[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




 
                            RENEWABLE FUELS

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON RURAL ENTERPRISES,
                      AGRICULTURE, AND TECHNOLOGY

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, JULY 24, 2001

                               __________

                           Serial No. 107-21

                               __________

         Printed for the use of the Committee on Small Business


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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               WILLIAM PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio               DONNA M. CHRISTIAN-CHRISTENSEN, 
PATRICK J. TOOMEY, Pennsylvania          Virgin Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN THUNE, South Dakota             TOM UDALL, New Mexico
MIKE PENCE, Indiana                  STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
TODD W. AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLY MOORE CAPITO, West Virginia   MIKE ROSS, Arizona
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director
                                 ------                                

     Subcommittee on Rural Enterprises, Agriculture, and Technology

                   JOHN THUNE, South Dakota, Chairman
ROSCOE BARTLETT, Maryland            TOM UDALL, New Mexico
FELIX GRUCCI, New York               DONNA M. CHRISTIAN-CHRISTENSEN, 
MIKE PENCE, Indiana                      Virgin Islands
BILL SHUSTER, Pennsylvania           DAVID D. PHELPS, Illinois
                                     BRAD CARSON, Oklahoma
                     Brad Close, Professional Staff




                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on July 24, 2001....................................     1

                               Witnesses

Dinneen, Bob, Vice President, Renewable Fuels Association........     4
Donaldson, Guy, President, Pennsylvania Farm Bureau..............     7
Heck, Ron, American Soybean Association..........................     8
Abnee, Conn, Executive Director, Geothermal Heat Pump Consortium.    10
Smith, Megan, Co-Director, American Bioenergy Association........    12

                                APPENDIX

Opening statements: Thune, Hon. John.............................    35
Prepared statements:
    Dinneen, Bob.................................................    37
    Donaldson, Guy...............................................    45
    Heck, Ron....................................................    49
    Abnee, Conn..................................................    52
    Smith, Megan.................................................    57


                       HEARING ON RENEWABLE FUELS

                              ----------                              


                         TUESDAY, JULY 24, 2001

              House of Representatives,    
         Subcommittee on Rural Enterprises,
                       Agriculture, and Technology,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:15 a.m., in 
room 2360 Rayburn House Office Building, Hon. John R. Thune 
[chairman of the Subcommittee] presiding.
    Chairman Thune. Good morning. This hearing will come to 
order. I apologize for my tardiness here. We have got a little 
subject in another committee I am working on, called the farm 
bill, which is in the works and something we only do every 5 
years. So we are trying to get that squared away before the end 
of next week, and we hope to have it marked up.
    Today's hearing has been called to discuss the issue of 
renewable energy and its importance in solving our Nation's 
energy crisis. The subcommittee will explore the ways in which 
Congress can help to create a more productive environment for 
the use of renewable fuels.
    Renewable fuels play a productive role in improving our 
national energy security by providing stable, homegrown 
renewable energy supplies. Renewable energy can take many forms 
from ethanol and biodiesel to wind and hydroelectric power, to 
power generated by the Earth and sun.
    To promote the increased use and availability of renewable 
fuels, I have introduced two bills to make it easier for 
producers to market renewable fuels.
    The first bill, H.R. 2423, the Renewable Fuels for Energy 
Security Act of 2001 calls for renewable fuels such as ethanol 
and biodiesel to play a larger role in America's transportation 
fuel market. The bill sets a national fuel standard, not a 
gallon-by-gallon mandate, and will not force a level of 
compliance in places where compliance may be difficult.
    It is important to note that this bill does not attempt to 
alter the Clean Air Act of 1990. The Clean Air Act mandates the 
use of renewable fuels and requires gasoline to contain 
cleaner-burning additives, called fuel oxygenates, primarily 
ethanol or MTBE, a methanol-based additive which has since been 
found to be harmful to groundwater. With MTBE now prohibited in 
11 States and probably more in the near future, ethanol and 
biodiesel are the most viable options for abiding by the 
mandates of the Clean Air Act.
    To enhance national security and improve the quality of our 
air, H.R. 2423 gradually increases the market share for 
renewable fuels to 2 percent by 2008, 3 percent by 2011 and 5 
percent by 2016.
    The United States Department of Agriculture estimates that 
for every gallon of ethanol produced domestically, we displace 
7 gallons of imported oil. Today, ethanol is estimated to 
reduce our demand for foreign imported oil by 98,000 barrels 
per day. A 3 percent market share for ethanol and biodiesel 
would displace about 9 billion gallons of gasoline annually or 
between 500,000 and 600,000 barrels of crude oil a day, the 
amount we now import from Iraq.
    To help promote the use of ethanol as a renewable fuel, I 
have introduced H.R. 1636, which would make ethanol 
cooperatives eligible for the current small producer ethanol 
tax credit. Under current law, a small ethanol producer is 
eligible for an income tax credit of 10 cents per gallon, up to 
15 million gallons of production. H.R. 1636 expands eligibility 
for the credit to producers whose annual ethanol production 
capacity is below 60 million gallons.
    Current trends in South Dakota indicate that co-ops are 
building larger ethanol plants with production capacities of 40 
to 60 million gallons. Through this tax credit, a co-op that 
produces 15 million gallons could pass along $1.5 million to 
its members.
    The use of renewable energy sources is crucial to building 
a stronger domestic energy policy and will provide a positive 
economic impact to many rural areas.
    I thank the witnesses for attending today's hearing and 
very much look forward to your testimony.
    At this point, I will yield to the gentleman from New 
Mexico, the ranking member, Mr. Udall.
    Mr. Udall. Thank you, Mr. Thune. At the outset, I want to 
thank you, Mr. Chairman, for holding this hearing today on the 
topic of renewable fuels and renewable energy policy.
    Whether we are talking about rising gas prices or 
skyrocketing electricity costs, the problem is proving to be an 
almost crushing burden on small business owners. Statistics 
during the most recent set of rolling blackouts in California, 
in May of this past year, show that small businesses lost an 
average of $5,000 to $25,000 per day during that period. I 
think we can all three agree that the United States must 
develop a national energy policy that is mindful of not only 
the needs of the environment and the realities of future energy 
supplies and demands, but also that of small businesses.
    As a Washington Post editorial put it, it may now be 
possible to discuss energy policy in a calmer way and that 
should lead to the acceptance of a principle the administration 
initially neglected, that the need to expand supply to keep up 
with population and economic growth has to be balanced with the 
needs of the environment.
    Today's hearing focuses on the twin issues of developing 
renewable energy sources and the necessity for energy 
conservation. Renewable energy comes in a whole host of forms 
including ethanol, wind, geothermal, solar and biomass. To this 
end, small businesses play a key role in the production, 
marketing, conversion and implementation of renewable fuels in 
their everyday use.
    Unfortunately, the administration's fiscal year 2002 budget 
contains several cuts to key energy efficiency and renewable 
programs, which makes no sense at a time when we have to 
properly plan for our country's energy future. For example, 
funding for renewable and alternative energy sources, solar 
research funding, geothermal, hydrogen and wind research 
programs have all been cut in the administration's budget. 
Despite these cuts, the Appropriations Committee did restore 
some funds to renewable programs in the fiscal year 2002 energy 
and water development funding bill.
    Instead of pushing for renewable and alternative energy 
sources, the administration has called for the construction of 
new power plants over the next 20 years, as well as nearly 
doubling coal production, more funding for nuclear energy and 
increased oil exploration and production. Should the 
administration continue to endorse an energy policy that 
focuses more on development and less on renewable energy and 
conservation, I am afraid that this argument could perpetuate 
an economic and/or national security crisis for our country.
    There are several bills in the Congress that focus on 
renewable energy in one form or another. I have introduced the 
Small Business and Farm Energy Emergency Relief Act of 2001. My 
legislation would provide emergency relief through affordable, 
low-interest Small BusinessAdministration disaster loans and 
USDA emergency loans to small businesses and small agriculture 
producers adversely affected by significant increases in the price of 
heating oil, propane, kerosene or electricity. One component of my 
legislation would allow small businesses to use these loans as capital 
to convert their systems from using heating oil or electricity to those 
using renewable or alternative energy sources such as fuel cells or 
wind energy.
    Today's energy and environmental challenges call for a new 
and expanded approach to help address all of these concerns. We 
need an energy policy that will help fix our short-term energy 
needs as well as prepare us for any long-term energy crises we 
may face; and I believe that today's hearing is a start in 
helping us tackle this challenge.
    I hope the information obtained at this hearing will serve 
as an opportunity to push for a national energy policy and can 
be supported by small businesses, consumers and industry alike. 
And I yield back to Mr. Thune.
    Thank you.
    Chairman Thune. The Chair thanks the gentleman from New 
Mexico for that statement; and at this time I would also 
welcome to the panel today the gentleman from Pennsylvania, Mr. 
Shuster, and the gentleman from Illinois, Mr. Phelps, both of 
whom care a lot about this subject.
    Before we begin receiving testimony from the witnesses, I 
want to remind everyone that we would like each witness to keep 
their oral testimony to 5 minutes, and in front of you on the 
table you can see a little box that will let you know when your 
time is up. When it lights up yellow, you will know you have 1 
minute remaining, and when 5 minutes have expired, a red light 
will appear. Once the red light is on, the Committee would 
appreciate if you could begin wrapping up your testimony as 
soon as you are comfortable doing that.
    So we will begin by introducing our first witness who is 
Mr. Robert Dinneen, and he is Vice President of the Renewable 
Fuels Association.
    So, Mr. Dinneen, welcome to the panel today and we look 
forward to your testimony.

