[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




THE BENEFITS OF TAX INCENTIVES FOR PRODUCERS OF RENEWABLE FUELS AND ITS 
                IMPACT ON SMALL BUSINESSES AND FARMERS

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

                                HEARING

                               before the

      SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE, & TECHNOLOGY

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                      WASHINGTON, DC, MAY 6, 2004

                               __________

                           Serial No. 108-63

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           ENI FALEOMAVAEGA, American Samoa
SAM GRAVES, Missouri                 DONNA CHRISTENSEN, Virgin Islands
EDWARD SCHROCK, Virginia             DANNY DAVIS, Illinois
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               BRAD MILLER, North Carolina
STEVE KING, Iowa                     [VACANCY]
THADDEUS McCOTTER, Michigan

                  J. Matthew Szymanski, Chief of Staff

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

     SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE AND TECHNOLOGY

SAM GRAVES, Missouri, Chairman       FRANK BALLANCE, North Carolina
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
SUE KELLY, New York                  ED CASE, Hawaii
SHELLEY MOORE CAPITO, West Virginia  MICHAEL MICHAUD, Maine
MARILYN MUSGRAVE, Colorado           BRAD MILLER, North Carolina
PATRICK TOOMEY, Pennsylvania

                   Piper Largent, Professional Staff

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Hulshof, Hon. Kenny, U.S. Representative (MO-9), U.S. House of 
  Representatives................................................     4
Hurst, Mr. Brooks, Missouri Soybean Association..................     6
Dineen, Mr. Bob, President, Renewable Fuels Association..........     8
Adams, Mr. Duane, National Corn Growers Association..............    10
Hurst, Mr. Charlie, Golden Triangle Energy, L.L.C................    12
Lampert, Mr. Phillip, Executive Director, National Ethanol 
  Vehicle Coalition..............................................    13
Werner, Ms. Carol, Executive Director, Environmental and Energy 
  Study Institute................................................    16
Jobe, Mr. Joe, Executive Director, The National Biodiesel Board..    17

                                Appendix

Opening statements:
    Graves, Hon. Sam.............................................    29
Prepared statements:
    Hulshof, Hon. Kenny, U.S. Representative (MO-9), U.S. House 
      of Representatives.........................................    31
    Hurst, Mr. Brooks, Missouri Soybean Association..............    33
    Dineen, Mr. Bob, President, Renewable Fuels Association......    36
    Adams, Mr. Duane, National Corn Growers Association..........    45
    Hurst, Mr. Charlie, Golden Triangle Energy, L.L.C............    48
    Lampert, Mr. Phillip, Executive Director, National Ethanol 
      Vehicle Coalition..........................................    50
    Werner, Ms. Carol, Executive Director, Environmental and 
      Energy Study Institute.....................................    54
    Jobe, Mr. Joe, Executive Director, The National Biodiesel 
      Board......................................................    62

                                 (iii)
      


 
THE BENEFITS OF TAX INCENTIVES FOR PRODUCERS OF RENEWABLE FUELS AND ITS 
                 IMPACT ON SMALL BUSINESSES AND FARMERS

                              ----------                              


                         THURSDAY, MAY 6, 2004

                  House of Representatives,
 Subcommittee on Rural Enterprise, Agriculture and 
                                         Technology
                                Committee on Small Business
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:02 a.m. in Room 
311, Cannon House Office Building, Hon. Sam Graves presiding.
    Present: Chairman Graves and Representative Miller.

    Mr. Graves. Good morning. This is the Small Business 
Subcommittee on Rural Enterprise, Agriculture and Technology. I 
appreciate everybody coming in today. This is a newly 
refurbished hearing room. We are real proud of it. It is very 
nice, it is a lot nicer than our old hearing room over at 
Rayburn. We are real pleased with it and this is the first time 
we have gotten to use it this year.
    Our purpose today is to explore the value of renewable 
fuels and the role they play in the comprehensive energy policy 
in our economy and in our national security. Far too often, 
misconceptions regarding renewable fuels become embedded in the 
heads of Washington policy makers. Questions such as our 
renewable fuels and effective fuel source, are they affordable?
    Most of us are aware of the successful track record of 
renewable fuels, but it is my hope that today's panel can help 
to further educate us on the effectiveness of renewable fuels 
and clarify any misconceptions that are out there.
    The focus of today's hearing is the many benefits of 
renewable fuel's use, more specifically, I want to highlight 
the positive impact on our economy and America's farmers. I 
want to show why our country needs to maximize our domestic 
renewable resources to provide an added market for our farmers 
to drive down and stabilize the price of fuel, reduce 
dependence on foreign sources of energy and increase our 
important reserves.
    I have asked today's panel to discuss how renewable fuels 
benefit our economy and how federal policies can further 
develop renewable fuel use. Also, advancing renewable fuel's 
use is essential to lessen our reliance on foreign fuel. That 
is why we need to include them in an overall national energy 
policy. According to the Department of Energy, domestic supply 
of petroleum peaked at 11.7 million barrels per day in 1970 and 
imports stood at 3.2 million barrels. As domestic supply 
declined, consumption grew. And in 1988, for the first time 
ever, bed imports surpassed domestic supply. In fact, in 2002, 
domestic supply was a little over nine million barrels per day 
and net imports were over 10 million barrels per day.
    Over reliance on imported fuel makes our economy and 
national security vulnerable to the winds of foreign 
governments, such as which are hostile to U.S. interests. 
Recent increases in the cost of gasoline as a result of 
tensions in the Middle East and elsewhere fully illustrate this 
point. I believe that the United States should promote the use 
of alternate, domestically produced fuel such as biodiesel and 
ethanol. Fortunately, farmers in Missouri and across the nation 
have expanded the industry at a record pace. Corn and soybeans 
are used to produce ethanol and biodiesel--fuels good for the 
environment and good for our economy.
    Each day, more than five million gallons of ethanol are 
blended into 65 million gallons of gasoline, adding critical 
volume to the tight gasoline market and reducing pressure on 
price. Since I have been in Congress, I have supported 
legislation that promotes ethanol and biodiesel and I will 
continue to fight for these fuels, which are included in a 
national energy policy.
    [Chairman Graves' statement may be found in the appendix.]
    Again, I want to thank everybody for coming out today and I 
do want to recognize Mr. Miller who is stepping in today for 
Frank Ballance, the ranking member and I appreciate him being 
here. Do you have an opening statement?
    Mr. Miller. Thank you, a fairly brief one. I am pleased to 
be here today to substitute for my friend, Frank Ballance, who 
has an adjoining district of mine and with whom I served for 
six years in the state senate before we both became members of 
Congress last year.
    Today an important issue for our country is access to a 
reliable, affordable energy supply. The United States is a 
large importer of energy and is sensitive to price increases 
and to shortages. In an effort to insure our nation's energy 
security, we have made significant investment in domestic 
renewable energy sources. Small companies have to play a role 
in those efforts.
    These renewable sources include fuels like ethanol and 
biodiesel. Both ethanol and biodiesel offer our small farmers a 
way to produce value added crops. Such sources also assure our 
energy independence, help to create jobs and are 
environmentally friendly.
    Ethanol is an alcohol produced primarily from grain. The 
production facilities for ethanol provide a much needed 
stimulus to many rural communities. The economic demand or 
impact of demand for ethanol adds up to approximately 4.5 
billion to foreign revenue annually and it boosts total 
employment by approximately 200,000 jobs. I think many 
Democrats with national ambitions realize that many of those 
jobs are in the state of Iowa.
    Biodiesel is another renewable fuel, but its market life is 
behind that of ethanol. It does offer several health and 
environmental benefits related to relative compared to 
petroleum based diesel fuels. Increased substitution of 
biodiesel for petroleum based diesel fuel may offer broader 
public access to cleaner water and air.
    As a result of these positive consequences, there are a 
variety of government programs and tax incentives that deal 
with renewable fuel production. These include tax credits, 
requirements, subsidies and incentives. Some of these programs 
have a specific emphasis on small business producers. Others 
are targeted to those entering the marketplace.
    There has been much congressional interest in renewable 
fuels. Several of the issues on which Congress is focused are 
addressed in H.R. 6, the Comprehensive Energy Bill. The energy 
bill contains proposals such as establishing a renewable fuel 
standard but the outcome of this legislation is still unclear.
    An array of other congressional legislative issues are also 
pending that deal with renewable fuels. That is because it has 
been proven that renewable fuel production helps local 
agriculture based communities to grow their economies, create 
jobs and increase tax revenues for states.
    There are also federal programs, mainly within the U.S. 
Department of Agriculture, that focus on getting small 
businesses more involved in the production of renewable fuels, 
from loan programs and rural business opportunity grants to 
technical assistance. There is support for small business to 
play a larger role in the domestic production of renewable 
fuels.
    Unfortunately, the Bush Administration has proposed cuts to 
renewable energy programs in its budget this year. Under the 
Farm Bill, Congress provided $23 million a year in funds to 
provide grants and loans to small business for the development 
of renewable energy projects. But the administration proposal 
would cut that program by $12 million.
    There are more programs that focus on small business and 
the production of renewable energy sources that also saw 
cutbacks in the latest administrative proposed budget. If we 
want to increase small business participation in the production 
of renewable energy sources, then we must guarantee they have 
the right tools and programs at their fingertips. It is 
critical for our country to have a comprehensive energy policy 
that not only includes supporting renewable fuels, but also 
includes small business in the process. That way, we can insure 
greater energy stability, additional jobs and increased 
economic growth in our rural communities across the country.
    I want to thank all of the witnesses for appearing today 
and I look forward to their testimony. Thank you, Mr. Chairman.
    Mr. Graves. Thank you, Brad. All of the statements of the 
witnesses are going to be placed in the record in their 
entirety and I first want to welcome Representative Hulshof, 
who is going to be our first panel. Representative Hulshof has 
been a leader, an outstanding leader in ethanol and biodiesel 
legislation, particularly those areas as it deals with the tax 
consequences and Ways and Means Committee. And I appreciate you 
being here to testify today and I will open the floor up to 
you.

