John Eichberger and I am Vice President of Government
+Relations for the National Association of Convenience Stores (NACS).
+ NACS is an international trade association comprised of 2,200
+retail member companies representing an industry with more than 140,000
+retail locations. In 2005, the convenience and petroleum retailing
+industry employed more than 1.5 million workers and sold nearly 80
+percent of the motor fuels consumed in the United States.
+ The motor fuels industry is currently experiencing a significant
+transition to the next generation of fuels. As Congress contemplates
+policies to promote this transition, it must also understand that there
+are many complicated challenges facing retailers and the distributors
+that serve them that must be overcome before the market can efficiently
+offer these new fuels to consumers.
+ H.R. 547, the Advanced Fuels Infrastructure Research and
+Development Act, initiates federal research and development projects to
+help the petroleum industry overcome some of these hurdles in the most
+cost efficient manner, thereby facilitating the smooth transition to
+these the new fuels. NACS supports the goals of this legislation and,
+today, I would like to comment on the two primary provisions
+independently.
+
+Alternative Fuels
+
+ Clearly, the political momentum to bring alternative fuels to
+market is strong and growing. I cannot stress enough that petroleum
+retailers are agnostic regarding the type of fuels they sell, provided
+there is sufficient supply and consumer demand for those products. As
+supply and demand increase for alternative fuels via market forces and
+government programs, however, there remain significant hurdles
+inhibiting their smooth introduction to market. H.R. 547 seeks to
+address one of these challenges--the incompatibility of certain fuels
+with existing storage and distribution infrastructure.
+Compatibility Issues
+ This issue of incompatibility carries with it potentially high
+costs to retailers seeking to convert their facilities to dispense
+these alternative fuels. A retailer must be able to determine precisely
+what equipment is involved in his system and for which fuels that
+equipment is certified.
+ Some reports have indicated that certain components commonly found
+in storage and dispensing infrastructure may be incompatible with fuels
+like E-85 and B-100. These may include components made with aluminum,
+brass, copper and zinc or containing various elastomers,
+thermoplastics, thermosets, ceramics, pipe dope and organic coatings.
+Such metal components could be vulnerable to corrosion when in
+consistent contact with these fuels, while non-metal components could
+be subject to swelling, degradation, softening, embrittlement and
+delamination.\1\
+---------------------------------------------------------------------------
+ \1\ ``PEI/NACS 2006 Alternative Fuels and Material Compatibility,''
+Presentation by Edward W. English, II, Fuel Quality Services, Inc.
+http://www.pei.org/pdf/EdEnglish.pdf
+---------------------------------------------------------------------------
+ However, there remains a considerable amount of uncertainty
+regarding the extent to which these materials may be vulnerable and
+retailers cannot make broad assumptions regarding the compatibility of
+their equipment.
+ In an effort to address the confusion that exists with regard to
+compatibility, the Petroleum Equipment Institute has provided on its
+web site a list of equipment certified by the manufacturer and listed
+by a laboratory for compatibility with certain fuel types.\2\ Retailers
+must work with their equipment suppliers to determine specifically what
+equipment must be replaced and what is already compatible with the fuel
+they are considering. In some cases, retailers may find it necessary to
+replace their entire system at significant expense.
+---------------------------------------------------------------------------
+ \2\ Petroleum Equipment Institute, http://www.pei.org/altfuels/
+ByFuel.asp
+---------------------------------------------------------------------------
+ Underwriters Laboratories Inc. (UL) is the definitive resource to
+certify equipment as compatible. On October 5, 2006, UL suspended
+certification of all dispensers for compatibility with fuels containing
+greater than 15 percent alcohol. UL cited as the reason for this
+suspension: ``Research indicates that the presence of high
+concentrations of ethanol or other alcohols within blended fuels makes
+these fuels significantly more corrosive. This may result in the fuel
+chemically degrading the materials used in fuel-dispenser components,
+and may ultimately affect the dispenser's ability to contain the
+fuel.''
+ As of this month, despite the assistance of a technical conference
+and receipt of various supporting documents, UL has been unable to
+resolve its concerns and is preparing to conduct its own round of
+testing later this year.\3\
+---------------------------------------------------------------------------
+ \3\ ``Progress Update on E-85 Fuel-Dispensing Equipment
+Requirements--January 2007,'' Underwriters Laboratories Inc.
+www.ul.com/regulators/E-85up.cfm
+---------------------------------------------------------------------------
+ This is an important issue for retailers. Most jurisdictions
+require equipment to be UL certified before a retailer can put it into
+operation. Given the current state of non-approval by UL, many
+retailers who have already installed E-85 fueling systems continue to
+operate under agreements with local officials. While this may satisfy
+local operating requirements, it does not absolve retailers of
+potential liability associated with a petroleum or alternative fuels
+release caused by one of these dispensers. Therefore, the continued
+deliberations at Underwriters Laboratories and the rapid resolution of
+this issue is of critical importance to retailers.
+ Clearly, compatibility between alternative fuels and existing
+infrastructure is a serious issue that can cost retailers thousands of
+dollars.
+ The Department of Energy has posted on its web site invoices for
+the installation of E-85 compatible equipment. Some of the prices
+quoted on that site are $35,274, $15,383, $57,922, $27,321, and
+$24,105. These costs are significant, especially when one considers
+that the average pre-tax profit for a convenience store in 2005 was
+only $42,000.\4\
+---------------------------------------------------------------------------
+ \4\ U.S. Department of Energy, http://www.eere.energy.gov/afdc/E-
+85toolkit/cost.html
+---------------------------------------------------------------------------
+ This is one of the primary reasons the petroleum retail industry is
+slow to adopt these alternative fuels. The legislation under
+consideration today, however, if successful, will hopefully address the
+equipment compatibility challenges in a more cost efficient way and
+mitigate this significant barrier to entry. For that reason, NACS
+supports this part of the legislation.
+Other Hurdles to Installation
+ However, I must caution this Committee, and the entire Congress,
+that the issue of incompatibility is only one of the hurdles that
+impede an individual retailer's decision to install E-85. Consequently,
+resolving that issue alone will not automatically result in widespread
+availability. While other Congressional Committees will determine
+federal policy and government programs regarding alternative fuel
+availability, I would like share with you the other considerations
+facing retailers because I believe it is pertinent to Congress' broad
+consideration of the alternative fuels issue.
+ First, while I will acknowledge that the auto manufacturers are
+increasing their production of flexible fuel vehicles equipped to run
+on E-85, the number of these vehicles currently on the road remains
+relatively small and the number of drivers who know their vehicles are
+specially equipped is even smaller. This means a retailer must
+carefully evaluate the level of demand for E-85 in his operating market
+to determine if it makes business sense to dedicate a dispenser to sell
+the product. The typical convenience store operates four multi-pump
+dispensers, each providing two fueling positions. If E-85 is sold from
+one of these dispensers, gasoline customer throughput capacity is
+reduced by 25 percent due to the reduction in fueling positions. Unless
+there is strong demand for E-85, this could substantially affect the
+retailer's overall business model.
+ Secondly, not every retail location can accommodate an E-85 storage
+tank. Many facilities maintain only two underground storage tanks--one
+for premium unleaded and one for regular unleaded. Mid-grade often is
+produced by mixing the two at the dispenser. To install E-85, the
+retailer must either install a third tank, which may not be physically
+possible depending upon the size of the facility, or replace one of
+these two gasoline tanks. Clearly, this is not a viable option.
+ Retailers with additional tanks, perhaps containing diesel fuel,
+must make a decision to replace that product with the alternative fuel.
+Again, this is a decision that will have direct implications for the
+company's business model.
+ Third, retailers must be cognizant of the price sensitivity of the
+consumer. The retail gasoline marketplace is the most competitive in
+the Nation--large price signs on the corner empower consumers to shop
+by price without ever leaving their vehicles. And they do.
+ According to consumer polling just completed this month, NACS found
+that two-thirds of consumers shop by price and more than one in four
+will go out of their way--such as turn left across a busy
+intersection--to save one penny per gallon. Given the fact that E-85
+provides the consumers with approximately 25 percent fewer miles per
+gallon, a retailer must be able to sell it at a substantial discount
+compared to gasoline in order to satisfy the consumers' economic
+interest. NACS members who do offer E-85 report that when the
+alternative fuel is priced similar to gasoline they experience a
+significant drop in gallons sold. Therefore, retailers must assess the
+availability of E-85 in their market and the variable price
+relationship of that product to gasoline. Often, there is a favorable
+price differential because of government incentive programs, but
+sometimes there is not. This issue must be taken into consideration.
+ My final point on alternative fuels is to applaud Congress for its
+interest in assisting retailers to overcome the hurdles presented by
+these new fuels, but to make sure that Congress understands the
+complexities of the issue. Section 3 of H.R. 547 could substantially
+improve the economic calculations for retailers, but installation
+decisions will be based upon a balancing of the various market factors
+involved.
+
+Diesel Sulfur
+
+ With regards to Section 4, ``Sulfur Testing for Diesel Fuels,''
+NACS again supports the research program to develop an affordable and
+reliable testing method to ensure compliance with federal regulations.
+ In December 2000, the Environmental Protection Agency (EPA)
+promulgated rules requiring a 97 percent reduction in the sulfur
+content of on-road diesel fuel. Phase-in of that program began in June
+2006 and, effective October 15, 2006, any retailer claiming to sell
+Ultra-Low Sulfur Diesel, or ULSD, must ensure that its sulfur level
+does not exceed 15 parts per million. The engine manufacturers report
+that sulfur levels above that limit could damage emissions and engine
+technology of model year 2007 and later vehicles. If inspectors find
+that the USLD does in fact exceed this sulfur limitation, a retailer
+can be subject to fines up to $32,500 per violation, as established by
+the Clean Air Act.
+ If found in violation of the sulfur limitation, the regulations
+provide the retailer with a three-part defense. First, a retailer must
+demonstrate through product transfer documents that all ULSD delivered
+to the facility was certified as compliant by the distributor. Second,
+a retailer must be able to demonstrate that contamination of the
+product was not caused by the retailer. And third, a retailer must have
+its own credible quality assurance program designed to ensure
+compliance with the sulfur limitation.
+ This third defense is the primary challenge. The only way to
+completely ensure continued compliance is to test every batch.
+Unfortunately, testing must be conducted in a laboratory, is expensive
+and may take 48 hours to return results. Consequently, it is not
+practical for a retailer to hold a load of ULSD aside until
+confirmation of such test results. Therefore, retailers are left to
+design a quality assurance program based upon a specific process of
+inventory management supported by evidentiary testing results. While
+this is a defensible method to ensure quality, it is not perfect.
+ NACS has been concerned for many years that there exists no
+reliable, affordable sulfur test for retailers to use on a more
+frequent basis to ensure regulatory compliance. H.R. 547 seeks to
+develop such a test. If successful, retailers and others throughout the
+distribution system will have the ability to conduct quality assurance
+tests more frequently, thereby increasing the confidence of their
+customers that the product sold as ULSD does indeed meet the sulfur
+limit of 15 parts per million.
+
+Conclusion
+
+ Mr. Chairman, these conclude my remarks. On behalf of the member
+companies of NACS, I thank you for your efforts to address these
+specific retailer challenges and I appreciate the opportunity to share
+our views on this legislation. I would be happy to answer any questions
+my testimony may have raised.
+
+ Biography for John Eichberger
+
+ John Eichberger is Vice President of Government Relations for the
+National Association of Convenience Stores (NACS) where he oversees the
+association's government relations activities, represents the
+convenience and petroleum retailing industry before Congress, the
+Administration and the media, and directs the Association's petroleum
+related activities. Eichberger joined the association in 2000 as
+Director of Motor Fuels and was named to his current position in 2006.
+ NACS is an international trade association representing more than
+2,200 retail member companies and more than 1,700 companies that supply
+the convenience and petroleum retailing industry. NACS represents an
+industry operating more than 140,000 retail locations, of which more
+than 112,000 sell motor fuels. In 2005, the industry employed more than
+1.5 million workers and sold 80 percent of the Nation's gasoline and
+diesel fuel.
+ Prior to joining NACS, Eichberger served as a legislative assistant
+for Representative Greg Ganske (R-IA) where he advised the Congressman
+on such issues as those relating to energy, environment and
+agricultural policy.
+
+ Chairman Lampson. Thank you, Mr. Eichberger, and now, we
+will go to Mr. Kassel.
+
+ STATEMENT OF MR. RICHARD KASSEL, SENIOR ATTORNEY AND DIRECTOR
+ OF THE CLEAN FUELS AND VEHICLES PROJECT, NATURAL RESOURCES
+ DEFENSE COUNCIL
+
+ Mr. Kassel. Thank you, Mr. Chairman, Ranking Member Inglis,
+and Members of the Committee. My name is Richard Kassel, and I
+am very pleased to testify today on H.R. 547.
+ I am a Senior Attorney at the Natural Resources Defense
+Council, where I direct our Clean Fuels and Vehicles Project. I
+also advise EPA, as a member of its Clean Air Act Advisory
+Committee and its Mobile Sources Technical Review Subcommittee,
+so I am familiar with all the issues that are at hand here.