 STATEMENT OF ROBERT DINNEEN, VICE PRESIDENT, RENEWABLE FUELS 
                          ASSOCIATION

    Mr. Dinneen. Thank you, Mr. Chairman and members of the 
committee. I want to thank you for the opportunity to be here 
today to provide comments on the role of renewable fuels such 
as ethanol in our Nation's energy policy.
    As you know, small businesses have a prominent role in the 
production and the marketing of fuel ethanol and, thus, will be 
critical to developing a sustainable energy policy for the 
future. Thus, I commend you for convening this hearing and for 
your long-standing support for farmers, for value-added 
agriculture and for ethanol, Mr. Chairman.
    The RFA is the national trade association for the domestic 
ethanol industry. We represent 56 ethanol production facilities 
operating in 20 different States across the country that, this 
year, are going to produce over 2 billion gallons of fuel 
ethanol. Our industry is growing at an unprecedented rate, 
particularly among farmer-owned cooperatives, the fastest 
growing segment of our industry and an example of small 
businesses providing jobs and economic growth throughout rural 
America.
    Mr. Chairman, there are many benefits of fuel ethanol I 
would like to discuss today, including the positive impacts on 
the environment and consumer gasoline prices, but in the 
limited time that I have, I want to focus on the specific 
benefits to small businesses which are often overlooked in the 
broader public debates about energy and air quality.
    First, the Federal ethanol program has created the most 
significant value-added market for farmers, perhaps the most 
significant small businesses across the country. As the third 
largest use of corn, behind feed and exports, ethanol 
production utilizes nearly 7 percent of the U.S. corn crop or 
over 600 million bushels of corn, adding $4.5 billion in farm 
revenue annually.
    USDA has determined that ethanol production adds 25 to 30 
cents to each bushel of grain. According to a Midwestern 
Governors' Conference report that was completed last year, the 
economic impact of the demand for ethanol boosts total 
employment by over 200,000 jobs, increases State tax receipts, 
improves the U.S. balance of trade by $2 billion and results in 
$3.6 billion in net savings to the Federal Treasury.
    That is right, the reduced farm program costs and increased 
tax revenue attributable to ethanol results in $3.6 billion in 
savings to the Federal Government. In other words, for every 
dollar invested in this program, $7 is returned to the Federal 
Government.
    Second, the Federal ethanol program has been good for small 
independent gasoline marketers, those mom-and-pop operations 
that do not refine gasolines, do not drill for oil and have no 
overseas investments to protect. They are the foundation of 
ethanol marketing in this country. Years ago they saw the 
potential of ethanol to provide octane and volume to the 
gasoline pool, giving them an important tool to compete 
effectively with their much larger, integrated refinery 
suppliers.
    Consider this statement by the Society of Independent 
Gasoline Marketers, which represents those small businesses, 
quote: ``the tax benefits afforded ethanol blended fuels 
constitute an important means by which independent marketers 
reduce their cost for product, enhancing independent marketers' 
ability to price-compete with their economically more powerful 
integrated competitors. Such price competition has consistently 
restrained retail market prices and thereby generated 
substantial benefits for consumers of gasoline.''.
    Mr. Chairman, we are more reliant than ever before on 
foreign nations to supply our insatiable and growing appetite 
for oil, importing 54 percent of our petroleum. At the same 
time, U.S. production has fallen to the lowest point in 30 
years. There has not been an oil refinery built in this country 
in 25 years, but there have been 56 ethanol refineries built 
during that time, stimulating rural economies, creating jobs 
and improving air quality.
    In addition to the over 2 billion gallons of current 
ethanol production capacity, 34 existing ethanol plants are 
undergoing expansions and 11 new plants are actually under 
construction today.
    Let's just take one State for an example; I don't know, 
South Dakota. There are three ethanol plants in South Dakota 
today, producing 31 million gallons. But there are another 
three plants under construction with a planned production 
capacity of 95 million gallons, and there are five others that 
have been proposed that will have 125 million gallons of 
production capacity if they are built. All but one of these new 
plants are farmer-owned cooperatives.
    The ethanol industry expects to have an additional 300 
million gallons of production capacity on line by the end of 
this year and a total of 3 billion gallons of production 
capacity by the end of 2003. Now is the time to extend this 
important program. For plants being built today there will be 
less than 4 years to recoup the investment.
    President Bush recommended extending the Federal ethanol 
program in his energy recommendations to the Congress, and I 
would urge each of you to strongly consider such action as 
energy legislation is contemplated by the Congress in the next 
several months.
    Second, as you know, Mr. Chairman, the existing small 
producer tax credit doesn't work for those smaller farmer-owned 
cooperatives that it was intended to help. I commend your 
efforts toaddress this issue through your H.R. 1636. We support 
it, and we look forward to working with you to assure its passage this 
year. Indeed, similar legislation has already passed the Senate three 
different times and was just not included in a final piece of 
legislation. We hope with your efforts, and with your commitment and 
with our help, we will be able to get it done this year.
    Finally, as the Congress contemplates a comprehensive 
energy policy, renewable, domestically produced fuels can and 
should play a larger role in meeting our Nation's energy needs.
    Mr. Chairman, your bill, H.R. 2423, the Renewable Fuels for 
Energy Security Act of 2001, which would create a national 
renewable fuel standard, is the kind of progressive legislation 
that must be included in national energy legislation. When 
fully implemented, this program would reduce the need for more 
than 600,000 barrels of oil. That is roughly twice the energy 
we import each day from Iraq.
    America has the resources to address our long-term energy 
needs without having to rely on the benevolence of OPEC. We 
should be investing here at home, not overseas, to build a 
sustainable energy future for our children. America's farmers 
and small businesses are willing and able to help us with our 
energy needs.
    Again, Mr. Chairman, I want to thank you for holding this 
important hearing, and I want to add my voice to those that 
have applauded your efforts and those of others that have 
helped to promote the increased production and use of fuel 
ethanol. You have helped create a vitally important domestic 
renewable energy resource. You can be proud of your 
accomplishment, and we certainly thank you for your commitment 
to value-added agriculture, small businesses and a sustainable 
energy future.
    I thank you very much and shall be happy to take your 
questions.
    [Mr. Dinneen's statement may be found in the appendix.]
    Chairman Thune. Thank you, Mr. Dinneen, and we will get a 
chance to ask some questions in a moment. But at this time I 
would yield to my colleague from Pennsylvania, Mr. Shuster, to 
introduce our second witness.
    Mr. Shuster. Thank you, Mr. Chairman, for giving me the 
opportunity this morning to introduce Guy Donaldson. Guy is the 
President of the Pennsylvania Farm Bureau. Although Guy lives 
in Gettysburg, Pennsylvania, it is a neighbor to the east of 
the Ninth Congressional District which I represent. He clearly 
understands the needs of the Pennsylvania farmers, and I am 
pleased you have asked him here today to testify.
    Guy's been a fruit grower all his working life, and in 
fact, today he and his wife Betty are in a partnership with 
their children. They farm over 550 acres of apples, peaches, 
cherries and vegetables. In addition to farming, the family 
also operates a retail farm market from May to October.
    Guy has been a long-time leader in farm organizations. He 
has served as the President of the Adams County Farmers 
Association, was a director of the Pennsylvania Farm Bureau 
State board of directors, Chairman of the Pennsylvania Farm 
Bureau Growth Study Committee and was elected to two 3-year 
terms representing the agricultural community on Penn State's 
board of trustees.
    If that hasn't been enough, Guy is a member of the Adams 
County Fruit Association, on the board of directors of the 
Mount Orchard Cooperative and a member of the Knouse Foods 
Cooperative.
    As the current President of the Pennsylvania Farm Bureau, I 
look forward to hearing his testimony today.
    Thank you, Mr. Donaldson, for being here. I think it is 
extremely important that people such as yourself are here 
before Congress testifying. You are out there working the 
fields, and it is important we hear your testimony.
    Thank you, Mr. Chairman.
    Chairman Thune. Mr. Donaldson, please proceed.
    Mr. Donaldson. Good morning, Mr. Chairman. Congressman 
Shuster sort of stole my thunder in the opening remarks there, 
but that is okay. Let me move on down the page here a bit.
    As you know, times are tough in farm country and commodity 
prices across the board have been too low for too long. As an 
industry, we must expand the markets for the crops that we 
grow. Congress needs to pass trade promotion authority 
legislation for one thing, and American farmers and ranchers 
need open and fair access to foreign markets and to those 
consumers anxious for the safe, abundant and affordable food 
that we produce in this country.
    Farm Bureau also supports the use of commodities to produce 
goods other than food. Nothing has more potential in this area 
than the use of agriculture commodities to produce energy. The 
potential for our farmers, our consumers, our environment, our 
economy and our national security is staggering. We are close 
to realizing this potential and we simply, gentlemen, cannot 
miss this opportunity.
    Mr. Chairman, Farm Bureau strongly supports your 
legislation, H.R. 2423, the Renewable Fuels for Energy Security 
Act of 2001. This is the type of policy that must be 
implemented to bring prosperity back to rural America and 
energy security back to the United States.
    According to a report from the Midwestern Governors' 
Association, the economic impact of the demand for ethanol adds 
$4.5 billion to farm revenue every year; Produces more than 
195,000 jobs, mostly in rural areas; Replaces $2 billion of 
imported oil, thus improving our balance of trade; and Saves 
the Federal Government, as was mentioned before, $3.6 billion.
    But the point most important to our membership is that the 
current use of 600 million bushels of corn for ethanol 
production adds another 25 to 30 cents to the price a farmer 
receives for a bushel of corn. With the low price of corn, this 
market is vital and it is important that it expands.
    H.R. 2423 requires that by 2016, 5 percent of the Nation's 
fuel contain renewable energy. It will provide an income to our 
corn farmers from the marketplace and not the Federal 
Government. And both farmers and government should work toward 
that goal.
    But it is not only corn producers who benefit. The use of 
soybean-based biodiesel will receive a tremendous boost as an 
important part of our energy mix.
    Other commodities will find opportunities under H.R. 2423. 
Currently there are 26 different feedstocks used in this 
country to produce ethanol. Think of that, 26. With the 
exponential growth in technology and the ethanol industry, we 
can anticipate the increased use of those feedstocks and the 
use of cellulose feedstocks such as corn stover, rice straw, 
and waste from processing of agriculture products.
    We all gain when we better utilize all the production from 
our farms and ranches. The technology to use these sources is 
now in the research lab. With a new demand created for biobased 
energy, that technology continues to develop and to become 
economically viable.
    We should also look at other energy production that can 
occur on farms and ranches. There is a great deal of interest 
among our members in siting of wind and solar generators. Some 
are weighing the economic return on micro-hydro generation. One 
area that holds promise as a source of energy and a solution to 
a problem is the capture of methane from the manure that we 
produce in this country and that is abundant. Our livestock 
producers are increasingly concernedas to how they will be able 
to comply with restrictions on the storage and disposal of animal 
waste.
    We need research in the development of farm-sized 
facilities that can store manure and capture the methane 
therein; and beyond that, we should look at taking that manure 
after the methane is captured and using it as a fuel in the 
generation of electricity to provide heat.
    Mr. Chairman, farmers and ranchers have long provided safe 
and affordable food to this Nation. We will continue to do so. 
But as we have produced such an abundance of food, agriculture 
needs to provide energy, as well, when we can. But it will take 
time to build this industry to the point where that production 
becomes a major component of our energy mix.
    Some in Congress question a mandate for renewable fuels. 
They believe that this is just another subsidy for farmers. Mr. 
Chairman, we spend billions of dollars every year to protect 
our petroleum sources in the Middle East. American servicemen 
and women have lost their lives in a war against Iraq, and we 
today import more energy from Iraq than we produce in this 
country from ethanol. Our servicemen and women are still 
risking their lives in an area where we must have a military 
presence. Let's put our faith not in the benevolence of Saddam 
Hussein, but in America's farmers and ranchers.
    Mr. Chairman, we stand ready to work with you to build a 
domestically based renewable energy industry in America. We 
should, and we must; and I thank you, sir, for having the 
opportunity to testify.
    Chairman Thune. Thank you, Mr. Donaldson.
    [Mr. Donaldson's statement may be found in the appendix.]
    Chairman Thune. Next the subcommittee will hear from Mr. 
Ron Heck, who is a soybean and corn farmer from Perry, Iowa, 
our neighbor State.
    Where exactly is Perry in Iowa?
    Mr. Heck. Central Iowa, 30 miles north of Des Moines.
    Chairman Thune. It is too far away from South Dakota for an 
exit then, I suppose; but anyway Mr. Heck is here on behalf of 
the American Soybean Association. We welcome you and look 
forward to hearing your testimony.