STATEMENT OF THE HONORABLE KENNY C. HULSHOF (MO-9), U.S. HOUSE 
                       OF REPRESENTATIVES

    Mr. Hulshof. Thank you, Mr. Chairman. Good morning, Mr. 
Miller. Appreciate the invitation and applaud you for having 
this forum to discuss the broad based benefits of renewable 
fuels. Perhaps if we transported this hearing across to the 
other side of the Capitol, we might be better served, but I 
appreciate the chance to be here.
    I am actually here as a colleague, but I guess in the 
interest of full disclosure, also as an active farmer. We have 
375 acres of corn and probably about 350 acres of soybeans that 
we expect to plant this year. So Mr. Miller, I appreciate your 
comments as it affects value added agriculture.
    I am going to submit my written statement for the record 
and then just make a couple of points in the few moments that I 
have. Mr. Chairman, you mentioned the rising prices of gasoline 
right now. One need look no further than the gas pump to see 
the need, the necessity to strengthen our commitment to 
renewable fuels. I think back to the time when I got my drivers 
license when I turned 16. We imported one out of three barrels 
of oil from foreign lands.
    Mr. Chairman, when your daughter turns 16, and I see that 
look of trepidation in your face just mentioning that fact, but 
knowing Megan as I do, when she turns 16, about two out of 
three barrels of oil will be imported. And when my youngest 
daughter who is one gets to that magic age of 16, if nothing 
changes, roughly three barrels out of four will come from, 
again, some foreign land.
    And so obviously, our nation cannot afford to be 
increasingly dependent upon these foreign sources of fuel. Mr. 
Chairman, you talked about, suggested the economic benefits. 
Let me give you just a couple of facts and figures from an 
ongoing ethanol plant. In fact, a northeast Missouri grain 
ethanol plant in Macon, Missouri. Mr. Miller, it is a small 
town in the middle of the state in my congressional district. 
It was the first ethanol plant developed in the state of 
Missouri. According to Dr. Donald Van Dyne, who is a retired 
research associate professor from the University of Missouri, 
here is how the northeast Missouri grain annually bolsters the 
local economy. First of all, it processes 16 million bushels of 
corn from right within that area, circle around Macon, 
Missouri, 16 million bushels of corn go through the plant, 
producing about 42 million gallons of ethanol at that single 
plant. As far as the number of jobs, obviously there are jobs 
that are directly impacted or created by the plant itself. But 
when you look at the indirect jobs, roughly 1,779 jobs, almost 
1,800 jobs created in this one plant that are indirectly 
related, which creates about $169 million in economic output.
    You know, all of us are supporters, for instance of the 
USDA rural development grants and the discussion about what 
level of funding is appropriate. This is a way to help bolster 
rural America. And I know, Mr. Chairman, in your district, in 
Craig, Missouri, that probably similar numbers from the Golden 
Triangle Ethanol Cooperative, similar benefits to the 
surrounding community.
    Each of you have said that the federal government has a 
role as far as maintaining our commitment to renewable fuels. I 
absolutely agree that the Energy Policy Act that was approved 
by the House keeps that commitment. We hope, of course, that 
our counterparts again on the other side of the Capitol would 
see fit to maybe put the politics aside and allow this 
comprehensive energy plan to be considered on the floor of the 
Senate for an up or down vote.
    Enactment of the Renewable Fuel Standard, for instance, not 
only does it strengthen the ethanol tax incentive, and it also 
creates an incentive for biodiesel. You know, we have been 
focusing on ethanol. Biodiesel is another promising renewable 
fuel, produced primarily from soybeans that can be blended with 
conventional diesel fuel, burned in diesel engines, and again, 
an economic benefit to the community, but also environmentally 
friendly. The use of biodiesel has grown in the market. A 
couple of years ago, 1999, about 500,000 gallons of biodiesel 
were sold. Last year, biodiesel sales topped 25 million 
gallons.
    And so this increased acceptance of biodiesel in the 
marketplace is a positive signal. That is why I think this 
Renewable Fuel Standard is so important.
    Mr. Chairman, at the outset, you talked about some of the 
misconceptions about renewable fuels and that is why I again 
applaud you for having this hearing, because I think it is 
incumbent upon us to help dispel some of the myths. You do not 
have to have some special engine. Obviously, if you are burning 
E85, that is, 85 percent ethanol, yes, you have to have 
modifications. But a 10 percent ethanol blend or an 80-20, B20, 
you do not have to have these modifications and yet you still 
are able to reap the positive environmental benefits. We lessen 
our dependence upon volatile regions of the world as far as the 
importation of our fuel and obviously, then, for those of us 
who have rural constituents, some really direct and indirect 
positive economic benefits.
    So, again, thank you for giving me the chance to say a few 
words before your Subcommittee and would be happy to answer any 
questions you might have.
    [Congressman Hulshof's statement may be found in the 
appendix.]
    Mr. Graves. Thank you, Mr. Hulshof. The misconceptions are 
extremely tough for me and it is very frustrating. We did, I 
think it was in 1990 or 1991 on our farm, we did a study 
through the Missouri Soy Bean Association with biodiesel and we 
were running about a 50 percent to one-third blend through our 
tractors with no changes whatsoever. And that was when 
biodiesel was in its infancy. It was just really getting 
started, there were a lot of criticisms about gelling aspects 
and that sort of thing. But it works and both products are 
great products. Do appreciate you being here.
    I know you are pressed for time. I would invite you, if you 
would like to come up and sit on the panel, I offer that to 
you, but I know you are pressed for time and do want to move 
on, but I appreciate you taking the time to testify.
    Mr. Hulshof. Mr. Chairman, as tempting as it would be to 
share the dais with you and Mr. Miller this morning in this 
awesome hearing room, you are right, I have other pressing 
matters. But I do appreciate you giving me the opportunity to 
be on the record here today to talk about something, but I 
think we are at a critical juncture again.
    From a policy perspective, if we could make decisions in a 
policy vacuum, without question I think all of our colleagues 
would support the idea of renewable fuels. It is just sometimes 
when we add that political component is when we get frustrated, 
you and I get frustrated because we see good policy that is 
being hampered from being implemented because of the politics. 
So hopefully this hearing and others like it will help break 
loose that political log jam so that we can do good things for 
our country. Thank you.
    Mr. Graves. Thank you. We will go ahead and seat the second 
panel and we will get everybody situated.
    [Pause.]
    Mr. Graves. I want to thank everybody for being here today. 
I appreciate you all taking time out of your busy schedules to 
be with us. We will go ahead and get started. We try to limit 
testimony to five minutes, but we do not keep a very rigid 
policy on that. If anybody goes over their time limit, I do not 
think Mr. Miller or I will have you thrown out or anything. So 
do not worry so much about that. There will be a timer down 
there that kind of gives you what the limit is, but again, do 
not worry too much about it.
    We are going to start off with Brooks Hurst on the far 
left, who is here with the Missouri Soybean Association. I 
appreciate you being here, Brooks, very much and I will go 
ahead and turn the floor over to you.