+ NRDC is a national nonprofit environmental organization. We
+represent more than 1.2 million members and online activists
+nationwide. It is no secret our continuing reliance on gasoline
+and diesel for our transportation needs contributes to a wide
+range of important environmental and energy concerns, including
+air pollution, a wide range of public health impacts, oil
+dependency, and of course, global warming.
+ H.R. 547 can help improve the transition to two groups of
+fuels that can help in all these, Ultra-Low Sulfur Diesel, or
+ULSD, and biofuels. I am going to first address the ULSD issue,
+and that is where I will spend most of my time. Diesel
+pollution is, of course, a serious problem that affects all
+Americans, but luckily, it is a solvable problem. And thanks to
+EPA's groundbreaking Highway Diesel Rule, and its upcoming
+Nonroad Diesel Rule, we actually have the regulatory structure
+in place now to solve the problem. And over time, as today's
+diesels are replaced by the new engines that meet these
+standards, more than 20,000 premature deaths will be eliminated
+every year nationwide, more than $140 billion in annual health
+costs as well.
+ ULSD fuel is the key to achieving these pollution benefits.
+Just as--there is an analogy here. Just as it was critical to
+remove lead from gasoline to get cleaner cars two decades ago,
+it is now critical to remove sulfur from diesel fuel to get
+cleaner trucks, buses, farm equipment, industrial equipment,
+and so on today.
+ Now, H.R. 547 is going to help improve the transition to
+ULSD. To paraphrase Mr. Gordon's written comments that were in
+the back of the room, it is a good idea, worthy of consensus.
+ But it is important also to note that the transition is, as
+already has been mentioned, going smoothly. Just this month,
+EPA reported that 90 percent or more of the ULSD in the system
+is already Ultra-Low Sulfur Diesel. That is why engine makers
+and car manufacturers are jumping over each other to announce
+their new product offerings that will meet the new pollution
+standards. They wouldn't do this if they thought that fuel
+availability would be a serious issue that would last.
+ Of course, that doesn't mean that there are no bumps
+whatsoever. Over the past few years, many stakeholders raised
+concerns about possible sulfur contamination in the pipeline
+system. EPA listened to those concerns, and in response, last
+year, for example, raised the sulfur tolerance limits to give
+industry a little bit more breathing room during this
+transition phase. It was a good step.
+ Here is what appears to be happening now. Because of
+concerns about mis-fueling at the retail level, service
+stations are not putting the appropriate ULSD label on the
+pumps. And indeed, EPA reported last week that 76 percent of
+the pumps they surveyed did not have ULSD labels. But we know
+from the same report that 90 percent of the fuel is, in fact,
+ULSD. So, there is no availability issue, but there is clearly
+a labeling issue. It is a serious issue, and it needs to be
+addressed, and addressed swiftly.
+ Now, that said, it makes sense to create a faster and
+simpler way of accurately monitoring and verifying the sulfur
+level of the fuel that is being sold. So, we support H.R. 547,
+but we also strongly urge the Subcommittee to make one change,
+to add EPA as part of the intergovernmental team that will
+implement this bill. After all, EPA is the agency that is
+charged with overseeing with the implementation of ULSD. It is
+the agency that is charged under the Clean Air Act with
+maintaining fuel quality. For lots of different reasons, EPA is
+involved in fuel quality at every step in the process, and they
+should be part of this team as well.
+ Now, allow me, if I may, to just spend a moment on the
+alternative fuels provisions of this bill. Developing methods
+and technologies and procedures to increase the compatibility
+of bio-based alternative fuels with our nation's conventional
+fuel distribution system makes sense. It is another good idea
+worthy of consensus. Biofuels will never replace petroleum at
+the level we need to get energy independence and address global
+warming if the biofuels have to be trucked from the biorefinery
+to the retail outlet.
+ There is also--so addressing that issue is important. But
+there is another issue here as well. Not all alternative fuels
+are alike. Some offer significant lifecycle emissions
+reductions in global warming pollutants, for example,
+cellulosic ethanol, while others can be worse than, or in the
+best case, roughly equivalent to gasoline, coal to liquids
+fuels would be the example there. So, it is critical that we
+pursue biofuels in a way that not only helps on energy
+security, but it also reduces global warming pollution. And
+likewise, it is critical that the future of biofuels strategies
+address other environmental issues that will come up, forestry
+issues, land use issues, and so on.
+ Now, H.R. 547 can't solve all of the challenges, or address
+all of the challenges of our future bio-economy, but it can
+help. It can help in two ways: first, by adding EPA to the
+alternative fuel provisions as well; and second, by clearly
+defining the various fuels provisions in the bills. Right now,
+there are four different fuels provisions in it. And clearly
+defining those, so that the research is moving towards fuels
+that are sustainable, not just for energy security, but for
+global warming, for the forestry and land use issues, and
+others.
+ Thank you very much for the opportunity to testify.
+ [The prepared statement of Mr. Kassel follows:]
+
+ Prepared Statement of Richard Kassel
+
+ My name is Richard Kassel, and I am pleased to testify on H.R. 547,
+the Advanced Fuels Infrastructure Research and Development Act.
+ I am a Senior Attorney at the Natural Resources Defense Council
+(NRDC), where I direct NRDC's Clean Fuels and Vehicles Project. My
+expertise includes developing clean diesel and alternative fuel
+programs for large urban bus and truck fleets, as well as federal
+advocacy on EPA's various diesel and renewable fuels programs over the
+past fifteen years. In addition to my NRDC fuels and vehicles work, I
+currently advise the U.S. Environmental Protection Agency as a member
+of its Clean Air Act Advisory Committee and its Mobile Sources
+Technical Review Subcommittee, and have served on numerous technical
+advisory committees on fuels and vehicles issues in the United States
+and around the world.
+ NRDC is a national, nonprofit organization of scientists, lawyers,
+and environmental specialists dedicated to protecting public health and
+the environment. Founded in 1970, NRDC has more than 1.2 million
+members and online advocates nationwide, served from offices in New
+York, Washington, Los Angeles, San Francisco, Chicago, and Beijing.
+Most relevant to today's hearing, NRDC's Clean Fuels and Vehicles
+Project has been in the forefront of research and advocacy to reduce
+diesel pollution, petroleum dependency, and global warming, and to
+increase the use of bio-based alternative fuels and clean diesel
+technologies, for many years.
+ Thank you for the opportunity to testify.
+
+Introduction: The Importance of Transitioning to Ultra-Low Sulfur
+ Diesel Fuel and Biofuels
+
+ America's continuing reliance on gasoline and diesel fuel for its
+transportation needs contributes to a range of critically important
+environmental and energy concerns. H.R. 547 will help transition the
+Nation to cleaner, more sustainable fuels in two key areas.
+H.R. 547 and the Ultra-Low Sulfur Diesel Fuel Transition
+ H.R. 547 can help transition the Nation to the Ultra-Low Sulfur
+Diesel (``ULSD'') fuel that is critical to reducing diesel pollution
+nationwide.
+ More than 150 million people live in areas that fail to meet EPA's
+health standards for ozone and/or particulate matter, in part due to
+emissions from today's dirty diesel vehicles.\1\ In cities and towns
+throughout the Nation, dirty trucks, buses, construction equipment and
+other diesel engines contribute a disproportionately large share of the
+particulate matter (PM) that triggers asthma attacks, bronchitis, and
+roughly 25,000 premature deaths every year. In addition, more than 35
+percent of the nitrogen oxides (NOX) emissions that are key ozone
+precursors come from diesel engines.\2\
+---------------------------------------------------------------------------
+ \1\ American Lung Association, State of the Air: 2006.
+ \2\ U.S. Dept. of Energy, Transportation Energy Data Book, Volume
+25, Tables 12.4, 12.5 (2006).
+---------------------------------------------------------------------------
+ Thanks to EPA's landmark Highway Diesel Rule,\3\ more than 90
+percent of the health impacts from today's dirty diesel trucks and
+buses will be eliminated over the next two decades, as today's engines
+are replaced by new engines that meet the Rule's stringent emission
+standards for PM and NOX.
+---------------------------------------------------------------------------
+ \3\ 66 Federal Register 5001 et seq. (January 18, 2001).
+---------------------------------------------------------------------------
+ The health benefits of implementing EPA's diesel programs
+successfully will be enormous. When all of today's engines have been
+replaced by new engines that meet the standards set in the Highway
+Diesel Rule, which EPA estimates will occur in 2030, more than 8,300
+premature deaths, 1.5 million lost work days, and $66 billion in net
+health and other costs will be eliminated every year.\4\ Combined with
+EPA's Nonroad Diesel Rule, the combination of ULSD and new engines that
+meet the standards of these two rules will eliminate more than 20,000
+premature deaths, tens of thousands of child asthma emergencies and
+other respiratory illnesses, and more than $140 billion in health costs
+every year in 2030.\5\
+---------------------------------------------------------------------------
+ \4\ Id. at 5005.
+ \5\ See 69 Federal Register 38957 et seq. (June 29, 2004) for
+Nonroad Diesel Rule benefits.
+---------------------------------------------------------------------------
+ ULSD fuel is the key to achieving these pollution reductions and
+public health benefits. Today's modern diesel engines are equipped with
+extremely sophisticated catalysts and filters that can reduce harmful
+PM and NOX by more than 90 percent. However, all of these emission
+control technologies are extremely sensitive to the sulfur levels of
+the fuel. Indeed, higher-than-expected sulfur levels can impair--and
+even disable--these technologies. Just as it was critical to eliminate
+leaded gasoline to enable the use of effective catalytic converters two
+decades ago, it is now critical to use ULSD fuel to enable the
+effective use of today's diesel emission control technologies.
+ It is important to note that the transition to ULSD is, in fact,
+running smoothly. Since mid-October, at least 80 percent of the
+Nation's highway diesel fuel has been required to be ULSD, pursuant to
+the Highway Diesel Rule. In fact, EPA has reported that more than 90
+percent of the highway diesel fuel is already ULSD.\6\ Consequently,
+the heavy-duty engine industry has moved forward with its 2007
+offerings, all of which require ULSD.
+---------------------------------------------------------------------------
+ \6\ Inside EPA, ``EPA Speeds Enforcement of Diesel Fuel Labels Due
+to Industry Concern,'' January 26, 2007.
+---------------------------------------------------------------------------
+ NRDC shares EPA and industry concern about the lack of ULSD labels
+at many service stations around the Nation.\7\ However, there is a big
+difference between a labeling issue and an availability issue. The
+evidence is now clear that ULSD is widely available, in excess of the
+minimum required by the Highway Diesel Rule.
+---------------------------------------------------------------------------
+ \7\ The January 26, 2007 Inside EPA article reported that EPA has
+found that 76 percent of the diesel fuel labels have not been updated
+yet.
+---------------------------------------------------------------------------
+ With ULSD now in the marketplace, many car makers have announced
+plans, with great fanfare, to introduce clean, fuel-efficient diesel
+cars, light trucks, and sport-utility vehicles to the Nation's
+showrooms next year. Indeed, these diesel vehicles were the centerpiece
+of last week's Washington Auto Show and similar shows around the Nation
+over the past few months. All of these diesel vehicles will require
+ULSD to operate cleanly and effectively. Car makers would not be so
+excited about their potential to sell new diesel passenger vehicle
+models next year if they had any concerns about the retail availability
+of the ULSD fuel that these vehicles will require.
+ Moreover, EPA has developed effective mechanisms to ensure that
+diesel fuel that leaves the refinery gates as ULSD arrives at the
+terminal and the retail seller as ULSD. These mechanisms have evolved
+since 2001, in large part due to EPA's ongoing dialogue with
+stakeholders throughout the refining, distribution, and retailing
+industries. For example, last year, EPA provided a temporary increase
+in the sulfur testing tolerance, as well as an amended ULSD tracking
+system in response to industry concerns.\8\ While we understand that
+the same retailers would prefer a simpler system of verification and
+monitoring and we support R&D programs that are designed to create
+methods and technologies for such a system, we also think that it is
+important to note that the current ULSD transition has been a smooth
+one so far.
+---------------------------------------------------------------------------
+ \8\ See EPA420-F-06-033, April 2006. ``Direct Final Rule and Notice
+of Proposed Rule-making for Amendments to the Nonroad and Highway
+Diesel Fuel Regulations.'' Also Available at: www.epa.gov//otaq/regs/
+fuels/diesel/420f06033.htm
+---------------------------------------------------------------------------
+H.R. 547 and the Biofuels Transition
+ H.R. 547 can help transition the Nation to biofuels that will help
+end our dependence on oil, and that can reduce global warming pollution
+as well.
+ It is well-known that the Nation remains dependent on oil for its
+transportation needs, most of which comes from some of the world's most
+unstable and/or unfriendly nations. And, it is equally well-known that
+this oil dependence contributes greatly to the ever-growing greenhouse
+gas emissions that contribute to global warming.
+ A comprehensive strategy that combines increased vehicle efficiency
+with increased use of biofuels can reduce virtually all of our
+projected gasoline demand in 2050, as illustrated in the graph below.
+
+
+
+
+ However, not all ``alternative fuels'' are alike. Some offer
+significant life cycle emissions reductions in global warming
+pollutants (e.g., cellulosic ethanol), while others can be worse than
+(or, in the best case, roughly equivalent to) gasoline (e.g., coal-to-
+liquid fuels), as the chart below shows.\9\ Thus, it is critical that
+Congress and the President pursue oil savings in a way that also
+produces global warming pollution savings.