    STATEMENT OF RON HECK ON BEHALF OF THE AMERICAN SOYBEAN 
                          ASSOCIATION

    Mr. Heck. Thank you, Mr. Chairman and members of the 
subcommittee. I appreciate the opportunity to come here today 
and talk with you regarding the need for a national 
comprehensive energy policy that includes a meaningful 
renewable fuel component for biodiesel and ethanol.
    Farmers are small business owners and much of current 
biodiesel production is by small businesses and cooperatives. 
There are two farmer cooperatives in Iowa that are producing 
biodiesel now.
    These are times when the prices for our commodities are 
very low and the prices of our energy input costs are very 
high. This causes great concern across the countryside, and 
producers are reviewing options for both reducing input costs 
and also opportunities for increasing prices of what we grow.
    While in the short term there is little we can do to 
completely alleviate this situation, the American Soybean 
Association believes the development of a comprehensive 
national energy plan would help avoid these crisis situations 
in the future. We feel strongly that a national energy plan 
should include a renewable fuels component and include both 
biodiesel and ethanol, and that is why we strongly support the 
renewable energy legislation you, Chairman Thune, introduced 
last month, H.R. 2423. We commend you for this bold and 
innovative step in moving our country to homegrown energy 
sources.
    As you know, Mr. Chairman, for the last 8 to 10 years, U.S. 
soybean growers have invested in the research, development and 
commercialization of biodiesel. Biodiesel is a cleaner burning 
fuel produced from renewable resources such as soybean oil. It 
contains no petroleum, but can easily be blended with 
petroleum. Biodiesel is typically blended at the 20 percent 
level with diesel or at 2 percent or lower levels.
    It can be used in compressed ignition diesel engines with 
little or no modifications. Biodiesel in its neat or pure form 
is biodegradable and nontoxic and is the first and only 
alternative fuel to meet EPA's Tier I and Tier II health 
effects testing standards. Biodiesel has the highest BTU 
content of any alternative fuel similar to Number 1 diesel.
    This year EPA finalized regulations that require a 
reduction in sulfur content of highway diesel fuel of over 97 
percent from its current level of 500 parts per million. 
Current industry methods to decrease sulfur in diesel also 
negatively impact the fuel's lubricity and, therefore, engine 
life. Biodiesel has no sulfur or aromatics, and tests have 
documented its ability to increase fuel lubricity significantly 
when blended with petroleum diesel fuel even at blends as low 
as 1 percent.
    According to Department of Energy tests, biodiesel has an 
80 percent life cycle reduction of CO2 compared to 
petroleum diesel. This means that it offers the best 
opportunity for greenhouse gas reduction of any heavy duty 
vehicle and equipment application. Biodiesel also has the 
highest energy balance of any alternative fuel, which means 
that it offers some of the most promising benefits for 
conservation efforts. Additionally, biodiesel offers 
significant reductions in virtually all regulated emissions and 
a 90 percent reduction in EPA-targeted air toxics.
    With the chairman's permission, I will include additional 
information regarding the environmental benefits of biodiesel 
for the record.
    Soybean growers began to invest in biodiesel almost a 
decade ago with our own money, not because we wanted to have 
our own ethanol. Instead, we were driven by the economics in 
the soybean industry.
    Soybeans are widely produced for the protein source in the 
soybean meal. It is the plant protein of choice in the pork and 
poultry industries, leaving soybean oil as a valuable but too 
abundant coproduct. Because of large supplies of vegetable oils 
in the world market, we have a surplus of soybean oil, which 
depresses the price of the oil and, thus, the whole soybean.
    While biodiesel offers environmental energy security and 
economic development benefits, it is not competitive in the 
U.S. on a pure cost comparison. Public support will be 
necessary to help the industry develop.
    Our culture and our policies are focused on petroleum 
products, most of which are imported. I did not want to imply 
that soybean growers are opposed in any way to the use of 
petroleum products. In fact, agriculture is a major user of 
petroleum-based products. However, I would make the challenge 
that our country needs to have an aggressive energy policy that 
includes clean, renewable fuels as well as significant domestic 
production of both oil and gas.
    The current biodiesel market is growing rapidly from 
500,000 2 years ago to 5 million gallons last year, with an 
expected target of 25 million gallons in 2001. Just last week 
the USDA released a study that shows biodiesel production can 
have significant economic benefits for producers, rural 
consumers and the overall U.S. trade balance.
    The study shows an increase of 200 million gallons of 
biodiesel per year would boost total crop cash receipts by $5.2 
billion, cumulative, by 2010, resulting in an average net farm 
income increase of $300 million per year. The price for a 
bushel of soybeans would rise by as much as 17 cents a bushel 
and also increase more than 13,000 jobs in the production and 
distribution. New jobs are created in the farm sector, food 
processing, manufacturing and service.
    Just this weekend, our industry, along with the ethanol 
industry, learned the results of an economic analysis conducted 
by John Urbanchuk of AUS consultants. The report shows that if 
your bill, Mr. Chairman, is enacted, soybean prices and farm 
income will increase and result in direct benefits to American 
consumers. We will be happy to share this report with you when 
the details become more available.
    We think the timing is right for these major proposals to 
promote the use of biodiesel. We look forward to working with 
you on this agenda and other issues of interest.
    I will answer questions at the appropriate time. Thank you.
    Chairman Thune. Thank you, Mr. Heck.
    [Mr. Heck's statement may be found in the appendix.]
    Chairman Thune. Next, the Subcommittee will hear from Mr. 
Conn Abnee, who is the Executive Director of the Geothermal 
Heat Pump Consortium.
    Mr. Abnee, welcome.

 STATEMENT OF CONN ABNEE, EXECUTIVE DIRECTOR, GEOTHERMAL HEAT 
                        PUMP CONSORTIUM

    Mr. Abnee. Thank you. Mr. Chairman, members of the 
subcommittee, let me thank you for the opportunity to testify 
this morning. My name is Conn Abnee. I am the Executive 
Director of the Geothermal Heat Pump Consortium. The consortium 
is based in DC, was established in 1994 by the Department of 
Energy and the Environmental Protection Agency to promote the 
use of energy-efficient and environmentally friendly heating 
and cooling technology. We are a nonprofit organization.
    Geothermal heat pump technology is a renewable technology 
that uses the relative constant temperature of the Earth below 
the frost line to heat and cool buildings and heat water with a 
savings of 25 to 40 percent for the owner of the building, home 
or institutional facility. It is the world's most efficient way 
to heat a commercial or an institutional building.
    Geothermal heat pumps are not standard or conventional heat 
pumps nor do they use the geothermal resources from deep 
reservoirs. Rather, geothermal heat pumps take advantage of the 
constant temperature of the subsurface Earth to provide an 
energy-efficient and environmentally friendly means to heat and 
cool buildings and homes.
    Geothermal heat pump technology relies on the fact that the 
Earth remains at a constant temperature throughout the year. It 
is warmer in the winter than the outside air; and cooler in the 
summer than the outside air.
    In winter, geothermal systems bring the Earth's natural 
warmth up to a building through polyethylene heat exchange 
piping buried in the ground, then transfers it to each room of 
your home or your building via heat pump. In the summer, to 
cool the house, this process is simply reversed. The system can 
work in any climate, any geographical location, coast to coast, 
border to border.
    For example, in South Dakota, the St. Thomas Catholic 
Church in DeSmet saw a dramatic reduction in energy costs after 
installing a geothermal system. Its energy bill dropped from 
$13,900 a year to only $2,000 a year after the installation of 
geothermal heat pumps.
    In Wilmot, an addition to a school uses geothermal heat 
pumps; the original structure uses a conventional system. The 
electric bill for the older half of that building was $18,000 
just for heating. The electric bill for the new half of the 
building was only $3,100, and that includes heating and 
cooling.
    Mr. Chairman, the General Accounting Office has studied 
geothermal heat pumps and concluded in a report that the 
Federal Government has the responsibility and the authority to 
promote geothermal heat pump technology as a tool to meet our 
national energy goals. The EPA has recognized the technology 
for its efficiency, and its ability to reduce greenhouse gas 
emissions.
    President Bush has installed a system in his new home in 
Waco, Texas--right outside of Waco.
    Here at the consortium, we are working to jump-start the 
technology. Let me mention those now: research and development, 
demonstration programs across the country, training for 
designers and installers, and implementing a design assistance 
program where the engineering community is not aware of our 
technology.
    Mr. Chairman, this technology can make a real contribution 
now to energy savings and energy efficiency in both urban and 
rural America. Currently, we are not included in the national 
energy policy, but let me offer our help to working with the 
Small Business Administration to help overcome what you earlier 
mentioned were high energy costs to small businesses across the 
country.
    I appreciate the opportunity to testify this morning and 
tell you about the technology, and will welcome any questions 
that the subcommittee might have.
    Thank you very much.
    Chairman Thune. Thank you Mr. Abnee.
    [Mr. Abnee's statement may be found in the appendix.]
    Chairman Thune. And finally we will turn to our last 
witness, who is Megan Smith, and she is Codirector of the 
American Bioenergy Association.
    Ms. Smith, thank you for being here.