    STATEMENT OF BROOKS HURST, MISSOURI SOYBEAN ASSOCIATION

    Mr. Brooks Hurst. Thank you, Mr. Chairman. Mr. Miller, good 
morning. I would like to first of all thank you, Mr. Chairman 
and the members of the Committee for allowing me the 
opportunity to testify today on behalf of the Missouri Soybean 
Association, which represents about 28,000 Missouri soybean 
farmers. I am a farmer from Congressman Graves district. We 
have been blessed in Missouri with a progressive congressional 
delegation. As the chairman mentioned a minute ago, he has 
burned biodiesel on his own farm and Congressman Hulshof who 
testified earlier is also a very staunch supporter of 
biodiesel. In fact, the original legislation that I am here to 
testify about today on the tax incentive, excise tax abatement 
for biodiesel was originally drafted by Congressman Hulshof. 
And it is one cent per percent excise tax abatement, up to a 20 
percent blend. And it is in several pieces of legislation and 
it is probably the single most important legislation that could 
be passed for soybean farmers. The studies have suggested that 
if this legislation and the excise tax abatement passes, there 
would be a million gallon biodiesel market by the year 2012.
    This market, the Food and Agriculture Policy Research 
Institute has done a study that suggests an 80 cent per bushel 
increase in the price of soybeans, which would mean $148 
million in additional income to Missouri soybean farmers. And I 
do not need to explain how important in the last couple of 
years that would be to Missouri soybean farmers. The farm 
economy has not been as robust as we would like. That would be 
a crucial addition to our rural economy and all the rural 
development implications that goes with it.
    My father is also on the panel to testify later for 
ethanol. We are both members of the Golden Triangle Ethanol 
plan and it has done an amazing amount to increase our rural 
development.
    I am also sitting on a board of directors for Mid America 
Biofuels, which is a biodiesel plant and we are in the start up 
phases. And we have had feasibility analysis done on different 
size plants. And right now, biodiesel is a boutique fuel. It 
has a lot of uses in complying with the EPACT legislation in 
large cities and the environmental aspects of it, which I will 
talk about a little later, are very beneficial. So right now it 
is kind of a boutique fuel and a five million gallon plant per 
year is the largest feasible plant that we can build.
    The minute that we get the excise tax passed, a five 
million gallon plant is no longer efficient. So we are sitting 
on the sidelines, because if an excise tax abatement is passed, 
that will, you know, as I mentioned earlier, immediately 
increase the demand for biodiesel. So it is very important and 
we have been waiting for about three years to decide which way 
to go on it, how to build the plant. I would really urge the 
passage of the excise tax abatement, because a 15 million 
gallon plant would do a lot more for the economic development 
of rural Missouri.
    I talked a little bit about the environmental advantages of 
biodiesel. I will talk some more about that. There are no 
sulfur emissions in biodiesel and the presidential directive 
that reduced the sulfur content in petroleum diesel from 200 
parts per million to 15 parts per million, sulfur adds a lot of 
lubricity to biodiesel. So this is another deal that is not 
environmentally friendly, but engine friendly. A one percent 
biodiesel plant increases lubricity of diesel 65 percent. So I 
see an opportunity to reduce engine wear by a small blend of 
diesel in the national fleet and adding lubricity to diesel.
    Soy diesel also burns half the hydrocarbons which, when 
added to the air, contribute to smog and acid rain. It also has 
half the carbon monoxide of petroleum and half the particulate 
matter and it has 75 to 80 percent less potential cancer 
causing agents. And so you can see that not only is it a 
renewable fuel that we grow right here on our own farms, but it 
also is very good to the environment.
    Another thing that is brought up in renewable fuels 
discussions is the energy conversion required to produce 
renewable fuels. And I am very proud to say that in a 1998 U.S. 
Department of Energy and United States Department of 
Agriculture Joint Study revealed that for every unit of fossil 
energy required to produce biodiesel, 3.2 units of energy were 
yielded, and that is in contrast with 1.2 units of fossil 
resources needed to make just one unit of petroleum diesel. 
This is due to the fact that soybeans do not use nitrogen in 
the production of them. So we have really good energy 
conversion numbers and we are proud of that.
    And it has been mentioned before on the panel, Mr. 
Chairman, you referenced in your opening statement and 
Congressman Hulshof referenced it, too, the dependence on 
foreign oil. I will not go over the numbers again, but, you 
know, 20 million barrels a day of oil the United States is 
using and over half of it now is imported. And by 2005, the 
Department of Energy projects that 68 percent of all oil will 
be imported.
    Right now there is currently a 1.5 billion pound surplus of 
vegetable oil in the U.S. I think that is a perfect opportunity 
to use biodiesel to not only use up excess vegetable oils, but 
also to replace some of the imported petroleum from foreign 
countries. If we have a four percent use of renewable fuels by 
the year 2016 in a U.S. consultant study, using Department of 
Energy numbers, stated that four percent renewable fuels would 
displace annually 302 million barrels of petroleum fuels that 
we are currently importing. So you can see not only in national 
security, but for rural economic development and the farm 
economy, I think that renewable fuels are a very good 
opportunity to help our nation. And with that, I would like to 
thank you again for allowing me this opportunity to testify and 
I appreciate your consideration of this matter.
    [Mr. Hurst's statement may be found in the appendix.]
    Mr. Graves. Next we will hear from Bob Dinneen. We are 
going to move through all the panelists and then we will take 
questions once each of you have finished. But, Bob, I 
appreciate you being here today. Bob is the president of 
Renewable Fuels Association and we look forward to hearing your 
testimony.

     STATEMENT OF BOB DINNEEN, RENEWABLE FUELS ASSOCIATION

    Mr. Dinneen. Mr. Chairman, thank you very much and 
Congressman Miller. I appreciate the opportunity to be here 
this morning and I commend you for the leadership that you are 
showing in holding this very timely hearing. Indeed, I can tell 
you that the tax incentives that Congress has provided to 
stimulate renewable fuels have been extremely successful and 
have promoted rural economic development and small businesses 
all across this country.
    Indeed, Mr. Chairman, the U.S. ethanol industry today is 
the fastest growing energy industry in the world. We produced 
2.8 billion gallons of ethanol last year. That is 32 percent 
more than we had the previous year and about double our 
production from just four years ago.
    Importantly, the fastest growing segment of the ethanol 
industry are small businesses. Farmer owned cooperatives that 
want to seize control over their own product. As a whole, 
farmer owned ethanol facilities are now the single largest 
ethanol producer in the country, providing critically important 
value added economic stimulus to rural America.
    Last Saturday, I attended the grand opening of the 76th 
ethanol plant in operation today, just a little bit north of 
Missouri in South Dakota, maybe a little bit east of North 
Carolina, but we intend to have ethanol plants in North 
Carolina as well.
    Mr. Graves. That is west.
    Mr. Dinneen. West, I am sorry. See, I got into politics 
because I was never very good at geography, Congressman. 
Anyway, that plant joins a fraternity of ethanol producers 
across the country that this year alone will process more than 
one billion bushels of corn into about 3.4 billion gallons of 
high quality, high performance fuel ethanol. Ethanol is now 
blended in 30 percent of the nation's fuel. It is replacing 
MTBE in new markets all across the country, from New York to 
California. And the growth that we are seeing in ethanol 
markets has been phenomenal.
    This growth is absolutely as a direct result of the tax 
incentive program that Congress provided to stimulate the 
production and use of renewable fuels and it has tremendous 
benefits for the nation. Earlier, Congressman Hulshof cited the 
economic benefits to a small rural community. We in the 
industry have looked at what the economic benefits were across 
the entire nation, from 3.5 billion gallons of ethanol. We 
determined that the ethanol industry today is adding $15.3 
billion to gross output. The ethanol industry today is adding 
$3.9 billion to consumers' pocketbooks as a result of the jobs 
that are created and the economic stimulus that is provided.
    We are adding $1.25 billion in increased federal tax 
revenue and another $800 million in local taxes. And at a time 
when many industries across the country are outsourcing jobs, 
the U.S. ethanol industry is insourcing jobs, this year alone 
being responsible for 143,000 jobs across the country.
    And all this is being accomplished at the same time that 
the federal government is realizing about $2 billion in net 
savings as a result of reduced farm program costs. But, Mr. 
Chairman and Congressman, we can do far more. The country is 
currently importing about 62 percent of its transportation 
energy. Imports of crude oil and refined products are at their 
highest levels ever. Tight gasoline supplies have driven 
average consumer prices to record levels. We are in the midst 
of an energy crisis and we need to act now. Congress should act 
to pass the Comprehensive Energy legislation that you both 
discussed in your opening statements and Congressman Hulshof 
cited and that energy legislation ought to include a renewable 
fuel standard, to send a signal to the world that our nation is 
not going to continue on this path towards increasing 
dependency on imports. That we will create a new pathway and a 
new dynamic, where we are producing our own energy.
    We also strongly support HR 3119, introduced by Congressman 
Hulshof, the Volumetric Ethanol Excise Tax Credit and we urge 
its expeditious approval in whatever piece of legislation we 
can get that on. If VEETC solves a dilemma that the ethanol tax 
incentive has created for states by no longer allowing states' 
highway funding to be reduced because of their ethanol use, it 
resolves that issue so that states are not penalized for their 
ethanol use. It creates a great deal more flexibility for 
refiners that utilize ethanol, such that they do not have to 
use ethanol in specific volumes and importantly, as Phil 
Lampert, I am sure, will talk about later, it provides a much 
more economic access to the incentive than the current program 
by allowing oil companies to take advantage of the tax credit 
independent of whatever volume or specific blend level is used.
    We also believe that Congress should finally act to correct 
an oversight that occurred in 1990 when Congress created the 
Small Ethanol Producer Tax Credit, but failed to allow that 
credit to be claimed by farmer owned cooperatives. As I 
indicated, the fastest growing segment of our industry is the 
farmer owned cooperative, but the way that tax program was set 
up, those very small businesses are not able to claim the 
credit that was provided and intended to help them. That 
legislation is passed several times. It has never reached the 
President's desk. If we can get that on a piece of legislation 
this year, I think it would be important.
    Look, at a time when there are 135,000 in the Persian Gulf, 
at least in part because of our dependence on energy from that 
part of the world, at a time when consumer gasoline prices are 
at their highest levels in history and the growing energy 
crisis is slowing our economic recovery, at a time when EPA 
says that more than half of the country is living in areas and 
breathing polluted air, and at a time when farmers across the 
country are looking for value added markets and are saying that 
they can be energy producers as well as energy consumers, 
Congress needs to act.
    We need an energy bill. We need policies such as those I 
have outlined to stimulate further expansion of domestic 
renewable fuels such as ethanol and biodiesel. With your 
continued leadership and the leadership of this Committee, I am 
confident that that will occur. Thank you, Mr. Chairman, 
Congressman Miller. I will answer any questions when that time 
arises.
    [Mr. Dinneen's statement may be found in the appendix.]
    Mr. Graves. Thank you, Mr. Dinneen. We are now going to 
hear from Duane Adams from Cosmos, Minnesota, I believe. And he 
is representing the National Corn Growers Association and I 
appreciate, Mr. Adams, you being here today and thank you for 
your testimony.