+---------------------------------------------------------------------------
+ \9\ NRDC research based on published materials from multiple
+sources.
+
+
+
+
+ In sum, it is critically important that EPA's Highway Diesel Rule
+is implemented successfully, and it is critically important that
+Congress and the President take action to ensure that the Nation ends
+its dependence on oil in a way that simultaneously reduces global
+warming pollution. H.R. 547 can play a meaningful role in succeeding in
+both efforts.
+
+NRDC Supports H.R. 547 with Modifications
+ With minor modifications, H.R. 547 can play a meaningful role
+towards ensuring the effective transition to ULSD, and towards ensuring
+that increased biofuels are effectively incorporated into the Nation's
+fuel infrastructure and transportation systems. However, the
+modifications that NRDC proposes are critically important to the
+ultimate success of the bill, and to our support.
+ First, it is critical to add EPA as part of the team that will
+implement H.R. 547. Currently, the bill directs the Secretary of
+Energy, in consultation with the National Institute of Standards and
+Technology only, to carry out an effective program of research,
+development, demonstration and commercial application of materials to
+be added to alternative bio-based fuels and ULSD, and to seek portable,
+low-cost and accurate ULSD testing methods and technologies, to make
+each of these fuels more compatible with our existing fuel storage and
+delivery infrastructure. However, EPA is the agency charged with
+implementing the Highway Diesel Rule and the Renewable Fuel Standard.
+EPA is the agency with responsibilities under the Clean Air Act, as
+amended, and the Energy Policy Act of 2005 to create effective programs
+to monitor fuel quality throughout the system. Indeed, for the past six
+years, EPA has worked closely with industry and other stakeholders to
+ensure that the ULSD that comes out of the Nation's refineries arrives
+at the pump as ULSD. And, as noted above, EPA has managed the
+transition to ULSD successfully. While further R&D efforts may provide
+added benefits to the ongoing ULSD transition, NRDC believes strongly
+that those efforts will be most successful if EPA is a designated
+member of the inter-governmental team that oversees this work and
+implements H.R. 547.
+ Second, many terms in H.R. 547 have to be defined clearly. While
+ULSD is an accepted term already, phrases like ``advanced fuels,''
+``bio-based fuels,'' ``alternative bio-based fuels,'' and ``alternative
+fuels'' are used seemingly interchangeably throughout the bill.\10\
+Given our concerns about energy security paths that would not reduce
+global warming pollution, about the potential increased use of coal-to-
+liquid fuels, and about the wide range of current and potential
+alternatives to conventional gasoline and diesel fuel under
+consideration, clarifying these definitions is critical. As noted
+above, NRDC does not support energy security policies that do not
+simultaneously address global warming.
+---------------------------------------------------------------------------
+ \10\ It is worth noting that ``Low Sulfur Diesel'' is not defined
+in the bill either. Presumably, this term refers to diesel fuel
+containing no more than 500 parts-per-million sulfur. In the final
+bill, NRDC encourages the Subcommittee to clearly define both Low
+Sulfur Diesel and ULSD.
+---------------------------------------------------------------------------
+ Last, NRDC believes that the bill draft provided to us earlier this
+month would benefit from some minor text editing. We have provided
+these edits to committee staff, and include those that are not
+reflected in our prior two paragraphs here:
+
+ Page 2, line 7: delete ``newer.''
+
+ Page 2, line 10: insert ``potentially'' before
+ ``placing.''
+
+ Page 2, line 21-25: after ``sale'' in line 25, insert
+ ``if not transported properly'' and replace ``can'' with
+ ``may'' in line 21.
+
+ Page 3, line 14: replace ``and'' with ``or.''
+
+Conclusion:
+
+ Certainly, the Nation would benefit from programs that help ensure
+the smooth transition to ULSD and an increased use of biofuels. H.R.
+547 appears to be a meaningful step towards both of these important
+steps. However, NRDC strongly urges the Subcommittee to make the
+modifications suggested herein before moving this bill forward.
+ Thank you for the opportunity to testify today.
+
+ Biography for Richard Kassel
+
+ RICH KASSEL is a senior attorney at the Natural Resources Defense
+Council and directs NRDC's Clean Vehicles and Fuels Project. He is an
+internationally-recognized expert on diesel and other fuel and vehicle
+pollution issues.
+ Highlights of Mr. Kassel's projects include:
+
+ Working with the U.S. Environmental Protection Agency
+ to help develop and implement EPA's Highway Diesel and Nonroad
+ Diesel Rules. When all of today's engines have been replaced by
+ new engines that meet EPA's new standards, more than 20,000
+ premature deaths and $150 billion in health costs will be
+ eliminated annually.
+
+ Working with the Pataki Administration and the
+ Metropolitan Transportation Authority to create a ``Clean Fuel
+ Bus Program'' for the New York City Transit bus fleet, the
+ largest fleet in North America. As a result of this program,
+ particulate matter (PM) emissions from the MTA buses are 97
+ percent lower than they were in 1995, and the program is a
+ model for fleets worldwide.
+
+ Working with U.S. EPA, the United Nations Environment
+ Program, and a range of industry and other stakeholders to
+ create the Partnership for Clean Fuels and Vehicles in 2002.
+ The Partnership works in developing countries around the world
+ to eliminate leaded gasoline where it is still used, and to
+ help countries develop plans to reduce diesel and other vehicle
+ pollution.
+
+ Working with local and global vehicle experts to
+ create clean vehicle pollution plans for Mexico and Brazil that
+ combine clean fuel standards, more stringent emission
+ regulations and accelerated ``retirement and retrofit''
+ programs to reduce air pollution in Mexico City and Sao Paolo.
+
+ Mr. Kassel is a member of many technical advisory committees. These
+include EPA's Clean Air Act Advisory Committee, its Mobile Sources
+Technical Review Subcommittee, its Clean Diesel and Retrofit Work Group
+and its former Clean Diesel Implementation Review Panel; the Health
+Effects Institute's Special Committee on Emerging Technologies and the
+Steering Committee for HEI's Advanced Collaborative Emissions Study;
+and others.
+
+ * * *
+
+ NRDC is a national, non-profit organization of scientists, lawyers
+and environmental specialists dedicated to protecting public health and
+the environment. Founded in 1970, NRDC has more than 1.2 million
+members and online advocates, served from offices in New York,
+Washington, Los Angeles, San Francisco, Chicago, and Beijing. More
+information is available at NRDC's web site, http://www.nrdc.org/
+
+ Chairman Lampson. Thank you for being here. Mr. Dinneen.
+
+ STATEMENT OF MR. BOB DINNEEN, PRESIDENT AND CEO, RENEWABLE
+ FUELS ASSOCIATION
+
+ Mr. Dinneen. Thank you very much, Mr. Chairman. Thank you
+for the invitation, Mr. Chairman and Members of the Committee.
+ On behalf of the members of the Renewable Fuels
+Association, which is the national trade association
+representing the U.S. ethanol industry, I want to express my
+strong support for H.R. 547, the Advanced Fuels Infrastructure
+Research and Development Act. This bill and this committee's
+continued commitment to expanding the technical foundation for
+a more robust renewable energy industry in this country will be
+critical to breaking this nation's addiction to oil.
+ Already, the U.S. ethanol industry is making great strides
+and dramatically reducing our dependence on imported petroleum.
+There are today 111 biorefineries in operation across the
+country that are processing more than 1.8 billion bushels of
+grain into approximately 5.4 billion gallons of high quality,
+high octane renewable ethanol. Ethanol has indeed become a
+ubiquitous component of the U.S. motor fuel market. Today, it
+is blended in 46 percent of our nation's fuel. It is blended
+literally from coast to coast and border to border. Every
+single gallon of gasoline sold in California is blended with
+ethanol. Every single gallon of gasoline sold in the great city
+of New York is blended with ethanol. It is no longer just a
+niche Midwest market. It is a national fuel, and it is
+continuing to grow.
+ Indeed, ethanol is providing perhaps the most significant
+tool that we have today to reduce our dependence on imported
+oil. Just since the year 2000, 30 percent of the increase in
+gasoline demand in this country has been met by ethanol. To
+take a shorter timeframe, look at just last year, when gasoline
+demand increased about a billion gallons, ethanol production
+and use in this country increased well more than a billion
+gallons. We satisfied about 110, 115 percent of our increase in
+gasoline consumption last year. That is gasoline that we don't
+have to import. That is helping to break that addiction to oil
+already.
+ The U.S. ethanol industry already today is contributing
+significantly to this nation's energy and economic security.
+The five billion gallons of ethanol that were produced last
+year added $41 billion to gross output, created 160,000 jobs,
+contributed $2.7 billion in increased tax revenue to the
+Federal Government, and reduced oil imports by 170 million
+barrels, a value of some $11 billion. But the ethanol industry
+is continuing to grow. There are today 78 ethanol biorefineries
+under construction. That is steel on the ground, people on the
+site, the facilities going up, including, Mr. Chairman, five in
+the great state of Texas. Indeed, there are as many plants
+under construction in Texas as there are in Illinois. And
+plants are going up outside the traditional Midwest. There are
+plants under construction in Arizona, in New Mexico, in Idaho.
+There are plants in the Northeast, the Southeast. We are
+becoming a national production center as well, which is
+important to understand, as we look to some of these
+infrastructure issues.
+ Yes, today, ethanol is not shipped by pipeline. That is
+not, then, a hindrance at all to ethanol marketing, because we
+have created a virtual pipeline, not just by trucks. Most
+ethanol today is shipped by rail and by barge, and we are able
+to get ethanol anywhere in the country where it needs to be,
+cheaper than if we were to put our product on a barge, send it
+down the river to Houston, where we would load it up on the
+pipeline, where then it would go. We can get there faster and
+quicker. And when you think about homeland security issues, the
+way that ethanol is distributed is probably a lot safer, and as
+the ethanol industry continues to grow in the way that it is
+all across the country, it will provide a great number of
+opportunities as well.
+ The point, though, is that the ethanol industry, which is
+today largely a blend component with gasoline, as we grow, we
+are going to saturate that blend market. We have a 140 billion
+gallon gasoline market in this country. We will saturate 10
+percent ethanol blends in that market probably some time in
+2008 or 2009. But we have got to grow beyond that. We are going
+to grow with new feedstocks as well, and once you have
+cellulosic ethanol production, and there is not an ethanol
+company that I represent that doesn't have a very aggressive
+cellulose to ethanol research program, the opportunities for
+ethanol are going to expand exponentially. We will need markets
+beyond just the additive market.
+ E-85 represents a tremendous opportunity, but that E-85
+market is not yet mature. It is not yet there. There are some
+six million E-85 vehicles on the road today, and that is
+terrific, but there needs to be a lot more to encourage Mr.
+Eichberger's members to put in the infrastructure necessary to
+create the refueling infrastructure. The commitments by Ford
+and General Motors to produce as much as 50 percent of their
+vehicles as flexible fuel vehicles that could utilize E-85 by
+2012 is terrific. That would get you about four million
+additional E-85 vehicles beginning in that year, perhaps as
+many as 35 total--35 million total on the road by 2017. It is a
+great start, but we need to do more than that. With a greater
+demand for E-85, the infrastructure will follow.
+ Bills like this, H.R. 547, that will allow that
+infrastructure to grow, and to understand the issues associated
+with that growth, will be a critical important step in finally
+breaking that addiction to oil, and again, I appreciate the
+opportunity to testify.
+ [The prepared statement of Mr. Dinneen follows:]
+
+ Prepared Statement of Bob Dinneen
+
+ Good afternoon, Mr. Chairman and Members of the Subcommittee. My
+name is Bob Dinneen and I am president of the Renewable Fuels
+Association, the national trade association representing the U.S.
+ethanol industry.
+ This is an important and timely hearing, and I am pleased to be
+here to discuss the growth in the domestic ethanol industry, and the
+increasingly important role of continued research and development of
+infrastructure for our nation's biofuels industry. The rapid growth of
+our domestic ethanol industry since the passage of the Energy Policy
+Act of 2005 (EPAct) had led to the growth of ethanol's virtual
+pipeline. The continued expansion of the industry will require greater
+development of infrastructure in many areas around the country.
+Research into the feasibility of transporting ethanol by pipeline from
+the Midwest to the East and West coasts, such as the provisions
+outlined in H.R. 547, will also be important.
+ The ethanol industry today is on the cutting edge of technology,
+pursuing new processes, new energy sources and new feedstocks that will
+make tomorrow's ethanol industry unrecognizable from today's. Ethanol
+companies are already utilizing cold starch fermentation, corn
+fractionation, and corn oil extraction. Companies are pursuing more
+sustainable energy sources, including biomass gasification and methane
+digesters. And there is not an ethanol company represented by the RFA
+that does not have a cellulose-to-ethanol research program.
+ The Science and Technology Committee can have an important role in
+accelerating these efforts by promoting and targeting research and
+development funds appropriately. The U.S. ethanol industry has
+identified several areas where new research can advance the renewable
+energy agenda further:
+
+ Increase utilization of co-products and development
+ of new co-products;
+
+ Development of harvesting equipment, and tools to
+ streamline the transportation and storage of cellulose
+ feedstocks;
+
+ Improve energy efficiency and reduce energy
+ consumption; and,
+
+ Improve cellulose feedstock conversion technologies.