 STATEMENT OF MEGAN SMITH, CODIRECTOR, THE AMERICAN BIOENERGY 
                          ASSOCIATION

    Ms. Smith. Mr. Chairman and distinguished members of the 
Subcommittee, thank you for allowing me this opportunity to 
testify on behalf of the members of The American Bioenergy 
Association of which I am Codirector.
    The United States is at a critical time for the development 
of alternative energy sources, particularly for transportation, 
where the majority of our precious oil is used. Our dependence 
on foreign oil has put our economy and national security at 
great risk. These two issues--increased energy demand and the 
need for reducing our dependency on foreign oil--have put us at 
a crossroads today, where creating a win-win situation is more 
than just possible.
    Low-value, high-quantity cellulosic biomass is widely 
available throughout the U.S. and is found in virtually every 
State, particularly in rural communities. However, any plan 
regarding the use of cellulosic biomass for conversion to 
ethanol is going to take a large commitment on the part of key 
decision-makers. At the same time, an increased use of corn for 
ethanol production will also require a large amount of support, 
especially to reach the production goalscontained in various 
legislation now before Congress.
    Biomass is any matter composed of the two sugars, cellulose 
and hemicellulose, and lignin, which is the high-energy glue 
holding these two sugar chains together. Examples of biomass 
include wood waste, agriculture residues, fast-growing grasses 
and trees and the paper component of solid waste. Low-value 
biomass can be converted to several high-value products such as 
electricity, ethanol and chemicals. Markets will determine 
which of these three is the highest value in that particular 
situation, and industry will adapt these biorefineries 
accordingly.
    In using biomass as an energy resource, we are essentially 
weaning ourselves from a hydrocarbon or oil economy and, 
instead, creating a robust carbohydrate economy, or one relying 
on sugars in the form of starch and cellulose.
    The current corn-based ethanol industry converts to ethanol 
only part of the available sugar in the corn plant, the 
remainder being mostly cellulose. Industry's new, highly 
efficient technology for bioethanol has shown conservative 
estimates for energy efficiencies at four to one, that is, four 
energy units and output compared to energy used during 
production. This is largely due to the use of lignin's high-
energy content.
    The world's first biomass ethanol plant with expected 
start-up in 2002 will be located in Jennings, Louisiana, and 
will use sugar cane bagasse as its feedstock. Other plants 
under development include ones using waste feedstocks, such as 
rice straw, sawmill waste and small diameter trees, which are 
largely responsible for Western catastrophic fires.
    Benefits of biomass ethanol include job creation with a job 
multiplier for a 20-to-25-million-gallons-per-year ethanol 
plant creating about 500 jobs, both direct and indirect. Most 
importantly, these jobs are largely in the poor rural 
communities of the U.S.
    The area of biomass conversion to chemicals may provide the 
largest market potential in the future. This November, Cargill 
Dow will start up a plant that will make polylactic acid, or 
PLA, from corn. From PLA ``beads,'' Cargill Dow will be able to 
produce such products as carpet, clothing and plastic cups 
which are all biodegradable and renewable.
    Here is one such example. The material in this shirt was 
about, 1 year ago, carbon dioxide in a farmer's cornfield. PLA 
can greatly help to displace petroleum now used as feedstock 
for these products.
    The ABA applauds Congressman Bartlett's Bioenergy Act of 
2001 which builds upon the Lugar-Udall biomass bill of last 
year. The Bartlett bill will fill a void by doubling 
authorization over a period of 5 years for biomass research 
conducted by the Department of Energy. In addition, moneys are 
authorized for the biorefinery concept developed by DOE.
    Regarding the bills that would increase the ethanol market 
by three to ten times the current market, ABA would like to 
point out that no analysis above a threefold increase has yet 
been carried out by USDA. The repercussions of a larger 
increase than threefold on the corn community is, therefore, 
unknown. We would like to point out also that the ABA supports 
the inclusion in these bills of a leverage for biomass of 1.5 
to 1, as contained in S. 670, the Daschle-Lugar legislation.
    Thank you, Mr. Chairman and members of the subcommittee, 
for allowing me to speak on behalf of the many benefits of 
biomass conversion to energy and chemicals for a cleaner and 
stronger nation for future generations to come.
    Chairman Thune. Thank you, Ms. Smith, for that testimony. 
And we are all trying to figure out who fits that shirt here.
    Ms. Smith. You can each have one.
    [Ms. Smith's statement may be found in the appendix.]
    Chairman Thune. Let me also welcome to the committee Mr. 
Carson from Oklahoma and Mr. Bartlett from Maryland. Do either 
of you have comments you would care to make before we go to 
questions?
    All right.
    I appreciate all your testimony. Obviously, this is an 
issue which I think has great importance not only to 
agriculture--which is obvious, I guess--but also in terms of 
the impact that it has on our energy security as we move into 
the future. And I really believe that the use of renewables and 
providing incentives encouraging production and use of 
renewable energy sources is going to be profoundly important in 
making sure that we diversify our energy supplies as we move 
into the future, and that is why I think hearings like this are 
so important.
    I guess one of the questions I would like to pose to the 
panel is, what do you think is the greatest obstacle in terms 
of increasing public acceptance and use of renewable fuels as a 
legitimate energy source? I mean, are there things out there 
that perhaps we are not doing in trying to educate and make the 
public more aware of the value of these types of energy 
sources?
    Mr. Dinneen.
    Mr. Dinneen. Mr. Chairman, I am not sure that there are 
barriers out there to the public. I think every survey that has 
ever been done of public attitudes towards renewable fuels 
wants to see a great deal more ethanol, for example, used.
    I know that the Sustainable Energy Coalition a year or so 
ago had conducted a rather extensive voter poll to determine 
the receptivity to the use of ethanol, and overwhelmingly, 
about eight in ten wanted to see the increased use of ethanol 
fuels.
    I think the barriers, to the extent that they are there, 
are that we don't necessarily sell to the public. We are 
selling to oil refineries or refineries that are not in the 
business of through-putting renewable fuel products. They are 
in the business of through-putting hydrocarbons, and to the 
extent that you are able to look at incentives that would 
create the market pull for refiners to act in the public 
interest, as opposed to their own self-interest, would be very 
helpful.
    That is why the legislation that you have proposed, which 
would create a standard that would require the use of renewable 
fuels in a very sound way, makes so much sense.
    Chairman Thune. Does anybody else care to comment on that?
    Mr. Abnee. With the geothermal heat pump technology, our 
technology is known to be very efficient, very environmentally 
friendly; but we are facing an awareness issue. We have less 
than 1 percent of the marketplace for heating and cooling and 
water-heating devices. Consequently, it is not an accepted 
technology, and we are looking for an advantage, some way to 
help us increase that awareness among the engineering and 
architectural communities, so we can build awareness of this 
technology now to provide an energy-efficient process for our 
society. In schools, commercial buildings and for small 
businesses across the country.
    Chairman Thune. Go ahead, Mr. Heck.
    Mr. Heck. Yes. Although I am here for biodiesel, I want to 
point out the market acceptance of ethanol gasoline in Iowa is 
very high; over half of our gasoline is sold with ethanol in 
it. There is not significant resistance among consumers. And I 
say that to highlight my second point, where it is an 
infrastructure problem.
    Our manufacturers are supposed to know that there will be a 
market for their biofuels. After they are produced, will there 
be regulations or resistance from the industry that is already 
there? As I said in my testimony, we have a culture in our 
society based on oil, and before you can make the investment to 
venture into these wonderful products, there has to be some 
assurance that there will be a market available for product 
that is produced.
    Chairman Thune. Ms. Smith.
    Ms. Smith. I would agree with Mr. Dinneen that if left to 
the oil companies, they probably won't be blending a whole lot 
of ethanol; so something like a renewable fuel standard is 
necessary, particularly if they get rid of the oxygenate 
standard that is now in place.
    Also, for biomass ethanol, incentives are needed early on 
to stabilize the market and for when the people go in to get--
the entrepreneurs go in to get loans from the bank, they can 
point to something that is already enforced in law or whatever.
    Also, the DOE authorization, appropriations such as Mr. 
Bartlett introduced about a month ago, will help stabilize 
research dollars.
    Chairman Thune. It just seems to me that part of it--and I 
was asking the question, and you mentioned on geothermal--I 
asked Mr. Udall--of course, he was much more knowledgeable on 
the subject than I was.
    But it was interesting for me to hear about the Catholic 
church in DeSmet, too, because that is a technology I am not 
familiar with. But there are many types of those technologies 
out there that I think could really be useful in terms of 
meeting our energy needs.
    Let me ask, and I think in terms of Iowa, South Dakota, I 
think we are about 50 percent, too, use of ethanol; but my 
assumption is that that is not something that when you get out 
of our part of the country, people are as well acquainted with.
    Question for--I guess, for perhaps Mr. Dinneen.
    One of the questions that is always raised with me when I 
talk about ethanol--as you note in your testimony, we have a 
number of plants that are coming on line--is, if we begin to 
produce and we have the supply of ethanol to meet, for example, 
California's demands, which, with the denial of the request for 
a waiver from the Clean Air Act, will become a bigger market 
for ethanol, getting it there, is the infrastructure in place? 
Are we going to be able to supply the demand that exists, or 
will exist, we hope, in the future for ethanol?
    That is one of the questions that is often posed, and the 
transportation of it and that sort of thing. What is your 
response to that?
    Mr. Dinneen. Well, there is absolutely the infrastructure 
to get the product to wherever it needs to go.
    Take California, for example. I mean, it is often suggested 
that because ethanol is not shipped via pipeline today that 
there is just no way to get all this product there. Well, that 
argument sort of misses the fact that 90 percent of the MTBE 
that is currently being used in California and polluting their 
groundwater is imported. California is getting their MTBE from 
Saudi Arabia and from the Gulf Coast. Well, there are no 
pipelines that go from Saudi Arabia to California, frankly, 
there are no pipelines that go from the Gulf Coast to 
California.
    The MTBE that is shipped to California today is shipped via 
vessel. That is exactly the same way that ethanol will be 
shipped to the State of California, by vessel. And Mr. 
Chairman, because ethanol has twice the oxygen content of 
MTBE--I like to say it is twice as good as MTBE--we only need 
half as many vessels.
    We actually in the past week have gotten letters from the 
American Waterways Operators, which represent all the barge and 
vessel operators across the country, that have said with no 
reservation, there are absolutely enough vessels, enough 
barges, to get the product to California. There are also 
letters from Union Pacific and other railroads that say we can 
ship product to California or the Northeast or wherever it 
needs to go that way as well.
    So there is absolutely no question in our minds or in the 
minds of the industries that would actually move the product 
that we will be able to get it there.
    Chairman Thune. I yield to Mr. Udall.
    Mr. Udall. Thank you, Mr. Thune.
    My first question is for Ms. Smith, on this issue that you 
mentioned in your testimony about using fuels from the forest. 
As you are probably aware, we have had a huge buildup in the 
West over the last 100 years--because of overgrazing and fire 
suppression and clear-cutting, we have an overgrowth of smaller 
trees, and we are seeing these catastrophic wildfires. And in 
order to get the forest back in a healthy situation, we are 
going to need to do some significant thinning of smaller trees, 
12 inches in diameter and under; and you mention in your 
testimony that one of the things that is needed--and you 
highlight this, you say, ``If long-term reliable feedstock 
contracts, at least 5 to 10 years, are not put in place, 
biomass energy plans will not multiply anytime in the future in 
great numbers that is enough to make a difference in the forest 
fire abatement plan.''
    What specifically are you talking about there that needs to 
be done in order to grow this industry to the point where we 
make a real impact?
    Ms. Smith. I was talking about basically, the Forest 
Service needs to put into place long-term feedstock contracts. 
I am not sure they have. I think they are looking into that, if 