  STATEMENT OF DUANE ADAMS, NATIONAL CORN GROWERS ASSOCIATION

    Mr. Adams. Thank you, Mr. Graves and Mr. Miller. I 
certainly appreciate the opportunity to be among the first to 
testify in this beautifully renovated room. It is really pretty 
beautiful.
    Okay, my brother and I raise corn and soybeans near Cosmos, 
Minnesota, which is about 70 miles west of Minneapolis. We are 
investors in a local ethanol co-op. I am the chairman of the 
Ethanol Committee for the National Corn Growers Association. I 
am here today to represent the NCGA, its 33,000 members and 
thousands of corn growers across the country who participate in 
corn check-off programs.
    N.C.G.A. appreciates the opportunity to offer testimony 
today on the benefits of ethanol production to rural America. 
The strides made by the industry in the past few years are 
nothing short of miraculous and it is a story that needs 
repeated telling.
    No other energy source has doubled its production in the 
last three years. There was virtually no ethanol used in 
California two years ago. The ethanol industry now supplies 
eight percent of the gasoline supply in the state--a total of 
900 million gallons per year. And we can conclusively prove 
that ethanol has kept the price of gas in California from 
rising faster than it has. Even the MTBE industry has publicly 
agreed. The contribution of this domestically produced 
renewable fuel is being felt at the pump across the country.
    But the true success of ethanol is best measured in the 
benefits to rural America. Ethanol plants bring jobs, good 
jobs, to small rural communities that struggle to keep young 
people. A 40 million gallon plant will provide more than 40 
full time permanent jobs. In small town USA, those jobs are 
vital. Ethanol plants help keep schools and hospitals open and 
businesses profitable. And ethanol plants provide hope--a 
commodity that has not been in surplus for many small rural 
communities.
    Ethanol production is increasingly in the hands of farmer 
owned coops. ADM is not the big player in the industry. I am--
and my brother and our neighbors and tens of thousands of 
farmers across the Corn Belt. We have become marketers of 
energy and not just sellers of corn. We are getting more of our 
income from a value added source and less from farm programs. 
Ethanol can claim to be the primary reason that the federal 
farm program will save $2 billion this fiscal year. We had a 
near record corn crop last year and we have high prices this 
year. That would not have happened if we were not using more 
than one billion, 300 million bushels of corn for the 
production of ethanol. It is the third largest use of corn 
behind livestock feed and exports and it is the one with true 
growth potential.
    We did not get to this point by accident. Federal policy 
supporting the ethanol industry has made this possible. The 
excise tax credit, the small producer tax credit and other 
incentives have helped us get the capital to build plants. 
Federal policy regarding clean air has created a strong demand 
for ethanol as states ban MTBE and turn to affordable supplies 
of ethanol in reformulated gasoline. Strong support for the 
oxygenate standard by the Bush Administration has given the 
industry the signal to invest and to produce. We have heard the 
challenge and we have met it.
    N.C.G.A. policy strongly supports current renewable 
programs. We have joined with others in the ethanol industry to 
seek ways to advance common sense solutions to problems we have 
had. We worked hard to reach a historic agreement with the 
petroleum industry that calls for flexibility for gasoline 
blenders and establishes a renewable fuels standard that 
provides stability for the renewable fuels industry. We joined 
with the highway construction industry and state governors to 
fix a problem created by the current excise tax credit. The 
Volumetric Ethanol Tax Credit legislation is a bipartisan 
solution that helps states that want to use ethanol and need to 
invest in highway infrastructure. It solved some sticky 
political problems for both industries and pointed a way for 
Congress to pass policy that is good for America and has broad 
base support.
    The programs that benefit ethanol and other renewable fuels 
were enacted by previous Congresses. We are glad they did and 
we recognize the leadership and statesmanship that was required 
to obtain enactment of those policies. This Congress and its 
predecessor have debated and talked and talked and debated over 
energy policy for more than three years. Nothing has happened. 
In that time our nation has become even more dangerously 
dependent on foreign energy.
    Our farmers have spent countless hours on Capitol Hill and 
in town meetings and congressional listening sessions asking 
members of Congress why we cannot pass an energy bill. If we 
ask a member of the House, he or she will blame the Senate. If 
we question a Senator, the House is blamed. The Republicans 
blame the Democrats and the Democrats blame the Republicans. 
Tom Daschle and Tom Delay seem to be two handy targets. 
Everyone else is to blame and no one takes responsibility. Let 
me bring you one very clear message from farmers--quit blaming 
the other guy and do your work. We cannot raise corn without 
anhydrous ammonia and we cannot make anhydrous with natural gas 
at current prices and supplies. We cannot run ethanol plants 
without energy. Our economy cannot get out of its slump with 
gasoline prices increasing every week.
    I have my crop in the ground. I made my investment in the 
ethanol plant. I write my Congressman and Senators. I vote. I 
encourage my neighbors, friends and fellow farmers to do the 
same. And I will continue, but let me end with this note. We 
farmers are looking at you folks to quit bickering and do the 
nation's business. Our nation needs an energy policy and we 
expect you to deliver. Thank you for your time.
    [Mr. Adams' statement may be found in the appendix.]
    Mr. Graves. Thanks, Mr. Adams, I do appreciate that. Point 
well taken. We are now going to hear from Charles Hurst, who is 
with the Golden Triangle Energy Cooperative, the ethanol plant 
in Craig, Missouri. I appreciate you being here, Mr. Hurst, and 
look forward to your testimony.

   STATEMENT OF CHARLIE HURST, GOLDEN TRIANGLE ENERGY, L.L.C.

    Mr. Charles Hurst. Thank you, Mr. Chairman. My name is 
Charlie Hurst, a fifth generation farmer from northwest 
Missouri and secretary treasurer of Golden Triangle Energy 
Cooperative in Craig, Missouri.
    The small town in the Midwest is rapidly losing the best 
and the brightest young people. They are completing their 
schooling and then leaving for employment in the city.
    A small ethanol plant, such as Golden Triangle Energy in 
Craig, Missouri, who has a population of 309--this is really a 
small town, provides decent jobs for these people and allows 
them to stay and raise their families in a home environment. 
Golden Triangle Energy hires approximately 30 people. The 
starting wage for the inexperienced is $11 to $12 an hour, plus 
excellent health and retirement benefits. The salaried 
positions are from $30,000 up.
    When you include the jobs of the people moving the corn 
into the plant and moving the ethanol and feed products out of 
the plant, it has a major financial impact on a very small 
area.
    The lifeblood of all small towns is their schools. IF the 
school closes, the town has a very difficult time surviving. 
The tax base that Golden Triangle has given to the schools and 
the town of Craig infrastructure, such as roads, sewers and so 
forth in the town, is a major contributor to the stability of 
Craig, Missouri.
    All of these area improvements would not be possible 
without the ethanol plant in Craig. The ethanol plant has also 
had a very positive effect on my family. With improved prices 
and the reduction of transportation costs, we now have three 
sons and their families farming with my wife and I. Last year, 
the oldest grandson, the seventh generation to be farming in 
Atchison County, and his wife, also joined the operation. 
Another agriculture related business in the family, 
greenhouses, has brought two granddaughters and their families 
back to this same area.
    The federal exemption of 5.2 cents per gallon of ethanol is 
one of the best rural development programs funded by the 
federal government. It has provided the basis for an expanding 
ethanol industry in the central United States and has reduced 
the need to import more expensive oil from the Mideast.
    The ethanol industry now uses 10 percent or one billion 
bushels of our corn crop. This raises the price of corn 
nationally from 15 to 25 cents per bushel. Until the last few 
months, the price of corn to the farmer was below the 
guaranteed price in the farm program. The farmer was paid the 
difference in LDPs. Without ethanol, these payments would have 
averaged 20 cents per bushel more on an entire corn crop of 10 
billion bushels.
    This benefit alone would have offset the 5.2 cents per 
gallon the federal government paid supporting ethanol. Not only 
has the ethanol industry raised the price of corn nationally, 
but locally, around the town of Craig, the price has risen 
another 10 to 15 cents. This means that rather than shipping 
the corn another 50 to 75 miles to a terminal, we are 
delivering the corn locally, saving transportation costs.
    The increased price of corn goes directly to the farmer's 
bottom line. The income and social security taxes the farmer 
pays is another huge offset to the 5.2 cent government subsidy. 
There have been studies in the past that have cast doubt on the 
energy efficiencies of producing ethanol. The latest studies by 
USDA show that we are getting 34 percent more energy from a 
bushel of corn than inputs in producing that bushel of corn. 
These efficiencies will only improve in the future.
    We are also converting corn to a more useable form of 
energy. With the introduction of the hydrogen fuel cell, 
ethanol will become even more desirable.
    As we import more and more of our energy needs, as we are 
more concerned with the quality of the air we breathe and as 
the cost of all forms of energy are increasing, I believe we 
must expand the use of ethanol as a clean burning, renewable 
energy source. The 5.2 cent federal subsidy is needed by the 
industry to be a viable, renewable energy source. It is not, 
however, a direct drain on federal resources. As offsetting 
savings in the federal farm programs, the jobs and taxes the 
industry provides, and the savings in the balance of trade more 
than offset this cost. Thank you very much, Mr. Chairman.
    [Mr. Hurst's statement may be found in the appendix.]
    Mr. Graves. Thank you, Mr. Hurst. We will now hear from 
Phillip Lampert, who is the executive director of the National 
Ethanol Vehicle Coalition. I appreciate you being here today 
and look forward to your testimony.