+
+ Support through research to build upon the industry's advancements
+in technologies will be critical to the future growth of the biofuels
+industry. Programs authorized by EPAct, such as the cellulose ethanol
+loan guarantee programs (Title XV and Title XVII) and biorefinery grant
+program (Section 932(d) ), to accelerate the commercialization of
+cellulose ethanol must be fully funded.
+
+Background
+
+ Today's ethanol industry consists of 111 biorefineries located in
+19 different states with the capacity to process more than 1.8 billion
+bushels of grain into 5.4 billion gallons of high octane, clean burning
+motor fuel, and more than 12 million metric tons of livestock and
+poultry feed. It is a dynamic and growing industry that is revitalizing
+rural America, reducing emissions in our nation's cities, and lowering
+our dependence on imported petroleum.
+ Ethanol has become an essential component of the U.S. motor fuel
+market. Today, ethanol is blended in more than 46 percent of the
+Nation's fuel, and is sold virtually from coast to coast and border to
+border. The almost five billion gallons of ethanol produced and sold in
+the U.S. last year contributed significantly to the Nation's economic,
+environmental and energy security. According to an analysis completed
+for the RFA,\1\ the approximately five billion gallons of ethanol
+produced in 2006 resulted in the following impacts:
+---------------------------------------------------------------------------
+ \1\ Contribution of the Ethanol Industry to the Economy of the
+United States, Dr. John Urbanchuk, Director, LECG, LLC, December, 2006.
+
+---------------------------------------------------------------------------
+ Added $41.1 billion to gross output;
+
+ Created 160,231 jobs in all sectors of the economy;
+
+ Increased economic activity and new jobs from ethanol
+ increased household income by $6.7 billion, money that flows
+ directly into consumers' pockets;
+
+ Contributed $2.7 billion of tax revenue for the
+ Federal Government and $2.3 billion for State and local
+ governments; and,
+
+ Reduced oil imports by 170 million barrels of oil,
+ valued at $11.2 billion.
+
+ In addition to providing a growing and reliable domestic market for
+American farmers, the ethanol industry also provides the opportunity
+for farmers to enjoy some of the value added to their commodity by
+further processing. Farmer-owned ethanol plants account for half of the
+U.S. fuel ethanol plants and almost 40 percent of industry capacity.
+ This dynamic and growing industry is also empowering more of
+America to have a vital role in our nation's infrastructure. If a
+farmer in Des Moines doesn't want to invest in the local co-op, he can
+choose to invest in a publicly traded ethanol company through the stock
+market. As can a school teacher in Boston, or a receptionist in
+Seattle. Americans coast-to-coast have the opportunity to invest in our
+domestic energy industry, and not just in ethanol, but biodiesel and
+bio-products. U.S. agriculture is evolving in very important ways, and
+rural America is primed to take advantage of these opportunities.
+ There are currently 78 biorefineries under construction. With seven
+existing biorefineries expanding, the industry expects more than six
+billion gallons of new production capacity to be in operation by the
+end of 2009. The following is our best estimate of when this new
+production will come online.
+
+
+
+
+Infrastructure
+
+ The existing motor fuel pipeline system was built by the Federal
+Government to accommodate an oil and gas industry producing in the Gulf
+Coast. To utilize the existing pipeline system, ethanol producers would
+have to ship ethanol first to the Gulf Coast to load up on a pipeline.
+It would be much more cost effective to instead ship the ethanol
+directly to the markets that demand the fuel.
+ Thus, over the past several years, the ethanol industry has worked
+to expand a ``Virtual Pipeline'' through aggressive use of the rail
+system, barge and truck traffic. As a result, we can move product
+quickly to those areas where it is needed. Many ethanol plants have the
+capability to load unit trains of ethanol for shipment to ethanol
+terminals in key markets. Unit trains are quickly becoming the norm,
+not the exception, which was not the case just a few years ago.
+Railroad companies are working with our industry to develop
+infrastructure to meet future demand for ethanol. The biofuels industry
+is working closely with terminal operators and refiners to identify
+ethanol storage facilities and install blending equipment. We will
+continue to grow the necessary infrastructure to make sure that in any
+market we need to ship ethanol there is rail access at gasoline
+terminals, and that those terminals are able to take unit trains.
+ Incidentally, the existing oil and gas pipeline system itself is
+filled to near capacity today. The fact that ethanol does not have to
+be shipped on those pipelines, because the ethanol industry can get our
+product to the markets where it needs to go with the ``Virtual
+Pipeline,'' means that consumers are able to get 10 percent more volume
+shipped to their area on existing pipelines that is helping to hold
+down the cost of gasoline.
+ That said, many stakeholders in the biofuels industry are beginning
+to look at the practical issues involved with shipping ethanol via a
+dedicated pipeline. Shipping ethanol in pipelines is done today in
+Brazil, and it has been done at times in the U.S. as well, in dedicated
+pipelines. If the marketplace demands it, as it does in Brazil, and
+there is enough ethanol demand to warrant the investment in the
+infrastructure for dedicated pipelines, such a system will develop in
+the U.S.
+ The Renewable Fuels Association has also supported the concept of
+regional ``corridors'' that concentrate the E-85 markets first where
+the infrastructure already exists.
+ Ethanol today is largely a blend component with gasoline, adding
+octane, displacing toxics and helping refiners meet Clean Air Act
+specifications. But the time when ethanol will saturate the blend
+market is on the horizon, and the industry is looking forward to new
+market opportunities. As rapidly as ethanol production is expanding, it
+is possible the industry will saturate the existing blend market before
+a meaningful E-85 market develops. In such a case, it would be most
+beneficial to allow refiners to blend ethanol in greater volumes, e.g.,
+15 or 20 percent. The ethanol industry today is engaged in testing on
+higher blend levels of ethanol, beyond E-10. There is evidence to
+suggest that today's vehicle fleet could use higher blends. An initial
+round of testing is underway, and more test programs will be needed.
+Moving to higher blend levels with our current vehicle fleet would have
+a significant positive impact on the U.S. ethanol market, without
+needing to install new fuel pumps and wait for a vehicle fleet to turn
+over in the next few decades. It might also allow for a smoother
+transition to E-85 by growing the infrastructure more steadily.
+
+Research & Development, Deployment and Commercialization of New
+ Technologies
+
+ The Department of Energy's Advanced Energy Initiative has set a
+goal of making cellulosic ethanol costs competitive by 2012. Funding
+for additional research in cutting-edge methods of producing ethanol
+from corn stover, wheat straw, rice straw, wood chips and switch
+grass--to name just a few--will play a critical role in the
+Initiative's success or failure.
+ The most effective way to speed the commercialization of cellulose
+ethanol is to fully fund the programs enacted in the Energy Policy Act
+of 2005 (EPAct) for research and development for cellulosic ethanol.
+The technology exists to process ethanol from cellulose feedstocks;
+however, commercialization of cellulosic ethanol remains a question of
+economics. The capital investment necessary to build cellulosic ethanol
+facilities remain about five times that of grain-based facilities.
+Those costs will, of course, come down once the first handful of
+cellulosic facilities are built, the bugs in those ``first mover''
+facilities are worked out, and the technology continues to advance. The
+enzymes involved in the cellulosic ethanol process also remain a
+significant cost, as well. While there has been a tremendous amount of
+progress over the past few years to bring the cost of those enzymes
+down, it is still a significant cost relative to processing grain-based
+ethanol.
+ Increasing funding for such EPAct programs as the federal loan
+guarantee program for cellulose-based biorefineries, and the
+biorefinery grant program would do more to advance the
+commercialization of cellulose ethanol in a shorter period of time than
+to enact any of the cellulose-related legislation proposed since EPAct
+as enacted. Funding for EPAct programs like the bioenergy program for
+biofuels and bioproducts would encourage industry and university
+partnerships to develop price competitive biochemical and thermo
+chemical conversion technologies from lignocellulosic feedstock and
+enzyme-based processing systems.
+ As Flexible Fuel Vehicle (FFV) production is ramped up, it is
+important to encourage the use of the most efficient technologies. Some
+FFVs today experience a reduction in mileage when ethanol is used
+because of the differences in BTU content compared to gasoline. But the
+debt can be easily addressed through continued research and
+development. For example, General Motors has introduced a turbo-charged
+SAAB that experiences no reduction in fuel efficiency when E-85 is
+used. There is also technology being development that utilizes
+``variable compression ratio engines'' that would adjust the
+compression ratio depending on the fuel used. Thus, if the car's
+computer system recognized E-85 was being used, it would adjust the
+compression ratio to take full advantage of ethanol's properties. This
+technology could dramatically improve E-85 economics by eliminating or
+substantially reducing the mileage penalty associated with existing FFV
+technology.
+
+Conclusion
+
+ The 109th Congress enacted several polices that clearly put our
+nation on a new path toward greater energy diversity and national
+security. Additional and more focused research and development
+programs, and increased funding levels for EPAct 2005 programs, will be
+critical to the rapid deployment and commercialization of new
+technologies for biofuels. Infrastructure will need to continue to
+expand and advance as the biofuels market does. The continued
+commitment of this committee, the introduction of legislation such as
+H.R. 547, and the 110th Congress will all contribute to ensuring
+America's future energy security.
+ Thank you.
+
+ Biography for Bob Dinneen
+
+ Bob Dinneen is the President and CEO of the Renewable Fuels
+Association (RFA), the national trade association for the U.S. ethanol
+industry. As such, he is the ethanol industry's lead lobbyist before
+the Congress and Administration.
+ Mr. Dinneen joined the RFA in 1988 as Legislative Director, and
+became President in July of 2001. In this capacity he has led the
+Association's effort to build coalitions with the industry's petroleum
+customers as well as transportation and environmental groups in order
+to provide for marketplace growth for the industry. These coalitions
+have resulted in an historic Renewable Fuels Standard (RFS) fuels
+agreement and passage of the Volumetric Ethanol Excise Tax Credit
+(VEETC).
+ Mr. Dinneen has presented testimony before the Congress and federal
+agencies on numerous occasions, and represented the ethanol industry's
+interests at State, national and international forums.
+ Prior to joining the RFA, Mr. Dinneen worked on Capitol Hill for
+various Members of Congress and Congressional Committees. Mr. Dinneen
+graduated from the Catholic University of America with a Bachelor's
+Degree in Political Science.
+
+ Discussion
+
+ Chairman Lampson. Thank you very much, all of you, for
+coming. It is a tremendously interesting subject, and one that
+hopefully we will be able to move quickly enough to make a
+difference for all of us.
+
+ Ethanol Transportation Costs
+
+ Let me start with the questioning at this time, and I would
+like to first ask Mr. Dinneen, you mentioned that because
+ethanol can't be shipped by standard pipeline like conventional
+fuels, the industry is developing a virtual pipeline that
+consists of rail, barge, and truck shipping, which is
+considerably more expensive.
+ What proportion of the market price for ethanol is
+attributable to transportation and distribution, and how does
+this compare to traditional fuels?
+ Mr. Dinneen. Well, Mr. Chairman, I am not sure I would
+agree with a couple premises to the question.
+ First of all, it is true ethanol is not shipped by pipeline
+today, but it is not true that it cannot be shipped by
+pipeline. Ethanol is shipped all over Brazil via pipeline, in
+multiple product pipelines. It has been shipped in this country
+as well in dedicated pipelines, and will be again, if the
+marketplace demands it. In Brazil, 40 percent of their motor
+fuel is ethanol, so there is a tremendous need for pipeline
+shipments. In this country, while five billion gallons of
+ethanol produced last year is a tremendous amount, it is still
+less than three percent of the total motor fuels in this
+country, and so, there really isn't a marketplace pull for, or
+the necessity for pipeline shipments.
+ But we have created, as you say, the virtual pipeline. The
+cost is maybe $0.14 to get ethanol from the Midwest to either
+coast, but the cost of shipping that same product via pipeline
+would be darn close to that anyway. So, there really isn't an
+increased cost associated with that, and the marketplace would
+figure those issues out. The real issue is, is the market going
+to develop such that a pipeline is necessary. There have been
+bills that have been introduced to study that issue, and
+determine whether or not it would make sense, but quite
+frankly, if you have got significant ethanol production in all
+regions of the country, which it looks like you are going to
+have, because there are plants in the Northeast, there are
+plants in the Northwest, then you may have the product close
+enough to the markets, where significant pipelines aren't
+really going to be practical.
+ But I think there are a number of issues you need to look
+at.
+ Chairman Lampson. Okay. We are trying to--at this point,
+you can't really say, or project a specific savings by doing
+the research necessary to get to a point where we can use those
+pipelines. Correct?
+ Mr. Dinneen. Correct.
+ Chairman Lampson. Okay. You also mentioned unit trains in
+your testimony. Does ethanol require specialized or dedicated
+train cars, trucks and barges dedicated only to that?
+ Mr. Dinneen. No. Any chemical tank can accommodate fuel
+ethanol.
+ Chairman Lampson. Okay. What is the industry-wide cost
+estimate for producing or procuring this type of virtual
+pipeline, and why is this more cost-effective than a
+conventional pipeline system?