they could--their legal department was looking in to see if 
they could do that; but they have stewardship contracts which 
are long term, but were looking to possibly expand that, so 
they have the authority to do 5 to 10 years.
    Without biomass, the biomass putting a plant in without 
contracted feedstock supply is--you know, again, when they go 
to their banks for loans, unless they have that in hand, it is 
very difficult for them to get the loans that they need.
    Mr. Udall. What we are really talking about is creating a 
market for these plants and then allowing them to develop and 
grow.
    Ms. Smith. Right, it is a chicken-egg thing.
    Mr. Udall. You talk about, on some of these renewable fuels 
that they are carbohydrate-based versus carbon. I didn't hear 
any of the panel do any comparisons of CO2 
emissions. I mean, we are all very aware of this climate 
change, global warming situation.
    Are any of you aware of--what are the comparisons there in 
terms of, if you are talking combustion between carbohydrate 
versus carbon? And any of you.
    Mr. Dinneen. Congressman Udall, Argonne National 
Laboratories had done a comprehensive national analysis late 
last fall in which they took a look at the greenhouse impacts 
relative to gasoline to determine that there was a 12 to 19 
percent reduction in greenhouse gases. Other studies have shown 
higher levels of reductions. A previous DOE study had suggested 
35 percent.
    But there is just no question, because you are taking 
carbon out of the atmosphere in the production of the crops, 
that there is a cycle there that is very beneficial to the 
environment.
    One environmental group in California, after the President 
had announced his decision on the California waiver, issued a 
news release saying that that one decision was responsible for 
taking 580,000 tons of carbon out of the air. So from the 
standpoint of global warming, that one decision was incredibly 
important.
    But anything that is encouraging the increased production 
and use of renewable fuels, like ethanol, biodiesel, whether it 
is from crops that are being used today, like corn or the 
cellulose and lignin that Megan Smith has talked about in her 
testimony, is going to have tremendously positive greenhouse 
gas benefits.
    Mr. Abnee. Mr. Udall, I draw your attention to our 
submitted testimony, on page 2, where we quote, ``Geothermal 
heat pumps lower electricity demand by 1 kilowatt per ton of 
capacity.''This would mean that a conventional, average-size 
home would reduce the KW demand on that home by 3 KW. ``If 100,000 
homes began using geothermal heat pumps, the United States would reduce 
annual electric consumption by 799 million kilowatt hours and reduce 
carbon dioxide emissions by 588,000 metric tons. Those numbers are 
equal to converting 129,000 cars to zero-emission vehicles or planting 
38.4 million trees.''
    Mr. Heck. The Department of Energy study showed that 
biodiesel reduces CO2 emissions by 80 percent 
compared to petroleum diesel.
    Ms. Smith. And for biomass, depending on how large you draw 
the box, if you take a green field, say, with just grass 
growing on it, and plant trees, you are going to absorb more 
carbon. So it can be upwards of 80 to 90 percent for greenhouse 
gas reduction.
    Mr. Udall. Mr. Abnee, you talk about geothermal, and the 
one geothermal project I am familiar with is up in my district 
near Los Alamos National Laboratory, and they drill down 3 
miles into the Earth and they hit what they call hot dry rock; 
and the theory is to inject water, or something along that 
line, that then takes advantage of the heat, and then transfer 
it back up in order to generate power.
    Is this the same technology you are talking about, more or 
less?
    Mr. Abnee. In theory, it is the same technology, but we 
only use the top 150 to 300 feet of the Earth's surface, which 
allows us to use this technology across our country. You don't 
have to go to the hot reservoir to get the power production.
    We are not generating power; we are only using the thermal 
mass of the Earth to heat and cool commercially. It is a heat 
transfer process.
    Mr. Udall. And this hot dry rock phenomenon is also one 
that could be very effective, I think, in terms of producing 
power on a renewable basis; couldn't it?
    Mr. Abnee. The hot dry rock process is very efficient in 
producing power, but there again what our technology is--in 
theory, we are using the same principles, but we are only using 
the top surface of the Earth, bringing that technology to 
everyone's use, not only in your part of the country, but all 
over the country where they don't have the hot reservoirs.
    Mr. Udall. That is great. Thank you.
    I yield back, Mr. Chairman.
    Mr. Shuster [presiding]. Thank you.
    Mr. Bartlett, do you have any questions?
    Mr. Bartlett. Thank you very much.
    I want to make sure I understand the geothermal heat pump. 
What you are doing in your geothermal heat pump is simply 
working against the relevant constant temperature of the Earth, 
rather than working against the hot summer and cold winter?
    Mr. Abnee. That is correct, Mr. Bartlett. What we are 
looking at are the efficiencies that are derived from--
geothermal heat pumps based on the fact that the Earth has a 
constant temperature below the frost line, and in the 
summertime, the Earth is cooler than the ambient air that you 
are trying to cool within your home, business or school; and in 
the winter, the Earth is warmer than the ambient air, and that 
is where you get the 25 to 40 percent efficiency for the 
customer.
    Mr. Bartlett. If you really think of--what we do with the 
standard heat pump is, you are trying to heat up the outside 
air in the summer and you are trying to cool down the frigid 
outside air in the winter.
    Mr. Abnee. That is exactly correct, and you are defying the 
law of physics by doing that. And this way, we are using the 
constant 55+F to 60+F degree Earth to our benefit. The heat 
transfer is much more efficient; and consequently, you get the 
efficiency of our technology.
    Mr. Bartlett. Yes. There is also the potential advantage of 
storing heat during the summer so that you can now reclaim it 
in the winter?
    Mr. Abnee. That is essentially what we do, because you are 
adding heat in the summer that is actually drawn back out of 
the Earth in the winter. So the process is a reversible process 
and that is what makes it efficient. That is correct.
    Mr. Bartlett. Thank you.
    Just spend a couple of moments on the biomass energy bill. 
To kind of put this in context, we have in this country 2 
percent of the known reserves of oil in the world, 2 percent. 
We use 25 percent of the world's oil. We now import 56 percent 
of our oil, compared to 34 percent during the Arab oil embargo. 
This is a critical national security concern in addition to an 
economic concern.
    I am opposed to rushing out and finding that measly 2 
percent and pumping it. I think that we need to husband that. 
This may be a rainy day; I think there is going to be a rainier 
day, and so I am very supportive of these alternate 
technologies.
    Ultimately, essentially all of the energy that we use 
except the bit of geothermal, true geothermal where you drill 
down to the hot core and nuclear, just about all the rest of 
the energy we use came from the sun, or comes from the sun--
whether it is photovoltaic or whether it is the corn and the 
soybeans that you grow, whether it is the rain that the sun 
lifts and drops on the mountain and runs down through our 
turbines, whether it is the wind that blows as a result of 
differential heating and cooling on the Earth's surface, 
produced by the sun--essentially, all of our energy came from 
the sun in the form of our fossil fuels, or comes from the sun 
today.
    There are about 1,000 gigabarrels of oil remaining in the 
world. At the current use rate, that is about 30 years. Now, we 
are going to find more, but we are also going to use more. So 
if you can make the assumption that the more that we will find 
is going to match the more that we are going to use--if the 
Third World is going to industrialize and if we are going to 
continue to grow--then we have got about 30 years of readily 
accessible oil available in the world.
    By the way, ever since 1970 in this country--a little blip 
with Prudhoe Bay--every year since 1970 we have found less oil 
and pumped less oil than we did the year before. As a matter of 
fact, in 1982, we spent more energy drilling for oil than we 
will ever get from all the oil that we found in 1982.
    A question was asked, how do we get the message out to the 
American people that bioenergy and all these other alternative 
sources of energy are very important? I think the average 
American understands the statistics that I just went through. 
And they are really understandable; when you present them to 
the people, they will be more than supportive of what you all 
want to do and what we want to do.
    How do we get this message out? High gas prices help us. 
You know, that is a very regressive way to help us. That hurts 
the poorest of the poor the most. If it didn't hurt them, I 
would pray for higher gas prices because it gets the message 
home. But I don't want to hurt those that can least afford to 
be hurt.
    How do we get that message out, so that we get support to 
do what we really need to do for our national security, as well 
as for the environment?
    Mr. Abnee. Mr. Bartlett, I think your example of higher 
fuel prices, higher energy prices is an excellent one; and the 
analogy I make to that is, no one likes to go to the dentist, 
but you always go when you have a toothache. And as energy 
prices go up, people continue to look for alternative ways to 
heat and cool their buildings--to alternative fuels and so 
forth.
    Working in this particular setting with the Small Business 
Administration, hand-in-hand, in developing ways that we can 
help reduce those energy cost is one way to do that. Make 
people aware, develop some way to get this technology--whether 
it is nontraditional fuel, as you have heard today, or a 
technology such as geothermal heat pump technology--we have to 
get that message and awareness out; and the way we do that is 
working with alliances, working together. And one is with the 
Small Business Administration, helping to work hand-in-hand, 
developing ways to deploy that type of technology and that type 
of alternative fuels.
    Mr. Bartlett. Even if you don't think there is an 
environmental threat to using fossil fuels the way we do--and I 
think there is, but even if you don't believe that, you still 
have to be concerned about the national security and the 
economic impacts of our having only 2 percent of the oil and 
using 25 percent of the oil.
    Anything you all can do to help us get that message out 
helps all of us to move more quickly from a fossil fuel economy 
to a renewable fuel economy. Thank you very much.
    Thanks, Mr. Chairman.
    Chairman Thune [presiding]. Thank you Mr. Bartlett.
    Mr. Phelps.
    Mr. Phelps. Thank you, Mr. Chairman. Thank you for this 
hearing and valuable discussion that we all find important.
    And thank you, Panel, for your testimony.
    Mr. Donaldson, you alluded to some portion of your 
testimony about the handling of manure. I know you came to the 
right place. You know we are experts in that up here.
    Mr. Donaldson. I didn't mean it that way.
    Mr. Phelps. You had mentioned that the connection between 
renewable fuel development and eventually reducing farm 
subsidies as an item. How do you believe that should be?
    Mr. Donaldson. Well, it has got to work through the 
marketplace. There is a demand for the products that the farmer 
produces out there, whether it is manure or whether it is the 
crops that he grows.
    As I said, the use of corn could increase that price 25 to 
30 cents a bushel if it was used for ethanol production.
    The farmers today are not looking for a handout from you 
folks. They are looking for a helping hand. So if we can gather 
our income in the marketplace, that is where we want to get it. 
And I think that the things that I have talked about, if it is 
developed, if the technology is there and everything develops 
as all the panel has talked about, there is an opportunity for 
agriculture to receive from the marketplace the income that we 
are looking for.
    Mr. Phelps. Thank you. I believe that, too.
    In your testimony, you had mentioned that you would suggest 
that we have a stronger partnership between the oil industry 
and ethanol industry. How do you suggest that would be 
accomplished?
    Mr. Dinneen. Well, the biggest problem with energy markets 
today, quite frankly, is indeed a lack of refining capacity. 
Refineries are operating at 96, 97 percent of capacity today. 
So you can get more crude oil from wherever, and it does not 
make any difference if they can refine that product into 
gasoline for consumers.
    Indeed, last year when the Administration had released some 
product from the petroleum reserve, that product actually had 
to be exported to European refineries to make gasoline and then 
reimported back into the United States.
    Ethanol offers a way of adding volume, adding clean octane 
to the liquid gasoline pool without having to go through that 
refinery bottleneck. So, in that way, I think finally refiners 
are recognizing that ethanol may not be quite the threat that 
they may have thought it was; and we are working very closely 
with refiners today to try to figure out a way, how we can work 
with them to continue to provide high performance, high quality 
fuels for the driving public.
    Mr. Phelps. Thank you very much.
    Mr. Heck, in your testimony, you had mentioned that 
including the combination of clean renewable fuels and domestic 