   STATEMENT OF PHILLIP J. LAMPERT, NATIONAL ETHANOL VEHICLE 
                           COALITION

    Mr. Lampert. Thank you so much, Chairman Graves and Mr. 
Miller. Appreciate the opportunity to be here today. I am Phil 
Lampert and serve as the executive director of the National 
Ethanol Vehicle Coalition. NEVC is the nation's primary 
advocate of the use of 85 percent ethanol as a form of 
alternative transportation fuel. Our members include 
automakers, state and national corn growers associations, 
ethanol producers, equipment manufacturers and suppliers, 
ethanol marketers, the Governors' Ethanol Coalition, farmer 
cooperatives, chemical seed companies, petroleum marketers and 
individuals.
    Our focus in regard to the use of ethanol is very narrow in 
that we concentrate our efforts and resources on advancing this 
next generation of ethanol use.
    As chairman and the members of the Committee know, motor 
vehicles produced and sold in the United States have been able 
to use a 10 percent blend of ethanol for many, many years. 
Initially established to extend the availability of petroleum, 
ethanol has transformed itself from the gasohol of the early 
1970s to the oxygenate of choice in 2004.
    In July of 1979, as then President Carter addressed the 
nation, calling the battle to achieve energy independence the 
moral equivalent of war, gasohol availability was limited to 
Nebraska, Iowa and several other Midwest states. Today, as 
previously mentioned, almost 900 million gallons of ethanol are 
being used in California and hundreds of millions of gallons in 
the East Coast and elsewhere across the nation. This ethanol is 
added to our gasoline, typically in a blend of one part alcohol 
to nine parts gasoline and is used to improve air quality, add 
octane and reduce dependence on imported petroleum.
    My colleagues who have preceded me this morning, two of 
which are representing organizations that are members of the 
National Ethanol Vehicle Coalition, have provided outstanding 
summaries of the positive impact that biofuels have on our 
nation's economy, balance of trade deficit and environment. 
While the use of ethanol has expanded from approximately 300 
million gallons in 1980 to the more than 3.3 billion gallons 
expected to be produced this year, by and large, the vast 
majority continues to be dependent on being blended with high 
amounts of gasoline.
    The Ethanol Vehicle Coalition strongly supports the 
continued growth and development of the use of ethanol as an 
oxygenate and renewable fuel and we have worked with our 
colleagues here this morning and members of Congress to adopt 
and promote the renewable fuel standard. However, sir, the 
focus of the National Ethanol Vehicle Coalition and the balance 
of my comments are directed to other uses of ethanol as a form 
of alternative fuel.
    Beginning in 1992 with the modest production of 272 E85 
flexible fuel Luminas built by General Motors, we expect that 
during the current model year, more than 1.5 million of such 
vehicles will be produced and sold in the United States. By the 
end of this model year, in August of 2004, we estimate that 
approximately 4.5 million flexible fuel vehicles will be on the 
nation's highways. These flexible fuel vehicles, as the 
chairman knows, are capable of operating on any blend of 
ethanol, from zero percent, 10 percent, up to 85 percent, or 
where ethanol fuels are unfortunately not marketed, on pure 
gasoline.
    The electronic control module in these vehicles reads the 
level of alcohol in the fuel and modifies the air fuel ratio. 
There are no switches to flip, additional fueling tanks or 
other controls needed. The technology is transparent to the 
driver and most importantly, this capability is provided at no 
extra cost to the consumer.
    The 4.5 million flexible fuel vehicles on our highways 
could, Mr. Chairman, if using E85, consume an additional 3.4 
billion gallons of ethanol today. That is in addition to the 
3.3 billion gallons that we assume to be used in 2004. 
Unfortunately, using statistics provided by the Energy 
Information Administration, we expect to actually consume about 
30 million gallons in these vehicles, or slightly less than one 
percent of the total potential demand that could be generated 
by this technology.
    Three primary factors in regard to this problem. Lack of 
fueling infrastructure. Secondly, the difficulty that is 
inherent with taking advantage of the current tax situation. 
And finally, the lack of education and knowledge of many of the 
drivers that they even have a flexible fuel vehicle.
    Mr. Chairman, finally, with your indulgence, I would like 
to briefly outline potential solutions to some of these 
problems. First, as my colleagues preceding me have mentioned 
this morning, passage of the Volumetric Ethanol Excise Tax 
Credit is extremely important and would provide immediate 
relief to the Highway Trust Fund and advance the use of E85. 
Secondly, passage of a renewable fuel standard would also be 
very supportive. Finally, sir, placing additional attention on 
the federal fleet to provide leadership in the use of biodiesel 
and E85 may be appropriate.
    The government of the United States is the world's largest 
single user of petroleum products and maintains the world's 
largest fleet of vehicles. There have been previous attempts to 
modify the behavior of government to advance alternative fuel 
use, however, these have frequently come up short. As an 
example, the Energy Policy Act of 1992 requires federal 
agencies to purchase alternative fuel vehicles. Twelve years 
after the adoption of this mandatory measure, many federal 
agencies continue to fail to meet these purchase requirements.
    While some progress has been made in meeting this standard, 
EPACT completely fails to address the use of the alternative 
fuels in these alternative fuel vehicles.
    Executive Order 13149 issued by the Clinton Administration 
and embraced by the current administration, requires federal 
agencies to reduce petroleum consumption 20 percent from a 1999 
baseline as of January 1, 2005. Unfortunately, there is little 
effort being made to advance this presidential directive and it 
is unlikely that any federal fleet will actually reduce 
petroleum consumption, much less meet the 20 percent reduction 
goal.
    Clearly, national energy independence cannot be achieved 
solely on the actions of the federal fleet. However, there is a 
place and role of leadership that the federal government may 
wish to more closely address in regard to the use of domestic 
renewable transportation fuels. We appreciate and applaud all 
of the efforts that you have made,Mr. Chairman. I have enjoyed 
working with you from your days in the Missouri legislature to 
today, and want to thank you for the opportunity to testify 
today. Thank you.
    [Mr. Lampert's statement may be found in the appendix.]
    Mr. Graves. Thank you, Mr. Lampert. Next we are going to 
hear from Carol Werner who is the executive director of the 
Environmental and Energy Study Institute and I appreciate you 
being here today and look forward to your testimony.

   STATEMENT OF CAROL WERNER, ENVIRONMENTAL AND ENERGY STUDY 
                           INSTITUTE

    Ms. Werner. Thank you very much, Mr. Chairman and Mr. 
Miller, for the opportunity to appear before you today. My 
organization, the Environmental and Energy Study Institute, was 
founded in 1984 by a bipartisan group of members of Congress 
who were concerned about energy and environmental issues. As 
part of our work, we hold about 20 to 25 congressional 
briefings a year, looking at environmental, energy, science, 
technology and policy issues that are coming before the 
Congress.
    We have three major areas of program work. Energy and 
climate change, our Clean Bus/Sustainable Transportation 
Program and our Agriculture and Renewable Energy Initiative. I 
agree with so much of what has been said by my colleagues here 
today, so I hesitate to repeat a lot of the things that have 
already been said. But perhaps the most important thing for me 
to talk about a little bit is our perspective in terms of why 
our organization, EESI, feels so strongly about this issue.
    Our organization believes strongly that a healthy economy 
and a healthy environment go hand in hand. We very strongly 
believe that farmers across the country can and must play an 
important role in our country's energy future. We see 
agriculture addressing three critical drivers that are 
fundamental to our national concerns. Rural economic 
development, national energy security through reduction of oil 
use and oil imports and environmental protection, especially 
reduction of greenhouse gas emissions that contribute to global 
climate change.
    Furthermore, we now have all seen countless reports on the 
connection between power plant and vehicle emissions and public 
health and the enormous increase in asthma cases among 
children. Use of biofuels can address that, too. I think it is 
remarkable, but how many times do we find the opportunity to 
solve multiple problems with the kind of win-win solutions 
provided by the production of renewable energy in the form of 
electricity, biofuels in terms of ethanol and biodiesel and 
biobased products that can be produced by America's own farms 
and small businesses across the country.
    We see enormous opportunities existing for developing rural 
America's clean energy resources, including biofuels, bioenergy 
in terms of the production of electricity, useable heat or 
liquid fuels from biomass, wind, solar and improving energy 
efficiency overall. Yet we see that there exists a tremendous 
knowledge gap among policy makers. We have seen that throughout 
the last couple of years with regard to many of the debates on 
the Energy Bill with farmers and other key stakeholders, 
including the environmental community about all of these 
opportunities.
    So I think that what I would like to do now is to just talk 
a little bit about the suite of policies that we think is very 
important. Many of them have been referred to already, because 
in order to accomplish moving towards a more biobased economy 
and really seeing agriculture being revitalized through the 
development and use of our very abundant renewable resource 
base, in order to accomplish that, we believe that there needs 
to be a suite of policies, not just one particular policy will 
take care of this. That means with regard to the tax incentives 
that have been talked about here this morning, we support that 
and believe that those are extremely important in helping send 
the right signals to industry and, indeed, to begin to level 
the playing field.
    The kinds of renewable resources and biofuels that we are 
talking about have many positive attributes that are not 
reflected in the marketplace at this time. And therefore, tax 
incentives at this time are absolutely critical. And therefore, 
the VEETC proposal is also extremely important as we look at 
the Highway Trust Fund.
    The renewable fuel standard, another important incentive 
that we view as a terribly important component of looking at 
how policies need to create a supportive framework. There are 
several important programs in the energy title of the Farm 
Bill. It is very important that the 2002 Farm Bill for the 
first time recognized the role of America's farms in helping 
produce renewable energy that can address so many of our 
problems.
    At the same time, those programs which have been so 
enthusiastically embraced by the ag community across the 
country, whether it is in terms of looking at biofuels, at 
wind, at anaerobic digesters, there is enormous enthusiasm as 
people see the opportunities to really look for local economic 
development and small businesses and being able to actually 
stay on the farm in a viable way.
    Those programs, however, Section 9006, the Renewable Energy 
Program, as well as the Value Add Program, both were cut very, 
very substantially by the administration's budget proposal. We 
hope that Congress once again this year restore funding for 
those.
    At the same time, we think that it is also important for 
there to be a renewable resource assessment that can help 
communities across the country really know the size of the 
renewable resource that they are sitting on. In terms of really 
getting that developed, if you do not know the value of what 
you have really got, it is hard to really encourage the full 
fledged development of that.
    And we would also like to mention that it is very important 
for the federal government to lead by example, again, whether 
it is through federal fleets, through purchase renewable 
energy, that that also needs to occur. And that it is very 
important that we look at this as an opportunity to develop 
opportunities for biofuels and renewable energy production from 
farms across the ag sector, whether it is the Midwest, the 
Northeast, the Southeast, Northwest, across the country. We 
feel that that is critical in terms of really building the 
bridge, looking at all of the feed stocks that should be 
involved, including waste materials that can make a huge 
contribution and can also help bridge the very important rural/
urban divide that we see, that is acting as a barrier to really 
moving all of these wonderful opportunities forward. Thank you.
    [Ms. Werner's statement may be found in the appendix.]
    Mr. Graves. Thank you, Ms. Werner. I appreciate your 
testimony. We are now going to hear from Joe Jobe, who is the 
executive director of the National Biodiesel Board. I 
appreciate you being here today and look forward to your 
testimony.