+ Mr. Dinneen. As I said, I mean the marketplace, I think, is
+going to develop, as we see, where the production is, and maybe
+an actual pipeline will be useful. But if you have got plants
+located all across the country, where is the pipeline going to
+be, and how do you get it onto the pipeline? It is not the
+situation you have got with the oil industry, where you have
+concentration in the Gulf Coast, and you know, ready access to
+the pipeline system.
+ It may be that over time, when you are talking about 30,
+40, 50, 60 billion gallons of ethanol, that a pipeline will,
+indeed, make sense, but I am not sure that that is clear at
+this point.
+ Chairman Lampson. Thank you.
+
+ Current Subsidies and Tax Incentives
+
+ Mr. Eichberger, there are currently some 150,000 fuel
+retailers in the U.S., with approximately 1,000, or less than
+one percent selling E-85. How effective are current subsidies
+and tax incentives in helping retailers transition to
+alternative fuels, and what are the shortcomings?
+ Mr. Eichberger. The current subsidies are helpful. A lot of
+our retailers who have installed the E-85 have done so with the
+help of the tax credits that are in the system right now.
+Anything that is going to help offset the cost of installation
+is going to be helpful. However, as I mentioned in my
+testimony, there are so many other factors involved, and Mr.
+Dinneen mentioned what is the level of demand? How many
+vehicles can run on these--on this fuel, and how many drivers
+of those vehicles know they can?
+ There are other bills that have been considered in
+Congress, to take CAFE credits, and make those into some sort
+of grant program through the Clean Cities Initiative. We have
+been supportive of those as well. This legislation, I think, if
+successful, will make all those incentive programs, perhaps,
+obsolete. If we can get to a point where E-85 and B-100 and
+other alternative fuels can be put directly into the existing
+storage tank infrastructure without the costly renovations, you
+are going to remove that barrier to entry. And then, we are
+going to be dealing with the market-based forces, demand,
+supply, and cost competitiveness.
+
+ Biodiesel Fuel Quality Concerns
+
+ Chairman Lampson. One of the things that I have been
+looking at and trying to consider within the language of this
+particular bill has to do with no sulfur biodiesel. Is that
+adequately addressed within the language of this bill, because
+most of it speaks to Ultra-Low or Low Sulfur Diesel, which is
+petrodiesel?
+ Anybody there.
+ Mr. Eichberger. I don't have an answer for that.
+ Mr. Kassel. The biodiesel that is being sold, whether it is
+in a low blend, a B-2 or B-5, or a higher blend, B-20, still,
+in each case, it is being sold in a setting where the bulk of
+the fuel is convention diesel. So, it is the sulfur level of
+that piece of it, that 80 to 98 percent, that is really
+critical, if the goal is to make sure the package of the
+blended fuel is low enough in sulfur to be compatible with the
+new emission controls.
+ I think the bigger issue that has come up on this issue of
+biodiesel and sulfur levels, and the new technologies and the
+new standards, is the extent to which the blended biodiesel
+itself is creating other issues that may, I am not going to say
+impair, but perhaps create challenges, or--for some of the new
+technologies. Some of the engine companies have been saying
+that they are concerned about warranty issues with biodiesel
+blends that are over, say, a B-20. Now, if you had a full 100
+percent biodiesel fuel, the sulfur level would have to be low
+enough that there would be other fuel quality issues that would
+come about. It is not particularly a big issue. Nobody is
+running B-100 in any significant way, and I don't think anybody
+is projecting it, although I have a feeling Mr. Dinneen will
+correct me if I am wrong about that.
+ But I think the big issue here is that I don't think
+sulfur, per se, is an issue going forward for biofuel, for
+biodiesel.
+ Chairman Lampson. Okay.
+ Mr. Dinneen. The Renewable Fuels Association represents
+ethanol producers, so biodiesel is not in my wheelhouse.
+However, I am unaware that there is any sulfur content
+whatsoever in biodiesel, and in fact, one of the reasons
+biodiesel is being used in blends today is to help refiners
+meet the Low Sulfur Diesel requirements, so I think if you move
+forward, and you create additional opportunities for biodiesel,
+it will have a benefit in terms of sulfur.
+ Chairman Lampson. Hence my question. And I yield, now, to
+Mr. Inglis.
+
+ Ethanol Infrastructure Concerns
+
+ Mr. Inglis. Thank you, Mr. Chairman.
+ Tell me, what is it that makes ethanol tough on equipment?
+ Mr. Dinneen. Congressman, I don't think the ethanol used
+today, in 10 percent blends, there are no technical issues,
+fully warranted by all auto manufacturers. It is--the
+infrastructure is there. There are some questions about if you
+move to higher level blends, E-85, whether or not there are
+some corrosive issues there, because of the alcohol. However, I
+should note that there are 1,000 E-85 pumps across the country,
+many of which have been there for, have been out there for
+close to ten years or more now, and there has never once been
+an incident of failure. And while Underwriters Laboratories has
+recently indicated that it wants to certify those pumps, and do
+some research to do so, it has been clear that it--they have
+not heard of any incidences.
+ So, we are confident that E-85 will be compatible with the
+existing infrastructure, and we are working with UL and other
+stakeholders to get them the comfort level that they need to
+again certify those pumps. The manufacturers of the pumps
+themselves are willing to certify each of the individual
+components of the pumps, but they just want UL to certify that
+also.
+ Mr. Eichberger. Clearly, there is an interest in getting
+the E-85 dispensers certified by UL. Retailers across the
+Nation who want to do E-85 need to have that for liability
+reasons. Some of the concerns with higher concentrations of
+ethanol are its corrosive properties. Metal can corrode, and
+when they corrode, they can spring leaks. That is why so much
+equipment has to be replaced when you are converting to a new
+system. If your equipment has not been certified as compatible,
+you run the risk of corrosion, or nonmetal items possibly
+degrading and cracking and swelling, and losing your fittings,
+and that is the issue.
+ Mr. Inglis. Because there is something more--maybe Mr.
+Bartlett can explain this to me later--is why it is that
+ethanol is more corrosive. There is something about it, I
+guess, that is more corrosive than gasoline. When is it mixed?
+Right now, it is by barge and by whatever, but when does it
+actually get mixed? At the terminal?
+ Mr. Dinneen. It is blended with gasoline at the gasoline
+terminal, so for this area, for example, the--Newington is the
+gasoline terminal that services virtually all of the Washington
+metropolitan area, and there will be tanks filled with
+gasoline. There will be a tank with ethanol there as well. A
+truck will pull up, and if he wants to blend--if he is going to
+an Exxon station or a Shell station, he puts in a card, and if
+it is going to be ethanol blended, as it would be in this area,
+he is drawing fuel from both tanks, and in inline blending
+systems, the truck is then filled at that point, and the
+blending occurs at that point.
+ Mr. Inglis. So, the gasoline comes to the terminal by
+pipeline, and the ethanol comes by truck or barge, or some way
+to get there.
+ Mr. Dinneen. Yes.
+
+ Fuel Additives
+
+ Mr. Inglis. And when--we are now requiring this as an
+additive, right? We have replaced MBE, is it? Help me remember
+what we did there?
+ Mr. Eichberger. With the reform of the gasoline program,
+which is required in the most polluted cities, you have to
+use--prior to the Energy Bill, you had to use a two percent
+weight of oxygen. That could be accomplished by using methyl
+tertiary butyl ether, MTBE, or ethanol. The majority of the
+Nation used MTBE, because it could be blended at the refinery,
+was cheaper for the refiners to obtain, because they produced
+it, shipped in the pipeline directly to retail.
+ With the Energy Bill and the elimination of the oxygen
+requirement, and the liability concerns associated with MTBE,
+the refining industry decided they are not going to use MTBE
+any more and switched to ethanol. Now, that there was a major
+transition, and now almost every gallon of RFG in the Nation
+has a 5.7 percent, I think, Bob, of ethanol in it.
+ Now, there is the opportunity to start producing a non-
+oxygenated RFG, but that is still pretty much in its infancy.
+So, that was the issue of the transition there.
+ Mr. Inglis. And so, this travels through the pipeline with
+that level of ethanol in it, right?
+ Mr. Eichberger. No.
+ Mr. Inglis. No?
+ Mr. Eichberger. Even with RFG, it is blended at the
+terminal.
+ Mr. Inglis. Okay. So----
+ Mr. Eichberger. All ethanol is shipped via rail, barge, or
+truck.
+ Mr. Inglis. And as to the Ultra-Low Sulfur Diesel, as I
+understand it, that would pass through the same pipeline that,
+say, gasoline and Jet A is passing through, right?
+ Mr. Eichberger. Right.
+ Mr. Inglis. And that--help me understand. I think I know
+that you put this thing called a pig, right, in there, then you
+push--it separates the product?
+ Mr. Eichberger. Not necessarily. Actually, the products are
+butted up against each other just through viscosity barriers.
+So, you will have gasoline and diesel, jet fuel, right up
+against each other. Because the pipelines change size
+throughout the system, you can't necessarily put a pig in
+there. Some places you can, but traditionally we are not using
+pigs. When they are butted up against each other, and they come
+in the terminal for--offloaded from the pipeline, certain cuts
+are made, what is called transmix, where the two products have
+been blended together, that is pulled out and put into
+whichever fuel is allowed to accept it, and that is how it is
+distributed.
+ So, the reason there was so much concern about
+contamination of ULSD going through the pipeline is you have
+jet fuel going through, with about 3,000 parts per million
+sulfur. How do you sequence the product in the pipeline to make
+sure that Ultra-Low Sulfur Diesel is protected? We have been
+very successful, and that has happened. ULSD has come through
+the pipeline with very little contamination, and when it gets
+down to retail, we have a pretty good shot of getting clean
+product.
+ Mr. Inglis. Mr. Chairman.
+ Chairman Lampson. Thank you very much. I will yield five
+minutes to the gentlelady from California, Ms. Woolsey.
+
+ Ethanol Source Concerns
+
+ Ms. Woolsey. Thank you, Mr. Chairman.
+ In my district, the demand for ethanol has resulted in a
+scarcity and a dramatic rise in the price of corn, which has
+had quite an effect, a huge effect, actually, on the local
+family dairies in my area. They can't afford feed, I mean, and
+they are really feeling it.
+ So, Mr. Dinneen, ethanol can't be the only advanced fuel
+technology, so what other fuels are we looking at that you
+would project will be in our future?
+ Mr. Dinneen. Well, two comments. I think first of all, with
+respect to the price of corn, the marketplace just recently got
+the signal to dramatically expand corn acres, and I believe
+that most analysts expect eight to ten million acres planted in
+corn this year, which will have a beneficial impact on corn
+prices.
+ When you produce ethanol from grain today, we are only
+using the starch, and what is left behind is a very high value,
+high protein feed grain that is then used for dairy markets,
+poultry markets, and other feed uses. But the industry
+certainly understands that we can't grow to the levels that
+people want us to grow, and that we want to grow, on grain
+alone. And indeed, that is why we are working so hard on
+cellulosic ethanol technologies. There, as I indicated, there
+is not an ethanol plant that I represent that doesn't have a
+very aggressive cellulose to ethanol research program, because
+they already have cellulose coming into the plant, and indeed,
+there will be pilot plants opening up shortly, that will be
+producing ethanol from a variety of different feedstocks, and
+if the Energy Bill's loan guarantee programs are authorized and
+appropriated in this continuing resolution, I think you will
+see a couple of companies begin to construct commercial scale
+cellulosic ethanol plants. We are on the cusp of seeing that
+technology commercialized, and it is a very exciting time in
+the industry.
+ Ms. Woolsey. Well, thank you for that, and so, then, Mr.
+Eichberger, as we, the markets grow, and regions specialize in
+different crops, cellulosic, grains, sugar, for ethanol
+production, as an automobile drives across the country and
+fills their tank, will every tank be able to take any one of
+these kinds of fuels? I mean, or will----
+ Mr. Eichberger. If it is used as an additive to the
+gasoline, yes. Ethanol is ethanol is ethanol. If you are
+talking about higher concentrations like E-85, no. Only
+flexible fuel vehicles, specially formulated, can run on that
+product. But if a typical gasoline--car is running across the
+Nation, they can fill up anywhere they want with regard--
+without concern whether or not it is a corn-fed ethanol,
+cellulosic ethanol, or sugar.
+ Ms. Woolsey. Mr. Kassel, you looked like you wanted to
+respond to that.
+ Mr. Kassel. I did. I wanted to make two brief points. One
+is with respect to the corn question that you raised. I think
+it--there is an analogy that I think is useful, and that what
+has to happen in the ethanol, and more broadly, biofuels world
+is analogous to what happened in the food production world
+roughly 100 years ago.
+ Because of Kellogg and C.W. Post and others, they were able
+to dramatically increase the yield per acre. You know that, I
+am sure, from your farming constituents.
+ Ms. Woolsey. I thought you were going to say because I am
+that old that I remember it.
+ Mr. Kassel. No, no, absolutely not. Absolutely not. But a
+similar phenomenon has to happen, and is starting to happen, in
+the biofuels world, where the research is going into cellulosic
+ethanol, and how to increase the crop yields, and to use more
+of the plant, so we can use the full plant, the nonfood part of
+the plant. Because ultimately, if we are going to meet the
+goals, 35 billion gallons a year, that were laid out in the
+State of the Union last week, or other very aggressive goals to
+wean ourselves off oil, and to curb global warming pollution,
+we have to be able to provide biofuels in a way that is
+environmentally sustainable. We don't want to replace concerns
+about petroleum with concerns about how we are using land. Are
+we taking product from the food chain and putting it into the
+fuel chain? Are we taking--is the Amazon rainforest becoming
+biofuels? We don't want any of that to happen. That is why the
+type of research that Mr. Dinneen is talking about is so
+important, and I think it is so exciting as well.