oil and gas would be the way to go. Do you feel that the 
administration's budget proposal includes enough of that for 
your support or encourage our support?
    Mr. Heck. We are encouraged by the support that is in the 
President's proposal, but there is no specific mention of what 
specifically could be done for biodiesel, so we believe we need 
to go further. In the chicken-and-egg market concept, there is 
a problem because we have millions of individual buyers, but we 
have bulk distributors. And there is no way for our customers 
to go to the store and buy one unit of biodiesel. It has to be 
introduced through the distribution system and that requires 
legislation such as you are considering.
    Mr. Phelps. Hopefully, before the debate is over, maybe it 
will include some of those items. We hope so.
    Finally, Ms. Smith, you mentioned increase in the ethanol 
market by nearly 10 times may be actually detrimental to the 
corn market. Why do you think this to be the case?
    Ms. Smith. I am not absolutely positive, but I just know 
that USDA has not studied anything larger than a three-time 
growth factor. Anything larger than that, until--it is not 
studied extensively. Anytime you get involved with a commodity 
such as corn, which is volatile because of--you know, just 
because of atmospheric--you know, things going on in the 
atmosphere, the weather patterns, et cetera, I think you just 
have to study it extensively. Ten times market growth over 15 
years is very large. Not that I don't support the premise of 
the bill, I do; but it is just very large.
    Mr. Phelps. So you don't think it is worth the risk in 
stabilizing our investment in lieu of the energy crises we are 
facing?
    Ms. Smith. I do if we are sure of the path that we are 
going down, that it is not going to be detrimental to something 
else, if you push here, something else is not going to push out 
in the other direction. I would hate to see us go down that 
path.
    Mr. Dinneen. Congressman, could I just add to that real 
quick?
    We are conducting a comprehensive analysis of the 
interrelated agricultural impacts of the bill that is being 
discussed. We don't believe that there is going to be a 
negative impact. We think that there is going to be a 
tremendous farm income impact as a result of increase in the 
demand for ethanol in this fashion. I mean, 16 billion gallons 
of ethanol sounds like a heck of a lot, and it is, but not all 
of that is going to be corn. We think probably about half of it 
is likely to be cellulose.
    The next generation of ethanol production facilities that 
are going to be built are going to use a variety of different 
feedstocks, new technologies. This is still relatively an 
infant industry, and as the industry grows, you are going to 
see expanded feedstocks, expanded technologies.
    Ms. Smith mentioned some of the new cellulose technologies 
that are likely to come on line in the very next year. Sixteen 
years from now, who knows what is going to be possible, what is 
going to be economic. We know there is tremendous expansion in 
our industry today.
    Mr. Phelps, you happen to represent a state and indeed a 
congressional district where more ethanol is produced than any 
other district in the country.
    But, Mr. Carson, you probably don't recognize that the 
second largest ethanol producer is a Tulsa-based company, 
Williams Energy, which operates two different ethanol 
facilities in other States. And the State of Oklahoma is 
looking at trying to promote the increased production and use 
of ethanol right there in the State.
    Mr. Udall, the third largest ethanol producer operates a 
facility in Portales, New Mexico.
    There are also planned facilities in York, Pennsylvania.
    I have been working with the Maryland Corn Growers, Lynne 
Hoot, Mr. Bartlett, you are probably very familiar with.
    I mean, the planned expansions and the excitement in our 
industry, you know, goes from coast to coast, and we don't see 
any difficulty at all in meeting the demand that is created by 
the bill. And we believe it is going to be done in a way that 
is very beneficial to farmers across the country.
    Mr. Phelps. Thank you for that valuable information. And 
that is why we sit here as a team.
    Chairman Thune. Even though we would like to see South 
Dakota get to the top of that list.
    Mr. Shuster.
    Mr. Shuster. Thank you, Mr. Chairman. I would also like to 
thank all the panels for being here today. I appreciate your 
testimony. My question is a two-part question.
    First, the cost of ethanol-blended gasoline and biodiesel 
versus standard gasoline, typical gasoline we use in 
Pennsylvania? And also what does it do to the efficiency of the 
vehicle that is using it to operate?
    Mr. Dinneen. Mr. Shuster, the cost is very competitive with 
gasoline as a result of the Federal Tax Incentive Program. But 
if you look at the cost of ethanol versus other octane 
components in gasoline, be they MTBE or benzene or toluene or 
any of the other aromatic components that refiners might use 
for octane in place of ethanol, we are very competitive today.
    The fact of the matter is, though, they are going to use 
those refinery-based products if they can despite the cost 
impacts.
    Second part of your question was----
    Mr. Shuster. What does it do to the efficiency of the 
vehicle?
    Mr. Dinneen. Adding ethanol to gasoline is going to 
increase the octane 3 percentage points. So if refiners want 
to, they could produce at lower cost a lower octane base fuel, 
86 octane or 84, blend it with ethanol and have an 87 or 89 
midgrade.
    The performance of ethanol fuels is exceptional, and that 
is why many marketers today are using ethanol in markets where 
it is not required to be used.
    Mr. Shuster. Mr. Heck, do you care to talk about biodiesel?
    Mr. Heck. For biodiesel efficiency in its 100 percent pure 
or neat form, which is not generally the way it is commonly 
used, the efficiency is the same as it is for number 1 diesel 
fuel--not marginally better or worse--just approximately the 
same.
    The most exciting use for the biodiesel is, in a low blend, 
at a 1 or 2 percent level, where it improves the lubricity, 
improves the quality of the petroleum diesel fuel that it is 
blended with. And in that case, it does improve the performance 
of the engine marginally, not by a lot, but it does extend the 
life of the engine quite a bit because of the improved 
lubricity.
    However, on the cost question, we don't yet have 
biorefineries like the oil company refineries, so our cost is 
higher. It is a new industry; we have not gotten the cost 
economies of scale going. And we definitely need some help, 
through a excise tax exemption, so we can get this industry 
started.
    Mr. Shuster. You mentioned that some vehicles need 
modification. What kind of modification would they require?
    Mr. Heck. At a 1 or 2 percent blend, there is absolutely no 
modification required. Your engine will just run better and you 
will hardly know that it is in there; there is no change.
    If you choose to run 100 percent biodiesel, perhaps because 
you are in a pristine wilderness area, for example, and you do 
not want to risk a fuel spill on a lake or you are in an 
enclosed mine or something and you do not want any toxic 
exhausts, the engine will still run. But if you want to keep 
your fuel efficiency up, you will have to have a timing change, 
which means--on a modern diesel engine means going in and 
reprogramming the computer.
    Mr. Shuster. Mr. Abnee, could you tell us what the cost 
differential is between installing a geothermal system versus 
in a house, for instance?
    Mr. Abnee. In a conventional, normal-sized house, you are 
looking at a premium cost of--between $4,500 and $7,500 for the 
geothermal heat pump versus conventional heating and cooling.
    Mr. Shuster. I am not quite sure I am clear on that.
    Mr. Abnee. A conventional home of 1,800 to 2,000 square 
feet, typically, a 3 to 3\1/2\, or 4-ton system depending on 
the geographical location--the premium cost for the geothermal 
heat pump, is essentially the cost of the heat exchanger loop 
that is buried in your yard or under your parking lot or 
driveway. That will cost an additional $4,500 to $7,500.
    Mr. Bartlett. How quickly do you get that back in decreased 
energy costs?
    Mr. Abnee. We are looking at somewhere between 3\1/2\ to 5 
years on a conventional home.
    On a commercial building, you have a wash as far as the 
capital investment is concerned. So it is the same investment 
cost up front on a commercial or large-scale building. You have 
a payback from day one. You immediately get the savings.
    But on a home, we are typically seeing 3 to 5 years.
    Mr. Bartlett. And the system will last very much longer 
than 3 to 5 years?
    Mr. Abnee. The system historically will last longer than 
conventional systems because you are working that equipment at 
lower stress than you do with conventional equipment, because 
you are using the 50 to 55 degree Earth's temperature as the 
temperature transfer medium, so the equipment works at its 
optimum level.
    So you are extending the life over 22 years of that heating 
and cooling system versus around 17 years for conventional 
systems.
    Mr. Bartlett. Thank you for yielding.
    Mr. Shuster. One final question. Compared to the rest of 
the world, where do we stand with renewable fuels?
    Do any of you care to comment?
    Mr. Dinneen. In terms of ethanol, we are growing at a 
pretty rapid pace, but we are still far behind Brazil, which 
has a very aggressive ethanol fuel program. Indeed, 50 percent 
of the vehicles that operate in Brazil run on a 22 percent 
ethanol blend. The other 50 percent of the vehicles run on a 
100 percent ethanol blend. So they produce about 4 billion 
gallons of ethanol from sugar cane in that country.
    But aside from Brazil, while there is a lot of activity in 
many countries around the globe, ethanol in the United States 
is probably--still produces more and uses more than most other 
countries as well.
    Mr. Heck. For the biodiesel, it would be easy for me to say 
more than I know for certain. I believe the market share in 
Europe is around 4 percent. And I am not certain of that, but 
we are certainly behind what Europe is doing.
    South America has not been involved in biodiesel to any 
large extent yet.
    Mr. Shuster. Thank you, Mr. Chairman.
    Chairman Thune. Mr. Carson.
    Mr. Carson. Thank you so much, Mr. Chairman.
    And thank you all for being here. Mr. Bartlett and Mr. 
Shuster touched on a couple of questions I have about 
geothermal energy.
    You said right now, it is a premium of $4,500 to $7,500 for 
a home?
    Mr. Abnee. For a typical home, that is correct.
    Mr. Carson. What are the energy efficiencies that you gain 
from installing that versus a conventional----
    Mr. Abnee. It is 4\1/2\ to 1. That means for every unit of 
energy that you purchase, in exchange, you will receive 4\1/2\ 
units of energy--using the Earth as well as the technology that 
is in the box for the heating and cooling device. So it is 4\1/
2\ to 1.
    Mr. Carson. A question to the rest of the panel.
    One of the big criticisms about ethanol, biodiesel, biomass 
fuels is that many times it costs as much energy to produce 
them as it does--as, in fact, they might save for us.
    I would like you to comment on that. And I guess the key 
metric would seem to be the cost per BTU of energy or watt of 
energy or however you want to measure energy production, if you 
could talk about what the production costs per BTU are going to 
be for the various alternative sources we are talking about 
here today.
    Mr. Dinneen. Mr. Carson, I will get myself into trouble if 
I try to start quickly doing the math in my head of the cost 
per BTU, but I will supply that to you and the committee.
    Generally speaking, however, there is just no question that 
ethanol provides far more energy as a fuel than is used to 
produce it. In 1980, when some of the first reports were used--
and the oil industry continues to cite--that may have been the 
case, but our industry has been getting far more sophisticated 
in terms of how it uses energy.
    The energy input now in terms of ethanol is probably about 
32,000 BTUs for a gallon of ethanol that produces 76,000 BTUs 
when used as a fuel. So we are very energy efficient in that 
regard, which is why Argonne National Labs, when it is doing 
greenhouse gas emission studies, has determined that we have 
such a positive global warming benefit. Because if we were a 
negative energy user, we would not have that kind of a benefit.
    The industry is getting more energy efficient all the time. 
Again, we are a relatively young industry. And the next 
generation of ethanol production facilities is going to be more 
energy efficient than the last, using the most up-to-date 
technologies. So as the industry grows, those economic 
benefits, those efficiencies are just going to expand.
    Mr. Carson. Did you say it takes 32,000 BTUs to create a 
gallon of ethanol?
    Mr. Dinneen. That is correct.
    Mr. Carson. For 76,000 BTU payout. How does that compare to 
gasoline?
    Mr. Dinneen. Gasoline has about 111,000 BTUs, but it takes 
gasoline or takes petroleum products to make it. So its energy 
efficiency is not anywhere near as good.
    Mr. Carson. How about biodiesel?
    Mr. Heck. Biodiesel made from soybean oil, I believe the 
energy balance is 3.24 to 1. An even more important point is 
that we raise soy beans for the protein and the oil is the 
leftover by-product.
    As far as the production costs go, we are behind the 
ethanol industry in our time frame and in developing the 
industry. We really do not know what the price is going to be. 
We know that there are valuable products within the soybean 
oil, but without the biorefinery, we do not know what the 