      STATEMENT OF JOE JOBE, THE NATIONAL BIODIESEL BOARD

    Mr. Jobe. Thank you, Chairman Graves, Congressman Miller. I 
would like to again commend you for your leadership and 
advocacy on this issue. I do serve as the executive director of 
the National Biodiesel Board in Jefferson City, Missouri. NBB 
is the national not for profit trade association which serves 
as the central coordinating body for biodiesel research and 
development in the United States.
    It was founded in 1992 by soybean farmer groups who were 
funding biodiesel research and since that time, NBB has 
developed into a comprehensive industry association which 
coordinates with a broad range of cooperators
    Mr. Chairman, my distinguished panelists have made many 
important points here today and I agree with those points. So I 
would like to focus my comments on how biodiesel specifically 
offers an immediate and long term solution as part of an 
integrated, diversified energy portfolio.
    Biodiesel is a diesel fuel substitute made from 
agricultural products such as vegetable oils and animal fats, 
including recycled cooking oils. Biodiesel is produced through 
a process which separates the glycerin from the oil and the 
resulting compound acts very chemically similar to diesel fuel 
in a diesel engine.
    It can be used in conventional diesel engines in pure form, 
but it is most commonly blended, as you pointed out earlier, in 
20 percent blends or B20 or two percent blends, also known as 
B2, which is used as a renewable premium diesel additive. It is 
one of the best tested alternative fuels in the country, with 
more than 50 million successful road miles, countless marine 
and off road hours. It has been tested in virtually every 
diesel engine type and every diesel application, has similar 
torque, horsepower and fuel economy to conventional diesel, but 
burns significantly cleaner because of the oxygen content in 
the fuel. It has premium fuel attributes.
    U.S. soybean farmers have invested more than $40 million 
through their Soybean Check Off Program and biodiesel growth 
has either doubled or tripled each year for the last four years 
in a row. While biodiesel can and is being used in today's 
diesel engines, the future of diesel is about to shift very 
dramatically. The EPA has ruled that beginning in 2006, diesel 
fuel will undergo a 90 percent reduction of sulfur in diesel 
fuel. What that will do, the refining process to desulfurize 
the diesel fuel will also remove the lubricating 
characteristics in diesel fuel and a diesel fuel injection 
system relies on the fuel to keep the system properly 
lubricated. It is very important in a diesel system.
    Biodiesel is well positioned and well addressed to fit into 
that future diesel platform because it already meets the 2007 
sulfur standard and it is complimentary to ultra-low sulfur 
diesel fuel because it has very excellent lubricity benefits. 
As Mr. Hurst pointed out, just two percent biodiesel can 
improve lubricity by as much as 65 percent.
    During the EPA's rulemaking process, Stanadyne Automotive, 
which is the largest fuel injection equipment manufacturer in 
the United States, indicated that two percent biodiesel in the 
entire diesel fuel pool, would be a superior solution to the 
lubricity problem created by that ruling. The state of 
Minnesota has already taken the leadership role in utilization 
of biodiesel and compliance with the rule by enacting 
legislation that will require that by next year, all of the 
diesel fuel sold in that state will be B2, two percent 
biodiesel. Because of this rule, just the removal of the sulfur 
in the diesel fuel does not necessarily clean up the fuel. But 
what it does is it enables pollution control emissions 
optimization technology to be employed on the engines.
    And so it will reduce, it will shift the environmental 
drivers in the heavy duty platform away from nitrogen oxide 
emissions and particulate matter emissions, which will be 
reduced under this rule by 90 percent. And the remaining 
emissions will be air toxics and greenhouse gases. Those are 
the remaining emissions that will need to be addressed in the 
future of heavy duty advanced diesel technology.
    Those also happen to be the emissions that biodiesel 
addresses better than any currently available heavy duty 
technology. According to the Department of Energy, biodiesel 
reduces air toxic contaminants by up to 90 percent and has a 
life cycle reduction of carbon dioxide of 78 percent. It could 
be said that using biodiesel has the effect of putting a diesel 
engine on a low carbon diet.
    In addition to the energy and environmental benefits, 
several independent economic studies have shown that biodiesel 
provides significant economic benefits to the economy. A study 
completed in 2001 by the USDA Office of Energy Policy and New 
Uses in conjunction with the Economic Research Service, found 
that an average annual increase equivalent to 200 million 
gallons of soy based biodiesel demand boosted the total crop 
cash receipts by $5.2 billion cumulatively by 2010, resulting 
in an average net farm income increase of $300 million per 
year.
    A number of other economic studies have been completed 
which are consistent with these findings and can be made 
available to the Subcommittee upon request.
    Mentioned previously have been two very important pieces of 
legislation which are currently being considered by Congress. 
The Volumetric Ethanol Excise Tax Credit, which biodiesel is 
included in those provisions in the Senate version of those 
provisions. I want to point out that biodiesel and ethanol are 
complimentary fuels. The same farmers who grow corn also grow 
soybeans in rotation and we would like to recognize the ethanol 
industry for their leadership and their partnership in the 
development of coordinated energy policy efforts.
    So the very first and most important provision currently 
being considered in our view that can be passed and should be 
passed and must be passed this legislative session would 
include the VEETC provisions. Congressman Hulshof and 
Congressman Pomeroy have led a bipartisan effort in the House 
to get those provisions passed in the House and Chairman Graves 
and Congressman Miller have served as excellent advocates, as 
well, supporting those provisions.
    In addition to the VEETC provisions, also mentioned were 
the renewable fuel standard provisions. Biodiesel has been 
included as an eligible fuel under the renewable fuel standard. 
If the renewable fuel standard and the biodiesel provisions are 
included in the VTEEC, we see an extraordinary future for 
biodiesel fitting into the future of heavy duty diesel 
platform.
    If those provisions pass, biodiesel will be incorporated 
into future diesel fuel as a renewable fuel additive to solve 
the lubricity issues, to meet the renewable fuel requirements 
and to take advantage of the lubricity operational issues in 
ultra-low sulfur diesel fuels.
    Unlike some other alternative fuels, low blends of 
biodiesel can be transported by existing petroleum pipelines. 
We know this because it is already being done in Europe. The 
EU, in fact, has adopted B5 as the primary greenhouse gas 
reduction strategy.
    In closing, Mr. Chairman, the VTEEC and the RFS will have a 
positive impact on the biodiesel and ethanol industries and 
would result in a dramatic improvement in our nation's energy 
security, environment and economy. The importance of biodiesel 
for the nation's economy has never been greater. Oil prices are 
now at record highs and are once again threatening to harm the 
U.S. economy. Biodiesel and ethanol represent proven 
technologies that can be brought to bear immediately to 
supplement our existing energy supplies, using existing 
domestic agricultural resources we have today and con continue 
growing tomorrow. Thank you.
    [Mr. Jobe's statement may be found in the appendix.]
    Mr. Graves. Thank you, Mr. Jobe. I might add, too, you 
mentioned some of the basic benefits in your testimony, it just 
plain smells better, also, when you get it on your hands, 
particularly.
    We are now going to open it up for questions and I know I 
have several that have come up. I want to start with Mr. Adams. 
You mentioned in your testimony that ethanol can save the 
Federal Farm Program $2 billion a year. And at a time when 
every time we pass a farm program, we come under fire from a 
lot of individuals who do not understand farm policy in my 
opinion and this would be one of the things I think would help 
sell farm policy and obviously a savings to the federal 
government. Could you elaborate on that just a little bit?
    Mr. Adams. Well, certainly the fact that the price of corn 
has increased because of ethanol, you know, a few years ago we 
went through the exercise of trying to capture the best LDPs 
and you are familiar with that, since you are a farmer. Well, 
when we had this increased price because of increased demand, 
we are not struggling to beat our neighbor and our LDP 
payments. You know, that was kind of the pride of the coffee 
shop, what did you get today? Well, we do not have to do that 
anymore.
    So if we can portray this to the consumer with some type of 
a media campaign or whatever and the corn growers certainly 
could be involved in something like that, but the consumers 
have to become aware that this renewable energy situation is 
going to save them taxpayer money. And, you know, I do not 
really know how to get that across to the consumer, but that is 
what we have to do.
    Mr. Graves. Well, you are helping to do that right now.
    Mr. Adams. Okay.
    Mr. Graves. Appreciate that. Mr. Hurst, I have a question 
to Charlie about you said that ethanol would be more desirable 
with the use of hydrogen fuel cells. You just touched on that 
for just a minute. Could you expand on that a little bit? I am 
not as nearly familiar with hydrogen fuel cells as obviously I 
am with the ethanol biodiesel industry, but how ethanol would 
compliment that or how the hydrogen fuel cells would compliment 
ethanol. And anybody else who might want to weigh in on that.
    Mr. Charles Hurst. Several years ago I went to Iowa State 
and they were, at that time, the Iowa Corn Growers were funding 
a study in Iowa State on fuel cells. And the man that was 
running this experiment for the corn growers up there said that 
ethanol was really a little bit better fuel than gasoline 
because they could get that hydrogen out of it by fuel cells a 
little bit better than they could from gasoline. Of course, he 
was also funded by corn growers wanting to use ethanol, too. So 
you have to take all these considerations into it.
    But we see some talk about going to hydrogen fuel vehicles 
and then we see about them having fuel systems that are 
infrastructure that will supply this hydrogen. I do not think 
that is feasible, to be honest. It has to be under such high 
pressure. If we are going to pull into a filling station as it 
were and fill up with hydrogen, it has to be under such high 
pressure, it has to be under such high pressure in the vehicle, 
I think the fuel cell is where we are going to go with this 
technology. And then we can fill up with alcohol or with 
gasoline and it will convert to hydrogen to be used in the fuel 
cell in the vehicle. And I think this is the technology that is 
coming.
    When the President talked about hydrogen, we wanted to go 
to a hydrogen economy, I think we are going to have to go via 
the fuel cell rather than just using hydrogen as such, you 
know. Phil is probably more versed on that subject than I am. 
Do you agree that raw hydrogen put into our cars is probably 
not feasible?
    Mr. Lampert. Well, yes, and certainly, Mr. Chairman, thank 
you. I believe the general public believes that the fuel cell 
and the hydrogen business is like a perpetual motion machine, 