+ The second point that I wanted to make goes to the driver
+in a few years driving across country. If Congress and the
+President put into place an energy savings and global warming
+package that really gets us off our current pathway, and there
+are different proposals going around, of course, to start to do
+that, and if we merge that into what is coming out of Detroit
+and Japan, Germany, and the other car producing countries, we
+can start to see a future where people are driving different
+kind of cars based on what their needs are, and there will be
+people who drive long distances on the highway, they have a 70
+mile commute on an interstate to get to work, and they will
+choose a very clean, high efficiency diesel car. Somebody else,
+who drives in the urban setting, stop and go driving, who is
+also concerned about fuel prices, is also concerned about
+global warming, will choose a hybrid. Somebody else will choose
+a flexible fuel vehicle, and they will be driving with E-85,
+and I think if we forecast out 10 or 15 years from now, it will
+be like other consumer products that we use, that there will be
+much more of a mix, much more of a marriage, if I may, between
+the type of driving we are doing and the type of car and fuel
+we are choosing, and that will create synergies that will
+address the different issues that you have raised, and that are
+really--underlie why this bill makes sense.
+ Chairman Lampson. Thank you very much. The gentlelady's
+time has expired. My friend from Texas, Ralph Hall from
+Rockwall, the Ranking Member on the Science Committee. Five
+minutes.
+
+ EPA Involvement
+
+ Mr. Hall. I thank you, Mr. Lampson. And I am sorry I
+haven't been here to hear your testimony. I have read it, or
+had some of it read to me. I--Mr. Kassel, I want to ask you
+something about--you have recommended, I understand, that H.R.
+547 be amended to include the Environmental Protection Agency
+as part of the programs in the bill, and other representations
+in conjunction with that. And I would ask some other
+information from Mr. Dinneen and Mr. Eichberger, but before I
+do, let me just say to you and to the Chairman, Chairman
+Lampson, with whom I have known a long, long time, and worked
+with him before. We were both Democrats together a long time
+ago, and I have high regard for him, and I have high regard for
+Bart Gordon, and for the Members that are in the majority
+today, and it is their bill, and I am a co-sponsor on it, and I
+think Mr. Inglis is also a co-sponsor on it. So, this bill
+has--is going to pass, and--but as you know, the bill before us
+today was included in H.R. 6203, which was Representative Judy
+Biggert's bill. It was passed by the House last Congress by a
+voice vote under suspension of the rules. Now, H.R. 6203
+contained a lot of provisions that we really wanted in this
+bill, but this is Mr. Gordon's bill, and this is Mr. Lampson's
+bill, and they are in control of this committee, and they are
+in control of the House, and it is good legislation, but--and
+we didn't insist, and I didn't come up here with a bunch of
+amendments to send up to cause them to vote no on some things
+that they really would want to vote yes on, but they don't want
+to slow this bill down. And I am not going to be a part of
+slowing the bill down, because I am for the bill. I want it to
+get out, get through the House, get to the Senate, and get to
+the President, who will sign it.
+ But we--it contained provisions to promote research and
+development in areas such as biofuels, hydrogen, solar, wind,
+plug-in hybrids, energy efficient buildings, and coal
+gasification, and we think all these things were good, and the
+same people on the other side of the docket were on those
+bills, too. And I am just hoping, Mr. Chairman, that later, as
+we can put those bills together, we can work together to pick
+these things up, and pass them, too.
+ I understand, at the end of the Hundred Hours, that you
+want to get a bill, and you want to get it to the Floor, get it
+passed, without being burdened down with a bunch of amendments,
+and we are not sending those up just to make somebody look bad,
+or make them vote on them. We are hoping that this committee is
+successful, and we hope Bart Gordon is successful, because he
+is a decent guy, and a good leader. And our purpose is going to
+be to pass legislation, not to get even with anybody.
+ As the Ranking Member for the Republican Party, I want to
+make that statement, and I think it is something that we can
+all live with later on down the road.
+ So, my question to Mr. Dinneen and Mr. Eichberger, is if
+the EPA should be included in H.R. 547, and is there an
+amendment to that effect? None. Tell me about your reason for
+wanting to include it. Are you in the same position I am in,
+that it is also good, and would be good in this, but you are
+not asking them to slow the bill down? You want it to whistle
+on through.
+ Mr. Kassel. We don't want to slow this bill down. We think
+it is important to do the kind of research and development that
+is in this bill. We just offer that suggestion as a way to make
+it a smoother implementation going forward. EPA is the agency
+which is responsible under the Clean Air Act and the Energy
+Policy Act of 2005 with implementing the key regulations that
+govern the way fuel is moved through the system, whether it is
+Ultra-Low Sulfur Diesel fuel or the renewable fuel standard
+that EPA will finalize fairly soon.
+ I understand that there is an intention across the board
+that people hope that DOE and NIST will collaborate with EPA,
+and that is great. If that can be memorialized in the bill,
+that is even better. But we certainly don't want to slow it
+down, and so, I hope that this suggestion won't slow it down.
+ Mr. Hall. And the R&D proposals that I set forth, that were
+in the other bill, supported by the present Chairman and
+Chairman of this subcommittee, are good legislation for the
+future.
+ Mr. Kassel. Well, I will be honest and say and admit that I
+don't remember the specifics of H.R. 6203, and exactly what was
+in it, but certainly NRDC is extremely involved in advancing
+policies that increase the use of wind, solar, and other forms
+of alternative, and we would be happy to take a look at----
+ Mr. Hall. Well, let me quickly ask Mr. Dinneen and Mr.
+Eichberger. My time has expired, so on expired time, could you
+give me a short answer as to your opinion of the proposal that
+I have made?
+ Mr. Eichberger. Mr. Hall, I mean, our focus on the bill is
+can the research be successful to provide these bridges for
+retailers, and if the EPA is involved, we have no problem with
+that?
+ Mr. Dinneen. Yes and yes.
+ Mr. Hall. I yield back my time. Thank you, Mr. Chairman.
+ Chairman Lampson. Thank you, Mr. Hall. Next, we have five
+minutes from Mr. McNerney from California.
+
+ Ultra-Low Sulfur Diesel Costs
+
+ Mr. McNerney. I need to learn how to use a microphone, with
+the assistance of Lynn Woolsey. Thank you, Mr. Chairman.
+ I think this is a really great first step, H.R. 547. In my
+district, we have a particular problem with diesel pollution,
+and so, I am really thrilled to see us move to the Ultra-Low
+Sulfur Diesel, and I am concerned about the mixing of diesel
+with--Low Sulfur Diesel with higher forms of diesel,
+particularly in our area, but you have sort of addressed those
+questions already. And I am wondering, what are we going to see
+in terms of cost effect for the consumer for the Ultra-Low
+Sulfur Diesel in the long run, as opposed to the higher forms
+of diesel?
+ Mr. Kassel. Right now, the incremental cost is running a
+little higher than expected, comparing to--there was a report
+that just came out in the last week or so, that did a
+comparison of Ultra-Low Sulfur Diesel compared to, say, regular
+gasoline. I suppose the authors of that report were looking at
+a future car market that would be bifurcated between gasoline
+and diesel, showed about a $0.20 to $0.30 gap between regular
+diesel and Ultra-Low Sulfur Diesel. Now, I don't know that that
+is really the right comparison, because it is a little bit of
+apples and oranges.
+ When the rule was first promulgated by EPA, they suggested
+a cost increment of about $0.04 to $0.05 a gallon between
+standard 500 part per million sulfur and Ultra-Low Sulfur
+Diesel, and over time, my guess is that is probably about
+right. We will see.
+ You know, when you look at fuel prices, the incremental
+costs of the desulfurization is a small piece. The real issue
+is the price of a barrel of oil and the refinery margins. Those
+are the two big pieces. The ultra-low sulfur component is going
+to be relatively small.
+
+ Diesel Performance
+
+ Mr. McNerney. Well, the high performance diesels are an
+improvement, both in terms of emissions and in terms of
+performance. They get more, maybe 30 percent more performance
+per gallon than gasoline. So, do you see this as something that
+is going to incentivize private vehicles to be using diesel
+technology, diesel fuels?
+ Mr. Kassel. Absolutely. There is no question about it.
+The--if you had a chance to go to the Washington Auto Show last
+week, there were car companies that were--many car companies
+pushing and pushing their diesel vehicles. Daimler had a huge
+announcement, where they announced that they had the first
+pickup truck that was going to meet not the 2007 pollution
+standards, but the 2010 standards already. So, the question of
+can you make a diesel clean has now been answered definitively,
+and the answer is yes.
+ So, then the question is will people buy a diesel car? And
+I think the answer to that is that for the driver who is
+concerned about fuel prices, and who wants to do what they can
+ahead of time, when they buy their car, to reduce the hit of
+higher fuel prices in the future, they are going to look at
+these diesel cars. They are also going to look at hybrids. They
+are going to look at a range of vehicles. And that is all good
+news. We are really entering a new era of cleaner cars, more
+fuel efficient cars, and I think that is all for the good.
+ Mr. Eichberger. Congressman, the auto industry was strongly
+behind the Ultra-Low Sulfur Diesel regulations, in support of
+it from the beginning, and one of the theories is, I mean, if
+you get higher fuel economy with a diesel engine, and you start
+putting that into your fleet, you have just improved your
+ability to comply with CAFE standards, so I would suspect that
+as ULSD becomes more prevalent, and all the kinks are worked
+out, you are going to see a lot more automakers start to turn
+towards diesel engines for their passenger vehicles.
+ Mr. McNerney. One other question is, and I don't understand
+this very clearly, is the relation between Ultra-Low Sulfur
+Diesel and biodiesel. Are they mixable with any problems, or
+what are the sort of issues that we are looking at in that----
+ Mr. Eichberger. For the most part, there aren't too many
+issues, as long as the biodiesel is ultra-low sulfur as well.
+There were some early concerns, when I spoke to the Bio Board a
+couple years ago, that some used food oils, that if there were
+onions in there, you may have some trace sulfur level in there,
+so that was an early concern, but in terms of compatibility, as
+long as they are both ultra-low sulfur, you shouldn't have a
+problem.
+ There are some concerns with high concentrations of
+biodiesel in colder climates that you can get a gelling effect
+in the product. What has happened is during those colder
+months, the suppliers of biodiesel at the retail level have
+just reduced the percentage of biodiesel as a component of
+diesel fuel that they are selling.
+ Mr. McNerney. Thank you. Are there any other issues
+regarding diesel, promoting diesel in this bill, that we should
+be aware of, or amendments that you would recommend?
+ Mr. Eichberger. I don't know of any amendments I would
+recommend. I would comment that Mr. Kassel earlier commented
+that 90 percent of the fuel, diesel fuel, is Ultra-Low Sulfur
+Diesel. And just to clarify, that is 90 percent of the diesel
+fuel being produced at the refinery is Ultra-Low Sulfur Diesel.
+As I mentioned earlier, when it goes to the pipeline, and you
+start cutting batches, you do have some downgrading, so not all
+of the Ultra-Low Sulfur Diesel being produced is making it to
+retail, which is causing some slow--a little bit of slowness,
+in terms of the conversion of some retail locations.
+ Mr. McNerney. I yield.
+ Chairman Lampson. Thank you very much, Mr. McNerney, and
+now, Mr. Roscoe Bartlett from Maryland. Five minutes.
+ Mr. Bartlett. Thank you very much.
+ Chairman Lampson. I should have said Dr. Bartlett, excuse
+me.
+ Mr. Bartlett. Sir?
+ Chairman Lampson. I should have said Dr. Bartlett. Pardon
+me.
+
+ More Ethanol Production Concerns
+
+ Mr. Bartlett. There are obviously three reasons for being
+interested in alternatives. One is the environment, which has
+been a major focus here. A second is the national security
+interest. We are getting far too much of our fuels from, as the
+President says, from people who don't even like us. And the
+third one, which I think is the most dominant one, that is,
+that the oil just may not be here, if you believe in peak oil.
+ Anybody who has listened to any of my 21, now, full hour
+speeches on the floor of the Congress knows that there is no
+bigger supporter of alternatives in the country than Roscoe
+Bartlett, but just a word of caution, please. We need to be
+realistic, or we will lose the American people. My colleague,
+who was my Ranking Member when I chaired this subcommittee
+several Congresses ago, Ms. Woolsey, mentioned that corn had
+gone up. From September to December, it almost doubled in
+price, and then, as you said, gee, that is an easy fix, we will
+just plant more acres of corn. Sir, all the land that should be
+planted in corn is now planted in corn. And what is going to
+happen is that land is going to be taken out of agricultural
+preserve, and it is going to be farmed, and corn is one of the
+greediest crops we have. It is the one of the worst for
+erosion. It is certainly one of the worst for sucking up
+nutrients out of the soil, and for the relatively small impact
+we have on the environment, because each gallon of ethanol, if
+you are really good, each gallon of ethanol will represent at
+least three-fourths of a gallon of fossil fuel in producing
+it--said it represents more than a gallon of fossil fuel in
+producing it. But let us say that you can be good enough to
+have only three-fourths of a gallon, which means that the small
+improvement you get in air quality may be overridden by the big
+decrement you are going to have in land, because if you plant
+more acres in corn, you have more acres in corn, it is going to
+be land that shouldn't be farmed, that is now not being farmed,
+because of agricultural preserve, and you are going to have a
+lot of erosion.