eventual price would be. We know that we are in the early 
development stage, and the price has been dropping sharply over 
the last few years; without the necessary infrastructure, we do 
not know what the net cost will be.
    We are certain it will be coming down. We are certain that 
biotech will allow us to make the oil source more readily 
available.
    Any answer I would give you would be tend to be misleading. 
But it is a positive energy balance and a by-product of our 
primary product, which is protein.
    Mr. Carson. Before going to Ms. Smith on this, let me come 
back over here. Do you have a cost per BTU for ethanol? How 
much are we talking about per BTU--the cost of the product?
    Mr. Dinneen. The production costs of ethanol are probably 
between 95 cents and $1.05, depending on the facility and the 
current price of corn.
    Mr. Carson. Per gallon?
    Mr. Dinneen. Per gallon.
    Mr. Carson. Ms. Smith, just for a housekeeping measure, 
oftentimes you use the term ``biomass.'' do you consider 
biodiesel, when we are talking about ethanol, a type of biomass 
fuel?
    Ms. Smith. It is a type of biofuel. Biomass, we define as 
cellulosic.
    Mr. Carson. Same questions I asked earlier about, kind of 
the cost per BTU and the energy required to produce a unit of 
energy from biomass fuels.
    Ms. Smith. The energy efficiency is about 4 to 1 and that 
is largely due to the lignin that is contained, holding the 
cellulose and the hemicellulose together. It is like a clean 
coal. It has the same BTU content. It is 4 to 1, so it is 
pretty efficient; and that is conservative.
    As far as cost, it is about the same as the first plant--it 
is going to cost about the same as a corn ethanol plant. And 
from there, as they develop these enzymes called cellulase to 
break down the cellulose, it should ratchet down the cost of 
the ethanol production. And we hope to be competitive with 
gasoline in 10 years' time.
    Mr. Carson. Very good.
    I yield back the remainder of my time, Mr. Chairman.
    Chairman Thune. Just a couple more questions and then I 
will yield back to the panel to see if anybody else has 
additional questions they would like to ask.
    I would like to come back, Mr. Dinneen, to the whole 
question--the problem in the petroleum market. Obviously, one 
of the problems is refining capacity. They are max'd out or 
close to it. How does that compare with the number of ethanol 
refineries, and is refinery capacity going to be a problem with 
ethanol in the same fashion as it would be with--and I do not 
know how the different--the refineries differ in terms of----
    Mr. Dinneen. We are operating closer to the norm in terms 
of all manufacturing industries. We are operating at about 84, 
85 percent of our production capacity today. We have got a 
production capacity of about 120,000 barrels per day. We are 
producing about 110,000 barrels per day. We think we can grow 
more, even with existing capacity. But we are putting steel in 
the ground because we want to continue to grow this industry.
    Chairman Thune. It just seems to me they have got to go on 
parallel tracks, because you have got to have the refinery 
capacities--we continue to get more production, obviously--so 
we do not run into the same problem that they run into.
    Mr. Dinneen. Absolutely. And we have seen our demand grow 
tremendously over the past several years. That is why you have 
seen the growth in our industry.
    I was telling somebody earlier today, I started with the 
Renewable Fuels Association a few years ago--14 years ago, but 
we were producing about 600 million gallons at that time. We 
are going to produce over 2 billion gallons this year. I mean, 
it has grown exponentially in the last 5 years, and as I said 
in my testimony, primarily in farmer-owned cooperatives, as 
farmers across the country have recognized that this is an 
opportunity for them to seize the economic benefits of ethanol 
production more directly.
    Take a $2.50 bushel of corn, and rather than just giving 
that to a grain silo for that amount of money, having ownership 
in that ethanol-production facility, producing ethanol out of 
that plant, as well as food and feed by-products, you have got 
$4 or $5 worth of product coming out of those facilities. They 
are economic engines across rural America, and that is the 
model that is going to continue to be followed in many States 
across the country.
    Chairman Thune. It really has been the only bright spot in 
the ag economy in the last few years, if you think about it. 
And it really is not just--obviously, it puts more dollars in 
farmers' pockets, but it also creates economic activity in 
rural areas. That is one thing we have seen with all the out-
migration, and that is one of the issues that we were 
discussing with this new farm bill. Production agriculture is 
one aspect of it, but also how do we support and continue to 
keep our rural economies going? That is a broader, broader 
issue. And that is where value-added industries like ethanol 
have been successful.
    A question for Mr. Heck on biodiesel, and you have 
mentioned that it is not yet competitive in the U.S. 
necessarily on a pure cost comparison. What, in your mind, 
needs to be done to make it competitive--I should say, the 
question of making it an affordable alternative?
    Mr. Heck. That is the correct question, affordable 
alternative.
    Within the renewable standards legislation, we also would 
have to have a excise tax exemption, so our fuel would be one 
of the fuels of choice in competition with the other renewable 
fuels.
    And another answer that is also relevant here: The impact 
on consumers for the low blends of biodiesel is very slight. At 
a 0.5 percent or 1 percent blend, the cost doesn't matter as 
much because we are talking about pennies per gallon or less. 
And in exchange for that, their engines last longer. They get 
slightly better economy. It makes petroleum diesel a better 
fuel.
    So we are not trying for the whole market. We do not have 
that much. We are not trying to be competitive on a gallon-for-
gallon basis. We are going for the lubricity qualities in 
regular petroleum diesel.
    Chairman Thune. How is the trucking industry accepting 
biodiesel as a fuel additive?
    Mr. Heck. The people who make the engines for the truckers 
are enthusiastic about it. And Stanadyne, the largest fuel 
injector manufacturer, has written a letter to the EPA 
endorsing the low blends as an aide for longer diesel fuel 
injector and engine life. Among the trucking industry, they 
have a great many concerns about any type of a local program, 
because of the ease with which their competitors can cross 
State lines and buy a different kind of fuel. It is really a 
situation that is tailor-made for a Federal regulation of some 
type to introduce the renewable fuel standard and all the 
diesel fuel at the same time.
    Chairman Thune. Thank you. Mr. Udall.
    Mr. Udal. Thank you, Mr. Chairman.
    Mr. Bartlett, you mentioned earlier this figure of 1,000--
is it a 1,000 gigabarrels? The Chairman and I----
    Mr. Bartlett. 1,000 gigabarrel. A gigabarrel is a billion 
barrels. And somehow, they do not go to a trillion; It is 1,000 
gigabarrels.
    If you want to talk about gigatons, it is about 295 
gigatons of oil.
    This is the general consensus from a number of 
authoritative sources. We had a hearing on this in our Energy 
Subcommittee on Science. And there is general agreement it is 
about 295 gigatons, or 1,000 gigabarrels, of oil remaining in 
the world.
    Mr. Udal. So about a 30-year supply?
    Mr. Bartlett. Roughly. We use almost 20 million gallons a 
day. The rest of the world uses about 60. If you multiply 
those--say that the year has roughly 400 days, it comes out to 
be 30 years more or less.
    Mr. Udal. And one of the other crucial factors in this 
whole equation is when we peak in terms of oil production in 
the world, isn't it? I mean, it seems to me we peak in the 
United States. That is why our imports are going up, as you 
mentioned, 57 percent.
    But when world oil production peaks, which I think many 
experts are saying is 7 to 10 years, the price impact is going 
to be enormous, because the control of the price will be from 
outside the United States, from those producers. And small 
businesses and others that can't weather these ups and downs, I 
think, are going to be impacted severely.
    Would you----
    Mr. Bartlett. It is beyond our control. We believe in about 
7 to 10 years, and maybe earlier than that, we will have pumped 
about half of all the oil there is in the world.
    And Hubbard suggested a number of years ago what turned out 
to be true. In this country, when we reach the midpoint of our 
oil pumping, which is about 1970, try as hard as we might after 
that, we would not pump more oil, and we have not.
    So whatever they would like to do when we have reached that 
midpoint, it will probably be impossible to meaningfully 
increase oil production beyond that. And since the oil demands 
are going to keep going up, we can expect meaningfully higher 
prices in oil, and nobody will be able to do anything about 
that. It is the marketplace that determines that supply and 
demand.
    Mr. Udal. Thank you. And the reason why I wanted to ask 
those questions is that I think it emphasizes once again the 
importance of renewables at this point in time in our history, 
and how we have to move forward very quickly on this renewable 
front.
    Do any of you have any thoughts on how we could use, in 
addition to the testimony you have already given, use the 
government to create markets in these areas? I mean, there are 
always ideas in terms of government fleets and government 
buildings and for geothermal. Are there any ideas out there and 
any thoughts on using government as an entity to create 
markets?
    Ms. Smith. I think consideration of an E85 vehicle that 
uses 85 percent ethanol--they have got a chicken-and-egg 
problem also. You probably know about the CAFE standard trade-
off with the 85s. And the vehicles are out there, but there are 
no filling stations with ethanol to put into the vehicles. So 
if the government could help straighten that out, that would 
help in creating a market for the ethanol.
    Mr. Abnee. As far as geothermal heat pump technology, first 
of all, we would love to see it in a national energy policy and 
point out that this is a way to reduce energy costs across the 
board.
    Other ways we are finding to be beneficial, if we can get 
memorandums of understanding with GSA, the military 
installations, the United States Postal Service, where we have 
been very effective in pushing that technology--having them 
review the technology and giving us an honest assessment or 
letting us show them that we can compete and beat not only on, 
first, cost in some cases, but also energy efficiency, I think 
that would be a help.
    Mr. Heck. The bioindustry has been helped a great deal by 
the Ag Research Service, usingbiodiesel B20 blends in all of 
their motors that they run that are diesel, 143 motors, from portable 
diesel generators to combines and trucks and vans to transport visitors 
around. So we would appreciate very much if this was extended and more 
government agencies were asked to burn B2 or B20 or any biodiesel 
blend.
    We are currently working on and asking for CMAQ legislation 
to be modified to allow for the purchase of biodiesel as a way 
to negate air quality in cities.
    And there is also been some talk of legislation to allow 
more EPACT credits for biodiesel use. Currently you can only 
satisfy half of your credit for EPACT and perhaps that could be 
extended.
    Mr. Udall. Thank you. Just a final comment.
    I note in the March blueprint of the administration's plan 
for a national energy policy, they link renewable tax credits 
to drilling in the Arctic National Wildlife Refuge. So the 
proceeds from leasing of ANWR would be used for extended tax 
credits for renewable fuels and, in particular, to fund and 
expand the tax credit for the purchase of hybrid or electric 
vehicles.
    It just seems to me that linking those to such a 
controversial activity is not the direction we should head. I 
think those should be decoupled, and we should be looking at 
those kinds of tax credits as standing on their own, and find 
another source for them.
    And with that, I yield back, Mr. Chairman.
    Chairman Thune. Mr. Bartlett.
    Mr. Bartlett. Thank you very much. I just would like to 
return for a moment to the geothermal heat pumps. There is no 
reason that every government facility shouldn't be using these 
because it is going to ultimately save money and be easier on 
the environment. And that is something we ought to be--we can 
do that--the government needs to be a leader here. The average 
homeowner has no idea of the savings that would accrue to them 
as a result of using a geothermal heat pump. Somehow we have to 
get the architects and builders familiar with this so that they 
will be encouraging that.
    What can we do to promote this in the private sector so 
that the people understand that they really will be many 
dollars ahead and also be very much kinder to the environment 
if they do this?
    Mr. Abnee. One of the things that comes to mind is some 
kind of a tax incentive. If we can get some type of a tax 
incentive for the customer, for the homeowner, that shows the 
benefit of this, as well as working with us and giving us some 
opportunity to do an awareness campaign for the general public 
to show them this technology is the most efficient, is the 
renewable example that we need to employ--to deploy for the 
masses. It is efficient and environmentally friendly.
    I would say, a tax credit is one of the things I would 
encourage for homeowners.
    Mr. Bartlett. All we need to do to get this started. Once 