that once it starts, you are always going to have hydrogen 
being generated and that is completely false. Hydrogen, the 
production of hydrogen or stripping it from water, requires 
energy, today, very high amounts of energy compared to the 
output.
    I believe what Charlie is referring to, why continue to use 
a fossil fuel to produce hydrogen when we could use a renewable 
domestic fuel such as alcohol, produced from corn, use some 
type of commodity renewable to produce the energy input.
    Mr. Graves. Does biodiesel have a future in fuel cells, 
also?
    Mr. Jobe. Yes, there have been studies performed, including 
a study just funded by the Iowa Soybean Board, which indicates 
that biodiesel offers some excellent benefits as a fuel cell 
fuel. It meets all of the criteria as a fuel cell fuel. It is 
an excellent hydrogen donor. It is easily reformed and it fits 
within the existing liquid petroleum infrastructure that we 
currently have.
    I think as the other panelists were saying, the government 
has put a real emphasis on development of fuel cell 
technologies and I hope that that pays off. But I caution, 
because it seems like there maybe has been some overpromising 
of that technology. We still are several years away from that 
technology of being made widely available, especially in heavy 
duty technology.
    It is going to be an awfully long time before you see a 
fuel cell bulldozer or fuel cell semi-truck. In fact, Phil and 
I were just at a conference this weekend where Ford had, 
unveiled its fuel cell vehicle. And when it came time to go, 
they pushed it out the door and loaded it on a diesel truck and 
hauled it off. So it is a few years down the road,but it is an 
awfully long time before fuel cells are going to be made 
available in the heavy duty form.
    There has been some more promising developments for fuel 
cells in industrial applications, for example, in light duty 
applications. But until that time, ethanol and biodiesel meet 
those criteria for the development of an excellent fuel cell 
fuel.
    Mr. Graves. Mr. Dinneen?
    Mr. Dinneen. Yes, Mr. Chairman, just to underscore just a 
couple of points here, because there is no question that 
everybody is enamored with hydrogen technology and the fuel of 
the future and it all makes sense. And it is going to happen. 
But if all we do is transfer our dependency on petroleum in the 
internal combustion engine to a dependency on petroleum derived 
hydrogen for fuel cells, we have not helped each other. And 
there is no question that ethanol can be a renewable source of 
hydrogen that makes a great deal of sense. There is an ethanol-
based fuel cell in operation today in Peoria, Illinois. We are 
doing a lot of research. The government needs to do a little 
bit more research on it, as well. Renewably derived hydrogen 
makes the most sense.
    Mr. Graves. Thank you. I have a lot of questions, but I 
will go ahead and give Mr. Miller a chance to ask anything.
    Mr. Miller. Thank you. I would like to continue on the same 
subject. During the President's State of the Union address, he 
devoted a paragraph to developing fuel cells, hydrogen fuel 
cells, that it was going to be a process that went straight 
from hydrogen to water, and use hydrogen directly as a fuel. 
What I heard after that was a great deal of skepticism about 
that as the next technology that we needed to develop for a 
variety of reasons. One is that hydrogen does not exist in 
nature as a readily available fuel. What I heard mostly is that 
it is stripped out of natural gas. And natural gas is a fossil 
fuel, which is also finite, upon which we are also dependent on 
other countries, in fact, pretty much the same countries that 
we are dependent upon for petroleum, which does not improve our 
hand a whole lot in trying to improve energy efficiency.
    In addition, and that is not a particularly environmentally 
friendly process, stripping hydrogen out of natural gas, 
although the President presented it in the State of the Union 
as something that only produced water. Well, turning hydrogen 
into electricity may only produce water, but getting the 
hydrogen, that is something else again.
    And we have a massive, massive investment as a society in 
the infrastructure to deliver a liquid fuel. And on this 
planet, at least, hydrogen is not a liquid fuel.
    I was very puzzled at the administration's focus on that 
one source of alternative energy. And three to five, I cannot 
recall the exact amount, seems like it was a proposal of $3 to 
$5 million for research into the hydrogen fuel cell economy. 
What is your impression? Why is it that you think this 
administration is so focused on the hydrogen economy instead of 
a bioeconomy? And I have also heard or read that there are 
promising dramatic advancements in turning organic matter into 
fuels, that biotechnology may increase dramatically the fairly 
slow fermentation process of turning soybeans or corn into 
fuel. Where does that technology stand, where does that 
research stand and do you agree with this administration's 
focus, apparently to the exclusion of other alternative fuel 
sources? The President's budget would cut the renewable energy 
system and energy efficiency improvements program by $12 
million, the value added producer grants by $25 million, the 
Commodity Credit Corporation's bioenergy program by $50 
million. Do you agree with this administration's focus on the 
hydrogen economy and hydrogen fuel as where we ought to be 
going.
    Ms. Werner, you can perhaps go first?
    Ms. Werner. Thank you very much, Mr. Miller. I think a 
number of my colleagues on the panel have made some important 
points with regard to what is really involved in terms of 
hydrogen production. I think that investments in fuel cells and 
in additional research with regard to hydrogen are important. 
But I do think that it has been oversold in terms of its role 
within the next couple decades.
    As has been made clear here, hydrogen is an energy carrier 
as opposed to a source. Therefore, many of us who are concerned 
about environmental implications are very, very concerned about 
where the hydrogen would come from. And we feel very, very 
strongly that if we are going to move towards the greater use 
of fuel cells, it is absolutely critical that the hydrogen 
should be derived from renewable resources.
    And we see biofuels which can be reformed aboard vehicles 
as being a very important source of that, which is readily 
available and which works.
    We would also suggest, however, that we think that there 
are a variety of energy sources in terms of, again, fuels, 
electricity, biobased products that are important to address 
from a federal policy perspective. The Farm Bill programs which 
you just cited and for which very, very significant cuts have 
been proposed, we strongly disagree with those administration 
proposals and very much hope that the Congress will restore 
full funding for those. Last year, the Congress did restore 
full funding for the Section 9006 program for renewable energy 
programs and put some money back into the value add program, 
but not full funding.
    And one other point that I would just make in terms of 
thinking about kind of the role of, I think, all of our 
concerns are that we need to do something about our oil use, 
natural gas, which is also very clean and highly valued 
commodity. But we are all seeing huge cost increases in natural 
gas creating a lot more outsourcing within our chemical 
industry, creating huge impacts for agriculture because of the 
run ups in natural gas. So I would suggest using natural gas 
for hydrogen production isn't a good investment for our 
country. And that, indeed, if we really want to reduce our use 
of oil, perhaps the best thing would be for us to really 
encourage our domestic vehicle industry to do a lot more in 
terms of moving hybrids into the market and using that with 
biofuels and then we are making a huge impact with regard to 
our oil use. Thank you.
    Mr. Miller. Mr. Dinneen, first of all, you can get to South 
Dakota by traveling east from North Carolina, but it takes a 
lot longer.
    [Laughter.]
    Mr. Dinneen. Ouch. I was hoping you had forgotten about 
that by now.
    Mr. Miller. You are also someone logical to address that 
question. All of you are, but if you might address it as well?
    Mr. Dinneen. We certainly agree with ESI and others on this 
panel that have worked to restore some of the funding cuts that 
have been proposed for renewable energy and we think that it is 
critically important. We think that the investment that this 
government can make in renewables is something that can pay 
dividends in the near term. And we certainly support those 
efforts to restore the funding.
    In terms of looking at the hydrogen issue, I think it is a 
question of what your focus is. Is it near term or long term 
and I do not think any of us really dispute that hydrogen 
represents a technology that is worth an investment in terms of 
trying to determine where it can go. We do think that the focus 
ought to be more on trying to get that hydrogen derived from 
renewable resources as opposed to, you know, more petroleum 
based sources. But the technology itself will certainly 
develop.
    You know, but I do not think that it is the administration 
that simply has this hydrogen focus exclusive of anybody else. 
I think it is something that has had bipartisan focus. Senator 
Dorgan has had legislation in place, the Apollo project, that 
many of us support because of what it will do in terms of 
research for hydrogen. Has it been oversold in the near term? I 
think Carol is probably right, it probably has been oversold in 
the near term. But I do think it is worth an investment for the 
promise it holds, so long as the source of the hydrogen is 
renewable.
    Mr. Miller. Anyone else wish to address that point? You do 
not have to, but you can.
    Mr. Adams. Mr. Dinneen made the comment that I was gong to 
make and that is that in my training as an economist, you know, 
we talk on one hand and then on the other hand. He suggested in 
the short term and in the long term, and I really think that, 
you know, fuel cell concept is a long term concept. And we are 
facing a short term energy crisis right now and this is what we 
need to be concerned about. It is not to deny that hydrogen and 
fuel cells are going to be on the horizon and be very important 
ten, 20, 30 years from now, but what are we going to do in the 
next five to ten? This is where renewable fuels, I think, can 
really place an important impact on our energy crisis. And one 
more comment.
    Mr. Miller. Okay.
    Mr. Adams. I hate to admit that hydrogen can come from 
somewhere else than ethanol, but in southwest Minnesota and 
northeast Iowa, we have a huge amount of--or a large array of 
wind farms developing. And you can get hydrogen from 
electrolysis and using a surplus energy from these wind farms 
when you have the surges and low usage period, in a low usage 
period you could use the surplus electricity from these wind 
farms to produce hydrogen. Now that is a concept that is not 
talked about too much. And we are not using hydrogen fuels or 
fossil fuels to make the hydrogen, nor are we in a case of even 
ethanol using fossil fuels to make ethanol to make hydrogen.
    So it is a long way away, but we have to be concerned about 
the short run, I think. Thank you.
    Mr. Miller. Thank you. You know, of course, that President 
Truman said he was looking for a one-handed economist.
    [Laughter.]
    Mr. Adams. Yes, yes.
    Mr. Miller. One other criticism that I have heard is that 
the research, by its very nature, is unpredictable. The 
problems that seem absolutely insurmountable yield to a 
solution and problems that seem imminently solvable do not. By 
focusing so heavily on one alternative fuel source, we may find 