+ I took your numbers, sir, five billion barrels of ethanol,
+gallons of ethanol last year, and 170--that saved 170 million
+barrels of oil. So, I multiplied the 170 million barrels of oil
+by 42 gallons per barrel, and I got seven billion. How in the
+heck can five billion gallons of ethanol save seven billion
+gallons of oil? It can't, of course. And the reality is that--
+the reality is even if you had those figures in sync, that each
+gallon of ethanol saves only three-fourths of a gallon of
+fossil fuel. You are really recycling fossil fuels, in large
+measure, when you are burning ethanol, are you not?
+ See, my--I am a huge fan of renewables, but we have got to
+be honest with the American people. We face a really, really
+big crisis here, a big challenge, and this bill doesn't even--I
+am going to vote for it, because it is a little better than
+nothing, but it doesn't even nibble at the margins of the
+problem. You are going to get a relatively small improvement in
+air quality at a big decrement in land quality, if you plant
+more of our land in corn. And by the way, almost half the
+energy in producing a bushel of corn comes from the natural
+gas. An enormously important feedstock for a big petrochemical
+industry, and all of our nitrogen fertilizer today comes from
+natural gas, and almost half of the energy that goes into
+producing corn comes from the natural gas.
+ I just want to be realistic with the American people.
+Making more ethanol is not going to solve our problem. We are
+not Brazil, thank you. They have far fewer cars. They have
+sugar cane, which is a better harvester of sunlight than we. We
+brag that we have a very efficient agriculture, because one man
+sits on a 150 horsepower tractor and feeds 50 people here and a
+bunch of others around the world. In terms of energy in, and
+energy out, we may have one of the least efficient agricultures
+in the world, because we have an incredible amount of energy
+that goes in, for some crops, ten calories in and one calorie
+out. It is better than that for corn, thank goodness. But if
+you look at all the energy constraint, don't you think that the
+American people will support us better if we were really honest
+with them?
+ Mr. Dinneen. Congressman, I agree with you, and I think we
+have been honest with the American people.
+ Mr. Bartlett. You know, a couple of you guys were just not
+honest. You do not save 170 million barrels of oil with five
+billion gallons of ethanol. It is silly.
+ Mr. Dinneen. I will get to the analysis, and we can go
+through the numbers.
+ Mr. Bartlett. You don't save even a fourth of that, sir.
+ Mr. Dinneen. Congressman, I will go through the numbers
+with you, with the economist that did that analysis. And we
+will see where the differences----
+ Mr. Bartlett. The economist did not count costs that he
+didn't know, I suspect. Go ahead.
+ Mr. Dinneen. The point is, Congressman, I think the fact of
+the matter is, we have never told the American people that
+ethanol is the answer. It is part of the answer, and we need to
+do a lot more. We have not said that ethanol can replace all of
+gasoline. We have not said that you are going to use all of the
+Nation's corn crop to produce ethanol. We have said that there
+are limitations to what you can produce from grain. According
+to the National Corn Growers, they think you can get as much as
+15 billion gallons. Beyond that, you would have a detrimental
+impact on feed prices, and they don't want to go there, and
+neither does our industry. That is why our industry is working
+so hard on a range of technologies, new processes and new
+feedstocks.
+ And I think the great thing about what is happening today,
+Congressman, is that you get a lot of new capital coming into
+the industry, and a lot of new intellectual capital coming into
+the industry. And the industry is going to be unrecognizable
+five years from now. Congressman, there are plants that are
+looking at biomass gasification to run those facilities. That
+would certainly improve the energy balance numbers. You have
+companies in Texas that are locating the ethanol facilities at
+feedlots, that are feeding the distillers dried grains directly
+to the cattle on the lot, capturing the methane from the
+feedlot to run the facility, and it is a very integrated
+process. That is the future of this industry. And it is not
+just grain, it is not just today's technology, but if you
+aren't doing everything that you possibly can to make sure that
+there are markets for these alternative fuels, you are not
+going to get a future where you have got cellulosic ethanol,
+and you have got more sustainable processes.
+ I mean, nobody here has done more than you, Congressman,
+and I commend you for all that you have done to raise awareness
+about the dangers of our dependence on imported oil, and the
+risks that we, as a nation, face when we are looking at peak
+oil. I am not sure I have seen all 21, but I have seen, you
+know, 15 or 16 of them.
+ Mr. Bartlett. Thank you.
+ Mr. Dinneen. And they are not just entertaining, they are
+educational. And I try to get my teenagers to come and sit
+down, and say look at this guy. He is talking about the future.
+We are part of the future. We are not the entire answer, but we
+are part of it.
+ Mr. Bartlett. A second round, Mr. Chairman.
+ Chairman Lampson. We will talk about it in a minute. Thank
+you both. Mr. Diaz-Balart from Florida, five minutes.
+
+ Ethanol Infrastructure and Environmental Impacts in Brazil
+
+ Mr. Diaz-Balart. Thank you very much, Mr. Chairman. A very,
+very interesting hearing.
+ A little while ago, somebody mentioned Brazil as a country.
+They use sugar, is that correct?
+ Mr. Dinneen. Correct.
+ Mr. Diaz-Balart. As their energy. Can you give me an idea
+of what are some of the environmental issues that Brazil has
+found that--with creating ethanol from sugar, number one, and
+number two is, are those issues that can be dealt with here,
+and number two is, where are we as far as cost, for developing
+ethanol from sugar in the United States versus corn, and is
+that something that could, as the market progresses, could
+improve--could progress to help solve the issue of some of the
+things that we have heard about corn?
+ Mr. Dinneen. Brazil has built a tremendous ethanol industry
+through 30 years of tax incentives, government mandates,
+infrastructure, development, tariffs, and a range of--debt
+forgiveness, a range of programs. And I say that, commending
+them, because they have made a real investment in their ethanol
+industry, and today, a combination of ethanol production and
+increased oil production, Brazil is energy independent, and I
+think that that is terrific.
+ We can't replicate the Brazilian model here for a whole
+host of reasons, some of them having to do with our labor
+market, some of them having to do with our climate, some of
+them having to do with our population and our industry. But I
+think it is a model to look at to see what can be done, in
+terms--if there is real commitment to renewable fuels, and to
+alternative fuels. There are environmental consequences from
+Brazilian production. They don't have the emissions control at
+the plant that we have. They don't have the kind of controls
+that EPA places on our facilities, and those might be some
+issues. They don't have some of the labor standards that we
+certainly have, and--but I say that in terms of what is going
+on at the plant. In terms of emissions at the--when used as a
+fuel, their experience is going to be the same as ours, because
+as Mr. Eichberger said, ethanol is ethanol is ethanol, no
+matter the feedstock, and ethanol is going to help reduce
+emissions by the vehicles.
+ Brazil has built a heck of an industry, in part, because
+they have incentivized consumers to purchase flexible fuel
+vehicles. And about 50 percent of the vehicles in Brazil today
+are flexible fuel vehicles that can run on E-85. The other 50
+percent of those vehicles are running on a blend of between 20
+and 25 percent ethanol, a level that changes, and the
+government sets it, but it has been a very successful model.
+ Mr. Kassel. Yeah, if I can just add a couple of thoughts. I
+think what we can learn from the Brazilian experience is two
+things. First of all, setting a goal for energy independence is
+something that is achievable, if the country actually gets to
+work to actually do it. And they set that goal, and the
+combination of their domestic production and their ethanol
+production has allowed them to achieve it. It didn't happen
+overnight, but it did happen.
+ Second, the thing that we can learn from the Brazilian
+experience is the importance of the infrastructure. If you go
+to a service station in San Paulo, you see gasoline and you see
+ethanol. You also see diesel. But you see the gasoline, you see
+the ethanol. Consumers make a choice if they have the flex fuel
+vehicle, based on the price. Which one are they going to buy
+today? And the prices fluctuate, and the consumption patterns
+fluctuate, but the key thing is that the infrastructure is
+there. So, we can sell all the E-85 vehicles we want, but if
+there is not E-85 tanks at the service stations, then we are
+not going to be able to maximize what we can do with ethanol.
+ I think there are two things, though, that we can also
+learn from Brazil that are not so good. The first is the land
+use and forestry issues. Now, the first time I looked at the
+Brazilian situation, somebody said to me, oh, there is no
+rainforest issue there. There is no rainforest. Look at the
+map, and this is not a map of Brazil, but I will use it. They
+said the rainforest is over here, and the sugar production is
+over here. Oh, that sounds pretty good. But then, I asked where
+is the cattle? And the cattle is over here next to the
+rainforest. What is actually happening? The sugar is pushing
+the cattle north. The cattle is moving into the rainforest. So,
+there is--so, without adequate controls, valuable rainforest is
+indirectly being cut down. We have got our own version of that,
+in terms of CRP land and forestry issues and so on. We have to
+make sure whatever we do with biofuels, we are taking all those
+into account.
+ The second, I think, lesson we can learn from them is they
+had one goal. It was energy independence. They secured it. It
+is great. But now, the world we know is much more complicated,
+and achieving energy independence, if we don't also tackle
+global warming, is going to be a half victory at best. If we
+achieve energy independence by a strategy that relies on coal
+to liquids that doesn't actually help, and maybe moves us
+backwards on global warming, that is not a victory. If we
+achieve energy independence by pushing and pushing and pushing
+on corn, but we don't get to the cellulosic, we don't advance
+the sugar, we don't move forward on vehicle efficiency, we
+don't move forward on transit, on smart growth and so on, we
+won't actually achieve those goals.
+ So, I think we, as a country, have to look at this much
+more synergistically, and that is part of the lesson two.
+
+ The Ethanol Market in the U.S.
+
+ Mr. Eichberger. Congressman, if I may, real quick, not on
+the environmental issue, but Mr. Kassel raised a good point
+about the cost comparison between E-85 and other products in
+Brazil. Let us talk about the United States for a minute. The
+typical American consumer reports that for one penny a gallon,
+they will turn left across a busy street, just to save a penny
+a gallon. They will drive five miles, five minutes out of their
+way to save a penny a gallon. When talking to E-85 retailers,
+they tell me that when E-85 is priced $0.20 below gasoline,
+they sell quite a bit. One individual told me at two locations,
+they were selling 12,000 gallons a month. When E-85 increased,
+and became on par with gasoline, his sales dropped to 500
+gallons a month. That is a 97 percent reduction based upon
+price. Consumers want to be green, but as I have been telling
+people for a long time, the green in their wallets are really
+what is driving this, and I caution Congress, as you look at
+alternative fuels and renewable fuels, think about the ultimate
+cost to the consumer.
+ Moving to a new generation makes a lot of sense for a lot
+of reasons, but keep in mind, you all receive a lot of letters
+and calls from your constituents when gas prices go up. Keep
+that in mind as you start thinking about alternative fuel
+programs.
+ Chairman Lampson. Thank you very much. Votes on the current
+suspension had 40 minutes of debate, but it is going to--it
+started at 3:00, so we should have votes called at about 3:40.
+We have two more presenters I will call first on. Mr. Lipinski
+from Indiana--Illinois--I will get it out.
+ Mr. Lipinski. One of those corn states out there in the
+Midwest. We have a lot of corn in Illinois, yet in Chicago, I
+drive around and see very, very few stations that have E-85.
+Why is it? Is it lack of supply of ethanol, or there are other
+reasons? Mr. Eichberger, I think--we have--I have seen you
+before at the Small Business Committee, so Mr. Eichberger,
+what----
+ Mr. Eichberger. There are several reasons, Congressman. And
+Illinois, supply is probably not the driving force. You have a
+situation where what is--each retailer has to ask themselves
+what is the level of demand, in terms of how many flexible fuel
+vehicles are in my market, and how many of those drivers really
+want to buy E-85? Do my customers want to buy this product?
+ If they do, then it is a question is what is the cost of
+putting in E-85. In my testimony, I commented that the cost can
+range from pretty simple, if all your equipment is certified as
+compatible with the fuel, to pretty expensive if it is not. So,
+you need to make a decision on your investment of capital.
+ Second, you need to think about this. If you have four
+dispensers, and you take one of them out of service and put in
+E-85 in, now, you only have three gasoline dispensers. Will you
+continue to have as much customer traffic coming in to fill up
+if there are three dispensers and one E-85, as you did when you
+were selling nothing but gasoline, in order to get customers in
+your store to buy coffee, doughnuts, or as Mr. Dinneen likes to
+say, beef jerky, because that is where retailers really make
+their profit.
+ The fuel is an attraction. That is what generates traffic
+to your store. So, all of those things combine. In Illinois,
+supply is probably not going to be an issue. I bet money that
+is not going to be your number one issue. The issue is going to
+be what is my competitive angle if I do this. Can I sell it at
+a competitive price? Will my customers continue to come, and
+will I continue to generate the bottom line sales I need to to
+stay in my business?