people understand that if you are going to make money--it is 
like making an investment that is going to pay dividends in 3 
years and continue ever after that, as long as the system 
lasts, to pay dividends, just education alone, if we can get it 
out there, should be effective.
    Let me ask you a question about the potential for energy 
from agricultural products, a couple of different sources of 
ethanol, the biodiesel, the biomass, these are all potential 
sources of energy. We have been encouraging farmers for the 
last number of years to cut back on production. If we stop 
doing that and farmers could just produce what they could 
produce, how much of our energy needs could be met with energy 
from ag products? This is really beneficial to farmers.
    We now have a farm economy which is in real trouble, 
because they are too efficient. They produce too much in the 
marketplace. The supply and demand has driven prices down so 
the average farmer is barely meeting expenses. If a rain 
doesn't come this week in our state, they won't be meeting 
expenses this year.
    How much of our energy could we ultimately produce from 
agriculture products if farmers weren't discouraged from 
growing, if they could get a reasonable price for their 
product?
    Mr. Donaldson. I do not know how much. I can't give you an 
accurate answer to that. But I know if there is profit in it 
for the farmer, he will produce it.
    The ag economy, as you said, and as I alluded in my 
testimony, as a fruit grower, it is the worst I have seen in 
the last 12 years. Our input costs continue to escalate at 
about 5 or 6 percent a year. The price for the product that we 
sell has declined. Now that can only go on so long.
    I think if there is profit in ethanol and in renewable 
energy sources, farmers are very innovative; they will find 
ways in which to do that. But there has to be that carrot out 
there to entice them to do it.
    Our production problem right now is worldwide. It is not 
necessarily just here in this country. You look at the 
soybean--and Mr. Heck can talk about the soybean situation in 
Brazil and South America. I do not know if this will enter into 
this picture or not. I am no economist there. But the farmers 
in this country, if they see an opportunity here--and we have 
talked about farmer cooperatives to generate ethanol--there is 
one being proposed in New Jersey, close to your neck of the 
woods.
    So there is interest there. And it will depend on what the 
profitability is, whether farmers are going to really get 
involved in this and go all out and do it.
    Mr. Bartlett. Megan, is chicken litter a good biomass feed 
stock? If it is, we are rich on our Eastern Shore.
    Ms. Smith. Actually, it is. I went and visited Fibrowatt's 
chicken plant over in England, and it was fascinating. It was 
very pungent, but it was functioning and it works. It works for 
electricity.
    Mr. Dinneen. Congressman, ethanol is actually important to 
both ends, because a by-product, corn gluten, is used as a feed 
product for poultry. There is a rather large chicken producer, 
Purdue, that uses corn gluten extensively in its feed mix; and 
I am told that is what gives the Purdue chickens that yellow 
coloring. So whatever end you want to talk about with the 
chicken, we can help you out.
    Mr. Donaldson. To follow up on what Megan said, I saw a 
segment on television Sunday evening about the Eastern Shore 
and the poultry manure being generated down there. And I think 
it is a British--and maybe that is the same one you saw--a 
British outfit has a process by which they can make methane out 
of that chicken manure and then burn the chicken manure after 
they have reduced that for heating energy.
    Mr. Bartlett. Our landfills make methane, don't they?
    Mr. Donaldson. Maybe we ought to be looking at that to 
generate.
    Mr. Bartlett. If you just set it aside and try to ignore 
it--out of sight, out of mind--you are going to get methane 
from it, aren't you?
    Thank you very much, Mr. Chairman.
    Chairman Thune. That, as they say, is the smell of money. 
And I think, to seize on a term of the gentleman from 
Maryland--and you referenced it, Mr. Donaldson, too--with the 
prices we have had and the costs and the farm economy in the 
last few years, that we have a gigaproblem with the ag economy 
which is only going to be corrected by, hopefully, a turnaround 
in the economic conditions.
    Mr. Carson.
    Mr. Carson. Just a couple of follow-up questions on that, 
and a note of skepticism as well. I mean, it seems like in this 
whole debate and the whole larger debate about renewable 
sources, we have gotten about two different policy objectives, 
one of which is to provide better, more efficient energy to our 
country, which is a serious problem. Mr. Bartlett has talked 
about some of the long-term problems we face on that.
    The second is, how are we going to help the rural economy.
    I am a strong supporter of ethanol, for research for these 
programs, because they are great programs to our rural economy. 
The chairman outlined the jobs, the dollars, that will be 
created for the rural economy.
    If we are talking about energy policy where our goal is to 
provide a more efficient energy, which means higher BTU, lower 
cost energy for us, I remain a bit skeptical about it. For 
example, on the geothermal side, you know, we typically provide 
tax incentives or we tax activities or products that the market 
itself will either generate too much of or generate not enough 
of--where the social costs differ from the private costs. We 
have a situation of these geothermal heat pumps, a great 
program, where it pays for itself over 4 to 5 years, as you 
said. You know, that doesn't seem to be typically the kind of 
activities that we are providing tax incentives for.
    I wonder if we could talk not about the rural issues and 
how it will help rural America. I have a reason to support it. 
Our rural economy is in serious trouble. But the economics of 
biodiesel or ethanol or geothermal and why the market is not 
driving increased production of these or why government, from a 
pure energy perspective, should be trying to step in through 
subsidies and credits and programs like that to encourage more 
production of them.
    Mr. Abnee. Let me address the geothermal heat pump 
technology issue. And your comments are well founded.
    The tax incentive that I alluded to or the subsidies that I 
alluded to are nothing more than to stimulate or jump-start the 
market. We are still less than 1 percent in the marketplace in 
the heating technology; this is not a mature industry. In order 
for us to benefit from the energy efficiency that this 
technology can deliver, we have to get more and more 
utilization and usefulness out of the technology.
    I would not be a proponent of or suggest that we continue 
tax incentives or subsidies for any longer than to where we can 
become a mature technology, and then let the marketplace and 
the private sector begin to take over.
    Mr. Carson. By mature technology, you mean have greater 
penetration in the marketplace?
    Mr. Abnee. That is correct. The technology itself, the 
research and development is there. It is completed. It is done. 
This is a deployment activity to utilize the benefits of the 
technology that we have today.
    The private sector industry will more than keep up the pace 
to be competitive and continue to advance and become more and 
more efficient. But the utilization of the technology is where 
we think we need some stimulant.
    Mr. Carson. Would you not agree that advertising would be 
an effective private market substitute for a tax credit in that 
situation?
    Mr. Abnee. You have to keep in mind that the majority of 
these companies that are building these boxes and this 
equipment are small companies. They are very small and some 
people would say, actually in their infancy, although we have 
been doing this for over 15 to 18 years.
    But keep in mind the heating and air conditioning industry 
has a tendency to rely on what has occurred and what has 
happened 20, 30 and 40 years ago. They are reluctant to make 
changes or to have a paradigm shift from one technology to 
another, much similar to what we are hearing here with 
alternative fuels.
    It is not a case where we can just tell someone how great 
this is and they do it.
    Mr. Carson. Let me ask two technical questions about how 
the geothermal heat pumps work. Is it a substitute for, is it 
supplemental to conventional heating and cooling units?
    Mr. Abnee. And it is a substitute for; It is not a 
supplement. We take the technology of the heat pump itself and 
couple that with the Earth, instead of the outside air as Mr. 
Bartlett had discussed. So this is a substitute for heating and 
air conditioning.
    Mr. Carson. And can it be installed in existing homes or 
does it have to be new construction?
    Mr. Abnee. Yes, it can. It can be installed in buildings 
such as this. It can be installed in retrofitted applications 
of schools, and homes. It is not just for the new building 
market.
    Mr. Dinneen. Congressman, in terms of the renewable fuel 
side, I think you sort of need to look at gasoline that has a 
BTU content of 111,000 BTUs. There are 200 or so different 
hydrocarbons that will form that blended gasoline, some of 
which will have higher BTU content than ethanol. Others that 
would have a lower BTU content than ethanol. All we are 
suggesting is that there are, as you mentioned, externalities 
that are important in terms of public policy, health, 
environment and energy security, that are helpful to make sure 
that at least a component of that gallon of gasoline is 
domestically produced renewable fuels like ethanol. When 
compared against other important octane enhancers like toluene 
or benzene, ethanol has tremendous benefits to society and, 
frankly, to the refiner in meeting clean air objectives under 
the current law and other things.
    I mean, I am not sure I am quite getting at what your 
question was, but I think ethanol has significant vale.
    Mr. Carson. Clarify for me, what is ethanol aspiring to be 
a substitute for, other gasoline additives or as a primary 
source of fuel in and of itself?
    Mr. Dinneen. The ethanol industry doesn't think we are 
actually going to replace gasoline. Our future is likely as a 
blend component with gasoline, to boost octane, to provide 
cleaner fuels, high performance fuels for the public. If you 
were to blend 10 percent ethanol in every gallon of gasoline, I 
think you would be making a pretty bold statement in terms of 
energy security.
    The State of Minnesota has a tremendously aggressive 
ethanol blend program. And actually in that State, every gallon 
of gasoline is blended with 10 percent ethanol. It is the only 
State in the country meeting its EPACT goals, because it has 
replaced 10 percent of its fuel with an alternative.
    That ought to be our goal as a Nation; it is certainly our 
goal as an industry.
    Mr. Carson. Does anyone else care to respond?
    Mr. Heck. The world and the United States made the decision 
to go to an oil-based economy 100 years ago, and it was a good 
decision that has served us very well in quite a few areas, and 
not served us quite as well in other areas.
    But if we could take time out today to rethink the whole 
process and decide which way we were to go if we were starting 
from scratch, would we decide to go with an oil-based economy 
with an uncertain energy supply from foreign countries or would 
we decide to grow our own energy? I think the answer is obvious 
that if we could just call a time out and start over, if we 
made that decision today for energy security, for environmental 
and for economic development, we would decide to use our own 
fuel and our own products that are made from biomaterials. But 
we have an energy industry and oil industry that is firmly 
entrenched with 100 years ofexperience and billions of dollars 
of research and great production facilities, all of which I am grateful 
for.
    But to make this transition to where we should be 50 years 
from now or 100 years from now, we need government help to 
facilitate this change as rapidly as possible.
    Ms. Smith. If you look at the history of energy subsidies, 
every conventional energy source has had lots of government 
funding in the form of subsidies put behind it before it 
becomes commercial. We are just starting out, as Bob Dinneen 
said. We are the new kid on the block as far as being market-
driven.
    I am not sure that the technologies, such as nuclear and 
coal, just went on their own; oil is still getting all types of 
subsidies that are hidden.
    Ms. Carson. Thank you very much. Thank you all.
    Chairman Thune. Mr. Shuster. I believe we have exhausted 
our questions, so we appreciate your patience, panel, and your 
great testimony and your responses.
    As I said earlier, I think this is an issue which bears 
strongly not only on the issue of agriculture, but on the 
future of our energy security in this country. And we welcome 
your input as we continue to have a dialogue and discussion on 
energy policy. In my mind, it is very, very important that 
renewable sources be a part of our energy mix as we head into 
the future.
    Mr. Donaldson.
    Mr. Donaldson. The question was raised or discussed here 
awhile ago about the acceptance by the public. That is 
important. You fellows sitting up there and the rest of the 
Congress, political leadership is going to be key if it is 
going to move ahead.
    The time is now. The time is critical. Gentlemen, do not 
let it pass by.
    Chairman Thune. You can count on that in South Dakota. The 
one member from South Dakota agrees with you.
    With that, the hearing is adjourned. Thank you.
    [Whereupon, at 12:00 noon, the subcommittee was adjourned.]
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