ourselves looking for, the phrase I have heard is off ramp for 
our research in some period of time, five, seven, ten years, 
when the problems that we thought were solvable were not.
    And we would then find ourselves five or seven or ten years 
behind in starting on some other technology. Do you agree that 
we should be moving on several fronts at one time and do you 
think we are doing it now in our research into alternative 
fuels? That can be anybody that wants to answer. Ms. Werner, do 
you want to give it a shot?
    Ms. Werner. Sure. Then I will turn to my colleagues. I do 
think that we need to be investing in a variety of approaches 
at the same time and for the same reason that I also suggested 
that I think we need a suite of supporting policies, rather 
than relying on just one kind of approach if we are really 
going to be serious about addressing the overall energy 
situation confronting our country.
    And I think that we need to recognize, too, that energy and 
environment are kind of the flip side of the same coin and that 
obviously that is why we feel so strongly about the whole row 
of agriculture being able to produce a whole array of renewable 
energy products. And that all of those really need to be 
pursued much more aggressively as well as policies that will 
also help us really develop the market and get those various 
important technologies deployed.
    Mr. Dinneen. Congressman, I would suggest that the 
Department of Energy and the Department of Agriculture have 
been working fairly well together to develop an array of 
research programs that will certainly move renewable fuels 
forward. You can produce ethanol from virtually any 
agricultural feed stock. There is a plant seeking financing in 
North Carolina today that is looking to produce ethanol from 
sweet potatoes. There is a plant in New York today that is 
looking for financing to produce ethanol from municipal solid 
waste.
    The Department of Energy, the Department of Agriculture 
have had a number of research projects over the years looking 
at producing renewable fuels like ethanol from a variety of 
feed stocks. And, in fact, I think there is the potential for 
the economic development opportunities that Congressman Hulshof 
talked about earlier today to have that be available to 
communities all across the country, whether they happen to be 
in the grain belts or not. Because the opportunities for 
ethanol production exist everywhere.
    Mr. Jobe. I would like to add that I think one of the 
reasons fuel cell technology has been embraced in such a way 
that it has sort of been sold as the silver bullet solution and 
I would propose that there is no such thing as a silver bullet 
solution, that we need more of a silver buckshot solution.
    We do not have a diversified energy portfolio right now and 
that is what we need to work toward. We need an array of 
options. All of those mentioned here, but in addition to that, 
looking at conservation and other things. For example, in 
Europe, Europe has not had such a strong pursuit of policies to 
keep petroleum prices low and therefore, they have an emphasis 
on conservation and fuel economy. So the consequence of that is 
that about half of all the passenger vehicles on the road are 
diesel, because diesel has up to 50 percent more fuel economy 
than gasoline versions.
    So the U.S., as a comparison, in the United States, only 
about two percent of our cars on the road are diesel. So we 
have an enormous potential to increase and improve efficiency 
in our transportation sector.
    Mr. Miller. Go right ahead.
    Mr. Adams. Chairman Graves, there is a saying that what 
comes around, goes around. I have a 1926 Model T at home. Henry 
Ford drove his first cars, as I understand it, on alcohol. And 
then as the automobile industry grew, the alcohol industry 
could not keep up and the fossil fuel industry was born.
    Now we are at this point in life and production of ethanol 
has become much more efficient. There are new enzymes developed 
every year and new technologies and energy conservation and 
ethanol plants. So all of a sudden, we are becoming very 
competitive with the fossil fuel industry, plus it is produced 
domestically. So maybe old Henry was not so dumb to start with. 
You know, maybe it is time to go back to old Henry's 
philosophy. Thank you.
    Mr. Graves. Let us talk a little bit about the economic 
development that these products do bring to our rural 
communities. It was mentioned and I do not know which member of 
the panel mentioned the number of plants that are out there, 
how many plants are right now producing cooperatives, but 
somebody may?
    Mr. Dinneen. Well, there are 76 ethanol plants across the 
country. More than 40 percent of those are farmer owned ethanol 
plants today.
    Mr. Graves. What are the other 60 percent? Are they private 
industry?
    Mr. Dinneen. Privately held companies.
    Mr. Graves. I may ask everybody this, at the rate that we 
are going, what will the rate of growth be in ethanol 
production? There is obviously a demand. The California demand 
alone requires a lot, but how fast are we growing? How fast are 
we growing to grow? What is the potential in the next five to 
ten years as far as ethanol plants? Anybody can answer.
    Mr. Dinneen. Mr. Chairman, there are 12 plants currently 
under construction that will add another 500 million gallons of 
production capacity when it is on stream, bringing the 
industry's total capacity to almost four billion gallons. We 
can certainly grow as fast as we need to grow. A lot will 
depend upon what policies this Congress puts in place, in terms 
of how quickly we have to grow. But we have seen 32 percent 
growth last year. I believe it was 20 some odd percent growth 
the year before. This year we will likely see close to 30 
percent growth again.
    Our rate of growth has been nothing short of phenomenal and 
it is a testament to, you know, farmers across this country 
that have invested their own money and invested their own time 
and energy to create these ethanol plants all across the 
country.
    Mr. Graves. I mean, that is a huge, and that could have a 
huge impact on our communities, just like Mr. Hurst mentioned. 
You know, in a town of 300, that is a big impact. These small 
communities, they are not going to be able to go out and get an 
industry, you know, Ford Motor Company or Chevrolet is not 
going to locate in Craig, Missouri or Macon, Missouri or 
whatever the case may be.
    And I have always been told that we need to stick to what 
we already know. And what we do know in these small communities 
is agriculture and that directly ties in to this energy 
production. I think it is an incredible opportunity we have and 
that is the sideline. Not to mention the national security 
issues that we have out there dealing with our energy 
dependence, not to mention the environmental impact that we can 
have as far as, you know, ethanol and biodiesel goes.
    I might direct that question to Carol, too, even on the 
environmental impact. I could not think of a more 
environmentally friendly product than either biodiesel or 
ethanol. And we talk about oil spills and that sort of thing. 
You know, ethanol is completely water soluble. You don't have 
the environmental impact, even if you do have a spill. You 
might address that just a little bit.
    Ms. Werner. Sure, Chairman Graves. Because that is one of 
the reasons why we are so supportive of biofuels is because 
they do provide a superior way to provide fuel in an 
environmentally sound way in terms of protecting our water 
shed, helping reduce harmful air pollutants as well as 
obviously really reducing greenhouse gas emissions.
    We have seen a lot of work done over the last decade with 
regard to the connection between our current fuels, in terms of 
fossil fuels, in public health, where we now know lots more 
about that in terms of the toxics that are in these fumes and 
the damage that that is doing to children across the country.
    So I think, you know, when you start to just add up all of 
these benefits, it is really, really critical that people 
across the country understand that. It is also very important 
that biofuels not be seen as oh, if we are going to have a tax 
incentive here or however it works, that it is not just a 
giveaway to midwest farm states. But that, indeed, it is really 
serving national concerns, national needs. And that is why it 
is so important to also get these industries developed across 
the country, helping communities.
    Biomass is also heavy. You know, it also means the more 
that we can do in terms of having new businesses sprout up 
across the country which can really help develop indigenous 
resources in every single state, which helps economic 
development everywhere and really helps build a much broader 
base of support for overall biofuels. Thank you.
    Mr. Graves. It is interesting that ethanol and biodiesel 
production and renewable fuels have moved from the farm policy 
arena and it has now moved into the energy arena, which I think 
is good, because it helps out, you know, it is addressing all 
consumers, rather than just one segment.
    Anybody have anything else to add today? Yes?
    Mr. Brooks Hurst. Yes, Mr. Chairman, just to expand a 
little bit on Carol's comment. I was playing golf several years 
ago with the producer of MTBEs and he was being rather 
defensive because it was just at the start of them taking hits 
and environmental concerns with spills from MTBEs. And he said, 
well, you ethanol producers are going to have problems, too. 
And when you get in the groundwater and I told him that I had 
actually heard of some people purposefully mixing alcohol with 
water, to drink.
    [Laughter.]
    Mr. Graves. I have heard similar comments, too, in Craig, 
Missouri, that producing alcohol in the bottoms of whole 
counties is nothing new. They have been doing it for years. It 
is just that they have got railroad cars pulled up to the still 
rather than jugs.
    Well, I would like to thank everybody for being here today. 
We did not even get a chance to talk, Mr. Lampert, I took a 
look at this and the number of cars that are available as far 
as hybrids go and this is exciting, too. In fact, I am going to 
look into that even more. You mentioned in your testimony the 
increase we are going to see. But I am sorry we were not able 
to cover everything. But I appreciate everybody coming out 
today. This has been a fantastic hearing and, if nothing else, 
what we are trying to do is bring some more attention to the 
energy debate and more attention to renewable fuels like 
biodiesel and ethanol. We have some hefty increases in funding 
for renewable fuels in the Energy Bill, but we do have to get 
them passed. The House passed the conference report, what we 
thought was an agreement between the House and the Senate in 
November. The Senate has not taken it up yet, but we need to 
continue to push for that. We need to continue to get that 
done. It is vitally important that we have an energy policy.
    I would much rather be dependent on our farmers in the 
United States for our energy production than I would countries 
like Saudi Arabia. It just makes sense, not to mention the 
environmental impact it has, the impact it has on small 
communities and keeping our young people in our small 
communities, having a reason for them to come back to our small 
communities. It is a win-win everywhere, national security, 
farmers, consumers. It just makes sense.
    We are going to continue to bring light on this subject and 
show the national impact that it has, but I appreciate 
everybody coming out today and giving your testimony. This 
hearing is adjourned.
    [Whereupon, at 11:43 a.m., the Subcommittee was adjourned.]

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