+ If all the economics add up, and I can afford the
+investment to bring E-85 into my station, chances are, I will
+make that decision. But we are still at pre-infancy in terms of
+demand for E-85, and that is really what is kind of dragging
+the heels of the industry.
+ Mr. Dinneen. Congressman, if I might, there are three
+things that need to happen for the E-85 market to become a more
+meaningful component of our business. Last year, we produced
+five billion gallons of fuel ethanol, 50 million gallons were
+sold as E-85, a fraction of a fraction, because ethanol today
+is a blend component with gasoline, and refiners have
+recognized that it has value in that market.
+ To be a meaningful part of an alternative fuel market for
+E-85, you need more vehicles. There are six million, or five
+million vehicles on the road today capable of running on E-85.
+That is a big number, no question. But it is still less than
+three percent of the total vehicle car park in this country.
+And to convince John's members, Mr. Eichberger's members to put
+in the infrastructure necessary to refuel that, when you are
+telling them it is less than three percent of his potential
+consumers, and only a fraction of those realize that they have
+the vehicles, it is awfully hard.
+ With more vehicles, and with the commitment of Ford and
+General Motors and Chrysler to dramatically increase their
+flexible fuel production, I think that there will be more
+vehicles coming, and over time, a more meaningful market will
+develop.
+ The second thing you need is a wider infrastructure. I do
+believe that the infrastructure will follow the marketplace.
+There are 1,000 stations out there today, and that is a good
+one. We ought to concentrate those stations where there is
+going to be a significant market, and where we can build the E-
+85 market significantly. In Minnesota, there are about 500 E-85
+stations, and it is the most meaningful E-85 market in the
+entire country.
+ But the third thing that you also need, you need more
+ethanol. And you can't get to a meaningful E-85 market with
+grain-derived ethanol. You have got to have cellulosic ethanol,
+so that you can be talking about the kind of volumes that could
+actually satisfy the demand for ethanol coming from 20 or 30 or
+40 million vehicles that could be on the road in five or ten
+years. So, I mean, you need all three of those.
+ I might also add, however, that the E-85 technology that is
+out there today is not really taking advantage of the
+properties of ethanol. There is a mileage penalty. That impacts
+the economics that Mr. Eichberger's members are so concerned
+with.
+ Mr. Lipinski. What is the mileage penalty? Numbers----
+ Mr. Dinneen. About 20 or 25 percent. I mean, it is
+certainly significant. And with the technology that the
+automakers are using today, you are always going to have that.
+But there are, on the horizon, some technology. General Motors
+has the Saab 9-5, that has a turbocharged engine, that realizes
+no mileage penalty when ethanol is used. And that would
+dramatically improve the economics. So one of the things that
+we would like to see is that the flexible fuel technology that
+you are incentivizing auto manufacturers, to optimize the
+vehicle to look at fuel performance and fuel economy issues.
+Because it impacts, ultimately, the economics of the fuel that
+will build the bigger market.
+ Mr. Lipinski. Thank you.
+ Chairman Lampson. I thank the gentleman. Now, we will call
+on the former Chairman of this committee, Judy Biggert from
+Indiana. Illinois, I am sorry. I did that again.
+
+ Cellulosic Ethanol R&D
+
+ Ms. Biggert. I think it is looks like it is going to fade.
+Thank you very much, Mr. Chairman.
+ My first question is for Mr. Dinneen. You said that all of
+your member companies are doing some degree of research on
+cellulosic ethanol, materials to make that. Can you tell us a
+little bit about their research efforts?
+ Mr. Dinneen. Sure. I don't think--any of this is not public
+knowledge, but a company in your state, Archer-Daniels-Midland,
+is looking at producing ethanol from fiber that is already
+coming into the plant, and they believe that if they are able
+to convert that fiber, which is a cellulosic material, they
+could increase their yields by 15 percent. Another one of my
+member companies, the Broin Companies, has announced that they
+are going to build a facility in Emmetsburg, Iowa that will
+produce ethanol from corn stover. There is another ethanol
+company I represent, Abengoa, they have got plants in Nebraska
+and New Mexico and Kansas, and they are building a pilot plant
+in Europe today to produce ethanol from wheat straw and grain.
+So, I mean there are a number of companies. There is a company,
+Iogen, a Canadian firm, looking to produce ethanol from wheat
+straw. There is a California company, BlueFire, that is looking
+to produce ethanol from municipal solid waste in California.
+So, I mean, it is happening all across the country. Just
+popping into my head, New York, Northeast Biofuels, is looking
+to produce ethanol from woody biomass.
+ The future of ethanol is going to be founded on grain,
+because it is been building the industry, but the structure is
+going to be different technologies, different feedstocks, and
+it is a very exciting future.
+ Ms. Biggert. The--so much of what has been talked about is
+sugar cane, which I thought was really difficult--would be for
+the United States, because we don't have the soil to grow it.
+So that--are there other--are there greater promise for some of
+these others, that--over other ones, or is that still in the
+research effort?
+ Mr. Dinneen. It takes 13 pounds of sugar to produce a
+gallon of ethanol, and at the U.S. sugar price of $0.22 a
+pound, the economics of that just aren't very attractive.
+ But there are opportunities with sugar processing, because
+you have byproducts from the sugar process that--the gas, that
+could also be utilized in the processing of ethanol, and there
+is actually a company in Hawaii that is looking to do just
+that.
+ Ms. Biggert. I see.
+ Mr. Dinneen. So, you may have some synergistic----
+ Ms. Biggert. It is the one place that it seems to grow.
+ Mr. Dinneen. Potentially, yeah. But for the most part, the
+climate in this country isn't that conducive to sugar.
+ Ms. Biggert. Are federal cellulosic research efforts
+helpful to the companies that are doing this?
+ Mr. Dinneen. Yes, if they are indeed, you know, fully
+funded.
+ Ms. Biggert. Yeah. I think--are the member companies
+working with DOE?
+ Mr. Dinneen. Department of Energy and the Department of
+Agriculture have been terrific in working with the industry on
+a variety of cellulosic research programs.
+ Ms. Biggert. Does the cellulosic ethanol or materials
+have--create the same ethanol as from corn. I mean, once it
+gets to be that, it doesn't----
+ Mr. Dinneen. At the end of the day, as Mr. Eichberger said,
+ethanol is ethanol is ethanol.
+ Ms. Biggert. Okay. Does cellulosic ethanol require less
+water to produce than from corn?
+ Mr. Dinneen. I am not sure anybody knows yet, because the
+technology is varied, and is yet not proven.
+ Ms. Biggert. Would that be important?
+ Mr. Dinneen. Oh, sure. Absolutely. All these resource
+issues are important. And not just for the cellulosic industry.
+I mean, the existing grain ethanol industry is always looking
+for process improvements to reduce not just energy inputs, but
+water inputs as well.
+
+ Ethanol Fuel Availability
+
+ Ms. Biggert. Well, also coming from Illinois, and I don't
+see too many stations in the metropolitan Chicago area, but
+there certainly are in southern Illinois, where it seems to be
+used quite a bit, but--question for Mr. Eichberger, another
+factor I would think that affects the availability of fuels
+like E-85 is because most all of the--most petroleum
+distributors don't want to put E-85 in--under their canopy
+because, first of all, their suppliers don't make it, and won't
+guarantee it. Do you think that is a factor?
+ Mr. Eichberger. That is an issue. Think about this. If you
+sign a contract, and keep in mind, 95 percent of all retail
+locations are independently owned and operated, not affiliated
+with the refining company. If you sign a contract with a
+supplier to sell their brand and they put their canopies up,
+you have to honor that brand. It is just like if you are a fast
+food restaurant and sign a contract with Coke. You can't sell
+Pepsi through a Coke dispenser, so you--a lot of retailers can
+go to a supplier, and get special consideration to put in an E-
+85 dispenser, but really, the primary factor that comes into a
+retailer's decision is what will it do to my bottom line? Take
+into consideration my costs of investment, take into
+consideration what is it going to do to my customer traffic?
+ Ms. Biggert. Well, how do we overcome this factor, then?
+ Mr. Eichberger. The marketplace factor?
+ Ms. Biggert. Well, I--no, I think with the distributors not
+wanting to put it under the canopy in the first place. Are we
+going to have to create a whole new distributor of E-85, or a
+new gas station, or ethanol station, or whatever?
+ Mr. Eichberger. No, I don't think there are very many
+retailers out there who have actually been told absolutely no
+by their supplier. If they want to put in E-85, they can talk
+to their supplier, and possibly renegotiate the contract to
+allow it to happen. And that is the reason there are 1,000
+retailers out there that have E-85. They are either privately
+branded, or they are branded with the supplier, but there is
+some room to work with their supplier to do this, but you have
+to talk to them. If you have a contract to sell their brand of
+product, and in order to get out of that contract, you need to
+renegotiate the terms of that contract.
+ Ms. Biggert. Which I think might be a factor that makes it
+difficult, and why we are not seeing more of them, but thank
+you, Mr. Chairman. I yield back.
+ Chairman Lampson. You are welcome. Thank you very much.
+Before you go, Mr. Bartlett, let me--I am going to give each--
+the privilege of the Chair is going to give each--Mr. Bartlett
+and Mr. McNerney one minute to wrap this thing up, and if you
+all will forgive me for doing a second round today, but I think
+we are going to have opportunity.
+ Let me let Mr. McNerney go first.
+
+ More on Cellulosic Ethanol R&D
+
+ Mr. McNerney. Thanks for your indulgence, Mr. Chair, and
+Ranking Member.
+ During the State of the Union, the President sort of held
+out for a long-term hope, and I want to be a part of that hope,
+but the promise of cellulosic ethanol looks to me like
+something that we are not really that close to yet, and what I
+am hoping is that H.R. 547 will help us get there.
+ Now, in your opinion, how far does this get us? I mean, is
+it true that in cellulosic ethanol, you need specific
+technology for each kind of crop, or--I mean, there is a lot of
+questions in my mind about how viable this is, in sort of a ten
+year timeframe, or are we actually closer than I am afraid that
+we are not?
+ Mr. Dinneen. Congressman, I think we are a lot closer to
+having cellulosic ethanol commercialized than anybody realizes,
+and it may be a variety of technologies. I mean, you could have
+enzymatic conversion of biomass. You could have acid
+hydrolysis. You could have gasification. Those are essentially
+the three different types of technologies, and there are a
+number of companies looking at all three with different
+approaches, and we don't know who is going to be the first to
+crack the code, but it is inconceivable to me, with the amount
+of government and private effort that is going into this that
+it will not happen very soon.
+ Chairman Lampson. Thank you, Mr. Dinneen. Mr. Bartlett. Dr.
+Bartlett.
+
+ More Ethanol Source Concerns
+
+ Mr. Bartlett. Thank you very much. Fifty years ago this
+year, Hyman Rickover gave a very interesting talk, I think in
+Minnesota, to a group of physicians. I think there is a link on
+our website to that. In there, he made two cautions.
+ One was when you are going to the bio-world to get fuels,
+and he predicted we would be here today, by the way, you are
+going to the bio-world to get fuels, note that you are going to
+be competing with either food--we are already doing that with
+corn, the price has doubled, because we are competing with
+animal food. Or for the cellulosic ethanol, you are going to be
+competing with the requirement to return organic material to
+soils. Our topsoils are today not increasing in quantity and
+quality, so I am having a little trouble understanding how we
+are going to rob our topsoils of all of this enormous amount of
+biomass to make cellulosic ethanol.
+ We will get some, sir, from things that end up in the
+landfill, but be very careful that you are not mining our
+topsoils, and pulling off of them--corn stover, I notice you
+mentioned, you know, that now generally is returned to the
+soils to keep erosion down next year, and to provide till thin
+soils, which holds moisture and holds nutrients for the plant.
+We are going to get something from cellulosic ethanol, but
+nothing near what most exponents of this indicate we will get.
+ Mr. Dinneen. Congressman, those are certainly issues that
+we are indeed looking at. Those people that have talked about
+corn stover, for example, aren't talking about taking the
+entire plant. They are talking about taking a third of the
+stover, and returning the rest of it to the soil. Farmers need
+that material for the nutrients that it provides, and they are
+not going to kill the golden goose. So, the industry is very,
+very interested in those issues. And some of the cellulosic
+material that could ultimately be converted would be municipal
+solid waste. So, I mean there are opportunities, and the
+marketplace will ultimately determine what makes the most
+sense, but I believe that ethanol is not the total answer, but
+it is a part of the answer.
+ Chairman Lampson. Well, I want to thank all of you for
+appearing before this subcommittee this afternoon.
+ Based upon the testimony of this hearing, and the letters
+of endorsement for this legislation, I believe that our
+subcommittee is comfortable with this legislation moving to
+consideration by Full Committee tomorrow morning.
+ I understand the bill is likely to be scheduled for
+consideration by the House during the week of February 5 under
+a rule.
+ So, at this time, I would also ask unanimous consent to
+have letters of endorsement and other extraneous materials
+related to H.R. 547 included in the record. [The information
+appears in the Appendix.]
+ Chairman Lampson. Without objection, so ordered.
+ This hearing is adjourned. Thank you all very much.
+ [Whereupon, at 3:36 p.m., the Subcommittee was adjourned.]
+ Appendix:
+
+ ----------
+
+
+ Additional Material for the Record
+
+
+
+
+Endorsements
+
+
+
+
+
+